<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended . . . . . . . . . . . . . . . . . March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . to . . . . . . . . . . .
Commission file number . . . . . . . . . . . . . . . . . . . . . . . 000-23005
INSPIRE INSURANCE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2595937
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 BURNETT STREET, FORT WORTH, TX 76102-2799
(Address of principal executive offices)
(Zip Code)
817-348-3999
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 12,192,396.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION .......................................... 1
Item 1. Financial Statements ........................................... 1
Condensed Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997 .......................................... 1
Condensed Statements of Operations (unaudited) for the three
months ended March 31, 1998 and 1997 ........................... 2
Condensed Statements of Cash Flows (unaudited) for the three
months ended March 31, 1998 and 1997 ........................... 3
Notes to Condensed Financial Statements (unaudited) ........... 4
Independent Accountants' Report ................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 7
PART II - OTHER INFORMATION .............................................. 10
Item 2. Changes in Securities and Use of Proceeds ...................... 10
Item 6. Exhibits and Reports on Form 8-K ............................... 10
Signatures ............................................................... 11
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 19,721,454 $ 28,039,323
Short-term investments .............................................. 8,541,035 --
Accounts receivable, net ............................................ 10,370,528 10,976,672
Income taxes receivable ............................................. 149,041 149,041
Deferred income taxes ............................................... 765,229 1,434,000
Stock proceeds receivable ........................................... 44,415,000 --
Prepaid expenses and other current assets ........................... 1,811,278 1,727,876
------------ ------------
Total current assets .................................................... 85,773,565 42,326,912
Accounts receivable, excluding current portion ........................... 17,109 74,258
Property and equipment, net (accumulated depreciation
1998 $8,853,227; 1997 $8,214,514) ....................................... 5,746,262 6,029,973
Intangibles and other assets ............................................. 16,898,775 17,039,634
------------ ------------
TOTAL .................................................................... $108,435,711 $ 65,470,777
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................... $ 555,534 $ 834,418
Accrued payroll and compensation .................................... 465,260 633,252
Other accrued expenses .............................................. 1,474,020 1,485,543
Unearned revenue .................................................... 856,890 2,626,624
Deferred compensation ............................................... 2,557,198 2,699,000
Income taxes payable ................................................ 819,709 3,063,000
Current portion of long-term debt ................................... 568,432 609,658
------------ ------------
Total current liabilities ......................................... 7,297,043 11,951,495
------------ ------------
Deferred compensation .................................................... 549,876 1,657,017
Long-term debt ........................................................... 214,890 373,151
Deferred income taxes .................................................... 2,375,660 2,723,000
Commitments and contingencies ............................................ -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued and outstanding ........................... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized and 11,892,396 shares issued and outstanding
in 1998; 50,000,000 shares authorized, 10,191,250 shares issued
and outstanding in 1997 ........................................... 118,924 101,913
Additional paid-in capital .......................................... 95,621,219 48,725,299
Retained earnings (accumulated deficit) ............................. 2,258,099 (61,098)
------------ ------------
Total shareholders' equity ........................................ 97,998,242 48,766,114
------------ ------------
TOTAL .................................................................... $108,435,711 $ 65,470,777
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
1
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INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Outsourcing services .................................. $ 10,131,963 $ 6,736,301
Software and software services ........................ 7,625,048 1,079,910
Other ................................................. 598,770 374,866
------------ ------------
Total revenues ............................... 18,355,781 8,191,077
------------ ------------
EXPENSES:
Cost of outsourcing services .......................... 5,634,863 4,891,346
Cost of software and software services ................ 4,076,635 738,671
Cost of other revenues ................................ 424,743 182,537
Selling, general and administrative ................... 3,243,521 259,519
Research and development .............................. 422,270 126,000
Depreciation and amortization ......................... 1,212,840 534,603
Purchased research and development .................... -- 3,000,000
Deferred compensation ................................. -- 3,065,000
Management fees to shareholder ........................ -- 626,286
------------ ------------
Total expenses ............................... 15,014,872 13,423,962
------------ ------------
OPERATING INCOME (LOSS) ................................. 3,340,909 (5,232,885)
OTHER INCOME (EXPENSE):
Interest income ....................................... 418,770 13,745
Interest expense ...................................... (19,038) (65,088)
------------ ------------
Total other income (expense) ................. 399,732 (51,343)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ....................... 3,740,641 (5,284,228)
INCOME TAX BENEFIT (EXPENSE) ............................ (1,421,444) 1,789,000
------------ ------------
NET INCOME (LOSS) ....................................... $ 2,319,197 $ (3,495,228)
============ ============
NET INCOME (LOSS) PER SHARE (BASIC) ..................... $ 0.22 $ (0.50)
============ ============
NET INCOME (LOSS) PER SHARE (DILUTED) ................... $ 0.20 $ (0.50)
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ................................................ $ 2,319,197 $ (3,495,228)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization .................................. 1,212,840 534,603
Deferred income taxes .......................................... -- (1,946,000)
Purchased research and development ............................. -- 3,000,000
Change in operating assets and liabilities:
Accounts receivable .......................................... 663,293 (372,419)
Prepaid expenses and other current assets .................... 111,598 (49,191)
Other assets ................................................. 76,492 60,053
Accounts payable ............................................. (278,884) (887,398)
Accrued payroll and compensation ............................. (167,993) (555,392)
Other accrued expenses ....................................... (386,522) (176,807)
Unearned revenue ............................................. (1,769,734) (20,371)
Income taxes payable ......................................... (225,189) (61,007)
Deferred compensation ........................................ (303,557) 3,065,000
------------ ------------
Net cash provided by (used in) operating activities ................. 1,251,541 (904,157)
------------ ------------
INVESTING ACTIVITIES:
Purchase of short-term investments ............................... (8,541,035) --
Purchases of property and equipment .............................. (387,432) (795,562)
Capitalized research and development costs ....................... (477,331) --
Acquisition of subsidiary, net of cash acquired .................. -- (17,174,723)
------------ ------------
Net cash (used in) investing activities ............................. (9,405,798) (17,970,285)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings ......................................... -- 7,500,000
Repayment of borrowings .......................................... (199,487) (2,850,536)
Proceeds of borrowings from shareholder .......................... -- 3,140,795
Contribution from shareholder .................................... -- 10,500,000
Proceeds from exercises under stock plans, net ................... 35,875 --
Bank overdrafts .................................................. -- 593,446
------------ ------------
Net cash provided by (used in) financing activities ................. (163,612) 18,883,705
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ (8,317,869) 9,263
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ........................................................... 28,039,323 363,398
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 19,721,454 $ 372,661
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ..................................................... $ 19,947 $ 68,023
============ ============
Income taxes paid ................................................. $ (1,653,173) $ --
============ ============
Noncash investing activities - contribution of fixed assets
from shareholder ................................................ $ -- $ 1,308,191
============ ============
Noncash financing activities - proceeds receivable from
sale of common stock ............................................ $ 44,415,000 $ --
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 6
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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
provider of policy and claims administration and information technology
outsourcing services to the property and casualty ("P&C") insurance industry.
The Company also develops, markets, licenses and supports computer software and
related services to the P&C insurance industry. The Company sells its products
directly to the customer. The majority of sales are in North America. Prior to
the initial public offering of common stock on August 22, 1997, the Company was
a wholly-owned subsidiary of The Millers Mutual Fire Insurance Company ("Millers
Mutual").
Unaudited Interim Condensed Financial Statements -- The accompanying
unaudited condensed financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented have been included. Results
of operations for the periods presented herein are not necessarily indicative of
results of operations for any subsequent quarter or the year ending December 31,
1998. The independent accountants' review report of Deloitte & Touche LLP is
included in Part I, Item 1 of this report.
The information included in this Form 10-Q should be read in conjunction
with the financial statements and notes thereto for the year ended December 31,
1997 included in the Company's Form 10-K (File No. 000-23005).
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations.
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.
2. RELATED PARTY TRANSACTIONS
The Company provides outsourcing services and software and software
services to Millers Mutual, a shareholder of the Company, and The Millers
Casualty Insurance Company ("Millers Casualty"), an indirect 99.4% subsidiary of
Millers Mutual, under the terms of various agreements. For the three months
ended March 31, 1998 and 1997, under such agreements, the Company earned total
fees of approximately $5,615,980 and $2,884,630, respectively.
Prior to January 1, 1998, pursuant to various agreements, Millers Mutual
has provided management and administration services to the Company. For the
three months ended March 31, 1997, total fees paid by the Company to Millers
Mutual were approximately $626,286. Effective January 1, 1998, the Company and
Millers Mutual entered into a new agreement whereby the Company provides
benefits administration services to Millers Mutual and Millers Casualty for a
monthly fee of $15,000. As of March 31, 1998, total fees earned under this
agreement were $45,000.
During each of the three month periods ended March 31, 1998 and 1997, the
Company incurred rental expense of approximately $78,858 under a month-to-month
lease agreement with Millers Mutual.
There was a net receivable due from Millers Mutual of approximately
$3,235,611 at March 31, 1998 and $1,301,000 at December 31, 1997.
4
<PAGE> 7
3. SUBSEQUENT EVENT
On April 20, 1998, the Company acquired all of the outstanding shares of
common stock of Paragon Interface, Inc. ("Paragon") for an aggregate cash
purchase price of $4.25 million and costs and expenses of approximately
$100,000. The acquisition was funded with cash generated from operating
activities.
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
<TABLE>
<S> <C>
Purchase price........................................ $ 4,350,000
Fair values of net assets acquired:
Software............................................ 2,000,000
Purchased research and development.................. 2,000,000
Fair value of tangible assets acquired.............. 603,861
Liabilities assumed................................. (1,487,122)
-------------
3,116,739
-------------
Goodwill.............................................. $ 1,233,261
=============
</TABLE>
The amount assigned to purchased research and development was charged
against operating results at the time of acquisition. Paragon was merged with
and into the Company on May 1, 1998.
5
<PAGE> 8
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
INSpire Insurance Solution, Inc.
Fort Worth, Texas
We have reviewed the accompanying condensed balance sheet of INSpire
Insurance Solutions, Inc. (the "Company") as of March 31, 1998, and the related
condensed statements of operations and cash flows for the three months ended
March 31, 1998 and 1997. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of INSpire Insurance Solutions, Inc. as of December
31, 1997, and the related statements of operations, shareholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated January 19, 1998, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 1997 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
April 17, 1998
6
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Acquisition of Paragon Interface, Inc. On April 20, 1998, the Company
acquired all of the outstanding shares of common stock of Paragon Interface,
Inc. ("Paragon") for $4.25 million and costs and expenses of approximately
$100,000. 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.
Follow-on Public Offering. On March 27, 1998, the Company's follow-on
public offering of 2,645,000 shares of the Company's common stock, par value
$.01 per share ( "Common Stock") became effective. Pursuant to this offering, as
of March 31, 1998, the Company sold 1,500,000 shares of Common Stock. Subsequent
to March 31, 1998, the Company sold an additional 300,000 shares of Common Stock
pursuant to the underwriter's exercise of their overallotment option. Certain
shareholders sold 845,000 share of Common Stock. The shares of Common Stock were
sold at a price of $31.50 per share that resulted in net proceeds to the Company
of approximately $53 million. The Company intends to use such net proceeds for
general corporate purposes, including working capital, product development and
possible acquisitions. Pending such uses, the Company invested the net proceeds
in short-term, investment grade, interest bearing securities.
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>
March 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Outsourcing services ....................... 55.2% 82.2%
Software and software services ............. 41.5 13.2
Other ...................................... 3.3 4.6
---------- ----------
Total revenues ............................. 100.0 100.0
---------- ----------
EXPENSES:
Cost of outsourcing services ............... 30.7 59.7
Cost of software and software services ..... 22.2 9.0
Cost of other revenues ..................... 2.3 2.2
Selling, general and administrative ........ 17.7 3.3
Research and development ................... 2.3 1.5
Depreciation and amortization .............. 6.6 6.5
Purchased research and development ......... -- 36.6
Deferred compensation ...................... -- 37.4
Management fees to shareholder ............. -- 7.7
---------- ----------
Total expenses ............................ 81.8 163.9
---------- ----------
OPERATING INCOME (LOSS) ...................... 18.2 (63.9)
OTHER INCOME (EXPENSE) ....................... 2.2 (0.6)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES ............ 20.4 (64.5)
INCOME TAX BENEFIT (EXPENSE) ................. (7.7) 21.8
---------- ----------
NET INCOME (LOSS) ............................ 12.6% (42.7)%
========== ==========
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenues. The Company's revenues were $18.4 million for the three months
ended March 31, 1998 compared to $8.2 million for the three months ended March
31, 1997, an increase of $10.2 million or 124%. This increase is primarily
attributable to the acquisition of Strategic Data Systems, Inc. ("SDS") on March
12, 1997 by
7
<PAGE> 10
the Company ("SDS Acquisition") and growth in outsourcing services revenues. The
growth in outsourcing services revenue is due primarily to revenues from four
significant outsourcing contracts entered into after the first quarter of 1997
and an increase in outsourcing services provided under two other significant
claims administration agreements.
Cost of Revenues. Cost of revenues, which is comprised mainly of personnel
costs, was $10.1 million for the three months ended March 31, 1998 compared to
$5.8 million for the three months ended March 31, 1997, an increase of $4.3
million or 74%. This increase was primarily attributable to the increased cost
of revenues associated with the SDS Acquisition and the performance of services
under the outsourcing contracts described above. Cost of revenues as a
percentage of total revenues decreased from 71% for the three months ended March
31, 1997 to 55% for the three months ended March 31, 1998. This decrease is a
result of economies of scale associated with spreading certain fixed costs over
a larger revenue base and lower personnel costs as a percentage of revenues.
Selling, General and Administrative. Selling, general and administrative
expenses, including management fees paid to shareholder, were $3.2 million for
the three months ended March 31, 1998 compared to $886,000 for the three months
ended March 31, 1997, an increase of $2.3 million or 261%. Selling, general and
administrative as a percentage of total revenues increased from 11% for the
three months ended March 31, 1997 to 18% for the three months ended March 31,
1998. This increase is primarily due to: (i) the SDS Acquisition, (ii) increased
marketing costs and (iii) additional staffing, office space and computer
equipment and software required to expand the infrastructure to support the
Company's growth.
Research and Development. Research and development expense was $422,000 for
the three months ended March 31, 1998 compared to $126,000 for the three months
ended March 31, 1997, an increase of $296,000 or 235%. This increase is due to
the Company not incurring any significant research and development expenses
prior to the SDS Acquisition on March 12, 1997. This expense is comprised
primarily of personnel costs related to software development. For the three
months ended March 31, 1998, the research and development expense is net of
capitalized research and development costs of $477,000.
Depreciation and Amortization. Depreciation and amortization expense was
$1.2 million for the three months ended March 31, 1998 compared to $535,000 for
the three months ended March 31, 1997, an increase of approximately $665,000 or
124%. This increase is primarily attributable to amortization of goodwill and
capitalized software recorded in connection with the SDS Acquisition and a 75%
increase in fixed assets since March 31, 1997 as a result of the expansion in
infrastructure to support the Company's growth.
Nonrecurring Operating Expenses. In the purchase price allocation of the
SDS Acquisition, $3.0 million was assigned to in-process research and
development. This amount was charged to operations in March 1997. In addition,
$3.1 million was charged to operations as deferred compensation associated with
stock options granted to executive officers during March 1997.
