<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
INSPIRE INSURANCE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
TEXAS 7373 75-2595937
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
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300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
TELEPHONE: (817) 332-7761
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
F. GEORGE DUNHAM, III
300 BURNETT STREET
FORT WORTH, TEXAS 76102-2799
TELEPHONE: (817) 332-7761
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
<TABLE>
<S> <C>
TERRY M. SCHPOK, P.C. FRED W. FULTON
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. THOMPSON & KNIGHT, A PROFESSIONAL CORPORATION
1700 PACIFIC AVENUE, SUITE 4100 1700 PACIFIC AVENUE, SUITE 3300
DALLAS, TX 75201-4675 DALLAS, TX 75201-4693
(214) 969-2800 (214) 969-1700
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE REGISTRATION FEE(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 5,175,000 Shares $11.00 $56,925,000 $17,250
- ------------------------------------------------------------------------------------------------------------------
Preferred Stock Purchase
Rights associated with
Common Stock 5,175,000 Rights -- -- --
==================================================================================================================
</TABLE>
(1) Includes 675,000 shares subject to the Underwriters' over-allotment options.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) One Preferred Stock Purchase Right will be issued with each share of Common
Stock. As no additional consideration will be received for the Preferred
Stock Purchase Rights, no registration fee is required with respect to them
under Rule 457(i).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INSPIRE INSURANCE SOLUTIONS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K AND RULE 404
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
----------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors....... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... Principal and Selling Shareholders
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interests of Named Experts and Counsel..... Not Applicable
11. Information with Respect to the Prospectus Summary; Risk Factors; SDS
Registrant................................. Acquisition; Dividend Policy;
Capitalization; Use of Proceeds; Selected
Consolidated Financial Data of INSpire;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of INSpire; Selected
Consolidated Financial Data of SDS;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of SDS; Business; Management;
Principal and Selling Shareholders; Certain
Transactions; Description of Capital Stock;
Shares Eligible for Future Sale;
Underwriting; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 11, 1997
PROSPECTUS
4,500,000 SHARES
INSPIRE INSURANCE SOLUTIONS, INC.
COMMON STOCK
------------------------
Of the 4,500,000 shares of Common Stock offered hereby, 2,500,000 shares
are being issued and sold by the Company and 2,000,000 shares are being sold by
the Selling Shareholder. The Company will not receive any proceeds from the sale
of Common Stock being sold by the Selling Shareholder. The Company has applied
for quotation of the Common Stock on the Nasdaq National Market under the symbol
"NSPR." Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $9.00 and $11.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
------------------------
SEE "RISK FACTORS" ON PAGES 6 THROUGH 12 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
Total(4)............................... $ $ $ $
=============================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $556,000 payable by the Company.
(3) Before deducting expenses estimated at $444,000 payable by the Selling
Shareholder.
(4) The Company and the Selling Shareholder have granted to the Underwriters a
30-day option to purchase up to 675,000 additional shares of Common Stock on
the same terms and conditions as the securities offered hereby, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholder will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
certain other conditions including the right of the Underwriters to withdraw,
cancel, modify or reject any order in whole or in part. It is expected that
delivery of the shares will be made on or about , 1997 at the
offices of Raymond James & Associates, Inc., St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC. SOUTHWEST SECURITIES, INC.
The date of this Prospectus is , 1997.
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including notes thereto,
appearing elsewhere in this Prospectus. As used herein, the "Company" or
"INSpire" means INSpire Insurance Solutions, Inc. together with its consolidated
subsidiaries, including Strategic Data Systems, Inc. ("SDS"), and "Millers
Mutual" or the "Selling Shareholder" means The Millers Mutual Fire Insurance
Company, unless the context otherwise requires. Unless otherwise indicated, all
financial information and share data in this Prospectus (i) have been adjusted
to reflect the stock splits effected as stock dividends on March 11, 1997 and
June 18, 1997 and (ii) assume no exercise of the Underwriters' over-allotment
option.
THE COMPANY
The Company is a provider of policy and claims administration solutions to
the property and casualty ("P&C") insurance industry offering a comprehensive
choice of outsourcing services and software and software services. The Company's
outsourcing services, which generally are provided on a percentage of premiums
or claims paid basis, include application of underwriting and rating criteria
defined by the insurer, policy issuance, customer service, billing and
collecting, claims adjusting and processing, and policyholder mailings. The
Company's software products include policy and claims administration systems, as
well as systems that increase the productivity of insurers by automating certain
functions, such as workflow management, underwriting rules and guidelines,
document production and rating algorithms. These systems, which run on a variety
of platforms including IBM AS/400, IBM RS6000, Windows 3.1, Windows 95 and
Windows NT, enable the Company's customers to conduct their policy and claims
administration more efficiently. The Company's software services include
installation, customization, conversion and maintenance of these systems to meet
customer specifications.
The Company was established in April 1995 as a wholly-owned subsidiary of
Millers Mutual, an insurance company chartered in Texas in 1898. The Company was
created to provide outsourcing services to other P&C insurers by capitalizing on
Millers Mutual's success in developing, implementing and managing software
systems for its internal use. As a result of the acquisition of SDS in March
1997, the Company now also develops and markets software and software services
to the P&C insurance industry. SDS offered software and software services to the
P&C insurance industry for 16 years prior to its acquisition by the Company. The
Company believes that its services and products allow customers to focus on core
competencies and reduce costs by converting their fixed costs of in-house
information technology to variable costs, thereby leveraging the Company's
investment in software systems and productivity tools.
According to A.M. Best Company, there were approximately 2,500 P&C
insurance companies in the United States as of December 31, 1995, generating
more than $260 billion of premium revenues each year. According to the National
Association of Independent Insurers, information systems expenses as a
percentage of written premiums increased from 2.5% in 1992 to 3.3% in 1996.
Recent trends in the P&C insurance industry include selling policies directly to
policyholders rather than through independent agents and the emergence of new
entrants such as banks, credit unions and other financial services companies.
The Company believes that the availability of outsourcing enables these
insurers, who often lack the necessary infrastructure to process policies and
administer claims, to improve efficiency, manage costs and increase customer
satisfaction. The Company's outsourcing services also allow these insurers to
quickly enter markets being exited by more established insurers seeking to
reduce their exposure to geographical risk due to the occurrence of recent
natural catastrophes.
The Company has experienced rapid growth since its inception as a result of
the development of its policy and claims administration facility in Fort Worth,
Texas, the expansion of its network of claims administration centers and the
acquisition of SDS. Pro forma revenues increased to $13.6 million for the first
quarter of 1997 from pro forma revenues of $7.4 million for the first quarter of
1996, an increase of 84%. The Company's strategy is to strengthen its position
as a provider of policy and claims administration solutions to the P&C insurance
industry by offering a comprehensive choice of solutions, implementing an
integrated marketing plan, penetrating new markets, enhancing its product
capabilities, generating recurring revenues and pursuing
3
<PAGE> 6
strategic acquisitions. The Company's customers include Clarendon National
Insurance Company, Employers Reinsurance Corporation, Firemen's Fund Insurance
Company, Grinnell Mutual Reinsurance Company, Interco, Inc., Millers Mutual and
affiliated companies, National Alliance Insurance Company, Society Insurance
Company and Zurich Insurance Company.
The Company was incorporated in Texas and recently changed its name to
INSpire Insurance Solutions, Inc. from MiliRisk, Inc. The Company's principal
executive office is located at 300 Burnett Street, Fort Worth, Texas 76102 and
its telephone number is (817) 332-7761.
THE OFFERING
Common Stock offered by the Company......... 2,500,000 Shares
Common Stock offered by the Selling
Shareholder................................. 2,000,000 Shares
Common Stock to be outstanding after this
offering.................................... 9,500,000 Shares(1)(2)
Use of Proceeds............................. For repayment of indebtedness
and for general corporate
purposes, including working
capital, research and
development and possible
acquisitions. See "Use of
Proceeds" and "Certain
Transactions."
Proposed Nasdaq National Market Symbol...... NSPR
- ---------------
(1) Excludes 2,250,000 shares reserved for issuance under the Company's 1997
Stock Option Plan, pursuant to which options covering 840,248 shares have
been granted at an exercise price of $1.30 per share and options covering
1,085,243 shares will be granted on the date of this Prospectus at a per
share exercise price equal to the initial public offering price.
(2) The number of shares of Common Stock to be outstanding after this offering
would be 10,231,016 after giving effect to the issuance of 731,016 shares of
Common Stock issuable under outstanding options granted pursuant to the
Company's 1997 Stock Option Plan, applying the treasury stock method with an
assumed initial public offering price of $10.00 per share.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 27E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical facts
included in this Prospectus, including without limitation statements under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations, are forward-looking statements. When used in this
Prospectus, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of the Company's management as well as assumptions made
by and information currently available to the Company's management. Actual
results could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, such as those disclosed under "Risk
Factors," including but not limited to the Company's limited operating history
and dependence on major customers, competitive factors and pricing pressures,
changes in legal and regulatory requirements, technological change, product
development risks and general economic conditions. Such statements reflect the
current views of the Company with respect to future events and are subject to
these and other risks, uncertainties and assumptions relating to the operations,
results of operations, growth strategy and liquidity of the Company. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by this paragraph.
4
<PAGE> 7
SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The historical information for the period April 28, 1995 through December
31, 1995 and for the year ended December 31, 1996 was derived from the audited
financial statements of the Company. The information presented as of and for the
three months ended March 31, 1996 and 1997 was derived from the unaudited
consolidated financial statements of the Company. With respect to the unaudited
financial information, the Company is of the opinion that all material
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the Company's interim results of operations and financial
condition (except for the required purchase accounting adjustments resulting
from the acquisition of SDS and the subsequent charge to operations of $3.0
million of the SDS purchase price that was assigned to purchased research and
development and the $3.0 million charge to operations for the deferred
compensation associated with Common Stock options granted during the three
months ended March 31, 1997), have been included. The pro forma condensed
consolidated financial data are based on assumptions and adjustments described
in the notes to the pro forma condensed consolidated financial statements and
are not necessarily indicative of the results of operations that may be achieved
in the future. The information set forth below should be read in conjunction
with "Selected Consolidated Financial Statement Data of INSpire," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
INSpire," the Company's Financial Statements and the Company's Pro Forma
Condensed Consolidated Financial Statements (Unaudited). The results of
operations presented below are not necessarily indicative of the results of
operations that may be achieved in the future.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
INCEPTION(1) -------------------------- -------------------------------------------------
THROUGH PRO PRO PRO
DECEMBER 31, FORMA FORMA FORMA
1995 1996 1996(2) 1996 1996(2) 1997 1997(2)
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 3,907 $ 13,653 $ 37,317 $ 2,308 $ 7,381 $ 8,191 $ 13,603
Operating Expenses.......... 5,518 14,430 35,826 2,650 7,386 13,424(3) 18,482(4)
Operating income (loss)..... (1,611) (777) 1,491 (342) (5) (5,233) (4,879)
Net income (loss)........... (1,262) (515) 259 (271) (200) (3,495) (3,164)
Net income (loss) per
share..................... (.16) (.07) .03 (.04) (.03) (.46) (.41)
Supplementary net income
(loss) per share(5)....... -- -- .08 -- .01 (.40)
Weighted average common and
common equivalent shares
outstanding............... 7,658,195 7,658,195 7,731,016 7,658,195 7,731,016 7,658,195 7,731,016
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
AS
ACTUAL ADJUSTED(6)
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 373 $11,742
Working capital............................................. (3,669) 13,087
Total assets................................................ 31,454 42,823
Current portion of long-term debt........................... 1,624 374
Due to parent............................................... 4,137 --
Long-term debt, excluding current portion................... 6,124 186
Shareholders' equity........................................ 8,919 31,613
</TABLE>
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(1) The Company was incorporated April 28, 1995 and commenced operations July 1,
1995.
(2) Unaudited pro forma condensed consolidated statements of operations data for
the year ended December 31, 1996 and for the three months ended March 31,
1996 and 1997 reflect: (i) the acquisition of SDS using the purchase method
of accounting as if the acquisition of SDS, which occurred on March 12,
1997, had occurred on January 1, 1996 and (ii) the results of operations of
the Company as if the Company had operated on an independent basis separate
from Millers Mutual since January 1, 1996. See the Company's Pro Forma
Condensed Consolidated Financial Statements (Unaudited).
(3) Includes non-recurring charges relating to: (i) the required purchase
accounting adjustments resulting from the SDS Acquisition and the subsequent
charge to operations of $3.0 million of the SDS purchase price that was
assigned to purchased research and development and (ii) the $3.0 million
charge to operations for the deferred compensation associated with Common
Stock options granted during the three months ended March 31, 1997.
Excluding the effect of such non-cash expenses, operating expenses,
operating income and net income would have been $7.4 million, $832,000 and
$508,000, respectively, and net income per share would have been $0.07.
(4) Includes non-recurring charges relating to: (i) the required purchase
accounting adjustments resulting from the SDS Acquisition and the subsequent
charge to operations of $3.0 million of the SDS purchase price that was
assigned to purchased research and development and (ii) the $3.0 million
charge to operations for the deferred compensation associated with Common
Stock options granted during the three months ended March 31, 1997.
Excluding the effect of such non-cash expenses, operating expenses,
operating income and net income would have been $12.4 million, $1.2 million
and $807,000, respectively, and net income per share and supplementary net
income per share would have been $0.11 and $0.10, respectively.
(5) Supplementary net income (loss) per share has been computed by adjusting pro
forma net income for the effect of the elimination of interest expense
associated with the repayment of $7.2 million of interim debt in conjunction
with this offering. Supplementary net income (loss) per share is not
presented for historical information as there is no significant difference
from net income (loss) per share as computed.
(6) Adjusted to reflect: (i) the sale by the Company of 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$10.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company, and (ii) the
application by the Company of its estimated net proceeds therefrom. See "Use
of Proceeds."
5
<PAGE> 8
RISK FACTORS
The following factors, which may affect the Company's current position and
future prospects, should be considered carefully in addition to the other
information contained in this Prospectus before purchasing the Common Stock
offered hereby.
LIMITED OPERATING HISTORY AND NET LOSSES
The Company has a limited operating history in the policy and claims
administration outsourcing business and only two significant outsourcing
customers, one of which is Millers Mutual. In addition, the Company recently
acquired SDS in March 1997. Although SDS had a significant operating history as
a provider of software and software services to the P&C insurance industry, the
Company has very little history conducting its current operations on a
consolidated basis. The Company only recently began the process of integrating
the SDS operations into the Company's financial, managerial, administrative and
marketing functions. In addition, certain of the Company's senior management
personnel recently joined the Company. There can be no assurance that the
Company will be successful in this integration process or in implementing its
long-term operating strategy. Prior to the acquisition of SDS, the Company's
operations did not generate net income for any year. The Company had net losses
of $1.3 million for the period from inception through December 31, 1995 and
$515,000 for the year ended December 31, 1996. There can be no assurance that
the Company will be able to maintain revenue growth or that the Company will not
sustain net losses in the future. See "SDS Acquisition," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
INSpire" and "Management."
ABILITY TO GROW AND EXPAND SERVICES
The Company has grown rapidly since its formation. The Company's growth
strategy depends on its ability to increase its share of the policy and claims
administration market and expand sales of its software and software services
through the enhancement of existing products, development of new services and
products and the integrated marketing of its services and products. There can be
no assurance that the Company will have the financial, managerial,
administrative, marketing or other resources necessary to achieve these
objectives.
The success of the Company depends in large part on its ability to attract
and retain highly-skilled managerial, sales and marketing personnel. In
addition, the Company believes that it will need to hire additional technical
personnel to enhance and develop its services and products. Competition for such
personnel is intense, and should the Company be unable to hire the necessary
personnel, the development and sale of new or enhanced services and products
would likely be delayed or prevented. There can be no assurance that the Company
will be able to attract, integrate and retain skilled personnel, manage its
infrastructure or overcome other difficulties associated with growth. If the
Company were to encounter difficulties in implementing the expansion or
development of its services and products, or in attracting, integrating and
retaining its personnel, such difficulties could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- The INSpire Strategy" and "Management."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; VOLATILITY OF TRADING PRICE
The Company has experienced and may continue to experience significant
quarter-to-quarter fluctuations in its results of operations. Quarterly results
of operations may fluctuate as a result of a number of factors, including the
introduction of new or enhanced services and products by the Company or its
competitors, customer acceptance or rejection of new services and products,
product development expenses, the timing of significant orders, the timing of
large scale catastrophes, the volume of usage of the Company's services and
products, competitive conditions in its industry and general economic
conditions. Many of these factors are beyond the Company's control.
The sales cycles for the Company's services and products are lengthy
(generally between three and twelve months for outsourcing services and six and
twelve months for software and software services) and subject to a number of
factors beyond the Company's control. As the Company recognizes a substantial
portion of
6
<PAGE> 9
revenues at the time new software systems are licensed, there can be significant
fluctuations from period to period in the revenues and operating income derived
from licensing activities. Customer decisions to enter into new license
agreements may be significantly affected by their decisions to replace current
systems. In addition, demand for the Company's claims administration services
fluctuates greatly depending on the occurrence of large scale catastrophes, such
as hurricanes. For these and other reasons, the revenues of the Company are
difficult to forecast, and the Company believes that period-to-period
comparisons of results of operations are not necessarily meaningful or
indicative of the results that the Company may achieve for any subsequent
quarter or fiscal year. Thus past operating results should not be considered a
reliable indicator of future performance.
The trading price of the Common Stock could be subject to wide fluctuations
in response to variations in the Company's quarterly operating results, changes
in earnings estimates by securities analysts, changes in the Company's business,
or changes in general market or economic conditions. In addition, in recent
years the stock market has experienced extreme price and volume fluctuations.
These fluctuations have significantly affected the trading prices for many
emerging growth companies without regard to their specific operating
performance. Such market fluctuations could have a material adverse effect on
the trading price of the Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of INSpire."
DEPENDENCE ON MAJOR CUSTOMERS
The Company derives a substantial portion of its revenues from outsourcing
services provided to a few large customers, including Millers Mutual and its
subsidiary, The Millers Casualty Insurance Company ("Millers Casualty," and
collectively with Millers Mutual, the "Millers Group"), Clarendon National
Insurance Company ("Clarendon") and Interco, Inc. ("Interco"). The terms of the
contracts with the Millers Group expire in 2000 and automatically renew for
successive one-year periods if neither party terminates them. The Company
provides services to Clarendon through contracts with various subsidiaries of E.
W. Blanch Holdings Company, Inc. (collectively, "Blanch"), each of which is a
managing general agent of Clarendon. The Blanch contracts expire in 1999 and
automatically renew for an additional three years if neither party terminates
them. The Company provides services to Interco, the administrator to the State
Corporation Commission of the Commonwealth of Virginia (the "Virginia
Commission"), through a contract with the Virginia Commission. The Millers
Group, Clarendon and Interco accounted for approximately 68%, 8% and 21%,
respectively, of the Company's historical revenues in 1996 and 25%, 3% and 8%,
respectively, of the Company's pro forma revenues in 1996. The Millers Group,
Clarendon and Interco accounted for approximately 43%, 25% and 12%,
respectively, of the Company's historical revenues for the three months ended
March 31, 1997 and 26%, 15% and 7%, respectively, of the Company's pro forma
revenues for such period. Any loss of or material decrease in the business from
any of these customers could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Customers."
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT RISKS
The markets in which the Company competes are increasingly characterized by
rapid technological change. The introduction of competing services or products
incorporating new technologies could render some or all of the Company's
services and products obsolete or unmarketable. The Company believes that its
future success depends on its ability to enhance its services and develop new
products that address the increasingly sophisticated needs of its customers. As
a result, the Company has expended substantial resources for the enhancement of
its services and for product development and intends to continue to do so. The
development of new or enhanced services or products results in expenditures and
capital costs that may not be recovered if the service or product is
unsuccessful. Development projects can be lengthy and subject to changing market
requirements and unforeseen costs and delays. The failure of the Company to
develop and introduce new or enhanced services or products in a timely and
cost-effective manner could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Research and Development."
7
<PAGE> 10
ACQUISITION RISKS
The Company completed the acquisition of SDS on March 12, 1997 and intends
to pursue acquisitions of other complementary businesses. There can be no
assurance, however, that the Company will be able to integrate the operations of
SDS with its own operations. Similarly, there can be no assurance that the
Company will be able to consummate or successfully integrate future
acquisitions. Acquisitions involve significant risks, including: (i) the
diversion of management's time and attention to the negotiation of the
acquisition and to the assimilation of the businesses acquired, (ii) the need to
modify financial and other systems and add management resources, (iii) the
potential liabilities of the acquired business, (iv) the unforeseen difficulties
in the acquired operations, (v) the possible adverse short-term effects on the
Company's results of operations and (vi) the financial reporting effects of the
amortization of goodwill and other intangible assets. Furthermore, there can be
no assurance that SDS, or any business acquired in the future, will achieve
acceptable levels of revenue and profitability or otherwise perform as expected.
Currently, the Company has no arrangements or understandings with any party with
respect to any future acquisition. The Company, however, continues to monitor
potential acquisition opportunities. See "SDS Acquisition" and "Business -- The
INSpire Strategy."
LACK OF INDEPENDENT OPERATING HISTORY; CONTROL BY EXISTING SHAREHOLDER;
CONFLICTS OF INTEREST
The Company was formed in 1995 as a wholly-owned subsidiary of Millers
Mutual. Although SDS was an independent company prior to being acquired by the
Company in March 1997, the Company has not previously operated as a stand-alone
company. Following this offering, the Company will be required to develop
financial, managerial, administrative and other aspects of its infrastructure
previously provided to the Company by Millers Mutual. In addition, since
inception the Company has operated with negative working capital and satisfied a
significant portion of its cash requirements from capital contributions and
loans from Millers Mutual. The Company does not anticipate receiving any loans
or capital contributions from Millers Mutual in the future. The Company expects
to use a portion of its net proceeds from this offering to repay all outstanding
loans from Millers Mutual. In addition, Millers Mutual is substantially reducing
its investment in the Company as a result of its sale of Common Stock pursuant
to this offering. The Company believes that its net proceeds from this offering,
together with funds from operations, will be sufficient to fund anticipated
working capital requirements for at least one year. The Company may require
substantial additional funds for potential acquisitions and expansion. There can
be no assurance that the Company will be able to obtain any additional financing
or that the Company will not increase its outstanding indebtedness after this
offering to levels that may have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
and Millers Mutual have entered into several agreements that are intended to
ease the Company's transition to independent status, there can be no assurance
that the Company will be able to manage this transition or develop independent
resources successfully.
After this offering, Millers Mutual will beneficially own an aggregate of
52.6% of the outstanding shares of Common Stock (or approximately 47.6% if the
Underwriters' over-allotment option is exercised in full). As the Company's
majority shareholder, Millers Mutual will continue to have the ability to elect
a majority of the Board of Directors and maintain control of the Company after
this offering. Millers Mutual's ownership of a majority of the Common Stock
after this offering may discourage unsolicited mergers, acquisitions, tender
offers, proxy contests or changes of incumbent management, even when
shareholders other than Millers Mutual consider such a transaction or event to
be in their best interest. Accordingly, holders of Common Stock may be deprived
of an opportunity to sell their shares at a premium over the trading price of
the shares.
Until recently, F. George Dunham, III, the Company's President, Chief
Executive Officer and Chairman of the Board, also served as President and Chief
Executive Officer of each of Millers Mutual and Millers Casualty. On June 18,
1997, Mr. Dunham resigned from those positions with Millers Mutual and Millers
Casualty. However, Mr. Dunham serves as Vice Chairman of the Board of Directors
of each of Millers Mutual and Millers Casualty, and his father, Frank G. Dunham,
Jr., serves as Chairman of the Board and Chief Executive Officer of each of
Millers Mutual and Millers Casualty. In addition, the Company will continue to
have a variety of contractual relationships with Millers Mutual and Millers
Casualty, including a benefits administration agreement pursuant to which
Millers Mutual provides certain benefits administration
8
<PAGE> 11
services to the Company and certain contracts pursuant to which the Company
provides policy and claims administration services to Millers Mutual and Millers
Casualty. As the interests of the Company and Millers Mutual will differ, Mr.
Dunham will face certain conflicts of interest. See "Use of Proceeds,"
"Principal and Selling Shareholders" and "Certain Transactions."
COMPETITION
The markets for policy and claims administration services and products are
highly competitive and subject to rapid changes in technology. The Company
competes in the following three markets serving the P&C insurance industry: (i)
outsourcing of policy administration, (ii) outsourcing of claims administration
and (iii) software and software services.
The policy administration outsourcing market is relatively new and is
dominated by a few large companies, including Policy Management Services
Corporation ("PMSC"). The Company competes for policy administration outsourcing
customers on the basis of customer service, performance and price. The claims
administration outsourcing market is highly fragmented, with competition from a
large number of claims administration companies of varying size as well as
independent contractors. Competition in the claims administration outsourcing
market is principally price driven. Two of the larger competitors in this market
are Lindsey Morden Claim Services Inc. and Crawford & Company, Inc. The P&C
insurance software and software services market is highly competitive and is
dominated by PMSC. The Company competes for software customers on the basis of
customer service, performance, product features, ability to tailor products and
services to specific customer requirements, timely delivery and price.
The Company believes that its most significant competition for policy and
claims administration software and outsourcing services comes from potential
customers' in-house personnel. Insurance companies that have developed
proprietary software systems to conduct all or most of their policy and claims
administration internally have made a significant investment in their policy and
claims information systems. In addition, insurance company personnel have a
vested interest in maintaining these responsibilities in-house.
Many of the Company's competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
the Company, including name recognition with current and potential customers. As
a result, these competitors may devote more resources to the development,
promotion and sale of services or products than the Company and respond more
quickly to emerging technologies and changes in customer requirements. In
addition, current and potential competitors may establish cooperative
relationships among themselves or with third parties to increase the ability of
their services and products to address customer needs. Accordingly, new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. There can be no assurance that the Company will be
able to compete successfully against current and future competitors, or that
competitive pressure faced by the Company will not have a material adverse
effect on its business, financial condition and results of operations. See
"Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend largely on the efforts and
abilities of its executive officers, including F. George Dunham, III, the
President and Chief Executive Officer of the Company, Stuart H. Warrington, an
Executive Vice President of the Company and founder of SDS, Robert K. Agazzi, an
Executive Vice President of the Company and former President of SDS, and certain
key technical, managerial and sales employees. The loss of the services of
Messrs. Dunham, Warrington or Agazzi, or any of the Company's other key
employees, could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has an employment
agreement with Mr. Dunham that terminates in 2000 and employment agreements with
Messrs. Warrington and Agazzi that terminate in 1998. The Company maintains a
key-man life insurance policy on Stuart H. Warrington, but not on any other key
employees. There can be no assurance that the Company will be successful in
retaining its key personnel. See "Business -- Competition" and "-- Employees"
and "Management."
9
<PAGE> 12
RELIANCE ON INFORMATION PROCESSING SYSTEMS
The Company's outsourcing services depend on its ability to store,
retrieve, process and manage significant databases, and expand and upgrade
periodically its information processing capabilities. The Company's principal
computer equipment and software systems are maintained at the Company's
facilities in Fort Worth, Texas and Sheboygan, Wisconsin. Interruption or loss
of the Company's information processing capabilities through loss of stored
data, breakdown or malfunctioning of computer equipment and software systems,
telecommunications failure or damage caused by fire, tornadoes, lightning,
electrical power outage or other disruption could have a material adverse effect
on the Company's business, financial condition and results of operations.
Although the Company maintains business interruption insurance with an aggregate
limit of $5.0 million per occurrence, and has entered into an agreement with
International Business Machines, Inc. to provide disaster recovery services, if
needed, there can be no assurance that such insurance or services will continue
to be available at reasonable prices, cover all such losses or compensate the
Company for the possible loss of customers occurring during any period that the
Company is unable to provide services. See "Business -- Customer Support and
Operations."
DEPENDENCE ON PROPRIETARY RIGHTS AND RISKS OF INFRINGEMENT
The Company regards the technology underlying its services and products as
proprietary. The Company has no registered copyrights or trademarks and relies
primarily on a combination of intellectual property laws, confidentiality
agreements and contractual provisions to protect its proprietary rights. Trade
secret and copyright laws afford the Company limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's software or obtain and use information
that the Company regards as proprietary. Policing unauthorized use of the
Company's software is difficult. There can be no assurance that the obligations
to maintain the confidentiality of the Company's proprietary information
(including software source code) will prevent disclosure of such information or
that the Company's proprietary information will not be independently developed
by the Company's competitors. Litigation may be necessary for the Company to
defend against claims of infringement or protect its intellectual property
rights, which could result in substantial costs to the Company and diversion of
management's efforts. There can be no assurance that the Company would prevail
in any such litigation. The absence of federal or state registrations for its
intellectual property could be detrimental to the Company in any infringement
litigation or other disputes regarding intellectual property. The inability of
the Company to protect its proprietary rights could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is unaware of any claim that its software, trademarks or other
proprietary rights infringe the proprietary rights of third parties. There can
be no assurance, however, that third parties will not assert infringement claims
against the Company in the future. Any such claims, with or without merit, could
require the expenditure of significant time and money to defend, require the
Company to enter into royalty or license agreements or require the Company to
cease the alleged infringing activities. The failure to obtain such royalty or
license agreements, if required, and the Company's involvement in such
litigation could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Intellectual
Property."
RISKS OF SOFTWARE DEFECTS
The sale and support of software by the Company entails the risks of
product liability and warranty claims, which could be substantial. Software
products may contain errors or defects, especially when first introduced or when
new versions or enhancements are released. Any such defects in the Company's
software products could result in loss of revenues or delay market acceptance of
new products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's license
agreements with its customers typically contain provisions designed to limit the
Company's exposure to product liability or warranty claims. These limitation of
liability provisions, however, may be ineffective because of existing or future
federal, state or local laws or unfavorable judicial decisions.
10
<PAGE> 13
In February 1997, a lawsuit was filed against the Company by a customer
claiming in excess of $1.3 million in damages. The customer alleges that the
software sold to such customer does not meet required specifications. The
Company and the former shareholders of SDS placed $1.5 million of the SDS
purchase price in an escrow account pending resolution of such claim. No
assurance can be given with respect to the outcome of this lawsuit, including
whether the amount of any judgment or settlement will exceed the escrowed funds
and require the Company to pay the amount of the excess. A successful product
liability or warranty claim against the Company could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "SDS Acquisition" and "Business -- Research and Development,"
"-- Intellectual Property" and "-- Legal Proceedings."
GOVERNMENT REGULATION
The P&C insurance industry is subject to extensive regulation by state
governments. As the Company markets and sells its services and products to P&C
insurers, certain aspects of the Company's business are affected by such
regulation. The Company must continuously update its software to reflect changes
in regulations. In addition, changes in regulations that adversely affect the
Company's existing and potential customers could have a material adverse effect
on the Company's business, financial condition and results of operations.
Although the Company's services and products are not directly subject to
insurance regulations in the states where the Company currently provides them,
the Company's outsourcing services may be subject to insurance regulations in
states where the Company may do business in the future. Such regulations could
require the Company to obtain a license as a managing general agent or third
party administrator. No assurance can be given with respect to the extent to
which the Company may become subject to regulation in the future, the ability of
the Company to comply with any such regulation or the cost of compliance. See
"Business."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the open market
after this offering could adversely affect the trading price of the Common
Stock. Immediately after the offering the Selling Shareholder will hold
5,000,000 shares, representing 52.6% of the outstanding shares of Common Stock
(47.6% if the Underwriters' over-allotment option is exercised in full). A
decision by the Selling Shareholder to sell shares of Common Stock could
adversely affect the trading price of the Common Stock. Upon consummation of
this offering, the Company will have 9,500,000 shares of Common Stock
outstanding (9,875,000 shares assuming exercise in full of the Underwriters'
over-allotment option). Of these shares, all shares sold in this offering (other
than those sold to affiliates of the Company) will be freely tradeable. All
remaining shares of Common Stock are subject to lock-up agreements with the
Underwriters. Such lock-up agreements restrict transfers of such shares without
the written consent of Raymond James & Associates, Inc. until 180 days after the
date of this Prospectus. After such 180-day period expires, approximately
5,000,000 shares (4,700,000 shares if the Underwriters' overallotment option is
exercised in full) will be eligible for sale pursuant to Rule 144 under the
Securities Act. In addition, 2,250,000 shares of Common Stock have been reserved
for issuance under the Company's 1997 Stock Option Plan (the "Stock Option
Plan"), 1,925,491 shares of which are issuable upon exercise of options
outstanding at the date of this Prospectus, including options to purchase
584,075 shares of Common Stock exercisable as of the date of this Prospectus or
that will become exercisable within 180 days after the date of this Prospectus.
Such shares issuable upon the exercise of options within 180 days after the date
of this Prospectus are subject to the lock-up agreements described above. The
Company intends to register on Form S-8 under the Securities Act the offering
and sale of Common Stock issuable under the Stock Option Plan. See
"Management -- Stock Option Plan" and "Shares Eligible For Future Sale."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's Restated Articles of Incorporation (the
"Restated Articles"), the Company's Bylaws (the "Bylaws") and the Texas Business
Corporation Act ("TBCA") may have the effect of discouraging unsolicited
proposals for acquisition of the Company. The Restated Articles and the Bylaws
11
<PAGE> 14
divide the Board of Directors into three classes serving staggered three-year
terms. Pursuant to the Restated Articles, shares of preferred stock may be
issued by the Company in the future without shareholder approval and upon such
terms and conditions, and having such rights, privileges and preferences as the
Board of Directors may determine. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, any such preferred stock. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions, financings and other corporate transactions, could
have the effect of discouraging a third party's acquisition of a majority of the
Common Stock. The Company has no present plans to issue any shares of preferred
stock. In addition, the Company has adopted a shareholder rights plan that could
further discourage attempts to acquire control of the Company. Finally,
effective September 1, 1997, the TBCA will restrict certain business
combinations with any "affiliated shareholder," as defined therein. See
"Description of Capital Stock -- Anti-Takeover Considerations" and "-- Preferred
Stock."
NO PRIOR PUBLIC MARKET; DETERMINATION OF INITIAL PUBLIC OFFERING PRICE; DILUTION
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market will develop for
the Common Stock or that the Common Stock will trade in the public market
subsequent to this offering at or above the initial public offering price. If an
active public market for the Common Stock does not develop, the trading price
and liquidity of the Common Stock will be materially and adversely affected. The
initial public offering price of the Common Stock offered hereby will be
determined by negotiations among the Company, the Selling Shareholder and the
Underwriters and may not be indicative of the trading price for the Common Stock
after this offering.
Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution in the net tangible book value of their
shares. Prior to this offering, each share of Common Stock had a net tangible
book value of $(.90). Assuming an initial public offering price of $10.00 per
share: (i) after this offering each share of Common Stock will have a net
tangible book value of $1.72 and (ii) the net tangible book value dilution to
purchasers of Common Stock in this offering will be $8.28 per share. See
"Dilution," "Management -- Stock Option Plan" and "Underwriting."
SDS ACQUISITION
On March 12, 1997, the Company acquired all of the capital stock of
Strategic Data Systems, Inc., a Wisconsin corporation, for $18.0 million in cash
(the "SDS Acquisition"). Of this amount, $2.5 million remains in escrow to
secure certain indemnification obligations of the former SDS shareholders. The
SDS Acquisition was financed with a $7.5 million loan from NationsBank of Texas,
N.A. ("NationsBank") and a capital contribution of $10.5 million from Millers
Mutual. The Company intends to repay the loan from NationsBank with a portion of
its net proceeds from this offering. SDS was merged into the Company in July
1997. See "Use of Proceeds."
SDS began operations in 1981 as a provider of software and software
services to the P&C insurance industry. SDS's revenues and net income in 1996
were $23.7 million and $698,000, respectively, and $5.4 million and $231,000,
respectively, for the period from January 1, 1997 through March 11, 1997. SDS's
founder and Chief Executive Officer, Stuart H. Warrington, and its President,
Robert K. Agazzi, have become Executive Vice Presidents -- Software and Systems
of the Company.
The software acquired by the Company through the SDS Acquisition includes
policy and claims administration systems, as well as software that increases the
productivity of insurers by automating functions such as workflow management,
underwriting rules and guidelines, document production and rating algorithms.
Through the SDS Acquisition, the Company gained the ability to provide
additional software services, including installation, customization, conversion
and maintenance of the SDS systems to meet customer specifications.
Prior to the SDS Acquisition, the Company's operations were focused solely
on providing outsourcing services to the P&C insurance industry. Millers Mutual
has utilized SDS software since 1993. The SDS Acquisition allows the Company to
offer a comprehensive choice of solutions, including software systems and
12
<PAGE> 15
services to satisfy the needs of customers who choose to retain their processing
capabilities in-house. These software systems and services also enhance the
quality of the Company's outsourcing services. The Company believes that
utilization of the experienced sales and marketing personnel of SDS and access
to the SDS customer base will facilitate cross-selling opportunities and
expansion of the Company's outsourcing services.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company at an assumed initial public offering price
of $10.00 per share are expected to be approximately $22.7 million (or
approximately $26.2 million if the Underwriters' over-allotment option is
exercised in full) after deducting underwriting discounts and commissions and
estimated offering expenses. The Company intends to use approximately $7.3
million of such net proceeds to repay the outstanding balance, including accrued
interest, under its bank credit facility with NationsBank (the "NationsBank
Facility") incurred to fund part of the SDS Acquisition and $2.8 million to
repay funds borrowed from Millers Mutual for working capital purposes. The
Company intends to use the remaining net proceeds of approximately $12.6 million
for general corporate purposes, including working capital, research and
development and possible acquisitions. Currently the Company has no arrangements
or understandings with respect to the acquisition of any business, although the
Company continues to monitor potential acquisition opportunities. Pending such
uses, the Company intends to invest the net proceeds in short-term, investment
grade, interest bearing securities.
The NationsBank Facility is comprised of a revolving credit facility and a
term credit facility. The revolving credit facility provides for maximum
borrowings of $4.0 million, with an outstanding balance of $2.5 million as of
June 30, 1997. The term credit facility had an original principal amount of $5.0
million, with an outstanding balance of $4.8 million as of June 30, 1997. Both
facilities bear interest at floating rates that may be fixed for 180-day
periods. The interest rate is 7.4375% until September 29, 1997 under the term
credit facility and 7.5% until December 1, 1997 under the revolving credit
facility. The Company must pay a commitment fee of 0.25% per annum on the
average daily unused portion of the revolving credit facility. The term credit
facility matures March 12, 2001 and the revolving credit facility matures March
12, 1999.
The Company has borrowed from and repaid funds to Millers Mutual based on
the Company's working capital needs. The Company's borrowings from Millers
Mutual do not have a fixed maturity date and do not bear interest. The
outstanding balance of these borrowings was $2.8 million as of June 30, 1997.
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Shareholder. The net proceeds to be received
by the Selling Shareholder from the sale of 2,000,000 shares offered by the
Selling Shareholder at an assumed initial public offering price of $10.00 per
share are expected to be approximately $18.2 million (or approximately $20.9
million if the Underwriters' over-allotment option is exercised in full) after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Selling Shareholder. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain any future earnings to fund
growth and does not anticipate paying any cash dividends in the foreseeable
future. Under the terms of the NationsBank Facility, the Company cannot declare
or pay any dividends or return any capital to its shareholders or authorize or
make any other distribution, payment or delivery of property or cash to its
shareholders as such without the prior written consent of NationsBank.
13
<PAGE> 16
DILUTION
The net tangible book value of the Company at March 31, 1997 was
approximately $(6.3) million, or $(.90) per share. "Net tangible book value per
share" represents the amount of total assets less total liabilities and
intangible assets divided by the number of shares of Common Stock outstanding.
Without taking into account any other changes in the net tangible book value
after March 31, 1997, other than to give effect to the receipt by the Company of
the estimated net proceeds from the sale of 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$10.00 per share, the net tangible book value of the Company at March 31, 1997
would have been $16.4 million, or $1.72 per share. This represents an immediate
increase of net tangible book value of $2.62 per share to existing shareholders
and an immediate dilution of $8.28 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
------
Net tangible book value per share before this offering.... $(.90)
Increase per share attributable to new investors.......... 2.62
-----
Net tangible book value per share after this offering(1).... 1.72
------
Dilution per share to new investors......................... $ 8.28
======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value after this offering would be $2.09 per share, resulting
in dilution to new investors in this offering of $7.91 per share.
The following table summarizes, on a pro forma basis as of March 31, 1997,
the differences between the existing shareholder and the new investors
purchasing shares of Common Stock in this offering (at an assumed initial public
offering price of $10.00 per share) with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:
<TABLE>
<CAPTION>
SHARES OF COMMON TOTAL
STOCK ACQUIRED CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholder.............. 7,000,000 73.7% $14,191,609 36.2% $ 2.03
New Investors..................... 2,500,000 26.3 25,000,000 63.8 10.00
---------- ----- ----------- -----
Total................... 9,500,000 100.0% $39,191,609 100.0% $ 4.13
========== ===== =========== =====
</TABLE>
The computations in the above table are determined without deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. Both tables set forth in this section assume no exercise of
outstanding stock options. As of June 30, 1997, options to purchase 840,248
shares of Common Stock were outstanding, with an exercise price of $1.30 per
share. To the extent outstanding options are exercised, there will be further
dilution to new investors. See "Management -- Stock Option Plan."
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<PAGE> 17
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1997, and as adjusted to reflect: (i) the sale by the
Company of 2,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company, (ii) the application of the estimated net proceeds therefrom and (iii)
the amendments to the Company's articles of incorporation effected by the
Restated Articles.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................... $ 1,624 $ 374
Due to parent............................................... 4,137 --
Long-term debt, excluding current portion:
Term loan................................................. 3,437 --
Revolving credit facility................................. 2,500 --
Other..................................................... 187 187
------- -------
Total long-term debt.............................. 6,124 187
------- -------
Shareholders' equity:
Preferred stock (par value $1.00 per share, 1,000,000
shares authorized and none issued)..................... -- --
Common stock (par value $0.01 per share, 14,000,000 shares
authorized, 7,000,000 shares issued and outstanding,
and 9,500,000 shares issued and outstanding as
adjusted(1))........................................... 70 95
Additional paid-in capital................................ 14,122 39,096
Accumulated deficit....................................... (5,272) (7,578)
------- -------
Total shareholders' equity........................... 8,920 31,613
------- -------
Total capitalization.............................. $20,805 $32,174
======= =======
</TABLE>
- ---------------
(1) Excludes 2,250,000 shares reserved for issuance under the Stock Option Plan,
pursuant to which options covering 840,248 shares have been granted at an
exercise price of $1.30 per share and options covering 1,085,243 shares will
be granted on the date of this Prospectus at a per share exercise price
equal to the initial public offering price of the Common Stock.
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA OF INSPIRE
(IN THOUSANDS, EXCEPT SHARE DATA)
The selected financial data of the Company presented below as of December
31, 1995 and 1996 and for the period April 28, 1995 through December 31, 1995
and for the year ended December 31, 1996 have been derived from the audited
financial statements of the Company. The selected consolidated financial data of
the Company presented below as of March 31, 1997 and for the three-month periods
ended March 31, 1996 and 1997 are unaudited but have been prepared on the same
basis as the audited consolidated financial statements of the Company included
herein and, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments (except for the required purchase
accounting adjustments resulting from the SDS Acquisition and the subsequent
charge to operations of $3.0 million of the SDS purchase price, which was
assigned to purchased research and development, and the $3.0 million charge to
operations for the deferred compensation associated with Common Stock options
granted during the three months ended March 31, 1997), necessary for a fair
presentation of the Company's financial position and results of operations. The
results of operations presented below are not necessarily indicative of results
to be expected for any future period, and the historical quarterly results of
operations are not comparable between periods due to the SDS Acquisition. The
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of INSpire," the Company's Financial Statements and the Company's Pro
Forma Condensed Consolidated Financial Statements (Unaudited). The results of
operations presented below are not necessarily indicative of the results of
operations that may be achieved in the future.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
INCEPTION(1) ------------------------- ----------------------------------------------------
THROUGH PRO PRO PRO
DECEMBER 31, FORMA FORMA FORMA
1995 1996 1996(2) 1996 1996(2) 1997 1997(2)
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Outsourcing services........... $ 3,907 $ 13,653 $ 13,653 $ 2,308 $ 2,308 $ 6,736 $ 6,736
Software and software
services..................... -- -- 18,239 -- 4,529 1,080 5,920
Other.......................... -- -- 5,425 -- 544 375 947
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues........... 3,907 13,653 37,317 2,308 7,381 8,191 13,603
Expenses:
Cost of outsourcing services... 4,885 10,543 10,543 1,877 1,877 4,891 4,957
Cost of software and software
services..................... -- -- 15,223 -- 3,535 739 4,647
Cost of other revenues......... -- -- 3,401 -- 491 182 861
Selling, general and
administrative............... -- -- 2,993 -- 558 260 936
Research and development....... 33 787 1,759 173 490 126 300
Depreciation and
amortization................. -- -- 1,727 -- 390 535 671
Purchased research and
development.................. -- -- -- -- -- 3,000(3) 3,000(4)
Deferred compensation.......... -- -- -- -- -- 3,065(3) 3,065(4)
Management fees to parent...... 600 3,100 180 600 45 626 45
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses........... 5,518 14,430 35,826 2,650 7,386 13,424 18,482
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss).......... (1,611) (777) 1,491 (342) (5) (5,233) (4,879)
Other income (expense)........... -- (2) (1,251) -- (348) 51 (368)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes.......................... (1,611) (779) 240 (342) (353) (5,284) (5,247)
Income tax (benefit)............. (349) (264) (19) (71) (153) (1,789) (2,083)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................ $ (1,262) $ (515) $ 259 $ (271) $ (200) $ (3,495) $ (3,164)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per share...... $ (.16) $ (.07) $ .03 $ (.04) $ (.03) $ (.46) $ (.41)
Supplementary net income (loss)
per share(5)................... -- -- .08 -- .01 -- .40
Weighted average common and
common equivalent shares
outstanding.................... 7,658,195 7,658,195 7,731,016 7,658,195 7,731,016 7,658,195 7,731,016
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1997
------------------ --------------------------
1995 1996 ACTUAL AS ADJUSTED(6)
------- ------- -------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 22 $ 363 $ 373 $11,742
Working capital............................................. (1,072) (2,550) (3,669) 13,087
Total assets................................................ 2,817 5,232 31,454 42,823
Current portion of long-term debt........................... -- 2,500 1,624 374
Due to parent............................................... 1,569 996 4,137 --
Long-term debt, excluding current portion................... -- -- 6,124 186
Shareholders' equity........................................ 1,121 606 8,919 31,613
</TABLE>
- ---------------
(1) The Company was incorporated April 28, 1995 and commenced operations July 1,
1995.
(2) Unaudited pro forma condensed consolidated statements of operations data for
the year ended December 31, 1996 and for the three months ended March 31,
1996 and 1997 reflect: (i) the acquisition of SDS using the purchase method
of accounting as if the acquisition of SDS, which occurred on March 12,
1997, had occurred on January 1, 1996 and (ii) the results of operations of
the Company as if the Company had operated on an independent basis separate
from Millers Mutual since January 1, 1996. See the Company's Pro Forma
Condensed Consolidated Financial Statements (Unaudited).
(3) Represents non-recurring charges relating to: (i) the required purchase
accounting adjustments resulting from the SDS Acquisition and the subsequent
charge to operations of $3.0 million of the SDS purchase price that was
assigned to purchased research and development and (ii) the $3.0 million
charge to operations for the deferred compensation associated with Common
Stock options granted during the three months ended March 31, 1997.
Excluding the effect of such non-cash expenses, operating expenses,
operating income and net income would have been $7.4 million, $832,000 and
$508,000, respectively, and net income per share would have been $0.07.
(4) Represents non-recurring charges relating to: (i) the required purchase
accounting adjustments resulting from the SDS Acquisition and the subsequent
charge to operations of $3.0 million of the SDS purchase price that was
assigned to purchased research and development and (ii) the $3.0 million
charge to operations for the deferred compensation associated with Common
Stock options granted during the three months ended March 31, 1997.
Excluding the effect of such non-cash expenses, operating expenses,
operating income and net income would have been $12.4 million, $1.2 million
and $807,000, respectively, and net income per share and supplementary net
income per share would have been $0.11 and $0.10, respecively.
(5) Supplementary net income (loss) per share has been computed by adjusting pro
forma net income for the effect of the elimination of interest expense
associated with the repayment of $7.2 million in term debt in conjunction
with the Company's initial public offering. Supplementary net income (loss)
per share is not presented for historical information as there is no
significant difference from net income (loss) per share as computed.
(6) Adjusted to reflect: (i) the sale by the Company of 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$10.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company, and (ii) the
application by the Company of its estimated net proceeds therefrom. See "Use
of Proceeds."
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF INSPIRE
OVERVIEW
The Company's revenues are derived principally from: (i) outsourcing
services and (ii) software and software services. Revenues from outsourcing
services are derived from policy administration services and claims
administration services. Revenues from software and software services are
derived from contracts that grant customers a license to use the Company's
software products and contracts that provide for installation, customization,
enhancement, conversion and maintenance services. Other revenues principally
represent hardware sold in connection with software installations.
Revenues from outsourcing services are recognized as services are rendered.
Initial installations of software systems generally include a one-time license
fee and a contract for the installation and customization of the system to meet
the customer's specifications, which the Company bills at an hourly rate.
Amounts charged for the initial license and the installation and customization
of systems are recognized as revenue during the installation period in
proportion to the hours expended for installation compared to the total hours
projected for installation. In other instances, revenue is recognized based on
performance milestones specified in the contract. The Company recognizes the
annual fee charged for maintenance of the customer's system as revenue as hours
are expended over the maintenance contract period. Revenues from computer
hardware and equipment sales are recognized when the Company receives
notification that the equipment has been shipped by the manufacturer to the
customer. Changes in estimates of percentage of completion or losses, if any,
associated with outsourcing or software services are recognized in the period in
which they are determined.
The Company incurs research and development costs that relate primarily to
the development of new products and major enhancements to existing services and
products. Research and development costs are comprised primarily of salaries.
The Company expenses or capitalizes, as appropriate, these research and
development costs in accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." All research and development costs incurred prior to the
time management believes a project has reached "technological feasibility" are
expensed. Software production costs incurred subsequent to reaching
technological feasibility are capitalized, if material, and reported at the
lower of unamortized cost or net realizable value. Capitalized costs are
amortized over the expected service life of the related software, generally five
to seven years, using the straight-line method. The cost and related accumulated
amortization of projects are written off as they become fully amortized.
In view of the Company's limited operating history and recent acquisition
of SDS, the Company believes that period-to-period comparisons of its historical
results of operations are not necessarily meaningful. Accordingly, discussions
of the pro forma results of operations that combine the results of operations of
the Company and SDS for the periods indicated are also included. The results of
operations presented should not be relied upon as an indication of future
performance.
Millers Mutual, the Company, and the other subsidiaries of Millers Mutual
are parties to a Consolidated Federal Income Tax Allocation Agreement, effective
as of January 1, 1994 (as amended, the "Tax Sharing Agreement"). Under the Tax
Sharing Agreement, Millers Mutual must pay the Company an amount equal to any
decrease in the income taxes otherwise payable by the Millers Mutual
consolidated tax group attributable to any net losses of the Company.
Conversely, the Tax Sharing Agreement requires the Company to pay to Millers
Mutual the amount of any income taxes that the Company would have paid if it had
not been included in the Millers Mutual consolidated group. The Company believes
that the parties to the Tax Sharing Agreement will amend it in contemplation of
the Company leaving the Millers Mutual consolidated group as a result of this
offering. The Company expects such amendment to provide that the Company will
indemnify the other members of the Millers Mutual consolidated group for any of
the group's income taxes and related expenses attributable to the Company, and
Millers Mutual will indemnify the Company for any income taxes and related
expenses attributable to any members of the consolidated group other than the
Company. The amendment of the Tax Sharing Agreement will be subject to approval
by the Texas Department of Insurance ("TDI").
18
<PAGE> 21
RECENT DEVELOPMENTS
Purchase of SDS. On March 12, 1997 the Company acquired SDS for $18.0
million. The results of operations of SDS from March 12, 1997 through March 31,
1997 are included in the results of operations of the Company for the three
months ended March 31, 1997. See "SDS Acquisition."
Sale of AQS. In July 1997, the Company signed a non-binding letter of
intent to sell Applied Quoting Systems, Inc., a wholly-owned subsidiary of the
Company, for $2.5 million. Applied Quoting Systems, Inc. sells the Applied
Quoting Systems Module ("AQS"), a DOS-based comprehensive commercial lines
policy administration system designed to improve policy processing and customer
service. AQS automates commercial policy rating, issuance, renewals and mid-term
policy changes. Sales of AQS were $4.1 million during 1996 and $1.1 million
during the three months ended March 31, 1997. There can be no assurance that the
sale of this subsidiary will be completed.
RESULTS OF OPERATIONS
The following table sets forth, with respect to the Company and for the
periods indicated, the percentage of total revenues represented by certain
revenue, expense and income items:
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD FROM DECEMBER 31, THREE MONTHS ENDED MARCH 31,
INCEPTION(1) ----------------- -------------------------------------
THROUGH PRO PRO PRO
DECEMBER 31, FORMA FORMA FORMA
1995 1996 1996(2) 1996 1996(2) 1997 1997(2)
------------ ----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Outsourcing services.................... 100.0% 100.0% 36.6% 100.0% 31.2% 82.2% 49.5%
Software and software services.......... -- -- 48.9 -- 61.4 13.2 43.5
Other................................... -- -- 14.5 -- 7.4 4.6 7.0
----- ----- ----- ----- ----- ----- -----
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====
Expenses:
Cost of outsourcing services............ 125.0 77.2 28.3 81.3 25.4 59.7 36.4
Cost of software and software
services.............................. -- -- 40.8 -- 47.9 9.1 34.2
Cost of other revenues.................. -- -- 9.1 -- 6.7 2.3 6.3
Selling, general and administrative..... -- -- 8.0 -- 7.6 3.2 6.9
Research and development................ .8 5.8 4.7 7.5 6.6 1.5 2.2
Depreciation and amortization........... -- -- 4.6 -- 5.3 6.5 4.9
Purchased research and development...... -- -- -- -- -- 36.6 22.2
Deferred compensation................... -- -- -- -- -- 37.4 22.5
Management fees to parent............... 15.4 22.7 .5 26.0 .6 7.6 .3
----- ----- ----- ----- ----- ----- -----
Total expenses.................... 141.2 105.7 96.0 114.8 100.1 163.9 135.9
===== ===== ===== ===== ===== ===== =====
Operating income (loss)................... (41.2) (5.7) 4.0 (14.8) (.1) (63.9) (35.9)
Other income (expense).................... -- -- (3.4) -- (4.7) (.6) (2.7)
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes......... (41.2) (5.7) .6 (14.8) (4.8) (64.5) (38.6)
Income tax (benefit)...................... (8.9) (1.9) (.1) (3.1) (2.1) (21.8) (15.3)
----- ----- ----- ----- ----- ----- -----
Net income (loss)......................... (32.3)% (3.8)% .7% (11.7)% (2.7)% (42.7)% (23.3)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The Company was incorporated April 28, 1995 and commenced operations July 1,
1995.
(2) Unaudited pro forma condensed consolidated statements of operations data for
the year ended December 31, 1996 and for the three months ended March 31,
1996 and 1997 reflect: (i) the acquisition of SDS using the purchase method
of accounting as if the acquisition of SDS, which occurred on March 12,
1997, had occurred on January 1, 1996 and (ii) the results of operations of
the Company as if the Company had operated on an independent basis separate
from Millers Mutual since January 1, 1996. See the Company's Pro Forma
Condensed Consolidated Financial Statements (Unaudited).
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 ON A PRO FORMA
BASIS
REVENUES. Pro forma revenues were $13.6 million for the three months ended
March 31, 1997 compared to $7.4 million for the three months ended March 31,
1996, an increase of $6.2 million or 84%. Revenues from outsourcing services
were $6.7 million for the three months ended March 31, 1997 compared to $2.3
million for the three months ended March 31, 1996, an increase of $4.4 million
or 191%, primarily as a result of three significant contracts entered into
during or after March 1996 under which the Company performed significantly more
outsourcing services. These three contracts included a claims administration
agreement
19
<PAGE> 22
with Interco as administrator for the Virginia Commission, a policy
administration outsourcing agreement and a claims administration agreement with
Clarendon through Blanch. Revenues from software and software services were $5.9
million for the three months ended March 31, 1997 compared to $4.5 million for
the period ended March 31, 1996, an increase of $1.4 million or 31%. This
increase was attributable to an increased number of software products
installations and customizations, primarily WPC (as hereinafter defined), due to
increased sales and marketing efforts. Revenues from other sources were $947,000
for the three months ended March 31, 1997 compared to $544,000 for the three
months ended March 31, 1996, an increase of $403,000 or 43%. This increase was
attributable to increased hardware sales in connection with the increased
software installations.
COST OF REVENUES. Cost of outsourcing services, which consists primarily of
personnel costs, was $5.0 million for the three months ended March 31, 1997
compared to $1.9 million for the three months ended March 31, 1996, an increase
of $3.1 million or 164%, primarily as a result of costs associated with the
performance of the three significant contracts described above. Cost of software
and software services, which is comprised primarily of salaries, was $4.6
million for the three months ended March 31, 1997 compared to $3.5 million for
the three months ended March 31, 1996, an increase of $1.1 million or 32%,
primarily as a result of an increased number of software installations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include the costs of corporate operations, finance and accounting, human
resources and other general operations of the Company. General and
administrative expenses were $1.0 million for the three months ended March 31,
1997 compared to $600,000 for the three months ended March 31, 1996, an increase
of $400,000 or 67%. This increase was due to additional staffing, office space
and computer equipment and software required to expand the infrastructure to
support the Company's growth. General and administrative expenses as a
percentage of total revenues decreased from 8% for the three months ended March
31, 1996 to 7% for the three months ended March 31, 1997. This decrease is
attributable primarily to the Company performing significantly more outsourcing
services under the three significant contracts described above while the level
of executive salaries and benefits administration fees remained stable.
NONRECURRING EXPENSES. Purchased research and development of $3.0 million
resulting from the SDS Acquisition was charged to operations in March 1997. In
addition, $3.0 million was charged to operations for the deferred compensation
associated with Common Stock options granted during March 1997.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 ON AN HISTORICAL
BASIS
REVENUES. The Company's total revenues were $8.2 million for the three
months ended March 31, 1997 compared to $2.3 million for the three months ended
March 31, 1996, an increase of $5.9 million or 257%. This increase is
attributable primarily to: (i) the acquisition of SDS on March 12, 1997 and (ii)
revenues from the three significant outsourcing contracts described above.
COST OF REVENUES. Total cost of revenues was $5.8 million for the three
months ended March 31, 1997 compared to $1.9 million for the three months ended
March 31, 1996, an increase of $3.9 million or 205%, primarily as a result of:
(i) the acquisition of SDS and (ii) the costs associated with the performance of
services under the three significant outsourcing contracts described above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were approximately $900,000 for the three months ended March 31, 1997 compared
to $600,000 for the three months ended March 31, 1996, an increase of $300,000
or 50%. This increase was primarily due to the acquisition of SDS. General and
administrative expenses as a percentage of total revenues decreased from 26% for
the three months ended 1996 to 11% for the three months ended March 31, 1997.
This decrease is attributable primarily to revenues from the three significant
outsourcing contracts described above while the level of management services
provided by Millers Mutual, and the resulting management fees, remained stable.
NONRECURRING EXPENSES. Purchased research and development of $3.0 million
resulting from the SDS Acquisition was charged to operations in March 1997. In
addition, $3.0 million was charged to operations for the deferred compensation
associated with Common Stock options granted during March 1997.
20
<PAGE> 23
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM INCEPTION
THROUGH DECEMBER 31, 1995 ON AN HISTORICAL BASIS
REVENUES. The Company's total revenues were $13.6 million for the year
ended December 31, 1996 compared to $3.9 million for the period from inception
to December 31, 1995, an increase of $9.7 million or 249%. This increase is
attributable primarily to: (i) the Company conducting twelve months of
operations in 1996 compared to approximately six months in 1995 and (ii)
revenues from the three significant outsourcing contracts described above.
COST OF REVENUES. Cost of revenues was $10.5 million for the year ended
December 31, 1996 compared to $4.9 million for the period from inception to
December 31, 1995, an increase of $5.6 million or 114%. This increase is
attributable primarily to: (i) the Company conducting twelve months of
operations in 1996 compared to approximately six months in 1995 and (ii)
personnel and other costs associated with the three significant outsourcing
contracts described above. Cost of revenues as a percentage of total revenues
decreased from 140% for the period from inception to December 31, 1995 to 100%
for the year ended December 31, 1996. This decrease was primarily a result of
the Company leveraging its existing experience and knowledge and thereby
increasing efficiency.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $3.1 million for the year ended December 31, 1996 compared to $600,000 for
the period from inception to December 31, 1995, an increase of $2.5 million or
417%. This increase is attributable primarily to the Company conducting twelve
months of operations in 1996 compared to approximately six months in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its operations through cash generated
from operations, as well as borrowings and capital contributions from Millers
Mutual. Net cash provided by operating activities was $2.2 million in the three
months ended March 31, 1997 compared to $90,000 in the three months ended March
31, 1996. Cash flow used in operating activities was $459,000 and $0 for the
year ended December 31, 1996 and the period from inception to December 31, 1995,
respectively. In 1996, cash flow used in operating activities included an
increase in accounts receivable of approximately $1.2 million and a decrease in
amounts due to affiliates of approximately $573,000, which was offset by
depreciation expense of approximately $787,000 and an increase in accounts
payable and accrued expenses of approximately $1.1 million.
The Company entered into a loan agreement with NationsBank on March 12,
1997, pursuant to which the Company borrowed $5.0 million under a term credit
facility and $2.5 million under a revolving credit facility to finance in part
the SDS Acquisition. The term credit facility is payable in quarterly
installments with the final installment due and payable on March 12, 2001. The
revolving credit facility expires and is due and payable on March 12, 1999.
Although the Company intends to use a portion of its net proceeds from this
offering to repay the amounts owed under the term and revolving credit
facilities, the Company intends to keep the revolving credit facility in place
for future borrowings. See "Use of Proceeds."
From time to time, the Company has received loans and capital contributions
from Millers Mutual. In March 1997, Millers Mutual made a $10.5 million capital
contribution to fund in part the SDS Acquisition. As of June 30, 1997, the
outstanding balance of the loans was $2.8 million. The Company intends to use a
portion of its net proceeds from this offering to repay these loans. The Company
does not anticipate receiving any loans or capital contributions from Millers
Mutual in the future. See "Use of Proceeds."
The Company believes that the cash generated from operations and its net
proceeds from this offering will satisfy the Company's anticipated working
capital requirements for at least one year. The Company, however, may require
substantial additional funds for potential acquisitions and expansion. In the
normal course of business, the Company evaluates acquisitions of businesses,
products and technologies that complement the Company's business. The Company
has no present commitments or agreements with respect to any such transaction.
The Company, however, may acquire businesses, products or technologies in the
future.
21
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA OF SDS
(IN THOUSANDS, EXCEPT SHARE DATA)
The selected consolidated financial data of SDS presented below as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and
1996 have been derived from the audited SDS financial statements appearing
elsewhere in this Prospectus. The selected consolidated financial data of SDS
presented below as of December 31, 1992, 1993, and 1994 and for the years ended
December 31, 1992 and 1993 have been derived from audited consolidated financial
statements of SDS that are not included in this Prospectus. The selected
consolidated financial data of SDS presented below as of March 11, 1997 and for
the three months ended March 31, 1996 and for the period from January 1, 1997
through March 11, 1997 are unaudited but have been prepared on the same basis as
the audited consolidated financial statements of SDS included herein and, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of SDS's consolidated financial
position and results of operations for such periods. The results of operations
presented below are not necessarily indicative of results to be expected for any
future period. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of SDS" and SDS's Consolidated Financial Statements.
<TABLE>
<CAPTION>
PERIOD FROM
THREE JANUARY 1,
MONTHS 1997
YEAR ENDED DECEMBER 31, ENDED THROUGH
----------------------------------------------- MARCH 31, MARCH 11,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software services.......................... $ 7,184 $ 9,199 $ 8,991 $ 8,677 $ 9,252 $2,396 $2,385
Software................................... 6,207 5,682 4,313 9,068 8,987 2,132 2,455
Hardware................................... 616 924 2,245 2,400 3,680 361 463
Other...................................... 245 349 455 1,016 1,745 184 109
------- ------- ------- ------- ------- ------ ------
Total revenues......................... 14,252 16,154 16,004 21,161 23,664 5,073 5,412
Expenses:
Salaries and compensation.................. 8,482 9,793 11,811 13,088 14,505 3,380 3,476
Depreciation and amortization.............. 1,219 1,574 2,157 1,879 1,827 462 411
Cost of hardware sold...................... 459 738 1,862 1,979 2,699 291 384
Occupancy costs............................ 1,158 1,343 1,374 1,379 1,566 352 406
Other...................................... 1,536 1,536 1,831 1,667 2,032 379 372
------- ------- ------- ------- ------- ------ ------
Total expenses......................... 12,854 14,984 19,035 19,992 22,629 4,864 5,049
Operating income (loss)...................... 1,398 1,170 (3,031) 1,169 1,035 209 363
Interest income (expense), net............... (264) (2) (134) (80) 77 (8) 24
Other income (expense), net.................. (15) 97 2 (2) 35 -- --
------- ------- ------- ------- ------- ------ ------
Income (loss) before income taxes
(benefit).................................. 1,119 1,265 (3,163) 1,087 1,147 201 387
Income taxes (benefit)....................... 444 503 (1,253) 429 449 81 156
------- ------- ------- ------- ------- ------ ------
Net income (loss)............................ $ 675 $ 762 $(1,910) $ 658 $ 698 $ 120 $ 231
======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 11,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 67 $ 492 $ 289 $ 529 $ 1,516 $ 940
Working capital............................... 302 993 (1,167) 572 1,785 1,694
Total assets.................................. 11,243 12,705 13,692 12,054 13,465 13,391
Current portion of long-term debt............. 299 361 557 689 525 439
Long-term debt, excluding current portion..... 2,428 2,674 2,570 2,028 1,883 1,879
Shareholders' equity.......................... 5,000 5,596 3,739 4,538 5,385 5,617
</TABLE>
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SDS
RESULTS OF OPERATIONS
The following table sets forth, with respect to SDS and for the periods
indicated, the percentage of total revenues represented by certain revenue,
expense and income items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS PERIOD FROM
------------------------- ENDED JANUARY 1, 1997
1994 1995 1996 MARCH 31, 1996 THROUGH MARCH 11, 1997
----- ----- ----- -------------- ----------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software services........................... 56.2% 41.0% 39.1% 47.3% 44.1%
Software.................................... 27.0 42.9 38.0 42.0 45.3
Hardware.................................... 14.0 11.3 15.5 7.1 8.6
Other....................................... 2.8 4.8 7.4 3.6 2.0
----- ----- ----- ----- -----
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== =====
Expenses:
Salaries and compensation................... 73.8 61.8 61.3 66.6 64.2
Depreciation and amortization............... 13.5 8.9 7.7 9.1 7.6
Cost of hardware sold....................... 11.6 9.4 11.4 5.7 7.1
Occupancy costs............................. 8.6 6.5 6.6 6.9 7.5
Other....................................... 11.4 7.9 8.6 7.6 6.9
----- ----- ----- ----- -----
Total expenses........................ 118.9 94.5 95.6 95.9 93.3
===== ===== ===== ===== =====
Operating income (loss)....................... (18.9) 5.5 4.4 4.1 6.7
Other income (loss)........................... (.8) (.4) .5 (.1) .4
----- ----- ----- ----- -----
Income (loss) before income taxes (benefit)... (19.7) 5.1 4.9 4.0 7.1
Income taxes (benefit)........................ (7.8) 2.0 1.9 1.6 2.9
----- ----- ----- ----- -----
Net income (loss)............................. (11.9)% 3.1% 3.0% 2.4% 4.2%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF SDS'S RESULTS OF OPERATIONS FOR THE PERIOD FROM JANUARY 1, 1997
THROUGH MARCH 11, 1997 AND THE THREE MONTHS ENDED MARCH 31, 1996
REVENUES. SDS's revenues were $5.4 million for the period from January 1,
1997 through March 11, 1997 and $5.1 million for the three months ended March
31, 1996, an increase of approximately $300,000 or 5.9%. This increase was due
to additional software installation revenues, primarily sales of WPC, as well as
increased hardware sales in connection with the increased software
installations.
OPERATING EXPENSES. Operating expenses were $5.0 million for the period
from January 1, 1997 through March 11, 1997 and $4.8 million for the three
months ended March 31, 1996, an increase of approximately $200,000 or 4.2%. This
increase is attributable to: (i) the increased costs of computer hardware sold
associated with the corresponding increase in computer hardware sales revenues
and (ii) additional personnel and occupancy costs. Total operating expenses as a
percentage of revenues remained fairly constant.
COMPARISON OF SDS'S RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995
REVENUES. SDS's revenues were $23.7 million for the year ended December 31,
1996 compared to $21.1 million for the year ended December 31, 1995, an increase
of $2.6 million or 12.3%. This increase is primarily attributable to increases
in services performed, including: (i) software service fees, (ii) software
installation revenues, primarily WPC installations, which contributed an
additional $1.3 million in revenues in 1996, and (iii) computer hardware sales
and commissions, which increased $1.3 million from 1995 to 1996.
OPERATING EXPENSES. Operating expenses were $22.7 million for the year
ended December 31, 1996 compared to $20.0 million for the year ended December
31, 1995, an increase of $2.7 million or 13.5%. This increase is primarily
attributable to increased personnel costs of $1.4 million and the increase of
approximately $720,000 cost of computer hardware sold. Total operating expenses
as a percentage of revenues remained constant at approximately 95% for the years
ended December 31, 1995 and 1996.
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COMPARISON OF SDS'S RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994
REVENUES. SDS's revenues were $21.1 million for the year ended December 31,
1995 compared to $16.0 million for the year ended December 31, 1994, an increase
of $5.1 million or 32.2%. This increase is attributable primarily to software
installations relating to: (i) several significant new customers in late 1994
and early 1995, as well as additional installations for existing clients, and
(ii) the introduction of new products, such as WPC and UES (as hereinafter
defined) that had been in development in the early 1990s and for which demand
increased in late 1994 and early 1995, resulting in increased software
installations. WPC alone contributed an additional $1.6 million in software
installation revenues in 1995 compared to 1994.
OPERATING EXPENSES. Operating expenses were $20.0 million for the year
ended December 31, 1995 compared to $19.0 million for the year ended December
31, 1994, an increase of $1.0 million or 5.0%. This increase was due primarily
to higher salaries and benefits expenses of approximately $1.3 milion relating
to an increase in the number of SDS employees from approximately 230 at December
31, 1994 to approximately 250 at December 31, 1995. Total operating expenses as
a percentage of revenues decreased from 118.9% for the year ended December 31,
1994 to 94.5% for the year ended December 31, 1995 as a result of SDS utilizing
existing resources.
LIQUIDITY AND CAPITAL RESOURCES
Historically, SDS funded its operations primarily through cash generated
from operations, supplemented by borrowings. Net cash provided by operating
activities was approximately $201,000 in the period from January 1, 1997 through
March 11, 1997 compared to approximately $317,000 in the three months ended
March 31, 1996. Cash flow provided by operating activities was $2.2 million,
$2.2 million and $1.2 million for the years ended December 31, 1996, 1995 and
1994, respectively. In 1996, cash flow provided by operating activities was
comprised primarily of $1.8 million of depreciation and amortization expense.
SDS entered into a letter agreement with Norwest Bank Wisconsin, National
Association ("Norwest") on September 21, 1994 (as amended, the "Norwest
Agreement"), pursuant to which SDS borrowed under a line of credit facility and
under certain promissory notes to help finance certain property acquisitions,
such as a building and business equipment, and the repurchase of SDS common
stock. In addition, SDS entered into a contract with the Redevelopment Authority
of Sheboygan, Wisconsin (the "Redevelopment Authority") on November 1, 1988 (the
"Authority Contract"), pursuant to which SDS borrowed $150,000 from the
Redevelopment Authority to finance the acquisition of certain land. In
connection with the SDS Acquisition, SDS transferred the building and land to
Riverview Building, LLC ("Riverview"), and Riverview assumed the debt associated
with the building under the Norwest Agreement and the debt associated with the
land under the Authority Contract. In addition, on June 23, 1997, SDS paid the
outstanding principal balance and accrued interest on the remaining outstanding
debt under the Norwest Agreement. As a result, SDS currently has no outstanding
borrowings under the Norwest Agreement or the Authority Contract. See "Certain
Transactions."
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<PAGE> 27
BUSINESS
INTRODUCTION
The Company is a provider of policy and claims administration solutions to
the P&C insurance industry offering a comprehensive choice of outsourcing
services and software and software services. The Company's outsourcing services,
which generally are provided on a percentage of premiums or claims paid basis,
include application of underwriting and rating criteria defined by the insurer,
policy issuance, customer service, billing and collecting, claims adjusting and
processing, and policyholder mailings. The Company's software products include
policy and claims administration systems, as well as systems that increase the
productivity of insurers by automating certain functions, such as workflow
management, underwriting rules and guidelines, document production and rating
algorithms. These systems, which run on a variety of platforms including IBM
AS/400, IBM RS6000, Windows 3.1, Windows 95 and Windows NT, enable the Company's
customers to conduct their policy and claims administration more efficiently.
The Company's software services include installation, customization, conversion
and maintenance of these systems to meet customer specifications.
The Company was established in April 1995 as a wholly-owned subsidiary of
Millers Mutual, an insurance company chartered in Texas in 1898. The Company was
created to provide outsourcing services to other P&C insurers by capitalizing on
Millers Mutual's success in developing, implementing and managing software
systems for its internal use. As a result of the acquisition of SDS in March
1997, the Company now also develops and markets software and software services
to the P&C insurance industry. SDS offered software and software services to the
P&C insurance industry for 16 years prior to its acquisition by the Company. The
Company believes that its services and products allow customers to focus on core
competencies and reduce costs by converting their fixed costs of in-house
information technology to variable costs, thereby leveraging the Company's
investment in software systems and productivity tools.
OVERVIEW OF THE PROPERTY AND CASUALTY INSURANCE INDUSTRY
The P&C insurance industry provides financial protection for individuals,
businesses and others against losses of property or losses by third parties for
which the insured is liable. P&C insurers underwrite policies that cover various
types of risk, which can generally be divided into personal lines of insurance
covering individuals and commercial lines of insurance covering businesses.
Personal lines generally include automobile insurance (physical damage and
liability insurance) and homeowners' insurance. Commercial lines generally
include workers' compensation, business insurance, directors and officers
liability, theft, medical malpractice and insurance covering other kinds of
commercial risks.
The P&C insurance industry is highly competitive. Insurance companies
compete primarily on the basis of price, consumer satisfaction and claims paying
ability. According to A. M. Best Company ("A. M. Best"), as of December 31,
1995, there were approximately 2,500 P&C insurance companies in the United
States generating approximately $260 billion in annual premium revenues, of
which approximately 53% were written by the top 20 insurers. Based on statistics
released by the Insurance Services Office, an industry advisory organization,
premium revenues for the P&C insurance industry over the past several years have
been increasing approximately 3% annually.
According to a study published by A.M. Best, the 10 largest insured
catastrophes have occurred since 1989, including Hurricane Andrew in 1992, the
Northridge, California earthquake in 1994 and Hurricane Hugo in 1989. The
Company believes that these catastrophes have caused insurers to decrease their
exposure in areas prone to natural disasters. Much of the new demand created by
insurers leaving markets is being met by reinsurers and new market entrants who
have not made significant infrastructure investments and do not desire to do so.
The Company believes that its ability to deliver services priced as a percentage
of premiums or claims paid should be attractive to these new entrants, as it
will enable them to enter new markets without incurring substantial fixed
infrastructure costs.
According to a recent survey by the National Association of Independent
Insurers, information systems expenses as a percentage of written premiums
increased from 2.5% in 1992 to 3.3% in 1996. The Company believes that this
increasing investment in information systems is indicative of the demand for
automation in
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the P&C insurance industry. This demand promotes the sale of software and
software services and represents an opportunity to provide outsourcing services
for those insurers that do not wish to make increasing levels of capital
expenditures.
NEED FOR INFORMATION MANAGEMENT AND WORK PROCESS AUTOMATION
Technology is a critical element in an insurance company's ability to
compete. Insurance companies use technology and information systems as
management tools to improve efficiency, manage costs and increase customer
satisfaction. A highly technical industry has evolved to meet the unique needs
of P&C insurers to manage and process large amounts of policyholder data. The
focus of insurers has recently shifted away from finding more efficient means of
storing information toward more efficient ways of processing information.
The Company provides a wide variety of services and products to manage and
process policy and claims information more efficiently, including: (i) software
and software services, (ii) policy administration services, (iii) claims
administration services and (iv) "virtual insurance company" services (which
include the outsourcing of both policy and claims administration and related
functions). The Company believes that there are significant opportunities to
market its services and products for the following reasons:
- ECONOMIES OF TECHNOLOGY. The investment in information systems necessary
for P&C insurers to remain competitive is often cost prohibitive,
particularly for smaller companies, because of the specialized technical
knowledge required to develop, install, operate and maintain
sophisticated systems. The Company's products and services allow
insurance companies to take advantage of economies of technology by
utilizing the Company's investment in information systems and services.
- TREND TOWARD DIRECT SALES. Many personal lines insurers are reducing
costs by selling policies directly to policyholders rather than through
independent agents. By selling directly to policyholders, insurance
companies can reduce costs, which allows them to charge lower premiums.
This trend has created opportunities for the Company to market its
services and products to insurance companies that sell directly to
policyholders and those that continue to sell through independent agents.
Automation of the policy and claims administration functions allows
insurance companies selling directly to customers to provide services
efficiently that were traditionally performed by agents. Automation also
enables insurance companies that sell through agents to reduce
administration costs to compete more effectively with insurance companies
that sell directly to policyholders.
- YEAR 2000 PROBLEM. The Year 2000 problem manifests itself in a number of
ways in the policy and claims administration area. The Year 2000 problem
arose because, until recently, most software systems were not programmed
to recognize correctly dates beyond December 31, 1999. For example,
policy and claims administration systems process information based on
policy commencement and renewal dates, yet systems that are not Year 2000
compliant cannot correctly recognize policy dates beyond December 31,
1999. According to a survey conducted by the National Association of
Independent Insurers, as of November 1996 only 45% of insurance companies
had resolved this problem. The Company believes that many insurance
companies may resolve the Year 2000 problem by either: (i) purchasing new
software systems or (ii) entirely outsourcing their policy and claims
needs rather than incurring the cost of updating their old systems.
- STATE REGULATION. P&C insurers are subject to supervision and regulation
on a state-by-state basis with respect to numerous aspects of their
business. State insurance regulators closely regulate the product
offerings, claims processes and premium structure of insurance companies.
State regulators also require insurance companies to file annual and
other reports relating to their financial condition. Policy and claims
administration systems can facilitate compliance with numerous regulatory
requirements by automating statutory reporting and other compliance
tasks.
- CUSTOMER SERVICE. As policyholders demand faster, broader and better
service, P&C insurers that provide superior customer service enjoy a
competitive advantage. Dissatisfaction with policy or claims handling
processes is frequently cited as a cause of policy nonrenewal. In
addition, retaining an existing policyholder with good customer service
is more cost effective for an insurance company than
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<PAGE> 29
attracting a new policyholder away from a competitor. Automation and
outsourcing can allow insurance companies to improve customer service
while lowering fixed costs.
TREND TOWARD OUTSOURCING
Since the late 1980s, many P&C insurers have sought to use third parties to
provide certain functions or services that the insurers historically performed
in-house. These companies seek to focus on their core competencies, reduce costs
and avoid the significant investment associated with developing, installing,
operating and maintaining information management and automation systems. The
Company believes that insurance companies increasingly will conclude that policy
and claims administration and regulatory compliance are too complicated, costly
and administratively burdensome to be performed in-house. Other factors
contributing to the outsourcing trend include the following:
- NEED FOR FLEXIBILITY. Many P&C insurers lack the ability to respond
rapidly to changing market conditions. Outsourcing enables insurance
companies to enter new markets quickly and cost-effectively to take
advantage of favorable market conditions without incurring substantial
fixed infrastructure costs.
- NEED TO DIVERSIFY RISK. Many P&C insurers are overexposed to risks from
natural catastrophes in certain markets. Because many states restrict the
ability of insurers to cancel policies or exit particular lines of
business, these insurers often cease writing new policies and outsource
the administration of their remaining policies and claims ("stranded
policies"). Alternatively, insurers may reduce their risk by reinsuring
policies with other insurers that do not have a similar geographic
concentration or by allowing other insurers to renew the stranded
policies. As these insurers leave markets, they create demand for
outsourcing the policy and claims administration of the stranded
policies.
- DESIRE TO MAXIMIZE STATUTORY SURPLUS. As most state regulations require
insurance companies to maintain certain ratios of surplus to premiums,
insurance companies that maximize surplus are able to write greater total
premiums. Insurance companies cannot capitalize, for statutory-basis
financial statement reporting purposes, most of the hardware and software
they purchase or develop for policy and claims administration. As a
result, an insurance company with a large investment in its policy and
claims administration infrastructure generally will experience a lower
statutory surplus than it would if it were to outsource its policy and
claims administration.
- VIRTUAL INSURANCE COMPANIES. Deregulation has permitted new companies
that are not traditional insurance companies to enter the P&C insurance
industry. Banks, credit unions and other financial services companies are
beginning to underwrite P&C insurance. These new entrants often do not
have policy and claims administration infrastructure or expertise in
place and are natural candidates for outsourcing. The Company facilitates
the creation of these "virtual insurance companies" by providing policy
and claims administration and related back office administration to new
entrants that desire to focus their resources on the core marketing,
underwriting and financial aspects of the P&C insurance business.
THE INSPIRE STRATEGY
The Company's objective is to become the leading provider of policy and
claims administration solutions to the P&C insurance industry. The Company's
strategy to achieve this objective involves the following elements:
- OFFER A COMPREHENSIVE CHOICE OF SOLUTIONS. The Company offers an "a la
carte" menu of services and products that is attractive to a wide variety
of potential customers. This comprehensive and flexible approach enhances
customer stability and increases opportunities for new sales by allowing
the Company to sell multiple services and products to both existing and
new customers.
- IMPLEMENT AN INTEGRATED MARKETING PLAN. The Company is integrating its
sales and marketing efforts to capitalize on its ability to offer a
comprehensive choice of solutions. This integration process involves
training the Company's sales and marketing personnel to sell a full line
of services and products,
27
<PAGE> 30
forming a dedicated sales team to focus on larger accounts (generally defined as
insurance companies with annual premiums in excess of $250 million) and
expanding sales and marketing support staff to market directly to specialty line
P&C insurance companies and new entrants in the P&C insurance industry,
such as banks, credit unions and other financial services companies.
- GENERATE RECURRING REVENUES. The Company's services and products are
structured to generate revenues based on events that occur in the normal
course of a customer's business. Policy administration services generate
recurring revenues because the Company earns a percentage of each premium
received by the insurance company. Claims administration services
generate recurring revenues because the Company earns a percentage of
either each claim paid or each premium received by the insurance company.
Software licensing generates recurring revenues because most of the
Company's customers enter into systems support, maintenance or
enhancement agreements to purchase additional services and software
enhancements throughout the life of their systems.
- PENETRATE NEW MARKETS. Prior to the SDS Acquisition, SDS traditionally
marketed its software products and services to small to mid-size domestic
insurance companies. The Company intends to pursue sales opportunities
with larger insurance companies.
- ENHANCE PRODUCT CAPABILITIES. Maintaining technology leadership is
critical to remaining competitive in the Company's industry. The Company
plans to enhance continuously its existing services and products and
develop entirely new services and products to respond to constantly
changing customer requirements.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to consider potential
acquisition candidates that offer opportunities to increase market share
and expand the Company's line of outsourcing services and software and
software services.
SERVICES AND PRODUCTS
The Company offers a range of services and products to address the policy
and claims administration needs of the P&C insurance industry. The Company
installs, enhances and maintains a variety of policy and claims administration
software systems and offers outsourcing of policy and claims administration.
OUTSOURCING SERVICES. The Company's outsourcing services include
policyholder mailings, underwriting approval, policy rating and issuance, policy
acceptance, customer service, billing and collections, and claims adjusting and
processing. The customer determines the extent to which it uses the Company's
services. A team of Company and customer personnel work closely together to
ensure the seamless integration of the customer's outsourced and in-house
activities. The Company's outsourcing services include the following:
- POLICY ADMINISTRATION. Policy administration services describes the suite
of services the Company offers customers who desire to outsource their
policy administration. The customer retains all of the financial risk and
works with the Company to provide underwriting and rating guidelines. The
Company typically is paid a percentage of premiums for policy
administration services, which include the following:
- Direct, agency and Internet marketing support
- Policy issuance and acceptance
- Application of underwriting and rating criteria defined by the insurer
- Customer service phone center for policyholders and agents
- Accounting, billing and collections
- Commission calculation and disbursement
- Statutory reporting and regulatory compliance
- Comprehensive management and service bureau reporting
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- CLAIMS ADMINISTRATION. Claims administration services describes the
management of appraising, qualifying and settling P&C insurance claims.
The Company maintains a staff of claims adjusters and examiners. The
Company also uses independent claims adjusters when needed, such as when
a high level of claims arise from a major catastrophe. The Company
reviews insurance coverage, performs a claim analysis and prepares a
check for payment of the claim, if warranted. The Company typically is
compensated on either a percentage of premiums or claims paid basis.
SOFTWARE PRODUCTS. The Company sells information processing systems and
software productivity tools that automate policy and claims administration. The
information processing systems are designed to run on a variety of platforms,
including IBM AS/400 ("AS/400"), RS 6000 ("RS 6000"), Windows 3.1, Windows 95
and Windows NT. The Company's software productivity tools add functionality and
flexibility to the base system. These productivity modules can be sold in
conjunction with the Company's base systems or as add-ons to other vendors' base
systems.
- INTEGRATED SYSTEMS
- POLICY AND CLAIMS ADMINISTRATION SYSTEM. The Policy and Claims
Administration System ("PCA") is an integrated system that offers
policy and claims administration, billing and collections, financial
administration, and management and statistical bureau reporting. PCA
runs on the AS/400 and the RS 6000 platforms. PCA was originally
introduced in 1988 and the current version was introduced in 1995. The
Company has completed 38 AS/400 installations and 8 RS 6000
installations of PCA.
- WINDOWS INTO PROPERTY AND CASUALTY SYSTEM. Functionally comparable to
PCA, Windows into Property and Casualty System ("WPC") is an
integrated system that performs functions from submission tracking to
policy and claims administration to management and bureau reporting.
WPC runs on a PC platform in a client/server environment and on most
major PC network operating systems, including Novell Netware and
Microsoft Windows NT. Since its introduction in 1992, the Company has
installed 22 WPC systems.
- SOFTWARE PRODUCTIVITY TOOLS
- EMPOWER. EmPower is an automated workflow management system designed
for the personal lines policy administration needs of P&C insurers.
EmPower interfaces with PCA and other vendors' systems or insurers'
proprietary systems to provide imaging and workflow management
technology. EmPower automatically processes the flow of information,
substantially reducing manual activities through the integration of
voice, data, image and text into one system. EmPower was introduced in
1996 and operates in a client/server environment using Microsoft
Windows. The Company plans to enhance EmPower to support claims
administration and commercial lines policy administration software.
- UNDERWRITING EXPERT SYSTEM. The Underwriting Expert System ("UES")
automates underwriting rules and guidelines to mirror a client's
underwriting process. UES enhances consistency of review and
streamlines customer service and operations departments by reducing the
need for manual underwriting review. UES uses a relational database to
store and report statistics concerning underwriting efficiency and
results of the review process. UES operates in a client/server
environment and interfaces with PCA and WPC, as well as most systems
sold by other vendors or insurers' proprietary systems. UES was
introduced in 1993.
- POLICY SET PRODUCTION. Policy Set Production ("PSP") allows for laser
quality printing of policy declarations, booklets, forms, endorsements,
billing notices and letters. PSP manages the logistics of producing the
appropriate documents necessary for each policyholder. Introduced in
1995, PSP operates in a client/server environment and interfaces with
PCA and WPC as well as most systems sold by other vendors or insurers'
proprietary systems.
- VISUAL RATER. Visual Rater is a productivity tool using object
oriented programming technology that allows non-technical users to
create, build, test and maintain the rating components of
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<PAGE> 32
insurance processing. Visual Rater's "point and click" rating
construction and maintenance interface does not require a technical
programmer to operate. Instead, reusable rating components become
simple icons used as building blocks to create rating algorithms.
Visual Rater was introduced in 1995 and generally is sold with WPC.
SOFTWARE SERVICES. The Company customizes all of its software products to
meet customer specifications. The initial license fee paid to the Company gives
the customer the right to use the software, but does not cover customization,
conversion, enhancements or upgrades. The Company provides systems installation,
customization, conversion and maintenance on a time-and-materials basis.
Disaster recovery planning services and bureau reporting services are provided
on either a fixed fee or time-and-materials basis. Future enhancements and
upgrades to a system are provided for an annual fee equal to a percentage of the
initial license fee. Installations of upgrades and enhancements are performed on
a time-and-materials basis.
RESEARCH AND DEVELOPMENT
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. The Company's future success depends in part on its
ability to enhance its existing services and products and develop new services
and products to meet changing customer requirements. The Company's research and
development efforts are focused on enhancement of existing services and
products, expansion of operating system compatibility and development of new
applications for emerging insurance markets. In addition, the Company has in the
past acquired new services and products through the acquisition of complementary
businesses and may do so in the future. Currently, major areas of research and
development emphasis are: (i) the expansion of EmPower to include claims
administration and commercial lines policy administration and (ii) the expansion
of software applications to address additional P&C insurance markets.
Since inception, the Company has made substantial investments in enhancing
and developing its services and products. Prior to being acquired by the
Company, SDS incurred expenses of approximately $3.8 million, $2.9 million and
$2.8 million in 1994, 1995 and 1996, respectively, for research and development
and the Company intends to devote substantial resources to research and
development in the future. As of June 1, 1997, the Company had approximately 65
employees that perform product development and quality assurance, as well as
participate in the initial installations of new products. There can be no
assurance that the Company will be successful in developing and marketing new or
enhanced services or products.
CUSTOMER SUPPORT AND OPERATIONS
The Company's policy administration outsourcing services are provided at
the Company's service center in Fort Worth, Texas. The Company maintains a
customer service phone center for policyholders and agents five days a week. The
Company employs approximately 30 people in the policy administration service
center to administer approximately 200,000 policies representing $170 million in
annual premiums to the insurers.
The Company provides claims outsourcing services at its service centers in
Fort Worth, Texas; Laguna Hills, California; Troy, Michigan; and St. Petersburg,
Florida. The Company employs approximately 20 full-time claims administrators.
The Company provides software development, installation, maintenance and
enhancement services at its facilities in Sheboygan, Wisconsin; Hartland,
Wisconsin; Columbia, South Carolina; and Uxbridge, Massachusetts. The Company
recently signed a non-binding letter of intent to sell the subsidiary that
leases the facilities in Hartland, Wisconsin. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of INSpire -- Recent
Developments." The Company employs approximately 150 people who provide software
support and maintains a customer help line five days a week.
SALES AND MARKETING
The Company markets its outsourcing services through insurance brokers,
industry consultants, managing general agents and reinsurers. Once an
opportunity is identified by one of these sources and a request for
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<PAGE> 33
proposal is received, the Company prepares and submits a comprehensive proposal
directly to the prospective customer. The prospective customer is then invited
to Fort Worth to tour the Company's service center and discuss the customer's
requirements in detail. If the Company is selected to be the outsourcing service
provider, a multi-year contract is negotiated and executed. While the
outsourcing sales cycle varies from customer to customer, it typically ranges
from three to twelve months.
The Company's software and software services have traditionally been
marketed through a direct sales force located in Sheboygan, Wisconsin and
Columbia, South Carolina. To support its sales force of five people, the Company
conducts marketing programs that include direct mail, trade shows, public
relations, advertising and ongoing customer communication programs. The Company
also maintains strategic relationships with industry consultants who frequently
assist insurance companies in identifying vendors. While the software systems
sales cycle varies from customer to customer, it typically ranges from six to
twelve months.
The Company is in the process of integrating its sales and marketing
efforts to capitalize on its ability to offer outsourcing services as well as
software and software services. This integration process involves training the
Company's sales and marketing personnel to sell a full line of services and
products, forming a dedicated sales team to focus on larger accounts (generally
defined as insurance companies with annual premiums in excess of $250 million)
and expanding the Company's sales and marketing support staff to market directly
to specialty line insurance companies and new entrants into the P&C insurance
industry, such as banks and other financial services companies.
COMPETITION
The markets for policy and claims administration services and products are
highly competitive and subject to rapid changes in technology. The Company
competes in the following three markets serving the P&C insurance industry: (i)
outsourcing of policy administration, (ii) outsourcing of claims administration
and (iii) software and software services.
The policy administration outsourcing market is relatively new and is
dominated by PMSC. The Company competes for policy administration outsourcing
customers on the basis of customer service, performance and price. The claims
administration market is highly fragmented, with competition from a large number
of claims administration companies of varying size as well as independent
contractors and in-house claims adjusters employed by P&C insurance companies.
Competition in the claims administration market is highly price driven. Two of
the larger competitors in the claims administration arena are Lindsey Morden
Claim Services Inc. and Crawford & Company, Inc. The P&C insurance software and
software services market is highly competitive and is dominated by PMSC. The
Company competes for software customers on the basis of customer service,
performance, product features, ability to tailor products and services to
specific customer requirements, timely delivery and price. Other competitors
include Computer Sciences Corporation, The Freedom Group, Inc. and The Wheatley
Group, Ltd.
The Company believes that its most significant competition for outsourcing
services and software comes from policy and claims administration and
information systems development performed in-house by insurance companies.
Insurers that perform in-house administration typically have made a significant
investment in their policy and claims administration systems. In addition,
insurance company personnel have a vested interest in maintaining these
responsibilities in-house.
Many of the Company's competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
the Company, including name recognition with current and potential customers. As
a result, these competitors may devote more resources to the development,
promotion and sale of their products than the Company and respond more quickly
to emerging technologies and changes in customer requirements. In addition,
current and potential competitors may establish cooperative relationships among
themselves or with third parties to increase the ability of their services and
products to address customer needs. Accordingly, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors, or that competitive pressure faced by
the Company will not have a material adverse effect on its business, financial
condition, and results of operations.
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CUSTOMERS
The Company currently provides claims administration outsourcing services
to reinsurers and managing general agents. The Company has four claims
administration customers, including the Millers Group, Clarendon and Interco.
The Company has two significant policy administration outsourcing customers,
Clarendon and Millers Casualty. The Company provides services to Clarendon
through contracts with Blanch. The Company provides services to Interco, the
administrator to the Virginia Commission through a contract with the Virginia
Commission. Prior to its acquisition by the Company, SDS historically provided
its software and software services to P&C insurance companies with premium
revenues of less than $250 million. The Company intends to pursue sales
opportunities with larger insurance companies in the future. The Company
currently has over 130 software and software services customers, including
Employers Reinsurance Corporation, Zurich National Insurance Company, Providence
Washington Insurance Company, Firemen's Fund Insurance Company, Old Guard Group,
Inc., Colorado Farm Insurance Company, Society Insurance Company, Rockford
Mutual Insurance Company, and National Alliance Insurance Company.
The Millers Group, Clarendon and Interco accounted for approximately 68%,
8% and 21%, respectively, of the Company's historical revenues in 1996 and 25%,
3% and 8%, respectively, of the Company's pro forma revenues in 1996. The
Millers Group, Clarendon and Interco accounted for approximately 43%, 25% and
12%, respectively, of the Company's historical revenues for the three months
ended March 31, 1997 and 26%, 15% and 7%, respectively, of the Company's pro
forma revenues for such period. Any loss of or material decrease in the business
from any of these customers could have a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
As of May 31, 1997, the Company had 455 full-time employees, of whom 14
were employed in sales and marketing functions, 146 in customer support
functions, 69 in product development, installations, and quality assurance
functions, 187 in operations and 39 in finance and administration. The Company's
employees are not represented by any collective bargaining organization and none
of its employees are covered by a collective bargaining agreement. The Company
believes that its relationship with its employees is good. The Company regularly
seeks to identify skilled software engineers and other potential employee
candidates and experiences intense competition for personnel in the software
industry. The Company believes that its ability to recruit and retain highly
skilled technical, sales and marketing and other management personnel will be
critical to the Company's future success. There can be no assurance that the
Company will be able to hire a sufficient number of employees with the skills
necessary to enable the Company to attain its objective of becoming the leading
provider of policy and claims administration solutions to the P&C insurance
industry. As of March 31, 1997, the Company employed 102 employees through
Applied Quoting Systems, Inc. The Company has entered into a non-binding letter
of intent to sell this subsidiary. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of INSpire -- Recent
Developments."
INTELLECTUAL PROPERTY
The Company licenses its software systems to customers under nonexclusive
and nontransferable license agreements, which generally provide for a paid-up
license fee or a license fee payable in installments. The initial license fee
grants the customer the right to use the version of the software system existing
at the time the license is granted and does not cover upgrades or enhancements.
The Company relies upon contract rights and copyright and other
intellectual property laws to protect its products, including software source
code, as trade secrets and confidential proprietary information. The Company's
agreements with its customers and prospective customers prohibit disclosure of
the Company's trade secrets and proprietary information to third parties without
the consent of the Company and generally restrict the use of the Company's
products to the customers' operations. The Company also informs its employees of
the proprietary nature of its products and typically obtains from them
agreements not to disclose trade secrets and proprietary information.
Notwithstanding these restrictions, there can be no assurance that competitors
of the Company could not obtain unauthorized access to the Company's software
source code and
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<PAGE> 35
other trade secrets and proprietary information. The Company owns common law
trademarks, copyrights and service marks that it uses in connection with its
business, none of which are registered.
The Company is not engaged in any material disputes with other parties with
respect to the ownership or use of the Company's proprietary technology. There
can be no assurance, however, that third parties will not assert technology
infringement claims against the Company in the future. The litigation of such
claims may involve significant expense and management time. In addition, if any
such claim were successful, the Company could be required to pay monetary
damages, refrain from distributing the alleged infringing product, or obtain a
license from the party asserting the claim, which could be unavailable on
commercially reasonable terms. The absence of federal or state registrations for
its intellectual property could be detrimental to the Company in any
infringement litigation or other disputes regarding intellectual property.
LEGAL PROCEEDINGS
In February 1997, the Philadelphia Contributionship for the Insurance of
Houses from Loss by Fire ("PCIHLF") filed a lawsuit (Civil Action No.
97-CV-1262) against the Company in the United States District Court for the
Eastern District of Pennsylvania. The suit alleges that the PCA, PSP and UES
systems that SDS sold to PCIHLF in 1995 did not meet PCIHLF's specifications.
PCIHLF claims damages in excess of $1.3 million. The Company and the former SDS
shareholders placed $1.5 million of the SDS purchase price in an escrow account
in respect of this claim. The Company has no recourse against the former SDS
shareholders to the extent that the aggregate of any judgment, settlement and
expenses exceed the amount of the escrowed funds. SDS filed a counterclaim
against PCIHLF for $550,000 for amounts due under its agreements with PCIHLF.
There can be no assurance with respect to the outcome of this lawsuit.
The Company is not a party to any other legal proceedings that the Company
believes could have a material adverse effect on the Company's business,
financial condition or operating results.
PROPERTIES
The following table sets forth certain information with respect to the
principal facilities used in the Company's operations, all of which are leased:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION FUNCTION SQ. FT. EXPIRATION DATE
-------- -------- ----------- ---------------
<S> <C> <C> <C>
Fort Worth, Texas................. Headquarters and policy and 19,000 April 2001
claims administration
Sheboygan, Wisconsin.............. Software and software services 28,100 February 2007
Columbia, South Carolina.......... Software and software services 17,800 August 2002
Sheboygan, Wisconsin.............. Software and software services 6,500 February 2002
Uxbridge, Massachusetts........... Software and software services 1,600 June 1998
Laguna Hills, California.......... Claims administration 3,200 October 1998
St. Petersburg, Florida........... Claims administration 2,500 December 1999
Troy, Michigan.................... Claims administration 1,600 May 2000
</TABLE>
The Company also leases approximately 5,600 square feet in Westborough,
Massachusetts under a lease expiring in December 1998, which the Company
subleases to a subtenant under a sublease expiring in December 1998. In
addition, Applied Quoting Systems, Inc. leases approximately 16,900 square feet
in Hartland, Wisconsin under a lease expiring in July 1999. The Company recently
entered a non-binding letter of intent to sell this subsidiary. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of INSpire -- Recent Developments."
The Company believes that its existing facilities are adequate to meet the
Company's requirements for the foreseeable future.
33
<PAGE> 36
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
F. George Dunham, III...... 39 President, Chief Executive Officer, Chairman and
Director
Ronald O. Lynn............. 59 Executive Vice President and Chief Information
Officer
Terry G. Gaines............ 37 Executive Vice President and Chief Financial
Officer
Stuart H. Warrington....... 63 Executive Vice President -- Software and Systems
Robert K. Agazzi........... 53 Executive Vice President -- Software and Systems
Jeffrey W. Robinson........ 40 Executive Vice President -- Outsourcing
W. Scott Lewis............. 42 Executive Vice President -- Marketing
Harry E. Bartel............ 55 Director
R. Earl Cox, III........... 63 Director
Mitch S. Wynne............. 38 Director
</TABLE>
F. GEORGE DUNHAM, III has served as President, Chief Executive Officer and
a director of the Company since its inception in 1995. His current term as
director expires in 2000. Mr. Dunham served from inception to March 1996 as
Chairman of the Board of the Company and was again elected to that position in
June 1997. From 1994 to June 1997, Mr. Dunham served as President and Chief
Executive Officer of Millers Mutual and Millers Casualty. From 1992 to 1994, Mr.
Dunham served as Executive Vice President and Chief Financial Officer of Millers
Mutual and Millers Casualty. Mr. Dunham has served as a director of Millers
Mutual and Millers Casualty since 1992, and in June 1997 he was elected Vice
Chairman of the Board of both companies. From 1991 to 1992, Mr. Dunham served as
Vice President -- Finance of Lindsey Morden Claim Services, Inc., an insurance
claim services and administration company.
RONALD O. LYNN has served as Executive Vice President and Chief Information
Officer of the Company since March 1997 and, from March 1996 to March 1997, as
Vice President of the Company. Mr. Lynn also served as Executive Vice President
and Chief Information Officer from March 1997 to June 1997 and as Vice President
from 1993 to March 1997 of Millers Mutual and Millers Casualty. From 1992 to
1993, Mr. Lynn served as Vice President of Harco National Insurance Company,
where he was responsible for computer related functions. From 1988 to 1992, Mr.
Lynn served as Assistant Vice President of Property and Casualty Processing
Services for PMSC.
TERRY G. GAINES has served as Executive Vice President and Chief Financial
Officer of the Company since June 1997. From March 1997 to June 1997 Mr. Gaines
served as Vice President -- Finance and Administration of Federal Liaison
Services, Inc., a software development company, and from March 1996 to March
1997 as a Product Manager for that company. From 1992 to February 1996, Mr.
Gaines was Controller of the fixed income department of Rauscher Pierce Refsnes,
Inc., a regional investment banking firm, where he also served as Vice President
from August 1995 to February 1996. From 1989 to 1992 he served as Vice
President -- Finance of Richmond Petroleum Inc., an oil and gas company. Mr.
Gaines is a Certified Public Accountant and was employed by Deloitte & Touche
LLP from 1982 to 1989.
STUART H. WARRINGTON has served as Executive Vice President of Software and
Systems of the Company since July 1997. Mr. Warrington founded SDS and served as
its Chief Executive Officer from 1989 to July 1997, and as Chairman of the Board
from inception in 1981 until March 12, 1997. Mr. Warrington also served as
President of SDS from inception to 1989. Prior to 1981, Mr. Warrington served in
various executive management and analyst positions for several insurance and
software development companies.
ROBERT K. AGAZZI has served as Executive Vice President of Software and
Systems of the Company since July 1997. Mr. Agazzi served as President of SDS
from 1989 until July 1997 and as Vice President-Marketing
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<PAGE> 37
of SDS from 1983 to 1989. Prior to 1983, Mr. Agazzi served in various management
positions with PMSC and several insurance and software development companies.
JEFFREY W. ROBINSON has served as Executive Vice President -- Outsourcing
of the Company since June 1997. From November 1996 to June 1997, Mr. Robinson
served as Vice President -- Policy Life Cycle of the Company, Millers Mutual and
Millers Casualty. From 1985 to March 1997, Mr. Robinson served in various
management positions with PMSC, including Vice President of the Risk Services
Division. Prior to 1985, Mr. Robinson served in various management and analyst
positions for Home Insurance Company and Business Computer Systems, an insurance
processing and administration company.
W. SCOTT LEWIS joined the Company in May 1997 as Executive Vice
President -- Marketing. From 1988 to May 1997, Mr. Lewis served as Regional
Sales Manager of The Wheatley Group, Ltd., a software development and policy and
claims administration company. Prior to 1988, Mr. Lewis served in various sales
and sales management positions with PMSC and other companies that develop
software and sell administration services.
HARRY E. BARTEL has served as a director of the Company since 1996 and his
current term as director expires in 2000. Mr. Bartel also served as a director
of Millers Mutual and Millers Casualty from March 1995 to June 1997. Mr. Bartel
has been a partner with the law firm of Cantey & Hanger, L.L.P. since 1968.
R. EARL COX, III has served as a director of the Company since 1996 and his
current term as director expires in 1998. Mr. Cox also served as a director of
Millers Mutual and Millers Casualty from March 1987 to June 1997. Since 1977,
Mr. Cox has served as president of R.E. Cox Realty Co. and has been a co-owner
of OFCO Office Furniture, Inc. since 1985. Mr. Cox has served as a director of
KBK Capital Corp., a factoring company, since 1995 and a director and Chairman
of the Board of Tandycraft, Inc., a manufacturer and retailer of craft products,
since 1985.
MITCH S. WYNNE was elected as a director of the Company in March 1997 and
his current term as Director expires in 1999. Mr. Wynne also served as a
director of Millers Mutual and Millers Casualty from March 1997 to June 1997.
Mr. Wynne has owned and operated Wynne Petroleum Company, an oil and gas
production company, for more than five years.
EMPLOYMENT AND INDEMNIFICATION AGREEMENTS
The Company has entered into employment agreements with Messrs. Dunham,
Lynn, Robinson and Gaines, each of which terminates in June 2000, and which
provide for an annual salary for Mr. Dunham of $350,000 and annual salaries for
Messrs. Lynn, Robinson and Gaines of $115,000 each. As of the consummation of
this offering, Messrs. Dunham, Lynn, Robinson and Gaines will have options to
purchase 931,539; 158,362; 158,362; and 93,154 shares of Common Stock,
respectively, under the Stock Option Plan. Each of Messrs. Dunham, Lynn,
Robinson and Gaines is entitled to an annual bonus, based on the Company
achieving certain performance thresholds, of up to 50% of his base salary and is
subject to noncompetition and confidentiality provisions. Mr. Dunham's
employment agreement also permits him to serve as Vice Chairman of the Board of
Millers Mutual and Millers Casualty. See "-- Stock Option Plan."
Each employment agreement with Messrs. Dunham, Lynn, Robinson and Gaines
also provides that if there is a "change of control" of the Company, the
employee shall be paid, for the term of his employment agreement plus a period
of two years thereafter, his annual "cash compensation" (which is based upon
such employee's average cash compensation for the two years prior to such change
of control), along with an annual amount equal to 50% of such average annual
cash compensation (the "Bonus"). The total amount, however, cannot exceed the
amount that would cause such payment to be deemed a "parachute payment" under
Section 280G of the Internal Revenue Code. Each agreement also provides that the
payments to such employee will cease if he is terminated for cause or in the
event of reasonable proof of any violation of the noncompetition or
confidentiality provisions of his employment agreement. Also, if following a
change of control an employee voluntarily terminates employment for other than
good reason (as defined in the employment agreement), his annual cash
compensation and Bonus is payable for only one year following such termination.
35
<PAGE> 38
The Company also has entered into employment agreements with Messrs.
Warrington and Agazzi that terminate in March 1998. Mr. Warrington's agreement
provides for an annual salary of $190,500, options to purchase 93,154 shares of
Common Stock and deferred annual compensation of $40,000 to be paid each year
for the 20-year period commencing January 1, 1999 and ending December 31, 2018.
Mr. Agazzi's agreement provides for an annual salary of $169,000 and options to
purchase 93,154 shares of Common Stock. Messrs. Warrington and Agazzi are
subject to noncompetition and confidentiality provisions.
The Company has entered into indemnification agreements with each of its
directors. Each indemnification agreement provides that the Company shall
indemnify the director against certain liabilities and expenses actually and
reasonably incurred by the director in connection with any threatened, pending,
or completed action, suit or proceeding, including an action by or on behalf of
shareholders of the Company or by or in the right of the Company, to which the
director is, or is threatened to be made, a party by reason of his status as a
director, provided that such individual did not derive an improper benefit, such
individual did not commit acts or omissions that were not in good faith or that
involved intentional misconduct or a knowing violation of the law, or such
indemnification is not otherwise disallowed under Texas law.
EXECUTIVE COMPENSATION
During 1995 and 1996 Mr. Dunham was the President and Chief Executive
Officer of both the Company and Millers Mutual, and Millers Mutual paid all
compensation of Mr. Dunham and certain other officers of the Company who were
also officers of Millers Mutual. In turn, the Company paid Millers Mutual a
management fee. Accordingly, the Company did not pay any compensation during
1995 or 1996 to its Chief Executive Officer, and the total salary and bonus that
the Company paid to its other executive officers in 1996 did not exceed $100,000
with respect to any individual. See "Certain Transactions."
EMPLOYEE BENEFIT PLANS
Millers Mutual has a defined benefit pension plan that covers the employees
of the Company. The Company believes that an agreement will be reached between
Millers Mutual and the Company to provide that the assets of this plan
attributable to the Company's employees will be treated as if the Company's
employees were terminated employees under such plan. Millers Mutual and the
Company, however, have not yet determined the terms of such agreement. In
addition, the Company maintains a defined contribution plan for its employees
that is qualified under Section 401(k) of the Internal Revenue Code of 1986.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank G. Dunham, Jr., Frank A. Bailey, III, R. Earl Cox, III, F. George
Dunham, III and Frank C. Wilson served as members of the Compensation Committee
of the Company in 1996. Each member of the Compensation Committee in 1996 also
served as a member of the compensation committees for Millers Mutual and Millers
Casualty in 1996. Frank G. Dunham, Jr. is the father of F. George Dunham, III
and both men served as executive officers of the Company, Millers Mutual and
Millers Casualty in 1996. The Company has entered into certain transactions with
Millers Mutual and Millers Casualty. See "Certain Transactions."
The Compensation Committee has established salary and bonus levels for the
executive officers of the Company, including the Chief Executive Officer, based
on a combination of objective and subjective criteria. In certain cases, an
executive officer's salary and potential bonus has been established in an
employment agreement. See "-- Employment and Indemnification Agreements."
The Board of Directors has appointed an Audit Committee, consisting of R.
Earl Cox, III, Harry E. Bartel and Mitch S. Wynne, which will have
responsibility for reviewing the results and scope of the audit and other
services provided by the Company's independent certified public accountants.
36
<PAGE> 39
STOCK OPTION PLAN
The Stock Option Plan was adopted by the Board of Directors in March 1997
and is administered by the Board of Directors. The following executive officers
and other employees have been or will be granted options pursuant to the Stock
Option Plan:
<TABLE>
<CAPTION>
PRE-IPO OPTIONS(1) IPO OPTIONS(2)
----------------------------- -----------------------------
NUMBER OF SHARES EXERCISE NUMBER OF SHARES EXERCISE
NAME UNDERLYING OPTIONS PRICE UNDERLYING OPTIONS PRICE
---- ------------------ -------- ------------------ --------
<S> <C> <C> <C> <C>
F. George Dunham, III................ 279,462 $1.30 652,077(3) (4)
Ronald O. Lynn....................... 93,154 1.30 65,208 (4)
Terry G. Gaines...................... -- -- 93,154 (4)
Stuart H. Warrington................. 93,154 1.30 65,208 (4)
Robert K. Agazzi..................... 93,154 1.30 65,208 (4)
Jeffrey W. Robinson.................. 93,154 1.30 65,208 (4)
W. Scott Lewis....................... -- -- 46,577 (4)
Other employees...................... 188,170 1.30 32,603 (4)
------- ---------
Total...................... 840,248 1,085,243
======= =========
</TABLE>
- ---------------
(1) The pre-IPO options are subject to a two-year vesting schedule, with
one-third becoming exercisable on the date of grant and an additional
one-third becoming exercisable on each of the first two anniversaries of the
date of grant.
(2) The Board of Directors has approved the grant of certain options (the "IPO
Options") effective as of the date of this Prospectus. The IPO Options,
except for Mr. Dunham's, will be subject to a four-year vesting schedule,
with one-fifth becoming exercisable on the date of this Prospectus and an
additional one-fifth becoming exercisable on each of the first four
anniversaries of such date.
(3) The IPO Options that will be granted to Mr. Dunham are subject to a two-year
vesting schedule, with one-third becoming exercisable on the date of this
Prospectus and an additional one-third becoming exercisable on each of the
first two anniversaries of such date.
(4) The exercise price of the IPO Options will be the initial public offering
price per share of Common Stock.
A total of 2,250,000 shares of Common Stock have been reserved for issuance
pursuant to the Stock Option Plan. Options granted under the Stock Option Plan
may be exercised solely by the grantee, or in the case of a grantee's death or
incapacity, by the grantee's executors, administrators, guardians or other legal
representatives and are not assignable or transferable by such grantee.
37
<PAGE> 40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the number and percentage of the outstanding
shares of Common Stock owned beneficially as of the date of this Prospectus by:
(i) each director of the Company, (ii) each executive officer of the Company,
(iii) all directors and executive officers as a group and (iv) the only
shareholder that beneficially owned more than 5% of the Common Stock as of the
date of this Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK
PRIOR TO THIS OFFERING SHARES TO AFTER THIS OFFERING
----------------------- BE SOLD IN ---------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT THIS OFFERING SHARES PERCENT
------------------------ ---------- -------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
Millers Mutual........................ 7,000,000 100% 2,000,000(2) 5,000,000(3) 52.6%
F. George Dunham, III................. 310,513(1) 4.2 -- 310,513(1) 3.2
Ronald O. Lynn........................ 44,093(1) * -- 44,093(1) *
Terry G. Gaines....................... 18,631(1) * -- 18,631(1) *
Stuart H. Warrington.................. 44,093(1) * -- 44,093(1) *
Robert K. Agazzi...................... 44,093(1) * -- 44,093(1) *
Jeffrey W. Robinson................... 44,093(1) * -- 44,093(1) *
W. Scott Lewis........................ 9,315(1) * -- 9,315(1) *
Harry E. Bartel....................... -- * -- -- *
R. Earl Cox, III...................... -- * -- -- *
Mitch S. Wynne........................ -- * -- -- *
All directors and executive officers
as a group (10 individuals)......... 514,831(1) 6.9% -- 514,831(1) 5.1%
</TABLE>
- ---------------
* Less than 1%
(1) Represents shares of Common Stock subject to options exercisable as of the
date of this Prospectus and within 60 days thereafter.
(2) Assuming exercise in full of the Underwriters' over-allotment option,
Millers Mutual will sell 2,300,000 shares of Common Stock in this offering.
(3) Assuming exercise in full of the Underwriters' over-allotment option,
Millers Mutual will own 4,700,000 shares of Common Stock, constituting 47.6%
of the outstanding shares of Common Stock.
CERTAIN TRANSACTIONS
BENEFITS ADMINISTRATION CONTRACT
In July 1997, the Company and Millers Mutual agreed on the terms of a
benefits administration contract (the "Benefits Administration Contract")
pursuant to which Millers Mutual will provide the Company with certain benefits
administration services, including payroll, and the Company will pay Millers
Mutual a service fee of $15,000 per month. The term of the Benefits
Administration Contract will be three years. The Benefits Administration
Contract is subject to approval by the TDI before it may be executed.
The Company and Millers Mutual are parties to a management agreement
effective as of July 1, 1995, as amended (the "Management Agreement"), under
which Millers Mutual provides certain management, administrative and support
services for and on behalf of the Company, including personnel, legal, banking,
investment, financial, payroll, accounting and recordkeeping, marketing and
sales, management information and electronic data processing. The Company pays
Millers Mutual a monthly fee of $200,000 plus an annual fee equal to a fixed
percentage, to be determined annually by mutual agreement of the parties, of the
Company's pre-tax income. For 1995 and 1996, the Company paid Millers Mutual
management fees of $600,000 and $3.1 million, respectively. For the three months
ended March 31, 1997, the Company paid Millers Mutual management fees of
$626,286. The Management Agreement will be replaced by the Benefits
Administration Contract.
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<PAGE> 41
SERVICE CONTRACT
In July 1997, the Company, Millers Mutual and Millers Casualty agreed on
the terms of an amended and restated service contract (the "Service Contract"),
which provides for the Company to perform claims administration services for and
on behalf of Millers Mutual and Millers Casualty. Under the Service Contract,
each of Millers Mutual and Millers Casualty will pay a monthly service fee equal
to: (i) 7.5% of monthly net earned premiums for the agribusiness line of
business, (ii) 10.2% of monthly net earned premiums for the commercial casualty
line of business, (iii) 8.5% of monthly net earned premiums for the commercial
property line of business and (iv) 7.5% of monthly net earned premiums for
personal lines of business. The Service Contract provides that these percentages
will be adjusted annually based on the agreement of the parties. The term of the
Service Contract will be three years. The Service Contract is subject to
approval by the TDI before it may be executed.
The Company, Millers Mutual and Millers Casualty are parties to a service
contract effective as of January 1, 1996, under which the Company provides
claims administration services to Millers Mutual and Millers Casualty. This
contract will be replaced by the Service Contract. Under this contract, each of
Millers Mutual and Millers Casualty pays a monthly service fee equal to: (i)
8.5% of monthly net earned premiums for agribusiness and commercial lines of
business and (ii) 7.5% of monthly net earned premiums for personal lines of
business (excluding the premiums written through Sun Coast General Agency for
Millers Mutual, with respect to which Millers Mutual pays a monthly service fee
of 7.0% of monthly net earned premiums). Millers Mutual and Millers Casualty
paid the Company aggregate service fees under this contract of $3.4 million in
1995 and $7.6 million in 1996. For the three months ended March 31, 1997,
Millers Mutual and Millers Casualty paid the Company aggregate service fees
under this contract of $1.6 million.
INFORMATION SERVICES CONTRACT
In July 1997, the Company, Millers Mutual and Millers Casualty agreed on
the terms of an amended and restated information services contract (the
"Information Services Contract"), which will require the Company to provide
certain information system services to Millers Mutual and Millers Casualty,
including telecommunications services, hardware services, application software
services, system software services, network services and system integration
services. Under the Information Services Contract, each of Millers Mutual and
Millers Casualty will pay a monthly service fee equal to monthly net written
premiums, multiplied by 6% for the remainder of 1997, 5.5% in 1998, 5% in 1999,
and thereafter such percentage as may be agreed upon by the parties. The term of
the Information Services Contract will be three years. The Information Services
Contract is subject to approval by the TDI before it may be executed.
The Company, Millers Mutual and Millers Casualty are parties to an
information services contract, effective as of January 1, 1997, under which the
Company provides certain information system services. This contract will be
replaced by the Information Services Contract. Under this contract, each of
Millers Mutual and Millers Casualty pays a monthly service fee of 6% of monthly
net written premiums. For the three months ended March 31, 1997, Millers Mutual
and Millers Casualty paid the Company an aggregate of $1.3 million under this
contract.
OUTSOURCING SERVICES CONTRACTS WITH MILLERS CASUALTY
In May 1997, the Company and Millers Casualty agreed on the terms of a
policy administration services agreement (the "Policy Administration Services
Agreement") pursuant to which the Company will provide policy administration
services for Millers Casualty's homeowners line of business in Florida. Millers
Casualty will pay a monthly service fee equal to 5.6% of its monthly direct
written premiums, subject to a $50.51 per policy minimum. The term of the Policy
Administration Services Agreement will be three years, which will automatically
renew for additional three-year terms unless terminated by either party. The
Policy Administration Services Contract is subject to approval by the TDI before
it may be executed.
In June 1997, the Company and Millers Casualty agreed on the terms of a
claims administration services agreement (the "Claims Administration Services
Agreement") pursuant to which the Company will provide claims administration
services for Millers Casualty's homeowners line of business in Florida. Millers
Casualty
39
<PAGE> 42
will pay a monthly service fee equal to 7% of its monthly gross direct earned
premiums for noncatastrophe claims and 5% of incurred catastrophe loss for
catastrophe claims. The term of the Claims Administration Services Agreement
will be three years, which will automatically renew for additional three-year
terms unless terminated by either party. The Claims Administration Services
Contract is subject to approval by the TDI before it may be executed.
MISCELLANEOUS
As of June 30, 1997, the Company had outstanding borrowings from Millers
Mutual of $2.8 million for working capital purposes. The largest borrowings from
Millers Mutual outstanding since the inception of the Company was $4.3 million.
See "Use of Proceeds."
In 1993, Millers Mutual licensed SDS software pursuant to a license
agreement with SDS. For 1994, 1995, 1996 and the three months ended March 31,
1997, Millers Mutual paid SDS $16,222, $31,077, $31,662 and $7,793,
respectively, for software and software services.
The Company leases its principal Sheboygan, Wisconsin facility pursuant to
a lease, dated March 12, 1997 (the "Building Lease"). The building is owned by
Riverview, which is controlled by Stuart H. Warrington, an Executive Vice
President of the Company. The term of the Building Lease ends February 28, 2007.
Pursuant to the Building Lease, Riverview leases to the Company approximately
28,000 square feet of office space at a monthly rate of approximately $21,000
for the first four years, $23,000 for the next five years, and $25,000 for the
last year.
The Company leases its approximately 19,000 square foot headquarters in
Fort Worth, Texas from Millers Mutual pursuant to a lease, effective as of May
1, 1996 (the "Lease"), which provides for monthly rental payments of
approximately $25,000. The term of the Lease ends April 30, 2001.
The Company and Millers Mutual are parties to a sublease agreement, dated
as of January 1, 1997, pursuant to which Millers Mutual subleases to the Company
certain furniture, equipment and other personal property that Millers Mutual has
leased from third parties under various equipment leases for the benefit of the
Company. The sublease payments by the Company to Millers Mutual under the
sublease equal the lease payments by Millers Mutual to the lessors under the
respective leases.
Millers Mutual, the Company and the other subsidiaries of Millers Mutual
are parties to the Tax Sharing Agreement. Under the Tax Sharing Agreement,
Millers Mutual must pay the Company an amount equal to any decrease in the
income taxes otherwise payable by the Millers Mutual consolidated tax group
attributable to any net losses of the Company. Conversely, the Tax Sharing
Agreement requires the Company to pay to Millers Mutual the amount of any income
taxes that the Company would have paid if it had not been included in the
Millers Mutual consolidated group. For the period from April 28, 1995 through
December 31, 1995, the Company received from Millers Mutual $337,000 under the
Tax Sharing Agreement. The amounts of any payments for 1996 and 1997 have not
yet been determined. The Company believes that the parties to the Tax Sharing
Agreement will amend it in contemplation of the Company leaving the Millers
Mutual consolidated group as a result of this offering. The Company expects such
amendment to provide that the Company will indemnify the other members of the
Millers Mutual consolidated group for any of the group's income taxes and
related expenses attributable to the Company and Millers Mutual will indemnify
the Company for any income taxes and related expenses attributable to any
members of the consolidated group other than the Company. The amendment of the
Tax Sharing Agreement will be subject to approval by the TDI.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 14,000,000 shares of Common Stock, par value $0.01 per
share, of which 9,500,000 shares will be outstanding immediately following this
offering, and 1,000,000 shares of Preferred Stock, par value $1.00 per share
(the "Preferred Stock"), of which no shares will be outstanding immediately
following this offering. The following summary of the Company's capital stock is
qualified in its entirety by reference to the Company's Restated
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Articles and its Bylaws, each of which is filed as an exhibit to the
registration statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by shareholders, including the election of directors, and do
not have cumulative voting rights. Subject to the rights of any then outstanding
shares of Preferred Stock, the holders of the Common Stock are entitled to such
dividends as may be declared in the discretion of the Board of Directors out of
funds legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of the
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock in the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued by the Company pursuant to this offering
will be, upon payment therefor, fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock will be subject to those
of the holders of any shares of Preferred Stock the Company may issue in the
future. See "Dividend Policy."
PREFERRED STOCK
The Board of Directors may from time to time authorize the issuance of one
or more classes or series of Preferred Stock without shareholder approval.
Subject to the provisions of the Restated Articles and limitations prescribed by
law, the Board of Directors is authorized to adopt resolutions to issue the
shares, establish the number of shares, change the number of shares constituting
any series, and provide or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions on shares of Preferred Stock, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences, in each case without any action or vote by
the shareholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to discourage an attempt to obtain control of the Company by
means of a tender offer, proxy contest, merger or otherwise, and thereby protect
the Company's management. The issuance of Preferred Stock pursuant to the Board
of Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
trading price of the Common Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Restated Articles, upon completion of this offering there will be
2,250,000 shares of Common Stock (excluding 2,250,000 shares reserved for
issuance under the Stock Option Plan) and 1,000,000 shares of Preferred Stock
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital or facilitate acquisitions. The
Company does not currently have any plans to issue additional shares of Common
Stock or Preferred Stock (other than shares of Common Stock issuable upon the
exercise of options under the Stock Option Plan previously granted or to be
granted in the future).
SPECIAL PROVISIONS OF THE RESTATED ARTICLES, THE BYLAWS AND TEXAS LAW
The Texas Miscellaneous Corporation Laws Act (the "Texas Miscellaneous
Laws") authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their shareholders for monetary damages for breach
of their fiduciary duty as directors except for liability of a director
resulting from: (i) a breach of such director's duty of loyalty to the
corporation or its shareholders, (ii) an act or omission that is
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<PAGE> 44
not in good faith or that involves intentional misconduct or a knowing violation
of laws, (iii) a transaction from which the director received an improper
personal benefit or (iv) an act or omission for which the liability of the
director is expressly provided by an applicable statute. The Restated Articles
limit the liability of directors of the Company (in their capacity as directors
but not in their capacity as officers) to the Company or its shareholders to the
fullest extent permitted by the Texas Miscellaneous Laws. The inclusion of this
provision in the Restated Articles may reduce the likelihood of derivative
litigation against directors and may discourage or deter shareholders from suing
directors for breach of their duty of care, even though such an action, if
successful, might otherwise benefit the Company and its shareholders. The
inclusion of such provisions in the Restated Articles together with a provision
requiring the Company to indemnify its directors, officers and certain other
individuals against certain liabilities, is intended to enable the Company to
attract qualified persons to serve as directors who might otherwise be reluctant
to do so. The Securities and Exchange Commission has taken the position that
personal liability of directors for violations of the federal securities laws
cannot be limited and that indemnification by the issuer for such violations is
unenforceable.
The Company has entered into separate indemnification agreements with each
of its directors that may require the Company, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors to the maximum extent permitted under the TBCA and advance
their expenses incurred as a result of any proceeding against them for which
they could be indemnified, obtain directors' and officers' insurance or maintain
self-insurance in lieu thereof.
Under the TBCA, the board of directors of a corporation has the power to
amend and repeal the corporation's bylaws unless the corporation's articles of
incorporation reserve the power exclusively to the shareholders or a particular
bylaw expressly provides that the board of directors may not amend or repeal the
bylaw. The Restated Articles give the Board of Directors the power to amend and
repeal the Company's Bylaws. The Company's Restated Articles and Bylaws also
provide that the number of directors shall be fixed from time to time by
resolution of the Board of Directors. These provisions, in addition to the
existence of authorized but unissued capital stock, may have the effect, either
alone or in combination with each other, of discouraging an acquisition of the
Company deemed undesirable by the Board of Directors.
ANTI-TAKEOVER CONSIDERATIONS
ANTI-TAKEOVER STATUTE. Beginning September 1, 1997, the Company will become
subject to newly-enacted Part 13 of the TBCA ("Part 13"), which subject to
certain exceptions, prohibits a Texas corporation from engaging in any "business
combination" with an "affiliated shareholder" for three years following the date
that such shareholder became an affiliated shareholder, unless: (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction that resulted in the shareholder
becoming an affiliated shareholder or (ii) the business combination is
authorized at a meeting of shareholders called not less than six months after
such date by the affirmative vote of at least two-thirds of the outstanding
voting shares not owned by the affiliated shareholder.
Part 13 generally defines a "business combination" to include: (i) any
merger, share exchange or conversion involving the corporation and the
affiliated shareholder, (ii) any sale, lease, exchange, mortgage, pledge,
transfer, or other disposition of 10% or more of the assets of the corporation
to the affiliated shareholder, (iii) subject to certain exceptions, any
transaction that results in the issuance or transfer by the corporation of any
stock of the corporation to the affiliated shareholder, (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
ownership percentage of the stock of any class or series of the corporation
beneficially owned by the affiliated shareholder, (v) any receipt by the
affiliated shareholder of the benefit of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the corporation or
(vi) any adoption of a plan or proposal for the liquidation or dissolution of
the corporation proposed by, or pursuant to any agreement or understanding with,
an affiliated shareholder. In general, Part 13 defines an "affiliated
shareholder" as any entity or person beneficially owning 20% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. As Millers Mutual
will own more than 20% of the Common Stock outstanding before this offering,
however, transactions between Millers Mutual and the Company will not be
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<PAGE> 45
subject to these restrictions. The provisions of Part 13 could have the effect
of delaying, deferring, or preventing a change of control of the Company even if
a change of control were in the shareholders' interests.
CLASSIFIED BOARD OF DIRECTORS. The Restated Articles provide for the Board
of Directors to be divided into three classes serving staggered three-year
terms. The term of office of the first class of directors will expire at the
1998 annual meeting of shareholders, the term of office of the second class will
expire at the 1999 annual meeting of shareholders and the term of office of the
third class will expire at the 2000 annual meeting of shareholders. The terms of
office of the current directors of the Company are set forth herein under
"Management -- Directors and Executive Officers."
At each annual meeting of shareholders, the class of directors to be
elected at such meeting will be elected for a three-year term, and the directors
in the other two classes will continue in office. As holders of Common Stock
will have no right to cumulative voting for the election of directors, at each
annual meeting of shareholders Millers Mutual, as the holder of a majority of
the shares of Common Stock, will be able to elect all of the successors of the
class of directors whose term expires at that meeting. In addition, the
staggered terms for directors may affect the shareholders' ability to change
control of the Company even if a change of control were in the shareholders'
interests.
SHAREHOLDER ACTION. Unless limited by the articles of incorporation, the
TBCA permits shareholder action without a meeting, without prior notice, and
without a vote, upon the written consent of all of the holders of outstanding
stock. The Restated Articles prohibit shareholder action without a meeting,
except when the Company has ten or fewer shareholders. The Company's Bylaws
provide that special meetings of the shareholders may be called only by the
President, Chairman of the Board, a majority of the Board of Directors or the
holders of at least 10% of all shares entitled to vote at the proposed meeting.
These provisions could have the effect of delaying, deferring or preventing a
change of control of the Company even if a change of control were in the
shareholders' interests.
RIGHTS AGREEMENT. Prior to the consummation of this offering, the Board of
Directors will authorize and declare a dividend distribution of one right (a
"Right") for each outstanding share of Common Stock of the Company to the sole
shareholder as of the date of the adoption of the Rights Agreement (as defined
below). One Right shall thereafter be issued for each share of Common Stock that
shall become outstanding between the date of adoption of the Rights Agreement
and the earliest of the Distribution Date (as defined below), the Final
Expiration Date (as defined below), and the date the Rights are redeemed. Except
as described below, each Right represents the right to purchase from the Company
one one-hundredth ( 1/100) of a share of Series A Junior Preferred Stock, par
value $1.00 per share (the "Preferred Shares"), at a price of $ (the
"Exercise Price"), subject to adjustment. The mechanics of such adjustment, the
timing of the exercise for the Rights, and the description, terms and
preferences of the Rights are set forth in the Rights Agreement (the "Rights
Agreement") between the Company and U.S. Trust Company of Texas, N.A., as Rights
Agent. A copy of a form of the Rights Agreement has been filed with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this Prospectus is a part. This summary of the Rights Agreement and the
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement.
The Rights will be evidenced by the Common Stock certificates and not by
separate certificates until the earlier of: (i) ten days following a public
announcement that a person or group of affiliated or associated persons, with
certain limited exceptions (an "Acquiring Person"), has acquired, or obtained
the right to acquire, beneficial ownership of capital stock of the Company
representing 10% or more of the voting power of the Company (the "Stock
Acquisition Date") or (ii) ten business days (or such later date as may be
determined by action of the Board of Directors upon approval by a majority of
the Continuing Directors (as defined below), prior to the time that any person
becomes an Acquiring Person) following the commencement of (or a public
announcement of an intention to make) a tender or exchange offer if, upon
consummation thereof, such person or group would be the beneficial owner of
capital stock of the Company representing 10% or more of the voting power of the
Company (such date being called the "Distribution Date").
Until the Distribution Date: (i) the Rights shall be transferred with, and
only with, the Common Stock and (ii) the transfer of any Common Stock
certificates shall also constitute the transfer of the Rights
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<PAGE> 46
associated therewith. Following the Distribution Date, separate certificates
evidencing the Rights (the "Right Certificates") will be mailed to the record
holders of Common Stock as of the close of business on the Distribution Date,
and thereafter such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date, and will expire
upon the earliest of: (i) the close of business on the tenth anniversary of the
adoption of the Rights Agreement (the "Final Expiration Date"), (ii) the
redemption of the Rights by the Company as described below or (iii) the exchange
of the Rights by the Company as described below.
A person generally will not become an Acquiring Person under the Rights
Agreement if such person is: (i) the Company, (ii) a subsidiary of the Company,
(iii) an employee benefit plan or employee stock plan of the Company or of a
subsidiary of the Company, (iv) Millers Mutual or an affiliate or associate of
Millers Mutual, (v) F. George Dunham, III, or any of the members of his family
or certain trusts, estates or other entities created for their benefit or
controlled by them, (vi) an "Exempt Person" (as defined in the Rights Agreement)
as designated by the Board of Directors or (vii) an Acquiring Person solely by
reason of (A) obtaining 10% or more of the voting power of the Company through
transactions approved by a majority of the Board of Directors and Continuing
Directors before such person or group became an Acquiring Person or (B) a
reduction in the number of shares of voting stock of the Company pursuant to a
transaction approved by a majority of the Board of Directors and Continuing
Directors.
Unless the Rights are earlier redeemed, in the event that a person or group
becomes the beneficial owner of capital stock of the Company representing 10% or
more of the voting power of the Company (other than pursuant to a tender or
exchange offer for all outstanding shares of Common Stock of the Company
approved by a majority of the Board of Directors and Continuing Directors), each
holder of Rights will thereafter have the right to exercise its Rights and to
receive, upon payment of the Exercise Price (as adjusted), for each of its
Rights, such number of shares of Common Stock of the Company (or in certain
circumstances, cash, property, or other securities of the Company) as shall have
a value equal to twice the Exercise Price. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of the Company,
including without limitation the right to vote or to receive dividends.
Notwithstanding anything to the contrary, however, following the time that a
person becomes an Acquiring Person, any Rights that are beneficially owned by
such Acquiring Person or by a transferee of such Acquiring Person shall
automatically become null and void.
The Exercise Price payable and the number of Preferred Shares, shares of
Common Stock or other securities or property issuable upon exercise of a Right,
and the number of Rights outstanding, are subject to adjustment from time to
time to prevent dilution. In addition, if at any time on or after the
Distribution Date the Company is merged into or consolidates with another person
and the Company does not survive such merger or consolidation or all or part of
the shares of Common Stock are in connection with such merger or consolidation
exchanged for securities of another person, or the Company or one or more of the
subsidiaries of the Company transfers to any other person 50% or more of the
assets or earning power of the Company and the subsidiaries, proper provision
will be made so that each holder of a Right will thereafter have the right to
receive, upon exercise at the then current Exercise Price of the Right, common
stock of the applicable issuer or the surviving company having a value equal to
twice the Exercise Price of the Right.
Upon the exercise of a Right, the Company will not be required to issue
fractional Preferred Shares (other than fractions in multiples of one
one-hundredth of a Preferred Share), and in lieu thereof may issue depositary
receipts evidencing fractions of such shares or cash based on the Fair Market
Value (as defined in the Rights Agreements) of Preferred Shares.
At any time after the date of the Rights Agreement until the earlier of ten
days after the Stock Acquisition Date or the Final Expiration Date, the Company
may, upon approval by a majority of the Board of Directors and Continuing
Directors, redeem the Rights in whole, but not in part, at a price of $0.01 per
Right (the "Redemption Price"), subject to adjustment. The Redemption Price may,
at the option of the Company, be paid in cash, shares of Preferred Stock or
shares of Common Stock. The Rights will thereupon terminate and the only right
of the holders of Rights will be to receive the Redemption Price.
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At any time after a person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by any such person or
group of 50% or more of the voting power of the Company, the Board of Directors
(with the approval of a majority of the Continuing Directors) may exchange the
Rights (other than Rights owned by such person or group which have become void),
in whole or in part, at an exchange ratio of one share of Common Stock (or a
fraction of a share of Preferred Stock or other consideration having equivalent
value) per Right, subject to adjustment.
As long as the Rights are redeemable, the provisions of the Rights
Agreement may be amended by the Company without the approval of any holders of
the Rights. Any amendment adopted thereafter may not materially adversely affect
the interests of holders of the Rights.
For purposes of the Rights Agreement, a "Continuing Director" means any
member of the Board of Directors who is not an Acquiring Person or an affiliate
or associate of an Acquiring Person, or a representative or nominee of an
Acquiring Person or any such affiliate or associate and who either (i) was a
member of the Board of Directors on the date the Rights Agreement was adopted or
(ii) subsequently became a member of the Board of Directors and whose nomination
for election or election to the Board was recommended or approved by a majority
of the Continuing Directors then on the Board of Directors.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
other than pursuant to a tender offer or other transaction approved by the Board
of Directors. The Rights, however, provide the Board of Directors and the
Acquiring Person a ten-day period to negotiate such a merger or consolidation
before the Rights become exercisable. If an acceptable arrangement is reached
within this period, the Board of Directors may redeem all of the Rights.
PREFERRED STOCK. The Restated Articles permit the Company's Board of
Directors to issue Preferred Stock at any time without shareholder approval. See
"-- Preferred Stock" and "-- Certain Effects of Authorized but Unissued Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock.
Future sales of a substantial number of shares of Common Stock in the public
market could adversely affect trading prices prevailing from time to time. The
Selling Shareholder will hold 5,000,000 shares, representing 52.6% of the
outstanding shares of Common Stock after this offering (47.6% if the
Underwriters' over-allotment option is exercised in full), and a decision by the
Selling Shareholder to sell shares of Common Stock in the open market could
adversely affect the trading price of the Common Stock.
Upon completion of this offering, the Company will have outstanding
9,500,000 shares of Common Stock (9,875,000 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the shares sold in
this offering will be freely tradable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act.
The remaining 5,000,000 shares (4,700,000 shares if the Underwriters'
over-allotment option is exercised in full) held by the Selling Shareholder will
be "restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if such sale is registered under the Securities Act or if it
qualifies for an exemption from registration, such as the one provided by Rule
144 promulgated under the Securities Act, which is summarized below. Sales of
the Restricted Shares in the open market, or the availability of such shares for
sale, could adversely affect the trading price of the Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year following the later of the date of the acquisition of such shares
from the issuer or an affiliate of the issuer would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) 1% of the number of shares of Common
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Stock then outstanding (approximately 95,000 shares immediately after this
offering, or 98,750 shares if the Underwriters' overallotment option is
exercised in full) or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and the availability of current public
information about the Company. Rule 144 generally becomes available 90 days
after the issuer has been subject to the information reporting requirements of
the Exchange Act. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
following the later of the date of the acquisition of such shares from the
issuer or an affiliate of the issuer, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering the offering and sale of the 2,250,000 shares of Common
Stock reserved for issuance under the Stock Option Plan. Accordingly, shares of
Common Stock issued upon exercise of options granted under the Stock Option Plan
will be available for sale in the open market, unless such shares are subject to
vesting restrictions or certain lock-up agreements. See "Underwriting."
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, the
Underwriters named below, through their representatives, Raymond James &
Associates, Inc. and Southwest Securities, Inc. (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholder the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Raymond James & Associates, Inc.............................
Southwest Securities, Inc...................................
---------
Total............................................. 4,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to certain conditions. The Underwriters are obligated
to take and pay for all shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are to
be purchased.