Other Income. The increase in other income is primarily attributable to
interest income, which increased primarily due to an increase in short-term
investments purchased with unused net proceeds from the Company's initial public
offering in August 1997. During the first quarter of 1997, the Company did not
have significant investments that earned interest income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $19.7 million as of March 31, 1998 compared
to approximately $28.0 million as of December 31, 1997, a decrease of $8.3
million or 30%. Net cash provided by operating activities was $1.3 million for
the three months ended March 31, 1998 compared to net cash used in operating
activities of $904,000 for the three months ended March 31, 1997. Net cash used
in investing activities was $9.4 million for the three months ended March 31,
1998, primarily attributable to the purchase of $8.5 million in short-term
investments, compared to $18.0 million for the three months ended March 31,
1997, primarily attributable to the SDS Acquisition. Net cash provided by
financing activities was $18.9 million during the three months ended March 31,
1997, primarily due to capital contributions from a shareholder and borrowings
of $10.6 million to fund the SDS Acquisition, compared to net cash used in
financing activities of $164,000 during the period ended March 31, 1998.
8
<PAGE> 11
The Company entered into a bank credit facility with Nationsbank of Texas,
N.A. ("NationsBank Facility") on March 12, 1997, pursuant to which the Company
borrowed $5.0 million under a term credit facility and $2.5 million under a $4.0
million revolving credit facility, subject to a borrowing base formula, to
finance in part the SDS Acquisition. Although the Company used a portion of the
net proceeds from the initial public offering to repay these amounts, the
Company intends to keep the revolving credit facility in place for future
borrowings. The Company must pay a commitment fee of 0.25% per annum on the
average daily unused portion of the revolving credit facility. In addition, the
NationsBank Facility contains certain restrictive covenants that require the
Company to meet certain requirements, such as maintaining a minimum net worth,
and that, without the prior written consent of NationsBank of Texas, N.A.
prohibit the Company from incurring indebtedness other than pursuant to the
NationsBank Facility or declaring or paying dividends or other distributions.
The revolving credit facility matures March 12, 1999. Borrowings under the
NationsBank Facility are secured by all accounts receivable, inventory,
equipment, servicing contract rights, and other personal property of the
Company. As of March 31, 1998, there are no outstanding borrowings under the
NationsBank Facility, and the Company is in compliance with its covenants under
the NationsBank Facility.
The Company believes that cash generated from operations and its net
proceeds from the initial public offering and the follow-on 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.
YEAR 2000 ISSUES
The Company believes that the computer equipment and software used and sold
by the Company will function properly with respect to dates in the Year 2000 and
thereafter. The Company is in the process of communicating with its significant
suppliers and customers to determine the extent to which interfaces with such
entities are vulnerable to Year 2000 issues and the extent to which any products
purchased by or from such entities are vulnerable to Year 2000 issues. The
Company presently believes that the Year 2000 issues will not require the
Company to incur any material costs or pose significant operational problems for
the Company directly or as a result of any Year 2000 issues of suppliers or
customers. The Company believes that Year 2000 issues of its customers or
potential customers provide opportunities to the Company to market its products
and services as a solution to such Year 2000 issues.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997. The
Company believes the adoption of SOP 97-2 will not have a material effect on the
Company's financial position or results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q contains or may contain "forward-looking
statements" within the meaning of Section 27A of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All statements made in this report, other
than statements of historical fact, including but not limited to statements made
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" that relate to future results and operations of the Company, and
which may be indicated by words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, are "forward-looking statements."
Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors, including but not
limited to difficulties associated with growth, the Company's dependence on
major customers and limited operating history, technological change, competitive
factors and pricing pressures, product development risks, changes in legal and
regulatory requirements, 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 person acting on its behalf are expressly qualified in their entirety
by this paragraph.
9
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective April 7, 1998, the Board of Directors of the Company approved and
adopted the First Amendment to the Rights Agreement by and between the Company
and U.S. Trust Company of Texas, N. A. dated as of July 30, 1997 (the "Rights
Agreement"). Pursuant to such First Amendment to the Rights Agreement, the
exercise price of each Series A Junior Preferred Stock Purchase Right issued
under the Rights Agreement, which 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, was increased from $40 to $100.
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 of Texas,
N.A.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this Form 10-Q:
2.1 Form of Stock Purchase Agreement, dated April 20, 1998, by and among the
Company, Paragon Interface, Inc. and the shareholders of Paragon Interface,
Inc.
3.1 Restated Articles of Incorporation of the Company and Articles of Amendment
No. 1 thereto (Incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No. 333-31173).
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
3.3 Form of First Amendment to the Bylaws of the Company.
4.1 Specimen Certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
4.2 Form of Rights Agreement, by and between the Company and U.S. Trust Company
of Texas, N.A. dated as of July 30, 1997 (Incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
4.3 Form of First Amendment to Rights Agreement.
10.1 Employment Agreement, dated and effective as of April 28, 1998, by and
between the Company and William J. Smith, III.
10.2 Second Amended and Restated 1997 Stock Option Plan.
10.3 Form of First Amendment to the Director Stock Option Plan.
11.1 Statement regarding Computation of Per Share Earnings.
15.1 Letter Re: Unaudited Interim Financial Information.
27.1 Financial Data Schedule (EDGAR version only).
(b) The Company did not file any reports on Form 8-K during the three months
ended March 31, 1998.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: May 14, 1998
INSpire Insurance Solutions, Inc.
/s/ F. GEORGE DUNHAM, III
-------------------------------------
F. George Dunham, III
Chief Executive Officer, Chairman and
Director
/s/ TERRY G. GAINES
-------------------------------------
Terry G. Gaines
Executive Vice President, Chief Financial
Officer and Treasurer
Dated: May 14, 1998
11
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---- -----------
<S> <C>
2.1 Form of Stock Purchase Agreement, dated April 20, 1998, by and among the
Company, Paragon Interface, Inc. and the shareholders of Paragon Interface,
Inc.
3.1 Restated Articles of Incorporation of the Company and Articles of Amendment
No. 1 thereto (Incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No. 333-31173).
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
3.3 Form of First Amendment to the Bylaws of the Company.
4.1 Specimen Certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
4.2 Form of Rights Agreement, by and between the Company and U.S. Trust Company
of Texas, N.A. dated as of July 30, 1997 (Incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on Form S-1,
Registration No. 333-31173).
4.3 Form of First Amendment to Rights Agreement.
10.1 Employment Agreement, dated and effective as of April 28, 1998, by and
between the Company and William J. Smith, III.
10.2 Second Amended and Restated 1997 Stock Option Plan.
10.3 Form of First Amendment to the Director Stock Option Plan.
11.1 Statement regarding Computation of Per Share Earnings.
15.1 Letter Re: Unaudited Interim Financial Information.
27.1 Financial Data Schedule (EDGAR version only).
</TABLE>
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
by and among
INSpire Insurance Solutions, Inc.,
Paragon Interface, Inc.,
and
the Shareholders of Paragon Interface, Inc.
regarding the sale of 100% of the outstanding capital stock of Paragon
Interface, Inc. dated as of April 20, 1998
THIS AGREEMENT IS SUBJECT TO ARBITRATION UNDER
THE RULES AND REGULATIONS OF THE AMERICAN
ARBITRATION ASSOCIATION AS PROVIDED
IN ARTICLE XII HEREOF.
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I. TERMS OF THE PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 Sellers' Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 Deliveries by Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Deliveries by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.4 Deliveries by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Simultaneous Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6 Sales and Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 Title to Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Power, Authority, Right and Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.3 Authorization; Execution and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4 No Conflict; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.5 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLERS AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.1 Organization; Good Standing; Delivery of Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.3 Authorization; Execution and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.4 No Conflict; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.7 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.9 Sufficiency and Condition of and Title to the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.10 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.11 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.12 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.13 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.16 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.17 Litigation; Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.19 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.20 Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.21 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.22 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
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Section 4.23 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.24 Bank Accounts; Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.25 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.26 Affiliated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.27 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.28 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.29 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.30 Absence of Sensitive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.31 Credit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1 Organization; Good Standing; Delivery of Charter Documents . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.3 Authorization; Execution and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.4 No Conflict; Purchaser Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.5 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.7 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI. COVENANTS OF COMPANY AND SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.1 Cooperation of Company and Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.2 Pre-Closing Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.3 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.4 Supplements to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.5 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.6 Discharge of Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.7 Non-Disclosure; Non-Competition; Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.8 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.9 Sellers' Agent Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII. COVENANTS OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.1 Cooperation by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.2 Management Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII. MUTUAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.1 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.2 Consents to Assign Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.3 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.4 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.5 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.6 Supplemental Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.7 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IX. CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.1 Conditions Precedent to Purchaser's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.2 Conditions Precedent to Company and Sellers' Obligations . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.3 If Conditions Not Satisfied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE X. TERMINATION PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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Section 10.2 Procedure Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XI. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.1 Indemnification of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.2 Indemnification of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.3 Indemnification Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.4 Meritless Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.5 Assignment of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.6 Other Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.7 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.8 Right of Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.9 Damages Without Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.10 Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.11 Maximum Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.12 Liabilities for Special Indemnities and Breaches of Covenants . . . . . . . . . . . . . . . . . . . . . 33
Section 11.13 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.14 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.15 Notice of Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.16 Discovery of Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.17 Survival of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.18 Negligence and Strict Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.19 Sellers Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII. ARBITRATION AND EQUITABLE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.1 Settlement Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.2 Arbitration Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.3 Place of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.4 Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.5 Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.6 Exclusive Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.7 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.9 Cost of the Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.10 Exclusivity of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.6 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.7 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.8 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.10 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.11 Representation by Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.12 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.14 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.15 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.16 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.17 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
APPENDIX A DEFINITIONS AND RULES OF INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
iii
<PAGE> 5
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
Schedule
- --------
<S> <C>
Schedule 1.1 Shareholders
Schedule 4.5 Capitalization
Schedule 4.6(a) Year-End Financial Statements
Schedule 4.6(b) Unaudited Financial Statements
Schedule 4.9(a) Sufficiency of the Assets
Schedule 4.12(b) Leases
Schedule 4.13(a) Owned Tangible Personal Property
Schedule 4.13(b) Leased Tangible Personal Property
Schedule 4.15 Insurance
Schedule 4.16 Contracts
Schedule 4.19 Permits
Schedule 4.20(a) Owned Intangible Assets
Schedule 4.20(b) Licensed Intangible Assets
Schedule 4.21 Employees
Schedule 4.22(a) Welfare Benefits
Schedule 4.22(b) Pension Benefit Plans
Schedule 4.22(c) Other Employee Benefit Plans
Schedule 4.24 Bank Accounts
Schedule 4.26 Affiliated Transactions
Schedule 6.3(b) Prohibited Actions
Schedule 7.2 Management Options
Schedule 8.2(b) Required Consents
Schedule 8.3(b) Required Permits
</TABLE>
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
Exhibit A Escrow Agreement
Exhibit B Sellers' Agent Agreement
Exhibit C Form of Release
Exhibit D Form of Sellers' Opinion
Exhibit E Form of Purchaser's Opinion
</TABLE>
v
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April
20, 1998 (the "SIGNING DATE"), is made by and among INSpire Insurance
Solutions, Inc., a Texas corporation ("PURCHASER"), Paragon Interface, Inc., a
Georgia corporation ("COMPANY"), and the other Persons listed on the signature
pages hereto (such other Persons, collectively, the "SELLERS," and
individually, a "SELLER"). Purchaser, Company and Sellers are sometimes
collectively referred to as the "PARTIES," and individually referred to as a
"PARTY."
PRELIMINARY STATEMENTS
A. Company is engaged in the Business (as hereinafter defined).
B. Sellers will own, upon the Closing (as hereinafter defined),
all the issued and outstanding shares of Company's common stock, par value
$.001 per share (the "COMMON STOCK"), which shares will constitute all the
issued and outstanding equity securities of Company as of the Closing.
C. Each Seller desires to sell, and Purchaser desires to
purchase, the Shares (as hereinafter defined), in each case on the terms and
subject to the conditions set forth in this Agreement.
D. Capitalized terms used in this Agreement are defined or
indexed in Appendix A for the convenience of the reader and in order to
eliminate the need for cross-references. Appendix A is incorporated herein by
this reference.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants, representations and warranties set forth in this
Agreement and for other good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I.
TERMS OF THE PURCHASE AND SALE
Section 1.1 Sale of Shares. Subject to the terms and conditions
and in reliance upon the representations and warranties set forth in this
Agreement, at the Closing each Seller shall sell and assign to Purchaser, and
Purchaser shall purchase and acquire from each Seller, the number of shares of
Common Stock listed on Schedule 1.1 opposite the name of such Seller
(collectively, the "SHARES"), in each case free and clear of all Encumbrances
and subject to no restrictions other than those restrictions on the transfer of
the Shares arising from applicable federal and state securities laws.
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<PAGE> 7
Section 1.2 Purchase Price. The total consideration for the
Shares shall be $4,250,000 less the amount of any Seller Expenses set forth in
the Expense Notice (as such terms are defined in Section 13.4 hereof) (the
"PURCHASE PRICE").
Section 1.3 Payment of Purchase Price. At the Closing, Purchaser
shall (a) pay to each Seller the amount set forth opposite such Seller's name
on Schedule 1.1, aggregating the sum of $3,700,000 less the amount of any
Seller Expenses set forth in the Expense Notice (as such terms are defined in
Section 13.4 hereof) (the "CLOSING CASH PAYMENT") by wire transfer of
immediately available funds to the bank account set forth on a notice given by
Sellers' Agent to Purchaser not later than three business days prior to the
Closing Date, (b) deliver to a mutually selected escrow agent (the "ESCROW
AGENT") the sum of $500,000 (the "ESCROW AMOUNT") by wire transfer of
immediately available funds to be held and disbursed by the Escrow Agent
pursuant to the terms of an Escrow Agreement in the form of Exhibit A attached
hereto (the "ESCROW AGREEMENT"), and (c) $50,000 (the "EXPENSE FUND") to Miller
& Martin LLP to be held in escrow and disbursed pursuant to the Sellers' Agent
Agreement (as hereinafter defined).
Section 1.4 INTENTIONALLY OMITTED.
Section 1.5 Sellers' Agent. The execution of this Agreement by
the Sellers shall constitute the approval, designation and appointment by the
Sellers of David P. Harbin, and upon his resignation, death or other
termination, Robert Dale Jones, as the agent on behalf of all of the Sellers
(the "SELLERS' AGENT") pursuant to the terms of a Sellers' Agent Agreement (the
"SELLERS' AGENT AGREEMENT") in the form of Exhibit B attached hereto. The
Sellers' Agent shall be authorized to act on behalf of all of the Sellers in
accordance with the terms of the Sellers' Agent Agreement and the actions of
the Sellers' Agent taken pursuant to the Sellers' Agent Agreement shall be
binding upon all of the Sellers.
ARTICLE II.
CLOSING
Section 2.1 Closing. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Akin, Gump, Strauss, Hauer and Feld, L.L.P., 1700 Pacific Avenue, Suite
4100, Dallas, Texas 75201 on the first business day following the date on which
all of the conditions set forth in Article IX, to the extent not waived, are
satisfied. The Closing may be postponed to such other date as the Parties may
mutually agree. The date on which the Closing actually occurs is hereinafter
referred to as the "CLOSING DATE."
Section 2.2 Deliveries by Sellers. At the Closing, Sellers or
each Seller, as the case may be, shall deliver the following:
(a) the closing certificates referred to in Section
9.1(e);
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<PAGE> 8
(b) a certificate or certificates representing the number
of Shares listed on Schedule 1.1 opposite the name of such Seller, in each case
endorsed in blank or together with duly executed stock transfer powers in favor
of Purchaser;
(c) if Seller is other than a natural person--a
certificate dated within ten business days of the Closing from the Secretary of
State of such Seller's jurisdiction of incorporation (or other proper state
official) certifying as to Seller's good standing in such jurisdiction;
(d) if Seller is other than a natural person--a
certificate executed by the secretary or an assistant secretary of such Seller
certifying as to (i) such Seller's Charter Documents, (ii) such Seller's good
standing, (iii) the resolutions in which such Seller's board of directors
approved this Agreement and the transactions contemplated hereby, and (iv) the
incumbency of such Seller's officers who execute any documents on behalf of
such Seller in connection with this Agreement.
(e) an opinion of counsel addressed to Purchaser from
counsel to Sellers in substantially the form of Exhibit D attached hereto;
(f) executed counterparts of all Required Consents and
Required Permits;
(g) a receipt for the payment of the Closing Cash
Payment received by each Seller, a receipt by Sellers' Agent for the delivery
of the Escrow Amount and a receipt by Miller & Martin LLP for the delivery of
the Expense Fund;
(h) each of the agreements referred to in Section 8.6 to
which Seller is a party, each executed by Seller;
(i) a release in substantially the form of Exhibit C
attached hereto; and
(j) all other previously undelivered documents,
instruments and writings required to be delivered by Sellers to Purchaser at or
prior to the Closing pursuant to this Agreement and such other documents,
instruments and certificates as Purchaser may reasonably request in connection
with the transactions contemplated by this Agreement.
Section 2.3 Deliveries by Company. At the Closing, Company shall
deliver, or cause to be delivered, the following:
(a) the closing and secretary's certificates referred to
in Sections 9.1(e), 9.1(f) and 9.1(g);
(b) the recorded articles of incorporation of Company, as
amended, recently certified by the Secretary of State (or other proper state
official) of the State of Georgia;
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<PAGE> 9
(c) a certificate of existence and good standing (or the
functional equivalents) for Company dated within ten business days of the
Closing Date issued by the Secretary of State (or other proper state official)
of the State of Georgia;
(d) all Books and Records of Company;
(e) an opinion of counsel addressed to Purchaser from
counsel to Company and Sellers in substantially the form of Exhibit D attached
hereto;
(f) executed counterparts of all Required Consents and
Required Permits;
(g) each of the agreements referred to in Section 8.6 to
which the Company is a party, each executed by the Company; and
(h) all other previously undelivered documents,
instruments and writings required to be delivered by Company to Purchaser at or
prior to the Closing pursuant to this Agreement and such other documents,
instruments and certificates as Purchaser may reasonably request in connection
with the transactions contemplated by this Agreement.
Section 2.4 Deliveries by Purchaser. At the Closing, Purchaser
shall deliver, or cause to be delivered, to Sellers' Agent the following:
(a) the Closing Cash Payment to each Seller in federal or
other immediately available funds by wire transfer in accordance with Section
1.3(a);
(b) The Escrow Amount to the Escrow Agent in federal or
other immediately available funds by wire transfer in accordance with Section
1.3(b);
(c) the Expense Fund to Miller & Martin LLP in federal or
other immediately available funds by wire transfer in accordance with Section
1.3(c);
(d) the closing and secretary's certificates referred to
in Sections 9.2(c), 9.2(d) and 9.2(e);
(e) the recorded articles of incorporation of Purchaser,
as amended, recently certified by the Secretary of State (or other proper state
official) of the State of Texas;
(f) a certificate of existence and good standing (or the
functional equivalents) for Purchaser dated within ten business days of the
Closing Date issued by the Secretary of State (or other proper state official)
of the State of Texas;
(g) an opinion of counsel for Purchaser addressed to
Sellers in substantially the form of Exhibit E attached hereto; and
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<PAGE> 10
(h) each of the agreements referred to in Section 8.6 to
which Purchaser is a party, each executed by Purchaser.
Section 2.5 Simultaneous Deliveries. The delivery of the
documents required to be delivered at the Closing pursuant to this Agreement
shall be deemed to occur simultaneously. No delivery shall be effective until
each Party has received or waived receipt of all the documents that this
Agreement entitles such Party to receive.
Section 2.6 Sales and Transfer Taxes. Any Taxes and any
transfer, recording or similar fees and charges arising out of or in connection
with the transactions contemplated by this Agreement shall be borne by Sellers.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby represents and warrants to Purchaser, with respect
to itself and not with respect to any other Seller, that the statements made in
this Article III are true, correct and complete.
Section 3.1 Title to Shares. Seller is the record and beneficial
owner of the number of Shares listed on Schedule 1.1 opposite the name of such
Seller, and on the Closing Date such Seller's Shares will be free and clear of
all Encumbrances and not subject to any restrictions except those restrictions
on the Shares arising from applicable federal and state securities laws. At
the Closing, Seller will transfer to Purchaser its entire right, title and
interest in and to such Shares.
Section 3.2 Power, Authority, Right and Capacity. Seller has the
requisite power, authority, right and capacity, as the case may be, to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby, including the execution,
delivery and performance of all the Transaction Documents to which such Seller
is a party.
Section 3.3 Authorization; Execution and Validity. Each of the
Transaction Documents, when executed by Seller and delivered to Purchaser, will
be duly authorized (where appropriate), executed and delivered, and will
constitute a valid, legal and binding obligation of Seller, enforceable against
Seller in accordance with the terms of such Transaction Document, subject to
any Law Affecting Creditors' Rights.
Section 3.4 No Conflict; Consents. The execution, delivery and
performance by Seller of each Transaction Document will not (a) violate any
Law, (b) violate any Charter Document of Seller (if applicable), (c) violate
any Order to which Seller is a party or by which Seller or its assets is bound,
(d) result in the creation of any Encumbrance on any of the Shares, or (e)
require any Consent from any Person which has not been obtained on or prior to
the Closing.
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<PAGE> 11
Section 3.5 Brokers. No Person is or will become entitled to
receive any brokerage or finder's fee, advisory fee or other similar payment
for the transactions contemplated by this Agreement by virtue of having been
engaged by or acted on behalf of Seller.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLERS AND COMPANY
Each Seller and, until the Closing, Company, jointly and severally,
hereby represents and warrants to Purchaser that the statements made in this
Article IV are true, correct and complete.
Section 4.1 Organization; Good Standing; Delivery of Charter
Documents. The Company is a corporation duly organized, validly existing and
in good standing under the laws of Georgia. Company is duly qualified or
licensed as a foreign corporation in each jurisdiction in which the nature of
Company's business makes qualification or licensing necessary, except those
jurisdictions wherein the failure to so qualify could not have a Material
Adverse Effect on Company. Prior to the Signing Date, Company has delivered,
or caused to be delivered, to Purchaser true and complete copies of the Charter
Documents of Company as in effect on the Signing Date.
Section 4.2 Power and Authority. Company has all requisite
corporate power and authority necessary to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby, including the execution, delivery and performance of all
the Transaction Documents to which Company is a party. Company has all
requisite corporate power and authority necessary to own, operate and lease its
assets and to carry on its business as and where conducted.
Section 4.3 Authorization; Execution and Validity. Each of the
Transaction Documents, when executed by Company and delivered to Purchaser,
will be duly authorized, executed and delivered, and will constitute a valid,
legal and binding obligation of Company, enforceable against Company in
accordance with the terms of such Transaction Document, subject to any Law
Affecting Creditors' Rights.
Section 4.4 No Conflict; Consents. The execution, delivery and
performance by Company of each Transaction Document will not (a) violate any
Law, (b) violate any Charter Document of Company, (c) violate any Order to
which Company is a party or by which Company or its Assets is bound, (d) breach
any Material Contract, Real Property Lease or Personal Property Lease, (e)
result in the creation of any Encumbrance on any Assets of Company, other than
Permitted Encumbrances, or (f) require any Consent from any Person which has
not been obtained on or prior to the Closing, except for AT&T Inview, Inc. as
disclosed in Schedule 8.2(b) (the "AT&T CONSENT")
Section 4.5 Capitalization. Schedule 4.5 lists the total number
of authorized, issued and outstanding shares of capital stock of Company. All
the Shares have been duly authorized and validly issued and are fully paid and
non-assessable. There are no issued
6
<PAGE> 12
and outstanding shares of capital stock of Company other than the Shares. On
the Closing Date, immediately prior to the Closing, there will be no authorized
or outstanding option, subscription, warrant, call, right, commitment or other
agreement ("SUBSCRIPTION RIGHT") obligating Company to issue or sell any shares
of its capital stock or any securities convertible into or exercisable for any
shares of its capital stock. None of the Shares were issued or will be
transferred pursuant to this Agreement in violation of any preemptive or
preferential rights or rights of first refusal of any Person. Company has no
subsidiaries and does not own any shares of capital stock, partnership
interests or other beneficial ownership interests in any other Person.
Section 4.6 Financial Statements.
(a) Year End Financial Statements. Attached hereto as
Schedule 4.6(a) are the balance sheets of Company as of December 31, 1997 (the
"YEAR-END BALANCE SHEET" and such date the "BALANCE SHEET DATE"), reviewed for
1997 and audited for 1996, and, with the related statements of income and
accumulated deficit and cash flows for the fiscal year ended on such dates and
the accompanying notes (collectively, the "REVIEWED FINANCIAL STATEMENTS").
The Reviewed Financial Statements have been prepared in accordance with GAAP
(except as noted therein and on Schedule 4.6(a)), and present fairly, in all
material respects, the financial position of the Company as of the date
indicated and the results of its operations and cash flows for the period then
ended.
(b) Unaudited Financial Statements. Attached hereto as
Schedule 4.6(b) are the unaudited balance sheet of Company as of March 31, 1998
(the "INTERIM BALANCE SHEET") and the related statement of income and
accumulated deficit and cash flows for the three month period ended on such
date (collectively, the "UNAUDITED FINANCIAL STATEMENTS"). The Unaudited
Financial Statements have been prepared in accordance with the Books and
Records and with GAAP (except as noted therein and on Schedule 4.6(b) and the
absence of detailed notes to such statements), and present fairly, in all
material respects, the financial position of Company as of the date indicated
and the results of its operations and cash flows for the period then ended,
subject to normal year-end adjustments.
Section 4.7 No Undisclosed Liabilities. Except as described in
the Year-End Balance Sheet, on Schedules 4.6(a) and (b) and the Unaudited
Financial Statements, none of the assets or the business of Company is subject
to any Claim of any nature, absolute or contingent, and no events have occurred
or circumstances exist that could give rise to any future Claim that could have
a Material Adverse Effect on the assets or the business of Company, other than
Claims incurred since the Balance Sheet Date in the ordinary course of
Company's business consistent with past practices.
Section 4.8 Absence of Certain Changes. Since the Balance Sheet
Date and except as set forth on the Unaudited Financial Statements, Company has
conducted its business only in the ordinary course of business consistent with
past practices and, without limiting the generality of the foregoing, there has
been no (a) event or occurrence that has caused or will cause a Material
Adverse Change with respect to Company, (b) amendment
7
<PAGE> 13
to the Charter Documents of Company, (c) payment of any dividend or
distribution made with respect to Company's capital stock, (d) redemption or
purchase of any of Company's capital stock, (e) amendment, termination or
receipt of notice of termination of or entry into any contract, lease or
license involving a total commitment by or to Company of $10,000, except for
contracts for the licensing of software and the providing of services in the
ordinary course of business that are included in Schedule 4.16, (f) incurrence
or guarantee of any debt by Company, other than trade and accounts payable
incurred in the ordinary course of business consistent with past practices, (g)
loan to or transaction with any officer, director or shareholder of Company,
other than in the ordinary course of business consistent with past practices
and those loans or transactions included in Schedule 4.26, (h) waiver of any
material right or release of any debt or claim by Company, other than waivers
or releases given in the ordinary course of business consistent with past
practices, (i) amendment or termination of any Permit of Company, (j)
destruction, damage or other loss to any material asset of Company other than
destruction, damage or other loss that is fully covered by insurance, (k)
adoption of or increase in the payments to or benefits under an Employee
Benefit Plan of Company, (l) sale, lease, or other disposition of any assets
used in the business of Company, other than assets sold, leased or otherwise
disposed of in the ordinary course of business consistent with past practices,
(m) imposition of any Encumbrance on any of the assets of Company, other than
Permitted Encumbrances, (n) purchase or lease any assets used in the business
of Company, other than assets purchased or leased in the ordinary course of
business consistent with past practice, (o) payment of any bonus or an increase
in the salary, bonus or other compensation payable to any employee of Company,
other than payments or increases consistent with past practice or as set forth
in Schedule 4.21(a), (p) change in any accounting method used by Company, or
(q) acceleration related to the collection of accounts receivable of Company or
delay related to the payment of accounts payable of Company, or (r) agreement
or commitment to take any action described in this Section.
Section 4.9 Sufficiency and Condition of and Title to the Assets.
(a) Sufficiency of the Assets. The assets reflected on
the Books and Records of Company and the assets disclosed in Schedule 4.9(a)
(the "ASSETS") constitute all the assets, properties, licenses and other
arrangements which are presently being used or are reasonably related to the
Business, and the Assets are sufficient to operate the Business in a manner
consistent with past practice and historic capacity.
(b) Condition of the Assets Each of the Assets complies
with Law and is in good and normal operating condition and repair, structurally
sound with no known defects (ordinary wear and tear excepted), and suitable for
its intended use.
(c) Title to the Assets. At the Closing, Company will
hold good, valid and indefeasible title to, or a valid leasehold interest in or
with respect to licensed Intangible Assets a valid license to use, each of the
Assets, free and clear of all Encumbrances, other than Permitted Encumbrances.
8
<PAGE> 14
Section 4.10 Accounts Receivable. All accounts receivable of
Company reflected on the Interim Balance Sheet (the "ACCOUNTS RECEIVABLE")
represent or will represent valid obligations arising from sales made,
commissions earned or services performed in the ordinary course of business.
Unless paid prior to the Closing Date, the Accounts Receivable are current and
collectible net of the respective reserves shown on the Interim Balance Sheet
(which reserves are adequate and calculated consistent with past practice).
Subject to such reserves, each of the Accounts Receivable either has been or
will be collected in full, without any set-off, within ninety days after the
day on which it first becomes due and payable. There is no contest, claim, or
right of set-off under any contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable.
Section 4.11 INTENTIONALLY OMITTED.
Section 4.12 Real Property.
(a) Owned Real Property. Company does not own any real
property.
(b) Leased Real Property. Schedule 4.12(b) lists all the
leases of real property to which Company is a party and which are in effect as
of the Signing Date. All of the leases on Schedule 4.12(b) and any leases of
real property entered into after the Signing Date in accordance with Section
6.3 (collectively, the "REAL PROPERTY LEASES") are valid, binding and in full
force and effect. Neither Company nor, to Sellers' Knowledge, any other Person
is in default under any Real Property Lease, nor is there any event which with
notice or lapse of time, or both, would constitute a default thereunder by
Company or, to Seller's knowledge, by any other Person. True and complete
copies of all the Real Property Leases, any amendments thereto have been
provided to Purchaser prior to the Signing Date.
Section 4.13 Personal Property.
(a) Owned Tangible Personal Property. Schedule 4.13(a)
lists as of the Signing Date all of the tangible personal property (including
all machinery, equipment, vehicles, structures, fixtures and furniture) owned
by Company having a net book value in excess of $5,000 and used in the
Business, located on its premises or shown on the Interim Balance Sheet or
acquired after the date thereof (except for such tangible personal property
subsequently sold in the ordinary course of business and consistent with past
practice).
(b) Leased Tangible Personal Property. Schedule 4.13(b)
lists as of the Signing Date all the leases of tangible personal property to
which Company is a party. All of the leases on Schedule 4.13(b) and any leases
of tangible personal property entered into after the Signing Date in accordance
with Section 6.3 (collectively, the "PERSONAL PROPERTY LEASES") are valid,
binding and in full force and effect. Neither Company nor, to Sellers'
Knowledge, any other Person is in default under any Personal Property Lease,
nor is there any event which with notice or lapse of time, or both, would
constitute a default
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thereunder by Company or, to Sellers' knowledge, by any other Person. True and
complete copies of all the Personal Property Leases and any amendments thereto
have been provided to Purchaser prior to the Signing Date.
Section 4.14 Compliance with Laws. Company has complied with all
Laws in the conduct of the Business. Company has not received any notice from
any Governmental Authority or other Person asserting that Company has violated
any Law. No events have occurred or circumstances exist that could cause
Company to violate any Law in the future.