The Underwriters, through the Representatives, propose to offer part of the
shares of Common Stock directly to the public at the offering price set forth on
the cover page of this Prospectus and part of the shares to certain dealers at a
price that represents a concession not in excess of $ per share under
the initial public offering price. The Underwriters may allow, and such dealers
may re-allow, a concession not in excess of $ per share to certain
other dealers. The Representatives of the Underwriters have advised the Company
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company and the Selling Shareholder have granted the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to an aggregate of 675,000 additional shares of Common Stock, at the
initial public offering price, less the underwriting discounts and commissions
set forth on the cover page of this Prospectus. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof that the number
of shares of Common Stock to be purchased by it shown in the above table bears
to the total shown, and the Company and the Selling Shareholder will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise their option only to cover over-allotments made in
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<PAGE> 49
connection with the sale of the shares of Common Stock offered hereby. If
purchased, the Underwriters will sell such additional shares on the same terms
as those on which the shares that the Underwriters have agreed to purchase from
the Company and the Selling Shareholder are being offered.
This offering of Common Stock is made for delivery when, as and if accepted
by the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Until the distribution of Common Stock in this offering is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Representatives are permitted
to engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock. If the Underwriters create
a short position in the Common Stock in connection with the offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Representatives may reduce the short position by purchasing
Common Stock in the open market. The Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment options
described above. The Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase shares of Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the offering. In general, purchases of
a security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases. The imposition of a penalty bid might also have an effect on the
price of a security to the extent that it discouraged resales of any security.
Neither the Company, the Selling Shareholder, nor any of the Underwriters makes
any representation or predictions as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common Stock.
In addition, neither the Company, the Selling Shareholder, nor any of the
Underwriters makes any representation that the Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Company, the Selling Shareholder and certain officers and directors of
the Company, which upon consummation of this offering will own or have the right
to acquire in the aggregate 5,514,831 shares of Common Stock, have agreed that
they will not, without the prior written consent of Raymond James & Associates,
Inc., sell, offer to sell, contract to sell or otherwise transfer or dispose of
any shares of Common Stock (other than the shares offered by the Selling
Shareholder in this offering), options, rights or warrants to acquire shares of
Common Stock, or securities exchangeable for or convertible into shares of
Common Stock, during the 180-day period commencing on the date of this
Prospectus, except that the Company may issue shares of Common Stock upon
exercise of options outstanding under the Stock Option Plan and may grant
additional options under the Stock Option Plan, provided that without the prior
written consent of Raymond James & Associates, Inc., such additional options
shall not be exercisable during such period. See "Shares Eligible for Future
Sale."
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company, the Selling Shareholder and the
Representatives. Among the factors to be considered in determining the initial
public offering price are prevailing market and economic conditions, revenues
and earnings of the Company, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover page of
this Prospectus is subject to change as a result of market conditions and other
factors.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain civil
liabilities, including liabilities under the Securities Act.
The Company has additionally agreed to pay to the Representatives solely by
deduction from the proceeds of this offering a financial advisory fee equal to
the lesser of (i) three-fourths of one percent (0.75%)
47
<PAGE> 50
of the gross proceeds to the Company and the Selling Shareholder of this
offering or (ii) $300,000. Such financial advisory fee shall be paid by the
Company and the Selling Shareholder in proportion to the respective number of
shares of Common Stock being offered by them hereby, and relates to financial
advisory services provided by the Representatives to the Company and Selling
Shareholder in connection with the offering and related matters.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement, which is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
At the Company's request, the Underwriters have reserved up to
shares of Common Stock for sale to the Company's employees and designees and
have agreed to permit them to buy such shares at 96% of the initial public
offering price. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent purchasers designated by the
Company purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public at the initial public
offering price.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Dallas,
Texas. Certain matters will be passed upon for the Underwriters by Thompson &
Knight, A Professional Corporation, Dallas, Texas.
EXPERTS
The financial statements of the Company as of and for the year ended
December 31, 1996 and as of December 31, 1995 and for the period April 28, 1995
(date of inception) to December 31, 1995 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, and have been so
included in reliance upon the opinion of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Strategic Data Systems, Inc. and
subsidiary as of and for the three years in the period ended December 31, 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, and have been so included in reliance upon the opinion of
such firm given upon their authority as experts in accounting and auditing.
During 1996, the Company changed its independent accountants from Price
Waterhouse LLP ("Price Waterhouse") to Deloitte & Touche LLP. There were no
disagreements between the Company and Price Waterhouse on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure that if not resolved to the satisfaction of Price Waterhouse
would have caused such firm to make reference thereto in connection with its
reports on the financial statements of the Company. The Company's decision to
change to Deloitte & Touche LLP was approved by the Board of Directors of the
Company. In 1997, in connection with the SDS Acquisition, SDS changed its
independent accountants from KPMG Peat Marwick LLP ("KPMG") to Deloitte & Touche
LLP, the Company's accountants. There were no disagreements between SDS and KPMG
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure that if not resolved to the
satisfaction of KPMG would have caused such firm to make reference thereto in
connection with its reports on the financial statements of SDS. SDS's decision
to change its independent accountants was approved by the Board of Directors of
the Company.
48
<PAGE> 51
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Exchange Act. The Company has filed with the Securities and Exchange
Commission (the "Commission"), a Registration Statement on Form S-1 under the
Securities Act (the "Registration Statement") with respect to the offering and
sale of Common Stock. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, New York, New York 10048 and at 500 Madison Street, Chicago,
Illinois 60661, upon payment of certain fees prescribed by the Commission. The
Commission maintains an Internet world wide web site that contains reports,
proxy and information reports and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. The site
can be accessed at http://www.sec.gov.
The Company intends to distribute to the holders of Common Stock annual
reports containing consolidated financial statements audited by independent
accountants.
49
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Condensed Consolidated Financial Information...... F-2
Pro Forma Condensed Consolidated Financial Statements....... F-3
Notes to Condensed Consolidated Pro Forma Financial
Statements................................................ F-6
INSPIRE INSURANCE SOLUTIONS, INC. FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-7
Financial Statements:
Balance Sheets............................................ F-8
Statements of Operations.................................. F-9
Statements of Shareholder's Equity........................ F-10
Statements of Cash Flows.................................. F-11
Notes to Financial Statements............................. F-12
STRATEGIC DATA SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-22
Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-23
Consolidated Statements of Operations..................... F-24
Consolidated Statements of Shareholders' Equity........... F-25
Consolidated Statements of Cash Flows..................... F-26
Notes to Consolidated Financial Statements................ F-27
</TABLE>
F-1
<PAGE> 53
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
INTRODUCTION
The accompanying unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1996 and for the three months ended
March 31, 1997 reflect: (i) the acquisition of Strategic Data Systems, Inc.
("SDS") using the purchase method of accounting as if the acquisition of SDS,
which occurred on March 12, 1997, had occurred on January 1, 1996 and (ii) the
results of operations of INSpire Insurance Solutions, Inc. (the "Company") as if
the Company had operated on an independent basis separate from The Millers
Mutual Fire Insurance Company ("Millers Mutual") since January 1, 1996.
The unaudited pro forma condensed consolidated statements of operations are
based on currently available information and do not purport to represent what
the Company's results of operations would have been if the events referred to
above had occurred on January 1, 1996, or to project the Company's results of
operations for any future periods.
The pro forma condensed consolidated statements of operations should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of INSpire," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of SDS," the Company's
Financial Statements and SDS's Consolidated Financial Statements.
F-2
<PAGE> 54
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INSPIRE INSURANCE STRATEGIC DATA PRO FORMA
SOLUTIONS, INC. SYSTEMS, INC. COMBINED ADJUSTMENTS PRO FORMA(A)
----------------- -------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Outsourcing services......... $13,653 $ -- $ 13,653 $ -- $ 13,653
Software and software
services.................. -- 18,239 18,239 -- 18,239
Other........................ -- 5,425 5,425 -- 5,425
------- ------- --------- ---------
Total revenues....... 13,653 23,664 37,317 -- 37,317
Operating expenses............. 14,430 22,629 37,059 922(b) 35,827
(2,920)(c)
559(d)
(887)(e)
1,200(f)
930(g)
(106)(h)
------- ------- --------- ---------
Operating income (loss)........ (777) 1,035 258 1,490
Interest expense............... (2) (207) (209) (430)(i) (639)
Other income (expense), net.... -- 319 319 (611)
------- ------- --------- ---------
Income (loss) from operations
before taxes................. (779) 1,147 368 240
Income tax (benefit)........... 264 (449) (185) 166(j) (19)
------- ------- --------- ---------
Net income (loss).............. $ (515) $ 698 $ 183 $ 259
======= ======= ========= =========
Net income (loss) per share.... $ 0.02 $ 0.03
========= =========
Supplementary net income (loss)
per share.................... $ 0.08
=========
Weighted average common and
common equivalent shares
outstanding.................. 7,658,195 72,821(k) 7,731,016
========= ======= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 55
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INSPIRE INSURANCE STRATEGIC DATA PRO FORMA
SOLUTIONS, INC. SYSTEMS, INC. COMBINED ADJUSTMENTS PRO FORMA(A)
----------------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Outsourcing services....... $2,308 $ -- $ 2,308 $ -- $ 2,308
Software and software
services................ -- 4,529 4,529 -- 4,529
Other...................... -- 544 544 -- 544
------- ------ ---------- ----------
Total revenues..... 2,308 5,073 7,381 -- 7,381
Operating expenses........... 2,650 4,864 7,514 182(b) 7,618
(555)(c)
190(d)
(219)(e)
300(f)
(232)(g)
(26)(h)
------- ------ ---------- ----------
Operating income (loss)...... (342) 209 (133) (237)
Interest expense............. -- (54) (54) (108)(i) (162)
Other income (expense),
net........................ -- 46 46 (46)
------- ------ ---------- ----------
Income (loss) from operations
before taxes............... (342) 201 (141) (353)
Income tax (benefit)......... (71) 81 10 (163)(j) (153)
------- ------ ---------- ----------
Net income (loss)............ $ (271) $ 120 $ (151) $ (200)
======= ====== ========== ==========
Net income (loss) per
share...................... $ (0.02) $ (0.03)
========== ==========
Supplementary net income
(loss) per share........... $ 0.01
==========
Weighted average common and
common equivalent shares
outstanding................ 7,658,195 72,821(k) 7,731,016
========== ====== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 56
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INSPIRE INSURANCE STRATEGIC DATA PRO FORMA
SOLUTIONS, INC. SYSTEMS, INC. COMBINED ADJUSTMENTS PRO FORMA(A)
----------------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue
Outsourcing services....... $ 6,736 $ -- $ 6,736 $ -- $ 6,736
Software and software
services................ -- 5,920 5,920 -- 5,920
Other...................... -- 947 947 -- 947
------- ------ ---------- ----------
Total revenues..... 6,736 6,867 13,603 -- 13,603
Operating expenses........... 12,048 6,425 18,473 500(b) 18,715
(581)(c)
(209)(e)
300(f)
(232)(g)
------- ------ ---------- ---- ----------
Operating income (loss)...... (5,312) 442 (4,870) (5,112)
Interest expense............. (60) (38) (98) (108)(i) (206)
Other income (expense),
net........................ -- 71 71 71
------- ------ ---------- ----------
Income (loss) from operations
before taxes............... (5,372) 475 (4,897) (5,247)
Income tax (benefit)......... (1,863) 162 (1,701) (382)(j) (2,083)
------- ------ ---------- ---- ----------
Net income (loss)............ $(3,509) $ 313 $ (3,196) $ (3,164)
======= ====== ========== ==========
Net income (loss) per
share...................... $ (0.42) $ (0.41)
========== ==========
Supplementary net income
(loss) per share........... $ (0.40)
==========
Weighted average common and
common equivalent shares
outstanding................ 7,658,195 72,021(k) 7,731,016
========== ==== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 57
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(a) See the Introduction to Pro Forma Condensed Consolidated Financial
Information.
(b) Represents compensation for additional finance, administrative, executive
and marketing employees to perform services previously performed by Millers
Mutual pursuant to a management agreement.
(c) Reflects the net reduction in the management fee charged to the Company by
Millers Mutual.
(d) Represents software production expenses during the period that were
previously capitalized by SDS.
(e) Reflects the elimination of amortization of software production expenses
previously capitalized by SDS.
(f) Reflects the amortization of purchased software associated with the
acquisition of SDS.
(g) Represents the amortization of goodwill associated with the acquisition of
SDS.
(h) Represents previously recorded amortization of goodwill by SDS.
(i) Represents the effect of interest expense associated with the debt incurred
in conjunction with the acquisition of SDS, offset by the elimination of
certain interest expense associated with mortgage debt not assumed in the
acquisition of SDS.
(j) Income tax (benefit) is calculated at an effective rate of 36% less the
deferred tax benefit associated with the amortization of software in the
acquisition of SDS.
(k) Represents additional common stock equivalents relating to outstanding stock
options, calculated by applying the treasury stock method, resulting from
the difference in the fair value of the pre-IPO options and the initial
public offering price.
F-6
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
Board of Directors
INSpire Insurance Solutions, Inc.
Fort Worth, Texas
We have audited the accompanying balance sheets of INSpire Insurance
Solutions, Inc., (formerly Millers Integrated Claims Resources, Inc. and
MiliRisk, Inc.) as of December 31, 1995 and 1996, and the related statements of
operations, shareholder's equity, and cash flows for the period from April 28,
1995 (date of inception) to December 31, 1995 and the year ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of INSpire Insurance Solutions, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the period from April 28, 1995 (date of inception) to December 31, 1995 and
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
July 2, 1997
F-7
<PAGE> 59
INSPIRE INSURANCE SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 21,868 $ 363,398 $ 372,661
Accounts receivable -- net........................... -- 1,168,148 6,429,091
Income taxes receivable.............................. 475,124 339,571 339,571
Deferred income taxes................................ -- -- 1,038,000
Prepaid expenses and other current assets............ -- 140,950 451,505
---------- ---------- -----------
Total current assets......................... 496,992 2,012,067 8,630,828
Accounts receivable, excluding current portion......... -- -- 286,226
Property and equipment, net............................ 2,320,055 3,219,892 6,794,950
Intangibles and other assets........................... -- -- 15,742,428
---------- ---------- -----------
TOTAL.................................................. $2,817,047 $5,231,959 $31,454,432
========== ========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Note payable......................................... $ -- $2,500,000 $ --
Accounts payable..................................... -- 1,066,013 1,686,379
Accrued payroll and compensation..................... -- -- 319,189
Other accrued expenses............................... -- -- 713,506
Customer deposits.................................... -- -- 1,321,729
Deferred compensation................................ -- -- 2,110,000
Income taxes payable................................. -- -- 388,993
Current portion of long-term debt.................... -- -- 1,623,728
Due to Parent........................................ 1,569,108 995,706 4,136,501
---------- ---------- -----------
Total current liabilities.................... 1,569,108 4,561,719 12,300,025
Deferred compensation.................................. -- -- 1,290,573
Long-term debt......................................... -- -- 6,123,631
Deferred income taxes.................................. 126,500 64,000 2,821,000
Commitments and Contingencies (Note 12)................ -- -- --
SHAREHOLDER'S EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued and outstanding (Note
13)............................................... -- -- --
Common stock, $.01 par value; 1,000 shares
authorized, 100 shares issued and outstanding in
1995 and 1996; 14,000,000 shares authorized and
7,000,000 shares issued and outstanding at March
31, 1997 (Note 13)................................ 1 1 70,000
Additional paid-in capital........................... 2,383,417 2,383,417 14,121,609
Accumulated deficit.................................. (1,261,979) (1,777,178) (5,272,406)
---------- ---------- -----------
Total shareholder's equity................... 1,121,439 606,240 8,919,203
---------- ---------- -----------
TOTAL.................................................. $2,817,047 $5,231,959 $31,454,432
========== ========== ===========
</TABLE>
See notes to financial statements.
F-8
<PAGE> 60
INSPIRE INSURANCE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
INCEPTION THROUGH YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ------------------------
1995 1996 1996 1997
------------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Outsourcing services.................... $ 3,907,108 $13,653,003 $2,308,190 $ 6,736,301
Software and software services.......... -- -- -- 1,079,910
Other................................... -- -- -- 374,866
----------- ----------- ---------- -----------
Total revenues.................. 3,907,108 13,653,003 2,308,190 8,191,077
----------- ----------- ---------- -----------
EXPENSES:
Cost of outsourcing services............ 4,884,641 10,543,077 1,876,901 4,891,346
Cost of software and software
services............................. -- -- -- 738,671
Cost of other revenues.................. -- -- -- 182,537
Selling, general and administrative..... -- -- -- 259,519
Research and development................ -- -- -- 126,000
Depreciation and amortization........... 33,070 786,768 173,388 534,603
Purchased research and development...... -- -- -- 3,000,000
Deferred compensation................... -- -- -- 3,065,000
Management fees to parent............... 600,000 3,100,000 600,000 626,286
----------- ----------- ---------- -----------
Total expenses.................. 5,517,711 14,429,845 2,650,289 13,423,962
----------- ----------- ---------- -----------
OPERATING LOSS............................ (1,610,603) (776,842) (342,099) (5,232,885)
OTHER INCOME (EXPENSE):
Interest income......................... -- -- -- 13,745
Interest expense........................ -- (2,245) -- (65,088)
----------- ----------- ---------- -----------
Total other income (expense).... -- (2,245) -- (51,343)
----------- ----------- ---------- -----------
LOSS BEFORE INCOME TAX BENEFIT............ (1,610,603) (779,087) (342,099) (5,284,228)
INCOME TAX BENEFIT........................ 348,624 263,888 71,407 1,789,000
----------- ----------- ---------- -----------
NET LOSS.................................. $(1,261,979) $ (515,199) $ (270,692) $(3,495,228)
----------- ----------- ---------- -----------
NET LOSS PER COMMON SHARE................. $ (.16) $ (.07) $ (.04) $ (.46)
=========== =========== ========== ===========
</TABLE>
See notes to financial statements.
F-9
<PAGE> 61
INSPIRE INSURANCE SOLUTIONS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE PERIOD APRIL 28, 1995 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1995,
THE YEAR ENDED DECEMBER 31, 1996 AND THE
UNAUDITED THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (CONSOLIDATED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of 100 shares of common stock at
inception.............................. $ 1 $ 999 $ -- $ 1,000
Parent's contribution of fixed assets.... -- 2,382,418 -- 2,382,418
Net loss................................. -- -- (1,261,979) (1,261,979)
------- ----------- ----------- -----------
Balance, December 31, 1995............... 1 2,383,417 (1,261,979) 1,121,439
Net loss................................. -- -- (515,199) (515,199)
------- ----------- ----------- -----------
Balance, December 31, 1996............... 1 2,383,417 (1,777,178) 606,240
Parent's contribution of fixed
assets (unaudited)..................... -- 1,308,191 -- 1,308,191
Parent's contribution of additional
paid-in capital (unaudited)............ -- 10,500,000 -- 10,500,000
Stock dividend to parent of 64,900
shares, March 1997 (unaudited)......... 649 (649) -- --
Stock dividend to parent of 6,935,000
shares, June 1997 (unaudited).......... 69,350 (69,350) -- --
Net loss (unaudited)..................... -- -- (3,495,228) (3,495,228)
------- ----------- ----------- -----------
Balance, March 31, 1997 (unaudited)...... $70,000 $14,121,609 $(5,272,406) $ 8,919,203
======= =========== =========== ===========
</TABLE>
See notes to financial statements.
F-10
<PAGE> 62
INSPIRE INSURANCE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR THREE MONTHS
THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------ ------------ -----------------------
1995 1996 1996 1997
------------ ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................. $(1,261,979) $ (515,199) $(270,692) $(3,495,228)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 33,070 786,768 173,388 534,603
Deferred income taxes.............................. 126,500 (62,500) 31,000 (1,946,000)
Purchased research and development................. -- -- -- 3,000,000
Loss on sales of property and equipment............ 8,348 12,639 -- --
Changes in operating assets and liabilities:
Accounts receivable.............................. -- (1,168,148) -- (372,419)
Income taxes receivable.......................... (475,124) 135,553 (102,407) --
Prepaid expenses and other current assets........ -- (140,950) (16,667) (49,191)
Other assets..................................... -- -- -- 60,053
Accounts payable................................. -- 1,066,013 -- (887,398)
Accrued payroll and compensation................. -- -- -- (555,392)
Other accrued expenses........................... -- -- -- (176,807)
Customer deposits................................ -- -- -- (20,371)
Income taxes payable............................. -- -- -- (61,007)
Deferred compensation............................ -- -- -- 3,065,000
Due to parent.................................... 1,569,108 (573,402) 275,227 3,140,795
----------- ----------- --------- -----------
Net cash provided by (used in) operating
activities.................................. (77) (459,226) 89,849 2,236,638
----------- ----------- --------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of property and equipment........ 23,039 67,494 -- --
Purchases of property and equipment.................. (2,094) (1,766,738) (33,421) (795,562)
Acquisition of SDS, net of cash acquired............. -- -- -- (17,174,723)
----------- ----------- --------- -----------
Net cash provided by (used in) investing
activities......................................... 20,945 (1,699,244) (33,421) (17,970,285)
----------- ----------- --------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings............................. -- 2,500,000 -- 7,500,000
Repayment of borrowings.............................. -- -- -- (2,850,536)
Contribution from parent............................. -- -- -- 10,500,000
Issuance of common stock............................. 1,000 -- -- --
Bank overdrafts...................................... -- -- -- 593,446
----------- ----------- --------- -----------
Net cash provided by financing activities..... 1,000 2,500,000 -- 15,742,910
----------- ----------- --------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 21,868 341,530 56,428 9,263
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... -- 21,868 21,868 363,398
----------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................................... $ 21,868 $ 363,398 $ 78,296 $ 372,661
=========== =========== ========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid........................................ $ -- $ 2,245 $ -- $ 68,023
=========== =========== ========= ===========
Income taxes refunded................................ $ -- $ 336,939 $ -- $ --
=========== =========== ========= ===========
Noncash investing activities -- contribution of fixed
assets from parent................................. $ 2,382,418 $ -- $ -- $ 1,308,191
=========== =========== ========= ===========
</TABLE>
See notes to financial statements.
F-11
<PAGE> 63
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General -- INSpire Insurance Solutions, Inc. ("INSpire" or the "Company")
(formerly Millers Integrated Claims Resources, Inc. and MiliRisk, Inc.) is a
subsidiary of The Millers Mutual Fire Insurance Company ("Millers Mutual") and
was incorporated April 28, 1995. INSpire is a provider of policy and claims
administration outsourcing services to the property and casualty ("P&C")
insurance industry. Through its wholly-owned subsidiary, Strategic Data Systems,
Inc. and subsidiary ("SDS"), which was acquired March 12, 1997, the Company also
develops and markets software and software services to the P&C insurance
industry. The Company sells its products directly to the customer. The majority
of sales are in North America.
Basis of Consolidation -- The accompanying consolidated financial
statements for the unaudited period ended March 31, 1997 include the accounts of
INSpire and, since March 12, 1997, SDS. All significant intercompany accounts
and transactions have been eliminated in consolidation.
SDS Acquisition -- On March 12, 1997, INSpire acquired all the outstanding
shares of common stock of SDS for an aggregate cash purchase price of $18.0
million, subject to adjustment as provided in the purchase agreement, and costs
and expenses of $325,000. The acquisition was funded by a $10.5 million capital
contribution from Millers Mutual along with borrowings under a revolving line of
credit and term loan from a bank.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their relative fair market values. As of the
acquisition date, assets acquired and liabilities assumed were as follows (in
thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $ 18,325
Fair values of net assets acquired:
Software.................................................. 6,000
Purchased research and development........................ 3,000
Fair value of tangible assets acquired.................... 10,832
Liabilities assumed....................................... (10,820)
--------
9,012
--------
Goodwill.................................................... $ 9,313
========
</TABLE>
The amount assigned to purchased research and development was charged
against operating results at the time of acquisition.
The allocation of the purchase price is pending any additional adjustments
that may arise as a result of the finalization of the Company's ongoing
analysis.
Operating results of the acquired business are included in consolidated
results only from the date of acquisition. Unaudited pro forma data reflecting
results as if the acquisition had been effective at the beginning of 1996
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Net revenues.......................................... $37,317 $13,603
Income (loss) from operations......................... 560 (5,112)
Net income (loss)..................................... 259 3,164
Net income (loss) per common share.................... .03 (.41)
</TABLE>
F-12
<PAGE> 64
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma results are unaudited and are based on historical results,
adjusted for the impact of certain acquisition-related adjustments, such as:
increased depreciation of property and equipment, the charge-off of purchase
price assigned to purchased research and development, the amortization of
goodwill, acquired software and other intangible assets and the related income
tax effects. The pro forma net earnings per common share were calculated using a
weighted average number of common shares outstanding and common equivalent
shares of 7,658,195 for 1996 and the three months ended March 31, 1997 after
giving effect to the common stock dividends described in Note 13. Pro forma
results do not reflect any synergies that might be achieved from combined
operations and, therefore, in management's opinion, are not indicative of what
actual results would have been if the acquisition had occurred at the beginning
of 1996. In addition, they are not intended to be a projection of future
results.
Property and Equipment -- The Company records furniture and equipment at
cost, less accumulated depreciation. Depreciation is calculated using the
straight-line method based on the related assets estimated useful lives, which
range from three to seven years. Leasehold expenses are amortized over the lease
term or the estimated useful life, whichever is less. Repairs and maintenance
are charged to operations as incurred.
Revenue Recognition -- Revenues from outsourcing services are recognized as
services are rendered. Initial installations of software systems generally
include a one-time license fee and a contract for the installation and
customization of the system to meet the customer's specifications, which the
Company bills at an hourly rate. Amounts charged for the initial license and the
installation and customization of systems are recognized as revenue during the
installation period in proportion to the hours expended for installation
compared to the total hours projected for installation. In other instances,
revenue is recognized based on performance milestones specified in the contract.
The Company recognizes the annual fee charged for maintenance of the customer's
system as revenue as hours are expended over the maintenance contract period.
Revenues from computer hardware and equipment sales are recognized when the
Company receives notification that the equipment has been shipped by the
manufacturer to the customer. Changes in estimates of percentage of completion
or losses, if any, associated with outsourcing or software services are
recognized in the period in which they are determined.
Income Taxes -- Millers Mutual and its subsidiaries, including INSpire,
file a consolidated federal income tax return. In accordance with federal income
tax regulations, all corporations included in a consolidated tax return are
jointly and severally liable for all tax liabilities. A tax sharing agreement
among Millers Mutual, the Company and the other subsidiaries of Millers Mutual
provides that taxes on income are charged to profitable subsidiaries as if they
were filing their own separate returns. Subsidiaries with losses are given
credit for tax benefits of their losses to the extent utilized to reduce the
consolidated tax liability or to the extent the benefits are funded currently.
Subsidiaries receive the benefit of all tax credits. Intercompany tax balances
are settled annually.
Federal income taxes have been computed on a separate return basis in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," which requires income taxes to be accounted for under the
liability method. Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred income taxes related primarily to differences between the basis of
property and equipment due to depreciation differences and to the application of
the purchase method of accounting for financial statement purposes but not for
tax purposes, and nondeductible asset and liability reserves for tax purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred tax assets
are evaluated based on the guidelines for realization and may be reduced by a
valuation allowance.
Industry Concentration -- INSpire's revenues and accounts receivable are
derived primarily from the United States P&C insurance industry.
F-13
<PAGE> 65
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Software Research and Development -- All research and development costs
incurred prior to the point at which management believes a project has reached
"technological feasibility" are expensed. Software production costs incurred
subsequent to reaching technological feasibility are capitalized, if material,
and reported at the lower of unamortized cost or net realizable value.
Capitalized costs are amortized over the expected service life of the related
software, generally five to seven years, using the straight-line method. The
cost and related accumulated amortization of projects are written off as they
become fully amortized.
The Company assesses the recoverability of these costs by determining
whether the amortization of the capitalized costs over the remaining life of the
projects can be recovered through undiscounted future operating cash flows.
Cash and Cash Equivalents -- For the purposes of reporting cash flows, cash
and cash equivalents includes investments readily convertible to cash with
remaining maturities at date of purchase of three months or less.
Intangibles and Other Assets -- Goodwill is amortized over a period of 10
years using the straight-line method. Acquired software is amortized over a
period of 5 years using the straight-line method.
Accounts Payable -- Bank overdrafts totalling $593,446 are included in
accounts payable at March 31, 1997 (unaudited).
Financial Instruments -- Under Statement of Financial Accounting Standards
No. 107, "Disclosure About Fair Value of Financial Instruments," the Company's
financial instruments include cash and cash equivalents, accounts receivable,
accounts payable, due to Parent and long-term debt. The Company believes that
the carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, due to Parent and long-term debt are a reasonable estimate of their
fair value because of the short-term maturities of such instruments or, in the
case of long-term debt, because of interest rates available to the Company for
similar obligations.
Loss Per Share -- Loss per share of common stock of the Company (the
"Common Stock") is computed by dividing net loss by the weighted average number
of common shares outstanding, including common equivalent shares. The weighted
average number of common shares outstanding and common equivalent shares were
7,658,195 in 1995, 1996 and for the unaudited three months ended March 31, 1996
and 1997 after giving effect to the Common Stock dividends described in Note 13.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4D, stock options granted during the twelve months prior to the date of the
initial filing of the Company's Form S-1 Registration Statement have been
included in the calculation of common equivalent shares using the treasury stock
method, as if they were outstanding as of the beginning of each period
presented. The fair value of the Common Stock was estimated based on
management's estimate of the Company's fair market value after giving effect to
the acquisition of SDS in March 1997. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies the computation,
presentation and disclosure requirements for loss per share. The impact on loss
per share computed using SFAS No. 128 is immaterial, in comparison with net loss
per share disclosed in the Statements of Operations.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those amounts.
Recently Issued Accounting Pronouncements -- Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of"
F-14
<PAGE> 66
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
("SFAS No. 121"), requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use of
the asset and its eventual disposition to the carrying amount of the asset.
Adoption of SFAS No. 121 during 1996 had no material effect on the Company's
financial position or results of operations.
Interim Financial Statements (Unaudited) -- The interim financial
statements presented as of March 31, 1997 and for the three months ended March
31, 1996 and 1997 are unaudited. With respect to the unaudited interim financial
statements, the Company is of the opinion that all material adjustments,
consisting only of normal recurring adjustments (except for the required
purchase accounting adjustments resulting from the acquisition of SDS, the
subsequent charge to operations of $3.0 million of the SDS purchase price, which
was assigned to purchased research and development, and the $3.0 million charge
to operations for deferred compensation resulting from the grant of options to
acquire shares of the Company's Common Stock during the three months ended March
31, 1997), necessary for a fair presentation of the Company's interim results of
operations and financial condition, have been included. The results of
operations for the three months ended March 31, 1996 and 1997 should not be
regarded as necessarily indicative of the results of operations for any future
period.
2. ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
----- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable -- trade..................... $ -- $1,137,512 $6,649,842
Other............................................ -- 30,636 16,667
----- ---------- ----------
-- 1,168,148 6,666,509
Allowance for doubtful accounts.................. -- -- (237,418)
----- ---------- ----------
-- 1,168,148 6,429,091
Noncurrent -- accounts receivable................ -- -- 286,226
----- ---------- ----------
$ -- $1,168,148 $6,715,317
===== ========== ==========
</TABLE>
No allowance for doubtful accounts was considered necessary by management
as of December 31, 1996.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................ $2,169,948 $4,084,887 $ 6,581,546
Office equipment.............................. 65,343 335,685 1,608,617
Automobiles................................... 103,108 68,867 68,867
Leasehold improvements........................ -- 2,464 55,061
---------- ---------- -----------
2,338,399 4,491,903 8,314,091
Accumulated depreciation and amortization..... (18,344) (1,272,011) (1,519,141)
---------- ---------- -----------
$2,320,055 $3,219,892 $ 6,794,950
========== ========== ===========
</TABLE>
F-15
<PAGE> 67
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense was $33,070 and $786,768 for 1995 and
1996, respectively, and $173,388 and $534,603 for the unaudited three months
ended March 31, 1996 and 1997.
4. RESEARCH AND DEVELOPMENT
Research and development costs were approximately $126,000 for the
unaudited three months ended March 31, 1997.
5. INTANGIBLES AND OTHER ASSETS (UNAUDITED)
Intangibles and other assets consist of the following at March 31, 1997:
<TABLE>
<S> <C>
Goodwill, net of accumulated amortization of $33,000........ $ 9,313,026
Acquired software, net of accumulated amortization of
$66,000................................................... 5,934,000
Cash surrender value of life insurance...................... 349,898
Other....................................................... 145,504
-----------
$15,742,428
===========
</TABLE>
6. NOTE PAYABLE AND LONG-TERM DEBT
NOTE PAYABLE -- On December 11, 1996, INSpire entered into a note agreement
with a bank. The note bears interest at prime (8.25% at December 31, 1996) and
was repaid on February 1, 1997.
LONG-TERM DEBT -- A summary of long-term debt at March 31, 1997 (unaudited)
is as follows:
<TABLE>
<S> <C>
Bank term note, with interest at prime (8.25% at March 31,
1997) or the London Interbank Offering Rate ("LIBOR")
(7.44% at March 31, 1997), collateralized by all assets of
the Company, payable in quarterly principal installments
of $312,500 plus interest through September 30, 2000, with
final payment due March 12, 2001.......................... $4,687,500
Note payable to bank under a $4 million line of credit which
expires on March 12, 1999, with interest at prime or
LIBOR, collateralized by all assets of the Company.
Borrowings are limited based on a borrowing base
calculation. Interest is due and payable quarterly along
with commitment fees of 0.25% of the unused balance....... 2,500,000
Computer note payable, interest at 8.35%, due in equal
monthly installments of principal and interest of $18,700
with the final payment due on September 21, 1997. The
Company repaid the note on June 23, 1997.................. 78,519
Note payable to previous SDS shareholders, interest at
7.25%, due in equal monthly installments of principal and
interest of $4,978 with the final payment due on December
27, 1998. The Company repaid the note on June 23, 1997.... 98,071
Computer note payable with total availability of $600,000,
interest payable at prime plus 1.0%, due in monthly
installments of principal sufficient to amortize the
outstanding balance over a 36-month period and interest
with the final payment due on January 31, 1999. The
Company repaid the note on June 23, 1997.................. 383,269
----------
7,747,359
Less current maturities..................................... 1,623,728
----------
$6,123,631
==========
</TABLE>
F-16
<PAGE> 68
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INSpire's bank term note payable and line of credit agreement contains
certain restrictive covenants. These covenants require that the Company meet
certain requirements such as maintenance of a minimum net worth, and restrict
additional borrowings, dividends or other distributions without prior consent of
the bank. At March 31, 1997, the Company was in compliance with the covenants in
the note payable and line of credit agreement.
The following represents the approximate future annual maturities of the
Company's long-term debt obligations at March 31, 1997 (unaudited):
<TABLE>
<S> <C>
1997........................................................ $1,623,728
1998........................................................ 3,936,131
1999........................................................ 1,250,000
2000........................................................ 937,500
----------
$7,747,359
==========
</TABLE>
7. INCOME TAXES
Federal income tax benefit (expense) consists of the following components:
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM ENDED
INCEPTION THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1996 1997
----------------- ------------ -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current federal income tax benefit
(expense).......................... $ 475,124 $201,388 $102,407 $ (157,000)
Deferred income tax benefit
(expense).......................... (126,500) 62,500 (31,000) 1,946,000
--------- -------- -------- ----------
$ 348,624 $263,888 $ 71,407 $1,789,000
========= ======== ======== ==========
</TABLE>
A reconciliation of expected income tax benefit (expense) computed by
applying the federal corporate tax rate of 34% to earnings (loss) before income
taxes to the actual income taxes is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM ENDED
INCEPTION THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1996 1997
----------------- ------------ -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected federal income tax
benefit............................ $ 547,605 $264,889 $116,313 $1,796,638
Difference in book and tax basis of
assets contributed by parent....... (219,356) -- -- --
Goodwill............................. -- -- -- (11,000)
Other................................ 20,375 (1,001) (44,906) 3,362
--------- -------- -------- ----------
$ 348,624 $263,888 $ 71,407 $1,789,000
========= ======== ======== ==========
</TABLE>
F-17
<PAGE> 69
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
--------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred income tax assets:
Current:
Accounts receivable........................ $ -- $ -- $ 81,000
Nondeductible accrued expenses............. -- -- 957,000
--------- -------- -----------
1,038,000
Noncurrent:
Net operating loss carryforwards........... 102,000 210,000 --
Nondeductible accrued expenses............. -- -- 347,000
--------- -------- -----------
Total deferred income tax assets...... 102,000 210,000 1,385,000
--------- -------- -----------
Deferred income tax liabilities -- noncurrent:
Property and equipment........................ 228,500 274,000 584,000
Acquired software............................. -- -- 2,584,000
--------- -------- -----------
228,500 274,000 3,168,000
--------- -------- -----------
Net deferred income tax liabilities............. $(126,500) $(64,000) $(1,783,000)
========= ======== ===========
Represented on the consolidated balance sheet
as:
Current deferred income tax assets............ $ -- $ -- $ 1,038,000
Noncurrent deferred income tax liabilities.... (126,500) (64,000) (2,821,000)
--------- -------- -----------
$(126,500) $(64,000) $(1,783,000)
========= ======== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.
8. RELATED PARTY TRANSACTIONS
Effective July 1, 1995, the Company entered into an agreement with Millers
Mutual whereby management and administrative services were provided by Millers
Mutual for a monthly fee of $100,000. Effective January 1, 1996, the agreement
was amended to provide for a monthly fee of $200,000 plus a fixed percentage of
INSpire's pretax income, to be determined annually. Total fees in 1995 and 1996
were $600,000 and $3,100,000, respectively. Fees of $600,000 and $626,286 were
incurred during the unaudited three months ended March 31, 1996 and 1997,
respectively. INSpire, in turn, provided claims services to Mutual and The
Millers Casualty Insurance Company ("Millers Casualty"), an indirect 99.4% owned
subsidiary of Millers Mutual, for fees ranging from 7.5% to 9.5% of net earned
premium by line of business, as defined in the agreement, excluding the premiums
written through Sun Coast General Insurance Agency, Inc. ("Sun Coast") for
Millers Mutual. Effective December 1, 1996, the agreement was amended to provide
that the fees would be reduced to range from 7.5% to 8.5% of earned premium by
line of business, as defined. The Sun Coast business is processed for a fee of
7.0% of earned premium. Total outsourcing fees of $3,376,168 and
F-18
<PAGE> 70
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$7,557,261 were earned in 1995 and 1996 and $1,866,548 and $1,605,930 for the
unaudited three-month periods ended March 31, 1996 and 1997, respectively, under
the terms of the Company's agreements with Millers Mutual and Millers Casualty.
Beginning May 1996, the Company incurred rental expenses, under a month-to-month
agreement with Millers Mutual, totalling $207,121 during 1996 and $78,858 for
the unaudited three months ended March 31, 1997. Effective January 1, 1997,
INSpire began providing data processing services to Millers Mutual and Millers
Casualty for a fee of 6% of net written premium which totalled $1,278,700 for
the unaudited three months ended March 31, 1997.
9. EMPLOYEE BENEFIT PLANS
Substantially all of INSpire's employees are covered by a defined benefit
pension plan (the "Pension Plan") sponsored by Millers Mutual that provides
retirement death and disability benefits for full-time employees completing at
least 1,000 hours of service. Millers Mutual makes annual contributions to the
Pension Plan equal to the amounts accrued for pension expense, including
amortization of past service cost over 30 years. Contributions to the Pension
Plan are determined by consulting actuaries based upon future periodic payments,
including lump-sum distributions that are attributable under the Pension Plan's
provisions to the service employees have rendered. Benefits are based upon the
average of the employee's highest five consecutive years of compensation during
the ten years of credited service immediately preceding the valuation date. The
actuarial present value of accumulated plan benefits is that amount that results
from applying actuarial assumptions to adjust the accumulated plan benefits to
reflect the time value of money (through discounts for interest) and the
probability of payment (by means of decrements such as for death, disability,
withdrawal, or retirement) between the valuation date and the expected date of
payment. Total expense associated with the Pension Plan was $100,000 during
1995. No expense was incurred relative to the Pension Plan during 1996 or the
unaudited three months ended March 31, 1996 and 1997.
INSpire participates in a defined contribution profit sharing plan
sponsored by Millers Mutual that covers substantially all of its employees (the
"Profit Sharing Plan"). Employees are not required to satisfy any age or service
requirements to become eligible to participate in the Profit Sharing Plan.
INSpire also participates in an executive incentive compensation plan covering
officers sponsored by Millers Mutual. Contributions to these plans are
discretionary and are authorized annually by the Board of Directors.
Participants in the Profit Sharing Plan are permitted to contribute 1% to 12%
(not to exceed $9,240 in 1996 and 1995) of their annual compensation on a tax
deferred basis. Vesting of participants' interest in the profit sharing plan's
contributions is based upon length of service. Participants with five or more
years of service are fully vested. Total expense associated with the Profit
Sharing Plan was approximately $30,000 in 1995. There were no contributions made
by the Company to the Profit Sharing Plan in 1996 or for the unaudited three
months ended March 31, 1997.
10. STOCK OPTION PLAN (UNAUDITED)
The Company adopted the 1997 Stock Option Plan (the "Option Plan") in March
1997 and amended in June 1997, which provides for the grant of incentive and
non-qualified options to purchase up to 2,250,000 shares of Common Stock subject
to certain adjustments as described in the Option Plan. Stock options are
issuable only to eligible directors, officers and employees of the Company.
The per share exercise price of an incentive option may not be less than
the greater of par value or 100% of the fair market value of the Common Stock,
as determined by the Board of Directors, on the date the option is granted.
Incentive options granted to an employee who owns in excess of 10% of the voting
stock of the Company must have an exercise price of at least 110% of the fair
market value of the common stock at the date of grant. Of the options granted,
33% are immediately exercisable at the date of grant, 33% become exercisable one
year from the date of grant and the remainder become exercisable two years from
the date of grant. The Board of Directors has approved the grant of certain
additional options effective as of the date of the prospectus for INSpire's
initial public offering. Of such options, except for one officer of the Company,
F-19
<PAGE> 71
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
20% are immediately exercisable at the date of grant and an additional 20% will
become exercisable on each of the first four anniversaries of such date. Of the
options of the officer referred to above, 33% are immediately exercisable at the
date of grant, 33% become exercisable one year from the date of grant and the
remainder become exercisable two years from the date of grant. Options may be
exercised only if the optionholder remains continuously associated with the
Company from the date of grant to the date of exercise, subject to certain
conditions as specified in the Option Plan. An option granted under the Option
Plan cannot be exercised later than ten years from the date of the grant. Any
options that expire unexercised or that terminate upon an optionee's ceasing his
or her association with the Company become available once again for issuance.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using a risk-free interest rate of 6.1%
and an expected life of two years. No volatility factors of the expected market
price of the Company's Common Stock have been involved because the Company was a
private entity when the options were granted.
The following summarizes the stock option activity under the Option Plan
for the three months ended March 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Options granted on March 12, 1997 and outstanding at
March 31, 1997....................................... 652,078 $1.30
========= =====
Options available for grant............................ 1,599,922
=========
Exercisable at end of period........................... 215,185
=========
</TABLE>
The weighted average fair value of options granted during the three months ended
March 31, 1997 was $4.85 per share.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), and related interpretations in
accounting for the Option Plan, and, accordingly, compensation expense of
approximately $3,065,000 was recognized in the unaudited three months ended
March 31, 1997 since the stock options granted under the terms of the Plan were
at an exercise price that was less than the estimated fair market value assigned
to the options at the date of grant. Had the Company implemented Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123"), the Company's compensation expense would have
decreased by approximately $1.9 million and the Company's pro forma net loss and
net loss per common share, considering the effects of implementing SFAS No. 123,
net of tax effects, would have been approximately $2.2 million and $0.21,
respectively.
11. TRANSACTIONS WITH MAJOR CUSTOMER
In addition to the outsourcing revenues derived from Millers Mutual and
Millers Casualty (see Note 8), one customer accounted for approximately 20% and
12% of revenues for the year ended December 31, 1996 and the unaudited three
months ended March 31, 1997, respectively.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases certain office space and equipment
under operating leases and a sublease for periods ranging from one to five
years. Rentals on operating leases (exclusive of real estate taxes, insurance
and other expenses payable under the leases) amounted to approximately $767,000
for the unaudited three months ended March 31, 1997. The Company incurred no
significant rental expense in 1995 and 1996 and had no significant lease
commitments as of December 31, 1996. These leases generally contain
F-20
<PAGE> 72
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
optional renewal provisions for one or more periods. Future annual minimum lease
payments as of March 31, 1997 (unaudited) are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 2,069,905
1998........................................................ 2,684,463
1999........................................................ 2,227,231
2000........................................................ 942,106
2001........................................................ 883,534
Thereafter.................................................. 1,670,615
-----------
Total............................................. $10,477,854
===========
</TABLE>
Employment Agreements -- The Company has employment agreements with certain
key officers that provide for minimum annual salaries and benefits aggregating
approximately $1,055,000 and an annual bonus based on the Company's operating
performance.
Other -- The Company is involved in various legal proceedings arising in
the normal course of business. Management believes the outcome of these matters
will not materially affect the consolidated financial position, results of
operations or cash flows of the Company.
The Company participates in a self-insurance program for certain of its
employees that provides for the payment of employee health claims. The program
provides for specific excess loss reinsurance for aggregate claims greater than
a specified amount for any one claimant. The Company accrues the estimated
liabilities for the ultimate costs of both reported claims and incurred but not
reported claims.
13. SUBSEQUENT EVENTS
In March 1997, the Company amended its articles of incorporation to, among
other things, increase the authorized number of shares of Common Stock to
200,000. In addition, the Company paid a stock dividend of 64,900 shares of
Common Stock.
In May 1997, the Company granted options to purchase 280,083 shares of
Common Stock at an exercise price of $1.30 per share under the Option Plan to
certain employees of the Company.
In June 1997, the Company amended its articles of incorporation to, among
other things, authorize 1,000,000 shares of preferred stock, par value $1.00 per
share, and increase the authorized number of shares of Common Stock to
14,000,000. In addition, the Company paid a stock dividend of 6,935,000 shares
of Common Stock. All references in these financial statements and related notes
to numbers of shares and per share amounts of Common Stock have been
retroactively restated to reflect the increased number of shares outstanding.
As described in Note 6, in June 1997 the Company repaid certain long-term
debt obligations totalling $483,812.
In July 1997, in response to an unsolicited offer by the previous owner of
Applied Quoting Systems, Inc., the Company entered into a non-binding letter of
intent to sell the stock of such subsidiary for $2.5 million.
F-21
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
Board of Directors
Strategic Data Systems, Inc.
We have audited the accompanying consolidated balance sheets of Strategic
Data Systems, Inc. and subsidiary (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Strategic Data Systems, Inc.
and subsidiary as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
July 2, 1997
F-22
<PAGE> 74
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 11,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 528,468 $ 1,515,495 $ 939,762
Accounts receivable -- net........................ 3,608,403 4,750,708 4,755,376
Deferred income taxes............................. 273,000 180,000 343,000
Prepaid expenses and other current assets......... 181,712 166,739 262,217
----------- ----------- -----------
Total current assets...................... 4,591,583 6,612,942 6,300,355
----------- ----------- -----------
Property and equipment, net......................... 3,155,318 2,897,819 3,403,477
Accounts receivable, excluding current portion...... 397,671 367,091 313,355
Software -- net..................................... 2,935,140 2,606,888 2,398,017
Goodwill -- net..................................... 612,106 505,702 484,536
Other assets........................................ 362,012 474,927 491,316
----------- ----------- -----------
TOTAL............................................... $12,053,830 $13,465,369 $13,391,056
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 432,686 $ 883,648 $ 914,318
Accrued payroll and compensation.................. 1,069,600 1,002,342 1,033,025
Other accrued expenses............................ 204,257 245,102 187,916
Warranty reserve.................................. 100,292 100,592 197,269
Customer deposits................................. 1,263,419 1,993,242 1,342,100
Income taxes payable.............................. 260,754 78,293 493,096
Current portion of long-term debt................. 688,793 524,699 438,713
----------- ----------- -----------
Total current liabilities................. 4,019,801 4,827,918 4,606,437
----------- ----------- -----------
Long-term debt, excluding current portion........... 2,028,074 1,883,381 1,879,393
Deferred compensation............................... 216,498 311,758 327,635
Deferred income taxes............................... 1,252,000 1,057,000 961,000
Commitments and contingencies (Note 9).............. -- -- --
SHAREHOLDERS' EQUITY:
Common stock, $5.00 stated value; 150,000 shares
authorized; 142,450, 143,950 and 143,950 shares
issued and outstanding in 1995, 1996 and 1997,
respectively................................... 712,250 719,750 719,750
Additional paid-in-capital........................ 1,705,094 1,847,594 1,847,594
Retained earnings................................. 3,057,357 3,755,212 3,986,491
----------- ----------- -----------
5,474,701 6,322,556 6,553,835
Less treasury stock (26,936 shares, at cost)...... 937,244 937,244 937,244
----------- ----------- -----------
4,537,457 5,385,312 5,616,591
----------- ----------- -----------
TOTAL............................................... $12,053,830 $13,465,369 $13,391,056
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 75
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
YEAR ENDED DECEMBER 31, ENDED JANUARY 1, 1997
--------------------------------------- MARCH 31, THROUGH
1994 1995 1996 1996 MARCH 11, 1997
----------- ----------- ----------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software services................. $ 8,991,115 $ 8,677,073 $ 9,251,491 $2,396,518 $2,384,658
Software.......................... 4,312,881 9,068,431 8,987,395 2,132,131 2,455,628
Hardware sales and commissions.... 2,245,134 2,399,537 3,680,048 360,863 463,108
Other............................. 455,396 1,016,234 1,744,727 183,618 108,912
----------- ----------- ----------- ---------- ----------
Total revenues............ 16,004,526 21,161,275 23,663,661 5,073,130 5,412,306
----------- ----------- ----------- ---------- ----------
EXPENSES:
Salaries, benefits and
subcontracted labor............ 11,810,524 13,088,072 14,505,432 3,379,589 3,476,165
Depreciation and amortization..... 2,157,093 1,878,973 1,826,826 462,160 411,266
Cost of computer hardware sold.... 1,862,169 1,978,836 2,698,673 291,265 383,450
Occupancy costs................... 1,374,230 1,379,332 1,565,833 352,413 405,663
Professional fees, travel and
other operating expenses....... 1,830,598 1,666,854 2,032,098 378,695 372,223
----------- ----------- ----------- ---------- ----------
Total expenses............ 19,034,614 19,992,067 22,628,862 4,864,122 5,048,767
----------- ----------- ----------- ---------- ----------
OPERATING INCOME (LOSS)............. (3,030,088) 1,169,208 1,034,799 209,008 363,539
OTHER INCOME (EXPENSE):
Interest income................... 158,297 160,959 284,387 45,670 56,987
Interest expense.................. (292,491) (240,481) (207,029) (54,089) (33,272)
Gain (loss) on sale of property
and equipment.................. 1,520 (2,403) 34,698 25
----------- ----------- ----------- ---------- ----------
Total other income
(expense)............... (132,674) (81,925) 112,056 (8,419) 23,740
----------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT)......................... (3,162,762) 1,087,283 1,146,855 200,589 387,279
INCOME TAXES (BENEFIT).............. (1,253,000) 429,000 449,000 81,000 156,000
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)................... $(1,909,762) $ 658,283 $ 697,855 $ 119,589 $ 231,279
=========== =========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 76
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
UNAUDITED PERIOD FROM JANUARY 1, 1997 THROUGH MARCH 11, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------ PAID-IN RETAINED ------------------ SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------- -------- ---------- ----------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994............. 139,594 $697,970 $1,526,110 $ 4,308,836 26,936 $(937,244) $ 5,595,672
Net loss........................... (1,909,762) (1,909,762)
Issuance of common stock........... 2,856 14,280 178,984 -- -- -- 193,264
------- -------- ---------- ----------- ------ --------- -----------
Balance, December 31, 1994........... 142,450 712,250 1,705,094 2,399,074 26,936 (937,244) 3,879,174
Net income......................... -- -- -- 658,283 -- -- 658,283
------- -------- ---------- ----------- ------ --------- -----------
Balance, December 31, 1995........... 142,450 712,250 1,705,094 3,057,357 26,936 (937,244) 4,537,457
Net income......................... 697,855 -- -- 697,855
Issuance of common stock........... 1,500 7,500 142,500 -- -- -- 150,000
------- -------- ---------- ----------- ------ --------- -----------
Balance, December 31, 1996........... 143,950 719,750 1,847,594 3,755,212 26,936 (937,244) 5,385,312
Net income (unaudited)............. 231,279 231,279
------- -------- ---------- ----------- ------ --------- -----------
Balance, March 11, 1997
(unaudited)........................ 143,950 $719,750 $1,847,594 $ 3,986,491 26,936 $(937,244) $ 5,616,591
======= ======== ========== =========== ====== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 77
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
YEAR ENDED DECEMBER 31, ENDED JANUARY 1, 1997
--------------------------------------- MARCH 31, THROUGH MARCH 11,
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................... $(1,909,762) $ 658,283 $ 697,855 $ 119,589 $ 231,279
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............. 2,157,093 1,878,973 1,826,826 462,160 411,266
Gain (loss) on sales of property and
equipment............................... (1,520) 2,403 (34,701) -- (25)
Deferred income taxes..................... (563,957) 437,768 (102,000) -- (259,000)
Provision for uncollectible accounts
receivable.............................. 277,250 235,900 2,000 33,000 21,484
Change in operating assets and
liabilities:
Accounts receivable..................... (950,268) 632,474 (1,113,726) 255,811 (344,416)
Income taxes recoverable................ (357,709) 357,709 -- -- --
Prepaid expenses and other current
assets................................ (31,517) (2,818) 14,973 (83,284) (95,478)
Other assets............................ (82,333) (107,624) (112,916) 92,000 (16,389)
Accounts payable........................ (912,410) 16,811 450,962 (16,192) 30,670
Accrued payroll and compensation........ 952,909 116,691 (67,258) (454,490) 30,683
Other accrued expenses.................. 204,283 (26) 40,845 34,663 (57,186)
Warranty reserve........................ 103,270 (2,978) 300 (52,000) 468,677
Customer deposits....................... 2,441,214 (2,329,121) 729,823 (72,038) (651,142)
Income taxes payable.................... (237,120) 260,754 (182,461) (11,400) 414,803
Deferred compensation................... 71,771 82,855 95,260 9,531 15,877
----------- ----------- ----------- --------- ----------
Net cash provided by operating
activities.......................... 1,161,194 2,238,054 2,245,782 317,350 201,103
----------- ----------- ----------- --------- ----------
INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment................................. 1,520 -- 41,750 -- --
Purchases of property and equipment......... (853,089) (362,546) (582,868) (106,766) (686,862)
Development of software..................... (1,353,750) (671,000) (558,850) (190,000)
----------- ----------- ----------- --------- ----------
Net cash used in investing
activities.......................... (2,205,319) (1,033,546) (1,099,968) (296,766) (686,862)
----------- ----------- ----------- --------- ----------
FINANCING ACTIVITIES:
Net borrowings (repayment) from line of
credit.................................... 480,000 (480,000) -- -- --
Proceeds from issuance of long-term debt.... 500,000 -- 409,817 -- --
Repayments of long-term debt................ (407,004) (410,409) (718,604) (157,252) (89,974)
Proceeds (repayments) from policy loan
against cash surrender value of life
insurance policy.......................... 75,000 (75,000) -- -- --
Issuance of common stock.................... 193,264 -- 150,000 -- --
----------- ----------- ----------- --------- ----------
Net cash provided by (used in)
financing activities................ 841,260 (965,409) (158,787) (157,252) (89,974)
----------- ----------- ----------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. (202,865) 239,099 987,027 (136,668) (575,733)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD...................................... 492,234 289,369 528,468 528,468 1,515,495
----------- ----------- ----------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 289,369 $ 528,468 $ 1,515,495 $ 391,800 $ 939,762
=========== =========== =========== ========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................... $ 293,000 $ 240,000 $ 208,000 $ 53,700 $ 33,300
=========== =========== =========== ========= ==========
Income taxes paid (refunded)................ $ (94,000) $ (627,000) $ 734,000 $ -- $ --
=========== =========== =========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 78
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Strategic Data Systems, Inc. ("SDS") and its
wholly-owned subsidiary, Applied Quoting Systems, Inc., develop and market
software and software services to the property and casualty ("P&C") insurance
industry. SDS's software includes policy and claims administration systems, as
well as systems that increase the productivity of insurers by automating certain
functions, such as workflow management, underwriting rules and guidelines,
document production and rating algorithms. SDS's software services include
installation, customization, conversion and maintenance of these systems to meet
customer specifications. SDS also sells computer hardware and related equipment
and manages data centers. SDS sells its products directly to the customer. The
majority of sales are in North America.
Principles of Consolidation -- The consolidated financial statements
include the financial statements of SDS and its wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition -- Initial installations of software systems generally
include a one-time licensing fee and a contract for the installation and
customization of the system to meet the customer's specifications, which SDS
bills at an hourly rate. Amounts charged for the initial license and the
installation and customization of systems are recognized as revenue during the
installation period in proportion to the hours expended for installation
compared to the total hours projected for installation. In other instances,
revenue is recognized based on performance milestones specified in the contract.
SDS recognizes the annual fee charged for maintenance of the customer's system
as revenue as hours are expended over the maintenance contract period. Revenues
from computer hardware and equipment sales are recognized when SDS receives
notification that the equipment has been shipped by the manufacturer to the
customer. Changes in estimates of percentage of completion or losses, if any,
associated with software related revenue activities are recognized in the period
in which they are determined.
An annual fee is charged for maintenance of the customer's system and is
recognized as revenue as hours are expended over the maintenance contract
period. Losses, if any, are recognized in the period in which they are
determined.
Computer hardware and equipment sales are recognized when SDS receives
notification that the equipment has been shipped by the manufacturer to the
customer.
Depreciation -- Depreciation of property and equipment is computed using
the straight-line method over their estimated useful lives. The range of the
useful lives of the various classes of assets is 3 to 31.5 years. Leasehold
improvements are amortized over the lease term or the estimated useful life,
whichever is less.
Income Taxes -- Federal income taxes have been computed in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires income taxes to be accounted for under the liability
method. Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
income taxes related primarily to differences between the basis of property and
equipment due to depreciation differences and to the application of the purchase
method of accounting for financial statement purposes but not for tax purposes,
and nondeductible asset and liability reserves for tax purposes. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred tax assets are evaluated based on
the guidelines for realization and may be reduced by a valuation allowance.
Research and Development -- All research and development costs incurred
prior to the time management believes a project has reached "technological
feasibility" are expensed. Software production costs incurred subsequent to
reaching technological feasibility are capitalized and reported at the lower of
unamortized cost or net realizable value. Capitalized costs are amortized over
the expected service life of the
F-27
<PAGE> 79
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related software, generally five to seven years using the straight-line method.
The cost and related accumulated amortization of projects are written off as
they become fully amortized.
SDS assesses the recoverability of these costs by determining whether the
amortization of the capitalized costs over the remaining life of the projects
can be recovered through undiscounted future operating cash flows.
Cash and Cash Equivalents -- For the purposes of reporting cash flows, cash
and cash equivalents includes investments readily convertible to cash with
remaining maturities at date of purchase of three months or less.
Financial Instruments -- SDS's financial instruments under Statement of
Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments," include cash and cash equivalents, accounts receivable,
accounts payable and long-term debt. SDS believes that the carrying amounts of
cash and cash equivalents, accounts receivable, accounts payable and long-term
debt are a reasonable estimate of their fair value because of the short-term
maturities of such instruments or, in the case of long-term debt, because of
interest rates available to SDS for similar obligations on such long-term debt.
Goodwill -- Goodwill represents the excess of the cost over the estimated
fair value of the net assets acquired and is amortized using the straight-line
method over a period of ten years.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements -- Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment is
evaluated by comparing future cash flows (undiscounted and without interest
charges) expected to result from the use of the asset and its eventual
disposition to the carrying amount of the asset.
Interim Financial Statements (Unaudited) -- The interim financial
statements presented as of March 11, 1997 and for the quarter and period ended
March 31, 1996 and March 11, 1997 are unaudited. With respect to the unaudited
interim financial statements, SDS is of the opinion that all material
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of SDS's interim results of operations and financial
condition, have been included. The results of operations for the three months
ended March 31, 1996 and the period from January 1, 1997 through March 11, 1997
should not be regarded as necessarily indicative of the results of operations
for any future period.
F-28
<PAGE> 80
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable -- trade................... $3,991,355 $4,961,126 $4,987,278
Allowance for doubtful accounts................ (382,952) (210,418) (231,902)
---------- ---------- ----------
3,608,403 4,750,708 4,755,376
Noncurrent -- accounts receivable.............. 397,671 367,091 313,355
---------- ---------- ----------
$4,006,074 $5,117,799 $5,068,731
========== ========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land........................................... $ 150,000 $ 150,000 $ 150,000
Land improvements.............................. 217,276 217,276 217,276
Building....................................... 1,502,574 1,502,574 1,502,576
Computer equipment............................. 4,794,462 5,251,033 5,412,021
Office equipment............................... 1,361,324 1,426,933 1,922,545
Automobiles.................................... 303,326 126,784 126,784
Leasehold improvements......................... 80,154 80,154 105,322
---------- ---------- ----------
8,409,116 8,754,754 9,436,524
Accumulated depreciation and amortization...... (5,253,798) (5,856,935) (6,033,047)
---------- ---------- ----------
$3,155,318 $2,897,819 $3,403,477
========== ========== ==========
</TABLE>
Depreciation and amortization expense was approximately $1,146,000,
$1,030,000 and $833,000 in 1994, 1995 and 1996, respectively, and $216,000 and
$152,000 respectively for the unaudited three months ended March 31, 1996 and
the unaudited period from January 1, 1997 through March 11, 1997.
4. RESEARCH AND DEVELOPMENT
The total amount amortized for the capitalized computer software was
approximately $905,000, $742,000 and $887,000 in 1994, 1995 and 1996,
respectively. In addition, the total amortization of capitalized software was
$219,000 and $209,000, respectively, for the unaudited three-month period ended
March 31, 1996 and the unaudited period from January 1, 1997 through March 11,
1997.
Research and development costs, including amortization expense, were
approximately $4,587,000, $3,581,000 and $3,783,000 in 1994, 1995 and 1996,
respectively.
F-29
<PAGE> 81
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, total research and development costs were approximately $946,000
and $474,000, respectively, for the unaudited three months ended March 31, 1996
and the unaudited period from January 1, 1997 through March 11, 1997.
Software -- net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 11,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Software costs.............................. $ 4,435,161 $ 4,994,011 $ 4,994,011
Accumulated amortization.................... (1,500,021) (2,387,123) (2,595,994)
----------- ----------- -----------
$ 2,935,140 $ 2,606,888 $ 2,398,017
=========== =========== ===========
</TABLE>
5. GOODWILL
Goodwill -- net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill....................................... $1,078,508 $1,078,507 $1,078,507
Accumulated amortization....................... (466,402) (572,805) (593,971)
---------- ---------- ----------
$ 612,106 $ 505,702 $ 484,536
========== ========== ==========
</TABLE>
F-30
<PAGE> 82
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 11,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage note payable, interest at 7.37%, due
in equal monthly installments of principal
and interest of $17,000, with the final
payment due on January 20, 2001.............. $1,748,223 $1,672,670 $1,658,563
Computer note payable, interest at 6.75%, due
in equal monthly installments of principal
and interest of $23,931, with the final
payment due on December 27, 1996............. 278,054 -- --
Computer note payable, interest at 8.35%, due
in equal monthly installments of principal
and interest of $18,700, with the final
payment due on September 21, 1997............ 291,665 124,997 97,219
Treasury stock purchase note payable, interest
at 7.25%, due in equal monthly installments
of principal and interest of $4,978, with the
final payment due on December 27, 1998....... 166,156 111,639 103,049
Computer note payable with total availability
of $600,000, interest payable at prime plus
1.0%, due in monthly installments of
principal sufficient to amortize the
outstanding balance over a 36-month period,
and interest with the final payment due on
January 31, 1999............................. 143,289 437,127 397,628
Second mortgage note payable, interest at 7.0%,
due in equal annual installments of principal
and interest of $34,097 with the final
payment due on November 1, 1998.............. 89,480 61,647 61,647
---------- ---------- ----------
2,716,867 2,408,080 2,318,106
Less current maturities........................ 688,793 524,699 438,713
---------- ---------- ----------
$2,028,074 $1,883,381 $1,879,393
========== ========== ==========
</TABLE>
The mortgage note payable is collateralized by real estate and
substantially all other assets of SDS. In 1995, the final payment for the
mortgage note payable was extended from January 20, 1996 to January 20, 2001.
The computer notes payable are collateralized by the computer equipment of SDS.
The treasury stock purchase note payable is collateralized by the accounts
receivable of SDS. The second mortgage note is collateralized by a purchase
money mortgage lien pursuant to the terms of the note.
F-31
<PAGE> 83
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents the approximate future annual maturities for SDS's
long-term debt obligations:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
1997........................................................ $ 524,669 $ 438,713
1998........................................................ 384,125 380,107
1999........................................................ 96,726 96,726
2000........................................................ 104,101 104,101
2001........................................................ 1,298,459 1,298,459
---------- ----------
$2,408,080 $2,318,106
========== ==========
</TABLE>
7. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
YEAR ENDED DECEMBER 31, ENDED JANUARY 1, 1997
---------------------------------- MARCH 31, THROUGH MARCH 11,
1994 1995 1996 1996 1997
----------- -------- --------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal........................ $ (689,000) $ (9,000) $ 504,000 $ 86,000 $ 330,000
State.......................... -- -- 47,000 8,000 85,000
----------- -------- --------- -------- ---------
Total current.......... (689,000) (9,000) 551,000 94,000 415,000
----------- -------- --------- -------- ---------
Deferred:
Federal........................ (407,000) 372,000 (132,000) (19,000) $(221,000)
State.......................... (157,000) 66,000 30,000 6,000 (38,000)
----------- -------- --------- -------- ---------
Total deferred......... (564,000) 438,000 (102,000) (13,000) (259,000)
----------- -------- --------- -------- ---------
$(1,253,000) $429,000 $ 449,000 $ 81,000 $ 156,000
=========== ======== ========= ======== =========
</TABLE>
A reconciliation of expected income taxes computed by applying the federal
corporate tax rate of 34% to income (loss) before income taxes to actual income
taxes is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS JANUARY 1, 1997
YEAR ENDED DECEMBER 31, ENDED THROUGH
--------------------------------------- MARCH 31, MARCH 11,
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected federal income
taxes (benefit)......... $(1,075,000) $ 370,000 $ 390,000 $ 68,000 $132,000
State income taxes, net of
federal income tax
(benefit)............... (156,000) 45,000 53,000 10,000 18,000
Goodwill.................. 36,000 36,000 36,000 9,000 7,000
Research and development
credit.................. (80,000) (47,000) (63,000) (23,000) --
Other, net................ 22,000 25,000 33,000 17,000 (1,000)
----------- ----------- ----------- -------- --------
$(1,253,000) $ 429,000 $ 449,000 $ 81,000 $156,000
=========== =========== =========== ======== ========
</TABLE>
F-32
<PAGE> 84
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 11,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred income tax assets:
Current:
Accounts receivable..................... $ 150,000 $ 81,000 $ 90,000
Nondeductible accrued expenses.......... 123,000 99,000 253,000
----------- ----------- ----------
273,000 180,000 343,000
----------- ----------- ----------
Noncurrent:
Deferred compensation................... 85,000 122,000 128,000
Research and development credit
carryforward.......................... 32,000 -- --
Net operating loss carryforwards........ 61,000 -- --
----------- ----------- ----------
178,000 122,000 128,000
----------- ----------- ----------
Total deferred income tax assets... 451,000 302,000 471,000
----------- ----------- ----------
Deferred income tax liabilities --noncurrent:
Property and equipment..................... 185,000 162,000 154,000
Software costs............................. 1,245,000 1,017,000 935,000
----------- ----------- ----------
Total deferred income tax
liabilities...................... 1,430,000 1,179,000 1,089,000
----------- ----------- ----------
Net deferred income tax liabilities.......... $ (979,000) $ (877,000) $ (618,000)
=========== =========== ==========
Represented on the consolidated balance sheet
as:
Current deferred income tax assets......... $ 273,000 $ 180,000 $ 343,000
Noncurrent deferred income tax
liabilities............................. (1,252,000) (1,057,000) (961,000)
----------- ----------- ----------
$ (979,000) $ (877,000) $ (618,000)
=========== =========== ==========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not SDS will realize the benefits of these deductible
differences.
8. EMPLOYEE BENEFIT PLANS
SDS sponsors a Profit-Sharing Plan qualified under Section 401(k) of the
Internal Revenue Code of 1986 covering employees who meet minimum service
requirements and who elect to participate. Participants' contributions are
voluntary. SDS made contributions of $103,750, $135,000 and $200,000 to the Plan
in 1994, 1995, and 1996, respectively. In addition, contributions of $50,000 and
$70,000 were recognized for the unaudited three month period ended March 31,
1996 and the unaudited period from January 1, 1997 through March 11, 1997,
respectively.
SDS has a supplemental retirement agreement with a key employee providing
for payments over twenty years commencing upon the earlier of retirement,
termination or death. The agreement has a vesting
F-33
<PAGE> 85
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
arrangement 20% per year pursuant to which the employee will become fully vested
in 1997 or the earlier of permanent disability, death or change in control of
SDS, as defined. SDS is the owner and beneficiary of insurance policies to
provide a portion of the funding of this agreement. The total expense related to
the agreement was approximately $72,000, $83,000, and $95,000 for 1994, 1995 and
1996, respectively. Total expense related to the agreement for the unaudited
three-month period ended March 31, 1996 and the unaudited period from January 1,
1997 through March 11, 1997 was $9,500 and $16,000, respectively.
SDS has an incentive compensation plan for certain key employees.
Participants in the plan may receive cash payments or stock contingent upon SDS
exceeding certain pretax earnings levels over a rolling four-year earnout period
as determined by the Board of Directors. If a participant terminates employment
during an earnout period, the participant will not be entitled to any
compensation under the plan. If a change in control, as defined, occurs during
an earnout period, the earnout period is deemed to be completed and all payments
earned become due. No provision was required for the years ended December 31,
1994, 1995 and 1996 and the unaudited three-month period ended March 31, 1996
and the unaudited period from January 1, 1997 through March 11, 1997.
In 1996, SDS paid a bonus to a senior executive in an amount sufficient to
fund his purchase from SDS of 1,500 shares of SDS common stock at a price per
share of $100, plus an amount equal to the federal income taxes incurred by such
executive as a result of such bonus. The purchase was made by the executive
pursuant to a purchase right granted to him by SDS in 1989, entitling him to
purchase at fair market value, as determined by the Board of Directors, up to
4,200 shares of SDS common stock upon the attainment of certain performance
goals or discretionary approval by the Board of Directors. As of December 31,
1996, no shares remained available for purchase pursuant to this arrangement.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases -- SDS maintains noncancellable operating leases on
various office facilities, vehicles and computers. These leases generally
contain optional renewal provisions for one or more periods. Rental expense was
approximately $429,000, $451,000 and $530,000 in 1994, 1995 and 1996,
respectively, and $122,000 and $142,000 for the unaudited three months ended
March 31, 1996 and the unaudited period from January 1, 1997 through March 11,
1997.
The future annual minimum lease payments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
1997....................................................... $ 599,000 $ 456,000
1998....................................................... 498,000 564,000
1999....................................................... 299,000 364,000
2000....................................................... 210,000 280,000
2001....................................................... 211,000 285,000
Thereafter................................................. 140,000 153,000
---------- ----------
$1,957,000 $2,102,000
========== ==========
</TABLE>
The future annual minimum rental revenues to be received under
noncancellable subleases (with initial or remaining lease terms in excess of one
year) as of December 31, 1996 were $67,000 for 1997 and $81,000 for 1998.
Other -- In February 1997, the Philadelphia Contributionship for the
Insurance of Houses from Loss by Fire ("PCIHLF") filed a lawsuit (Civil Action
No. 97-CV-1262) against SDS in the United States District Court for the Eastern
District of Pennsylvania. The suit alleges that certain software systems that
SDS sold to
F-34
<PAGE> 86
STRATEGIC DATA SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PCIHLF in 1995 did not meet PCIHLF's specifications. PCIHLF claims damages in
excess of $1.3 million. In connection with the acquisition of SDS by INSpire
Insurance Solutions, Inc. ("INSpire"), INSpire and the former SDS shareholders
placed $1.5 million of the SDS purchase price in an escrow account in respect of
this claim. INSpire has no recourse against the former SDS shareholders to the
extent that the aggregate amount of any judgment, settlement and expenses
exceeds the amount of the escrowed funds. SDS filed a counterclaim against
PCIHLF for $550,000 for amounts due under its agreements with PCIHLF. There can
be no assurance with respect to the outcome of this lawsuit.
SDS participates in a self-insurance program that provides for the payment
of employee health claims. The program provides for specific excess loss
reinsurance for aggregate claims greater than a specified amount for any one
claimant. SDS accrues the estimated liabilities for the ultimate costs of both
reported claims and incurred but not reported claims.
10. SUBSEQUENT EVENTS
On February 18, 1997, SDS's shareholders executed a definitive agreement
with INSpire whereby INSpire agreed to acquire SDS for an aggregate purchase
price of approximately $18.0 million plus assumed indebtedness of approximately
$650,000, subject to satisfactory resolution of certain matters. In addition,
INSpire and the former shareholders of SDS placed into escrow $1.0 million of
the purchase price in respect of certain contingent liabilities and $1.5 million
of the purchase price in escrow in respect of the PCIHLF lawsuit described in
Note 9. The transaction was consummated March 12, 1997.
On March 12, 1997, an affiliate of certain officers of SDS purchased the
land and improvements comprising SDS's administrative home office for the
assumption of debt in the amount of $1.8 million.
In March 1997, SDS terminated its supplemental retirement agreement with a
key employee, described in Note 8. SDS entered into an employment agreement with
such employee pursuant to which SDS will pay to such employee $40,000 per year
during the twenty-year period commencing January 1, 1999 and ending December 31,
2018.
In March 1997, SDS terminated its incentive compensation plan for certain
key employees, described in Note 8.
F-35
<PAGE> 87
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER, OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
SDS Acquisition....................... 12
Use of Proceeds....................... 13
Dividend Policy....................... 13
Dilution.............................. 14
Capitalization........................ 15
Selected Consolidated Financial Data
of INSpire.......................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of INSpire............ 18
Selected Consolidated Financial Data
of SDS.............................. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of SDS................ 23
Business.............................. 25
Management............................ 34
Principal and Selling Shareholders.... 38
Certain Transactions.................. 38
Description of Capital Stock.......... 40
Shares Eligible for Future Sale....... 45
Underwriting.......................... 46
Legal Matters......................... 48
Experts............................... 48
Available Information................. 48
Financial Statements.................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
4,500,000 SHARES
INSPIRE INSURANCE SOLUTIONS, INC.
COMMON STOCK
----------------------------
P R O S P E C T U S
----------------------------
RAYMOND JAMES & ASSOCIATES, INC.
SOUTHWEST SECURITIES, INC.
, 1997
======================================================
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. Millers Mutual, as a selling
security holder, and the Company shall pay the estimated expenses of issuance
and distribution in proportion to the respective number of shares sold by them
in the offering. Each amount, except for the SEC and NASD fees, is estimated.
<TABLE>
<S> <C>
SEC registration fees....................................... $ 17,250
NASD filing fees............................................ $ 7,500
Nasdaq National Market System application and listing
fees...................................................... $ 50,000
Transfer agents' and registrar's fees and expenses.......... $ 15,000
Printing and engraving expenses............................. $ 175,000
Legal fees and expenses..................................... $ 200,000
Accounting fees and expenses................................ $ 200,000
Representatives' advisory fee............................... $ 300,000
Blue sky fees and expenses.................................. $ 7,500
Miscellaneous............................................... $ 27,750
----------
Total.................................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company, a Texas corporation, is empowered by Article 2.02-1 of the
Texas Business Corporation Act (the "TBCA"), subject to the procedures and
limitations stated therein, to indemnify certain persons, including any person
who was, is or is threatened to be made a named defendant or respondent in a
threatened, pending, or completed action, suit or proceeding because the person
is or was a director or officer, against judgments, penalties (including excise
and similar taxes), fines, settlements and reasonable expenses (including court
costs and attorneys' fees) actually incurred by the person in connection with
the threatened, pending, or completed action, suit or proceeding. The Company is
required by Article 2.02-1 to indemnify a director or officer against reasonable
expenses (including court costs and attorneys' fees) incurred by him in
connection with a threatened, pending, or completed action, suit or proceeding
in which he is a named defendant or respondent because he is or was a director
or officer if he has been wholly successful, on the merits or otherwise, in the
defense of the action, suit or proceeding. Article 2.02-1 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under the corporation's
articles of incorporation or any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise. The Restated Articles of Incorporation
and Bylaws of the Company provide for indemnification by the Company of its
directors and officers to the fullest extent permitted by the TBCA. In addition,
the Company has, pursuant to Article 1302-7.06 of the Texas Miscellaneous
Corporation Laws Act, provided in its Restated Articles of Incorporation that,
to the fullest extent permitted by the Texas Miscellaneous Corporation Laws Act,
a director of the Company shall not be liable to the Company or its shareholders
for monetary damages for an act or omission in a director's capacity as director
of the Company.
Furthermore, the Company has entered into individual indemnification
agreements with each director of the Company that contractually obligate the
Company to provide to the directors indemnification for liabilities they may
incur in the performance of their duties and insurance or self-insurance in lieu
thereof. The form of such indemnification agreements with a schedule of director
signatories is filed as Exhibit 10.11 hereto.
The Underwriting Agreement among the Company, the Selling Shareholder and
the Underwriters provides for the indemnification by the Underwriters of the
Company, certain of its officers and any controlling person against any
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
II-1
<PAGE> 89
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in April 1995, the Company issued and sold the
following unregistered securities:
(1) The Company initially issued 100 shares of Common Stock to Millers
Mutual in April 1995 in exchange for $1,000. This issuance was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").
(2) The Company declared and paid a stock dividend of 64,900 shares of
Common Stock in March 1997. The Company also declared and paid a stock
dividend of 6,935,000 shares of Common Stock in June 1997. These issuances
were not a "sale" under the Securities Act.
(3) From March 12, 1997 through May 2, 1997, the Company granted
nonstatutory options to purchase an aggregate of 840,248 shares of Common
Stock to employees and officers of the Company under its 1997 Stock Option
Plan at an exercise price of $1.30 per share. These options vest over a
period of time following their respective dates of grant. These issuances
were exempt from registration under Section 4(2) of, and Rule 701
promulgated under, the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated as of February 18, 1997,
among the Company, SDS, and the Management Shareholders with
a list identifying omitted schedules.
2.2 Articles and Plan of Merger of SDS into the Company.
2.3 Non-Binding Letter of Intent, dated as of July 1, 1997,
among AQS and Samuel J. Fleager.
3.1 Restated Articles of Incorporation of the Company.
3.2 Bylaws of the Company and First and Second Amendments
thereto.
4.1* Specimen Certificate for shares of Common Stock of the
Company.
4.2* Rights Agreement, by and between the Company and U.S. Trust
Company of Texas, N.A., dated as of July , 1997.
5* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1* Benefits Administration Contract, dated as of July , 1997,
by and between the Company and Millers Mutual.
10.2* Amended Service Contract, dated as of July , 1997, by and
among the Company, Millers Mutual, and Millers Casualty.
10.3* Amended Information Services Contract, dated as of July ,
1997, by and among the Company, Millers Mutual, and Millers
Casualty.
10.4 Form of Agreement to Lease Office Space, effective as of May
1, 1996, by and between the Company and Millers Mutual.
10.5* Sublease Agreement, dated as of July , 1997, by and
between the Company and Millers Mutual.
10.6 Claims Life Cycle Services Agreement, effective as of August
15, 1996, by and among the Company, Blanch Wholesale
Insurance Services, Inc., and Blanch Insurance Services,
Inc.
10.7* Amendment No. 1 to Claims Life Cycle Services Agreement,
effective as of August , 1996.
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.8 Policy Life Cycle Services Agreement, effective as of August
15, 1996, by and among the Company, Blanch Wholesale
Insurance Services, Inc., and Blanch Insurance Services,
Inc.
10.9 Form of Amendment No. 1 to Policy Life Cycle Services
Agreement, effective as of August 15, 1996.
10.10 Administrative Services Agreement, effective as of March 12,
1996, by and among HOW Insurance Company, Home Warranty
Corporation, and Home Owners Warranty Corporation, In
Receivership, and the Company.
10.11 Form of Indemnification Agreement with a schedule of
director signatories.
10.12 Employment Agreement, effective as of July 1, 1997, by and
between the Company and F. George Dunham, III.
10.13 Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Stuart H. Warrington.
10.14 Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Robert K. Agazzi.
10.15 Building Lease, dated March 12, 1997, between SDS and
Riverview Building, LLC.
10.16 Loan Agreement, between the Company and NationsBank of
Texas, N.A., dated March 12, 1997.
10.17 Security Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A.
10.18 Security Agreement, dated March 12, 1997, between SDS and
NationsBank.
10.19 Security Agreement, dated March 12, 1997, between AQS and
NationsBank.
10.20 Pledge Agreement, dated March 12, 1997, between the Company
and NationsBank of Texas, N.A.
10.21 Pledge Agreement dated March 12, 1997, between SDS and
NationsBank.
10.22 Guaranty of SDS dated March 12, 1997.
10.23 Guaranty of AQS dated March 12, 1997.
10.24 Form of License Agreement.
10.25 Form of System Support Agreement.
10.26 Form of Implementation Support Agreement.
10.27 Form of Accelerated Enhancement Plan Agreement.
10.28 1997 Stock Option Plan and form of Amendment No. 1 thereto.
10.29 Form of Stock Option Agreement.
10.30* Consolidated Federal Income Tax Allocation Agreement
effective January 1, 1994 by and between the Company and
Millers Mutual, as amended.
10.31 Form of Policy Life Cycle Services Agreement, effective as
of May 1, 1997, by and between the Company and Millers
Casualty.
10.32 Form of Claims Life Cycle Services Agreement, effective as
of June 1, 1997, by and between the Company and Millers
Casualty.
10.33 Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Terry G. Gaines.
10.34 Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Ronald O. Lynn.
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
- ------------------------- ------------------------------------------------------------------------------------------
<C> <S>
10.35 Form of Employment Agreement, effective as of July 1, 1997, by and between the Company and
Jeffrey W. Robinson.
11 Statement regarding Computation of Per Share Earnings.
16 Letter regarding Change in Certifying Accountant.
21 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP regarding INSpire report.
23.2 Consent of Deloitte & Touche LLP regarding SDS report.
23.3* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in its opinion filed as
Exhibit 5 hereto).
24 Power of Attorney (included on signature page of this Registration Statement).
27 Financial Data Schedule (included in SEC-filed copy only).
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules
None.
Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 14 herein, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
II-4
<PAGE> 92
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Worth,
State of Texas, on July 11, 1997.
INSPIRE INSURANCE SOLUTIONS, INC.
By: /s/ F. GEORGE DUNHAM, III
----------------------------------
F. George Dunham, III, President
The undersigned directors and officers of INSpire Insurance Solutions, Inc.
hereby constitute and appoint F. George Dunham, III, with full power to act and
with full power of substitution and resubstitution, our true and lawful
attorney-in-fact with full power to execute in our name and behalf in the
capacities indicated below any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement and to file
the same, with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission and hereby ratify and confirm all
that such attorney-in-fact or his substitute shall lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on July 11, 1997:
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ F. GEORGE DUNHAM, III President, Chief Executive Officer (principal
- ----------------------------------------------------- executive officer) and Director
F. George Dunham, III
/s/ TERRY G. GAINES Chief Financial Officer (principal financial
- ----------------------------------------------------- officer and principal accounting officer)
Terry G. Gaines
/s/ HARRY E. BARTEL Director
- -----------------------------------------------------
Harry E. Bartel
/s/ R. EARL COX, III Director
- -----------------------------------------------------
R. Earl Cox, III
/s/ MITCH S. WYNNE Director
- -----------------------------------------------------
Mitch S. Wynne
</TABLE>
II-6
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated as of February 18, 1997,
among the Company, SDS, and the Management Shareholders with
a list identifying omitted schedules.
2.2 Articles and Plan of Merger of SDS into the Company.
2.3 Non-Binding Letter of Intent, dated as of July 1, 1997,
among AQS and Samuel J. Fleager.
3.1 Restated Articles of Incorporation of the Company.
3.2 Bylaws of the Company and First and Second Amendments
thereto.
4.1* Specimen Certificate for shares of Common Stock of the
Company.
4.2* Rights Agreement, by and between the Company and U.S. Trust
Company of Texas, N.A., dated as of July , 1997.
5* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1* Benefits Administration Contract, dated as of July , 1997,
by and between the Company and Millers Mutual.
10.2* Amended Service Contract, dated as of July , 1997, by and
among the Company, Millers Mutual, and Millers Casualty.
10.3* Amended Information Services Contract, dated as of July ,
1997, by and among the Company, Millers Mutual, and Millers
Casualty.
10.4 Form of Agreement to Lease Office Space, effective as of May
1, 1996, by and between the Company and Millers Mutual.
10.5* Sublease Agreement, dated as of July , 1997, by and
between the Company and Millers Mutual.
10.6 Claims Life Cycle Services Agreement, effective as of August
15, 1996, by and among the Company, Blanch Wholesale
Insurance Services, Inc., and Blanch Insurance Services,
Inc.
10.7* Amendment No. 1 to Claims Life Cycle Services Agreement,
effective as of August , 1996.
10.8 Policy Life Cycle Services Agreement, effective as of August
15, 1996, by and among the Company, Blanch Wholesale
Insurance Services, Inc., and Blanch Insurance Services,
Inc.
10.9 Form of Amendment No. 1 to Policy Life Cycle Services
Agreement, effective as of August 15, 1996.
10.10 Administrative Services Agreement, effective as of March 12,
1996, by and among HOW Insurance Company, Home Warranty
Corporation, and Home Owners Warranty Corporation, In
Receivership, and the Company.
10.11 Form of Indemnification Agreement with a schedule of
director signatories.
10.12 Employment Agreement, effective as of July 1, 1997, by and
between the Company and F. George Dunham, III.
10.13 Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Stuart H. Warrington.
10.14 Employment Agreement, dated and effective as of March 12,
1997, by and between SDS and Robert K. Agazzi.
10.15 Building Lease, dated March 12, 1997, between SDS and
Riverview Building, LLC.
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.16 Loan Agreement, between the Company and NationsBank of
Texas, N.A., dated March 12, 1997.
10.17 Security Agreement, dated March 12, 1997, between the
Company and NationsBank of Texas, N.A.
10.18 Security Agreement, dated March 12, 1997, between SDS and
NationsBank.
10.19 Security Agreement, dated March 12, 1997, between AQS and
NationsBank.
10.20 Pledge Agreement, dated March 12, 1997, between the Company
and NationsBank of Texas, N.A.
10.21 Pledge Agreement dated March 12, 1997, between SDS and
NationsBank.
10.22 Guaranty of SDS dated March 12, 1997.
10.23 Guaranty of AQS dated March 12, 1997.
10.24 Form of License Agreement.
10.25 Form of System Support Agreement.
10.26 Form of Implementation Support Agreement.
10.27 Form of Accelerated Enhancement Plan Agreement.
10.28 1997 Stock Option Plan and form of Amendment No. 1 thereto.
10.29 Form of Stock Option Agreement.
10.30* Consolidated Federal Income Tax Allocation Agreement
effective January 1, 1994 by and between the Company and
Millers Mutual, as amended.
10.31 Form of Policy Life Cycle Services Agreement, effective as
of May 1, 1997, by and between the Company and Millers
Casualty.
10.32 Form of Claims Life Cycle Services Agreement, effective as
of June 1, 1997, by and between the Company and Millers
Casualty.
10.33 Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Terry G. Gaines.
10.34 Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Ronald O. Lynn.
10.35 Form of Employment Agreement, effective as of July 1, 1997,
by and between the Company and Jeffrey W. Robinson.
11 Statement regarding Computation of Per Share Earnings.
16 Letter regarding Change in Certifying Accountant.
21 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP regarding INSpire report.
23.2 Consent of Deloitte & Touche LLP regarding SDS report.
23.3* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
24 Power of Attorney (included on signature page of this
Registration Statement).
27 Financial Data Schedule (included in SEC-filed copy only).
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
dated as of February 18, 1997,
among
Millers Integrated Claims Resources, Inc.
Millers Merger Corporation
Strategic Data Systems, Inc.
and the Management Shareholders
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 THE MERGER, EFFECTIVE TIME, PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation; Bylaws; Directors and Officers . . . . . . . . . . . . . . . . . 2
1.5 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Price and Payment of Cash for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Escrow for Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Shareholders' Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.9 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF
MILLERS AND MERGER SUB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Authority Relative to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE MANAGEMENT SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Organization, Good Standing, Power, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Authorized Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.12 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.13 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.14 Patents, Trademarks, Franchises, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.15 Loans, Notes, Accounts Receivable and Accounts Payable . . . . . . . . . . . . . . . . . . 19
3.16 Corporate Documents, Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.17 Absence of Sensitive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.19 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.20 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.21 Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.22 Directors and Officers; Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.23 Ownership, Quality and Location of Material Assets . . . . . . . . . . . . . . . . . . . . 23
3.24 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.25 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.26 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.27 Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.28 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.29 Credit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.30 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF THE MANAGEMENT SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.1 Title to Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.2 Power; Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.4 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5 CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . 26
5.2 Conduct of Business by the Subsidiary Pending the Merger . . . . . . . . . . . . . . . . . 28
5.3 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 6 COVENANTS OF THE COMPANY AND THE
MANAGEMENT SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1 Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 No Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4 Approval of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5 Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.8 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.9 Independent Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.10 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.11 Repayment of Shareholder Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.12 Shareholders' Agent Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.13 Employee Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 7 ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.2 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.3 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.4 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.5 Information for Other Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 8 CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 Conditions to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . . 35
8.2 Additional Conditions to the Obligation of the Company . . . . . . . . . . . . . . . . . . . 35
8.3 Additional Conditions to the Obligations of Millers and Merger Sub . . . . . . . . . . . . . 37
ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 10 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.1 Indemnification for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.2 Indemnification for Philadelphia Settlement Costs . . . . . . . . . . . . . . . . . . . . . 42
10.3 Indemnification for Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.5 Indemnification by Millers and Surviving Corporation . . . . . . . . . . . . . . . . . . . . 43
10.6 Shareholders Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.7 Procedures for Resolution and Payment of Claims for Indemnification . . . . . . . . . . . . . 44
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 11 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.1 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.3 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.5 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.6 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
Schedules
Schedule 1.4 - Directors and Officers of Surviving Corporation
Schedule 3.3 - Partnerships and Joint Ventures
Schedule 3.4 - Effect of Agreement
Schedule 3.5 - Prepayment Penalties
Schedule 3.6 - Absence of Certain Changes or Events
Schedule 3.7 - Taxes
Schedule 3.8 - Real Property
Schedule 3.9 - Environmental Matters
Schedule 3.10 - Personal Property
Schedule 3.11 - Contracts
Schedule 3.12 - Legal Proceedings
Schedule 3.14 - Patents, Trademarks, Franchises, etc.
Schedule 3.18 - Insurance
Schedule 3.19 - Employees
Schedule 3.20 - Employee Plans
Schedule 3.21 - Transactions with Related Parties
Schedule 3.22 - Directors and Officers; Banks
Schedule 3.23 - Material Assets
Schedule 4.1 - Management Shareholders
Schedule 8.3(q) - Landlord Waivers and Estoppels
Schedule 8.3(u) - Copyright Assignments
<PAGE> 5
Exhibits
Exhibit A - Escrow Agreement
Exhibit B - Shareholders' Agent Agreement
Exhibit C - Form of Release
Exhibit D - Employment Agreements
Exhibit E - Form of Opinion for Millers
Exhibit F - Form of Opinion for Company
Exhibit G - Building Lease
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of February
18, 1997, is among Millers Integrated Claims Resources, Inc., a Texas
corporation ("Millers"), Millers Merger Corporation, a Wisconsin corporation
and a subsidiary of Millers ("Merger Sub"), Strategic Data Systems, Inc., a
Wisconsin corporation (the "Company"), and the shareholders of the Company set
forth on the signature page hereto which execute this Agreement (the
"Management Shareholders"). The Company and Merger Sub are hereinafter
collectively referred to as the "Constituent Corporations".
Whereas, Millers, as the sole shareholder of Merger Sub, and the
respective Boards of Directors of Merger Sub and the Company, have each
approved the merger of Merger Sub into the Company in accordance with the
Wisconsin Business Corporation Law (the "Wisconsin Law") and the provisions of
this Agreement; the Board of Directors of the Company has directed that the
Merger, as hereinafter defined, be submitted for approval by the shareholders
of the Company (the "Shareholders").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, Millers, Merger Sub, the Company and the Management
Shareholders hereby agree as follows:
ARTICLE 1
THE MERGER, EFFECTIVE TIME, PRICE
1.1 The Merger. At the Effective Time (as defined in Section 1.3
hereof), in accordance with this Agreement and the Wisconsin Law, Merger Sub
shall be merged (such merger being herein referred to as the "Merger") with and
into the Company, the separate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation. The Company hereinafter
sometimes is referred to as the "Surviving Corporation."
1.2 Effect of the Merger. When the Merger has been effected, the
Surviving Corporation shall thereupon and thereafter possess all the rights,
privileges, powers and franchises of a public as well as of a private nature,
and be subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations; and all and singular, the rights, privileges, powers
and franchises of each of the Constituent Corporations and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well for stock subscriptions as all other things in
action or belonging to each of such corporations shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the respective
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, in any of such Constituent Corporations, shall not revert or be in
any way impaired by reason of the Merger; but all rights of creditors and all
liens upon any property of any of said Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it.
1.3 Consummation of the Merger. As soon as is practicable after
the satisfaction or waiver of the conditions set forth in Article 8 hereof, the
parties hereto will cause the Merger to be consummated by filing with the
Department of Financial Institutions of Wisconsin an articles of
<PAGE> 7
merger and plan of merger in such form as required by, and executed in
accordance with, the relevant provisions of the Wisconsin Law (the time of such
filing being the "Effective Time" and the date of such filing being the
"Effective Date").
1.4 Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation and bylaws of the Surviving Corporation shall be
amended and restated to be identical with the Articles of Incorporation and
bylaws of the Merger Sub as in effect immediately prior to the Effective Time
until thereafter amended as provided therein and under the Wisconsin Law. The
initial directors of the Surviving Corporation shall be the persons listed on
Schedule 1.4 hereto. At the Effective Time, the officers of the Surviving
Corporation shall be the persons holding the respective offices listed on
Schedule 1.4 hereto. Such directors and officers shall serve in such
capacities until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and bylaws and the
Wisconsin Law.
1.5 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Millers, Merger Sub, the
Company or the holder of any of the shares (the "Shares") of common stock, no
par value (the "Common Stock") of the Company:
(a) Each Share issued and outstanding immediately prior
to the Effective Time (other than Dissenting Shares (as defined in Section
1.5(e)), shall be canceled and retired and be converted into and become a
right to receive cash in an amount equal to the Share Price, as defined in
Section 1.6 hereof.
(b) Each Share which is held in the treasury of the
Company or which is owned by any direct or indirect subsidiary of the
Company shall be canceled and retired, and no payment shall be made with
respect thereto.
(c) Each outstanding or authorized subscription, option,
warrant, call, right (including any preemptive right), commitment, or
other agreement of any character whatsoever which obligates or may
obligate the Company to issue or sell any additional shares of its capital
stock or any securities convertible into or evidencing the right to
subscribe for any shares of its capital stock or securities convertible
into or exchangeable for such shares, if any, shall be terminated, and no
payment shall be made with respect thereto.
(d) Each share of Common Stock, par value $0.01 per
share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully paid and,
subject to section 180.0622 of the Wisconsin Law, as interpreted,
nonassessable share of Common Stock, par value $0.01 per share, of the
Surviving Corporation.
(e) Each Share issued and outstanding immediately prior
to the Effective Time and held by a Shareholder who shall not have voted
in favor of the adoption of this Agreement and the approval of the Merger
and who has validly perfected dissenter's rights in accordance with the
Wisconsin Law shall not be converted into and become a right to receive
cash in an amount equal to the Share Price in accordance with the terms of
this Agreement (all such Shares are hereinafter referred to as "Dissenting
Shares"). The Company shall give Millers prompt notice upon receipt by
the Company of any written notice from any Shareholder who intends to
exercise dissenter's rights (a "Dissenting Shareholder"). The Company
agrees that prior to the Effective Time, it will not, except with prior
written consent of Millers, voluntarily make any payment with respect to,
or settle or offer to settle, any request for withdrawal pursuant to the
exercise of dissenter's
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rights. Each Dissenting Shareholder who becomes entitled, pursuant to the
provisions of applicable law, to payment for such Dissenting Shareholder's
shares of the Company shall receive payment therefor from the Surviving
Corporation (but only after the amount thereof shall be agreed upon or
finally determined pursuant to the provisions of applicable law). If any
Dissenting Shareholder shall fail to perfect or shall effectively withdraw
or lose such Dissenting Shareholder's right to receive the value of such
Dissenting Shareholder's Shares, each of such Dissenting Shareholder's
Shares shall thereupon be converted into a right to receive cash in an
amount equal to the Share Price in accordance with the terms of this
Agreement. The Surviving Corporation shall (i) assume the obligations, if
any, to pay the fair value of any Shares as to which the holders thereof
have perfected dissenters' rights under the Wisconsin Law and (ii) notify
the Disbursing Agent (hereinafter defined) of the names of the holders who
have, and the number of Shares with respect to which there are, perfected
statutory rights of dissenting shareholders. Persons who have perfected
statutory rights of dissenting shareholders as aforesaid shall not be paid
by the Disbursing Agent as provided in this Agreement except upon
instructions from the Surviving Corporation.
1.6 Price and Payment of Cash for Shares.
(a) The aggregate consideration for the Shares of the
Company shall be $18,000,000 multiplied by a fraction, the numerator of
which is the number of Shares to be converted under Section 1.5(a) and the
denominator of which is the number of Shares issued and outstanding
immediately prior to the Effective Date (the "Aggregate Share Price").
The "Share Price" shall be equal to the Aggregate Share Price divided by
the number of Shares to be converted under Section 1.5(a). At or prior to
the Effective Time, Millers shall deposit or cause to be deposited with
Norwest Bank Wisconsin, N.A. (the "Disbursing Agent") as agent for the
holders of Shares to be canceled pursuant to Section 1.5(a) (such holders
hereinafter referred to as the "Nondissenting Shareholders"), cash in an
amount (hereinafter referred to as the "First Installment") equal to (A)
the Aggregate Share Price less (B) the sum of (i) the aggregate amount of
the funds deposited in the escrow established pursuant to Section 1.7
hereof (the "Escrow Amount") and (ii) the amount, if any, of Shareholder
Expenses set forth in the Expense Notice as defined in Section 7.1 hereof.
The First Installment is designed to provide for an initial payment to the
Nondissenting Shareholders of their pro rata share of the Aggregate Share
Price net of the Escrow Amount and the amount of Shareholder Expenses set
forth in the Expense Notice (as defined in Section 7.1 hereof).
As soon as practicable after the Effective Time, but in any
event not later than seven days after the Effective Time, the Disbursing
Agent shall mail to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the
Effective Time represented Shares (individually, a "Certificate" and
collectively, the "Certificates"), a letter of transmittal and
instructions for use in effecting the surrender of the Certificates for
payment thereof. Upon surrender to the Disbursing Agent of a Certificate,
together with such duly executed letter of transmittal, the holder of such
Certificate shall, subject to the terms of Shareholders' Agent Agreement
(as defined in Section 1.8), receive in exchange therefor a check or wire
transfer in the amount equal to the difference between (i) the product of
(x) the First Installment and (y) a fraction, the numerator of which is
the number of Shares represented by such Certificate and the denominator
of which is the number of Shares to be converted pursuant to Section
1.5(a) and (ii) any amount required to be withheld under applicable
withholding Federal income tax regulations. No interest will be paid or
accrued on the amounts payable under this Section 1.6 upon surrender of
the Certificates. Until so surrendered and exchanged, each
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such Certificate shall, after the Effective Time, be deemed to represent
only the right to receive such amount along with the right to receive
amounts, if any, to be distributed pursuant to the Escrow Agreement
(hereinafter defined), and until such surrender and exchange no cash shall
be paid to the holder of such outstanding Certificate in respect thereof.
If payment is to be made to a person other than the person in whose name a
surrendered Certificate is registered, it shall be a condition to such
payment that the Certificate so surrendered shall be endorsed or shall be
otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of
such payment in a name other than that of the registered holder of the
Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation or the Disbursing Agent that such tax either has
been paid or is not payable. If any cash deposited with the Disbursing
Agent pursuant to this Section 1.6 for purposes of payment in exchange for
such Shares remains unclaimed following the expiration of six months after
the Effective Time, such cash shall be delivered to the Surviving
Corporation by the Disbursing Agent, and thereafter the surrender and
exchange shall be effected directly with the Surviving Corporation
(subject to abandoned property, escheat or other similar laws). No
interest shall accrue or be payable with respect to any amounts which any
holder shall be entitled to receive pursuant to Sections 1.5(a) and 1.6
hereof. The Surviving Corporation or the Disbursing Agent shall be
authorized to pay the cash attributable to any Certificate theretofore
issued which has been lost or destroyed upon receipt of satisfactory
evidence of ownership of the Shares represented thereby and of appropriate
indemnification. From and after the Effective Time, the holders of
Certificates evidencing ownership of Shares outstanding immediately prior
to the Merger shall cease to have any rights with respect to such Shares
except as otherwise provided herein or by the Wisconsin Law. Prior to the
Effective Time, the Company may distribute to its Shareholders letters of
transmittal and instructions for use in effecting surrender of
Certificates and such Shareholders may surrender their Certificates to the
Disbursing Agent; provided, however, the Disbursing Agent shall take no
action with respect to such Certificates until the Effective Time.
(b) After the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of any Shares
that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates for Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for cash as provided in
this Section 1.6, subject to the Wisconsin Law and the provisions of
Section 1.5(e) hereof in the case of Dissenting Shares.
(c) If the holder of any Shares shall become entitled to
receive payment for such Shares pursuant to the Wisconsin Law, such
payment shall be made by the Disbursing Agent with respect to payments to
Nondissenting Shareholders or by the Surviving Corporation with respect to
payments to Dissenting Shareholders. The obligation of Millers or the
Surviving Corporation to pay for the Shares shall be satisfied by delivery
of the funds comprising the First Installment to the Disbursing Agent and
by delivery of funds comprising the Escrow Amount to the Escrow Agent (as
hereinafter defined). Neither Millers nor the Surviving Corporation shall
be responsible in any manner whatsoever for (i) any failure or inability
of the Shareholders' Agent or the Disbursing Agent to honor any provisions
of this Agreement, the Shareholders' Agent Agreement or the Escrow
Agreement, (ii) any instructions given by the Shareholders' Agent to the
Disbursing Agent or failure to give such instructions by the Shareholders'
Agent, (iii) the investment of funds held by the Shareholders' Agent or
the Disbursing Agent or (iv) the amount or timing of the disbursement of
funds by the Shareholders' Agent or the Disbursing Agent.
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1.7 Escrow for Certain Liabilities. At or prior to the Effective
Time, Millers shall deposit or cause to be deposited in escrow with U.S. Trust
Company of Texas, N.A. (the "Escrow Agent") as escrow agent pursuant to the
terms of the Escrow Agreement (the "Escrow Agreement") substantially in the
form of Exhibit A hereto, cash in an amount equal to $2,500,000 (such amount
hereinafter referred to as the "Escrow Amount"). The aggregate Escrow Amount
shall be segregated into a "Millers Account" to be held in respect of
liabilities arising under Section 10.1 of this Agreement and a "Philadelphia
Account" to be held in respect of liabilities arising under Section 10.2 of
this Agreement as set forth in the Escrow Agreement. The Escrow Amount shall
be released to the Disbursing Agent or the Surviving Corporation, as
appropriate, pursuant to the provisions of the Escrow Agreement.
1.8 Shareholders' Agent. Approval of the Merger by the
Shareholders shall constitute the approval, designation and appointment by the
Shareholders of Stuart Warrington as the agent on behalf of all of the
Shareholders (the "Shareholders' Agent") pursuant to the terms of a
Shareholders' Agent Agreement (the "Shareholders' Agent Agreement") in the form
of Exhibit B hereto. The Shareholders' Agent shall be authorized to act on
behalf of all of the Shareholders in accordance with the terms of the
Shareholders' Agent Agreement and the actions of the Shareholders' Agent taken
pursuant to the Shareholders' Agent Agreement shall be binding upon all of the
Shareholders.
1.9 Taking of Necessary Action; Further Action. Each of Millers,
Merger Sub, the Management Shareholders and the Company shall use all
reasonable efforts to take all such actions as may be necessary or appropriate
in order to effectuate the Merger under the Wisconsin Law or federal law as
promptly as possible. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Agreement
and to vest the Surviving Corporation with full right, title and possession to
all assets, property, rights, privileges, powers and franchises of either of
the Constituent Corporations, the officers and directors of the Surviving
Corporation are fully authorized in the name of their corporation or otherwise
to take, and shall take, all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
MILLERS AND MERGER SUB
Millers and Merger Sub represent and warrant the following:
2.1 Organization and Qualification. Each of Millers and Merger
Sub is a corporation duly organized and validly existing under the laws of the
state of its incorporation and has the requisite corporate power to carry on
its business as now conducted. Copies of the charter documents and bylaws of
Merger Sub heretofore delivered to the Company are accurate and complete as of
the date hereof. Millers is in good standing under the laws of the State of
Texas.
2.2 Authority Relative to Agreement. Each of Millers and Merger
Sub has the requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by Millers and Merger Sub and the consummation by Millers and
Merger Sub of the transactions contemplated hereby have been duly authorized by
the Boards of Directors of Millers and Merger Sub and by Millers as the sole
shareholder of Merger Sub as of the date of this Agreement, and no other
corporate proceedings on the part of Millers or Merger Sub are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Millers and Merger Sub and
(assuming that it has been duly executed and delivered by the Company and the
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<PAGE> 11
Management Shareholders) constitutes a legal, valid and binding obligation of
each such company, enforceable against each such company in accordance with its
terms except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights generally from time to time
in effect and except that equitable remedies are subject to judicial
discretion. Other than in connection with or in compliance with the provisions
of the Wisconsin Law, and the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott-Rodino Act"), no notice to, filing with, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Millers or Merger Sub of the transactions
contemplated by this Agreement.
2.3 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger based upon arrangements made by or on behalf of Millers or the Merger
Sub.
2.4 Effect of Agreement. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will conflict with, violate or result in a breach of any provision of the
charter documents or bylaws of Millers or Merger Sub or any law, rule,
regulation or ordinance applicable to Millers or Merger Sub or any agreement to
which Millers or Merger Sub is a party.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE MANAGEMENT SHAREHOLDERS
The Company and each of the Management Shareholders represent and warrant
to Millers and Merger Sub as follows:
3.1 Organization, Good Standing, Power, etc.
(a) The Company is a corporation duly organized and
validly existing under the laws of the State of Wisconsin, and has all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. The
Company is duly qualified as a foreign corporation to do business, and is
in good standing in the states of South Carolina, Maine and Massachusetts.
The Company is not required to be qualified or licensed to do business as
a foreign corporation in any other jurisdiction where the failure to be
qualified or licensed in any such other jurisdiction would have a material
adverse effect on the Company. Copies of the Articles of Incorporation
and bylaws of the Company heretofore delivered to Millers and Merger Sub
or their representatives by the Company are true and complete as of the
date hereof. Each of such Articles of Incorporation and bylaws is in
full-force and effect, and the Company is not in violation or breach of
any of the provisions of its Articles of Incorporation or bylaws.
(b) The Company has the requisite corporate power and
authority to enter into this Agreement and, subject to obtaining any
necessary shareholder approval of the Merger as required by the Wisconsin
Law, to perform its obligations hereunder. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company. No other corporate proceedings on the part of
the Company are necessary for the execution and delivery of this Agreement
by the Company and, subject to obtaining shareholder approval of the
Merger as required by the Wisconsin Law, the consummation by the Company
of the transactions contemplated hereby. This Agreement has been duly
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executed and delivered by the Company and the Management Shareholders and
(assuming that it has been duly executed and delivered by Millers and
Merger Sub), constitutes a legal, valid and binding obligation of the
Company and the Management Shareholders, enforceable against the Company
and the Management Shareholders in accordance with its terms except as
enforcement thereof may be limited by liquidation, conservatorship,
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor's rights generally from time to time
in effect and except that equitable remedies are subject to judicial
discretion.
(c) Upon obtaining shareholder approval of the Merger as
required by the Wisconsin Law, the Shareholders' Agent Agreement and the
Escrow Agreement will be duly executed and delivered by the Shareholders'
Agent and, (assuming due execution and delivery by the other parties
thereto) will constitute a legal, valid and binding obligation of the
Shareholders' Agent, enforceable against the Shareholders' Agent in
accordance with their terms except as enforcement thereof may be limited
by liquidation, conservatorship, bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditor's rights
generally from time to time in effect and except that equitable remedies
are subject to judicial discretion.
3.2 Authorized Capitalization of the Company. The authorized
capital stock of the Company consists solely of 150,000 shares of common stock,
no par value, of which 117,013.64 shares are validly issued and outstanding,
fully paid and nonassessable (subject to section 180.0622 of the Wisconsin Law,
as interpreted), and 26,936 shares are held in the Company's treasury. There
are no outstanding or authorized subscriptions, options, warrants, calls,
rights (including any preemptive rights), commitments, or other agreements of
any character whatsoever which obligate or may obligate the Company to issue or
sell any additional shares of its capital stock or any securities convertible
into or evidencing the right to subscribe for any shares of its capital stock
or securities convertible into or exchangeable for such shares. There are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock of, or other
ownership interests in, the Company or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity. There are no outstanding agreements or obligations of any
character obligating the Company to register any shares of its capital stock
under the Securities Act of 1933, as amended.
3.3 Subsidiaries.
(a) Other than Applied Quoting Systems, Inc., a Wisconsin
corporation (the "Subsidiary"), which is the only subsidiary of the
Company, the Company does not own any direct or indirect interest in any
corporation or business entity and except as set forth on Schedule 3.3,
the Company is not a participant in (i) any partnership or any joint
venture with any third party evidenced by a written agreement or (ii) any
oral partnership or joint venture involving the sharing of present or
future commissions, fees, income, profits, losses or expenses. Neither
the Company nor the Subsidiary owns any interest in Riverview Building,
LLC.
(b) The Subsidiary is a corporation duly organized and
validly existing under the laws of the State of Wisconsin, and has all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. The
Subsidiary is not required to be qualified or licensed to do business as a
foreign corporation in any jurisdiction where the failure to be qualified
or licensed would have a material adverse effect on the Subsidiary.
Copies of the Articles of Incorporation and bylaws of the
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Subsidiary heretofore delivered to Millers and Merger Sub or their
representatives by the Company are true and complete as of the date
hereof. Each of such Articles of Incorporation and bylaws is in
full-force and effect, and the Subsidiary is not in violation or breach of
any of the provisions of its Articles of Incorporation or bylaws. No
corporate proceedings or consent on the part of the Subsidiary is
necessary for the execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated
hereby.
(c) The Company owns 100% of the outstanding shares of
capital stock of the Subsidiary. The authorized capital stock of the
Subsidiary consists solely of 9,000 shares of common stock, par value
$0.01 per share, of which 100 shares are validly issued and outstanding,
fully paid and nonassessable (subject to section 180.0622 of the Wisconsin
Law, as interpreted). There are no outstanding or authorized
subscriptions, options, warrants, calls, rights (including any preemptive
rights), commitments, or other agreements of any character whatsoever
which obligate or may obligate the Subsidiary to issue or sell any
additional shares of its capital stock or any securities convertible into
or evidencing the right to subscribe for any shares of its capital stock
or securities convertible into or exchangeable for such shares. There are
no outstanding contractual obligations of the Company or the Subsidiary to
repurchase, redeem or otherwise acquire any outstanding shares of capital
stock of, or other ownership interests in, the Subsidiary or to provide
funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity.
3.4 Effect of Agreement. Other than in connection with or in
compliance with the provisions of the Wisconsin Law and the Hart-Scott-Rodino
Act, the execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby
will not require any notice to, filing with, or the consent, approval or
authorization of any person or governmental authority. Except as set forth in
Schedule 3.4, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in the
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability to which the
Company or the Subsidiary is a party or is bound or to which any of their
assets are subject, (ii) conflict with, violate or result in a breach of any
provision of the charter documents or bylaws of the Company or the Subsidiary,
(iii) conflict with or violate any law, rule, regulation, ordinance, order,
writ, injunction or decree applicable to the Company or the Subsidiary or by
which any of their properties or assets are bound or affected or (iv) conflict
with or result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or result in the
creation of any lien, charge or encumbrance on any of the properties or assets
of the Company or the Subsidiary pursuant to any of the terms, conditions or
provisions of any indenture, contract, lease, sublease, loan agreement, note,
permit, license, franchise, agreement or other instrument, obligation or
liability to which the Company or the Subsidiary is a party or by which the
Company or the Subsidiary or any of their assets is bound or affected.
3.5 Financial Statements.
(a) The Company has delivered to Millers and Merger Sub
or their representatives audited consolidated financial statements of the
Company and the Subsidiary as at December 31, 1995, and for the year then
ended, including, without limitation, a statement of consolidated balance
sheets and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended (the "1995
Financial
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Statements") which have been audited by KPMG Peat Marwick LLP, the
independent public accountants of the Company.
(b) The Company has also delivered to Millers and Merger
Sub or their representatives unaudited consolidated financial statements
of the Company and the Subsidiary as of September 30, 1996, and for the
9-month period then ended, consisting of a balance sheet and statement of
operations (the "Interim Financial Statements").
(c) The 1995 Financial Statements and the Interim
Financial Statements (collectively, the "Financial Statements") are in
accordance with the books and records of the Company. Except as set forth
therein (including the notes thereto), the 1995 Financial Statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved. The 1995 Financial
Statements and the Interim Financial Statements (except for normal year
end entries and adjustments consistent with past practices) fairly
represent the financial condition of the Company and the Subsidiary and
the results of operations as at the dates and for the periods therein
specified.
(d) There are no liabilities of the kind required by
generally accepted accounting principles consistently applied to be
reflected, noted or reserved against on the balance sheet of the Company
and the Subsidiary as of December 31, 1995, except those which have been
reflected, noted or reserved against in such balance sheet. There are no
liabilities of the kind required in accordance with the past practices of
the Company to be reflected, noted or reserved against on the balance
sheet of the Company and the Subsidiary as of September 30, 1996 except
those which have been reflected, noted or reserved against on such balance
sheet and except for normal year end entries and adjustments consistent
with past practices. Neither the Company nor the Subsidiary is directly
or indirectly liable to or obligated to provide funds in respect of or to
guarantee or assume any obligation of any person except to the extent
reflected and fully reserved against in the Financial Statements. Except
as set forth on Schedule 3.5, all liabilities of the Company and the
Subsidiary can be prepaid without penalty at any time.
(e) The consolidated pretax net income of the Company (as
determined in accordance with past practices consistently applied) for the
year ended December 31, 1996 prior to up to $325,000 of Transaction
Expenses (as defined in Section 3.30 hereof) shall not be less than $1.9
million; provided however, that to the extent that the Company records a
write-off on its balance sheet at December 31, 1996 solely at the request
of Millers or with respect to accounts receivable from Millers, pretax net
income shall be determined prior to giving effect to such write-offs.
3.6 Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.6, since September 30, 1996:
(a) neither the Company nor the Subsidiary has incurred
any obligation or liability in excess of $50,000 (contingent or
otherwise), except current liabilities incurred in the ordinary course of
business and Transaction Expenses (as defined herein);
(b) neither the Company nor the Subsidiary has discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(contingent or otherwise) in excess of $50,000, except current liabilities
outstanding on the applicable date set forth above, current liabilities
incurred since such date in the ordinary course of business, obligations
and
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liabilities under contracts in the ordinary course of business and
Transaction Expenses;
(c) neither the Company nor the Subsidiary has mortgaged,
pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets or properties, except in the ordinary course
of business;
(d) neither the Company nor the Subsidiary has sold,
transferred, leased or otherwise disposed of any of its assets or
properties, except in the ordinary course of business and for a fair
consideration;
(e) neither the Company nor the Subsidiary has canceled
or compromised any debt owed to it or claim by it, except in the ordinary
course of business;
(f) neither the Company nor the Subsidiary has knowingly
and expressly waived or released any rights of substantial value;
(g) except in the ordinary course of business, neither
the Company nor the Subsidiary has sold, assigned, transferred or granted
any rights under any licenses, franchises, patents, inventions,
trademarks, service marks, trade names, or copyrights or rights with
respect to any know-how or other intangible assets, which sale,
assignment, transfer or grant would have an adverse effect on it;
(h) neither the Company nor the Subsidiary has amended or
terminated any contract, franchise, agreement or license to which it is a
party, which amendment or termination would have an adverse effect on it;
(i) neither the Company nor the Subsidiary has knowingly
disposed of or permitted to lapse any rights for the use of any patent,
trademark, service mark, trade name or copyright or knowingly disposed of
or disclosed to any person not an employee, supplier, broker, distributor
or customer any trade secret, process or know-how not theretofore a matter
of public knowledge, which dispositions or disclosures would have an
adverse effect on it;
(j) neither the Company nor the Subsidiary has terminated
the employment of any department head or officer of either the Company or
the Subsidiary or entered into (i) any written employment agreement or
(ii) any oral employment agreement not terminable without penalty by any
party thereto upon 60 days notice;
(k) neither the Company nor the Subsidiary has increased
the rate of compensation or bonus payments payable or to become payable to
any of its officers or directors (including, without limitation, any
payment of or promise to pay any bonus or special compensation) except for
increases and bonuses payable in the ordinary course of business
consistent with past practices;
(l) neither the Company nor the Subsidiary has declared
any dividend or made any payment or distribution to its Shareholders;
(m) Except for the issuance by the Company of 1,500
Shares to Robert Agazzi upon exercise of all vested stock options, neither
the Company nor the Subsidiary has purchased, redeemed, issued, sold or
otherwise acquired or disposed of any of its shares of capital stock or
other equity securities, or agreed to do so, or granted any options,
warrants
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or other rights to purchase or convert any obligation into any shares of
its capital stock or any evidence of indebtedness or other securities;
(n) neither the Company nor the Subsidiary has entered
into any other transaction, contract or commitment other than in the
ordinary course of business (other than the transaction contemplated by
this Agreement);
(o) neither the Company nor the Subsidiary has agreed to
do any of the things described in the preceding clauses (a) through (n);
(p) there has not been any material adverse change in the
financial condition, operating results, assets, operations, business,
employee relations or customer or supplier relations of the Company or the
Subsidiary, or to the knowledge of the Company or the Management
Shareholders, in the business prospects of the Company or the Subsidiary;
(q) there has not been any damage, destruction or loss,
whether or not covered by insurance, materially and adversely affecting
the property or business of the Company or the Subsidiary; and
(r) there has not been any material change in the
operation of the business of the Company or the Subsidiary or any material
transactions entered into, except such changes and transactions occurring
in the ordinary course of business and not otherwise required to be
disclosed pursuant to this Section 3.6.
3.7 Taxes. Except as disclosed in Schedule 3.7 hereto, the
Company and the Subsidiary have timely filed or caused to be timely filed
(including allowable extensions) all federal, state, local foreign and other
tax returns for income taxes, sales taxes, withholding taxes, employment taxes,
property taxes, franchise taxes and all other taxes of every kind whatsoever
which are required by law to have been filed. The Company and the Subsidiary
have paid or caused to be paid all taxes, assessments, fees, penalties and
other governmental charges which have become due pursuant to said returns and
all other taxes, assessments, fees, penalties and other governmental charges
which have become due and payable. Neither the Company nor the Subsidiary has
filed or entered into any election, consent or extension agreement that extends
the applicable statute of limitations with respect to its liability for taxes,
except as set forth in Schedule 3.7 hereto. The provisions for income and
other taxes reflected in the balance sheet included in the 1995 Financial
Statements and the Interim Financial Statements make adequate provision for all
accrued and unpaid taxes of the Company, whether or not disputed, and the
Company has made and will continue to make adequate provision for such taxes on
its books and records until the Effective Time. Except as set forth in
Schedule 3.7 hereto, neither the Company nor the Subsidiary is a party to any
action or proceeding pending or, to the Company's or Management Shareholders'
knowledge, threatened by any governmental authority for assessment or
collection of taxes; no unresolved claim for assessment or collection of such
taxes has been asserted against the Company or the Subsidiary, and no audit or,
to the Company's or Management Shareholders' knowledge, investigation by state
or local government authorities is under way. Except for liabilities asserted,
or which may be asserted, in actions or proceedings or as a result of audits or
investigations listed in Schedule 3.7 hereto, there is and will be no further
liability for any such taxes for periods prior to the Effective Date, whether
by future deficiency assessments or otherwise, and no interest or penalties
accrued or accruing with respect thereto. The Company has delivered or made
available to Millers and Merger Sub or their representatives copies of the
federal income and state franchise tax returns of the Company and the
Subsidiary for the taxable years ended in 1993, 1994 and 1995 and all state
sales tax reports and returns of the Company and the Subsidiary for the period
between
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January 1, 1993 and the date of this Agreement, and the taxes paid and payable,
as reflected in all such returns and reports, state accurately the total tax
payable for the periods designated.
3.8 Real Property.
(a) Schedule 3.8 contains a complete and accurate list of
all real property owned or leased by the Company or the Subsidiary (the
"Schedule 3.8 property"), and the Company has supplied or made available
to Millers and Merger Sub or their representatives copies of all surveys
conducted on behalf of and all title insurance policies issued in favor of
the Company or the Subsidiary with respect to the owned real property.
Except as otherwise disclosed in Schedule 3.8 and except for liens for
taxes not yet due and payable, the Schedule 3.8 property owned in fee by
either the Company or the Subsidiary is free and clear of all liens,
mortgages, pledges, security interests, conditional sales agreements,
charges, encumbrances and other adverse claims or interests of any nature
whatsoever. To the knowledge of the Company or the Management
Shareholders, all improvements on the Schedule 3.8 property are in good
condition and repair, reasonable wear and tear excepted.
(b) Except as disclosed in Schedule 3.8, there are no
existing leases, subleases, tenancies, licenses, contracts or other
agreements relating to the Schedule 3.8 property to which the Company or
the Subsidiary is a party (the "Leases"), and the Company has delivered or
made available to Millers and Merger Sub or their representatives true and
complete copies of all of the Leases of the Schedule 3.8 property.
(c) Except as disclosed in Schedule 3.8, (i) to the
knowledge of the Company or the Management Shareholders, each of the
Leases to the Company or the Subsidiary of the Schedule 3.8 property is a
valid and binding obligation of the parties thereto, (ii) neither the
Company nor the Subsidiary, nor to the knowledge of the Company or the
Management Shareholders, any other party thereto, is in default
thereunder, nor is there any event which with notice or lapse of time, or
both, would constitute a default thereunder by the Company or the
Subsidiary or, to the knowledge of the Company or the Management
Shareholders, any other party thereto and (iii) the Company has not
received notice that any party to any Lease intends to cancel, terminate
or refuse to renew the same or to exercise or decline to exercise any
option or other right thereunder.
(d) Each of the Company and the Subsidiary has all
easements of ingress and egress necessary for all operations conducted by
it from the real properties referred to in Schedule 3.8; and none of such
properties has been condemned, requisitioned or otherwise taken by any
public authority, and to the knowledge of the Company or the Management
Shareholders, no such action is threatened or contemplated.
3.9 Environmental Matters. Except as set forth on Schedule 3.9:
(a) None of the Schedule 3.8 property has ever been used
by either the Company or the Subsidiary or, to the knowledge of the
Company or the Management Shareholders, by any previous owners and/or
operators to generate, manufacture, refine, produce, store, handle,
transfer, process or transport any Hazardous Materials (as hereinafter
defined).
(b) (i) The Schedule 3.8 property owned or previously
owned by the Company or the Subsidiary is and has been during the
Company's or the Subsidiary's ownership or occupancy thereof in material
compliance with all applicable Environmental Laws (as
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hereinafter defined); (ii) there are no Hazardous Materials stored or
otherwise located in, on or under any of the Schedule 3.8 property owned
by the Company or the Subsidiary including the groundwater; and (iii) to
the knowledge of the Company or the Management Shareholders, there have
been no releases or threatened releases of Hazardous Materials in, on or
under any property adjoining any of the Schedule 3.8 property owned or
previously owned by the Company or the Subsidiary.
(c) To the knowledge of the Company or the Management
Shareholders, (i) the Schedule 3.8 property leased by the Company or the
Subsidiary is and has been in material compliance with all applicable
Environmental Laws; (ii) there are no Hazardous Materials stored or
otherwise located in, on or under any of the Schedule 3.8 property leased
by the Company or the Subsidiary including the groundwater; and (iii)
there have been no releases or threatened releases of Hazardous Materials
in, on or under any property adjoining any of the Schedule 3.8 property
leased by the Company or the Subsidiary.
(d) None of the Schedule 3.8 property owned or previously
owned by the Company or the Subsidiary is the subject of any pending, or
the knowledge of the Company or the Management Shareholders, threatened
federal, state or local investigation evaluating whether (i) any remedial
action is needed to respond to a release or threatened release of any
Hazardous Materials into the environment or (ii) any release or threatened
release of any Hazardous Materials into the environment is in
contravention of any Environmental Law.
(e) To the knowledge of the Company or the Management
Shareholders, none of the Schedule 3.8 property leased by the Company or
the Subsidiary is the subject of any federal, state or local investigation
evaluating whether (i) any remedial action is needed to respond to a
release or threatened release of any Hazardous Materials into the
environment or (ii) any release or threatened release of any Hazardous
Materials into the environment is in contravention of any Environmental
law.
(f) Neither the Company nor the Subsidiary has received
any notice or claim, nor are there pending, or to the knowledge of the
Company or the Management Shareholders, threatened or reasonably
anticipated lawsuits or proceedings against them, with respect to
violations of an Environmental Law or in connection with the presence of
or exposure to any Hazardous Materials in the environment or any release
or threatened release of any Hazardous materials into the environment. To
the knowledge of the Company or the Management Shareholders, neither the
Company nor the Subsidiary is or was the owner or operator of any property
which (i) pursuant to any Environmental Law has been placed on any list of
Hazardous Materials disposal sites, including without limitation, the
"National Priorities List" or "CERCLIS List," (ii) has or had any
subsurface storage tanks located thereon; or (iii) has ever been used as
or for a waste disposal facility, a mine, a gasoline service station or a
petroleum products storage facility.
(g) Neither the Company nor the Subsidiary has any
present or contingent liability in connection with the presence either on
or off the Schedule 3.8 property owned or previously owned by the Company
or the Subsidiary of any Hazardous Materials in the environment or any
release or threatened release of any Hazardous Materials into the
environment.
(h) To the knowledge of the Company or the Management
Shareholders, neither the Company nor the Subsidiary has any present or
contingent liability in connection with
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<PAGE> 19
the presence either on or off the Schedule 3.8 property leased by the
Company or the Subsidiary of any Hazardous Materials in the environment or
any release or threatened release of any Hazardous Materials into the
environment.
(i) "Environmental Laws" means any federal, state,
territorial, provincial or local law, common law doctrine, rule, order,
decree, judgment, injunction, license, permit or regulation relating to
environmental matters, including those pertaining to land use, air, soil,
surface water, ground water (including the protection, cleanup, removal,
remediation or damage thereof), public or employee health or safety or any
other environmental matter, together with any other laws (federal, state,
territorial, provincial or local) relating to emissions, discharges,
releases or threatened releases of any pollutant or contaminant including,
without limitation, medical, chemical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, including,
without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act as amended by the Superfund Amendments and
Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), the
Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.) the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.),
the Federal Water Prevention and Control Act (33 U.S.C. Section 1251 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), as
such laws have been, or are, amended, modified or supplemented heretofore
or through the Effective Date. "Hazardous Materials" means those
substances which are regulated by or form the basis of liability under any
Environmental Laws, including, without limitation, petroleum products,
radon and asbestos.
3.10 Personal Property.
(a) Schedule 3.10 contains a complete and accurate list
as of September 30, 1996, of (i) all capitalized fixed assets owned by
either the Company or the Subsidiary and (ii) all personal property
subject to any lease, license, rental agreement, contract of sale or other
agreement to which the Company or the Subsidiary is a party ("Leased
Personal Property"). The personal property set forth on Schedule 3.10,
other than personal property disposed of in the ordinary course of
business since September 30, 1996, all other personal property acquired by
the Company or the Subsidiary since September 30, 1996 and all Leased
Personal Property is hereafter referred to as the "Schedule 3.10
property".
(b) Except as otherwise described in Schedule 3.10, the
Schedule 3.10 property owned by the Company or the Subsidiary is free and
clear of all liens, other than liens for taxes not yet due and payable,
mortgages, pledges, security interests, conditional sales agreements,
charges, encumbrances and other adverse claims or interests of any nature
whatsoever. The knowledge of the Company or the Management Shareholders,
the Schedule 3.10 property is in good operating condition and repair,
reasonable wear and tear excepted and taken as a whole, is reasonably fit
and usable for the purposes for which it is being used, reasonably
sufficient for all current operations and business of the Company and the
Subsidiary, and conforms in all material respects with all applicable
ordinances, regulations and laws. To the knowledge of the Company or the
Management Shareholders, each lease, license, rental agreement, contract
of sale or other agreement to which the Leased Personal Property is
subject is a valid and binding obligation of the parties thereto. Neither
the Company, the Subsidiary nor, to the knowledge of the Company or the
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<PAGE> 20
Management Shareholders, any other party thereto is in default thereunder,
nor is there any event which with notice or lapse of time, or both, would
constitute a default thereunder by the Company, the Subsidiary or, to the
knowledge of the Company or the Management Shareholders, any other party
thereto. Neither the Company nor the Subsidiary has received notice that
any party to any such lease, license, rental agreement, contract of sale
or other agreement intends to cancel, terminate or refuse to renew the
same or to exercise or decline to exercise any option or other right
thereunder.
3.11 Contracts. Schedule 3.11 contains a complete and accurate
list of (i) all oral contracts the performance of which is required by any
party thereto as a result of the consummation of the transactions contemplated
by this Agreement, (ii) all oral contracts involving a present or future
obligation by any party of an amount in excess of $20,000 individually or in
the aggregate with respect to multiple contracts of the same type and which are
not terminable without penalty by any party thereto upon 60 days notice and
(iii) all written contracts, involving a present or future obligation by any
party of an amount in excess of $20,000 individually or in the aggregate with
respect to multiple contracts of the same type (except as otherwise specified
below), to which the Company or the Subsidiary is a party, true and complete
copies or summaries of each of which have been delivered or made available to
Millers and Merger Sub or their representatives by the Company, including,
without limitation, any:
(a) mortgage, security agreement, chattel mortgage or
conditional sales agreement or any similar instrument or agreement,
involving a present or future obligation of an amount in excess of
$20,000;
(b) agreement, commitment, note, indenture or other
instrument relating to the borrowing of money, or the guaranty of any such
obligation for the borrowing of money;
(c) joint venture or other agreement with any person,
firm, corporation or unincorporated association doing business either
within or outside the United States relating to sharing of present or
future commissions, fees or other income or profits, excluding vending
machine revenue sharing agreements with the site operator;
(d) sales, distribution or franchise agreements;
(e) noncompetition agreements;
(f) broker or distributorship contracts;
(g) advertising, marketing and promotional agreements
(including, but not limited to, any agreements providing for discounts
and/or rebates), involving a present or future obligation of an amount in
excess of $20,000;
(h) agreements with suppliers, involving a present or
future obligation of an amount in excess of $20,000;
(i) assignment, license, indemnification or similar
agreement with respect to any intangible property;
(j) warranty agreement with respect to its services
rendered or its products sold or leased; or
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<PAGE> 21
(k) agreement under which it has granted any person any
registration rights (including, without limitation, demand and piggyback
registration rights).
Except as disclosed in Schedule 3.11, to the knowledge of the
Company or the Management Shareholders all contracts and leases referred
to in Schedule 3.11 are valid, binding and enforceable against the parties
thereto in accordance with their respective terms. Each of the Company
and the Subsidiary has performed all material obligations imposed upon it
thereunder, and neither the Company nor the Subsidiary, nor, to the
knowledge of the Company or the Management Shareholders, any other party
thereto, is in default thereunder, nor is there any event which with
notice or lapse of time, or both, would constitute a default thereunder by
the Company or the Subsidiary, or, to the knowledge of the Company or the
Management Shareholders, any other party thereto. Neither the Company nor
the Subsidiary has any present expectation or intention of not fully
performing all its obligations under the contracts required to be listed
on Schedule 3.11. Except as set forth on Schedule 3.11, neither the
Company, the Subsidiary nor the Management Shareholders have knowledge of
any material breach or notice of anticipated material breach by the other
parties to any contract required to be listed on Schedule 3.11; neither
the Company, the Subsidiary nor the Management Shareholders have any
knowledge that any other party to any contract required to be listed on
Schedule 3.11 intends to terminate such contract prior to the expiration
of the maximum stated term of such contract; neither the Company, the
Subsidiary nor the Management Shareholders have any knowledge that any
other party to a contract required to be listed on the Schedule 3.11 does
not intend to renew such contract upon the expiration of the term of such
contract; and neither the Company, the Subsidiary nor the Management
Shareholders have any knowledge of any dispute relating to any contract
required to be listed on Schedule 3.11, or has any knowledge of any fact
or facts that might give rise to any such dispute.
3.12 Legal Proceedings. Except as set forth in Schedules 3.9 and
3.12, there are no claims, actions, suits, arbitrations, grievances,
proceedings or investigations pending or, to the knowledge of the Company or
the Management Shareholders, threatened against the Company or the Subsidiary,
at law, in equity, or before any federal, state, municipal or other
governmental or nongovernmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign. There are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which the Company or
the Subsidiary is a party, which involve the transactions contemplated herein
or which would have an adverse effect upon the business, business prospects,
assets or financial condition of the Company. Except as set forth in Schedule
3.12, neither the Company nor the Subsidiary is presently engaged in or
contemplating any legal action to recover moneys due to it or damages sustained
by it. Neither the Company nor the Subsidiary is in violation of or in default
with respect to any applicable judgment, order, writ, injunction or decree, the
effect of which may be adverse to the Company or the Subsidiary.
3.13 Labor Matters. There are no controversies pending or, to the
knowledge of the Company or the Management Shareholders, threatened between the
Company or the Subsidiary and any of their employees. The Company and the
Subsidiary have complied in all material respects with all laws relating to the
employment of labor, including any provisions thereof relating to wages, hours,
collective bargaining, safety and the payment of withholding and social
security and similar taxes, and neither the Company nor the Subsidiary has any
liability for any arrears of wages or taxes or penalties for failure to comply
with any of the foregoing.
3.14 Patents, Trademarks, Franchises, etc. Schedule 3.14 sets
forth a true and complete list of (i) all patents, patent applications, patent
agreements, license arrangements relating to
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<PAGE> 22
patents, consulting agreements relating to patents, trademark registrations and
applications therefor, trade names, service marks and copyright registrations
and applications therefor, and franchises and franchise agreements to which the
Company or the Subsidiary is a party or which are used in its business and are
owned by or licensed to the Company or the Subsidiary and (ii) any interference
actions or adverse claims made or, to the knowledge of the Company or the
Management Shareholders, threatened in respect thereof and any claims made or,
to the knowledge of the Company or the Management Shareholders, threatened for
alleged infringement thereof. All patents and trademarks listed on Schedule
3.14 as being owned by the Company or the Subsidiary and registered in the U.S.
Patent Office have been duly issued or registered therein and all such
registrations have been validly issued and all are in full force and effect.
Neither the Company nor the Subsidiary in their operations infringes any valid
patent, trademark, trade name, service mark or copyright of any other person or
entity. To the knowledge of the Company or the Management Shareholders all
agreements listed in Schedule 3.14 are valid and enforceable. Each of the
Company and the Subsidiary has performed all material obligations imposed upon
it thereunder, and neither the Company nor the Subsidiary nor, to the knowledge
of the Company or the Management Shareholders, any other party thereto is in
default thereunder, nor is there any event which with notice or lapse of time,
or both, would constitute a default thereunder by the Company or the
Subsidiary, or, to the knowledge of the Company or the Management Shareholders,
any other party thereto. Neither the Company nor the Subsidiary has received
notice that any party to any such agreement intends to cancel, terminate or
refuse to renew the same or to exercise or decline to exercise any option or
other right thereunder.
3.15 Loans, Notes, Accounts Receivable and Accounts Payable. The
loans, notes and accounts receivable reflected in the Financial Statements and
all such loans, notes and accounts receivable arising after the applicable
dates of such Financial Statements arose, and have arisen, from bona fide
transactions of the Company and the Subsidiary. Accounts payable of the
Company and the Subsidiary reflected in such Financial Statements and all
accounts payable arising after the applicable dates of such Financial
Statements arose, and have arisen, from bona fide transactions.
3.16 Corporate Documents, Books and Records. The Company has
furnished or made available to Millers and Merger Sub or their representatives
for their examination true, correct and complete copies of (i) the Articles of
Incorporation and bylaws of the Company and the Subsidiary, including all
amendments thereto; (ii) the minute book of the Company and the Subsidiary; and
(iii) the stock transfer book of the Company and the Subsidiary.
3.17 Absence of Sensitive Payment. Neither the Company nor the
Subsidiary has made or maintained (i) any contributions, payments or gifts of
its funds or property to any governmental official, employee or agent where
either the payment or the purpose of such contribution, payment or gift was or
is illegal under the laws of the United States or any state thereof, or any
other jurisdiction (foreign or domestic); or (ii) any contribution, or
reimbursement of any political gift or contribution made by any other person,
to candidates for public office, whether federal, state, local or foreign,
where such contributions by the Company or the Subsidiary were or would be a
violation of applicable law.
3.18 Insurance. All of the policies of insurance and bonds
presently in force with respect to either the Company or the Subsidiary
including, without limitation, fire, liability and other insurance, are listed
in Schedule 3.18, and valid policies for such insurance as are shown to be in
effect on the date of this Agreement will be outstanding and duly in force at
the Effective Time. The Company has delivered or made available to Millers and
Merger Sub or their representatives true and complete copies of each insurance
policy listed in Schedule 3.18. No notice needs to be given to any insurer
under any policy of insurance maintained by the Company or the Subsidiary
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due to the Merger, and the Merger will not terminate or permit any insurer to
terminate any policy of insurance maintained by the Company or the Subsidiary.
3.19 Employees.
(a) Schedule 3.19 includes (i) a payroll census for the
Company for the payroll period ended December 30, 1996, together with a
listing of departments, (ii) a payroll census for the Subsidiary for the
payroll period ended December 20, 1996 together with a listing of
departments and (iii) an organization chart of the Company.
(b) Except as disclosed in Schedule 3.19, neither the
Company nor the Subsidiary is a party to any:
(i) management, employment or other contract
providing for the employment or rendition of executive
services;
(ii) contract for the employment of any employee
which is not terminable by the Company or the Subsidiary on 30
days' notice;
(iii) bonus, incentive, deferred compensation,
severance pay, pension, profit sharing, retirement, stock
purchase, stock option, employee benefit or similar plan,
agreement or arrangement (including without limitation
Christmas bonuses and similar year end bonuses);
(iv) collective bargaining agreement or other
agreement with any labor union or other employee organization
and no such agreement is currently being requested by, or is
under discussion by management with, any group of employees or
others; or
(v) any other employment contract or other
compensation agreement or arrangement affecting or relating to
current or former employees of the Company or the Subsidiary.
(c) Except as set forth on Schedule 3.19, the employees
of the Company and the Subsidiary have executed confidentiality agreements
pursuant to which the employees have agreed not to disclose or use
confidential information of the Company or the Subsidiary in any
unauthorized manner.
3.20 Employee Plans.
(a) Schedule 3.20 sets forth all employee pension benefit
plans (as such term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974 ("ERISA")) which are maintained by the Company
or the Subsidiary and designed to be qualified under Section 401(a) of the
Internal Revenue Code (the "Code").
(b) Neither the Company nor the Subsidiary has maintained
an employee pension benefit plan other than the plans described in
Schedule 3.20 which is designed to be qualified under Section 401(a) of
the Code. To the knowledge of the Company or the Management Shareholders,
each of the Company and the Subsidiary is and has at all times been in
compliance with all applicable provisions of ERISA, all regulations
promulgated under ERISA or the Code and other federal and state statutes
and regulations relating to
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<PAGE> 24
such employee pension benefit plans. No event has occurred or, to the
knowledge of the Company or the Management Shareholders, is threatened or
about to occur that would constitute a reportable event within the meaning
of Section 4043(b) of ERISA, and no notice of termination has been filed
by a plan administrator pursuant to Section 4041 or 4041A of ERISA or
issued by the Pension Benefit Guaranty Corporation ("PBGC") pursuant to
Section 4042 of ERISA with respect to any employee pension benefit plan of
the Company or the Subsidiary subject to ERISA. The plans identified in
Schedule 3.20 have been determined by the Internal Revenue Service to
constitute plans qualified under Section 401(a) of the Code, and nothing
has occurred since the date of any such determination that has adversely
affected such qualification.
(c) Either full payment has been made or appropriate
accruals have been recorded of all amounts that each of the Company and
the Subsidiary is required under the terms of all employee pension benefit
plans to pay as contributions to such plans, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any such plan. Each
of the Company and the Subsidiary has paid all premiums (and interest
charges and penalties for late payment, if applicable) due the PBGC with
respect to each employee pension benefit plan and each plan year thereof
for which such premiums are required.