Section 4.15 Insurance. Schedule 4.15 lists as of the Signing
Date all insurance policies to which Company is a party or which insure the
Business or any of the Assets against loss (collectively, the "INSURANCE
POLICIES"), including each insurer's name, coverage deductible and limit,
expiration date and current premium. Each Insurance Policy is in full force
and effect, all premiums with respect thereto have been paid to the extent due,
and no notice of cancellation or termination has been received with respect to
any such policy, other than any policy that will be replaced or is intended to
be replaced prior to the expiration thereof by policies providing substantially
the same coverage from an insurer that is financially sound and reputable. The
Insurance Policies provide Company with adequate insurance coverage against the
risks involved in the conduct of the Business and ownership of the Assets. The
coverage provided by the Insurance Policies will not in any way be affected by
or terminate or lapse by reason of the consummation of the transactions
contemplated by this Agreement. True and complete copies of all Insurance
Policies have been provided to Purchaser.
Section 4.16 Contracts. Schedule 4.16 lists as of the Signing
Date all the contracts relating to the Business or Assets or by which any of
the Assets is bound, pursuant to which the obligations of any party thereto
are, or are contemplated to be, with respect to any such contract (a) in excess
of $25,000 during the term thereof, (b) not terminable prior to 90 days after
the Signing Date, or (c) otherwise material to the Business. All of the
contracts listed on Schedule 4.16 and any contracts entered into after the
Signing Date in accordance with Section 6.3, which meet the criteria set forth
in subparagraphs (a), (b) and (c) above (collectively, the "MATERIAL
CONTRACTS"), are valid and binding and in full force and effect, subject to
Laws Affecting Creditors' Rights. Neither Company nor, to Sellers' Knowledge,
any other Person is in default under any Material Contract, nor is there any
event which with notice or lapse of time, or both, would constitute a default
thereunder by Company or, to Sellers' knowledge, by any other Person. Other
than the Material Contracts, Company is not a party to any contract which (x)
requires the Consent of any Person in order to consummate the transactions
contemplated by this Agreement which written consents have not been obtained,
(y) is in excess of the normal, ordinary and usual requirements of the
Business, or (z) is excessive in price or quantity. True and complete copies
of all the Material Contracts heretofore entered into have been provided to
Purchaser.
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Section 4.17 Litigation; Orders. There is no Action pending, or to
Sellers' Knowledge, threatened against or affecting Company, the Business or
any of the assets of the Company. Company is not subject to any Order.
Section 4.18 Environmental Matters.
(a) Compliance with Environmental Laws. The Business has
been and is operated in compliance with all Environmental Laws and all Permits
related to Environmental Laws.
(b) Hazardous Materials. Company has not generated,
treated, manufactured, processed, distributed, used, stored, discharged,
released, disposed of, transported or handled any Hazardous Materials at any of
the properties or facilities used in connection with the Business, including
the property subject to the Real Property Leases.
(c) Existence of an Action. Company has not received any
notice from any Governmental Authority or other Person alleging or concerning
any Claim against Company under any Environmental Law, whether for personal
injuries or property damages. There is no Action pending or, to Sellers'
Knowledge, threatened affecting Company with respect to the Business alleging
or concerning any Claim under any Environmental Law, whether for personal
injuries or property damages, nor do Sellers have any knowledge of any fact or
condition that could give rise to such a Claim.
(d) Environmental Permits. Company does not require any
Permits under the Environmental Laws with respect to the operation of the
Business.
(e) Miscellaneous. Without in any way limiting the
generality of the foregoing, (i) the Company has not transported, released,
discharged, stored, disposed or arranged for the disposal of Hazardous
Materials at any off-site location, (ii) to Sellers' knowledge, no underground
improvement regulated by any Environmental Law, including any storage or
treatment tank, is located on the property subject to the Real Property Leases,
(iii) to Sellers' knowledge, there is no asbestos contained in or forming part
of any Assets, and (iv) to Sellers' knowledge, no polychlorinated biphenyls or
polychlorinated biphenyls-containing items are used or stored at the premises
of the Company subject to the Real Property Leases.
Section 4.19 Permits. Schedule 4.19 lists all the Permits related
to the Assets or operation of the Business, and indicates those Permits for
which the Consent of any Person is required to continue or to assign such
Permit upon the consummation of the transactions contemplated herein. Company
has obtained, maintains in effect, and complies with the terms and conditions
of all Permits required by Law. There is no Action pending or, to Sellers'
Knowledge, threatened in writing to revoke or limit any Permit listed on
Schedule 4.19.
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Section 4.20 Intangible Assets.
(a) Owned Intangible Assets. Schedule 4.20(a) lists all
the Intangible Assets owned by Company as of the Signing Date. With respect to
the Intangible Assets listed on Schedule 4.20(a) and all the Intangible Assets
obtained or developed hereafter and prior to the Closing, (i) Company owns all
right, title and interest in and to such Intangible Assets free and clear of
all Encumbrances, except licenses granted by the Company to customers in the
ordinary course of business to use the Intangible Assets and except Permitted
Encumbrances, (ii) Company has not sold, transferred, licensed, sub-licensed or
conveyed any interest in any of such Intangible Assets, and (iii) no Person has
infringed upon or misappropriated any of such Intangible Assets. In addition,
the Company is the sole and exclusive owner of (i) all other intellectual
property rights, including, without limitation, trade secrets, know-how,
inventions (patented and unpatented), and discoveries, embodied in or used in
the development of such Intangible Assets and (ii) all technical documentation,
including user manuals, developed by or at the request of the Company; except
for third party software used in the development of such Intangible Assets.
The employees, consultants and former employees and consultants of the Company
have no right, title or interest in such Intangible Assets or other
intellectual property used by the Company, except for the license granted to
KAOS Limited (the "KAOS License") pursuant to that certain License Agreement,
dated as of December 1, 1997, between KAOS Limited and Creative Software
Technologies, Inc., which was merged with and into the Company prior to the
Signing Date.
(b) Licensed Intangible Assets. Schedule 4.20(b) lists
all licenses and other contracts related to any Intangible Asset used by
Company as of the Signing Date. Each license or contract listed on Schedule
4.20(b) and each license or contract related to an Intangible Asset which is
entered into after the Signing Date in accordance with Section 6.3 is valid,
binding and in full force and effect. Company has not used any Intangible
Asset for which it does not have a license and each such license covers all
uses of such Intangible Assets by the Company. Company has not misappropriated
any Intangible Asset owned by another Person.
(c) No Infringements. Each of the Intangible Assets
listed in Schedule 4.20(a) does not, and did not at any time, violate or
infringe any United States copyright, patent, trade secrets, know-how,
trademarks or other intellectual property rights of any third party, is not in
the public domain, and, to the knowledge of the Company (i) has not been
duplicated except as permitted under the applicable licenses and law, (ii) has
not been reverse compiled or engineered and (iii) there are no claims or
actions pending or threatened or which have been brought asserting such
violation or infringement or that any of such Intangible Assets is in the
public domain.
(d) Confidentiality. The Company has taken reasonable
commercial efforts, and has required its employees, consultants, and licensees
to take reasonable commercial efforts, to maintain the confidentiality of the
Intangible Assets listed on Schedule 4.20(a).
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Section 4.21 Employees.
(a) Employees. Schedule 4.21(a) lists the name, job
title, date of employment and current annual compensation (salary, bonus and
all amounts paid pursuant to an Employee Benefit Plan) for each employee of
Company employed as of the Signing Date (collectively, the "EMPLOYEES"). All
Employees are either United States citizens or resident aliens specifically
authorized to engage in employment in the United States in accordance with all
Laws. All sums due for employee compensation and benefits owing to any
employee of Company (including all persons whose employment by Company
terminated prior to the Signing Date) have been duly and adequately accrued on
the accounting Books and Records. Accrued vacation time is listed on Schedule
4.21(a) but has not been accrued on the Reviewed Financial Statements or
Unaudited Financial Statements.
(b) Contracts. Schedule 4.21(b) lists each (i) contract
between Company and an Employee, and (ii) collective bargaining agreement and
other contract to or with any labor union, employee representative or group of
employees. Other than the contracts listed on Schedule 4.21(b), Company's
employment of each Employee is terminable at will without any penalty or
severance obligation of any kind on the part of Company.
(c) Compliance with Labor Laws. Company has complied and
is presently complying with all Laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, and is not
engaged in any unfair labor practice or unlawful employment practice.
(d) Labor Actions and Relations. There is no unfair
labor practice charge or complaint against Company pending or threatened before
the National Labor Relations Board nor is there any grievance nor any
arbitration proceeding arising out of or under any collective bargaining
agreement pending and, to Sellers' Knowledge, no basis for any such charge,
complaint or grievance exists. There is no labor strike, slowdown or work
stoppage pending or threatened against Company. Company has not experienced
any significant work stoppages or been a party to any Action before the
National Labor Relations Board involving any issue for the past three years nor
been a party to any arbitration proceeding arising out of or under any
collective bargaining agreement for the past three years. There is no charge
or complaint pending or threatened against Company before the Equal Employment
Opportunity Commission or the Department of Labor or any state or local agency
of similar jurisdiction.
(e) WARN Act. Neither Company nor any Person with whom
any Company would be treated as an "employer" for purposes of the Worker
Adjustment and Retraining Notification Act or any similar state law has
incurred any liability or obligation under such laws.
Section 4.22 Employee Benefits.
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(a) Welfare Benefit Plan. Schedule 4.22(a) lists, as of
the Signing Date, each Welfare Benefit Plan maintained by Company or to which
Company contributes or is required to contribute with respect to any Person.
True, correct and complete copies of the plan documents for each of the
Acquired Company's Welfare Benefit Plans and all related summary plan
descriptions have been provided to Purchaser. Company has no liability for
contributions or payments more than 30 days past due with respect to any of its
Welfare Benefit Plans or for any retiree benefits under any such Welfare
Benefit Plan to current or retired employees of Company (other than as required
by Section 601 of ERISA).
(b) Pension Benefit Plans. Schedule 4.22(b) lists, as of
the Signing Date, each Pension Benefit Plan maintained by Company or to which
Company contributes or is required to contribute with respect to any Person.
True, correct and complete copies of the plan and related trust documents for
each of Company's Pension Benefit Plan and all related summary plan
descriptions have been provided to Purchaser. Company does not presently
maintain and has never maintained, nor has had any obligation of any nature
(whether contingent or otherwise) to contribute to, a "defined benefit plan"
(as defined in Section 414(j) of the Code), without regard to whether such
defined benefit plan met the requirements of section 401(a) of the Code.
Company has no liability for contributions due with respect to its Pension
Benefit Plans, including any "individual account plan" (as defined in Section
3(34) of ERISA).
(c) Employee Arrangements. Schedule 4.22(c) lists each
Employee Benefit Plan not otherwise disclosed in Schedules 4.22(a) or 4.22(b)
maintained by Company with respect to any past or present employee of Company.
True, correct and complete copies of each Employee Benefit Plan listed on
Schedule 4.22(c) (and any related documents) have been provided to Purchaser.
Company has no liability for contributions or payments more than 30 days past
due with respect to any of its Employee Benefit Plans listed on Schedule
4.22(c).
(d) Benefit Plan Compliance. All of Company's Employee
Benefit Plans and any related trust agreements or annuity contracts (or any
other funding instruments) currently comply in all respects, and have so
complied in the past, both as to form and operation, with all applicable Laws,
including ERISA and the Code. No assets of Company Employee Benefit Plans
include any "employer securities" or "employer real property" as such terms are
defined in Section 407 of ERISA. No debt has been incurred by Company Benefit
Plans, other than liabilities for the payment of benefits or insurance
premiums.
(e) No Liability. No liability under Title IV of ERISA
has been or will be incurred by Company on or prior to the Closing Date.
Company has made no commitment, whether formal or informal, and whether legally
binding or not, to create or have liability under any additional Employee
Benefit Plan, policy or arrangement, or to modify any existing Company Employee
Benefit Plan.
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(f) Effect of Consummation. The consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee of Company or any other individual to a bonus, severance pay,
unemployment compensation or similar payment, except for shares of Common Stock
as set forth in Schedule 1.1, which such shares will be issued and outstanding
immediately prior to Closing, (ii) otherwise accelerate the time of payment or
vesting, or increase the amount of any compensation due to any current or
former employee of Company, (iii)result in any prohibited transaction described
in Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not available or (iv)in any way result in any additional liability with respect
to any Company Employee Benefit Plan.
(g) No Penalties. No Company Employee Benefit Plans or
any trusts relating thereto have engaged in any transaction in connection with
which Company or any fiduciaries of such Employee Benefit Plans or related
trusts is or could be subject either to a civil penalty or other liability
under Sections 502(i), 406 or 409 of ERISA or a tax imposed by Section 4975 of
the Code, and no event has occurred and no condition exists with respect to
Company Employee Benefit Plans that could subject Company to any other tax or
penalty under the Code or civil penalty or other liability under ERISA or other
Laws.
(h) No Actions. No Action is pending or, to Sellers'
Knowledge, threatened involving any Company Employee Benefit Plan.
Section 4.23 Taxes.
(a) Tax Returns. All Tax returns, reports, and declarations of
estimated Tax (collectively, "RETURNS") which were required to be filed by
Company with any Governmental Authority have been timely filed. All Returns
are true and correct and accurately reflect the Tax liabilities of Company.
All Taxes shown to be due pursuant to such Returns, other than Taxes being
contested in good faith and for which adequate reserves are reflected on the
Interim Balance Sheet, have been paid.
(b) Statute of Limitations and Tax Actions. Company has
not executed any presently effective waiver or extension of any statute of
limitations against assessments and collection of Taxes. There are no pending
or, to Sellers' Knowledge, threatened Claims, assessments, notices, proposals
to assess, deficiencies or audits with respect to Taxes.
(c) Miscellaneous Tax Representations. Proper and
accurate amounts have been withheld and remitted by Company from and with
respect to all Persons from whom it is required by applicable law to withhold
for all periods in compliance with the tax withholding provisions of all Laws.
Neither Company nor, to Sellers' Knowledge, any other corporation has filed an
election under Section 341(f) of Code that is applicable to Company or any of
the Assets. Company is not a party to any tax sharing agreement. There is no
contract, plan or arrangement covering any Person that, individually or
collectively, would give rise to the payment of any amount that would not be
deductible by
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Company by reason of Section 280G of the Code. Company is not a "foreign
person" within the meaning of Section 1445(f)(3) of the Code. Company has never
been a member of any group that filed a consolidated federal income tax return.
Section 4.24 Bank Accounts; Powers of Attorney. Schedule 4.24
lists the names of (a) each bank, trust company and stock or other broker with
which Company has an account, credit line or safe deposit box or vault, or
otherwise maintains relations (the "BANK ACCOUNTS"), (b) all Persons authorized
to draw on, or to have access to, each of the Accounts, and (c) all Persons
authorized by proxies, powers of attorney or other like instrument to act on
behalf of Company in any matter concerning the Business. Each of the Bank
Accounts has a positive cash balance. No proxies, powers of attorney or other
like instruments are irrevocable.
Section 4.25 Suppliers and Customers. The relationships of
Company with its suppliers and customers are satisfactory. No such material
customer or supplier has canceled or otherwise terminated, or threatened to
cancel or otherwise terminate, its relationship with Company, or to materially
decrease its services to Company or its usage of the services of Company.
Section 4.26 Affiliated Transactions. Except for transactions
disclosed in Schedule 4.26 there are no outstanding loans or other transactions
between Company and any officer, director, shareholder or affiliate of the
Company or any spouse or child of any such person. Except as disclosed in
Schedule 4.26 no officer, director, shareholder or affiliate of Company 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 Company. On or
before the Closing Date, all loans between Company and affiliates, directors
and officers, shall have been paid, and each affiliate, Seller, director and
officer of Company shall have released Company from any and all claims pursuant
to a release substantially in the form of Exhibit C and such releases shall
have been delivered to Company. Since the Year-End Balance Sheet Date, Company
has not paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets (tangible or intangible) to, or entered into any
agreement or arrangement with, any of the officers, directors or shareholders
of Company or any of its affiliates, except for compensation to officers at
rates not exceeding the rates of compensation paid during the fiscal year ended
on the Year-End Balance Sheet Date and routine travel advances to officers and
employees and except as set forth in Schedule 4.26.
Section 4.27 Books and Records. The Books and Records of Company,
all of which have been made available to Purchaser, are complete and correct
and have been maintained in accordance with sound business practices, including
the maintenance of an adequate system of internal controls.
Section 4.28 Full Disclosure. No representation or warranty of
any Seller and, until the Closing, Company made in this Agreement, nor any
written document furnished to Purchaser pursuant hereto, contains or will
contain any untrue statement of a material fact which adversely affects the
Business or financial condition of Company, or omits or
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will omit to state a material fact necessary to make the statements or facts
contained herein or therein not misleading.
Section 4.29 Brokers. No Person is or will become entitled to
receive any brokerage or finder's fee, advisory fee or other similar payment
for the transactions contemplated by this Agreement by virtue of having been
engaged by or acted on behalf of any Seller or Company.
Section 4.30 Absence of Sensitive Payment. Company has not 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 Company
were or would be a violation of applicable law.
Section 4.31 Credit Cards. No reimbursements are now due to
Company from any officer, employee, agent or other person authorized to use the
Company's American Express credit cards for periods prior to January 1, 1998
and, to the Company's knowledge, 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. To the Company's knowledge, the Company has no
liability for charges incurred by any person using the Company's credit cards,
except to reimburse such person for authorized expenses incurred on behalf of
the Company. The Company has no other corporate credit cards issued to, or
held by, any officer, employee, agent or other person.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers that the
statements set forth in this Article V are correct and complete.
Section 5.1 Organization; Good Standing; Delivery of Charter
Documents. Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. Purchaser is duly
qualified or licensed as a foreign corporation in each jurisdiction in which
its assets are owned or leased, or the nature of its business makes such
qualification or licensing necessary, except those jurisdictions wherein the
failure to so qualify could not have a Material Adverse Effect on Purchaser.
Prior to the Signing Date, Purchaser has delivered to Company and Sellers'
Agent true and complete copies of Purchaser's Charter Documents as in effect on
the Signing Date.
Section 5.2 Power and Authority. Purchaser has all requisite
corporate power and authority necessary to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby, including the execution, delivery and performance of all
the other Transaction Documents to which
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Purchaser is a party. Purchaser has all requisite corporate power and
authority necessary to own, operate and lease its assets and to carry on its
business as and where conducted.
Section 5.3 Authorization; Execution and Validity. Each of the
Transaction Documents, when executed and delivered by Purchaser, will be duly
authorized, executed and delivered, and will constitute a valid, legal and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with the terms of such Transaction Document, subject to any Law Affecting
Creditors' Rights.
Section 5.4 No Conflict; Purchaser Consents. The execution,
delivery and performance by Purchaser of each Transaction Document to which it
is a party will not (a) violate any Law, (b) violate any Charter Document of
Purchaser, (c) violate any Order to which Purchaser is a party or by which
Purchaser or its assets is bound, or (d) require any Consent from any Person
that has not been obtained on or prior to Closing except for the AT&T Consent.
Section 5.5 Full Disclosure. No representation or warranty of
Purchaser made in this Agreement, nor any written document furnished to Sellers
pursuant hereto, contains or will contain any untrue statement of a material
fact which adversely affects the business or financial condition of Purchaser,
or omits or will omit to state a material fact necessary to make the statements
or facts contained herein or therein not misleading.
Section 5.6 Brokers. No Person is or will become entitled to
receive any brokerage or finder's fee, advisory fee or other similar payment
for the transactions contemplated by this Agreement by virtue of having been
engaged by or acted on behalf of Purchaser.
Section 5.7 Investment Intent. Purchaser is acquiring the Shares
for the account of the Purchaser (and not for others) and for investment
purposes only and not with a view to distribution, as such is defined by the
Securities Act of 1993, as amended ("Act") or any rule or regulation thereunder
("Rules") in violation of the Act or any of the Rules.
ARTICLE VI.
COVENANTS OF COMPANY AND SELLERS
Section 6.1 Cooperation of Company and Sellers. From the Signing
Date through the Closing Date, Company and each Seller shall use all reasonable
efforts (a) to take all actions and to do all things necessary or advisable to
consummate the transactions contemplated by this Agreement, (b) to cooperate
with Purchaser in connection with the foregoing, including using reasonable
efforts to obtain all of the Consents, and (c) subject to the other terms and
conditions of this Agreement, to cause all the conditions set forth in Section
9.1, the satisfaction of which is in the reasonable control of Company or any
Seller, to be satisfied on or prior to Closing.
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Section 6.2 Pre-Closing Access to Information. From the Signing
Date through the Closing Date, Company and each Seller shall afford to
Purchaser and its Representatives access to the properties and the Books and
Records of Company. Purchaser shall direct all requests for information to
Seller's Agent.
Section 6.3 Conduct of Business.
(a) Ordinary Course. From the Signing Date through the
Closing Date, Company and each Seller, in connection with the conduct of the
Business, shall use all reasonable efforts to (i) preserve substantially the
relationships with its Representatives, suppliers and customers, (ii) perform
its obligations under all contracts, leases and Permits in all material
respects, (iii) comply with all Laws in all material respects, (iv) confer with
Purchaser regarding operational matters of a material nature, (v) report
periodically to Purchaser regarding the status of the Business and the results
of operations of Company, and (vi) conduct the Business in the ordinary course
and consistent with past practices.
(b) Prohibited Actions. Except as otherwise required or
permitted by this Agreement or listed on Schedule 6.3(b), from the Signing Date
through the Closing Date Company and each Seller shall not, without the prior
written consent of Purchaser, take or fail to take any action as a result of
which any of the changes or events listed in Section 4.8 occur or become likely
to occur.
Section 6.4 Supplements to Schedules. If, between the Signing
Date and the Closing Date, Company or any Seller becomes aware that any of its
representations and warranties in this Agreement or the schedules to this
Agreement was inaccurate when made or if during such period any event occurs or
condition changes that causes any of such representations and warranties to be
inaccurate, then such Party shall notify Purchaser thereof in writing and
supplement the schedules hereto to account for any such inaccuracy, event or
change. Any such supplement to the schedules shall not be deemed to have been
disclosed as of the Signing Date or to have cured any breach of representations
and warranties made in this Agreement, unless so agreed to in writing by
Purchaser.
Section 6.5 Standstill. Until the earlier to occur of the
Closing or the termination of this Agreement pursuant to Article X, Company and
each Seller shall not, nor shall Company and each Seller permit any of its
Representatives to, (a) directly or indirectly, encourage, solicit, initiate or
participate in discussions or negotiations with, or provide any information or
assistance to, any Person (other than Purchaser and its Representatives)
concerning any merger, sale of securities, sale of substantial assets,
investment proposals or similar transaction involving Company, (b) entertain or
discuss any acquisition or investment proposals whatsoever, (c) disclose to any
third party any non-published information concerning Company, the Business or
Company's financial condition, or (d) withdraw Seller's intention to sell the
Shares to Purchaser. Company and Sellers shall promptly notify Purchaser if it
or they receive any such proposal or offer or any inquiry or contact with
respect thereto. Until termination of this Agreement, Sellers will not,
directly or indirectly, (i) sell, transfer, pledge, encumber, assign or
otherwise
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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.
Section 6.6 Discharge of Encumbrances. Company and each Seller
shall take all actions and do all things necessary to cause all Encumbrances
other than Permitted Encumbrances on any Assets to be terminated or otherwise
discharged at or prior to the Closing.
Section 6.7 Non-Disclosure; Non-Competition; Non-Solicitation.
(a) Non-Disclosure Agreement. Each Seller acknowledges
that it has and may have access to Confidential Information of Company,
Purchaser and/or their successor and that such Confidential Information of
Company, Purchaser and/or their successor does and will constitute valuable,
special and unique property of Company, Purchaser and/or their successor after
the Closing. At no time shall Seller or any of its Representatives (i) use any
Confidential Information of Company, Purchaser and/or their successor in any
manner adverse to the business interests of Company, Purchaser and/or their
successor, or (ii) disclose any such Confidential Information of Company,
Purchaser and/or their successor to any Person for any reason or purpose
whatsoever. On or after the Closing, at the request of Purchaser, each Seller
shall deliver to Purchaser 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 Seller.
(b) Work Product. All records and documents embodying
any Confidential Information of Company pertaining to the existing or
contemplated scope of Company's Business, which have been conceived, prepared
or developed by a Seller in connection with his ownership interest in Company,
employment by the Company or otherwise, either alone or with others (herein
called "Work Product"), shall be the sole property of Company. On or after the
Closing, at the request of Company, such Seller shall deliver all Work Product
to Company, except that a Seller may retain all Confidential Information
reasonably necessary for the preparation of the Seller's tax returns.
(c) Non-Competition Agreement. Each Seller agrees not to
conduct, either directly or indirectly, the Business for a period equal to 36
months after the Closing Date in the United States. With respect to
Intelligent Systems Corporation, "indirectly" as used in the previous sentence
shall not include any business that Intelligent Systems Corporation does not
effectively control directly or indirectly or any employees, officers or
directors of Intelligent Systems Corporation are not involved now or hereafter
in the management of operations thereof.
(d) Non-Solicitation Agreement. For a period equal to 36
months after the Closing Date, each Seller shall not, either on its/his own
behalf or on behalf of any business competing with the Business of the Company
and/or its successor, directly or
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indirectly to the extent that such Seller is prohibited in engaging in such
business pursuant to this Section, (i) solicit or induce, or in any manner
attempt to solicit or induce any person employed by, or an agent of, Company
and/or its successor to terminate such person's employment or agency, as the
case may be, with such entity, or with the Company and/or its successor; (ii)
solicit, divert or attempt to solicit or divert any Person which sells or
furnishes any products or services to the Company and/or its successor to cease
selling or furnishing products or services to the Company and/or its successor,
or otherwise accept such Person as a supplier, or attempt to induce such Person
to cease being (or any prospective supplier not to become) a supplier of the
Company and/or its successor; or (iii) solicit or divert or attempt to solicit
or divert, any Person which receives products and services from the Company
and/or its successor to cease being a customer of the Company and/or its
successor (or a prospective customer), or otherwise accept such Person as a
customer.
(e) Independent Covenants. The covenants set forth in
this Section 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.
(f) Injunctive Relief. In the event of a breach or
threatened breach by any Seller of any provision of this Section, Company and
Purchaser shall be entitled to an injunction to prevent irreparable injury to
such entity. Nothing herein shall be construed as prohibiting Company or
Purchaser from pursuing any other remedies available to such entity for such
breach or threatened breach, including the recovery of damages from such
Seller.
(g) Acknowledgments of Seller. Each Seller acknowledges
that (i)any public disclosure of the Confidential Information will have an
adverse effect on Company, Purchaser and the Business, (ii) the Company and
Purchaser would suffer irreparable injury if Seller breaches any of the terms
of this Section, (iii) Company and Purchaser will be at a substantial
competitive disadvantage if such entity fails to acquire and maintain exclusive
ownership of the Confidential Information or to abide by the restrictions
provided for in this Section, (iv) the scope of the protective restrictions
provided for in this Section are reasonable when taking into account (A) the
negotiations between the Parties and (B) that Seller is the direct beneficiary
of the Purchase Price paid pursuant to this Agreement, (v) the consideration
being paid to Seller pursuant to this Agreement is sufficient inducement for
Seller to agree to the terms hereof, (vi)the provisions of this Section are
reasonable and necessary to protect the Business, to prevent the improper use
or disclosure of the Confidential Information and to provide Company and
Purchaser with exclusive ownership of all such Confidential Information and
(vii) the terms of this Section preclude Seller from engaging in the conduct of
the Business.
Section 6.8 Release. Each Seller, in the capacity as an officer,
director or shareholder of Company, hereby agrees to execute and deliver on the
Closing Date a release (each, a "RELEASE") of Company from any and all claims
resulting from or related to any matter arising prior to the Closing Date in
the form of Exhibit C attached hereto.
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Section 6.9 Sellers' Agent Agreement. Each Seller agrees to
enter into the Sellers' Agent Agreement and to authorize and appoint David P.
Harbin and upon his death, resignation or other termination of said
appointment, Robert Dale Jones, as the Sellers' Agent on behalf of the Sellers
to take such actions and exercise such powers on behalf of the Sellers as set
forth in such Sellers' Agent Agreement with respect to this Agreement, the
Escrow Agreement and the transactions contemplated hereby and thereby.
ARTICLE VII.
COVENANTS OF PURCHASER
Section 7.1 Cooperation by Purchaser. From the Signing Date
through the Closing Date, Purchaser shall use all reasonable efforts (a) to
take all actions and to do all things necessary or advisable to consummate the
transactions contemplated by this Agreement, (b) to cooperate with Company and
Sellers in connection with the foregoing, including using reasonable efforts to
obtain all of the Consents and the Releases, and (c) subject to the other terms
and conditions of this Agreement, to cause all the conditions set forth in
Section 9.2, the satisfaction of which is in the reasonable control of
Purchaser, to be satisfied on or prior to Closing.
Section 7.2 Management Options. Purchaser agrees to grant on the
Closing Date stock options (the "Options") for an aggregate of 50,000 shares of
common stock of Purchaser to the persons and in the amounts set forth on
Schedule 7.2. The Options shall be granted under Purchaser's Amended and
Restated 1997 Stock Option Plan at the fair market price of Purchasers' common
stock on the Closing Date and shall be incentive stock options (to the extent
permitted under applicable law). Those persons receiving any Options shall
execute on or before Closing stock option agreements pursuant to Purchaser's
Amended and Restated 1997 Stock Option Plan.
Section 7.3 Repayment of Loan. Purchaser agrees to repay the
outstanding loan balance of the Company due to Wachovia Bank, N.A. on or before
two business days after the Closing Date.
ARTICLE VIII.
MUTUAL COVENANTS
Section 8.1 Governmental Consents. Promptly after the Signing
Date, each Party shall take all actions and do all things necessary to obtain
all Consents required by any Governmental Authority to consummate the
transactions contemplated hereby.
Section 8.2 Consents to Assign Leases and Contracts.
(a) Cooperation and Reasonable Efforts. Each Party
hereby agrees to use reasonable efforts, to take reasonable actions and to
cooperate with each other as may be necessary to obtain Consents to transfer
and assign the Encumbered Instruments. Except as expressly provided herein, no
Party shall be required to pay any sum, to incur
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any obligation or to agree to any amendment of any Encumbered Instrument in
order to obtain any such Consent to transfer and assign the Encumbered
Instrument.
(b) Pre-Closing; Required Consents. Schedule 8.2(b)
lists the Encumbered Instruments to which a Consent to transfer and assign must
be obtained from the appropriate third party prior to Closing (collectively,
the "REQUIRED CONSENTS"). Except for the Required Consents, the obtaining of
any Consents related to the Encumbered Instruments shall not be a condition to
Closing, and Closing shall occur irrespective of whether any such Consent has
been obtained.
Section 8.3 Permits.
(a) Cooperation and Reasonable Efforts. Each Party
hereby agrees to use reasonable efforts, to take reasonable actions and to
cooperate with each other as may be necessary to transfer to Purchaser, or
assist Purchaser in obtaining, all Permits required to conduct the Business.