(d) As of the Effective Date all employee pension benefit
plans which are designed to meet the requirements of Section 401(a) of the
Code will be sufficiently funded so that no funding liability would result
if such plans were terminated as of such date. The funding method used in
connection with each employee pension benefit plan is acceptable under
ERISA, the actuarial assumptions used in connection with funding such
employee pension benefit plan in the aggregate are reasonable (taking into
account the experience of such employee pension benefit plan and
reasonable expectations).
(e) Schedule 3.20 lists all employee pension benefit
plans maintained by the Company or the Subsidiary which are not designed
to be qualified under Section 401(a) of the Code. The participants in
such plans, the actuarially determined present value at the date set forth
on Schedule 3.20 of then vested benefits, and the actuarial assumptions
and calculations used to determine such present value are listed on
Schedule 3.20 hereto. Neither the Company nor the Subsidiary is
delinquent in any payments under any of such plans. Each of the Company
and the Subsidiary is and has at all times been in compliance with all
applicable provisions of ERISA, the Code, and all regulations promulgated
under ERISA or the Code and other federal and state statutes relating to
such employee pension benefit plans.
(f) The Company and the Subsidiary maintains employee
welfare benefit plans (as such term is defined in Section 3(1) of ERISA)
as listed on Schedule 3.20. The name of each plan, participants or class
of participants and description of benefits are listed on Schedule 3.20
hereto. Each of the Company and the Subsidiary is and at all times has
been in compliance with all applicable provisions of ERISA, the Code, and
all regulations promulgated under ERISA or the Code, and other federal and
state statutes and regulations relating to such employee welfare benefit
plans. Full payment has been made of all amounts that the Company and the
Subsidiary are required under the terms of such employee welfare benefit
plans to have paid as contributions to such plans or as benefits under
such plans except claims for benefits which are currently under
administrative review pursuant to reasonable and consistent administrative
procedures established for the operation of such plans.
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(g) Schedule 3.20 lists all other fringe benefits or
payment practices maintained by the Company or the Subsidiary and not
otherwise identified in this section.
(h) Copies of all documents constituting the plans or
written agreement describing any employee benefit plan, letter agreement,
compensation arrangement or other program maintained by each of the
Company and the Subsidiary have been previously furnished or made
available to Millers and Merger Sub or their representatives including any
filings with any government office relating thereto, any contracts
relating to assets of any such plans, and any actuarial or other
calculations relating to the amount of benefits payable under such plans.
(i) No event has occurred and no condition exists
relating to any employee benefit plan (i) that could result in the
imposition of an excise tax on the Company or the Subsidiary, (ii) that
would justify the attachment of a lien on the assets of the Company or the
Subsidiary, or (iii) that could result in fiduciary liability being
imposed on the Company or the Subsidiary under Section 404 of ERISA.
(j) There are no pending or, to the knowledge the Company
or the Management Shareholders, threatened claims, suits, or other
proceedings involving any employee benefit plan or compensation
arrangement other than ordinary and usual claims for participants and
beneficiaries.
(k) The transactions contemplated by this Agreement will
not result in any employee, former employee, or other person being
entitled to any severance benefit other than the severance benefits
described on Schedule 3.20 hereto.
3.21 Transactions with Related Parties. Except for transactions
disclosed in Schedule 3.21, there are no outstanding loans or other
transactions between either the Company or the Subsidiary and any officer,
director, shareholder or affiliate of the Company or the Subsidiary or any
spouse or child of any such person. Except as disclosed in Schedule 3.21,
neither the Company, the Subsidiary any officer, director, shareholder or
affiliate of the Company or the Subsidiary nor any spouse or child of any such
person owns or has any interest in, directly or indirectly, any real or
personal property owned by or leased to the Company or the Subsidiary. Except
as otherwise provided in the Employment Agreement of Robert Agazzi attached
hereto as Exhibit D-2 with respect to Employer Advances made under the
Insurance Agreement referenced therein, not later than the Effective Time, all
loans between either of the Company and the Subsidiary and affiliates,
directors and officers, shall have been paid, and each affiliate, Management
Shareholder director and officer of the Company or the Subsidiary shall have
released the Company and the Subsidiary from any and all claims pursuant to a
release substantially in the form of Exhibit C and such releases shall have
been delivered to the Company.
3.22 Directors and Officers; Banks. Schedule 3.22 contains a true
and complete list showing (i) the names of all the officers and directors of
the Company and the Subsidiary; (ii) the name of each bank in which either the
Company or the Subsidiary has an account or a safety deposit box and the names
of the persons authorized to draw thereon or having access thereto; and (iii)
the name of each person holding a general or limited power of attorney from the
Company or the Subsidiary and the extent of such power.
3.23 Ownership, Quality and Location of Material Assets. Except as
set forth on Schedule 3.23, neither the Company nor the Subsidiary utilizes in
its business any assets that are
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not owned or leased by the Company or the Subsidiary, including franchises,
licenses, trademarks and tradenames. Each of the Company and the Subsidiary
has good and marketable title to, or a valid leasehold interest in, the
properties and assets owned or leased by them. To the knowledge of the Company
or the Management Shareholders each of the Company and the Subsidiary owns, or
has a valid leasehold interest in, all properties and assets necessary for the
conduct of their respective businesses as presently conducted. Except as set
forth on Schedule 3.23, all properties and assets of the Company or the
Subsidiary are in the possession and control of the Company and the Subsidiary,
as the case may be. Except as set forth on Schedule 3.23, as of the date
hereof, no physical assets of any value (other than employee personal effects)
are on the premises at the locations operated by the Company which do not
belong to or are not leased by the Company.
3.24 Absence of Undisclosed Liabilities. As of the date hereof and
as of the Effective Date, neither the Company nor the Subsidiary have
liabilities of any nature, whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known to the Company or the Subsidiary, not
disclosed elsewhere herein or in the Schedules hereto or adequately reflected
or reserved against in the Financial Statements, other than current liabilities
incurred in the ordinary course of business since September 30, 1996.
3.25 Brokerage. Other than a fee in the amount of $225,000 payable
to KPMG Peat Marwick LLP (the "KPMG Fee"), neither the Company nor the
Shareholders have agreed to pay any brokerage fee or retained any broker or
finder in connection with the transactions contemplated by this Agreement. If
any broker or finder asserts a claim for a fee as a result of such transactions
(other than the KPMG Fee), based upon a contract, written or oral, with either
the Company and/or any of the Shareholders, such claim shall be payable by the
Shareholders.
3.26 Permits. Each of the Company and the Subsidiary has all
licenses, clearances, permits, franchises, grants, authorizations, easements,
consents, certificates and orders necessary to conduct its business and to
operate its properties and assets, and such licenses, clearances, permits,
franchises, grants, authorizations, easements, consents, certificates and
orders are in full force and effect; (b) no violations exist in respect of any
license, clearance, permit, franchise, grant, authorization, easement, consent,
certificate or order of the Company or the Subsidiary; (c) no proceeding is
pending or, to the knowledge of the Company or the Management Shareholders,
threatened looking toward the revocation or limitation of any such license,
clearance, permit, franchise, grant, authorization, easement, consent,
certificate or order and there is no basis or ground for any such revocation or
limitation. Each of the Company and the Subsidiary has complied with all laws,
rules, regulations, ordinances, codes, licenses, clearances, permits,
franchises, grants, authorizations, easements, consents, certificates and
orders relating to any of its properties or applicable to its business,
including, but not limited to, labor, equal employment opportunity,
occupational safety and health, consumer protection, securities and antitrust
laws and regulations. Neither the Company nor the Subsidiary is in violation
of any applicable zoning or building regulation, ordinance or other law, order,
regulation, restriction or requirement relating to its operations or
properties, whether such properties are owned or leased, and no governmental
body or other person has notified the Company that any such violation exists,
or called attention to the need for any work, repairs, construction,
alterations or installation on or in connection with the properties of the
Company and the Subsidiary. Neither the Company nor the Management
Shareholders have knowledge of any pending or threatened action or proceeding
which could result in a modification or termination of the zoning laws which
modification or termination would adversely affect the Company or the
Subsidiary or any of their property. No representations are made under this
Section 3.26 with respect to environmental matters.
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3.27 Shareholder Information. None of the information to be
distributed to Shareholders of the Company in connection with the Merger nor
any amendments or supplements of or to any of the foregoing (collectively, the
"Shareholder Information"), will between the date the Shareholder Information
is first mailed to Shareholders and the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made,
will be false or misleading with respect to any fact, or will omit to state any
fact necessary in order to make the statements therein not false or misleading.
No notice to, filing with, or authorization, consent or approval of any
governmental entity including without limitation the Securities and Exchange
Commission, is necessary for the preparation, finalization or distribution of
the Shareholder Information or the solicitation of proxies or written consents
related thereto. The Company is not subject to any of the reporting or filing
requirements of the Securities Exchange Act of 1934, as amended.
3.28 Full Disclosure. Neither this Agreement, any of the exhibits
or schedules hereto or any information furnished, or to be furnished, by either
the Company, the Subsidiary or any of the Shareholders to Millers or Merger Sub
or their representatives in connection with this Agreement (including, but not
limited to, the Financial Statements and all information in the Schedules
hereto) contains, or will contain, any untrue statement of a material fact or
omits, or will omit, a material fact necessary to make each statement contained
herein or therein not misleading. There is no fact which the Company has not
disclosed to Millers or Merger Sub in writing and of which any of its officers,
directors or executive employees is aware (other than general economic
conditions) and which has had or would reasonably be expected to have a
material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations
or business prospects of the Company or the Subsidiary.
3.29 Credit Cards. No reimbursements are now due to the Company
from any officer, employee, agent or other person authorized to use the
Company's American Express Corporate Credit Card and no unauthorized charges
have been made or are currently existing for which the Company is liable to pay
or reimburse any person using such credit card. The Company has no liability
for charges incurred by any person using the Company's American Express
Corporate Credit Card. The Company has no other corporate credit cards issued
to, or held by, any officer, employee, agent or other person.
3.30 Expenses. The aggregate amount of expenses of whatever kind
and nature, including, without limitation, legal fees, accounting fees, the
KPMG Fee and any other brokerage or other fees (collectively, "Transaction
Expenses") incurred by the Company in connection with this Agreement and the
transactions contemplated hereby shall not exceed $325,000.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE MANAGEMENT SHAREHOLDERS
Each of the Management Shareholders hereby represents and warrants to
Millers and Merger Sub with respect to such Management Shareholder, and not
with respect to any other Management Shareholder, as follows:
4.1 Title to Shares. Each Management Shareholder owns the Shares
set forth opposite his name in Schedule 4.1 hereto free and clear of any lien,
encumbrance, adverse claim, restriction on sale or transfer (other than
restrictions imposed by applicable securities laws), preemptive right,
limitations on voting rights or option, and has the authority to dispose of
such Shares pursuant to this Agreement and to grant the proxy pursuant to
Section 6.5.
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4.2 Power; Binding Agreement. Each Management Shareholder has the
full legal right, power and authority to enter into and perform all of such
Management Shareholder's obligations under this Agreement. The execution,
delivery, and performance of this Agreement by each Management Shareholder and
the consummation by such Management Shareholder of the transactions
contemplated by this Agreement will not violate any other agreement to which
the Management Shareholder is a party including, without limitation, any voting
agreement, shareholders agreement, voting trust or proxy. This Agreement has
been duly executed and delivered by the Management Shareholder and constitutes
the legal, valid, and binding agreement of the Management Shareholder,
enforceable against the Management Shareholder in accordance with its terms
except as enforcement thereof may be limited by liquidation, conservatorship,
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally from time to time in effect and
except that equitable remedies are subject to judicial discretion.
4.3 No Conflicts. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in the acceleration or termination of, or the creation in any party of
the right to accelerate, terminate, modify or cancel, any indenture, contract,
lease, sublease, loan agreement, note or other obligation or liability to which
any Management Shareholder is a party or is bound or to which any of the
Management Shareholder's assets are subject, (ii) conflict with, violate or
result in a breach of any provision of the charter documents or trust agreement
of any Management Shareholder which is not a natural person or (iii) conflict
with or violate any law, rule, regulation, ordinance, order, writ, injunction
or decree applicable to any Management Shareholder or by which any of their
respective properties or assets is bound or affected.
4.4 Legal Proceedings. There are no claims, actions, suits,
arbitrations, grievances or proceedings pending or, to the knowledge of each
Management Shareholder threatened or any investigation pending or, to the
knowledge of each Management Shareholder, threatened, against such Management
Shareholder, at law, in equity, or before any federal, state, municipal or
other governmental or nongovernmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, involving the transactions
contemplated hereby.
4.5 Consents. No consent of, notice to, order of, filing with, or
approval or authorization of any court or governmental body or other person is
required in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated herein by each Management
Shareholder.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, prior to the Effective Time, unless Millers
and Merger Sub shall otherwise agree in writing or as otherwise expressly
contemplated by this Agreement:
(a) Except for such matters undertaken by employees of
the Company in connection with this Agreement and the transactions
contemplated hereby, the business of the Company shall be conducted only
in, and the Company shall not take any action except in the ordinary
course of business and consistent with past practices, and the Company
shall use its best efforts to maintain and preserve its business
organization, assets, prospects, employees and business relationships;
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(b) The Company shall not, directly or indirectly, do any
of the following: (i) authorize for issuance, issue, sell, pledge,
deliver, or agree or commit to issue, sell, pledge or deliver (whether
through the issuance or grant of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any capital stock of the
Company or the Subsidiary or securities or rights convertible into or
exchangeable for, shares of capital stock or securities convertible into
or exchangeable for such shares or (ii) pledge, dispose of or encumber,
except in the ordinary course of business, any assets of the Company or
the Subsidiary (including any indebtedness owed to it or any claims held
by it); (iii) amend or propose to amend its charter or bylaws or similar
organizational documents; (iv) split, combine or reclassify any shares of
its capital stock or declare, set aside or pay any dividend or
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock; (v) redeem, purchase or otherwise acquire or
offer to redeem, purchase or otherwise acquire any capital stock of the
Company; (vi) transfer any assets or liabilities to any subsidiary except
for transfers of cash in the ordinary course of business;
(c) The Company shall not, directly or indirectly, (i)
acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division
thereof or make any investment either by purchase of stock or securities,
contributions to capital, property transfer or purchase of any amount of
property or assets of any other individual or entity; (ii) acquire any
assets for a value in excess of $10,000 other than in the ordinary course
of business; (iii) dispose of any assets with a value in excess of $10,000
other than in the ordinary course of business; (iv) except for
indebtedness under the Company's line of credit, incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee,
endorse or otherwise as an accommodation become responsible for, the
obligations of any other individual or entity, make any loans or advances
or enter into any other transaction, except in the ordinary course of
business and consistent with past practice; (v) authorize, recommend or
propose any change in its capitalization or, except in the ordinary course
of business, any release or relinquishment of any contract right; or (vi)
authorize or propose any of the foregoing or enter into or modify any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(d) The Company shall not enter into or adopt any new, or
amend any existing, severance or termination benefit arrangements,
consulting agreements, any employment benefit plans, or arrangement;
(e) Except for arrangements existing prior to September
30, 1996 or as noted in Schedule 3.20, the Company (except for salary
increases or other employee benefit arrangements in the ordinary course of
business) shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any employee or increase
or pay any bonus or benefit not required by any existing plan and
arrangement;
(f) The Company shall not, pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in the Company's
Financial Statements or incurred in the ordinary course of business and
consistent with past practice;
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(g) The Company shall not, waive, release, grant or
transfer any franchises, franchise agreements, patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, copyrights
or know-how or modify or change in any respect any existing license,
lease, contract franchise, franchise agreement or other document, other
than in the ordinary course of business and consistent with past practice;
(h) The Company shall use its best efforts to preserve
its business organization intact, to keep available the services of its
current officers and key employees and to maintain satisfactory
relationships with licensors, licensees, suppliers, contractors,
distributors, customers and others having significant business
relationships with the Company;
(i) The Company shall not make capital expenditures in
the aggregate in excess of $50,000; or
(j) The Company shall not authorize or propose any of the
foregoing or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
5.2 Conduct of Business by the Subsidiary Pending the Merger. The
Company covenants and agrees that, prior to the Effective Time, unless Millers
and Merger Sub shall otherwise agree in writing or as otherwise expressly
contemplated by this Agreement:
(a) The business of the Subsidiary shall be conducted
only in, and the Subsidiary shall not take any action except in the
ordinary course of business and consistent with past practices, and the
Company shall use its best efforts to cause the Subsidiary to maintain and
preserve its business organization, assets, prospects, employees and
business relationships; and
(b) The Subsidiary shall not directly or indirectly take
any action with respect to the Company or the Subsidiary which the Company
is prohibited from taking with respect to the Company or the Subsidiary
pursuant to Section 5.1 hereof.
5.3 Affirmative Covenants. The Company covenants and agrees that,
prior to the Effective Time, unless Millers and Merger Sub shall otherwise
agree in writing or as otherwise expressly contemplated by this Agreement, the
Company shall, and shall cause the Subsidiary to:
(a) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(b) maintain and keep its properties in good repair,
working order and condition (normal wear and tear excepted) consistent
with past practices;
(c) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all material claims for labor,
materials or supplies which if unpaid would by law become a lien upon any
of its property unless and to the extent that the same are being contested
in good faith and by appropriate proceedings and establish or maintain
adequate reserves with respect thereto in a manner consistent with past
practices;
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(d) comply with all other material obligations which it
incurs pursuant to any contract or agreement, whether oral or written,
express or implied, as such obligations become due unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and establish or maintain adequate reserves with respect
thereto in a manner consistent with past practices;
(e) comply in all material respects with all applicable
material laws, rules and regulations of all governmental authorities;
(f) apply for and continue in force its existing
insurance coverages; and
(g) maintain proper books of record and account which
present fairly in all material respects its financial condition and
results of operations and make provisions on its financial statements for
all such proper reserves consistent with past practices.
ARTICLE 6
COVENANTS OF THE COMPANY AND THE MANAGEMENT SHAREHOLDERS
6.1 Shareholder Information. As soon as practicable, the Company
shall prepare and promptly thereafter shall mail to its Shareholders, the
Shareholder Information. Millers and Merger Sub shall furnish all information
concerning Millers and Merger Sub as the Company may reasonably request for
inclusion in the Shareholder Information. Subject to the fiduciary duties of
the Board of Directors of the Company under applicable law, the Shareholder
Information shall contain the recommendation of the Board of Directors of the
Company in favor of the Agreement and Plan of Merger and the Board of Directors
shall recommend that the Shareholders of the Company approve and consent to the
Merger.
6.2 Shareholders' Meeting. The Company shall use its best efforts
to take all action necessary, in accordance with the Wisconsin Law and its
Articles of Incorporation and bylaws, to cause a special meeting of its
Shareholders to be duly called and held as promptly as reasonably practicable
after the date of this Agreement for the purpose of approving and adopting the
Merger and this Agreement. Upon approval of the Merger by holders of not less
than a majority of the outstanding Shares, the Company shall, in accordance
with the Wisconsin Law, send to each of its Shareholders, at each Shareholder's
address as it appears on the Company's records, by certified or registered
mail, return receipt requested, notice as to the Effective Date and the
availability of appraisal rights. The Company shall use its best efforts to
solicit from Shareholders of the Company votes or consents in favor of such
adoption and approval and to take all other action necessary or helpful to
secure the vote or consent of Shareholders required by law to effect the
Merger.
6.3 No Shopping. Until termination of this Agreement, neither the
Company nor the Management Shareholders will, directly or indirectly, through
any officer, director, agent, representative or otherwise, (i) solicit,
initiate or encourage submission of proposals or offers from any person (other
than Millers and Merger Sub), relating to any acquisition or purchase of all or
substantially all of the assets of, or any equity interest in, the Company or
any merger, consolidation, or business combination with the Company, or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person (other than Millers and Merger Sub) any information with respect to, any
of the foregoing, or (iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Company shall promptly notify
Millers and Merger Sub if it receives any such proposal or offer or any inquiry
or contact with respect thereto. Until termination of this Agreement, the
Management Shareholders will not, directly or indirectly, (i)
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sell, transfer, pledge, encumber, assign or otherwise dispose of, or enter into
any contract, option or other arrangement or understanding with respect to the
sale, transfer, pledge, encumbrance, assignment or other disposition of, any of
the Shares, or (ii) grant any proxies, deposit any Shares into a voting trust
or enter into a voting agreement with respect to the Shares (except for proxies
granted to the Shareholders' Agent hereunder).
6.4 Approval of Merger. Each of the Management Shareholders
agrees to vote all Shares held by such Management Shareholder in favor of the
Merger at a special meeting of the Company's Shareholders duly called and held
for the purpose of acting upon the proposal to approve the Merger.
6.5 Proxy. Each of the Management Shareholders hereby irrevocably
appoints Millers and Merger Sub and each of them, with full power of
substitution and resubstitution (or any other designees of Millers), as proxies
for the Management Shareholder to vote, and the Management Shareholder
personally agrees to vote, all Shares that the Management Shareholder is
entitled to vote, for and in the name, place, and stead of the Management
Shareholder at any meeting of the holders of shares of Common Stock or any
adjournments or postponements thereof or pursuant to any consent in lieu of a
meeting, or otherwise, with respect only to the approval of this Agreement, the
transactions contemplated by this Agreement, any matters related to or in
connection with the Merger, and any corporate action the consummation of which
would violate, frustrate the purposes of, prevent, or delay the consummation of
the transactions contemplated by this Agreement (including, without limitation,
any proposal to amend the Articles of Incorporation or bylaws of the Company or
approve any merger, consolidation, sale or purchase of any assets, issuance of
Common Stock or any other equity security of the Company (or a security
convertible into an equity security of the Company), reorganization,
recapitalization, liquidation, winding up of or by the Company, or any similar
transaction). The Management Shareholders agree that the foregoing proxy is
coupled with an interest sufficient in law to support an irrevocable proxy.
This proxy shall revoke any other proxy granted by any Management Shareholder
at any time with respect to the Shares and no subsequent proxies will be given
with respect thereto by any Management Shareholder.
6.6 Release. Each of the Management Shareholders, in the capacity
as shareholders of the Company, hereby agrees to execute and deliver on the
Effective Date a release of the Company from any and all claims resulting from
or related to any matter arising prior to the Effective Date in the form of
Exhibit C hereto.
6.7 Consents. The Company and the Management Shareholders hereby
covenant and agree to use their best efforts to obtain all material consents,
waivers, authorizations and approvals as may be required with respect to the
consummation of the transactions contemplated hereby, including the change of
control of the Company, under (i) any indenture, contract, lease, sublease,
loan agreement, note or other agreement of which the Company is a party or
pursuant to which the assets of the Company are subject or (ii) any law, rule,
regulation, ordinance, order, writ, injunction, decree, license or permit
applicable to the Company or by which any of its assets or properties are bound
or affected.
6.8 Confidential Information.
(a) For purposes of this Agreement, "Confidential
Information" shall mean any proprietary information, and any information
which the Surviving Corporation reasonably considers to be proprietary,
pertaining to the Surviving Corporation's past, present or prospective
business secrets, methods or policies, earnings, finances, security
holders,
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lenders, key employees, nature of services performed by the Surviving
Corporation's sales and maintenance personnel, quality control procedures
or standards, procedures and methods of cost or installation of the
Surviving Corporation's products or components, information relating to
arrangements with suppliers, the identity and requirements of arrangements
with customers, and the type, volume or profitability of work for such
customers, drawings, records, reports, documents, manuals, techniques,
procedures, formulae, ratings, design information, data, statistics, trade
secrets and all other information of any kind or character relating to the
Surviving Corporation, whether or not reduced to writing.
(b) Each Management Shareholder acknowledges that such
Management Shareholder has and may have access to Confidential Information
and that such Confidential Information constitutes valuable, special and
unique property of the Surviving Corporation. At no time shall such
Shareholder (i) use any Confidential Information in any manner adverse to
the business interests of the Surviving Corporation, or (ii) disclose any
such Confidential Information to any person or entity for any reason or
purpose whatsoever; provided that a Management Shareholder may provide
such Confidential Information in response to judicial or administrative
process or applicable governmental laws, rules, regulations orders or
ordinances, but only that portion of the documents or information which,
on the advise of counsel, is legally required to be furnished, and
provided that such Management Shareholders notifies the Surviving
Corporation of his obligation to provide such Confidential Information
prior to such disclosure and fully cooperates with the Surviving
Corporation to protect the confidentiality of such Confidential
Information under applicable law. Upon the request of the Surviving
Corporation, each Management Shareholder shall deliver to the Surviving
Corporation all letters, notes, computer disks, software, notebooks,
reports and other materials which contain Confidential Information and
which are in the possession or under the control of such Management
Shareholder, whether or not prepared by such Shareholder.
(c) All records and documents embodying any Confidential
Information or pertaining to the existing or contemplated scope of the
Surviving Corporation's business, which have been conceived, prepared or
developed by a Management Shareholder in connection with his ownership
interest in the Company, employment by the Company or otherwise, either
alone or with others (herein called "Work Product"), shall be the sole
property of the Surviving Corporation. Upon request of the Surviving
Corporation, such Management Shareholder shall deliver all Work Product to
the Surviving Corporation.
6.9 Independent Covenants. The covenants contained herein are
independent and separate, and in the event that any provision contained herein
is declared invalid or illegal, the other provisions hereof shall not be
affected or impaired thereby and shall remain valid and enforceable.
6.10 Injunctive Relief. In the event of a breach or threatened
breach by a Management Shareholder of the provisions of this Article 6, the
Surviving Corporation shall be entitled to an injunction to prevent irreparable
injury to the Surviving Corporation. Nothing herein shall be construed as
prohibiting the Surviving Corporation from pursuing any other remedies
available to the Surviving Corporation for such breach or threatened breach,
including the recovery of damages from such Management Shareholder.
6.11 Repayment of Shareholder Loans. Except as otherwise provided
in the Employment Agreement of Robert Agazzi attached hereto as Exhibit D-2
with respect to Employer Advances made under the Insurance Agreement referenced
therein, at or prior to the Effective Time, the
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Management Shareholders shall repay all outstanding loans owed by the
Management Shareholders to the Company.
6.12 Shareholders' Agent Agreement. Each of the Management
Shareholders agrees to enter into the Shareholders' Agent Agreement and to vote
his shares to authorize and appoint Stuart Warrington as the Shareholders'
Agent on behalf of the Shareholders of the Company to take such actions and
exercise such powers on behalf of the Shareholders as set forth in such
Shareholders' Agent Agreement with respect to this Agreement, the Escrow
Agreement and the transactions contemplated hereby and thereby.
6.13 Employee Compensation Plans. At or prior to the Effective
Time, the following actions shall be taken with respect to existing employee
compensation plans:
(a) The Employment Agreement between the Company and
Stuart Warrington shall provide for the amendment of the existing Deferred
Compensation Plan to the amount currently vested and no further vesting
shall occur.
(b) The Employment Agreement between the Company and
Robert Agazzi shall provide for the manner and timing of the repayment of
all amounts loaned or advanced by the Company to Robert Agazzi or on his
behalf to fund the annuity pursuant to the Split-Dollar Insurance
Agreement and the amendment of the Split-Dollar Insurance Agreement.
(c) Any outstanding rights to acquire shares of the
Company shall be terminated at the Effective Time.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Expenses. All expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses whether or not the Merger is consummated. The amount,
if any, by which the aggregate Transaction Expenses exceed $325,000 shall be
deemed "Shareholder Expenses." Not less than two business days prior to the
Effective Date, the Company shall provide written notice (the "Expense Notice")
to Millers of the amount of all Transaction Expenses (including the portion
thereof, if any, constituting Shareholder Expenses) paid, incurred or expected
to be incurred by the Company as of the Effective Date. The amount of
Shareholder Expenses set forth in the Expense Notice shall be deducted from the
Aggregate Share Price as provided in Section 1.6(a) hereof as an offset against
Shareholder Expenses paid or payable by the Company. The Surviving Corporation
shall be reimbursed from the Escrow Amount for any additional Shareholder
Expenses not deducted from the Aggregate Share Price. All expenses of the
Company in connection with the consummation of this Agreement incurred after
the Effective Time and the fees and expenses of the Disbursing Agent will be
paid by the Shareholders. The fees and expenses of the Escrow Agent will be
paid as set forth in the Escrow Agreement. The filing fees associated with
filings under the Hart-Scott-Rodino Act will be paid by Millers.
7.2 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees (i) to use all reasonable
efforts to take, or cause to be taken, all action and (ii) to use all
reasonable efforts to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to cooperate with each other in
connection with the foregoing, (iii) to use all reasonable efforts to obtain
all necessary waivers, consents and approvals from other
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parties to material loan agreements, leases and other contracts and to notify
each of the other parties hereto of any request for prepayment with respect
thereto; provided however, all reasonable efforts with respect to obtaining
waivers, consents and approvals under loan agreements does not obligate the
parties hereto to make any prepayment on any such loan, (iv) to use all
reasonable efforts to obtain all necessary consents, approvals and
authorizations as are required to be obtained under any federal, state, local
or foreign law or regulations, (v) to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby, (vi) to use all reasonable efforts to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby, and (vii) to
use all reasonable efforts to effect all necessary registrations and filings
and submissions of information required or requested by governmental
authorities.
7.3 Notification of Certain Matters. Each party will promptly
give written notice to the other parties upon becoming aware of the occurrence
or failure to occur, or impending or threatened occurrence or failure to occur,
of any event that would cause or constitute, or would be likely to cause or
constitute, a breach of any of its representations, warranties or covenants
contained in this Agreement and will use all reasonable efforts to prevent or
promptly remedy the occurrence or failure. No such notification shall limit or
affect the representations, warranties, covenants or conditions or remedies of
the parties hereunder.
7.4 Access to Information.
(a) The Company shall, and shall cause the Subsidiary and
the Company's officers, directors, employees and agents to, afford the
officers, employees and agents of Millers and Merger Sub complete access
at all reasonable times to its officers, employees, agents, properties,
facilities, books, records and contracts and shall furnish Millers and
Merger Sub all financial, operating and other data and information as
Millers and Merger Sub through their officers, employees or agents, may
reasonably request. Millers and Merger Sub will hold and will cause their
respective representatives to hold in strict confidence all documents and
information concerning the Company furnished to Millers or Merger Sub in
connection with the transactions contemplated by this Agreement (except to
the extent that such information can be shown to have been (i) previously
known by Millers or Merger Sub (or their respective affiliates) prior to
its disclosure to Millers or Merger Sub by the Company, (ii) in the public
domain through no fault of Millers or Merger Sub or (iii) later lawfully
acquired by Millers or Merger Sub (or their respective affiliates) from
other sources and will not release or disclose such information to any
other person, except in connection with this Agreement to (i) their
respective auditors, attorneys, financial advisors and other consultants
or advisors, and (ii) responsible financial institutions, partnerships and
individuals after Millers or Merger Sub, as the case may be, has made
reasonable efforts to cause such financial institutions, partnerships and
individuals to agree to be bound by the provisions of this Section 7.4 as
if the reference to Millers or Merger Sub herein were to them (it being
understood that such persons shall be informed by Millers or Merger Sub of
the confidential nature of such information and shall be directed by
Millers or Merger Sub to treat such information confidentially); provided
that Millers, Merger Sub and their respective representatives may provide
such documents and information in response to judicial or administrative
process or applicable governmental laws, rules, regulations, orders or
ordinances, but only that portion of the documents or information which,
on the advice of counsel, is legally required to be furnished, and
provided that Millers or Merger Sub, as the case may be, notifies the
Company of its obligation to provide such information prior to such
disclosure and fully cooperates with the Company to protect the
confidentiality of such documents and information under applicable
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law. If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained except to the extent such
information can be shown to have been (i) previously known by Millers,
Merger Sub or their respective affiliates, prior to its disclosure to
Millers or Merger Sub by the Company, (ii) in the public domain through no
fault of Millers or Merger Sub, or (iii) later lawfully acquired by
Millers, Merger Sub or their respective affiliates, from other sources,
and, if requested by the Company, Millers or Merger Sub will destroy or
return to the Company all copies of written information furnished by the
Company to Millers, Merger Sub or their respective affiliates, agents,
representatives or advisers.
(b) No investigation pursuant to this Section 7.4 shall
affect any representations or warranties of the parties herein or the
conditions to the obligations of the parties hereto; provided however,
that no party hereto shall intentionally withhold notice to the other
parties hereto of any breach of representation or warranty by such other
parties or failure by such other parties to perform their obligations
hereunder; provided further, that the failure by any party to provide such
notice shall not be deemed a waiver of any condition, right or remedy
hereunder.
7.5 Information for Other Filings. The parties represent to each
other that the information provided and to be provided by Millers, Merger Sub
and the Company, respectively, for use in any document to be filed with any
other governmental agency or authority in connection with the transactions
contemplated hereby shall, at the respective times such documents are filed
with the governmental agency or authority and on the Effective Date be true and
correct in all material respects and shall not omit to state any material fact
required to be stated therein or necessary in order to make such information
not false or misleading, and the Company, Millers and Merger Sub each agree to
so correct any such information provided by it for use in such documents that
shall have become false or misleading.
ARTICLE 8
CONDITIONS
8.1 Conditions to Obligation of Each Party to Effect the Merger.
The obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) the Merger shall have been approved and adopted by
the requisite vote of the shareholders of the Company required by the
Wisconsin Law;
(b) any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the Hart-Scott-Rodino
Act shall have expired or been terminated and all filings required to be
made prior to the Effective Time with, and all consents, approvals,
permits, and authorizations required to be obtained prior to the Effective
Time from, governmental and regulatory authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will have been made or
obtained (as the case may be); and
(c) no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by
a governmental, regulatory or administrative agency or commission nor any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority shall be in effect that would make the acquisition
or holding directly or indirectly by Millers of the shares of Common Stock
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of the Surviving Corporation illegal or otherwise prevent the consummation
of the Merger.
8.2 Additional Conditions to the Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the
fulfillment at or prior to the Effective Time of the following conditions
(unless waived):
(a) each of Millers and Merger Sub shall in all material
respects have performed each obligation and agreement and complied with
each covenant to be performed and complied with by it hereunder on or
prior to the Effective Time;
(b) the representations and warranties of Millers and
Merger Sub in this Agreement shall be true and correct in all material
respects when made and at the Effective Time with the same force and
effect as though made at such time, except as affected by the transactions
contemplated hereby;
(c) Millers and Merger Sub shall have furnished to the
Company a certificate, dated the Effective Date, signed by a responsible
officer of each of Millers and Merger Sub, to the effect that all
conditions set forth in Section 8.2(a) and (b) have been satisfied; and
(d) the Company and the Management Shareholders shall
have received an opinion dated the Effective Date of counsel to Millers
and Merger Sub, substantially in the form of Exhibit E hereto, which
opinion shall be satisfactory to counsel for the Company.
(e) Employment Agreements in the forms attached as
Exhibits D-1 and D-2 shall have been executed and delivered to the
appropriate parties by the Surviving Corporation.
(f) The Company shall have received a copy of the
resolutions of the Boards of Directors of Millers and Merger Sub
authorizing the execution, delivery and performance of the Agreement and
the consummation of the transactions contemplated hereby and a copy of the
resolutions of Millers as the sole shareholder of Merger Sub approving the
Merger, all certified by the secretaries of Millers and Merger Sub on the
Effective Date. Such certificates shall state that the resolutions set
forth therein have not been amended, modified, revoked or rescinded as of
the date of such certificates;
(g) The Company shall have received a certificate of the
secretary of Millers and Merger Sub dated the Effective Date, as to the
incumbency and signature of the officers of Millers and Merger Sub
executing this Agreement and any certificate, agreement or other documents
to be delivered pursuant hereto, together with evidence of the incumbency
of such secretary;
(h) The Company shall have received (i) a copy, certified
as of a date reasonably close to the Effective Date by the Department of
Financial Institutions of Wisconsin, of the Articles of Incorporation,
together with all amendments thereto, of Merger Sub, (ii) a copy,
certified as of the Effective Date by the secretary or an assistant
secretary of Merger Sub, of the bylaws of Merger Sub in effect on the
Effective Date, (iii) a certificate or telex confirmation as of the
Effective Date from the Department of Financial Institutions of Wisconsin
as to the existence of Merger Sub as a Wisconsin corporation, and (iv) a
certificate dated the Effective Date from the secretary of assistant
secretary of Merger Sub to the effect that the documents delivered
pursuant to (i) are true and correct copies of such documents as are on
file with the Department of Financial Institutions of Wisconsin
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and no action has been taken to amend, modify or repeal such documents,
the same being in full force and effect in such form on the Effective
Date.
(i) Millers and Merger Sub shall have delivered to the
Company all necessary consents, waivers, authorizations and approvals so
that the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not (i) conflict with, violate
or result in a breach of any provision of the charter documents or bylaws
of Millers or Merger Sub, (ii) conflict with or violate any law, rule,
regulation, ordinance, order, writ, injunction, decree, license or permit
applicable to Millers or Merger Sub or by which any of their properties or
assets is bound or effected.
(j) The Escrow Agreement shall have been executed and
delivered by the Surviving Corporation and the Escrow Agent.
8.3 Additional Conditions to the Obligations of Millers and Merger
Sub. The obligations of Millers and Merger Sub to effect the Merger are also
subject to the fulfillment at or prior to the Effective Time of the following
conditions (unless waived):
(a) the Company shall in all material respects have
performed each obligation and agreement and complied with each covenant to
be performed and complied with by it hereunder on or prior to the
Effective Time;
(b) the representations and warranties of the Company and
the Management Shareholders in this Agreement shall be true and correct in
all material respects when made and at the Effective Time with the same
force and effect as though made at such time, except as affected by the
transactions contemplated hereby;
(c) the Company shall have furnished to Millers and
Merger Sub a certificate, dated the Effective Date, signed by a
responsible officer of the Company, to the effect that all conditions set
forth in Section 8.3(a) and (b) have been satisfied;
(d) all of the members of the Company's Board of
Directors, except for those directors listed in Schedule 1.4 hereto, shall
have irrevocably tendered their resignations effective as of the Effective
Time and the Company shall have accepted such resignations;
(e) Millers and Merger Sub shall have received an opinion
dated the Effective Date of counsel to the Company, substantially in the
form of Exhibit F hereto, which opinion shall be satisfactory to counsel
for Millers and Merger Sub;
(f) Except as otherwise provided in the Employment
Agreement of Robert Agazzi attached hereto as Exhibit D-2 with respect to
Employer Advances made under the Insurance Agreement referenced therein,
all outstanding loans owed by any Shareholder, officer or director of the
Company shall have been repaid in full to the Company and the releases
described in Section 3.21 shall have been delivered to the Company;
(g) Millers and Merger Sub shall have received a copy of
the resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of the Agreement and the consummation
of the transactions contemplated hereby and a copy of the resolutions of
the Shareholders of the Company approving the Merger (including the
Shareholders' Agent Agreement and the Escrow Agreement), all certified by
the Secretary of the Company on the Effective Date. Such certificates
shall state that the resolutions set
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forth therein have not been amended, modified, revoked or rescinded as of
the date of such certificates;
(h) Millers and Merger Sub shall have received a
certificate of the Secretary of the Company dated the Effective Date, as
to the incumbency and signature of the officers of the Company executing
this Agreement and any certificate, agreement or other documents to be
delivered pursuant hereto, together with evidence of the incumbency of
such Secretary;
(i) Millers and Merger Sub shall have received (i) a
copy, certified as of a date reasonably close to the Effective Date by the
Department of Financial Institutions of Wisconsin, of the Articles of
Incorporation, together with all amendments thereto, of the Company, (ii)
a copy, certified as of a date reasonably close to the Effective Date by
the Department of Financial Institutions of Wisconsin, of the Articles of
Incorporation, together with all amendments thereto, of the Subsidiary,
(iii) a copy, certified as of the Effective Date by the Secretary or an
Assistant Secretary of the Company, of the bylaws of the Company in effect
on the Effective Date, (iv) a copy, certified as of the Effective Date by
the Secretary or an Assistant Secretary of the Subsidiary, of the bylaws
of the Subsidiary in effect on the Effective Date, (v) a certificate or
telex confirmation as of the Effective Date from the Department of
Financial Institutions of Wisconsin as to the existence of the Company as
a Wisconsin corporation, (vi) a certificate or telex confirmation as of
the Effective Date from the Department of Financial Institutions of
Wisconsin as to the existence of the Subsidiary as a Wisconsin
corporation, (vii) a certificate or telex confirmation as of not more than
five business days prior to the Effective Date from the office of the
Secretary of State, Comptroller or other appropriate public official in
each state in which the Company is qualified to conduct business
certifying that the Company is in good standing in each such state, (viii)
a certificate dated the Effective Date from the Secretary or Assistant
Secretary of the Company to the effect that the documents delivered
pursuant to (i) are true and correct copies of such documents as on file
with the Department of Financial Institutions of Wisconsin and no action
has been taken to amend, modify or repeal such documents, the same being
in full force and effect in such form on the Effective Date, and (ix) a
certificate dated the Effective Date from the Secretary or Assistant
Secretary of the Subsidiary to the effect that the documents delivered
pursuant to (ii) are true and correct copies of such documents as on file
with the Department of Financial Institutions of Wisconsin and no action
has been taken to amend, modify or repeal such documents, the same being
in full force and effect in such form on the Effective Date;
(j) The Company shall have delivered to Millers and
Merger Sub all necessary consents, waivers, authorizations and approvals
so that the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby (including the change of control
of the Company) will not (i) result in the acceleration or termination of,
or the creation in any party of the right to accelerate, terminate, modify
or cancel, any indenture, contract, lease, sublease, loan agreement, note
or other obligation or liability to which the Company or the Subsidiary is
a party or is bound or to which any of their assets are subject, (ii)
conflict with, violate or result in a breach of any provision of the
charter documents or bylaws of the Company or the Subsidiary, (iii)
conflict with or violate any law, rule, regulation, ordinance, order,
writ, injunction, decree, license or permit applicable to the Company or
the Subsidiary or by which any of their properties or assets is bound or
affected or (iv) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or result in the creation of any lien, charge or
encumbrance on any of the properties or assets
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of the Company or the Subsidiary pursuant to any of the terms, conditions
or provisions of any indenture, contract, lease, sublease, loan agreement,
note, permit, license, franchise, agreement or other instrument,
obligation or liability to which the Company or the Subsidiary is a party
or by which the Company or the Subsidiary or any of their assets is bound
or affected;
(k) All schedules to be prepared and provided by the
Company shall have been delivered to Millers and Merger Sub prior to the
Effective Time in form and substance acceptable to Millers and Merger Sub
in their sole discretion;
(l) The Shareholders' Agent Agreement shall have been
fully executed and delivered by all parties thereto;
(m) The Escrow Agreement shall have been executed and
delivered by the Shareholders' Agent and the Escrow Agent;
(n) The Board of Directors of the Company shall have
terminated the Company's Performance Share Plan;
(o) Employment Agreements in the forms attached as
Exhibits D-1 and D-2 shall have been executed and delivered to the
Surviving Corporation by each employee named therein.
(p) The Company shall have delivered to Millers and
Merger Sub a letter from CUNA Mutual Insurance Society ("CUNA") confirming
that no defaults exist under the Restated License Agreement dated November
30, 1994 between the Company and CUNA;
(q) The Company shall have delivered to Millers and
Merger Sub landlord waivers and estoppel letters, in form satisfactory to
Millers, from each lessor of real estate leased by the Company set forth
on Schedule 8.3(q);
(r) The Company shall have delivered to Millers and
Merger Sub a waiver and letter of estoppel from The City of Sheboygan, in
form satisfactory to Millers, stating that the conditions to improvements
required for certificate of completion under the Contract for Sale of Land
for Private Development dated November 1, 1988 between the Company and The
Redevelopment Authority of Sheboygan, Wisconsin have been satisfied;
(s) the holders of not more than 1% of the shares of
Common Stock outstanding immediately prior to the vote by the Shareholders
to approve and adopt the Merger and this Agreement shall have exercised
dissenters' rights under the Wisconsin Law;
(t) the Company shall have received and delivered to
Millers and Merger Sub the written agreement of Norwest Bank Wisconsin
N.A. in form and substance acceptable to Millers and Merger Sub (i)
consenting to the change of control of the Company contemplated by the
Merger (ii) consenting to the pledge of assets of the Company to
NationsBank of Texas, N.A. ("Millers' Lender") in connection with
financing provided by Millers' Lender and (iii) entering into such
intercreditor or similar agreements as may be required by Millers' Lender;
(u) The Company shall have received and delivered to
Millers and Merger Sub assignments of rights from the present or former
employees or consultants set forth on Schedule 8.3(u) with respect to the
software programs set forth on Schedule 8.3(u);
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(v) The Company shall have conveyed and transferred the
Schedule 3.8 property owned by the Company (the "Transferred Property") to
Riverview Building, LLC pursuant to a contract of sale and a deed in form
and substance approved by Millers and fully executed copies of which shall
have been delivered to Millers and Merger Sub;
(w) Riverside Building, LLC shall have paid or refinanced
without recourse to the Company all indebtedness of the Company secured by
the Transferred Property and the Company shall have received and delivered
to Millers and Merger Sub evidence of the satisfaction and payment of all
indebtedness of the Company secured by the Transferred Property;
(x) The Company and Riverside Building, LLC shall have
each executed and delivered a Building Lease in the form of Exhibit G
hereto pursuant to which the Company shall lease the Transferred Property
from Riverside Building, LLC; and
(y) The Company shall have received and delivered to
Millers and Merger Sub a Nondisturbance Agreement in form and substance
approved by Millers from any lender to Riverside Building, LLC whose loan
is secured by the Transferred Property; and
(z) The Company shall have received and filed in all
applicable jurisdictions a UCC-3 termination statement terminating the
lien on the Company's assets heretofore filed by ITT Commercial Finance
Corp.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of the Boards of Directors
of Millers, Merger Sub and the Company;
(b) by either of the Boards of Directors of Merger Sub or
the Company if the Effective Time shall not have occurred on or before
March 31, 1997; provided, however, that the right to terminate under this
Section 9.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date;
(c) if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action (which order, decree or
ruling the parties hereto shall use all reasonable efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree,
ruling or other action shall have become final and nonappealable; or
(d) by Millers and Merger Sub if, subsequent to the date
hereof and prior to the Effective Date, there is any material adverse
change in the condition (financial or otherwise), business, operations,
liquidity, property, assets, liabilities, obligations or prospects of the
Company; or
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(e) By Millers or the Company (i) if there has been a
breach in any material respect of any representation, warranty, covenant
or agreement on the part of Millers and Merger Sub, on the one hand, or
the Company and Management Shareholders, on the other hand, respectively,
set forth in this Agreement or (ii) if any representation or warranty of
Millers or Merger Sub, on the one hand, or the Company and Management
Shareholders, on the other hand, respectively, shall be discovered to have
become untrue in any material respect in either case which breach or other
condition has not been cured within ten business days following receipt by
the nonterminating party of notice of such breach or other condition.
9.2 Effect of Termination. Except as set forth in Sections 7.1
and 7.4(a), upon the termination of this Agreement pursuant to Section 9.1,
this Agreement shall forthwith become null and void, except that nothing herein
shall relieve any party from liability for any breach of this Agreement prior
to such termination.
9.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.4 Waiver. At any time prior to the Effective Time, any term,
provision or condition of this Agreement may be waived in writing (or the time
for performance of any of the obligations or other acts of the parties hereto
may be extended) by the party that is entitled to the benefits thereof.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification for Costs. Subject to the terms of this
Article 10, the Shareholders shall indemnify and hold harmless Millers and the
Surviving Corporation, their officers, directors, employees and controlling
persons from any liability, damage, deficiency, loss, penalty, cost or expense,
including reasonable attorneys fees and costs of investigating and defending
against lawsuits, complaints, actions or other pending or threatened litigation
(being hereafter referred to in this Article 10 as "Millers Costs"), arising
from or attributable to (i) any breach of any representation, warranty or
agreement made by the Company or the Management Shareholders hereunder or in
any certificate delivered in connection with the transactions contemplated
herein, (ii) Millers Costs incurred as a result of any failure to timely file
Forms 5500 or similar filings as referenced in Schedule 3.20 or (iii) Millers
Costs incurred as a result of any failure to timely make the Top Hat filing
required by Department of Labor Regulation Section 2520.104-23 as referenced in
Schedule 3.20. Notwithstanding any other provisions of this Agreement or any
other agreement, instrument or document to the contrary, no indemnification
pursuant to this Section 10.1 shall be payable pursuant to the Escrow Agreement
unless and until the Millers Costs exceed $100,000.00 in the aggregate. At
such time as Millers Costs exceed $100,000.00 in the aggregate, the
Shareholders shall, to the extent of the amount in the Millers Account (as
defined in the Escrow Agreement), be liable to Millers and the Surviving
Corporation for all Millers Costs in excess of $100,000.00.
10.2 Indemnification for Philadelphia Settlement Costs. The
Company is a party to that certain License Agreement dated April 6, 1995 (as
amended, modified, or supplemented from time to time, the "Philadelphia
Contract") between the Company and the Philadelphia Contributionship for the
Insurance of Houses from Loss by Fire ("Philadelphia") under which Philadelphia
has asserted certain claims against the Company with respect to products or
services purchased by
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Philadelphia under the Philadelphia Contract. Subject to the limitations set
forth in this Section 10.2 and notwithstanding any disclosure of disputes under
the Philadelphia Contract referenced in the Schedules hereto, the Shareholders
shall indemnify and hold harmless Millers and the Surviving Corporation, their
officers, directors, employees and controlling persons from any and all
Philadelphia Settlement Costs (as hereinafter defined). For the purposes of
this Agreement, "Philadelphia Settlement Costs" shall mean the aggregate of (i)
the amount of all unpaid services rendered by the Surviving Corporation after
the Effective Date to seek to remedy claims under the Philadelphia Contract at
the rates set forth in the December 31, 1996 system budget with respect to the
Philadelphia Contract or, to the extent that the rate for any services are not
set forth therein, at rates generally charged by the Company for such services
to other customers, (ii) the amount of any receivables from Philadelphia that
have been written off by the Company or that may be written off by the
Surviving Corporation in connection with the Philadelphia Contract, (iii) any
amounts paid in settlement of claims asserted by Philadelphia under the
Philadelphia Contract, and (iv) all other liability, damage, deficiency, loss,
penalty, cost or expense, including reasonable attorney fees and costs incurred
by the Surviving Corporation in connection with investigating, asserting,
initiating and pursuing any claims by the Company or the Surviving Corporation
against Philadelphia and investigating, responding to, defending and settling
claims asserted under the Philadelphia Contract. Notwithstanding any other
provisions of this Agreement or any other agreement, instrument or document to
the contrary, no indemnification pursuant to this Section 10.2 shall be payable
pursuant to the Escrow Agreement unless and until the Philadelphia Settlement
Costs exceed $250,000.00 in the aggregate. At such time as Philadelphia
Settlement Costs exceed $250,000.00 in the aggregate, the Shareholders shall,
to the extent of the amount in the Philadelphia Account (as defined in the
Escrow Agreement), be liable to Millers and the Surviving Corporation for all
Philadelphia Settlement Costs in excess of $250,000.00.
10.3 Indemnification for Tax Liabilities. Notwithstanding any
other provisions of this Agreement or any other agreement, instrument or
document to the contrary, no indemnification pursuant to Section 10.1 shall be
payable pursuant to the Escrow Agreement with respect to (i) any breach of
Section 3.7 hereof, (ii) Millers Costs incurred as a result of any failure to
timely file Forms 5500 or similar filings as referenced on Schedule 3.20 or
(iii) Millers Costs incurred as a result of any failure to timely make the Top
Hat filing required by the Department of Labor Regulation Section 2520.104-23
as referenced on Schedule 3.20; provided that adequate reserves of up to
$300,000.00 have been established on the balance sheet of the Company as of
December 31, 1996 for any such tax or Department of Labor liability relating to
any period prior to December 31, 1996.
10.4 Remedies. Notwithstanding any other provisions of this
Agreement or any other agreement, instrument or document to the contrary, the
Shareholder's indemnity obligations pursuant to Section 10.1 shall be limited
to the amount of the Millers Account established pursuant to the Escrow
Agreement and the Shareholders' indemnity obligations pursuant to Section 10.2
shall be limited to the amount of the Philadelphia Account established pursuant
to the Escrow Agreement.
10.5 Indemnification by Millers and Surviving Corporation. Millers
and the Surviving Corporation shall indemnify and hold harmless the
Shareholders from any liability, damage, deficiency, loss, penalty, cost or
expense, including reasonable attorneys' fees and reasonable costs of
investigating and defending against any lawsuits, complaints, actions or other
pending or threatened litigation (being hereinafter referred to in this Section
10.5 as "Shareholder Costs"), arising from or attributable to any breach of any
representation, warranty or agreement made by Millers or Merger Sub hereunder,
or in any certificate delivered in connection with the transaction contemplated
herein. Notwithstanding any other provisions of this Agreement or any other
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agreement, instrument or document to the contrary, no indemnification pursuant
to this Section 10.5 shall be payable to any Shareholders unless and until the
Shareholders Costs exceed $100,000.00 in the aggregate. At such time as
Shareholders Costs exceed $100,000.00 in the aggregate, Millers and the
Surviving Corporation shall be liable to the Shareholders for all Shareholder
Costs in excess of $100,000.00 provided, however, that in no event shall the
aggregate liability of Millers and the Surviving Corporation for Shareholders
Costs exceed $1,000,000.00.
10.6 Shareholders Remedies. Any claims by the Shareholders for
indemnification hereunder shall be made solely by the Shareholders' Agent on
behalf of the Shareholders. The liability of Millers and the Surviving
Corporation for all indemnification claims made in connection with this
Agreement pursuant to Section 10.5 shall be satisfied solely by payment to the
Disbursing Agent on behalf of all Shareholders. Neither Millers nor the
Surviving Corporation shall have any obligation or liability for the payment of
any indemnification amounts directly to any Shareholder or for the disbursement
of any funds paid by Millers or the Surviving Corporation to the Disbursing
Agent on behalf of the Shareholders. To the extent that all or any portion of
the Escrow Amount becomes payable to the Shareholders, such payment shall be
made by the Escrow Agent to the Disbursing Agent for disbursement to the
Shareholders in accordance with the instructions of the Shareholders' Agent.
Neither Millers nor the Surviving Corporation shall be responsible in any
manner whatsoever for (i) any failure or inability of the Shareholders' Agent
or the Disbursing Agent to honor any provisions of this Agreement, the
Shareholders' Agent Agreement or the Escrow Agreement, (ii) any instructions
given by the Shareholders' Agent to the Disbursing Agent or failure to give
such instructions by the Shareholders' Agent, (iii) the investment of funds
held by the Shareholders' Agent or the Disbursing Agent or (iv) the amount or
timing of the disbursement of funds by the Shareholders' Agent or the
Disbursing Agent.
10.7 Procedures for Resolution and Payment of Claims for
Indemnification.
(a) If a party entitled to be indemnified under this
Article 10 (the "Indemnitee") shall incur any Millers Costs, Philadelphia
Settlement Costs or Shareholders Costs, as the case may be (Millers Costs,
Philadelphia Settlement Costs and Shareholders Costs hereinafter referred
to as "Costs") or determine that it is likely to incur any Costs,
including without limitation claims by third parties, and believes that it
is entitled to be indemnified against such Costs by another party
hereunder (the "Indemnitor"), such Indemnitee shall deliver to the
Indemnitor a certificate (an "Indemnity Certificate") signed by the
Indemnitee which Indemnity Certificate shall:
(i) state that the Indemnitee has paid or
properly accrued Costs, or anticipates that it will incur
liability for Costs for which such Indemnitee is entitled to
indemnification pursuant to this Agreement; and
(ii) specify in reasonable detail each individual
item of Cost included in the amount so stated, the date such
item was paid or properly accrued, the basis for any
anticipated liability, the nature of the misrepresentation,
breach of warranty or breach of covenant to which each such
item is related and the computation of the amount to which
such Indemnitee claims to be entitled hereunder.
(b) In case the Indemnitor shall object to the
indemnification of an Indemnitee in respect of any claim or claims
specified in any Indemnity Certificate, the Indemnitor shall within 30
days after receipt by the Indemnitor of such Indemnity Certificate deliver
to the Indemnitee a written notice to such effect and the Indemnitor and
the Indemnitee shall, within the 30-day period beginning on the date of
receipt by the Indemnitee of such written
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objection, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims to which the
Indemnitor shall have so objected. If the Indemnitee and the Indemnitor
shall succeed in reaching agreement on their respective rights with
respect to any of such claims, the Indemnitee and the Indemnitor shall
promptly prepare and sign a memorandum setting forth such agreement. If
Indemnitee and the Indemnitor are unable to agree as to any particular
item or items or amount or amounts, then Indemnitee and the Indemnitor
shall arbitrate such dispute pursuant to Section 11.5 hereof.
(c) Claims for Costs specified in any Indemnity
Certificate to which an Indemnitor shall not object in writing, claims for
Costs covered by a memorandum of agreement of the nature described in
paragraph (b), claims for Costs the validity and amount of which have been
the subject of arbitration as described in paragraph (b) and claims for
Costs the validity and amount of which shall have been the subject of a
final judicial determination are hereinafter referred to, collectively, as
"Agreed Claims".
(d) Promptly after the assertion by any third party of
any claim against any Indemnitee that, in the judgment of such Indemnitee,
may result in the incurrence by such Indemnitee of Costs for which such
Indemnitee would be entitled to indemnification pursuant to this
Agreement, such Indemnitee shall deliver to the Indemnitor a written
notice describing in reasonable detail such claim and such Indemnitor may,
at its option, assume the defense of the Indemnitee against such claim
(including the employment of counsel, who shall be satisfactory to such
Indemnitee, and the payment of expenses). Any Indemnitee shall have the
right to employ separate counsel in any such action or claim and to
participate in the defense thereto, but the fees and expenses of such
counsel shall not be at the expense of the Indemnitor unless (i) the
Indemnitor shall have failed, within a reasonable time after having been
notified by the Indemnitee of the existence of such claim as provided in
the preceding sentence, to assume the defense of such claim, (ii) the
employment of such counsel has been specifically authorized by the
Indemnitor, or (iii) the named parties to any such action (including any
impleaded parties) include both such Indemnitee and the Indemnitor and
such Indemnitee shall have been advised in writing by such counsel that
there may be one or more legal defenses available to it which are
different from or additional to those available to Indemnitor. No
Indemnitor shall be liable to indemnify any Indemnitee for any settlement
of any such action or claim effected without the consent of the
Indemnitor, but if settled with the written consent of the Indemnitor, or
if there be a final judgment for the plaintiff in any such action, then
the Indemnitor shall, subject to the terms of this Agreement, indemnify
and hold harmless each Indemnitee from and against any loss or liability
by reason of such settlement of judgment. If an Indemnitor assumes the
defense of an Indemnitee against a claim asserted hereunder, the
Indemnitee shall give the Indemnitor access to the Surviving Corporation's
books and records as necessary to conduct such defense and cooperate in
such defense.
(e) In the event that an Indemnitee subsequently recovers
any or all of the amount of an Agreed Claim from a party other than the
Indemnitor, the Indemnitee shall reimburse immediately to the Indemnitor,
in cash, an amount equal to the amount of such previously paid Agreed
Claim which shall have been recovered.
40
<PAGE> 46
ARTICLE 11
GENERAL PROVISIONS
11.1 Public Statements. So long as this Agreement is in effect,
neither the Company nor Millers shall, or shall permit any of its subsidiaries
to, issue or cause the publication of any press release or other announcement
with respect to the Merger or this Agreement without consulting with and
obtaining the consent of the other parties; provided, however, that such
consent shall not be required where such release or announcement is required by
applicable law.
11.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by Fed
Ex or other nationally recognized overnight delivery service or facsimile
transmission (if also sent by personal delivery, certified mail or overnight
delivery service) to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(a) if to Millers or Merger Sub:
Millers Integrated Claims Resources, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attn: F. George Dunham, III
Facsimile No. (817) 348-3765
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4618
Attn: Terry M. Schpok, P.C.
Facsimile No. (214) 969-4343
(b) if to the Company, the Management Shareholders or the
Shareholders Agent:
Strategic Data Systems, Inc.
615 Pennsylvania Avenue
Sheboygan, Wisconsin 53082
Attn: Stuart Warrington
Facsimile No. (414) 459-9123
with a copy to:
Reinhart Boerner Van Deuren Norris & Rieselbach, S.C.
1000 North Water Street, Suite 2100
Milwaukee, Wisconsin 53202-0900
Attn: Richard W. Graber
Facsimile No. (414) 298-8097
Notice so given shall (in the case of notice so given by mail) be deemed to be
given and received in the fourth calendar day after posting, in the case of
notice so given by overnight delivery service on the date of actual delivery
and, in the case of notice so given by facsimile transmissions or personal
delivery, on the date of actual transmission or, as the case may be, personal
delivery.
11.3 Representations and Warranties. The representations and
warranties of Millers and Merger Sub shall survive the Merger for a period of
18 months after the Effective Date
41
<PAGE> 47
notwithstanding any investigations which may have been made by any of the
parties prior thereto. The respective representations and warranties of the
Company and the Management Shareholders shall survive the Merger for a period
of 18 months after the Effective Date notwithstanding any investigations which
may have been made by any of the parties prior thereto.
11.4 Closing. The Closing of the transactions contemplated by this
Agreement shall take place at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. in Dallas, Texas or such other place as the parties may agree, as soon
as practicable after the satisfaction or waiver of the conditions set forth in
Section 8.
11.5 Arbitration. In the event of any dispute with respect to
indemnification rights under Section 10.7(b) of this Agreement, then the
parties to such dispute shall select a mutually agreeable arbitrator to settle
such disputed item or claims and the amounts thereof and the decision of the
arbitrator shall be binding on the parties. In the event that an arbitrator
cannot be mutually agreed upon, such arbitrator shall be selected in accordance
with the rules of the American Arbitration Association. The opinion of the
arbitrator shall be made in writing and mailed to each party. The arbitrator
so selected shall proceed in accordance with the rules of the American
Arbitration Association and the costs of such arbitration, including the fees
of the arbitrator, shall be paid in accordance with the decision of the
arbitrator, provided that the arbitrator shall assess all costs against any
party if he finds such party did not act in good faith. Any such arbitration
shall be conducted in Chicago, Illinois.
11.6 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof; is not
intended to confer upon any other person any rights or remedies hereunder,
shall not be assigned; and shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of
Wisconsin without giving effect, to the principles of conflict of laws thereof.
This Agreement may be executed in one or more counterparts which together shall
constitute a single agreement. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable under any applicable law, then
such contravention or invalidity shall not invalidate the entire Agreement.
Such provision shall be deemed to be modified to the extent necessary to render
it legal, valid and enforceable, and if no such modification shall render it
legal, valid and enforceable, then this Agreement shall be construed as if not
containing the provision held to be invalid, and the rights and obligations of
the parties shall be construed and enforced accordingly.
42
<PAGE> 48
AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE
IN WITNESS WHEREOF, Millers, Merger Sub, the Company and the Management
Shareholders have caused this Agreement to be executed as of the date first
above written.
MILLERS INTEGRATED CLAIMS STRATEGIC DATA SYSTEMS, INC.
RESOURCES, INC.
By: /s/ F. GEORGE DUNHAM, III By: /s/ STUART WARRINGTON
---------------------------------- ------------------------------------
F. George Dunham, III, President Stuart Warrington, Chief Executive
Officer
MILLERS MERGER CORPORATION
By:
----------------------------------
F. George Dunham, III, President
MANAGEMENT SHAREHOLDERS:
/s/ STUART H. WARRINGTON /s/ DONALD A. ARNDT
- ------------------------------------- -------------------------------------
Stuart H. Warrington Donald A. Arndt
/s/ ROBERT K. AGAZZI /s/ LARRY L. GEHLE
- ------------------------------------- -------------------------------------
Robert K. Agazzi Larry L. Gehle
/s/ BERNARD J. MITCHELL /s/ DAVID E. KRUEGER
- ------------------------------------- -------------------------------------
Bernard J. Mitchell David E. Krueger
/s/ RICHARD K. GAUMER /s/ JON R. SANTA
- ------------------------------------- -------------------------------------
Richard K. Gaumer Jon R. Santa
/s/ RONALD L. BOROWICZ Robert M. & Virginia O.
- ------------------------------------- McKenna Revocable Trust
Ronald L. Borowicz
By: /s/ ROBERT M. MCKENNA
----------------------------------
Robert M. McKenna, Trustee
The Stuart Warrington and Nancy
Warrington 1997 Charitable Remainder
Unitrust
By: /s/ RICHARD PAULS
----------------------------------
Richard Pauls, Trustee
<PAGE> 49
EXHIBIT 2.1
The following list sets forth the schedules to the Agreement and Plan of Merger
that have been omitted from this Exhibit 2.1. The Company agrees to furnish
supplementally a copy of any omitted schedule to the Securities and Exchange
Commission upon request.
Schedule
1.4 Directors and Officers of Surviving Corporation
3.3 Partnerships and Joint Ventures
3.4 Effect of Agreement
3.5 Prepayment Penalties
3.6 Absence of Certain Change or Events
3.7 Taxes
3.8 Real Property
3.9 Environmental Matters
3.10 Personal Property
3.11 Contracts
3.12 Legal Proceeding
3.14 Patents, Trademarks, Franchises, etc.
3.18 Insurance
3.19 Employees
3.20 Employee Plans
3.21 Transactions with Related Parties
3.22 Directors and Officers; Banks
3.23 Material Assets
4.1 Management Shareholders
8.3(q) Landlord Waivers and Estoppels
8.3(u) Copyright Assignments
<PAGE> 1
EXHIBIT 2.2
ARTICLES AND PLAN OF MERGER
OF
STRATEGIC DATA SYSTEMS, INC.
WITH AND INTO
MILIRISK, INC.
Pursuant to the provisions of Article 5.16 of the Texas Business
Corporation Act and Section 180.1105 of the Wisconsin Business Corporation Law,
MiliRisk, Inc., a corporation organized under the laws of the State of Texas
(the "parent corporation"), and owning at least ninety per cent of the shares
of Strategic Data Systems Inc., a corporation organized under the laws of the
State of Wisconsin (the "subsidiary corporation"), hereby executes the
following articles of merger effective as of July ____, 1997:
I.
RESOLUTION OF THE BOARD OF DIRECTORS
Attached hereto as Exhibit A is a copy of the resolutions of the Board
of Directors of MiliRisk, Inc. as adopted on June 18, 1997. Also attached
hereto as Exhibit B is a copy of the resolutions of the sole shareholder of
MiliRisk, Inc. as adopted on June 18, 1997.
II.
PLAN OF MERGER
The plan of merger, as adopted by the shareholder and Board of
Directors of each of the parent corporation and subsidiary corporation, is as
follows: (a) Strategic Data Systems, Inc., a wholly-owned subsidiary of
MiliRisk, Inc., shall merge with and into MiliRisk, Inc., and "MiliRisk, Inc."
shall be the name of the surviving corporation; and (b) upon filing of the
articles of merger, all shares of capital stock of Strategic Data Systems, Inc.
shall be canceled. The plan of merger was approved in accordance with Section
180.1104 of the Wisconsin Business Corporation Law.
<PAGE> 2
III.
CAPITAL STOCK/ APPROVAL OF MERGER
The number of outstanding shares of each class of the subsidiary corporation,
and the number of shares of each class owned by the parent corporation is:
CLASS NO. OF SHARES NO. OF SHARES
- ----- OUTSTANDING OWNED BY PARENT
------------- ---------------
Common Stock 1000 1000
IV.
PERMITTED MERGER
The laws of Wisconsin, the jurisdiction under which the subsidiary
corporation is organized, permits such a merger. The laws of Texas, the
jurisdiction under which the parent corporation is organized, permits such a
merger.
V.
SURVIVING CORPORATION
The surviving corporation in the merger herein is MiliRisk, Inc.
VI.
ARTICLES OF INCORPORATION
The articles of incorporation of MiliRisk, Inc. shall be the articles
of incorporation of the surviving corporation.
VII.
REGISTERED OFFICES
The parent corporation is organized under the laws of the State of
Texas and the address, including street number if any, of its registered or
principal office in said State is 300 Burnett Street, Fort Worth, Texas 76102,
and its registered agent is F. George Dunham, III.
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused these
Articles of Merger to be executed on its behalf, all on the day and year first
above written.
MILIRISK, INC.
By: /s/ F. GEORGE DUNHAM, III
----------------------------------------------
F. George Dunham, III
President and Chief Executive Officer
Attest:
By: /s/ TERRY G. GAINES
----------------------------------------------
Terry G. Gaines
Executive Vice President and
Chief Financial Officer
STRATEGIC DATA SYSTEMS, INC.
By: /s/ F. GEORGE DUNHAM, III
----------------------------------------------
F. George Dunham, III
Chairman of the Board
Attest:
By: /s/ JOY J. KELLER
----------------------------------------------
Joy J. Keller
Secretary
This instrument was drafted
by Terry M. Schpok, P.C.
<PAGE> 4
EXHIBIT A
---------
WHEREAS, the board deems it to be in the best interest of the Company
to effect the merger of the Company's wholly-owned subsidiary, Strategic Data
Systems, Inc. ("SDS") with and into the Company;
RESOLVED, that the Articles and Plan of Merger, in the form presented
to each member of the Board (the "Articles of Merger"), is hereby approved by
the Board and recommended to the Company's shareholder for approval; and
RESOLVED FURTHER, that the Proper Officers are authorized to submit
the Articles of Merger to the Company's shareholder for its approval; and
RESOLVED FURTHER, that, upon approval by the shareholder of the
Company, the Proper Officers of the Company are authorized and empowered to
file the Articles of Merger with the appropriate authorities in Texas and
Wisconsin and take such other actions as such Proper Officers shall deem
necessary or desirable to cause the Articles of Merger to become effective.
<PAGE> 5
EXHIBIT B
---------
WHEREAS, the Board of Directors has recommended that the Company's
wholly-owned subsidiary, Strategic Data Systems, Inc. ("SDS") be merged with
and into the Company;
RESOLVED, that the Articles and Plan of Merger in the form attached
hereto as Exhibit A, be and hereby is, approved and adopted and the appropriate
officers of the company be, and each hereby is, authorized and empowered, for
and in the name of the Company, to execute and file such Articles and Plan of
Merger with the appropriate authorities in Texas and Wisconsin.
<PAGE> 1
EXHIBIT 2.3
STRATEGIC DATA SYSTEMS, INC.
CONFIDENTIAL
Mr. Samuel J. Fleager
Dear Mr. Fleager:
Strategic Data Systems ("SDS") is pleased to submit to you the
following proposal to sell you all of the outstanding shares of common stock of
Applied Quoting Systems, Inc., a Wisconsin corporation ("AQS"). The basic
terms contemplated for the proposed sale are set forth below.
1. Sale of AQS. SDS would sell you all of the issued and outstanding
common stock of AQS for a cash purchase price of $2,500,000 payable at closing.
The sale of the AQS stock would be made without liability to SDS for any
obligations of AQS, including employment obligations of AQS to its employees.
2. Definitive Agreement. The sale will be subject to the terms and
conditions to be set forth in a definitive purchase agreement. SDS shall use
its good faith efforts to provide you with a draft of the definitive purchase
agreement as soon as practical after your execution of this letter.
3. Brokers. Neither SDS nor you have retained any broker in
connection with the sale of AQS and no fee or commission is or will be payable
to any broker, agent or finder in connection with the purchase contemplated
herein.
4. Closing Date. The Closing Date shall be July 15, 1997, unless
extended by mutual agreement of the parties, but in no event later than July
30, 1997. The parties shall use their reasonable efforts to facilitate closing
the sale of AQS no later than July 15, 1997. In the event a definitive
purchase agreement shall not have been executed by the parties by July 15,
1997, the provisions of this letter shall be null and void and of no further
effect except as otherwise herein provided.
5. Expenses. Each of the parties hereto will bear and pay all costs
and expenses incurred by it with respect to the purchase contemplated herein
and all investigations and proceedings in connection therewith, including,
without limitation, fees and expenses of their respective counsel, accountants
and investment advisors.
6. Non-Binding Agreement. This letter shall not constitute a binding
agreement of you to purchase or SDS to sell all or any portion of AQS and,
until this letter is superseded by an executed definitive agreement, the
parties hereto will not be under any obligation or have any liability to each
other, except that the provisions of this Section 6 shall constitute a binding
agreement of the parties with respect to its subject matter until the
termination of negotiations with respect to the proposed purchase by written
consent of all parties hereto, and the provisions of Sections 3, 5, 7 and 8
shall constitute a binding agreement of the parties with respect to their
subject matter.
7. Public Disclosure. You agree not to issue any press release or
make any other public statement or disclosure concerning the proposed sale of
AQS to you without our prior express consent. In addition, you agree not to
contact employees, vendors, or customers of AQS regarding the proposed sale of
AQS to you without our prior express consent, except employers and customers
who might be part of the investment group.
<PAGE> 2
Mr. Samuel J. Fleager
June 30, 1997
Page 2
8. Confidentiality. You will hold and will cause your representative to
hold in strict confidence all confidential documents and information concerning
AQS furnished to you in connection with the transactions contemplated by this
letter (except to the extent that such information can be shown to have been
(i) previously known by you prior to its disclosure to you by AQS, (ii) in the
public domain through no fault of yours or (iii) later lawfully acquired by you
from other source) and will not release or disclose such information to any
other person, except in connection with your evaluation of the proposed
acquisition of AQS, to (a) your auditors, attorneys, financial advisors and
other consultants or advisors and (b) responsible financial institution,
partnerships and individuals (it being understood that such persons shall be
informed by your of the confidential nature of such information and shall be
directed by you to treat such information confidentiality); provided that
you may provide such documents and information in response to judicial or
administrative process or applicable governmental laws, rules, regulations,
orders or ordinances, but only that portion of the documents or information
which, on the advise of counsel, is legally required to be furnished, and
provided that you notify SDS of your obligation to provide such information
under applicable law. In addition, you agree not to use such information for
any purpose other than your evaluation of the proposed acquisition of AQS by
you. If the transactions contemplated by this letter are not consummated, such
confidence shall be maintained except to the extent such information can be
shown to have been (i) previously known by you, prior to its disclosure to you
by AQS, (ii) in the public domain through no fault of yours, or (iii) later
lawfully acquired by you, from other sources, and if requested by SDS, you will
destroy or return to AQS all copies of written information furnished by AQS to
you or your, agents representatives or advisers.
If the foregoing accurately sets forth your understanding with us,
please indicate your concurrence therewith by executing this letter where
indicated and returning one fully executed copy to the undersigned by
facsimile. The undersigned will deliver to you by overnight delivery two
counterpart copies of this letter executed by the undersigned, and it is
requested that you execute such hard copies and return one fully executed copy
to the undersigned. We are prepared to prepare a definitive purchase agreement
if a fully executed copy of this letter is received by the undersigned by
facsimile on or before two days after the date of this letter.
Sincerely,
Strategic Data Systems, Inc.
By: /s/ F. GEORGE DUNHAM, III
---------------------------------
F. George Dunham, III
Accepted and Agreed
this 1st day of
July, 1997.
/s/ SAMUEL J. FLEAGER
- --------------------------
Samuel J. Fleager
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
WITH AMENDMENTS
OF
MILIRISK, INC.
ARTICLE ONE
MiliRisk, Inc. (the "Corporation"), pursuant to the provisions of
Article 4.07 of the Texas Business Corporation Act, hereby adopts Restated
Articles of Incorporation which accurately copy the Corporation's Articles of
Incorporation and all amendments thereto that are in effect to date and as
further amended by these Restated Articles of Incorporation as hereinafter set
forth and which contain no other change in any provision thereof.
ARTICLE TWO
The Restated Articles of Incorporation of the Corporation are hereby
amended by these Restated Articles of Incorporation as follows:
ARTICLE ONE is amended to change the name of the Corporation to INSpire
Insurance Solutions, Inc.
ARTICLE FOUR is amended to authorize undesignated preferred stock and to
increase the number of authorized shares of capital stock to 15,000,000,
consisting of 14,000,000 shares of common stock and 1,000,000 shares of
preferred stock.
ARTICLE SIX is amended to provide that the number of directors
constituting the Board of Directors shall be no less than two and no greater
than nine, and to provide for the election of directors to staggered three-year
terms and to set forth the expiration of the term of each director currently
serving on the Board of Directors.
1
<PAGE> 2
ARTICLE THIRTEEN is amended to require all actions of the shareholders
to be taken at an annual or special meeting and not by a consent in writing
unless the number of shareholders is ten or fewer, in which case the
shareholders may act by unanimous consent.
ARTICLE THREE
Each such amendment made by these Restated Articles of Incorporation has
been effected in conformity with the provisions of the Texas Business
Corporation Act, and the Corporation's Articles of Incorporation and each such
amendment made by these Restated Articles of Incorporation were duly adopted by
the shareholders of the Corporation on the 18th day of June, 1997.
ARTICLE FOUR
The number of shares of capital stock outstanding and entitled to vote
on the adoption of these Restated Articles of Incorporation as so amended was
65,000. Shareholders holding 65,000 of the outstanding shares of capital stock
of the Corporation, such number of shares representing not less than the
minimum number of votes required to amend the Restated Articles of
Incorporation, have signed a consent in writing pursuant to Article 9.10(A) of
the Texas Business Corporation Act adopting the Restated Articles of
Incorporation as so amended and the written notice required by Article 9.10(A)
of the Texas Business Corporation Act has been given.
ARTICLE FIVE
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded by the following Restated Articles of Incorporation,
which accurately copy the entire text thereof, as amended and supplemented by
all certificates of amendment previously issued by the Secretary of State and
as further amended by the following Restated Articles of Incorporation:
2
<PAGE> 3
RESTATED ARTICLES OF INCORPORATION
OF
INSPIRE INSURANCE SOLUTIONS, INC.
ARTICLE ONE
The name of the Corporation is INSpire Insurance Solutions, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is to engage in the
transaction of any or all lawful business for which a corporation may be
incorporated under the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the Corporation shall have
authority to issue is 15,000,000 shares of capital stock, of which, (1)
14,000,000 shares shall be Common Stock, having a par value of $0.01 per share;
and (2) 1,000,000 shares shall be Preferred Stock, having a par value of $1.00
per share. The holders of Common Stock shall be entitled to one vote for each
share held in any shareholder vote in which any such shareholder is entitled to
participate.
The Board of Directors may determine the powers, designations,
preferences and relative, participating, optional or other special rights,
including voting rights, and the qualifications, limitations, or restrictions
thereof, of each class of capital stock and of each series within any such
class and may increase or decrease the number of shares within each such class
or series; provided, however, that the Board of Directors may not decrease the
number of shares within a class or series to less than the number of shares
within such class or series that are then issued and may not increase the
number of
3
<PAGE> 4
shares within a series above the total number of authorized shares of the
applicable class for which the powers, designations, preferences and rights
have not otherwise been set forth herein.
ARTICLE FIVE
The street address of the registered office of the Corporation is 300
Burnett Street, Fort Worth, Texas 76102-2279, and the name of its registered
agent at such address is F. George Dunham, III.
ARTICLE SIX
The number of directors constituting the Board of Directors shall be no
fewer than two and no greater than nine to be determined in accordance with the
Bylaws of the Corporation. The directors shall be divided into three classes
as nearly equal in number as possible and one class shall be elected at each
annual meeting of shareholders to hold office for a three-year term. The names
and addresses of the persons who currently serve as directors, and dates on
which the current respective terms as director shall expire, are as follows:
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
F. George Dunham, III 2000
Harry E. Bartel 2000
R. Earl Cox, III 1998
Mitch S. Wynne 1999
</TABLE>
4
<PAGE> 5
ARTICLE SEVEN
The preemptive right of any shareholder of the Corporation to acquire
additional, unissued or treasury shares of the Corporation, or securities of
the Corporation convertible into or carrying a right to subscribe to or acquire
shares of the Corporation, is hereby denied.
ARTICLE EIGHT
Cumulative voting by the shareholders of the Corporation at any election
for directors of the Corporation is hereby prohibited. Every shareholder
entitled to vote at each such election shall have the right to vote, in person
or by proxy, the number of shares owned by him for as many persons as there are
directors to be elected and for whose election he has a right to vote.
ARTICLE NINE
Indemnification. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding (whether or not by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another corporation, partnership, joint venture, sole
proprietorship, trust, non-profit entity, employee benefit plan, or other
enterprise, against all judgments, penalties (including excise and similar
taxes), fines, settlements, and reasonable expenses (including attorneys' fees
and court costs) actually and reasonably incurred by him in connection with
such action, suit or proceeding to the fullest extent permitted by any
applicable law, and such indemnity shall inure to the benefit of the heirs,
executors and administrators of any such person so indemnified pursuant to this
Article Nine. The right to indemnification under this Article Nine shall be a
contract right and shall include, with respect to
5
<PAGE> 6
directors and officers, the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its disposition;
provided, however, that if the Texas Business Corporation Act requires, the
payment of such expenses incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon delivery to the
Corporation of (i) a written affirmation by such director or officer of his
good faith belief that he has met the standard of conduct necessary for
indemnification under this Article Nine or otherwise and (ii) a written
undertaking by or on behalf of such director or officer to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Article Nine or otherwise. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Article Nine shall not be deemed exclusive of any right to which those
seeking indemnification or advancement of expenses may be entitled under any
law, bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
ARTICLE TEN
Limitation of Director Liability. To the fullest extent permitted by
the Texas Miscellaneous Corporation Laws Act, as the same exists or may
hereafter be amended, a director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for an act or omission in
the director's capacity as a director.
ARTICLE ELEVEN
Except to the extent such power may be modified or divested by action of
shareholders representing a majority of the issued and outstanding shares of
the capital stock of the Corporation, the power to alter, amend or repeal the
Bylaws of the Corporation shall be vested in the Board of Directors.
6
<PAGE> 7
ARTICLE TWELVE
The Corporation shall not commence business until it has received for
the issuance of its shares consideration of the value of at least one thousand
dollars ($1,000.00), consisting of money, labor done or property actually
received.
ARTICLE THIRTEEN
All actions of the shareholders must be taken at an annual or special
meeting of shareholders and may not be taken by a consent or consents in
writing; provided, however, that if at any time the Corporation has ten or
fewer shareholders, any action by such shareholders may be taken by unanimous
consent in accordance with the Texas Business Corporation Act.
ARTICLE FOURTEEN
With respect to any matter for which the affirmative vote of the holders
of a specified portion of the shares of the Corporation entitled to vote is
required by the Texas Business Corporation Act, the affirmative vote of the
holders of a majority of the shares entitled to vote shall constitute the act
of the shareholders on that matter, rather than the affirmative vote of the
specified portion otherwise required by the Texas Business Corporation Act.
IN WITNESS WHEREOF, the undersigned has executed these Restated Articles
of Incorporation on behalf of the Corporation this ____ day of July, 1997.
By: /s/ F. GEORGE DUNHAM, III
-------------------------------------
F. George Dunham, III
President and Chief Executive Officer
7
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EXHIBIT 3.2
BYLAWS
OF
MILLERS INTEGRATED CLAIMS RESOURCES, INC.
a Texas corporation
(the "Company")
(Adopted effective as of April 28, 1995)
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TABLE OF CONTENTS
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I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Additional Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. SHAREHOLDERS MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5. Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5.1. Voting Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5.2. Votes Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5.3. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5.4. Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6. Consents in Lieu of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
III. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4. Vacancies and Newly-Created Directorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4.1. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4.2. Newly-Created Directorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4.3. Election by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IV. BOARD MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4. Quorum, Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.5. Consent In Lieu of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
V. COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1. Establishment; Standing Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1.1. Finance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1.2. Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1.3. Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2. Available Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3. Alternate Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4. Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
VI. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1. Elected Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1.1. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1.2. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1.3. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1.4. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1.5. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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6.1.6. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1.7. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1.8. Divisional Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3. Appointed Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4. Multiple Officeholders, Shareholder and Director Officers . . . . . . . . . . . . . . . . . . . . . 8
6.5. Compensation, Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.6. Additional Powers and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.7. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
VII. SHARE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1. Entitlement to Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2. Multiple Classes of Stock; Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.4. Issuance and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.5. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.6. Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.7. Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VIII. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.2. Mandatory Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.3. Prohibited Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.4. Termination of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.5. Judgments, Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.6. Determination of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.7. Determination of Reasonableness of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.8. Indemnification Against Reasonable Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.9. Payments in Advance of Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.10. Written Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.11. Consistency with Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.12. Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.13. Officers, Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.14. Other Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.15. Further Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.17. Report To Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.18. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.19. Change in Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IX. INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.1. Validity; Disclosure; Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.2. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.2. Fixing Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.3. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.4. Attendance via Communications Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.5. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.6. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.7. Reports to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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10.8. Contracts and Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.9. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.10. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.11. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.12. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.13. Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.14. Proxies in Respect of Securities of Other Corporations . . . . . . . . . . . . . . . . . . . . . . . 19
10.15. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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BYLAWS
ARTICLE I.
OFFICES
Section I.1. Registered Office. The registered office of the
Company within the State of Texas shall be located at either (i) the principal
place of business of the Company in the State of Texas or (ii) the office of
the corporation or individual acting as the Company's registered agent in
Texas.
Section I.2. Additional Offices. The Company may, in addition to
its registered office in the State of Texas, have such other offices and places
of business, both within and without the State of Texas, as the Board of
Directors of the Company (the "Board") may from time to time determine or as
the business and affairs of the Company may require.
ARTICLE II.
SHAREHOLDERS MEETINGS
Section II.1. Annual Meetings. Annual meetings of shareholders
shall be held at a place and time on any weekday which is not a holiday and
which is not more than 120 days after the end of the fiscal year of the Company
as shall be designated by the Board and stated in the notice of the meeting, at
which the shareholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section II.2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by law
or by the articles of incorporation, (i) may be called by the chairman of the
board or the president and (ii) shall be called by the president or secretary
at the request in writing of a majority of the Board or shareholders owning
capital stock of the Company representing at least ten percent (10%) of the
votes of all capital stock of the Company entitled to vote thereat. Such
request of the Board or the shareholders shall state the purpose or purposes of
the proposed meeting.
Section II.3. Notices. Written or printed notice of each
shareholders' meeting stating the place, date and hour of the meeting shall be
given to each shareholder of record entitled to vote thereat by or at the
direction of the president, the secretary or the officer or person calling such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting. If said notice is for a shareholders' meeting other than an
annual meeting, it shall in addition state the purpose or purposes for which
said meeting is called, and the business transacted at such meeting shall be
limited to the matters so stated in said notice and any matters reasonably
related thereto. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to each shareholder at his
address as it appears on the stock transfer books of the Company, with postage
thereon prepaid.
Section II.4. Quorum. The presence at a shareholders' meeting of
the holders, present in person or represented by proxy, of capital stock of the
Company representing a majority of the votes of all capital stock of the
Company entitled to vote thereat shall constitute a quorum at such meeting for
the transaction of business except as otherwise provided by law, the articles
of incorporation or these Bylaws. If a quorum shall not be present or
represented at any meeting of the shareholders, a majority of the shareholders
entitled to vote thereat and present in person or represented
<PAGE> 6
by proxy shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At any such reconvened meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the reconvened meeting, a notice of said reconvened meeting shall be
given to each shareholder entitled to vote at said meeting. The shareholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum.
Section II.5. Voting of Shares.
Section II.5.1. Voting Lists. The officer or agent who has
charge of the stock transfer books of the Company shall prepare, at least ten
(10) days before every meeting of shareholders, a complete list of the
shareholders entitled to vote thereat arranged in alphabetical order and
showing the address and the number of shares registered in the name of each
shareholder. Such list shall be open to the examination of any such
shareholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held and at the registered office of the Company.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder who is
present. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer books or to
vote at any meeting of shareholders. Failure to comply with the requirements
of this section shall not affect the validity of any action taken at said
meeting.
Section II.5.2. Votes Per Share. Unless otherwise provided
by law or in the articles of incorporation, each shareholder shall be entitled
to one vote, in person or by proxy, on each matter submitted to a vote at a
meeting of the shareholders, for each share of capital stock held by such
shareholder.
Section II.5.3. Proxies. Every shareholder entitled to vote
at a meeting or to express consent or dissent without a meeting or a
shareholder's duly authorized attorney-in-fact may authorize another person or
persons to act for him by proxy. Each proxy shall be in writing, executed by
the shareholder group, the proxy or by his duly authorized attorney. No proxy
shall be voted on or after eleven (11) months from its date, unless the proxy
provides for a longer period. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and unless otherwise made irrevocable by
law.
Section II.5.4. Required Vote. When a quorum is present at
any meeting, the vote of the holders of capital stock of the Company
representing a majority of the votes of all capital stock of the Company
entitled to vote thereat and present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one
upon which, by express provision of law or the articles of incorporation or
these Bylaws, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section II.6. Consents in Lieu of Meeting. Any action required to
be or which may be taken at any meeting of shareholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holder or holders of
shares having not less than the minimum number of votes that would be
2
<PAGE> 7
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted. Such signed consent
shall have the same force and effect as a unanimous vote of shareholders and
shall be filed with the minutes of proceedings of the shareholders.
ARTICLE III.
DIRECTORS
Section III.1. Purpose. The business and affairs of the Company
shall be managed by or under the direction of the Board, which may exercise all
such powers of the Company and do all such lawful acts and things as are not by
law, the articles of incorporation or these Bylaws directed or required to be
exercised or done by the shareholders. Directors need not be shareholders or
residents of the State of Texas.
Section III.2. Number. The number of directors constituting the
Board shall never be less than one (1) and shall be determined by resolution of
the Board, except for the number of directors constituting the initial Board,
which number is fixed by the articles of incorporation.
Section III.3. Election. Directors shall be elected by the
shareholders by plurality vote at each annual meeting of shareholders, except
as hereinafter provided, and each director so elected shall hold office until
his successor has been duly elected and qualified.
Section III.4. Vacancies and Newly-Created Directorships.
Section III.4.1. Vacancies. Any vacancy occurring in the
Board may be filled in accordance with subsection 3.4.3 or may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office.
Section III.4.2. Newly-Created Directorships. A directorship
to be filled by reason of an increase in the number of directors may be filled
in accordance with subsection 3.4.3 or may be filled by the Board for a term of
office continuing only until the next election of one or more directors by the
shareholders; provided that the Board may not fill more than two such
directorships during the period between any two successive annual meetings of
shareholders.
Section III.4.3. Election by Shareholders. Any vacancy
occurring in the Board or any directorship to be filled by reason of an
increase in the number of directors may be filled by election at an annual or
special meeting of shareholders called for that purpose.
Section III.5. Removal. Unless otherwise restricted by law, the
articles of incorporation or these Bylaws, any director or the entire Board may
be removed, with or without cause, by a majority vote of the shares then
entitled to vote at an election of directors, if notice of the intention to act
upon such matter shall have been given in the notice calling such meeting.
Section III.6. Compensation. Unless otherwise restricted by the
articles of incorporation or these Bylaws, the Board shall have the authority
to fix the compensation of directors. The directors may be reimbursed for
their expenses, if any, of attendance at each meeting of the Board and may be
paid either a fixed sum for attendance at each meeting of the Board or a stated
salary as director. No such payment shall preclude any director from serving
the Company in any other capacity and receiving compensation therefor. Members
of committees of the Board may be allowed like compensation for attending
committee meetings.
3
<PAGE> 8
ARTICLE IV.
BOARD MEETINGS
Section IV.1. Annual Meetings. The Board shall meet as soon as
practicable after the adjournment of each annual shareholders' meeting at the
place of such shareholders' meeting. No notice to the directors shall be
necessary to legally convene this meeting, provided a quorum is present.
Section IV.2. Regular Meetings. Regularly scheduled, periodic
meetings of the Board may be held without notice at such times and places as
shall from time to time be determined by resolution of the Board and
communicated to all directors.
Section IV.3. Special Meetings. Special meetings of the Board (i)
may be called by the chairman of the board or president and (ii) shall be
called by the president or secretary on the written request of two directors or
the sole director, as the case may be. Notice of each special meeting of the
Board shall be given, either personally or as hereinafter provided, to each
director at least (i) twenty-four (24) hours before the meeting if such notice
is delivered personally or by means of telephone, telegram, telex or facsimile
transmission delivery; (ii) two days before the meeting if such notice is
delivered by a recognized express delivery service; and (iii) three days before
the meeting if such notice is delivered through the United States mail. Any
and all business may be transacted at a special meeting which may be transacted
at a regular meeting of the Board. Except as may be otherwise expressly
provided by law, the articles of incorporation or these Bylaws, neither the
business to be transacted at, nor the purpose of, any special meeting need be
specified in the notice or waiver of notice of such meeting.
Section IV.4. Quorum, Required Vote. A majority of the directors
shall constitute a quorum for the transaction of business at any meeting of the
Board, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, except as may be
otherwise specifically provided by law, the articles of incorporation or these
Bylaws. If a quorum shall not be present at any meeting, a majority of the
directors present may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present.
Section IV.5. Consent In Lieu of Meeting. Unless otherwise
restricted by the articles of incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board or any committee
thereof may be taken without a meeting, if a consent in writing, setting forth
the action so taken, is signed by all the members of the Board or committee, as
the case may be. Such signed consent shall have the same force and effect as a
unanimous vote at a meeting and shall be filed with the minutes of proceedings
of the Board or committee.
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ARTICLE V.
COMMITTEES OF DIRECTORS
Section V.1. Establishment; Standing Committees. The Board may by
resolution establish, name or dissolve one or more committees, each committee
to consist of one or more of the directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required.
Section 5.1.1. Finance Committee. The Finance Committee shall, from
time to time, meet to review the Company's consolidated operating and financial
affairs, both with respect to the Company and all of its subsidiaries, and to
report its findings and recommendations to the Board for final action. The
Finance Committee shall not be empowered to approve any corporate action, of
whatever kind or nature, and the recommendations of the Finance Committee shall
not be binding on the Board, except when, pursuant to the provisions of Section
5.2 of these Bylaws, such power and authority have been specifically delegated
to such committee by the Board of resolution. In addition to the foregoing,
the specific duties of the Finance Committee shall be determined by the Board
by resolution.
Section 5.1.2. Audit Committee. The Audit Committee shall, from time
to time, but no less than two times per year, meet to review and monitor the
financial and cost accounting practices and procedures of the Company, and to
report its findings and recommendations to the Board for final action. The
Audit Committee shall not be empowered to approve any corporate action, of
whatever kind or nature, and the recommendations of the Audit Committee shall
not be binding on the Board, except when, pursuant to the provisions of Section
5.2 of these Bylaws, such power and authority have been specifically delegated
to such committee by the Board by resolution. In addition to the foregoing,
the specific duties of the Audit Committee shall be determined by the Board by
resolution.
Section 5.1.3. Compensation Committee. The Compensation Committee
shall, from time to time, meet to review the various compensation plans,
policies and practices of the Company, and to report its findings and
recommendations to the Board for final action. The Compensation Committee
shall not be empowered to approve any corporate action, of whatever kind or
nature, and the recommendations of the Compensation Committee shall not be
binding on the Board, except when, pursuant to the provisions of Section 5.2 of
these Bylaws, such power and authority have been specifically delegated to such
committee by the Board by resolution. In addition to the foregoing, the
specific duties of the Compensation Committee shall be determined by the Board
by resolution.
Section V.2. Available Powers. Any committee established pursuant
to Section 5.1 of these Bylaws, including the Finance Committee, the Audit
Committee and the Compensation Committee, but only to the extent provided in
the resolution of the Board establishing such committee or otherwise delegating
specific power and authority to such committee and as limited by law, the
articles of incorporation and these Bylaws, shall have and may exercise all the
powers and authority of the Board in the management of the business and affairs
of the Company, and may authorize the seal of the Company to be affixed to all
papers which may require it.
Section V.3. Alternate Members. The Board may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee.
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Section V.4. Procedures. Time, place and notice, if any, of
meetings of a committee shall be determined by the members of such committee.
At meetings of a committee, a majority of the number of members designated by
the Board shall constitute a quorum for the transaction of business. The act
of a majority of the members present at any meeting at which a quorum is
present shall be the act of the committee, except as otherwise specifically
provided by law, the articles of incorporation or these Bylaws. If a quorum is
not present at a meeting of a committee, the members present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present.
ARTICLE VI.
OFFICERS
Section VI.1. Elected Officers. The Board shall elect a Chairman
of the Board, president and a secretary (collectively, the "Required Officers")
having the respective duties enumerated below and may elect such other officers
having the titles and duties set forth below which are not reserved for the
Required Officers or such other titles and duties as the Board may by
resolution from time to time establish:
Section VI.1.1. Chairman of the Board. The chairman of the
board, or in his absence, the president, shall preside when present at all
meetings of the shareholders and the Board. The chairman of the board shall be
the chief executive officer of the Company and shall advise and counsel the
president and other officers and shall exercise such powers and perform such
duties as shall be assigned to or required of him from time to time by the
Board or these Bylaws. The chairman of the board may execute bonds, mortgages
and other contracts requiring a seal under the seal of the Company, except
where required by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board to some
other officer or agent of the Company. The chairman of the board may delegate
all or any of his powers or duties to the president, if and to the extent
deemed by the chairman of the board to be desirable or appropriate.
Section VI.1.2. President. The president shall be the chief
operating officer of the Company, shall have general and active management of
the business and affairs of the Company and shall see that all orders and
resolutions of the Board are carried into effect. In the absence of the
chairman of the board or in the event of his inability or refusal to act, the
president shall perform the duties and exercise the powers of the chairman of
the board.
Section VI.1.3. Vice Presidents. In the absence of the
president or in the event of his inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated by the Board, or in the absence of any
designation, then in the order of their election or appointment) shall perform
the duties of the president, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the president. The vice presidents
shall perform such other duties and have such other powers as the Board may
from time to time prescribe.
Section VI.1.4. Secretary. The secretary shall attend all
meetings of the shareholders, the Board and (as required) committees of the
Board and shall record all the proceedings of such meetings in minute books to
be kept for that purpose. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board and shall
perform such other duties as may be prescribed by the Board or the president.
He shall have custody of the corporate seal of the Company and he, or an
assistant secretary, shall have authority
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to affix the same to any instrument requiring it, and when so affixed, it may
be attested by his signature or by the signature of such assistant secretary.
The Board may give general authority to any other officer to affix the seal of
the Company and to attest the affixing thereof by his signature.
Section VI.1.5. Assistant Secretaries. The assistant
secretary, or if there be more than one, the assistant secretaries in the order
determined by the Board (or if there be no such determination, then in the
order of their election or appointment) shall, in the absence of the secretary
or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the Board may from time to time prescribe.
Section VI.1.6. Treasurer. Unless the Board by resolution
otherwise provides, the treasurer shall be the chief accounting and financial
officer of the Company. The Treasurer shall have the custody of the corporate
funds and securities, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall deposit all moneys
and other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the Board. He shall disburse the funds
of the Company as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the president and the Board, at its regular
meetings, or when the Board so requires, an account of all his transactions as
treasurer and of the financial condition of the Company.
Section VI.1.7. Assistant Treasurers. The assistant
treasurer, or if there shall be more than one, the assistant treasurers in the
order determined by the Board (or if there be no such determination, then in
the order of their election or appointment) shall, in the absence of the
treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
Section VI.1.8. Divisional Officers. Each division of the
Company, if any, may have a president, secretary, treasurer or controller and
one or more vice presidents, assistant secretaries, assistant treasurers and
other assistant officers. Any number of such offices may be held by the same
person. Such divisional officers will be appointed by, report to and serve at
the pleasure of the Board and such other officers that the Board may place in
authority over them. The officers of each division shall have such authority
with respect to the business and affairs of that division as may be granted
from time to time by the Board, and in the regular course of business of such
division may sign contracts and other documents in the name of the division
where so authorized; provided that in no case and under no circumstances shall
an officer of one division have authority to bind any other division of the
Company except as necessary in the pursuit of the normal and usual business of
the division of which he is an officer.
Section VI.2. Election. All elected officers shall serve until
their successors are duly elected and qualified or until their earlier death,
disqualification, retirement, resignation or removal from office.
Section VI.3. Appointed Officers. The Board may also appoint or
delegate the power to appoint such other officers, assistant officers and
agents, and may also remove such officers and agents or delegate the power to
remove same, as it shall from time to time deem necessary, and the titles and
duties of such appointed officers may be as described in Section 6.1 for
elected officers; provided that the officers and any officer possessing
authority over or responsibility for any functions of the Board shall be
elected officers.
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Section VI.4. Multiple Officeholders, Shareholder and Director
Officers. Any number of offices may be held by the same person, unless the
articles of incorporation or these Bylaws otherwise provide. Officers need not
be shareholders or residents of the State of Texas. Officers, such as the
chairman of the board, possessing authority over or responsibility for any
function of the Board must be directors.
Section VI.5. Compensation, Vacancies. The compensation of elected
officers shall be set by the Board. The Board shall also fill any vacancy in
an elected office. The compensation of appointed officers and the filling of
vacancies in appointed offices may be delegated by the Board to the same extent
as permitted by these Bylaws for the initial filling of such offices.
Section VI.6. Additional Powers and Duties. In addition to the
foregoing especially enumerated powers and duties, the several elected and
appointed officers of the Company shall perform such other duties and exercise
such further powers as may be provided by law, the articles of incorporation or
these Bylaws or as the Board may from time to time determine or as may be
assigned to them by any competent committee or superior officer.
Section VI.7. Removal. Any officer or agent or member of a
committee elected or appointed by the Board may be removed by the Board
whenever in its judgment the best interest of the Company will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
or member of a committee shall not of itself create contract rights.
ARTICLE VII.
SHARE CERTIFICATES
Section VII.1. Entitlement to Certificates. Every holder of the
capital stock of the Company, unless and to the extent the Board by resolution
provides that any or all classes or series of stock shall be uncertificated,
shall be entitled to have a certificate, in such form as is approved by the
Board and conforms with applicable law, certifying the number of shares owned
by him. Each certificate representing shares shall state upon the face
thereof:
(1) that the corporation is organized under the laws of the State
of Texas;
(2) the name of the person to whom issued;
(3) the number and class of shares and the designation of the
series, if any, which such certificate represents; and
(4) the par value of each share represented by such certificate,
or a statement that the shares are without par value.
Section VII.2. Multiple Classes of Stock; Preemptive Rights. In the
event the Company shall be authorized to issue shares of more than one class,
each certificate representing shares issued by the Company (1) shall
conspicuously set forth on the face or back of the certificate a full statement
of (a) all of the designations, preferences, limitations and relative rights of
the shares of each class authorized to be issued and, (b) if the Company is
authorized to issue shares of any preferred or special class in series, the
variations in the relative rights and preferences of the shares of each such
series to the extent they have been fixed and determined and the authority of
the Board to fix and determine the relative rights and preferences of
subsequent series; or (2) shall conspicuously state on the face or back of the
certificate that (a) such a statement is set forth in the
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articles of incorporation on file in the office of the Secretary of State of
the State of Texas and (b) the Company will furnish a copy of such statement to
the record holder of the certificate without charge on written request to the
Company at its principal place of business or registered office. In the event
the Company has by its articles of incorporation limited or denied the
preemptive right of shareholders to acquire unissued or treasury shares of the
Company, each certificate representing shares issued by the Company (1) shall
conspicuously set forth on the face or back of the certificate a full statement
of the limitation or denial of preemptive rights contained in the articles of
incorporation, or (2) shall conspicuously state on the face or back of the
certificate that (a) such a statement is set forth in the articles of
incorporation on file in the office of the Secretary of State of the State of
Texas and (b) the Company will furnish a copy of such statement to the record
holder of the certificate without charge on request to the Company at its
principal place of business or registered office.
Section VII.3. Signatures. Each certificate representing capital
stock of the Company shall be signed by or in the name of the Company by (1)
the chairman of the board, the president or a vice president; and (2) the
treasurer, an assistant treasurer, the secretary or an assistant secretary of
the Company. The signatures of the officers of the Company may be facsimiles.
In case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to hold such office before such
certificate is issued, it may be issued by the Company with the same effect as
if he held such office on the date of issue.
Section VII.4. Issuance and Payment. Subject to any provision of
the Constitution of the State of Texas to the contrary, the Board may authorize
shares to be issued for consideration consisting of any tangible or intangible
benefit to the Company, including, cash, promissory notes, services performed,
contracts for services to be performed, or other securities of the Company.
Shares may not be issued until the full amount of the consideration, fixed as
provided by law, has been paid. When such consideration shall have been paid
to the Company or to a corporation of which all the outstanding shares of each
class are owned by the Company, the shares shall be deemed to have been issued
and the subscriber or shareholder entitled to receive such issue shall be a
shareholder with respect to such shares, and the shares shall be considered
fully paid and non-assessable. In the absence of fraud in the transaction, the
judgment of the Board or the shareholders, as the case may be, as to the value
of the consideration received for shares shall be conclusive.
Section VII.5. Lost Certificates. The Board may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Company a bond in such sum as it may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section VII.6. Transfer of Stock. Upon surrender to the Company or
its transfer agent, if any, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer and of the payment of all taxes applicable to the transfer of said
shares, the Company shall be obligated to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books; provided, however, that the Company shall not be so obligated unless
such transfer was made in compliance with applicable state and federal
securities laws.
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Section VII.7. Registered Shareholders. The Company shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, vote and be held liable for calls
and assessments and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any person other
than such registered owner, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VIII.
INDEMNIFICATION
Section VIII.1. Definitions. For purposes of this Article VIII:
(1) "Corporation" includes any domestic or foreign predecessor
entity of the Company in a merger, consolidation, or other
transaction in which the liabilities of the predecessor are
transferred to the Company by operation of law and in any
other transaction in which the Company assumes the liabilities
of the predecessor but does not specifically exclude
liabilities that are the subject matter of this article;
(2) "Director" means any person who is or was a director of the
Company and any person who, while a director of the Company,
is or was serving at the request of the Company as a director,
officer, partner, venturer, proprietor, trustee, employee,
agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise;
(3) "Expenses" include court costs and attorneys' fees;
(4) "Official capacity" means
(i) when used with respect to a Director, the office of
Director in the Company, but does not include service
for any other foreign or domestic corporation or any
partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or other enterprise;
(ii) when used with respect to a person other than a
Director, the elective or appointive office in the
Company held by the officer or the employment or
agency relationship undertaken by the employee or
agent on behalf of the Company, but does not include
service for any other foreign or domestic corporation
or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or
other enterprise; and
(5) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigation that could
lead to such an action, suit, or proceeding.
Section VIII.2. Mandatory Indemnification. The Company shall indemnify
a person who was, is, or is threatened to be made a named defendant or
respondent in a proceeding because the person is or was a Director only if it
is determined in accordance with Section 8.6 of this Article VIII that the
person:
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(1) conducted himself in good faith;
(2) reasonably believed:
(i) in the case of conduct in his official capacity as a Director of
the Company, that his conduct was in the Company's best
interests; and
(ii) in all other cases, that his conduct was at least not opposed to
the Company's best interests; and
(3) in the case of any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful.
Section VIII.3. Prohibited Indemnification. Except to the extent
permitted by Section 8.5 of this Article VIII, a Director may not be
indemnified under Section 8.2 of this Article VIII in respect of a proceeding:
(1) in which the person is found liable on the basis that personal benefit
was improperly received by him, whether or not the benefit resulted from
an action taken in the person's official capacity; or
(2) in which the person is found liable to the Company.
Section VIII.4. Termination of Proceedings. The termination of a
proceeding by judgment, order, settlement, or conviction, or on a plea of nolo
contendere or its equivalent is not of itself determinative that the person did
not meet the requirements set forth in Section 8.2 of this Article VIII. A
person shall be deemed to have been found liable in respect of any claim, issue
or matter only after the person shall have been so adjudged by a court of
competent jurisdiction after exhaustion of all appeals therefrom.
Section VIII.5. Judgments, Expenses, etc. A person may be indemnified
under Section 8.2 of this Article VIII against judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person in connection with the proceeding; but if the person is
found liable to the Company or is found liable on the basis that personal
benefit was improperly received by the person, the indemnification (1) is
limited to reasonable expenses actually incurred by the person in connection
with the proceeding and (2) shall not be made in respect of any proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Company.
Section VIII.6. Determination of Indemnification. A determination of
indemnification under Section 8.2 of this Article VIII must be made:
(1) a majority vote of a quorum consisting of directors who at the time
of the vote are not named defendants or respondents in the proceeding;
(2) if such a quorum cannot be obtained, by a majority vote of a committee
of the Board, designated to act in the matter by a majority vote of all
directors, consisting solely of two or more directors who at the time
of the vote are not named defendants or respondents in the proceeding;
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(3) by special legal counsel selected by the Board or a committee thereof by
vote as set forth in subsection (1) or (2) of this Section 8.6, or, if
such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all Directors; or
(4) by the shareholders of the Company in a vote that excludes the shares
held by Directors who are named defendants or respondents in the
proceeding.
Section VIII.7. Determination of Reasonableness of Expenses.
Determination as to reasonableness of expenses must be made in the same manner
as the determination that indemnification is permissible, except that if the
determination that indemnification is permissible is made by special legal
counsel, determination as to reasonableness of expenses must be made in the
manner specified by subsection (3) of Section 8.6 of this Article VIII for the
selection of special legal counsel.
Section VIII.8. Indemnification Against Reasonable Expenses. The
Company shall indemnify a Director against reasonable expenses incurred by him
in connection with a proceeding in which he is a named defendant or respondent
because he is or was a Director if he has been wholly successful, on the merits
or otherwise, in the defense of the proceeding.
Section VIII.9. Payments in Advance of Disposition. Reasonable
expenses incurred by a Director who was, is, or is threatened to be made a
named defendant or respondent in a proceeding shall be paid or reimbursed by
the Company, in advance of the final disposition of the proceeding and without
any of the determinations specified in Sections 8.6 and 8.7 of this Article
VIII, after the Company receives a written affirmation by the Director of his
good faith belief that he has met the standard of conduct necessary for
indemnification under this Article VIII and a written undertaking by or on
behalf of the Director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met those requirements.
Section VIII.10. Written Undertaking. The written undertaking
required by Section 8.9 of this Article VIII must be an unlimited general
obligation of the Director but need not be secured. It may be accepted without
reference to financial ability to make repayment.
Section VIII.11. Consistency with Articles of Incorporation.
Any provision for the Company to indemnify or to advance expenses to a Director
who was, is, or is threatened to be made a named defendant or respondent in a
proceeding, whether contained in the articles of incorporation, these Bylaws, a
resolution of shareholders or Directors, an agreement, or otherwise, except in
accordance with Section 8.16 of this Article VIII, is valid only to the extent
it is consistent with this Article VIII as limited by the articles of
incorporation, if such a limitation exists.
Section VIII.12. Other Expenses. Notwithstanding any other
provision of this Article VIII, the Company may pay or reimburse expenses
incurred by a Director in connection with his appearance as a witness or other
participation in a proceeding at a time when he is not a named defendant or
respondent in the proceeding.
Section VIII.13. Officers, Employees and Agents. An officer,
employee or agent of the Company shall be indemnified as, and to the same
extent, provided by Section 8.8 of this Article VIII for a Director and is
entitled to seek indemnification under such section to the same extent as a
Director. The Company shall advance expenses to an officer and may advance
expenses to an employee or agent of the Company to the same extent that it
shall advance expenses to Directors under this Article VIII.
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Section VIII.14. Other Capacities. A corporation may indemnify
and advance expenses to persons who are not or were not officers, employees, or
agents of the Company, but who are or were serving at the request of the
Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise to the same extent that it shall indemnify and
advance expenses to Directors under this Article VIII.
Section VIII.15. Further Indemnification. The Company may
indemnify and advance expenses to an officer, employee, agent, or person
identified in Section 8.14 of this Article VIII and who is not a Director to
such further extent, consistent with law, as may be provided by the articles of
incorporation, these Bylaws, general or specific action of the Board, or
contract or as permitted or required by common law.
Section VIII.16. Insurance. The Company may purchase and
maintain insurance or another arrangement on behalf of any person who is or was
a Director, officer, employee, or agent of the Company or who is or was serving
at the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or other enterprise, against any liability
asserted against him and incurred by him in such a capacity or arising out of
his status as such a person, whether or not the Company would have the power to
indemnify him against that liability under this Article VIII. If the insurance
or other arrangement is with a person or entity that is not regularly engaged
in the business of providing insurance coverage, the insurance or arrangement
may provide for payment of a liability with respect to which the Company would
not have the power to indemnify the person only if including coverage for the
additional liability has been approved by the shareholders of the Company.
Without limiting the power of the Company to procure or maintain any kind of
insurance or other arrangement, the Company may, for the benefit of persons
indemnified by the Company, (1) create a trust fund; (2) establish any form of
self-insurance; (3) secure its indemnity obligation by grant of a security
interest or other lien on the assets of the Company; or (4) establish a letter
of credit, guaranty, or surety arrangement. The insurance or other arrangement
may be procured, maintained, or established within the Company or with any
insurer or other person deemed appropriate by the Board regardless of whether
all or part of the stock or other securities of the insurer or other person are
owned in whole or part by the Company. In the absence of fraud, the judgment
of the Board as to the terms and conditions of the insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive and the insurance or arrangement shall not be
voidable and shall not subject the Directors approving the insurance or
arrangement to liability, on any ground, regardless of whether Directors
participating in the approval are beneficiaries of the insurance or
arrangement.
Section VIII.17. Report To Shareholders. Any indemnification of
or advance of expenses to a Director in accordance with this Article VIII shall
be reported in writing to the shareholders with or before the notice or waiver
of notice of the next shareholders' meeting or with or before the next
submission to shareholders of a consent to action without a meeting pursuant to
Section A, Article 9.10, of the Texas Business Corporation Act and, in any
case, within the 12-month period immediately following the date of the
indemnification or advance.
Section VIII.18. Employee Benefit Plans. For purposes of this
Article VIII, the Company is deemed to have requested a Director to serve in
capacity in connection with an employee benefit plan whenever the performance
by him of his duties to the Company also imposes duties on or otherwise
involves services by him to the plan or participants or beneficiaries of the
plan. Excise taxes assessed on a Director with respect to an employee benefit
plan pursuant to
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<PAGE> 18
applicable law are deemed fines. Action taken or omitted by him with respect
to an employee benefit plan in the performance of his duties for a purpose
reasonably believed by him to be in the interest of the participants and
beneficiaries of the plan is deemed to be for a purpose which is not opposed to
the best interests of the Company.
Section VIII.19. Change in Governing Law. In the event of any
amendment or addition to Article 2.02-1 of the Texas Business Corporation Act
or the addition of any other section to such law which shall limit
indemnification rights thereunder, the Company shall, to the extent permitted
by the Texas Business Corporation Act, indemnify to the fullest extent
authorized or permitted hereunder, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Company), by reason of the fact
that he is or was a Director, officer, employee or agent of the Company or is
or was serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against all
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses (including attorneys' fees and court costs) actually
and reasonably incurred by him in connection with such action, suit or
proceeding.
ARTICLE IX.
INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
Section IX.1. Validity; Disclosure; Approval. No contract or
transaction between the Company and one or more of its directors or officers,
or between the Company and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for this reason, solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if:
(1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the shareholders; or
(3) the contract or transaction is fair as to the Company
as of the time it is authorized, approved, or ratified by the Board, a
committee thereof, or the shareholders.
Section IX.2. Quorum. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board or by a
committee which authorizes the contract or transaction.
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Section IX.3. Nonexclusive. This Article IX shall not be construed
to invalidate any contract or transaction which would be valid in the absence
of this Article IX.
ARTICLE X.
MISCELLANEOUS
Section X.1. Place of Meetings. All shareholders, directors and
committee meetings shall be held at such place or places, within or without the
State of Texas, as shall be designated from time to time by the Board or such
committee and stated in the notices thereof. If no such place is so
designated, said meetings shall be held at the principal business office of the
Company.
Section X.2. Fixing Record Dates.
(a) In order that the Company may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, to receive payment of any dividend or other
distribution or allotment of any rights, to exercise any rights in respect of
any change, conversion or exchange of stock or to effect any other lawful
action, or to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
may fix, in advance, a record date for any such determination of shareholders,
which shall not be more than sixty (60) nor less than ten (10) days prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. In the absence of any action by the Board, the
date on which a notice of meeting is given, or the date the Board adopts the
resolution declaring a dividend or other distribution or allotment or approving
any change, conversion or exchange, as the case may be, shall be the record
date. A record date validly fixed for any meeting of shareholders and the
determination of shareholders entitled to vote at such meeting shall be valid
for any adjournment of said meeting except where such determination has been
made through the closing of stock transfer books and the stated period of
closing has expired.
(b) In order that the Company may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which date shall not be more than ten (10) days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is otherwise required, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company by delivery to its registered
office in the State of Texas, its principal place of business, or an officer or
agent of the Company having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Company's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board and prior
action by the Board is required, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be
at the close of business on the day on which the Board adopts the resolution
taking such prior action.
Section X.3. Waiver of Notice. Whenever any notice is required to be
given under law, the articles of incorporation or these Bylaws, a written
waiver of such notice, signed before or after the date of such meeting by the
person or persons entitled to said notice, shall be deemed equivalent to such
required notice. All such waivers shall be filed with the corporate records.
Attendance at a
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<PAGE> 20
meeting shall constitute a waiver of notice of such meeting, except where a
person attends for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section X.4. Attendance via Communications Equipment. Unless
otherwise restricted by law, the articles of incorporation or these Bylaws,
members of the Board, members of any committee thereof or the shareholders may
hold a meeting by means of conference telephone or other communications
equipment by means of which all persons participating in the meeting can
effectively communicate with each other. Such participation in a meeting shall
constitute presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section X.5. Dividends. Dividends on the capital stock of the
Company, paid in cash, property, or securities of the Company, or any
combination thereof, and as may be limited by applicable law and applicable
provisions of the articles of incorporation (if any), may be declared by the
Board at any regular or special meeting.
Section X.6. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Company available for dividends such sum or
sums as the Board from time to time, in its absolute discretion, thinks proper
as a reserve or reserves to meet contingencies, for equalizing dividends, for
repairing or maintaining any property of the Company, or for such other purpose
as the Board shall determine to be in the best interest of the Company; and the
Board may modify or abolish any such reserve in the manner in which it was
created.
Section X.7. Reports to Shareholders. The Board shall present at
each annual meeting of shareholders, and at any special meeting of shareholders
when called for by vote of the shareholders, a statement of the business and
condition of the Company.
Section X.8. Contracts and Negotiable Instruments. Except as
otherwise provided by law or these Bylaws, any contract or other instrument
relative to the business of the Company may be executed and delivered in the
name of the Company and on its behalf by the chairman of the board, the
president or any vice president; and the Board may authorize any other officer
or agent of the Company to enter into any contract or execute and deliver any
contract in the name and on behalf of the Company, and such authority may be
general or confined to specific instances as the Board may by resolution
determine. All bills, notes, checks or other instruments for the payment of
money shall be signed or countersigned by such officer, officers, agent or
agents and in such manner as are permitted by these Bylaws and/or as, from time
to time, may be prescribed by resolution (whether general or special) of the
Board. Unless authorized so to do by these Bylaws or by the Board, no officer,
agent or employee shall have any power or authority to bind the Company by any
contract or engagement, or to pledge its credit, or to render it liable
pecuniarily for any purpose or to any amount.
Section X.9. Fiscal Year. The fiscal year of the Company shall be
fixed by resolution of the Board.
Section X.10. Seal. The seal of the Company shall be in such form as
shall from time to time be adopted by the Board. The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or otherwise
reproduced.
16
<PAGE> 21
Section X.11. Books and Records. The Company shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, Board and committees and shall keep at its registered
office or principal place of business, or at the office of its transfer agent
or registrar, a record of its shareholders, giving the names and addresses of
all shareholders and the number and class of the shares held by each.
Section X.12. Resignation. Any director, committee member, officer or
agent may resign by giving written notice to the chairman of the board, the
president or the secretary. The resignation shall take effect at the time
specified therein, or immediately if no time is specified. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section X.13. Surety Bonds. Such officers and agents of the Company
(if any) as the chairman of the board, the president or the Board may direct,
from time to time, shall be bonded for the faithful performance of their duties
and for the restoration to the Company, in case of their death, resignation,
retirement, disqualification or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in their possession or
under their control belonging to the Company, in such amounts and by such
surety companies as the chairman of the board, the president or the Board may
determine. The premiums on such bonds shall be paid by the Company and the
bonds so furnished shall be in the custody of the Secretary.
Section X.14. Proxies in Respect of Securities of Other Corporations.
The chairman of the board, the president, any vice president or the secretary
may from time to time appoint an attorney or attorneys or an agent or agents
for the Company to exercise, in the name and on behalf of the Company, the
powers and rights which the Company may have as the holder of stock or other
securities in any other corporation to vote or consent in respect of such stock
or other securities, and the chairman of the board, the president, any vice
president or the secretary may instruct the person or persons so appointed as
to the manner of exercising such powers and rights; and the chairman of the
board, the president, any vice president or the secretary may execute or cause
to be executed, in the name and on behalf of the Company and under its
corporate seal or otherwise, all such written proxies or other instruments as
he may deem necessary or proper in order that the Company may exercise such
powers and rights.
Section X.15. Amendments. These Bylaws may be altered, amended,
repealed or replaced by the shareholders, or by the Board when such power is
conferred upon the Board by the articles of incorporation, at any annual
shareholders meeting or annual or regular meeting of the Board, or at any
special meeting of the shareholders or of the Board if notice of such
alteration, amendment, repeal or replacement is contained in the notice of such
special meeting. If the power to adopt, amend, repeal or replace these Bylaws
is conferred upon the Board by the articles of incorporation, the power of the
shareholders to so adopt, amend, repeal or replace these Bylaws shall not be
divested or limited thereby.
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<PAGE> 22
FIRST AMENDMENT TO THE
BYLAWS
OF
MILLERS INTEGRATED CLAIMS RESOURCES, INC.
ARTICLE VI-OFFICERS
A. Section 6.1.1 of the Bylaws is hereby amended and restated in its
entirety to read as follows:
Section 6.1.1. Chairman of the Board. The chairman of the
board, or in his absence, the president, shall preside when present at all
meetings of the shareholders and the Board. The chairman of the board shall
advise and counsel the president and other officers and shall exercise such
powers and perform such duties as shall be assigned to or required of him from
time to time by the Board or these Bylaws. The chairman of the board may
execute bonds, mortgages and other contracts requiring a seal under the seal of
the company, except where required by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board to some other officer or agent of the Company. The chairman of
the board may delegate all or any of his powers or duties to the president, if
and to the extent deemed by the chairman of the board to be desirable or
appropriate.
B. Section 6.1.2. of the Bylaws is hereby amended and restated in its
entirety to read as follows:
Section 6.1.2. President. The president shall be the chief
executive officer of the Company, shall have general and active management of
the business and affairs of the Company and shall see that all orders and
resolutions of the Board are carried into effect. In the absence of the
chairman of the board or in the event of his inability or refusal to act, the
president shall perform the duties and exercise the powers of the chairman of
the board.
CERTIFICATION
I, the undersigned officer, hereby certify that the foregoing
amendments to the Bylaws of Millers Integrated Claims Resources, Inc. were
adopted by the Board of Directors of Millers Integrated Claims Resources, Inc.,
by unanimous consent decree dated March 12, 1996, to certify which witness my
hand and seal of office this 12th day of March, 1996.
/s/ JAMES E. SMITH, JR.
---------------------------------------
James E. Smith, Secretary
<PAGE> 23
SECOND AMENDMENT TO THE
BYLAWS
OF
MILIRISK, INC.
F/K/A
MILLERS INTEGRATED CLAIMS RESOURCES, INC.
ARTICLE III
DIRECTORS
A. Section 3.2 of the Bylaws is hereby amended and restated in its
entirety to read as follows:
Section 3.2. Number. The number of directors constituting
the Board shall be fixed from time to time by resolution of the Board,
but shall not be more than nine nor less than two. Until otherwise
fixed by resolution of the Board, the number of directors shall be the
number stated in the articles of incorporation.
B. Section 3.3 of the Bylaws is hereby amended and restated in its
entirety to read as follows:
Section 3.3 Election. The directors shall be divided into
three classes as nearly equal in number as possible and one class of
directors shall be elected by plurality vote at each annual meeting of
shareholders to hold office for a three-year term. Each director,
including a director elected to fill a vacancy, shall hold office
until the expiration of the term for which elected and until a
successor has been elected and qualified. No decrease in the number
of directors shall have the effect of shortening the term of any
incumbent director.
<PAGE> 1
EXHIBIT 10.4
AGREEMENT TO LEASE OFFICE SPACE
This Lease is made and entered into by and between Millers Mutual Fire
Insurance Company, a Texas Corporation, referred to in this Lease as Lessor,
and Millers Integrated Claims Resources, Inc., a Texas corporation, referred to
in this Lease as Lessee.
In consideration of the mutual covenants and agreements set forth in this Lease
and other good and valuable consideration, Lessor does hereby convey a
leasehold estate to Lessee, and Lessee does hereby lease from Lessor, office
space located at the Lessor's building at 300 Burnett Street, Fort Worth, Texas
76102. These Premises are referred to in this Lease as the "Premises" or the
"Leased Premises." The Lessor's building is referred to in this Lease as "the
Building.
ARTICLE 1: TERM
Section 1.1. TERM. The term of this Lease shall be 5 years beginning May 1,
1996 and ending April 30, 2001, unless sooner terminated or extended as
provided in this Lease.
Section 1.2. HOLDOVER. If Lessee holds over and continues in possession of the
Leased Premises after expiration of the Lease term, Lessee will be deemed to be
occupying the Premises on the basis of a month-to-month tenancy subject to all
of the terms and conditions of this Lease.
ARTICLE 2: RENT
Section 2.1. RENT. Lessee will pay to Lessor the sum of $25,449 per month, from
the commencement of the term of this Lease and continuing throughout the
original Lease term, in advance on the 15th day of each month. This will be
known as the "Basic Rent".
ARTICLE 3: USE OF PREMISES
Section 3.1. PERMITTED USE. Lessee will use the Leased Premises only for
corporate office purposes, unless Lessor shall give Lessee prior written
consent for a different use.
Section 3.2. INSURANCE HAZARDS. Lessee shall not use, or permit the use of, the
Premises in a manner that will cause a cancellation of, or an increase in, the
existing rates for fire, liability, or other insurance policies insuring the
Premises or any improvement on the Premises, or insuring the Lessor for any
liability in connection with the ownership of the Premises.
Section 3.3. WASTE, NUISANCE, OR ILLEGAL USES. Lessee shall not use, or permit
the use of, the Premises in any manner that results in waste of the Premises or
constitutes a nuisance. Nor shall Lessee use, or permit the use of, the
Premises for any illegal purpose. Lessee at its own expense will comply, and
will cause its officers, employees, agents and invitees to comply, with all
applicable laws and ordinances, and with all applicable rules and regulations
of governmental agencies concerning the use of the Premises.
Section 3.4. USE OF COMMON AREAS. Elevators, stairs, hallways, lobbies, parking
lots, and all other common areas of the Building are for the joint use of
Lessee and the other tenants of the
<PAGE> 2
building. Lessee and its officers, employees, agents and invitees will use such
common areas in a reasonable, orderly, and sanitary manner in cooperation with
all other tenants and their officers, employees, agents, and invitees.
Furthermore, Lessee will conduct itself, and will cause its officers,
employees, agents, and invitees to conduct themselves, with full regard for the
rights, convenience, and welfare of all other tenants in the Building.
ARTICLE 4: SERVICES, MAINTENANCE AND SURRENDER
Section 4.1. SERVICES AND MAINTENANCE BY LESSOR. So long as Lessee is not in
default under the terms of this Lease, Lessor shall furnish the Leased Premises
with the following services and maintenance:
a. Heat and Air Conditioning;
b. Elevator Service;
c. Electricity for lighting and ordinary business appliances;
d. Maintenance of Common Areas in reasonably good order and
condition; and
e. Maintenance of Building Structure including, but not limited
to, the roof, exterior walls (including windows), floors and
foundation.
Section 4.2. MAINTENANCE AND SURRENDER BY LEASE. Except as provided in
Section 4.1, Lessee shall maintain the Leased Premises throughout the Lease
term, and any extensions of that term, and keep them free from waste or
nuisance. At the termination of the Lease, Lessee shall deliver the Premises
in as good a state of repair and condition as they were in at the time Lessor
delivered possession to Lessee, reasonable wear and tear and damage by fire,
tornado, or other casualty accepted. In the event Lessee should neglect to
reasonably maintain the Leased Premises, Lessor shall have the right, but not
the obligation, to cause repairs or corrections to be made, and any reasonable
costs incurred for such repairs or corrections for which Lessee is responsible
shall be payable by Lessee as additional rental on the next rental installment
date.
ARTICLE 5: ALTERATIONS, ADDITIONS, IMPROVEMENTS AND FIXTURES
Section 5.1. CONSENT OF LESSOR. Lessee shall not make any alterations,
additions, or improvements to the Leased Premises without the prior written
consent of Lessor. Consent for nonstructural alterations, additions, or
improvements shall not be unreasonably withheld by Lessor.
Section 5.2. PROPERTY OF LESSOR. Absent a prior written agreement between
Lessor and Lessee, any alterations, additions, or improvements made by Lessee
shall become the property of Lessor at the termination of this Lease; however,
Lessee shall promptly remove, if Lessor so elects, all alterations, additions,
and improvement, and any other property placed in or on the Premises by Lessee,
and Lessee shall repair any damage caused by such removal.
2
<PAGE> 3
ARTICLE 6: DAMAGE OR DESTRUCTION
Section 6.1. NOTICE TO LESSOR. If the Leased Premises, or any structures or
improvements on the Leased Premises, should be damaged or destroyed by fire,
tornado, or other casualty, Lessee shall give immediate written notice of the
damage or destruction to Lessor, including a description of the damage and, as
far as known to Lessee, the cause of damage.
Section 6.2. DESTRUCTION. If the Leased Premises are totally destroyed by fire,
tornado, or other casualty not the fault of Lessee, or if it should be so
damaged by such a cause that rebuilding or repairs cannot reasonably be
completed within 30 working days and at a cost not to exceed $10,000.00, this
Lease shall terminate, and rent shall be abated for the unexpired portion of
this Lease, effective as of the date of written notification as provided in
Section 6.1.
ARTICLE 7: CONDEMNATION
Section 7.1. TOTAL OR PARTIAL CONDEMNATION. If during the term of this Lease,
or any extension or renewal of the Lease, all or less than all of the Leased
Premises should be taken in any manner for any public or quasi-public use, this
Lease shall terminate at the Lessee's option, and the rent shall be abated
during the unexpired portion of this Lease. Such termination of this Lease
shall be effective as of the date of the taking of the Premises by the
condemning authority.
Section 7.2. CONDEMNATION AWARD. Lessor shall receive the entire award from any
condemnation, and Lessee shall have no claim to any portion of the award.
ARTICLE 8: RULES AND REGULATIONS
Lessor reserves the right to implement reasonable rules and regulation for the
purposes of ensuring or enhancing the safety, care, cleanliness, maintenance or
preservation of the Building and related facilities and premises as well as for
preserving good order in and on the Building and its related facilities and
premises. Lessee and Lessee's officers, employees, agents, and invitees will be
bound and comply fully with such rules and regulations upon receipt by Lessee
or written notice from Lessor setting forth the rules and regulations.
ARTICLE 9: INSPECTION BY LESSOR
Lessor and its officers, agents, employees, and representatives shall have the
right to enter into and upon any and all parts of the Leased Premises at all
reasonable hours for purposes of inspections, cleaning, maintenance, repairs,
alterations, or additions as Lessor may deem necessary (but without any
obligation to perform any of these functions except as provided in this Lease),
or to show the Premises to prospective tenants, purchasers, or lenders. Lessee
shall not be entitled to any abatement or reduction of rent by reason of the
entry pursuant to this article, nor shall such entry be deemed an actual or
constructive eviction.
3
<PAGE> 4
ARTICLE 10: PROHIBITION AGAINST MECHANIC'S LIENS
Lessee will not permit any mechanic's lien or other liens to be placed upon the
Leased Premises. If a mechanic's lien is filed on the Leased Premises, Lessee
will promptly pay the lien. Any amounts paid by Lessor to remove a mechanic's
lien caused to be filed against the Premises or against the improvement on the
Premises by Lessee, including expenses and interest, shall be due from Lessee
to Lessor and shall be repaid to Lessor immediately on rendition or notice,
together with interest at 12 percent per annum until repaid.
Article II: INDEMNITY
Lessee agrees to indemnify and hold Lessor harmless against any and all claims,
demands, damages, costs, and expenses arising from the conduct or management of
Lessee's business on the Leased Premises or its use of the Leased Premises,
including reasonable attorney's fees for the defense of such claims and
demands, or from any breach on the part of Lessee of any conditions of the
Lease, or from any act or negligence of Lessee, its officers, agents,
contractors, employees, subtenants, or invitees in or about the Leased
Premises. If an action or proceeding is brought against the Lessor by reason of
any such claim, Lessee upon notice from Lessor agrees to defend the action or
proceeding by counsel acceptable to Lessor. Lessor will not unreasonably
withhold approval of Lessee's counsel.
ARTICLE 12: ASSIGNMENT AND SUBLEASE
Section 12.1. ASSIGNMENT AND SUBLETTING BY LESSEE. Lessee shall not assign or
sublet any part of this Lease or the Leased Premises without the prior written
consent of Lessor.
Section 12.2. ASSIGNMENT BY LESSOR. Lessor is expressly given the right to
assign any or all of its interest under the terms of this Lease.
ARTICLE 13: DEFAULT
Section 13.1. LESSEE'S DEFAULT. The following events shall be deemed to be
events of default by Lessee under this Lease:
a. Lessee fails to pay any installment of the rent due under this
Lease and the failure continues for a period of five days;
b. Lessee fails to comply with any term, provision, or covenant
of the Lease, other than the payment of rent, and does not cure the failure
within 20 days after written notice to Lessee of the failure; or
c. Lessee deserts or vacates any part of the Premises for a
period of five or more days.
Section 13.2. LESSOR'S REMEDIES. Upon the occurrence of any event of default
specified in Section 13.1, Lessor shall have the option to pursue any one or
more of the following remedies:
4
<PAGE> 5
a. Lessor may terminate this Lease, in which event Lessee shall
immediately surrender the Premises to Lessor, and if Lessee fails to do so,
Lessor may, without prejudice to any other remedy that it may have for
possession or arrearages in rent, enter and take possession and expel or remove
Lessee and any other person who may be occupying the Premises or any part of
them, without being liable for prosecution or any claim of damages for such
entrance and expulsion or removal. Lessee agrees to pay Lessor on demand the
amount of all loss and damage that Lessor suffers by reason of such
termination, whether through inability to relet the Premises on satisfactory
terms or otherwise.
b. Lessor may enter and take possession of the Premises and expel
or remove Lessee and any other person who may be occupying the Premises or any
part of them, without being liable for prosecution or any claim for damage for
such entrance and expulsion or removal, relet the Premises on such terms as
Lessor deems advisable, and receive the rent for reletting. Lessee agrees to
pay Lessor on demand any deficiency that may arise by reason of such reletting.
c. Lessor may enter the Premises, without being liable for
prosecution or any claim for damages for such entry, and do whatever Lessee is
obligated to do under the terms of this Lease to correct the default. Lessee
agrees to reimburse Lessor on demand for any expenses that Lessor may incur in
effecting compliance with Lessee's obligations under this Lease in this manner,
and Lessee further agrees that Lessor shall not be liable for any damages
resulting to Lessee from such action.
d. No reentry or taking possession of the Premises by Lessor
shall be construed as an election on its part to terminate this Lease, unless a
written notice of such intention is given to Lessee. Lessor may at any time
thereafter elect to terminate this Lease for a previous default. The loss or
damage that Lessor may suffer by reason of termination of this Lease, or the
deficiency from any reletting as provided for above, shall include the expense
of repossession.
Section 13.3. LESSOR'S LIEN. Lessor shall have, at all times, a valid security
interest to secure payment of all sums of money being due under this Lease from
Lessee upon all personal property of Lessee which is now on the Premises or
which is placed on the Premises at some later date, and all proceeds from them.
Upon the occurrence of an event of default by Lessee, Lessor may, in addition
to any other remedies provided in this Lease or by law, give notice of the
intent to enter upon the Premises at the expiration of 5 working days, take
possession of any personal property of Lessee situated on the Premises, and
sell the same at public or private sale on a date and time certain. The
proceeds from any such disposition, less expenses of sale and reasonable
attorney's fees, shall be applied as a credit against Lessee's indebtedness.
Any surplus shall be paid to Lessee or as otherwise required by law, and Lessee
shall pay any deficiencies immediately. Lessor shall not be held liable for
trespass or conversion for exercising rights under this Section. Furthermore,
the statutory lien for rent is not waived; the security interest granted herein
being in addition, and supplementary, to that lien.
Section 13.4. SURRENDER OF PREMISES. No act or thing done by Lessor or its
agents during the Lease term shall be deemed an acceptance of a surrender of
the premises, and no agreement to accept a surrender of the Premises shall be
valid unless the same is in writing and subscribed by Lessor.
5
<PAGE> 6
ARTICLE 14: MISCELLANEOUS
Section 14.1. MORTGAGES. Lessee accepts this Lease subject to any deeds of
trust, security interests, or mortgages that might now or later constitute a
lien upon the Leased Premises.
Section 14.2. NOTICES AND ADDRESSES. All notices to be given under this
agreement shall be given by certified mail, return receipt requested, addressed
to the proper party, at the address listed below. Either party may change the
address to which notices are to be sent by giving the other party notice of the
new address in the manner provided for in this section.
LESSOR:
Millers Mutual Fire Insurance Company
300 Burnett Street
Fort Worth, Texas 76102
LESSEE:
Millers Integrated Claims Resources, Inc.
300 Burnett Street
Fort Worth, Texas 76102
Section 14.3. PARTIES BOUND. This agreement shall be binding upon, and inure to
the benefit of, the parties to the agreement and their respective heirs,
executors, administrators, legal representatives, successors, and assigns when
permitted by this agreement.
Section 14.4. CHOICE OF LAW AND JURISDICTION. This agreement shall be construed
under, and in accordance with, the laws of the State of Texas, and all
obligations of the parties created by this agreement are performable in Tarrant
County, Texas.
Section 14.5. LEGAL CONSTRUCTION. In case any one or more of the provisions
contained in this agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of the agreement, and
this agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been included in the agreement.
Section 14.6. AMENDMENT. No amendment, modification, or alteration of the terms
of this agreement shall be binding unless the same is in writing, dated
subsequent to the date of this agreement, and duly executed by the parties to
this agreement.
Section 14.7. RIGHTS AND REMEDIES CUMULATIVE. Pursuit of any of the remedies
provided in this Lease or by law shall not preclude pursuit of any other
remedies provided in this Lease or by Law.
Section 14.8. WAIVER OF DEFAULT. Forbearance to enforce one or more of the
remedies provided in this Lease or by law upon an event of default or breach
shall not be deemed or construed to constitute a waiver of such default or
breach.
Section 14.9. ATTORNEY'S FEES AND COSTS. If, as a result of a breach of this
agreement by either party, the other party employs an attorney or attorneys to
enforce its rights under this Lease, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce the Lease.
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<PAGE> 7
Section 14.10. FORCE MAJEURE. Neither Lessor nor Lessee shall be required to
perform any term, condition or covenant in this Lease so long as such
performance is delayed or prevented by force majeure, which shall mean acts of
God, strikes, lockouts, material or labor restriction by any governmental
authority, civil riot, floods, and any other cause not reasonably within the
control of Lessor or Lessee and which by the exercise of due diligence Lessor
or Lessee is unable, wholly or in part, to prevent or overcome.
EXECUTED TO BE EFFECTIVE the 1st day of May, 1996.
MILLERS MUTUAL FIRE INSURANCE COMPANY
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MILLERS INTEGRATED CLAIMS RESOURCES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
7
<PAGE> 1
EXHIBIT 10.6
CLAIMS LIFE CYCLE
SERVICES AGREEMENT
CLARENDON
This Claims Life Cycle Services Agreement ("Agreement") is effective
as of the 15th day of August, 1996 ("Effective Date"), by and between Millers
Integrated Claims Resources, Inc. d/b/a MiliRisk, a Texas corporation with
principal offices at 300 Burnett, Fort Worth, Texas 76102 ("MiliRisk"), and
Blanch Wholesale Insurance Services, Inc. and Blanch Insurance Services, Inc.,
both Texas corporations having their principal place of business at 4300
Centerview Drive, San Antonio, Texas 78228 ("Customer").
Whereas, Customer has entered into a General Agency Agreement (the
"GAA") with Clarendon National Insurance Company ("Clarendon") to administer
certain insurance policies previously issued by Allstate Insurance company
("Allstate");
Whereas, Customer is desirous of MiliRisk providing Claims Life Cycle
Services for which Customer is responsible under the GAA, as set forth in this
Agreement; and
Whereas, MiliRisk wishes to provide such Services for Customer; and
Whereas, the parties hereto wish to reduce their Agreement to writing;
Now, therefore, for and in consideration of the premises set forth
below and other good and valuable consideration, the receipt and sufficiency of
which is expressly acknowledged, Customer and MiliRisk hereby agree as follows:
ARTICLE 1. SERVICES
The "Services" to be performed by MiliRisk are set forth in Exhibit I
to this Agreement.
ARTICLE 2. TERM
2.1 The term of this Agreement shall commence on the Effective
Date and shall have a "Minimum Term" of 36 full calendar
months unless terminated earlier pursuant to the provisions of
this Agreement. The Agreement shall automatically be renewed
and extended after the conclusion of the Minimum Term for an
additional renewal term or terms of 36 months unless
terminated pursuant to the provisions of Article 8.