On or as soon as practicable after the Signing Date, each Party shall file,
separately or jointly with any other Party, as the case may be, all
applications necessary to transfer or obtain the Permits. Each Party shall use
reasonable efforts to resolve such objections, if any, as may be asserted by
any Governmental Authority with respect to the applications contemplated
hereby.
(b) Pre-Closing; Required Permits. Schedule 8.3(b) lists
the Permits which must be transferred to or obtained by Purchaser prior to
Closing (the "REQUIRED PERMITS"). Except for the Required Permits, the
transfer or issuance to Purchaser of any Permit shall not be a condition to
Closing, and Closing shall occur irrespective of whether any such Permit has
been transferred or obtained.
Section 8.4 Books and Records.
(a) Access. For a period of six years after Closing,
each Party shall provide the other Parties with reasonable access during normal
business hours to its Books and Records relating to the Business (other than
books and records protected by the attorney-client privilege) to the extent
that they relate to the condition or operation of the Business prior to Closing
and are requested by such Party to prepare its Returns, to respond to third
party Claims or for any other legitimate purpose specified in writing. Each
Party shall have the right, at its own expense, to make copies of any such
Books and Records.
(b) Destruction. No Party shall dispose of or destroy
any Books and Records relating to the Business to the extent that they relate
to the condition or operation of the Business prior to the Closing without
first offering to turn over possession thereof to the other Parties by written
notice at least 30 days prior to the proposed date of disposition or
destruction.
(c) Confidentiality. Each Party may take such action as
it deems reasonably appropriate to separate or redact information unrelated to
the Business from
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documents and other materials requested and made available pursuant to this
Section and may condition the other Parties' access to documents and other
materials that it deems confidential to the execution and delivery of an
agreement by the other Parties not to disclose or misuse such information.
(d) Assistance. Each Party shall, upon written request
and at the requesting Party's expense, make personnel available to assist in
locating and obtaining any Books and Records relating to the Business to the
extent that they relate to the condition or operation of the Business prior to
Closing and make personnel available whose assistance, participation or
testimony is reasonably required in anticipation of, preparation for or the
prosecution or defense of any third party Claim in which the other Parties do
not have any adverse interest.
Section 8.5 Further Assurances. Subject to the other terms and
conditions of this Agreement, at any time and from time to time, whether before
or after Closing, each Party shall execute and deliver all instruments and
documents and take all other action that the other Parties may reasonably
request to consummate or to evidence the consummation of the transactions
contemplated by this Agreement.
Section 8.6 Supplemental Agreements. At the Closing the Parties
shall enter into the following agreements:
(a) the Escrow Agreement in substantially the form
attached hereto as Exhibit A;
(b) the Sellers' Agent Agreement in substantially the
form attached hereto as Exhibit B; and
(c) an agreement to terminate the following agreements:
(i) Agreement of Shareholders, dated December 15, 1995, by and among Robert
Dale Jones, David P. Harbin, Paul Pamplin and the Company, as amended by the
Amendment to Agreement of Shareholders, dated April 5, 1996 by and among Robert
Dale Jones, David P. Harbin, Paul E. Pamplin and Intelligent Systems
Corporation and the Company, (ii) letter agreement, dated December 19, 1995,
between the Company, Robert Dale Jones, David P. Harbin and Paul Pamplin, (iii)
Agreement of Shareholders, dated December 17, 1997, by and among Robert Dale
Jones, David P. Harbin, Sam Wilkes and Intelligent Systems Corporation, and the
Company, (iv) letter agreement, dated July 21, 1997, between the Company and
Gerry Keeley, (v) Agreement of Shareholders, dated April 8, 1996, by and among
Robert Dale Jones, David P. Harbin and Intelligent Systems Corporation and the
Company, (vi) Agreement of Shareholders, dated December 1995, by and among
Robert Dale Jones, David P. Harbin and the Company, (vii) Registration Rights
Agreement, dated April 8, 1996, by and among the Company and Intelligent
Systems Corporation, (viii) Registration Rights Agreement, dated December 17,
1997, by and among the Company and Sam Wilkes, and (ix) any other agreements
among the Company and/or any of the Sellers in respect of the Shares.
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Section 8.7 Tax Matters.
(a) Apportionment of Income and Loss. For purposes of
apportioning taxable income or loss of the Company relating to any taxable
period that ends on the Closing Date ("SHORT TAX PERIOD") and for that portion
of any taxable year that includes (but that does not end on) the Closing Date
(a "PARTIAL TAX PERIOD"), such taxable income or loss shall be determined by
reference to the operations of Company through the Closing Date as though it
were the last day of a taxable year. If required, appropriate elections shall
be made with applicable taxable authorities to accomplish such result.
(b) Liability For Short Period Tax. Any taxable income
or loss of the Company with respect to a Short Tax Period shall be included in
the Company's federal income Tax Return, and, if applicable, consolidated,
unitary or combined state income Tax Returns filed on behalf of the Company in
all jurisdictions to which Company is subject to income Tax (together with the
United States federal Return, the "SUBJECT JURISDICTIONS"). Any tax liability
arising from an election made under Section 338 of the Code shall be borne
solely by Purchaser.
(c) Liability For Partial Period Tax. With respect to
income Tax Returns filed in Subject Jurisdictions that include a Partial Tax
Period, income taxes of the Company attributable to such Partial Tax Periods
shall be computed according to the apportionment rule of subsection (a) above.
Any tax liability arising from an election made under Section 338 of the Code
shall be borne solely by Purchaser.
(d) Payment of Short Period Taxes. With respect to each
Tax Return covering a Short Tax Period that is required to be filed in a
Subject Jurisdiction after the Closing Date for, by or with respect to Company,
Company shall cause such Tax Return to be prepared and shall cause to be
included in such Tax Return all items of income, gain, loss, deduction and
credit or other items (collectively "TAX ITEMS") required to be included
therein. Company shall pay on or prior to the due date (including extensions)
of a Tax Return to be filed in a Subject Jurisdiction for a Short Tax Period
the amount of tax shown to be due by the Company on such Tax Return.
(e) Payment of Partial Period Tax. With respect to each
Tax Return to be filed in a Subject Jurisdiction covering a Partial Tax Period
by or with respect to Company, Purchaser shall cause such Tax Return to be
prepared and shall cause to be included in such Tax Return all Tax Items
required to be included therein. Purchaser shall determine (by an interim
closing of the books as of the Closing Date, except for ad valorem Taxes and
franchise Taxes based on capital which shall be prorated on a daily basis) the
portion, if any, of the Tax due by the Company with respect to the period
covered by such Tax Return to be filed in a Subject Jurisdiction which is
attributable to Company with respect to the Partial Tax Period after giving
effect to (i) any credits for the amount of such Tax, if any, paid on or prior
to the Closing Date (ii) any credit for any loss for prior periods and (ii) any
amount reflected on the Balance Sheet as a current tax liability which remains
unused as of the due date for a particular Return.
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(f) Consistency. Any Tax Return to be prepared pursuant
to the provisions of this Section shall be prepared in a manner consistent with
practices followed in prior years with respect to similar Tax Returns, except
for changes required by applicable law.
ARTICLE IX.
CONDITIONS PRECEDENT TO CLOSING
Section 9.1 Conditions Precedent to Purchaser's Obligations. The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction of the following conditions, any
of which may be waived in writing by Purchaser.
(a) Accuracy of Representations and Warranties. The
representations and warranties made by each Seller and, until the Closing,
Company in this Agreement shall have been materially true and complete as of
the Signing Date and as of the Closing Date as though made as of the Closing
Date, except to the extent such representations or warranties made as of a
specific date shall have been materially correct and complete as of the
specified date; provided, however, that in no event shall the Closing be deemed
to constitute a waiver by Purchaser of any breach of representations or
warranties.
(b) Performance of Covenants. Company and each Seller
shall have materially performed and complied with all agreements, covenants and
obligations required by this Agreement to be performed by such party prior to
or at the Closing.
(c) No Material Adverse Change. Company has not
undergone any Material Adverse Change since the Signing Date.
(d) Consents. Company and each Seller, as the case may
be, shall have received and delivered to Purchaser all the Required Consents,
except the AT&T Consent, and the Required Permits, each in form and substance
satisfactory to Purchaser, and shall have given all notices required to be
given to any Persons prior to the consummation of the transactions contemplated
by this Agreement.
(e) Closing Certificate. An executive officer of Company
and each Seller shall have delivered to Purchaser a certificate confirming the
satisfaction of the conditions set forth in Sections 9.1(a), 9.1(b) and 9.1(c)
applicable to such person and an executive officer of Company shall have
delivered to Purchaser a certificate confirming the continuing force and effect
of the Required Consents and Required Permits.
(f) Secretary's Certificate--Company. Company shall have
delivered to Purchaser a certificate executed by the secretary or an assistant
secretary of Company certifying as to (i) Company's Charter Documents, (ii)
Company's good standing, (iii) the resolutions in which Company's board of
directors approved this Agreement and the transactions contemplated hereby, and
(iv) the incumbency of Company's officers who execute any documents on behalf
of Company in connection with this Agreement.
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(g) Deliveries. Company and each Seller, as the case may
be, shall have delivered the documents required by Sections 2.3 and 2.2,
respectively, and such other documents as Purchaser may reasonably require.
(h) No Order or Action. No Order shall be in effect
forbidding or enjoining the consummation of the transactions contemplated
hereby. No Action shall be pending or threatened before any court or other
Governmental Authority seeking to enjoin the Closing or seeking damages against
Purchaser or any of its Representatives as a result of any of the transactions
contemplated by this Agreement, provided that neither Purchaser nor any of its
affiliates instituted such Action.
(i) Related Party Transactions. All outstanding loans
owed by any Seller, officer or director of the Company to the Company shall
have been repaid in full to the Company and the Releases described in Section
6.8 shall have been delivered to the Company and Purchaser.
(j) Resignations. The members of the Board of Directors
and the officers of the Company shall have irrevocably tendered their
resignations as directors and officers (but not employees) effective as of the
Closing Date and the Company shall have accepted such resignations.
(k) Expense Notice. Purchaser shall have received the
Expense Notice at least one business day prior to the Closing Date.
(l) Purchaser shall have received on or before Closing
receipts and releases for payments of amounts due by the Company to Sellers and
related parties listed in Schedule 4.26.
Section 9.2 Conditions Precedent to Company and Sellers'
Obligations. The obligation of Company and each Seller to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction of the following conditions, any of which may be waived in writing
by Company or Sellers, as the case may be.
(a) Accuracy of Representations and Warranties. The
representations and warranties made by Purchaser in this Agreement shall have
been materially true and complete as of the Signing Date and as of the Closing
Date as though made as of the Closing Date, except to the extent such
representations or warranties made as of a specific date shall have been
materially correct and complete as of the specified date; provided, however,
that in no event shall the Closing be deemed to constitute a waiver by Company
or the Sellers of any breach of representations or warranties.
(b) Performance of Covenants. Purchaser shall have
performed and materially complied with all agreements, covenants and
obligations required by this Agreement to be performed by Purchaser prior to or
at the Closing.
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(c) Closing Certificate. An executive officer of
Purchaser shall have delivered to Company and each Seller a certificate
confirming the satisfaction of the conditions set forth in Sections 9.2(a) and
9.2(b).
(d) Secretary's Certificate. Purchaser shall have
delivered to Company and each Seller a certificate executed by the secretary or
an assistant secretary of Purchaser certifying as to (i) Purchaser's Charter
Documents, (ii) Purchaser's good standing, (iii) the resolutions in which
Purchaser's board of directors approved this Agreement and the transactions
contemplated hereby, and (iv) the incumbency of Purchaser's officers who
execute any documents on behalf of Purchaser in connection with this Agreement.
(e) Deliveries. Purchaser shall have delivered the
documents required by Section 2.4 and such other documents as Sellers may
reasonably require.
(f) No Order or Action. No Order shall be in effect
forbidding or enjoining the consummation of the transactions contemplated
hereby. No Action shall be pending or threatened before any court or other
Governmental Authority seeking to enjoin the Closing or seeking damages against
Company or any Seller or any of their Representatives as a result of any of the
transactions contemplated by this Agreement, provided that neither Company nor
any Seller nor any of their affiliates instituted such Action.
(g) Related Party Transactions. Purchaser shall cause at
Closing the payment of the amounts due by the Company to the Sellers and
related parties listed in Schedule 4.26.
Section 9.3 If Conditions Not Satisfied. In the event that any
of the conditions set forth in this Article IX are not satisfied, and the
Parties nevertheless consummate the transactions contemplated by this Agreement
to take place at the Closing, the Parties shall not be deemed to have waived
any Claim for damages or other relief arising from or in connection with such
non-satisfaction.
ARTICLE X.
TERMINATION PRIOR TO CLOSING
Section 10.1 Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of Purchaser and Sellers' Agent;
(b) by Purchaser at any time after the occurrence of a
Material Adverse Change in Company; or
(c) by Purchaser or Sellers' Agent at any time on or
after April 30, 1998 if any of the conditions provided for in Section 9.1 or
9.2, respectively, shall not have been met or waived in writing prior to such
date.
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Section 10.2 Procedure Upon Termination. In the event of
termination pursuant to Section 10.1, written notice thereof shall be
immediately given to the other Parties and the transactions contemplated by
this Agreement shall be terminated, without any further action by any Party.
If the transactions contemplated by this Agreement are terminated as provided
herein:
(a) each Party shall return all documents, work papers
and other materials of the other parties, whether obtained before or after the
execution hereof, to the party furnishing the same; and
(b) such termination shall not in any way limit, restrict
or relieve any Party of liability for any breach of this Agreement, except that
no party shall be liable for any damages for any failure to meet a condition
set forth in Section 9.1 or 9.2, as the case may be, which is not within such
party's reasonable control, including a Material Adverse Change in the Company.
ARTICLE XI.
INDEMNIFICATION
Section 11.1 Indemnification of Purchaser.
(a) Several Indemnification Obligation of Seller. Each
Seller shall, severally but not jointly, indemnify, defend, and hold Purchaser
harmless from any and all Claims directly or indirectly related or arising with
respect to:
(i) Breaches of Representations and Warranties.
Any inaccuracy in any representation or warranty of Seller made in Article III
or in the certificate delivered by such Seller pursuant to Section 2.2(a); or
(ii) Breaches of Covenants. Any failure by Seller
to perform or observe the covenants or agreements set forth in Section 6.7.
(b) Indemnification Obligation of Seller and Company.
Each Seller, severally, and, until the Closing, Company shall, joint and
severally, indemnify, defend, and hold Purchaser harmless from any and all
Claims directly or indirectly related or arising with respect to:
(i) Breaches of Representations and Warranties.
Any inaccuracy in any representation or warranty made in Article IV or in the
certificates delivered pursuant to Sections 2.2(a) (as such certificates relate
to the representations and warranties set forth in Article IV) and Sections
2.3(a) and 9.1; or
(ii) Breaches of Covenants. Any failure to
perform or observe (A) in the case of any covenant or agreement of Company
which by its terms relates to the time period prior to the Closing, any
covenant or agreement of Company set forth in this
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Agreement or in any agreement delivered pursuant to this Agreement, (B) any
covenant or agreement of Sellers set forth in this Agreement (other than the
covenant or agreement set forth in Section 6.7) or in any agreement delivered
pursuant to this Agreement.
Section 11.2 Indemnification of Sellers. Purchaser shall
indemnify, defend, and hold Sellers and, until the Closing, Company harmless
from any and all Claims directly or indirectly related or arising with respect
to:
(a) Breaches of Representations and Warranties. Any
inaccuracy in any representation or warranty of Purchaser made in Article V or
in the certificates delivered by Purchaser pursuant to Section 2.4(d) or
Section 9.2; or
(b) Breaches of Covenants. Any failure to perform or
observe any covenant or agreement of Purchaser set forth in this Agreement or
in any agreement delivered pursuant to this Agreement.
Section 11.3 Indemnification Procedure. The indemnification
obligations under this Agreement shall be subject to the following procedures:
(a) Notice. If a party entitled to be indemnified under
this Article XI (the "Indemnitee") shall incur any Claims or determine that it
is likely to incur any Claims, including without limitation claims by third
parties, and believes that it is entitled to be indemnified against such Claims
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 Claims, or anticipates that it will incur liability for Claims
for which such Indemnitee is entitled to indemnification pursuant to this
Agreement; and
(ii) specify in reasonable detail each individual
item of Claims 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.
(b) Objections. 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 15 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 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
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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 Article XII hereof.
(c) Agreed Claims. Claims specified in any Indemnity
Certificate to which an Indemnitor shall not object in writing, Claims covered
by a memorandum of agreement of the nature described in paragraph (b), Claims
the validity and amount of which have been the subject of arbitration as
described in paragraph (b) and Claims 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) Defense of Claims. 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 Claims 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 reasonably satisfactory to such Indemnitee,
and the payment of expenses). If 15 days after delivering notice of a Claim to
the Indemnitor or such shorter period necessary to prevent judgment by default
in favor of the Person asserting the Claim, the Indemnitor has not begun to
defend against such Claim, the Indemnitee shall have the right to defend or
settle such Claim on behalf of the Indemnitor. 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 the time period as provided in the preceding sentence, to assume the
defense of such claim, (ii) the employment of such counsel on behalf of the
Indemnitee 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 its counsel that the Indemnitor possesses an actual or potential
conflict of interest with respect to the Indemnitee. Under such circumstances,
the Indemnitor shall reimburse the Indemnitee for the Indemnitee's reasonable
attorneys' fees and expenses. In addition, the Indemnitor shall reimburse the
Indemnitee for the Indemnitee's reasonable attorneys' fees and expenses
incurred during the period when the Indemnitor did not defend against the Claim
and in connection with Claims that Purchaser possesses the right to defend at
the expense of the Indemnitor as hereinabove provided. Notwithstanding whether
the Claim involves a purported breach of the Indemnitor's representations and
warranties, the Indemnitor's obligation to reimburse such fees and expenses
shall be subject to the Indemnitor's Basket and shall be subject to the Maximum
Liability. The Indemnitor shall make such reimbursement payments to the
Indemnitee upon the Indemnitee's submission of periodic invoices describing
such fees and expenses in reasonable detail.
(e) Settlement of Claims. The Indemnitor may settle any
Claim at its own expense, provided that the Indemnitor shall not settle any
Claim or consent to the entry of any judgment without the consent of the
Indemnitee if such settlement or
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judgment (i)includes any admission of wrongdoing by the Indemnitee or any of
the Indemnitee's Representatives, (ii)includes any consent to any type of
injunctive relief affecting the Indemnitee or any of the Indemnitee's
Representatives, (iii)excludes an unconditional release by the Person asserting
the Claim of the Indemnitee and the Indemnitee's Representatives from all
liability with respect to such Claim, or (iv)requires the Indemnitee or any of
the Indemnitee's Representatives to undertake any obligations or incur any
costs that are not paid in advance by the Indemnitor.
(f) Reimbursement. If an Indemnitor undertakes the
defense of any Claim or settles any Claim and such Claim was not within the
scope of the Indemnitor's indemnification obligations under this Agreement, the
Indemnitee shall promptly reimburse the Indemnitor for all expenses with
respect to such defense or settlement, including the Indemnitor's reasonable
attorneys' fees and expenses.
(g) Cooperation. In connection with any indemnity
obligation, the Indemnitee shall cooperate with all reasonable requests of the
Indemnitor.
Section 11.4 Meritless Third Party Claims. If a third party makes
a Claim against the Indemnitee that ultimately proves to be meritless, the
Indemnitee may nevertheless require the Indemnitor to defend such Claim and
reimburse the Indemnitee for its reasonable attorneys' fees and expenses in
connection with such Claim as provided in Section 11.3(d), if such Claim was
within the scope of the Indemnitor's indemnification obligations under this
Agreement.
Section 11.5 Assignment of Claims. If any amounts for which the
Indemnitor is responsible are recoverable from a third party, including an
insurance carrier, the Indemnitee shall assign any rights that it may have to
recover such amounts to the Indemnitor.
Section 11.6 Other Indemnitees. Upon Purchaser's request, Sellers
shall indemnify any of Purchaser's Representatives to the same extent as
Purchaser. Conversely, upon the request of Sellers' Agent, Purchaser shall
indemnify any of Seller's Representatives to the same extent as such Seller.
No Representative of any Party, however, shall be a third party beneficiary of
the indemnification provisions set forth in this Agreement. In addition, a
Party may release or waive any Claim to which such Party previously requested
another Party to indemnify such Party's Representatives, and such
Representatives shall have no recourse against the Party releasing or waiving
such Claim. To the extent that a Party requests another Party to indemnify
such Party's Representatives, such Party shall cause its Representatives to
comply with the indemnification provisions and abide by the indemnification
limitations set forth in this Agreement.
Section 11.7 Contribution. If the indemnity obligations provided
for in this Agreement are held unenforceable in whole or in part for any
reason, each Party shall perform such indemnity obligations to the extent
enforceable. To the extent that such indemnity obligations are unenforceable,
the Party that would have been the Indemnitor
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with respect to a Claim except for such unenforceability shall contribute to
such Claim in such proportion as appropriate to reflect the relative fault of
such Party as opposed to the relative fault of the Person who would have been
the Indemnitee, as well as any other relevant equitable considerations.
Section 11.8 Right of Offset. The Parties agree that the amount
of any Claim for damages or indemnification by Purchaser against Sellers shall
be offset by Purchaser solely against the Escrow Amount in accordance with the
terms of the Escrow Agreement.
Section 11.9 Damages Without Indemnification. A Party may assert
a Claim for damages against another Party for a breach of this Agreement even
though the Party seeking such damages has not incurred a liability of a fixed
amount or made a payment to another Person.
Section 11.10 Basket. The Parties acknowledge that all the
representations and warranties set forth in this Agreement are without
qualification as to materiality and that the provisions of this Section
regarding the Basket are intended to serve as the exclusive standard of
materiality for purposes of this Agreement. No Party shall be liable for any
Claim for damages or indemnification with respect to a breach of such Party's
representations and warranties under this Agreement until the aggregate amount
of such Claims for damages and indemnification for which such Party would
otherwise be responsible concerning breaches of its representations and
warranties exceeds $50,000 (as the case may be, the "BASKET"), subject to
Section 11.12. If the aggregate amount of such Claims for which a Party is
responsible exceeds the Basket, such Party shall then be responsible for all of
such Claims subject only to the Maximum Liability.
Section 11.11 Maximum Liability. Purchaser shall not be liable for
any Claim for damages or indemnification with respect to a breach of
Purchaser's representations, warranties or covenants under this Agreement to
the extent that the aggregate amount of such Claims exceeds the Purchase Price.
No Seller shall be liable for any Claim for damages or indemnification with
respect to a breach of representations, warranties or covenants under this
Agreement to the extent that the aggregate amount of such Claims exceeds the
Escrow Amount (such amounts are referred to as such Party's "MAXIMUM
LIABILITY"), subject to Section 11.12. Any Claims for which a Party is not
held responsible because of the application of such Party's Basket shall not be
counted toward determining such Party's Maximum Liability.
Section 11.12 Liabilities for Special Indemnities and Breaches of
Covenants. Sellers Basket and Maximum Liability shall be inapplicable with
respect to any Claim for damages or indemnification concerning Sellers breach
of any representation and warranty set forth in Sections 3.1 or 4.5. Sellers
Basket and Maximum Liability shall be inapplicable with respect to any Claim
for damages or indemnification concerning Sellers breach of any of its
covenants under Section 6.7 of this Agreement.
Section 11.13 INTENTIONALLY OMITTED.
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Section 11.14 Interest. A Party shall pay interest computed at the
rate earned on the Escrow Amount on (a) any Claim for damages with respect to
such Party's breach of this Agreement from the date of the breach or if later,
the date of any payment arising from the breach, through the date that the
Party pays such damages, and (b) any Claim for indemnification under this
Agreement for which such Party is the Indemnitor from the date of the
Indemnitee's indemnifiable out-of-pocket expenditure through the date that the
Party pays such Claim.
Section 11.15 Notice of Breach. If before the Closing a Party
notifies another Party of its breach of this Agreement, such notification shall
neither prevent such other Party from seeking damages for such breach nor
decrease or mitigate such damages if such other Party still closes the
transactions contemplated by this Agreement.
Section 11.16 Discovery of Breach. If before the Closing a Party
discovers that another Party has breached this Agreement, such discovery shall
neither prevent such Party from seeking damages for such breach nor decrease or
mitigate such damages if such Party still closes the transactions contemplated
by this Agreement.
Section 11.17 Survival of Terms. The agreements, covenants,
indemnity obligations, representations and warranties, and other terms of this
Agreement, Purchaser's closing certificate, each Seller's closing certificate,
Company's closing certificate and any other documents contemplated under this
Agreement shall survive the Closing and any investigation or notice by any
Party, provided that the representations, warranties and covenants of each
Party under this Agreement shall expire at 5:00 p.m. Fort Worth, Texas time on
the day immediately following the first anniversary of the Closing Date.
Notwithstanding the expiration of each Party's representations, warranties and
covenants described above, the representations, warranties and covenants set
forth in Article III, Section 4.5 (Capitalization) and Section 6.7, shall
survive for the period of the applicable statute of limitations. A Party shall
not be responsible with respect to any Claim for damages or indemnification
with respect to any inaccuracy in any of such Party's representations or
warranties or breach of such Party's covenants unless such Party receives
notice of the Claim with respect to such inaccuracy or breach before such
representation, warranty or covenant expires. With respect to any such Claim
received before the expiration of a particular representation, warranty or
covenant, the Party responsible for such representation, warranty or covenant
shall remain responsible for any damage or indemnification amounts claimed
notwithstanding the subsequent expiration of such representation, warranty or
covenant, provided that arbitration proceedings with respect to such Claim are
filed prior to the first anniversary of the last day on which the Indemnitor
must receive such notice, unless the Claim is otherwise resolved prior thereto.
Section 11.18 Negligence and Strict Liability. THE PROVISIONS OF
THIS AGREEMENT CONCERNING CLAIMS FOR DAMAGES AND INDEMNIFICATION SHALL APPLY
WHETHER OR NOT THE PARTY OR OTHER PERSON CLAIMING SUCH DAMAGES OR
INDEMNIFICATION WAS NEGLIGENT, GROSSLY NEGLIGENT, OR STRICTLY LIABLE IN
CONNECTION WITH THE EVENTS GIVING RISE TO SUCH CLAIM.
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<PAGE> 40
Section 11.19 Sellers Remedies. Any Claims by Sellers for
indemnification hereunder shall be made solely by the Sellers' Agent on behalf
of Sellers. The liability of Purchaser for all indemnification claims made in
connection with this Agreement shall be satisfied solely by payment to the
Sellers. To the extent that all or any portion of the Escrow Amount becomes
payable to the Sellers, such payment shall be made by the Escrow Agent to the
Sellers in accordance with the instructions of the Sellers' Agent. Purchaser
shall not be responsible in any manner whatsoever for (i) any failure or
inability of the Sellers' Agent or the Escrow Agent to honor any provisions of
this Agreement, the Sellers' Agent Agreement or the Escrow Agreement, (ii) any
instructions given by the Sellers' Agent to the Escrow Agent or failure to give
such instructions by the Sellers' Agent, (iii) the investment of funds held by
the Sellers' Agent or the Escrow Agent or (iv) the amount or timing of the
disbursement of funds by the Sellers' Agent or the Escrow Agent.
ARTICLE XII.
ARBITRATION AND EQUITABLE REMEDIES
Section 12.1 Settlement Meeting. The Parties shall attempt in
good faith to resolve promptly through negotiations any Claim or dispute under
this Agreement. If any such Claim or dispute should arise, the Parties shall
meet at least once to attempt to resolve the matter (the "SETTLEMENT MEETING").
Any Party may request the other Parties to attend a Settlement Meeting at a
mutually agreed time and place within ten days after delivery of a notice of a
Claim or dispute. The occurrence of a Settlement Meeting with respect to a
Claim or dispute shall be a condition precedent to seeking any arbitration or
judicial remedy, provided that if a Party refuses to attend a Settlement
Meeting the other Parties may proceed to seek such remedy.
Section 12.2 Arbitration Proceedings. If the Parties have not
resolved a monetary Claim or dispute at the Settlement Meeting any Party may
submit the matter to arbitration. A panel of three arbitrators shall conduct
the arbitration proceedings in accordance with the Commercial Arbitration Rules
of the American Arbitration Association (the "ARBITRATION RULES"). The
decision of a majority of the panel shall be the decision of the arbitrators.
(a) Arbitration Notice. To submit a monetary Claim or
dispute to arbitration, a Party shall furnish the other Parties and the
American Arbitration Association with a notice (the "ARBITRATION NOTICE")
containing (i)the name and address of such Party, (ii)the nature of the Claim
or dispute in reasonable detail, (iii)the Party's intent to commence
arbitration proceedings under this Agreement, and (iv)the other information
required under the Federal Arbitration Act and the Arbitration Rules.
(b) Selection of Arbitrators. Within ten days after
delivery of the Arbitration Notice, Purchaser and Sellers, as a group, shall
each select one arbitrator from the list of the American Arbitration
Association's Panel of Commercial Arbitrators. Within ten days after the
selection of the last of those two arbitrators, those two arbitrators shall
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<PAGE> 41
select the third arbitrator from such list. If the first two arbitrators
cannot select a third arbitrator within such ten day period, the American
Arbitration Association shall select such third arbitrator from the list. Each
arbitrator shall be an individual not subject to disqualification under Rule
No. 19 of the Arbitration Rules with experience in settling comparable disputes
involving mergers and acquisitions.
(c) Arbitration Final. The arbitration of the matters in
controversy and the determination of any amount of damages or indemnification
shall be final and binding upon the Parties to the maximum extent permitted by
Law, provided that any Party may seek any equitable remedy available under Law
as provided in this Agreement. This agreement to arbitrate is irrevocable.
Section 12.3 Place of Arbitration. Any arbitration proceedings
shall be conducted in Fort Worth, Texas or Dallas, Texas, or at such other
location as the Parties may agree. The arbitrators shall hold the arbitration
proceedings within 60 days after the selection of the third arbitrator.
Section 12.4 Discovery. During the period beginning with the
selection of the third arbitrator and ending upon the conclusion of the
arbitration proceedings, the arbitrators shall have the authority to permit the
Parties to conduct such discovery as the arbitrators consider appropriate.
Section 12.5 Equitable Remedies. Notwithstanding anything else in
this Agreement to the contrary, after the Settlement Meeting a Party shall be
entitled to seek any equitable remedies available under Law, including an
injunction prohibiting a breach of the provisions of Section 6.7 or an Order
requiring a Seller to perform this Agreement. Any such equitable remedies
shall be in addition to any damages or indemnification rights that such Party
may assert in an arbitration proceeding.
Section 12.6 Exclusive Jurisdiction. The Parties agree that any
claim for equitable relief relating to this Agreement shall be instituted in a
federal or state court sitting in Fort Worth, Texas or Dallas, Texas, which
courts and their respective appellate courts shall be the exclusive venue for
any such claim. Each Party waives any objection that it may have to the laying
of such venue, and irrevocably submits to the jurisdiction of any such court
with respect to any such claim. Any service of process and other notice in any
such case shall be effective against a Party when transmitted in accordance
with Section 13.9, provided that a Party also may serve process in any manner
permitted by Law.
Section 12.7 Judgments. Any arbitration award under this
Agreement shall be final and binding. Any court having jurisdiction may enter
judgment on such arbitration award upon application of a Party.