2.2 The "Implementation Period" shall begin on the Effective Date
of this Agreement and shall end on the date MiliRisk notifies
Customer that MiliRisk is capable of receiving all future
claims on behalf of Customer. During the Implementation
Period, MiliRisk shall prepare an analysis of the lines of
business for inclusion within the terms of this Agreement.
Customer shall assist MiliRisk during such "Implementation
Period" with the gathering of appropriate data, information,
background, and other facts as needed by MiliRisk to enable
MiliRisk to perform the Services enumerated in Exhibit I of
this Agreement.
<PAGE> 2
2.3 Notwithstanding the foregoing provisions relating to the
Minimum Term, and any subsequent renewal terms, should
Customer attempt to terminate or repudiate this Agreement
prior to the end of the Minimum Term without cause provided
for under Sections 8.2 or 8.3, Customer shall pay a
termination fee to MiliRisk within thirty (30) days after the
date it attempts to terminate or repudiate this Agreement. A
termination fee totaling $500,000 shall be due MiliRisk, if
Customer's attempt to terminate or repudiate this Agreement
occurs within the first 3 months of the Minimum Term. If the
attempt to terminate or repudiate this Agreement occurs after
the first 3 months, but before the end of the 6th month, a
termination fee is due MiliRisk in the amount of $400,000. If
the attempt to terminate or repudiate this Agreement occurs
after the 6th month, but before the end of the 12th month, a
termination fee is due MiliRisk in the amount of $300,000. If
the attempt to terminate or repudiate this Agreement occurs
after the 12th month, but before the end of the 24th month, a
termination fee is due MiliRisk in the amount of $250,000. If
the attempt to terminate or repudiate this Agreement occurs
after the 24th month, but before the end of the 36th month, a
termination fee is due MiliRisk in the amount of $200,000. If
the attempt to terminate or repudiate this Agreement occurs
after the 36th month, MiliRisk shall not be entitled to a
termination fee. The termination fees referenced in this
section are in addition to and not in lieu of other
compensation due to MiliRisk under this Agreement.
ARTICLE 3. DUTIES OF MILIRISK
3.1 During the Implementation Period, MiliRisk shall design,
construct, and implement software systems to provide claims
administration, management information, and other related
services all of which are as described in Exhibit I. In
addition, the Implementation Period will be used to assemble
the staff, arrange for furniture and fixtures, and prepare for
the start of business. All procedures required to conduct
business as well as the requisite staff training will occur
during this period.
3.2 MiliRisk shall dedicate the necessary human, equipment and
computer resources to provide and, during the term of this
Agreement, will provide, Customer with the Services enumerated
in Exhibit I of this Agreement for the Lines of Business and
States specified in Exhibit I.
3.3 MiliRisk shall investigate, evaluate, and handle each claim
reported within the established authority for claims as set
forth in Exhibit I attached hereto and made part of the
Agreement.
3.4 MiliRisk will designate an employee to act as liaison with
Customer to facilitate the provision of the Services.
3.5 MiliRisk shall maintain the confidentiality of data or
information which is the property of Customer and/or
Clarendon, and which is directly accessible to MiliRisk in the
implementation and performance of the Services.
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<PAGE> 3
3.6 MiliRisk shall maintain complete, accurate and orderly claims
books, files, records and accounts of all transactions in
accordance with generally accepted insurance and accounting
practices.
3.7 MiliRisk shall maintain permanent copies of all claims and
correspondence related to the claims. MiliRisk shall not
destroy these permanent copies without the written permission
of the Customer for a period of at least five (5) years from
the date of the last file activity, or the period specified by
the applicable state statute regulating preservation of
records, whichever is longer. At the end of such five year
period, upon MiliRisk's written request for instructions, the
Customer shall authorize MiliRisk to either (a) destroy the
closed files or (b) return such files to Clarendon at
Clarendon's expense. Notwithstanding the foregoing, any claim
file involving a minor shall be separately identified and
returned to Clarendon at the end of such five year period.
Claim files shall be the property of both the Customer and
Clarendon. Upon an order of liquidation of Clarendon, the
files shall become the sole property of Clarendon or
Clarendon's estate. MiliRisk may, at its discretion, use
magnetic, optical, and other types of technology to store such
data.
3.8 All claims still open upon termination or cancellation of this
Agreement will require that one of the following to occur:
a. All open claims will be handled on a pre-agreed
annual fee per claim; or
b. All open claims will be handled on a time and expense
basis at then current prevailing rates; or
c. All claims will be returned to Customer, with any
holdover reverting to a time and expense basis at
then current prevailing rates.
MiliRisk will make this determination in its discretion unless
Clarendon has elected to runoff the business itself pursuant
to the GAA.
3.9 MiliRisk acknowledges and agrees that Clarendon, being at risk
and having ultimate responsibility for the claims to be
administered by MiliRisk, shall at all times have ultimate
discretion with respect to all matters pertaining to the
claims.
3.10 MiliRisk will not assume the responsibility for direct
notification to any excess or quota share insurance carrier of
claims; however, reports will be provided as required.
ARTICLE 4. DUTIES OF CUSTOMER
4.1 Customer agrees that all claims occurring during the term of
this Agreement will be reported to MiliRisk, unless otherwise
notified by the Customer and approved by MiliRisk. Customer
will provide all information relevant to claims subject to the
GAA to MiliRisk in order for MiliRisk to fulfill its duties
and obligations as set out in Exhibit I.
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<PAGE> 4
4.2 Customer shall appoint a Project Manager with sufficient
authority within Customer's organization to facilitate
Customer's role as MiliRisk performs the Services enumerated
in Exhibit I of this Agreement.
ARTICLE 5. AUDIT PROVISIONS
5.1 MiliRisk shall maintain records of amounts billable to and
payments made on behalf of Customer. In addition, MiliRisk
shall maintain records of the data utilized to perform the
Services defined in Exhibit I of the Agreement; until five
years following the date of last file activity, or the period
specified by the applicable state statute, whichever is the
later unless such records are earlier returned to Customer.
MiliRisk agrees to provide reasonable supporting documentation
concerning any disputed invoice amount to Customer within 15
days after Customer provides written notification of the
dispute to MiliRisk. Customer and an auditor selected by
Customer shall have access to all such records upon mutually
agreed upon prior notice for the purposes of audit and
verification during normal business hours during the full term
of this Agreement and during the respective periods in which
MiliRisk is required to maintain such records. MiliRisk shall
provide access to its books, records and bank accounts to the
insurance department of the State of Florida in a form usable
by the department.
ARTICLE 6. PRICE AND PAYMENT
6.1 Customer agrees to pay Service Fees and Rates as specified in
Exhibit II hereto.
6.2 Except for Services Fees and Rates which are based upon a
percentage of incurred losses, the Services Fees and Rates in
Exhibit II hereto may be increased effective as of each
anniversary of the Effective Date during the existence of this
Agreement by the percentage change in the United States
Consumer Price Index for all Urban Users (CPI-U) published by
the United States Bureau of Labor Statistics, for the
immediately preceding calendar year. In the event a vendor
supplying any service or product to MiliRisk required for
MiliRisk to provide the Services to Customer increases its
rates charged to MiliRisk, MiliRisk may increase the
contracted rates set forth herein to include such increased
costs.
6.3 The Service Fees and Rates may increase if changes in the
Services mutually agreed to in writing substantially alter the
servicing personnel, equipment, or result in the servicing
being done on a different system.
6.4 When Customer requests MiliRisk personnel to travel to any
location for the purpose of performing work under this
Agreement, the Customer will, in addition to the charges
specified for Services, pay MiliRisk for all reasonable
travel, living and out-of-pocket expenses.
6.5 Customer agrees to pay all tariffs and taxes that are now or
may become applicable to the Services rendered hereunder, any
equipment used by MiliRisk solely for Customer communication
line, its use, lease, operation, control, transportation or
value pursuant to this Agreement, or as measured by payments
made by Customer
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<PAGE> 5
to MiliRisk under this Agreement, or as required to be
collected by MiliRisk or paid by MiliRisk to tax authorities
based on this Agreement. This provision includes but is not
limited to sales, use, and personal property taxes, or any
other form of tax based on Services performed, equipment used,
and the communicating or storage of data, but does not include
taxes based upon the net income of MiliRisk.
6.6 Service Fees and Rates for Services will be due and payable 15
days after the close of a calendar month beginning the
effective date of the first policy issued.
6.7 Customer agrees that MiliRisk will have the right to
renegotiate the Service Fees in the event of statutory,
regulatory, or judicial changes that require additional
activities not contemplated at the inception of this
Agreement.
ARTICLE 7. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS
7.1 Although MiliRisk from time to time may use its own
proprietary computer software products in the performance of
the Services enumerated in Exhibit I of this Agreement, this
Agreement does not grant a license to Customer for the use of
any software products.
7.2 This Agreement grants to Customer no right to possess or
reproduce, or any other interest in, the computer software
programs performing all or any part of the Services or their
specifications in any tangible or intangible medium. Customer
may not mortgage, hypothecate, sell, assign, pledge, lease,
transfer, license or sublicense the computer software programs
performing all or any part of the Services, nor allow any
person, firm, or corporation to transmit, copy or reproduce
the computer software programs performing all or any part of
the Services or their specifications in whole or in part. In
the event Customer shall come into possession of the computer
software programs performing all or any part of the Services,
Customer shall immediately notify MiliRisk and return the
computer software programs performing the Services and all
copies of any kind thereof to MiliRisk upon MiliRisk's
request.
7.3 Customer promises and agrees not to disclose or otherwise make
computer software programs performing all or any part of the
Services available to any person other than employees of
Customer required to have such knowledge for normal use of
them. Customer agrees to obligate each such employee to a
level of care sufficient to protect the computer software
programs performing all or any part of the Services from
unauthorized disclosure. THE OBLIGATION OF CUSTOMER UNDER THIS
ARTICLE SHALL CONTINUE AFTER THIS AGREEMENT IS TERMINATED.
7.4 MiliRisk warrants and represents that it owns, or is licensed
with respect to, all software it will employ in the
performance of this Agreement. In the event this Agreement is
terminated, MiliRisk will grant a license, upon terms and
conditions set forth in a licensing agreement, to Customer
and/or Clarendon to use the software which MiliRisk employs in
the performance of this Agreement to the extent MiliRisk is
not otherwise prohibited from doing so by contract or by
operation of
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<PAGE> 6
law. MiliRisk shall use its best efforts to deliver the
software, as well as all necessary manuals, to the Customer
immediately upon delivery of data to the Customer.
ARTICLE 8. TERMINATION
8.1 Either party may terminate this Agreement without cause at the
expiration of the Minimum Term set forth in Section 2.1,
provided the other party receives at least six (6) months
prior written notice of termination. Termination without cause
during any renewal term would also require six months notice.
8.2 Either party may terminate this Agreement upon breach by the
other party of any one or more of the terms and conditions of
this Agreement or the related Exhibits, provided that the
party in breach is notified in writing by the other party of
the breach and the breach is not cured or a satisfactory
resolution agreed upon in writing within thirty (30) days of
such written notification, or if such breach is non-monetary
and is of such a nature that it cannot reasonably be cured
within such time commenced to cure same and does not
diligently continue to and actually cure same within a
reasonable period thereafter. The terms and conditions of
MiliRisk referred to in this Section 8.2 shall include, but
shall not be limited to:
a. the obligation to observe and comply with applicable
laws, regulations, rules and rates affecting the
transaction of business hereunder; and
b. the obligation to provide any other Services under
this Agreement.
8.3 In the event either party makes a general assignment for the
benefit of creditors or files a voluntary petition in
bankruptcy or petitions for reorganization or arrangement
under the bankruptcy laws, or if a petition in bankruptcy is
filed against either party and remains undismissed for a
period of thirty (30) days, or if a receiver or trustee is
appointed for all or any part of the property and assets of
either party, the other party may terminate the Agreement
immediately.
8.4 This Agreement shall terminate automatically if the GAA is
terminated for any reason other than because of breach by the
Customer. The termination fee described in Section 2.3 still
applies to this situation.
8.5 Rights Upon Termination. Upon expiration or termination of
this Agreement:
a. The obligations of the Customer and MiliRisk to the
date of termination shall be discharged promptly;
b. MiliRisk shall promptly return to ale Customer any
forms or other supplies imprinted with the Customer's
or Clarendon's name, regardless of who incurred the
cost for same.
c. MiliRisk shall, at its sole expense, run off the
in-force business to normal expiration in accordance
with the provisions of this Agreement. The
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<PAGE> 7
Customer, however, may elect to run off the in-force
business itself or through its designee, in which
case it may do so, and if this Agreement is
terminated because of a breach by MiliRisk, MiliRisk
shall nevertheless be liable for all expenses of the
run-off operation; however, if the termination is for
a reason other than as provided in Section 8.2, the
Customer, rather than MiliRisk, shall bear the
expenses of the run off if it elects to run off the
business itself or through its designee. The term
"run off" as used herein shall mean servicing claims
submitted under policies, providing reports as
required by this Agreement, and such other activities
as required of MiliRisk under this Agreement.
d. If MiliRisk is unable, or refuses to run off the
in-force policies, or if the Customer elects to run
off such policies itself or through its designee,
MiliRisk shall promptly provide the Customer, without
charge, with a tape back-up of all data files (the
"Data").
e. In any proceeding brought by the Customer or
Clarendon to recover premiums or return premiums or
other funds due hereunder to Clarendon or insureds
under the policies (hereinafter called "trust
funds"), MiliRisk shall be obligated to account on
its own records for such trust funds and to pay all
sums for which it cannot account. In any such
proceeding it shall be conclusively presumed that
MiliRisk is liable for trust funds which have not
been timely paid, and MiliRisk waives (i) any right
it may have to assert any counterclaim, crossclaim,
or set-off of any kind in the proceeding, and (ii)
any claim or defense based on or relating to its use
of the Customer's or Clarendon's reporting procedures
as provided for in this Agreement, or any
modification thereof. MiliRisk shall retain the right
to bring any separate proceeding it deems appropriate
to recover on any claims it may have, as a creditor
or otherwise, but the pendency of any such proceeding
shall not delay, hinder or defeat the Customer's or
Clarendon's right to promptly recover any trust funds
then due or to levy upon any judgment therefore.
ARTICLE 9. LIMITATION OF LIABILITY AND REMEDIES
9.1 If data is processed in error due to an error or defects in
the Services provided by MiliRisk, then upon MiliRisk
receiving notice of such error or defect, MiliRisk shall
reprocess such data without charge to Customer.
9.2 MiliRisk shall indemnify, protect, defend and hold Customer,
its officers, directors, shareholders and employees harmless
from and against any and all losses, damages, liabilities,
fines, settlements, penalties and judgements (including
reasonable costs and attorney's fees) (herein "Damages")
arising out of or resulting from the negligent, wilful or
intentional acts of MiliRisk performed in connection with this
Agreement or arising from a breach of this Agreement by
MiliRisk . Customer shall indemnify, protect, defend and hold
MiliRisk, its officers, directors, shareholders and employees
harmless from and against any and all Damages arising out of
or resulting from the negligent, willful or intentional acts
of Customer performed in connection with this Agreement or
arising from a breach of this Agreement by
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<PAGE> 8
Customer. This indemnity shall survive the earlier expiration
or termination of this Agreement.
9.3 MiliRisk's liability to Customer for Damages arising from
errors and defects in performing the Services (whether the
damage is based in tort or contract, law or equity) is limited
to an amount not to exceed the usual and customary charges
paid to MiliRisk under this Agreement in any one month of this
Agreement plus costs and attorney's fees as provided in
Section 10.11. Except as provided in Section 2.3, for any
breach of this Agreement which does not result in or
constitute a termination or repudiation of this Agreement,
Customer's liability to Mil Risk for Damages is limited to an
amount not to exceed the usual and customary charges paid to
MiliRisk under this Agreement in any one month of this
Agreement plus costs and attorney's fees as provided in
Section 10.11.
9.4 Customer's remedies and MiliRisk's liability for breaches of
this Agreement and errors or defects in the delivery of
Services are limited to the remedies and liabilities set forth
in Sections 8.2, 9.1, 9.2 and 9.3 of this Agreement.
MiliRisk's remedies and Customer's liability for breaches of
this Agreement are limited to the remedies and liabilities set
forth in Sections 2.3, 8.2, 9.2 and 9.3 of this Agreement.
ARTICLE 10. GENERAL
10.1 The parties shall not be liable or deemed to be in default for
any delay or failure in performance under this Agreement or
interruption of Service resulting, directly or indirectly,
from acts of God, civil or military authority, labor disputes,
shortages of suitable parts, materials, labor or
transportation or any similar cause beyond the reasonable
control of the parties.
10.2 Customer and MiliRisk agree that, while this Agreement is in
effect, neither will directly or indirectly induce any
employee of the other to terminate his or her employment; nor
will either, without prior written consent of the other, offer
employment to any employee of the other, or to former
employees during the six (6) month period immediately
following such employee's termination. Notwithstanding the
foregoing, Customer shall not be bound by this provision if
MiliRisk withdraws from or eliminates its policy life cycle
service business entirely.
10.3 All notices which are required to be given or submitted
pursuant to this Agreement shall be in writing and shall be
either delivered in person or sent by certified mail, return
receipt requested, to the address set forth herein or to such
other address as the parties may from time to time designate
in writing for such purposes. Notices shall be deemed to have
been given at the time when personally delivered or, if mailed
in a certified post-paid envelope, upon the fifth day after
the date such notice shall be postmarked. All notices to
MiliRisk shall be addressed to the attention of the Chief
Financial Officer.
10.4 The parties covenant and promise not to disclose the terms and
conditions of this Agreement to any third party (except
Clarendon) unless expressly agreed to by the parties.
Notwithstanding the foregoing, the parties agree that
disclosure may be
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<PAGE> 9
made to any auditors, regulators, carriers, or reinsurers on a
need to know basis only without prior consent.
10.5 This Agreement and any Exhibits made a part hereof: (a)
constitute the entire Agreement between the parties and
supersede and merge any and all prior discussions,
representations, negotiations, correspondence, writings and
other Agreements and together state the entire understanding
and Agreement between MiliRisk and Customer with respect to
the Services described; (b) may be amended or modified only in
a written instrument agreed to and signed by MiliRisk and
Customer; and, (c) shall be deemed to have been entered into
and executed in the State of Texas and shall be construed,
performed and enforced in all respects in accordance with the
laws of that state. For purposes of venue, this Agreement is
performable in Tarrant County, Texas.
10.6 Neither party hereto shall be deemed to have waived any rights
or remedies accruing to it hereunder unless such waiver is in
writing and signed by such party. No delay or omission by
either party hereto in exercising any right shall operate as a
waiver of said right on any future occasion. All rights and
remedies hereunder shall be cumulative and may be exercised
singularly or concurrently.
10.7 The descriptive headings of this Agreement are intended for
reference only and shall not affect the construction or
interpretation of this Agreement.
10.8 Wherever the singular of any term is used herein it shall be
deemed to include the plural wherever the plural thereof may
be applicable.
10.9 The parties shall not assign this Agreement or any of its
rights hereunder without the prior written consent of the
other party which consent shall not be unreasonably withheld
unless the proposed assignment is to a competitor of the other
party.
10.10 If any provision of this Agreement or any Exhibit hereto or
the application thereof to any party or circumstances shall,
to any extent, now or hereafter be or become invalid or
unenforceable, the remainder of this Agreement shall not be
affected thereby and every other provision of this Agreement
shall be valid and enforceable, to the fullest extent
permitted by law.
10.11 In the event of any action between Customer and MiliRisk
seeking enforcement of any of the terms and conditions of this
Agreement, the prevailing party to such action shall be
awarded its reasonable costs and expenses, including its court
costs and reasonable attorney's fees.
10.12 The parties hereto are independent contractors of one another,
and they should not, in any instance be construed as partners
or joint venturers.
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<PAGE> 10
MILIRISK AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED AGENTS THAT THEY
HAVE READ THIS AGREEMENT, INCLUDING ALL EXHIBITS HERETO, AND AGREE TO BE BOUND
BY THEIR TERMS AND CONDITIONS.
EXECUTED to be effective the 28th day of August, 1996.
Millers Integrated Claims Resources, Inc. Blanch Wholesale Insurance Services,
Inc.
BY: /s/ F. GEORGE DUNHAM,III BY: /s/ SCOTT T. BROCK
---------------------------- ------------------------------
Name: F. George Dunham,III Name: Scott T. Brock
-------------------------- ----------------------------
Title: President & CEO Title: President
------------------------- ---------------------------
Blanch Insurance Services, Inc.
BY: /s/ SCOTT T. BROCK
------------------------------
Name: Scott T. Brock
----------------------------
Title: President
---------------------------
<PAGE> 11
EXHIBIT I
TO THE
CLAIMS LIFE CYCLE SERVICES AGREEMENT
BY AND BETWEEN
MILIRISK
AND
BLANCH WHOLESALE INSURANCE SERVICES, INC.
BLANCH INSURANCE SERVICES, INC.
A. SERVICES
During the term of this Agreement MiliRisk shall provide the Claims Life Cycle
Services defined below for the Lines of Business (Section B of this Exhibit I)
for the States specified (Section C of this Exhibit I) written by or through
Customer on behalf of Clarendon. MiliRisk will, in accordance with guidance and
direction provided by the Customer, and in accordance with the GAA, provide all
Claims Life Cycle Services and general management of these Services described
here in for subject claims as follows:
1. Customer grants MiliRisk the authority to investigate, evaluate, and
handle each claim reported according to applicable state law, the
terms and conditions of the policy and any written standards provided
by Clarendon. MiliRisk shall not have any authority to alter or
discharge any policy or waive any policy provision or condition.
2. MiliRisk will set up a claims operation center that will function as a
control unit.
3. Loss reporting will be by toll free access provided to insureds and
agents.
4. Coverage will be verified on all cases.
5. MiliRisk will administer the appraisal/assessment process and will use
in this endeavor a combination of staff and vendor, adjusters, and
appraisers.
6. MiliRisk will perform all reasonable and necessary administrative and
clerical work in connection with claim or loss reports.
7. MiliRisk will establish and maintain a claim file for each reported
claim or loss with a copy of the policy for each reported claim. The
claim file will have a daily activity log which shall be reviewable at
any and all reasonable times by the Customer subject to the provisions
of Article 5 of the Agreement.
<PAGE> 12
8. MiliRisk will provide the Customer with litigation management and will
have control of choice of counsel. MiliRisk will not abandon files to
the control and handling by defense counsel. MiliRisk will work with
counsel to determine the best course of action within a reasonable
budget and will continue to do best efforts adjusting/investigation
activities within the scope of authority granted by the Customer.
9. MiliRisk will record and report each claim promptly to the Customer
and Clarendon with a recommended reserve. MiliRisk shall consult with
Customer and Clarendon with respect to any of the following:
(a) Any loss or claim resulting in legal action being instituted
against the MiliRisk, the Customer or Clarendon;
(b) Any loss or claim causing a complaint to be filed with any
regulatory authority;
(c) Any inquiry from any regulatory authority, including but not
limited to any insurance department, with respect to any claim
or claims, even if no complaint causes such inquiry;
(d) Any claim MiliRisk deems appropriate to deny policy coverage
or involves a coverage dispute;
(e) Any claim which might ultimately result in the payment(s) in
excess of the lesser of (i) Twenty-five thousand ($25,000)
dollars or (ii) an amount established by the Florida
Department of Insurance. In the event of such claim, MiliRisk
shall forward a copy of the claim file to Clarendon at its
request;
(f) Any claim open for more than six months, or involves an
allegation of extra contractual obligations;
(g) Any claim involving a fatality, amputation, spinal cord or
brain damage, loss of eyesight, extensive burns, poisoning, or
multiple fractures; or
(h) Any claim involving a minor.
10. Within seven business days after the end of each calendar month,
MiliRisk will provide monthly, year-to-date and inception-to-date
reports on all claims activity, including new claims, claims closed
without payment, and changes to outstanding reserves as of the date
reported, all reported by Accident Year. The claim reports will
include:
(a) Information and statistical data (i) required by Insurance
Services Office ("ISO"), and (ii) necessary for Clarendon to
prepare any reports required by the National Association of
Insurance Commissioners, or (iii) other reports reasonably
requested by Clarendon. MiliRisk shall also provide whatever
reports are necessary for and requested by Clarendon to
monitor and evaluate the business subject to this Agreement.
All information required by Clarendon to monitor and evaluate
business written under this Agreement and to comply with state
reporting requirements now
<PAGE> 13
or hereafter imposed on Clarendon, shall be deemed to be
reasonably requested hereunder;
(b) Loss Runs with paid claims and outstanding reserves remaining
at the end of each monthly report period, categorized as
indemnity, medical payment, or loss adjustment expense, plus
any other information required by the Annual Statement
instructions or state regulatory agencies;
(c) Check Registers;
(d) Reserve Transaction Journal:
(e) Large Loss Listing, including cumulative paid and outstanding
reserves as of month end; and
(f) Aggregate Loss Runs (on a paid and incurred basis) by policy.
If Clarendon requires the foregoing data for purposes of preparing reports for
its reinsurers, MiliRisk will report the foregoing information on a policy or
underwriting year basis at Clarendon's request within a mutually agreed upon
time.
MiliRisk shall provide Clarendon copies of its computer data base maintained in
support of its claim reports ("Computer Data"). The transfer of Computer Data
shall be in a format acceptable to Clarendon and readable on Clarendon's
computer system. Such Computer Data shall include all information contained in
the claim reports, and shall include with respect to each claim, the claim
number, policy number, name of insured, effective date and expiration date of
the policy, the date the claim was first reported, the accident date, reserves,
paid losses, paid loss adjustment expense, and any salvage or subrogation
recoveries.
11. MiliRisk will perform a periodic review at mutually agreed upon
intervals of outstanding claim reserves, and recommend changes to
outstanding claim reserves.
12. MiliRisk will prepare checks and vouchers, compromises, releases,
agreements and any other documents reasonably necessary to finalize
and close claims. MiliRisk will issue payments of claims and allocate
loss adjustment expenses only on check of, and as authorized by, the
Customer and/or Clarendon.
For purposes of settling claims and paying claim related expenses,
Clarendon has agreed with Customer to establish, maintain and fund a
separate bank account from which MiliRisk may draw against as
hereinafter set forth (the "Claim Account"). MiliRisk shall not retain
more than three months estimated claims payments and allocated loss
adjustment expenses in the Claim Account.
Clarendon has agreed with Customer to deposit additional funds into
the Claims Account on a weekly basis if necessary to maintain it at a
level sufficient to allow MiliRisk to carry out its obligations under
this Agreement. MiliRisk shall regularly provide information and
estimates to Clarendon to enable Clarendon to maintain the Claims
Account at an
<PAGE> 14
appropriate level. Clarendon shall provide to MiliRisk such
information as is necessary for MiliRisk to draw checks on the Claims
Account.
MiliRisk will record and report promptly to the Customer and Clarendon
each loss and allocated loss adjustment expense paid utilizing
Clarendon's claim disbursement, checking and coding procedures.
MiliRisk hereby guarantees that any check it prepares will be signed
and issued only in accordance with the procedures adopted by
Clarendon. Any check prepared by MiliRisk on the Claims Account must
be signed by two authorized individuals. The authority to sign such
checks shall be limited according to the dollar amount of the check:
(a) For any check $5,000 or less, the two signatories shall be any
two employees or officers of MiliRisk or the Customer.
(b) For any check greater than $5,000 but not greater than
$20,000, the signatories shall include at least one officer of
MiliRisk or the Customer.
(c) For any check greater than $20,000, the signatories shall
include one designated employee of Clarendon. Any check for
such amount shall be forwarded to Clarendon, along with all
claim information in MiliRisk's possession, for review by
Clarendon. MiliRisk shall comply with all Clarendon's
reasonable requests related to the adjustment and settlement
of such claims.
MiliRisk shall notify the Customer and Clarendon in writing of the identity of
the authorized signatories of claims checks. Likewise, Customer and Clarendon
will notify MiliRisk of persons authorized to sign on their behalf.
MiliRisk shall maintain a daily register of checks drawn on the Claim Account
for each loss payment (the "Claim Register"). The Claim Register shall include,
for each claim and/or claimant, the claim number, policy number, loss date, the
name of payee, the date and check number of the disbursement, and the amount
and type or purpose of the payment (i.e., indemnity, loss adjustment expense,
etc.). MiliRisk shall forward a copy of the Claim Register to Clarendon on a
monthly basis.
MiliRisk shall promptly deposit any monies collected through salvage and
subrogation to the Claim Account, and maintain a register of all such
collections and deposits (the "Salvage and Subrogation Register"). The Salvage
and Subrogation Register shall include, but shall not be limited to, the
following information: date of deposit, date of receipt of funds, the claim
number, the payor, and the amount and purpose of such payment.
MiliRisk shall reconcile the Claim Register and the Salvage and Subrogation
Register to the Claim Account on a monthly basis.
13. Service standards and claims documentation will be to standards set by
the Customer and agreed to by MiliRisk. At a minimum, MiliRisk will
be in compliance with all State regulations dealing with the adjusting
and handling of claims. MiliRisk will periodically
<PAGE> 15
review the development of the claims handling procedure with the
Customer and Clarendon to identify problems and recommend corrective
action.
14. MiliRisk will diligently pursue and prosecute Clarendon's salvage and
subrogation rights relating to any losses. MiliRisk will use all
reasonable efforts to collect and deposit funds arising from the
enforcement of such rights into the Claim Account. MiliRisk will
report monthly on salvage/subrogation receipts.
15. MiliRisk will provide Customer with a maximum of four (4) copies each
of the standard monthly Risk Management Information Reports (RMIS)
which are detail claims register, a loss run, check register, reserve
transaction journal, and a large loss listing. MiliRisk will also
provide Customer with data described in Exhibit III.
16. MiliRisk will produce 1099's per IRS regulations for vendors whose
services are not included within the basic fee for Claims Life Cycle
Services.
B. AUTHORIZED LINES OF BUSINESS:
Homeowners (HO3, HO6, HO4, and HO2) and Dwelling Fire (DF1)
C. AUTHORIZED STATES:
Florida
D. LOCATION OF PROVISION OF SERVICES:
MiliRisk shall provide the Services defined above at the MiliRisk
service center in Fort Worth, Texas and/or at a site or sites in
Florida to be named later at its discretion. ;
<PAGE> 16
EXHIBIT II
SERVICE FEES & RATES
<TABLE>
<S> <C> <C>
CONSULTANTS
Senior Consultants 175.00 per hour
Consultants 125.00 per hour
PROGRAMMERS
Lead Programmer Analyst 150.00 per hour
Senior Programmer Analyst 125.00 per hour
Programmer Analyst 100.00 per hour
Project Leaders 175.00 per hour
</TABLE>
CLAIMS LIFE CYCLE SERVICES
Fees will be based upon 15.5% of incurred losses exclusive of
IBNR and LAE.
IMPLEMENTATION PERIOD
Design, construction, and implementation of software systems
to support contract. Advance waived.
SPECIAL FEES
Claim system modifications will be charged to the Customer on
a time and materials basis utilizing the appropriate mix of
service personnel required to perform the modification.
Additional reports or modifications to agreed upon reports
will also be charged to the Customer on a time and materials
basis utilizing the appropriate mix of service personnel
required to perform the modifications or produce new reports.
Hourly rates for such personnel are listed above.
LEGAL EXPENSES ARE EXCLUDED FROM ALL FEES AND WILL BE PASSED THROUGH TO
CUSTOMER.
INCURRED LOSSES FOR THE BILLING MONTH WILL BE THE BASIS OF FEES FOR THAT MONTH.
<PAGE> 17
EXHIBIT III
The following information will be delivered in mutually acceptable electronic
media following the end of the month processing:
CLAIM FILE DATA ELEMENTS:
Claim Number
Claimant Number
Claimant Name
Date of Loss
Date Reported
Status (open/closed)
Date Closed
Date Reopen
Accident State
Policy Number
Coverage Code
Outstanding Loss Reserve (as of month end)
Outstanding Expense Reserve (as of month end)
CLAIM TRANSACTION FILE DATA ELEMENTS:
Claim Number
Claimant Number
Date Entered
Transaction
Transaction Effective Date
Amount
<PAGE> 1
EXHIBIT 10.8
STANDARD
POLICY LIFE CYCLE
SERVICES AGREEMENT
CLARENDON
<PAGE> 2
POLICY LIFE CYCLE
SERVICES AGREEMENT
CLARENDON
This Policy Life Cycle Services Agreement ("Agreement") is effective
as of the 15th day of August, 1996 ("Effective Date"), by and between Millers
Integrated Claims Resources, Inc. dba Miller, a Texas corporation with
principal offices at 300 Burnett, Fort Worth, Texas 76102 ("MiliRisk"), and
Blanch Wholesale Insurance Services, Inc. and Blanch Insurance Services, Inc. a
Texas corporation, having their principal place of business at 4300 Centerview
Dr., San Antonio, Texas 78228 ("Customer").
Whereas, Customer has entered into a General Agency Agreement (the
"GAA") with Clarendon National Insurance Company ("Clarendon") to administer
certain insurance policies previously issued by Allstate Insurance Company
("Allstate");
Whereas, Customer is desirous of MiliRisk providing Policy Life Cycle
Services for which Customer is responsible under the GAA, as set forth in this
Agreement;
Whereas, MiliRisk wishes to provide such Services for Customer; and
Whereas, the parties hereto wish to reduce their Agreement to writing.
Now, therefore, for and in consideration of the premises set forth
below and other good and valuable consideration, the receipt and sufficiency of
which is expressly acknowledged, Customer and MiliRisk hereby agree as follows:
ARTICLE 1. SERVICES
The "Services" to be performed by MiliRisk are set forth in Exhibit I
to this Agreement.
ARTICLE 2. TERM
2.1 The term of this Agreement shall commence on the Effective
Date and shall have a "Minimum Term" of 36 full calendar
months unless terminated earlier pursuant to the provisions
of this Agreement. The Agreement shall automatically be
renewed and extended after the conclusion of the Minimum Term
for an additional term or terms of 36 months unless
terminated pursuant to the provisions of Article 8.
2.2 The "Implementation Period" shall begin on the Effective Date
of this Agreement and shall end on the date MiliRisk notifies
Customer that MiliRisk is capable of receiving all future
applications on behalf of Customer. During the Implementation
Period, MiliRisk shall prepare an analysis of the lines of
business included within the terms of this Agreement.
Customer shall assist MiliRisk
<PAGE> 3
during such "Implementation Period" with the gathering of
appropriate data, information, background, and other facts as
needed by MiliRisk to enable MiliRisk to perform the Services
enumerated in Exhibit I of this Agreement.
2.3 Notwithstanding the foregoing provisions relating to the
Minimum Term, and any subsequent renewal terms, should
Customer terminate or repudiate this Agreement prior to the
end of the Minimum Term without cause provided for under
Sections 8.2 or 8.3, Customer shall pay a termination fee to
MiliRisk within thirty (30) days after the date it attempts
to terminate or repudiate this Agreement. A termination fee
totaling $2 million shall be due MiliRisk, if Customer's
attempt to terminate or repudiate this Agreement occurs
within the first 3 months of the Minimum Term. If the attempt
to terminate or repudiate this Agreement occurs after the
first 3 months, but before the end of the 6th month, a
termination fee is due MiliRisk in the amount of $1.75
million. If the attempt to terminate or repudiate this
Agreement occurs after the 6th month, but before the end of
the 9th month, a termination fee is due MiliRisk in the
amount of $1.5 million. If the attempt to terminate or
repudiate this Agreement occurs after the 9th month, but
prior to the end of the 12th month, a termination fee is due
MiliRisk in the amount of $1.25 million. If the attempt to
terminate or repudiate this Agreement occurs after the 12th
month, but prior to the end of the 15th month, a termination
fee is due MiliRisk in the amount of $1 million. If the
attempt to terminate or repudiate this Agreement occurs after
the 15th month, but prior to the end of the 18th month, a
termination fee is due MiliRisk in the amount of $750,000. If
the attempt to terminate or repudiate this Agreement occurs
after the 18th month, but prior to the end of the 24th month,
a termination fee is due MiliRisk in the amount of $500,000.
If the attempt to terminate or repudiate this Agreement
occurs after the 24th month, but prior to the end of the 36th
month, a termination fee is due MiliRisk in the amount of
$250,000. If the attempt to terminate or repudiate this
Agreement occurs after the 36th month, MiliRisk shall not be
entitled to a termination fee. The termination fees
references in this section are in addition to and not in lieu
of other compensation due to MiliRisk under this Agreement.
ARTICLE 3. DUTIES OF MILIRISK
3.1 During the Implementation Period, MiliRisk shall design,
construct, and implement the following software systems:
1. "Offer-to-write" sub system
2. Tracking system for follow-up, rejection
and acceptance of recipients of "offer-to-
write"
3. Conversion system (Allstate data to
Clarendon data)
4. Processing system to support the Services
enumerated in Exhibit I
2
<PAGE> 4
In addition, the Implementation Period will be used to
assemble the staff, arrange for furniture and fixtures, and
prepare for the start of business. All procedures required to
conduct business as well as the requisite staff training will
occur during this period.
In addition, the Implementation Period will be used to
assemble the staff, arrange for furniture and fixtures, and
prepare for the start of business. All procedures required to
conduct business as well as the requisite staff training will
occur during this period.
3.2 MiliRisk shall dedicate the necessary human, equipment and
computer resources to provide and, during the term of this
Agreement, will provide Customer with the Services enumerated
in Exhibit I of this Agreement for the Lines of Business and
States specified in Exhibit I.
3.3 MiliRisk shall designate an employee to act as liaison
with Customer to facilitate the provision of the Services.
3.4 MiliRisk shall maintain the confidentiality of data or
information which is the property of Customer and/or
Clarendon, and which is directly accessible to MiliRisk in
the implementation and performance of the Services.
3.5 MiliRisk shall maintain complete, accurate and orderly
underwriting books, files, records and accounts of all
transactions in accordance with generally accepted insurance
and accounting practices. MiliRisk shall be responsible for
the timely remittance of all premiums due Clarendon, whether
collected or not, which premiums shall be calculated from the
effective date of coverage under the applicable policies.
3.6 MiliRisk shall maintain permanent copies of all policies and
applications and correspondence related to the policies.
MiliRisk shall not destroy these permanent copies without the
written permission of the Customer for a period of at least
five (5) years from the termination date of the applicable
policies, or the period specified by the applicable state
statute regulating preservation of records, whichever is
longer. MiliRisk may, at its discretion, use magnetic,
optical, and other types of technology to store such data.
3.7 MiliRisk acknowledges and agrees that Clarendon, being at
risk and having ultimate responsibility for the policies to
be administered by MiliRisk, shall at all times have ultimate
discretion with respect to all matters pertaining to the
policies.
ARTICLE 4. DUTIES OF CUSTOMER
4.1 Customer shall provide the data necessary, in a timely manner
and in a format acceptable to MiliRisk, for MiliRisk to
perform the Services defined in Exhibit I
3
<PAGE> 5
of this Agreement. Customer acknowledges that delays in
delivery of required information will result in a similar
delay in fulfilling Services.
4.2 Customer acknowledges that MiliRisk assumes no risk or
responsibility for Customer's claims administration, claim
payments or recovery within this Agreement.
4.3 Customer will provide MiliRisk with the policy jackets and
the information and specifications necessary to perform the
Services defined in Exhibit I of this Agreement, including
but not limited to Customer's banking institution account
information, corporate and subsidiary logos (if applicable),
style and specifications of printed documents such as
insurance policies, and all other information and
specifications necessary to perform the Services.
4.4 Customer shall appoint a Project Manager with sufficient
authority within Customer's organization to facilitate
Customer's role as MiliRisk performs the Services enumerated
in Exhibit I of this Agreement.
ARTICLE 5. AUDIT PROVISIONS
5.1 MiliRisk shall maintain records of amounts billable to and
payments made on behalf of Customer. In addition, MiliRisk
shall maintain records of the data utilized to perform the
Services defined in Exhibit I of the Agreement until five
years following the termination date of the applicable
policies, or the period specified by the applicable state
statute unless such records are earlier returned to Customer.
MiliRisk agrees to provide reasonable supporting
documentation concerning any disputed invoice amount to
Customer within 15 days after Customer provides written
notification of the dispute to MiliRisk. Customer and an
auditor selected by Customer shall have access to all such
records upon mutually agreed upon prior notice for the
purposes of audit and verification during normal business
hours during the full term of this Agreement and during the
respective periods in which MiliRisk is required to maintain
such records. MiliRisk shall provide access to its books,
records sand bank accounts to the insurance department of the
State of Florida in a form usable by the department.
ARTICLE 6. PRICE AND PAYMENT
6.1 Customer agrees to pay Service Rates as specified in Exhibit
II hereto.
6.2 Except for Service Rates which are based upon a percentage of
direct written premium (the minimum of which shall be
adjusted in accordance with Exhibit II), the Service Rates in
Exhibit II hereto may be changed effective as of each
anniversary of the Effective Date during the existence of
this Agreement by the percentage increase in the United
States Customer Price Index for all Urban Users
4
<PAGE> 6
(CPI-U)published by the United States Bureau of Labor
Statistics, for the immediately preceding calendar year. In
the event a vendor supplying any service or product to
MiliRisk required for MiliRisk to provide the Services to
Customer increases its rates charged to MiliRisk, MiliRisk
may increase the contracted rates set forth herein to include
such increased costs.
6.3 The Service Rates may increase if changes in the Services
mutually agreed to in writing substantially alter the
servicing personnel, equipment, or result in the servicing
being done on a different system.
6.4 When Customer requests MiliRisk personnel to travel to any
location for the purpose of performing work under this
Agreement, the Customer will, in addition to the charges
specified for Services, pay MiliRisk for all reasonable
travel, living and out-of-pocket expenses.
6.5 Customer agrees to pay all tariffs and taxes that are now or
may become applicable to the Services rendered hereunder, any
equipment used by MiliRisk solely for Customer communication
line, its use, lease, operation, control, transportation or
value pursuant to this Agreement, or as measured by payments
made by Customer
6.6 Customer agrees to pay 50% of the advance set forth in
Exhibit II for implementation upon execution of this
Agreement. Remaining portion of the advance will be due at
the end of the Implementation Period.
6.7 Service fees for Services will be due and payable 15 days
after the close of a calendar month beginning 15 days after
the end of the month this Agreement is executed.
6.8 Customer agrees that MiliRisk will have the right to
renegotiate the Service Fees in the event of statutory,
regulatory, or judicial change that require additional
activities not contemplated at the inception of this
Agreement.
ARTICLE 7. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS
7.1 Although MiliRisk from time to time may use its own
proprietary computer software products in the performance of
the Services enumerated in Exhibit I of this Agreement, this
Agreement does not grant a license to Customer for the use of
any software products.
7.2 This Agreement grants to Customer no right to possess or
reproduce, or any other interest in, the computer software
programs performing all or any part of the Services or their
specifications in any tangible or intangible medium. Customer
may not mortgage, hypothecate, sell, assign, pledge, lease,
transfer, license or sublicense the computer software
programs performing all or any part of the Services, nor
allow any person, firm, or corporation to transmit, copy or
reproduce
5
<PAGE> 7
the computer software programs performing all or any part of
the Services or their specifications in whole or in part. In
the event Customer shall come into possession of the computer
software programs performing all or any part of the Services,
Customer shall immediately notify MiliRisk and return the
computer software programs performing the Services and all
copies of any kind thereof to MiliRisk upon MiliRisk's
request.
7.3 Customer promises and agrees not to disclose or otherwise
make computer software programs performing all or any part of
the Services available to any person other than employees of
Customer required to have such knowledge for normal use of
them. Customer agrees to obligate each such employee to a
level of care sufficient to protect the computer software
programs performing all or any part of the Services from
unauthorized disclosure. THE OBLIGATION OF CUSTOMER UNDER
THIS ARTICLE SHALL CONTINUE AFTER THIS AGREEMENT IS
TERMINATED.
7.4 MiliRisk warrants and represents that it owns, or is licensed
with respect to, all software it will employ in the
performance of this Agreement. In the event this Agreement is
terminated, MiliRisk will grant a license to Customer and/or
Clarendon to use the software which MiliRisk employs in the
performance of this Agreement to the extent MiliRisk is not
otherwise prohibited from doing so by contract or by
operation of law. MiliRisk shall use its best efforts to
deliver the software, as well as all necessary manuals, to
the Customer immediately upon delivery of data to the
Customer.
ARTICLE 8. TERMINATION
8.1 Either party may terminate this Agreement at the expiration
of the Minimum Term set forth in section 2.1 provided the
other party receives at least six (6) months prior written
notice of termination. Termination without cause during any
renewal term would also require six months notice.
8.2 Either party may terminate this Agreement upon breach by the
other party of any one or more of the terms and conditions of
this Agreement or the related exhibits, provided that the
party in breach is notified in writing by the other party of
the breach and the breach is not cured or a satisfactory
resolution agreed upon in writing within thirty (30) days of
such written notification, or if such breach is non-monetary
and is of such a nature that it cannot reasonably be cured
within such notice period, if the breaching party has not
within such time commenced to cure same and does not
diligently continue to and actually care same within a
reasonable period thereafter. The terms and conditions of
MiliRisk referred to in this Section 8.2 shall include, but
shall not be limited to:
(a) the obligation to deposit, report and remit
premiums;
6
<PAGE> 8
(b) the obligation to remit return premiums to insureds
when due;
(c) the obligation to process all policies,
endorsements, and notices of cancellation or
non-renewal, pursuant to Clarendon's underwriting
guidelines or other instructions;
(d) the obligation to observe and comply with applicable
laws, regulations, rules and rates affecting the
transaction of business hereunder; and
(e) the obligation to provide any other Services under
this Agreement.
8.3 In the event either party makes a general assignment for the
benefit of creditors or files a voluntary petition in
bankruptcy or petitions for reorganization or arrangement
under the bankruptcy laws, or if a petition in bankruptcy is
filed against either party and remains undismissed for a
period of thirty (30) days, or if a receiver or trustee is
appointed for all or any part of the property and assets of
either party, the other party may terminate the Agreement
immediately. MiliRisk shall have the option to terminate this
Agreement within 60 days of written notification in the event
that the annualized policy count does not exceed 50,000
policies.
8.4 This Agreement shall terminate automatically if the GAA is
terminated for any reason other than because of breach by the
Customer. The termination fee described in section 2.3 still
applies to this situation.
8.5 Rights Upon Termination. Upon expiration or termination of
this Agreement:
(a) The obligations of the Customer and MiliRisk to the
date of termination shall be discharged promptly.
(b) MiliRisk shall promptly return to the Customer any
policies, forms or other supplies imprinted with the
Customer's or Clarendon's name, regardless of who
incurred the cost for same.
(c) MiliRisk shall, at its sole expense, run off the
in-force business to normal expiration in accordance
with the provisions of this Agreement. The Customer,
however, may elect to run off the in-force business
itself or through its designee, in which case it may
do so and if this Agreement is terminated because of
a breach by MiliRisk, MiliRisk shall nevertheless be
liable for all expenses of the run-off operation;
however, if the termination is for a reason other
than as provided in Section 8.2, the Customer,
rather than MiliRisk, shall bear the expenses of the
run-off if it elects to run off the business itself
or through its designee. The term "run-off" as used
herein shall mean confirming coverage under policies
to claims adjusters, administering the in-force
policies and any required renewals thereof and
endorsements thereto, providing reports as required
by this Agreement,
7
<PAGE> 9
paying premium to Clarendon and return premium to
the insureds, collecting all sums due to or from
agents, including return commissions, and such other
activities as required of MiliRisk under this
Agreement.
(d) If MiliRisk is unable, or refuses, to run off the
in-force policies, or if the Customer elect to run
off such policies itself or through its designee,
MiliRisk shall promptly provide the Customer,
without charge, with a tape back-up of all data
files (the "Data").
(e) In any proceeding brought by the Customer or
Clarendon to recover premiums or return premiums or
other funds due hereunder to Clarendon or insureds
under the policies (hereinafter called "trust
funds"), MiliRisk shall be obligated to account on
its own records for such trust funds and to pay all
sums for which it cannot account. In any such
proceeding it shall be conclusively presumed that
MiliRisk is liable for trust funds which have not
been timely paid, and MiliRisk waives (i) any right
it may have to assert any counterclaim, crossclaim,
or set-off of any kind in the proceeding, and (ii)
any claim or defense based on or relating to its use
of the Customer's or Clarendon's reporting
procedures as provided for in this Agreement, or any
modification thereof. MiliRisk shall retain the
right to bring any separate proceeding it deems
appropriate to recover on any claims it may have, as
a creditor or otherwise, but the pendency of any
such proceeding shall not delay, hinder or defeat
the Customer's or Clarendon's right to promptly
recover any trust funds then due or to levy upon any
judgment therefrom.
ARTICLE 9. LIMITATION OF LIABILITY AND REMEDIES
9.1 If data is processed in error due to an error or defects in
the Services provided by MiliRisk, then upon MiliRisk
receiving notice of such error or defect, MiliRisk shall
reprocess such data without charge to Customer.
9.2 MiliRisk shall indemnify, protect, defend and hold Customer,
its officers, directors, shareholders and employees harmless
from and against any and all losses, damages, liabilities,
fines, settlements, penalties and judgments (including
reasonable costs and attorney's fees) (herein "Damages")
arising out of or resulting from the negligent, willful or
intentional acts of MiliRisk performed in connection with
this Agreement or arising from a breach of this Agreement by
MiliRisk. Customer shall indemnify, protect, defend and hold
MiliRisk, its officers, directors, shareholders and employees
harmless from and against any and all Damages arising out of
or resulting from the negligent, willful or intentional acts
of Customer performed in connection with this Agreement or
arising from a breach of this Agreement by Customer. This
indemnify shall survive the earlier expiration or termination
of this Agreement.
8
<PAGE> 10
9.3 MiliRisk's liability to Customer for Damages arising from
errors and defects in performing the Services (whether the
damage is based in tort or contact, law or equity) is limited
to an amount not to exceed the usual and customary charges
paid to MiliRisk under this Agreement in any one month of
this Agreement plus costs and attorney's fees as provided in
Section 10.11. Except as provided in Section 2.3, for any
breach of this Agreement which does not result in or
constitute a termination or repudiation of this Agreement,
Customer's liability to MiliRisk for Damages is limited to an
amount not to exceed the usual and customary charges paid to
MiliRisk under this Agreement in any one month of this
Agreement plus costs and attorney's fees as provided in
Section 10.11.
9.4 Customer's remedies and MiliRisk's liability for breaches of
this Agreement and errors or defects in the delivery of
Services are limited to the remedies and liabilities set
forth in section 8.2, 9.1, 9.2 and 9.3 of this Agreement.
MiliRisk's remedies and Customer's liability for breaches of
this Agreement are limited to the remedies and liabilities
set forth in section 2.3, 8.2, 9.2 and 9.3 of this Agreement.
ARTICLE 10. GENERAL
10.1 The parties shall not be liable or deemed to be in default
for any delay or failure in performance under this Agreement
or interruption of Service resulting, directly or indirectly,
from acts of God, civil or military authority, labor
disputes, shortages of suitable parts, materials, labor or
transportation or any similar cause beyond the reasonable
control o the parties.
10.2 Customer and MiliRisk agree that, while this Agreement is in
effect, neither will directly or indirectly induce any
employee of the other to terminate his or her employment, nor
will either, without prior written consent of the other,
offer employment to any employee of the other or to former
employees during the six (6) month period immediately
following such employee's termination. Notwithstanding the
foregoing, Customer shall not be bound by this provision if
MiliRisk withdraws from or eliminates its policy life cycle
service business entirely.
10.3 All notices which are required to be given or submitted
pursuant to this Agreement shall be in writing and shall be
either delivered in person or sent by certified mail, return
receipt requested, to the address set forth herein or to such
other address as the parties may from time to time designate
in writing for such purposes. Notices shall be deemed to have
been given at the time when personally delivered or, if
mailed in a certified post-paid envelope, upon the fifth day
after the date such notice shall be postmarked. All notices
to MiliRisk shall be addressed to the attention of the Chief
Financial Officer.
9
<PAGE> 11
10.4 The parties covenant and promise not to disclose the terms
and conditions of this Agreement to any third party (except
Clarendon) unless expressly agreed to by the parties.
Notwithstanding the foregoing, the parties agree that
disclosure may be made to any auditors, regulators, carriers,
or reinsurers on a need to know basis only without prior
consent.
10.5 This Agreement and any Exhibits made a part hereto: (a)
constitute the entire Agreement between the parties and
supersede and merge any and all prior discussions,
representations, negotiations, correspondence, writings and
other agreements and together state the entire understanding
and Agreement between MiliRisk and Customer with respect to
the Services described; (b) may be amended or modified only
in a written instrument agreed to and signed by MiliRisk and
Customer, and, (c) shall be deemed to have been entered into
and executed in the State of Texas and shall be construed,
performed and enforced in all respects in accordance with the
laws of the state. For purposes of venue, this Agreement is
performable in Tarrant County, Texas.
10.6 Neither party hereto shall be deemed to have waived any
rights or remedies accruing to hereunder unless such waiver
is in writing and signed by such party. No delay or omission
by either party hereto in exercising any right shall operate
as a waiver of said right on any future occasion. All rights
and remedies hereunder shall be cumulative and may be
exercised singularly or concurrently.
10.7 The descriptive headings of this Agreement are intended for
reference only and shall not affect the construction or
interpretation of this Agreement.
10.8 Wherever the singular of any terms is used herein it shall be
deemed to include the plural wherever the plural thereof may
be applicable.
10.9 The parties shall not assign the Agreement or any of its
rights hereunder without the prior written consent of the
other party which consent shall not be unreasonably withhold
unless the proposed assignment is to a competitor of the
other party.
10.10 If any provision of this Agreement or any Exhibit hereto or
the application thereof to any party or circumstances shall,
to any extent, now or hereafter be or become invalid or
unenforceable, the remainder of this Agreement shall not be
affected thereby and every other provision of this Agreement
shall be valid and enforceable, to the fullest extent
permitted by law.
10.11 In the event of any action between Customer and MiliRisk
seeking enforcement of any of the terms and conditions of
this Agreement, the prevailing party in such action shall be
awarded its reasonable costs and expenses, including its
court costs and reasonable attorney's fees.
10
<PAGE> 12
10.12 The parties hereto are independent contractors of one
another, and they should not in any instance be construed as
partners or joint venturers.
11
<PAGE> 13
MILIRISK AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED
AGENTS THAT THEY HAVE READ THIS AGREEMENT, INCLUDING ALL EXHIBITS
HERETO, AND AGREE TO BE BOUND BY THEIR TERMS AND CONDITIONS.
EXECUTED to be effective the 15th day of August, 1996.
Millers Integrated Blanch Wholesale Insurance
Claims Resources, Inc. Services, Inc.
By: /s/ JAMES E. SMITH JR. By: /s/ SCOTT T. BROCK
------------------------ ------------------------
Name: James E. Smith Jr. Name: Scott Brock
---------------------- ----------------------
Title: Exec. V.P. & CFO Title: President & CEO
--------------------- ---------------------
Blanch Insurance Services,
Inc.
By: /s/ SCOTT T. BROCK
------------------------
Name: Scott Brock
----------------------
Title: President & CEO
---------------------
12
<PAGE> 14
EXHIBIT I
to the
MILIRISK
and
BLANCH WHOLESALE INSURANCE SERVICES, INC.
BLANCH INSURANCE SERVICES, INC.
A. SERVICES
During the term of this Agreement MiliRisk shall provide the Policy
Life Cycle Services defined below for the Lines of Business (Section B
of this Exhibit I) written by or through Customer on behalf of
Clarendon. MiliRisk will, in accordance with guidance and direction
provided by the Customer, and in accordance with the GAA, provide all
Policy Life Cycle Services and general management of these Services
described herein for the subject business as follows:
1. MiliRisk will provide the technical and administrative
services to support the acquisition of the Allstate policies
by Clarendon.
2. MiliRisk will convert Allstate business to initial
"offer-to-write system."
3. MiliRisk will produce "offers-to-write" insurance quotation
package.
4. MiliRisk will track recipients of "offers-to-write" and
report non-acceptance to Customer.
5. MiliRisk will convert acceptances to processing system to
issue policies.
6. MiliRisk will provide the necessary functions to satisfy the
Florida Insurance Department instructions as to the processes
required by Clarendon.
7. Underwriting Services to implement the Customer's
underwriting manual, rules, applications, and forms required
to handle new business, renewals, cancellations,
reinstatements, and endorsements.
8. Underwriting will review all incoming documents,
applications, etc. for completeness and compliance with the
Customer's underwriting rules and guidelines.
9. Underwriting will make decisions to issue, cancel, or amend
business submitted to the Customer according to the
Customer's underwriting rules and guidelines.
13
<PAGE> 15
10. Expert system rules will be developed and provided to
incorporate the Customer's desired risk profiles.
11. Processing will issue the Customer's policies, process
renewals, cancellations, and reinstatements, MiliRisk will
use such non-renewal or cancellation notices as may be
required by Policy wording or regulatory authority.
12. Invoices will be processed for additional premiums and
renewal bills.
13. Refunds will be processed for return premiums.
14. Inquiries for agents, insureds, and other relevant third
parties (mortgagees) will be handled on behalf of the
Customer.
15. Data Processing support for policy processing will be
provided which will include imaging of documents, data entry,
editing, expert system underwriting, electronic workflow,
rating, coding, reporting, accounting, and maintenance of
policy records.
16. Communications to agents, insureds, and mortgagees will be
provided in the delivery of policy sets, invoices, and other
materials enclosed in mailings to these constituents.
17. Physical Plant Management will provide the necessary services
to insure personnel assigned to support the Customer are
provided with the necessary space, furniture, fixtures,
electrical power, computer connections, telephone, and other
required assets to support the services.
18. Mailing Services will mail all necessary policy documents and
promotional material/marketing items to relevant parties.
19. Customer billing will be supported through direct bill.
Direct premiums will be submitted through lockbox technology.
20. Accounting services will be provided for premiums by
receiving and distributing premiums, maintaining trust
accounts, accounts and paying agent commissions, in
accordance with the Customer's obligations under the GAA,
including but not limited to:
a. Premium Bank Account. Promptly upon receipt thereof,
MiliRisk shall deposit all premiums and other funds
collected for business written under this Agreement
into a deposit-only bank account to be established
and controlled by the Clarendon (the "Premium Bank
Account"). Until such deposit is made, MiliRisk
shall hold all premium and return premium in a
segregated account and shall be deemed to have a
fiduciary responsibility to the Customer and
Clarendon to turn over such funds to Clarendon.
14
<PAGE> 16
b. Operating Account. Clarendon shall established and
fund a separate bank account which MiliRisk may draw
upon to pay return premium due policyholders
(hereinafter called the "Operating Account"),
MiliRisk shall reconcile all disbursements from the
Operating Account each month by type and amount of
disbursement (e.g., return premium, commissions due
to or from Agents) and furnish a copy to the
Customer.
c. Reports. All reports and reconciliations to be
provided to the Customer or Clarendon under this
Agreement (whether in hard copy or maintained on
computers) shall be forwarded within seven (7)
business days after the end of each month. The
electronic files maintained by MiliRisk shall be
transferred as frequently as reasonably requested by
the Customer. Upon the Customer's request MiliRisk
shall furnish updated copies of its computer base
maintained in support of business written under this
Agreement. The transfer of this data shall be in a
format acceptable to the Customer and Clarendon and
readable on their respective computer systems. Such
data shall include all information contained in the
Registers listed in Exhibit III. The reports shall
include, but not be limited to, information and
statistical data (i) required by Insurance Services
Office ("ISO"), and (ii) necessary for Clarendon to
prepare any reports required by the National
Association of Insurance Commissioners ("NAIC"), or
(iii), other reports reasonably requested to monitor
and evaluate the subject business (the "Premium
Reports").
21. Bureau reporting will be supported to send full stat plan to
ISO as required.
22. Commission Handling - The MiliRisk Servicing Office will
calculate and pay commissions to the producer on Customer's
behalf, or will invoice and receive the return of commission
from the producer on return transactions; the MiliRisk
servicing office will prepare a magnetic tape of commission
data for Customer to prepare Federal 1099 tax statements for
commission paid to producers.
23. Policyholder Service - The MiliRisk Servicing Office will
handle questions from policyholders/insured and producers
concerning policy/endorsement issuance or billing.
24. Data Access/Reporting to Customer - The MiliRisk Servicing
Office will provide policy, premium and payment information
as set forth in Exhibit III and on-line access to the policy
master file on Florida homeowners and dwelling policies. The
"Policy Collection Register" and "Receivable Register" will
be furnished to the Customer and Clarendon on a monthly
basis. Each bound policy shall be included in the Policy
Register within ten (10) days of each policy's effective
date.
15
<PAGE> 17
25. MiliRisk shall establish and maintain written operational
procedures to handle all business related to the Policies.
26. Additional reports or modifications to agreed upon reports
will be charged to the Customer on a time and materials basis
utilizing the appropriate mix of service personnel required
to perform the modifications or produce new reports. Rates
for such personnel are listed in Exhibit II.
B. AUTHORIZED LINES OF BUSINESS:
Homeowners (HO3, HO6, HO4, and HO2) and Dwelling Fire (DFI).
C. AUTHORIZED STATES:
Florida
D. LOCATION OF PROVISION OF SERVICES:
MiliRisk shall provide the Services defined above at the
MiliRisk service center in Fort Worth, Texas.
16
<PAGE> 18
EXHIBIT II
SERVICE RATES
CONSULTANTS
Senior Consultants $175.00 per hour
Consultants $125.00 per hour
PROGRAMMERS
Lead Programmer/Analyst $150.00 per hour
Senior Programmer/Analyst $125.00 per hour
Programmer/Analyst $100.00 per hour
PROJECT LEADERS
Project Leaders $175.00 per hour
POLICY LIFE CYCLE SERVICES
6.5% of Direct Written Premium* subject to a $56.00 per policy
minimum,** and further subject to a 50,000 policy minimum on an
annualized basis. At the end of each six month period beginning on the
effective date hereof, an adjustment will be made if the active
policies processed multiplied by the per policy minimum exceed 6.5% of
direct written premium for the same period.
BILLING FEES
Installment fees shall be retained by MiliRisk
NSF fees shall be retained by MiliRisk
SPECIAL FEES
Processing system modifications will be charged to the Customer on a
time and materials basis utilizing the appropriate mix of service
personnel required to perform the modification. Additional reports or
modifications to agreed upon reports will also be charged to the
Customer on a time and materials basis utilizing the appropriate mix
of service personnel required to perform the modifications or produce
new reports. Hourly rates for such personnel are listed above.
IMPLEMENTATION PERIOD
$500,000 advance against future processing fees (amortized over first
12 months of operations) for design, construction, and implementation
of software systems*** to support contract.
- --------
* Direct written premium by Clarendon Insurance Company for the authorized
lines of business in the authorized states by or through Customer which is
not reduced for reinsurance ceded.
** Effective July 1, 1988 and annually on July 1st thereafter, the per policy
minimum shall be adjusted by the percentage change in the US CPI for all
urban users (CPI-U) published by the US Bureau of labor Statistics for
immediately preceding calendar year.
*** 1. "Offer-to-write" sub system
2. Tracking system for follow-up, rejection and acceptance of recipients
of "offer-to-write"
3. Conversion system (Allstate data to Clarendon data)
4. Processing system to support the Services enumerated in Exhibit I
17
<PAGE> 19
EXHIBIT III
ACCOUNTING REGISTERS - DATA FILES - DEFINITIONS
The "Policy Collection Register" shall include but not be limited to:
State and Annual Statement Line of Business
-- Policy number
-- Name of insured
-- Policy effective date and expiration date
-- Name and or number of producing agents
-- Gross premium
-- Provisional commission due General Agent
-- Other charges or credits by type
-- Net cash received
-- An accounting for the difference (if any) between gross premium
and net cash received
The "Policy Register" shall list policies and endorsements issued and shall
include but not be limited to:
State and Annual Statement Line of Business
-- Type of transaction (new, renewal, cancellation, endorsement,
etc.)
-- Policy number
-- Name of insured
-- Policy or endorsement effective date and expiration date
-- Name and/or number of producing agent
-- Gross premium
-- Commission due producing agents
-- Provisional commission due General Agent
-- Other charges or credits by type
The "Return Premium Register" shall list each cancellation and return premium
endorsement and shall include but not be limited to:
State and Annual Statement Line of Business
-- Date and check number of disbursement
-- Policy number
-- Name of insured
-- Effective date cancellation and original policy expiration date
-- Payee
-- Gross return premium
-- Producing agent's return commission
-- General Agent's return commission
-- Net return premium
-- Amount of disbursement to payee
<PAGE> 20
-- An accounting for the difference (if any) between net return
premium and amount of disbursement
The Receivable Register will be produced each month as follows:
Beginning Receivable
plus Premium due Company (per policy register)
less Premium deposited (to premium bank account)
equals Ending Receivable
The "Premium File" list shall include but not be limited to:
Policy Number
Policy Effective Date
Policy Expiration Date
Date Entered (accounting date?)
Insured Name
Insured Address
Insured State (risk state)
Territory Code
Transaction
Transaction Effective Date
Coverage Code
Amount (written premium)
2
<PAGE> 1
EXHIBIT 10.9
AMENDMENT NO. 1
to the
POLICY LIFE CYCLE
SERVICES AGREEMENT
CLARENDON
Effective: August 15, 1996
by and between
MILLERS INTEGRATED CLAIMS RESOURCES, INC.
d/b/a MiliRisk
("MiliRisk")
and
BLANCH WHOLESALE INSURANCE SERVICES, INC.
and
BLANCH INSURANCE SERVICES, INC.
("Customer")
WHEREAS, MiliRisk and Customer have entered into this Agreement for the
administration of certain insurance policies to be issued by Clarendon National
Insurance Company ("Clarendon");
WHEREAS, Customer entered into this Agreement based on certain assumptions
regarding the anticipated premium and coverages under said policies;
WHEREAS, certain of said assumptions have proven to be incorrect in practice,
after the negotiation and inception of this Agreement; and
WHEREAS, the parties, as a result, have agreed to amend this Agreement by
adjusting certain provisions retroactively and prospectively, to more
appropriately reflect the actual operations under the Agreement;
NOW, THEREFORE, Customer and MiliRisk hereby agree as follows:
1. Effective retroactively to the inception of this Agreement, and for the
entire remaining term of the Agreement, including any renewals, the
$56.00 per policy minimum and the 50,000 annualized policy
minimum, as expressed in Exhibit II - Services Rates, shall be
eliminated. In consideration for this, Customer shall pay to MiliRisk
$886,000 as promptly as possible after agreement to the terms of this
Amendment.
2. Effective at June 1, 1997, with respect to direct written premium
collected on or after that date, the service rate of 6.5% of Direct
Written Premium, as expressed in Exhibit II -
<PAGE> 2
Services Rates, shall be increased to 7.0% of Direct Written Premium.
Effective November 15, 1997, said service rate shall be further
increased to 7.25% of Direct Written premium, provided that
Clarendon has not received approval from the Florida Department of
Insurance of a rate increase on the subject policies of at least 10% by
January 15, 1998.
The provisions of this Agreement shall remain otherwise unchanged.
MILIRISK AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED AGENT THAT THEY
HAVE READ THIS AMENDMENT AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS.
<TABLE>
<S> <C>
Millers Integrated Claims Resources, Inc. Blanch Wholesale Insurance Services, Inc.
Blanch Insurance Services, Inc.
By: By:
-------------------------------------- --------------------------------------
Name: Name:
------------------------------------ ------------------------------------
Title: Title:
----------------------------------- -----------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.10
==============================================================================
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
HOW INSURANCE COMPANY, a RISK RETENTION GROUP,
HOME WARRANTY CORPORATION AND
HOME OWNERS WARRANTY CORPORATION
IN RECEIVERSHIP FOR REHABILITATION OR LIQUIDATION
AND
MILLERS INTEGRATED CLAIMS RESOURCES, INC.
DOING BUSINESS AS MILIRISK
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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RECITALS..........................................................................................................1
AGREEMENT.........................................................................................................1
ARTICLE 1. DEFINITIONS...........................................................................................1
Section 1.1 Certain Definitions................................................................................1
1.1.1. "Additional Fee For Excess Paid Claims"..............................................................1
1.1.2. "Additional Services"................................................................................1
1.1.3. "Agreement"..........................................................................................2
1.1.4. "All Applicable Laws"................................................................................2
1.1.5. "Annual Service Fees"................................................................................2
1.1.6. "Authorized Representative"..........................................................................2
1.1.7. "Calendar Year"......................................................................................2
1.1.8. "Commission".........................................................................................2
1.1.9. "Commissioner".......................................................................................2
1.1.10. "Conversion"........................................................................................2
1.1.11. "Conversion Date"...................................................................................2
1.1.12. "Deputy Receiver"...................................................................................2
1.1.13. "Duplicate Policy"..................................................................................3
1.1.14. "Effective Date"....................................................................................3
1.1.15. "Excess Paid Claims"................................................................................3
1.1.16. "Fee Rates".........................................................................................3
1.1.17. "Guarantor".........................................................................................3
1.1.18. "Guaranty"..........................................................................................3
1.1.19. "Home Owners".......................................................................................3
1.1.20. "Manuals"...........................................................................................3
1.1.21. "Material"..........................................................................................3
1.1.22. "Maximum Paid Claims Count".........................................................................4
1.1.23. "Minimum Paid Claims Count".........................................................................4
1.1.24. "Paid Claims Below Minimum".........................................................................4
1.1.25. "Paid Claims".......................................................................................4
1.1.26. "Person"............................................................................................4
1.1.27. "Policies"..........................................................................................4
1.1.28. "Receivership Orders"...............................................................................6
1.1.29. "Records"...........................................................................................6
1.1.30. "Refund Fee For Claims Below Minimum Paid Claims Count".............................................6
1.1.31. "Service Coordinator"...............................................................................7
1.1.32. "Services"..........................................................................................7
1.1.33. "Special Deputy Receiver"...........................................................................7
1.1.34. "Term"..............................................................................................7
1.1.35. "Transition Period".................................................................................7
Section 1.2 Other Definitions..................................................................................7
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ARTICLE 2. TERMS OF ENGAGEMENT...................................................................................7
Section 2.1 Engagement.........................................................................................7
Section 2.2 Maintenance of Records.............................................................................7
Section 2.3 Ownership of Records...............................................................................8
Section 2.4 Notice of Claims...................................................................................8
Section 2.5 Attendance at Meetings.............................................................................8
Section 2.6 Conflicts of Interest..............................................................................8
Section 2.7 Compliance with All Applicable Laws................................................................9
Section 2.8 Compliance with Manuals............................................................................9
Section 2.9 Legibility of Records..............................................................................9
Section 2.10 Disbursements.....................................................................................9
Section 2.11 Delivery and Collection of Company Assets........................................................10
Section 2.12 Loss of Data.....................................................................................10
Section 2.13 Standard of Care.................................................................................10
Section 2.14 Reports..........................................................................................10
Section 2.15 Subcontracts.....................................................................................10
Section 2.16 Fraud Prevention.................................................................................11
Section 2.17 Disaster Recovery Plan and Record Retention......................................................11
Section 2.18 Other Acts.......................................................................................11
Section 2.19 Determination of Conversion Date.................................................................11
Section 2.20 21 Day Transition Period.........................................................................11
2.20.1. Employment Matters.................................................................................12
2.20.2. Contractor's Purchase of Company Assets............................................................12
Section 2.21 45 Day Transition Period.........................................................................12
2.21.1. Relocation of Company Operations...................................................................12
ARTICLE 3. COMPENSATION AND REIMBURSEMENT.......................................................................13
Section 3.1 Scope.............................................................................................13
Section 3.2 Initial Fee for Conversion........................................................................13
Section 3.3 Annual Service Fees After Conversion..............................................................13
Section 3.4 Fees for Partial Month............................................................................13
Section 3.5 Additional Fee For Excess Paid Claims and Refund Fee For Claims Below Minimum Paid Claims Count...14
Section 3.6 Additional Programming Fees.......................................................................14
Section 3.7 Taxes.............................................................................................14
Section 3.8 Additional Services...............................................................................15
Section 3.9 Contractor's Overhead.............................................................................15
Section 3.10 Costs of Third Parties and Third Party Litigation................................................15
Section 3.11 Suspension of Performance........................................................................16
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.......................................................................16
Section 4.1 Representations of Contractor.....................................................................16
4.1.1. Due Organization....................................................................................16
4.1.2. Authority...........................................................................................16
</TABLE>
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4.1.3. No Violation........................................................................................16
4.1.4. No Litigation.......................................................................................16
4.1.5. Enforceability......................................................................................16
4.1.6. Licenses and Permits................................................................................15
4.1.7. Skills and Experience...............................................................................15
4.1.8......................................................................................................15
Section 4.2 Deliveries On or Prior to Effective Date..........................................................15
4.2.1......................................................................................................15
4.2.2......................................................................................................15
4.2.3......................................................................................................15
4.2.4......................................................................................................15
4.2.5......................................................................................................15
Section 4.3 Representations of the Company....................................................................15
4.3.1. Due Organization....................................................................................15
4.3.2. Authority...........................................................................................16
4.3.3. Approvals...........................................................................................16
4.3.4. Enforceability......................................................................................16
ARTICLE 5. TERMINATION..........................................................................................16
Section 5.1 Termination.......................................................................................16
5.1.1. Without Cause.......................................................................................16
5.1.2. Breach..............................................................................................16
5.1.3. Insolvency of Contractor............................................................................16
5.1.4. Delay in Conversion.................................................................................17
5.1.5. Illegal Acts........................................................................................17
Section 5.2 Effect of Termination.............................................................................17
Section 5.3 Final Accounting..................................................................................17
Section 5.4 Trust Funds.......................................................................................17
Section 5.5 Termination Fee...................................................................................18
ARTICLE 6. CONFIDENTIAL INFORMATION.............................................................................18
Section 6.1 Confidential Information..........................................................................18
6.1.1. Disclosure by Legal Process.........................................................................19
6.1.2. Other - Disclosure..................................................................................19
6.1.3. Infringement........................................................................................19
6.1.4. Publicity...........................................................................................19
Section 6.2 Return of Confidential Information................................................................19
Section 6.3 Unauthorized Use of Claims and Policy Information.................................................19
Section 6.4 No Improper Solicitation of Employees.............................................................19
Section 6.5 Injunctive Relief.................................................................................20
ARTICLE 7. INDEMNIFICATION.......................................................................................20
Section 7.1 Duty to Indemnify.................................................................................20
Section 7.2 Notice of Claims..................................................................................20
Section 7.3 Professional Errors and Omissions Insurance and Fidelity Bond.....................................20
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ARTICLE 8. MISCELLANEOUS PROVISIONS.............................................................................21
Section 8.1 Non-Discrimination................................................................................21
Section 8.2 Examination of Contractor Business Records........................................................21
Section 8.3 Amendment.........................................................................................21
Section 8.4 Force Majeure.....................................................................................21
Section 8.5 Service Coordinator...............................................................................22
Section 8.6 Notices...........................................................................................22
Section 8.7 Governing Law.....................................................................................23
Section 8.8 Severability......................................................................................23
Section 8.9 Benefit and Assignment............................................................................23
Section 8.10 Headings.........................................................................................24
Section 8.11 Counterparts.....................................................................................24
Section 8.12 General Terms....................................................................................24
Section 8.13 Independent Contractor...........................................................................24
Section 8.14 Complete Agreement...............................................................................24
Section 8.15 Construction.....................................................................................24
Section 8.16 Time.............................................................................................24
Section 8.17 No Implied Waivers; Remedies.....................................................................24
Section 8.18 Attorneys' Fees..................................................................................25
Section 8.19 Dispute Resolution...............................................................................25
Section 8.20 Travel...........................................................................................25
Section 8.21 No Benefit to Others.............................................................................25
Section 8.22 Consent..........................................................................................25
Section 8.23 Representative Capacity..........................................................................26
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<PAGE> 6
EXHIBITS AND SCHEDULES
<TABLE>
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Exhibit A Manuals
Exhibit B Guaranty
Schedule 1 Schedule of Services
Schedule 2 Schedule of Fee Rates
Schedule 3 Schedule of Assets
Schedule 4 Takeover Claim Files
Schedule 5 Partial List of Computer System Program Matters
Schedule 6 Company's Periodic Reports
</TABLE>
<PAGE> 7
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("this Agreement"), is made by
and between Steven T. Foster, Commissioner of Insurance, Bureau of Insurance,
State Corporation Commission of the Commonwealth of Virginia, (hereinafter the
"Deputy Receiver") in his capacity as Deputy Receiver of HOW Insurance Company,
a Risk Retention Group, Home Warranty Corporation and Home Owners Warranty
Corporation, In Receivership (hereinafter referred to as "HOWIC", "HWC", "HOW"
and collectively, the "Company") and Millers Integrated Claims Resources, Inc.,
a Texas corporation doing business under an assumed name as MiliRisk
("Contractor").
RECITALS
A. The Company desires to engage Contractor to administer the
Policies.
B. Contractor desires to administer the Policies.
C. The Company and Contractor desire to reduce their agreement
regarding Contractor's administration of the Policies to writing.
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises, the various
agreements of the Company and Contractor, and other good and valuable
consideration, the receipt and sufficiency of which is expressly acknowledged,
the Company and Contractor covenant and agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1 Certain Definitions. As used in this Agreement, the
following terms have the following meanings:
1.1.1. "Additional Fee For Excess Paid Claims" means
additional fees attributable to Excess Paid Claims as to which the Contractor
is entitled to compensation, with such additional fees being equal to the total
amount produced by multiplying SEVEN HUNDRED AND FIFTY DOLLARS ($750) for each
Paid Claim within a Calendar Year in excess of the Maximum Paid Claims Count
established for that Calendar Year as set forth in Schedule 2 herein.
1.1.2. "Additional Services" means any Services with respect
to the Policies performed by Contractor at the Company's request that are not
described in, incidental to, or
1
<PAGE> 8
inferable from, this Agreement or Schedule 1 attached hereto, as determined by
the Company in its reasonable discretion.
1.1.3. "Agreement" means this Administrative Services
Agreement by and between the Deputy Receiver and Contractor, all exhibits and
schedules attached hereto, and any amendments to the Agreement, exhibits or
schedules as may be properly made hereunder.
1.1.4. "All Applicable Laws" means all present and future
insurance and other laws, orders and regulations of federal, state, municipal
and local governments that regulate or govern the operations of Contractor or
the Company.
1.1.5. "Annual Service Fees" means the Annual Service Fees
set forth at Section 1 of Schedule 2 to this Agreement.
1.1.6. "Authorized Representative" means those Persons duly
authorized by the Deputy Receiver to act on behalf of the Company.
1.1.7. "Calendar Year" means the period beginning on January
1 and ending on December 31 of the same year. Notwithstanding the above, for
the year 1996 only, the Calendar Year shall commence on the Conversion Date
and end on December 31, 1996.
1.1.8. "Commission" means the State Corporation Commission of
the Commonwealth of Virginia, and its successors.
1.1.9. "Commissioner" means Steven T. Foster, in his capacity
as Commissioner of Insurance, Bureau of Insurance, State Corporation Commission
of the Commonwealth of Virginia, and his successors in office.
1.1.10. "Conversion" means the process whereby the Contractor
performs all matters necessary to assure full responsibility for administration
of the Policies during the Transition Period in order to be in a position to
fully perform all Services contemplated in this Agreement.
1.1.11. "Conversion Date" means the date, reasonably
determined by the Company as the date on which Conversion is substantially
complete and the Contractor assumes full responsibility for administration of
the Policies and is able to fully perform the Services in this Agreement. The
Conversion Date, currently estimated to be April 30, 1996, shall not occur
prior to the end of the Transition Period. For the purposes of this
Section 1.1.11, conversion shall be substantially complete if the Contractor
is 1) performing the Services at Contractor's business facilities at 300
Burnett Street, Fort Worth, Texas, 2) the Company's Irving, Texas, office
facility has been closed, and 3) eighty percent (80W) of the Company's
employees, who perform functions related to the Services, have been dismissed
as employees by the Deputy Receiver.
1.1.12. "Deputy Receiver" means Steven T. Foster or his
successor, in his capacity as Deputy Receiver of the Company.
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1.1.13. "Duplicate Policy" means a policy form reproduced by
Contractor in accordance with the Manuals.
1.1.14. "Effective Date" means the date on which the
provisions of this Agreement shall take effect, which shall be the date on
which the last party to sign this Agreement signs this Agreement.
1.1.15. "Excess Paid Claims" means the total number of Paid
Claims within a Calendar Year in excess of the Maximum Paid Claims Count
established for that Calendar Year as set forth in Schedule 2 herein.
1.1.16. "Fee Rates" means the rates of compensation to be
paid by the Company to Contractor as fees for performing Services in accordance
with this Agreement, which rates, except for fees for any Additional Services,
are fixed for the Term at the rates set forth in this Agreement and in Schedule
2 attached hereto.
1.1.17. "Guarantor" means Millers Mutual Fire Insurance
Company, a Texas corporation and mutual fire insurance company operating under
the provisions of Chapter 15 of the Texas Insurance Code.
1.1.18. "Guaranty" means the guaranty executed and issued by
Guarantor in the form of, and attached as, Exhibit B to this Agreement.
1.1.19. "Home Owners" means the legal owner(s) of a home
covered by a valid Policy which has not expired, and as to whom the time period
for filing a claim has not lapsed.
1.1.20. "Manuals" means the Company's Claims Manual and
Policy and Procedures Manual(s) (with exhibits) being used by the Company for
administration of the Policies, in effect (and as amended by the Company or the
Service Coordinator) from time to time. The Manuals in effect as of the
Effective Date are attached hereto as Exhibit A.
1.1.21. "Material" shall mean, unless otherwise specified, of
sufficient magnitude that a reasonably prudent person, similarly situated,
would under the relevant circumstances, take (or, as the case may be, refrain
from taking) the action contemplated.
1.1.22. "Maximum Paid Claims Count" means the maximum number
of Paid Claims that may be adjusted by the Contractor within any Calendar Year
before the fixed Fee Rates of the Contractor begin to vary for such Calendar
Year.
1.1.23. "Minimum Paid Claims Count" means, as to a particular
Calendar Year, the "Minimum Paid Claims Count" set forth at Schedule 2.
1.1.24. "Paid Claims Below Minimum" means, as to a particular
Calendar Year, in the number of Paid Claims for such Calendar Year below the
Minimum Paid Claims Count.
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As to a particular Calendar Year, Paid Claims Below Minimum is the remainder
obtained by subtracting Paid Claims from the Minimum Paid Claims Count for such
Calendar Year (determined also by taking into account any Paid Claims during
such Calendar Year arising from takeover claim files set forth at Schedule 4).
1.1.25. "Paid Claims" means policyholder or Home Owner claims
paid by the Contractor. Each policyholder or Home Owner claim paid shall equal
one Paid Claims count. The aggregate of all Paid Claims in a single Calendar
Year shall equal the total Paid Claims count for such Calendar Year. Multiple
claims paid arising from a single incident, condition, or claims occurrence at
a home shall be considered one Paid Claims Count, regardless of the number of
claim payments made for such incident or claims occurrence. However,
notwithstanding the foregoing, the Paid Claims count will include those claims
which are not greater than the applicable deductible but fully adjudicated by
Contractor in accordance with the Manuals. Paid Claims shall not include any
amounts paid toward engineer fees, inspector fees, legal fees, court reporter
fees, mediator fees, recovery expense, or other loss adjustment or recovery
expenditures paid to third parties, whether submitted by such Persons or
policyholders and Home Owners. Paid Claims shall not include any claims
adjusted or paid by any Person other than Contractor, except that Paid Claims
shall include claims, in excess of applicable builder deductibles, paid in a
Calendar Year related to certain National Account Builders, who have agreed,
either contractually or otherwise, to adjudicate claims filed on homes built by
them.
1.1.26. "Person" includes an individual, corporation, trust,
partnership, limited liability company, unincorporated association, or other
business, government, foreign or domestic organization, or any agency or
political subdivision thereof.
1.1.27. "Policies" means any policy or contract of insurance
issued by HOWIC and providing coverage for Builders Limited Warranty or Major
Structural Defects as to a new or remodeled home. With respect to-a specific
claim, the term refers to such a policy or contract which, at the time the
claim arose, was in effect and provided coverage for the home to which the
claim relates. The term includes, but is not limited to: a) that certain
document styled BUILDER'S LIMITED WARRANTY" and designated as "HOW 1500(A) n;
b) that certain document styled "Insurance Warranty Documents" and designated
inter alia as "Form HOW 500(B)" and "Form HOW 500 III"; c) that certain
document styled "HOW BUILDER LIMITED WARRANTY INSURANCE POLICY" designated as
HOWIC 1100"; d) those documents styled RISK RETENTION INSURANCE POLICY" and
designated as HOWIC 100" and HOWIC 200"; e) those documents styled "PROTECTION
CONTRACT" and designated as "TEX-COPP 3"; f) those documents styled
"BUILDER/DEVELOPER LIMITED WARRANTY AND MAJOR STRUCTURAL DEFECT COVERAGE" and
designated as "HOWIC 2" and "HOW 706D"; g) those documents styled "REMODELER
PROGRAM INSURANCE/WARRANTY DOCUMENT" and designated as "HOW 800", and the
predecessors and successors of such documents.
1.1.28. "Receivership Orders" shall mean: a) that certain
"FINAL ORDER APPOINTING RECEIVER FOR REHABILITATION OR LIQUIDATION" entered on
October 14, 1994, by the Honorable Melvin R. Hughes, Jr., presiding in the
Circuit Court of the City of
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Richmond, Virginia, in cause number HE-1059-1, styled COMMONWEALTH OF VIRGINIA,
ex rel. STATE CORPORATION COMMISSION AND STEVEN T. FOSTER, COMMISSIONER OF
INSURANCE V. HOME WARRANTY CORPORATION, HOME OWNERS WARRANTY CORPORATION, HOW
INSURANCE COMPANY, A RISK RETENTION GROUP, AND RONALD E. TILLETT, TREASURER OF
VIRGINIA; b) that certain "PERMANENT INJUNCTION" entered on October 17, 1994,
by the Honorable Robert E. Payne presiding in the United States District Court
for the Eastern District of Virginia, Richmond Division, in cause number
3:94CV742, styled COMMONWEALTH OF VIRGINIA, ex rel. STEVEN T. FOSTER
COMMISSIONER OF INSURANCE STATE CORPORATION COMMISSION V. HOW INSURANCE
COMPANY, a RISK RETENTION GROUP. HOME WARRANTY CORPORATION, and HOME OWNERS
WARRANTY CORPORATION; and c) the predecessor temporary orders of said Courts.
1.1.29. "Records" means any and all originals and copies tin
whatever form) of letters, correspondence, communications, memoranda,
agreements, financial statements, tax returns, schedules, notices, proposals,
studies, reports, worksheets, printouts, charts, calculations, work papers,
manuals, notes, instructions, drafts, telephone logs, telecopies, messages,
analyses, billing or credit statements, invoices, microfiche, records
maintained in machine readable form, computer tapes, cartridges and diskettes,
and any and all other records in any way relating to the administration of the
Policies, which are placed in the possession, custody or control of Contractor
by the Company or produced, prepared, received or transmitted by Contractor,
all of which shall be and remain the sole and exclusive property of the
Company.
1.1.30. "Refund Fee For Claims Below Minimum Paid Claims
Count" means, as to a particular Calendar Year, the dollar product obtained by
multiplying the number of Paid Claims Below Minimum for such Calendar Year
times SEVEN HUNDRED AND FIFTY DOLLARS ($750).
1.1.31. "Service Coordinator" means any Person designated as
such by the Deputy Receiver to oversee Contractor's performance under this
Agreement.
1.1.32. "Services" means those services described in Schedule
1 attached hereto, and all services incidental to or inferable from the
services so described. The Services shall not include any work related to the
Company's accounting, actuarial and investment functions other than those
Services listed in Schedule 1.
1.1.33. "Special Deputy Receiver" means Patrick H. Cantilo or
his successor, in his capacity as Special Deputy Receiver of the Company.
1.1.34. "Term" means the period commencing on the Effective
Date and ending December 31, 2007 (unless mutually extended by the parties), or
the date this Agreement is sooner terminated pursuant to Article 5.
1.1.35. "Transition Period" means the period commencing on
the Effective Date and ending the day that (a) (i) all Company operations
related to
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the Services are relocated to Contractor's business facilities at 300 Burnett
Street, Fort Worth, Texas; (ii) the Contractor has assumed full operational
responsibility for the Services described herein and at Schedule 1; and (iii)
other transitional requirements set forth at Sections 2.20, 2.21 and 2.21.1
have been satisfied by the Contractor (unless mutually extended by the
parties), or (b) the date this Agreement is sooner terminated pursuant to
Article 5.
Section 1.2 Other Definitions. Terms defined elsewhere in this
Agreement have the meanings ascribed to them herein.
ARTICLE 2.
TERMS OF ENGAGEMENT
Section 2.1 Engagement. The Company hereby engages Contractor as a
third party administrator of the Policies. Contractor hereby accepts such
engagement and agrees to perform the Services in accordance with this Agreement
and as more specifically set forth at Schedule 1. Contractor shall be
considered a "Consultant" of the Receiver, Deputy Receiver and/or Special
Deputy Receiver as that term is used in the Receivership Orders.
Section 2.2 Maintenance of Records. Contractor shall maintain Records
relating to the Policies in accordance with the Manuals and reasonable and
prudent standards of insurance record-keeping. The Service Coordinator and the
Deputy Receiver shall have the right to examine Records at the offices of
Contractor during normal business hours after reasonable notice, and to make
such copies of Records as the Service Coordinator and the Company may deem
appropriate. The provisions of this Section 2.2 shall survive the termination
of this Agreement until the Records are delivered to the Company in accordance
with Section 5.3 below.
Section 2.3 Ownership of Records. Notwithstanding any other provision
of this Agreement, the Parties acknowledge that all Records received by
Contractor from the Company are and shall remain the property of the Company.
Further, all Records received by Contractor from claimants, subcontractors and
other parties in the course of providing Services hereunder, shall become the
property of the Company upon such receipt. Contractor shall be permitted to
maintain possession of the Records received from the Company or any such
claimants, subcontractors and other parties for the purpose of providing
Services hereunder until this Agreement is terminated or until the Company
earlier directs under circumstances which would not Materially impair the
ability of Contractor to perform hereunder.
Section 2.4 Notice of Claims. Contractor shall notify the Service
Coordinator within 30 days after first becoming aware of any actual or
potential legal, administrative or other claim against the Company of which the
Company is not aware. However, notwithstanding the foregoing, Contractor shall
notify the Service Coordinator within a sufficient period of time to permit an
answer to be filed by the Deputy Receiver if a lawsuit or administrative action
has been filed against the Company. Contractor is not authorized by the Deputy
Receiver to accept
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service of any legal process in connection with litigation, administrative
actions, or other adversary matters filed against the Company or the Deputy
Receiver.
Section 2.5 Attendance at Meetings. Contractor shall attend such
meetings and conferences, and participate in such consultations, as the Deputy
Receiver (and the Service Coordinator) may reasonably require or as is
otherwise reasonably necessary in the Deputy Receiver's view, to perform the
Services in accordance with this Agreement. The Deputy Receiver (or the Service
Coordinator) may require Contractor to travel to the offices of the Deputy
Receiver, Special Deputy Receiver and the Service Coordinator. Any actual and
reasonable out-of-pocket travel expenses (for air and ground transportation,
meals and lodging) incurred by the Contractor attending meetings and
conferences may be reimbursed to Contractor, up to an aggregate $2,250 per trip
for such substantiated expenses.
Section 2.6 Conflicts of Interest. Contractor must refrain from
engaging in any business activities that would constitute a conflict of
interest or the appearance of a conflict of interest, unless the conflict or
apparent conflict is first waived in writing by the Company after full
disclosure in each instance. For this purpose, a "conflict of interest" means
any business activity undertaken by Contractor for its own account, or for the
account of a Person other than the Company, that directly relates to any aspect
of the Company's business or affairs or that is directly adverse to the
interests of the Company. With respect to the Company's claims, Contractor will
refrain from adjudicating, or from taking any action which might affect the
adjudication of, any claim, claims matter, or any claims policy and guideline
decision of the Company that might affect the insurance policy liabilities of
Guarantor, Millers Casualty Insurance Company, or any insurance affiliate of
the Millers Group of Companies. Contractor shall forward such claims, claim
matters, or claims policy and guideline issues and files to the Service
Coordinator so that these issues and matters may be resolved or adjudicated by
a Person other than Contractor. The following situations or matters shall not
constitute an actual or apparent conflict of interest for Contractor: claims or
reinsurance administration, underwriting functions, and other insurance
functions performed by or on behalf of Guarantor, Millers Casualty Insurance
Company, or any insurance affiliate of the Millers Group of companies;
provided, however, that a conflict of interest shall be deemed to exist in any
circumstance in which coverage for a particular home, occurrence, Person or
entity is alleged to exist, or may exist simultaneously under Policies issued
by the Company and policies of insurance, or administration contracts, to which
Contractor or its affiliates are parties, including, but not limited to,
reinsurance agreements.
Section 2.7 Compliance with All Applicable Laws. In connection with
its performance hereunder, Contractor shall comply and, to the extent of the
Services to be provided by Contractor hereunder, use its best efforts to ensure
that the Company complies with All Applicable Laws.
Section 2.8 Compliance with Manuals. Contractor shall comply with the
rules, policies, procedures, and standards of the Company set forth in the
Manuals throughout the Term. Contractor shall maintain the Manuals and update
the Manuals as necessary to ensure compliance by the Company and Contractor
with All Applicable Laws.
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Section 2.9 Legibility of Records. Contractor shall ensure the
legibility of all Records stored on microfiche, and shall maintain on its
premises equipment to view or read the microfiche and to reproduce data on
microfiche into legible hard copies. Contractor shall furnish the Service
Coordinator and Company with copies of Records as requested, in a mutually
acceptable form. Each time Contractor processes data from a Policy into its
computer system, Contractor shall us-e its best efforts to verify that the data
processed complies with the Service Coordinator's and the Company's
record-keeping requirements, as set forth in the Manuals.
Section 2.10 Disbursements. Contractor shall disburse funds to the
policyholders or Home Owners only in accordance with the Manuals and only with
the specific written authorization of the Deputy Receiver or the Service
Coordinator. A separate bank account shall be established and maintained by the
Company to be used exclusively for such disbursements (the "Disbursement
Account"). Contractor shall notify the Deputy Receiver or the Service
Coordinator daily of funds to be disbursed from the Disbursement Account. As
soon as practicable, but within no more than two (2) business days of receiving
notification, the Deputy Receiver or the Service Coordinator will
electronically transfer such funds to the Disbursement Account for disbursement
by Contractor. The approval of the Service Coordinator shall be required prior
to Contractor's disbursement of any check in excess of TEN THOUSAND DOLLARS
($10,000). For any check in excess of $20,000, approval of the Special Deputy
Receiver shall be required.
Section 2.11 Delivery and Collection of Company Assets. Contractor
will faithfully pursue rights of action and will seek the collection and
recovery of certain property, assets, and rights of action belonging to the
Company. Contractor is not required to file or institute any legal actions, or
to pay the costs of any recovery litigation or third-party recovery expenses,
related to the pursuit of rights of action or the recovery of property and
assets. All property and assets collected by the Contractor shall be delivered,
assigned or paid promptly to the Service Coordinator for the benefit of the
Company.
Section 2.12 Loss of Data. Contractor shall be liable to the Company
for the loss or destruction of, or damage to, the Company's data, material or
property in the custody, control or possession of Contractor, however caused,
unless the loss, destruction or damage to such data is caused by the Service
Coordinator or the Company.
Section 2.13 Standard of Care. Contractor shall adhere to the industry
standard of care for a contractor engaged in the type of business and providing
the type of services which are contemplated in this Agreement. Without limiting
the generality of the foregoing, the Services must be performed by Contractor
in a prompt and efficient manner as set forth in this Section 2.13.
Section 2.14 Reports. Contractor shall prepare and deliver to the
Service Coordinator, the reports set forth in Schedule 6 in a prompt and
efficient manner. All reports must be accurate, complete and in hard copy
format with complete backup on microfiche. If the Special Deputy Receiver
requests that the reports be placed on magnetic media, it should be in the form
of a data
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cartridge tape or CD-ROM. Compatible software and hardware would be designated.
Documents provided in any magnetic media format should be compatible with
standard Windows-based software for word processing, spreadsheet, and database
applications for IBM compatible computers. If Contractor becomes aware of any
error(s) in any report prepared by Contractor, Contractor shall immediately
correct the error(s) in an amended report clearly marked as such (with such
error(s) clearly noted therein) and promptly send such amended report to the
Service Coordinator.
Section 2.15 Subcontracts. Contractor may not subcontract with any
other party to perform Services that Contractor is required to perform
hereunder, without the prior written consent of the Special Deputy Receiver (or
Service Coordinator). Contractor may, at its own expense, hire consultants or
independent contractors to work on Contractor's in-house computer system.
Contractor shall be fully responsible for the work performed by subcontractors,
consultants and independent contractors in connection with this Agreement.
Section 2.16 Fraud Prevention. Contractor shall ensure such control of
its accounting and financial transactions, including claim and policy
transactions, as is reasonably and prudently necessary to protect against loss
of the Company's assets and property from theft, error or fraudulent activity
on the part of Contractor's employees or third parties. Contractor will
establish and enforce guidelines and procedures to detect fraudulent claims so
as to protect the Company against loss of assets and property.
Section 2.17 Disaster Recovery Plan and Record Retention. Contractor
shall maintain throughout the Term a disaster recovery plan reasonably
acceptable to the Company in all respects. For this purpose, the disaster
recovery plan shall be initially acceptable to the Company if, no later than
the Effective Date, Contractor has adopted the same plan as the plan utilized
by The Millers Group dated September 20, 1994 (the "Disaster Recovery Plan")
with respect to its insurance company operations and the protection of its
policyholder records; provided, however, that any amendments to the Disaster
Recovery Plan after the Effective Date shall modify the disaster recovery plan
under this Agreement only if approved by the Service Coordinator in writing.
Contractor shall retain all Records of the Company, except such hard copy
Records as may be destroyed by Contractor after six (6) years as provided
herein, throughout the Term of this Agreement. Hard copy Records shall be
maintained for a period of six (6) years after receipt by, or the production of
such Records to, the Contractor. Following the expiration of such six (6) year
period, the Company's Records shall be kept on microfiche or other magnetic
media acceptable to the Deputy Receiver. All Records will be returned promptly
to the Deputy Receiver or Service Coordinator, in accordance with instructions
provided by either of them, after the termination of this Agreement.
Section 2.18 Other Acts. Contractor shall perform any other act
reasonably necessary or proper in the prudent administration of the Policies,
in compliance with this Agreement and All Applicable Laws. It is understood and
agreed that refinement and detailing will be accomplished from time to time
with respect to the Services set forth in Schedule 1. Such refinement and
detailing shall not constitute Additional Services unless it results in
Material changes in the scope, quality, function, or intent of the Services not
reasonably inferable or anticipatable by a
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contractor engaged in the type of business and providing the type of services
which are contemplated in this Agreement.
Section 2.19 Determination of Conversion Date. The Company shall
advise Contractor i-n writing of the date on which the Company deems the
Transition Period ended and Conversion to have been completed, and such date
shall be conclusively presumed to be the Conversion Date for purposes of this
Agreement.
Section 2.20 21 Day Transition Period. During the period commencing on
the Effective Date and ending twenty-one (21) days after such date, Contractor
shall be actively involved with Company personnel and representatives of the
Service Coordinator and the Company in order to ensure the continuity of
customer service practices, policy and claims administration, transfer of
various furniture, fixtures and equipment, assumption of certain leases and
retention of, as employees of Contractor, current Company personnel. During
this twenty-one (21) day "Transition Period", Contractor shall, without
limitation, do the following:
2.20.1. Employment Matters. Contractor may offer employment
to any then current Company employee, and the terms of any employment offer or
employment arrangement shall be at the sole discretion of Contractor.
2.20.2. Contractor's Purchase of Company Assets. Contractor
shall assume all current Company service or maintenance arrangements, etc. for
Company property and equipment sold to Contractor on or before the Conversion
Date. No later than the Conversion Date, Contractor will purchase the Company's
current computer systems (including hardware and software the "Computer
Systems")), as set forth on Schedule 3, for a purchase price of TWO HUNDRED AND
FIFTY THOUSAND DOLLARS ($250,000). Contractor may purchase furniture, fixtures
and other equipment (hereinafter collectively referred to as "Other Property")
currently located at the Company's offices at 909 East Las Colinas Boulevard,
Dallas, Texas as set forth on Schedule 3. Contractor will submit within ten
(10) days from the Effective Date a proposal to purchase the Other Property, in
whole or in part, specifying in detail the purchase price it proposes to pay
for each of the assets comprising the Other Property, and on terms that are
acceptable to Contractor. The Contractor's purchase proposal for the Other
Property shall represent an irrevocable offer of the Contractor during the
Transition Period and, notwithstanding same, the Company may, at its option,
(1) sell any of the Other Property listed at Schedule 3 to other parties during
or after the Transition Period, (2) sell such Other Property to Contractor, or
(3) retain such Other Property as the Company sees fit. As to any assets sold
to Contractor, the Company shall execute such bills of sale, assignments and
other documents as are reasonably required to effect the purchase and sale of
such Company assets and the Contractor shall execute such assumption documents,
bills of sale, assignments and other documents as are reasonably required to
effect the purchase and sale of such Company assets on an "as is" basis and the
assumption of its service or maintenance contract arrangements applicable to
such purchase. In connection with the sale of any Company assets hereunder, the
Company makes no warranties, express or implied, as to the fitness or
merchantability of any asset sold.
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Section 2.21 45 Day Transition Period. During the period commencing on
the Effective Date and ending forty-five (45) days after such date, the
Company, its personnel and representatives shall work closely with the
Contractor in order that the Contractor be fully apprised of matters necessary
for it to assume full operational responsibility of the Company's affairs
related to the Policies and Services to be provided. By the end of the
Transition Period, but in any event before April 30, 1996, the Contractor shall
assume full operating responsibility for the Company's business affairs related
to the Services.
2.21.1. Relocation of Company Operations. Recognizing that
the Company may be required to vacate its business location on or before April
30, 1996, the Contractor shall exercise its best efforts to assist the Company
in moving all Company operations, retained and, if applicable, non-retained
employees, purchased and, if applicable, non-purchased property and equipment
to Contractor's business facilities located at 300 Burnett Street, Fort Worth,
Texas prior to April 30, 1996. The Contractor shall bear the cost of, and be
responsible for, the transportation and delivery of any purchased equipment and
Other Property purchased by Contractor. All other costs of relocation shall be
borne by the Company.
ARTICLE 3.
COMPENSATION AND REIMBURSEMENT
Section 3.1 Scope. Contractor shall be compensated for the Services
rendered hereunder as provided in this Article 3.
Section 3.2 Initial Fee for Conversion. The Company shall pay
Contractor, within ten (10) business days after the Effective Date a one-time
fee of SIXTY-FIVE THOUSAND DOLLARS ($65,000) to offset front-end relocation
costs, for initial set-up and for achieving Conversion. If for any reason not
attributable to Contractor, the Conversion is not achieved, Contractor shall
refund fifty percent (50W) of the fee, or THIRTY-TWO THOUSAND FIVE HUNDRED
DOLLARS ($32,500) to the Company within ten (10) business days of demand
therefor. The Contractor shall refund one hundred percent (100W) of the fee, or
SIXTY-FIVE THOUSAND DOLLARS ($65,000), to the Company within ten (10) business
days of demand therefor if Conversion is not achieved because of any reason
attributable to Contractor and not the Company.
Section 3.3 Annual Service Fees After Conversion. Commencing on the
Conversion Date and thereafter, on the first day of each month (or fractional
month) within the Term of this Agreement, the Company shall pay Contractor
one-twelfth (1/12th) of the Annual Service Fee set forth at Section 1 of
Schedule 2 hereunder. Notwithstanding the foregoing, for Calendar Year 1996
only, the Company shall pay Contractor on the first day of each month the
amount due for such month, which shall be calculated by determining the total
number of months remaining for 1996 after the Conversion Date, and then
dividing by such number the Annual Fee for 1996 set forth on Schedule 2 herein.
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Section 3.4 Fees for Partial Month. For any portion of the Term after
the Conversion Date that is less than an entire calendar month, the portion of
the Annual Service Fees payable with respect to that month shall be prorated by
multiplying the monthly fee computed under Section 3.3 by a fraction, the
numerator of which is the number of days of such calendar month within the Term
and the denominator of which is the total number of days in such calendar
month. The provisions of this Section 3.4 shall survive the termination of this
Agreement.
Section 3.5 Additional Fee For Excess Paid Claims and Refund Fee For
Claims Below Minimum Paid Claims Count. The Company shall pay Contractor the
Additional Fee For Excess Paid Claims set forth at Section 2 of Schedule 2
hereunder. Absent any dispute by the Company regarding same, the Annual Fee For
Excess Paid Claims will be payable within thirty (30) days after presentation
by Contractor of a yearly report (`"Reconciliation") identifying the total Paid
Claims for the Calendar Year and identifying the Excess Paid Claims during such
Calendar Year. For purposes of determining Excess Paid Claims, once a claim is
paid in a particular Calendar Year, the claim shall be considered a Paid Claim
in such Calendar Year. Notwithstanding the foregoing, Contractor shall pay to
the Company a Refund Fee For Claims Below Minimum Paid Claims Count for each
Calendar Year in which there are Paid Claims Below Minimum. The Refund Fee For
Claims Below Minimum Paid Claims Count shall be payable thirty (30) days
following the end of such Calendar Year. Further, "takeover claim files" (claim
files open as of the Conversion Date) shall not be counted when the parties
calculate the total Paid Claims in any Calendar Year, and Contractor shall
assume the responsibility for such takeover claim files without further
compensation therefor. Notwithstanding the foregoing, takeover claim files
shall be counted as Paid Claims by the parties when determining whether there
are Paid Claims Below Minimum for any Calendar Year. Takeover claim files are
set forth on Schedule 4 herein, and this schedule shall be amended by the
parties to reflect claim files opened or closed between January 31, 1996, and
the Conversion Date.
Section 3.6 Additional Programming Fees. Contractor shall provide up
to one hundred (100) hours per year of custom programming to support the
reporting needs of the Company. Additional custom programming will be available
at the Company's request at a charge of $50.00 per hour, plus reasonable
expenses incurred by the Contractor. Additional custom programming shall
consist of new programs written by the Contractor to support special reports
and certain information requested by the Deputy Receiver or Service Coordinator
which are outside the scope or intent of the Services and not reasonably
inferable or anticipatable by a contractor engaged in the type of business, and
providing the type of services, which are contemplated in this Agreement. Any
programming necessary to support, maintain, refine, fix, improve, document or
upgrade the programs already written by the Deputy Receiver for the Company's
current computer systems shall not be considered additional programming but
shall be performed by Contractor as part of the Services. A partial list of
computer system program matters which need to be added, maintained, refined,
fixed, improved, documented or upgraded to the Company's current computer
systems is set forth on Schedule 5 herein. The production of existing reports,
modification of such existing reports to satisfy regulatory, auditor, or the
Deputy Receiver's requirements, shall not be considered additional programming.
The Service Coordinator shall notify Contractor of such custom programming
needs and have sole discretion
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as to whether a project requires custom programming or whether such programming
is necessary for projects in Contractors ordinary course of business under this
Agreement.
Section 3.7 Taxes. Contractor shall be responsible for all applicable
sales, use, administrative service and other taxes payable in connection with
Contractor's administration of the Policies. Contractor shall also be
responsible for all payroll taxes arising from the employment of any former
Company employee retained by the Contractor as its employee and in no event
shall any such former employee be considered an employee of the Company or the
Service Coordinator after employment by the Contractor. Contractor shall
further be responsible for all filings of applicable tax returns or reports
applicable to its employees, sub-contractors, and third parties who perform
services on behalf of the Company, including, without limitation, IRS Forms
940, 941, 1099, W-2, W-3, etc.
Section 3.8 Additional Services. If the Deputy Receiver desires that
Contractor render Additional Services, the Deputy Receiver shall provide
written notice to Contractor of that desire, and during the thirty (30) days
following the giving of such notice, the Deputy Receiver and Contractor will
negotiate in good faith regarding the provision of such services at a
reasonable cost and on reasonable terms. The Deputy Receiver and Contractor
will have the absolute right not to enter into any agreement with respect to
the provision of Additional Services. Except as otherwise agreed, Contractor
shall bill the Company on or before the first day of the second month following
the month in which charges for Additional Services are incurred and will submit
with its invoice a tabulation of the hours and dates on which the Additional
Services were furnished, if applicable, and such other data supporting the
charges as the Company ma? reasonably request. The Service Coordinator shall
pay each approved invoice for agreed Additional Services within thirty (30)
days of receipt, unless otherwise agreed. If Contractor does not bill the
Company for such charges within thirteen (13) months after the month in which
the charges accrued, Contractor shall be conclusively presumed to have waived
such charges.
Section 3.9 Contractor's Overhead. The fees to be paid to Contractor
pursuant to this Article 3, and the travel expenses to be reimbursed to
Contractor pursuant to Section 2.5, constitute the entire compensation and
reimbursement to which Contractor shall be entitled under this Agreement or in
connection with its administration of the Policies, all of which compensation
shall be paid as a priority administrative expense of the Company as and when
due. Except to the extent specifically set forth in this Article 3, Section 2.5
and Schedule 2, Contractor is not and shall not be entitled to any other
compensation or reimbursement of any kind or character. No part of Contractor's
general overhead, administrative or direct or indirect expenses shall be
reimbursed by the Company.
Section 3.10 Costs of Third Parties and Third Party Litigation.
Contractor will not be responsible for the costs of litigation relating to
claims being processed by Contractor in accordance with this Agreement that
arise from disputes between or among the Company, Home Owners, policyholders or
other Persons, so long as Contractor complies with this Agreement and with the
Company's Manuals, rules and procedures regarding the processing of those
claims and the interpleading of any funds associated therewith. The Company
shall pay the reasonable loss
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adjustment fees and expenses of engineers, inspectors, adjusters, attorneys,
and other amounts incurred with third parties related to the adjudication of
the Company's claims hereunder.
Section 3.11 Suspension of Performance. If the Company fails to make
any undisputed payment properly due and owing to Contractor hereunder within
fifteen (15) business days after the Company's receipt of written notice of
such failure to pay, Contractor may, in addition to exercising its other rights
and remedies under this Agreement, at law or in equity, suspend performance of
Services until such payment is made.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations of Contractor. Contractor represents and
warrants to the as of the Effective Date Company that:
4.1.1. Due Organization. Contractor is a stock corporation chartered
by the State of Texas, duly organized, validly existing and now in good
standing under the laws of the state of its incorporation. Contractor has all
corporate power and authority required to execute, deliver and perform this
Agreement.
4.1.2. Authority. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action of the directors
and officers (or their equivalents) of Contractor and Guarantor.
4.1.3. No Violation. The execution, delivery and performance of this
Agreement does not and will not contravene or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
of any court, bureau, commission, governmental agency or administrative body to
which Contractor is subject, or constitute a breach or violation of, or result
in a default (with or without the giving of notice or the lapse of time or
both) under, any indenture, contract, agreement, instrument or other commitment
to which Contractor is a party or by which Contractor may be bound or affected.
4.1.4. No Litigation. No outstanding orders, decrees or judgments or
legal actions, suits, proceedings, administrative actions, strikes, labor
disputes or investigations are pending or, to Contractor's knowledge,
threatened against Contractor or the Guarantor which would individually or in
the aggregate Materially and adversely affect Contractor or that would
Materially impair Contractor's ability to perform its obligations hereunder.
4.1.5. Enforceability. This Agreement constitutes a legal, valid and
binding agreement of Contractor, enforceable against Contractor in accordance
with its terms, except as limited by bankruptcy, insolvency, receivership and
similar laws from time to time in effect.
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4.1.6. Licenses and Permits. Contractor has obtained all licenses and
permits necessary to legally execute, deliver and perform the Services.
4.1.7. Skills and Experience. Contractor (a) possesses the skills and
experience needed to perform the Services in accordance with this Agreement,
(b) shall devote sufficient resources to this project to enable Contractor to
achieve Conversion promptly, and (c) shall perform all Services in accordance
with Schedule 1, the Manuals and the industry standard of care for a contractor
engaged in the type of business, and providing the type of services, which are
contemplated in this Agreement.
4.1.8. On the Conversion Date, Contractor shall give such further
assurances as are necessary, in the judgment of the Company, to effect the
Conversion, including a representation and warranty to the Company that its
representations made pursuant to this Section 4.1 are true and correct as of
the Conversion Date and that no material change has occurred with respect to
the ability or financial condition of Contractor or Guarantor that would
materially adversely affect their respective abilities to perform under this
Agreement or the Guaranty.
Section 4.2 Deliveries On or Prior to Effective Date. This Agreement
shall not be effective unless the Contractor delivers to the Deputy Receiver
the following documents on or prior to the Effective Date:
4.2.1. Certificate of Good Standing of the Contractor and the
Guarantor issued by the Secretary of State as of a date no later than three (3)
days prior to the Effective Date;
4.2.2. The Guaranty, attached as Exhibit B, executed by
Guarantor as of the Effective Date;
4.2.3. A copy of the fidelity bond and professional errors
and omissions insurance policy required pursuant to Section 7.3;
4.2.4. A Certificate of Incumbency for any Contractor and
Guarantor signatory; and
4.2.5. Such other documents, copies of filings, certificates
of incumbency, etc. as the Company or the Service Coordinator shall reasonably
request in connection with entering into this Agreement.
Section 4.3 Representations of the Company. The Company represents and
warrants to Contractor that:
4.3.1. Due Organization. Each of the companies comprising the
Company is a corporation chartered by the following states, duly organized and
validly existing under the laws of their respective states of charter, except
that each is in receivership:
HWC: Delaware
HOW: District of Columbia
HOWIC: Commonwealth of Virginia
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4.3.2. Authority. The Company has all requisite power and
authority to execute, deliver and perform this Agreement.
4.3.3. Approvals. The execution, delivery and performance of
this Agreement by the Company has been duly authorized by all necessary
regulatory and other action required of the Company therefor and has been
approved by all parties whose approval is required.
4.3.4. Enforceability. This Agreement shall constitute a
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as limited by insolvency,
receivership and similar laws from time to time in effect and by the terms of
the Receivership Orders.
ARTICLE 5.
TERMINATION
Section 5.1 Termination. This Agreement may be terminated upon the
occurrence of any of the following events:
5.1.1. Without Cause. At the option of the Company, upon one
hundred eighty (180) days' prior written notice of termination to Contractor,
without cause.
5.1.2. Breach. At the option of either party, upon thirty
(30) days' prior written notice of termination to the other-party, for any
Material breach by such other party of this Agreement if the party in breach
does not cure the breach within thirty (30) days after its receipt of written
notice of the breach. Without limiting the generality of the foregoing,
Contractor's violation of Section 5.4 or 7.3 below, or failure to meet one or
more of the Services listed at Schedule 1 or the Manuals, shall constitute a
Material breach of this Agreement.
5.1.3. Insolvency of Contractor. At the option of the Deputy
Receiver, upon ten (10) days' prior written notice of termination to Contractor
if (i) a receiver, custodian or trustee is appointed for Contractor or all or
substantially all its assets, which appointment is not contested, or if
contested is not vacated within ninety (90) days following the date of such
appointment, (ii) a petition is filed by or against Contractor under any
present or future section or chapter of the Bankruptcy Code (11 U.S.C. ss.ss.
101 et seq.), or under any similar law or statute of the United States or of
any state (which, in the case of an involuntary proceeding, is not contested,
or if contested is not permanently discharged, dismissed, stayed or vacated, as
the case may be, within ninety (90) days of commencement), or any order for
relief (other than a petition under the Bankruptcy Code) is entered against
Contractor in any such proceedings, (iii) Contractor becomes insolvent or
admits its insolvency, (iv) Contractor takes any corporate action with a
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view toward dissolution or liquidation or ceases to do business, (v) Contractor
makes a transfer in fraud of creditors or makes a general assignment for the
benefit of creditors, (vi) any other event of Contractor insolvency occurs, or
(vii) any events described in (i) through (vi) occurs with respect to The
Millers Group of Companies, including Millers Mutual Fire Insurance Company and
Millers Casualty Insurance Company.
5.1.4. Delay in Conversion. At the option of the Deputy
Receiver, upon ten (10) days' written notice of termination to Contractor, if
Conversion has not been completed by April 30, 1996.
5.1.5. Illegal Acts. At the option of the Deputy Receiver,
effective immediately upon the delivery of written notice to Contractor, if
Contractor commits any substantial and Material illegal or fraudulent act in
connection with this Agreement.
Section 5.2 Effect of Termination. The termination of this Agreement
for any reason shall not affect any right, obligation, debt or liability which
has accrued under this Agreement on or before the date of such termination or
that accrues after the date of such termination under any provision of this
Agreement that extends beyond such termination; provided, that, at the option
of the Company, it may promptly reacquire the Computer Systems previously sold
to Contractor pursuant to Section 2.20.2 at a mutually agreed upon price
representing the then fair market value of the computer system; provided, that
if Contractor has breached this Agreement, the Company shall be entitled to
offset accrued fees and any other amounts owed to Contractor against the losses
incurred or likely to be incurred by the Company by reason of such breach. If
either party-defaults under this Agreement, the other party may exercise any
and all rights, remedies and recourses granted under this Agreement or now or
hereafter existing at law or in equity.
Section 5.3 Final Accounting. As soon as reasonably possible after the
termination date of this Agreement, by lapse of time or otherwise, Contractor
and the Deputy Receiver will jointly prepare a final accounting that reflects
the accrued fees and other amounts payable to Contractor for the year in which
this Agreement terminates. The Deputy Receiver shall not be obligated to pay
Contractor for any Services performed during the final month of this Agreement
until Contractor (a) gives the Deputy Receiver all Records in Contractor's
possession and all Records contained in Contractor's computer systems in the
form outlined in Section 2.14 or in accordance with the Service Coordinator's
instructions, (b) provides reasonable assistance to the Deputy Receiver and the
Service Coordinator in transferring responsibility for administration of the
Policies to the Company or its designee, and (c) returns all funds or assigns
authority over funds in the Disbursement Account and any other bank accounts
held for the benefit of the Company, the Home Owners or the policyholders.
Section 5.4 Trust Funds. Notwithstanding any other provision of this
Agreement, it is expressly agreed that all funds (other than earned fees and
expense reimbursements) received by Contractor by reason of, or under, this
Agreement constitute trust funds held by Contractor in a fiduciary capacity and
shall never become the property of Contractor. In the event of this Agreement's
termination Contractor shall immediately return to the Deputy Receiver
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immediately, and without reduction, the full amount of all such funds.
Contractor further agrees to take no legal or other steps to exercise control
or acquire any rights to any such funds. It is expressly agreed that any action
by Contractor, or by any Person on Contractor's behalf, that violates this
section shall constitute a Material breach of this Agreement entitling the
Deputy Receiver, in addition to exercising its other rights and remedies under
this Agreement, at law or in equity, to declare an immediate and complete
forfeiture of any and all fees and expense reimbursements to which Contractor
may then be entitled hereunder. It is also agreed that this provision shall
survive termination of this Agreement and that the obligations arising
hereunder shall not be dischargeable in bankruptcy.
Section 5.5 Termination Fee. If termination arises from a termination
notice given to Contractor by the Company in accordance with Section 5.1.1, a
termination fee shall be due Contractor, as provided by this Section 5.5,
within thirty (30) days after the termination date, provided, that no fee shall
be due Contractor unless it has faithfully performed the Services herein and
otherwise complied with the terms of this Agreement. Termination date, as
provided by this Section 5.5, means the date which arises one hundred eighty
(180) days after written notice of termination by the Deputy Receiver. A
termination fee totaling ONE MILLION DOLLARS ($1,000,000) shall be due
Contractor if a termination notice is given to it by the Deputy Receiver,
pursuant to Section 5.1.1, within the first fourteen (14) months following the
Effective Date. If a termination notice is given to the Contractor by the
Deputy Receiver, pursuant to Section 5.1.1, after the first fourteen (14)
months but before the twentieth (20th) month following the Effective Date, a
termination fee is due Contractor, but this fee shall be reduced from ONE
MILLION DOLLARS ($1,000,000) to FIVE HUNDRED THOUSAND DOLLARS ($500,000). If a
termination notice is given to the Contractor by the Deputy Receiver, pursuant
to Section 5.1.1., at any time during the Term but after the first twenty (20)
months following the Effective Date, the Contractor shall not be entitled to a
termination fee of whatsoever nature. The termination fees referenced by this
Section 5.5 are not in lieu of other compensation due the Contractor under this
Agreement.
ARTICLE 6.
CONFIDENTIAL INFORMATION
Section 6.1 Confidential Information. As used herein, the term
"confidential information," as such term relates to the Company, includes the
Records and all other information that is acquired by Contractor as an incident
to its performance of this Agreement, that reasonably appears to be
confidential, that was treated by the Company or the Service Coordinator as
confidential, or that is designated as confidential or proprietary by the
Company or the Service Coordinator, and that had not become public information
prior to its disclosure by the Company or the Service Coordinator to Contractor
and, as such term relates to Contractor, means all information that is acquired
by the Company or the Service Coordinator from Contractor as an incident to its
performance of this Agreement, that reasonably appears to be confidential, that
was treated by Contractor as confidential, or that is designated as
confidential or proprietary by Contractor, and that had not become public
information prior to its disclosure by Contractor to the Company or the Service
Coordinator.
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6.1.1. Disclosure by Legal Process. Except as required by any
law or court order, including any subpoena, neither the Deputy Receiver nor
Contractor (each a "Non Disclosing Party") shall disclose or permit the
disclosure of any confidential information to anyone other than the other
party, its representatives, or Persons designated by the other party, before
and after termination of this Agreement, except as reasonably required for the
Nondisclosing Party's performance of this Agreement. If an attempt is made by
any Person to obtain confidential information from a Nondisclosing Party by
means of legal process, including court order or subpoena, the Nondisclosing
Party shall immediately notify the other party and shall reasonably cooperate
with the other party in its reasonable efforts (and at its expense) to resist
such attempts to obtain the confidential information from the Nondisclosing
Party.
6.1.2. Other - Disclosure. Each party shall disclose
confidential information only to its employees who require such information in
the ordinary course and scope of their employment, provided that such employees
shall have acknowledged and agreed to preserve such confidentiality, and that
party and such employees shall use such confidential information solely in
connection with their needs under this Agreement. However, such confidential
information disclosed to employees shall be marked "Confidential and subject to
a confidentiality agreement". In addition, Contractor will diligently protect
the confidentiality and privacy rights of all policyholders and Home Owners.
6.1.3. Infringement. Each party agrees not to infringe on any
patent, license, copyright or other proprietary right, and not to violate any
right (including the right to royalties or license fees), of the other party or
any other Person.
6.1.4. Publicity. Contractor agrees not to disclose any
information regarding the Company's business or affairs to representatives of
the news media without the prior written consent of the Deputy Receiver,
Special Deputy Receiver or their Authorized Representatives.
Section 6.2 Return of Confidential Information. Upon termination of
this Agreement, all confidential information of each party in the possession of
the other party, or in the computer systems of the other party in machine
readable form, shall be returned in mutually acceptable form to the party that
furnished the information to the other party.
Section 6.3 Unauthorized Use of Claims and Policy Information.
Contractor shall not use, and shall not permit any employee, agent or other
Person to use, before and after termination of this Agreement, lists of names
or other information relating to current or former policyholders and Home
Owners covered by such Policies of insurance, their general agents, agents or
solicitors, or any other information relating to the Services provided
hereunder in connection with any solicitation or attempt to market, in any
manner, any products or services without the prior written consent of the
Deputy Receiver, Special Deputy Receiver or their Authorized Representatives.
Section 6.4 No Improper Solicitation of Employees. Except as otherwise
provided herein, during the Term and for two (2) years thereafter, either party
shall not directly or
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indirectly solicit, attempt to employ or retain, or employ or retain any
employee or representative of the other party or the Service Coordinator as an
employee, independent contractor or otherwise, or take any other action to
induce any person to leave the employ of the other party or the Service
Coordinator or to terminate any employment relationship with the other party or
the Service Coordinator, without the prior written consent of the other party
or the Service Coordinator, as the case may be. Notwithstanding anything to the
contrary herein, it is expressly understood and agreed that Contractor may,
during the period prior to the Conversion Date, directly solicit and attempt to
employ or retain employees of the Company as provided at Section 2.20.1.
Section 6.5 Injunctive Relief. The parties acknowledge that if either
party fails to comply with its obligations under this Article 6, the other
party may suffer irreparable harm for which there may be no adequate remedy at
law. Accordingly, if either party fails to comply with its obligations under
this Article 6, then, in addition to its other remedies, the other party will
be entitled immediately to injunctive relief or any other appropriate equitable
remedy.
ARTICLE 7.
INDEMNIFICATION
Section 7.1 Duty to Indemnify. Contractor shall indemnify, defend and
hold harmless the Company from and against any and all liability, loss, costs,
damage or expense (including court costs and reasonable fees and costs of
attorneys) incurred by, imposed upon or asserted against the Company arising
from the Company's enforcement of this Agreement, Contractor's breach of this
Agreement, or Contractor's negligence, willful misconduct or actions outside
the scope of its authority under this Agreement. This indemnity shall survive
the expiration or earlier termination of this Agreement. Company shall
indemnify the Contractor for any liability, loss, costs, damage or expense
(including court costs and reasonable fees and costs of attorneys) sustained by
Contractor as the result of any action or error or omission of the Company
prior to the Conversion Date, or such actions or errors of the Company or the
Service Coordinator after the Conversion Date which do not involve the Services
provided by the Contractor. The Company's duty to indemnify under this Section
7.1 shall be limited to and capped by the total amount of any unpaid
compensation that may be due to the Contractor (as measured from the date that
such notice of potential liability was received in writing by the Contractor)
pursuant to Schedule 2 for the remaining Term of the Agreement assuming that it
is not terminated early. Any indemnity reimbursement required by this Section
7.1 shall be limited to and shall only be payable from the Company's assets as
a priority administrative expense of the Company.
Section 7.2 Notice of Claims. If Contractor receives a complaint,
claim, or other notice of any loss, claim, damage, liability or expense which
may give rise to a claim for indemnification under Section 7.1, Contractor
shall promptly notify the Service Coordinator and the Company of such
complaint, claim, or other notice.
Section 7.3 Professional Errors and Omissions Insurance and Fidelity
Bond. Throughout the Term of this Agreement, Contractor, at its own expense,
shall maintain
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professional errors and omissions insurance ("E&O Insurance") in the amount of
TEN MILLION DOLLARS($10,000,000) with an insurance carrier rated no less than
A-- by A.M. Best Company, with a financial size category greater than Category
VIII or above as defined by A.M. Best Company. Any change to another insurance
carrier or reducing the amount of professional E&O Insurance shall require the
Company's consent. Contractor shall also procure from an insurance company
which meets the ratings and financial size category as noted by this Section
7.3, a fidelity bond in the amount of TWO MILLION DOLLARS ($2,000,000). Such
fidelity bond shall be maintained throughout the Term and shall be in form and
content satisfactory to the Company, to protect the Company against loss
arising from theft, error or fraudulent activity on the part of third parties
or the employees of Contractor. The cost of the bond shall be borne exclusively
by Contractor. The fidelity bond and E&O Insurance shall specify that thirty
(30) days' notice of cancellation shall be provided to the Deputy Receiver.
Contractor shall provide the Deputy Receiver with a copy of the fidelity bond
and E&O Insurance and evidence of payment as a condition precedent to
effectuating this Agreement and to the payment of any fees for Services
hereunder. Any renewal and substitute fidelity bond or E&O Insurance shall be
delivered to the Deputy Receiver, along with evidence of payment in full of all
premiums required thereunder, at least fifteen (15) days before termination of
the fidelity bond or E&O Insurance being renewed or substituted.
ARTICLE 8.
MISCELLANEOUS PROVISIONS
Section 8.1 Non-Discrimination. Neither the Company nor Contractor
will unlawfully discriminate, directly or indirectly, against any person
because of disability, race, color, creed, sex or national origin, in
performing this Agreement or any matter incident thereto.
Section 8.2 Examination of Contractor Business Records. The Deputy
Receiver or the Service Coordinator shall have the right to inspect the
business records and operational procedures of Contractor with respect to the
Company and this Agreement at any and all reasonable times and places, and to
make such copies of such business records as the Deputy Receiver or the Service
Coordinator may deem appropriate.
Section 8.3 Amendment. No amendment or modification of any provision
of this Agreement shall be effective unless embodied in a writing signed by
both parties.
Section 8.4 Force Majeure. Subject to Contractor's compliance with
Section 2.15 above, neither party shall be considered in breach of this
Agreement or have any liability to the other party for any failure to perform
its obligations hereunder if such breach or failure arises out of an
intervening act, occurrence or event that is not caused by that party which
substantially impairs the ability of that party to perform under, or in
accordance with, this Agreement. Intervening acts, occurrences and events
include: (a) any action taken or failed to be taken by the Service Coordinator
in regard to the Policies materially impacting the ability of the Contractor to
adequately perform the Services required of Contractor, (b) a declaration of a
banking
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moratorium or any suspension of payments in respect of banks in the
United States, (c) a commencement of war or armed hostilities or escalation of
existing hostilities directly involving the United States, (d) armed
insurrection or civil unrest, a natural disaster or any other unprecedented
cataclysmic event in Richmond, Virginia, Fort Worth, Texas, or in such other
location as would affect the ability of any party to perform hereunder, (e) a
fundamental change in the laws affecting the regulation of the business of
insurance.
Section 8.5 Service Coordinator. Contractor acknowledges that at such
time as the Service Coordinator is appointed by the Deputy Receiver, the
Service Coordinator shall be authorized and directed by the Deputy Receiver to
oversee Contractor's performance under this Agreement. Contractor and the
Service Coordinator shall meet periodically to discuss matters of policy, asset
recovery, claim administration, customer service, and Company operations.
Contractor is hereby authorized and directed by the Deputy Receiver to observe
faithfully all instructions of the Service Coordinator. The Service Coordinator
will be empowered by the Deputy Receiver to exercise, in the name and on behalf
of the Deputy Receiver, all power and authority of the Deputy Receiver under
this Agreement. Service Coordinator shall be entitled to all the indemnities
and protections afforded the Company and the Deputy Receiver as set forth
herein. The Deputy Receiver may designate a new service coordinator at any time
upon three (3) days' written notice to Contractor. Contractor will use its best
efforts to cooperate with and abide by the requests of Service Coordinator.
Section 8.6 Notices. Unless otherwise agreed by the parties, any
notices, document or reports or deliveries of Records required or permitted to
be given to either party in connection with this Agreement shall be delivered
personally, sent by overnight courier service, sent by facsimile transmission,
or mailed by express mail or registered or certified mail, in any case, return
receipt requested, or other similar means which results in written evidence of
receipt by the addressee to the address of such party set forth below, and
shall be effective upon receipt thereof by the addressee unless otherwise
provided by this Agreement:
If to the Company:
Patrick H. Cantilo
Special Deputy Receiver
HOW Insurance Company
c/o Cantilo, Maisel & Hubbard, L.L.P.
111 Congress Avenue, Suite 1700
Austin, TX 78701
Facsimile: (512) 404-6550
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with a copy to:
Mark F. Bennett
Counsel to the Deputy Receiver
HOW Insurance Company
c/o Cantilo, Maisel & Hubbard, L.L.P.
111 Congress Avenue, Suite 1700
Austin, TX 78701
Facsimile: (512) 404-6550
with a copy to:
SERVICE COORDINATOR to a Person and address as may be
designated by the Deputy Receiver at a later date.
If to Contractor:
Mark B. Cloutier
President & Chief Operating Officer
MiliRisk
300 Burnett Street
Fort Worth, TX 76102-2799
Facsimile: (817) 877-0805
or to such other address or addresses as either party may specify in a notice
given to the other party in the manner prescribed above.
Section 8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia,
notwithstanding that it shall be deemed to be performable in Dallas or Tarrant
Counties, Texas. Venue for any cause of action between the parties shall be
deemed to be exclusively in the Commission or other state court of competent
jurisdiction in Richmond, Virginia.
Section 8.8 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under All Applicable Laws. However, if any provision of this Agreement or the
application thereof to any Person or circumstance shall be held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to Persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected.
Section 8.9 Benefit and Assignment. This Agreement shall be binding
upon and shall inure to the benefit of Contractor and the Deputy Receiver and
their successors and permitted assigns. Contractor may not assign or transfer
any of its rights, privileges or powers or delegate any of-its duties or
obligations under this Agreement, voluntarily or by operation of law, without
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the prior written consent of the Deputy Receiver. Any attempted assignment in
violation of this section shall be void.
Section 8.10 Headings. The headings contained in this Agreement are
for convenience only and shall not affect the construction of any provision of
this Agreement.
Section 8.11 Counterparts. Any number of counterparts of this
Agreement may be executed and delivered, and each shall be considered an
original, and together they shall constitute one Agreement.
Section 8.12 General Terms. The definitions in Article 1 and elsewhere
in this Agreement shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". The words "hereof", "hereto", "herein", "hereunder" and
other words of similar import shall be deemed to refer to this Agreement as a
whole.
Section 8.13 Independent Contractor. Contractor shall act subject to
the oversight of the Deputy Receiver and the Service Coordinator in performing
this Agreement. However, the Deputy Receiver and the Service Coordinator shall
not have the right to control the details of Contractor's work and, therefore,
Contractor shall be an independent contractor. Contractor shall not be
considered a partner, joint venturer or associate of the Company, the Deputy
Receiver and the Service Coordinator. Contractor shall be a fiduciary of the
Deputy Receiver and shall comply with all the obligations of a fiduciary, in
connection with its issuance of checks, handling of financial matters on behalf
of the Deputy Receiver and the performance of the Services hereunder.
Section 8.14 Complete Agreement. This Agreement and the exhibits and
schedules attached hereto represent the final and complete agreement between
the parties, and supersede all prior discussions, negotiations and agreements,
written or oral, related to the administration of the Policies.
Section 8.15 Construction. The parties hereby agree that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any exhibits or schedules attached hereto.
Section 8.16 Time. With respect to all provisions of this Agreement,
time is of the essence; provided, that if the final (but not any interim) date
of any period set forth herein falls on a Saturday, Sunday or legal holiday
under the laws of the Commonwealth of Virginia or the United States of America,
the final date-of such period shall be extended to the next day that is not a
Saturday, Sunday or legal holiday.
Section 8.17 No Implied Waivers; Remedies. No failure or delay on the
part of a party in exercising any right, privilege, power or remedy under this
Agreement, and no course of
24
<PAGE> 31
dealing shall operate as a waiver of any such right, privilege, power or
remedy, nor shall any single or partial exercise of any right, privilege, power
or remedy under this Agreement preclude any other or further exercise of such
right, privilege, power or remedy. No waiver shall be asserted against the
Company and the Deputy Receiver unless duly signed in writing on behalf of the
Deputy Receiver. The rights, privileges, powers and remedies available to the
parties hereto are cumulative and not exclusive of any other rights,
privileges, powers or remedies provided by statute, at law, in equity or
otherwise. Except as provided in this Agreement, no notice to or demand on a
party in any case shall entitle such party to any other notice or demand in any
similar or other circumstances or constitute a waiver of the right of the party
giving such notice or making such demand to take any other action in any
circumstances without notice or demand.
Section 8.18 Attorneys' Fees. In the event of any action between
Contractor and the Deputy Receiver seeking enforcement of any of the terms and
conditions of this Agreement, the prevailing party to such action shall be
awarded, in addition to damages, injunctive or other relief, its reasonable
costs and expenses, including its court costs and reasonable attorneys' fees.
Section 8.19 Dispute Resolution. Unless otherwise agreed, all disputes
between the Company and Contractor with respect to this Agreement shall be
resolved by appropriate proceedings brought before the Commission or other
state court of competent jurisdiction in Richmond, Virginia. No arbitration or
alternative dispute resolution procedure shall be used or available to resolve
any issue arising under or with respect to this Agreement.
Section 8.20 Travel. Contractor understands that the Company is
subject to the jurisdiction of the Commission (located in Richmond, Virginia)
and that the Company's principal place of business is in Richmond, Virginia.
Contractor acknowledges and agrees that Contractor shall have to travel to
Richmond, Virginia, Austin, Texas or other geographic locations to attend
meetings with the Deputy Receiver's representatives or the Service Coordinator
upon request.
Section 8.21 No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit
of the Deputy Receiver, the Company and Contractor and their successors and
assigns, and they shall not be construed as conferring any rights on any other
Persons.
Section 8.22 Consent. In any instance in this Agreement where the
consent or approval of the Deputy Receiver or the Special Deputy may be given
or is required, or where any determination, judgment or decision is to be
rendered by the Company, the granting, withholding or denial of such consent
and, except as stated herein, the rendering of such determination, judgment or
decision shall be made or exercised by the Deputy Receiver (or the Service
Coordinator) at its sole and exclusive option and in its sole and absolute
discretion. The Deputy Receiver may withhold, delay or condition its consent
for any or no reason. No consent by the Deputy Receiver required under this
Agreement shall be effective unless embodied in a writing signed by the Deputy
Receiver or his Authorized Representative, and then such consent shall be
effective only in the specific instance and for the specific purpose for which
given.
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<PAGE> 32
Section 8.23 Representative Capacity. The parties acknowledge and
agree that the Deputy Receiver, Special Deputy Receiver, their Authorized
Representatives, and anyone acting on their behalf with respect to this
Agreement, shall be deemed to be a public officer acting in his or her official
capacity on behalf of the Commonwealth of Virginia and shall at all times be
relieved from individual liability for any and all actions taken or failed to
be taken by him or her, including any actions taken or failed to be taken in
good faith in reliance upon the opinion or advice of counsel, except to the
extent any such action or inaction constitutes willful misconduct or fraud.
Contractor acknowledges expressly that the Deputy Receiver and the Special
Deputy Receiver have full legal authority to bind and act for the Company. Any
action or notification required, or contemplated, from the Company hereunder
may be taken or provided by the Deputy Receiver or the Special Deputy Receiver.
Whenever in this Agreement reference is made to action by or against, or notice
from or to, the Company, such reference shall be deemed to include the Deputy
Receiver and the Special Deputy Receiver. In the event of conflict between
directions received by Contractor from the Service Coordinator and from the
Deputy Receiver or the Special Deputy Receiver, the directions received from
the Deputy Receiver or the Special Deputy Receiver shall take precedence.
[THIS SPACE INTENTIONALLY LEFT BLANK]
26
<PAGE> 33
EXECUTED AND DELIVERED this 12TH day of March, 1996.
THE COMPANY:
HOW Insurance Company, a Risk Retention Group, Home Warranty
Corporation and Home Owners Warranty Corporation In
Receivership For Rehabilitation Or Liquidation
By: /s/ STEVEN T. FOSTER
----------------------------------------------------------
Steven T. Foster, solely in his capacity
as Deputy Receiver
EXECUTED AND DELIVERED this 12th day of March, 1996.
CONTRACTOR:
Miller Integrated Resources, Inc., a Texas corporation, dba
MiliRisk,
By: /s/ F. GEORGE DUNHAM, III
---------------------------------------------------------
Name: F. George Dunham, III
Title: President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") dated as of June ___,
1997 is by and between MiliRisk, Inc., a Texas corporation (the "Company"), and
________________ ("Director").
RECITALS
A. Director is a member of the Board of Directors of the Company
and in such capacity is performing a valuable service to the Company.
B. The Company's Bylaws (the "Bylaws") provide for the
indemnification of the directors, officers, employees and agents of the Company
to the extent set forth in the Articles of Incorporation of the Company (the
"Articles").
C. The Articles provide that the Company shall indemnify the
directors, officers, employees and agents of the Company to the fullest extent
permitted by Article 2.02-1 of the Texas Business Corporation Act, as amended
to date (the "Corporation Act").
D. The Corporation Law specifically provides that indemnification
and advancement of expenses under any agreement is valid to the extent it is
consistent with the Corporation Act, as limited by the Articles, and thereby
contemplates that agreements may be entered into between the Company and
members of the Board of Directors of the Company with respect to the
indemnification of such directors.
E. In accordance with the authorization provided in the
Corporation Act, the Company has purchased and presently maintains a policy or
policies of directors' and officers' liabilities insurance (the "Insurance")
covering certain liabilities which may be incurred by the Company's directors
and officers in the performance of their services to the Company.
F. The general availability of directors' and officers' liability
insurance covering certain liabilities which may be incurred by the Company's
directors and officers in the performance of their services to the Company and
the applicability, amendment and enforcement of statutory and bylaw provisions
have raised questions concerning the adequacy and reliability of the protection
afforded to directors.
G. In order to induce Director to serve as a member of the Board
of Directors of the Company for the current term and for any subsequent term to
which he is elected by the shareholders of the Company, the Company has deemed
it to be in its best interest to enter into this Agreement with Director.
NOW, THEREFORE, in consideration of Director's agreement to serve as a
member of the Board of Directors of the Company after the date hereof, the
parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
<PAGE> 2
(a) Change in Control. A "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, is or
becomes the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
outstanding securities of the Company, or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by
the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the shareholders of
the Company approve (x) a merger or consolidation of the Company with
any other entity (other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
at least 80% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after
such merger or consolidation), (y) a plan of complete liquidation of
the Company or (z) an agreement or agreements for the sale or
disposition, in a single transaction or series of related
transactions, by the Company of all or substantially all of the
property and assets of the Company. Notwithstanding the foregoing,
events otherwise constituting a Change in Control in accordance with
the foregoing shall not constitute a Change in Control if such events
are solicited by the Company and are approved, recommended or
supported by the Board of Directors of the Company in actions taken
prior to, and with respect to, such events.
(b) Reviewing Party. A "Reviewing Party" means (i) the
Board of Directors or a committee of directors of the Company, who are
not officers, appointed by the Board of Directors, provided that a
majority of such directors are not parties to the claim or (ii)
special, independent counsel selected and appointed by the Board of
Directors or by a committee of directors of the Company who are not
officers.
2. Indemnification of Director.
The Company hereby agrees that it shall hold harmless and indemnify
Director to the fullest extent authorized and permitted by the provisions of
the Articles and Bylaws and the provisions of the Corporation Act, or by any
amendment thereof, but in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than the Articles, Bylaws or Corporation Act permitted the Company to
provide prior to such
2
<PAGE> 3
amendment, or other statutory provisions authorizing or permitting such
indemnification which is adopted after the date hereof.
3. Insurance
3.1 Insurance Policies. So long as Director may be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative, or investigative, any
appeal in such an action, suit, or proceeding, and any inquiry or investigation
that could lead to such an action, suit, or proceeding, by reason of the fact
that Director is or was a director, to the extent that the Company maintains
one or more insurance policy or policies providing directors' and officers'
liability insurance, Director shall be covered by such policy or policies in
accordance with its or their terms, to the maximum extent of the coverage
applicable to any director or officer then serving the Company.
3.2 Maintenance of Insurance. The Company shall not be required
to maintain the Insurance or any policy or policies of comparable insurance, as
the case may be, if such insurance is not reasonably available or if, in the
reasonable business judgment of the Board of Directors of the Company which
shall be conclusively established by such determination by the Board of
Directors, or any appropriate committee thereof, either (i) the premium cost
for such insurance is substantially disproportionate to the amount of coverage
thereunder or (ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such insurance.
3.3 Self-Insurance. To the extent Director is not indemnified
under other Sections of this Agreement and is not fully, by reason of
deductible or otherwise, covered by directors' and officers' liability
insurance, the Company shall maintain self-insurance for, and thereby indemnify
and hold harmless, Director from and against any and all expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Director in connection with any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, in which Director was or is made a
party or was or is involved by reason of the fact that Director is or was a
director of the Company. Notwithstanding the foregoing, payments of self-
insurance under this Section to Director by the Company shall not exceed the
amount of $5,000,000 for any event and further shall be limited in accordance
with Section 5 hereof. An "event" as used in the preceding sentence in
reference to a limitation on self-insurance shall include the same acts or
omissions by Director and interrelated, repeated or continuous acts or
omissions.
4. Additional Indemnification.
Subject only to the exclusions set forth in Section 5 hereof, the
Company hereby agrees that it shall hold harmless and indemnify Director:
(a) against any and all judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses
(including court costs and attorneys' fees) actually incurred by
Director in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, or
3
<PAGE> 4
investigative, including an action by or on behalf of shareholders of
the Company or by or in the right of the Company, any appeal in such
an action, suit, or proceeding, and any inquiry or investigation that
could lead to such an action, suit, or proceeding; and
(b) otherwise to the fullest extent as may be provided to
Director by the Company under the Corporation Act.
5. Limitations on Additional Indemnification.
No indemnification pursuant to this Agreement shall be paid by the
Company:
(a) in respect to any transaction if it shall be
determined by the Reviewing Party, or by final judgment or other final
adjudication, that Director derived an improper personal benefit;
(b) on account of Director's conduct which is determined
by the Reviewing Party, or by final judgment or other final
adjudication, to have involved acts or omissions not in good faith,
intentional misconduct or a knowing violation of law;
(c) if the Reviewing Party or a court having jurisdiction
in the matter shall determine that such indemnification is in
violation of the Articles, the Bylaws or the law.
6. Advancement of Expenses.
In the event of any threatened or pending action, suit or proceeding in
which Director is a party or is involved and which may give rise to a right of
indemnification under this Agreement, following written request to the Company
by Director, the Company shall promptly pay to Director amounts to cover
reasonable expenses incurred by Director in such proceeding in advance of its
final disposition upon the receipt by the Company of (i) a written affirmation
by Director of his good faith belief that he has met the standard of conduct
necessary for indemnification under the Corporation Act and (ii) a written
undertaking by or on behalf of Director to repay the amount paid or reimbursed
if it is ultimately determined that he has not met that standard or if it is
ultimately determined that indemnification of Director against expenses incurred
by him in connection with that proceeding is prohibited by the Corporation Act.
7. Repayment of Expenses.
Director agrees that Director shall reimburse the Company for all
reasonable expenses paid by the Company in defending any civil, criminal,
administrative, arbitrative, or investigative action, suit or proceeding
against Director in the event and only to the extent that it shall be
determined by final judgment or other final adjudication that Director is not
entitled to be indemnified by the Company for such expenses under the
provisions of the Corporation Act or any applicable law.
4
<PAGE> 5
8. Determination of Indemnification; Burden of Proof.
With respect to all matters concerning the rights of Director to
indemnification and payment of expenses under this Agreement or under the
provisions of the Articles and Bylaws now or hereafter in effect, the Company
shall appoint a Reviewing Party and any determination by the Reviewing Party
shall be conclusive and binding on the Company and Director. If under
applicable law, the entitlement of Director to be indemnified under this
Agreement depends on whether a standard of conduct has been met, the burden of
proof of establishing that Director did not act in accordance with such
standard of conduct shall rest with the Company. Director shall be presumed to
have acted in accordance with such standard and entitled to indemnification or
advancement of expenses hereunder, as the case may be, unless, based upon a
preponderance of the evidence, it shall be determined by the Reviewing Party
that Director did not meet such standard. For purposes of this Agreement,
unless otherwise expressly stated herein, the termination of any action, suit
or proceeding by judgment, order, settlement, whether with or without court
approval, or conviction, or upon a plea of nolo contendere or its equivalent
shall not create a presumption that Director did not meet any particular
standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
9. Effect of Change in Control.
If there has not been a Change in Control after the date of this
Agreement, the determination of (i) the rights of Director to indemnification
and payment of expenses under this Agreement or under the provisions of the
Articles and the Bylaws, (ii) standard of conduct and (iii) evaluation of the
reasonableness of amounts claimed by Director shall be made by the Reviewing
Party or such other body or persons as may be permitted by the Corporation Act.
If there has been a Change in Control after the date of this Agreement, such
determination and evaluation shall be made by a special, independent counsel
who is selected by Director and approved by the Company, which approval shall
not be unreasonably withheld, and who has not otherwise performed services for
Director or the Company.
10. Continuation of Indemnification. All agreements and
obligations of the Company contained herein shall continue during the period
that Director is director of the Company and, while a director of the Company,
is or was serving at the request of the Company as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, and shall
continue thereafter so long as Director shall be subject to any possible claim
or threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, arbitrative, or investigative, any appeal in
such an action, suit, or proceeding, and any inquiry or investigation that
could lead to such an action, suit, or proceeding, by reason of the fact that
Director was a director of the Company or serving in any other capacity
referred to herein.
5
<PAGE> 6
11. Notification and Defense of Claim.
Promptly after receipt by Director of notice of the commencement of any
action, suit or proceeding, Director shall, if a claim in respect hereof is to
be made against the Company under this Agreement, notify the Company of the
commencement thereof; provided, however, that delay in so notifying the Company
shall not constitute a waiver or release by Director of rights hereunder and
that omission by Director to so notify the Company shall not relieve the
Company from any liability which it may have to Director otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Director notifies the Company of the commencement thereof:
(a) the Company shall be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, to the extent that it
may wish, the Company, jointly with any other indemnifying party
similarly notified, shall be entitled to assume the defense thereof and
to employ counsel reasonably satisfactory to Director. After notice from
the Company to Director of its election to so assume the defense thereof,
the Company shall not be liable to Director under this Agreement for any
legal or other expenses subsequently incurred by Director in connection
with the defense thereof other than reasonable costs of investigation or
as otherwise provided below. Director shall have the right to employ
counsel of his own choosing in such action, suit or proceeding but the
fees and expenses of such counsel incurred after notice from the Company
of assumption by the Company of the defense thereof shall be at the
expense of Director unless (i) the employment of counsel by Director has
been specifically authorized by the Company, such authorization to be
conclusively established by action by disinterested members of the Board
of Directors though less than a quorum; (ii) representation by the same
counsel of both Director and the Company would, in the reasonable
judgment of Director and the Company, be inappropriate due to an actual
or potential conflict of interest between the Company and Director in the
conduct of the defense of such action, such conflict of interest to be
conclusively established by an opinion of counsel to the Company to such
effect; (iii) the counsel employed by the Company and reasonably
satisfactory to Director has advised Director in writing that such
counsel's representation of Director would likely involve such counsel in
representing differing interests which could adversely affect the
judgment or loyalty of such counsel to Director, whether it be a
conflicting, inconsistent, diverse or other interest; or (iv) the Company
shall not in fact have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of counsel shall be
paid by the Company. The Company shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Company or as to which a conflict of interest has been established as
provided in (ii) hereof. Notwithstanding the foregoing, if an insurance
company has supplied directors' and officers' liability insurance
covering an action, suit or proceeding, then such insurance company shall
employ counsel to conduct the defense of such action, suit or proceeding
unless Director and the Company reasonably concur in writing that such
counsel is unacceptable; and
6
<PAGE> 7
(c) the Company shall not be liable to indemnify Director
under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent. The Company shall not
settle any action or claim in any manner which would impose any
liability or penalty on Director without Director's written consent.
Neither the Company nor Director shall unreasonably withhold consent to
any proposed settlement.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Director to serve as a director of the
Company and acknowledges that Director is relying upon this Agreement in
continuing in such capacity.
(b) If a claim for indemnification or advancement of
expenses is not paid in full by the Company within thirty (30) days
after a written claim by Director has been received by the Company,
Director may at any time assert the claim and bring suit against the
Company to recover the unpaid amount of the claim. In the event
Director is required to bring any action to enforce rights or to collect
moneys due under this Agreement and is successful in such action, the
Company shall reimburse Director for all of Director's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
13. Proceedings by Director.
The Company shall not be liable to make any payment under this Agreement
in connection with any action, suit or proceeding, or any part thereof,
initiated by Director unless such action, suit or proceeding, or part thereof,
(i) was authorized by the Company, such authorization to be conclusively
established by action by disinterested members of the Board of Directors though
less than a quorum or (ii) was brought by Director pursuant to Section 12(b)
hereof.
14. Effectiveness.
This Agreement is effective for, and shall apply to, (i) any claim which
is asserted or threatened before, on or after the date of this Agreement but
for which no action, suit or proceeding has been brought prior to the date
hereof and (ii) any action, suit or proceeding which is threatened before, on
or after the date of this Agreement but which is not pending prior to the date
hereof. This Agreement shall not apply to any action, suit or proceeding which
was brought before the date of this Agreement. So long as the foregoing is
satisfied, this Agreement shall be effective for, and be applicable to, acts or
omissions occurring prior to, on or after the date hereof.
15. Nonexclusivity.
The rights of Director under this Agreement shall not be deemed
exclusive, or in limitation of, any rights to which Director may be entitled
under any applicable common or statutory law, or pursuant to the Articles, the
Bylaws, vote of shareholders or otherwise.
7
<PAGE> 8
16. Other Payments.
The Company shall not be liable to make any payment under this Agreement
in connection with any action, suit or proceeding against Director to the
extent Director has otherwise received payment of the amounts otherwise payable
by the Company hereunder.
17. Subrogation.
In the event the Company makes any payment under this Agreement, the
Company shall be subrogated, to the extent of such payment, to all rights of
recovery of Director with respect thereto, and Director shall execute all
agreements, instruments, certificates or other documents and do or cause to be
done all things necessary or appropriate to secure such recovery rights to the
Company including, without limitation, executing such documents as shall enable
the Company to bring an action or suit to enforce such recovery rights.
18. Survival; Continuation.
The rights of Director under this Agreement shall inure to the benefit
of Director, his heirs, executors, administrators, personal representatives and
assigns, and this Agreement shall be binding upon the Company, its successors
and assigns. The rights of Director under this Agreement shall continue so
long as Director may be subject to any action, suit or proceeding because of
the fact that Director is or was a director of the Company and, while a
director of the Company, is or was serving at the request of the Company as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise. If the Company, in a single transaction or series of related
transactions, sells, leases, exchanges, or otherwise disposes of all or
substantially all of its property and assets, the Company shall, as a condition
precedent to any such transaction, cause effective provision to be made so that
the persons or entities acquiring such property and assets shall become bound
by and replace the Company under this Agreement.
19. Amendment and Termination.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by both parties
hereto.
20. Headings.
Section headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and do not constitute a part of
this Agreement.
21. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
8
<PAGE> 9
(a) if to the Company:
MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attn: F. George Dunham, III
Facsimile no.: (800) 826-9865
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201-4675
Attn: Terry M. Schpok, P.C.
Facsimile no.: (214) 969-4343
(b) if to the Director:
-----------------------------------
-----------------------------------
-----------------------------------
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by cable, telegram, facsimile transmission,
telex or personal delivery, on the date of actual transmission or, as the case
may be, personal delivery.
22. Severability.
If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable under any applicable law, then such contravention or
invalidity shall not invalidate the entire Agreement. Such provision shall be
deemed to be modified to the extent necessary to render it legal, valid and
enforceable, and if no such modification shall render it legal, valid and
enforceable, then this Agreement shall be construed as if not containing the
provision held to be invalid, and the rights and obligations of the parties
shall be construed and enforced accordingly.
9
<PAGE> 10
23. Complete Agreement.
This Agreement, those documents expressly referred to herein and other
documents of even date herewith embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
24. Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts shall be
deemed an original, shall be construed together and shall constitute one and
the same instrument.
25. CHOICE OF LAW. THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL
LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
MILIRISK, INC.
By:
-----------------------------------------
F. George Dunham, III
President and Chief Executive Officer
---------------------------------------------
, Director
---------------------------------
10
<PAGE> 11
Schedule to Exhibit 10.11
Director Signatories to the Form of
Indemnification Agreement
F. George Dunham, III
Terry G. Gaines
Harry E. Bartel
R. Earl Cox, III
Mitch S. Wynne
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
this 1st day of July, 1997, to be effective on July 1, 1997 (the "Effective
Date"), by and between MiliRisk, Inc., a Texas corporation ("Employer"), and F.
George Dunham, III, a resident of Texas ("Employee").
W I T N E S S E T H:
WHEREAS, Employer is a corporation engaged in business in the State of
Texas and throughout the United States;
WHEREAS, Employer desires to employ Employee in the capacity of
Chairman of the Board, President, and Chief Executive Officer, upon the terms
and conditions hereinafter set forth; and
WHEREAS, Employee is willing to enter into this Agreement with respect
to his employment and services upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions hereinafter set
forth:
1. Term of Employment. The term of employment under this
Agreement shall be for a period of three (3) years, commencing on the Effective
Date and terminating on June 30, 2000, unless such employment is terminated or
extended prior to the expiration of said period as hereinafter provided.
2. Duties of Employee.
(a) Chairman of the Board, President and Chief Executive
Officer. Employee agrees that during the term of this Agreement, he
will devote his professional and business-related time, skills and
best efforts to the businesses of Employer in the capacity of Chairman
of the Board, President, and Chief Executive Officer, or such other
capacity as Employer and Employee may agree upon. If there are major
significant changes in the duties or responsibilities of Employee from
those listed as Prohibited Activities on Exhibit A attached hereto,
that are not mutually agreed upon, Employee may terminate his
employment within sixty (60) days of any such change. In addition,
Employee shall devote all necessary time and his best efforts in the
performance of any other duties as may be assigned to him from time to
time by the Board of Directors of Employer including, but not limited
to, serving on Employer's Board of Directors if elected. Employee
shall devote his full professional and business skills to Employer as
his primary responsibility. Employee may engage in personal, passive
investment activities provided such activities
<PAGE> 2
do not interfere with the performance of his duties hereunder and
violate the noncompetition and nondisclosure provisions set forth
herein.
(b) Other Positions. Employer acknowledges and agrees
that, during the term of this Agreement, Employee will devote some of
his professional and business-related time, skills and best efforts to
the businesses of The Millers Mutual Fire Insurance Company and The
Millers Casualty Insurance Company in the capacity of Vice Chairman of
the Board and that Employee may receive compensation from such
companies for his services including participation in The Millers
Mutual Fire Insurance Company Deferred Incentive Compensation Program
(the "Program") in accordance with the terms of the Program in effect
during his employment. In addition, nothing herein shall be construed
to prohibit Employee from serving on the boards of non-competitive
businesses or non profit community organizations or similar entities.
3. Compensation.
(a) Base Salary. Employer shall pay Employee an annual
base salary of Three Hundred Fifty Thousand Dollars ($350,000.00) per
annum (or fraction for portions of a year). Such base salary will be
adjusted from time to time in accordance with then current standard
salary administration guidelines of Employer. Employee's salary shall
be subject to all appropriate federal and state withholding taxes and
shall be payable in accordance with the normal payroll procedures of
Employer.
(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall receive a bonus each year during
the term of this Agreement in an amount equal to a percentage of a
certain net income target set for each year as established annually in
an annual planning session. If 100% or more of such annual target is
achieved in any year, Employee shall receive in such year a bonus of
50% of his base salary (the "Maximum Bonus"). If less than 100% of
such target is achieved in any year, Employee shall receive in such
year a bonus of a certain percentage of the Maximum Bonus as
determined in accordance with Schedule 3(b) attached hereto.
(c) Stock Options. Employee shall be granted stock
options for shares of common stock of Employer pursuant to the terms
of a Stock Option Agreement granted under the MiliRisk, Inc. 1997
Stock Option Plan, as amended, a copy of which has been provided to
Employee. The number of shares of common stock, exercise price and
date of grant for such options is set forth on Schedule 3(c) attached
hereto.
(d) Automobile Allowance. During the term of this
Agreement, Employer shall provide Employee with a monthly automobile
allowance of One Thousand Dollars ($1,000.00). Such allowance shall
be paid by Employer to Employee on the first workday of each month or
on such other day during the month as Employer and Employee shall
mutually determine.
<PAGE> 3
(e) Phone Allowance. During the term of this Agreement,
Employer shall provide Employee with a monthly phone allowance of
Fifty Dollars ($50.00). Such allowance shall be paid by Employer to
Employee on the first workday of each month or on such other day
during the month as Employer and Employee shall mutually determine.
4. Fringe Benefits. The terms of this Agreement shall not
foreclose Employee from participating with other employees of Employer in such
fringe benefit or incentive compensation plans as may be authorized and adopted
from time to time by Employer; provided, however, that Employee must meet any
and all eligibility provisions required under said fringe benefit or incentive
compensation plans. Employee may be granted such other fringe benefits or
perquisites as Employee and Employer may from time to time agree upon.
5. Vacations. Employee shall be entitled to the number of paid
vacation days in each calendar year as shall be determined by the Board of
Directors of Employer from time to time. In no event, however, shall Employee
be entitled to less than four weeks paid vacation during each calendar year.
6. Reimbursement of Expenses. Employer recognizes that Employee
will incur legitimate business expenses in the course of rendering services to
Employer hereunder. Accordingly, Employer shall reimburse Employee, upon
presentation of receipts or other adequate documentation, for all necessary and
reasonable business expenses incurred by Employee in the course of rendering
services to Employer under this Agreement.
7. Working Facilities. Employee shall be furnished an office,
personal secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties, which shall be
consistent with the policies of Employer.
8. Termination. The employment relationship between Employee and
Employer created hereunder shall terminate before the expiration of the stated
term of this Agreement upon the occurrence of any one of the following events:
(a) Death or Permanent Disability. The death or
permanent disability of Employee. For the purpose of this Agreement,
the "permanent disability" of Employee shall mean Employee's
inability, because of his injury, illness, or other incapacity
(physical or mental), to perform the essential functions of the
position contemplated herein, with or without reasonable accommodation
to Employee with respect to such injury, illness or other incapacity,
for a continuous period of 150 days or for 180 days out of a
continuous period of 360 days. Such permanent disability shall be
deemed to have occurred on the 150th consecutive day or on the 180th
day within the specified period, whichever is applicable.
<PAGE> 4
(b) Termination for Cause. The following events, which
for purposes of this Agreement shall constitute "cause" for
termination:
(1) The willful breach by Employee of any
provision of Sections 2, 11, 12, or 13 hereof (including but
not limited to a refusal to follow lawful directives of the
Board of Directors of Employer) after notice to Employee of
the particular details thereof and a period of 10 days
thereafter within which to cure such breach and the failure of
Employee to cure such breach within such 10 day period;
(2) Any act of fraud, misappropriation or
embezzlement by Employee with respect to any aspect of
Employer's business;
(3) The illegal use of drugs by Employee during
the term of this Agreement that, in the determination of the
Board of Directors of Employer, substantially interferes with
Employee's performance of his duties hereunder;
(4) Substantial failure of performance by
Employee that is repeated or continued after 30 day written
notice to Employee of such failure and that is reasonably
determined by the Board of Directors of Employer to be
materially injurious to the business or interests of Employer
and which failure is not cured by Employee within such 30 day
period; or
(5) Conviction of Employee by a court of
competent jurisdiction of a felony or of a crime involving
moral turpitude.
Any notice of discharge shall describe with reasonable
specificity the cause or causes for the termination of Employee's
employment, as well as the effective date of the termination (which
effective date may be the date of such notice). If Employer
terminates Employee's employment for any of the reasons set forth
above, Employer shall have no further obligations hereunder from and
after the effective date of termination (other than as set forth
below) and shall have all other rights and remedies available under
this or any other agreement and at law or in equity.
(c) Termination by Employee with Notice. Employee may
terminate this Agreement without liability to Employer arising from
the resignation of Employee upon one (1) year written notice to
Employer. Employer retains the right after proper notice of
Employee's voluntary termination to require Employee to cease
employment immediately; provided, however, in such event, Employer
shall remain obligated to pay Employee his salary during the one (1)
year notice period or the remaining term of this Agreement, whichever
is less. During such one (1) year notice period, Employee shall
provide such consulting services to Employer as Employer may
reasonably request and shall assist Employer in training his successor
and generally preparing for an orderly transition.
<PAGE> 5
(d) Termination by Employer with Notice. Employer may
terminate this Agreement at any time upon one (1) year written notice
to Employee; provided, however, upon such notice Employee shall not be
required to perform any services for Employer other than during the
period of three (3) months immediately following the receipt of such
notice of termination in which Employee shall assist Employer in
training his successor and generally preparing for an orderly
transition.
9. Compensation Upon Termination.
(a) General. Upon the termination of Employee's
employment under this Agreement before the expiration of the stated
term hereof for any reason, Employee shall be entitled to (i) the
salary earned by him before the effective date of termination, as
provided in Section 3(a) hereof, prorated on the basis of the number
of full days of service rendered by Employee during the year to the
effective date of termination, (ii) any accrued, but unpaid, vacation
or sick leave benefits, (iii) any authorized but unreimbursed business
expenses, and (iv) any accrued, but unpaid annual bonus.
(b) Termination For Other Than Cause. If such
termination is the result of the discharge of Employee by Employer for
any reason other than (i) his death or permanent disability, (ii) by
Employer or Employee with notice pursuant to Section 8(d) or 8(c),
respectively, or (iii) for cause (as defined in Section 8(b) hereof),
then Employee shall be entitled to receive as a severance payment an
amount equal to the salary (excluding bonuses) that Employee would
have received for the remainder of the term of this Agreement in
accordance with the regular payroll periods during the remainder of
the term of this Agreement. If Employee's employment hereunder
terminates because of the death of Employee, all amounts that may be
due to him under the terms of this Agreement shall be paid to his
administrators, personal representatives, heirs and legatees, as may
be appropriate.
(c) Termination For Cause. If the employment
relationship hereunder is terminated by Employer for cause (as defined
in Section 8(b) hereof), Employee shall not be entitled to any
severance compensation, except as provided in Section 9(a) above.
(d) Termination by Employer with Notice. If the
employment relationship is terminated by Employer other than for cause
or the permanent disability of Employee, then Employee shall be
entitled to receive as a severance payment and as compensation for all
services performed hereunder pursuant to Section 8(d) hereof an amount
equal to the salary that Employee would have received for the
remainder of the term of this Agreement or one (1) year, whichever is
less, in accordance with the regular payroll periods of Employer
during the applicable period.
(e) Termination by Employee with Notice. If the
employment relationship is terminated by Employee pursuant to the
provisions of Section 8(c) hereof, Employee shall be entitled to
receive as a severance payment and as compensation for all services
performed hereunder pursuant to Section 8(c) hereof the salary that
Employee would have
<PAGE> 6
received for the remainder of the term of this Agreement or one (1)
year, whichever is less, in accordance with the regular payroll period
of Employer during the applicable period.
(f) Survival. The provisions of Sections 9, 11, 12, and
13 hereof shall survive the termination of the employment relationship
hereunder and this Agreement to the extent necessary or reasonably
appropriate to effect the intent of the parties hereto as expressed in
such provisions.
10. Other Agreements. This Agreement shall be separate and apart
from, and shall be deemed to alter the terms of, any executive compensation
agreements, deferred compensation agreements, bonus agreements, general
employment benefits plans, stock option plans and any other plans or agreements
entered into between Employee and Employer pursuant to which Employee has been
granted specific rights, benefits or options.
11. Noncompetition. Employee agrees that, during his employment
with Employer and for a period of three (3) years from the date of termination
of his employment with Employer, he will not directly or indirectly compete
with Employer by engaging in the activities set forth on Exhibit A attached
hereto and incorporated herein by reference (the "Prohibited Activities")
within the geographic area that is set forth on Exhibit B attached hereto (the
"Restricted Area"). For purposes of this Section 11, Employee recognizes and
agrees that Employer conducts and will conduct business in the entire
Restricted Area and that Employee will perform his duties for Employer within
the entire Restricted Area. Employee shall be deemed to be engaged in and
carrying on the Prohibited Activities if he engages in the Prohibited
Activities in any capacity whatsoever, including, but not limited to, by or
through a partnership of which he is a general or limited partner or an
employee engaged in such activities, or by or through a corporation or
association of which he owns five percent (5%) or more of the stock or of which
he is an officer, director, employee, member, representative, joint venturer,
independent contractor, consultant or agent who is engaged in such activities.
Employee agrees that during the three (3) year period described above, he will
notify Employer of the name and address of each employer with whom he has
accepted employment during such period. Such notification shall be made in
writing within five (5) days after Employee accepts any employment or new
employment by certified mail, return receipt requested.
12. Confidential Data. Employee further agrees that, during his
employment with Employer and thereafter, he will keep confidential and not
divulge to anyone, disseminate nor appropriate for his own benefit or the
benefit of another any confidential information described in Exhibit C attached
hereto and incorporated by reference herein (the "Confidential Data").
Employee hereby acknowledges and agrees that this prohibition against
disclosure of Confidential Data is in addition to, and not in lieu of, any
rights or remedies that Employer may have available pursuant to the laws of any
jurisdiction or at common law to prevent the disclosure of trade secrets, and
the enforcement by Employer of its rights and remedies pursuant to this
Agreement shall not be construed as a waiver of any other rights or available
remedies that it may possess in law or equity absent this Agreement.
<PAGE> 7
13. Nonsolicitation of Employees. Employee covenants that, during
his employment with Employer and for a period of one (1) year from the date of
termination of his employment with Employer, he will not (i) directly or
indirectly induce or attempt to induce any employee of Employer to terminate
his or her employment or (ii) without prior written consent of Employer, offer
employment either on behalf of himself or on behalf of any other individual or
entity to any employee of Employer or to any terminated employee of Employer.
14. Property of Employer. Employee acknowledges that from time to
time in the course of providing services pursuant to this Agreement he shall
have the opportunity to inspect and use certain property, both tangible and
intangible, of Employer and Employee hereby agrees that such property shall
remain the exclusive property of Employer, and Employee shall have no right or
proprietary interest in such property, whether tangible or intangible,
including, without limitation, Employee's customer and supplier lists, contract
forms, books of account, computer programs and similar property.
15. Equitable Relief. Employee acknowledges that the services to
be rendered by him are of a special, unique, unusual, extraordinary, and
intellectual character, which gives them a peculiar value, and the loss of
which cannot reasonably or adequately be compensated in damages in an action at
law, and that a breach by him of any of the provisions contained in this
Agreement will cause Employer irreparable injury and damage. Employee further
acknowledges that he possesses unique skills, knowledge and ability and that
competition by him in violation of this Agreement or any other breach of the
provisions of this Agreement would be extremely detrimental to Employer. By
reason thereof, Employee agrees that Employer shall be entitled, in addition to
any other remedies it may have under this Agreement or otherwise, to injunctive
and other equitable relief to prevent or curtail any breach of this Agreement
by him.
16. "Change of Control". In the event (each such event, a "Change
of Control"): (1) Employer becomes a subsidiary of another corporation or
entity or is merged or consolidated into another corporation or entity or
substantially all of the assets of Employer are sold to another corporation or
entity; or (2) any person, corporation, partnership or other entity, either
alone or in conjunction with its "affiliates," as that term is defined in Rule
405 of the General Rules and Regulations under the Securities Act of 1933, as
amended, or other group of persons, corporations, partnerships or other
entities who are not "affiliates" but who are acting in concert, becomes the
owner of record or beneficially of securities of Employer that represent
thirty-three and one-third percent (33 1/3%) or more of the combined voting
power of Employer's then outstanding securities entitled to elect Directors; or
(3) the Board of Directors of Employer or a committee thereof makes a
determination in its reasonable judgment that a "Change of Control" of Employer
has taken place; the term during which this Agreement shall be effective shall
include the remaining term of this Agreement following the date of the Change
of Control plus two (2) years, and Employee's compensation for such period
shall be based on the following formula, shall be subject to the following
conditions, and shall be in lieu of the compensation provided for under Section
3 of this Agreement and in lieu of the compensation upon termination provided
for under Section 9 of this Agreement (except for Section 9(a), which shall
still apply):
<PAGE> 8
(a) Employee shall be paid an annual salary for the
remaining term of this Agreement plus two (2) years consisting of one
hundred percent (100%) of the average amount of total cash
compensation, excluding payments made under the Program and tax
benefit bonuses paid upon the lapse of resale restrictions on common
stock for certain officers, of Employee for the two (2) calendar years
prior to the Change of Control.
(b) Employee shall be paid an annual amount for the
remaining term of this Agreement plus two (2) years in consideration
of the noncompetition covenant of Section 11 of this Agreement
consisting of fifty percent (50%) of the average amount of total cash
compensation, excluding payments made under the Program and tax
benefit bonuses paid upon the lapse or resale restrictions on common
stock for certain officers, of Employee for the two (2) calendar years
prior to the Change of Control. Such annual amounts shall be paid
quarterly in advance.
(c) Notwithstanding any of the provisions of this
Agreement, the amount of all payments to be made pursuant to this
Section 16 after a Change of Control shall not exceed one dollar
($1.00) less than that amount that would cause any such payment to be
deemed a "parachute payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and as Section
280G of the Code is then in effect at the time of such payment.
(d) Any payments made to Employee following a Change of
Control that shall be disallowed, in whole or in part, as a deductible
expense to Employer for Federal income tax purposes by the Internal
Revenue Service on the basis that Section 280G of the Code prohibits
such deduction shall be reimbursed by Employee to the full extent of
such disallowance within six (6) months after the date of which the
amount of such disallowance has been finally determined and Employer
has paid the deficiency with respect to such disallowance. Employer
shall legally defend any proposed disallowance by the Internal Revenue
Service and the amount required to be reimbursed by Employee shall be
the amount determined by an appropriate court in a final,
nonappealable decision that is actually disallowed as a deduction. In
lieu of payment to Employer by Employee, Employer may, in its
discretion, withhold amounts from Employee's future compensation
payments until the amount owed to Employer has been fully recovered.
No such withholding shall occur prior to the date on which Employee
would be required to make reimbursement as provided herein.
(e) If the limitation set forth in this Section 16(c) may
at any time become applicable to the amounts otherwise due pursuant to
paragraphs (a) and (b) of Section 16, then Employer shall continue to
pay Employee all amounts as provided under paragraphs (a) and (b) of
Section 16 until such time as cumulative payments equal the aggregate
amount as limited by paragraph (c), and Employee may terminate his
employment relationship with Employer on three (3) months notice at
any time within the last twelve (12) months of the time period during
which the payments described in this Section 16(e) will be paid
without affecting his rights to receive such payments.
<PAGE> 9
(f) Employer shall have no obligation to pay the amounts
set forth in paragraphs (a) and (b) of Section 16 as limited by
paragraph (c) if there is reasonable proof that the noncompetition or
confidential data provisions of Sections 11 and 12, respectively, of
this Agreement are being violated.
(g) In the event the employment relationship is
terminated for cause (pursuant to Section 8(b) hereof) following a
Change of Control, Employer shall not be obligated to make any further
payments of the compensation amounts provided for in this Agreement,
except as provided in Section 9(a) above. Notwithstanding any other
provision of this Agreement, except for paragraphs (e) and (j) of this
Section 16, which shall control in the event Employee terminates
employment as provided in paragraphs (e) and (j), in the event
Employee voluntarily terminates employment following a Change of
Control for other than Good Reason, as defined hereinafter,
compensation amounts set forth in paragraphs (a) and (b) shall be
payable only for a one (1) year period following termination of
employment.
"Good Reason" to terminate employment with Employer occurs if:
(1) duties are assigned that are materially inconsistent with previous
duties; (2) duties and responsibilities are substantially reduced; (3)
base compensation is reduced not as part of an across the board
reduction for all senior officers or executives; (4) participation
under compensation plans or arrangements generally made available to
persons at Employee's level of responsibility at Employer is denied;
(5) a successor fails to assume this Agreement; or (6) termination is
made without compliance with prescribed procedures.
(h) In the event Employee is involuntarily terminated by
Employer without cause, Employee voluntarily terminates employment for
Good Reason or the employment relationship is terminated by death or
permanent disability of Employee, Employer's obligation to pay the
compensation amounts provided in this Section 16 shall survive
termination of employment.
(i) In the event of termination of employment during the
pendency of a "Potential Change of Control", as hereinafter defined,
paragraphs (g) and (h) of this Section 16 shall apply as if an actual
Change of Control had taken place. A "Potential Change of Control"
shall be deemed to have occurred if: (1) Employer has entered into an
agreement or letter of intent the consummation of which would result
in a Change of Control; (2) any person publicly announces an intention
to take or to consider taking actions that, if consummated, would
constitute a Change of Control; or (3) the Board of Directors of
Employer or a committee thereof in its reasonable judgment makes a
determination that a Potential Change of Control for purposes of this
Agreement has occurred. A Potential Change of Control remains pending
for purposes of receiving payments under this Agreement until the
earlier of the occurrence of a Change of Control or a determination by
the Board of Directors or a committee thereof (at any time) that a
Change of Control is no longer reasonably expected to occur.
<PAGE> 10
(j) Notwithstanding anything contained in this Agreement
to the contrary, Employee and Employer, or the person, corporation,
partnership or other entity acquiring control of Employer pursuant to
this Section 16, with the concurrence of the Chief Executive Officer
and Compensation Committee of the Board of Directors of Employer, may
mutually agree that Employee, with three (3) months' notice, may
terminate his employment and receive a lump sum payment equal to the
present value of remaining payments under this Agreement discounted by
the then current Treasury Bill rate for the remaining term of this
Agreement.
17. Successors Bound. This Agreement shall be binding upon
Employer and Employee, their respective heirs, executors, administrators or
successors in interest, including without limitation, any corporation,
partnership or other entity acquiring control of Employer pursuant to Section
16 hereof.
18. Severability and Reformation. The parties hereto intend all
provisions of this Agreement to be enforced to the fullest extent permitted by
law. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof, and the
remaining provisions shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance.
19. Integrated Agreement. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
and there are no agreements, understandings, specific restrictions, warranties
or representations relating to said subject matter between the parties other
than those set forth herein or herein provided for.
20. Attorneys' Fees. If any action at law or in equity, including
any action for declaratory or injunctive relief, is brought to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees from the nonprevailing party,
which fees may be set by the court in the trial of such action, or may be
enforced in a separate action brought for that purpose, and which fees shall be
in addition to any other relief which may be awarded.
21. Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice:
(a) If to Employer: MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: Secretary
Facsimile No.: (800) 826-9865
<PAGE> 11
(b) If to Employee: F. George Dunham, III
6229 Kenwick
Fort Worth, Texas 76116
Notice so given shall, in the case of notice so given by mail, be
deemed to be given and received on the fourth calendar day after posting, in
the case of notice so given by overnight delivery service, on the date of
actual delivery and, in the case of notice so given by cable, telegram,
facsimile transmission, telex or personal delivery, on the date of actual
transmission or, as the case may be, personal delivery.
22. Further Actions. Whether or not specifically required under
the terms of this Agreement, each party hereto shall execute and deliver such
documents and take such further actions as shall be necessary in order for such
party to perform all of his or its obligations specified herein or reasonably
implied from the terms hereof.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF TEXAS.
24. Assignment. This Agreement is personal to Employee and may
not be assigned in any way by Employee without the prior written consent of
Employer. This Agreement shall not be assignable or delegable by Employer,
other than to an affiliate of Employer, except if there is a Change of Control
as defined in Section 16, Employer may assign its rights and obligations
hereunder to the person, corporation, partnership or other entity that has
gained such control.
25. Counterparts. This Agreement may be executed in counterparts,
each of which will take effect as an original and all of which shall evidence
one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
MILIRISK, INC.
By:/s/ F. GEORGE DUNHAM, III
------------------------------------
Name: F. George Dunham, III
----------------------------------
Title: Chairman, President and CEO
---------------------------------
EMPLOYEE:
/s/ F. GEORGE DUNHAM, III
---------------------------------------
F. George Dunham, III
<PAGE> 12
EXHIBIT A
PROHIBITED ACTIVITIES
Acting in any capacity, either individually or with any corporation,
partnership or other entity, directly or indirectly, in providing, or proposing
to provide, data processing software systems, related automation support
services and information services to the insurance industry, including, but not
limited to, application software, processing, consulting and related services,
in the performance of any of the following types of duties in any part of the
insurance industry:
1. The performance of the sales and marketing functions.
2. The responsibility for sales revenue generation.
3. The responsibility for customer satisfaction.
4. The responsibility for research and development of insurance
data base products.
5. The responsibility for the research and development of
information data processing systems and services.
6. The providing of input to pricing of products.
7. The planning and management of data processing services
resources.
8. The coordination of the efforts of the various aspects of
computer systems services organizations with other functions.
9. The planning and management of information services resources.
10. The providing and management of an operations staff to support
the above listed activities.
<PAGE> 13
EXHIBIT B
RESTRICTED AREA
Fifty mile radius of the city limits of the following cities:
Dallas/Fort Worth, Texas Milwaukee, Wisconsin
Boston, Massachusetts Sheboygan, Wisconsin
Columbia, South Carolina
<PAGE> 14
EXHIBIT C
CONFIDENTIAL INFORMATION
1. All software/systems (including all present, planned and
future software), whether licenses or unlicensed, developed by or on behalf of
or otherwise acquired by MiliRisk, Inc. or any of its subsidiaries.
"All software/system" shall mean:
o all code in whatever form
o all data pertaining to the architecture and design of
such software systems
o all documentation in whatever form
o all flowcharts
o any reproduction or recreation in whole or in part of
any of the above in whatever form.
2. All business plans and strategies including:
o strategic plans
o product plans
o marketing plans
o financial plans
o operating plans
o resource plans
o all research and development plans including all
data produced by such efforts.
3. Internal policies, procedures, methods and approaches which
are unique to MiliRisk, Inc. and are not public.
4. Any information relating to the employment, job
responsibility, performance, salary and compensation of any present or future
officer or employee of MiliRisk, Inc.
<PAGE> 15
SCHEDULE 3(b)
ANNUAL BONUS
<TABLE>
<CAPTION>
% of net income target achieved % of Maximum Bonus
- ------------------------------- ------------------
<S> <C> <C>
More than Up to
- --------- -----
100% or more 100%
90% 100% 90%
80% 90% 75%
70% 80% 60%
60% 70% 45%
50% 60% 30%
40% 50% 15%
30% 40% 10%
20% 30% 5%
20% or less 0%
</TABLE>
<PAGE> 16
SCHEDULE 3(c)
STOCK OPTIONS
BOOK VALUE OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
---------------- -------------- -------------
Pre-Split Post-Split Pre-Split Post-Split
<S> <C> <C> <C> <C>
2,595 279,462 $140.00 $1.30 March 12, 1997
</TABLE>
IPO OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
---------------- -------------- -------------
Pre-Split Post-Split
<S> <C> <C> <C>
6,055 652,077 Initial Price to Public Date of IPO
</TABLE>
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated and effective as
of March 12, 1997 (the "Effective Date"), by and between Strategic Data
Systems, Inc. (the "Company"), a Wisconsin corporation, and Stuart Warrington
("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of Executive with
respect to the management of the Company's operations and the implementation of
the Company's business plan; and
WHEREAS, the Company considers the employment of Executive pursuant to
the terms of this Agreement to be in the best interests of the Company in order
to facilitate continuity of experienced management and wishes to assure that
Executive serves the Company by providing adequate compensation, incentives and
employment security in return for the services of Executive; and
WHEREAS, Executive is willing, on the terms and subject to the
conditions provided in this Agreement, to undertake the management
responsibilities contemplated herein, and furnish services to the Company as
provided herein.
NOW, THEREFORE, in consideration of the premises, the covenants,
representations and warranties herein contained and other good, valuable and
binding consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto agree as follows:
1. Employment Term. The employment term shall commence on the
Effective Date and shall be for a term of one year (the "Employment Term").
2. Responsibilities and Authority. The Company hereby employs
Executive to serve as its Chief Executive Officer. During the Employment Term,
Executive shall assume and discharge the responsibilities of the Chief
Executive Officer, as well as such other responsibilities as may be assigned to
him by the Board of Directors of the Company (the "Board of Directors").
3. Acceptance of Employment. Executive hereby accepts employment
by the Company on the terms and conditions herein provided and agrees, subject
to the terms of this Agreement, to devote substantially all of his business
time to advance the interests of the Company and perform the services of
Executive contemplated hereby. Notwithstanding the foregoing, the Company
acknowledges that Executive serves on certain boards and committees and that
this Section 3 is not intended to prohibit such service.
4. Compensation and Benefits. As compensation for his services
hereunder, Executive shall be entitled to the following amounts and benefits.
<PAGE> 2
4.1 Base Compensation. Executive shall receive a base
cash salary from the Company at the aggregate rate of $190,500 per
annum for the Employment Term. The compensation received by Executive
pursuant to this Section 4.1 shall be hereinafter referred to as "Base
Compensation." Base Compensation shall be payable in semi-monthly
installments on the first and sixteenth days of each month throughout
the Employment Term.
4.2 Annual Cash Incentives. During the Employment Term,
Executive shall be entitled to participate in the 1997 Annual Cash
Incentive Plan of MiliRisk, Inc. (f/k/a Millers Integrated Claims
Resources, Inc.) ("MiliRisk"), a copy of which has been provided to
Executive.
4.3 Annual Stock Incentives. During the Employment Term,
Executive shall be entitled to participate in the 1997 Management
Recognition Plan of MiliRisk, a copy of which has been provided to
Executive.
4.4 Stock Options. Executive shall be granted stock
options for 865 shares of common stock of MiliRisk pursuant to the
terms of a Stock Option Agreement granted under the MiliRisk 1997
Stock Option Plan, a copy of which has been provided to Executive.
4.5 Deferred Compensation.
4.5.1 The Company and Executive entered into a
Deferred Compensation Agreement, dated as of January 1, 1993
(the "Compensation Agreement"), whereby the Company agreed to
pay the Annual Benefit (as such term is defined in the
Compensation Agreement) to Executive depending on the vesting
of the Annual Benefit and the nature of the termination of
Executive's employment with the Company.
4.5.2 The Compensation Agreement shall hereby be
terminated and no longer in effect.
4.5.3 The Company shall pay to Executive, and if
Executive's spouse, Nancy H. Warrington (the "Spouse"),
survives him, to Spouse, $40,000 per year during the 20-year
period commencing as of January 1, 1999 and ending on December
31, 2018 (the "Deferred Annual Compensation"). The Deferred
Annual Compensation shall be payable to Executive or to Spouse
if Spouse survives Executive in equal monthly installments on
or before the tenth (10th) day of each month.
4.5.4 If the death of the second to die of Executive
or Spouse or the contemporaneous deaths of Executive and
Spouse occur prior to the distribution to Executive and Spouse
of all amounts payable to them under Section 4.5.3 hereof as
Deferred Annual Compensation, any amounts otherwise payable
under Section 4.5.3 hereof to Executive and/or Spouse shall be
distributed to the duly designated beneficiary(ies) of the
second to die of Executive and Spouse or, in the
2
<PAGE> 3
event of their contemporaneous deaths, of Executive. All
beneficiary designations shall be made by Executive and Spouse
in such form and subject to such limitations as from time to
time may be prescribed by the Board of Directors and shall be
delivered to the Secretary of the Company. Executive and
Spouse from time to time may revoke or change any beneficiary
designation on file with the Company. If there is no
effective beneficiary designation on file with the Company at
the time of the death of the second to die of Executive and
Spouse or at the time of their contemporaneous deaths,
distribution of amounts otherwise payable to Executive or
Spouse, as the case may be, under Section 4.5.3 hereof shall
be made to the estate of the second to die of Executive and
Spouse or, in the event of their contemporaneous deaths, to
the estate of Executive. If a beneficiary designated
hereunder by Executive or Spouse to receive benefits payable
under Section 4.5.3 hereof shall survive Executive or Spouse,
as the case may be, but die before receiving all distributions
under Section 4.5.3 hereof, the balance thereof shall be paid
to such deceased beneficiary's estate, unless the beneficiary
designation of Executive or Spouse, as the case may be,
provides otherwise. The Company shall have no responsibility
with respect to the validity of any beneficiary designation
made by Executive or Spouse and shall be fully protected if it
acts thereon in good faith.
4.6 Fringe Benefits. During the Employment Term,
Executive shall be entitled to (i) participate in or receive benefits
under any employee benefit plan and/or arrangement applicable to all
management level employees of the Company generally, (ii) receive
reimbursement for all reasonable out-of-pocket expenses (including
incidentals) relating to the performance of his duties and obligations
under this Agreement, including, without limitation, business
entertainment at any location and all expenses relating to travel,
meals and accommodations while performing his duties and obligations
from locations other than from the Company's offices in Sheboygan,
Wisconsin; provided, however, that such expenses may be subject to any
advance authorization as may be determined from time to time by the
Chairman of the Board of the Company (the "Chairman of the Board")
consistent with corporate policies established by the Board of
Directors or the Chairman of the Board and (iii) in addition to the
usual public holidays, receive up to 22 days of vacation each calendar
year, provided however that unused vacation days may not be carried
forward to any succeeding calendar year.
4.7 Benefits as Compensation. Nothing paid to Executive
pursuant to Sections 4.2, 4.3, 4.4, 4.5 or 4.6 above shall be deemed
to be in lieu of any portion of the Base Compensation of Executive set
forth in Section 4.1 above.
5. Termination. This Agreement may be terminated upon the
following terms:
5.1 Termination Upon Death. In the event of Executive's
death during the Employment Term, this Agreement will terminate upon
the first day of the month following Executive's date of death. In
such event, Executive's estate shall be paid all amounts owed pursuant
to Section 5.5 hereof earned prior to termination of employment and
Section 4.5 hereof shall remain in full force and effect.
3
<PAGE> 4
5.2 Termination Upon Total Disability. The Company may
terminate this Agreement for "total disability" upon at least 30 days'
notice to Executive. As used herein, "total disability" means illness
or other physical or mental disability of Executive which shall
continue for a period of at least two months in the aggregate during
any 12-month period during the Employment Term, which such illness or
disability shall make it impossible or impracticable for Executive to
substantially perform his duties and responsibilities hereunder. If a
disagreement arises between Executive and the Company as to whether
Executive is suffering from "total disability", as defined herein, the
question of Executive's disability shall be determined by a physician
designated by the Company. In the event of termination of this
Agreement as a result of Executive's total disability, Executive (or
his legal representative) shall be paid all amounts owed pursuant to
Section 5.5 hereof earned prior to termination of employment and
Section 4.5 hereof shall remain in full force and effect.
5.3 Termination by the Company Without Cause. The
Company shall have the right to terminate Executive's employment at
any time, on 30 days' notice, without Cause (as defined in Section 5.4
hereof). In the event of termination of Executive's employment
without Cause (whether during or after the Employment Term), (a)
Executive shall be paid (i) all amounts owed pursuant to Section 5.5
hereof and (ii) the Base Compensation payable hereunder until the
later of the expiration of the Employment Term or six months after the
date of termination and payable in semi-monthly installments during
such period; and (b) Section 4.5 hereof shall remain in full force and
effect.
5.4 Termination by the Company for Cause. The Company
shall be entitled to terminate Executive's employment at any time for
Cause, as hereinafter defined, immediately upon written notice to
Executive. In the event of such termination for Cause, all of
Executive's rights and benefits provided for in this Agreement shall
then and thereupon terminate, except as expressly provided in Sections
4.5 and 5.5 hereof. For the purpose of this Agreement, "Cause" shall
mean, (i) the failure by Executive to remedy a breach of any of
Executive's material obligations under this Agreement within five
business days after receipt of written notice of such breach from the
Chairman of the Board or the Board of Directors, (ii) the arrest for,
or conviction of Executive of, a felony, (iii) the abuse of illegal
drugs or other controlled substances or the intoxication of Executive
during business hours, (iv) the unexcused absence by Executive from
Executive's regular job location for more than five consecutive days
or for more than the aggregate number of days permitted to Executive
under Company vacation and sick leave policies applicable to
Executive, (v) any conduct or activity of Executive deemed injurious
to the Company in the discretion of the Chairman of the Board or the
Board of Directors or (vi) the breach of Executive's representations
set forth in Section 18.1 of this Agreement.
5.5 Effect of Termination. Notwithstanding any other
provision of this Agreement, in addition to any other payments payable
to Executive under any other provision of this Agreement, within 15
days after the earlier of the date of termination of this Agreement
for any reason whatsoever or the date of expiration of the Employment
Term, the Company shall pay to Executive any accrued and unpaid
amounts for Base
4
<PAGE> 5
Compensation, benefits, or reimbursable expenses payable prior to the
date of termination of this Agreement.
6. Disclosure of Information. Executive hereby acknowledges that
he will have access to certain trade secrets and confidential information of
the Company and of corporations and/or other business enterprises directly or
indirectly owned, controlled and/or operated by the Company ("Affiliates") and
that such information constitutes valuable, special and unique property of the
Company and such corporations. Executive shall not, during or after the term
of his employment hereunder, disclose any such trade secrets or confidential
information to any person or entity for any reason or purpose whatsoever except
as may be required by law or use such confidential information for any purpose
not authorized by the Chairman of the Board. Confidential information shall
include (i) all information designated as confidential by the Chairman of the
Board and (ii) all information the disclosure of which Executive knows, or in
the exercise of reasonable care should know, would be damaging to the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by Executive) or any information not otherwise
considered by the Chairman of the Board or the Board of Directors to be
confidential.
7. Agreement Not to Compete. Executive agrees that during the
term of his employment by the Company and for a period of 24 months following
the termination of his employment with the Company, he shall not, at any place
within the States in which the Company or its Affiliates is conducting business
operations at the time of such termination, without the prior written consent
of the Chairman of the Board, either in his own behalf or as a partner,
officer, director, employee, agent or shareholder (other than as the holder of
less than 10% of the outstanding capital stock of any corporation whose stock
is traded on a national securities exchange) engage in, be interested in or
render services to any business then competitive with the Company.
8. Agreement Not to Solicit Customers and Employees. Executive
agrees that during the term of his employment by the Company and for a period
of 24 months following the termination of his employment pursuant to this
Agreement, he shall not, either alone or on behalf of any business competing
with the Company or any Affiliate, directly or indirectly (i) solicit or
induce, or in any manner attempt to solicit or induce any person employed by,
or an agent of, the Company or any Affiliate to terminate his contract of
employment or agency, as the case may be, with the Company or any Affiliate, as
the case may be, or (ii) solicit, divert, or attempt to solicit or divert, as a
supplier or customer, any person, concern or entity which, as of the date of
termination or during the one year period prior thereto, furnishes products or
services to, or receives products and services from the Company or any
Affiliate, nor will he attempt to induce any such supplier or customer to cease
being (or any prospective supplier or customer not to become) a supplier or
customer of the Company or any Affiliate.
9. Termination of Rights in Other Plans. Executive has no
rights, compensation or benefits under any plan, agreement or arrangement of
the Company, except as provided in this Agreement. Any employment arrangements
or agreements between the Company and Executive that existed at any time prior
to the execution and delivery of this Agreement are hereby terminated.
5
<PAGE> 6
10. Injunctive Relief. In the event of a breach or threatened
breach by Executive of the provisions of this Agreement, the Company and any
Affiliate shall be entitled to an injunction without bond or security to
prevent irreparable injury to the Company or such Affiliate. Nothing herein
shall be construed as prohibiting the Company or such Affiliate from pursuing
any other remedies available to the Company or such Affiliate for such breach
or threatened breach, including the recovery of damages from the Executive.
11. Nature of Agreement. No right, title, interest, or benefit
hereunder shall ever be liable for or charged with any of the torts or
obligations of Executive or of any person claiming under Executive, or subject
to seizure by any creditor of Executive or any person claiming under Executive.
Neither Executive nor any person claiming under Executive shall have the power
to anticipate or dispose of any right, title, interest, or benefit hereunder in
any manner until the same shall have been actually distributed to him free and
clear of the terms of this Agreement.
12. Notice. For the purpose of this Agreement, notices and all
other communications to either party hereunder provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person, sent by facsimile with the appropriate mechanical answerback
received, or mailed by first-class mail or airmail, postage prepaid, addressed:
In the case of the Company, to:
Strategic Data Systems, Inc.
615 Pennsylvania Avenue
P.O. Box 819
Sheboygan, Wisconsin 53082-0819
Attention: Chairman of the Board
Facsimile No. (414) 459-9123
with a copy to:
MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No. (817) 348-3765
In the case of Executive, to:
Stuart Warrington
3111 Koning Drive
Sheboygan, Wisconsin 53083
or to such other address as either party shall designate by giving written
notice of such change to the other party.
6
<PAGE> 7
13. Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto, and shall also bind and inure to the benefit of Executive's heirs and
legal representatives and any successor or successors of the Company by merger
or consolidation and any assignee of all or substantially all of the Company's
business and properties; except as to any such successor or assignee of the
Company, neither this Agreement nor any duties, rights or benefits hereunder
may be assigned by the Company or by Executive without the express written
consent of Executive or the Company, as the case may be.
14. Arbitration. Any dispute arising hereunder between Executive
and the Company which cannot be resolved by them to their mutual satisfaction
within a period of two weeks, unless mutually extended, shall be submitted to
arbitration by a panel of three arbitrators in Chicago, Illinois in accordance
with the rules of the American Arbitration Association then in effect. The
results of such arbitration shall be binding and conclusive upon the parties
hereto, and judgment on the award may be entered at the instance of either
party in any court of competent jurisdiction. The arbitrators shall be
empowered to award interest at "floating" prime rate, retroactive to the date
of breach of this Agreement, upon any award and to award arbitration costs
including reasonable actual legal fees, in their discretion, to the prevailing
party.
15. Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of Wisconsin.
16. Modification. No modification or waiver of any provision
hereof shall be made unless it be in writing and signed by both of the parties
hereto.
17. Scope of Agreement. This Agreement constitutes the whole of
the agreement between the parties on the subject matter, superseding all prior
oral and written conversations, negotiations, understandings, and agreements.
18. Representations and Indemnity.
18.1 No Violation of Other Agreements. Executive
represents and warrants to the Company that the execution, delivery
and performance by Executive of this Agreement and compliance by
Executive with the provisions hereof will not require any consent,
approval or notice under, violate, conflict with, or result in a
breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under any of the terms, conditions or provisions of any
agreement (including, without limitation, any prior employment
agreement or noncompete agreement with any other party), instrument,
undertaking or arrangement to which Executive is a party or any
judicial order, administrative decision or arbitration decision
applicable to Executive.
18.2 Indemnification Against Breach of Representations.
Executive shall indemnify and hold harmless the Company from and
against any claims, damages, expenses (including, but not limited to,
attorney's fees and other expenses), judgments, fines and amounts paid
in settlement incurred by the Company in connection with any
7
<PAGE> 8
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative to which the Company
is a party or is threatened to be made a party by reason of or arising
out of any actual or alleged breach of Executive's representations set
forth in Section 18.1 above.
18.3 Nonexclusivity of Indemnification Provisions.
Indemnification pursuant to Section 18 hereof shall be in addition to
any other rights which the Company may have under corporate governance
documents, other agreements or applicable law. The Company's right to
indemnification under this Section 18 shall survive the termination of
this Agreement.
19. Severability. To the extent that any provision of this
Agreement may be deemed or determined to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not impair or affect any
other provision, and this Agreement shall be interpreted so as to most fully
give effect to its terms and still be valid and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of March 12, 1997.
STRATEGIC DATA SYSTEMS, INC.
By: /s/ F. GEORGE DUNHAM, III
-------------------------------------
F. George Dunham, III
Chairman of the Board
/s/ STUART WARRINGTON
----------------------------------------
Stuart Warrington
8
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated and effective as of
March 12, 1997 (the "Effective Date"), by and between Strategic Data Systems,
Inc. (the "Company"), a Wisconsin corporation, and Robert K. Agazzi
("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of Executive with
respect to the management of the Company's operations and the implementation of
the Company's business plan; and
WHEREAS, the Company considers the employment of Executive pursuant to
the terms of this Agreement to be in the best interests of the Company in order
to facilitate continuity of experienced management and wishes to assure that
Executive serves the Company by providing adequate compensation, incentives and
employment security in return for the services of Executive; and
WHEREAS, Executive is willing, on the terms and subject to the
conditions provided in this Agreement, to undertake the management
responsibilities contemplated herein, and furnish services to the Company as
provided herein.
NOW, THEREFORE, in consideration of the premises, the covenants,
representations and warranties herein contained and other good, valuable and
binding consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto agree as follows:
1. Employment Term. The employment term shall commence on the
Effective Date and shall be for a term of one year (the "Employment Term").
2. Responsibilities and Authority. The Company hereby employs
Executive to serve as its President and Chief Operating Officer. During the
Employment Term, Executive shall assume and discharge the responsibilities of
the President and Chief Operating Officer, as well as such other
responsibilities as may be assigned to him by the Board of Directors of the
Company (the "Board of Directors").
3. Acceptance of Employment. Executive hereby accepts employment
by the Company on the terms and conditions herein provided and agrees, subject
to the terms of this Agreement, to devote substantially all of his business
time to advance the interests of the Company and perform the services of
Executive contemplated hereby. Notwithstanding the foregoing, the Company
acknowledges that Executive serves on certain boards and committees and that
this Section 3 is not intended to prohibit such service.
4. Compensation and Benefits. As compensation for his services
hereunder, Executive shall be entitled to the following amounts and benefits.
4.1 Base Compensation. Executive shall receive a base cash
salary from the Company at the aggregate rate of $169,000 per annum for
the Employment Term. The
<PAGE> 2
compensation received by Executive pursuant to this Section 4.1 shall
be hereinafter referred to as "Base Compensation." Base
Compensation shall be payable in semi-monthly installments on the first
and sixteenth days of each month throughout the Employment Term.
4.2 Annual Cash Incentives. During the Employment Term,
Executive shall be entitled to participate in the 1997 Annual Cash
Incentive Plan of MiliRisk, Inc. (f/k/a Millers Integrated Claims
Resources, Inc.) ("MiliRisk"), a copy of which has been provided to
Executive.
4.3 Annual Stock Incentives. During the Employment Term,
Executive shall be entitled to participate in the 1997 Management
Recognition Plan of MiliRisk, a copy of which has been provided to
Executive.
4.4 Stock Options. Executive shall be granted stock
options for 865 shares of common stock of MiliRisk pursuant to the
terms of a Stock Option Agreement granted under the MiliRisk 1997
Stock Option Plan, a copy of which has been provided to Executive.
4.5 Fringe Benefits. During the Employment Term, Executive
shall be entitled to (i) participate in or receive benefits under any
employee benefit plan and/or arrangement applicable to all
management level employees of the Company generally, (ii) receive
reimbursement for all reasonable out-of-pocket expenses (including
incidentals) relating to the performance of his duties and obligations
under this Agreement, including, without limitation, business
entertainment at any location and all expenses relating to travel,
meals and accommodations while performing his duties and obligations
from locations other than from the Company's offices in Sheboygan,
Wisconsin; provided, however, that such expenses may be subject to any
advance authorization as may be determined from time to time by the
Chairman of the Board of the Company (the "Chairman of the Board")
consistent with corporate policies established by the Board of
Directors, the Chairman of the Board or the President and (iii) in
addition to the usual public holidays, up to 22 days of vacation each
calendar year, provided however that unused vacation days may not be
carried forward to any succeeding calendar year.
4.6 Benefits as Compensation. Nothing paid to Executive
pursuant to Sections 4.2, 4.3, 4.4 or 4.5 above shall be deemed to be
in lieu of any portion of the Base Compensation of Executive set forth
in Section 4.1 above.
5. Termination. This Agreement may be terminated upon the
following terms:
5.1 Termination Upon Death. In the event of Executive's
death during the Employment Term, this Agreement will terminate
upon the first day of the month following Executive's date of death.
In such event, Executive's estate shall be paid all amounts owed
pursuant to Section 5.5 hereof earned prior to termination of
employment.
2
<PAGE> 3
5.2 Termination Upon Total Disability. The Company may
terminate this Agreement for "total disability" upon at least 30 days'
notice to Executive. As used herein, "total disability" means
illness or other physical or mental disability of Executive which shall
continue for a period of at least two months in the aggregate during
any 12-month period during the Employment Term, which such illness or
disability shall make it impossible or impracticable for Executive to
substantially perform his duties and responsibilities hereunder. If a
disagreement arises between Executive and the Company as to whether
Executive is suffering from "total disability", as defined herein, the
question of Executive's disability shall be determined by a physician
designated by the Company. In the event of termination of this
Agreement as a result of Executive's total disability, Executive (or
his legal representative) shall be paid all amounts owed pursuant to
Section 5.5 hereof earned prior to termination of employment.
5.3 Termination by the Company Without Cause. The Company
shall have the right to terminate Executive's employment at any time,
on 30 days' notice, without Cause (as defined in Section 5.4 hereof).
In the event of termination of Executive's employment without Cause
(whether during or after the Employment Term), Executive shall be
paid (i) all amounts owed pursuant to Section 5.5 hereof and (ii) the
Base Compensation payable hereunder until the later of the expiration
of the Employment Term or six months after the date of termination and
payable in semi-monthly installments during such period.
5.4 Termination by the Company for Cause. The Company
shall be entitled to terminate Executive's employment at any time for
Cause, as hereinafter defined, immediately upon written notice to
Executive. In the event of such termination for Cause, all of
Executive's rights and benefits provided for in this Agreement shall
then and thereupon terminate, except as expressly provided in Section
5.5 hereof. For the purpose of this Agreement, "Cause" shall mean (i)
the failure by Executive to remedy a breach of any of Executive's
material obligations under this Agreement within five business days
after receipt of written notice of such breach from the President,
Chairman of the Board or the Board of Directors, (ii) the arrest for,
or conviction of Executive of, a felony, (iii) the abuse of illegal
drugs or other controlled substances or the intoxication of Executive
during business hours, (iv) the unexcused absence by Executive from
Executive's regular job location for more than five consecutive days or
for more than the aggregate number of days permitted to Executive under
Company vacation and sick leave policies applicable to Executive, (v)
any conduct or activity of Executive deemed injurious to the Company in
the discretion of the President, Chairman of the Board or the Board of
Directors or (vi) the breach of Executive's representations set forth
in Section 19.1 of this Agreement.
5.5 Effect of Termination. Notwithstanding any other
provision of this Agreement, in addition to any other payments
payable to Executive under any other provision of this Agreement,
within 15 days after the earlier of the date of termination of this
Agreement for any reason whatsoever or the date of expiration of the
Employment Term, the Company shall pay to Executive any accrued and
unpaid amounts for Base Compensation, benefits, or reimbursable
expenses payable prior to the date of termination of this Agreement.
3
<PAGE> 4
6. Disclosure of Information. Executive hereby acknowledges that
he will have access to certain trade secrets and confidential information of
the Company and of corporations and/or other business enterprises directly or
indirectly owned, controlled and/or operated by the Company ("Affiliates") and
that such information constitutes valuable, special and unique property of the
Company and such corporations. Executive shall not, during or after the term
of his employment hereunder, disclose any such trade secrets or confidential
information to any person or entity for any reason or purpose whatsoever except
as may be required by law or use such confidential information for any purpose
not authorized by the Chairman of the Board. Confidential information shall
include (i) all information designated as confidential by the Chairman of the
Board and (ii) all information the disclosure of which Executive knows, or in
the exercise of reasonable care should know, would be damaging to the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by Executive) or any information not otherwise
considered by the Chairman of the Board or the Board of Directors to be
confidential.
7. Agreement Not to Compete. Executive agrees that during the
term of his employment by the Company and for a period of 24 months following
the termination of his employment with the Company, he shall not, at any place
within the States in which the Company or its Affiliates is conducting business
operations at the time of such termination, without the prior written consent
of the Chairman of the Board, either in his own behalf or as a partner,
officer, director, employee, agent or shareholder (other than as the holder of
less than 10% of the outstanding capital stock of any corporation whose stock
is traded on a national securities exchange) engage in, be interested in or
render services to any business then competitive with the Company.
8. Agreement Not to Solicit Customers and Employees. Executive
agrees that during the term of his employment by the Company and for a period
of 24 months following the termination of his employment pursuant to this
Agreement, he shall not, either alone or on behalf of any business competing
with the Company or any Affiliate, directly or indirectly (i) solicit or
induce, or in any manner attempt to solicit or induce any person employed by,
or an agent of, the Company or any Affiliate to terminate his contract of
employment or agency, as the case may be, with the Company or any Affiliate, as
the case may be, or (ii) solicit, divert, or attempt to solicit or divert, as a
supplier or customer, any person, concern or entity which, as of the date of
termination or during the one year period prior thereto, furnishes products or
services to, or receives products and services from the Company or any
Affiliate, nor will he attempt to induce any such supplier or customer to cease
being (or any prospective supplier or customer not to become) a supplier or
customer of the Company or any Affiliate.
9. Split-Dollar Insurance Agreement.
9.1 The Company and Executive entered into the Split-Dollar
Insurance Agreement, dated as of January 1, 1993 (the "Insurance
Agreement"), in order to provide a life insurance policy (the
"Policy") for Executive. In connection with the Insurance Agreement,
Executive entered into a Collateral Assignment (the "Collateral
Assignment") whereby Executive assigned to the Company the right to
receive an amount out of the cash value of the Policy equal to the
Employer Advances (as such term is defined in the Insurance Agreement).
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9.2 Executive and the Company agree that (a) the Company
shall have no obligation to fund or make any additional payments under
the Insurance Agreement, (b) the amount of Employer Advances as of the
date hereof is $125,000 and (c) the Collateral Assignment shall remain
in effect until all amounts owed by Executive to the Company pursuant
to the Insurance Agreement, as amended hereby, have been repaid or
satisfied by Executive.
9.3 Executive shall repay the Employer Advances to the
Company upon termination of employment with the Company in accordance
with the terms of the Insurance Agreement, as amended hereby.
9.4 For the purposes of Section 8 of the Insurance
Agreement, no "change of control" shall be deemed to have occurred as
a result of the merger of Millers Merger Corporation into the Company.
Section 8 of the Insurance Agreement is hereby amended to read as
follows:
"8. Termination of Employment other than due to Death.
Upon termination of Employee's employment other than by reason of his
death, such portion of the Employer Advances equal to the then cash
surrender value of the Policy shall become immediately due and
payable in full to Employer. The balance, if any, of the Employer
Advances shall become due and payable in full to Employer no later
than on the sixtieth (60th) day after such termination of employment.
Pursuant hereto and to the Collateral Assignment, Employer shall be
entitled to receive such portion of the cash value of the Policy equal
to, but not in excess of, the Employer Advances. The balance of the
cash value, if any, shall belong to Employee or his transferee."
9.5 This Section 9 constitutes an amendment to the
Insurance Agreement and the Collateral Assignment.
10. Termination of Rights in Other Plans. Executive has no rights,
compensation or benefits under any plan, agreement or arrangement of the
Company, except as provided in this Agreement. Any employment arrangements or
agreements between the Company and Executive that existed at any time prior to
the execution and delivery of this Agreement are hereby terminated.
11. Injunctive Relief. In the event of a breach or threatened
breach by Executive of the provisions of this Agreement, the Company and any
Affiliate shall be entitled to an injunction without bond or security to
prevent irreparable injury to the Company or such Affiliate. Nothing herein
shall be construed as prohibiting the Company or such Affiliate from pursuing
any other remedies available to the Company or such Affiliate for such breach
or threatened breach, including the recovery of damages from the Executive.
12. Nature of Agreement. No right, title, interest, or benefit
hereunder shall ever be liable for or charged with any of the torts or
obligations of Executive or of any person claiming under Executive, or subject
to seizure by any creditor of Executive or any person claiming under Executive.
Neither Executive nor any person claiming under Executive shall have the power
to anticipate or dispose of any right, title, interest, or benefit hereunder in
any manner until the same shall have been actually distributed to him free and
clear of the terms of this Agreement.
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13. Notice. For the purpose of this Agreement, notices and all
other communications to either party hereunder provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person, sent by facsimile with the appropriate mechanical answerback
received, or mailed by first-class mail or airmail, postage prepaid, addressed:
In the case of the Company, to:
Strategic Data Systems, Inc.
615 Pennsylvania Avenue
P.O. Box 819
Sheboygan, Wisconsin 53082-0819
Attention: Chairman of the Board
Facsimile No. (414) 459-9123
with a copy to:
MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No. (817) 348-3765
In the case of Executive, to:
Robert K. Agazzi
W618 Garton Road
Sheboygan, Wisconsin 53083
or to such other address as either party shall designate by giving written
notice of such change to the other party.
14. Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto, and shall also bind and inure to the benefit of Executive's heirs and
legal representatives and any successor or successors of the Company by merger
or consolidation and any assignee of all or substantially all of the Company's
business and properties; except as to any such successor or assignee of the
Company, neither this Agreement nor any duties, rights or benefits hereunder
may be assigned by the Company or by Executive without the express written
consent of Executive or the Company, as the case may be.
15. Arbitration. Any dispute arising hereunder between Executive
and the Company which cannot be resolved by them to their mutual satisfaction
within a period of two weeks, unless mutually extended, shall be submitted to
arbitration by a panel of three arbitrators in Chicago, Illinois in accordance
with the rules of the American Arbitration Association then in effect. The
results of such arbitration shall be binding and conclusive upon the parties
hereto, and judgment on the award may be entered at the instance of either
party in any court of competent jurisdiction. The arbitrators shall be
empowered to award interest at "floating" prime
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rate, retroactive to the date of breach of this Agreement, upon any award and
to award arbitration costs including reasonable actual legal fees, in their
discretion, to the prevailing party.
16. Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of Wisconsin.
17. Modification. No modification or waiver of any provision
hereof shall be made unless it be in writing and signed by both of the parties
hereto.
18. Scope of Agreement. This Agreement constitutes the whole of
the agreement between the parties on the subject matter, superseding all prior
oral and written conversations, negotiations, understandings, and agreements.
19. Representations and Indemnity.
19.1 No Violation of Other Agreements. Executive represents
and warrants to the Company that the execution, delivery and
performance by Executive of this Agreement and compliance by Executive
with the provisions hereof will not require any consent, approval or
notice under, violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under any of the
terms, conditions or provisions of any agreement (including, without
limitation, any prior employment agreement or noncompete agreement
with any other party), instrument, undertaking or arrangement to which
Executive is a party or any judicial order, administrative decision or
arbitration decision applicable to Executive.
19.2 Indemnification Against Breach of Representations.
Executive shall indemnify and hold harmless the Company from and
against any claims, damages, expenses (including, but not limited to,
attorney's fees and other expenses), judgments, fines and amounts paid
in settlement incurred by the Company in connection with any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative to which the Company
is a party or is threatened to be made a party by reason of or arising
out of any actual or alleged breach of Executive's representations
set forth in Section 19.1 above.
19.3 Nonexclusivity of Indemnification Provisions.
Indemnification pursuant to Section 19 hereof shall be in addition to
any other rights which the Company may have under corporate governance
documents, other agreements or applicable law. The Company's right to
indemnification under this Section 19 shall survive the termination of
this Agreement.
20. Severability. To the extent that any provision of this
Agreement may be deemed or determined to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not impair or affect any
other provision, and this Agreement shall be interpreted so as to most fully
give effect to its terms and still be valid and enforceable.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of March 12, 1997.
STRATEGIC DATA SYSTEMS, INC.
By: /s/ F. GEORGE DUNHAM
----------------------------------------
F. George Dunham, III
Chairman of the Board
/s/ ROBERT K. AGAZZI
----------------------------------------
Robert K. Agazzi
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EXHIBIT 10.15
BUILDING LEASE
In consideration of the mutual promises and covenants contained
in this Lease, Landlord and Tenant agree:
1. FUNDAMENTAL LEASE PROVISIONS AND DEFINITIONS.
DATE OF LEASE: March 12, 1997
"LANDLORD": Riverview Building, LLC
"LANDLORD'S
ADDRESS": 3111 Koning Drive North
Sheboygan, WI 53083
Facsimile No.:
"TENANT": Strategic Data Systems, Inc.
"TENANT'S
ADDRESS": 615 Pennsylvania Avenue
Sheboygan, Wisconsin 53082
Facsimile No.: (414) 459-9123
"PREMISES": The land, building and all other improvements located at
615
Pennsylvania Avenue, Sheboygan, Wisconsin, the legal
description of which is attached hereto as Exhibit A.
"LEASE TERM": 10 years
"COMMENCEMENT DATE": March 12, 1997.
"TERMINATION DATE": February 28, 2007.
"BASE RENT":
Years Annual Base Rent Monthly Installment
1-4 $248,153 $20,679.42
5-9 $272,968 $22,747.34
10 $297,783 $24,815.25
"PERMITTED USE": Offices and other uses ancillary thereto
2. PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the Premises, for the term and upon the conditions
set forth in this Lease. Tenant
<PAGE> 2
acknowledges that Landlord has made no warranties or representations regarding
the Premises, and Tenant agrees to accept the Premises in its "AS IS"
condition, subject to Landlord's repair, maintenance and environmental
obligations set forth in this Lease.
3. TERM. The Lease Term shall commence on the Commencement
Date and expire at midnight on the Termination Date, unless sooner terminated
as hereinafter provided.
4. HOLDING OVER. If Tenant shall retain possession of the
Premises after termination or expiration of this Lease, then (i) for each day,
or part thereof Tenant so retains possession of the Premises, Tenant shall pay
Landlord double the amount of the daily rate of Rent and other charges payable
by Tenant under section 5 during the calendar month immediately preceding such
termination or expiration together with any damages sustained by Landlord as a
result thereof, and (ii) if such retention of the Premises is with the express
or implied consent of Landlord, such tenancy shall be from month to month and
in no event from year to year or any period longer than month to month.
5. RENT. Tenant covenants and agrees to pay to Landlord at
Landlord's Address, or at such other place designated by Landlord, without
prior demand and without deduction or set-off, rent ("Rent") for the Premises
consisting of the Base Rent set forth in Section 1 and, as Additional Rent, any
and all other payments due under this Lease. Such payments shall be made in
advance on or before the first day of each month, or as otherwise provided in
this Lease. Base Rent and Additional Rent for any partial month at the
beginning or end of the term of this Lease shall be prorated based upon the
actual number of days of such month included in the term of this Lease.
6. NET LEASE. Tenant's Rent to Landlord shall be net during
the term of this Lease and Landlord shall receive all Rent free from any
charges, assessments, expenses, or deductions whatsoever. Landlord shall not be
called upon to make any expenditure for the maintenance, repair or preservation
of the Premises (except as otherwise provided herein) and all costs, expenses
and obligations of every kind relating to the Premises (except as otherwise
provided herein) which may arise or come due during the term of this Lease
shall be paid by Tenant, and Landlord shall be indemnified by Tenant against
such costs, expenses and obligations except to the extent caused by Landlord,
its employees, agents or contractors In no event shall there be any deduction
or set-off of any nature whatsoever from the Rent due Landlord.
7. IMPOSITIONS.
(a) Except as may be otherwise provided herein, Tenant
agrees to pay or cause to be paid in the name of Landlord as Additional Rent,
before any fine, penalty, interest or cost is added thereto for the nonpayment
thereof, all real estate taxes assessed with respect to the Premises and all
personal property taxes assessed with respect to the Premises or personal
property located on the Premises and other ad valorem taxes on tangible
property, assessments, water and sewer rates and levies, and other governmental
charges, general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of any kind and nature whatsoever, including
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but not limited to assessments for public improvements or benefits (all of
which taxes, assessments, water and sewer rates or charges, levies and other
governmental charges, excepting only the "Rent Tax" hereinafter defined, levied
or assessed against Landlord or Tenant, are herein referred to as
"Impositions"), which are assessed, levied, confirmed, imposed against or
become a lien upon the Premises during the Lease term.
(b) If at any time during the Lease term, a tax or
excise on rents or income or other tax however described (herein called "Rent
Tax") is levied or assessed by the State of Wisconsin or any political
subdivision thereof on account of the rents hereunder or the interest of
Landlord under this Lease, and if such Rent Tax is in lieu of or as a
substitute for, in whole or in part, real estate taxes or other ad valorem
taxes, Tenant covenants to reimburse Landlord on account thereof to the extent
to which such real estate or other ad valorem taxes would have been classified
as Impositions hereunder and to the extent herein otherwise provided. In no
event shall Tenant be obligated to pay for any year, any greater amount by way
of such Rent Tax than would have been payable by Landlord had the rentals paid
under this Lease, upon which such Rent Tax is imposed, been the sole taxable
income of Landlord for the year in question or to pay or to reimburse Landlord
for any tax of any kind assessed against Landlord on account of any such Rent
Tax reimbursement.
(c) Except to the extent provided in section 7(b)
hereof, nothing in this Lease shall require Tenant to pay any franchise,
estate, inheritance, succession, capital levy or transfer tax of Landlord, or
any income, excess profits, or revenue tax or any other tax, assessment, charge
or levy upon the rent payable by Tenant under this Lease, and all such taxes
shall be paid or discharged by Landlord.
8. USE. The Premises shall be used and occupied for the
Permitted Use only and for no other purpose. Tenant will not use the Premises
in any manner that may make insurance difficult or impossible to obtain.
9. MAINTENANCE OF PREMISES.
(a) Landlord shall keep and maintain the foundation,
exterior walls, roof and structural portions of the building in good repair and
in a safe condition in accordance with the laws of the State of Wisconsin and
in accordance with all directions, rules and regulations of the health officer,
fire marshall, building inspector, or other proper officials of the
governmental agencies having jurisdiction, except that Landlord shall not be
called upon to make any such repairs occasioned by the act or negligence of
Tenant, its agents, employees, invitees, licensees or contractors. Tenant shall
promptly advise Landlord of the need for any repairs to the foundation,
exterior walls, roof or structural portions to the building. Landlord shall not
be called upon to make any other improvements or repairs of any kind upon said
Premises and appurtenances, except as may be required under sections 13 and 18
hereof.
(b) Except as provided in section 9(a) of this Lease,
and except to the extent that any of the following items become in need of
repair as a result of Landlord's failure to comply with the terms of section
9(a) or as a result of Landlord's acts, Tenant shall keep and
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maintain in good order, condition and repair (including replacement of parts
and equipment if necessary) the Premises and every part thereof and any and all
appurtenances thereto wherever located including, but without limitation, all
parking, landscaped and open areas and the building and all of its components
including, without limitation, the exterior and interior portion of all doors,
door frames, door checks, windows, window frames and plate glass, all plumbing
and sewage facilities, all fixtures, the heating, ventilating and air
conditioning and electrical systems, the sprinkler systems and all walls,
floors and ceilings.
(c) Tenant shall keep and maintain the Premises in a
clean, sanitary and safe condition in accordance with the laws of the State of
Wisconsin and in accordance with all directions, rules and regulations of the
health officer, fire marshall, building inspector, or other proper officials of
the governmental agencies having jurisdiction, at the sole cost and expense of
Tenant, and Tenant shall comply with all requirements of law, ordinance and
otherwise, affecting the Premises
(d) Tenant shall keep the Premises free from any and
all liens arising out of any work performed, materials furnished or obligations
incurred by or for Tenant, and agrees to bond against or discharge any
construction lien within ten (10) days after written request therefor by
Landlord. Tenant shall reimburse Landlord for any and all reasonable costs and
expenses which may be incurred by Landlord by reason of the filing of any such
liens and/or the removal of same, such reimbursement to be made within ten (10)
days after receipt by Tenant from Landlord of a statement setting forth the
amount of such costs and expenses. The failure of Tenant to pay any such amount
to Landlord within said ten (10) day period shall carry with it the same
consequences as failure to pay any installment of rental.
(e) Tenant, at its own expense, shall install and
maintain fire extinguishers and other fire protection devices as may be
required from time to time by any agency having jurisdiction thereof and the
insurance underwriters insuring the Premises.
(f) Tenant agrees to adequately heat the building to
prevent any damage to the building or its systems resulting from cold weather..
10. COVENANTS OF TENANT. Tenant agrees that it shall, at its
expense:
(a) Give Landlord, its agents, employees, mortgagees
and any other person or persons authorized by Landlord, access to the Premises
at all reasonable times without charge or diminution of rent, to enable them to
examine the Premises and to make such repairs, additions and alterations as
Landlord may deem advisable, or to enter, view, show and inspect the Premises,
provided it is done, if possible, in a manner so as not unduly or unreasonably
to interfere with the conduct of Tenant's business.
(b) Not place any signs or any other projection upon
the Premises or any lettering on the windows or doors thereof except pursuant
to Landlord's written consent. Landlord hereby agrees that Tenant's current
signage is approved and that Tenant may, at any time, place a sign or signs on
the building with the logo attached hereto as Exhibit B.
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(c) Not do or permit to be done any act or thing upon
the Premises which will invalidate or be in conflict with the Certificate of
Occupancy or the terms of the Wisconsin Standard Form of Fire or other
insurance policies covering the Premises and the fixtures and property therein;
comply with all rules and regulations or requirements of the National Board of
Fire Underwriters or any other similar body having jurisdiction, and shall not
knowingly do or permit anything to be done in or upon the Premises or bring or
keep anything therein or use the Premises in a manner which increases the rate
of fire insurance up n the Premises; and comply with all legal, health, fire
and police regulations, laws and ordinances respecting the Premises and not use
the Premises for any immoral or illegal purposes.
(d) Comply with all laws, orders, ordinances and
regulations of federal, state, county and municipal authorities and with any
direction made pursuant to law of any public officer or officers, which shall,
with respect to the use of the Premises or to any abatement of nuisance, impose
any violation, order or duty upon Landlord or Tenant arising from Tenant's use
of the Premises or from conditions which have been created by or at the
instance of Tenant or required by reason of a breach of any of Tenant's
covenants or agreements hereunder.
(e) Pay, before delinquency, any and all taxes levied
or assessed and which become payable during the term hereof upon Tenant's
equipment, furniture, fixtures, and other personal property located in the
Premises.
11. INSURANCE.
(a) Landlord agrees to carry, at Tenant's expense,
insurance against fire, vandalism, malicious mischief, and such other perils as
are from time to time included in a standard extended coverage endorsement,
insuring the Premises in an amount equal to its full replacement value.
Landlord agrees to deliver to Tenant, upon execution of this Lease, a
certificate of insurance evidencing such policy. The certificate shall provide
that the insurer will not cancel or change the insurance without first giving
Tenant thirty (30) days' prior written notice. Landlord shall also deliver to
Tenant a certificate of insurance upon each renewal of the policy not less than
30 days prior to expiration of the coverage. Tenant shall reimburse Landlord
for the cost of such insurance within 10 days of Tenant's receipt of an invoice
therefor.
(b) Landlord shall carry, at Tenant's expense, rent
loss insurance covering a period of twelve months. Tenant shall reimburse
Landlord for the cost of such insurance within ten (10) days of Tenant's
receipt of an invoice therefor.
(c) Tenant shall, during the entire term hereof, keep
in full force and effect a policy of comprehensive general liability and
property damage insurance with respect to the Premises, and the business
operated by Tenant and any subtenants of Tenant in the Premises, including
steam boiler insurance if applicable, in which the limits of liability shall be
not less than Three Million Dollars ($3,000,000) combined single limit per
occurrence.
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(d) Tenant agrees to carry, at its expense, insurance
against fire, vandalism, malicious mischief, and such other perils as are from
time to time included in a standard extended coverage endorsement, insuring
Tenant's merchandise, trade fixtures, furnishings, equipment and all other
items of personal property of Tenant located on or within the Premises, in an
amount equal to their full replacement value. Tenant shall not carry any stock
of goods or do anything in or about the Premises which will in any way tend to
increase the insurance rates on the Premises. If Tenant installs any electrical
equipment that overloads the lines in the Premises, Tenant shall at its own
expense make whatever changes are necessary to comply with the requirements of
the insurance underwriters and governmental authorities having jurisdiction.
(e) All policies of insurance to be carried by Tenant
under this Lease shall name Landlord, any other parties in interest designated
by Landlord, and Tenant as insured, and shall contain a clause that the insurer
will not cancel or change the insurance without first giving the Landlord
thirty (30) days' prior written notice. Such insurance may be furnished by
Tenant under any blanket policy carried by it or under a separate policy
therefor. The insurance shall be with an insurance company authorized to do
business in the State of Wisconsin and a copy of the paid-up policies
evidencing such insurance or certificates of insurers certifying to the
issuance of such policies shall be delivered to Landlord prior to commencement
of the Lease Term and upon renewals not less than 30 days prior to the
expiration of such coverage. Such policies shall also provide that no act or
default of any person other than Landlord or its agent shall render the policy
void as to Landlord or affect Landlord's right to recover thereon.
12. WAIVER OF SUBROGATION. Notwithstanding anything in this
Lease to the contrary, neither Landlord nor Tenant shall be liable to the other
for loss arising out of damage or destruction of the Premises or personal
property or contents therein if such damage or destruction is caused by a peril
included within a standard form of fire insurance policy, with full extended
coverage endorsement added, as from time to time issued in Wisconsin, to the
extent that proceeds from such insurance are realized. Such absence of
liability shall exist whether or not the damage or destruction is caused by the
negligence of either Landlord or Tenant, or their respective officers,
employees, agents or customers. It is the intention and agreement of Landlord
and Tenant that each party shall look to its insurer for reimbursement of any
such loss and that the insurer involved shall have no subrogation rights
against the other party. Each party shall advise its insurance company of this
release and such policy shall, if necessary, contain a waiver of any right of
subrogation by the insurer against the other party.
13. DAMAGE OR DESTRUCTION. In case of damage to the Premises
by fire, vandalism, malicious mischief or any other casualty, Landlord shall
(unless this Lease shall be terminated as hereinafter provided) diligently
proceed to make all the repairs necessary to restore the Premises (excluding
any property of Tenant or improvements installed by Tenant) to substantially
the same condition in which they existed immediately prior to such destruction
or damage subject to delays which may arise by reason of adjustment of loss
under insurance policies and delays beyond the reasonable control of Landlord;
provided, however, that in no event shall Landlord be obligated to incur any
costs or expenses in connection with such restoration in excess of the
insurance proceeds real zed by Landlord. If Landlord does not
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substantially complete such repairs within one hundred eighty (180) days from
the date of such casualty, Tenant may, within thirty (30) days thereafter,
terminate this Lease effective as of the date of casualty by providing written
notice thereto to Landlord. If Tenant does not so terminate the Lease within
such 30-day period, or if Landlord has substantially completed the repairs
prior to Tenant's delivery of the notice, the Lease shall remain in full force
and effect. To the extent that the Premises are rendered untenantable, the Rent
shall proportionately abate; provided, however, that if the damage is so
extensive that Tenant cannot reasonably operate its business from the Premises,
the entire rent shall abate until Landlord substantially completes the repairs.
If the Premises are damaged to such an extent that Landlord shall, in its sole
discretion, determine not to rebuild or repair, Landlord may terminate this
Lease upon written notice thereof within 60 days of the date of such damage, in
which event this Lease shall terminate as of the date of such damage, the Rent
shall be adjusted to the date of such damage and Tenant shall thereupon
promptly vacate the Premises.
14. INDEMNIFICATION. Landlord and Tenant shall defend and
indemnify the other party and save it harmless from and against any and all
liability, damages, costs, or expenses, including reasonable attorneys fees,
arising from any act, omission or negligence of the indemnifying party or its
officers, contractors, licensees, agents, servants, employees, guests,
invitees, or visitors in or about the Premises, or arising from any breach or
default under this Lease by the indemnifying party.
Landlord shall not be liable to Tenant except for loss,
damage, liability or expense resulting from injuries to third parties caused by
the negligence of Landlord or its officers, agents or employees but only to the
extent Tenant is not compensated therefor by insurance. In no event shall
Landlord be liable to Tenant for any damage to the Premises or for any loss,
damage or injury to any property of Tenant therein or the eon occasioned by
bursting, rupture, leakage or overflow of any plumbing or other pipes
(including without limitation, water, steam or refrigerant lines), sprinklers,
tanks, drains, drinking fountains or washstands, the failure of any systems or
facilities in the Premises or other similar cause in, above, upon or about the
Premises.
Landlord shall not be liable for any loss or damage to
person or property sustained by Tenant, or other persons, which may be caused
by the Premises, or any appurtenances thereto, being out of repair, or by
theft, or by vandalism, or by any act or neglect of any other person, or by any
other cause of whatsoever nature.
15. LANDLORD'S LIABILITY. The liability of Landlord to Tenant
for any default by Landlord under the terms of this Lease shall be limited to
the proceeds of sale on execution of Landlord's interest in the Premises, as
such interest may from time to time be encumbered; and neither Landlord nor
Landlord's members shall be personally liable for any deficiency. This clause
shall not be deemed to limit or deny any remedies which Tenant may have in the
event of default by Landlord hereunder, which do not involve the personal
liability of Landlord.
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16. UTILITIES. Tenant shall pay or cause to be paid all
charges for gas, electricity, water, sewerage, heat or other fuel or power or
any other utility or service used, rendered or supplied upon or in connection
with the Premises. Landlord does not warrant that any of the services referred
to in this Lease will be free from interruption, curtailment or suspension,
Tenant acknowledging that any one or more of such services may be suspended by
reason of accident or repairs, alterations or improvements, or by reason of
causes beyond the reasonable control of Landlord. No interruption, curtailment
or suspension of service shall be deemed an eviction or disturbance of Tenant's
use and possession of the Premises or any part thereof, or render Landlord
liable to Tenant for damages, or relieve Tenant from the full and complete
performance of all of Tenant's obligations under this Lease, nor shall there be
any abatement of Rent or other charges. In the event that utilities are
interrupted for a period of more than 30 consecutive days, Tenant may terminate
this Lease effective as of the first day of such interruption.
17. IMPROVEMENTS AND ALTERATIONS. Alterations, installations,
additions, and improvements ("Improvements") to the Premises shall be made only
upon the written approval of Landlord, which approval shall not be unreasonably
withheld. Notwithstanding the foregoing, Landlord's approval shall not be
required for (a) any Improvements that are not of a structural nature and that
cost less than $10,000 or (b) any rewiring of the building by Tenant for the
telecommunications, e-mail, video and other electrical demands it may have.
Improvements by Tenant shall be made at Tenant's sole cost and expense and any
contractor or person selected by Tenant to make Improvements must first be
approved in writing by Landlord. All Improvements, together with all repairs
required to be made by Tenant, shall be made in a good and workmanlike manner
and in compliance with all governmental requirements and rating bureau
recommendations, and shall be performed by competent workmen. Tenant shall
obtain all necessary permits from governmental authorities and provide Landlord
with copies thereof prior to commencing construction of any Improvements Tenant
shall promptly repair any damage and perform any necessary cleanup to the
Premises resulting from any Improvements made by Tenant. AU Improvements,
temporary or permanent (except trade fixtures, furniture and equipment
belonging to Tenant which are removable) in or upon the Premises, whether
placed there by Tenant or Landlord, shall be Landlord's property and shall
remain upon the Premises (except to the extent Landlord requires such
Improvements to be removed as provided in section 24), all without
compensation, allowance or credit to Tenant and shall not constitute Additional
Rent or payment in lieu of Base Rent or Additional Rent. Tenant agrees not to
create, incur, impose, permit or suffer to exist any lien or other obligation
against the Premises or Landlord by reason of any Improvement or any repair or
decoration permitted or required to be made by Tenant pursuant to this Lease,
and Tenant agrees to hold Landlord harmless from and against any such lien
claim. At its expense, Tenant shall cause to be discharged, within ten days of
the filing thereof, any construction lien claim filed against the Premises for
work claimed to have been done for, or materials claimed to have been furnished
to, or on behalf of Tenant; provided, however, that in the event of a good
faith dispute by Tenant as to the validity of such lien, Tenant shall have the
right, in lieu of discharging said lien, to furnish Landlord within such ten
day period, with a bond satisfactory to Landlord, indemnifying Landlord against
loss by reason of any such lien.
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18. EMINENT DOMAIN.
(a) In the event the entire Premises are lawfully
condemned or taken in any manner for any public or quasi-public use or purpose,
or sold or conveyed in lieu of condemnation, this Lease shall terminate as of
the date of such taking or conveyance and Tenant shall have no interest in any
award resulting from such taking except for moving expenses and Improvements
included in the award which shall have been installed and paid for by Tenant
and any other allowable claims of Tenant provided such claims do not reduce the
amount that Landlord would be entitled to receive absent such claims of Tenant.
(b) In the event only a portion of the Premises is
taken or conveyed, the Base Rent shall be equitably adjusted, unless Landlord
or Tenant shall elect to terminate this Lease as of the date of such taking or
conveyance, provided Tenant's right to terminate this Lease as a result of a
partial taking shall only arise if such partial taking materially affects the
conduct of Tenant's business from the Premises. Tenant may terminate this Lease
upon written notice thereof within 30 days of such taking or conveyance.
Landlord shall notify Tenant of such equitable adjustment or its election to
terminate this Lease within 60 days of such taking or conveyance, which shall
in any event be effective as of the date of such taking or conveyance.
19. ASSIGNMENT AND SUBLETTING.
(a) Except as provided in sections l9(c) and 19 d)
below, Tenant shall not voluntarily, involuntarily or by operation of law
assign, transfer, mortgage or encumber this Lease, nor sublet the whole or any
part of the Premises without first obtaining Landlord's written consent, which
consent shall not be unreasonably withheld or delayed. Landlord agrees that in
the event Tenant requests an assignment, transfer or sublease, Landlord shall,
within 20 days after the receipt of the Assignment Documents (as defined in
section l9(b) below), notify Tenant whether Landlord approves or disapproves
such assignment, transfer or sublease, and if disapproved, the reasonable
objections thereto. If Landlord fails to provide such notice within such 20-day
period, Landlord shall be deemed to have consented to such assignment, transfer
or sublease. No such assignment or subletting shall relieve Tenant of any
liability under this Lease. Consent to any such assignment or subletting shall
not operate as a waiver of the necessity of a consent to any subsequent
assignment or subletting, and the terms of such consent shall be binding upon
any person holding by, under or through Tenant. Except as provided in section
l9(c) below, any transfer of this Lease by merger, consolidation,
reorganization or liquidation, or any change in the ownership of, or power to
vote, the majority of Tenant's outstanding voting stock, or a recapitalization
which effectively alters such voting control, shall constitute an assignment
for the purpose of this section.
(b) Any assignee or subtenant approved by Landlord
shall assume all obligations of Tenant and shall be jointly and severally
liable with Tenant for the payment of Base Rent and Additional Rent and
performance of all terms, covenants and conditions. In connection with any
sublease or assignment, Tenant shall provide Landlord with copies of the
following (collectively, the "Assignment Documents"): (i) all assignments,
subleases and assumption instruments; (ii) financial information on the
proposed assignee or sublessee; and
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(iii) any other information reasonably requested by Landlord to enable it to
make an informed decision regarding such sublease or assignment.
(c) Tenant shall not be required to obtain Landlord's
consent with respect to any assignment of this Lease or subletting of the
Premises to an Affiliate of Tenant (as defined below). Tenant shall not be
required to obtain Landlord's consent with respect to a change in Tenant's
ownership or the control of Tenant resulting from an initial public offering of
stock or any stock transfer subsequent to the initial public offering. An
"Affiliate" means any entity which is a parent or subsidiary of, or which is
controlled by, either Tenant or Millers Integrated Claims Resources, Inc.
(d) Tenant shall not be required to obtain Landlord's
consent with respect to any collateral assignment or mortgage of Tenant's
interest in this Lease in connection with any bank financing Tenant obtains.
20. DEFAULT BY TENANT AND RIGHTS OF LANDLORD.
(a) If at the Lease Commencement Date or at any time
during the term of this Lease there shall be filed by or against Tenant in any
court pursuant to any statute either of the United States or of any state a
petition in bankruptcy or insolvency or for liquidation, reorganization or
involuntary dissolution or for the appointment of a receiver or trustee of all
or a portion of Tenant's property, (provided, however, that if an involuntary
action is filed against Tenant, Tenant shall have 90 days thereafter to dismiss
such action before Tenant shall be in default hereunder) or if Tenant makes an
assignment for the benefit of creditors or petitions for or enters into an
arrangement with creditors, this Lease, at the option of Landlord, exercised
within 30 days after notice of the happening of any one or more of such events,
(or the expiration of the 90-day period relating to involuntary actions) may be
cancelled and terminated and in which event neither Tenant nor any person
claiming through or under Tenant by virtue of any statute or of an order of any
court shall be entitled to possession or to remain in possession of the
Premises but shall forthwith quit and surrender the same, and Landlord, in
addition to the other rights and remedies Landlord has by virtue of this Lease
or any statute or rule of law, may retain as security for its damages any Base
Rent, Additional Rent, or monies received by Landlord from Tenant or others on
behalf of Tenant.
(b) If Tenant either (i) fails to pay any installment
of Rent or other charges due hereunder within 5 days after delivery of written
notice, or (ii) fails to perform any other covenant, term, agreement or
condition of this Lease within 30 days after notice from Landlord (provided,
however, if such failure cannot reasonably be cured within such 30 -day period,
it shall not be a default hereunder so long as Tenant has commenced the cure
within such 30-day period and diligently prosecutes such cure to completion),
or (iii) vacates or abandons the Premises for a period in excess of 30
consecutive days, then, in any of such cases, Landlord, in addition to all
other rights and remedies available to Landlord by law or by other provisions
hereof, may, without process, immediately re-enter the Premises and remove all
persons and property, and, at Landlord's option, terminate this Lease as to all
future rights of Tenant. Tenant further agrees that in case of any such
termination Tenant will indemnify Landlord against all
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loss of rents and other damage which Landlord may incur by reason of such
termination, including, but not limited to, costs of restoring and repairing
the Premises and putting the same in rentable condition, costs of renting the
Premises to another occupant (including rent concessions), loss or diminution
of Rent and other damage which Landlord may incur by reason of such
termination. Neither acceptance of Rent or other charges by Landlord, with or
without knowledge of breach or default, nor failure of Landlord to take action
on account of any breach or default hereof or to enforce its rights hereunder
shall be deemed a waiver of any breach or default, and absent specific written
notice or consent to the contrary, said breach or default shall be a continuing
one. The words "re-enter" and "re-entry" as used in this Lease are not
restricted to their technical legal meaning.
(c) If Tenant shall default in the observance or
performance of any term or covenant on its part to be observed or performed
under or by virtue of any of the terms and provisions in any section of this
Lease, or if Tenant shall fail to pay any sum of money, other than Base Rent
and Additional Rent, required to be paid by Tenant hereunder, Landlord may, but
shall not be obligated to, and without waiving or releasing Tenant from any
obligations to make any such payment or perform any such other act on Tenant's
part to be made or performed as provided in this Lease, remedy such default for
the account and at the expense of Tenant, immediately and without notice in
case of emergency, or in any other case only upon Tenant's failure to remedy
such default within ten days after Landlord shall have notified Tenant in
writing of such default. If Landlord makes any expenditures or incurs any
obligations for the payment of money in connection with Tenant's default
including, but not limited to, reasonable attorneys' fees in instituting,
prosecuting or defending any action or proceeding, Tenant shall pay to Landlord
as Additional Rent such sums paid or obligations incurred, with costs and
interest at the rate of 18% per year or the maximum rate permitted by law,
whichever is lower. In any event, Landlord shall have (in addition to any other
right or remedy of Landlord) the same rights and remedies in the event of the
nonpayment of sums due under this section as in the case of default by Tenant
in the payment of Base Rent or Additional Rent.
(d) Any amounts owing from Tenant to Landlord under
this Lease shall bear interest at the highest rate permitted by law in the
State of Wisconsin, not to exceed the annual rate of 18% calculated from the
date due until the date of payment. In addition to the foregoing remedies, if
any payment of Base Rent or Additional Rent is not paid when due (after
expiration of any applicable cure period), Tenant shall pay a late charge equal
to 1% of the amount of such overdue payment per month or portion thereof as
liquidated damages for Landlord's extra expense in handling such past due
account. If Landlord accepts any late payment and late charge, and Tenant did
not make any other late payments within the immediately preceding eleven (11)
months, Landlord will be deemed to have waived its right to put Tenant in
default for such late payment.
21. SALE OR MORTGAGE OF LANDLORD'S INTEREST.
(a) Landlord may sell, assign or otherwise transfer, in
whole or in part, its interest in this Lease and its reversion hereunder.
Landlord shall require the transferee to accept the interest transferred
subject to this Lease. The transfer shall release Landlord from any
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further liability (but not prior obligations) to Tenant hereunder and, after
any such transfer, Tenant shall look solely to the transferee for the
performance of the obligations of the party who from time to time is the
landlord under this Lease so long as such transferee agrees in writing to
recognize Tenant's rights under this Lease. If Landlord transfers to such a
transferee any other security Landlord holds for performance of Tenant's
obligations hereunder and so notifies Tenant, Landlord shall have no further
liability to Tenant concerning such security and Tenant shall henceforth look
solely to the transferee.
(b) Within ten (10) days after written request from
Landlord, Tenant shall execute, acknowledge and deliver to Landlord a statement
in writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect), the dates to
which rent and any other charges payable by Tenant hereunder are paid in
advance, if any, (ii) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord hereunder or specifying such
defaults if any are claimed, and (iii) in case of a transfer of Landlord's
interest, attorning to the transferee. Tenant hereby acknowledges that
prospective purchasers and encumbrancers of the Premises (or of property of
Landlord on which the Premises are a part) may incur obligations or extend
credit in reliance upon the representations of Tenant contained in such
statement. Tenant's failure to deliver such statement to Landlord within said
ten (10) day period shall conclusively evidence Tenant's representation and
agreement that: this Lease is in full force and effect, without modification,
except as Landlord may represent; there are no uncured defaults m Landlord's
performance hereunder; and Tenant has not paid more than one month's rent in
advance.
(c) Within ten (10) days after written request from
Tenant, Landlord shall execute, acknowledge and deliver to Tenant a statement
in writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and (ii)
acknowledging that there are not, to Landlord's knowledge, any uncured defaults
on the part of Tenant hereunder or specifying such defaults if any are claimed.
Landlord's failure to deliver such statement to Tenant within said ten (10) day
period shall conclusively evidence Landlord's representation and agreement
that: this Lease is in full force and effect, without modification, except as
Tenant may represent; and there are no uncured defaults in Tenant's performance
hereunder.
22. SUBORDINATION. This Lease, and the term and estate hereby
granted, and all of the rights of Tenant hereunder, are subject and subordinate
to any underlying leases and the liens of any mortgage or mortgages now or
hereafter in force against the Premises and/or the land on which it sits, as
well as to any and all zoning laws, ordinances and regulations, conditions and
agreements affecting said real estate at any time, and Tenant shall execute
such reasonable further instruments subordinating this Lease to the lien or
liens of any such lease or mortgage as shall be reasonably requested by
Landlord.
23. QUIET ENJOYMENT. Landlord covenants that if Tenant shall
pay the Rent and observe and perform all the terms, covenants and conditions of
this Lease on its part to
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be observed and performed, Tenant may peaceably and quietly enjoy the Premises
subject to the terms and conditions of this Lease.
24. SURRENDER OF PREMISES. Upon the termination of this Lease
for any reason, Tenant shall remove Tenant's goods, effects and fixtures and
those of any other persons claiming under Tenant, and quit and deliver up the
Premises to Landlord peaceably and quietly in as good order and condition as
the same are at the commencement of this Lease or thereafter may be improved by
Landlord and Tenant, reasonable use and wear thereof, condemnation, fire or
other casualty, acts of God and repairs which are Landlord's obligation
excepted. If required by Landlord, Tenant shall also remove any Improvements
made by Tenant during the Lease term; provided, however, that Tenant shall not
be obligated to remove any Improvements of a structural nature if Landlord
consented to such Improvements being constructed. Goods and effects not removed
by Tenant at the termination of this Lease shall be considered abandoned and
Landlord may dispose of the same as it deems expedient but Tenant shall
promptly reimburse Landlord for any reasonable expenses incurred by Landlord in
connection therewith (net of any salvage value received by Landlord) including,
without limitation, the cost of removal thereof and of repairing, to the
reasonable approval of Landlord, any damage occasioned by such removal. Tenant
shall repair, to the reasonable approval of Landlord, any damage to the
Premises resulting from the removal of Tenant's goods, effects, fixtures and
Improvements.
25. HAZARDOUS MATERIALS.
(a) Tenant agrees that Tenant, its agents and
contractors, licensees or invitees shall not handle, use, manufacture, store or
dispose of any flammables, explosives, radioactive materials, hazardous wastes
or materials, toxic wastes or materials, asbestos or other similar substances,
petroleum products or derivatives or any other materials hazardous to human
health or the environment (collectively "Hazardous Materials") on, under or
about the Premises, without Landlord's prior written consent (which consent may
be given or withheld in Landlord's sole discretion), provided that Tenant may
handle, store, use or dispose of products containing small quantities of
Hazardous Materials, which products are of a type customarily found in offices
and households (such as aerosol cans containing insecticides, toner for copies,
paints, paint remover and the like), provided further that Tenant shall handle,
store, use and dispose of any such Hazardous Materials in a safe and lawful
manner and shall not allow such Hazardous Materials to contaminate the Premises
or the environment.
(b) Without limiting the above, Tenant shall reimburse,
defend, indemnify and hold Landlord harmless from and against any and all
claims (whether pending or threatened and expressly including strict
liability), losses, liabilities, damages, costs (including, without limitation,
the costs of any required or necessary investigation, repair, cleanup or
detoxification and the preparation of any closure or other required plans in
connection therewith, whether voluntary or compelled by governmental
authority), expenses, actions, demands, judgments, penalties, or injuries to or
by any person or entity (including, but not limited to, any governmental
entity, adjacent or affected landowner, employees or other invitees of future
owners or occupants, private party or other third party) including, without
limitation, loss of
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rental income (unless and to the extent covered by any insurance carried by
Landlord), loss due to business interruption (unless and to the extent covered
by any insurance carried by Landlord) and reasonable attorneys' and
consultants' fees and costs and litigation expenses, arising out of or in any
way connected with the use, manufacture, storage or disposal of Hazardous
Materials by Tenant, its agents or contractors on, under or about the Premises
or the violation by Tenant of any laws regarding human health or the
environment with respect to the Premises. The indemnity obligations of Tenant
under this clause shall survive any termination of the Lease.
(c) Notwithstanding anything set forth in this Lease,
Tenant shall only be responsible for contamination of Hazardous Materials or
any cleanup resulting directly therefrom, resulting directly from matters
occurring or Hazardous Materials deposited (other than by contractors, agents
or representatives controlled by Landlord) during the Lease term and during any
extensions thereof or holdover by Tenant. Tenant shall take reasonable
precautions to prevent the contamination of the Premises with Hazardous
Materials by third parties.
(d) It shall not be unreasonable for Landlord to
withhold its consent to any proposed assignment or sublease if the proposed
assignee's or sublessee's anticipated use of the Premises involves the
generation, storage, use, treatment or disposal of Hazardous Materials
(e) Landlord shall reimburse, defend, indemnify and
hold Tenant harmless from and against any and all claims (whether pending or
threatened and expressly including strict liability), losses, liabilities,
damages, costs, expenses, actions, demands, judgments, penalties, or injuries
to or by any person or entity (including, but not limited to, any governmental
entity, adjacent or affected landowner, employees or other invitees or future
owners or occupants, private party or other third party) including, without
limitation, loss due to business interruption (unless and to the extent covered
by any business interruption insurance carried by Tenant) and reasonable
attorneys' and consultants' fees and costs and litigation expenses, arising out
of or in any way connected with (i) the presence of Hazardous Materials which
exist on the Premises as of the Commencement Date of this Lease ("Existing
Hazardous Materials"), (ii) the presence of Hazardous Materials that come to
exist in the Premises as a result of migration of Hazardous Materials from
adjacent properties ("Migrating Hazardous Materials") (to the extent the
Migrating Hazard us Materials do not come to exist in the Premises as a result
of the acts of Tenant, its agents, contractors, licensees or invitees), (iii)
the violation by Landlord of any laws regarding human health or the environment
with respect to the Premises or (iv) the failure of Landlord to remediate, as
required by applicable law, any Existing Hazardous Materials or Migrating
Hazardous Materials on the Premises. Tenant shall provide Landlord with
reasonable access to the Premises and shall cooperate with Landlord if Landlord
is required to remediate any Existing Hazardous Materials or Migrating
Hazardous Materials on the Premises.
26. MISCELLANEOUS PROVISIONS.
(a) The titles to sections of this Lease are not a part
of this Lease and shall have no effect upon the construction or interpretation
of any part hereof.
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(b) All of the covenants, agreements, terms and
conditions contained in this Lease shall inure to and be binding upon Landlord
and Tenant and their respective heirs, executors, administrators, successors
and assigns.
(c) Waiver by Landlord or Tenant of any breach of any
term, covenant or condition herein contained shall not be deemed to be a waiver
of such term, covenant, or condition of this Lease, regardless of Landlord's or
Tenant's knowledge of such preceding breach at the time of acceptance or
payment of Base Rent or Additional Rent.
(d) This Lease contains all covenants and agreements
between Landlord and Tenant relating in any manna to the Base Rent, Additional
Rent, Tenant's use and occupancy of the Premises and other matters set forth in
this Lease. No prior agreements or understandings pertaining thereto shall be
valid or of any force or effect and the covenants and agreements of this Lease
shall not be altered, modified or amended except in writing signed by Landlord
and Tenant.
(e) Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and the remaining provisions hereof shall nevertheless remain
in full force and effect. If the intent of any sections of this Lease so
indicate, the obligations of Landlord and Tenant pursuant to such sections of
this Lease shall survive the termination of this Lease.
(f) No payment by Tenant or receipt by Landlord of a
lesser amount than the Base Rent, Additional Rent and other charges stipulated
herein shall be deemed to be other than on account of the earliest stipulated
Base Rent, Additional Rent or other charges, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord shall accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Base Rent, Additional Rent and other charges or pursue any other remedy in this
Lease.
(g) All notices which Landlord or Tenant may be
required, or may desire, to serve on the other may be served by facsimile,
personal service or by mailing by registered or certified mail, postage
prepaid, at such address, or facsimile number, as the parties may from time to
time designate to the other in writing. The time of rendition of such notice
shall be deemed to be the time when the notice is either sent via confirmed
facsimile, personally delivered or deposited in the mail as herein provided.
All notices, consents or actions required to be given by Tenant must be
executed by F. George Dunham, m or Joy Keller or by such other officers as F.
George Dunham, m may specify in writing to Landlord.
(h) Time periods or deadlines for Landlord's or
Tenant's performance under any provisions of this Lease (except for the payment
of money) shall be extended for periods of time during which the nonperforming
party's performance is prevented due to circumstances beyond the party's
control, including, without limitation, labor disputes, embargoes, governmental
restrictions or regulations, inclement weather and other acts of God, war or
other strife.
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(i) In the event of any dispute, litigation or judicial
action in connection with this Lease or its enforcement, the prevailing party
in such dispute, litigation or action shall be entitled to recover reasonable
attorneys' fees and expenses in connection therewith from the nonprevailing
party.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Lease to be executed as of the day and year first above written.
LANDLORD:
RIVERVIEW BUILDING, LLC
BY /s/ STUART H. WARRINGTON
---------------------------------
Stuart H. Warrington, Member
TENANT:
STRATEGIC DATA SYSTEMS, INC.
BY /s/ F. GEORGE DUNHAM, III
---------------------------------
F. George Dunham, III,
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EXHIBIT A
Lots One (1), Two (2), Three (3), Four (4), Five (5) and Six (6) of Block 178
of the original Plat of the City of Sheboygan.
Also the following described property Commencing at the Southwest corner of Lot
6, Block 178, Original Plat, thence South, parallel to the east right-of-way
line of North 7th Street, 18 feet to the Northwest corner of Lot 7, Block 178,
Original Plat, thence East parallel to the South right-of-way line of
Pennsylvania Avenue, 360 feet to the Northeast corner of Lot 12, Block 178,
Original Plat, thence North parallel with the West right-of-way line of
Riverfront Drive to the Southeast corner of Lot 1, Block 178, Original Plat,
thence West parallel to the South right-of-way line of Pennsylvania Avenue, 360
feet to the point of beginning.
Tax Key Number 109220.
<PAGE> 18
EXHIBIT B
Sign Logo
<PAGE> 1
EXHIBIT 10.16
LOAN AGREEMENT
BETWEEN
MILIRISK, INC.
AND
NATIONSBANK OF TEXAS, N.A.
DATED
MARCH 12, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
1. DEFINITIONS.............................................................................................1
2. REVOLVING CREDIT FACILITY...............................................................................4
2.1 Revolving Loans.....................................................................................4
2.2 Purposes............................................................................................4
2.3 Borrowing Base Deficiency...........................................................................5
2.4 Procedure for Borrowing.............................................................................5
2.5 Commitment Fee......................................................................................5
2.6 Redemption of Commitment............................................................................5
3. INTEREST RATE OPTIONS FOR REVOLVING LOANS...............................................................5
3.1 Prime Rate Loans....................................................................................5
3.2 Eurodollar Loans....................................................................................6
3.3 Interest Rate Determination.........................................................................6
3.4 Conversion Option: Prime Rate Loans to Eurodollar Loans.............................................6
3.5 Conversion Option: Eurodollar Loans to Prime Rate Loans.............................................6
3.6 Prepayment of Loans.................................................................................7
3.7 Schedule II.........................................................................................7
4. TERM CREDIT FACILITY....................................................................................7
4.1 Term Loan...........................................................................................7
4.2 Purpose.............................................................................................7
4.3 Amortization........................................................................................7
5. INTEREST RATE OPTIONS FOR TERM NOTE:....................................................................7
5.1 Prime Rate Loan.....................................................................................8
5.2 Eurodollar Loans....................................................................................8
5.3 Selection of Interest Rate..........................................................................8
5.4 Conversion Option: Prime Rate to Eurodollar Rate....................................................9
5.5 Conversion Option: Eurodollar Rate to Prime Rate....................................................9
5.6 Prepayment of Eurodollar Loans......................................................................9
5.7 Schedule II.........................................................................................9
6. SECURITY...............................................................................................10
6.1 Accounts Receivable, Etc...........................................................................10
6.2 Pledge of Stock....................................................................................10
6.3 Guaranties.........................................................................................10
6.4 Comfort Letter.....................................................................................10
7. CONDITIONS PRECEDENT TO INITIAL FUNDING................................................................10
7.1 Loan Origination Fee...............................................................................10
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
7.2 Effectiveness of Loan Documents....................................................................10
7.3 Opinions...........................................................................................10
7.4 Representations and Warranties.....................................................................10
7.5 Documentation and Proceedings......................................................................11
7.6 Expenses...........................................................................................11
7.7 Approval of Stock Acquisition Agreement............................................................11
8. CONDITIONS PRECEDENT TO SUBSEQUENT REVOLVING LOANS.....................................................11
8.1 Availability of Commitment.........................................................................11
8.2 Expenses...........................................................................................11
8.3 Other Conditions Precedent.........................................................................11
8.4 Required Acts and Conditions.......................................................................11
9. AFFIRMATIVE COVENANTS..................................................................................11
9.1 Financial Statements and Other Information.........................................................11
9.2 Insurance..........................................................................................12
9.3 Existence and Compliance...........................................................................12
9.4 Notices to Bank....................................................................................12
9.5 Taxes and Other Obligations........................................................................12
9.6 Maintenance........................................................................................13
9.7 Compliance with Agreements.........................................................................13
9.8 Further Assurances.................................................................................13
10. NEGATIVE COVENANTS....................................................................................13
10.1 Minimum Net Worth.................................................................................13
10.2 Sale of Assets....................................................................................14
10.3 Liquidation, Merger, Consolidation, Acquisition...................................................14
10.4 Borrowings........................................................................................14
10.5 Dividends. Distributions and Purchases and Capital Stock..........................................15
10.6 Character of Business.............................................................................15
10.7 Arm's Length Transactions.........................................................................15
11. REPRESENTATIONS AND WARRANTIES........................................................................15
11.1 Good Standing.....................................................................................15
11.2 Authority and Compliance..........................................................................15
11.3 Binding Agreement.................................................................................15
11.4 Litigation........................................................................................16
11.5 No Conflicting Agreements.........................................................................16
11.6 Ownership of Assets...............................................................................16
11.7 Taxes.............................................................................................16
11.8 Financial Statements..............................................................................16
11.9 Continuation of Representations and Warranties....................................................16
12. Default...............................................................................................16
12.1 Nonpayment........................................................................................16
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
12.2 Representations and Warranties....................................................................16
12.3 Default in Affirmative and Negative Covenants Under Agreement.....................................17
12.4 Default in Other Covenants Under Agreement........................................................17
12.5 Default in Other Loan Dab.........................................................................17
12.6 Default in Other Debt.............................................................................17
12.7 Validity of Loan Documents........................................................................17
12.8 Bankruptcy........................................................................................17
12.9 Judgments and Decrees.............................................................................18
12.10 Termination of Services..........................................................................18
13.REMEDIES...............................................................................................18
14.NOTICES................................................................................................18
15.COSTS, EXPENSES AND ATTORNEY'S FEES....................................................................18
16.MISCELLANEOUS..........................................................................................19
16.1 Cumulative Rights and No Waiver...................................................................19
16.2 Applicable Law....................................................................................19
16.3 Amendment.........................................................................................19
16.4 Documents.........................................................................................19
16.5 Partial Invalidity................................................................................19
16.6 Survivability.....................................................................................20
16.7 Accounting Terms..................................................................................20
16.8 Right to Grant Participants.......................................................................20
17.ARBITRATION............................................................................................20
17.1 Special Rules.....................................................................................20
17.2 Reservation of Rights.............................................................................21
18.AGREEMENT CONTROLLING..................................................................................21
19.NOTICE OF FINAL AGREEMENT..............................................................................21
</TABLE>
SCHEDULES AND EXHIBITS
Schedule I...................................Interest Rate Pricing Definitions
Schedule II....................Special Provisions Relating to Eurodollar Loans
Schedule 10.4......Permitted Indebtedness.........................Section 10.4
Exhibit A.............Borrowing Request............................Section 2.4
Exhibit B..........Term Loan Rate Request..........................Section 5.3
Exhibit C..........Compliance Certificate.......................Section 9.1(c)
Exhibit D...........Borrowing Base Report.......................Section 9.1(d)
(iii)
<PAGE> 5
LOAN AGREEMENT
- -------------------------------------------------------------------------------
March 12, 1997
Between
- -------------------------------------------------------------------------------
BORROWER BANK
MILIRISK, INC. NATIONSBANK OF TEXAS, N.A.
300 BURNETT FORT WORTH BANKING CENTER
FORT WORTH, TEXAS 76102-2799 500 WEST 7TH STREET
FORT WORTH, TEXAS 76102-4700
- -------------------------------------------------------------------------------
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. DEFINITIONS. Certain definitions concerning the interest rate
provisions are set forth on Schedule I. In addition, the following terms shall
have the meaning set forth with respect thereto:
"AQS" means Applied Quoting Systems, Inc., a Wisconsin corporation.
"BASE NET WORTH AMOUNT": See Section 10.1.
"BORROWING BASE" means the greater of $2,500,000 or 80% of Eligible
Accounts Receivable.
"BORROWING BASE REPORT": See Section 9.1(e).
"BORROWING REQUEST": See Section 2.4.
"COMFORT LETTER": See Section 6.4.
"COMMITMENT" means the obligation of Bank, subject to the terms and
conditions of this Agreement, to make Revolving Loans which shall not exceed at
any one time outstanding the lesser of (a) $4,000,000, or (b) the Borrowing
Base.
"CONSOLIDATED NET WORTH": See Section 10.1.
"CONTESTED IN GOOD FAITH" means, as to any payment, tax, assessment,
charge, levy, lien, encumbrance or claim, contesting the amount, applicability
or validity thereof in good faith by appropriate proceedings or other
appropriate actions promptly initiated and diligently conducted in a manner
satisfactory to Bank, provided the enforcement of the contested payment, tax,
assessment, charge, levy, lien, encumbrance or claim is stayed in a manner
satisfactory to Bank pending the resolution of such contest.
LOAN AGREEMENT - Page 1
<PAGE> 6
"ELIGIBLE ACCOUNTS RECEIVABLE" means all accounts receivable of
Borrower, SDS and AQS in the aggregate which have been created in the ordinary
course of business of these three entities and upon which the right of these
three entities to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, and shall NOT include:
(a) that portion of any account which is unpaid more them
sixty (60) days from the invoice date thereof;
(b) any account against which there exists a right of setoff,
defense or discount, except regular discounts allowed in the ordinary
course of business;
(c) any account which arises out of a contract or order
which, by its terms, forbids or makes void or unenforceable any
assignment to Bank of the account receivable arising with respect
thereto;
(d) any account which represents an obligation to a customer
which is not a resident of the United States unless such account is
supported by a letter of credit in form and substance acceptable to
Bank;
(e) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of, any
employee, affiliate, partner, parent or subsidiary of Borrower, SDS or
AQS;
(f) any account which would otherwise be eligible pursuant to
the foregoing formula, if 50% or more of such account is unpaid more
than sixty (60) days from the date of invoice thereof;
(g) that portion of any account from a customer which
represents the amount by which the total accounts from such customer
exceeds 30% of the total accounts which would otherwise be eligible
pursuant to the foregoing formula; and
(h) any account on which Bank is not or does not continue to
be, in Bank's sole discretion, satisfied with the credit standing of
the customer in relation to the amount of credit extended.
"EVENT OF DEFAULT": See Section 12.0.
"GAAP": See Section 16.7
"GUARANTORS" mean SDS, AQS and any other person or entity now or
hereafter guaranteeing payment of the Obligations.
"GUARANTY AGREEMENTS" mean each guaranty agreement described in
Section 6.3 hereof, together with all modifications and amendments thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security
Agreements, the Agreements, the Pledge Agreements, and all other documents,
instruments, guaranties, security agreements, deeds of trust,
LOAN AGREEMENT - Page 2
<PAGE> 7
pledge agreements, certificates and agreements executed and/or delivered by
Borrower, any guarantor or third party in connection with any Loan.
"LOANS" means the Term Loan and all Revolving Loans hereunder.
"MERGER AGREEMENT" means that certain Agreement and Plan of Merger
among Millers Integrated Claims Resources, Inc., Millers Merger Corporation,
SDS and certain Management Shareholders (as defined therein) dated as of
February 18, 1997.
"MINIMUM NET WORTH AMOUNT": See Section 10.1.
"NOTES" mean the Term Note, the Revolving Note, and all renewals,
extensions, modifications and amendments thereto, and substitutions therefor.
"OBLIGATIONS" means the obligations of Borrower:
(a) to pay all indebtedness arising out of this Agreement,
any future advances under this Agreement, and all renewals, extensions
or amendments of such indebtedness or any part thereof or any such
future advances;
(b) to pay the principal of and interest on the Notes in
accordance with the terms thereof, and all renewals, extensions,
modifications and amendments of such Notes or any part thereof, and
any future advances made pursuant thereto;
(c) to repay to Bank all amounts advanced by Bank hereunder
or under the other Loan Documents on behalf of Borrower, including,
without limitation, advances for principal or interest payments to
prior secured parties, mortgagees, or lienors, or for taxes, levies,
insurance, rent, repairs to or maintenance or storage of any of the
collateral;
(d) to pay any and all other indebtedness of Borrower to Bank
of every kind, nature and description, direct or indirect, primary or
secondary, secured or unsecured (including overdrafts), joint or
several, absolute or contingent, due or to become due, now existing or
hereafter arising, regardless of how it may be evidenced, including
without limitation all future advances, whether or not presently
contemplated by the parties hereto;
(e) to perform fully all of the terms and provisions of each
of the instruments constituting the Loan Documents; and
(f) to reimburse Bank, on demand, for all of Bank's expenses
and costs that Borrower is obligated to pay pursuant to the terms of
the Loan Documents.
"PARTICIPANTS": See Section 16.8.
"PLEDGE AGREEMENTS" mean each pledge agreement described in Section
6.2 hereof, together with all modifications and amendments thereof.
LOAN AGREEMENT - Page 3
<PAGE> 8
"PRINCIPAL REVOLVING DEBT": See Section 2.1.
"PRINCIPAL TERM DEBT" means the outstanding principal balance of the
Term Note as it exists from time to time.
"REVOLVING LOANS": See Section 2.1
"REVOLVING NOTE" means the promissory note described in Section 2.1
hereof, together with all renewals, extensions, modifications and amendments
thereto, and substitutions therefor.
"REVOLVING NOTE MATURITY DATE" means March 12, 1999
"SDS" means Strategic Data Systems, Inc., a Wisconsin corporation.
"SECURITY AGREEMENTS" mean each security agreement described in
Section 6.1 hereof, together with all modifications and amendments thereof.
"TERM LOAN": See Section 4.1.
"TERM LOAN RATE REQUEST": See Section 5.3.
"TERM NOTE" means the promissory note described in Section 4.1 hereof,
together with all renewals, extensions, modifications and amendments thereto,
and substitutions therefor.
"TERM NOTE MATURITY DATE" means March 12, 2001.
2. REVOLVING CREDIT FACILITY.
2.1 REVOLVING LOANS. Bank agrees, subject to the terms and
conditions hereof, to lend Borrower at any time and from time to time
on or before the Revolving Note Maturity Date sums (each herein called
a "Revolving Loan" and collectively the "Revolving Loans") which may
be repaid and reborrowed pursuant to the terms hereof and which shall
not exceed at any one time outstanding the amount of the Commitment.
The obligation of Borrower to repay the aggregate principal balance of
all Revolving Loans hereunder outstanding at any one time (the
"Principal Revolving Debt") shall be evidenced by a promissory note of
Borrower, which Revolving Note shall (a) be dated March 12, 1997; (b)
be payable on the Revolving Note Maturity Date for the amount of
$4,000,000, or the Principal Revolving Debt then outstanding,
whichever is less; (c) bear interest from the date thereof until paid
in the manner hereafter provided; (d) be entitled to the benefits of
this Agreement and the security provided herein; and (e) be in such
form as is acceptable to Bank.
2.2 PURPOSES. Borrower agrees that proceeds of Revolving
Loans shall be used solely to provide a portion of the purchase price
for the acquisition of the stock of SDS and AQS, and for general
working capital purposes. In addition, Revolving Loan proceeds may be
used as a source for the payment of interest due OD the Notes from
time to time.
LOAN AGREEMENT - Page 4
<PAGE> 9
2.3 BORROWING BASE DEFICIENCY. If by reason of any
adjustment to the Borrowing Base, the Principal Revolving Debt then
outstanding exceeds the Commitment, then Bank shall notify Borrower of
same, and Borrower shall within ten (10) days following receipt of
such notice prepay an amount which will reduce the Principal Revolving
Debt to an amount which is equal to or less than the Commitment.
2.4 PROCEDURE FOR BORROWING. Whenever Borrower desires a
Loan hereunder, Borrower shall give Rank notice in the form of Exhibit
"A" attached hereto (a "Borrowing Request") specifying (a) the date
(which shall be a Business Day in the case of a Prime Rate Loan or a
Eurodollar Business Day in the case of a Eurodollar Loan) of the
proposed borrowing, (b) the amount to be borrowed, (c) the portion of
the borrowing constituting a Prime Rate Loan and/or a Eurodollar Loan
(which may only be in Incremental Portions), and (d) if any portion of
the proposed borrowing constitutes a Eurodollar Loan, the initial
Eurodollar Interest Period selected by Borrower (thirty days, sixty
days, ninety days, or one hundred eighty days). Such notice shall be
given by 10 a.m. (Fort Worth, Texas time) on the date of the proposed
borrowing in the case of a Prime Rate Loan, and by 10 a.m. (Fort
Worth, Texas time) two (2) Business Days prior to the date of the
proposed borrowing in the case of a Eurodollar Loan. The notice
required may be given telephonically by Borrower to Bank, but upon
giving such telephonic notice Borrower shall immediately thereafter
provide Bank with the written notice attached hereto as Exhibit "A."
AU notices given under this Section 2.4 shall be irrevocable. Not
later than 2:00 p.m. (Fort Worth, Texas time) on the date of the
proposed borrowing and upon fulfillment of all other conditions
required by this Agreement, Bank will make such Loan available to
Borrower by crediting the amount thereof to Borrower's account with
Bank or otherwise disbursing it as Borrower shall request in writing.
No Revolving Loans may be obtained after the Revolving Note Maturity
Date.
2.5 COMMITMENT FEE. Borrower agrees to pay Bank a commitment
fee for the period commencing with the date of this Agreement to the
Revolving Note Maturity Date, computed at the rate of 1/4 of 1% per
annum on the average daily unused portion of the Commitment. Such
commitment fee shall be payable on the last day of each calendar
quarter and on the Revolving Note Maturity Date.
2.6 REDEMPTION OF COMMITMENT. Borrower shall have the right
to reduce the amount of the Commitment, at any time and from time to
tune, in any integral multiple of $1 provided however, that any such
reduction shall be accompanied by the payment in full of any
commitment fee then accrued on the amount of such reduction.
Contemporaneously with each such reduction, Borrower shall repay to
Bank the amount, if any by which the Principal Revolving Debt exceeds
the Commitment. After each such reduction, (a) the commitment fee
provided for in Section 2.5 hereof shall be calculated with respect to
the Commitment as so reduced, and (b) the Commitment may not be
increased without the consent of Bank.
3. INTEREST RATE OPTIONS FOR REVOLVING LOANS. The interest rate
options available hereunder for Revolving Loans shall be for Prime Rate Loans
and for Eurodollar Loans. No more than three (3) different Eurodollar Loans may
be outstanding at any one time.
3.1 PRIME RATE LOANS. Borrower agrees to pay interest
(calculated on the basis of the actual days elapsed in a year
consisting of 360 days) with respect to the unpaid principal amount of
each Prime
LOAN AGREEMENT - Page 5
<PAGE> 10
Rate Loan from the date the proceeds thereof are made available to
Borrower until maturity (whether by acceleration or otherwise) at a
varying rate per annum equal to the lesser of (i) the Maximum Rate or
(ii) the Prime Rate. The interest in respect of each Prime Rate Loan
shall be payable on the last day of each Prime Rate Interest Period.
Each Prime Rate Loan may be prepaid in whole or in part at any time
and from time to time without premium or penalty.
3.2 EURODOLLAR LOANS. Borrower agrees to pay interest
(calculated on the basis of actual days elapsed in a year consisting
of 360 days) with respect to the unpaid principal amount of each
Eurodollar Loan from the date the proceeds thereof are made available
to Borrower until maturity (whether by acceleration or otherwise) at a
rate per annum equal to the lesser of (i) the Maximum Rate or (ii) the
Eurodollar Rate applicable to such Eurodollar Loan. Subject to the
provisions of this Agreement as to prepayment, interest with respect
to each Eurodollar Loan shall be payable (i) on the last day of each
Eurodollar Interest Period, where the Eurodollar Interest Period in
question is thirty days, sixty days, or ninety days, and (ii) on the
ninetieth day and on the last day of each Eurodollar Interest Period,
where the Eurodollar Interest Period in question is one hundred eighty
days. Subject to the provisions of this Agreement as to prepayment,
the principal of each Eurodollar Loan shall be due and payable on the
last day of each applicable Eurodollar Interest Period and may be paid
or renewed or shall automatically be converted to a Prime Rate Loan on
the last day of such Eurodollar Interest Period as hereinafter
provided. If no Event of Default exists hereunder and Borrower desires
to renew such Eurodollar Loan and the amount thereof is at least an
Incremental Portion, Borrower shall deliver the notice required in
Section 2.4 hereof and designate whether the Eurodollar Interest
Period to commence on the expiration date of the prior Eurodollar
Interest Period shall be a thirty day, sixty day, ninety day or one
hundred eighty day period. If Bank has not received timely permissible
notice of designation of such Eurodollar Interest Period as herein
provided, Borrower shall be deemed to have elected to convert such
maturing Eurodollar Loan to a Prime Rate Loan.
3.3 INTEREST RATE DETERMINATION. Bank shall determine each
interest rate applicable hereunder and shall give prompt notice to
Borrower of each rate of interest so determined.
3.4 CONVERSION OPTION: PRIME RATE LOANS TO EURODOLLAR LOANS.
Borrower may convert its Prime Rate Loans to Eurodollar Loans by
giving Bank irrevocable written notice of such election at least two
(2) Eurodollar Business Days prior to the proposed conversion date.
The notice of conversion to a Eurodollar Loan shall include (1) the
amount of the Prime Rate Loan to be converted (which must be converted
in Incremental Portions), and (2) the duration of the Eurodollar
Interest Period selected (thirty days, sixty days, ninety days or one
hundred eighty days). If no Event of Default exists hereunder, such
conversion shall be made on the requested conversion date or, if such
requested conversion date is not a Eurodollar Business Day, on the
next succeeding Eurodollar Business Day, but if an Event of Default
exists hereunder, no conversion may occur.
3.5 CONVERSION OPTION: EURODOLLAR LOANS TO PRIME RATE LOANS.
Borrower may convert all or any part of its Eurodollar Loans to Prime
Rate Loans by giving Bank irrevocable written notice of such election
prior to 10 a.m. (Fort Worth, Texas time) on the conversion date, if
such conversion date is the last day of a Eurodollar Interest Period
with respect thereto, or at least two (2) Eurodollar Business Days
prior written notice if the conversion date is a day other than the
last day of the Eurodollar Interest Period with respect thereto. Such
conversion shall be made on the requested conversion date or, if such
LOAN AGREEMENT - Page 6
<PAGE> 11
requested conversion date is not a Business Day, on the next
succeeding Business Day. A conversion of a Eurodollar Loan to a Prime
Rate Loan on a day other than the last day of the Eurodollar Interest
Period for the Eurodollar Loan in question shall constitute a
prepayment which may require the payment of the breakage fee described
in Section 6 of Schedule II attached hereto. AU conversion notices
given hereunder shall be irrevocable.
3.6 PREPAYMENT OF LOANS. (a) Borrower may at any time and
from time to time prepay any Prime Rate Loan, in whole or in part,
without premium or penalty, and (b) Borrower may at any time and from
time to time prepay any Eurodollar Loan in whole or in part, without
premium or penalty except as provided in Section 6 of Schedule II,
provided that Borrower first complies with the conditions hereinafter
set forth. With respect to eurodollar Loans, Borrower shall give Bank
at least two (2) Eurodollar Business Days prior written notice of (i)
its intent to prepay, (ii) the amount of principal which will be
prepaid, and (iii) the date on which the prepayment will be made. Each
prepayment of principal of eurodollar Loans shall be in a minimum
amount of $100,000 (or the aggregate principal amount outstanding, if
less) and in increments of S100,000 in excess thereof (unless the
prepayment retires the outstanding principal balance of the Note in
full) = accrued interest thereon to the date of prepayment. Borrower
may also be required to pay Bank the breakage fee described in Section
6 of Schedule II attached hereto because such payment is made on a
date other than the last day of the applicable eurodollar Interest
Period.
3.7 SCHEDULE II. Reference is made to Schedule II attached
hereto for special provisions relating to eurodollar Loans.
4. TERM CREDIT FACILITY.
4.1 TERM LOAN. Bank agrees, subject to the terms and
conditions hereof, to lend to Borrower $5,000,000 (the "Term Loan").
The Term Loan shall be evidenced by a promissory note of Borrower,
which Term Note shall (a) be dated March 12, 1997; (b) bear interest
from the date of advancement until paid in the manner provided herein;
(c) be payable as to interest in the manner hereinafter provided; (d)
be finally due and payable on the Term Note Maturity Date; (e) be
entitled to the benefits of this Agreement and the security provided
herein; and (0 be in such loan as is acceptable to Bank.
4.2 PURPOSE. Borrower agrees that proceeds of the Term Loan
shall be used solely to provide a portion of the purchase price for
the acquisition of the stock of SDS and AQS.
4.3 AMORTIZATION. The principal and accrued interest of the
Term Note shall be due and payable in fifteen (15) consecutive
quarterly principal installments of $312,500, each plus accrued
interest on the unpaid principal balance to the date of each
installment payment, on March 31, June 30, September 30 and December
31 of each year commencing March 31, 1997, and continuing through and
including September 30, 2000. Then, the outstanding principal balance
of the Term Note together with accrued unpaid interest thereon shall
be due and payable in one installment on March 12, 2001.
5. INTEREST RATE OPTIONS FOR TERM NOTE: The interest rate options
available for the Term Note hereunder shall be the Prime Rate and the
Eurodollar Rate. The outstanding principal balance of the Term Note shall bear
interest at either the Prime Rate or the Eurodollar Rate or a combination
LOAN AGREEMENT - Page 7
<PAGE> 12
thereof selected in the manner set forth below provided no more than three (3)
separate tranches of Principal Term Debt may bear interest at the Eurodollar
Rate at any one time.
5.1 PRIME RATE LOAN. Borrower agrees to pay interest
(calculated on the basis of the actual days elapsed in a year
consisting of 360 days) with respect to that portion of the Principal
Term Debt which is a Prime Rate Loan at a varying rate per annum equal
to the lesser of (i) the Maximum Rate or (ii) the Prime Rate. Accrued
interest on that portion of the Principal Term Debt which constitutes
a Prime Rate Loan shall be due and payable on the last day of each
Prime Rate Interest Period. That portion of the Principal Term Debt
which constitutes a Prime Rate Loan may be prepaid in whole or in part
at any time and from time to time without premium or penalty.
5.2 EURODOLLAR LOANS. Borrower agrees to pay interest
(calculated on the basis of actual days elapsed in a year consisting
of 360 days) with respect to the unpaid principal amount of each
Eurodollar Loan at a rate per annum equal to the lesser of (i) the
Maximum Rate or (ii) the Eurodollar Rate applicable to such Eurodollar
Loan. Subject to the provisions of this Agreement as to prepayment,
interest with respect to each Eurodollar Loan shall be payable (i) on
the last day of each Eurodollar Interest Period, where the Eurodollar
Interest Period in question is thirty days, sixty days, or ninety
days, and (ii) on the ninetieth day and on the last day of each
eurodollar Interest Period, where the Eurodollar Interest Period in
question is one hundred eighty days. Subject to the provisions of this
Agreement as to prepayment, the principal of each Eurodollar Loan
shall be due and payable on the last day of each applicable Eurodollar
Interest Period and may be paid or renewed or shall automatically be
converted to a Prime Rate Loan on the last day of such Eurodollar
Interest Period as hereinafter provided. If no Event of Default exists
hereunder and Borrower desires to renew such Eurodollar Loan and the
amount thereof is at least an Incremental Portion, Borrower shall
deliver the Term Loan Rate Request required in Section S.3 hereof and
designate whether the Eurodollar Interest Period to commence on the
expiration date of the prior Eurodollar Interest Period shall be a
thirty day, sixty day, ninety day, or one hundred eighty day period.
If Bank has not received timely permissible notice of designation of
such Eurodollar Interest Period as herein provided, Borrower shall be
deemed to have elected to convert such maturing Eurodollar Loan to a
Prime Rate Loan.
5.3 SELECTION OF INTEREST RATE. Borrower shall select the
interest rate or rates for the Term Note by means of completing a
request (the "Term Loan Rate Request") in the form of Exhibit "B."
attached hereto with blanks completed in conformity herewith. Where
Borrower desires to select an interest rate, convert from one interest
rate to another or renew a Eurodollar Loan, Borrower shall submit to
Bank a Term Loan Rate Request specifying (a) the date for the
requested selection to be effective (which shall be a Business Day in
the case of a Prime Rate Loan or a eurodollar Business Day in the case
of a eurodollar Loan); (b) the type of transaction (selection of an
interest rate, conversion from one rate to another or a renewal of a
eurodollar Loan); (c) the amount involved (which in the case of the
initial selection of the eurodollar Rate or in the case of a
conversion from the Prime Rate to the Eurodollar Rate or in the case
of a renewal of an existing eurodollar Loan must be an Incremental
Portion); and (d) if any portion of the request involves a Eurodollar
Loan, the length of the Eurodollar Interest Period selected (thirty
days, sixty days, ninety days, or one hundred eighty days). Each Term
Loan Rate Request shall be delivered to Bank by 10 a.m. (Fort Worth,
Texas time) on the date of the proposed transaction in the case of a
Prime Rate Loan, and by 10 a.m. (Fort Worth, Texas time) two (2)
Business Days prior to the date of the proposed transaction in the
case of a eurodollar Loan. The
LOAN AGREEMENT - Page 8
<PAGE> 13
information required to be specified in a Term Loan Rate Request may
be given telephonically by Borrower to Bank, but upon giving such
telephonic notice, Borrower shall immediately thereafter provide Bank
with the fully completed and executed Term Loan Rate Request. All Term
Loan Rate Requests given pursuant to this Agreement shall be
irrevocable. Not later than 12 noon (Fort Worth, Texas time) on the
date of the requested transaction and upon fulfillment of all other
conditions required by this Agreement, Bank will effect the requested
transaction. Bank shall determine each Eurodollar Rate applicable
hereunder and shall give prompt notice thereof to Borrower.
5.4 CONVERSION OPTION: PRIME RATE TO EURODOLLAR RATE.
Borrower may convert one or more Incremental Portions (subject to the
restriction that no more than three (3) separate tranches of the
Principal Term Debt may bear interest at the eurodollar Rate at any
one time) to one or more Eurodollar Loans by giving Bank irrevocable
written notice of such election at least two (2) Eurodollar Business
Days prior to the proposed conversion date. The notice of conversion
to a Eurodollar Loan shall include (1) the amount of the Prime Rate
Loan to be converted (which must be converted in Incremental
Portions), and (2) the duration of the Eurodollar Interest Period
selected (thirty days, sixty days, ninety days or one hundred eighty
days). If no Event of Default exists hereunder, such conversion shall
be made on the requested conversion date or, if such requested
conversion date is not a Eurodollar Business Day, on the next
succeeding eurodollar Business Day, but U an Event of Default exists
hereunder, no conversion may occur.
5.5 CONVERSION OPTION: EURODOLLAR RATE TO PRIME RATE.
Borrower may convert all or any part of its eurodollar Loans to the
Prime Rate by giving Bank irrevocable written notice of such election
prior to 10 a.m. (Fort Worth, Texas time) on the conversion date, U
such conversion date is the last day of a eurodollar Interest Period
with respect thereto, or at least two (2) eurodollar Business Days
prior written notice if the conversion date is a day other than the
last day of the eurodollar Interest Period with respect thereto. Such
conversion shall be made on the requested conversion date or, if such
requested conversion date is not a Business Day, on the next succeed
Business Day. A conversion of a eurodollar Loan to the Prime Rate on a
day other than the last day of the eurodollar Interest Period for the
eurodollar Loan in question shall constitute a prepayment which may
require the payment of the breakage fee described in Section 6 of
Schedule II attached hereto. All conversion notices given hereunder
shall be irrevocable.
5.6 PREPAYMENT OF EURODOLLAR LOANS. Borrower may at any time
and from time to time prepay any eurodollar Loan in whole or in part,
provided that Borrower first complies with the conditions hereinafter
set forth. Borrower shall give Bank at least two (2) eurodollar
Business Days prior written notice of (i) its intent to prepay, (ii)
the amount of principal which will be prepaid, and (iii) the date on
which the prepayment will be made. Each prepayment of principal shall
be in a minimum amount of S100,000 (or the aggregate principal amount
outstanding, if less) and in increments of $100,000 in excess thereof
(unless the prepayment retires the outstanding principal balance of
the Term Note in full) plus accrued interest thereon to the date of
prepayment. Borrower may also be required to pay Bank the breakage fee
described in Section 6 of Schedule II attached hereto to the extent
that such payment is made on a date other than the last day of the
applicable eurodollar Interest Period.
5.7 SCHEDULE II. Reference is made to Schedule II attached
hereto for special provisions relating to Eurodollar Loans.
LOAN AGREEMENT - Page 9
<PAGE> 14
6. SECURITY.
6.1 ACCOUNTS RECEIVABLE, ETC. The payment and performance of
the Obligations shall be secured by a lien and security interest in
all of the accounts receivable, inventory, equipment, servicing
contract rights and other personal property of Borrower, SDS and AQS
pursuant to security agreements (each agreement, as the same may
hereafter be amended or supplemented from time to time being a
"Security Agreement") which shall be in such form as is satisfactory
to Bank, subject only to exceptions noted therein. The liens created
by the Security Agreements shall be first and prior liens, subject
only to liens expressly permitted therein.
6.2 PLEDGE OF STOCK. The payment and performance of the
Obligations shall be secured by a first priority lien and security
interest in 100% of the outstanding shares of SDS and AQS pursuant to
pledge agreements (each agreement, as the same may hereafter be
amended or supplemented from time to time being a "Pledge Agreement")
which shall be in such form as is satisfactory to Bank. The liens
created by the Pledge Agreements shall be first and prior liens.
6.3 GUARANTIES. The payment and performance of the
Obligations shall be secured by the unconditional guarantee of SDS and
the unconditional guarantee of AQS pursuant to the terms of agreements
(each agreement, as the same may be amended or supplemented from time
to time being a "Guaranty Agreement") which shall be in such form as
is satisfactory to Bank.
6.4 COMFORT LETTER. Borrower shall cause The Millers Mutual
Fire Insurance Company ("Millers Mutual") to issue a comfort letter
(the "Comfort Letter") assuring Borrower's payment and performance of
the Obligations on a basis which is satisfactory to Bank which shall
address, among other things, suspension of management fee and Borrower
net worth maintenance issues.
7. CONDITIONS PRECEDENT TO INITIAL FUNDING. The obligation of Bank to
fund the initial Loan hereunder is subject to the satisfaction (in the opinion
of the Bank), unless waived by Bank, of each of the following conditions:
7.1 LOAN ORIGINATION FEE. Borrower shall have paid Bank a
loan origination fee of $45,000.
7.2 EFFECTIVENESS OF LOAN DOCUMENTS. Each of the Loan
Documents shall be in full force and effect.
7.3 OPINIONS. There shall have been delivered favorable
opinions of counsel for Borrower and the Guarantors, covering such
matters incident to the Loans or any of the Loan Documents as Bank may
reasonably request.
7.4 REPRESENTATIONS AND WARRANTIES. All representations sad
warranties contained herein or in the documents referred to herein or
otherwise made in writing in connection herewith or therewith shad be
true and correct in all material respects with the same force and
effect as though such representations and warranties have been made on
and as of this date.
LOAN AGREEMENT - Page 10
<PAGE> 15
7.5 DOCUMENTATION AND PROCEEDINGS. Bank shall have received
such evidence as Bank requires of the existence, good standing,
authority and capacity of Borrower and each Guarantor to execute,
deliver and perform the Loan Documents.
7.6 EXPENSES. Borrower shall have paid all reasonable
out-of-pocket expenses of Bank in connection with the preparation of
the Loan Documents and the making of the Loans, including but not
limited to, the reasonable fees and out-of-pocket expenses of counsel
for Bank.
7.7 APPROVAL OF STOCK ACQUISITION AGREEMENT. Bank shall have
received and approved the Merger Agreement.
8. CONDITIONS PRECEDENT TO SUBSEQUENT REVOLVING LOANS. The obligation
of Bank to make each Revolving Loan to Borrower subsequent to the initial
Revolving Loan is subject, at the time of the funding of each such Revolving
Loan, to the satisfaction (in the opinion of Bank), unless waived in writing by
Bank, of each of the following conditions:
8.1 AVAILABILITY OF COMMITMENT. The then Principal Revolving
Debt plus the amount of the requested Revolving Loan shall be equal to
or less than the Commitment.
8.2 EXPENSES. Borrower shall have paid all reasonable
out-of-pocket expenses of Bank in connection with the preparation of
the Loan Documents and the making of the Revolving Loan, including but
not limited to, the reasonable fees and out-of-pocket expenses of
counsel of Bank.
8.3 OTHER CONDITIONS PRECEDENT. The conditions precedent set
forth in Sections 7.2, 7.4 and 7.5 shall have been met.
8.4 REQUIRED ACTS AND CONDITIONS. All acts, conditions and
things required to be done and performed and to have happened
precedent to the making of each Revolving Loan and the continued
performance and effectiveness of each of the Loan Documents, and in
order to continue to constitute the same the valid and binding
obligations of Borrower, enforceable in accordance with their terms,
shall have been done and performed and shall have happened in due
compliance with all applicable laws.
9. AFFIRMATIVE COVENANTS. Until full payment and performance of all
Obligations, Borrower will, unless Bank consents otherwise in writing (and
without limiting any requirement of any other Loan Document):
9.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a
system of accounting satisfactory to Bank and in accordance with GAAP
applied on a consistent basis throughout the period involved, permit
Bank's officers or authorized representatives to visit and inspect
Borrower's books of account and other records at such reasonable times
and as often as Bank may desire, and pay the reasonable fees and
disbursements of any accountants or other agents of Bank selected by
Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records will be
located at Borrower's chief executive office set forth above. All
financial statements provided to Bank shall be in form acceptable to
Bank. In addition, Borrower will:
LOAN AGREEMENT - Page 11
<PAGE> 16
(a) Furnish to Bank annual, audited financial
statements of Borrower for each fiscal year of Borrower,
within 120 days after the close of each such fiscal year.
(b) Furnish to Bank (i) annual, audited financial
statements of SDS and its consolidated subsidiaries for each
fiscal year of SDS, within 120 days after the close of each
such period, and (2) annual, unaudited, consolidating
financial statements of SDS and AQS, within 120 days after
the dose of each such period.
(c) Furnish to Bank quarterly, unaudited,
internally-prepared financial statements of Borrower and
Guarantors within 45 days after the end of each fiscal
quarter of each such entity.
(d) Furnish to Bank within 45 days after the end of
each fiscal quarter, a compliance certificate of the
president or chief financial officer of Borrower in the form
of Exhibit "C" attached hereto.
(e) Furnish to Bank on the monthly basis on the
first day of each month a Borrowing Base Report in the form
of Exhibit "D" attached hereto.
(f) Furnish to Bank promptly such additional
information, reports and statements respecting the business
operations and financial condition of Borrower and
Guarantors, respectively, from time to time, as Bank may
reasonably request.
9.2 INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such
risks as is customarily maintained by similar businesses similarly
situated.
9.3 EXISTENCE AND COMPLIANCE. Maintain its existence, good
standing and qualification to do business, where required and comply
with all laws, regulations and governmental requirements including,
without limitation, environmental laws applicable to it or to any of
its property, business operations and transactions, except where
failure to do so would not reasonably be expected to have a material
adverse effect on Borrower.
9.4 NOTICES TO BANK. Promptly advise Bank in writing of (i)
any condition, event or act which comes to its attention that would or
might reasonably be expected to make any adversely affect Borrower's
financial condition or operations, the collateral, or Bank's rights
under the Loan Documents, (ii) any litigation filed by or against
Borrower involving an amount in excess of $100,000, (iii) the
occurrence of any Event of Default, or of any fact, condition or event
that only with the giving of notice or passage of time or both, could
become an Event of Default, or the failure of Borrower or any
Guarantor to observe any of its undertakings hereunder, and (iv) any
uninsured or partially uninsured loss through fire, theft, liability
or property damage in excess of an aggregate of $100,000.
9.5 TAXES AND OTHER OBLIGATIONS. Pay all of its taxes,
assessments and other obligations, including, but not limited to taxes
and assessments and lawful claims which, if unpaid, might by law
become a lien against the assets of Borrower, as the same become due
and payable, except to the extent the same are being Contested in Good
Faith or such lien would secure obligations of less than $100,000.
LOAN AGREEMENT - Page 12
<PAGE> 17
9.6 MAINTENANCE. Maintain all of its tangible property in
good condition and repair and make all necessary replacements thereof,
and preserve and maintain all licenses, trademarks, privileges,
permits, franchises, certificates and the like necessary for the
operation of its business, except where failure to do so would not
reasonable be expected to have a material adverse effect on Borrower.
9.7 COMPLIANCE WITH AGREEMENTS. Comply in all material
respects with all existing and future material agreements, indentures,
mortgages or documents which are binding on it or affecting any of its
properties or business.
9.8 FURTHER ASSURANCES. Make, execute or endorse, and
acknowledge and deliver or cause the same to be done, all such
notices, certifications and additional agreements, undertakings,
transfers, assignments, financing statements or other assurances, and
take any and all such other action, as Bank may, from time to time,
deem reasonably necessary or proper in connection with this Agreement
or any of the other Loan Documents, the obligations of the Borrower
hereunder or thereunder, (i) to cure any defects in the creation of
the Loan Documents, or (ii to further evidence or more fully describe
the collateral intended as security for the Obligations, or (iii) to
correct any omissions in the Loan Documents, or (iv) to state more
fully the security obligations set forth in this Agreement or in any
of the Loan Documents, or (v) to perfect, protect or preserve any
liens created pursuant to any of the Loan Documents, or (vi) to make
any recordings or file any notices or obtain any consents, or (vii)
for better assuring and confirming unto the Bank all or any part of
the security for any of the Obligations.
10. NEGATIVE COVENANTS. Until full payment and performance of all
Obligations, Borrower will not, without the prior written consent of Bank (and
without limiting any requirement of any other Loan Documents):
10.1 MINIMUM NET WORTH. Permit Consolidated Net Worth at the
end of each fiscal quarter to be less than the Minimum Net Worth
Amount. For purposes of this covenant, the following terms have the
respective meanings set forth below:
"CONSOLIDATED NET WORTH" means the excess of total
assets over total liabilities of Borrower and its
subsidiaries on a consolidated basis, total assets and total
liabilities each being determined in accordance with GAAP
consistent with those applied in the preparation of the
financial statements referenced in Section 11.8 hereof,
expressly including all assets which will be classified as
intangible assets under GAAP.
"MINIMUM NET WORTH AMOUNT" means (a) for
determinations of the net worth covenant made at the end of
the first three fiscal quarters of each fiscal year, the sum
of the Base Net Worth Amount plus the amount which is
seventy-five percent (75%) of the consolidated net income of
Borrower and its subsidiaries, commencing at the end of the
previous fiscal year and ending with such fiscal quarter, and
(b) for determinations of the net worth covenant made at the
fiscal year end, the greater of:
LOAN AGREEMENT - Page 13
<PAGE> 18
(1) the sum of the Base Net Worth Amount
plus the amount which is seventy-five percent (75%)
of consolidated net income of Borrower and its
subsidiaries for the entire fiscal year, or
(2) the Consolidated Net Worth reflected on
Borrower's year end audited financial statements;
provided however, that in no event may the Minimum Net Worth
Amount as of the end of any fiscal quarter be less than the
Minimum Net Worth Amount as at the end of the immediately
preceding fiscal quarter.
"BASE NET WORTH AMOUNT" means (a) for computations
of the Minimum Net Worth Amount made for each fiscal quarter
during the 1997 fiscal year of Borrower, $12,250,000, and (b)
for computations of the Minimum Net Worth Amount made for
fiscal quarters during fiscal years subsequent to the 1997
fiscal year, the greater of the following amounts as of the
year end of the fiscal year next preceding the fiscal year
for which the computation is made:
(3) The sum of the Base Net Worth Amount
plus the amount which is seventy-five percent (75%)
of consolidated net income of Borrower and its
subsidiaries for the entire fiscal year, or
(4) The Consolidated Net Worth reflected on
Borrower's year end audited financial statements.
10.2 SALE OF ASSETS. Sell, lease, assign or otherwise
dispose of or transfer any assets except for sales and licensing of
assets in the ordinary course of business.
10.3 LIQUIDATION, MERGER, CONSOLIDATION, ACQUISITION. Wind
up, liquidate or dissolve affairs or enter any merger or consolidation
(other than pursuant to the Merger Agreement), or form or acquire any
subsidiary, or transfer control or ownership of Borrower or permit the
transfer of control or ownership of SDS or AQS.
10.4 BORROWINGS. Create, contract, incur, assume or suffer
to exist any indebtedness (including without limitation, any liability
for the deferred purchase price of property or other liability
evidenced or to be evidenced by bonds, debentures, notes or other
similar instruments), or permit any of its subsidiaries to do so,
except (a) indebtedness arising out of the Loan Documents, (b) current
liabilities for taxes and assessments, (c) current accounts payable or
accrued or other claims (other than for borrowed money or purchase
money obligations) incurred in the ordinary course of business,
provided that all such liabilities, accounts and claims shall be
promptly paid and discharged or Contested in Good Faith, (d) capital
and operating lease obligations incurred in the ordinary course of
business, (e) indebtedness of Borrower to any subsidiary or of any
subsidiary to Borrower or another subsidiary, (f) indebtedness
described on Schedule 10.4 attached hereto, and (g) renewals,
extensions and refinancing of the foregoing (without increase in
principal amount).
LOAN AGREEMENT - Page 14
<PAGE> 19
10.5 DIVIDENDS. DISTRIBUTIONS AND PURCHASES AND CAPITAL
STOCK. Declare or pay any dividends, or return any capital to its
stock holders or authorize or make any other distribution, payment or
delivery of property or cash to its stock holders as such, or redeem,
retire, purchase or otherwise acquire, or permit any of its
subsidiaries to purchase or acquire, directly or indirectly, for any
consideration, any shares Of any class of Borrower's capital stock now
or hereafter outstanding, or set aside any funds for any of the
foregoing purposes.
10.6 CHARACTER OF BUSINESS. Change the general character of
business as conducted at the date hereof, or engage on a regular basis
in any type of business not reasonably related to its business as
presently conducted.
10.7 ARM'S LENGTH TRANSACTIONS. Enter into or permit any
subsidiary to enter into, any transaction with any affiliate, except
(a) a transaction upon terms that are not less favorable to Borrower
than would be obtained in a transaction negotiated at arm's length
with an unrelated third party, and (b) a transaction with an affiliate
involving goods or services having a value which is less than
S100,000.
11. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
11.1 GOOD STANDING. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of
Texas and has the power and authority to own its property and to carry
on its business in Texas and in each other jurisdiction in which
Borrower does business except where failure to be qualified to carry
on its business would not reasonably be expected to have a material
adverse effect on Borrower. SDS is a corporation duly organized,
validly existing and in good standing under the laws of Wisconsin and
has the power and authority to own its property and to carry on its
business in each jurisdiction in which SDS does business except where
failure to be qualified to carry on its business would not reasonably
be expected to have a material adverse effect on SDS. AQS is a
corporation duly organized, validly existing and in good standing
under the laws of Wisconsin and has the power and authority to own its
property and to carry on its business in each jurisdiction in which
AQS does business except where failure to be qualified to carry on its
business would not reasonably be expected to have a material adverse
effect on AQS.
11.2 AUTHORITY AND COMPLIANCE. Borrower and Guarantors have
full power and authority to execute and deliver the Loan Documents to
which they are parties and to incur and perform the obligations
provided for therein, all of which have been duly authorized by all
proper and necessary action. No consent or approval of any public
authority or other third party is required as a condition to the
validity of any Loan Document, and Borrower and Guarantors are in
compliance in all material respects with all laws and regulatory
requirements to which they are subject.
11.3 BINDING AGREEMENT. This Agreement and the other Loan
Documents executed Borrower and Guarantors constitute valid and
legally binding obligations of Borrower and Guarantors, respectively,
enforceable in accordance with their terms, except where the
enforcement thereof may be limited by applicable bankruptcy or debtor
relief laws affecting the rights of creditors generally and general
principles of equity.
LOAN AGREEMENT - Page 15
<PAGE> 20
11.4 LITIGATION. There is no proceeding involving Borrower
or Guarantors pending or, to the knowledge of Borrower, threatened
before any court or governmental authority agency or arbitration
authority, except as disclosed to Bank in writing on or prior to the
date of this Agreement.
11.5 NO CONFLICTING AGREEMENTS. There is no charter, bylaw,
stock provision, agreement or other document pertaining to the
organization, power or authority of Borrower or Guarantors and no
provision of any existing material agreement, mortgage, indenture or
contract binding on Borrower or Guarantors or affecting their
property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and
the other Loan Documents.
11.6 OWNERSHIP OF ASSETS. Borrower and Guarantors have good
title to their assets, and their assets are free and clear of liens,
except those (i) expressly permitted by the terms of this Agreement
and the other Loan Documents, (ii) granted to Bank and (iii) as
disclosed to Bank in writing prior to the date of this Agreement.
11.7 TAXES. AU taxes and assessments due and payable by
Borrower and Guarantors have been paid or are being Contested in Good
Faith, and the Borrower and Guarantors have filed all tax returns
which it is required to file.
11.8 FINANCIAL STATEMENTS. The financial statements of
Borrower and Guarantors heretofore delivered to Bank have been
prepared in accordance with GAAP applied on a consistent basis
throughout the period involved and fairly pr sent in all material
respects Borrower's and Guarantors' financial condition as of the date
or dates thereof, and there has been no material adverse change in
Borrower's and Guarantors' financial condition or operations since
November 30, 1996. To the best of Borrower's knowledge, all factual
information furnished by Borrower and Guarantors to Bank in connection
with this Agreement and the other Loan Documents is and will be
accurate and complete in all material respects on the date as of which
such information is delivered to Bank and is not and will not be
incomplete by the omission of any material fact necessary to make such
information not misleading.
11.9 CONTINUATION OF REPRESENTATIONS AND WARRANTIES. AU
representations and warranties made under this Agreement shall be
deemed to be made at and as of the date hereof and at and as of the
date of any future advance under any Loan and in all such instances
shall be true and correct in all material respects.
12. DEFAULT. Any of the following shall constitute events of default
(each an "Event of &fault"):
12.1 NONPAYMENT. (a) Borrower shall default in the due and
punctual payment of any principal or interest of the Note or any of
the other Obligations when due and payable, whether at maturity or
otherwise, and such default unremedied shall continue for a period of
ten (10) days after notice thereof from Bank, or (b) Borrower shall
default in the due performance by it of the provisions of Section 2.3
hereof.
12.2 REPRESENTATIONS AND WARRANTIES. Any representation,
warranty or statement made by Borrower or any guarantor herein or
otherwise in writing in connection herewith or in connection with any
of the other Loan Documents and the agreements referred to herein or
therein or in any financial
LOAN AGREEMENT - Page 16
<PAGE> 21
statement, certificate or statement signed by any officer or employee
of Borrower or any guarantor and furnished pursuant to any provision
of the Loan Documents shall be materially false, incorrect or
incomplete when made.
12.3 DEFAULT IN AFFIRMATIVE AND NEGATIVE COVENANTS UNDER
AGREEMENT. (a) Borrower shall default in the due performance or
observance by it of any term, covenant or agreement on its part to be
performed or observed pursuant to Section 9.4 or Sections 10.2 through
10.7 hereof; or (b) Borrower shall default in the due performance or
observance of any term, covenant or agreement on its part to be
observed or performed pursuant to Sections 9.1 through 9.3 or 9.5
through 9.8 hereof, and such failure shall continue unremedied for a
period of fifteen (15) days after (i) notice of such default from
Bank, or (ii) Bank is notified of such default or should have been so
notified pursuant to the provisions of Section 9.4 hereof, whichever
is earlier; or (c) Borrower shall default in the due performance or
observance by it of the provisions of Section 10.1 hereof, and then
Millers Mutual shall default in the due performance or observance by
it of any term, covenant or agreement contained in the Comfort Letter.
12.4 DEFAULT IN OTHER COVENANTS UNDER AGREEMENT. Borrower
shall default in the due performance or observance by it of any term,
covenant or agreement contained in this Agreement other than those
specified in Sections 12.1, 12.2 and 12.3 hereof, and such default
shall continue unremedied for a period of thirty (30) days after (i)
notice of such default from Bank, or (u) Bank is notified of such
default or should have been so notified pursuant to the provisions of
Section 9.4 hereof, whichever is earlier.
12.5 DEFAULT IN OTHER LOAN DAB. Borrower or any Guarantor
shall default in the due performance of or observance by such party of
any term, covenant or agreement on such party's part to be performed
pursuant to the terms of any of the other Loan Documents other than
those specified in Sections 12.1, 12.2, 12.3 and 12.4 hereof, and the
default shall continue unremedied for a period of thirty (30) days
after (i) notice of such default from Bank, or (ii) Bank is notified
of such default or should have been so notified pursuant to the
provisions of Section 9.4 hereof, whichever is earlier.
12.6 DEFAULT IN OTHER DEBT. An event of default shall occur
under the provisions of any instrument (other than the Loan Documents)
evidencing indebtedness of Borrower or any Guarantor for the payment
of borrowed money (including any capital lease) or of any agreement
relating thereto (the effect of which is to permit the holder or
holders of such instrument to cause the indebtedness evidenced by such
instrument to become due prior to its stated maturity) and such holder
or holders rightfully demand payment of indebtedness aggregating S
100,000 or more.
12.7 VALIDITY OF LOAN DOCUMENTS. Any of this Agreement, the
Notes, the Security Agreements, the Guaranty Agreements, the Pledge
Agreements or the UCC-1 financing statements shall cease to be a
legal, valid and binding agreement enforceable against any party
executing the same in accordance with the respective terms thereof, or
shall in any way be terminated or become or be declared ineffective or
inoperative, or shall in any way whatsoever cease to give or provide
the respective rights, remedies, powers and privileges intended to be
created thereby.
12.8 BANKRUPTCY. Borrower or any Guarantor shall suspend or
discontinue its business operations, or shall generally fail to pay
its debts as they mature, or shall file a petition commencing a
LOAN AGREEMENT - Page 17
<PAGE> 22
voluntary case concerning Borrower or any Guarantor under any chapter
of the United States Bankruptcy Code; or any involuntary case shall be
commenced against Borrower or any guarantor under the United States
Bankruptcy Code that remains unstayed and in effect for sixty (60)
days; or Borrower or any Guarantor shall become insolvent (howsoever
such insolvency may be evidenced).
12.9 JUDGMENTS AND DECREES. Borrower or any Guarantor shall
suffer a final judgment for the payment of money in excess of $100,000
beyond insurance coverage and shall not discharge the same within a
period of thirty (30) days unless, pending further proceedings,
execution has not been commenced, or, if commenced, has been
effectively stayed. Any order, judgment or decree shall be entered in
any proceeding against Borrower or any Guarantor decreeing the
dissolution or split up of Borrower or any guarantor and such order
shall remain undischarged or unstayed for a period in excess of thirty
(30) days.
12.10 TERMINATION OF SERVICES. Borrower shall fail to provide
third party services to Millers Mutual and Millers Casualty Insurance
Company on an ongoing basis.
13. REMEDIES. Upon the occurrence of an Event of Default described in
Section 12.8 hereof, the entire principal of and accrued interest on the Notes
shall forthwith be due and payable without demand, presentment for payment,
notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices and further actions of
any kind, all of which are hereby expressly waived by Borrower. In the event
that any other Event of Default occur and be continuing, Bank may, without
demand or notice of its election declare the entire unpaid balance of the Notes
and all other indebtedness of Borrower to Bank, or any part thereof,
immediately due and payable, whereupon the principal of and accrued interest on
such Note and other indebtedness shall be forthwith due and payable without
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate, notice of acceleration and all other
notices and further actions of any kind, all of which are hereby expressly
waived by Borrower. Upon the occurrence and during the continuance of any Event
of Default, Bank may (a) exercise any and all rights under or pursuant to any
of the Loan Documents, and (b) exercise any and all rights afforded to Bank by
the laws of the State of Texas or any other applicable jurisdiction or in
equity or otherwise, as Bank may deem appropriate, and (c) terminate the
Commitment.
14. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing (including telegraphic, telex and facsimile
transmission) delivered to the other party at the addresses set forth on the
first page of this Agreement or to such other address as any party may
designate by written notice to the other party. Each such notice, request and
demand shall be deemed given or made (whether actually received or not) (a) if
sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, and (b) if sent by any
other means, upon delivery. Until otherwise changed by notice given pursuant to
this Section, the facsimile transmission number for Borrower shall be (817)
348-3765, and the facsimile transmission number for Bank shall be (817) 390
6545.
15. COSTS, EXPENSES AND ATTORNEY'S FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all reasonable, out-of-pocket costs
and expenses, including reasonable attorneys' fees incurred by Bank in
connection with (a) negotiation and preparation of this Agreement and each of
the Loan Documents, and all other costs and attorneys' fees incurred by Bank
for which Borrower is
LOAN AGREEMENT - Page 18
<PAGE> 23
obligated to pay in accordance with the terms of the Loan Documents, and (b)
any modifications of or consents or waivers under or amendments to or
interpretations of or enforcement of this Agreement, the Notes, the other Loan
Documents and the agreements described therein. Borrower further agrees to
indemnify Bank and its employees and agents from and hold it harmless against
any and all losses, liabilities, e ms, damages or expenses which any of them
suffers or incurs as a result of its entering into this Agreement, or the
consummation of the transactions contemplated by this Agreement and the Loan
Documents, or the use or contemplated use of the proceeds of the Loans,
including, without limitation, the out-of pocket disbursements and reasonable
fees of counsel incurred in connection with any litigation, arbitration or
other proceeding arising out of or by reason of any of the aftersaid, but
expressly excluding any losses, liabilities, claims, damages or expenses which
Bank may suffer or incur arising from any actions asserted by Bank against its
own employees or agent.
16. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, limiting any requirement of any other Loan Document:
16.1 CUMULATIVE RIGHTS AND NO WAIVER. Each and every right
granted to Bank under any Loan Document, or allowed it by law or
equity shall be cumulative of each other and may be exercised in
addition to any and all other rights of Bank, and no delay in
exercising any right s all operate as a waiver thereof, nor shall any
single or partial exercise by Bank of any right preclude any other or
future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice Of
any kind, including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on Borrower in any
case shall, of itself, entitle Borrower to any other or future notice
or demand in similar or other circumstances.
16.2 APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF TEXAS AND APPLICABLE UNITED
STATES FEDERAL LAW.
16.3 AMENDMENT. No modification, consent, amendment or waiver
of any provision of this Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be in
writing and signed by an officer of Bank, and then shall be effective
only in the specified instance and for the purpose for which given.
This Agreement is binding upon Borrower, its successors and assigns,
and inures to the benefit of Bank, its successors and assigns;
however, no assignment or other transfer of Borrower's rights or
obligations hereunder shall be made or be effective without Bank's
prior written consent, nor shall it relieve Borrower of any
obligations hereunder. There is no third party beneficiary of this
Agreement.
16.4 DOCUMENTS. All documents, certificates and other items
required under this Agreement to be executed and/or delivered to Bank
shall be in form and content satisfactory to Bank and its counsel.
16.5 PARTIAL INVALIDITY. The unenforceability or invalidity
of any provision of this Agreement shall not affect the enforceability
or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person
or circumstance shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
LOAN AGREEMENT - Page 19
<PAGE> 24
16.6 SURVIVABILITY. All covenants, agreements,
representations and warranties made herein or in the other Loan
Documents shall survive the making of the initial Loans and shall
continue in full force and effect so long as the Obligations are
outstanding or the Commitment has not expired.
16.7 ACCOUNTING TERMS. All accounting terms not specifically
defined or specified herein shall have the meanings generally
attributed to such terms under generally accepted accounting
principles ("GAAP"'), as in effect from time to time, consistently
applied, with respect to the financial statements referenced in
Section 11.8 hereof.
16.8 RIGHT TO GRANT PARTICIPANTS. Bank shall have the right
to grant participations (which may be evidenced by one or more
certificates of participation), in the indebtedness of Borrower
incurred under and pursuant to this Agreement and owed to Bank at any
time and from time to time to other banking institutions organized
under the laws of the United States or any state thereof and
reasonably acceptable to Borrower (herein called the "Participants").
The form of participation agreement shall provide, among other things,
that Bank may, in its sole discretion (a) agree to any modification of
any of the terms of the Loan Documents or any other agreement or
instrument evidencing or securing the Obligations; (b) waive any of
such terms or give or withhold consents or approvals to any actions or
failure to act by Borrower; (c) exercise or refrain from exercising,
or waive, any rights or powers that Bank may have in respect thereof;
and (d) agree to release or permit substitutions of collateral in
respect of the Obligations; provided that Bank will not, without each
Participant's written consent, reduce the principal or the interest
rate (below the participation rate) or extend the stated maturity of
any of the Obligations.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW OF TEXAS), THE RULES OF
PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./INDISPUTE OR ANY SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES"
SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL
CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN
ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF
ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
17.1 SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
FORT WORTH, TEXAS, AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
LOAN AGREEMENT - Page 20
<PAGE> 25
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
17.2 RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO A) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS
CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC.
91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT
OF THE BANK (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF,
WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER
THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH
ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
18. AGREEMENT CONTROLLING. In the event of a conflict between the
terms and provisions of this Agreement and the terms and provisions of any of
the other Loan Documents, the terms and provisions of this Agreement shall
control.
19. NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[This Space Left Intentionally Blank]
LOAN AGREEMENT - Page 21
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date u td year first above written.
MILIRISK, INC.
By /s/ F. GEORGE DUNHAM, III
----------------------------------------
F. George Dunham, III
President and Chief Executive Officer
By /s/ JOY J. KELLER
----------------------------------------
Joy J. Keller
Executive Vice President and Chief
Financial Officer
NATIONSBANK OF TEXAS, N.A.
By /s/ JERRY COLWELL
----------------------------------------
Jerry Colwell
Vice President
LOAN AGREEMENT - Page 22
<PAGE> 27
SCHEDULE I
INTEREST RATE PRICING DEFINITIONS
The definitions set forth on this Schedule I are those which relate
solely to the interest rate pricing options under the Agreement.
"BUSINESS DAY" means the normal banking hours during any day (other
than Saturdays or Sundays) that banks are legally open for business in Fort
Worth, Texas.
"EUROCURRENCY RESERVE REQUIREMENT" means, for any eurodollar Loan for
a eurodollar Interest Period thereunder, the daily average of the stated
maximum rate (expressed as a decimal) at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Eurodollar Interest Period under Regulation D by Bank against
"eurocurrency liabilities" (as such term is used in Regulation D), but without
benefit or credit of proration, exemptions or offsets that might otherwise be
available to Bank from time to time under Regulation D. Without limiting the
effect of the foregoing, the Eurocurrency Reserve Requirement shall reflect any
other reserves required to be maintained by Bank against (a) any category of
liabilities that includes deposits by reference to which the Eurodollar
Interest Rate for Eurodollar Loans is to be determined, or (b) any category of
extension of credit or other assets that includes Eurodollar Loans.
"EURODOLLAR BUSINESS DAY" means a Business Day on which dealings in
U.S. Dollar deposits are on in the eurodollar market.
"EURODOLLAR INTEREST PERIOD " means, with respect to any eurodollar
Loan:
(i) initially, the period commencing on the date such
Eurodollar Loan is made and ending thirty days, sixty days, ninety
days or one hundred eighty days thereafter, as selected by Borrower,
and
(ii) thereafter, each period commencing, on the day following
the last day of the next preceding Interest Period applicable to such
eurodollar Loan and ending thirty days, sixty days, ninety days or one
hundred eighty days thereafter, as selected by Borrower;
provided, however, that (A) if any Eurodollar Interest Period would otherwise
expire on a day that is not a Eurodollar Business Day, such Interest Period
shall expire on the next suing eurodollar Business Day, and (B) any eurodollar
Interest Period that would other vise expire after the Revolving Note Maturity
Date or Term .Note Maturity Date, as is applicable, shall end on such Maturity
Date.
"EURODOLLAR LOAN" means any Revolving Loan, or that portion of the
Principal Term Debt, as the case may be, that bears interest at the Eurodollar
Rate or that would bear interest at such rate if the Maximum Rate ceiling was
not in effect at a particular time.
"EURODOLLAR MARGIN" means one and one-half percent (1.5%) per annum.
SCHEDULE I - Page 1
<PAGE> 28
"EURODOLLAR RATE" means, with respect to each eurodollar Loan, a rate
per annum (rounded upward, if necessary, to the nearest 1/100 of 196)
determined by Bank as follows:
Interbank Market Rate + Eurodollar
1 - Eurocurrency Reserve Requirement Margin
"INTERBANK MARKET RATE" means the rate of interest per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) at which deposits in
immediately available and freely transferable funds in U.S. Dollars are offered
to Bank by money center banks in the interbank eurocurrency market for delivery
on the first day of each such Eurodollar Interest Period, such deposits being
for a period of time equal or comparable to such Eurodollar Interest Period in
an amount equal to or comparable to the principal amount of the Eurodollar Loan
to which such eurodollar Interest Period relates. The Interbank Market Rate
shall be determined at approximately 10:00 a.m. (Fort Worth, Texas time) two
(2) eurodollar Business Days prior to the first day of each Eurodollar Interest
Period.
"INCREMENTAL PORTION'" means any amount which is $100,000 or amounts
in excess thereof in integral multiples of $100,000.
"INTEREST PERIOD" means any Prime Rate Interest Period or eurodollar
Interest Period, as is applicable.
"MAXIMUM RATE" means the lesser of the maximum nonusurious rate of
interest all wed by applicable United States or Texas law as amended or the
Prime Rate plus 5% from time to time and in effect on the date for which a
determination of interest accrued hereunder is made.
"PRIME RATE" means the variable rate of interest per annum established
from time to time by Bank as its Prime Rate (which rate of interest may or may
not be the lowest rate or best charged by Bank on similar loans, and Bank may
make various commercial or other loans at rates of interest having no
relationship to such rate). Each change in the Prime Rate shall become
effective without prior notice to Borrower automatically as of the opening of
business on the date of such change in the Prime Rate.
"PRIME RATE INTEREST PERIOD" means, with respect to any Prime Rate
Loan, the period ending on the last day of each calendar quarter; provided,
however, that (i) if any Prime Rate Interest Period would end on a day that is
not a Business Day, such Interest Period shall end on the next preceding
Business Day, and (ii) if any Prime Rate Interest Period would otherwise end
after the Revolving Note Maturity Date, or the Term Note Maturity Date, as is
applicable, such Interest Period shall end on such Maturity Date.
"PRIME RATE LOAN" means any Revolving Loan, or that portion of the
Principal Term Debt, as the case may be, that bears interest at the Prime Rate
or that would bear interest at the Prime Rate if the Maximum Rate ceiling was
not in effect at that particular time.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as amended or supplemented from time to time.
SCHEDULE I - Page 2
<PAGE> 29
SCHEDULE II
SPECIAL PROVISIONS RELATING TO EURODOLLAR LOANS
The following provisions shall apply to all Eurodollar Loans under
this Agreement.
1. UNAVAILABILITY OF FUND. DISASTER. ETC. If, in connection with any
proposed Eurodollar Loan, Bank determines (which determination shall be
conclusive, absent manifest error) that
(a) that U.S. Dollar deposits of the relevant amount and for
the relevant Eurodollar Interest Period for Eurodollar Loans are not
available to Bank in the interbank eurocurrency market,
(b) the Eurodollar Interest Rate will not adequately reflect
the cost to Bank of maintaining or funding the Eurodollar Loans for
such Interest Period, or
(a) adequate means do not exist in the market to determine
the Eurodollar Interest Rate,
then the obligations of Bank to make the applicable Eurodollar Loan shall be
suspended until such time as Bank determines that the event resulting in such
suspension has ceased to exist, and Borrower s all either repay in full the
then outstanding principal amount of each applicable eurodollar Loan owed to
Bank, without penalty, on the last day of the applicable Interest Period or
convert the same to the Prime Rate. If Bank makes such determination, it shall
promptly notify Borrower in writing and Borrower shall either repay the
outstanding Eurodollar Loans owed to Bank, without penalty, on the last day of
the current Interest Period or convert the same to Prime Rate Loans.
2. RESERVE REQUIREMENTS. In the event of any change in any applicable
law, treaty, or regulation or in the interpretation or administration thereof
or in the event any central bank or other fiscal monetary or other authority
having jurisdiction over Bank or the Loans contemplated by this Agreement
imposes, modifies, or deems applicable to any Eurodollar Loan or Loans any
reserve requirement of the Board of Governors of the Federal Reserve System or
any other reserve, special deposit, or similar requirements against assets of,
deposits with or for the account of, or credit extended by, Bank, or imposes on
Bank or the interbank eurocurrency market, as the case may be, any other
condition affecting this Agreement or the eurodollar Loans which is not
otherwise expressly included in the determination of the applicable rate or
rates of interest hereunder (but excluding Excluded Taxes, as hereinafter
defined), and the result of any of the foregoing is to increase the cost to
Bank in making or maintaining its Eurodollar Loans or to reduce any amount (or
the effective return on any amount) received by Bank hereunder, then Borrower
shall pay to Bank within five (5) days of demand of Bank as additional interest
on the Note evidencing the eurodollar Loans such additional amount or amounts
as Bank may determine as will reimburse Bank for such additional cost or such
reduction. Upon the earlier of one hundred eighty (180) days after such change
or of Bank becoming aware of such change or imposition that may result in any
such increase or reduction, Bank shall give written notice to Borrower thereof
together with certificate of Bank setting forth the amount necessary to
compensate Bank as aforesaid and the basis for the determination of such
amount. Determinations made by Bank for purposes of this Section 2 of the
effect of any such change in its costs of making or maintaining its eurodollar
Loans or on amounts receivable by it in respect
SCHEDULE II - Page 1
<PAGE> 30
of such eurodollar Loans and of the additional amounts required to compensate
Bank in respect thereof shall be condusive, absent manifest error.
3. TAXES. Both principal and interest on the Note evidencing the
eurodollar Loans are payable without withholding or deduction for or on account
of any taxes. If any taxes, duties or other charges of any kind whatsoever are
levied or imposed on or with respect to the Note evidencing the eurodollar
Loans or on any payment on the Note evidencing the Eurodollar Loans made to
Bank, or if there is any change in the basis of taxation of payment to Bank of
principal, interest and other amounts due and payable hereunder with respect to
any Loan (except for the imposition of, or change in the rate of, any tax on
the overall net income, gross receipts or capital of Bank or franchise taxes
(the "Excluded Taxes")), then, and in any such event, Borrower shall pay to
Bank within five (5) days of demand of Bank such additional amounts as Bank may
determine to be necessary so that every net payment of principal and interest
on the Note evidencing the Eurodollar Loans, after withholding or deduction for
or on account of any such taxes, will not be less than any amount provided
herein. In addition, if at any time when the eurodollar Loans are outstanding
any laws are enacted or promulgated, or any court of law or governmental agency
interprets or administers any law, which, in any such case, changes the basis
of taxation of payments to Bank of principal of or interest on the Note
evidencing the eurodollar Loans by subjecting such payments to double taxation
or otherwise (except Excluded Taxes) then Borrower will pay Bank such amounts
as Bank may determine to be necessary to compensate Bank for any such increased
costs and/or losses resulting therefrom. Bank shall give notice to Borrower
upon becoming aware of the amount of any loss incurred by it through enactment
or promulgation of any such law that changes the basis of taxation of payments
to Bank or of any such enactment or promulgation that may result in such
payments becoming subject to double taxation or otherwise. Bank shall also
deliver to Borrower a certificate of Bank setting forth the basis for the
determination of such loss and the computation of such amounts. Determinations
made by Bank for purposes of this Section 3 of the effect of such taxes on its
costs of making or maintaining Eurodollar Loans or on amounts receivable by it
in respect of such eurodollar Loans and of the additional amounts required to
compensate Bank in respect thereof shall be conducive, absent manifest error.
4. ILLEGALITY, CHANGE IN LAWS, ETC. If at any time the adoption of any
new law, change in existing laws, or interpretation of any new or existing laws
make it unlawful or impossible for Bank to (a) maintain its commitment to make
eurodollar Loans, then upon such notice to Borrower of such fact Bank's
commitment to make eurodollar Loans shall terminate; or (b) maintain or fund
its eurodollar Loans hereunder, then Bank shall promptly notify Borrower in
writing and Borrower shall either (i) repay the outstanding Eurodollar Loans
owed to Bank, without penalty, on the last day of the current Interest Periods
(or immediately with the breakage fee specified in Section C below if Bank may
not lawfully continue to maintain and fund such Eurodollar Loans) or (ii)
convert such eurodollar Loans at such appropriate time to Prime Rate Loans.
5. RISK-BASED CAPITAL REQUIREMENTS. If Bank determines that (a)
compliance with any judicial, administrative, or other governmental
interpretation of any law or regulation or (b) compliance by Bank or any
corporation controlling Bank with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
has the effect of requiring an increase in the amount of capital required or
expected to be maintained by Bank or any corporation controlling Bank, and Bank
determines that such increase is based upon its obligations hereunder, and
other similar obligations, Borrower shall pay Bank within five (5) days of de
demand of Bank such additional amount as shall be certified by Bank to be the
amount allocable to Bank's obligation to Borrower hereunder. Bank will notify
Borrower of any event occurring that will a entitle Bank to compensation
pursuant to this Section upon the earlier of one hundred (180) days after
SCHEDULE II - Page 2
<PAGE> 31
such change or promptly after Bank obtains knowledge thereof. Bank's notice to
Borrower shall include a certificate of Bank setting forth the amount necessary
to compensate Bank as aforesaid and the basis for the determination of such
amount. Determinations by Bank for purposes of this Section of the effect of
any increase in the amount of capital required to be maintained by Bank and of
the amounts allocable to Bank's obligations to Borrower hereunder shall be
conclusive, absent manifest error.
6. FAILURE TO BORROW. Borrower hereby indemnifies Bank against any
loss, cost or expense incurred by Bank as a result of (a) any payment of a
Eurodollar Loan on a date other than the last day of the Interest Period for
such Eurodollar Loan, including but not limited to acceleration by Bank
pursuant to this Agreement, or (b) any failure by Borrower to borrow or
convert, as the case may be, a Eurodollar Loan on the date of borrowing or
conversion, as the case may be, after Borrower has given Bank the relevant
notices of Borrower's election to borrow or convert, as the case may be,
specified in this Agreement.
SCHEDULE II - Page 3
<PAGE> 32
SCHEDULE 10.4
PERMITTED INDEBTEDNESS
MiliRisk. Inc.
None
Strategic Data Systems. Inc.
1. Indebtedness in connection with that certain Loan Agreement,
dated as of September 21, 1994, between Strategic Data
Systems, Inc. a Wisconsin corporation ("SDS"), and Norwest
Bank Wisconsin, N. A ("Norwest"), as amended by the First
Amendment to Loan Agreement, dated as of April 28, 1995, a
letter agreement to the loan agreement, dated as of August 7,
1995, and the Second Amendment to Loan Agreement, dated as of
September 12, 1996 (the "Letter Agreement"), and certain
related instruments, agreements, and documents, including
without limitation the $500,000 Term Note, dated as of
September 21, 1994, the $600,000 Second Term Note, dated as
of August 8, 1995, the $778,000 Installment Promissory Note,
dated as of December 27, 1993, and the $250,000 Installment
Promissory Note, dated as of December 27, 1993, executed and
delivered in connection with or pursuant to the Letter
Agreement, as amended by that certain Intercreditor
Agreement, made as of March 12, 1997, among the Borrower,
SDS, AQS, the Bank, and Norwest, and as such may be further
amended from time to time hereafter
2. Indebtedness due to IBM in connection with computer hardware
purchased by SDS as inventory.
Applied Quoting Systems. Inc.
None
<PAGE> 33
EXHIBIT A
BORROWING REQUEST
Reference is made to that certain Loan Agreement between MILIRISK,
INC. and NATIONSBANK OF TEXAS, N.A. dated as of March 12, 1997 as amended, (the
"Agreement"). The terms used herein shall have the same meanings as provided
therefor in the Agreement unless the context hereof otherwise requires or
provides.
<TABLE>
<S> <C>
1. Date of proposed Revolving Loan
------------------
2. Designate whether new Revolving Loan or renewal of existing
Eurodollar Loan:
_____ New Revolving Loan _____ Renewal of Eurodollar Loan
3. Interest rate options and amounts:
Amount of requested Revolving Loan which
will be Prime Rate Loan $
------------------
Amount of requested Revolving Loan which
will be Eurodollar Loan $
------------------
TOTAL: $
------------------
4. If all or a portion of the Revolving Loan
will be a Eurodollar Loan, state the
requested Eurodollar Interest Period
-------------------------------------------
</TABLE>
Borrower hereby certifies that (a) on the date hereof the
representations and warranties contained in the Agreement are true in all
material respects as if made on the date hereof, except representations and
warranties that relate to a specific prior date; and (b) no Event of Default or
no event which, with the lapse of time or the giving of notice, or both, would
constitute an Event of Default under the Agreement, exists.
Dated _____________, 199__.
MILIRISK, INC.
By
------------------------------
Title
---------------------------
EXHIBIT A - Page Solo
<PAGE> 34
EXHIBIT B
TERM LOAN RATE REQUEST
Reference is made to that certain Loan Agreement among MILIRISK, INC.
and NATIONSBANK OF TEXAS, N.A. dated as of March 12, 1997 (as amended, the
"Agreement"). The terms used herein shall have the same meanings as provided
therefor in the Agreement unless the context hereof otherwise requires or
provides.
<TABLE>
<S> <C>
1. Date requested for interest rate selection:
--------------------
2. TYPE OF TRANSACTION AMOUNT
_____ Renewal of Eurodollar Loan $
-------------------
_____ Conversion of Eurodollar Loan to Prime
Rate $
-------------------
_____ Conversion of Incremental Portion of
Principal Debt to Eurodollar Loan $
-------------------
_____ Other: $
-------------------------------------- -------------------
3. If all or a portion of the requested transaction will be a
Eurodollar Loan, state the requested Eurodollar Interest
Period
</TABLE>
Dated _________, 199__.
MILIRISK, INC.
By
------------------------------
Title
---------------------------
EXHIBIT B - Page Solo
<PAGE> 35
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: NATIONSBANK OF TEXAS, N.A.
Reference is made to that certain Loan Agreement between MILIRISK,
INC. and NATIONSBANK OF TEXAS, N.A. dated as of March 12, 1997 (the "Loan
Agreement"). The terms used herein shall have the same meanings as provided
therefor in the Loan Agreement, unless the context hereof otherwise requires or
provides.
The undersigned HEREBY CERTIFIES that she is the duly elected and
qualified officer of the Borrower holding the office set forth opposite her
signature below, AND DOES FURTHER CERTIFY, on behalf of the Borrower, that:
1. Attached hereto are complete and detailed financial
statements of the Borrower and the Guarantors as of, and for the last
day of , 199_, which fairly present in all material respect Borrower's
and Guarantors' financial position as of such date.
2. A review of the activities of the Borrower during the
preceding fiscal quarter has been made under her supervision with a
view to determining whether, during such fiscal quarter the Borrower
has kept, observed, performed and fulfilled all of its obligations
under the Loan Documents, and that to the best of her knowledge the
Borrower has kept, observed, performed and fulfilled all of such
obligations, except as set forth in Schedule I attached hereto. (If no
Schedule I is attached, then such exception does not apply and no such
failures exist.)
3. Section 10.1 provides that the Consolidated Net Worth of
the Borrower and its subsidiaries as at the end of the preceding
fiscal quarter must not be less than the Minimum Net Worth Amount of
the Borrower and its subsidiaries as at the end of the preceding
fiscal quarter.
<TABLE>
<S> <C>
* Consolidated Net Worth of Borrower and
subsidiaries as at end of fiscal quarter
identified in Item 1 above $
----------------
* Minimum Net Worth Amount of Borrower and
subsidiaries as at end of fiscal quarter
identified in Item 1 above $
----------------
</TABLE>
4. Section 10.1 provides that the Minimum Net Worth Amount as
at the end of any fiscal quarter may not be less than the Minimum Net
Worth Amount as at the end of the immediately preceding fiscal
quarter.
EXHIBIT C - Page 1
<PAGE> 36
<TABLE>
<S> <C>
* Minimum Net Worth Amount as at end of
fiscal quarter identified in Item 1 above $
----------------
* Minimum Net Worth Amount as at end of
fiscal quarter immediately preceding the
fiscal quarter identified in Item 1 above $
----------------
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
________________, 199__.
MILIRISK, INC.
By
----------------------------------
Joy J. Keller
Executive Vice President and Chief
Financial Officer
EXHIBIT C - Page 2
<PAGE> 37
EXHIBIT D
BORROWING BASE REPORT
Reference is made to that certain Loan Agreement among MILIRISK, INC.
and NATIONSBANK OF TEXAS, N.A. dated as of March 12, 1997 (as amended, the
"Agreement"). The terms used herein shall have the same meanings as provided
therefor in the Agreement unless the context hereof otherwise requires or
provides.
Borrower hereby certifies to Bank that the following information is
true, correct and complete as of the last day of _____________, 199__:
<TABLE>
<S> <C>
1. Total accounts receivable of Borrower,
SDS and AQS $
----------------
2. Less ineligible accounts receivable of Borrower,
SDS and AQS $
----------------
3. Eligible Accounts Receivable
(line 1 minus line 2) $
----------------
4. 80% of Eligible Accounts Receivable $
----------------
5. Borrowing Base (enter greater of
$2,500,000 or amount shown on line 4) $
----------------
</TABLE>
Borrower further certifies to Bank that attached hereto is a true,
correct and complete aging of all accounts receivable of Borrower, SDS and AQS
as of the last day of the month covered by this Borrowing Base Report.
Borrower further certifies that the computation of the Borrowing Base
as set forth herein has been made in compliance with the terms and provisions
of the Agreement.
Dated _____________, 199__.
MILIRISK, INC.
By
----------------------------------
Joy J. Keller
Executive Vice President and Chief
Financial Officer
EXHIBIT D - Page Solo
<PAGE> 1
EXHIBIT 10.17
NationsBank of Texas, N.A.
Date: March 12, 1997
SECURITY AGREEMENT
<TABLE>
<CAPTION>
===================================================================================================================
Bank/Secured Party: Debtor(s)/Pledgor(s):
<S> <C>
NationsBank of Texas, N.A. MiliRisk, Inc.
Fort Worth Banking Center 300 Burnett Street
500 W. 7th Street Fort Worth, Tarrant County, TX 76102
Fort Worth, Tarrant County, TX 76102-4700
===================================================================================================================
Debtor/Pledgor is: [] Individual [#] Corporation [] Partnership [] Other_____________
Address is Debtor's/Pledgor's: [ ] Residence [#] Place of Business [ ] Chief Executive Office if more
than one place of business
Collateral (hereinafter defined) is located at: [#] Debtor's/Pledgor's address shown above [ ] the
following address:
-----------------------------------------------------------------------------------------------
.
-----------------------------------------------------------------------------------------------------------------
===================================================================================================================
</TABLE>
[THIS SECURITY AGREEMENT ("AGREEMENT") CONTAINS SOME PROVISIONS PRECEDED BY
BOXES. IF A BOX IS MARKED, THE PROVISION APPLIES TO THIS TRANSACTION. IF IT IS
NOT MARKED, THE PROVISION DOES NOT APPLY TO THIS TRANSACTION.]
1. SECURITY INTEREST. For good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Debtor/Pledgor
(hereinafter referred to as "Debtor") assigns and grants to Bank/Secured Party
(also known as "Bank" or "Secured Party"), a security interest and lien in the
Collateral (hereinafter defined) to secure the payment and the performance of
the Obligation (hereinafter defined).
2. COLLATERAL. A security interest is granted in the following
collateral described in this Item 2 (the "Collateral"):
A. TYPES OF COLLATERAL
(1) ACCOUNTS: Any and all accounts and other
rights of Debtor to the payment for goods sold or leased or for services
rendered whether or not earned by performance, including, without limitation,
contract rights, book debts, checks, notes, drafts, instruments, chattel paper,
acceptances, and any and all amounts due to Debtor from a factor or other forms
of obligations and receivables, now existing or hereafter arising.
(2) EQUIPMENT: Any and all of Debtor's goods held
as equipment, as defined in the Uniform Commercial Code, including but not
limited to machinery, furniture, fixtures, manufacturing equipment, shop
equipment, office equipment, parts and tools, wherever located, whether now
owned or
SECURITY AGREEMENT - Page 1
<PAGE> 2
hereafter acquired, together with all increases, pans, accessories, equipment,
and special tools now or hereafter affixed to any part thereof or used in
connection therewith.
(3) INSTRUMENTS AND/OR INVESTMENT DOCUMENTS: Any
and all of Debtor's instruments, documents, and other writings of any type
which evidence a right to the payment of money and which are of a type that is
transferred in the ordinary course of business by delivery with any necessary
endorsement or assignment, whether now owned or hereafter acquired, including,
without limitation, all contract rights specified in Section 2B below,
negotiable instruments, promissory notes, and documents of title owned or to be
owned by Debtor, certificates of deposit, and all liens, security agreements,
leases and other contracts securing or otherwise relating to any of said
instruments or documents.
(4) GENERAL INTANGIBLES: Any and all of Debtor's
general intangible property, whether now owned or hereafter acquired by Debtor
or used in Debtor's business currently or hereafter, including, without
limitation, all patents, trademarks, service marks, trade secrets, copyrights
and exclusive licenses (whether issued or pending) literary rights, contract
rights and all documents, applications, materials and other matters related
thereto, all inventions, all manufacturing, engineering and production plans,
drawings, specifications, processes and systems, all trade names, goodwill and
all chattel paper, documents and instruments relating to such general
intangibles.
(5) INVENTORY. Any and all of Debtor's goods held
as inventory, whether now owned or hereafter acquired, including, without
limitation, any and all such goods held for sale or lease or being processed
for sale or lease in Debtor's business, as now or hereafter conducted,
including all materials, goods, and work in process, finished goods and other
tangible property held for sale or lease or furnished or to be furnished under
contracts of service or used or consumed in Debtor's business. along with all
documents (including documents of title) covering such inventory.
B. CLAIMS AND ADMINISTRATIVE SERVICE AGREEMENTS. All
contracts for providing claims functions and administrative functions to third
parties, and all the rights, but none of the obligations of Debtor under, all
of such contracts; all securities and other property, rights or interests of
any description at any time issued or issuable with respect to Debtor's
interests in such contracts; and any and all proceeds, revenues, monies, income
and benefits arising from or by virtue of, and all distributions (cash or
otherwise) payable and/or distributable with respect to, all or any interest of
Debtor in such contracts.
C. SUBSTITUTIONS, PROCEEDS AND RELATED ITEMS. Any and
all substitutes and replacements for, accessions, attachments and other
additions to, tools, parts and equipment now or hereafter added to or used in
connection with, and all cash or non-cash proceeds and products of, the
Collateral (including, without limitation, all income, benefits and property
receivable, received or distributed which results from any of the Collateral,
such as dividends payable or distributable in cash, property or stock;
insurance distributions of any kind related to the Collateral, including,
without limitation, returned premiums, interest, premium and principal
payments; redemption proceeds and subscription rights; and shares or other
proceeds of conversions or splits of any securities in the Collateral); any and
all choses in action and causes of action of Debtor, whether now existing or
hereafter arising, relating directly or indirectly to the Collateral (whether
arising in contract, tort or otherwise and whether or not currently in
litigation); all certificates of title, manufacturer's statements of origin,
other documents, accounts and chattel paper, whether now existing or hereafter
arising directly or indirectly from or related to the Collateral; all
warranties, wrapping, packaging, advertising and shipping materials used or
SECURITY AGREEMENT - Page 2
<PAGE> 3
to be used in connection with or related to the Collateral; all of Debtor's
books, records, data, plans, manuals, computer software, computer tapes,
computer systems, computer disks, computer programs, source codes and object
codes containing any information, pertaining directly or indirectly to the
Collateral and all rights of Debtor to retrieve data and other information
pertaining directly or indirectly to the Collateral from third parties, whether
now existing or hereafter arising; and all returned, refused, stopped in
transit, or repossessed Collateral, any of which, if received by Debtor, upon
request shall be delivered immediately to Bank.
D. BALANCES AND OTHER PROPERTY. The balance of every
deposit account of Debtor maintained with Bank and any other claim of Debtor
against Bank, now or hereafter existing, liquidated or unliquidated, and all
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income, and any other property, rights and interests of Debtor which
at any time shall come into the possession or custody or under the control of
Bank or any of its agents or affiliates for any purpose, and the proceeds of
any thereof. Bank shall be deemed to have possession of any of the Collateral
in transit to or set apart for it or any of its agents or affiliates.
E. EXCLUSIONS. Notwithstanding the foregoing, the assets
described on Schedule II attached hereto shall not constitute Collateral
hereunder.
3. DESCRIPTION OF OBLIGATION(S). The following obligations
("Obligation" or "Obligations") are secured by this Agreement: (a) All debts,
obligations, liabilities and agreements of Debtor to Bank, now or hereafter
existing, arising under the Loan Documents, including, without limitation, all
of the "Obligations" as defined in the Loan Agreement referred to in Section 8C
hereof; (b) All reasonable out-of-pocket costs incurred by Bank to obtain,
preserve, perfect and enforce this Agreement and maintain, preserve, collect
and realize upon the Collateral; and (c) All other costs and attorney's fees
incurred by Bank, for which Debtor is obligated to reimburse Bank in accordance
with the terms of the Loan Documents (hereinafter defined), together with
interest at Bank's prime rate. If Debtor is not the obligor of the Obligation,
and in the event any amount paid to Bank on any Obligation is subsequently
recovered from Bank in or as a result of any bankruptcy, insolvency or
fraudulent conveyance proceeding, Debtor shall be liable to Bank for the
amounts so recovered up to the fair market value of the Collateral whether or
not the Collateral has been released or the security interest terminated. In
the event the Collateral has been released or the security interest terminated,
the fair market value of the Collateral shall be determined, at Bank's option,
as of the date the Collateral was released, the security interest terminated,
or said amounts were recovered.
4. DEBTOR'S WARRANTIES. Debtor hereby represents and warrants to
Bank as follows:
A. FINANCING STATEMENTS. Except as noted on Schedule I
attached hereto and incorporated herein by reference, no financing statement
covering the Collateral is or will be on file in any public office, except the
financing statements relating to this security interest, and no security
interest, other than the one herein created, has attached or been perfected in
the Collateral or any part thereof.
B. OWNERSHIP. Debtor owns, or will use the proceeds of
any loans by Bank to become the owner of, the Collateral free from any setoff,
claim, restriction, lien, security interest or encumbrance except the security
interest hereunder, and except as set forth on Schedule I hereto.
SECURITY AGREEMENT - Page 3
<PAGE> 4
C. FIXTURES AND ACCESSIONS. None of the Collateral is
affixed to real estate or is an accession to any goods, or will become a
fixture or accession, except as expressly set out herein.
D. POWER AND AUTHORITY. Debtor has full power and
authority to make this Agreement, and all necessary consents and approvals of
any persons, entities, governmental or regulatory authorities and securities
exchanges have been obtained to effectuate the validity of this Agreement.
5. DEBTOR'S COVENANTS. Until full payment and performance of all
of the Obligation and termination or expiration of any obligation or commitment
of Bank to make advances or loans to Debtor, unless Bank otherwise consents in
writing:
A. OBLIGATION AND THIS AGREEMENT. Debtor shall perform
all of its agreements herein and in any other agreements between it and Bank.
B. OWNERSHIP AND MAINTENANCE OF THE COLLATERAL. Debtor
shall keep all tangible Collateral in good condition. Debtor shall defend the
Collateral against all claims and demands of all persons at any time claiming
any interest therein adverse to Bank, except as noted on Schedule I hereto.
Debtor shall keep the Collateral free from all liens and security interests
except the security interest hereby created, and except as noted on Schedule I
hereto.
C. BANK'S COSTS. Debtor shall pay all out-of-pocket
costs necessary to obtain, preserve, perfect, defend and enforce the security
interest created by this Agreement, collect the Obligation, and preserve,
defend, enforce and collect the Collateral, including but not limited to taxes,
assessments, insurance premiums, repairs, rent, storage costs and expenses of
sales, legal expenses, reasonable attorney's fees and other fees or expenses
for which Debtor is obligated to reimburse Bank in accordance with the terms of
the Loan Documents. Whether the Collateral is or is not in Bank's possession,
and without any obligation to do so and without waiving Debtor's default for
failure to make any such payment, Bank may, at its option at any time after an
Event of Default has occurred and is continuing, pay any such costs and
expenses, discharge encumbrances on the Collateral, and pay for insurance of
the Collateral, and such payments shall be a part of the Obligation and bear
interest at the rate set out in the Obligation. Debtor agrees to reimburse Bank
on demand for any costs so incurred.
D. INFORMATION AND INSPECTION. Debtor shall (i) promptly
furnish Bank any information with respect to the Collateral reasonably
requested by Bank; (ii) allow Bank or its representatives to inspect the
Collateral, at any reasonable time and wherever located, and to inspect and
copy, or furnish Bank or its representatives with copies of, all records
relating to the Collateral and the Obligation; and (iii) promptly furnish Bank
or its representatives such information as Bank may reasonably request to
identify the Collateral, at the time and in the form requested by Bank.
E. ADDITIONAL DOCUMENTS. Debtor shall sign and deliver
any papers deemed necessary or desirable in the judgment of Bank to obtain,
maintain, and perfect the security interest hereunder and to enable Bank to
comply with any federal or state law in order to obtain or perfect Bank's
interest in the Collateral or to obtain proceeds of the Collateral.
SECURITY AGREEMENT - Page 4
<PAGE> 5
F. PARTIES LIABLE ON THE COLLATERAL. Debtor shall
preserve the liability of all obligors on any Collateral, and shall preserve
the priority of all security therefor. In the absence of gross negligence or
willful misconduct, Bank shall have no duty to preserve such liability or
security, but may do so at the expense of Debtor, without waiving Debtor's
default.
G. RECORDS OF THE COLLATERAL. Debtor at all times shall
maintain accurate books and records covering the Collateral. Bank is hereby
given the right to audit the books and records of Debtor relating to the
Collateral at any reasonable time and from time to time. The amounts shown as
owed to Debtor on Debtor's books and on any assignment schedule will be the
undisputed amounts owing and unpaid.
H. DISPOSITION OF THE COLLATERAL. No Collateral may be
sold, leased, manufactured, processed or otherwise disposed of by Debtor in any
manner without the prior written consent of Bank, except the Collateral sold,
leased, manufactured, processed or consumed in the ordinary course of business.
I. ACCOUNTS. Each account held as Collateral will
represent the valid and legally enforceable obligation of third parties and
shall not be evidenced by any instrument or chattel paper.
J. NOTICE/LOCATION OF THE COLLATERAL. Debtor shall give
Bank written notice of each office of Debtor in which records of Debtor
pertaining to accounts held as Collateral are kept, and each location at which
the Collateral is or will be kept, and of any change of any such location. If
no such notice is given, all records of Debtor pertaining to the Collateral and
all Collateral of Debtor are and shall be kept at the address marked by Debtor
above.
K. CHANGE OF NAME/STATUS AND NOTICE OF CHANGES. Without
the written consent of Bank, Debtor shall not change its name, change its
corporate status, or engage in any business not reasonably related to its
business as presently conducted. Debtor shall notify Bank immediately of (i)
any material change in the Collateral, (ii) a change in Debtor's residence or
location, (iii) a material change in any matter warranted or represented by
Debtor in this Agreement, or in any of the Loan Documents or furnished to Bank
pursuant to this Agreement, and (iv) the occurrence of an Event of Default
(hereinafter defined).
L. USE AND REMOVAL OF THE COLLATERAL. Debtor shall not
use the Collateral illegally. Debtor shall not, unless previously indicated as
a fixture, permit the Collateral to be affixed to real or personal property
without the prior written consent of Bank. Debtor shall not permit any of the
Collateral to be removed from the locations specified herein without the prior
written consent of Bank, except for the sale of inventory in the ordinary
course of business.
M. POSSESSION OF THE COLLATERAL. Debtor shall deliver
all investment securities and other instruments, documents and chattel paper
which are part of the Collateral and in Debtor's possession to Bank
immediately, or if hereafter acquired, immediately following acquisition,
appropriately endorsed to Bank's order, or with appropriate, duly executed
powers. Debtor waives presentment, notice of acceleration, demand, notice of
dishonor, protest, and all other notices with respect thereto.
N. CONSUMER CREDIT. If any Collateral or proceeds
includes obligations of third parties to Debtor, the transactions giving rise
to the Collateral shall conform in all respects to the applicable state or
SECURITY AGREEMENT - Page 5
<PAGE> 6
federal law including but not limited to consumer credit law. Debtor shall hold
harmless and indemnify Bank against any cost, loss or expense arising from
Debtor's breach of this covenant.
O. POWER OF ATTORNEY. Debtor appoints Bank and any
officer thereof as Debtor's attorney-in-fact with full power in Debtor's name
and behalf to do every act which Debtor is obligated to do or may be required
to do hereunder; however, nothing in this paragraph shall be construed to
obligate Bank to take any action hereunder nor shall Bank be liable to Debtor
for failure to take any action hereunder (except for Bank's gross negligence or
willful misconduct). This appointment shall be deemed a power coupled with an
interest and shall not be terminable as long as the Obligation is outstanding
and shall not terminate on the disability or incompetence of Debtor. Bank
agrees that the power of attorney herein granted shall be exercised by it only
after an Event of Default has occurred and is continuing.
P. WAIVERS BY DEBTOR. Debtor waives notice of the
creation, advance, increase, existence, extension or renewal of, and of any
indulgence with respect to, the Obligation; waives presentment, demand, notice
of dishonor, and protest; waives notice of the amount of the Obligation
outstanding at any time, notice of any change in financial condition of any
person liable for the Obligation or any part thereof, notice of any Event of
Default, and all other notices respecting the Obligation; and agrees that
maturity of the Obligation and any part thereof may be accelerated, extended or
renewed one or more times by Bank in its discretion, without notice to Debtor.
Debtor waives any right to require that any action be brought against any other
person or to require that resort be had to any other security or to any balance
of any deposit account. Debtor further waives any right of subrogation or to
enforce any right of action against any other Debtor until the Obligation is
paid in full.
Q. OTHER PARTIES AND OTHER COLLATERAL. No renewal or
extension of or any other indulgence with respect to the Obligation or any part
thereof, no release of any security, no release of any person (including any
maker, endorser, guarantor or surety) liable on the Obligation, no delay in
enforcement of payment, and no delay or omission or lack of diligence or care
in exercising any right or power with respect to the Obligation or any security
therefor or guaranty thereof or under this Agreement shall in any manner impair
or affect the rights of Bank under the law, hereunder, or under any other
agreement pertaining to the Collateral. Bank need not file suit or assert a
claim for personal judgment against any person for any part of the Obligation
or seek to realize upon any other security for the Obligation, before
foreclosing or otherwise realizing upon the Collateral. Debtor waives any right
to the benefit of or to require or control application of any other security or
proceeds thereof, and agrees that Bank shall have no duty or obligation to
Debtor to apply to the Obligation any such other security or proceeds thereof.
R. COLLECTION AND SEGREGATION OF ACCOUNTS AND RIGHT TO
NOTIFY. Bank hereby authorizes Debtor to collect the Collateral, subject to the
direction and control of Bank, but Bank may, without cause or notice, curtail
or terminate said authority at any time, after an Event of Default has occurred
and is continuing. Upon notice by Bank, whether oral or in writing, to Debtor
given during the continuation of an Event of Default, Debtor shall forthwith
upon receipt of all checks, drafts, cash, and other remittances in payment of
or on account of the Collateral, deposit the same in one or more special
accounts maintained with Bank over which Bank alone shall have the power of
withdrawal. The remittance of the proceeds of such Collateral shall not,
however, constitute payment or liquidation of such Collateral until Bank shall
receive good funds for such proceeds. Funds placed in such special accounts
shall be held by Bank as security for all Obligations secured hereunder. These
proceeds shall be deposited in precisely the form received, except for the
endorsement of
SECURITY AGREEMENT - Page 6
<PAGE> 7
Debtor where necessary to permit collection of items, which endorsement Debtor
agrees to make, and which endorsement Bank is also hereby authorized, as
attorney-in-fact, to make on behalf of Debtor. In the event Bank has notified
Debtor to make deposits to a special account, pending such deposit, Debtor
agrees that it will not commingle any such check, drafts, cash or other
remittances with any funds or other property of Debtor, but will hold them
separate and apart therefrom, and upon an express trust for Bank until deposit
thereof is made in the special account. Bank will, from time to time, apply the
whole or any part of the Collateral funds on deposit in this special account
against such Obligations as are secured hereby as Bank may in its sole
discretion elect. At the sole election of Bank, any portion of said funds on
deposit in the special account which Bank shall elect not to apply to the
Obligations, may be paid over by Bank to Debtor. At any time after an Event of
Default has occurred and is continuing, Bank may notify persons obligated on
any Collateral to make payments directly to Bank and Bank may take control of
all proceeds of any Collateral. Until Bank elects to exercise such rights,
Debtor, as agent of Bank, shall collect and enforce all payments owed on the
Collateral.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank, without liability to Debtor (except
for acts or omissions constituting gross negligence or willful misconduct) may,
any time after an Event of Default has occurred and is continuing: obtain from
any person information regarding Debtor or Debtor's business, which information
any such person also may furnish without liability to Debtor; require Debtor to
give possession or control of any Collateral to Bank; endorse as Debtor's agent
any instruments, documents or chattel paper in the Collateral or representing
proceeds of the Collateral; contact account debtors directly to verify
information furnished by Debtor; take control of proceeds, including stock
received as dividends or by reason of stock splits; release the Collateral in
its possession to any Debtor, temporarily or otherwise; require additional
Collateral; reject as unsatisfactory any property hereafter offered by Debtor
as Collateral; set standards from time to time to govern what may be used as
after acquired Collateral; designate, from time to time, a certain percent of
the Collateral as the loan value and require Debtor to maintain the Obligation
at or below such figure; take control of funds generated by the Collateral,
such as cash dividends, interest and proceeds or refunds from insurance, and
use same to reduce any part of the Obligation and exercise all other rights
which an owner of such Collateral may exercise; at any time transfer any of the
Collateral or evidence thereof into its own name or that of its nominee; and
demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral, in its own name or in the name
of Debtor, as Bank may determine. Bank shall not be liable for failure to
collect any account or instruments, or for any act or omission on the part of
Bank, its officers, agents or employees, except for its or their own willful
misconduct or gross negligence. The foregoing rights and powers of Bank will be
in addition to, and not a limitation upon, any rights and powers of Bank given
by law, elsewhere in this Agreement, or otherwise. If Debtor fails to maintain
any required insurance after notice thereof from Bank, to the extent permitted
by applicable law Bank may (but is not obligated to) purchase single interest
insurance coverage for the Collateral which insurance may at Bank's option (i)
protect only Bank and not provide any remuneration or protection for Debtor
directly and (ii) provide coverage only after the Obligation has been declared
due as herein provided. The premiums for any such insurance purchased by Bank
shall be a part of the Obligation and shall bear interest as provided in 3(d)
hereof.
B. CONVERTIBLE COLLATERAL. Bank may present for
conversion any Collateral which is convertible into any other instrument or
investment security or a combination thereof with cash, but Bank shall not in
the absence of gross negligence or willful misconduct have any duty to present
for conversion any
SECURITY AGREEMENT - Page 7
<PAGE> 8
Collateral unless it shall have received from Debtor detailed written
instructions to that effect at a time reasonably far in advance of the final
conversion date to make such conversion possible.
7. DEFAULT.
A. EVENT OF DEFAULT. "Event of Default" as used herein
means an "Event of Default" as defined in the Loan Agreement described in
Section 8C hereof.
B. RIGHTS AND REMEDIES. If any Event of Default shall
occur and be continuing, then, in each and every such case, Bank may, without
presentment, demand, or protest; notice of default, dishonor, demand,
non-payment, or protest; notice of intent to accelerate all or any part of the
Obligation, notice of acceleration of all or any part of the Obligation; or
notice of any other kind, all of which Debtor hereby expressly waives, (except
for any notice required under this Agreement, any other Loan Document or
applicable law); exercise and/or enforce any of the following rights and
remedies at Bank's option:
(1) ACCELERATION. The Obligation shall, at Bank's
option, become immediately due and payable, and the obligation, if any, of Bank
to permit further borrowings under the Obligation shall at Bank's option
immediately cease and terminate.
(2) POSSESSION AND COLLECTION OF THE COLLATERAL.
At its option: (a) take possession or control of, store, lease, operate,
manage, sell, or instruct any Agent or Broker to sell or otherwise dispose of,
all or any part of the Collateral; (b) notify all parties under any account or
contract right forming all or any part of the Collateral to make any payments
otherwise due to Debtor directly to Bank; (c) in Bank's own name, or in the
name of Debtor, demand, collect, receive, sue for, and give receipts and
releases for, any and all amounts due under such accounts and contract rights;
(d) endorse as the agent of Debtor any check, note, chattel paper, documents,
or instruments forming all or any part of the Collateral; (e) make formal
application for transfer to Bank (or to any assignee of Bank or to any
purchaser of any of the Collateral) of all of Debtor's permits, licenses,
approvals, agreements, and the like relating to the Collateral or to Debtor's
business; (f) take any other action which Bank deems necessary or desirable to
protect and realize upon its security interest in the Collateral; and (g) in
addition to the foregoing, and not in substitution therefor, exercise any one
or more of the rights and remedies exercisable by Bank under any other
provision of this Agreement, under any of the other Loan Documents, or as
provided by applicable law (including, without limitation, the Uniform
Commercial Code as in effect in Texas (hereinafter referred to as the "UCC")).
In taking possession of the Collateral Bank may enter Debtor's premises and
otherwise proceed without legal process, if this can be done without breach of
the peace. Debtor shall, upon Bank's demand, promptly make the Collateral or
other security available to Bank at a place designated by Bank, which place
shall be reasonably convenient to both parties.
Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Bank's willful or grossly
negligent omission or act. In the absence of gross negligence or willful
misconduct, Bank shall have no duty to take any action to preserve or collect
the Collateral.
(3) RECEIVER. Obtain the appointment of a
receiver for all or any of the Collateral, Debtor hereby consenting to the
appointment of such a receiver and agreeing not to oppose any such appointment.
SECURITY AGREEMENT - Page 8
<PAGE> 9
(4) RIGHT OF SET OFF. Without notice or demand to
Debtor, set off and apply against any and all of the Obligation any and all
deposits (general or special, time or demand, provisional or final) and any
other indebtedness, at any tune held or owing by Bank or any of Bank's agents
or affiliates to or for the credit of the account of Debtor or any guarantor or
endorser of Debtor's Obligation
During the existence of any Event of Default, Bank shall be entitled to
immediate possession of all books and records evidencing any Collateral or
pertaining to chattel paper covered by this Agreement and it or its
representatives shall have the authority to enter upon any premises upon which
any of the same, or any Collateral, may be situated and remove the same
therefrom without liability if such can be accomplished without breach of the
peace. During the existence of any Event of Default, Bank may surrender any
insurance policies in the Collateral and receive the unearned premium thereon.
Debtor shall be entitled to any surplus and shall be liable to Bank for any
deficiency. During the existence of any Event of Default, the proceeds of any
disposition available to satisfy the Obligation shall be applied to the
Obligation in such order and in such manner as Bank in its discretion shall
decide.
Debtor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Debtor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner
of any such sale, other than acts or omissions constituting gross negligence or
willful misconduct.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities
law, Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law. and any such sale made in good faith
by Bank shall be deemed "commercially reasonable".
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to
the benefit of its successors and assigns. In the event of any assignment or
transfer by Bank of any of the Obligation or the Collateral, Bank thereafter
shall be fully discharged from any responsibility with respect to the
Collateral so assigned or transferred, but Bank shall retain all rights and
powers hereby given with respect to any of the Obligation or the Collateral not
so assigned or transferred. All representations, warranties and agreements of
Debtor if more than one are joint and several and all shall be binding upon the
personal representatives, heirs, successors and assigns of Debtor.
B. WAIVER. No delay of Bank in exercising any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or
the exercise of any other power or right. No waiver by Bank of any right
hereunder or of any default by Debtor shall be binding upon Bank unless in
writing, and no failure by Bank to exercise any power or right hereunder or
waiver of any default by Debtor shall operate as a waiver of any other or
further exercise of such right or power or of any further default. Each right,
power and remedy of Bank as provided for herein or in any of the Loan
Documents, or which shall now or hereafter exist at law or in equity or by
statute or otherwise, shall be cumulative and concurrent and shall be in
addition to every other such right, power or remedy. The exercise or
SECURITY AGREEMENT - Page 9
<PAGE> 10
beginning of the exercise by Bank of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by Bank of any
or all other such rights, powers or remedies.
C. DEFINITIONS. Terms defined in that certain Loan
Agreement between Bank and Debtor dated as of March 12, 1997 (such Agreement,
as amended from time to time being the "Loan Agreement), are used herein as so
defined unless otherwise defined herein. Unless the context indicates
otherwise, definitions in the UCC apply to words and phrases in this Agreement;
if UCC definitions conflict, Article 9 definitions apply.
D. NOTICES. Notice shall be deemed reasonable if mailed
postage prepaid at least five (5) days before the related action (or if the UCC
elsewhere specifies a longer period, such longer period) to the address of
Debtor given above, or to such other address as any party may designate by
written notice to the other party. Each notice, request and demand shall be
deemed given or made, if sent by mail, upon the earlier of the date of receipt
or five (5) days after deposit in the U.S. Mail, first class postage prepaid,
or if sent by any other means, upon delivery.
E. MODIFICATIONS. No provision hereof shall be modified
or limited except by a written agreement expressly referring hereto and to the
provisions so modified or limited and signed by Debtor and Bank. The provisions
of the Agreement shall not be modified or limited by course of conduct or usage
of trade.
F. APPLICABLE LAW AND PARTIAL INVALIDITY. This Agreement
has been delivered in the State of Texas and shall be construed in accordance
with the laws of that State. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement. The invalidity
or unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
G. FINANCING STATEMENT. To the extent permitted by
applicable law, a carbon, photographic or other reproduction of this Agreement
or any financing statement covering the Collateral shall be sufficient as a
financing statement.
H. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS,
AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN
ALLEGED TORT, SHALL BE DETERMINED BY BIN ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./INDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY
BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF
SECURITY AGREEMENT - Page 10
<PAGE> 11
ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
(1) SPECIAL RULES. THE ARBITRATION SHALL BE
CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION
OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL
APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE,
BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
(2) RESERVATION OF RIGHTS. NOTHING IN THIS
ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (ID BE A WAIVER BY BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP
REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY
REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL
OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
I. CONTROLLING DOCUMENT. To the extent that this
Security Agreement conflicts with or is in any way incompatible with any other
Loan Document concerning the Obligation, the Loan Agreement shall control over
any other document, and if the Loan Agreement does not address an issue, then
each other Loan Document shall control to the extent that it deals most
specifically with an issue.
J. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SECURITY AGREEMENT - Page 11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be duly executed by their duly authorized representatives as of the date first
above written.
BANK/SECURED PARTY: DEBTOR/PLEDGOR
NATIONSBANK OF TEXAS, N.A. MILIRISK, INC.
By: /s/ JERRY COLWELL By: /s/ F. GEORGE DUNHAM, III
------------------------------- -------------------------------------
Jerry Colwell F. George Dunham, III, President
Vice President and Chief Executive Officer
By: /s/ JOY J. KELLER
--------------------------------------
Joy J. Keller, Executive Vice President
and Chief Financial Officer
SECURITY AGREEMENT - Page 12
<PAGE> 13
SCHEDULE I
TO SECURITY AGREEMENT
OF MILIRISK. INC.
PERMITTED LIENS
1. Liens and security interests ("Liens") on the following assets of the
Debtor, as described in a UCC-1 financing statement number 96-073343 filed by
the Bank on April 15, 1996 with the Secretary of State of Texas: all AT&T phone
systems now owned or hereafter acquired together with all increases, parts
fittings, accessories, equipment, and special tools now or hereafter affixed to
any part thereof or used in connection therewith, and all products, additions,
substitutions, accessions, under contract no. 00195898044.
2. Liens on the following assets of the Debtor, as described in a UCC-1
financing statement number 96-214341 filed by the Bank on October 28, 1996 with
the Secretary of State of Texas: any and all accounts, accounts receivable,
receivables, contract rights, book debts, checks, notes, drafts, instruments,
chattel paper, acceptances, choses in action, and all amounts due to Debtor
from a factor or other forms of obligations and receivables now existing or
hereafter arising out of the business of the Debtor, and any and all returned,
refused and repossessed goods, and the cash or non-cash proceeds resulting
therefrom.
3. Liens on the following assets of the Debtor, as described in a UCC-1
financing statement number 97-001334 filed by the Bank on January 3, 1997 with
the Secretary of State of Texas: any and all of Debtor's goods held as
equipment, including, without limitation, all machinery, tools, dies,
furnishings, or fixtures, wherever located, whether now owned or hereafter
acquired, together with all increases, parts, fittings, accessories, equipment,
and special tools now or hereafter affixed to any part thereof or used in
connection therewith.
4. Liens for taxes, assessments, governmental charges or claims either
(A) not yet delinquent or (B.) that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made.
5. Contractual and statutory Liens of landlords.
6. Liens of carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provisions, if any, as shall be
required in conformity with GAAP shall have been made.
7. Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security.
8. Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations
<PAGE> 14
of a similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money).
9. Easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of the Debtor.
10. Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the importation
of goods.
11. Liens securing capital and operating lease obligations incurred in the
ordinary course of business.
12. Liens arising out of conditional sale, title retention, consignment,
"me o" or similar arrangements for the sale of goods entered into by the Debtor
in the ordinary course of business.
2
<PAGE> 15
SCHEDULE II
TO SECURITY AGREEMENT
OF MILIRISK. INC.
EXCLUDED ASSETS
1. To the extent necessary, but only to the extent necessary, all assets
the granting of a lien on which or other assignment of which (A) would be
illegal under any applicable governmental law or regulation, or (B.) would
breach, violate or constitute a default under any agreement governing the
creation or existence of such asset, result in the termination or loss of such
asset or such agreement, or would grant any person or entity the right to
terminate such agreement or the right to use or otherwise receive the benefit
of such asset.
2. Property subject to capital leases incurred in the ordinary course of
business to the extent that the agreement covering such capital lease forbids
the assignment or granting of Liens on such property.
<PAGE> 1
EXHIBIT 10.18
NationsBank of Texas, N.A.
Date: March 12, 1997
SECURITY AGREEMENT
<TABLE>
<CAPTION>
=====================================================================================================
BANK/SECURED PARTY: DEBTOR(S)/PLEDGOR(S):
<S> <C>
NationsBank of Texas, N.A. Strategic Data Systems, Inc.
Fort Worth Banking Center 615 Pennsylvania Avenue
500 W. 7th Street Sheboygan, Sheboygan County, WI 53081
Fort Worth, Tarrant County, TX 76102-4700
=====================================================================================================
Debtor/Pledgor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other _______________
Address is Debtor's/Pledgor's: [ ] Residence [X] Place of Business [ ] Chief Executive Office if more
than one place of business
Collateral (hereinafter defined) is located at: [X] Debtor's/Pledgor's address shown above [ ] the
following address:
---------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------.
=====================================================================================================
</TABLE>
[THIS SECURITY AGREEMENT ("AGREEMENT") CONTAINS SOME PROVISIONS PRECEDED BY
BOXES. IF A BOX IS MARKED, THE PROVISION APPLIES TO THIS TRANSACTION. IF IT IS
NOT MARKED, THE PROVISION DOES NOT APPLY TO THIS TRANSACTION.]
1. SECURITY INTEREST. For good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Debtor/Pledgor
(hereinafter referred to as "Debtor") assigns and grants to Bank/Secured Party
(also known as "Bank" or "Secured Party"), a security interest and lien in the
Collateral (hereinafter defined) to secure the payment and the performance of
the Obligation (hereinafter defined).
2. COLLATERAL. A security interest is granted in the following
collateral described in this Item 2 (the "Collateral"):
A. TYPES OF COLLATERAL (check as applicable)
(1) ACCOUNTS: Any and all accounts and other
rights of Debtor to the payment for goods sold or leased or for services
rendered whether or not earned by performance, including, without limitation,
contract rights, book debts, checks, notes, drafts, instruments, chattel paper,
acceptances, and any and all amounts due to Debtor from a factor or other forms
of obligations and receivables, now existing or hereafter arising.
(2) EQUIPMENT: Any and all of Debtor's goods held
as equipment, as defined in the Uniform Commercial Code, including, but not
limited to, machinery, furniture, fixtures, manufacturing equipment, shop
equipment, office equipment, parts and tools, wherever located, whether now
owned or
SECURITY AGREEMENT - Page 1
<PAGE> 2
hereafter acquired, together with all increases, parts, accessories, equipment,
and special tools now or hereafter affixed to any part thereof or used in
connection therewith.
(3) INSTRUMENTS AND/OR INVESTMENT DOCUMENTS: Any
and all of Debtor's instruments, documents, and other writings of any type,
which evidence a right to the payment of money and which are of a type that is
transferred in the ordinary course of business by delivery with any necessary
endorsement or assignment, whether now owned or hereafter acquired, including,
without limitation, all contract rights specified in Section 2 B. below,
negotiable instruments, promissory notes, and documents of title owned or to be
owned by Debtor, certificates of deposit, and all liens, security agreements,
leases and other contracts securing or otherwise relating to any of said
instruments or documents.
(4) GENERAL INTANGIBLES: Any and all of Debtor's
general intangible property, whether now owned or hereafter acquired by Debtor
or used in Debtor's business currently or hereafter, including, without
limitation, all patents, trademarks, service marks, trade secrets, copyrights
and exclusive licenses (whether issued or pending) literary rights, contract
rights and all documents, applications, materials and other matters related
thereto, all inventions, all manufacturing, engineering and production plans,
drawings, specifications, processes and systems, all trade names, goodwill and
all chattel paper, documents and instruments relating to such general
intangibles.
(5) INVENTORY. Any and all of Debtor's goods held
as inventory, whether now owned or hereafter acquired, including, without
limitation, any and all such goods held for sale or lease or being processed
for sale or lease in Debtor's business, as now or hereafter conducted,
including all materials, goods, and work in process, finished goods and other
tangible property held for sale or lease or furnished or to be furnished under
contracts of service or used or consumed in Debtor's business, along with all
documents (including documents of title) covering such inventory.
B. CLAIMS AND ADMINISTRATIVE SERVICE AGREEMENTS. All
contracts providing claims functions and administrative functions to third
parties, and all the rights, but none of the obligations of Debtor under, all
such contracts; all securities and other property, rights or interests of any
description at any time issued or issuable with respect to Debtor's interests
in such contracts; and any and all proceeds, revenues, monies, income and
benefits arising from or by virtue of, and all distributions (cash or
otherwise) payable and/or distributable with respect to, all or any interest of
Debtor in such contracts.
C. SUBSTITUTIONS, PROCEEDS AND RELATED ITEMS. Any and
all substitutes and replacements for, accessions, attachments and other
additions to, tools, parts and equipment now or hereafter added to or used in
connection with, and all cash or non-cash proceeds and products of, the
Collateral (including, without limitation, all income, benefits and property
receivable, received or distributed which results from any of the Collateral,
such as dividends payable or distributable in cash, property or stock;
insurance distributions of any kind related to the Collateral, including,
without limitation, returned premiums, interest, premium and principal
payments; redemption proceeds and subscription rights; and shares or other
proceeds of conversions or splits of any securities in the Collateral); any and
all choses in action and causes of action of Debtor, whether now existing or
hereafter arising, relating directly or indirectly to the Collateral (whether
arising in contract, tort or otherwise and whether or not currently in
litigation); all certificates of title, manufacturer's statements of origin,
other documents, accounts and chattel paper, whether now existing or hereafter
arising directly or indirectly from or related to the Collateral; all
warranties, wrapping, packaging, advertising and shipping materials used or to
be used in
SECURITY AGREEMENT - Page 2
<PAGE> 3
connection with or related to the Collateral; all of Debtor's books, records,
data, plans, manuals, computer software, computer tapes, computer systems,
computer disks, computer programs, source codes and object codes containing any
information, pertaining directly or indirectly to the Collateral and all rights
of Debtor to retrieve data and other information pertaining directly or
indirectly to the Collateral from third parties, whether now existing or
hereafter arising; and all returned, refused, stopped in transit, or
repossessed Collateral, any of which, if received by Debtor, upon request shall
be delivered immediately to Bank.
D. BALANCES AND OTHER PROPERTY. The balance of every
deposit account of Debtor maintained with Bank and any other claim of Debtor
against Bank, now or hereafter existing, liquidated or unliquidated, and all
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income, and any other property, rights and interests of Debtor which
at any time shall come into the possession or custody or under the control of
Bank or any of its agents or affiliates for any purpose, and the proceeds of
any thereof. Bank shall be deemed to have possession of any of the Collateral
in transit to or set apart for it or any of its agents or affiliates.
E. EXCLUSIONS. Notwithstanding the foregoing, the assets
described on Schedule II attached hereto shall not constitute Collateral
hereunder.
3. DESCRIPTION OF OBLIGATION(S). The following obligations
("Obligation" or "Obligations") are secured by this Agreement: (a) All debts,
obligations, liabilities and agreements of Debtor to Bank, now or hereafter
existing, arising under the Loan Documents, including, without limitation, all
of the "Obligations" as defined in the Loan Agreement referred to in Section 8
C. hereof; (b) All reasonable out-of-pocket costs incurred by Bank to obtain,
preserve, perfect and enforce this Agreement and maintain, preserve, collect
and realize upon the Collateral; (c) All debt, obligations and liabilities of
MiliRisk, Inc. ("Borrower") to Bank of the kinds described in this Item 3., now
existing or hereafter arising; and (d) All other costs and attorney's fees
incurred by Bank, for which Debtor is obligated to reimburse Bank in accordance
with the terms of the Loan Documents (hereinafter defined), together with
interest at Bank's Prime Rate. If Debtor is not the obligor of the Obligation,
and in the event any amount paid to Bank on any Obligation is subsequently
recovered from Bank in or as a result of any bankruptcy, insolvency or
fraudulent conveyance proceeding, Debtor shall be liable to Bank for the
amounts so recovered up to the fair market value of the Collateral whether or
not the Collateral has been released or the security interest terminated. In
the event the Collateral has been released or the security interest terminated,
the fair market value of the Collateral shall be determined, at Bank's option,
as of the date the Collateral was released, the security interest terminated,
or said amounts were recovered.
4. DEBTOR'S WARRANTIES. Debtor hereby represents and warrants to
Bank as follows:
A. FINANCING STATEMENTS. Except as noted on Schedule I
attached hereto and incorporated herein by reference, no financing statement
covering the Collateral is or will be on file in any public office, except the
financing statements relating to this security interest, and no security
interest, other than the one herein created, has attached or been perfected in
the Collateral or any part thereof.
B. OWNERSHIP. Debtor owns, or will use the proceeds of
any loans by Bank to become the owner of, the Collateral free from any setoff,
claim, restriction, lien, security interest or encumbrance except the security
interest hereunder, and except as set forth on Schedule I hereto.
SECURITY AGREEMENT - Page 3
<PAGE> 4
C. FIXTURES AND ACCESSIONS. None of the Collateral is
affixed to real estate or is an accession to any goods, or will become a
fixture or accession, except as expressly set out herein.
D. COMPLIANCE. Debtor is in compliance in all material
respects with all laws and regulatory requirements to which it is subject.
E. POWER AND AUTHORITY. Debtor has full power and
authority to make this Agreement, and all necessary consents and approvals of
any persons, entities, governmental or regulatory authorities and securities
exchanges have been obtained to effectuate the validity of this Agreement.
5. DEBTOR'S COVENANTS. Until full payment and performance of all
of the Obligation and termination or expiration of any obligation or commitment
of Bank to make advances or loans to Debtor, unless Bank otherwise consents in
writing:
A. OBLIGATION AND THIS AGREEMENT. Debtor shall perform
all of its agreements herein and in any other agreements between it and Bank.
B. OWNERSHIP AND MAINTENANCE OF THE COLLATERAL. Debtor
shall keep all tangible Collateral in good condition. Debtor shall defend the
Collateral against all claims and demands of all persons at any time claiming
any interest therein adverse to Bank, except as noted on Schedule I hereto.
Debtor shall keep the Collateral free from all liens and security interests
except the security interest hereby created, and except as noted on Schedule I
hereto.
C. INSURANCE. Debtor shall maintain insurance with
responsible insurance companies on the Collateral in such amounts and against
such risks as is customarily maintained by similar businesses similarly
situated.
D. BANK'S COSTS. Debtor shall pay all out-of-pocket
costs necessary to obtain, preserve, perfect, defend and enforce the security
interest created by this Agreement, collect the Obligation, and preserve,
defend, enforce and collect the Collateral, including but not limited to taxes,
assessments, insurance premiums, repairs, rent, storage costs and expenses of
sales, legal expenses, reasonable attorney's fees and other fees or expenses
for which Debtor is obligated to reimburse Bank in accordance with the terms of
the Loan Documents. Whether the Collateral is or is not in Bank's possession,
and without any obligation to do so and without waiving Debtor's default for
failure to make any such payment, Bank may at its option, at any time after an
Event of Default has occurred and is continuing, pay any such costs and
expenses, discharge encumbrances on the Collateral, and pay for insurance of
the Collateral, and such payments shall be a part of the Obligation and bear
interest at the rate set out in the Obligation. Debtor agrees to reimburse Bank
on demand for any costs so incurred.
E. INFORMATION AND INSPECTION. Debtor shall (i) promptly
furnish Bank any information with respect to the Collateral reasonably
requested by Bank; (ii) allow Bank or its representatives to inspect the
Collateral, at any reasonable time and wherever located, and to inspect and
copy, or furnish Bank or its representatives with copies of, all records
relating to the Collateral and the Obligation; and (iii) promptly furnish Bank
or its representatives such information as Bank may reasonably request to
identify the Collateral, at the time and in the form requested by Bank.
SECURITY AGREEMENT - Page 4
<PAGE> 5
F. ADDITIONAL DOCUMENTS. Debtor shall sign and deliver
any papers deemed necessary or desirable in the judgment of Bank to obtain,
maintain, and perfect the security interest hereunder and to enable Bank to
comply with any federal or state law in order to obtain or perfect Bank's
interest in the Collateral or to obtain proceeds of the Collateral.
G. PARTIES LIABLE ON THE COLLATERAL. Debtor shall
preserve the liability of all obligor on any Collateral and shall preserve the
priority of all security therefor. In the absence of gross negligence or
willful misconduct, Bank shall have no duty to preserve such liability or
security, but may do so at the expense of Debtor, without waiving Debtor's
default.
H. RECORDS OF THE COLLATERAL. Debtor at all times shall
maintain accurate books and records covering the Collateral. Bank is hereby
given the right to audit the books and records of Debtor relating to the
Collateral at any reasonable time and from time to time. The amounts shown as
owed to Debtor on Debtor's books and on any assignment schedule will be the
undisputed amounts owing and unpaid.
I. DISPOSITION OF THE COLLATERAL. No Collateral may be
sold, leased, manufactured, processed or otherwise disposed of by Debtor in any
manner without the prior written consent of Bank, except the Collateral sold,
leased, manufactured, processed or consumed in the ordinary course of business.
J. ACCOUNTS. Each account held as Collateral will
represent the valid and legally enforceable obligation of third parties and
shall not be evidenced by any instrument or chattel paper.
K. NOTICE/LOCATION OF THE COLLATERAL. Debtor shall give
Bank written notice of each office of Debtor in which records of Debtor
pertaining to accounts held as Collateral are kept, and each location at which
the Collateral is or will be kept, and of any change of any such location. If
no such notice is given, all records of Debtor pertaining to the Collateral and
all Collateral of Debtor are and shall be kept at the address marked by Debtor
above.
L. CHANGE OF NAME/STATUS AND NOTICE OF CHANGES. Without
the written consent of Bank, Debtor shall not change its name, change its
corporate status, or engage in any business not reasonably related to its
business as presently conducted. Debtor shall notify Bank immediately of (i)
any material change in the Collateral, (ii) a change in Debtor's residence or
location, (iii) a material change in any matter warranted or represented by
Debtor in this Agreement, or in any of the Loan Documents or furnished to Bank
pursuant to this Agreement, and (iv) the occurrence of an Event of Default
(hereinafter defined).
M. USE AND REMOVAL OF THE COLLATERAL. Debtor shall not
use the Collateral illegally. Debtor shall not, unless previously indicated as
a fixture, permit the Collateral to be affixed to real or personal property
without the prior written consent of Bank. Debtor shall not permit any of the
Collateral to be removed from the locations specified herein without the prior
written consent of Bank, except for the sale of inventory in the ordinary
course of business.
N. POSSESSION OF THE COLLATERAL. Debtor shall deliver
all investment securities and other instruments, documents and chattel paper
which are part of the Collateral and in Debtor's possession to Bank
immediately, or if hereafter acquired, immediately following acquisition,
appropriately indorsed to
SECURITY AGREEMENT - Page 5
<PAGE> 6
Bank's order, or with appropriate, duly executed powers. Debtor waives
presentment, notice of acceleration, demand, notice of dishonor, protest, and
all other notices with respect thereto.
0. CONSUMER CREDIT. If any Collateral or proceeds
includes obligations of third parties to Debtor, the transactions giving rise
to the Collateral shall conform in all respects to the applicable state or
federal law including but not limited to consumer credit law. Debtor shall hold
harmless and indemnify Bank against any cost, loss or expense arising from
Debtor's breach of this covenant.
P. POWER OF ATTORNEY. Debtor appoints Bank and any
officer thereof as Debtor's attorney-in-fact with full power in Debtor's name
and behalf to do every act which Debtor is obligated to do or may be required
to do hereunder; however, nothing in this paragraph shall be construed to
obligate Bank to take any action hereunder nor shall Bank be liable to Debtor
for failure to take any action hereunder (except for Bank's gross negligence or
willful misconduct). This appointment shall be deemed a power coupled with an
interest and shall not be terminable as long as the Obligation is outstanding
and shall not terminate on the disability or incompetence of Debtor. Bank
agrees that the power of attorney herein granted shall be exercised by it only
after an Event of Default has occurred and is continuing.
Q. WAIVERS BY DEBTOR. Debtor waives notice of the
creation, advance, increase, existence, extension or renewal of, and of any
indulgence with respect to, the Obligation; waives presentment, demand, notice
of dishonor, and protest; waives notice of the amount of the Obligation
outstanding at any time, notice of any change in financial condition of any
person liable for the Obligation or any part thereof, notice of any Event of
Default, and all other notices respecting the Obligation; and agrees that
maturity of the Obligation and any part thereof may be accelerated, extended or
renewed one or more times by Bank in its discretion, without notice to Debtor.
Debtor waives any right to require that any action be brought against any other
person or to require that resort be had to any other security or to any balance
of any deposit account. Debtor further waives any right of subrogation or to
enforce any right of action against any other Debtor until the Obligation is
paid in full.
R. OTHER PARTIES AND OTHER COLLATERAL. No renewal or
extension of or any other indulgence with respect to the Obligation or any part
thereof, no release of any security, no release of any person (including any
maker, indorser, guarantor or surety) liable on the Obligation, no delay in
enforcement of payment, and no delay or omission or lack of diligence or care
in exercising any right or power with respect to the Obligation or any security
therefor or guaranty thereof or under this Agreement shall in any manner impair
or affect the rights of Bank under the law, hereunder, or under any other
agreement pertaining to the Collateral. Bank need not file suit or assert a
claim for personal judgment against any person for any part of the Obligation
or seek to realize upon any other security for the Obligation, before
foreclosing or otherwise realizing upon the Collateral. Debtor waives any right
to the benefit of or to require or control application of any other security or
proceeds thereof, and agrees that ]Bank shall have no duty or obligation to
Debtor to apply to the Obligation any such other security or Proceeds thereof.
S. COLLECTION AND SEGREGATION OF ACCOUNTS AND RIGHT TO
NOTIFY. Bank hereby authorizes Debtor to collect the Collateral, subject to the
direction and control of Bank, but Bank may, without cause or notice, curtail
or terminate said authority at any time after an Event of Default has occurred
and is continuing. Upon notice by Bank, whether oral or in writing, to Debtor
given during the continuation of an Event of Default, Debtor shall forthwith
upon receipt of all checks, drafts, cash, and
SECURITY AGREEMENT - Page 6
<PAGE> 7
other remittances in payment of or on account of the Collateral, deposit the
same in one or more special accounts maintained with Bank over which Bank alone
shall have the power of withdrawal. The remittance of the proceeds of such
Collateral shall not, however, constitute payment or liquidation of such
Collateral until Bank shall receive good funds for such proceeds. Funds placed
in such special accounts shall be held by Bank as security for all Obligations
secured hereunder. These proceeds shall be deposited in precisely the form
received, except for the endorsement of Debtor where necessary to permit
collection of items, which endorsement Debtor agrees to make, and which
endorsement Bank is also hereby authorized, as attorney-in-fact, to make on
behalf of Debtor. In the event Bank has notified Debtor to make deposits to a
special account, pending such deposit, Debtor agrees that it will not commingle
any such checks, drafts, cash or other remittances with any funds or other
property of Debtor, but will hold them separate and apart therefrom, and upon
an express trust for Bank until deposit thereof is made in the special account.
Bank will, from time to time, apply the whole or any part of the Collateral
funds on deposit in this special account against such Obligations as are
secured hereby as Bank may in its sole discretion elect. At the sole election
of Bank, any portion of- said funds on deposit in the special account which
Bank shall elect not to apply to the Obligations, may be paid over by Bank to
Debtor. At any time after an Event of Default has occurred and is continuing,
Bank may notify persons obligated on any Collateral to make payments directly
to Bank and Bank may take control of all proceeds of any Collateral. Until Bank
elects to exercise such rights, Debtor, as agent of Bank, shall collect and
enforce all payments owed on the Collateral.
T. COMPLIANCE WITH STATE AND FEDERAL LAWS. Debtor shall
maintain its existence, good standing and qualification to do business where
required and comply with all laws, regulations and governmental requirements,
including, without limitation, environmental laws applicable to it or to any of
its property, business operations and transactions, except where failure to do
so would not be reasonably expected to have a material adverse effect on
Debtor.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank, without liability to Debtor (except
for acts or omissions constituting gross negligence or willful misconduct) may,
at any time after an Event of Default has occurred and is continuing: obtain
from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
require Debtor to give possession or control of any Collateral to Bank; indorse
as Debtor's agent any instruments, documents or chattel paper in the Collateral
or representing proceeds of the Collateral; contact account debtors directly to
verify information furnished by Debtor; take control of proceeds, including
stock received as dividends or by reason of stock splits; release the
Collateral in its possession to any Debtor, temporarily or otherwise; require
additional Collateral; reject as unsatisfactory any property hereafter offered
by Debtor as Collateral; set standards from time to time to govern what may be
used as after acquired Collateral; designate, from time to time, a certain
percent of the Collateral as the loan value and require Debtor to maintain the
Obligation at or below such figure; take control of funds generated by the
Collateral, such as cash dividends, interest and proceeds or refunds from
insurance, and use same to reduce any part of the Obligation and exercise all
other rights which an owner of such Collateral may exercise; at any time
transfer any of the Collateral or evidence thereof into its own name or that of
its nominee; and demand, collect, convert, redeem, receipt for, settle,
compromise, adjust, sue for, foreclose or realize upon the Collateral, in its
own name or in the name of Debtor, as Bank may determine. Bank shall not be
liable for failure to collect any account or instruments, or for any act or
omission on the part of Bank, its officers, agents or employees, except for its
or their own willful misconduct or gross negligence. The foregoing rights and
powers of Bank will be in addition to,
SECURITY AGREEMENT - Page 7
<PAGE> 8
and not a limitation upon, any rights and powers of Bank given by law,
elsewhere in this Agreement, or otherwise. If Debtor fails to maintain any
required insurance after notice thereof from Bank, to the extent permitted by
applicable law Bank may (but is not obligated to) purchase single interest
insurance coverage for the Collateral which insurance may at Bank's option (i)
protect only Bank and not provide any remuneration or protection for Debtor
directly and (ii) provide coverage only after the Obligation has been declared
due as herein provided. The premiums for any such insurance purchased by Bank
shall be a part of the Obligation and shall bear interest as provided in 3(d)
hereof.
B. CONVERTIBLE COLLATERAL. Bank may present for
conversion any Collateral which is convertible into any other instrument or
investment security or a combination thereof with cash, but Bank shall not in
the absence of gross negligence or willful misconduct have any duty to present
for conversion any Collateral unless it shall have received from Debtor
detailed written instructions to that effect at a time reasonably far in
advance of the final conversion date to make such conversion possible.
7. DEFAULT.
A. EVENT OF DEFAULT. "Event of Default" as used herein
means an "Event of Default" as defined in the Loan Agreement described in
Section 8 C. hereof.
B. RIGHTS AND REMEDIES. If any Event of Default shall
occur and be continuing, then, in each and every such case, Bank may, without
presentment, demand, or protest; notice of default, dishonor, demand,
non-payment, or protest; notice of intent to accelerate all or any part of the
Obligation; notice of acceleration of all or any part of the Obligation; or
notice of any other kind, all of which Debtor hereby expressly waives, (except
for any notice required under this Agreement, any other Loan Document or
applicable law); at any time thereafter exercise and/or enforce any of the
following rights and remedies at Bank's option:
(1) ACCELERATION. The Obligation shall, at Bank's
option, become immediately due and payable, and the obligation, if any, of Bank
to permit further borrowings under the Obligation shall at Bank's option
immediately cease and terminate.
(2) POSSESSION AND COLLECTION OF THE COLLATERAL.
At its option: (a) take possession or control of, store, lease, operate,
manage, sell, or instruct any Agent or Broker to sell or otherwise dispose of,
all or any part of the Collateral; (b) notify all parties under any account or
contract right forming all or any part of the Collateral to make any payments
otherwise due to Debtor directly to Bank; (c) in Bank's own name, or in the
name of Debtor, demand, collect, receive, sue for, and give receipts and
releases for, any and all amounts due under such accounts and contract rights;
(d) indorse as the agent of Debtor any check, note, chattel paper, documents,
or instruments forming all or any part of the Collateral; (e) make formal
application for transfer to Bank (or to any assignee of Bank or to any
purchaser of any of the Collateral) of all of Debtor's permits, licenses,
approvals, agreements, and the like relating to the Collateral or to Debtor's
business; (f) take any other action which Bank deems necessary or desirable to
protect and realize upon its security interest in the Collateral; and (g) in
addition to the foregoing, and not in substitution therefor, exercise any one
or more of the rights and remedies exercisable by Bank under any other
provision of this Agreement, under any of the other Loan Documents, or as
provided by applicable law (including, without limitation, the Uniform
Commercial Code as in effect in Texas (hereinafter referred to as the "UCC")).
In taking possession of the Collateral Bank may enter
SECURITY AGREEMENT - Page 8
<PAGE> 9
Debtor's premises and otherwise proceed without legal process, if this can be
done without breach of the peace. Debtor shall, upon Bank's demand, promptly
make the Collateral or other security available to Bank at a place designated
by Bank, which place shall be reasonably convenient to both parties.
Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Bank's willful or grossly
negligent omission or act. In the absence of gross negligence or willful
misconduct, Bank shall have no duty to take any action to preserve or collect
the Collateral.
(3) RECEIVER. Obtain the appointment of a
receiver for all or any of the Collateral, Debtor hereby consenting to the
appointment of such a receiver and agreeing not to oppose any such appointment.
(4) RIGHT OF SET OFF. Without notice or demand to
Debtor, set off and apply against any and all of the Obligation any and all
deposits (general or special, time or demand, provisional or final) and any
other indebtedness, at any time held or owing by Bank or any of Bank's agents
or affiliates to or for the credit of the account of Debtor or any guarantor or
indorser of Debtor's Obligation.
During the existence of any Event of Default, Bank shall be entitled to
immediate possession of all books and records evidencing any Collateral or
pertaining to chattel paper covered by this Agreement and it or its
representatives shall have the authority to enter upon any premises upon which
any of the same, or any Collateral, may be situated and remove the same
therefrom without liability if such can be accomplished without breach of the
peace. During the existence of any Event of Default, Bank may surrender any
insurance policies in the Collateral and receive the unearned premium thereon.
Debtor shall be entitled to any surplus and shall be liable to Bank for any
deficiency. During the existence of any Event of Default, the proceeds of any
disposition available to satisfy the Obligation shall be applied to the
Obligation in such order and in such manner as Bank in its discretion shall
decide.
Debtor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Debtor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner
of any such sale other than acts or omissions constituting gross negligence or
willful misconduct.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities
law, Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable".
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to
the benefit of its successors and assigns. In the event of any assignment or
transfer by Bank of any of the Obligation or the Collateral, Bank thereafter
shall be fully discharged from any responsibility with respect to the
Collateral so assigned
SECURITY AGREEMENT - Page 9
<PAGE> 10
or transferred, but Bank shall retain all rights and powers hereby given with
respect to any of the Obligation or the Collateral not so assigned or
transferred. All representations, warranties and agreements of Debtor if more
than one are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Debtor.
B. WAIVER. No delay of Bank in exercising any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or
the exercise of any other power or right. No waiver by Bank of any right
hereunder or of any default by Debtor shall be binding upon Bank unless in
writing, and no failure by Bank to exercise any power or right hereunder or
waiver of any default by Debtor shall operate as a waiver of any other or
further exercise of such right or power or of any further default. Each right,
power and remedy of Bank as provided for herein or in any of the Loan
Documents, or which shall now or hereafter exist at law or in equity or by
statute or otherwise, shall be cumulative and concurrent and shall be in
addition to every other such right, power or remedy. The exercise or beginning
of the exercise by Bank of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise by Bank of any or all
other such rights, powers or remedies.
C. DEFINITIONS. Terms defined in that certain Loan
Agreement between Bank and Borrower dated as of March 12, 1997 (such Agreement,
as amended from time to time the "Loan Agreement"), are used herein as so
defined unless otherwise defined herein. Unless the context indicates
otherwise, definitions in the UCC apply to words and phrases in this Agreement;
if UCC definitions conflict, Article 9 definitions apply.
D. NOTICES. Notice shall be deemed reasonable if mailed
postage prepaid at least five (5) days before the related action (or if the UCC
elsewhere specifies a longer period, such longer period) to the address of
Debtor given above, or to such other address as any party may designate by
written notice to the other party. Each notice, request and demand shall be
deemed given or made, if sent by mail, upon the earlier of the date of receipt
or five (5) days after deposit in the U.S. Mail, first class postage prepaid,
or if sent by any other means, upon delivery.
E. MODIFICATIONS. No provision hereof shall be modified
or limited except by a written agreement expressly referring hereto and to the
provisions so modified or limited and signed by Debtor and Bank. The provisions
of the Agreement shall not be modified or limited by course of conduct or usage
of trade.
F. APPLICABLE LAW AND PARTIAL INVALIDITY. This Agreement
has been delivered in the State of Texas and shall be construed in accordance
with the laws of that State. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement. The invalidity
or unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
SECURITY AGREEMENT - Page 10
<PAGE> 11
G. FINANCING STATEMENT. To the extent permitted by
applicable law, a carbon, photographic or other reproduction of this Agreement
or any financing statement covering the Collateral shall be sufficient as a
financing statement.
H. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS,
AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN
ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY
BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
(1) SPECIAL RULES. THE ARBITRATION SHALL BE
CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION
OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL
APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WELL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE,
BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
(2) RESERVATION OF RIGHTS. NOTHING IN THIS
ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP
REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY
REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL
OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
SECURITY AGREEMENT - Page 11
<PAGE> 12
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
I. CONTROLLING DOCUMENT. To the extent that this
Security Agreement conflicts with or is in any way incompatible with any other
Loan Document concerning the Obligation, the Loan Agreement shall control over
any other document, and if the Loan Agreement does not address an issue, then
each Loan Document shall control to the extent that it deals most specifically
with an issue.
J. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
K. LIMITATION ON LIABILITY. The liability of Debtor with
respect to the Obligations shall not exceed the Maximum Amount (as defined
below) for Debtor. "Maximum Amount" means the greater of (a) the amount of the
economic benefit received by Debtor from the Obligations whether by loan
proceeds to purchase assets or perform contracts for Debtor or by loan proceeds
being otherwise available to Debtor through intercompany loans, advances,
capital contributions or otherwise, or (b) the highest of (i) 95% of the
Adjusted Net Worth (as defined below) of Debtor as of the date hereof, (ii) 95%
of the Adjusted Net Worth of Debtor as of the date of the commencement of a
case under Title 11 of the United States Bankruptcy Code involving Borrower or
Debtor, or (iii) 95% of the Adjusted Net Worth of Debtor as of the date
enforcement hereunder is sought; provided however, notwithstanding anything
herein to the contrary, the Maximum Amount for Debtor shall be limited to the
Maximum Amount of liability of Debtor that can be incurred without rendering
this Security Agreement voidable under applicable law relating to fraudulent
conveyances or fraudulent transfers. "Adjusted Net Worth" means the following,
all determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors generally: (x) the aggregate fair
salable value of the assets of Debtor, minus (y) the amount of all liabilities
of Debtor (including contingent liabilities, but excluding liabilities of
Debtor under this Security Agreement, and any other Loan Documents executed by
Debtor for the benefit of Bank).
SECURITY AGREEMENT - Page 12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be duly executed by their duly authorized representatives as of the date first
above written.
<TABLE>
<S> <C>
BANK/SECURED PARTY: CORPORATE OR PARTNERSHIP DEBTOR/PLEDGOR
NATIONSBANK OF TEXAS, N.A. STRATEGIC DATA SYSTEMS, INC.
a Wisconsin corporation
By: /s/ JERRY COLWELL By: /s/ F. GEORGE DUNHAM, III
-------------------------------- --------------------------------
Jerry Colwell F. George Dunham, III, Chairman of the Board
Vice President
By: /s/ JOY J. KELLER
--------------------------------
Joy J. Keller, Secretary
</TABLE>
SECURITY AGREEMENT - Page 13
<PAGE> 1
EXHIBIT 10.19
NationsBank of Texas, N.A.
Date: March 12, 1997
SECURITY AGREEMENT
<TABLE>
<CAPTION>
==================================================================================================
<S> <C>
BANK/SECURED PARTY: DEBTOR(S)/PLEDGOR(S):
NationsBank of Texas, N.A. Applied Quoting Systems, Inc.
Fort Worth Banking Center 625 Walnut Ridge Drive
500 W. 7th Street Hartland, Waukesha County, WI 53029
Fort Worth, Tarrant County, TX 76102-4700
==================================================================================================
Debtor/Pledgor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other _______________
Address is Debtor's/Pledgor's: Residence [X] Place of Business [ ] Chief Executive Office if more
than one place of business
Collateral (hereinafter defined) is located at:
[X] Debtor's/Pledgor's address shown above [ ] the following address:
-----------------------------
- --------------------------------------------------------------------------------------------------
==================================================================================================
</TABLE>
[THIS SECURITY AGREEMENT ("AGREEMENT") CONTAINS SOME PROVISIONS PRECEDED BY
BOXES. IF A BOX IS MARKED, THE PROVISION APPLIES TO THIS TRANSACTION. IF IT IS
NOT MARKED, THE PROVISION DOES NOT APPLY TO THIS TRANSACTION.]
1. SECURITY INTEREST. For good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Debtor/Pledgor
(hereinafter referred to as "Debtor") assigns and grants to Bank/Secured Party
(also known as "Bank" or "Secured Party"), a security interest and lien in the
Collateral (hereinafter defined) to secure the payment and the performance of
the Obligation (hereinafter defined).
2. COLLATERAL. A security interest is granted in the following
collateral described in this Item 2 (the "Collateral"):
A. TYPES OF COLLATERAL
(1) ACCOUNTS: Any and all accounts and other
rights of Debtor to the payment for goods sold or leased or for services
rendered whether or not earned by performance, including, without limitation,
contract rights, book debts, checks, notes, drafts, instruments, chattel paper,
acceptances, and any and all amounts due to Debtor from a factor or other forms
of obligations and receivables, now existing or hereafter arising.
(2) EQUIPMENT: Any and all of Debtor's goods held
as equipment, as defined in the Uniform Commercial Code, including, but not
limited to, machinery, furniture, fixtures, manufacturing equipment, shop
equipment, office equipment, parts and tools, wherever located, whether now
owned or
SECURITY AGREEMENT - Page 1
<PAGE> 2
hereafter acquired, together with all increases, parts, accessories, equipment,
and special tools now or hereafter affixed to any part thereof or used in
connection therewith.
(3) INSTRUMENTS AND/OR INVESTMENT DOCUMENTS: Any
and all of Debtor's instruments, documents, and other writings of any type
which evidence a right to the payment of money and which are of a type that is
transferred in the ordinary course of business by delivery with any necessary
endorsement or assignment, whether now owned or hereafter acquired, including,
without limitation, all contract rights specified in Section 2 B. below,
negotiable instruments, promissory notes, and documents of title owned or to be
owned by Debtor, certificates of deposit, and all liens, security agreements,
leases and other contracts securing or otherwise relating to any of said
instruments or documents.
(4) GENERAL INTANGIBLES: Any and all of Debtor's
general intangible property, whether now owned or hereafter acquired by Debtor
or used in Debtor's business currently or hereafter, including, without
limitation, all patents, trademarks, service marks, trade secrets, copyrights
and exclusive licenses (whether issued or pending) literary rights, contract
rights and all documents, applications, materials and other matters related
thereto, all inventions, all manufacturing, engineering and production plans,
drawings, specifications, processes and systems, all trade names, goodwill and
all chattel paper, documents and instruments relating to such general
intangibles.
(5) INVENTORY. Any and all of Debtor's goods held
as inventory, whether now owned or hereafter acquired, including, without
limitation, any and all such goods held for sale or lease or being processed
for sale or lease in Debtor's business, as now or hereafter conducted,
including all materials, goods, and work in process, finished goods and other
tangible property held for sale or lease or furnished or to be furnished under
contracts of service or used or consumed in Debtor's business, along with all
documents (including documents of title) covering such inventory.
B. CLAIMS AND ADMINISTRATIVE SERVICE AGREEMENTS. All
contracts providing claims functions and administrative functions to third
parties, and all the rights, but none of the obligations of Debtor under, all
such contracts; all securities and other property, rights or interests of any
description at any time issued or issuable with respect to Debtor's interests
in such contracts; and any and all proceeds, revenues, monies, income and
benefits arising from or by virtue of, and all distributions (cash or
otherwise) payable and/or distributable with respect to, all or any interest of
Debtor in such contracts.
C. SUBSTITUTIONS, PROCEEDS AND RELATED ITEMS. Any and
all substitutes and replacements for, accessions, attachments and other
additions to, tools, parts and equipment now or hereafter added to or used in
connection with, and all cash or non-cash proceeds and products of, the
Collateral (including, without limitation, all income, benefits and property
receivable, received or distributed which results from any of the Collateral,
such as dividends payable or distributable in cash, property or stock;
insurance distributions of any kind related to the Collateral, including,
without limitation, returned premiums, interest, premium and principal
payments; redemption proceeds and subscription rights; and shares or other
proceeds of conversions or splits of any securities in the Collateral); any and
all choses in action and causes of action of Debtor, whether now existing or
hereafter arising, relating directly or indirectly to the Collateral (whether
arising in contract, tort or otherwise and whether or not currently in
litigation); all certificates of title, manufacturer's statements of origin,
other documents, accounts and chattel paper, whether now existing or hereafter
arising directly or indirectly from or related to the Collateral; all
warranties, wrapping, packaging, advertising and shipping materials used or to
be used in
SECURITY AGREEMENT - Page 2
<PAGE> 3
connection with or related to the Collateral; all of Debtor's books, records,
data, plans, manuals, computer software, computer tapes, computer systems,
computer disks, computer programs, source codes and object codes containing any
information, pertaining directly or indirectly to the Collateral and all rights
of Debtor to retrieve data and other information pertaining directly or
indirectly to the Collateral from third parties, whether now existing or
hereafter arising; and all returned, refused, stopped in transit, or
repossessed Collateral, any of which, if received by Debtor, upon request shall
be delivered immediately to Bank.
D. BALANCES AND OTHER PROPERTY. The balance of every
deposit account of Debtor maintained with Bank and any other claim of Debtor
against Bank, now or hereafter existing, liquidated or unliquidated, and all
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income, and any other property, rights and interests of Debtor which
at any time shall come into the possession or custody or under the control of
Bank or any of its agents or affiliates for any purpose, and the proceeds of
any thereof. Bank shall be deemed to have possession of any of the Collateral
in transit to or set apart for it or any of its agents or affiliates.
E. EXCLUSIONS. Notwithstanding the foregoing, the assets
described on Schedule II attached hereto shall not constitute Collateral
hereunder.
3. DESCRIPTION OF OBLIGATION(S). The following obligations
("Obligation" or "Obligations") are secured by this Agreement: (a) All debts,
obligations, liabilities and agreements of Debtor to Bank, now or hereafter
existing, arising under the Loan Documents, including, without limitation, all
of the "Obligations" as defined in the Loan Agreement referred to in Section 8
C. hereof; (b) All reasonable out-of-pocket costs incurred by Bank to obtain,
preserve, perfect and enforce this Agreement and maintain, preserve, collect
and realize upon the Collateral; (c) All debt, obligations and liabilities of
MiliRisk, Inc. ("Borrower") to Bank of the kinds described in this Item 3., now
existing or hereafter arising; and (d) All other costs and attorney's fees
incurred by Bank, for which Debtor is obligated to reimburse Bank in accordance
with the terms of the Loan Documents (hereinafter defined), together with
interest at Bank's Prime Rate. If Debtor is not the obligor of the Obligation,
and in the event any amount paid to Bank on any Obligation is subsequently
recovered from Bank in or as a result of any bankruptcy, insolvency or
fraudulent conveyance proceeding, Debtor shall be liable to Bank for the
amounts so recovered up to the fair market value of the Collateral whether or
not the Collateral has been released or the security interest terminated. In
the event the collateral has been released or the security interest terminated,
the fair market value of the Collateral shall be determined, at Bank's option,
as of the date the Collateral was released, the security interest terminated,
or said amounts were recovered.
4. DEBTOR'S WARRANTIES. Debtor hereby represents and warrants to
Bank as follows:
A. FINANCING STATEMENTS. Except as noted on Schedule I
attached hereto and incorporated herein by reference, no financing statement
covering the Collateral is or will be on file in any Public office, except the
financing statements relating to this security interest, and no security
interest, other than the one herein created, has attached or been perfected in
the Collateral or any part thereof.
B. OWNERSHIP. Debtor owns, or will use the proceeds of
any loans by Bank to become the owner of, the Collateral free from any setoff,
claim, restriction, lien, security interest or encumbrance except the security
interest hereunder, and except as set forth on Schedule I hereto.
SECURITY AGREEMENT - Page 3
<PAGE> 4
C. FIXTURES AND ACCESSIONS. None of the Collateral is
affixed to real estate or is an accession to any goods, or will become a
fixture or accession, except as expressly set out herein.
D. COMPLIANCE. Debtor is in compliance in all material
respects with all laws and regulatory requirements to which it is subject.
E. POWER AND AUTHORITY. Debtor has full power and
authority to make this Agreement, and all necessary consents and approvals of
any persons, entities, governmental or regulatory authorities and securities
exchanges have been obtained to effectuate the validity of this Agreement.
5. DEBTOR'S COVENANTS. Until full payment and performance of all
of the Obligation and termination or expiration of any obligation or commitment
of Bank to make advances or loans to Debtor, unless Bank otherwise consents in
writing:
A. OBLIGATION AND THIS AGREEMENT. Debtor shall perform
all of its agreements herein and in any other agreements between it and Bank.
B. OWNERSHIP AND MAINTENANCE OF THE COLLATERAL. Debtor
shall keep all tangible Collateral in good condition. Debtor shall defend the
Collateral against all claims and demands of all persons at any time claiming
any interest therein adverse to Bank, except as noted on Schedule I hereto.
Debtor shall keep the Collateral free from all liens and security interests
except the security interest hereby created, and except as noted on Schedule I
hereto.
C. INSURANCE. Debtor shall maintain insurance with
responsible insurance companies on the Collateral in such amounts and against
such risks as is customarily maintained by similar businesses similarly
situated.
D. BANK'S COSTS. Debtor shall pay all out-of-pocket
costs necessary to obtain, preserve, perfect, defend and enforce the security
interest created by this Agreement, collect the Obligation, and preserve,
defend, enforce and collect the Collateral, including but not limited to taxes,
assessments, insurance premiums, repairs, rent, storage costs and expenses of
sales, legal expenses, reasonable attorney's fees and other fees or expenses
for which Debtor is obligated to reimburse Bank in accordance with the terms of
the Loan Documents. Whether the Collateral is or is not in Bank's possession,
and without any obligation to do so and without waiving Debtor's default for
failure to make any such payment, Bank may at its option, at any time after an
Event of Default has occurred and is continuing, pay any such costs and
expenses, discharge encumbrances on the Collateral, and pay for insurance of the
Collateral, and such payments shall be a part of the Obligation and bear
interest at the rate set out in the Obligation. Debtor agrees to reimburse
Bank on demand for any costs so incurred.
E. INFORMATION AND INSPECTION. Debtor shall (i) promptly
furnish Bank any information with respect to the Collateral reasonably
requested by Bank; (ii) allow Bank or its representatives to inspect the
Collateral, at any reasonable time and wherever located, and to inspect and
copy, or furnish Bank or its representatives with copies of, all records
relating to the Collateral and the Obligation; and (iii) promptly furnish Bank
or its representatives such information as Bank may reasonably request to
identify the Collateral, at the time and in the form requested by Bank.
SECURITY AGREEMENT - Page 4
<PAGE> 5
F. ADDITIONAL DOCUMENTS. Debtor shall sign and deliver
any papers deemed necessary or desirable in the judgment of Bank to obtain,
maintain, and perfect the security interest hereunder and to enable Bank to
comply with any federal or state law in order to obtain or perfect Bank's
interest in the Collateral or to obtain proceeds of the Collateral.
G. PARTIES LIABLE ON THE COLLATERAL. Debtor shall
preserve the liability of all obligors on any Collateral and shall preserve the
priority of all security therefor. In the absence of gross negligence or
willful misconduct, Bank shall have no duty to preserve such liability or
security, but may do so at the expense of Debtor, without waiving Debtor's
default.
H. RECORDS OF THE COLLATERAL. Debtor at all times shall
maintain accurate books and records covering the Collateral. Bank is hereby
given the right to audit the books and records of Debtor relating to the
Collateral at any reasonable time and from time to time. The amounts shown as
owed to Debtor on Debtor's books and on any assignment schedule will be the
undisputed amounts owing and unpaid.
I. DISPOSITION OF THE COLLATERAL. No Collateral may be
sold, leased, manufactured, processed or otherwise disposed of by Debtor in
any manner without the prior written consent of Bank, except the Collateral
sold, leased, manufactured, processed or consumed in the ordinary course of
business.
J. ACCOUNTS. Each account held as Collateral will
represent the valid and legally enforceable obligation of third parties and
shall not be evidenced by any instrument or chattel paper.
K. NOTICE/LOCATION OF THE COLLATERAL. Debtor shall give
Bank written notice of each office of Debtor in which records of Debtor
pertaining to accounts held as Collateral are kept, and each location at which
the Collateral is or will be kept, and of any change of any such location. If
no such notice is given, all records of Debtor pertaining to the Collateral and
all Collateral of Debtor are and shall be kept at the address marked by Debtor
above.
L. CHANGE OF NAME/STATUS AND NOTICE OF CHANGES. Without
the written consent of Bank, Debtor shall not change its name, change its
corporate status, or engage in any business not reasonably related to its
business as presently conducted. Debtor shall notify Bank immediately of (i)
any material change in the Collateral, (ii) a change in Debtor's residence or
location, (iii) a material change in any matter warranted or represented by
Debtor in this Agreement, or in any of the Loan Documents or furnished to Bank
pursuant to this Agreement, and (iv) the occurrence of an Event of Default
(hereinafter defined).
M. USE AND REMOVAL OF THE COLLATERAL. Debtor shall not
use the Collateral illegally. Debtor shall not, unless previously indicated as
a fixture, permit the Collateral to be affixed to real or personal property
without the prior written consent of Bank. Debtor shall not permit any of the
Collateral to be removed from the locations specified herein without the prior
written consent of Bank, except for the sale of inventory in the ordinary
course of business.
N. POSSESSION OF THE COLLATERAL. Debtor shall deliver
all investment securities and other instruments, documents and chattel paper
which are part of the Collateral and in Debtor's possession to Bank
immediately, or if hereafter acquired, immediately following acquisition,
appropriately indorsed to
SECURITY AGREEMENT - Page 5
<PAGE> 6
Bank's order, or with appropriate, duly executed powers. Debtor waives
presentment, notice of acceleration, demand, notice of dishonor, protest, and
all other notices with respect thereto.
O. CONSUMER CREDIT. If any Collateral or proceeds
includes obligations of third parties to Debtor, the transactions giving rise
to the Collateral shall conform in all respects to the applicable state or
federal law including but not limited to consumer credit law. Debtor shall hold
harmless and indemnify Bank against any cost, loss or expense arising from
Debtor's breach of this covenant.
P. POWER OF ATTORNEY. Debtor appoints Bank and any
officer thereof as Debtor's attorney-in-fact with full power in Debtor's name
and behalf to do every act which Debtor is obligated to do or may be required
to do hereunder; however, nothing in this paragraph shall be construed to
obligate Bank to take any action hereunder nor shall Bank be liable to Debtor
for failure to take any action hereunder (except for Bank's gross negligence or
willful misconduct). This appointment shall be deemed a power coupled with an
interest and shall not be terminable as long as the Obligation is outstanding
and shall not terminate on the disability or incompetence of Debtor. Bank
agrees that the power of attorney herein granted shall be exercised by it only
after an Event of Default has occurred and is continuing.
Q. WAIVERS BY DEBTOR. Debtor waives notice of the
creation, advance, increase, existence, extension or renewal of, and of any
indulgence with respect to, the Obligation; waives presentment, demand, notice
of dishonor, and protest; waives notice of the amount of the Obligation
outstanding at any time, notice of any change in financial condition of any
person liable for the Obligation or any part thereof, notice of any Event of
Default, and all other notices respecting the Obligation; and agrees that
maturity of the Obligation and any part thereof may be accelerated, extended or
renewed one or more times by Bank in its discretion, without notice to Debtor.
Debtor waives any right to require that any action be brought against any other
person or to require that resort be had to any other security or to any balance
of any deposit account. Debtor further waives any right of subrogation or to
enforce any right of action against any other Debtor until the Obligation is
paid in full.
R. OTHER PARTIES AND OTHER COLLATERAL. No renewal or
extension of or any other indulgence with respect to the Obligation or any part
thereof, no release of any security, no release of any person (including any
maker, indorser, guarantor or surety) liable on the Obligation, no delay in
enforcement of payment, and no delay or omission or lack of diligence or care
in exercising any right or power with respect to the Obligation or any security
therefor or guaranty thereof or under this Agreement shall in any manner impair
or affect the rights of Bank under the law, hereunder, or under any other
agreement pertaining to the Collateral. Bank need not file suit or assert a
claim for personal judgment against any person for any part of the Obligation
or seek to realize upon any other security for the Obligation, before
foreclosing or otherwise realizing upon the Collateral. Debtor waives any right
to the benefit of or to require or control application of any other security or
proceeds thereof, and agrees that Bank shall have no duty or obligation to
Debtor to apply to the Obligation any such other security or proceeds thereof.
S. COLLECTION AND SEGREGATION OF ACCOUNTS AND RIGHT TO
NOTIFY. Bank hereby authorizes Debtor to collect the Collateral, subject to the
direction and control of Bank, but Bank may, without cause or notice, curtail
or terminate said authority at any time after an Event of Default has occurred
and is continuing. Upon notice by Bank, whether oral or in writing, to Debtor
given during the continuation of an Event of Default, Debtor shall forthwith
upon receipt of all checks, drafts, cash, and
SECURITY AGREEMENT - Page 6
<PAGE> 7
other remittances in payment of or on account of the Collateral, deposit the
same in one or more special accounts maintained with Bank over which Bank alone
shall have the power of withdrawal. The remittance of the proceeds of such
Collateral shall not, however, constitute payment or liquidation of such
Collateral until Bank shall receive good funds for such proceeds. Funds placed
in such special accounts shall be held by Bank as security for all Obligations
secured hereunder. These proceeds shall be deposited in precisely the form
received, except for the indorsement of Debtor where necessary to permit
collection of items, which indorsement Debtor agrees to make, and which
indorsement Bank is also hereby authorized, as attorney-in-fact, to make on
behalf of Debtor. In the event Bank has notified Debtor to make deposits to a
special account, pending such deposit, Debtor agrees that it will not commingle
any such checks, drafts, cash or other remittances with any funds or other
property of Debtor, but will hold them separate and apart therefrom, and upon
an express trust for Bank until deposit thereof is made in the special account.
Bank will, from time to time, apply the whole or any part of the Collateral
funds on deposit in this special account against such Obligations as are
secured hereby as Bank may in its sole discretion elect. At the sole election
of Bank, any portion of said funds on deposit in the special account which Bank
shall elect not to apply to the Obligations, may be paid over by Bank to
Debtor. At any time after an Event of Default has occurred and is continuing,
Bank may notify persons obligated on any Collateral to make payments directly
to Bank and Bank may take control of all proceeds of any Collateral. Until Bank
elects to exercise such rights, Debtor, as agent of Bank, shall collect and
enforce all payments owed on the Collateral.
T. COMPLIANCE WITH STATE AND FEDERAL LAWS. Debtor shall
maintain its existence, good standing and qualification to do business where
required and comply with all laws, regulations and governmental requirements,
including, without limitation, environmental laws applicable to it or to any of
its property, business operations and transactions, except where failure to do
so would not be reasonably expected to have a material adverse effect on
Debtor.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank, without liability to Debtor (except
for acts or omissions constituting gross negligence or willful misconduct) may,
any time after an Event of Default has occurred and is continuing: obtain from
any person information regarding Debtor or Debtor's business, which information
any such person also may furnish without liability to Debtor; require Debtor to
give possession or control of any Collateral to Bank; indorse as Debtor's agent
any instruments, documents or chattel paper in the Collateral or representing
proceeds of the Collateral; contact account debtors directly to verify
information furnished by Debtor; take control of proceeds, including stock
received as dividends or by reason of stock splits; release the Collateral in
its possession to any Debtor, temporarily or otherwise; require additional
Collateral; reject as unsatisfactory any property hereafter offered by Debtor
as Collateral; set standards from time to time to govern what may be used as
after acquired Collateral; designate, from time to time, a certain percent of
the Collateral as the loan value and require Debtor to maintain the Obligation
at or below such figure; take control of funds generated by the Collateral,
such as cash dividends, interest and proceeds or refunds from insurance, and
use same to reduce any part of the Obligation and exercise all other rights
which an owner of such Collateral may exercise; at any time transfer any of the
Collateral or evidence thereof into its own name or that of its nominee; and
demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral, in its own name or in the name
of Debtor, as Bank may determine. Bank shall not be liable for failure to
collect any account or instruments, or for any act or omission on the part of
Bank, its officers, agents or employees, except for its or their own willful
misconduct or gross negligence. The foregoing rights and powers of Bank will be
in addition to,
SECURITY AGREEMENT - Page 7
<PAGE> 8
and not a limitation upon, any rights and powers of Bank given by law,
elsewhere in this Agreement, or otherwise. If Debtor fails to maintain any
required insurance after notice thereof from Bank, to the extent permitted by
applicable law Bank may (but is not obligated to) purchase single interest
insurance coverage for the Collateral which insurance may at Bank's option (i)
protect only Bank and not provide any remuneration or protection for Debtor
directly and (ii) provide coverage only after the Obligation has been declared
due as herein provided. The premiums for any such insurance purchased by Bank
shall be a part of the Obligation and shall bear interest as provided in 3(d)
hereof.
B. CONVERTIBLE COLLATERAL. Bank may present for
conversion any Collateral which is convertible into any other instrument or
investment security or a combination thereof with cash, but Bank shall not in
the absence of gross negligence or willful misconduct, have any duty to present
for conversion any Collateral unless it shall have received from Debtor
detailed written instructions to that effect at a time reasonably far in
advance of the final conversion date to make such conversion possible.
7. DEFAULT.
A. EVENT OF DEFAULT. "Event of Default" as used herein
means an "Event of Default" as defined in the Loan Agreement described in
Section 8 C. hereof.
B. RIGHTS AND REMEDIES. If any Event of Default shall
occur and be continuing, then, in each and every such case, Bank may, without
presentment, demand, or protest; notice of default, dishonor, demand,
non-payment, or protest; notice of intent to accelerate all or any part of the
Obligation; notice of acceleration of all or any part of the Obligation; or
notice of any other kind, all of which Debtor hereby expressly waives, (except
for any notice required under this Agreement, any other Loan Document or
applicable law); at any time thereafter exercise and/or enforce any of the
following rights and remedies at Bank's option:
(1) Acceleration. The Obligation shall, at Bank's
option, become immediately due and payable, and the obligation, if any, of Bank
to permit further borrowings under the Obligation shall at Bank's option
immediately cease and terminate.
(2) POSSESSION AND COLLECTION OF THE COLLATERAL.
At its option: (a) take possession or control of, store, lease, operate,
manage, sell, or instruct any Agent or Broker to sell or otherwise dispose of,
all or any part of the Collateral; (b) notify all parties under any account or
contract right forming all or any part of the Collateral to make any payments
otherwise due to Debtor directly to Bank; (c) in Bank's own name, or in the
name of Debtor, demand, collect, receive, sue for, and give receipts and
releases for, any and all amounts due under such accounts and contract rights;
(d) indorse as the agent of Debtor any check, note, chattel paper, documents,
or instruments forming all or any part of the Collateral; (e) make formal
application for transfer to Bank (or to any assignee of Bank or to any
purchaser of any of the Collateral) of all of Debtor's permits, licenses,
approvals, agreements, and the like relating to the Collateral or to Debtor's
business; (f) take any other action which Bank deems necessary or desirable to
protect and realize upon its security interest in the Collateral; and (g) in
addition to the foregoing, and not in substitution therefor, exercise any one
or more of the rights and remedies exercisable by Bank under any other
provision of this Agreement, under any of the other Loan Documents, or as
provided by applicable law (including, without limitation, the Uniform
Commercial Code as in effect in Texas (hereinafter referred to as the "UCC")).
In taking possession of the Collateral Bank may enter
SECURITY AGREEMENT - Page 8
<PAGE> 9
Debtor's premises and otherwise proceed without legal process, if this can be
done without breach of the peace. Debtor shall, upon Bank's demand, promptly
make the Collateral or other security available to Bank at a place designated
by Bank, which place shall be reasonably convenient to both parties.
Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Bank's willful or grossly
negligent omission or act. In the absence of gross negligence or willful
misconduct, Bank shall have no duty to take any action to preserve or collect
the Collateral.
(3) RECEIVER. Obtain the appointment of a
receiver for all or any of the Collateral, Debtor hereby consenting to the
appointment of such a receiver and agreeing not to oppose any such appointment.
(4) RIGHT OF SET OFF. Without notice or demand to
Debtor, set off and apply against any and all of the Obligation any and all
deposits (general or special, time or demand, provisional or final) and any
other indebtedness, at any time held or owing by Bank or any of Bank's agents
or affiliates to or for the credit of the account of Debtor or any guarantor or
indorser of Debtor's Obligation.
During the existence of any Event of Default, Bank shall be entitled to
immediate possession of all books and records evidencing any Collateral or
pertaining to chattel paper covered by this Agreement and it or its
representatives shall have the authority to enter upon any premises upon which
any of the same, or any Collateral, may be situated and remove the same
therefrom without liability if such can be accomplished without breach of the
peace. During the existence of any Event of Default, Bank may surrender any
insurance policies in the Collateral and receive the unearned premium thereon.
Debtor shall be entitled to any surplus and shall be liable to Bank for any
deficiency. During the existence of any Event of Default, the proceeds of any
disposition available to satisfy the Obligation shall be applied to the
Obligation in such order and in such manner as Bank in its discretion shall
decide.
Debtor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Debtor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner
of any such sale other than acts or omissions constituting gross negligence or
willful misconduct.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities
law, Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable".
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to
the benefit of its successors and assigns. In the event of any assignment or
transfer by Bank of any of the Obligation or the Collateral, ]Bank thereafter
shall be fully discharged from any responsibility with respect to the
Collateral so assigned
SECURITY AGREEMENT - Page 9
<PAGE> 10
or transferred, but Bank shall retain all rights and powers hereby given with
respect to any of the Obligation or the Collateral not so assigned or
transferred. All representations, warranties and agreements of Debtor if more
than one are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Debtor.
B. WAIVER. No delay of Bank in exercising any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or
the exercise of any other power or right. No waiver by Bank of any right
hereunder or of any default by Debtor shall be binding upon Bank unless in
writing, and no failure by Bank to exercise any power or right hereunder or
waiver of any default by Debtor shall operate as a waiver of any other or
further exercise of such right or power or of any further default. Each right,
power and remedy of Bank as provided for herein or in any of the Loan
Documents, or which shall now or hereafter exist at law or in equity or by
statute or otherwise, shall be cumulative and concurrent and shall be in
addition to every other such right, power or remedy. The exercise or beginning
of the exercise by Bank of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise by Bank of any or all
other such rights, powers or remedies.
C. DEFINITIONS. Terms defined in that certain Loan
Agreement between Bank and Borrower dated as of March 12, 1997 (such Agreement,
as amended from time to time, the "Loan Agreement) are used herein as so
defined unless otherwise defined herein. Unless the context indicates
otherwise, definitions in the UCC apply to words and phrases in this Agreement;
if UCC definitions conflict, Article 9 definitions apply.
D. NOTICES. Notice shall be deemed reasonable if mailed
postage prepaid at least five (5) days before the related action (or if the UCC
elsewhere specifies a longer period, such longer period) to the address of
Debtor given above, or to such other address as any party may designate by
written notice to the other party. Each notice, request and demand shall be
deemed given or made, if sent by mail, upon the earlier of the date of receipt
or five (5) days after deposit in the U.S. Mail, first class postage prepaid,
or if sent by any other means, upon delivery.
E. MODIFICATIONS. No provision hereof shall be modified
or limited except by a written agreement expressly referring hereto and to the
provisions so modified or limited and signed by Debtor and Bank. The provisions
of the Agreement shall not be modified or limited by course of conduct or usage
of trade.
F. APPLICABLE LAW AND PARTIAL INVALIDITY. This Agreement
has been delivered in the State of Texas and shall be construed in accordance
with the laws of that State. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement. The invalidity
or unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
SECURITY AGREEMENT - Page 10
<PAGE> 11
G. FINANCING STATEMENT. To the extent permitted by
applicable law, a carbon, photographic or other reproduction of this Agreement
or any financing statement covering the Collateral shall be sufficient as a
financing statement.
H. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS,
AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN
ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY
BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
(1) SPECIAL RULES. THE ARBITRATION SHALL BE
CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION
OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL
APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WELL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE,
BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
(2) RESERVATION OF RIGHTS. NOTHING IN THIS
ARBITRATION PROVISION SHALL BE DEEMED TO (1) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP
REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY
REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL
OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
SECURITY AGREEMENT - Page 11
<PAGE> 12
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
I. CONTROLLING DOCUMENT. To the extent that this
Security Agreement conflicts with or is in any way incompatible with any other
Loan Document concerning the Obligation, the Loan Agreement shall control over
any other document, and if the Loan Agreement does not address an issue, then
each Loan Document shall control to the extent that it deals most specifically
with an issue.
J. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
K. LIMITATION ON LIABILITY. The liability of Debtor with
respect to the Obligations shall not exceed the Maximum Amount (as defined
below) for Debtor. "Maximum Amount" means the greater of (a) the amount of the
economic benefit received by Debtor from the Obligations whether by loan
proceeds to purchase assets or perform contracts for Debtor or by loan proceeds
being otherwise available to Debtor through intercompany loans, advances,
capital contributions or otherwise, or (b) the highest of (i) 95% of the
Adjusted Net Worth (as defined below) of Debtor as of the date hereof, (ii) 95%
of the Adjusted Net Worth of Debtor as of the date of the commencement of a
case under Title 11 of the United States Bankruptcy Code involving Borrower or
Debtor, or (iii) 95% of the Adjusted Net Worth of Debtor as of the date
enforcement hereunder is sought; provided however, notwithstanding anything
herein to the contrary, the Maximum Amount for Debtor shall be limited to the
Maximum Amount of liability of Debtor that can be incurred without rendering
this Security Agreement voidable under applicable law relating to fraudulent
conveyances or fraudulent transfers. "Adjusted Net Worth" means the following,
all determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors generally: (x) the aggregate fair
salable value of the assets of Debtor, minus (y) the amount of all liabilities
of Debtor (including contingent liabilities, but excluding liabilities of
Debtor under this Security Agreement, and any other Loan Documents executed by
Debtor for the benefit of Bank).
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be duly executed by their duly authorized representatives as of the date first
above written.
<TABLE>
<CAPTION>
BANK/SECURED PARTY: CORPORATE OR PARTNERSHIP DEBTOR/PLEDGOR
<S> <C>
NATIONSBANK OF TEXAS, N.A. APPLIED QUOTING SYSTEMS, INC.
a Wisconsin corporation
By: /s/ JERRY COLWELL By: /s/ F. GEORGE DUNHAM, III
------------------------------- -------------------------------
JERRY COLWELL F. GEORGE DUNHAM, III, Chairman
Vice President
By: /s/ JOY J. KELLER
-------------------------------
JOY J. KELLER, Secretary
</TABLE>
SECURITY AGREEMENT - Page 12
<PAGE> 1
EXHIBIT 10.20
PLEDGE AGREEMENT
<TABLE>
<CAPTION>
============================================================================================================
BANK/SECURED PARTY: PLEDGOR(S)/DEBTOR(S):
<S> <C>
NationsBank of Texas, N.A. MiliRisk, Inc.
Fort Worth Banking Center 300 Burnett Street
500 W. 7th Street Fort Worth, Tarrant County, TX 76102
Fort Worth, Tarrant County, TX 76102-4700
============================================================================================================
Pledgor/Debtor is [ ] Individual [#] Corporation [ ] Partnership [ ] Other
---------
Address is Pledgor's/Debtor's: [ ] Residence [#] Place of Business [ ] Chief Executive Office
if more than one place of business
============================================================================================================
</TABLE>
[THIS PLEDGE AGREEMENT ("AGREEMENT") CONTAINS SOME PROVISIONS PRECEDED BY
BOXES. IF A BOX IS MARKED, THE PROVISION APPLIES TO THIS TRANSACTION; IF IT IS
NOT MARKED, THE PROVISION DOES NOT APPLY TO THIS TRANSACTION.]
1. SECURITY INTEREST. For good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Pledgor/Debtor
(hereinafter referred to as "Pledgor" or "Debtor") pledges, assigns and grants
to Bank/Secured Party (also known as "Bank" or "Secured Party") a security
interest an lien in the Collateral (hereinafter defined) to secure the payment
and the performance of the Obligation (hereinafter defined).
2. COLLATERAL. The security interest is granted in the following
collateral (the "Collateral"):
A. DESCRIPTION OF COLLATERAL.
SPECIFIC INVESTMENT PROPERTY/SECURITIES: The
following investment property and/or securities, together with all
investment property and/ or securities hereafter delivered to Bank in
substitution therefor or in addition thereto: All common stock of
Strategic Data Systems, Inc. ("SDS"), a Wisconsin corporation, which
stock is evidenced by the stock certificate described on Schedule I
attached hereto.
B. PROCEEDS. All additions, substitutes and replacements
for and proceeds of the above Collateral (including all income and
benefits resulting from any of the above, such as dividends payable or
distributable in cash, property or stock; interest, premium and
principal payments; redemption proceeds and subscription rights; and
shares or other proceeds of conversions or splits any securities in
the Collateral). Any investment property and/or securities received by
Pledgor that constitute such additions, substitutes and replacements
for, or proceeds of, the Collateral shall be held in trust for Bank
and shall be delivered immediately to Bank. Any cash proceeds shall
be held in trust for Bank and upon request shall be delivered
immediately to Bank.
PLEDGE AGREEMENT - Page 1
<PAGE> 2
C. DEPOSIT ACCOUNTS. The balance of every deposit
account of Pledgor maintained with Bank and any other claim of Pledgor
against Bank, now or hereafter existing, liquidated or unliquidated,
and all money, instruments, investment property, securities,
documents, chattel paper, credits, claims, demands, income, and any
other property, rights and interests of Pledgor which at any time
shall come into the possession or custody or under the control of Bank
or any of its agents or affiliates, for any purpose, and the proceeds
of any thereof. Bank shall be deemed to have possession of any of the
Collateral in transit to or set apart for it or any of its agents or
affiliates.
3. OBLIGATION.
A. DESCRIPTION OF OBLIGATION. The following obligations
("Obligation") are secured by this Agreement: (a) All debts,
obligations, liabilities and agreements of Debtor to Bank, now or
hereafter existing, arising under the Loan Documents, including,
without limitation, all of the "Obligations" as defined in the Loan
Agreement referred to in Section 8 C. hereof; (b) All reasonable
out-of-pocket costs incurred by Bank to obtain, preserve, perfect and
enforce this Agreement and maintain, preserve, collect and realize
upon the Collateral; and (c) All other COStS and attorney's fees
incurred by Bank, for which Debtor is obligated to reimburse Bank in
accordance with the terms of the Loan Documents (hereinafter defined),
together with interest at Bank's prime rate. If Debtor is not the
obligor of the Obligation, and in the event any amount paid to Bank on
any Obligation is subsequently recovered from Bank in or as a result
of any bankruptcy, insolvency or fraudulent conveyance proceeding,
Debtor shall be liable to Bank for the amounts so recovered up to the
fair market value of the Collateral whether or not the Collateral has
been released or the security interest terminated. In the event the
Collateral has been released or the security interest terminated, the
fair market value of the Collateral shall be determined, at Bank's
option, as of the date the Collateral was released, the security
interest terminated, or said amounts were recovered.
B. USE OF PROCEEDS. The proceeds of any indebtedness or
obligation secured by the Collateral will not be used directly or
indirectly to purchase or carry any "margin stock" as that term is
defined in Regulation U of the Board of Governors of the Federal
Reserve System, or extend credit to or invest in other parties for the
purpose of purchasing or carrying any such "margin stock," or to
reduce or retire any indebtedness incurred for such purpose or
otherwise in a manner which would violate Regulations G. T or U.
4. PLEDGOR'S WARRANTIES. Pledgor hereby represents and warrants
to Bank as follows:
A. FINANCING STATEMENTS. Except as may be noted by
schedule attached hereto and incorporated herein by reference, no
financing statement covering the Collateral is or will be on file in
any public office, except the financing statements relating to this
security interest, and no security interest, other than the one herein
created, has attached or been perfected in the Collateral or any part
thereof.
B. OWNERSHIP. Pledgor owns, or will use the proceeds of
any loans by Bank to become the owner of, the Collateral free from any
se :off, claim, restriction, lien, security interest or encumbrance
except liens for taxes not yet due and payable and the security
interest hereunder. After consummation of the transactions
contemplated by that certain Merger Agreement (as defined in the Loan
Agreement), the Collateral shall comprise 100% of the issued and
outstanding common stock of SDS. The Collateral is the only class of
stock outstanding in SDS.
PLEDGE AGREEMENT - Page 2
<PAGE> 3
C. POWER AND AUTHORITY. Pledgor has full power and
authority to make this Agreement, and all necessary consents and
approvals of any persons, entities, governmental or regulatory
authorities and securities exchanges have been obtained to effectuate
the validity of this Agreement.
5. PLEDGOR'S COVENANTS. Until full payment and performance of all
of the Obligation and termination or expiration of any obligation or commitment
of Bank to make advances or loans to Pledgor, unless Bank otherwise consents in
writing:
A. OBLIGATION AND THIS AGREEMENT. Pledgor shall perform
all of its agreements herein and in any other agreements between it
and Bank.
B. OWNERSHIP OF COLLATERAL. Pledgor shall defend the
Collateral against all claims and demands of all persons at any time
claiming any interest therein adverse to Bank. Except as noted on
Schedule I hereto, Pledgor shall keep the Collateral free from all
liens and security interests except the security interest hereby
created. Debtor shall not transfer the Collateral or issue any further
shares of stock of any class in SDS to any party without the prior
written consent of Bank.
C. BANK'S COSTS. Pledgor shall pay all out-of-pocket
costs necessary to obtain, preserve, perfect, defend and enforce the
security interest created by this Agreement, collect the Obligation,
and preserve, defend, enforce and collect the Collateral, including
but not limited to taxes, assessments, reasonable attorney's fees,
legal expenses and expenses of sales. Whether the Collateral is or is
not in Bank's possession, and without any obligation to do so and
without waiving Pledgor's default for failure to make any such
payment, Bank may, at its option at any time after an Event of Default
has occurred and is continuing, pay any such costs and expenses and
discharge encumbrances on the Collateral, and such payments shall be a
part of the Obligation and bear interest at the rate set out in the
Obligation. Pledgor agrees to reimburse Bank on demand for any costs
so incurred.
D. INFORMATION AND INSPECTION. Pledgor shall (i)
promptly furnish Bank any information with respect to the Collateral
reasonably requested by Bank; (ii) allow Bank or its representatives
to inspect and COW at any reasonable time, or furnish Bank or its
representatives with copies of, all records relating to the Collateral
and the Obligation; and (iii) promptly furnish Bank or its
representatives with any other information Bank may reasonably
request.
E. ADDITIONAL DOCUMENTS. Pledgor shall sign and deliver
any papers furnished by Bank which are necessary or desirable in the
judgment of Bank to obtain, maintain and perfect the security interest
hereunder and to enable Bank to comply with any federal or state law
in order to obtain or perfect Bank's interest in the Collateral or to
obtain proceeds of the Collateral.
PLEDGE AGREEMENT - Page 3
<PAGE> 4
F. NOTICE OF CHANGES. Pledgor shall notify Bank
immediately of (i) any material change in the Collateral, (ii) a
change in Pledgor's residence or location, (iii) a change in any
matter warranted or represented by Pledgor in this Agreement, or in
any of the loan documents relating to the Obligation or furnished to
Bank pursuant to this Agreement, and (iv) the occurrence of an Event
of Default as defined herein.
G. POSSESSION OF COLLATERAL. Pledgor shall deliver a
copy of this Agreement (or other notice acceptable to Bank) to any
broker, financial intermediary, or any other person in possession of
any of the Collateral or on whose books the interest of Pledgor in the
Collateral appears, and such delivery shall constitute notice to such
person of Bank's security interest in the Collateral and shall
constitute Pledgor's instruction to such person to note Bank's
security interest on their books and records, or deliver to Bank
certificates or other evidence of the Collateral promptly upon Bank's
request. Pledgor shall deliver all investment securities and other
instruments and documents which are a part of the Collateral and in
Pledgor's possession to Bank immediately, or if hereafter acquired,
immediately following acquisition, in a form suitable for transfer by
delivery or accompanied by duly executed instruments of transfer or
assignment in blank with signatures appropriately guaranteed in form
and substance suitable to Bank.
H. CHANGE OF NAME/STATUS. Pledgor shall not change its
name, change its corporate status, use any trade name or engage in any
business not reasonably related to its business as presently
conducted.
I. POWER OF ATTORNEY. Pledgor appoints Bank and any
officer thereof as Pledgor's attorney-in-fact with full power in
Pledgor's name and on Pledgor's behalf to do every act which Pledgor
is obligated to do or may be required to do hereunder; however,
nothing in this paragraph shall be construed to obligate Bank to take
any action hereunder nor shall Bank be liable to Pledgor for failure
to take any action hereunder (except for Bank's gross negligence or
willful misconduct). This appointment shall be deemed a power coupled
with an interest and shall not be terminable as long as the Obligation
is outstanding and shall not terminate on the disability or
incompetence of Pledgor. Without limiting the generality of the
foregoing, Bank shall have the right and power to receive, indorse and
collect all checks and other orders for the payment of money made
payable to Pledgor representing any dividend, interest payment or
other distribution payable in respect of the Collateral or any part
thereof. Bank agrees that the power of attorney herein granted shall
be exercised by it only after an Event of Default has occurred and is
continuing.
J. OTHER PARTIES AND OTHER COLLATERAL. No renewal or
extensions of or any other indulgence with respect to the Obligation
or any part thereof, no modification of the document(s) evidencing the
Obligation, no release of any security, no release of any person
(including any maker, indorser, guarantor or surety) liable on the
Obligation, no delay in enforcement of payment, and no delay or
omission or lack of diligence or care in exercising any right or power
with respect to the Obligation or any security therefor or guaranty
thereof or under this Agreement shall in any manner impair or affect
the rights of Bank under any law, hereunder, or under any other
agreement pertaining to the Collateral. Bank need not file suit or
assert a claim for personal judgment against any person for any part
of
PLEDGE AGREEMENT - Page 4
<PAGE> 5
the Obligation or seek to realize upon any other security for the
Obligation, before foreclosing or otherwise realizing upon the
Collateral. Pledgor waives any right that can be waived to the benefit
of or to require or control application of any other security or
proceeds thereof, and agrees that Bank shall have no duty or
obligation to Pledgor to apply to the Obligation any such other
security or proceeds thereof.
K. WAIVERS BY PLEDGOR. Pledgor waives notice of the
creation, advance, increase, existence, extension or renewal of, and
of any indulgence with respect to, the Obligation; waives presentment,
demand, notice of dishonor, and protest; waives notice of the amount
of the Obligation outstanding at any time, notice of any change in
financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices
respecting the Obligation; and agrees that maturity of the Obligation
and any part thereof may be accelerated, extended or renewed one or
more times by Bank in its discretion, without notice to Pledgor.
Pledgor waives any right to require that any action be brought against
any other person or to require that resort be had to any other
security or to any balance of any deposit account. Pledgor further
waives any right of subrogation or to enforce any right of action
against any other pledgor until the Obligation is paid in full.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank (except for acts or omissions
constituting gross negligence or willful misconduct) may, at any time
after an Event of Default has occurred and is continuing, without
liability to Pledgor may: take control of proceeds, including stock
received as dividends or by reason of stock splits; release the
Collateral in its possession to any Pledgor, temporarily or otherwise;
require additional Collateral; reject as unsatisfactory any property
hereafter offered by Pledgor as Collateral; take control of funds
generated by the Collateral, such as cash dividends, interest and
proceeds, and use same to reduce any part of the Obligation and
exercise all other rights which an owner of such Collateral may
exercise; and at any time transfer any of the Collateral or evidence
thereof into its own name or that of its nominee. Bank shall not be
liable for failure to collect any account or instruments, or for any
act or omission on the part of Bank, its officers, agents or
employees, except for its or their own willful misconduct or gross
negligence. The foregoing rights and powers of Bank will be in
addition to, and not a limitation upon, any rights and powers of Bank
given by law, elsewhere in this Agreement, or otherwise.
B. CONVERTIBLE COLLATERAL. Bank may present for
conversion any Collateral which is convertible into any other
instrument or investment security or a combination thereof with cash,
but Bank shall not in the absence of gross negligence or willful
misconduct have any duty to present for conversion any Collateral
unless it shall have received from Pledgor detailed written
instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
7. DEFAULT.
A. EVENT OF DEFAULT. "Event of Default" as used herein
means an "Event of Default" as defined in the Loan Agreement described
in Section 8 C. hereof.
PLEDGE AGREEMENT - Page 5
<PAGE> 6
B. RIGHTS AND REMEDIES. If any Event of Default shall
occur and be continuing, then, in each and every such case, Bank may,
without (a) presentment, demand, or protest, (b) notice of default,
dishonor, demand, non-payment, or protest, (c) notice of intent to
accelerate all or any part of the Obligation, (d) notice of
acceleration of all or any part of the Obligation, or (e) notice of
any other kind. all of which Pledgor hereby expressly waives (except
for any notice required under this Agreement, any other loan document
or which may not be waived under applicable law). exercise and/or
enforce any of the following rights and remedies, at Bank's option:
(i) ACCELERATION. The Obligation shall, at Bank's
option, become immediately due and payable, and the
obligation, if any, of Bank to permit further borrowings under
the Obligation shall at Bank's option immediately cease and
terminate.
(ii) LIQUIDATION OF COLLATERAL. Sell, or instruct
any Agent or Broker to sell, all or any part of the Collateral
in a public or private sale, direct any Agent or Broker to
liquidate all or any part of any Account and deliver all
proceeds thereof to Bank, and apply all proceeds to the
payment of any or all of the Obligation in such order and
manner as Bank shall, in its discretion, choose.
(iii) UNIFORM COMMERCIAL CODE. All of the rights,
powers and remedies of a secured creditor under the Uniform
Commercial Code ("UCC") as adopted in the jurisdiction to
which Bank is subject under this Agreement.
(iv) RIGHT OF SET OFF. Without notice or demand to
Pledgor, set off and apply against any and all of the
Obligation any and all deposits (general or special, time or
demand, provisional or final) and any other indebtedness, at
any time held or owing by Bank or by any of Bank's affiliates
or correspondents to or for the credit of the account of
Pledgor or any guarantor or indorser of Pledgor's Obligation.
Pledgor specifically understands and agrees that any sale by Bank of all or
part of the Collateral pursuant to the terms of this Agreement may be effected
by Bank at times and in manners which could result in the proceeds of such sale
as being significantly and materially less than might have been received if
such sale had occurred at different times or in different manners, and Pledgor
hereby releases Bank and its officers and representatives from and against any
and all obligations and liabilities arising out of or related to the timing or
manner of any such sale other than acts or omission constituting gross
negligence or willful misconduct.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities
law, Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable."
PLEDGE AGREEMENT - Page 6
<PAGE> 7
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to
the benefit of its successors and assigns, and in the event of any
assignment or transfer of any of the Obligation or the Collateral,
Bank thereafter shall be fully discharged from any responsibility with
respect to the Collateral so assigned or transferred, but Bank shall
retain all rights and powers hereby given with respect to any of the
Obligation or the Collateral not so assigned or transferred. All
representations, warranties and agreements of Pledgor if more than one
are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Pledgor.
B. WAIVER. No delay of Bank in exercising any power or
right shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude other or further
exercise thereof or the exercise of any other power or right. No
waiver by Bank of any right hereunder or of any default by Pledgor
shall be binding upon Bank unless in writing, and no failure by Bank
to exercise any power or right hereunder or waiver of any default by
Pledgor shall operate as a waiver of any other or further exercise of
such right or power or of any further default. Each right, power and
remedy of Bank as provided for herein or in any of the loan documents
related to the Obligation, or which shall now or hereafter exist at
law or in equity or by statute or otherwise, shall be cumulative and
concurrent and shall be in addition to every other such right, power
or remedy. The exercise or beginning of the exercise by Bank of any
one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by Bank of any or all other such
rights, powers or remedies.
C. DEFINITIONS. Terms defined in that certain Loan
Agreement between Bank and Pledgor dated as of March 12, 1997 (such
Agreement, as amended from time to time being the "Loan Agreement")
are used herein as so defined unless otherwise defined herein. Unless
the context indicates otherwise, definitions in the UCC apply to words
and phrases in this Agreement; if UCC definitions conflict, Article 8
and/or 9 definitions apply.
D. NOTICE. Notice shall be deemed reasonable if mailed
postage prepaid at least 5 days before the related action (or if the
UCC elsewhere specifies a longer period, such longer period) to the
address of Pledgor given above. Each notice, request and demand shall
be deemed given or made, if sent by mail, upon the earlier of the date
of receipt or five (5) days after deposit in the U.S. Mail, first
class postage prepaid, or if sent by any other means, upon delivery.
E. MODIFICATIONS. No provision hereof shall be modified
or limited except by a written agreement expressly referring hereto
and to the provisions so modified or limited and signed by Pledgor and
Bank. The provisions of this Agreement shall not be modified or
limited by course of conduct or usage of trade.
F. PARTIAL INVALIDITY. The unenforceability or
invalidity of any provision of this Agreement shall not affect the
enforceability or validity of any other provision herein, and the
invalidity or unenforceability of any provision of any loan document
related to the
PLEDGE AGREEMENT - Page 7
<PAGE> 8
Obligation to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other
persons or circumstances.
G. APPLICABLE LAW AND VENUE. This Agreement has been
delivered in the State of Texas and shall be construed in accordance
with the laws of that State. It is performable by Pledgor in the
county or city of Bank's address set out above and Pledgor expressly
waives any objection as to venue in any such location. Wherever
possible each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
H. FINANCING STATEMENT. To the extent permitted by
applicable law, a carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral shall be
sufficient as a financing statement.
9. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF
THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND
THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
PLEDGE AGREEMENT - Page 8
<PAGE> 9
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS
CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A
WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF
BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B.) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF,
WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE
SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY
OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT,
AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR
THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE
RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO
SUCH REMEDIES.
C. CONTROLLING DOCUMENT. To the extent that this
Agreement conflicts with or is in any way incompatible with any other
Loan Document concerning the Obligation, the Loan Agreement shall
control over any other document, and if the Loan Agreement does not
address an issue, then each other Loan Document shall control to the
extent that it deals most specifically with an issue.
10. NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND ANY
OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized representatives as of the date first
above written.
BANK/SECURED PARTY: PLEDGOR(S)/DEBTOR(S):
NATIONSBANK OF TEXAS, N.A. MILIRISK, INC.
By /s/ JERRY COLWELL By /s/ F. GEORGE DUNHAM, III
--------------------------------- ---------------------------------
Jerry Colwell F. George Dunham, III
Vice President
PLEDGE AGREEMENT - Page 9
<PAGE> 10
By
---------------------------------
President and Chief Executive Officer
By /s/ JOY J. KELLER
----------------------------------
Joy J. Keller
Executive Vice President and
Chief Financial Officer
PLEDGE AGREEMENT - Page 10
<PAGE> 11
SCHEDULE I
TO
PLEDGE AGREEMENT
BETWEEN
NATIONSBANK OF TEXAS, N.A.
AND
MILIRISK, INC.
1,000 shares of common stock in Strategic Data Systems, Inc., a
Wisconsin corporation, as reflected by Stock Certificate no. ____
SCHEDULE I, SOLO PAGE
<PAGE> 1
EXHIBIT 10.21
PLEDGE AGREEMENT
<TABLE>
===============================================================================================
<S> <C>
BANK/SECURED PARTY: PLEDGOR(S)/DEBTOR(S):
NationsBank of Texas, N.A. Strategic Data Systems, Inc.
Fort Worth Banking Center 615 Pennsylvania Avenue
500 W. 7th Street Sheboygan, Sheboygan County, WI 53081
Fort Worth, Tarrant County, TX 76102-4700
===============================================================================================
Pledgor/Debtor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other________________
Address is Pledgor's/Debtor's: [ ] Residence [X]Place of Business [ ] Chief Executive Office
if more than one place of business
===============================================================================================
</TABLE>
[THIS PLEDGE AGREEMENT ("AGREEMENT") CONTAINS SOME PROVISIONS PRECEDED BY
BOXES. IF A BOX IS MARKED, THE PROVISION APPLIES TO THIS TRANSACTION; IF IT IS
NOT MARKED, THE PROVISION DOES NOT APPLY TO THIS TRANSACTION.]
1. SECURITY INTEREST. For good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Pledgor/Debtor
(hereinafter referred to as "Pledgor" or "Debtor") pledges, assigns and grants
to Bank/Secured Party (also known as "Bank" or "Secured Party") a security
interest and lien in the Collateral (hereinafter defined) to secure the payment
and the performance of the Obligation (hereinafter defined).
2. COLLATERAL. The security interest is granted in the following
collateral (the "Collateral"):
A. DESCRIPTION OF COLLATERAL.
SPECIFIC INVESTMENT PROPERTY/SECURITIES: The
following investment property and/or securities, together with all
investment property and/or securities hereafter delivered to Bank in
substitution therefor or in addition thereto: All common stock of
Applied Quoting Systems, Inc. ("AQS"), a Wisconsin corporation, which
stock is evidenced by the stock certificate described on Schedule I
attached hereto.
B. PROCEEDS. All additions, substitutes and replacements
for and proceeds of the above Collateral (including all income and
benefits resulting from any of the above, such as dividends payable or
distributable in cash, property or stock; interest, premium and
principal payments; redemption proceeds and subscription rights; and
shares or other proceeds of conversions or splits of any securities in
the Collateral). Any investment property and/or securities received by
Pledgor that constitute such additions, substitutes and replacements
for, or proceeds of, the Collateral shall be held in trust for Bank
and shall be delivered immediately to Bank. Any cash proceeds shall be
held in trust for Bank and upon request shall be delivered immediately
to Bank.
PLEDGE AGREEMENT - Page 1
<PAGE> 2
C. DEPOSIT ACCOUNTS. The balance of every deposit
account of Pledgor maintained with Bank and any other claim of Pledgor
against Bank, now or hereafter existing, liquidated or unliquidated,
and all money, instruments, investment property, securities,
documents, chattel paper, credits, claims, demands, income, and any
other property, rights and interests of Pledgor which at any time
shall come into the possession or custody or under the control of Bank
or any of its agents or affiliates, for any purpose, and the proceeds
of any thereof. Bank shall be deemed to have possession of any of the
Collateral in transit to or set apart for it or any of its agents or
affiliates.
3. OBLIGATION.
A. DESCRIPTION OF OBLIGATION. The following obligations
("Obligation") are secured by this Agreement: (a) All debts,
obligations, liabilities and agreements of Debtor to Bank, now or
hereafter existing, arising under the Loan Documents, including,
without limitation, all of the "Obligations" as defined in the Loan
Agreement referred to in Section 8 C. hereof; (b) All reasonable
out-of-pocket costs incurred by Bank to obtain, preserve, perfect and
enforce this Agreement and maintain, preserve, collect and realize
upon the Collateral; (c) All debt, obligations and liabilities of
MiliRisk, Inc. to Bank of the kinds described in this Section 3 A.;
and (d) All other costs and attorney's fees incurred by Bank, for
which Debtor is obligated to reimburse Bank in accordance with the
terms of the Loan Documents (hereinafter defined), together with
interest at Bank's prime rate. If Debtor is not the obligor of the
Obligation, and in the event any amount paid to Bank on any Obligation
is subsequently recovered from Bank in or as a result of any
bankruptcy, insolvency or fraudulent conveyance proceeding, Debtor
shall be liable to Bank for the amounts so recovered up to the fair
market value of the Collateral whether or not the Collateral has been
released or the security interest terminated. In the event the
Collateral has been released or the security interest terminated, the
fair market value of the Collateral shall be determined, at Bank's
option, as of the date the Collateral was released, the security
interest terminated, or said amounts were recovered.
B. USE OF PROCEEDS. The proceeds of any indebtedness or
obligation secured by the Collateral will not be used directly or
indirectly to purchase or carry any "margin stock" as that term is
defined in Regulation U of the Board of Governors of the Federal
Reserve System, or extend credit to or invest in other parties for the
purpose of purchasing or carrying any such "margin stock," or to
reduce or retire any indebtedness incurred for such purpose or
otherwise in a manner which would violate Regulations G, T or U.
4. PLEDGOR'S WARRANTIES. Pledgor hereby represents and warrants to
Bank as follows:
A. FINANCING STATEMENTS. Except as may be noted by
schedule attached hereto and incorporated herein by reference, no
financing statement covering the Collateral is or will be on file in
any public office, except the financing statements relating to this
security interest, and no security interest, other than the one herein
created, has attached or been perfected in the Collateral or any part
thereof.
B. OWNERSHIP. Pledgor owns, or will use the proceeds of
any loans by Bank to become the owner of, the Collateral free from any
setoff, claim, restriction, lien, security interest or encumbrance
except liens for taxes not yet due and payable and the security
interest hereunder. The
PLEDGE AGREEMENT - Page 2
<PAGE> 3
Collateral comprises 100% of the issued and outstanding common stock
in AQS. The Collateral is the only class of stock issued and
outstanding in AQS.
C. POWER AND AUTHORITY. Pledgor has full power and
authority to make this Agreement, and all necessary consents and
approvals of any persons, entities, governmental or regulatory
authorities and securities exchanges have been obtained to effectuate
the validity of this Agreement.
5. PLEDGOR'S COVENANTS. Until full payment and performance of all
of the Obligation and termination or expiration of any obligation or commitment
of Bank to make advances or loans to Pledgor, unless Bank otherwise consents in
writing:
A. OBLIGATION AND THIS AGREEMENT. Pledgor shall perform
all of its agreements herein and in any other agreements between it
and Bank.
B. OWNERSHIP OF COLLATERAL. Pledgor shall defend the
Collateral against all claims and demands of all persons at any time
claiming any interest therein adverse to Bank. Except as noted on
Schedule I hereto, Pledgor shall keep the Collateral free from all
liens and security interests except the security interest hereby
created. Debtor shall not transfer the Collateral or issue any further
shares of stock of any class in AQS to any party without the prior
written consent of Bank.
C. BANK'S COSTS. Pledgor shall pay all out-of-pocket
costs necessary to obtain, preserve, perfect, defend and enforce the
security interest created by this Agreement, collect the Obligation,
and preserve, defend, enforce and collect the Collateral, including
but not limited to taxes, assessments, reasonable attorney's fees,
legal expenses and expenses of sales. Whether the Collateral is or is
not in Bank's possession, and without any obligation to do so and
without waiving Pledgor's default for failure to make any such
payment, Bank may, at its option at any time after an Event of Default
has occurred and is continuing, pay any such costs and expenses and
discharge encumbrances on the Collateral, and such payments shall be a
part of the Obligation and bear interest at the rate set out in the
Obligation. Pledgor agrees to reimburse Bank on demand for any costs
so incurred.
D. INFORMATION AND INSPECTION. Pledgor shall (i)
promptly furnish Bank any information with respect to the Collateral
reasonably requested by Bank; (ii) allow Bank or its representatives
to inspect and copy at any reasonable time, or furnish Bank or its
representatives with copies of, all records relating to the Collateral
and the Obligation; and (iii) promptly furnish Bank or its
representatives with any other information Bank may reasonably
request.
E. ADDITIONAL DOCUMENTS. Pledgor shall sign and deliver
any papers furnished by Bank which are necessary or desirable in the
judgment of Bank to obtain, maintain and perfect the security interest
hereunder and to enable Bank to comply with any federal or state law
in order to obtain or perfect Bank's interest in the Collateral or to
obtain proceeds of the Collateral.
F. NOTICE OF CHANGES. Pledgor shall notify Bank
immediately of (i) any material change in the Collateral, (ii) a
change in Pledgor's residence or location, (iii) a change in any
matter warranted or represented by Pledgor in this Agreement, or in
any of the loan documents relating to
PLEDGE AGREEMENT - Page 3
<PAGE> 4
the Obligation or furnished to Bank pursuant to this Agreement, and
(iv) the occurrence of an Event of Default as defined herein.
G. POSSESSION OF COLLATERAL. Pledgor shall deliver a
copy of this Agreement (or other notice acceptable to Bank) to any
broker, financial intermediary, or any other person in possession of
any of the Collateral or on whose books the interest of Pledgor in the
Collateral appears, and such delivery shall constitute notice to such
person of Bank's security interest in the Collateral and shall
constitute Pledgor's instruction to such person to note Bank's
security interest on their books and records, or deliver to Bank
certificates or other evidence of the Collateral promptly upon Bank's
request. Pledgor shall deliver all investment securities and other
instruments and documents which are a part of the Collateral and in
Pledgor's possession to Bank immediately, or if hereafter acquired,
immediately following acquisition, in a form suitable for transfer by
delivery or accompanied by duly executed instruments of transfer or
assignment in blank with signatures appropriately guaranteed in form
and substance suitable to Bank.
H. CHANGE OF NAME/STATUS. Pledgor shall not change its
name, change its corporate status, use any trade name or engage in any
business not reasonably related to its business as presently
conducted.
I. POWER OF ATTORNEY. Pledgor appoints Bank and any
officer thereof as Pledgor's attorney-in-fact with full power in
Pledgor's name and on Pledgor's behalf to do every act which Pledgor
is obligated to do or may be required to do hereunder; however,
nothing in this paragraph shall be construed to obligate Bank to take
any action hereunder nor shall Bank be liable to Pledgor for failure
to take any action hereunder (except for Bank's gross negligence or
willful misconduct). This appointment shall be deemed a power coupled
with an interest and shall not be terminable as long as the Obligation
is outstanding and shall not terminate on the disability or
incompetence of Pledgor. Without limiting the generality of the
foregoing, Bank shall have the right and power to receive, indorse and
collect all checks and other orders for the payment of money made
payable to Pledgor representing any dividend, interest payment or
other distribution payable in respect of the Collateral or any part
thereof. Bank agrees that the power of attorney herein granted shall
be exercised by it only after an Event of Default has occurred and is
continuing.
J. OTHER PARTIES AND OTHER COLLATERAL. No renewal or
extensions of or any other indulgence with respect to the Obligation
or any part thereof, no modification of the documents) evidencing the
Obligation, no release of any security, no release of any person
(including any maker, indorser, guarantor or surety) liable on the
Obligation, no delay in enforcement of payment, and no delay or
omission or lack of diligence or care in exercising any right or power
with respect to the Obligation or any security therefor or guaranty
thereof or under this Agreement shall in any manner impair or affect
the rights of Bank under any law, hereunder, or under any other
agreement pertaining to the Collateral. Bank need not file suit or
assert a claim for personal judgment against any person for any part
of the Obligation or seek to realize upon any other security for the
Obligation, before foreclosing or otherwise realizing upon the
Collateral. Pledgor waives any right that can be waived to the benefit
of or to require or control application of any other security or
proceeds thereof, and agrees that Bank shall have no duty or
obligation to Pledgor to apply to the Obligation any such other
security or proceeds thereof.
PLEDGE AGREEMENT - Page 4
<PAGE> 5
K. WAIVERS BY PLEDGOR. Pledgor waives notice of the
creation, advance, increase, existence, extension or renewal of, and
of any indulgence with respect to, the Obligation; waives presentment,
demand, notice of dishonor, and protest; waives notice of the amount
of the Obligation outstanding at any time, notice of any change in
financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices
respecting the Obligation; and agrees that maturity of the Obligation
and any part thereof may be accelerated, extended or renewed one or
more times by Bank in its discretion, without notice to Pledgor.
Pledgor waives any right to require that any action be brought against
any other person or to require that resort be had to any other
security or to any balance of any deposit account, Pledgor further
waives any right of subrogation or to enforce any right of action
against any other pledgor until the Obligation is paid in full.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank (except for acts or omissions
constituting gross negligence or willful misconduct) may, at any time
after an Event of Default has occurred and is continuing, without
liability to Pledgor may: take control of proceeds, including stock
received as dividends or by reason of stock splits; release the
Collateral in its possession to any Pledgor, temporarily or otherwise;
require additional Collateral; reject as unsatisfactory any property
hereafter offered by Pledgor as Collateral; take control of funds
generated by the Collateral, such as cash dividends, interest and
proceeds, and use same to reduce any part of the Obligation and
exercise all other rights which an owner of such Collateral may
exercise; and at any time transfer any of the Collateral or evidence
thereof into its own name or that of its nominee. Bank shall not be
liable for failure to collect any account or instruments, or for any
act or omission on the part of Bank, its officers, agents or
employees, except for its or their own willful misconduct or gross
negligence. The foregoing rights and powers of Bank will be in
addition to, and not a limitation upon, any rights and powers of Bank
given by law, elsewhere in this Agreement, or otherwise.
B. CONVERTIBLE COLLATERAL. Bank may present for
conversion any Collateral which is convertible into any other
instrument or investment security or a combination thereof with cash,
but Bank shall not in the absence of gross negligence or willful
misconduct have any duty to present for conversion any Collateral
unless it shall have received from Pledgor detailed written
instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
7. DEFAULT.
A. EVENT OF DEFAULT. "Event of Default" as used herein
means an "Event of Default" as defined in the Loan Agreement described
in Section 8 C. hereof.
B. RIGHTS AND REMEDIES. If any Event of Default shall
occur and be continuing, then, in each and every such case, Bank may,
without (a) presentment, demand, or protest, (b) notice of default,
dishonor, demand, non-payment, or protest, (c) notice of intent to
accelerate all or any part of the Obligation, (d) notice of
acceleration of all or any part of the Obligation, or (e) notice of
any her kind, all of which Pledgor hereby expressly waives (except for
any notice required under this
PLEDGE AGREEMENT - Page 5
<PAGE> 6
Agreement, any other loan document or which may not be waived under
applicable law), exercise and/or enforce any of the following rights
and remedies, at Bank's option:
i. ACCELERATION. The Obligation shall, at Bank's
option, become immediately due and payable, and the obligation, if
any, of Bank to permit further borrowings under the Obligation shall
at Bank's option immediately cease and terminate.
ii. LIQUIDATION OF COLLATERAL. Sell, or instruct
any Agent or Broker to sell, all or any part of the Collateral in a
public or private sale, direct any Agent or Broker to liquidate all or
any part of any Account and deliver all proceeds thereof to Bank, and
apply all proceeds to the payment of any or all of the Obligation in
such order and manner as Bank shall, in its discretion, choose.
iii. UNIFORM COMMERCIAL CODE. All of the rights,
powers and remedies of a secured creditor under the Uniform Commercial
Code ("UCC") as adopted in the jurisdiction to which Bank is subject
under this Agreement.
iv. RIGHT OF SET OFF. Without notice or demand to
Pledgor, set off and apply against any and all of the Obligation any
and all deposits (general or special, time or demand, provisional or
final) and any other indebtedness, at any time held or owing by Bank
or by any of Bank's affiliates or correspondents to or for the credit
of the account of Pledgor or any guarantor or indorser of Pledgor's
Obligation.
Pledgor specifically understands and agrees that any sale by Bank of all or
part of the Collateral pursuant to the terms of this Agreement may be effected
by Bank at times and in manners which could result in the proceeds of such sale
as being significantly and materially less than might have been received if
such sale had occurred at different times or in different manners, and Pledgor
hereby releases Bank and its officers and representatives from and against any
and all obligations and liabilities arising out of or related to the timing or
manner of any such sale other than acts or omissions constituting gross
negligence or willful misconduct.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities
law, Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable."
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to
the benefit of its successors and assigns, and in the event of any
assignment or transfer of any of the Obligation or the Collateral,
Bank thereafter shall be fully discharged from any responsibility with
respect to the Collateral so assigned or transferred, but Bank shall
retain all rights and powers hereby given with respect to any of the
Obligation or the Collateral not so assigned or transferred. All
representations, warranties and agreements of Pledgor if more than one
are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Pledgor.
PLEDGE AGREEMENT - Page 6
<PAGE> 7
B. WAIVER. No delay of Bank in exercising any power or
right shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude other or further
exercise thereof or the exercise of any other power or right. No
waiver by Bank of any right hereunder or of any default by Pledgor
shall be binding upon Bank unless in writing, and no failure by Bank
to exercise any power or right hereunder or waiver of any default by
Pledgor shall operate as a waiver of any other or further exercise of
such right or power or of any further default. Each right, power and
remedy of Bank as provided for herein or in any of the loan documents
related to the Obligation, or which shall now or hereafter exist at
law or in equity or by statute or otherwise, shall be cumulative and
concurrent and shall be in addition to every other such right, power
or remedy. The exercise or beginning of the exercise by Bank of any
one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by Bank of any or all other such
rights, powers or remedies.
C. DEFINITIONS. Terms defined in that certain Loan
Agreement between Bank and MiliRisk, Inc. dated as of March 12, 1997
(such Agreement, as amended from time to time being the "Loan
Agreement") are used herein as so defined unless otherwise defined
herein. Unless the context indicates otherwise, definitions in the UCC
apply to words and phrases in this Agreement; if UCC definitions
conflict, Article 8 and/or 9 definitions apply.
D. NOTICE. Notice shall be deemed reasonable if mailed
postage prepaid at least 5 days before the related action (or if the
UCC elsewhere specifies a longer period, such longer period) to the
address of Pledgor given above. Each notice, request and demand shall
be deemed given or made, if sent by mail, upon the earlier of the date
of receipt or five (5) days after deposit in the U.S. Mail, first
class postage prepaid, or if sent by any other means, upon delivery.
E. MODIFICATIONS. No provision hereof shall be modified
or limited except by a written agreement expressly referring hereto
and to the provisions so modified or limited and signed by Pledgor and
Bank. The provisions of this Agreement shall not be modified or
limited by course of conduct or usage of trade.
F. PARTIAL INVALIDITY. The unenforceability or
invalidity of any provision of this Agreement shall not affect the
enforceability or validity of any other provision herein, and the
invalidity or unenforceability of any provision of any loan document
related to the Obligation to any person or circumstance shall not
affect the enforceability or validity of such provision as it may
apply to other persons or circumstances.
G. APPLICABLE LAW AND VENUE. This Agreement has been
delivered in the State of Texas and shall be construed in accordance
with the laws of that State. It is performable by Pledgor in the
county or city of Bank's address set out above and Pledgor expressly
waives any objection as to venue in any such location. Wherever
possible each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
PLEDGE AGREEMENT - Page 7
<PAGE> 8
H. Financing Statement. To the extent permitted by
applicable law, a carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral shall be
sufficient as a financing statement.
9. Arbitration. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS
OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT,
SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF
PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY
BRING AN ACION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF
THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND
THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS
CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A
WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF
BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF,
WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE
SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDEES BEFORE, DURING OR AFTER THE PENDENCY
OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT,
AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE
PLEDGE AGREEMENT - Page 8
<PAGE> 9
OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE
A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH
ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
C. CONTROLLING DOCUMENT. To the extent that this
Agreement conflicts with or is in any way incompatible with any other
Loan Document concerning the Obligation, the Loan Agreement shall
control over any other document, and if the Loan Agreement does not
address an issue, then each other Loan Document shall control to the
extent that it deals most specifically with an issue.
10. NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND ANY
OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized representatives as of the date first
above written.
BANK/SECURED PARTY: PLEDGOR(S)/DEBTOR(S):
NATIONSBANK OF TEXAS, N.A. STRATEGIC DATA SYSTEMS, INC.
By: /s/ JERRY COLWELL By: /s/ F. GEORGE DUNHAM, III
--------------------------- ----------------------------------
Jerry Colwell F. George Dunham, III, Chairman of
Vice President the Board
By: /s/ JOY J. KELLER
------------------------------
Joy J. Keller, Secretary
PLEDGE AGREEMENT - Page 9
<PAGE> 10
SCHEDULE I
TO
PLEDGE AGREEMENT
BETWEEN
NATIONSBANK OF TEXAS, N.A.
AND
STRATEGIC DATA SYSTEMS, INC.
100 shares of common stock in Applied Quoting Systems, Inc., a Wisconsin
corporation, as reflected by Stock Certificate No. 2.
SCHEDULE 1, Solo Page
<PAGE> 1
EXHIBIT 10.22
CONTINUING AND UNCONDITIONAL GUARANTY
March 12, 1997
<TABLE>
<S> <C>
=========================================================================================================
BANK: GUARANTOR:
NationsBank of Texas, N.A. Strategic Data Systems, Inc.
Fort Worth Banking Center 615 Pennsylvania Avenue
500 W. 7th Street Sheboygan, Sheboygan County, WI 53081
Fort Worth, Tarrant County, TX 76102-4700
=========================================================================================================
</TABLE>
"BORROWER": MiliRisk, Inc.
--------------------------------------------------------------------
(Borrower's Name)
1. GUARANTY. FOR VALUE RECEIVED, and to induce NationsBank of
Texas, N.A. (Attn: Jerry Colwell) ("Bank") to make loans or advances or to
extend credit or other financial accommodations or benefits, with or without
security, to or for the account of Borrower, the undersigned "Guarantor", if
more than one, then each of them jointly and severally, hereby irrevocably and
unconditionally guarantees to Bank the full and prompt payment when due,
whether by acceleration or otherwise, of any and all Liabilities (as
hereinafter defined) of Borrower to Bank. This Guaranty is continuing and
unlimited as to the amount, and is cumulative to and does not supersede any
other guaranties.
Guarantor further unconditionally guarantees the faithful, prompt and complete
compliance by Borrower with all Obligations (as hereinafter defined). The
undertakings of Guarantor hereunder are independent of the Liabilities and
Obligations of Borrower and a separate action or actions for payment, damages
or performance may be brought or prosecuted against Guarantor, whether or not
an action is brought against Borrower or to realize upon the security for the
Liabilities and/or Obligations, whether or not Borrower is joined in any such
action or actions, and whether or not notice is given or demand is made upon
Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and Guarantor
shall not be entitled to assert as a defense to the enforceability of the
Guaranty any defense of Borrower with respect to any Liabilities or
Obligations.
2. PARAGRAPH HEADINGS, GOVERNING LAW AND BINDING EFFECT.
Guarantor agrees that the Paragraph headings in this Guaranty are for
convenience only and that they will not limit any of the provisions of this
Guaranty. Guarantor further agrees that this Guaranty shall be deemed to have
been made in the State of Texas at Bank's address indicated at the beginning of
this Guaranty and shall be governed by, and construed in accordance with, the
laws of the State of Texas, and is performable in the City and County of Texas
at Bank's address indicated at the beginning of this Guaranty. In any
litigation in connection with or to enforce this Guaranty or any other Loan
Documents, Guarantor, and each of them, irrevocably consent to and confer
personal jurisdiction on the courts of the State of Texas or the United States
courts located within the State of Texas. Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available
UNLIMITED GUARANTY - Page 1
<PAGE> 2
by applicable law. This Guaranty is binding upon Guarantor, his, their or its
executors, administrators, successors or assigns, and shall inure to the
benefit of Bank, its successors, indorsees or assigns. Anyone executing this
Guaranty shall be bound by the terms hereof without regard to execution by
anyone else.
3. DEFINITIONS.
A. Terms defined in that certain Loan Agreement between
Borrower and Bank dated as of March 12, 1997 (such agreement, as
amended from time to time being the "Loan Agreement"), are used herein
as so defined unless otherwise defined herein.
B. "Liability" or "Liabilities" shall mean without
limitation, all liabilities, overdrafts, indebtedness, and obligations
of Borrower and/or Guarantor to Bank, whether direct or indirect,
absolute or contingent, joint or several, secured or unsecured, due or
not due, contractual or tortious, liquidated or unliquidated, arising
by operation of law or otherwise, now or hereafter existing, or held
or to be held by Bank for its own account or as agent for another or
others, arising pursuant to or in connection with the Loan Documents,
including but not limited to all extensions or renewals thereof, and
all sums payable under or by virtue thereof, including without
limitation, all amounts of principal and interest, all expenses
(including reasonable attorney's fees and cost of collection) incurred
in the collection thereof or the enforcement of rights thereunder
(including without limitation, any liability arising from failure to
comply with state or federal laws, rules and regulations concerning
the control of hazardous waste or substances at or with respect to any
real estate securing any loan guaranteed hereby), whether arising in
the ordinary course of business or otherwise. If Borrower is a
partnership, corporation or other entity the term "Liability" or
"Liabilities" as used herein shall include all Liabilities to Bank of
any successor entity or entities.
C. "Obligation" or "Obligations" shall mean all terms,
conditions, covenants, agreements and undertakings of Borrower and/or
Guarantor under all notes and other documents evidencing the
Liabilities, and under all deeds to secure debt, deeds of trust,
mortgages, security agreements and other agreements, documents and
instruments executed in connection with the Liabilities or related
thereto.
4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of
this Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against Borrower,
Guarantor or any other person, any applicable statute of limitations and any
other notice to any party liable on any Loan Document (including Guarantor).
Each Guarantor subordinates to the payment in full of the Liabilities and the
Obligations, any claim, right or remedy which such Guarantor may now have or
hereafter acquire against Borrower that arises hereunder and/or from the
performance by any other Guarantor hereunder including, without limitation, any
claim, remedy or right of subrogation, reimbursement, exoneration,
contribution, indemnification, or participation in any claim, right or remedy
of Bank against Borrower or against any security which Bank now has or
hereafter acquires, whether or not such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.
Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited
UNLIMITED GUARANTY - Page 2
<PAGE> 3
to the provisions of the Texas Civil Practice and Remedies Code Section 17.001,
Texas Rules of Civil Procedure Rule 31 and the Texas Business and Commerce Code
Chapter 34, as amended, or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as
required by law), without incurring responsibility to Guarantor, without
impairing, releasing or otherwise affecting the Obligations of Guarantor, in
whole or in part, and without the indorsement or execution by Guarantor of any
additional consent, waiver or guaranty: (a) change the manner, place or terms
of payment, or change or extend the time of or renew, or change any interest
rate or alter any Liability or Obligation or installment thereof, or any
security therefor; (b) loan additional monies or extend additional credit to
Borrower, with or without security, thereby creating new Liabilities or
Obligations the payment or performance of which shall be guaranteed hereunder,
and the Guaranty herein made shall apply to the Liabilities and Obligations as
so changed, extended, surrendered, realized upon or otherwise altered; (c)
sell, exchange, release, surrender, realize upon or otherwise deal with in any
manner and in any order any property at any time pledged or mortgaged to secure
the Liabilities or Obligations and any offset there against; (d) exercise or
refrain from exercising any rights against Borrower or others (including
Guarantor) or act or refrain from acting in any other manner; (e) settle or
compromise any Liability or Obligation or any security therefor and subordinate
the payment of all or any part thereof to the payment of any Liability or
Obligation of any other parties primarily or secondarily liable on any of the
Liabilities or Obligations; (f) release or compromise any Liability of
Guarantor hereunder or any Liability or Obligation of any other parties
primarily or secondarily liable on any of the Liabilities or Obligations; or
(g) apply any sums from any sources to any Liability without regard to any
Liabilities remaining unpaid.
5. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it
will not demand, take or receive from Borrower, by set-off or in any other
manner, payment of any debt, now and at any time or times hereafter owing by
Borrower to Guarantor unless and until all the Liabilities and Obligations
shall have been fully paid and performed, and any security interest, liens or
encumbrances which Guarantor now has and from time to time hereafter may have
upon any of the assets of Borrower shall be made subordinate, junior and
inferior and postponed in priority, operation and effect to any security
interest of Bank in such assets.
6. WAIVERS BY BANK. No delay on the part of Bank in exercising
any of its options, powers or rights, and no partial or single exercise
thereof, shall constitute a waiver thereof. No waiver of any of its rights
hereunder, and no modification or amendment of this Guaranty, shall be deemed
to be made by Bank unless the same shall be in writing, duly signed on behalf
of Bank; and each such waiver, if any, shall apply only with respect to the
specific instance involved, and shall in no way impair the rights of Bank or
the obligations of Guarantor to Bank in any other respect at any other time.
7. TERMINATION. This Guaranty shall be binding on each Guarantor
until written notice of revocation signed by such Guarantor or written notice
of the death of such Guarantor shall have been received by Bank,
notwithstanding change in name, location, composition or structure of, or the
dissolution, termination or increase, decrease or change in personnel, owners
or partners of Borrower, or any one or more of Guarantors. No notice of
revocation or termination hereof shall affect in any manner rights arising
under this Guaranty with respect to Liabilities or Obligations that shall have
been committed, created, contracted, assumed or incurred prior to receipt of
such written notice pursuant to any agreement entered into by Bank prior to
receipt of such notice. The sole effect of such notice of revocation or
termination hereof shall be to exclude from this Guaranty, Liabilities or
Obligations thereafter arising that are unconnected with Liabilities or
Obligations theretofore arising or transactions entered into theretofore.
UNLIMITED GUARANTY - Page 3
<PAGE> 4
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The
unenforceability or invalidity of any provision of this Guaranty shall not
affect the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of any Loan Document as it may
apply to any person or circumstance shall not affect the enforceability or
validity of such provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.
9. CHANGE OF STATUS. Guarantor will not become a party to a
merger or consolidation with any other company, except where Guarantor is the
surviving corporation or entity, and all covenants under this Guaranty are
assumed by the surviving entity. Further, Guarantor may not change its legal
structure, without the written consent of Bank and all covenants under this
Guaranty are assumed by the new or surviving entity. Guarantor further agrees
that this Guaranty shall be binding, legal and enforceable against Guarantor in
the event Borrower changes its name, status or type of entity.
10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish
to Bank any and all financial information and any other information regarding
Guarantor and/or collateral reasonably requested in writing by Bank within ten
(10) days of the date of the request. Guarantor has made an independent
investigation of the financial condition and affairs of Borrower prior to
entering into this Guaranty, and Guarantor will continue to make such
investigation; and in entering into this Guaranty Guarantor has not relied upon
any representation of Bank as to the financial condition, operation or
creditworthiness of Borrower. Guarantor further agrees that Bank shall have no
duty or responsibility now or hereafter to make any investigation or appraisal
of Borrower on behalf of Guarantor or to provide Guarantor with any credit or
other information which may come to its attention now or hereafter.
11. NOTICES. Notice shall be deemed reasonable if mailed postage
prepaid at least five (5) days before the related action to the address of
Guarantor or Bank, at their respective addresses indicated at the beginning of
this Guaranty, or to such other address as any party may designate by written
notice to the other party. Each notice, request and demand shall be deemed
given or made, if sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid, or if
sent by any other means, upon delivery.
12. GUARANTOR DUTIES. Guarantor shall upon notice or demand by
Bank following the occurrence of an Event of Default and while such Event of
Default is continuing, promptly and with due diligence pay all Liabilities and
perform and satisfy all Obligations for the benefit of Bank.
13. REMEDIES. Upon the failure of Guarantor to fulfill its duty to
pay all Liabilities and perform and satisfy all Obligations as required
hereunder following demand by Bank following the occurrence of an Event of
Default and while such Event of Default is continuing, Bank shall have all of
the remedies of a creditor and, to the extent applicable, of a secured party,
under all applicable law, and without limiting the generality of the foregoing,
Bank may, at its option and without notice or demand: (a) declare any Liability
due and payable at once; (b) take possession of any collateral pledged by
Borrower or Guarantor wherever located, and sell, resell, assign, transfer and
deliver all or any part of said collateral of Borrower or Guarantor
UNLIMITED GUARANTY - Page 4
<PAGE> 5
at any public or private sale or otherwise dispose of any or all of the
collateral in its then condition, for cash or on credit or for future delivery,
and in connection therewith Bank may impose reasonable conditions upon any such
sale, and Bank, unless prohibited by law the provisions of which cannot be
waived, may purchase all or any part of said collateral to be sold, free from
and discharged of all trusts, claims, rights or redemption and equities of
Borrower or Guarantor whatsoever; Guarantor acknowledges and agrees that the
sale of any collateral through any nationally recognized broker-dealer,
investment banker or any other method common in the securities industry shall
be deemed a commercially reasonable sale under the Uniform Commercial Code or
any other equivalent statute or federal law, and expressly waives notice
thereof except as provided herein; and (c) set-off against any or all
liabilities of Guarantor all money owed by Bank or any of its agents or
affiliates in any capacity to Guarantor whether or not due, and also set-off
against all other Liabilities of Guarantor to Bank all money owed by Bank in
any capacity to Guarantor, and if exercised by Bank, Bank shall be deemed to
have exercised such right of set-off and to have made a charge against any such
money immediately upon the occurrence of such default although made or entered
on the books subsequent thereto.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank. Bank is granted a
contractual right of set-off and will not be liable for dishonoring checks or
withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all
dividends and distributions now or hereafter in the possession or control of
Bank.
14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all
costs of collection and reasonable attorney's fees, including reasonable
attorney's fees in connection with any suit, mediation or arbitration
proceeding, out of court payment agreement, trial, appeal, bankruptcy
proceedings or otherwise, incurred or paid by Bank in enforcing the payment of
any Liability or defending this agreement.
15. PRESERVATION OF PROPERTY. In the absence of gross negligence
or willful misconduct, Bank shall not be bound to take any steps necessary to
preserve any rights in any property pledged as collateral to Bank to secure
Borrower and/or Guarantor's Liabilities and Obligations as against prior
parties who may be liable in connection therewith, and Borrower and Guarantor
hereby agree to take any such steps. Bank, nevertheless, at any time after an
Event of Default has occurred and is continuing, may (a) take any action it
deems appropriate for the care or preservation of such property or of any
rights of Borrower and/or Guarantor or Bank therein; (b) demand, sue for,
collect or receive any money or property at any time due, payable or receivable
on account of or in exchange for any property pledged as collateral, to Bank to
secure Borrower and/or Guarantor's Liabilities to Bank; (c) compromise and
settle with any person liable on such property; or (d) extend the time of
payment or otherwise change the terms of the Loan Documents as to any party
liable on the Loan Documents, all without notice to, without incurring
responsibility to, and without affecting any of the Obligations or Liabilities
of Guarantor.
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS
OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT,
SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
UNLIMITED GUARANTY - Page 5
<PAGE> 6
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE COUNTY OF ANY BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL
PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL
PROPERTY IS LOCATED AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WELL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS
CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A
WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF
BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF,
WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE
SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY
OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT,
AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR
THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE
RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO
SUCH REMEDIES.
17. CONTROLLING DOCUMENT. To the extent that this Continuing and
Unconditional Guaranty conflicts with or is in any way incompatible with any
other Loan Document concerning this Obligation, the Loan
UNLIMITED GUARANTY - Page 6
<PAGE> 7
Agreement shall control over any other Loan Document, and if the Loan Agreement
does not address an issue, then each other Loan Document shall control to the
extent that it deals most specifically with an issue.
18. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND
UNCONDITIONAL GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
19. LIMITATION ON LIABILITY. The liability of Guarantor with
respect to the Obligations shall not exceed the Maximum Amount (as defined
below) for Guarantor. "Maximum Amount" means the greater of (a) the amount of
the economic benefit received by Guarantor from the Obligations whether by loan
proceeds to purchase assets or perform contracts for Guarantor or by loan
proceeds being otherwise available to Guarantor through intercompany loans,
advances, capital contributions or otherwise, or (b) the highest of (i) 95% of
the Adjusted Net Worth (as defined below) of Guarantor as of the date hereof,
(ii) 95% of the Adjusted Net Worth of Guarantor as of the date of the
commencement of a case under Title 11 of the United States Bankruptcy Code
involving Borrower or Guarantor, or (iii) 95% of the Adjusted Net Worth of
Guarantor as of the date enforcement hereunder is sought; provided however,
notwithstanding anything herein to the contrary, the Maximum Amount for
Guarantor shall be limited to the Maximum Amount of liability of Guarantor that
can be incurred without rendering this Guaranty voidable under applicable law
relating to fraudulent conveyances or fraudulent transfers. "Adjusted Net
Worth" means the following, all determined in accordance with applicable
federal and state laws governing determinations of the insolvency of debtors
generally: (x) the aggregate fair salable value of the assets of Guarantor,
minus (y) the amount of all liabilities of Guarantor (including contingent
liabilities, but excluding liabilities of Guarantor under this Guaranty, and
any other Loan Documents executed by Guarantor for the benefit of Lender).
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be
executed on this 12th day of March, 1997.
NationsBank of Texas, N.A. GUARANTOR:
STRATEGIC DATA SYSTEMS, INC.
a Wisconsin Corporation
By /s/JERRY COLWELL By /s/ F. GEORGE DUNHAM, III
-------------------------------- -----------------------------------
Jerry Colwell F. George Dunham, III,
Vice President Chairman of the Board
By /s/ JOY J. KELLER
-----------------------------------
Joy J. Keller, Secretary
UNLIMITED GUARANTY - Page 7
<PAGE> 8
CORPORATE ACKNOWLEDGMENT
State of Texas )
)
County of Tarrant )
This instrument was acknowledged before me on March 12, 1997, by
_______________, F. George Dunham, III, Chairman of the Board and Joy J.
Keller, Secretary of Strategic Data Systems, Inc., a Wisconsin corporation, on
behalf of said corporation.
[SEAL]
/s/ BRENDA NOEL
----------------------------------------
Notary Public, State of Texas
-----------------
My Commission expires: Printed Name of Notary
-----------------
- -----------------------
[NOTARY STAMP - BRENDA NOEL
MY COMMISSION EXPIRES
FEBRUARY 8, 2000]
UNLIMITED GUARANTY - Page 8
<PAGE> 1
EXHIBIT 10.23
CONTINUING AND UNCONDITIONAL GUARANTY
March 12, 1997
<TABLE>
===============================================================================================
<S> <C>
BANK: GUARANTOR:
NationsBank of Texas, N.A. Applied Quoting Systems, Inc.
Fort Worth Banking Center 625 Walnut Ridge Drive
500 W. 7th Street Hartland, Waukesha County, WI 53029
Fort Worth, Tarrant County, TX 76102-4700
===============================================================================================
</TABLE>
"BORROWER": MiliRisk, Inc.
---------------------------------------------------------------------
(Borrower's Name)
1. GUARANTY. FOR VALUE RECEIVED, and to induce NationsBank of
Texas, N.A. (Attn: Jerry Colwell) ("Bank") to make loans or advances or to
extend credit or other financial accommodations or benefits, with or without
security, to or for the account of Borrower, the undersigned "Guarantor", if
more than one, then each of them jointly and severally, hereby irrevocably and
unconditionally guarantees to Bank the full and prompt payment when due,
whether by acceleration or otherwise, of any and all Liabilities (as
hereinafter defined) of Borrower to Bank. This Guaranty is continuing and
unlimited as to the amount, and is cumulative to and does not supersede any
other guaranties.
Guarantor further unconditionally guarantees the faithful, prompt and complete
compliance by Borrower with all Obligations (as hereinafter defined). The
undertakings of Guarantor hereunder are independent of the Liabilities and
Obligations of Borrower and a separate action or actions for payment, damages
or performance may be brought or prosecuted against Guarantor, whether or not
an action is brought against Borrower or to realize upon the security for the
Liabilities and/or Obligations, whether or not Borrower is joined in any such
action or actions, and whether or not notice is given or demand is made upon
Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and Guarantor
shall not be entitled to assert as a defense to the enforceability of the
Guaranty any defense of Borrower with respect to any Liabilities or
Obligations.
2. PARAGRAPH HEADINGS, GOVERNING LAW AND BINDING EFFECT. Guarantor
agrees that the paragraph headings in this Guaranty are for convenience only
and that they will not limit any of the provisions of this Guaranty. Guarantor
further agrees that this Guaranty shall be deemed to have been made in the
State of Texas at Bank's address indicated at the beginning of this Guaranty
and shall be governed by, and construed in accordance with, the laws of the
State of Texas, and is performable in the City and County of Texas at Bank's
address indicated at the beginning of this Guaranty. In any litigation in
connection with or to enforce this Guaranty or any other Loan Documents,
Guarantor, and each of them, irrevocably consent to and confer personal
jurisdiction on the courts of the State of Texas or the United States courts
located within the State of
UNLIMITED GUARANTY - Page 1
<PAGE> 2
Texas. Nothing contained herein shall, however, prevent Bank from bringing any
action or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available by applicable law.
This Guaranty is binding upon Guarantor, his, their or its executors,
administrators, successors or assigns, and shall inure to the benefit of Bank,
its successors, indorsees or assigns. Anyone executing this Guaranty shall be
bound by the terms hereof without regard to execution by anyone else.
3. DEFINITIONS.
A. Terms defined in that certain Loan Agreement between
Borrower and Bank dated as of March 12, 1997 (such agreement, as
amended from time to time, being the "Loan Agreement"), as used herein
as so defined unless otherwise defined herein.
B. "Liability" or "Liabilities" shall mean without
limitation, all liabilities, overdrafts, indebtedness, and obligations
of Borrower and/or Guarantor to Bank, whether direct or indirect,
absolute or contingent, joint or several, secured or unsecured, due or
not due, contractual or tortious, liquidated or unliquidated, arising
by operation of law or otherwise, now or hereafter existing, or held
or to be held by Bank for its own account or as agent for another or
others, arising pursuant to or in connection with the Loan Documents,
including but not limited to all extensions or renewals thereof, and
all sums payable under or by virtue thereof, including without
limitation, all amounts of principal and interest, all expenses
(including reasonable attorney's fees and cost of collection) incurred
in the collection thereof or the enforcement of rights thereunder
(including without limitation, any liability arising from failure to
comply with state or federal laws, rules and regulations concerning
the control of hazardous waste or substances at or with respect to any
real estate securing any loan guaranteed hereby), whether arising in
the ordinary course of business or otherwise. If Borrower is a
partnership, corporation or other entity the term "Liability" or
"Liabilities" as used herein shall include all Liabilities to Bank of
any successor entity or entities.
C. "Obligation" or "Obligations" shall mean all terms,
conditions, covenants, agreements and undertakings of Borrower and/or
Guarantor under all notes and other documents evidencing the
Liabilities, and under all deeds to secure debt, deeds of trust,
mortgages, security agreements and other agreements, documents and
instruments executed in connection with the Liabilities or related
thereto.
4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of
this Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against Borrower,
Guarantor or any other person, any applicable statute of limitations and any
other notice to any party liable on any Loan Document (including Guarantor).
Each Guarantor subordinates to the payment in full of the Liabilities and the
Obligations, any claim, right or remedy which such Guarantor may now have or
hereafter acquire against Borrower that arises hereunder and/or from the
performance by any other Guarantor hereunder including, without limitation, any
claim, remedy or right of subrogation, reimbursement, exoneration,
contribution, indemnification, or participation in any claim, right or remedy
of Bank against Borrower or against any security which Bank now has or
hereafter acquires, whether or not such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.
UNLIMITED GUARANTY - Page 2
<PAGE> 3
Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited to the
provisions of the Texas Civil Practice and Remedies Code Section 17.001, Texas
Rules of Civil Procedure Rule 31 and the Texas Business and Commerce Code
Chapter 34, as amended, or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as
required by law), without incurring responsibility to Guarantor, without
impairing, releasing or otherwise affecting the Obligations of Guarantor, in
whole or in part, and without the indorsement or execution by Guarantor of any
additional consent, waiver or guaranty: (a) change the manner, place or terms
of payment, or change or extend the time of or renew, or change any interest
rate or alter any Liability or Obligation or installment thereof, or any
security therefor; (b) loan additional monies or extend additional credit to
Borrower, with or without security, thereby creating new Liabilities or
Obligations the payment or performance of which shall be guaranteed hereunder,
and the Guaranty herein made shall apply to the Liabilities and Obligations as
so changed, extended, surrendered, realized upon or otherwise altered; (c)
sell, exchange, release, surrender, realize upon or otherwise deal with in any
manner and in any order any property at any time pledged or mortgaged to secure
the Liabilities or Obligations and any offset there against; (d) exercise or
refrain from exercising any rights against Borrower or others (including
Guarantor) or act or refrain from acting in any other manner; (e) settle or
compromise any Liability or Obligation or any security therefor and subordinate
the payment of all or any part thereof to the payment of any Liability or
Obligation of any other parties primarily or secondarily liable on any of the
Liabilities or Obligations; (f) release or compromise any Liability of
Guarantor hereunder or any Liability or Obligation of any other parties
primarily or secondarily liable on any of the Liabilities or Obligations; or
(g) apply any sums from any sources to any Liability without regard to any
Liabilities remaining unpaid.
5. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it
will not demand, take or receive from Borrower, by set-off or in any other
manner, payment of any debt, now and at any time or times hereafter owing by
Borrower to Guarantor unless and until all the Liabilities and Obligations
shall have been fully paid and performed, and any security interest, liens or
encumbrances which Guarantor now has and from time to time hereafter may have
upon any of the assets of Borrower shall be made subordinate, junior and
inferior and postponed in priority, operation and effect to any security
interest of Bank in such assets.
6. WAIVERS BY BANK. No delay on the part of Bank in exercising
any of its options, powers or rights, and no partial or single exercise
thereof, shall constitute a waiver thereof. No waiver of any of its rights
hereunder, and no modification or amendment of this Guaranty, shall be deemed
to be made by Bank unless the same shall be in writing, duly signed on behalf
of Bank; and each such waiver, if any, shall apply only with respect to the
specific instance involved, and shall in no way impair the rights of Bank or
the obligations of Guarantor to Bank in any other respect at any other time.
7. TERMINATION. This Guaranty shall be binding on each Guarantor
until written notice of revocation signed by such Guarantor or written notice
of the death of such Guarantor shall have been received by Bank,
notwithstanding change in name, location, composition or structure of, or the
dissolution, termination or increase, decrease or change in personnel, owners
or partners of Borrower, or any one or more of Guarantors. No notice of
revocation or termination hereof shall affect in any manner rights arising
under this Guaranty with respect to Liabilities or Obligations that shall have
been committed, created, contracted, assumed or incurred prior to receipt of
such written notice pursuant to any agreement entered into by Bank prior to
receipt of such notice. The sole effect of such notice of revocation or
termination hereof shall be to exclude
UNLIMITED GUARANTY - Page 3
<PAGE> 4
from this Guaranty, Liabilities or Obligations thereafter arising that are
unconnected with Liabilities or Obligations theretofore arising or transactions
entered into theretofore.
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The
unenforceability or invalidity of any provision of this Guaranty shall not
affect the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of any Loan Document as it may
apply to any person or circumstance shall not affect the enforceability or
validity of such provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.
9. CHANGE OF STATUS. Guarantor will not become a party to a
merger or consolidation with any other company, except where Guarantor is the
surviving corporation or entity, and all covenants under this Guaranty are
assumed by the surviving entity. Further, Guarantor may not change its legal
structure, without the written consent of Bank and all covenants under this
Guaranty are assumed by the new or surviving entity. Guarantor further agrees
that this Guaranty shall be binding, legal and enforceable against Guarantor in
the event Borrower changes its name, status or type of entity.
10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish
to Bank any and all financial information and any other information regarding
Guarantor and/or collateral reasonably requested in writing by Bank within ten
(10) days of the date of the request. Guarantor has made an independent
investigation of the financial condition and affairs of Borrower prior to
entering into this Guaranty, and Guarantor will continue to make such
investigation; and in entering into this Guaranty Guarantor has not relied upon
any representation of Bank as to the financial condition, operation or
creditworthiness of Borrower. Guarantor further agrees that Bank shall have no
duty or responsibility now or hereafter to make any investigation or appraisal
of Borrower on behalf of Guarantor or to provide Guarantor with any credit or
other information which may come to its attention now or hereafter.
11. NOTICES. Notice shall be deemed reasonable if mailed postage
prepaid at least five (5) days before the related action to the address of
Guarantor or Bank, at their respective addresses indicated at the beginning of
this Guaranty, or to such other address as any party may designate by written
notice to the other party. Each notice, request and demand shall be deemed
given or made, if sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid, or if
sent by any other means, upon delivery.
12. GUARANTOR DUTIES. Guarantor shall upon notice or demand by
Bank following the occurrence of an Event of Default and while such Event of
Default is continuing, promptly and with due diligence pay all Liabilities and
perform and satisfy all Obligations for the benefit of Bank.
13. REMEDIES. Upon the failure of Guarantor to fulfill its duty to
pay all Liabilities and perform and satisfy all Obligations as required
hereunder following demand by Bank following the occurrence of an Event of
Default and while such Event of Default is continuing, Bank shall have all of
the remedies of a creditor and, to the extent applicable, of a secured party,
under all applicable law, and without limiting the
UNLIMITED GUARANTY - Page 4
<PAGE> 5
generality of the foregoing, Bank may, at its option and without notice or
demand: (a) declare any Liability due and payable at once; (b) take possession
of any collateral pledged by Borrower or Guarantor wherever located, and sell,
resell, assign, transfer and deliver all or any part of said collateral of
Borrower or Guarantor at any public or private sale or otherwise dispose of any
or all of the collateral in its then condition, for cash or on credit or for
future delivery, and in connection therewith Bank may impose reasonable
conditions upon any such sale, and Bank, unless prohibited by law the
provisions of which cannot be waived, may purchase all or any part of said
collateral to be sold, free from and discharged of all trusts, claims, rights
or redemption and equities of Borrower or Guarantor whatsoever; Guarantor
acknowledges and agrees that the sale of any collateral through any nationally
recognized broker-dealer, investment banker or any other method common in the
securities industry shall be deemed a commercially reasonable sale under the
Uniform Commercial Code or any other equivalent statute or federal law, and
expressly waives notice thereof except as provided herein; and (c) set-off
against any or all liabilities of Guarantor all money owed by Bank or any of
its agents or affiliates in any capacity to Guarantor whether or not due, and
also set-off against all other Liabilities of Guarantor to Bank all money owed
by Bank in any capacity to Guarantor, and if exercised by Bank, Bank shall be
deemed to have exercised such right of set-off and to have made a charge
against any such money immediately upon the occurrence of such default although
made or entered on the books subsequent thereto.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank. Bank is granted a
contractual right of set-off and will not be liable for dishonoring checks or
withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all
dividends and distributions now or hereafter in the possession or control of
Bank.
14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all
costs of collection and reasonable attorney's fees, including reasonable
attorney's fees in connection with any suit, mediation or arbitration
proceeding, out of court payment agreement, trial, appeal, bankruptcy
proceedings or otherwise, incurred or paid by Bank in enforcing the payment of
any Liability or defending this agreement.
15. PRESERVATION OF PROPERTY. In the absence of gross negligence
or willful misconduct, Bank shall not be bound to take any steps necessary to
preserve any rights in any property pledged as collateral to Bank to secure
Borrower and/or Guarantor's Liabilities and Obligations as against prior
parties who may be liable in connection therewith, and Borrower and Guarantor
hereby agree to take any such steps. Bank, nevertheless, at any time after an
Event of Default has occurred and is continuing, may (a) take any action it
deems appropriate for the care or preservation of such property or of any
rights of Borrower and/or Guarantor or Bank therein; (b) demand, sue for,
collect or receive any money or property at any time due, payable or receivable
on account of or in exchange for any property pledged as collateral, to Bank to
secure Borrower and/or Guarantor's Liabilities to Bank; (c) compromise and
settle with any person liable on such property; or (d) extend the time of
payment or otherwise change the terms of the Loan Documents as to any party
liable on the Loan Documents, all without notice to, without incurring
responsibility to, and without affecting any of the Obligations or Liabilities
of Guarantor.
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS
UNLIMITED GUARANTY - Page 5
<PAGE> 6
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE COUNTY OF ANY BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL
PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL
PROPERTY IS LOCATED AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WELL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS
CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A
WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF
BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF,
WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE
SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY
OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT,
AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR
THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE
RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO
SUCH REMEDIES.
UNLIMITED GUARANTY - Page 6
<PAGE> 7
17. CONTROLLING DOCUMENT. To the extent that this Continuing and
Unconditional Guaranty conflicts with or is in any way incompatible with any
other Loan Document concerning this Obligation, the Loan Agreement shall
control over any Loan Document, and if the Loan Agreement does not address an
issue, then each Loan Document shall control to the extent that it deals most
specifically with an issue.
18. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND
UNCONDITIONAL GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
19. LIMITATION ON LIABILITY. The liability of Guarantor with
respect to the Obligations shall not exceed the Maximum Amount (as defined
below) for Guarantor. "Maximum Amount" means the greater of (a) the amount of
the economic benefit received by Guarantor from the Obligations whether by loan
proceeds to purchase assets or perform contracts for Guarantor or by loan
proceeds being otherwise available to Guarantor through intercompany loans,
advances, capital contributions or otherwise, or (b) the highest of (i) 95% of
the Adjusted Net Worth (as defined below) of Guarantor as of the date hereof,
(ii) 95% of the Adjusted Net Worth of Guarantor as of the date of the
commencement of a case under Title 11 of the United States Bankruptcy Code
involving Borrower or Guarantor, or (iii) 95% of the Adjusted Net Worth of
Guarantor as of the date enforcement hereunder is sought; provided however,
notwithstanding anything herein to the contrary, the Maximum Amount for
Guarantor shall be limited to the Maximum Amount of liability of Guarantor that
can be incurred without rendering this Guaranty voidable under applicable law
relating to fraudulent conveyances or fraudulent transfers. "Adjusted Net
Worth" means the following, all determined in accordance with applicable
federal and state laws governing determinations of the insolvency of debtors
generally: (x) the aggregate fair salable value of the assets of Guarantor,
minus (y) the amount of all liabilities of Guarantor (including contingent
liabilities, but excluding liabilities of Guarantor under this Guaranty, and
any other Loan Documents executed by Guarantor for the benefit of Lender).
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be
executed on this 12th day of March, 1997.
NationsBank of Texas, N.A. GUARANTOR:
APPLIED QUOTING SYSTEMS, INC.,
a Wisconsin Corporation
By /s/ JERRY COLWELL By /s/ F. GEORGE DUNHAM, III
-------------------------------- -----------------------------------
Jerry Colwell F. George Dunham, III
Vice President Chairman of the Board
By /s/ JOY J. KELLER
-----------------------------------
Joy J. Keller
Secretary
UNLIMITED GUARANTY - Page 7
<PAGE> 8
CORPORATE ACKNOWLEDGMENT
State of Texas )
)
County of Tarrant )
This instrument was acknowledged before me on March 12, 1997, by F. George
Dunham, III, Chairman of the Board and Joy J. Keller, Secretary of Applied
Quoting Systems, Inc., a Wisconsin corporation, on behalf of said corporation.
[SEAL] /s/ BRENDA NOEL
----------------------------------------
Notary Public, State of Texas
-----------------
Printed Name of Notary
-----------------
My commission expires:
- -----------------------
[NOTARY STAMP - BRENDA NOEL
MY COMMISSION EXPIRES
FEBRUARY 8, 2000]
UNLIMITED GUARANTY - Page 8
<PAGE> 1
EXHIBIT 10.24
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License Agreement
CONTENTS:
Legal Agreement
Schedule 1, Hardware
Schedule 2, Payment Terms
Schedule 3, Training/installation/Documentation
Schedule 4, Systems Specifications
Schedule 5, Systems Acceptance
Schedule 6, License Costs
Appendices
*(XXX BASE FUNCTIONALITY DOCUMENT)
NOTE: ITEMS IN BOLD AND/OR DENOTED WITH AN ASTERISK ARE VARIABLE BY CLIENT.
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<PAGE> 2
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Strategic Data Systems, Inc.
License Agreement
STRATEGIC DATA SYSTEMS, INC., a Wisconsin corporation having its
principal place of business located at 615 Pennsylvania Avenue,
Sheboygan, Wisconsin, 53081, ("SDS"), and *(NAME) of *(ADDRESS),
("Client"), in consideration of the mutual promises herein contained,
agree as follows:
1. SDS grants to Client, and Client accepts, subject to all the terms
and conditions of this Agreement, a non-exclusive, non-transferable,
perpetual License to use a property and casualty information processing
system, ("System"). The System consists of certain computer software as
described in Schedule 6 of this Agreement, documentation, and
associated information.
2. Attached hereto as Schedules 1 through 6 and Appendices are System
specifications and requirements, payment terms, and other agreements
between the parties. Such schedules are incorporated herein by
reference as if set forth in full, and both parties expressly agree to
be bound by them.
3. The License granted hereunder is limited to use of the System by
the Client, for processing its data and files at any one location and
on any one NETWORK/COMPUTER. Client agrees that it will use no network
program to produce additional copies of the System to circumvent the
requirements of this paragraph. The rights, benefits, duties, and
obligations granted to Client hereunder are personal to Client, and the
Agreement may not be sold, transferred or assigned to any third party
without the express written consent of SDS. Any attempted sale,
transfer, or assignment without such consent shall be null, void, and
of no effect.
4. SDS warrants that for a period of one (1 ) year after the date of
Base System Acceptance the System will conform to the specifications as
defined herein, unless the failure to conform is caused by
Client-created error. SDS ADDITIONALLY REPRESENTS THAT THE COMMERCIAL
PROCESSING SOFTWARE (AQS) WILL CONFORM TO ISO RATING SPECIFICATIONS FOR
ONE YEAR FROM THE DATE OF EXECUTION OF THIS AGREEMENT, FOR THE RISK
CLASSIFICATIONS AND TYPE OF BUSINESS THAT THIS SOFTWARE RATES. Should
the System fail to perform within specifications during the warranty
period, SDS will respond promptly and shall not substantially interrupt
its response until the problem is corrected. If the failure to conform
to specifications is due to Client-created error, Client agrees to pay
for the services rendered in analyzing and correcting the failure.
5. Client acknowledges that the System is a confidential and
commercially valuable proprietary product of SDS, and agrees to keep
the System confidential and not to disclose it, in full or in part, to
any third party without the express written consent of
2
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<PAGE> 3
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Strategic Data Systems, Inc.
License Agreement (continued)
SDS. Client agrees, in furtherance of this provision, to exercise at
least the same degree of care with respect to the System as it
exercises with respect to its own data, records, information, materials
and processes which it deems to be confidential and proprietary in
nature.
SDS acknowledges that Client will disclose to it, during the course of
this Agreement, certain confidential and proprietary information of the
Client, and agrees not to use or disclose such information without
Client's prior written consent.
Upon termination of this Agreement, Client shall return to SDS any and
all copies of the System, or any portion thereof, whether said copies
were created by SDS or by Client.
It is expressly agreed by the parties that the termination of this
Agreement will not terminate their obligations under this paragraph.
6. APART FROM THE WARRANTIES EXPRESSLY MADE IN THIS AGREEMENT, SDS
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE
CAPABILITIES, PERFORMANCE, SPECIFICATIONS, OR CHARACTERISTICS
OF THE SYSTEM.
SDS will not be responsible for any incidental
or consequential damages, including but not limited to loss of
business or business profits, regardless of whether said
damages were foreseeable. In no event shall SDS' liability to
Client for any loss, damage or injury, regardless of the
nature of such loss, exceed the amount of payment made by
Client for the System.
7. SDS warrants that it is the owner of the System and has the right
to license it to Client. SDS further warrants that, to the
best of its knowledge, the System does not infringe upon the
proprietary interest of any third party. Client agrees to
promptly inform SDS in writing should it become aware of any
claim for such infringement, and SDS agrees to defend any such
action at its own expense, and to pay all costs and damages
finally awarded against Client or paid by Client in settlement
of such action. As a condition precedent to such payment,
Client agrees to cooperate with said defense by complying with
SDS' reasonable instructions and requests to Client in
connection with said defense.
8. Upon delivery of the System to Client, the risk of loss, damage or
destruction shall be borne by Client In the event of such
loss, damage or destruction, SDS agrees to furnish replacement
materials at its reasonable costs, but in no event be liable
for the loss or replacement of Client's data used with the
System.
9. Subject to the limitations on assignment contained in Paragraph 3,
above, this Agreement shall be binding upon the parties
hereto, their legal representatives, successors, subsidiaries
and assigns.
3
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<PAGE> 4
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Strategic Data Systems, Inc.
License Agreement (continued)
10. In addition to the payment specified in this Agreement, Client
shall pay any present or future sales, excise, use,
value-added or other similar taxes or duties levied or based
on payments made pursuant to this Agreement or on the System
in regard to its use by Client or on the Agreement.
11. Client acknowledges that SDS makes a substantial investment in the
training and development of its employees with whom Client may
come in contact during the course of this Agreement. Client
agrees to neither directly nor indirectly induce or attempt to
induce any employee of SDS to terminate his or her employment
with SDS during the term of this Agreement, without the prior
express written consent of SDS.
12. This Agreement may be terminated by SDS for nonpayment of any
monies due hereunder after thirty (30) days written notice
from SDS, or if Client fails to comply with the
confidentiality provisions contained herein. Such termination
shall not effect any other remedy for said breach to which SDS
may be entitled. This Agreement may be terminated at any time
by Client provided that Client (1 ) return all System
materials to SDS, (2) pay to SDS the balance of any unpaid
license fees, (3) pay to SDS any service fees for work
performed under this or any associated Agreement. Upon
termination, SDS shall not be responsible for the refund of
any monies paid hereunder.
13. This Agreement shall be governed by any applicable provisions of
the Uniform Commercial Code, unless the provisions of this
Agreement are inconsistent therewith. To the extent that this
Agreement entails delivery of performance of services, such
services shall be deemed "goods" within the meaning of the
Uniform Commercial Code, except when to do so would create an
inequity. For the purposes of the Uniform Commercial Code, the
License granted hereunder shall be deemed a sale of goods,
unless to do so would create an inequity.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of Wisconsin.
15. This Agreement supersedes all prior communications and agreements
between the parties relating to the subject matter of this
Agreement and constitutes the full understanding between the
parties with respect thereto. No waiver of any provision of
this Agreement or of any breach and no modification or
supplement hereto shall be binding, unless in writing and
signed by an officer of SDS and Client, and no waiver shall
apply to any subsequent breach of the same or similar
provision.
16. The effective date of this Agreement shall be the date on which it
is executed by an authorized officer of SDS. IN WITNESS
HEREOF the parties have caused the signatures of their duly
authorized officers to be hereunto affixed.
4
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<PAGE> 5
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Strategic Data Systems, Inc.
License Agreement (continued)
Strategic Data Systems, Inc.
License Agreement
Accepted By:
STRATEGIC DATA SYSTEMS, INC. *(NAME)
By: By:
---------------------------------------- ----------------------
(Authorized Officer) (Authorized Officer)
Name: Name:
-------------------------------------- --------------------
Title: Title:
------------------------------------- -------------------
Address: 615 Pennsylvania Avenue Address: *(ADDRESS)
Sheboygan, WI 53081 *(ADDRESS)
Date: Date:
-------------------------------------- --------------------
5
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<PAGE> 6
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Supplemental Conditions
Schedule 1 - Hardware
HARDWARE REQUIREMENTS
A. The System requires the use of a LOCAL AREA NETWORK
(LAN) AND/OR IBM AS/400 AND/OR IBM RS/6000 system
with sufficient main storage, features, and
peripheral devices to support the operation of the
system as modified.
B. All costs are predicated on Client purchasing all
hardware required to run the SDS applications through
SDS. Adjustments to pricing will be made should
Client choose to purchase hardware through a party
other than SDS. The costs quoted represent a bundled
(hardware/software) price.
C. Hardware and system software pricing is based on
prices available as of *(DATE)
D. Any license or runtime fees for any third party
software shown in the following configuration is the
responsibility of Client.
E. Hardware payment terms are as follows: (PCA ONLY)
50% upon placement of the hardware order
50% upon receipt of the hardware
F. The recommended configuration is as follows:
Quantity Description List Price Monthly Maintenance
* * * *
*(CONFIGURATION FOR ALL COMPONENTS HERE)
6
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<PAGE> 7
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Supplemental Conditions
Schedule 2 - Payment Terms
PAYMENT TERMS
A. License Agreement
1. 50% of license fee upon execution of License
Agreement.
2. 50% of license fee upon Base Systems Acceptance, as
defined in Schedule 5 of this Agreement.
B. As defined in the separate Implementation Support
Agreement (ISA), any work performed by SDS will be
billed on an hourly basis each month, as performed.
C. Other Expenses
In addition to the payments provided for above,
Client will pay SDS for the following miscellaneous
personnel expenses:
1. Mileage at the IRS published rate in force on the
date incurred.
2. All other reasonable travel and lodging expense
incurred by SDS personnel pursuant to this agreement.
3. Out-of-pocket expenses for meals or other
expenses not specified elsewhere in this
schedule.
7
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<PAGE> 8
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System Specifications
Schedule 3 - Training/Installation/Documentation
TRAINING
A. Initial base system acceptance training (both user
and operational) is included in the license fee.
Training courses are conducted by SDS personnel at
the Client site in a classroom setting equipped with
workstations, overhead projectors, a visual display
unit, a flip chart, and/or a dry erase board whenever
possible. Course books are provided for up to ten
students in each class. Workshops or exercises are
included in the class in order to provide the
participants with practical hands-on use of the
system. Additional or customized training requested
by the Client is available on a time and materials
basis.
B. The following is a list of Base System classes (one
session each) included in the license fee for Client:
COURSE TITLES AND NOS. VARY BY PLATFORM - INCLUDE
APPROPRIATE TITLES AND NOS.
# COMMERCIAL PROCESSING SYSTEM (AQS 101)
# UNDERWRITER EXPERT SYSTEM PROCESSING (UES 101)
# UNDERWRITER EXPERT SYSTEM USER MAINTENANCE (UES 102)
C. Training is limited to a reasonable number of people
per class. Additional materials for more than ten people will
be provided on a time and materials basis.
D. THIS PAYMENT OF LICENSE FEE GUARANTEES TO CLIENT THE
SOURCE CODE OF ALL COMPONENTS OF THE DESCRIBED SYSTEM
EXCEPT "WORKFLOW MANAGER", "SERVICE MANAGER", AND
"VISUAL RATER". (EMPOWER AND WPC - FOR VR - ONLY)
CLIENT WILL PAY A MONTHLY USAGE FEE IN THE AMOUNT OF
$*(USE FEE) FOR CONTINUED AVAILABILITY OF THESE THREE
PROPRIETARY COMPONENTS. (EP ONLY)
8
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<PAGE> 9
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System Specifications
Schedule 3 - Training/Installation/Documentation
INSTALLATION
A. Installation of the Base System is included in the
license fee.
B. Any hours requested of SDS will be performed on a
time and materials basis, as per the separate Implementation
Support Agreement (ISA).
DOCUMENTATION
A. The Client is provided with one printed set of user
documentation reflecting the Base System.
B. DOCUMENTATION IS ALSO AVAILABLE ON-LINE USING
MICROSOFT WORD AND DOC-TO-HELP. (WPC OR EMPOWER ONLY)
9
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<PAGE> 10
System Specifications
Schedule 4
The *(LIST BASE FUNCTIONALITY DOCUMENTS) Base Functionality
Document(S), as (IT)(THEY) exist(S) on the date of execution
of this Agreement, IS/ARE hereby incorporated by reference as
the System Specifications.
Only the sections of this document pertaining to components
licensed by Client apply. Refer to Schedule 6 for a listing
of licensed components for Client.
10
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<PAGE> 11
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System Acceptance Test
Schedule 5
1. Upon delivery of the Base System, Client, in
conjunction with SDS, shall test the functional capabilities of the
Base System according to the USER ACCEPTANCE TRANSPORTABILITY
TEST MATRIX.
IF COMMERCIAL PROCESSING SYSTEM (AQS), REPLACE ABOVE WITH THE FOLLOWING:
Upon delivery of the Base System defined
in Schedule 6, exclusive of the Commercial Processing
System (AQS) component, Client, in conjunction with
SDS, shall test the functional capabilities of the
Base System according to the USER ACCEPTANCE
TRANSPORTABILITY TEST MATRIX. THE COMMERCIAL
PROCESSING SYSTEM COMPONENT SHALL BE TESTED ACCORDING
TO A TEST MATRIX TO BE DEFINED BY SDS AND CLIENT.
Client, in conjunction with SDS shall document any
problems identified during such testing that pertain
to the functional capabilities of the Base System.
SDS shall correct any reported problems and Client,
in conjunction with SDS, shall then agree to the
portion(s) of the USER ACCEPTANCE TRANSPORTABILITY
TEST MATRIX to be repeated.
If any problems are then identified that pertain to the functional
capabilities of the Base System, then SDS will make additional
corrections, and the above process will be repeated.
FOR WPC OR EMPOWER: THE ACCEPTANCE TEST WILL BE PERFORMED ON A NET
WORK OF THE FOLLOWING CONFIGURATION:
NETWORK OPERATING SYSTEM - NOVELL NETWARE 3.12
TOPOLOGY - ETHERNET
1 WORKSTATION WITH WINDOWS NT (2 IF UES ALSO)
3 WORKSTATIONS WITH WINDOWS FOR WORKGROUPS OR HIGHER
1 WORKSTATION WITH DOS
1 WORKSTATION CAPABLE OF RUNNING AN ORACLE DATABASE
THIS CONFIGURATION WILL USE A PC AS A HOST SYSTEM. THIS WILL NOT
DUPLICATE PROCESSING AGAINST YOUR HOST SYSTEM. (FOR EP ONLY)
11
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<PAGE> 12
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License Costs
Schedule 6
LICENSE FEE SCHEDULE
The Base System includes the following:
BASE WINDOWS INTO PROPERTY 8 CASUALTY (WPC) SYSTEM AS PER THE WPC
BASE FUNCTIONALITY DOCUMENT FOR THE FOLLOWING LINES OF BUSINESS:
(*LOB'S)
BASE POLICY AND CLAIMS ADMINISTRATION (PCA) SYSTEM AS PER THE PCA
BASE FUNCTIONALITY DOCUMENT FOR THE FOLLOWING LINES
OF BUSINESS: *(LOB'S)
BASE COMMERCIAL PROCESSING SYSTEM (AQS) AS PER THE AQS BASE
FUNCTIONALITY DOCUMENT. THIS SYSTEM WILL INCLUDE AUTOMATED
ISO/NCCI RATING, # DECLARATIONS, # SCHEDULES, AND # AUTOMATED
BUREAU FORMS FOR THE FOLLOWING LINES OF BUSINESS:
(*LOB'S)
BASE UNDERWRITER EXPERT SYSTEM (UES) AS PER THE UES BASE
FUNCTIONALITY DOCUMENT FOR THE FOLLOWING LINES OF BUSINESS:
*(LOB'S) (NOTE: INCLUDE THE BASE RULESET FOR LICENSED LOB'S, IN
THE BASE SYSTEM SPECS APPENDIX)
BASE EMPOWER SYSTEM AS PER THE EMPOWER BASE FUNCTIONALITY DOCUMENT
FOR THE FOLLOWING LINES OF BUSINESS: (*LOB'S)
TOTAL LICENSE FEE$*(LICENSE FEE)
OPTIONAL SOFTWARE (MAY BE ADDED AT ANY TIME)
(OPTIONAL SOFTWARE PRODUCTS)$*(OPTIONAL FEE)
12
================================================================================
<PAGE> 1
EXHIBIT 10.25
Strategic Data Systems, Inc.
System Support Agreement (SSA)
Strategic Data Systems, Inc. (SDS) desires to provide Company, ("Client") and
Client desires to select from SDS certain services to support the SDS PRODUCT/S
used by Client and agree to the following:
CLIENT REQUESTED SERVICES
SDS shall provide data processing support services related to *(PRODUCT/S).
These services encompass areas such as:
-- Problem resolution
-- System enhancement
-- System planning
-- System changes
SDS INITIATED SERVICES
SDS shall make system changes such as:
-- Bureau statistical changes
-- Certain system software updates
-- System problem corrections
Hardware vendor's costs for system software updates shall be at Client expense.
ENHANCEMENTS/NEW COMPONENTS
SDS shall make available all enhancements and new components for a fee.
Enhancements are modifications to existing system components. New components
are additional system capabilities for which SDS may charge a license fee.
EQUIPMENT SOFTWARE
Client is required to have sufficient hardware and associated software to
provide telecommunications capabilities with SDS.
TERM
This Agreement shall take effect on 01/01/ and shall be terminated on 12/31/.
<PAGE> 2
Strategic Data Systems, Inc.
System Support Agreement (SSA)(continued)
RENEWAL
This agreement shall be renewed for a period of three calendar years unless 60
days prior to the beginning of the renewal period, Client notifies SDS of
Client's intent not to renew.
RENEWAL CHANGES
SDS reserves the right to change, for a renewal term, the rates, terms and
conditions in this Agreement by notifying Client 60 days prior to the beginning
of the renewal period. SDS also reserves the right to change Schedule A of this
Agreement annually, by notifying Client 60 days prior to the end of the
calendar year.
TRAVEL
A maximum of two hours per working day for travel time incurred by SDS in
providing services under this Agreement shall be charged against the contract
service hours.
EXPENSES
Client shall pay SDS for all reasonable out-of-pocket expenses such as travel,
lodging and telecommunications, incurred by SDS in providing services under
this Agreement.
TAXES
Client shall pay any excise, sales, use, privilege or other similar taxes
levied or based on payments made pursuant to this Agreement.
INVOICES
SDS shall invoice Client monthly for expenses and service hours, where
appropriate. Each invoice shall be payable by Client to SDS within thirty (30)
days of invoice date. Client shall pay SDS a late charge penalty of 1.5% per
month (18% A.P.R.) on amounts not paid within 30 days of billing.
LIMITATION OF LIABILITY
For purposes of this Agreement, SDS will not be responsible for any incidental
or consequential damages, including but not limited to loss of business or
business profits, regardless of whether said damages were foreseeable. In no
event shall SDS' liability to Client for any loss, damage or injury, regardless
of the nature of such loss exceed the total amount received by SDS under this
Agreement for the year in which the damage or injury occurred.
SDS shall not be liable for any fines assessed by a bureau for submitting
faulty data.
2
<PAGE> 3
Strategic Data Systems, Inc.
System Support Agreement (SSA)(continued)
NONHIRE PROVISION
Client acknowledges that SDS makes a substantial investment in the training and
development of its employees with whom Client may come in contact during the
course of this agreement, and Client agrees, during the term of this agreement
and for a period of 12 months thereafter, not to hire, whether through
solicitation by Client or otherwise, any employee of SDS without the prior
express written consent of SDS.
MISCELLANEOUS
This agreement supersedes any prior System Support Agreements between SDS and
Client.
3
<PAGE> 4
Strategic Data Systems, Inc.
System Support Agreement (SSA)
Accepted By:
STRATEGIC DATA SYSTEMS, INC. ((Company))
By: By:
------------------------ ---------------------------
Name: Name:
---------------------- -------------------------
Title: Title:
--------------------- ------------------------
Date: Date:
---------------------- -------------------------
Address: 615 Pennsylvania Avenue Address:((Address))((Address2))
Sheboygan, WI 53081 ((City)), ((State)) ((PostalCode))
<PAGE> 5
SCHEDULE A
PAYMENT OPTIONS
FOR THE TERM JANUARY 1 - DECEMBER 31,
I. ANNUAL SERVICE HOURS _______
(Minimum number of hours is )
II. PAYMENT OPTIONS
_______ MONTHLY PAYMENT OPTION
SDS shall invoice the customer on a monthly
basis for the actual hours used or the
minimum, whichever is greater.
_______ INSTALLMENT PAYMENT OPTION
SDS shall invoice the customer at 50% of
the annual cost on January 1, 1996; 25% of
annual cost on April 1, 1996 (or upon usage
of 50% of the Annual Service Hours as
identified above); 25% of the annual cost
on June 1, 1996 (or upon usage of 75% of
the Annual Service Hours as identified
above).
ACCEPTED BY:
STRATEGIC DATA SYSTEMS, INC. ((Company))
By: By:
------------------------ ---------------------------
Name: Name:
---------------------- -------------------------
Title: Title:
--------------------- ------------------------
Date: Date:
---------------------- -------------------------
Address: 615 Pennsylvania Avenue Address:((Address1))
Sheboygan, WI 53081 ((Address2))
((City)), ((State)) ((PostalCode))
<PAGE> 1
EXHIBIT 10.26
Strategic Data Systems, Inc.
Implementation Support Agreement (ISA)
Strategic Data Systems, Inc. (SDS) desires to provide *(NAME), ("Client") and
Client desires to select from SDS certain services to support the *(SOLUTIONS)
used by Client and agree to the following:
CLIENT REQUESTED SERVICES
SDS shall provide data processing support services related to *(SOLUTIONS).
These services encompass areas such as:
# Installation assistance
# Problem resolution
# System enhancement
# System planning
# System changes
EQUIPMENT/SOFTWARE
Client is required to have sufficient hardware and associated software to
provide telecommunications capabilities with SDS.
Hardware vendor's costs for system software updates shall be at Client expense.
TERM
This Agreement shall take effect on *(DATE) and shall be terminated upon
depletion of the hours identified in Schedule A of this Agreement or
December 31, XXXX*(YR), whichever is first.
TRAVEL
A maximum of two hours per working day for travel time incurred by SDS in
providing services under this Agreement shall be charged against the contract
service hours.
EXPENSES
Client shall pay SDS for all reasonable out-of-pocket expenses such as travel,
lodging and telecommunications, incurred by SDS in providing services under
this Agreement.
1
<PAGE> 2
Strategic Data Systems, Inc.
Implementation Support Agreement (ISA) (continued)
TAXES
Client shall pay any excise, sales, use, privilege or other similar taxes
levied or based on payments made pursuant to this Agreement.
INVOICES
SDS shall invoice Client monthly for expenses and service hours, where
appropriate. Each invoice shall be payable by Client to SDS within thirty (30)
days of invoice date. Client shall pay SDS a late charge penalty of 1.5% per
month (18% A.P.R.) on amounts not paid within 30 days of billing.
LIMITATION OF LIABILITY
For purposes of this Agreement, SDS will not be responsible for any incidental
or consequential damages, including but not limited to loss of business or
business profits, regardless of whether said damages were foreseeable. In no
event shall SDS' liability to Client for any loss, damage or injury, regardless
of the nature of such loss exceed the total amount received by SDS under this
Agreement for the year in which the damage or injury occurred.
NONHIRE PROVISION
Client acknowledges that SDS makes a substantial investment in the training and
development of its employees with whom Client may come in contact during the
course of this agreement, and Client agrees, during the term of this agreement
and for a period of 12 months thereafter, not to hire, whether through
solicitation by Client or otherwise, any employee of SDS without the prior
express written consent of SDS.
MISCELLANEOUS
This agreement supersedes any prior Implementation Support Agreements between
SDS and Client.
Strategic Data Systems, Inc.
Implementation Support Agreement (ISA)
2
<PAGE> 3
Strategic Data Systems, Inc.
Implementation Support Agreement (ISA) (continued)
Accepted By:
STRATEGIC DATA SYSTEMS, INC. *(NAME)
BY: BY:
---------------------------------------- -----------------------
(Authorized Officer) (Authorized Officer)
Name: Name:
-------------------------------------- ---------------------
Title: Title:
------------------------------------- --------------------
Date: Date:
-------------------------------------- ---------------------
Address: 615 Pennsylvania Avenue Address: *(ADDRESS)
Sheboygan, WI 53081 *(ADDRESS)
3
<PAGE> 4
Schedule A
Payment Terms
ISA SERVICE:
SDS shall assist Client in the implementation of the *(LOB) line of
business for the state of *(STATE/S).
Estimated Service Hours/Cost *(HRS) hours @ $*(RATE)/ hour = $*(TOTAL)
BILLING:
SDS shall bill Client on a monthly basis for the actual hours used
Accepted By:
STRATEGIC DATA SYSTEMS, INC. * (NAME)
By: By:
---------------------------------------- -----------------------
(Authorized Officer) (Authorized Officer)
Date: Date:
-------------------------------------- ---------------------
4
<PAGE> 1
EXHIBIT 10.27
Strategic Data Systems, Inc.
Accelerated Enhancement Plan Agreement (AEP)
Strategic Data Systems, Inc., (SDS), desires to provide *(NAME),
("Client"), and Client desires to select from SDS enhancements to the
SDS System(s) used by Client and agree to the following:
Enhancements
SDS shall make available all enhancements. Enhancements are
modifications to existing licensed system components. Client shall not
be charged a license fee for any enhancements developed during the
term of this Agreement.
TERM
This Agreement shall take effect on *(DATE), and shall terminate on
*(DATE).
RENEWAL
This Agreement shall be renewed for additional periods of three (3)
calendar years unless 60 days prior to the beginning of the renewal
period, Client notifies SDS of Client's intent not to renew.
RENEWAL CHANGES
SDS reserves the right to change, for a renewal term, the rates, terms
and conditions in this Agreement by notifying Client 60 days prior to
the beginning of the renewal period.
TRAVEL
A maximum of two hours per working day for travel time incurred by SDS
in providing services under this Agreement shall be charged.
EXPENSES
Client shall pay SDS for all reasonable out-of-pocket expenses such as
travel, lodging and telecommunications, incurred by SDS in providing
services under this Agreement.
TAXES
Client shall pav any excise, sales, use, privilege or other similar
taxes levied or based on payments made pursuant to this Agreement.
1
<PAGE> 2
Strategic Data Systems, Inc.
Accelerated Enhancement Plan Agreement (AEP) (continued)
INVOICES
SDS shall invoice Client monthly for expenses, where appropriate.
Client shall pay the amount of $*(AEP FEE) upon execution of this
Agreement and upon each subsequent annual anniversary, for the term of
this Agreement. Each invoice shall be payable by Client to SDS within
thirty (30) days of invoice date. Client shall pay SDS a late charge
penalty of 1.5% per month (18% A.P.R.) on amounts not paid within 30
days of billing.
LIMITATION OF LIABILITY
For purposes of this Agreement, SDS will not be responsible for any
incidental or consequential damages, including but not limited to loss
of business or business profits, regardless of whether said damages
were foreseeable. In no event shall SDS' liability to Client for any
loss, damage or injury, regardless of the nature of such loss exceed
the total amount received by SDS under this Agreement for the year in
which the damage or injury occurred.
NONHIRE PROVISION
Client acknowledges that SDS makes a substantial investment in the
training and development of its employees with whom Client may come in
contact during the course of this agreement, and Client agrees, during
the term of this agreement and for a period of 12 months thereafter,
not to hire, whether through solicitation by Client or otherwise, any
employee of SDS without the prior express written consent of SDS.
MISCELLANEOUS
This Agreement supersedes all prior communications and agreements
between the parties relating to the subject matter of this Agreement
and constitutes the full understanding between the parties with
respect thereto.
Strategic Data Systems, Inc.
Accelerated Enhancement Plan Agreement (AEP)
Accepted By:
STRATEGIC DATA SYSTEMS, INC. *(NAME)
BY: BY:
---------------------------------------- -----------------------
(Authorized Officer) (Authorized Officer)
2
<PAGE> 3
Strategic Data Systems, Inc.
Accelerated Enhancement Plan Agreement (AEP) (continued)
Name: Name:
-------------------------------------- ---------------------
Title: Title:
------------------------------------- --------------------
Address: 615 Pennsylvania Avenue Address: *(ADDRESS)
Sheboygan, WI 53081 *(ADDRESS)
Date: Date:
-------------------------------------- ---------------------
3
<PAGE> 1
EXHIBIT 10.28
MILIRISK, INC.
1997 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. PURPOSES . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Purpose of Plan . . . . . . . . . . . . . . . . . . 1
ARTICLE II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1
2.1. Definitions . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III. SHAREHOLDER APPROVAL; RESERVATION OF SHARES . . . . 3
3.1. Shareholder Approval . . . . . . . . . . . . . . . . 3
3.2. Shares Reserved Under Plan . . . . . . . . . . . . . 3
ARTICLE IV. PARTICIPATION IN PLAN . . . . . . . . . . . . . . . 4
4.1. Eligibility . . . . . . . . . . . . . . . . . . . . 4
4.2. Participation Not Guarantee of Employment or
Retention . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V. GRANT AND EXERCISE OF OPTIONS . . . . . . . . . . . 4
5.1. Grant of Options . . . . . . . . . . . . . . . . . . 4
5.2. Option Agreements . . . . . . . . . . . . . . . . . 5
5.3. Option Terms . . . . . . . . . . . . . . . . . . . . 5
5.4. Payment of Exercise Price and Delivery of Shares . . 6
5.5. Merger or Reorganization of the Company . . . . . . 7
5.6. Dissolution or Liquidation of the Company . . . . . 8
ARTICLE VI. TERMINATION OF EMPLOYMENT OR DIRECTORSHIP . . . . . 8
6.1. Termination of Employment for Cause . . . . . . . . 8
6.2. Termination of Directorship . . . . . . . . . . . . 9
6.3. Death or Disability . . . . . . . . . . . . . . . . 9
6.4. Right to Exercise . . . . . . . . . . . . . . . . . 10
6.5. Subject to Repurchase . . . . . . . . . . . . . . . 10
6.6. Alternative Provisions . . . . . . . . . . . . . . . 11
ARTICLE VII. ADMINISTRATION OF PLAN . . . . . . . . . . . . . . . 11
7.1. Administration . . . . . . . . . . . . . . . . . . . 11
7.2. Liability . . . . . . . . . . . . . . . . . . . . . 11
7.3. Determinations . . . . . . . . . . . . . . . . . . . 12
ARTICLE VIII. AMENDMENT AND TERMINATION OF PLAN . . . . . . . . . 12
8.1. Amendment of Plan . . . . . . . . . . . . . . . . . 12
8.2. Termination . . . . . . . . . . . . . . . . . . . . 13
8.3. Tax Status of Options . . . . . . . . . . . . . . . 13
ARTICLE IX. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . 14
9.1. Restrictions Upon Grant of Options . . . . . . . . . 14
9.2. Restrictions Upon Resale of Unregistered Stock . . . 14
9.3. Repurchase by the Company . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
9.4. Adjustments . . . . . . . . . . . . . . . . . . . . 17
9.5. Use of Proceeds . . . . . . . . . . . . . . . . . . 17
9.6. Substitution of Options . . . . . . . . . . . . . . 17
9.7. Restrictive Legends . . . . . . . . . . . . . . . . 18
9.8. Notices . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
ii
<PAGE> 4
MILIRISK, INC.
1997 STOCK OPTION PLAN
ARTICLE I.
PURPOSES
1.1. Purpose of Plan. The purposes of the MiliRisk, Inc. 1997
Stock Option Plan (the "Plan") are to advance the interests of MiliRisk, Inc.
(the "Company") and its shareholders by providing significant incentives to
selected officers, directors and employees of the Company and its Subsidiaries
(as defined herein) and to enhance the interest of such officers, directors and
employees in the Company's success and progress by providing them with an
opportunity to become shareholders of the Company. Further, the Plan is
designed to enhance the Company's ability to attract and retain qualified
management and other personnel necessary for the success and progress of the
Company.
ARTICLE II.
DEFINITIONS
2.1. Definitions. Certain terms used herein shall have the meaning
below stated, subject to the provisions of Section 8.1 hereof.
(a) "Board" or "Board of Directors" means the Board of
Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Committee" means the committee of directors
appointed by the Board to administer the Plan pursuant to Article VII
hereof.
(d) "Common Stock" means the authorized common stock of
the Company, par value $.01 per share, as constituted on the date the
Plan becomes effective.
1
<PAGE> 5
(e) "Company" means MiliRisk, Inc., a Texas corporation.
(f) "Director" means a member of the Board of Directors
of the Company or a Subsidiary who is not an Employee.
(g) "Employee" means an officer or other employee of the
Company or a Subsidiary, including a member of the Board who is also
an employee.
(h) "Fair Market Value" means the fair market value of a
share of Common Stock determined in good faith by the Committee.
(i) "Incentive Option" means an option intended to
qualify as an incentive option under Section 422 of the Code.
(j) "Nonqualified Option" means an option that does not
qualify as an Incentive Option.
(k) "Option" means an option to purchase Common Stock
granted by the Company to an Employee or a Director pursuant to
Section 5.1 hereof.
(l) "Option Agreement" means an agreement between the
Company and an Optionee evidencing the terms of an Option granted
under the Plan.
(m) "Optionee" means an Employee or a Director to whom an
Option has been granted under the Plan.
(n) "Plan" means the MiliRisk, Inc. 1997 Stock Option
Plan, as set forth herein and as from time to time amended.
(o) "Subsidiary" means a subsidiary of the Company within
the meaning of Section 424(f) of the Code.
2
<PAGE> 6
ARTICLE III.
SHAREHOLDER APPROVAL; RESERVATION OF SHARES
3.1. Shareholder Approval. The Plan shall become effective only
if, within 12 months from the date the Plan is adopted by the Board, the Plan
is approved by the affirmative vote of the holders of a majority of the shares
of Common Stock of the Company, or by the unanimous written consent of such
holders, in accordance with the applicable provisions of the Articles of
Incorporation and Bylaws of the Company and applicable state law.
3.2. Shares Reserved Under Plan. The aggregate number of shares of
Common Stock which may be issued upon the exercise of Options granted under the
Plan shall not exceed 9,800 shares, all or any part of which may be issued
pursuant to Options; provided, however, that the maximum number of shares of
Common Stock which may be issued to an Optionee under the Plan shall not exceed
5,000 (as may be adjusted pursuant to Section 9.4 of the Plan). Shares of
Common Stock issued upon the exercise of Options granted under the Plan may
consist of either authorized but unissued shares or shares which have been
issued and which shall have been heretofore or shall be hereafter reacquired by
the Company. The total number of shares authorized under the Plan shall be
subject to increase or decrease in order to give effect to the provisions of
Section 9.4 hereof and to give effect to any amendment adopted pursuant to
Article VIII. If any Option granted under the Plan shall expire, terminate or
be cancelled for any reason without having been exercised in full, the number
of shares as to which such Option was not exercised shall again be available
for purposes of the Plan. The Company shall at all times while the Plan is in
effect reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan.
3
<PAGE> 7
ARTICLE IV.
PARTICIPATION IN PLAN
4.1. Eligibility. Options under the Plan may be granted to any
Director or Employee of the Company or a Subsidiary. The Committee shall
determine those Directors or Employees to whom Options shall be granted, and,
subject to Section 3.2 hereof, the number of shares of Common Stock subject to
each such Option. Incentive Options or Nonqualified Options may be granted to
an Employee. Only Nonqualified Options may be granted to a Director.
4.2. Participation Not Guarantee of Employment or Retention.
Nothing in this Plan or in any Option Agreement shall in any manner be
construed (i) to limit in any way the right of the Company or any Subsidiary to
terminate an Employee's employment at any time, without regard to the effect of
such termination on any rights such Employee would otherwise have under this
Plan, or give any right to an Employee to remain employed or retained by the
Company or a Subsidiary thereof in any particular position or at any particular
rate of compensation or (ii) limit in any way the right of the shareholders of
the Company or a Subsidiary or the Board to remove any Director or fail to
nominate any Director for re-election without regard to the effect of such
removal of non-election of a Director on any rights such Director would have
under this Plan, or give any right to a Director to continue to serve as a
Director of the Company or a Subsidiary.
ARTICLE V.
GRANT AND EXERCISE OF OPTIONS
5.1. Grant of Options. The Committee may from time to time in its
discretion grant Options to Employees or Directors. All Options under the Plan
shall be granted within ten years from the date the Plan is adopted by the
Board or the date the Plan is approved by holders of the Common Stock of the
Company, whichever is earlier.
4
<PAGE> 8
5.2. Option Agreements. Each Option granted under the Plan shall
be evidenced by an Option Agreement between the Company and the Optionee in
such form as the Committee shall approve and containing such provisions and
conditions not inconsistent with the provisions of the Plan, including the term
during which the Option may be exercised and whether in installments or
otherwise, as the Committee shall determine. Each Option Agreement issued
under the Plan shall contain an agreement of the Optionee with respect to
nondisclosure of information, noncompete provisions and nonsolicitation of
customers and employees as shall be required by the Board from each Optionee as
additional consideration for the issuance of Options under the Plan.
5.3. Option Terms. Options granted under the Plan shall be subject
to the following requirements:
(a) Option Price. The exercise price of each Incentive
Option granted under the Plan shall not be less than the higher of the
par value or 100% of the Fair Market Value of the shares of Common
Stock subject to the Option on the date the Option is granted. The
exercise price of any Nonqualified Options granted under the Plan
shall be determined by the Committee. The exercise price of an Option
may be subject to adjustment pursuant to Section 9.4 hereof.
(b) Term of Option. The term during which an Option is
exercisable shall be that period determined by the Committee as set
forth in the applicable Option Agreement, provided that no Option
shall have a term that exceeds a period of ten years from the date of
its grant.
(c) Nontransferability of Option. No Option granted
under the Plan shall be transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and each such Option
shall be exercisable during the Optionee's lifetime
5
<PAGE> 9
only by him or her. No transfer of an Option by an Optionee by will
or by the laws of descent and distribution shall be effective to bind
the Company unless the Company shall have been furnished with written
notice thereof and a copy of the will and/or such other evidence as
the Committee may determine necessary to establish the validity of the
transfer.
(d) Time and Amount Exercisable. Each Option shall be
exercisable in accordance with the provisions of the Option Agreement
pursuant to which it is granted in whole, or from time to time in
part, subject to any limitations with respect to the number of shares
for which the Option may be exercised at a particular time and to such
other conditions as the Committee in its discretion may specify in the
Option Agreement. Any portion of an Option which has become
exercisable shall remain exercisable until it is exercised in full or
it terminates or expires pursuant to the terms of the Plan or the
applicable Option Agreement.
(e) Options Granted to Ten Percent Stockholders. No
Incentive Option shall be granted to any Employee who owns, directly
or indirectly within the meaning of Section 424(d) of the Code, stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary, unless at the time
the Option is granted, the exercise price of the Option is at least
110% of the Fair Market Value of the Common Stock subject to such
Option and such Option, by its terms, is not exercisable after the
expiration of five years from the date such Option is granted. The
provisions of this Section 5.3(e) shall not apply to the grant of
Nonqualified Options.
5.4. Payment of Exercise Price and Delivery of Shares.
(a) Notice and Payment for Shares. Each Option shall be
exercised by delivery of a written notice to the Company in such form
as the Committee shall approve
6
<PAGE> 10
stating the number of shares of Common Stock as to which the Option is
being exercised and accompanied by payment therefor. No Option shall
be deemed exercised in the event that payment therefor is not
received, and shares of Common Stock shall not be issued upon the
exercise of an Option unless the exercise price is paid in full at the
time of exercise. Payment for shares of Common Stock purchased upon
the exercise of an Option shall be made in cash or by certified check.
Subject to the terms of this Plan, the Company shall issue, or cause
its transfer agent to issue, a stock certificate evidencing the number
of shares of Common Stock for an Option that has been properly
exercised within 10 business days after receipt of payment for the
shares issuable upon exercise of the Option.
(b) Rights of Optionee in Stock. Neither any Optionee
nor the legal representatives, heirs, legatees or distributees of any
Optionee shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock
issuable upon exercise of an Option granted hereunder unless and until
such shares are issued to him or her or them and such person or
persons have received a certificate or certificates therefor. Upon
the issuance and receipt of such certificate or certificates, such
Optionee or the legal representatives, heirs, legatees or distributees
of such Optionee shall have absolute ownership of the shares of Common
Stock evidenced thereby, including the right to vote such shares, to
the same extent as any other owner of shares of Common Stock, and to
receive dividends thereon, subject, however, to the terms, conditions
and restrictions of the Plan.
5.5. Merger or Reorganization of the Company. If the Company shall
at any time participate in a reorganization to which 424(a) of the Code applies
and (A) the Company is not the surviving entity, or (B) the Company is the
surviving entity and the holders of Common
7
<PAGE> 11
Stock are required to exchange their shares for property and/or securities, the
Company shall give each Optionee written notice of such fact on or before 15
days before such merger or consolidation, and each vested Option shall be
exercisable in full after receipt of such notice and prior to such merger or
consolidation. Options not exercised prior to such merger or consolidation
shall expire on the occurrence of such merger or consolidation. A sale of all
or substantially all the assets of the Company for a consideration (apart from
the assumption of obligations) consisting primarily of securities shall be
deemed a merger or consolidation for the foregoing purposes.
5.6. Dissolution or Liquidation of the Company. In the event of
the proposed dissolution or liquidation of the Company, the Options granted
hereunder shall terminate as of a date to be fixed by the Committee, provided
that not less than 15 days' prior written notice of the date so fixed shall be
given to the Optionee, and the Optionee shall have the right, during the 15-day
period preceding such termination, to exercise his or her Option.
ARTICLE VI.
TERMINATION OF EMPLOYMENT OR DIRECTORSHIP
6.1. Termination of Employment for Cause. In the event that an
Optionee is an Employee and such Optionee's employment by the Company or a
Subsidiary shall terminate for Cause (as hereinafter defined), the Options
granted to the Optionee pursuant to this Plan shall terminate immediately upon
termination of employment. For the purposes of this Plan, the term "Cause"
shall mean "Cause" as defined in any written employment agreement in effect
between the applicable Optionee and the Company or a Subsidiary, or if such
Optionee is not a party to a written employment agreement in which Cause is
defined, then Cause shall mean (i) the failure by such Optionee to
substantially perform his or her duties with the Company or a Subsidiary in a
manner deemed satisfactory by the Board of Directors, (ii) the abuse of illegal
drugs or
8
<PAGE> 12
other controlled substances or the intoxication of Optionee during working
hours, (iii) the arrest for, or conviction of, a felony, (iv) the unexcused
absence by such Optionee from Optionee's regular job location for more than
five consecutive days or for more than the aggregate number of days permitted
to Optionee under Company vacation and sick leave policies applicable to
Optionee or (v) any conduct or activity of such Optionee deemed injurious to
the Company in the discretion of the Board of Directors.
6.2. Termination of Directorship. In the event that an Optionee is
a Director and such Optionee fails to be reelected as a Director, resigns as a
Director or is removed as a Director (other than due to Optionee's disability
as defined in Section 6.3 hereof), the Options granted to such Optionee
pursuant to this Plan shall terminate on the date such Optionee ceases to be a
Director.
6.3. Death or Disability. (a) In the event that an Optionee shall
die while employed by, or serving as a Director of, the Company or a Subsidiary
or if Optionee's employment by or service as a Director of, the Company or a
Subsidiary is terminated because Optionee has become disabled, Optionee, his or
her estate, or beneficiary shall have the right to exercise his or her Option
at any time within 60 days from the date of death of Optionee or termination of
Optionee's employment by, or service as a Director of, the Company or a
Subsidiary due to disability, as the case may be, only to the extent the
Optionee was entitled to exercise his or her Option immediately prior to such
occurrence. To the extent that the Option is not so exercised, it shall expire
at the end of such 60 day period. For purposes of this Plan, disability shall
be as defined in any written employment agreement in effect between the
applicable Optionee and the Company or a Subsidiary, or if such Optionee is not
a party to a written employment agreement in which disability is defined, an
Optionee shall be considered disabled if he or she is unable to engage in any
substantial gainful activity by reason of any medically determinable
9
<PAGE> 13
physical or mental impairment that can be expected to result in death or that
has lasted or can be expected to last for a continuous period of not less than
6 months.
(b) If an Optionee dies during the 60-day period after
the termination of his or her position as an Employee or Director of
the Company or a Subsidiary and at the time of his or her death the
Optionee was entitled to exercise an Option theretofore granted to him
or her, the Option shall, unless the applicable Option Agreement
provides otherwise, expire 60 days after the date on which his or her
position as an Employee or Director of the Company or a Subsidiary
terminated, but in no event, later than the date on which the Option
would have expired if the Optionee had lived. Until the expiration of
such 60-day period, the Option may be exercised by the Optionee's
executor or administrator or by any person or persons who shall have
acquired the Option directly from the Optionee by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of his or her death and, to the extent
the Option is not so exercised, it shall expire at the end of such 60-
day period.
6.4. Right to Exercise. In the event that termination of
employment with the Company occurs other than for Cause or for death or
disability pursuant to Sections 6.1 or 6.3 above, or in the event that the
directorship of an Optionee who is a Director is terminated for reasons other
than the removal, resignation, death or disability of such Director, the
applicable Optionee shall have the right to exercise his or her Option at any
time within 60 days after such termination to the extent he or she was entitled
to exercise the same immediately prior to such termination. To the extent that
the Option is not so exercised, it shall expire at the end of such 60 day
period.
6.5. Subject to Repurchase. All shares of Common Stock purchased
by an Optionee or his or her estate or beneficiary shall be subject to
repurchase by the Company pursuant to Section 9.3 of this Plan.
10
<PAGE> 14
6.6. Alternative Provisions. The provisions of this Article VI
shall apply to all Options granted under the Plan except to the extent
expressly provided otherwise in any Option Agreement.
ARTICLE VII.
ADMINISTRATION OF PLAN
7.1. Administration. The Plan shall be administered by the Board
of Directors or a Compensation Committee of the Board or such other committee
as may be appointed by the Board of the Company (the "Committee"), all of whom
are members of the Board. A majority of the Board or the Committee shall
constitute a quorum thereof and the actions of a majority of the Board or the
Committee at a meeting at which a quorum is present, or actions unanimously
approved in writing by all members of the Committee, shall be the actions of
the Board or the Committee. Vacancies occurring on the Committee shall be
filled by the Board. The Board and any Committee shall have full and final
authority (i) to interpret the Plan and each of the Option Agreements, (ii) to
prescribe, amend and rescind rules and regulations, if any, relating to the
Plan, (iii) to make all determinations necessary or advisable for the
administration of the Plan and (iv) to correct any defect, supply any omission
and reconcile any inconsistency in the Plan and any Option Agreement. The
determination by the Board or the Committee in all matters referred to herein
shall be conclusive and binding for all purposes and upon all persons,
including, without limitation, the Company, the shareholders of the Company,
the Committee, and each of the members thereof and the Optionees and their
respective successors in interest.
7.2. Liability. No member of the Board or any Committee shall be
liable for anything done or omitted to be done by him or her or by any other
member of the Board or any Committee in connection with the Plan, except for
his or her own willful misconduct or gross
11
<PAGE> 15
negligence (unless the Company's Articles of Incorporation or Bylaws, or any
indemnification agreement between the Company and such person, in each case in
accordance with applicable law, provides otherwise). The Board and any
Committee shall have power to engage outside consultants, auditors or other
professional help to assist in the fulfillment of the duties or the Board or
any Committee under the Plan at the Company's expense.
7.3. Determinations. In making its determinations concerning the
Optionees who shall receive Options as well as the number of shares to be
covered thereby and the time or times at which they shall be granted, the Board
or any Committee shall take into account the nature of the services rendered by
the respective Optionees, their past, present and potential contribution to the
Company's success and such other factors as the Board or any Committee may deem
relevant. The Board or any Committee shall determine the form of Option
Agreements under the Plan and the terms and conditions to be included therein,
provided such terms and conditions are not inconsistent with the terms of the
Plan, the Company's Articles of Incorporation or Bylaws. The Board or any
Committee may waive any provisions of any Option Agreement, provided such
waiver is not inconsistent with the terms of the Plan, the Company's Articles
of Incorporation or Bylaws. The determinations of the Board or any Committee
under the Plan need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, Options under the Plan,
whether or not such persons are similarly situated.
ARTICLE VIII.
AMENDMENT AND TERMINATION OF PLAN
8.1. Amendment of Plan. The Plan may be amended at any time and
from time to time by the Board, but no amendment which (i) increases the
aggregate number of shares of Common Stock which may be issued pursuant to
Options granted under the Plan, (ii) decreases the minimum Option exercise
price provided in the Plan, (iii) extends the period during which
12
<PAGE> 16
Options may be granted pursuant to the Plan, (iv) changes the class of
individuals eligible to be granted Options, or (v) has the effect of any of the
above shall be effective unless and until the same is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company, or the unanimous written consent of such holders, in accordance
with the applicable provisions of the Articles of Incorporation and Bylaws of
the Company and applicable state law. No amendment to the Plan shall, without
the consent of an Optionee, affect such Optionee's rights under an Option
previously granted.
8.2. Termination. The Board may, at any time, terminate the Plan
as of any date specified in a resolution adopted by the Board. If not earlier
terminated, the Plan shall terminate on February 28, 2007. No Options may be
granted after the Plan has terminated but the Committee shall continue to
supervise the administration of Options previously granted.
8.3. Tax Status of Options. To the extent applicable, the Plan is
intended to permit the issuance of Options to Employees in accordance with the
provisions of Section 422 of the Code. Subject to the provision of Section 8.1
of the Plan, the Plan and Option Agreements may be modified or amended at any
time, both prospectively and retroactively, and in a manner that may affect
Options previously granted, if such amendment or modification is necessary for
the Plan and Options granted hereunder to qualify under said provision of the
Code. All Options granted under the Plan to Employees shall be intended to
qualify as qualified Incentive Options under Section 422 of the Code to the
extent that any portion of the Options granted meet the requirements of Section
422 of the Code. To the extent that any portion of the Options granted under
the Plan do not meet the requirements of Section 422 of the Code, such Options
shall be deemed to be Nonqualified Options. Nothing in the Plan shall be
deemed to prohibit the issuance of Nonqualified Options to Employees under the
Plan. Any Options issued to Directors shall be Nonqualified Options.
13
<PAGE> 17
ARTICLE IX.
MISCELLANEOUS PROVISIONS
9.1. Restrictions Upon Grant of Options. If the listing upon any
stock exchange or the registration or qualification under any federal or state
law of any shares of Common Stock to be issued on the exercise of Options
granted under the Plan (whether to permit the grant of Options or the resale or
other disposition of any such shares of Common Stock by or on behalf of the
Optionees receiving such shares) should be or become necessary or desirable,
the Board in its sole discretion may determine that delivery of the
certificates for such shares of Common Stock shall not be made until such
listing, registration or qualification shall have been completed. The Company
agrees that it will use its reasonable best efforts to effect any such listing,
registration or qualification; provided, however, that the Company shall not be
required to use its reasonable best efforts to effect such registration under
the Securities Act of 1933 other than on Form S-8 or such other forms as may be
in effect from time to time calling for information comparable to that
presently required to be furnished under Form S-8.
9.2. Restrictions Upon Resale of Unregistered Stock. Each Optionee
shall, if the Company deems it advisable, represent and agree in writing (i)
that any shares of Common Stock acquired by such Optionee pursuant to this Plan
will not be sold except pursuant to an effective registration statement under
the Securities Act of 1933 or pursuant to an exemption from registration under
said Act, (ii) that such Optionee is acquiring such shares of Common Stock for
his or her own account and not with a view to the distribution thereof and
(iii) to such other customary matters as the Company may request. In such
case, no shares of Common Stock shall be issued to such Optionee unless such
Optionee provides such representations and agreements and the Company is
reasonably satisfied that such representations and agreements are correct.
14
<PAGE> 18
9.3. Repurchase by the Company. (a) The Company shall have the
right, exercisable within 60 days after the later of (i) the date of Optionee's
termination of employment with the Company or a Subsidiary or termination of
service as a Director or (ii) the date of the exercise by any person other than
Optionee of the Option pursuant to any provision of this Plan, to purchase any
shares of Common Stock (or securities into which any Common Stock has been
converted) that were acquired pursuant to the exercise of an Option under this
Plan ("Option Shares"). To the extent that an Optionee holds exercisable
Options at the time of termination of employment or termination of service as a
Director, the Company may elect to purchase such exercisable Options in the
same manner as the Option Shares at a price equal to the Repurchase Price (as
hereinafter defined) less the exercise price of such exercisable Options.
(b) The Repurchase Price for the purchase of the Option
Shares shall be determined as follows:
(i) if the Common Stock has been registered
pursuant to a registration statement filed under the
Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission
thereunder (the "Act"), then the Repurchase Price per share
shall be equal to the average closing price per share of the
Common Stock for the 30 days preceding the date of termination
of employment by the Company or a Subsidiary; or
(ii) if the Common Stock has not been registered
under the Act, then the price shall be the book value per
share of Common Stock as of the last day of the month during
which termination of employment with the Company or a
Subsidiary (or termination of service as a Director occurs) as
determined by the formula:
15
<PAGE> 19
P = A-L
S
P = the purchase price per Option Share,
A = the total assets of the Company and
its Subsidiaries (determined pursuant
to generally accepted accounting
principles) shown on the Company's
balance sheet for the most recent
fiscal year ended,
L = the total liabilities of the Company
and its Subsidiaries (determined
pursuant to generally accepted
accounting principles) shown on the
Company's balance sheet for the most
recent fiscal year ended,
S = the total number of shares of capital
stock of the Company outstanding on a
fully diluted basis as shown on the
Company's balance sheet for the most
recent fiscal year ended and as
adjusted for any capital
transactions, dividends, or
reclassification of stock subsequent
to such date.
(c) To the extent that the Company has the right to
purchase Option Shares, the Company may exercise such right by
delivery (upon or within sixty days after the later of Optionee's
termination of employment with the Company or a Subsidiary (or
termination of service as a Director) or exercise by a person other
than Optionee of the Option) of written notice to the Optionee (or
such other person exercising such Option) stating the full number of
Option Shares that the Company has elected to purchase, the purchase
price per Option Share, and the time of purchase (which time shall not
be earlier than 5 days from the date of notice). At the time of
purchase, the Optionee shall deliver the certificate or certificates
representing his Option Shares to the Company at its offices and shall
execute any stock powers or other instruments as may be necessary to
transfer full ownership of the Option Shares to the Company. At the
time of purchase, the Company shall issue its own check within 60 days
to the Optionee in an amount equal to the aggregate purchase price for
the Option Shares for which the
16
<PAGE> 20
Company has exercised its right to purchase, less any amounts required
to be withheld under applicable laws. In the event of Optionee's
death or disability, the Company's right to purchase and the manner of
purchase shall apply with regard to the Optionee's estate,
beneficiary, administrator or personal representative.
9.4. Adjustments. The number of shares of Common Stock of the
Company authorized for issuance under the Plan, as well as the price to be paid
and the number of shares issued upon exercise of outstanding Options, shall be
subject to adjustment by the Committee, in its sole discretion, to reflect any
stock split, stock dividend, recapitalization, merger consolidation,
reorganization, combination or exchange of shares or other similar event.
9.5. Use of Proceeds. The proceeds from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds of
the Company and may be used for such corporate purposes as the Company may
determine.
9.6. Substitution of Options.
(a) The Committee may, with the consent of the holder of
any Option granted under the Plan, cancel such Option and grant a new
Option in substitution therefor, provided that the Option as so
substituted shall satisfy all of the requirements of the Plan as of
the date such new Option is granted.
(b) Options may be granted under the Plan in substitution
for options held by individuals who are employees or directors of
another corporation and who become Employees or Directors of the
Company or any Subsidiary of the Company eligible to receive Options
pursuant to the Plan as a result of a merger, consolidation,
reorganization or similar event. The terms and conditions of any
Options so granted may vary from those set forth in the Plan to the
extent deemed appropriate by the Committee
17
<PAGE> 21
in order to conform the provisions of Options granted pursuant to the
Plan to the provisions of the options in substitution for which they
are granted.
9.7. Restrictive Legends.
(a) Certificates representing shares of Common Stock
delivered pursuant to the exercise of Options shall bear an
appropriate legend referring to the terms, conditions and restrictions
described in this Plan. Any attempt to dispose of any such shares of
Common Stock in contravention of the terms, conditions and
restrictions described in the Plan shall be ineffective, null and
void, and the Company shall not effect any such transfer on its books.
(b) Any shares of Common Stock of the Company received by
an Optionee (or his or her heirs, legatees, distributees or
representative) as a stock dividend on, or as a result of a stock
split, combination, exchange of shares, reorganization, merger,
consolidation or otherwise with respect to, shares of Common Stock
received pursuant to the exercise of Options, shall be subject to the
terms and conditions of the Plan and bear the same legend as the
shares received pursuant to the exercise of Options.
9.8. Notices. Any notice required or permitted hereunder shall be
sufficiently given only if sent by registered or certified mail, return receipt
requested, postage prepaid, addressed to the Company at its principal place of
business, and to the Optionee at the address on file with the Company at the
time of grant hereunder, or to such other address as either party may hereafter
designate in writing by notice similarly given by one party to the other.
18
<PAGE> 22
IN WITNESS WHEREOF, upon authorization of the Board of Directors and
the Shareholders of the Company, the undersigned has caused the Plan to be
executed effective as of the 12th day of March 1997.
/s/ F. GEORGE DUNHAM, III
---------------------------------------
F. George Dunham, III
President and Chief Executive Officer
19
<PAGE> 23
AMENDMENT NO. 1 TO THE
MILIRISK, INC.
1997 STOCK OPTION PLAN
The MiliRisk, Inc. 1997 Stock Option Plan (the "Plan") is hereby
amended as follows:
1. The first sentence of Section 3.2 of the Plan is hereby amended to
read in its entirety as follows:
"The aggregate number of shares of Common Stock which may be
issued upon the exercise of Options granted under the Plan shall not
exceed 2,250,000 shares, all or any part of which may be issued
pursuant to Options; provided, however, that the maximum number of
shares of Common Stock which may be issued to an Optionee under the
Plan shall not exceed 1,200,000 (as may be adjusted pursuant to
Section 9.4 of the Plan)."
IN WITNESS WHEREOF, MiliRisk, Inc. has caused its duly authorized
officer to execute this Amendment No. 1 as of the 1st day of July 1997.
MILIRISK, INC.
/s/ F. GEORGE DUNHAM, III
---------------------------------
F. George Dunham, III
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.29
MILIRISK, INC.
STOCK OPTION AGREEMENT
This OPTION AGREEMENT (this "Option Agreement") is entered into by and
between MiliRisk, Inc., a Texas corporation (the "Company"), and the
undersigned optionee (the "Optionee").
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 20 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 20 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the MiliRisk, Inc.
1997 Stock Option Plan, as amended (the "Plan"), a copy of which has been
provided to the Optionee, and to the further terms, conditions and restrictions
set forth below.
2. Exercise Price. Subject to adjustment pursuant to Section 3,
the exercise price payable by the Optionee upon exercise of this Option is set
forth in Section 20 hereof.
3. Adjustments to Number of Shares and Option Price. The number
of shares and exercise price shall be subject to adjustments as provided in
Section 9.4 of the Plan.
4. Tax Status. This Option will be treated as an "incentive
stock option" within the meaning of Section 422 of the Code to the extent that
any portion of this Option meets the requirements of Section 422 of the Code.
To the extent that any portion of this Option does not meet such Code
requirements, this Option shall be deemed a nonqualified stock option.
5. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, Optionee shall have the right to acquire shares of Common
Stock under this Option Agreement as follows:
<PAGE> 2
(a) as of the Date of Grant and thereafter, Optionee may
exercise rights to acquire 33% of the Common Stock subject to the
Option;
(b) as of the first anniversary of the Date of Grant and
thereafter, Optionee may exercise rights to acquire an additional 33%
of the Common Stock subject to the Option;
(c) as of the second anniversary of the Date of Grant and
thereafter, Optionee may exercise rights to acquire an additional 34%
of the Common Stock subject to the Option.
6. Expiration of Option. This Option shall expire and cease to
be exercisable on the sixth anniversary of the Date of Grant or such earlier
date as may be specified in the Plan.
7. Termination of Affiliation.
(a) Subject to the following provisions of this Section 7
and Article VI of the Plan, this Option may not be exercised unless at
the time of exercise the Optionee is an Employee or a Director of the
Company or a Subsidiary.
(b) Termination for Cause. In the event that Optionee is
an Employee and the Optionee's employment by the Company or a
Subsidiary shall terminate for Cause (as defined in Section 6.1 of the
Plan), this Option shall terminate immediately. In the event that
Optionee is a Director and Optionee fails to be reelected as a
Director, resigns as a Director or is removed as a Director (other
than due to Optionee's disability, as defined in Section 6.3 of the
Plan), this Option shall terminate immediately.
(c) Death or Disability. (i) In the event that the
Optionee shall die while employed by, or serving as a Director of, the
Company or a Subsidiary or if Optionee's employment by, or service as
a Director of, the Company or a Subsidiary is terminated because the
Optionee has become disabled, Optionee, his estate, or beneficiary
shall have
2
<PAGE> 3
the right to exercise this Option at any time within 60 days from the
date of death of Optionee or termination of his employment by, or
service as a Director of, the Company or a Subsidiary due to
disability, as the case may be, only to the extent the Optionee was
entitled to exercise this Option immediately prior to such occurrence.
To the extent that this Option is not so exercised, it shall expire at
the end of such 60-day period. For purposes of this Option Agreement,
disability shall be as defined in Section 6.3 of the Plan.
(ii) If the Optionee dies during the 60-day period
after the termination of his or her position as an Employee or
Director of the Company or a Subsidiary and at the time of his or her
death the Optionee was entitled to exercise this Option, this Option
shall expire 60 days after the date on which his or her position as an
Employee or Director of the Company or a Subsidiary terminated, but in
no event, later than the date on which this Option would have expired
if the Optionee had lived. Until the expiration of such 60- day
period, this Option may be exercised by the Optionee's executor or
administrator or by any person or persons who shall have acquired the
Option directly from the Optionee by bequest or inheritance, but only
to the extent that the Optionee was entitled to exercise the Option at
the date of his or her death and, to the extent the Option is not so
exercised, it shall expire at the end of such 60-day period.
(d) Right to Exercise. In the event that termination of
employment with the Company occurs other than for Cause or for death
or disability pursuant to Sections 7(b) or 7(c) above, or in the event
that the directorship of an Optionee who is a Director is terminated
for reasons other than the removal, resignation, death or disability
of Optionee, the Optionee shall have the right to exercise this Option
at any time within 60 days after such termination to the extent he was
entitled to exercise the same immediately
3
<PAGE> 4
prior to such termination. To the extent that this Option is not so
exercised, it shall expire at the end of such 60-day period.
8. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating
the number of shares of Common Stock as to which the Option is being exercised
and accompanied by payment in full in cash or by certified check of the
exercise price for all such shares.
9. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable during the Optionee's lifetime only by
the Optionee.
10. Continued Employment or Retention. Subject to the terms of
any employment agreement between the Company and the Optionee, nothing herein
shall confer upon the Optionee any right to be continued in the employ or
retention of the Company or a Subsidiary, or continue to serve as a Director of
the Company or a Subsidiary, or shall prevent the Company or Subsidiary which
employs or retains the Optionee from terminating such employment at any time,
with or without cause, or removing or failing to reelect the Optionee as a
Director.
11. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee or the legal representatives, heirs, legatees, or
distributees of the Optionee any right or status of any kind as a shareholder
of the Company in respect of any shares of Common Stock covered by this Option
or entitle the Optionee or the legal representatives, heirs, legatees, or
distributees of the Optionee to any dividends or distributions thereon unless
and until such shares shall have been delivered to the Optionee or the legal
representatives, heirs, legatees, or distributees of the Optionee and
registered in the Optionee's name and the Optionee or the legal
representatives, heirs, legatees, or distributees of the Optionee has received
a certificate or certificates therefor.
4
<PAGE> 5
12. Interpretation. If and when questions arise from time to time
as to the intent, meaning or application of the provisions hereof or of the
Plan, such questions shall be decided by the Board of Directors or the
Committee in its sole discretion, and any such decision shall be conclusive and
binding on the Optionee. The Optionee hereby agrees that this Option is
granted and accepted subject to such condition and understanding.
13. Investment Representation. At such time or times as the
Optionee may exercise this Option, the Optionee shall, upon the request of the
Company, represent in writing (i) that the shares being acquired by the
Optionee under this Option will not be sold except pursuant to an effective
registration statement, or applicable exemption from registration, under the
Securities Act of 1933, as amended, (ii) that it is the Optionee's intention to
acquire the shares being acquired for investment only and not with a view to
distribution thereof, and (iii) other customary representations as the Company
deems necessary or advisable. No shares will be issued to the Optionee unless
the Optionee provides such representations and agreements and the Company is
satisfied as to the accuracy of such representations and agreements.
14. Repurchase by the Company. All shares of Common Stock
purchased by the Optionee or his or her estate or beneficiary and exercisable
Options held by the Optionee at the time of termination of employment shall be
subject to repurchase by the Company pursuant to Section 9.3 of the Plan.
15. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to
the Optionee of Common Stock upon exercise of this Option. The Company may
permit withholding of shares of Common Stock in accordance with
5
<PAGE> 6
procedures established by the Company as an election by Optionee to meet
applicable withholding requirements.
16. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the Optionee at the address on the signature page hereof and to the Company at
the address set forth below or at such other addresses as shall be specified by
the parties by like notice:
MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No. (800) 826-9865
17. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
18. Confidentiality. Unless otherwise permitted by the Chairman
of the Board or the President of the Company, Optionee agrees to keep
confidential the terms of this Option Agreement (and the terms of any other
Option Agreement with any other Employee or Director of the Company known to
Optionee) and shall not disclose such terms to any other Employee or otherwise.
19. Nondisclosure, Noncompete, Nonsolicitation. In further
consideration for the grant to Optionee of the Option evidenced by this Option
Agreement, Optionee hereby covenants and agrees as follows:
(a) Optionee hereby acknowledges that Optionee will have
access to certain trade secrets and confidential information of the
Company and of corporations and/or other business enterprises directly
or indirectly owned, controlled and/or operated by the
6
<PAGE> 7
Company ("Affiliates") and that such information constitutes valuable,
special and unique property of the Company and such corporations.
Optionee shall not, during or after the term of Optionee's employment
by the Company or a Subsidiary, disclose any such trade secrets or
confidential information to any person or entity for any reason or
purpose whatsoever except as may be required by law or use such
confidential information for any purpose not authorized by the
Chairman of the Board. Confidential information shall include (i) all
information designated as confidential by the Chairman of the Board
and (ii) all information the disclosure of which Optionee knows, or in
the exercise of reasonable care should know, would be damaging to the
Company; provided, however, that confidential information shall not
include any information known generally to the public (other than as a
result of unauthorized disclosure by Optionee) or any information not
otherwise considered by the Chairman of the Board or the Board of
Directors to be confidential.
(b) Optionee agrees that during the term of Optionee's
employment by, or service as a Director of, the Company or a
Subsidiary and for a period of 24 months following the termination of
Optionee's employment with, or service as a Director of, the Company
or a Subsidiary, Optionee shall not, at any place within the States in
which the Company or an Affiliate is conducting business operations at
the time of such termination, without the prior written consent of the
Chairman of the Board, either in his own behalf or as a partner,
officer, director, employee, agent or shareholder (other than as the
holder of less than 10% of the outstanding capital stock of any
corporation whose stock is traded on a national securities exchange)
engage in, be interested in or render services to any business then
competitive with the Company or a Subsidiary.
7
<PAGE> 8
(c) Optionee agrees that during the term of Optionee's
employment by, or service as a Director of, the Company or a
Subsidiary and for a period of 24 months following the termination of
Optionee's employment, or service as a Director of, Optionee shall
not, either alone or on behalf of any business competing with the
Company or any Affiliate, directly or indirectly (i) solicit or
induce, or in any manner attempt to solicit or induce any person
employed by, or an agent of, the Company or any Affiliate to terminate
his contract of employment or agency, as the case may be, with the
Company or any Affiliate, as the case may be, or (ii) solicit, divert,
or attempt to solicit or divert, as a supplier or customer, any
person, concern or entity which, as of the date of termination or
during the one year period prior thereto, furnishes products or
services to, or receives products and services from the Company or any
Affiliate, nor will Optionee attempt to induce any such supplier or
customer to cease being (or any prospective supplier or customer not
to become) a supplier or customer of the Company or any Affiliate.
20. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: March 12, 1997
b. Name of Optionee: _________________
c. Adjusted Number of Shares Covered by Option: _______
d. Option Exercise Price Per Share: $140.00
[SIGNATURE PAGE FOLLOWS]
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have executed this Option
Agreement to be effective as of the Date of Grant set forth above.
MILIRISK, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
------------------------------------
, Optionee
--------------------
Optionee's Address:
------------------------------------
------------------------------------
9
<PAGE> 1
EXHIBIT 10.31
POLICY LIFE CYCLE
SERVICES AGREEMENT
MILLERS CASUALTY INSURANCE COMPANY
<PAGE> 2
POLICY LIFE CYCLE
SERVICES AGREEMENT
This Policy Life Cycle Services Agreement ("Agreement") is effective
as of the 1st day of May, 1997 ("Effective Date"), by and between Millers
Integrated Claims Resources, Inc. dba MiliRisk, a Texas corporation with
principal offices at 300 Burnett, Fort Worth, Texas 76102 ("MiliRisk"), and
Millers Casualty Insurance Company, a Texas corporation, having their principal
place of business at 300 Burnett Street, Fort Worth, Texas 76102 ("Customer").
Whereas, Customer is desirous of MiliRisk providing Policy Life Cycle
Services for which Customer as set forth in this Agreement;
Whereas, MiliRisk wishes to provide such Services for Customer; and
Whereas, the parties hereto wish to reduce their Agreement to writing.
Now, therefore, for and in consideration of the premises set forth
below and other good and valuable consideration, the receipt and sufficiency of
which is expressly acknowledged, Customer and MiliRisk hereby agree as follows:
ARTICLE 1. SERVICES
The "Services" to be performed by MiliRisk are set forth in Exhibit I
to this Agreement.
ARTICLE 2. TERM
2.1 The term of this Agreement shall commence on the Effective
Date and shall have a "Minimum Term" of 36 full calendar
months unless terminated earlier pursuant to the provisions
of this Agreement. The Agreement shall automatically be
renewed and extended after the conclusion of the Minimum Term
for an additional term or terms of 36 months unless
terminated pursuant to the provisions of Article 8.
2.2 The "Implementation Period" shall begin on the Effective Date
of this Agreement and shall end on the date MiliRisk notifies
Customer that MiliRisk is capable of receiving all future
applications on behalf of Customer. During the Implementation
Period, MiliRisk shall prepare an analysis of the lines of
business included within the terms of this Agreement.
Customer shall assist MiliRisk during such "Implementation
Period" with the gathering of appropriate data, information,
background, and other facts as needed by MiliRisk to enable
MiliRisk to perform the Services enumerated in Exhibit I of
this Agreement.
<PAGE> 3
ARTICLE 3. DUTIES OF MILIRISK
3.1 During the Implementation Period, MiliRisk shall design,
construct, and implement the following software systems:
1. Processing system to support the Services enumerated
in Exhibit I
In addition, the Implementation Period will be used to
assemble the staff, arrange for furniture and fixtures, and
prepare for the start of business. All procedures required to
conduct business as well as the requisite staff training will
occur during this period.
3.2 MiliRisk shall dedicate the necessary human, equipment and
computer resources to provide and, during the term of this
Agreement, will provide Customer with the Services enumerated
in Exhibit I of this Agreement for the Lines of Business and
States specified in Exhibit I.
3.3 MiliRisk shall designate an employee to act as liaison with
Customer to facilitate the provision of the Services.
3.4 MiliRisk shall maintain the confidentiality of data or
information which is the property of Customer and which is
directly accessible to MiliRisk in the implementation and
performance of the Services.
3.5 MiliRisk shall maintain complete, accurate and orderly
underwriting books, files, records and accounts of all
transactions in accordance with generally accepted insurance
and accounting practices. MiliRisk shall be responsible for
the timely remittance of all premiums due Customer.
3.6 MiliRisk shall maintain permanent copies of all policies and
applications and correspondence related to the policies.
MiliRisk shall not destroy these permanent copies without the
written permission of the Customer for a period of at least
five (5) years from the termination date of the applicable
policies, or the period specified by the applicable state
statute regulating preservation of records, whichever is
longer. MiliRisk may, at its discretion, use magnetic,
optical, and other types of technology to store such data.
3.7 MiliRisk acknowledges and agrees that Customer, being at risk
and having ultimate responsibility for the policies to be
administered by MiliRisk, shall at all times have ultimate
discretion with respect to all matters pertaining to the
policies.
<PAGE> 4
ARTICLE 4. DUTIES OF CUSTOMER
4.1 Customer shall provide the data necessary, in a timely manner
and in a format acceptable to MiliRisk, for MiliRisk to
perform the Services defined in Exhibit I of this Agreement.
Customer acknowledges that delays in delivery of required
information will result in a similar delay in fulfilling
Services.
4.2 Customer acknowledges that MiliRisk assumes no risk or
responsibility for Customer's claims administration, claim
payments or recovery within this Agreement.
4.3 Customer will provide MiliRisk with the policy jackets and
the information and specifications necessary to perform the
Services defined in Exhibit I of this Agreement, including
but not limited to Customer's banking institution account
information, corporate and subsidiary logos (if applicable),
style and specifications of printed documents such as
insurance policies, and all other information and
specifications necessary to perform the Services.
4.4 Customer shall appoint a Project Manager with sufficient
authority within Customer's organization to facilitate
Customer's role as MiliRisk performs the Services enumerated
in Exhibit I of this Agreement.
ARTICLE 5. AUDIT PROVISIONS
5.1 MiliRisk shall maintain records of amounts billable to and
payments made on behalf of Customer. In addition, MiliRisk
shall maintain records of the data utilized to perform the
Services defined in Exhibit I of the Agreement until five
years following the termination date of the applicable
policies, or the period specified by the applicable state
statute unless such records are earlier returned to Customer.
MiliRisk agrees to provide reasonable supporting
documentation concerning any disputed invoice amount to
Customer within 15 days after Customer provides written
notification of the dispute to MiliRisk. Customer and an
auditor selected by Customer shall have access to all such
records upon mutually agreed upon prior notice for the
purposes of audit and verification during normal business
hours during the full term of this Agreement and during the
respective periods in which MiliRisk is required to maintain
such records. MiliRisk shall provide access to its books,
records and bank accounts to the insurance department of the
State of Florida in a form usable by the department.
ARTICLE 6. PRICE AND PAYMENT
6.1 Customer agrees to pay Service Rates as specific in Exhibit
II hereto.
<PAGE> 5
6.2 Except for Service Rates which are based upon a percentage of
direct written premium (the minimum of which shall be
adjusted in accordance with Exhibit II), the Service Rates in
Exhibit II hereto may be changed effective as of each
anniversary of the Effective Date during the existence of
this Agreement by the percentage increase in the United
States Consumer Price Index for all Urban Users (CPI-U)
published by the United States Bureau of Labor Statistics,
for the immediately preceding calendar year. In the event a
vendor supplying any service or product to MiliRisk required
for MiliRisk to provide the Services to Customer increases
its rates charged to MiliRisk, MiliRisk may increase the
contracted rates set forth herein to include such increased
costs.
6.3 The Service Rates may increase if changes in the Services
mutually agreed to in writing substantially alter the
servicing personnel, equipment, or result in the servicing
being done on a different system.
6.4 When Customer requests MiliRisk personnel to travel to any
location for the purpose of performing work under this
Agreement, the Customer will, in addition to the charges
specified for Services, pay MiliRisk for all reasonable
travel, living and out-of-pocket expenses.
6.5 Customer agrees to pay all tariffs and taxes that are now or
may become applicable to the Services rendered hereunder, any
equipment used by MiliRisk solely for Customer communication
line, its use, lease, operation, control, transportation or
value pursuant to this Agreement, or as measured by payments
made by Customer to MiliRisk under this Agreement, or as
required to be collected by MiliRisk or paid by MiliRisk to
tax authorities based on this Agreement. This provision
includes but is not limited to sales, use, and personal
property taxes, or any other form of tax based on Services
performed, equipment used, and the communicating or storage
of data, but does not include taxes based upon the net income
of MiliRisk.
6.6 Service fees for Services will be due and payable 15 days
after the close of a calendar month beginning 15 days after
the end of the month this Agreement is executed.
6.7 Customer agrees that MiliRisk will have the right to
renegotiate the Service Fees in the event of statutory,
regulatory, or judicial changes that require additional
activities not contemplated at the inception of this
Agreement.
ARTICLE 7. LICENSE TRADE SECRET AND PROPRIETARY RIGHTS
7.1 Although MiliRisk from time to time may use its own
proprietary computer software products in the performance of
the Services enumerated in Exhibit I of
<PAGE> 6
this Agreement, this Agreement does not grant a license to
Customer for the use of any software products.
7.2 This Agreement grants to Customer no right to possess or
reproduce, or any other interest in, the computer software
programs performing all or any part of the Services or their
specifications in any tangible or intangible medium. Customer
may not mortgage, hypothecate, sell, assign, pledge, lease,
transfer, license or sublicense the computer software
programs performing all or any part of the Services, nor
allow any person, firm, or corporation to transmit, copy or
reproduce the computer software programs performing all or
any part of the Services or their specifications in whole or
in part. In the event Customer shall come into possession of
the computer software programs performing all or any part of
the Services, Customer shall immediately notify MiliRisk and
return the computer software programs performing the Services
and all copies of any kind thereof to MiliRisk upon
MiliRisk's request.
7.3 Customer promises and agrees not to disclose or otherwise
make computer software programs performing all or any part of
the Services available to any person other than employees of
Customer required to have such knowledge for normal use of
them. Customer agrees to obligate each such employee to a
level of care sufficient to protect the computer software
programs performing all or any part of the Services from
unauthorized disclosure. THE OBLIGATION OF CUSTOMER UNDER
THIS ARTICLE SHALL CONTINUE AFTER THIS AGREEMENT IS
TERMINATED.
7.4 MiliRisk warrants and represents that it owns, or is licensed
with respect to, all software it will employ in the
performance of this Agreement. In the event this Agreement is
terminated, MiliRisk will grant a license upon terms and
conditions to be set forth in a Licensing Agreement to
Customer and/or Clarendon to use the software which MiliRisk
employs in the performance of this Agreement to the extent
MiliRisk is not otherwise prohibited from doing so by
contract or by operation of law. MiliRisk shall use its best
efforts to deliver the software, as well as all necessary
manuals, to the Customer immediately upon delivery of data to
the Customer.
ARTICLE 8. TERMINATION
8.1 Either party may terminate this Agreement at the expiration
of the Minimum Term set forth in section 2.1, provided the
other party receives at least six (6) months prior written
notice of termination. Termination without cause during any
renewal term would also require six months notice.
8.2 Either party may terminate this Agreement upon breach by the
other party of any one or more of the terms and conditions of
this Agreement or the related Exhibits,
<PAGE> 7
provided that the party in breach is notified in writing by
the other party of the breach and the breach is not cured or
a satisfactory resolution agreed upon in writing within
thirty (30) days of such written notification, or if such
breach is non-monetary and is of such a nature that it cannot
reasonably be cured within such notice period, if the
breaching party has not within such time commenced to cure
same and does not diligently continue to and actually cure
same within a reasonable period thereafter. The terms and
conditions of MiliRisk referred to in this Section 8.2 shall
include, but shall not be limited to:
(a) the obligation to deposit, report and remit premiums;
(b) the obligation to remit return premiums to insureds
when due;
(c) the obligation to process all policies,
endorsements, and notices of cancellation or
non-renewal, pursuant to Customers underwriting
guidelines or other instructions;
(d) the obligation to observe and comply with applicable
laws, regulations, rules and rates affecting the
transaction of business hereunder; and
(e) the obligation to provide any other Services under
this Agreement.
8.3 In the event either party makes a general assignment for the
benefit of creditors or files a voluntary petition in
bankruptcy or petitions for reorganization or arrangement
under the bankruptcy laws, or if a petition in bankruptcy is
filed against either party and remains undismissed for a
period of thirty (30) days, or if a receiver or trustee is
appointed for all or any part of the property and assets of
either party, the other party may terminate the Agreement
immediately
8.4 Rights Upon Termination. Upon expiration or termination of
this Agreement:
(a) The obligations of the Customer and MiliRisk to the
date of termination shall be discharged promptly;
(b) MiliRisk shall promptly return to the Customer any
policies, forms or other supplies imprinted with the
Customer's or Clarendon's name, regardless of who
incurred the cost for same.
(c) If MiliRisk is unable, or refuses, to run off the
in-force policies, or if the Customer elects to run
off such policies itself or through its designee,
MiliRisk shall promptly provide the Customer,
without charge, with a tape back-up of all data
files (the "Data").
(d) In any proceeding brought by the Customer to recover
premiums or return premiums or other funds due
hereunder to the Customer or insureds under
<PAGE> 8
the policies (hereinafter called "trust funds"),
MiliRisk shall be obligated to account on its own
records for such trust funds and to pay all sums for
which it cannot account. In any such proceeding it
shall be conclusively presumed that MiliRisk is
liable for trust funds which have not been timely
paid, and MiliRisk waives (i) any right it may have
to assert any counterclaim, crossclaim, or set-off
of any kind in the proceeding, and (ii) any claim or
defense based on or relating to its use of the
Customer' s reporting procedures as provided for in
this Agreement, or any modification thereof.
MiliRisk shall retain the right to bring any
separate proceeding it deems appropriate to recover
on any claims it may have, as a creditor or
otherwise, but the pendency of any such proceeding
shall not delay, hinder or defeat the Customer's
right to promptly recover any trust funds then due
or to levy upon any judgment therefore.
ARTICLE 9. LIMITATION OF LIABILITY AND REMEDIES
9.1 If data is processed in error due to an error or defects in
the Services provided by MiliRisk, then upon MiliRisk
receiving notice of such error or defect, MiliRisk shall
reprocess such data without charge to Customer.
9.2 MiliRisk shall indemnify, protect, defend and hold Customer,
its officers, directors, shareholders and employees harmless
from and against any and all losses, damages, liabilities,
fines, settlements, penalties and judgments (including
reasonable costs and attorney's fees) (herein "Damages")
arising out of or resulting from the negligent, willful or
intentional acts of MiliRisk performed in connection with
this Agreement or arising from a breach of this Agreement by
MiliRisk. Customer shall indemnify, protect, defend and hold
MiliRisk its officers, directors, shareholders and employees
harmless from and against any and all Damages arising out of
or resulting from the negligent, willful or intentional acts
of Customer performed in connection with this Agreement or
arising from a breach of this Agreement by Customer. This
indemnity shall survive the earlier expiration or termination
of this Agreement.
9.3 MiliRisk's liability to Customer for Damages arising from
errors and defects in performing the Services (whether the
damage is based in tort or contract, law or equity) is
limited to an amount not to exceed the usual and customary
charges paid to MiliRisk under this Agreement in any one
month of this Agreement plus costs and attorney's fees as
provided in Section 10.11. Any breach of this Agreement which
does not result in or constitute a termination or repudiation
of this Agreement, Customer's liability to MiliRisk for
Damages is limited to an amount not to exceed the usual and
customary charges paid to MiliRisk under this Agreement in
any one month of this Agreement plus costs and attorney's
fees as provided in Section l0.11.
<PAGE> 9
9.4 Customer's remedies and MiliRisk's liability for breaches of
this Agreement and errors or defects in the delivery of
Services are limited to the remedies and liabilities set
forth in section 8.2, 9.1, 9.2 and 9.3 of this Agreement.
MiliRisk's remedies and Customer's liability for breaches of
this Agreement are limited to the remedies and liabilities
set forth in section 8.2, 9.2 and 9.3 of this Agreement.
ARTICLE 10. GENERAL
10.1 The parties shall not be liable or deemed to be in default
for any delay or failure in performance under this Agreement
or interruption of Service resulting, directly or indirectly,
from acts of God, civil or military authority, labor
disputes, shortages of suitable parts, materials, labor or
transportation or any similar cause beyond the reasonable
control of the parties.
10.2 Customer and MiliRisk agree that, while this Agreement is in
effect, neither will directly or indirectly induce any
employee of the other to terminate his or her employment; nor
will either, without prior written consent of the other,
offer employment to any employee of the other or to former
employees during the six (6) month period immediately
following such employee's termination.
10.3 All notices which are required to be given or submitted
pursuant to this Agreement shall be in writing and shall be
either delivered in person or sent by certified mail, return
receipt requested, to the address set forth herein or to such
other address as the parties may from time to time designate
in writing for such purposes. Notices shall be deemed to have
been given at the time when personally delivered or, if
mailed in a certified post paid envelope, upon the fifth day
after the date such notice shall be postmarked. All notices
to MiliRisk shall be addressed to the attention of the Chief
Financial Officer.
10.4 The parties covenant and promise not to disclose the terms
and conditions of this Agreement to any third party unless
expressly agreed to by the parties. Notwithstanding the
foregoing, the parties agree that disclosure may be made to
any auditors, regulators, carriers, or reinsurers on a need
to know basis only without prior consent.
10.5 This Agreement and any Exhibits made a part hereto: (a)
constitute the entire Agreement between the parties and
supersede and merge any and all prior discussions,
representations, negotiations, correspondence, writings and
other agreements and together state the entire understanding
and Agreement between MiliRisk and Customer with respect to
the Services described; (b) may be amended or modified only
in a written instrument agreed to and signed by MiliRisk and
Customer; and, (c) shall be deemed to have been entered into
and executed in the State of Texas and shall be construed,
performed and enforced in all respects in
<PAGE> 10
accordance with the laws of that state. For purposes of
venue, this Agreement is performable in Tarrant County,
Texas.
10.6 Neither party hereto shall be deemed to have waived any
rights or remedies accruing to it hereunder unless such
waiver is in writing and signed by such party. No delay or
omission by either party hereto in exercising any right shall
operate as a waiver of said right on any future occasion. All
rights and remedies hereunder shall be cumulative and may be
exercised singularly or concurrently.
10.7 The descriptive headings of this Agreement are intended for
reference only and shall not affect the construction or
interpretation of this Agreement.
10.8 Wherever the singular of any term is used herein it shall be
deemed to include the plural wherever the plural thereof may
be applicable.
10.9 The parties shall not assign this Agreement or any of its
rights hereunder without the prior written consent of the
other party which consent shall not be unreasonably withhold
unless the proposed assignment is to a competitor of the
other party.
10.10 If any provision of this Agreement or any Exhibit hereto or
the application thereof to any party or circumstances shall,
to any extent, now or hereafter be or become invalid or
unenforceable, the remainder of this Agreement shall not be
affected thereby and every other provision of this Agreement
shall be valid and enforceable, to the fullest extent
permitted by law.
10.11 In the event of any action between Customer and MiliRisk
seeking enforcement of any of the terms and conditions of
this Agreement, the prevailing party in such action shall be
awarded its reasonable costs and expenses, including its
court costs and reasonable attorney's fees.
10.12 The parties hereto are independent contractors of one
another, and they should not in any instance be construed as
partners or joint venturers.
<PAGE> 11
MILIRISK AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED AGENTS THAT THEY
HAVE READ THIS AGREEMENT, INCLUDING ALL EXHIBITS HERETO, AND AGREE TO BE BOUND
BY THEIR TERMS AND CONDITIONS.
EXECUTED to be effective the 1st day of June, 1997.
Millers Integrated Claims Resources, Inc. Millers Casualty Insurance Company
By: By:
-------------------------------------- -------------------------------
Name: Name:
------------------------------------ -----------------------------
Title: Title:
----------------------------------- ----------------------------
<PAGE> 12
EXHIBIT I
TO THE
POLICY LIFE CYCLE SERVICES AGREEMENT
BY AND BETWEEN
MILIRISK
AND
MILLERS CASUALTY INSURANCE COMPANY
A. SERVICES
During the term of this Agreement MiliRisk shall provide the Policy Life Cycle
Services defined below for the Lines of Business (Section B of this Exhibit I)
for the States specified (Section C of this Exhibit I) written by or through
Customer. MiliRisk will, in accordance with guidance and direction provided by
the Customer provide all Policy Life Cycle Services and general management of
these Services described herein for the subject business as follows:
1. MiliRisk will provide the technical and administrative services to
support the acquisition of policies.
2. MiliRisk will provide the necessary functions to satisfy the Florida
Insurance Department instructions as to the processes required by the
Customer.
3. Expert system rules will be developed and provided to incorporate the
Customer's desired risk profiles.
4. Processing will issue the Customer's policies, process renewals,
cancellations, and reinstatements. MiliRisk will use such non-renewal
or cancellation notices as may be required by Policy wording or
regulatory authority.
5. Invoices will be processed for additional premiums and renewal bills.
6. Refunds will be processed for return premiums.
7. Non underwriting inquiries for agents, insureds, and other relevant
third parties (mortgagees) will be handled on behalf of the Customer.
8. Data Processing support for policy processing will be provided which
will include imaging of documents, data entry, editing, expert system
underwriting, electronic workflow, rating, coding, reporting,
accounting, and maintenance of policy records.
<PAGE> 13
9. The necessary services to insure personnel assigned to support the
Customer are provided with the necessary space, furniture, fixtures,
electrical power, computer connections, telephones, and other required
assets to support the services.
10. Mailing Services will mail all necessary policy documents and
promotional material/marketing items to relevant parties.
11. Customer billing will be supported through direct bill. Direct
premiums will be submitted through lockbox technology.
12. Accounting services will be provided for premiums by receiving and
distributing premiums, maintaining trust accounts, accounts and paying
agent commissions, in accordance with the Customer's obligations
including but not limited to:
a. Premium Bank Account. Promptly upon receipt thereof, MiliRisk
shall deposit all premiums and other funds collected for
business written under this Agreement into a deposit-only
bank account to be established and controlled by the Customer
(the "Premium Bank Account"). Until such deposit is made,
MiliRisk shall hold all premium and return premium in a
segregated account and shall be deemed to have a fiduciary
responsibility to the Customer to turn over such funds to
Customer.
b. Operating Account. Customer shall establish and fund a
separate bank account which MiliRisk may draw upon to pay
return premium due policyholders (hereinafter called the
"Operating Account"), MiliRisk shall reconcile all
disbursements from the Operating Account each month by type
and amount of disbursement (e.g., return premium, commissions
due to or from Agents) and furnish a copy to the Customer.
c. Reports. All reports and reconciliations to be provided to
the Customer under this Agreement (whether in hard copy or
maintained on computers) shall be forwarded within seven (7)
business days after the end of each month. The electronic
files maintained by MiliRisk shall be transferred as
frequently as reasonably requested by the Customer. Upon the
Customer's request MiliRisk shall furnish updated copies of
its computer base maintained in support of business written
under this Agreement. The transfer of this data shall be in a
format acceptable to the Customer and readable on the their
respective computer systems. The reports shall include, but
not be limited to, information and statistical data (i)
required by Insurance Services Office ("ISO"), and (ii)
necessary for Customer to prepare any reports required by the
National Association of Insurance Commissioners ("NAIC"), or
(iii) other reports reasonably requested to monitor and
evaluate the subject business (the "Premium Reports").
13. Commission Handling - The MiliRisk Servicing Office will calculate and
pay commissions to the producer on Customer's behalf, or will invoice
and receive the return of commission
<PAGE> 14
from the producer on return premium transactions; the MiliRisk
servicing office will prepare a magnetic tape of commission data for
Customer to prepare Federal 1099 tax statements for commission paid to
producers.
14. Policyholder Service - The MiliRisk Servicing Office will handle non
underwriting questions from policyholders/insured and producers
concerning policy/endorsement issuance or billing.
15. Data Access/Reporting to Customer - The MiliRisk Servicing Office will
provide policy, premium and payment information as set forth in
Exhibit III and on-line access to the policy master file on Florida
homeowners and dwelling policies
16. MiliRisk shall establish and maintain written operational procedures
to handle all business related to the Policies.
17. Additional reports or modifications to agreed upon reports will be
charged to the Customer on a time and materials basis utilizing the
appropriate mix of service personnel required to perform the
modifications or produce new reports. Rates for such personnel are
listed in Exhibit II.
B. AUTHORIZED LINES OF BUSINESS:
Homeowners (HO3).
C. AUTHORIZED STATES:
Florida
D. LOCATION OF PROVISION OF SERVICES:
MiliRisk shall provide the Services defined above at the MiliRisk
service center in Fort Worth, Texas.
<PAGE> 15
EXHIBIT II
SERVICE RATES
CONSULTANTS $125.00 per hour
PROGRAMMERS $125.00 per hour
POLICY LIFE CYCLE SERVICES
5.6% of Direct Written Premium* subject to a $50.51 per policy
minimum,**. At the end of each month, beginning on the effective date
hereof, an adjustment will be made if the number of policies issued
multiplied by the per policy minimum exceed 5.6% of direct written
premium for the same period.
BILLING FEES
Installment fees shall be retained by MiliRisk
NSF fees shall be retained by MiliRisk
SPECIAL FEES
Processing system modifications will be charged to the Customer on a
time and materials basis utilizing the appropriate mix of service
personnel required to perform the modification. Additional reports or
modifications to agreed upon reports will also be charged to the
Customer on a time and materials basis utilizing the appropriate mix
of service personnel required to perform the modifications or produce
new reports. Hourly rates for such personnel are listed above.
TRAVEL
Customer will reimburse MiliRisk for all travel necessary for work
performed under this agreement.
IMPLEMENTATION PERIOD
$500,000 for design, construction, and implementation of software
systems to support the services described under this agreement.
* Direct written premium by Millers Casualty Insurance Company for the
authorized lines of business in the authorized states by or through
Customer which is not reduced for reinsurance ceded.
** Effective July 1, 1998 and annually on July 1st thereafter, the per
policy minimum shall be adjusted by the percentage change in the US
CPI for all urban users (CPI-U) published by the US Bureau of Labor
Statistics for immediately preceding calendar year.
<PAGE> 1
EXHIBIT 10.32
CLAIMS LIFE CYCLE
SERVICES AGREEMENT
MILLERS CASUALTY INSURANCE COMPANY
<PAGE> 2
CLAIMS LIFE CYCLE
SERVICES AGREEMENT
This Policy Life Cycle Services Agreement ("Agreement") is effective
as of the 1st day of June, 1997 ("Effective Date"), by and between Millers
Integrated Claims Resources, Inc. dba MiliRisk, a Texas corporation with
principal offices at 300 Burnett, Fort Worth, Texas 76102 ("MiliRisk"), and
Millers Casualty Insurance Company, a Texas corporation, having their principal
place of business at 300 Burnett Street, Fort Worth, Texas 76102 ("Customer").
Whereas, Customer is desirous of MiliRisk providing Claims Life Cycle
Services for which Customer as set forth in this Agreement; and
Whereas, MiliRisk wishes to provide such Services for Customer; and
Whereas, the parties hereto wish to reduce their Agreement to writing;
Now, therefore, for and in consideration of the premises set forth
below and other good and valuable consideration, the receipt and sufficiency of
which is expressly acknowledged, Customer and MiliRisk hereby agree as follows:
ARTICLE 1. SERVICES
The "Services" to be performed by MiliRisk are set forth in Exhibit I
to this Agreement.
ARTICLE 2. TERM
2.1 The term of this Agreement shall commence on the Effective Date and
shall have a "Minimum Term" of 36 full calendar months unless
terminated earlier pursuant to the provisions of this Agreement. The
Agreement shall automatically be renewed and extended after the
conclusion of the Minimum Term for an additional renewal term or terms
of 36 months unless terminated pursuant to the provisions of Article
8.
2.1 The "Implementation Period" shall begin on the Effective Date of this
Agreement and shall end on the date MiliRisk notifies Customer that
MiliRisk is capable of receiving all future claims on behalf of
Customer. During the Implementation Period, MiliRisk shall prepare an
analysis of the lines of business for inclusion within the terms of
this Agreement. Customer shall assist MiliRisk during such
"Implementation Period" with the gathering of appropriate data,
information, background, and other facts as needed by MiliRisk to
enable MiliRisk to perform the Services enumerated in Exhibit I of
this Agreement.
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ARTICLE 3. DUTIES OF MILIRISK
3.1 During the Implementation Period, MiliRisk shall design, construct,
and implement software systems to provide claims administration,
management information, and other related services all of which are as
described in Exhibit I.
In addition, the Implementation Period will be used to assemble the
staff, arrange for furniture and fixtures, and prepare for the start
of business. All procedures required to conduct business as well as
the requisite staff training will occur during this period.
3.2 MiliRisk shall dedicate the necessary human, equipment and computer
resources to provide and, during the term of this Agreement, will
provide, Customer with the Services enumerated in Exhibit I of this
Agreement for the Lines of Business and States Specified in Exhibit I.
3.3 MiliRisk shall investigate, evaluate, and handle each claim reported
within the established authority for claims as set forth in Exhibit I
attached hereto and made part of the Agreement.
3.4 MiliRisk will designate an employee to act as liaison with Customer to
facilitate the provision of the Services.
3.5 MiliRisk shall maintain the confidentiality of data or information
which is the property of Customer and which is directly accessible to
MiliRisk in the implementation and performance of the Services.
3.6 MiliRisk shall maintain complete, accurate and orderly claims books,
files, records and accounts of all transactions in accordance with
generally accepted insurance and accounting practices.
3.7 MiliRisk shall maintain permanent copies of all claims and
correspondence related to the claims. MiliRisk shall not destroy these
permanent copies without the written permission of the Customer for a
period of at least five (5) years from the date of the last file
activity, or the period specified by the applicable state statute
regulating preservation of records, whichever is longer. At the end of
such five year period, upon MiliRisk's written request for
instructions, the Customer shall authorize MiliRisk to either (a)
destroy the closed files or (b) return such files to Customer at
Customer's expense. Notwithstanding the foregoing, any claim file
involving a minor shall be separately identified and returned to
Customer at the end of such five year period. Claim files shall be
the property of the Customer. Upon an order of liquidation of
Customer, the files shall become the sole property of Customer or
Customer' s estate.
MiliRisk may, at its discretion, use magnetic, optical, and other
types of technology to store such data.
3.8 All clams still open upon termination or cancellation of this
Agreement will require that one of the following to occur:
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a. All open claims will be handled on a pre-agreed annual fee
per claim;
or
b. All open claims will be handled on a time and expense basis at
then current prevailing rates; or
c. All claims will be returned to Customer, with any holdover
reverting to a time and expense basis at then current
prevailing rates.
MiliRisk will make this determination at its discretion.
3.9 MiliRisk acknowledges and agrees that Customer, being at risk and
having ultimate responsibility for the claims to be administered by
MiliRisk, shall at all times have ultimate discretion with respect to
all matters pertaining to the claims.
3.10 MiliRisk will not assume the responsibility for direct notification to
any excess or quota share insurance carrier of claims; however,
reports will be provided as required.
ARTICLE 4. DUTIES OF CUSTOMER
4.1 Customer agrees that all claims occurring during the term of this
Agreement will be reported to MiliRisk, unless otherwise notified by
the Customer and approved by MiliRisk. Customer will provide all
information relevant to claims to MiliRisk in order for MiliRisk to
fulfill its duties and obligations as set out in Exhibit I.
4.2 Customer shall appoint a Project Manager with sufficient authority
within Customer's organization to facilitate Customer's role as
MiliRisk performs the Services enumerated in Exhibit I of this
Agreement.
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ARTICLE 5. AUDIT PROVISIONS
5.1 MiliRisk shall maintain records of amounts billable to and payments
made on behalf of Customer. In addition, MiliRisk shall maintain
records of the data utilized to perform the Services defined in
Exhibit I of the Agreement; until five years following the date of
last file activity, or the period specified by the applicable state
statute, whichever is the later unless such records are earlier
returned to Customer. MiliRisk agrees to provide reasonable supporting
documentation concerning any disputed invoice amount to Customer
within 15 days after Customer provides written notification of the
dispute to MiliRisk. Customer and an auditor selected by Customer
shall have access to all such records upon mutually agreed upon prior
notice for the purposes of audit and verification during normal
business hours during the full term of this Agreement and during the
respective periods in which MiliRisk is required to maintain such
records. MiliRisk shall provide access to its books, records and bank
accounts to the insurance department of the State of Florida in a form
usable by the department.
ARTICLE 6. PRICE AND PAYMENT
6.1 Customer agrees to pay Service Fees and Rates as specified in Exhibit
II hereto.
6.2 Except for Services Fees and Rates which are based upon a percentage
of incurred losses, the Services Fees and Rates in Exhibit II hereto
may be increased effective as of each anniversary of the Effective
Date during the existence of this Agreement by the percentage change
in the United States Consumer Price Index for all Urban Users (CPI-U)
published by the United States Bureau of Labor Statistics, for the
immediately preceding calendar year. In the event a vendor supplying
any service or product to MiliRisk required for MiliRisk to provide
the Services to Customer increases its rates charged to MiliRisk,
MiliRisk may increase the contracted rates set forth herein to include
such increased costs.
6.3 The Service Fees and Rates may increase if changes in the Services
mutually agreed to in writing substantially alter the servicing
personnel, equipment, or result in the servicing being done on a
different system.
6.4 When Customer requests MiliRisk personnel to travel to any location
for the purpose of performing work under this Agreement, the Customer
will, in addition to the charges specified for Services, pay MiliRisk
for all reasonable travel, living and out-of-pocket expenses.
6.5 Customer agrees to pay all tariffs and taxes that are now or may
become applicable to the Services rendered hereunder, any equipment
used by MiliRisk solely for Customer communication line, its use,
lease, operation, control, transportation or value pursuant to this
Agreement, or as measured by payments made by Customer to MiliRisk
under this Agreement, or as required to be collected by MiliRisk or
paid by MiliRisk to tax authorities based on this Agreement. This
provision includes but is not limited to sales, use, and personal
property taxes, or any other form of tax based on Services performed,
equipment used, and the communicating or storage of data, but does not
include taxes based upon the net income of MiliRisk.
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6.6 Service Fees and Rates for Services will be due and payable 15 days
after the close of a calendar month beginning the effective date of
the first policy issued.
6.7 Customer agrees that MiliRisk will have the right to renegotiate the
Service Fees in the event of statutory, regulatory, or judicial
changes that require additional activities not contemplated
at the inception of this Agreement.
ARTICLE 7. LICENSE, TRADE SECRET AND PROPRIETARY RIGHTS
7.1 Although MiliRisk from time to time may use its own proprietary
computer software products in the performance of the Services
enumerated in Exhibit I of this Agreement, this Agreement does not
grant a license to Customer for the use of any software products.
7.1 This Agreement grants to Customer no right to possess or reproduce, or
any other interest in, the computer software programs performing all
or any part of the Services or their specifications in any tangible or
intangible medium. Customer may not mortgage, hypothecate, sell,
assign, pledge, lease, transfer, license or sublicense the computer
software programs performing all or any part of the Services, nor
allow any person, firm, or corporation to transmit, copy or reproduce
the computer software programs performing all or any part of the
Services or their specifications in whole or in part. In the event
Customer shall come into possession of the computer software programs
performing all or any part of the Services, Customer shall immediately
notify MiliRisk and return the computer software programs performing
the Services and all copies of any kind thereof to MiliRisk upon
MiliRisk's request.
7.2 Customer promises and agrees not to disclose or otherwise make
computer software programs performing all or any part of the Services
available to any person other than employees of Customer required to
have such knowledge for normal use of them. Customer agrees to
obligate each such employee to a level of care sufficient to protect
the computer software programs performing all or any part of the
Services from unauthorized disclosure. THE OBLIGATION OF CUSTOMER
UNDER THIS ARTICLE SHALL CONTINUE AFTER THIS AGREEMENT IS TERMINATED.
7.4 MiliRisk warrants and represents that it owns, or is licensed with
respect to, all software it will employ in the performance of this
Agreement. In the event this Agreement is terminated, MiliRisk will
grant a license, upon terms and conditions set forth in a licensing
agreement, to Customer and/or Clarendon to use the software which
MiliRisk employs in the performance of this Agreement to the extent
MiliRisk is not otherwise prohibited from doing so by contract or by
operation of law. MiliRisk shall use its best efforts to deliver the
software, as well as all necessary manuals, to the Customer
immediately upon delivery of data to the Customer.
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ARTICLE 8. TERMINATION
8.1 Either party may terminate this Agreement without cause at the
expiration of the Minimum Term set forth in Section 2.1, provided the
other party receives at least six (6) months prior written notice of
termination. Termination without cause during any renewal term would
also require six months notice.
8.2 Either party may terminate this Agreement upon breach by the other
party of any one or more of the terms and conditions of this Agreement
or the related Exhibits, provided that the party in breach is notified
in writing by the other party of the breach and the breach is not
cured or a satisfactory resolution agreed upon in writing within
thirty (30) days of such written notification, or if such breach is
non-monetary and is of such a nature that it cannot reasonably be
cured within such time commenced to cure same and does not diligently
continue to and actually cure same within a reasonable period
thereafter. The terms and conditions of MiliRisk referred to in this
Section 8.2 shall include, but shall not be limited to:
(a) the obligation to observe and comply with applicable laws,
regulations, rules and rates affecting the transaction of
business hereunder; and
(b) the obligation to provide any other Services under this
Agreement.
8.1 In the event either party makes a general assignment for the benefit
of creditors or files a voluntary petition in bankruptcy or petitions
for reorganization or arrangement under the bankruptcy laws, or if a
petition in bankruptcy is filed against either party and remains
undismissed for a period of thirty (30) days, or if a receiver or
trustee is appointed for all or any part of the property and assets of
either party, the other party may terminate the Agreement immediately.
8.2 Rights Upon Termination. Upon expiration or termination of this
Agreement:
(a) The obligations of the Customer and MiliRisk to the date of
termination shall be discharged promptly;
(b) MiliRisk shall promptly return to the Customer any forms or
other supplies imprinted with the Customer's or Clarendon's
name, regardless of who incurred the cost for same.
(c) In any proceeding brought by the Customer to recover premiums
or return premiums or other funds due hereunder to Clarendon
or insureds under the policies (hereinafter called "trust
funds"), MiliRisk shall be obligated to account on its own
records for such trust funds and to pay all sums for which it
cannot account. In any such proceeding it shall be
conclusively presumed that MiliRisk is liable for trust funds
which have not been timely paid, and MiliRisk waives (i) any
right it may have to assert any counterclaim, crossclaim, or
set-off of any kind in the proceeding, and (ii) any claim or
defense based on or relating to its use of the Customer's
reporting procedures as provided for in this Agreement, or any
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modification thereof. MiliRisk shall retain the right to bring
any separate proceeding it deems appropriate to recover on any
claims it may have, as a creditor or otherwise, but the
pendency of any such proceeding shall not delay, hinder or
defeat the Customer's right to promptly recover any trust
funds then due or to levy upon any judgment therefore.
ARTICLE 9. LIMITATION OF LIABILITY AND REMEDIES
9.1 If data is processed in error due to an error or defects in the
Services provided by MiliRisk, then upon MiliRisk receiving notice of
such error or defect, MiliRisk shall reprocess such data without
charge to Customer.
9.2 MiliRisk shall indemnify, protect, defend and hold Customer, its
officers, directors, shareholders and employees harmless from and
against any and all losses, damages, liabilities, fines, settlements,
penalties and judgments (including reasonable costs and attorney's
fees) (herein "Damages") arising out of or resulting from the
negligent, willful or intentional acts of MiliRisk performed in
connection with this Agreement or arising from a breach of this
Agreement by MiliRisk . Customer shall indemnify, protect, defend and
hold MiliRisk, its officers, directors, shareholders and employees
harmless from and against any and all Damages arising out of or
resulting from the negligent, willful or intentional acts of Customer
performed in connection with this Agreement or arising from a breach
of this Agreement by Customer. This indemnity shall survive the
earlier expiration or termination of this Agreement.
9.3 MiliRisk's liability to Customer for Damages arising from errors and
defects in performing the Services (whether the damage is based in
tort or contract, law or equity) is limited to an amount not to exceed
the usual and customary charges paid to MiliRisk under this Agreement
in any one month of this Agreement.
9.3 Customer's remedies and MiliRisk's liability for breaches of this
Agreement and errors or defects in the delivery of Services are
limited to the remedies and liabilities set forth in Sections 8.2,
9.1, 9.2 and 9.3 of this Agreement.
ARTICLE 10. GENERAL
10.1 The parties shall not be liable or deemed to be in default for any
delay or failure in performance under this Agreement or interruption
of Service resulting, directly or indirectly, from acts of God, civil
or military authority, labor disputes, shortages of suitable parts,
materials, labor or transportation or any similar cause beyond the
reasonable control of the parties.
10.2 All notices which are required to be given or submitted pursuant to
this Agreement shall be in writing and shall be either delivered in
person or sent by certified mail, return receipt requested, to the
address set forth herein or to such other address as the parties may
from time to time designate in writing for such purposes. Notices
shall be deemed to have been given at the time when personally
delivered or, if mailed in a certified post-paid envelope,
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upon the fifth day after the date such notice shall be postmarked. All
notices to MiliRisk shall be addressed to the attention of the Chief
Financial Officer.
10.3 The parties covenant and promise not to disclose the terms and
conditions of this Agreement to any third party unless expressly
agreed to by the parties. Notwithstanding the foregoing, the parties
agree that disclosure may be made to any auditors, regulators,
carriers, or reinsurers on a need to know basis only without prior
consent.
10.4 This Agreement and any Exhibits made a part hereof: (a) constitute the
entire Agreement between the parties and supersede and merge any and
all prior discussions, representations, negotiations, correspondence,
writings and other Agreements and together state the entire
understanding and Agreement between MiliRisk and Customer with respect
to the Services described; (b) may be amended or modified only in a
written instrument agreed to and signed by MiliRisk and Customer; and,
(c) shall be deemed to have been entered into and executed in the
State of Texas and shall be construed, performed and enforced in all
respects in accordance with the laws of that state. For purposes of
venue, this Agreement is performable in Tarrant County, Texas.
10.5 Neither party hereto shall be deemed to have waived any rights or
remedies accruing to it hereunder unless such waiver is in writing and
signed by such party. No delay or omission by either party hereto in
exercising any right shall operate as a waiver of said right on any
future occasion. All rights and remedies hereunder shall be cumulative
and may be exercised singularly or concurrently.
10.6 The descriptive headings of this Agreement are intended for reference
only and shall not affect the construction or interpretation of this
Agreement.
10.7 Wherever the singular of any term is used herein it shall be deemed to
include the plural wherever the plural thereof may be applicable.
10.8 The parties shall not assign this Agreement or any of its rights
hereunder without the prior written consent of the other party which
consent shall not be unreasonably withheld unless the proposed
assignment is to a competitor of the other party.
10.9 If any provision of this Agreement or any Exhibit hereto or the
application thereof to any party or circumstances shall, to any
extent, now or hereafter be or become invalid or unenforceable, the
remainder of this Agreement shall not be affected thereby and every
other provision of this Agreement shall be valid and enforceable, to
the fullest extent permitted by law.
10.10 In the event of any action between Customer and MiliRisk seeking
enforcement of any of the terms and conditions of this Agreement, the
prevailing party to such action shall be awarded its reasonable costs
and expenses, including its court costs and reasonable attorney's
fees.
10.11 The parties hereto are independent contractors of one another, and
they should not in any instance be construed as partners or joint
venturers.
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MILIRISK AND CUSTOMER CERTIFY BY THEIR UNDERSIGNED AUTHORIZED AGENTS
THAT THEY HAVE READ THIS AGREEMENT, INCLUDING ALL EXHIBITS HERETO, AND
AGREE TO BE BOUND BY THEIR TERMS AND CONDITIONS.
EXECUTED to be effective the 30th day of June, 1997.
Millers Integrated Claims Resources, Inc. Millers Casualty Insurance
Company.
BY: BY:
---------------------------------- ---------------------------------
Name: Name:
-------------------------------- -------------------------------
Title: Title:
------------------------------- ------------------------------
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EXHIBIT I
TO THE
CLAIMS LIFE CYCLE SERVICES AGREEMENT
BY AND BETWEEN
MILIRISK
AND
MILLERS CASUALTY INSURANCE COMPANY
A. SERVICES
During the term of this Agreement MiliRisk shall provide the Claims Life Cycle
Services defined below for the Lines of Business (Section B of this Exhibit I)
for the States specified (Section C of this Exhibit I) written by or through
Customer. MiliRisk will, in accordance with guidance and direction provided by
the Customer provide all Claims Life Cycle Services and general management of
these Services described here in for subject claims as follows:
1. Customer grants MiliRisk the authority to investigate, evaluate, and
handle each claim reported according to applicable state law, the
terms and conditions of the policy and any written standards provided
by Customer. MiliRisk shall not have any authority to alter or
discharge any policy or waive any policy provision or condition.
2. MiliRisk will set up a claims operation center that will function as a
control unit.
3. Loss reporting will be by toll free access provided to insureds and
agents.
4. Coverage will be verified on all cases.
5. MiliRisk will administer the appraisal/assessment process and will use
in this endeavor a combination of staff and vendor, adjusters, and
appraisers.
6. MiliRisk will perform all reasonable and necessary administrative and
clerical work in connection with claim or loss reports.
7. MiliRisk will establish and maintain a claim file for each reported
claim or loss with a copy of the policy for each reported claim. The
claim file will have a daily activity log which shall be reviewable at
any and all reasonable times by the Customer subject to the provisions
of Article 5 of the Agreement.
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8. MiliRisk will provide the Customer with litigation management and will
have control of choice of counsel. MiliRisk will not abandon files to
the control and handling by defense counsel. MiliRisk will work with
counsel to determine the best course of action within a reasonable
budget and will continue to do best efforts adjusting/investigation
activities within the scope of authority granted by the Customer.
9. MiliRisk will record and report each claim promptly to the Customer
with a recommended reserve. MiliRisk shall consult with Customer with
respect to any of the following:
(a) Any loss or claim resulting in legal action being instituted
against MiliRisk or the Customer;
(b) Any loss or claim causing a complaint to be filed with any
regulatory authority;
(c) Any inquiry from any regulatory authority, including but not
limited to any insurance department, with respect to any claim
or claims, even if no complaint causes such inquiry;
(d) Any claim MiliRisk deems appropriate to deny policy coverage
or involves a coverage dispute;
(e) Any claim which might ultimately result in the payment(s) in
excess of the lesser of (i) Twenty-five thousand ($25,000)
dollars or (ii) an amount established by the Florida
Department of Insurance. In the event of such claim, MiliRisk
shall forward a copy of the claim file to Customer at its
request;
(f) Any claim open for more than six months, or involves an
allegation of extra contractual obligations;
(g) Any claim involving a fatality, amputation, spinal cord or
brain damage, loss of eyesight, extensive burns, poisoning, or
multiple fractures; or
(h) Any claim involving a minor.
10. Within seven business days after the end of each calendar month,
MiliRisk will provide monthly, year-to-date and inception-to-date
reports on all claims activity, including new claims, claims closed
without payment, and changes to outstanding reserves as of the date
reported, all reported by Accident Year. The claim reports will
include:
(a) Information and statistical data (i) required by Insurance
Services Office ("ISO"), and (ii) necessary for Clarendon to
prepare any reports required by the National Association of
Insurance Commissioners, or (iii) other reports reasonably
requested by Customer;
(a) Loss Runs with paid claims and outstanding reserves remaining
at the end of each monthly report period, categorized as
indemnity, medical payment, or loss
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adjustment expense, plus any other information required by the
Annual Statement instructions or state regulatory agencies;
(b) Check Registers;
(c) Reserve Transaction Journal:
(d) Large Loss Listing, including cumulative paid and outstanding
reserves as of month end; and
(e) Aggregate Loss Runs (on a paid and incurred basis) by policy.
11. MiliRisk will perform a periodic review at mutually agreed upon
intervals of outstanding claim reserves, and recommend changes to
outstanding claim reserves.
12. MiliRisk will prepare checks and vouchers, compromises, releases,
agreements and any other documents reasonably necessary to finalize
and close claims. MiliRisk will issue payments of claims and allocate
loss adjustment expenses only on check of, and as authorized by, the
Customer.
For purposes of settling claims and paying claim related expenses,
Customer has agreed Customer to establish, maintain and fund a
separate bank account from which MiliRisk may draw against as
hereinafter set forth (the "Claim Account"). MiliRisk shall not retain
more than three months estimated claims payments and allocated loss
adjustment expenses in the Claim Account.
Customer agrees to deposit additional funds into the Claims Account on
a weekly basis if necessary to maintain it at a level sufficient to
allow MiliRisk to carry out its obligations under this Agreement.
MiliRisk shall regularly provide information and estimates to Customer
to enable Customer to maintain the Claims Account at an appropriate
level. Customer shall provide to MiliRisk such information as is
necessary for MiliRisk to draw checks on the Claims Account.
MiliRisk hereby guarantees that any check it prepares will be signed
and issued only in accordance with the procedures adopted by Customer.
Any check prepared by MiliRisk on the Claims Account must be signed by
two authorized individuals.
MiliRisk shall maintain a daily register of checks drawn on the Claim Account
for each loss payment (the "Claim Register"). The Claim Register shall include,
for each claim and/or claimant, the claim number, policy number, loss date, the
name of payee, the date and check number of the disbursement, and the amount
and type or purpose of the payment (i.e., indemnity, loss adjustment expense,
etc.). MiliRisk shall forward a copy of the Claim Register to Customer on a
monthly basis.
MiliRisk shall promptly deposit any monies collected through salvage and
subrogation to the Claim Account, and maintain a register of all such
collections and deposits (the "Salvage and Subrogation Register") The Salvage
and Subrogation Register shall include, but shall not be
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limited to, the following information: date of deposit, date of receipt of
funds, the claim number, the payor, and the amount and purpose of such payment.
MiliRisk shall reconcile the Claim Register and the Salvage and Subrogation
Register to the Claim Account on a monthly basis.
13. Service standards and claims documentation will be to standards set by
the Customer and agreed to by MiliRisk. At a minimum, MiliRisk will
be in compliance with all State regulations dealing with the adjusting
and handling of claims. MiliRisk will periodically review the
development of the claims handling procedure with the Customer to
identify problems and recommend corrective action.
14. MiliRisk will diligently pursue and prosecute Clarendon's salvage and
subrogation rights relating to any losses. MiliRisk will use all
reasonable efforts to collect and deposit funds arising from the
enforcement of such rights into the Claim Account. MiliRisk will
report monthly on salvage/subrogation receipts.
15. MiliRisk will provide Customer with a maximum of four (4) copies each
of the standard monthly Risk Management Information Reports (RMIS)
which are detail claims register, a loss run, check register, reserve
transaction journal, and a large loss listing. MiliRisk will also
provide Customer with data described in Exhibit III.
16. MiliRisk will produce 1099's per IRS regulations for vendors whose
services are not included within the basic fee for Claims Life Cycle
Services.
B. AUTHORIZED LINES OF BUSINESS:
Homeowners (HO3)
C. AUTHORIZED STATES-
Florida
D. LOCATION OF PROVISION OF SERVICES:
MiliRisk shall provide the Services defined above at the MiliRisk
service center in Fort Worth, Texas and/or at a site in Florida.
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EXHIBIT II
SERVICE FEES & RATES
CONSULTANTS $125.00 per hour
PROGRAMMERS $125.00 per hour
CLAIMS LIFE CYCLE SERVICES
Fees will be based upon 7% of earned premium for non-catastrophe
claims and 5% of incurred loss for catastrophe claims.
IMPLEMENTATION PERIOD
Design, construction, and implementation of software systems to
support contract.
SPECIAL FEES
Claim system modifications will be charged to the Customer on a time
and materials basis utilizing the appropriate mix of service personnel
required to perform the modification. Additional reports or
modifications to agreed upon reports will also be charged to the
Customer on a time and materials basis utilizing the appropriate mix
of service personnel required to perform the modifications or produce
new reports. Hourly rates for such personnel are listed above.
LEGAL EXPENSES ARE EXCLUDED FROM ALL FEES AND WILL BE PASSED THROUGH TO
CUSTOMER.
GROSS DIRECT EARNED PREMIUM FOR THE BILLING MONTH AND INCURRED CATASTROPHE
LOSS, IF ANY, WILL BE THE BASIS OF FEES FOR THAT MONTH.
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EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
this 1st day of July, 1997, to be effective on July 1, 1997 (the "Effective
Date"), by and between MiliRisk, Inc., a Texas corporation ("Employer"), and
Terry G. Gaines, a resident of Texas ("Employee").
W I T N E S S E T H:
WHEREAS, Employer is a corporation engaged in business in the State of
Texas and throughout the United States;
WHEREAS, Employer desires to employ Employee in the capacity of
Executive Vice President and Chief Financial Officer, upon the terms and
conditions hereinafter set forth; and
WHEREAS, Employee is willing to enter into this Agreement with respect
to his employment and services upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions hereinafter set
forth:
1. Term of Employment. The term of employment under this Agreement
shall be for a period of three (3) years, commencing on the Effective Date and
terminating on June 30, 2000, unless such employment is terminated or extended
prior to the expiration of said period as hereinafter provided.
2. Duties of Employee. Employee agrees that during the term of this
Agreement, he will devote his full professional and business-related time,
skills and best efforts to the businesses of Employer in the capacity of
Executive Vice President and Chief Financial Officer, or such other capacity as
Employer and Employee may agree upon. If there are major significant changes in
the duties or responsibilities of Employee from those listed as Prohibited
Activities on Exhibit A attached hereto, that are not mutually agreed upon,
Employee may terminate his employment within sixty (60) days of any such
change. In addition, Employee shall devote all necessary time and his best
efforts in the performance of any other duties as may be assigned to him from
time to time by the Board of Directors of Employer including, but not limited
to, serving on Employer's Board of Directors if elected. Employee shall devote
his full professional and business skills to Employer as his primary
responsibility. Employee may engage in personal, passive investment activities
provided such activities do not interfere with the performance of his duties
hereunder and violate the noncompetition and nondisclosure provisions set forth
herein.
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3. Compensation.
(a) Base Salary. Employer shall pay Employee an annual base salary
of one hundred fifteen thousand dollars ($115,000) per annum (or
fraction for portions of a year). Such base salary will be adjusted
from time to time in accordance with then current standard salary
administration guidelines of Employer. Employee's salary shall be
subject to all appropriate federal and state withholding taxes and
shall be payable in accordance with the normal payroll procedures of
Employer.
(b) Annual Bonus. In addition to the salary set forth in Section
3(a) hereof, Employee shall receive a bonus each year during the term
of this Agreement in an amount equal to a percentage of a certain net
income target set for each year as established annually in an annual
planning session. If 100% or more of such annual target is achieved in
any year, Employee shall receive in such year a bonus of 50% of his
base salary (the "Maximum Bonus"). If less than 100% of such target is
achieved in any year, Employee shall receive in such year a bonus of a
certain percentage of the Maximum Bonus as determined in accordance
with Schedule 3(b) attached hereto.
(c) Stock Options. Employee shall be granted stock options for
shares of common stock of Employer pursuant to the terms of a Stock
Option Agreement granted under the MiliRisk, Inc. 1997 Stock Option
Plan, as amended, a copy of which has been provided to Employee. The
number of shares of common stock, exercise price and date of grant for
such options is set forth on Schedule 3(c) attached hereto.
(d) Automobile Allowance. During the term of this Agreement,
Employer shall provide Employee with a monthly automobile allowance of
six hundred and fifty dollars ($650.00). Such allowance shall be paid
by Employer to Employee on the first workday of each month or on such
other day during the month as Employer and Employee shall mutually
determine.
4. Fringe Benefits. The terms of this Agreement shall not foreclose
Employee from participating with other employees of Employer in such fringe
benefit or incentive compensation plans as may be authorized and adopted from
time to time by Employer; provided, however, that Employee must meet any and
all eligibility provisions required under said fringe benefit or incentive
compensation plans. Employee may be granted such other fringe benefits or
perquisites as Employee and Employer may from time to time agree upon.
5. Vacations. Employee shall be entitled to the number of paid
vacation days in each calendar year as shall be determined by the Board of
Directors of Employer from time to time. In no event, however, shall Employee
be entitled to less than four weeks paid vacation during each calendar year.
6. Reimbursement of Expenses. Employer recognizes that Employee will
incur legitimate business expenses in the course of rendering services to
Employer hereunder.
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<PAGE> 3
Accordingly, Employer shall reimburse Employee, upon presentation of receipts
or other adequate documentation, for all necessary and reasonable business
expenses incurred by Employee in the course of rendering services to Employer
under this Agreement.
7. Working Facilities. Employee shall be furnished an office, personal
secretary and such other facilities and services suitable to his position and
adequate for the performance of his duties, which shall be consistent with the
policies of Employer.
8. Termination. The employment relationship between Employee and
Employer created hereunder shall terminate before the expiration of the stated
term of this Agreement upon the occurrence of any one of the following events:
(a) Death or Permanent Disability. The death or permanent
disability of Employee. For the purpose of this Agreement, the
"permanent disability" of Employee shall mean Employee's inability,
because of his injury, illness, or other incapacity (physical or
mental), to perform the essential functions of the position
contemplated herein, with or without reasonable accommodation to
Employee with respect to such injury, illness or other incapacity, for
a continuous period of 150 days or for 180 days out of a continuous
period of 360 days. Such permanent disability shall be deemed to have
occurred on the 150th consecutive day or on the 180th day within the
specified period, whichever is applicable.
(b) Termination for Cause. The following events, which for purposes
of this Agreement shall constitute "cause" for termination:
(1) The willful breach by Employee of any provision of Sections
2, 11, 12, or 13 hereof (including but not limited to a refusal to
follow lawful directives of the Board of Directors of Employer)
after notice to Employee of the particular details thereof and a
period of 10 days thereafter within which to cure such breach and
the failure of Employee to cure such breach within such 10 day
period;
(2) Any act of fraud, misappropriation or embezzlement by
Employee with respect to any aspect of Employer's business;
(3) The illegal use of drugs by Employee during the term of
this Agreement that, in the determination of the Board of Directors
of Employer, substantially interferes with Employee's performance
of his duties hereunder;
(4) Substantial failure of performance by Employee that is
repeated or continued after 30 day written notice to Employee of
such failure and that is reasonably determined by the Board of
Directors of Employer to be materially injurious to the business or
interests of Employer and which failure is not cured by Employee
within such 30 day period; or
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<PAGE> 4
(5) Conviction of Employee by a court of competent jurisdiction
of a felony or of a crime involving moral turpitude.
Any notice of discharge shall describe with reasonable specificity
the cause or causes for the termination of Employee's employment, as
well as the effective date of the termination (which effective date
may be the date of such notice). If Employer terminates Employee's
employment for any of the reasons set forth above, Employer shall have
no further obligations hereunder from and after the effective date of
termination (other than as set forth below) and shall have all other
rights and remedies available under this or any other agreement and at
law or in equity.
(c) Termination by Employee with Notice. Employee may terminate
this Agreement without liability to Employer arising from the
resignation of Employee upon one (1) year written notice to Employer.
Employer retains the right after proper notice of Employee's voluntary
termination to require Employee to cease employment immediately;
provided, however, in such event, Employer shall remain obligated to
pay Employee his salary during the one (1) year notice period or the
remaining term of this Agreement, whichever is less. During such one
(1) year notice period, Employee shall provide such consulting
services to Employer as Employer may reasonably request and shall
assist Employer in training his successor and generally preparing for
an orderly transition.
(d) Termination by Employer with Notice. Employer may terminate
this Agreement at any time upon one (1) year written notice to
Employee; provided, however, upon such notice Employee shall not be
required to perform any services for Employer other than during the
period of three (3) months immediately following the receipt of such
notice of termination in which Employee shall assist Employer in
training his successor and generally preparing for an orderly
transition.
9. Compensation Upon Termination.
(a) General. Upon the termination of Employee's employment under
this Agreement before the expiration of the stated term hereof for any
reason, Employee shall be entitled to (i) the salary earned by him
before the effective date of termination, as provided in Section 3(a)
hereof, prorated on the basis of the number of full days of service
rendered by Employee during the year to the effective date of
termination, (ii) any accrued, but unpaid, vacation or sick leave
benefits, (iii) any authorized but unreimbursed business expenses, and
(iv) any accrued, but unpaid annual bonus.
(b) Termination For Other Than Cause. If such termination is the
result of the discharge of Employee by Employer for any reason other
than (i) his death or permanent disability, (ii) by Employer or
Employee with notice pursuant to Section 8(d) or 8(c), respectively,
or (iii) for cause (as defined in Section 8(b) hereof), then Employee
shall be entitled to receive as a severance payment an amount equal to
the salary (excluding bonuses) that Employee would have received for
the remainder of the term
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<PAGE> 5
of this Agreement in accordance with the regular payroll periods
during the remainder of the term of this Agreement. If Employee's
employment hereunder terminates because of the death of Employee, all
amounts that may be due to him under the terms of this Agreement
shall be paid to his administrators, personal representatives, heirs
and legatees, as may be appropriate.
(c) Termination For Cause. If the employment relationship hereunder
is terminated by Employer for cause (as defined in Section 8(b)
hereof), Employee shall not be entitled to any severance compensation,
except as provided in Section 9(a) above.
(d) Termination by Employer with Notice. If the employment
relationship is terminated by Employer other than for cause or the
permanent disability of Employee, then Employee shall be entitled to
receive as a severance payment and as compensation for all services
performed hereunder pursuant to Section 8(d) hereof an amount equal to
the salary that Employee would have received for the remainder of the
term of this Agreement or one (1) year, whichever is less, in
accordance with the regular payroll periods of Employer during the
applicable period.
(e) Termination by Employee with Notice. If the employment
relationship is terminated by Employee pursuant to the provisions of
Section 8(c) hereof, Employee shall be entitled to receive as a
severance payment and as compensation for all services performed
hereunder pursuant to Section 8(c) hereof the salary that Employee
would have received for the remainder of the term of this Agreement or
one (1) year, whichever is less, in accordance with the regular
payroll period of Employer during the applicable period.
(f) Survival. The provisions of Sections 9, 11, 12, and 13 hereof
shall survive the termination of the employment relationship hereunder
and this Agreement to the extent necessary or reasonably appropriate
to effect the intent of the parties hereto as expressed in such
provisions.
10. Other Agreements. This Agreement shall be separate and apart from,
and shall be deemed to alter the terms of, any executive compensation
agreements, deferred compensation agreements, bonus agreements, general
employment benefits plans, stock option plans and any other plans or agreements
entered into between Employee and Employer pursuant to which Employee has been
granted specific rights, benefits or options.
11. Noncompetition. Employee agrees that, during his employment with
Employer and for a period of three (3) years from the date of termination of
his employment with Employer, he will not directly or indirectly compete with
Employer by engaging in the activities set forth on Exhibit A attached hereto
and incorporated herein by reference (the "Prohibited Activities") within the
geographic area that is set forth on Exhibit B attached hereto (the "Restricted
Area"). For purposes of this Section 11, Employee recognizes and agrees that
Employer conducts and will conduct business in the entire Restricted Area and
that Employee will perform his duties for Employer within the entire Restricted
Area. Employee shall be deemed to be engaged in and carrying on the Prohibited
Activities if he engages in the Prohibited Activities in any capacity
5
<PAGE> 6
whatsoever, including, but not limited to, by or through a partnership of which
he is a general or limited partner or an employee engaged in such activities,
or by or through a corporation or association of which he owns five percent
(5%) or more of the stock or of which he is an officer, director, employee,
member, representative, joint venturer, independent contractor, consultant or
agent who is engaged in such activities. Employee agrees that during the three
(3) year period described above, he will notify Employer of the name and
address of each employer with whom he has accepted employment during such
period. Such notification shall be made in writing within five (5) days after
Employee accepts any employment or new employment by certified mail, return
receipt requested.
12. Confidential Data. Employee further agrees that, during his
employment with Employer and thereafter, he will keep confidential and not
divulge to anyone, disseminate nor appropriate for his own benefit or the
benefit of another any confidential information described in Exhibit C attached
hereto and incorporated by reference herein (the "Confidential Data"). Employee
hereby acknowledges and agrees that this prohibition against disclosure of
Confidential Data is in addition to, and not in lieu of, any rights or remedies
that Employer may have available pursuant to the laws of any jurisdiction or at
common law to prevent the disclosure of trade secrets, and the enforcement by
Employer of its rights and remedies pursuant to this Agreement shall not be
construed as a waiver of any other rights or available remedies that it may
possess in law or equity absent this Agreement.
13. Nonsolicitation of Employees. Employee covenants that, during his
employment with Employer and for a period of one (1) year from the date of
termination of his employment with Employer, he will not (i) directly or
indirectly induce or attempt to induce any employee of Employer to terminate
his or her employment or (ii) without prior written consent of Employer, offer
employment either on behalf of himself or on behalf of any other individual or
entity to any employee of Employer or to any terminated employee of Employer.
14. Property of Employer. Employee acknowledges that from time to time
in the course of providing services pursuant to this Agreement he shall have
the opportunity to inspect and use certain property, both tangible and
intangible, of Employer and Employee hereby agrees that such property shall
remain the exclusive property of Employer, and Employee shall have no right or
proprietary interest in such property, whether tangible or intangible,
including, without limitation, Employee's customer and supplier lists, contract
forms, books of account, computer programs and similar property.
15. Equitable Relief. Employee acknowledges that the services to be
rendered by him are of a special, unique, unusual, extraordinary, and
intellectual character, which gives them a peculiar value, and the loss of
which cannot reasonably or adequately be compensated in damages in an action at
law, and that a breach by him of any of the provisions contained in this
Agreement will cause Employer irreparable injury and damage. Employee further
acknowledges that he possesses unique skills, knowledge and ability and that
competition by him in violation of this Agreement or any other breach of the
provisions of this Agreement would be extremely detrimental to Employer. By
reason thereof, Employee agrees that Employer shall be entitled, in
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<PAGE> 7
addition to any other remedies it may have under this Agreement or otherwise,
to injunctive and other equitable relief to prevent or curtail any breach of
this Agreement by him.
16. "Change of Control". In the event (each such event, a "Change of
Control"): (1) Employer becomes a subsidiary of another corporation or entity
or is merged or consolidated into another corporation or entity or
substantially all of the assets of Employer are sold to another corporation or
entity; or (2) any person, corporation, partnership or other entity, either
alone or in conjunction with its "affiliates," as that term is defined in Rule
405 of the General Rules and Regulations under the Securities Act of 1933, as
amended, or other group of persons, corporations, partnerships or other
entities who are not "affiliates" but who are acting in concert, becomes the
owner of record or beneficially of securities of Employer that represent
thirty-three and one-third percent (33 1/3%) or more of the combined voting
power of Employer's then outstanding securities entitled to elect Directors; or
(3) the Board of Directors of Employer or a committee thereof makes a
determination in its reasonable judgment that a "Change of Control" of Employer
has taken place; the term during which this Agreement shall be effective shall
include the remaining term of this Agreement following the date of the Change
of Control plus two (2) years, and Employee's compensation for such period
shall be based on the following formula, shall be subject to the following
conditions, and shall be in lieu of the compensation provided for under Section
3 of this Agreement and in lieu of the compensation upon termination provided
for under Section 9 of this Agreement (except for Section 9(a), which shall
still apply):
(a) Employee shall be paid an annual salary for the remaining term
of this Agreement plus two (2) years consisting of one hundred percent
(100%) of the average amount of total cash compensation, excluding
payments made under tax benefit bonuses paid upon the lapse of resale
restrictions on common stock for certain officers, of Employee for the
two (2) calendar years prior to the Change of Control.
(b) Employee shall be paid an annual amount for the remaining term
of this Agreement plus two (2) years in consideration of the
noncompetition covenant of Section 11 of this Agreement consisting of
fifty percent (50%) of the average amount of total cash compensation,
excluding payments made under tax benefit bonuses paid upon the lapse
or resale restrictions on common stock for certain officers, of
Employee for the two (2) calendar years prior to the Change of
Control. Such annual amounts shall be paid quarterly in advance.
(c) Notwithstanding any of the provisions of this Agreement, the
amount of all payments to be made pursuant to this Section 16 after a
Change of Control shall not exceed one dollar ($1.00) less than that
amount that would cause any such payment to be deemed a "parachute
payment" as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and as Section 280G of the Code is then
in effect at the time of such payment.
(d) Any payments made to Employee following a Change of Control
that shall be disallowed, in whole or in part, as a deductible expense
to Employer for Federal income tax purposes by the Internal Revenue
Service on the basis that Section 280G of the Code
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<PAGE> 8
prohibits such deduction shall be reimbursed by Employee to the full
extent of such disallowance within six (6) months after the date of
which the amount of such disallowance has been finally determined and
Employer has paid the deficiency with respect to such disallowance.
Employer shall legally defend any proposed disallowance by the
Internal Revenue Service and the amount required to be reimbursed by
Employee shall be the amount determined by an appropriate court in a
final, nonappealable decision that is actually disallowed as a
deduction. In lieu of payment to Employer by Employee, Employer may,
in its discretion, withhold amounts from Employee's future
compensation payments until the amount owed to Employer has been
fully recovered. No such withholding shall occur prior to the date on
which Employee would be required to make reimbursement as provided
herein.
(e) If the limitation set forth in this Section 16(c) may at any
time become applicable to the amounts otherwise due pursuant to
paragraphs (a) and (b) of Section 16, then Employer shall continue to
pay Employee all amounts as provided under paragraphs (a) and (b) of
Section 16 until such time as cumulative payments equal the aggregate
amount as limited by paragraph (c), and Employee may terminate his
employment relationship with Employer on three (3) months notice at
any time within the last twelve (12) months of the time period during
which the payments described in this Section 16(e) will be paid
without affecting his rights to receive such payments.
(f) Employer shall have no obligation to pay the amounts set forth
in paragraphs (a) and (b) of Section 16 as limited by paragraph (c) if
there is reasonable proof that the noncompetition or confidential data
provisions of Sections 11 and 12, respectively, of this Agreement are
being violated.
(g) In the event the employment relationship is terminated for
cause (pursuant to Section 8(b) hereof) following a Change of Control,
Employer shall not be obligated to make any further payments of the
compensation amounts provided for in this Agreement, except as
provided in Section 9(a) above. Notwithstanding any other provision of
this Agreement, except for paragraphs (e) and (j) of this Section 16,
which shall control in the event Employee terminates employment as
provided in paragraphs (e) and (j), in the event Employee voluntarily
terminates employment following a Change of Control for other than
Good Reason, as defined hereinafter, compensation amounts set forth in
paragraphs (a) and (b) shall be payable only for a one (1) year period
following termination of employment.
"Good Reason" to terminate employment with Employer occurs if: (1)
duties are assigned that are materially inconsistent with previous
duties; (2) duties and responsibilities are substantially reduced; (3)
base compensation is reduced not as part of an across the board
reduction for all senior officers or executives; (4) participation
under compensation plans or arrangements generally made available to
persons at Employee's level of responsibility at Employer is denied;
(5) a successor fails to assume this Agreement; or (6) termination is
made without compliance with prescribed procedures.
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<PAGE> 9
(h) In the event Employee is involuntarily terminated by Employer
without cause, Employee voluntarily terminates employment for Good
Reason or the employment relationship is terminated by death or
permanent disability of Employee, Employer's obligation to pay the
compensation amounts provided in this Section 16 shall survive
termination of employment.
(i) In the event of termination of employment during the
pendency of a "Potential Change of Control", as hereinafter defined,
paragraphs (g) and (h) of this Section 16 shall apply as if an actual
Change of Control had taken place. A "Potential Change of Control"
shall be deemed to have occurred if: (1) Employer has entered into an
agreement or letter of intent the consummation of which would result
in a Change of Control; (2) any person publicly announces an intention
to take or to consider taking actions that, if consummated, would
constitute a Change of Control; or (3) the Board of Directors of
Employer or a committee thereof in its reasonable judgment makes a
determination that a Potential Change of Control for purposes of this
Agreement has occurred. A Potential Change of Control remains pending
for purposes of receiving payments under this Agreement until the
earlier of the occurrence of a Change of Control or a determination by
the Board of Directors or a committee thereof (at any time) that a
Change of Control is no longer reasonably expected to occur.
(j) Notwithstanding anything contained in this Agreement to the
contrary, Employee and Employer, or the person, corporation,
partnership or other entity acquiring control of Employer pursuant to
this Section 16, with the concurrence of the Chief Executive Officer
and Compensation Committee of the Board of Directors of Employer, may
mutually agree that Employee, with three (3) months' notice, may
terminate his employment and receive a lump sum payment equal to the
present value of remaining payments under this Agreement discounted by
the then current Treasury Bill rate for the remaining term of this
Agreement.
17. Successors Bound. This Agreement shall be binding upon Employer
and Employee, their respective heirs, executors, administrators or successors
in interest, including without limitation, any corporation, partnership or
other entity acquiring control of Employer pursuant to Section 16 hereof.
18. Severability and Reformation. The parties hereto intend all
provisions of this Agreement to be enforced to the fullest extent permitted by
law. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof, and the
remaining provisions shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance.
19. Integrated Agreement. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
and there are no agreements,
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<PAGE> 10
understandings, specific restrictions, warranties or representations relating
to said subject matter between the parties other than those set forth herein or
herein provided for.
20. Attorneys' Fees. If any action at law or in equity, including any
action for declaratory or injunctive relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees from the nonprevailing party, which fees may
be set by the court in the trial of such action, or may be enforced in a
separate action brought for that purpose, and which fees shall be in addition
to any other relief which may be awarded.
21. Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice:
(a) If to Employer: MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No.: (800) 826-9865
(b) If to Employee: 2304 Ox Bow Ct.
Arlington, Texas 76006
Notice so given shall, in the case of notice so given by mail, be
deemed to be given and received on the fourth calendar day after posting, in
the case of notice so given by overnight delivery service, on the date of
actual delivery and, in the case of notice so given by cable, telegram,
facsimile transmission, telex or personal delivery, on the date of actual
transmission or, as the case may be, personal delivery.
22. Further Actions. Whether or not specifically required under the
terms of this Agreement, each party hereto shall execute and deliver such
documents and take such further actions as shall be necessary in order for such
party to perform all of his or its obligations specified herein or reasonably
implied from the terms hereof.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE
OF TEXAS.
24. Assignment. This Agreement is personal to Employee and may not be
assigned in any way by Employee without the prior written consent of Employer.
This Agreement shall not be assignable or delegable by Employer, other than to
an affiliate of Employer, except if there is a
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Change of Control as defined in Section 16, Employer may assign its rights and
obligations hereunder to the person, corporation, partnership or other entity
that has gained such control.
25. Counterparts. This Agreement may be executed in counterparts, each
of which will take effect as an original and all of which shall evidence one
and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
MILIRISK, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EMPLOYEE:
---------------------------------------
Terry G. Gaines
11
<PAGE> 12
EXHIBIT A
PROHIBITED ACTIVITIES
Acting in any capacity, either individually or with any corporation,
partnership or other entity, directly or indirectly, in providing, or proposing
to provide, data processing software systems, related automation support
services and information services to the insurance industry, including, but not
limited to, application software, processing, consulting and related services,
in the performance of any of the following types of duties in any part of the
insurance industry:
1. The performance of the sales and marketing functions.
2. The responsibility for sales revenue generation.
3. The responsibility for customer satisfaction.
4. The responsibility for research and development of insurance data
base products.
5. The responsibility for the research and development of information
data processing systems and services.
6. The providing of input to pricing of products.
7. The planning and management of data processing services resources.
8. The coordination of the efforts of the various aspects of computer
systems services organizations with other functions.
9. The planning and management of information services resources.
10. The providing and management of an operations staff to support the
above listed activities.
<PAGE> 13
EXHIBIT B
RESTRICTED AREA
Fifty mile radius of the city limits of the following cities:
Dallas/Fort Worth, Texas Milwaukee, Wisconsin
Boston, Massachusetts Sheboygan, Wisconsin
Columbia, South Carolina
<PAGE> 14
EXHIBIT C
CONFIDENTIAL INFORMATION
1. All software/systems (including all present, planned and future
software), whether licenses or unlicensed, developed by or on behalf of or
otherwise acquired by MiliRisk, Inc. or any of its subsidiaries.
"All software/system" shall mean:
o all code in whatever form
o all data pertaining to the architecture and design of such
software systems
o all documentation in whatever form
o all flowcharts
o any reproduction or recreation in whole or in part of any of the
above in whatever form.
2. All business plans and strategies including:
o strategic plans
o product plans
o marketing plans
o financial plans
o operating plans
o resource plans
o all research and development plans including all data produced
by such efforts.
3. Internal policies, procedures, methods and approaches which are
unique to MiliRisk, Inc. and are not public.
4. Any information relating to the employment, job responsibility,
performance, salary and compensation of any present or future officer or
employee of MiliRisk, Inc.
<PAGE> 15
SCHEDULE 3(b)
ANNUAL BONUS
<TABLE>
<CAPTION>
% of net income target achieved % of Maximum Bonus
- ------------------------------- ------------------
More than Up to
- --------- -----
<S> <C> <C>
100% or more 100%
90% 100% 90%
80% 90% 75%
70% 80% 60%
60% 70% 45%
50% 60% 30%
40% 50% 15%
30% 40% 10%
20% 30% 5%
20% or less 0%
</TABLE>
<PAGE> 16
SCHEDULE 3(c)
STOCK OPTIONS
IPO OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
---------------- -------------- -------------
Pre-Split Post-Split
<S> <C> <C> <C>
865 93,154 Initial Price to Public Date of IPO
</TABLE>
<PAGE> 1
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
this 1st day of July, 1997, to be effective on July 1, 1997 (the "Effective
Date"), by and between MiliRisk, Inc., a Texas corporation ("Employer"), and
Ronald O. Lynn, a resident of Texas ("Employee").
W I T N E S S E T H:
WHEREAS, Employer is a corporation engaged in business in the State of
Texas and throughout the United States;
WHEREAS, Employer desires to employ Employee in the capacity of
Executive Vice President and Chief Information Officer, upon the terms and
conditions hereinafter set forth; and
WHEREAS, Employee is willing to enter into this Agreement with respect
to his employment and services upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions hereinafter set
forth:
1. Term of Employment. The term of employment under this
Agreement shall be for a period of three (3) years, commencing on the Effective
Date and terminating on June 30, 2000, unless such employment is terminated or
extended prior to the expiration of said period as hereinafter provided.
2. Duties of Employee. Employee agrees that during the term of
this Agreement, he will devote his full professional and business-related time,
skills and best efforts to the businesses of Employer in the capacity of
Executive Vice President and Chief Information Officer, or such other capacity
as Employer and Employee may agree upon. If there are major significant
changes in the duties or responsibilities of Employee from those listed as
Prohibited Activities on Exhibit A attached hereto, that are not mutually
agreed upon, Employee may terminate his employment within sixty (60) days of
any such change. In addition, Employee shall devote all necessary time and his
best efforts in the performance of any other duties as may be assigned to him
from time to time by the Board of Directors of Employer including, but not
limited to, serving on Employer's Board of Directors if elected. Employee
shall devote his full professional and business skills to Employer as his
primary responsibility. Employee may engage in personal, passive investment
activities provided such activities do not interfere with the performance of
his duties hereunder and violate the noncompetition and nondisclosure
provisions set forth herein.
<PAGE> 2
3. Compensation.
(a) Base Salary. Employer shall pay Employee an annual
base salary of one hundred fifteen thousand dollars ($115,000) per
annum (or fraction for portions of a year). Such base salary will be
adjusted from time to time in accordance with then current standard
salary administration guidelines of Employer. Employee's salary shall
be subject to all appropriate federal and state withholding taxes and
shall be payable in accordance with the normal payroll procedures of
Employer.
(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall receive a bonus each year during
the term of this Agreement in an amount equal to a percentage of a
certain net income target set for each year as established annually in
an annual planning session. If 100% or more of such annual target is
achieved in any year, Employee shall receive in such year a bonus of
50% of his base salary (the "Maximum Bonus"). If less than 100% of
such target is achieved in any year, Employee shall receive in such
year a bonus of a certain percentage of the Maximum Bonus as
determined in accordance with Schedule 3(b) attached hereto.
(c) Stock Options. Employee shall be granted stock
options for shares of common stock of Employer pursuant to the terms
of a Stock Option Agreement granted under the MiliRisk, Inc. 1997
Stock Option Plan, as amended, a copy of which has been provided to
Employee. The number of shares of common stock, exercise price and
date of grant for such options is set forth on Schedule 3(c) attached
hereto.
(d) Automobile Allowance. During the term of this
Agreement, Employer shall provide Employee with a monthly automobile
allowance of six hundred and fifty dollars ($650.00). Such allowance
shall be paid by Employer to Employee on the first workday of each
month or on such other day during the month as Employer and Employee
shall mutually determine.
(e) Phone Allowance. During the term of this Agreement,
Employer shall provide Employee with a monthly phone allowance of
fifty dollars ($50.00). Such allowance shall be paid by Employer to
Employee on the first workday of each month or on such other day
during the month as Employer and Employee shall mutually determine.
4. Fringe Benefits. The terms of this Agreement shall not
foreclose Employee from participating with other employees of Employer in such
fringe benefit or incentive compensation plans as may be authorized and adopted
from time to time by Employer; provided, however, that Employee must meet any
and all eligibility provisions required under said fringe benefit or incentive
compensation plans. Employee may be granted such other fringe benefits or
perquisites as Employee and Employer may from time to time agree upon.
5. Vacations. Employee shall be entitled to the number of paid
vacation days in each calendar year as shall be determined by the Board of
Directors of Employer from time to time. In no event, however, shall Employee
be entitled to less than four weeks paid vacation during each calendar year.
<PAGE> 3
6. Reimbursement of Expenses. Employer recognizes that Employee
will incur legitimate business expenses in the course of rendering services to
Employer hereunder. Accordingly, Employer shall reimburse Employee, upon
presentation of receipts or other adequate documentation, for all necessary and
reasonable business expenses incurred by Employee in the course of rendering
services to Employer under this Agreement.
7. Working Facilities. Employee shall be furnished an office,
personal secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties, which shall be
consistent with the policies of Employer.
8. Termination. The employment relationship between Employee and
Employer created hereunder shall terminate before the expiration of the stated
term of this Agreement upon the occurrence of any one of the following events:
(a) Death or Permanent Disability. The death or
permanent disability of Employee. For the purpose of this Agreement,
the "permanent disability" of Employee shall mean Employee's
inability, because of his injury, illness, or other incapacity
(physical or mental), to perform the essential functions of the
position contemplated herein, with or without reasonable accommodation
to Employee with respect to such injury, illness or other incapacity,
for a continuous period of 150 days or for 180 days out of a
continuous period of 360 days. Such permanent disability shall be
deemed to have occurred on the 15th consecutive day or on the 180th
day within the specified period, whichever is applicable.
(b) Termination for Cause. The following events, which
for purposes of this Agreement shall constitute "cause" for
termination:
(1) The willful breach by Employee of any
provision of Sections 2, 11, 12, or 13 hereof (including but
not limited to a refusal to follow lawful directives of the
Board of Directors of Employer) after notice to Employee of
the particular details thereof and a period of 10 days
thereafter within which to cure such breach and the failure of
Employee to cure such breach within such 10 day period;
(2) Any act of fraud, misappropriation or
embezzlement by Employee with respect to any aspect of
Employer's business;
(3) The illegal use of drugs by Employee during
the term of this Agreement that, in the determination of the
Board of Directors of Employer, substantially interferes with
Employee's performance of his duties hereunder;
3
<PAGE> 4
(4) Substantial failure of performance by
Employee that is repeated or continued after 30 day written
notice to Employee of such failure and that is reasonably
determined by the Board of Directors of Employer to be
materially injurious to the business or interests of Employer
and which failure is not cured by Employee within such 30 day
period; or
(5) Conviction of Employee by a court of
competent jurisdiction of a felony or of a crime involving
moral turpitude.
Any notice of discharge shall describe with reasonable
specificity the cause or causes for the termination of Employee's
employment, as well as the effective date of the termination (which
effective date may be the date of such notice). If Employer
terminates Employee's employment for any of the reasons set forth
above, Employer shall have no further obligations hereunder from and
after the effective date of termination (other than as set forth
below) and shall have all other rights and remedies available under
this or any other agreement and at law or in equity.
(c) Termination by Employee with Notice. Employee may
terminate this Agreement without liability to Employer arising from
the resignation of Employee upon one (1) year written notice to
Employer. Employer retains the right after proper notice of
Employee's voluntary termination to require Employee to cease
employment immediately; provided, however, in such event, Employer
shall remain obligated to pay Employee his salary during the one (1)
year notice period or the remaining term of this Agreement, whichever
is less. During such one (1) year notice period, Employee shall
provide such consulting services to Employer as Employer may
reasonably request and shall assist Employer in training his successor
and generally preparing for an orderly transition.
(d) Termination by Employer with Notice. Employer may
terminate this Agreement at any time upon one (1) year written notice
to Employee; provided, however, upon such notice Employee shall not be
required to perform any services for Employer other than during the
period of three (3) months immediately following the receipt of such
notice of termination in which Employee shall assist Employer in
training his successor and generally preparing for an orderly
transition.
9. Compensation Upon Termination.
(a) General. Upon the termination of Employee's
employment under this Agreement before the expiration of the stated
term hereof for any reason, Employee shall be entitled to (i) the
salary earned by him before the effective date of termination, as
provided in Section 3(a) hereof, prorated on the basis of the number
of full days of service rendered by Employee during the year to the
effective date of termination, (ii) any accrued, but unpaid, vacation
or sick leave benefits, (iii) any authorized but unreimbursed business
expenses, and (iv) any accrued, but unpaid annual bonus.
(b) Termination For Other Than Cause. If such
termination is the result of the discharge of Employee by Employer for
any reason other than (i) his death or permanent disability, (ii) by
Employer or Employee with notice pursuant to Section 8(d) or 8(c),
4
<PAGE> 5
respectively, or (iii) for cause (as defined in Section 8(b) hereof), then
Employee shall be entitled to receive as a severance payment an amount equal to
the salary (excluding bonuses) that Employee would have received for the
remainder of the term of this Agreement in accordance with the regular payroll
periods during the remainder of the term of this Agreement. If Employee's
employment hereunder terminates because of the death of Employee, all amounts
that may be due to him under the terms of this Agreement shall be paid to his
administrators, personal representatives, heirs and legatees, as may be
appropriate.
(c) Termination For Cause. If the employment
relationship hereunder is terminated by Employer for cause (as defined
in Section 8(b) hereof), Employee shall not be entitled to any
severance compensation, except as provided in Section 9(a) above.
(d) Termination by Employer with Notice. If the
employment relationship is terminated by Employer other than for cause
or the permanent disability of Employee, then Employee shall be
entitled to receive as a severance payment and as compensation for all
services performed hereunder pursuant to Section 8(d) hereof an amount
equal to the salary that Employee would have received for the
remainder of the term of this Agreement or one (1) year, whichever is
less, in accordance with the regular payroll periods of Employer
during the applicable period.
(e) Termination by Employee with Notice. If the
employment relationship is terminated by Employee pursuant to the
provisions of Section 8(c) hereof, Employee shall be entitled to
receive as a severance payment and as compensation for all services
performed hereunder pursuant to Section 8(c) hereof the salary that
Employee would have received for the remainder of the term of this
Agreement or one (1) year, whichever is less, in accordance with the
regular payroll period of Employer during the applicable period.
(f) Survival. The provisions of Sections 9, 11, 12, and
13 hereof shall survive the termination of the employment relationship
hereunder and this Agreement to the extent necessary or reasonably
appropriate to effect the intent of the parties hereto as expressed in
such provisions.
10. Other Agreements. This Agreement shall be separate and apart
from, and shall be deemed to alter the terms of, any executive compensation
agreements, deferred compensation agreements, bonus agreements, general
employment benefits plans, stock option plans and any other plans or agreements
entered into between Employee and Employer pursuant to which Employee has been
granted specific rights, benefits or options.
11. Noncompetition. Employee agrees that, during his employment
with Employer and for a period of three (3) years from the date of termination
of his employment with Employer, he will not directly or indirectly compete
with Employer by engaging in the activities set forth on Exhibit A attached
hereto and incorporated herein by reference (the "Prohibited Activities")
within the geographic area that is set forth on Exhibit B attached hereto (the
"Restricted Area").
5
<PAGE> 6
For purposes of this Section 11, Employee recognizes and agrees that Employer
conducts and will conduct business in the entire Restricted Area and that
Employee will perform his duties for Employer within the entire Restricted
Area. Employee shall be deemed to be engaged in and carrying on the Prohibited
Activities if he engages in the Prohibited Activities in any capacity
whatsoever, including, but not limited to, by or through a partnership of which
he is a general or limited partner or an employee engaged in such activities,
or by or through a corporation or association of which he owns five percent
(5%) or more of the stock or of which he is an officer, director, employee,
member, representative, joint venturer, independent contractor, consultant or
agent who is engaged in such activities. Employee agrees that during the three
(3) year period described above, he will notify Employer of the name and
address of each employer with whom he has accepted employment during such
period. Such notification shall be made in writing within five (5) days after
Employee accepts any employment or new employment by certified mail, return
receipt requested.
12. Confidential Data. Employee further agrees that, during his
employment with Employer and thereafter, he will keep confidential and not
divulge to anyone, disseminate nor appropriate for his own benefit or the
benefit of another any confidential information described in Exhibit C attached
hereto and incorporated by reference herein (the "Confidential Data").
Employee hereby acknowledges and agrees that this prohibition against
disclosure of Confidential Data is in addition to, and not in lieu of, any
rights or remedies that Employer may have available pursuant to the laws of any
jurisdiction or at common law to prevent the disclosure of trade secrets, and
the enforcement by Employer of its rights and remedies pursuant to this
Agreement shall not be construed as a waiver of any other rights or available
remedies that it may possess in law or equity absent this Agreement.
13. Nonsolicitation of Employees. Employee covenants that, during
his employment with Employer and for a period of one (1) year from the date of
termination of his employment with Employer, he will not (i) directly or
indirectly induce or attempt to induce any employee of Employer to terminate
his or her employment or (ii) without prior written consent of Employer, offer
employment either on behalf of himself or on behalf of any other individual or
entity to any employee of Employer or to any terminated employee of Employer.
14. Property of Employer. Employee acknowledges that from time to
time in the course of providing services pursuant to this Agreement he shall
have the opportunity to inspect and use certain property, both tangible and
intangible, of Employer and Employee hereby agrees that such property shall
remain the exclusive property of Employer, and Employee shall have no right or
proprietary interest in such property, whether tangible or intangible,
including, without limitation, Employee's customer and supplier lists, contract
forms, books of account, computer programs and similar property.
15. Equitable Relief. Employee acknowledges that the services to
be rendered by him are of a special, unique, unusual, extraordinary, and
intellectual character, which gives them a peculiar value, and the loss of
which cannot reasonably or adequately be compensated in damages in an action at
law, and that a breach by him of any of the provisions contained in this
Agreement will cause Employer irreparable injury and damage. Employee further
acknowledges that he
6
<PAGE> 7
possesses unique skills, knowledge and ability and that competition by him in
violation of this Agreement or any other breach of the provisions of this
Agreement would be extremely detrimental to Employer. By reason thereof,
Employee agrees that Employer shall be entitled, in addition to any other
remedies it may have under this Agreement or otherwise, to injunctive and other
equitable relief to prevent or curtail any breach of this Agreement by him.
16. "Change of Control". In the event (each such event, a "Change
of Control"): (1) Employer becomes a subsidiary of another corporation or
entity or is merged or consolidated into another corporation or entity or
substantially all of the assets of Employer are sold to another corporation or
entity; or (2) any person, corporation, partnership or other entity, either
alone or in conjunction with its "affiliates," as that term is defined in Rule
405 of the General Rules and Regulations under the Securities Act of 1933, as
amended, or other group of persons, corporations, partnerships or other
entities who are not "affiliates" but who are acting in concert, becomes the
owner of record or beneficially of securities of Employer that represent
thirty-three and one-third percent (33 1/3%) or more of the combined voting
power of Employer's then outstanding securities entitled to elect Directors; or
(3) the Board of Directors of Employer or a committee thereof makes a
determination in its reasonable judgment that a "Change of Control" of Employer
has taken place; the term during which this Agreement shall be effective shall
include the remaining term of this Agreement following the date of the Change
of Control plus two (2) years, and Employee's compensation for such period
shall be based on the following formula, shall be subject to the following
conditions, and shall be in lieu of the compensation provided for under Section
3 of this Agreement and in lieu of the compensation upon termination provided
for under Section 9 of this Agreement (except for Section 9(a), which shall
still apply):
(a) Employee shall be paid an annual salary for the
remaining term of this Agreement plus two (2) years consisting of one
hundred percent (100%) of the average amount of total cash
compensation, excluding payments made under tax benefit bonuses paid
upon the lapse of resale restrictions on common stock for certain
officers, of Employee for the two (2) calendar years prior to the
Change of Control.
(b) Employee shall be paid an annual amount for the
remaining term of this Agreement plus two (2) years in consideration
of the noncompetition covenant of Section 11 of this Agreement
consisting of fifty percent (50%) of the average amount of total cash
compensation, excluding payments made under tax benefit bonuses paid
upon the lapse or resale restrictions on common stock for certain
officers, of Employee for the two (2) calendar years prior to the
Change of Control. Such annual amounts shall be paid quarterly in
advance.
(c) Notwithstanding any of the provisions of this
Agreement, the amount of all payments to be made pursuant to this
Section 16 after a Change of Control shall not exceed one dollar
($1.00) less than that amount that would cause any such payment to be
deemed a "parachute payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and as Section
280G of the Code is then in effect at the time of such payment.
7
<PAGE> 8
(d) Any payments made to Employee following a Change of
Control that shall be disallowed, in whole or in part, as a deductible
expense to Employer for Federal income tax purposes by the Internal
Revenue Service on the basis that Section 280G of the Code prohibits
such deduction shall be reimbursed by Employee to the full extent of
such disallowance within six (6) months after the date of which the
amount of such disallowance has been finally determined and Employer
has paid the deficiency with respect to such disallowance. Employer
shall legally defend any proposed disallowance by the Internal Revenue
Service and the amount required to be reimbursed by Employee shall be
the amount determined by an appropriate court in a final,
nonappealable decision that is actually disallowed as a deduction. In
lieu of payment to Employer by Employee, Employer may, in its
discretion, withhold amounts from Employee's future compensation
payments until the amount owed to Employer has been fully recovered.
No such withholding shall occur prior to the date on which Employee
would be required to make reimbursement as provided herein.
(e) If the limitation set forth in this Section 16(c) may
at any time become applicable to the amounts otherwise due pursuant to
paragraphs (a) and (b) of Section 16, then Employer shall continue to
pay Employee all amounts as provided under paragraphs (a) and (b) of
Section 16 until such time as cumulative payments equal the aggregate
amount as limited by paragraph (c), and Employee may terminate his
employment relationship with Employer on three (3) months notice at
any time within the last twelve (12) months of the time period during
which the payments described in this Section 16(e) will be paid
without affecting his rights to receive such payments.
(f) Employer shall have no obligation to pay the amounts
set forth in paragraphs (a) and (b) of Section 16 as limited by
paragraph (c) if there is reasonable proof that the noncompetition or
confidential data provisions of Sections 11 and 12, respectively, of
this Agreement are being violated.
(g) In the event the employment relationship is
terminated for cause (pursuant to Section 8(b) hereof) following a
Change of Control, Employer shall not be obligated to make any further
payments of the compensation amounts provided for in this Agreement,
except as provided in Section 9(a) above. Notwithstanding any other
provision of this Agreement, except for paragraphs (e) and (j) of this
Section 16, which shall control in the event Employee terminates
employment as provided in paragraphs (e) and (j), in the event
Employee voluntarily terminates employment following a Change of
Control for other than Good Reason, as defined hereinafter,
compensation amounts set forth in paragraphs (a) and (b) shall be
payable only for a one (1) year period following termination of
employment.
"Good Reason" to terminate employment with Employer occurs if:
(1) duties are assigned that are materially inconsistent with previous
duties; (2) duties and responsibilities are substantially reduced; (3)
base compensation is reduced not as part of an across the board
reduction for all senior officers or executives; (4) participation
under compensation plans or arrangements generally made available to
persons at Employee's
8
<PAGE> 9
level of responsibility at Employer is denied; (5) a successor fails
to assume this Agreement; or (6) termination is made without
compliance with prescribed procedures.
(h) In the event Employee is involuntarily terminated by
Employer without cause, Employee voluntarily terminates employment for
Good Reason or the employment relationship is terminated by death or
permanent disability of Employee, Employer's obligation to pay the
compensation amounts provided in this Section 16 shall survive
termination of employment.
(i) In the event of termination of employment during the
pendency of a "Potential Change of Control", as hereinafter defined,
paragraphs (g) and (h) of this Section 16 shall apply as if an actual
Change of Control had taken place. A "Potential Change of Control"
shall be deemed to have occurred if: (1) Employer has entered into an
agreement or letter of intent the consummation of which would result
in a Change of Control; (2) any person publicly announces an intention
to take or to consider taking actions that, if consummated, would
constitute a Change of Control; or (3) the Board of Directors of
Employer or a committee thereof in its reasonable judgment makes a
determination that a Potential Change of Control for purposes of this
Agreement has occurred. A Potential Change of Control remains pending
for purposes of receiving payments under this Agreement until the
earlier of the occurrence of a Change of Control or a determination by
the Board of Directors or a committee thereof (at any time) that a
Change of Control is no longer reasonably expected to occur.
(j) Notwithstanding anything contained in this Agreement
to the contrary, Employee and Employer, or the person, corporation,
partnership or other entity acquiring control of Employer pursuant to
this Section 16, with the concurrence of the Chief Executive Officer
and Compensation Committee of the Board of Directors of Employer, may
mutually agree that Employee, with three (3) months' notice, may
terminate his employment and receive a lump sum payment equal to the
present value of remaining payments under this Agreement discounted by
the then current Treasury Bill rate for the remaining term of this
Agreement.
17. Successors Bound. This Agreement shall be binding upon
Employer and Employee, their respective heirs, executors, administrators or
successors in interest, including without limitation, any corporation,
partnership or other entity acquiring control of Employer pursuant to Section
16 hereof.
18. Severability and Reformation. The parties hereto intend all
provisions of this Agreement to be enforced to the fullest extent permitted by
law. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof, and the
remaining provisions shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance.
9
<PAGE> 10
19. Integrated Agreement. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
and there are no agreements, understandings, specific restrictions, warranties
or representations relating to said subject matter between the parties other
than those set forth herein or herein provided for.
20. Attorneys' Fees. If any action at law or in equity, including
any action for declaratory or injunctive relief, is brought to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees from the nonprevailing party,
which fees may be set by the court in the trial of such action, or may be
enforced in a separate action brought for that purpose, and which fees shall be
in addition to any other relief which may be awarded.
21. Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice:
(a) If to Employer: MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No.: (800) 826-9865
(b) If to Employee: 8616 Shadybrooke Drive
North Richland Hills, Texas 76180
Notice so given shall, in the case of notice so given by mail, be
deemed to be given and received on the fourth calendar day after posting, in
the case of notice so given by overnight delivery service, on the date of
actual delivery and, in the case of notice so given by cable, telegram,
facsimile transmission, telex or personal delivery, on the date of actual
transmission or, as the case may be, personal delivery.
22. Further Actions. Whether or not specifically required under
the terms of this Agreement, each party hereto shall execute and deliver such
documents and take such further actions as shall be necessary in order for such
party to perform all of his or its obligations specified herein or reasonably
implied from the terms hereof.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF TEXAS.
24. Assignment. This Agreement is personal to Employee and may
not be assigned in any way by Employee without the prior written consent of
Employer. This Agreement shall not be assignable or delegable by Employer,
other than to an affiliate of Employer, except if there is a
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<PAGE> 11
Change of Control as defined in Section 16, Employer may assign its rights and
obligations hereunder to the person, corporation, partnership or other entity
that has gained such control.
25. Counterparts. This Agreement may be executed in counterparts,
each of which will take effect as an original and all of which shall evidence
one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
MILIRISK, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
EMPLOYEE:
-------------------------------------
Ronald O. Lynn
11
<PAGE> 12
EXHIBIT A
PROHIBITED ACTIVITIES
Acting in any capacity, either individually or with any corporation,
partnership or other entity, directly or indirectly, in providing, or proposing
to provide, data processing software systems, related automation support
services and information services to the insurance industry, including, but not
limited to, application software, processing, consulting and related services,
in the performance of any of the following types of duties in any part of the
insurance industry:
1. The performance of the sales and marketing functions.
2. The responsibility for sales revenue generation.
3. The responsibility for customer satisfaction.
4. The responsibility for research and development of insurance
data base products.
5. The responsibility for the research and development of
information data processing systems and services.
6. The providing of input to pricing of products.
7. The planning and management of data processing services
resources.
8. The coordination of the efforts of the various aspects of
computer systems services organizations with other functions.
9. The planning and management of information services resources.
10. The providing and management of an operations staff to support
the above listed activities.
<PAGE> 13
EXHIBIT B
RESTRICTED AREA
Fifty mile radius of the city limits of the following cities:
Dallas/Fort Worth, Texas Milwaukee, Wisconsin
Boston, Massachusetts Sheboygan, Wisconsin
Columbia, South Carolina
<PAGE> 14
EXHIBIT C
CONFIDENTIAL INFORMATION
1. All software/systems (including all present, planned and
future software), whether licenses or unlicensed, developed by or on behalf of
or otherwise acquired by MiliRisk, Inc. or any of its subsidiaries.
"All software/system" shall mean:
o all code in whatever form
o all data pertaining to the architecture and design of
such software systems
o all documentation in whatever form
o all flowcharts
o any reproduction or recreation in whole or in part
of any of the above in whatever form.
2. All business plans and strategies including:
o strategic plans
o product plans
o marketing plans
o financial plans
o operating plans
o resource plans
o all research and development plans including all data
produced by such efforts.
3. Internal policies, procedures, methods and approaches which
are unique to MiliRisk, Inc. and are not public.
4. Any information relating to the employment, job
responsibility, performance, salary and compensation of any present or future
officer or employee of MiliRisk, Inc.
<PAGE> 15
SCHEDULE 3(b)
ANNUAL BONUS
<TABLE>
<CAPTION>
% of net income target achieved % of Maximum Bonus
- ------------------------------- ------------------
More than Up to
- --------- -----
<S> <C> <C>
100% or more 100%
90% 100% 90%
80% 90% 75%
70% 80% 60%
60% 70% 45%
50% 60% 30%
40% 50% 15%
30% 40% 10%
20% 30% 5%
20% or less 0%
</TABLE>
<PAGE> 16
SCHEDULE 3(c)
STOCK OPTIONS
BOOK VALUE OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
---------------- -------------- -------------
<S> <C> <C> <C> <C>
Pre-Split Post-Split Pre-Split Post-Split
865 93,154 $140.00 $1.30 March 12, 1997
</TABLE>
IPO OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
---------------- -------------- -------------
<S> <C> <C> <C>
Pre-Split Post-Split
606 65,208 Initial Price to Public Date of IPO
</TABLE>
<PAGE> 1
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
this 1st day of July, 1997, to be effective on July 1, 1997 (the "Effective
Date"), by and between MiliRisk, Inc., a Texas corporation ("Employer"), and
Jeffrey W. Robinson, a resident of Texas ("Employee").
W I T N E S S E T H:
WHEREAS, Employer is a corporation engaged in business in the State of
Texas and throughout the United States;
WHEREAS, Employer desires to employ Employee in the capacity of
Executive Vice President - Outsourcing, upon the terms and conditions
hereinafter set forth; and
WHEREAS, Employee is willing to enter into this Agreement with respect
to his employment and services upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions hereinafter set
forth:
1. Term of Employment. The term of employment under this
Agreement shall be for a period of three (3) years, commencing on the Effective
Date and terminating on June 30, 2000, unless such employment is terminated or
extended prior to the expiration of said period as hereinafter provided.
2. Duties of Employee. Employee agrees that during the term of
this Agreement, he will devote his full professional and business-related time,
skills and best efforts to the businesses of Employer in the capacity of
Executive Vice President - Outsourcing, or such other capacity as Employer and
Employee may agree upon. If there are major significant changes in the duties
or responsibilities of Employee from those listed as Prohibited Activities on
Exhibit A attached hereto, that are not mutually agreed upon, Employee may
terminate his employment within sixty (60) days of any such change. In
addition, Employee shall devote all necessary time and his best efforts in the
performance of any other duties as may be assigned to him from time to time by
the Board of Directors of Employer including, but not limited to, serving on
Employer's Board of Directors if elected. Employee shall devote his full
professional and business skills to Employer as his primary responsibility.
Employee may engage in personal, passive investment activities provided such
activities do not interfere with the performance of his duties hereunder and
violate the noncompetition and nondisclosure provisions set forth herein.
<PAGE> 2
3. Compensation.
(a) Base Salary. Employer shall pay Employee an annual
base salary of one hundred fifteen thousand dollars ($115,000) per
annum (or fraction for portions of a year). Such base salary will be
adjusted from time to time in accordance with then current standard
salary administration guidelines of Employer. Employee's salary shall
be subject to all appropriate federal and state withholding taxes and
shall be payable in accordance with the normal payroll procedures of
Employer.
(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall receive a bonus each year during
the term of this Agreement in an amount equal to a percentage of a
certain net income target set for each year as established annually in
an annual planning session. If 100% or more of such annual target is
achieved in any year, Employee shall receive in such year a bonus of
50% of his base salary (the "Maximum Bonus"). If less than 100% of
such target is achieved in any year, Employee shall receive in such
year a bonus of a certain percentage of the Maximum Bonus as
determined in accordance with Schedule 3(b) attached hereto.
(c) Stock Options. Employee shall be granted stock
options for shares of common stock of Employer pursuant to the terms
of a Stock Option Agreement granted under the MiliRisk, Inc. 1997
Stock Option Plan, as amended, a copy of which has been provided to
Employee. The number of shares of common stock, exercise price and
date of grant for such options is set forth on Schedule 3(c) attached
hereto.
4. Fringe Benefits. The terms of this Agreement shall not
foreclose Employee from participating with other employees of Employer in such
fringe benefit or incentive compensation plans as may be authorized and adopted
from time to time by Employer; provided, however, that Employee must meet any
and all eligibility provisions required under said fringe benefit or incentive
compensation plans. Employee may be granted such other fringe benefits or
perquisites as Employee and Employer may from time to time agree upon.
5. Vacations. Employee shall be entitled to the number of paid
vacation days in each calendar year as shall be determined by the Board of
Directors of Employer from time to time. In no event, however, shall Employee
be entitled to less than four weeks paid vacation during each calendar year.
6. Reimbursement of Expenses. Employer recognizes that Employee
will incur legitimate business expenses in the course of rendering services to
Employer hereunder. Accordingly, Employer shall reimburse Employee, upon
presentation of receipts or other adequate documentation, for all necessary and
reasonable business expenses incurred by Employee in the course of rendering
services to Employer under this Agreement.
7. Working Facilities. Employee shall be furnished an office,
personal secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties, which shall be
consistent with the policies of Employer.
2
<PAGE> 3
8. Termination. The employment relationship between Employee and
Employer created hereunder shall terminate before the expiration of the stated
term of this Agreement upon the occurrence of any one of the following events:
(a) Death or Permanent Disability. The death or
permanent disability of Employee. For the purpose of this Agreement,
the "permanent disability" of Employee shall mean Employee's
inability, because of his injury, illness, or other incapacity
(physical or mental), to perform the essential functions of the
position contemplated herein, with or without reasonable accommodation
to Employee with respect to such injury, illness or other incapacity,
for a continuous period of 150 days or for 180 days out of a
continuous period of 360 days. Such permanent disability shall be
deemed to have occurred on the 150th consecutive day or on the 180th
day within the specified period, whichever is applicable.
(b) Termination for Cause. The following events, which
for purposes of this Agreement shall constitute "cause" for
termination:
(1) The willful breach by Employee of any
provision of Sections 2, 11, 12, or 13 hereof (including but
not limited to a refusal to follow lawful directives of the
Board of Directors of Employer) after notice to Employee of
the particular details thereof and a period of 10 days
thereafter within which to cure such breach and the failure of
Employee to cure such breach within such 10 day period;
(2) Any act of fraud, misappropriation or
embezzlement by Employee with respect to any aspect of
Employer's business;
(3) The illegal use of drugs by Employee during
the term of this Agreement that, in the determination of the
Board of Directors of Employer, substantially interferes with
Employee's performance of his duties hereunder;
(4) Substantial failure of performance by
Employee that is repeated or continued after 30 day written
notice to Employee of such failure and that is reasonably
determined by the Board of Directors of Employer to be
materially injurious to the business or interests of Employer
and which failure is not cured by Employee within such 30 day
period; or
(5) Conviction of Employee by a court of
competent jurisdiction of a felony or of a crime involving
moral turpitude.
Any notice of discharge shall describe with reasonable
specificity the cause or causes for the termination of Employee's
employment, as well as the effective date of the termination (which
effective date may be the date of such notice). If Employer
terminates Employee's employment for any of the reasons set forth
above, Employer shall have no further obligations hereunder from and
after the effective date of termination (other than
3
<PAGE> 4
as set forth below) and shall have all other rights and remedies
available under this or any other agreement and at law or in equity.
(c) Termination by Employee with Notice. Employee may
terminate this Agreement without liability to Employer arising from
the resignation of Employee upon one (1) year written notice to
Employer. Employer retains the right after proper notice of
Employee's voluntary termination to require Employee to cease
employment immediately; provided, however, in such event, Employer
shall remain obligated to pay Employee his salary during the one (1)
year notice period or the remaining term of this Agreement, whichever
is less. During such one (1) year notice period, Employee shall
provide such consulting services to Employer as Employer may
reasonably request and shall assist Employer in training his successor
and generally preparing for an orderly transition.
(d) Termination by Employer with Notice. Employer may
terminate this Agreement at any time upon one (1) year written notice
to Employee; provided, however, upon such notice Employee shall not be
required to perform any services for Employer other than during the
period of three (3) months immediately following the receipt of such
notice of termination in which Employee shall assist Employer in
training his successor and generally preparing for an orderly
transition.
9. Compensation Upon Termination.
(a) General. Upon the termination of Employee's
employment under this Agreement before the expiration of the stated
term hereof for any reason, Employee shall be entitled to (i) the
salary earned by him before the effective date of termination, as
provided in Section 3(a) hereof, prorated on the basis of the number
of full days of service rendered by Employee during the year to the
effective date of termination, (ii) any accrued, but unpaid, vacation
or sick leave benefits, (iii) any authorized but unreimbursed business
expenses, and (iv) any accrued, but unpaid annual bonus.
(b) Termination For Other Than Cause. If such
termination is the result of the discharge of Employee by Employer for
any reason other than (i) his death or permanent disability, (ii) by
Employer or Employee with notice pursuant to Section 8(d) or 8(c),
respectively, or (iii) for cause (as defined in Section 8(b) hereof),
then Employee shall be entitled to receive as a severance payment an
amount equal to the salary (excluding bonuses) that Employee would
have received for the remainder of the term of this Agreement in
accordance with the regular payroll periods during the remainder of
the term of this Agreement. If Employee's employment hereunder
terminates because of the death of Employee, all amounts that may be
due to him under the terms of this Agreement shall be paid to his
administrators, personal representatives, heirs and legatees, as may
be appropriate.
(c) Termination For Cause. If the employment
relationship hereunder is terminated by Employer for cause (as defined
in Section 8(b) hereof), Employee shall not be entitled to any
severance compensation, except as provided in Section 9(a) above.
4
<PAGE> 5
(d) Termination by Employer with Notice. If the
employment relationship is terminated by Employer other than for cause
or the permanent disability of Employee, then Employee shall be
entitled to receive as a severance payment and as compensation for all
services performed hereunder pursuant to Section 8(d) hereof an amount
equal to the salary that Employee would have received for the
remainder of the term of this Agreement or one (1) year, whichever is
less, in accordance with the regular payroll periods of Employer
during the applicable period.
(e) Termination by Employee with Notice. If the
employment relationship is terminated by Employee pursuant to the
provisions of Section 8(c) hereof, Employee shall be entitled to
receive as a severance payment and as compensation for all services
performed hereunder pursuant to Section 8(c) hereof the salary that
Employee would have received for the remainder of the term of this
Agreement or one (1) year, whichever is less, in accordance with the
regular payroll period of Employer during the applicable period.
(f) Survival. The provisions of Sections 9, 11, 12, and
13 hereof shall survive the termination of the employment relationship
hereunder and this Agreement to the extent necessary or reasonably
appropriate to effect the intent of the parties hereto as expressed in
such provisions.
10. Other Agreements. This Agreement shall be separate and apart
from, and shall be deemed to alter the terms of, any executive compensation
agreements, deferred compensation agreements, bonus agreements, general
employment benefits plans, stock option plans and any other plans or agreements
entered into between Employee and Employer pursuant to which Employee has been
granted specific rights, benefits or options.
11. Noncompetition. Employee agrees that, during his employment
with Employer and for a period of three (3) years from the date of termination
of his employment with Employer, he will not directly or indirectly compete
with Employer by engaging in the activities set forth on Exhibit A attached
hereto and incorporated herein by reference (the "Prohibited Activities")
within the geographic area that is set forth on Exhibit B attached hereto (the
"Restricted Area"). For purposes of this Section 11, Employee recognizes and
agrees that Employer conducts and will conduct business in the entire
Restricted Area and that Employee will perform his duties for Employer within
the entire Restricted Area. Employee shall be deemed to be engaged in and
carrying on the Prohibited Activities if he engages in the Prohibited
Activities in any capacity whatsoever, including, but not limited to, by or
through a partnership of which he is a general or limited partner or an
employee engaged in such activities, or by or through a corporation or
association of which he owns five percent (5%) or more of the stock or of which
he is an officer, director, employee, member, representative, joint venturer,
independent contractor, consultant or agent who is engaged in such activities.
Employee agrees that during the three (3) year period described above, he will
notify Employer of the name and address of each employer with whom he has
accepted employment during such period. Such notification shall be made in
writing within
5
<PAGE> 6
five (5) days after Employee accepts any employment or new employment by
certified mail, return receipt requested.
12. Confidential Data. Employee further agrees that, during his
employment with Employer and thereafter, he will keep confidential and not
divulge to anyone, disseminate nor appropriate for his own benefit or the
benefit of another any confidential information described in Exhibit C attached
hereto and incorporated by reference herein (the "Confidential Data").
Employee hereby acknowledges and agrees that this prohibition against
disclosure of Confidential Data is in addition to, and not in lieu of, any
rights or remedies that Employer may have available pursuant to the laws of any
jurisdiction or at common law to prevent the disclosure of trade secrets, and
the enforcement by Employer of its rights and remedies pursuant to this
Agreement shall not be construed as a waiver of any other rights or available
remedies that it may possess in law or equity absent this Agreement.
13. Nonsolicitation of Employees. Employee covenants that, during
his employment with Employer and for a period of one (1) year from the date of
termination of his employment with Employer, he will not (i) directly or
indirectly induce or attempt to induce any employee of Employer to terminate
his or her employment or (ii) without prior written consent of Employer, offer
employment either on behalf of himself or on behalf of any other individual or
entity to any employee of Employer or to any terminated employee of Employer.
14. Property of Employer. Employee acknowledges that from time to
time in the course of providing services pursuant to this Agreement he shall
have the opportunity to inspect and use certain property, both tangible and
intangible, of Employer and Employee hereby agrees that such property shall
remain the exclusive property of Employer, and Employee shall have no right or
proprietary interest in such property, whether tangible or intangible,
including, without limitation, Employee's customer and supplier lists, contract
forms, books of account, computer programs and similar property.
15. Equitable Relief. Employee acknowledges that the services to
be rendered by him are of a special, unique, unusual, extraordinary, and
intellectual character, which gives them a peculiar value, and the loss of
which cannot reasonably or adequately be compensated in damages in an action at
law, and that a breach by him of any of the provisions contained in this
Agreement will cause Employer irreparable injury and damage. Employee further
acknowledges that he possesses unique skills, knowledge and ability and that
competition by him in violation of this Agreement or any other breach of the
provisions of this Agreement would be extremely detrimental to Employer. By
reason thereof, Employee agrees that Employer shall be entitled, in addition to
any other remedies it may have under this Agreement or otherwise, to injunctive
and other equitable relief to prevent or curtail any breach of this Agreement
by him.
16. "Change of Control". In the event (each such event, a "Change
of Control"): (1) Employer becomes a subsidiary of another corporation or
entity or is merged or consolidated into another corporation or entity or
substantially all of the assets of Employer are sold to another corporation or
entity; or (2) any person, corporation, partnership or other entity, either
alone or in conjunction with its "affiliates," as that term is defined in Rule
405 of the General Rules and
6
<PAGE> 7
Regulations under the Securities Act of 1933, as amended, or other group of
persons, corporations, partnerships or other entities who are not "affiliates"
but who are acting in concert, becomes the owner of record or beneficially of
securities of Employer that represent thirty-three and one-third percent (33
1/3%) or more of the combined voting power of Employer's then outstanding
securities entitled to elect Directors; or (3) the Board of Directors of
Employer or a committee thereof makes a determination in its reasonable
judgment that a "Change of Control" of Employer has taken place; the term
during which this Agreement shall be effective shall include the remaining term
of this Agreement following the date of the Change of Control plus two (2)
years, and Employee's compensation for such period shall be based on the
following formula, shall be subject to the following conditions, and shall be
in lieu of the compensation provided for under Section 3 of this Agreement and
in lieu of the compensation upon termination provided for under Section 9 of
this Agreement (except for Section 9(a), which shall still apply):
(a) Employee shall be paid an annual salary for the
remaining term of this Agreement plus two (2) years consisting of one
hundred percent (100%) of the average amount of total cash
compensation, excluding payments made under tax benefit bonuses paid
upon the lapse of resale restrictions on common stock for certain
officers, of Employee for the two (2) calendar years prior to the
Change of Control.
(b) Employee shall be paid an annual amount for the
remaining term of this Agreement plus two (2) years in consideration
of the noncompetition covenant of Section 11 of this Agreement
consisting of fifty percent (50%) of the average amount of total cash
compensation, excluding payments made under tax benefit bonuses paid
upon the lapse or resale restrictions on common stock for certain
officers, of Employee for the two (2) calendar years prior to the
Change of Control. Such annual amounts shall be paid quarterly in
advance.
(c) Notwithstanding any of the provisions of this
Agreement, the amount of all payments to be made pursuant to this
Section 16 after a Change of Control shall not exceed one dollar
($1.00) less than that amount that would cause any such payment to be
deemed a "parachute payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and as Section
280G of the Code is then in effect at the time of such payment.
(d) Any payments made to Employee following a Change of
Control that shall be disallowed, in whole or in part, as a deductible
expense to Employer for Federal income tax purposes by the Internal
Revenue Service on the basis that Section 280G of the Code prohibits
such deduction shall be reimbursed by Employee to the full extent of
such disallowance within six (6) months after the date of which the
amount of such disallowance has been finally determined and Employer
has paid the deficiency with respect to such disallowance. Employer
shall legally defend any proposed disallowance by the Internal Revenue
Service and the amount required to be reimbursed by Employee shall be
the amount determined by an appropriate court in a final,
nonappealable decision that is actually disallowed as a deduction. In
lieu of payment to Employer by Employee, Employer may, in its
discretion, withhold amounts from Employee's future compensation
7
<PAGE> 8
payments until the amount owed to Employer has been fully recovered.
No such withholding shall occur prior to the date on which Employee
would be required to make reimbursement as provided herein.
(e) If the limitation set forth in this Section 16(c) may
at any time become applicable to the amounts otherwise due pursuant to
paragraphs (a) and (b) of Section 16, then Employer shall continue to
pay Employee all amounts as provided under paragraphs (a) and (b) of
Section 16 until such time as cumulative payments equal the aggregate
amount as limited by paragraph (c), and Employee may terminate his
employment relationship with Employer on three (3) months notice at
any time within the last twelve (12) months of the time period during
which the payments described in this Section 16(e) will be paid
without affecting his rights to receive such payments.
(f) Employer shall have no obligation to pay the amounts
set forth in paragraphs (a) and (b) of Section 16 as limited by
paragraph (c) if there is reasonable proof that the noncompetition or
confidential data provisions of Sections 11 and 12, respectively, of
this Agreement are being violated.
(g) In the event the employment relationship is
terminated for cause (pursuant to Section 8(b) hereof) following a
Change of Control, Employer shall not be obligated to make any further
payments of the compensation amounts provided for in this Agreement,
except as provided in Section 9(a) above. Notwithstanding any other
provision of this Agreement, except for paragraphs (e) and (j) of this
Section 16, which shall control in the event Employee terminates
employment as provided in paragraphs (e) and (j), in the event
Employee voluntarily terminates employment following a Change of
Control for other than Good Reason, as defined hereinafter,
compensation amounts set forth in paragraphs (a) and (b) shall be
payable only for a one (1) year period following termination of
employment.
"Good Reason" to terminate employment with Employer occurs if:
(1) duties are assigned that are materially inconsistent with previous
duties; (2) duties and responsibilities are substantially reduced; (3)
base compensation is reduced not as part of an across the board
reduction for all senior officers or executives; (4) participation
under compensation plans or arrangements generally made available to
persons at Employee's level of responsibility at Employer is denied;
(5) a successor fails to assume this Agreement; or (6) termination is
made without compliance with prescribed procedures.
(h) In the event Employee is involuntarily terminated by
Employer without cause, Employee voluntarily terminates employment for
Good Reason or the employment relationship is terminated by death or
permanent disability of Employee, Employer's obligation to pay the
compensation amounts provided in this Section 16 shall survive
termination of employment.
(i) In the event of termination of employment during the
pendency of a "Potential Change of Control", as hereinafter defined,
paragraphs (g) and (h) of this
8
<PAGE> 9
Section 16 shall apply as if an actual Change of Control had taken
place. A "Potential Change of Control" shall be deemed to have
occurred if: (1) Employer has entered into an agreement or letter of
intent the consummation of which would result in a Change of Control;
(2) any person publicly announces an intention to take or to consider
taking actions that, if consummated, would constitute a Change of
Control; or (3) the Board of Directors of Employer or a committee
thereof in its reasonable judgment makes a determination that a
Potential Change of Control for purposes of this Agreement has
occurred. A Potential Change of Control remains pending for purposes
of receiving payments under this Agreement until the earlier of the
occurrence of a Change of Control or a determination by the Board of
Directors or a committee thereof (at any time) that a Change of
Control is no longer reasonably expected to occur.
(j) Notwithstanding anything contained in this Agreement
to the contrary, Employee and Employer, or the person, corporation,
partnership or other entity acquiring control of Employer pursuant to
this Section 16, with the concurrence of the Chief Executive Officer
and Compensation Committee of the Board of Directors of Employer, may
mutually agree that Employee, with three (3) months' notice, may
terminate his employment and receive a lump sum payment equal to the
present value of remaining payments under this Agreement discounted by
the then current Treasury Bill rate for the remaining term of this
Agreement.
17. Successors Bound. This Agreement shall be binding upon
Employer and Employee, their respective heirs, executors, administrators or
successors in interest, including without limitation, any corporation,
partnership or other entity acquiring control of Employer pursuant to Section
16 hereof.
18. Severability and Reformation. The parties hereto intend all
provisions of this Agreement to be enforced to the fullest extent permitted by
law. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof, and the
remaining provisions shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance.
19. Integrated Agreement. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
and there are no agreements, understandings, specific restrictions, warranties
or representations relating to said subject matter between the parties other
than those set forth herein or herein provided for.
20. Attorneys' Fees. If any action at law or in equity, including
any action for declaratory or injunctive relief, is brought to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees from the nonprevailing party,
which fees may be set by the court in the trial of such action, or may be
enforced in a separate action brought for that purpose, and which fees shall be
in addition to any other relief which may be awarded.
9
<PAGE> 10
21. Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice:
(a) If to Employer: MiliRisk, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No.: (800) 826-9865
(b) If to Employee: 4805 Lafayette Avenue
Fort Worth, Texas 76107
Notice so given shall, in the case of notice so given by mail, be
deemed to be given and received on the fourth calendar day after posting, in
the case of notice so given by overnight delivery service, on the date of
actual delivery and, in the case of notice so given by cable, telegram,
facsimile transmission, telex or personal delivery, on the date of actual
transmission or, as the case may be, personal delivery.
22. Further Actions. Whether or not specifically required under
the terms of this Agreement, each party hereto shall execute and deliver such
documents and take such further actions as shall be necessary in order for such
party to perform all of his or its obligations specified herein or reasonably
implied from the terms hereof.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF TEXAS.
24. Assignment. This Agreement is personal to Employee and may
not be assigned in any way by Employee without the prior written consent of
Employer. This Agreement shall not be assignable or delegable by Employer,
other than to an affiliate of Employer, except if there is a Change of Control
as defined in Section 16, Employer may assign its rights and obligations
hereunder to the person, corporation, partnership or other entity that has
gained such control.
25. Counterparts. This Agreement may be executed in counterparts,
each of which will take effect as an original and all of which shall evidence
one and the same Agreement.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
MILIRISK, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EMPLOYEE:
---------------------------------------
Jeffrey W. Robinson
11
<PAGE> 12
EXHIBIT A
PROHIBITED ACTIVITIES
Acting in any capacity, either individually or with any corporation,
partnership or other entity, directly or indirectly, in providing, or proposing
to provide, data processing software systems, related automation support
services and information services to the insurance industry, including, but not
limited to, application software, processing, consulting and related services,
in the performance of any of the following types of duties in any part of the
insurance industry:
1. The performance of the sales and marketing functions.
2. The responsibility for sales revenue generation.
3. The responsibility for customer satisfaction.
4. The responsibility for research and development of insurance
data base products.
5. The responsibility for the research and development of
information data processing systems and services.
6. The providing of input to pricing of products.
7. The planning and management of data processing services
resources.
8. The coordination of the efforts of the various aspects of
computer systems services organizations with other functions.
9. The planning and management of information services resources.
10. The providing and management of an operations staff to support
the above listed activities.
<PAGE> 13
EXHIBIT B
RESTRICTED AREA
Fifty mile radius of the city limits of the following cities:
Dallas/Fort Worth, Texas Milwaukee, Wisconsin
Boston, Massachusetts Sheboygan, Wisconsin
Columbia, South Carolina
<PAGE> 14
EXHIBIT C
CONFIDENTIAL INFORMATION
1. All software/systems (including all present, planned and
future software), whether licenses or unlicensed, developed by or on behalf of
or otherwise acquired by MiliRisk, Inc. or any of its subsidiaries.
"All software/system" shall mean:
o all code in whatever form
o all data pertaining to the architecture and design of
such software systems
o all documentation in whatever form
o all flowcharts
o any reproduction or recreation in whole or in part of
any of the above in whatever form.
2. All business plans and strategies including:
o strategic plans
o product plans
o marketing plans
o financial plans
o operating plans
o resource plans
o all research and development plans including all data
produced by such efforts.
3. Internal policies, procedures, methods and approaches which
are unique to MiliRisk, Inc. and are not public.
4. Any information relating to the employment, job
responsibility, performance, salary and compensation of any present or future
officer or employee of MiliRisk, Inc.
<PAGE> 15
SCHEDULE 3(b)
ANNUAL BONUS
<TABLE>
<CAPTION>
% of net income target achieved % of Maximum Bonus
- ------------------------------- ------------------
<S> <C> <C>
More than Up to
- --------- -----
100% or more 100%
90% 100% 90%
80% 90% 75%
70% 80% 60%
60% 70% 45%
50% 60% 30%
40% 50% 15%
30% 40% 10%
20% 30% 5%
20% or less 0%
</TABLE>
<PAGE> 16
SCHEDULE 3(c)
STOCK OPTIONS
BOOK VALUE OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
---------------- -------------- -------------
Pre-Split Post-Split Pre-Split Post-Split
<S> <C> <C> <C> <C>
865 93,154 $140.00 $1.30 March 12, 1997
</TABLE>
IPO OPTIONS
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Grant
---------------- -------------- -------------
Pre-Split Post-Split
<S> <C> <C> <C>
606 65,208 Initial Price to Public Date of IPO
</TABLE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ------------------
1995 1996 1996 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding................................. 7,000 7,000 7,000 7,000
Net effect of dilutive stock options based on the treasury
method using average market price assuming all stock
options issued within one year prior to filing of
registration statement deemed outstanding pursuant to
Securities and Exchange Commission Staff Accounting Bulletin
Topic 4D................................................. 658 658 658 658
------- ------- ------- -------
Total ..................................................... 7,658 7,658 7,658 7,658
======= ======= ======= =======
Net loss .................................................. $(1,262) $ (515) (271) (3,495)
======= ======= ======= =======
Per share amount .......................................... $ (0.16) $ (0.07) (.04) (0.46)
======= ======= ======= =======
Fully diluted
Average shares outstanding .............................. 7,000 7,000 7,000 7,000
Net effect of dilutive stock options based on the
treasury stock method using the period-end market
price, if higher than average market price assuming all
stock options issued within one year prior to filing of
registration statement deemed outstanding pursuant to
Securities and Exchange Commission Staff Accounting Bulletin
Topic 4D................................................. 658 658 658 658
------- ------- ------- -------
Total ..................................................... 7,658 7,658 7,658 7,658
======= ======= ======= =======
Net loss ................................................ $(1,262) $ (515) (271) (3,495)
======= ======= ======= =======
Per share amount ........................................ $ (0.16) $ (0.07) (0.04) (0.46)
======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 16
[PRICE WATERHOUSE LLP LETTERHEAD]
July 11, 1997
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Gentlemen:
INSpire Insurance Solutions, Inc.
We have read the Expert Section appearing on page 48 of INSpire Insurance
Solutions, Inc.'s (formerly known as Milirisk, Inc.) Form S-1 dated July 11,
1997 and are in agreement with the statements contained therein.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Applied Quoting System, Inc., a Wisconsin corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of INSpire Insurance
Solutions, Inc. (formerly Millers Integrated Claims Resources, Inc. and
MiliRisk, Inc.) on Form S-1 of our report dated July 2, 1997 on the financial
statements of INSpire Insurance Solutions, Inc., appearing in the Prospectus,
which is a part of this Registration Statement and to the reference to us under
the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
July 11, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of INSpire Insurance
Solutions, Inc. (formerly Millers Integrated Claims Resources, Inc. and
MiliRisk, Inc.) on Form S-1 of our report dated July 2, 1997 on the
consolidated financial statements of Strategic Data Systems, Inc. and
subsidiary, appearing in the Prospectus, which is a part of this Registration
Statement and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
July 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS OF INSPIRE
INSURANCE SOLUTIONS, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND AS
OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 363 372
<SECURITIES> 0 0
<RECEIVABLES> 1,168 6,952
<ALLOWANCES> 0 237
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,012 8,631
<PP&E> 4,492 8,314
<DEPRECIATION> 1,272 1,519
<TOTAL-ASSETS> 5,232 31,801
<CURRENT-LIABILITIES> 4,562 12,300
<BONDS> 0 6,124
0 0
0 0
<COMMON> 0 70
<OTHER-SE> 606 8,849
<TOTAL-LIABILITY-AND-EQUITY> 5,232 31,801
<SALES> 0 0
<TOTAL-REVENUES> 13,653 8,191
<CGS> 0 0
<TOTAL-COSTS> 14,430 13,424
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2 65
<INCOME-PRETAX> (779) (5,284)
<INCOME-TAX> (264) (1,789)
<INCOME-CONTINUING> (515) (3,495)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (515) (3,495)
<EPS-PRIMARY> (0.07) (0.46)
<EPS-DILUTED> (0.07) (0.46)
</TABLE>