Section 12.8 Expenses. If any Party commences arbitration
proceedings or court proceedings seeking equitable relief with respect to this
Agreement, the prevailing Party in such arbitration proceedings or case may
receive as part of any award or judgment
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<PAGE> 42
reimbursement of such Party's reasonable attorneys' fees and expenses to the
extent that the arbitrators or court considers appropriate. Notwithstanding
whether the arbitration or court proceedings involved a purported breach of a
Party's representations and warranties, the portion of any award or judgment
reimbursing the prevailing Party's attorneys' fees and expenses shall not be
subject to the other Parties' Basket or Maximum Liability.
Section 12.9 Cost of the Arbitration. The arbitrators shall
assess the costs of the arbitration proceedings, including their fees, to the
Parties in such proportions as the arbitrators consider reasonable under the
circumstances.
Section 12.10 Exclusivity of Remedies. To the extent permitted by
Law, the arbitration and judicial remedies set forth in this Article shall be
the exclusive remedies available to the Parties with respect to any dispute
under this Agreement or Claim for damages or indemnification under this
Agreement.
ARTICLE XIII.
MISCELLANEOUS
Section 13.1 Amendment. No amendment of this Agreement shall be
effective unless in a writing signed by Purchaser, the Company (if entered into
prior to the Closing) and Sellers' Agent.
Section 13.2 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original
agreement, but all of which shall constitute one and the same agreement. Any
Party may execute and deliver this Agreement by an executed signature page
transmitted by a facsimile machine. If a Party transmits its signature page by
a facsimile machine, such Party shall promptly thereafter deliver an originally
executed signature page to the other Parties, provided that any failure to
deliver such an originally executed signature page shall not affect the
validity, legality, or enforceability of this Agreement.
Section 13.3 Entire Agreement. This Agreement constitutes the
entire agreement and understanding between the Parties and supersedes all prior
agreements and understandings, both written and oral, with respect to the
subject matter of this Agreement.
Section 13.4 Expenses. Each Party shall bear its own expenses
with respect to the negotiation and preparation of this Agreement and the
Closing, including any fees and expenses of its Representatives, provided that
if a Party terminates this Agreement because of another Party's breach of this
Agreement, the non-breaching Party shall be entitled to seek reimbursement of
its expenses as part of its damages with respect to such breach to the extent
permitted by Section 10.2(b). The amount, if any, by which the aggregate
amount of expenses of whatever kind and nature, including without limitation,
legal fees, accounting fees and any other brokerage or other fees
(collectively, "TRANSACTION EXPENSES") exceeds $21,000.00 shall be deemed
"SELLER EXPENSES." Not less than one business day prior to the Closing Date,
the Company shall provide written
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<PAGE> 43
notice (the "EXPENSE NOTICE") to Purchaser of the amount of all Transaction
Expenses (including the portion thereof, if any, constituting Seller Expenses)
paid, incurred or expected to be incurred by the Company as of the Closing
Date. The amount of Seller Expenses set forth in the Expense Notice shall be
deducted from the Purchase Price and the Closing Cash Payment as provided in
Sections 1.2 and 1.3 hereof as an offset against Seller Expenses paid or
payable by the Company. The Purchaser shall be reimbursed from the Escrow
Amount for any additional Seller Expenses not deducted from the Closing Cash
Payment. All expenses of the Company incurred in connection with the
consummation of this Agreement incurred after the Closing Date and the fees and
expenses of the Sellers' Agent shall be paid by the Sellers. The fees and
expenses of the Escrow Agent will be paid as set forth in the Escrow Agreement.
Section 13.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
Section 13.6 INTENTIONALLY OMITTED.
Section 13.7 No Assignment. No Party may assign its benefits or
delegate its duties under this Agreement without the prior consent of the other
Parties. Any attempted assignment or delegation without such prior consent
shall be void. Notwithstanding this prohibition against assignment and
delegation, Purchaser may assign its rights and delegate its duties under this
Agreement to a wholly-owned subsidiary of Purchaser without Sellers' consent.
Upon Purchaser's assignment of its benefits and delegation of its duties under
this Agreement to such a wholly owned subsidiary, Purchaser shall not be
released from any obligations under this Agreement. In addition, after the
Closing Purchaser may assign its rights under this Agreement to a purchaser of
all of the assets or equity of Purchaser without Sellers' consent, and any such
purchaser and any subsequent purchasers of all of the assets or equity of
Purchaser may similarly assign such rights.
Section 13.8 No Third Party Beneficiaries. This Agreement is
solely for the benefit of the Parties and no other Person shall have any right,
interest, or claim under this Agreement.
Section 13.9 Notices. All claims, consents, designations,
notices, waivers, and other communications in connection with this Agreement
shall be in writing. Such claims, consents, designations, notices, waivers,
and other communications shall be considered received (a) on the day of actual
transmittal when transmitted by facsimile with written confirmation of such
transmittal, (b) on the next business day following actual transmittal when
transmitted by a nationally recognized overnight courier, or (c) on the third
business day following actual transmittal when transmitted by certified mail,
postage prepaid, return receipt requested; in each case when transmitted to a
Party at its address set forth below (or to such other address to which such
Party has notified the other Parties in accordance with this Section to send
such claims, consents, designations, notices, waivers, and other
communications):
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<TABLE>
<S> <C>
Purchaser: INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
phone: (817) 348-3999
fax: (800) 826-9865
Attn.: Chief Executive Officer
Copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201-4675
phone: (214) 969-2870
fax: (214) 969-4343
Attn: Terry M. Schpok, P.C.
Company: Paragon Interface, Inc.
c/o Ugo F. Ippolito
Miller & Martin LLP
100 Galleria Parkway, 12th Floor
Atlanta, Georgia 30339
phone: 770/850-6508
fax: 770/850-6550
Copy to: Ugo F. Ippolito
Miller & Martin LLP
100 Galleria Parkway, 12th Floor
Atlanta, Georgia 30339
phone: 770/850-6508
fax: 770/850-6550
Sellers' Agent: David P. Harbin
c/o Ugo F. Ippolito
Miller & Martin LLP
100 Galleria Parkway, 12th Floor
Atlanta, Georgia 30339
phone: 770/850-6508
fax: 770/850-6550
Copy to: Ugo F. Ippolito
Miller & Martin LLP
100 Galleria Parkway, 12th Floor
Atlanta, Georgia 30339
phone: 770/850-6508
fax: 770/850-6550
</TABLE>
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Section 13.10 Public Announcements. The Parties shall agree on the
terms of any press releases or other public announcements related to this
Agreement, and shall consult with each other before issuing any press releases
or other public announcements related to this Agreement; provided, however,
that any Party may make a public disclosure if in the opinion of such party's
counsel it is required by Law or the rules of the Nasdaq National Market to
make such disclosure. The parties agree, to the extent practicable, to consult
with each other regarding any such public announcement in advance thereof.
Section 13.11 Representation by Legal Counsel. Each Party is a
sophisticated Person that was advised by experienced legal counsel and other
advisors in the negotiation and preparation of this Agreement.
Section 13.12 Schedules. All references in this Agreement to
schedules shall mean the schedules identified in this Agreement, which are
incorporated into this Agreement and shall be deemed a part of this Agreement
for all purposes. Each Section of this Agreement that refers to a schedule
shall have a separate schedule. In addition, any disclosure under a particular
section's schedule shall be made under the heading of any relevant subsection
of such section. A disclosure of an item in a schedule for a particular
section or under a heading in a schedule corresponding to a particular
subsection shall not be a disclosure under any other section's schedule or any
other subsection, unless so noted specifically on such schedule. Sellers have
delivered to Purchaser a correct and complete copy of each document described
on each schedule to this Agreement and a correct and complete written
description of each unwritten arrangement or other item described on each such
schedule.
Section 13.13 Severability. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions of this Agreement or affect the validity or enforceability
of such provision in any other jurisdiction. In addition, any such prohibited
or unenforceable provision shall be given effect to the extent possible in the
jurisdiction where such provision is prohibited or unenforceable.
Section 13.14 Specific Performance. Each Seller acknowledges that
the benefits that Purchaser will derive from the transactions contemplated by
this Agreement are unique and irreplaceable. Accordingly, if such Seller
improperly abandons or terminates this Agreement, Purchaser would not have an
adequate remedy at law. Purchaser therefore shall be entitled to a court order
requiring such Seller to perform this Agreement.
Section 13.15 Successors. This Agreement shall be binding upon and
shall inure to the benefit of each Party and its heirs, legal representatives,
permitted assigns, and successors, provided that this Section shall not permit
the assignment or other transfer of this Agreement, whether by operation of law
or otherwise, if such assignment of other transfer is not otherwise permitted
under this Agreement.
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Section 13.16 Time of the Essence. Time is of the essence in the
performance of this Agreement and all dates and periods specified in this
Agreement.
Section 13.17 Waiver. No provision of this Agreement shall be
considered waived unless such waiver is in writing and signed by the Party that
benefits from the enforcement of such provision. No waiver of any provision in
this Agreement, however, shall be deemed a waiver of a subsequent breach of
such provision or a waiver of a similar provision. In addition, a waiver of
any breach or a failure to enforce any term or condition of this Agreement
shall not in any way affect, limit, or waive a Party's rights under this
Agreement at any time to enforce strict compliance thereafter with every term
and condition of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 47
IN WITNESS WHEREOF, each Party executed, or caused a duly authorized
officer to execute, this Agreement as of the Signing Date.
<TABLE>
<S> <C>
PURCHASER: INSPIRE INSURANCE SOLUTIONS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
COMPANY: PARAGON INTERFACE, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
SELLERS: INTELLIGENT SYSTEMS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
- ----------------------------- ----------------------------
Robert Dale Jones
</TABLE>
<TABLE>
<S> <C>
- ----------------------------- ----------------------------------
David P. Harbin Scott Alan Buckley
- ----------------------------- ----------------------------------
Sam Wilkes Christopher S. Cauthen
- ----------------------------- ----------------------------------
Paul E. Pamplin Thomas Earl Swift
- ----------------------------- ----------------------------------
Gerry Keeley Craig J. Clark
</TABLE>
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APPENDIX A
DEFINITIONS AND RULES OF INTERPRETATION
Definitions. Unless the context otherwise requires, the terms defined
in this Appendix shall have the meanings specified below for all purposes of
this Agreement:
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in
Section 4.10.
"ACTION" means any action, arbitration proceeding, cause of
action, charge, counterclaim, cross claim, inquiry, investigation, legal
action, litigation, Order, proceeding, or suit.
"AGREEMENT" shall have the meaning set forth in the first
paragraph.
"ARBITRATION NOTICE" shall have the meaning set forth in
Section 12.2(a).
"ARBITRATION RULES" shall have the meaning set forth in
Section 12.2.
"ASSETS" shall have the meaning set forth in Section 4.9(a).
"BALANCE SHEET DATE" shall have the meaning set forth in
Section 4.6(a).
"BANK ACCOUNTS" shall have the meaning set forth in Section
4.24.
"BASKET" shall have the meaning set forth in Section 11.9.
"BOOKS AND RECORDS" shall mean all the books and records
maintained by or for Company, including all accounting records, minute books,
stock records, computerized records and storage media and the software used in
connection therewith.
"BUSINESS" shall mean the business of developing and marketing
software programs which translate data from multiple varied formats on diverse
platforms with no translation programming required and which contain the
functionality of the software programs of the Company generally known as
"Transfluent."
"CHARTER DOCUMENTS" shall mean (i) in the case of a
corporation, its articles or certificate of incorporation and its bylaws, (ii)
in the case of a partnership, its partnership certificate and its partnership
agreement, and (iii) in the case of any other Person, its organic and governing
documents; in each case as such document has been amended or supplemented from
time to time prior to the Signing Date.
"CLAIM" shall mean any arbitration award, assessment, charge,
citation, claim, damage, demand, directive, expense, fine, interest, joint or
several liability, Lawsuit, notice, obligation, payment, penalty, assertion, or
summons of any kind or nature whatsoever, including any damages incurred
because of the person's negligence or gross
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<PAGE> 49
negligence or any strict liability imposed upon the person, any consequential
damages, and any reasonable attorney's fees and expenses. A Claim shall be
considered to exist even though it may be conditional, contingent, indirect,
potential, secondary, unaccrued, unasserted, unknown, unliquidated, or
unmatured.
"CLOSING" shall have the meaning set forth in Section 2.1.
"CLOSING CASH PAYMENT" shall have the meaning set forth in
Section 1.3.
"CLOSING DATE" shall have the meaning set forth in Section
2.1.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMMON STOCK" shall have the meaning set forth in Recital B.
"COMPANY" shall have the meaning set forth in the first
paragraph.
"CONFIDENTIAL INFORMATION" means any proprietary or
confidential information, pertaining to Company's or Purchaser's, as the case
may be, past, present or prospective business secrets, methods or policies,
earnings, finances, security holders, lenders, key employees, nature of
services performed by such entity's sales personnel, procedures, standards and
methods, information relating to arrangements with suppliers, the identity and
requirements of arrangements with customers, the type, volume or profitability
of services or products for customers, drawings, records, reports, documents,
manuals, techniques, ratings, information, data, statistics, trade secrets and
all other information of any kind or character relating to each of the Parties,
whether or not reduced to writing.
"CONSENT" shall mean a consent, approval, order, authorization
or waiver from, notice to or declaration, registration or filing with any
Person.
"EMPLOYEE BENEFIT PLAN" shall mean any (i) Pension Benefit
Plan, (ii)Welfare Benefit Plan, (iii) accident, dental, disability, health,
life, medical, or vision plan or insurance policy, (iv) bonus, executive,
incentive or deferred compensation plan, (v) change in control plan, (vi)
fringe benefits and perquisites, (vii) holiday, sick pay, leave, vacation,
moving or tuition reimbursement or other similar policy, (viii) stock option,
stock purchase, phantom stock, restricted stock or stock appreciation plan,
(ix)severance plan, or (x)other employee arrangement, commitment, custom,
policy or practice.
"EMPLOYEES" shall have the meaning set forth in Section 4.21(a).
"ENCUMBERED INSTRUMENT" shall mean any contract and lease that
by its terms requires Consent from a third party in order to transfer the
rights and obligations thereunder.
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<PAGE> 50
"ENCUMBRANCE" shall mean any title defect or objection,
mortgage, lien, deed of trust, judgment, restrictive covenant, use restriction,
charge, pledge, security interest or other encumbrance of any nature
whatsoever, including all leases, chattel mortgages, conditional sales
contracts, collateral security arrangements and other title or interest
retention arrangements.
"ENVIRONMENTAL LAW" shall mean (i) the Clean Air Act (42
U.S.C. Section 7401 et seq.), (ii) the Clean Water Act (33 U.S.C. Section 1251
et seq.), (iii) 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.), (iv) the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), (v) the Hazardous Materials
Transportation Act (49 U.S.C. Section 5101 et seq.), (vi) the National
Environmental Policy Act (42 U.S.C. Section 4321 et seq.), (vii) the Oil
Pollution Act of 1990 (33 U.S.C. Section 2701 et seq.), (viii)the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984 (42 U.S.C. Section 6901 et seq.), (ix) the Safe Drinking
Water Act (42 U.S.C. Section 300f et seq.), (x) the Toxic Substances Control
Act (15 U.S.C. Section 2601 et seq.), (xi)any state, local, tribal, or foreign
law, ordinance, regulation, or statute analogous to any of the foregoing
statutes, or (xii) any other federal, state, local, tribal, or foreign law,
ordinance, regulation, or statute prohibiting, regulating, or restricting the
disposal, generation, handling, placement, recycling, release, storage, or
treatment of any contaminant, liquid, mass, material, matter, pollutant, solid,
substance, or waste classified or considered to be hazardous or toxic to human
health or the environment or otherwise related to environmental protection or
health and safety.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ESCROW AGENT" shall have the meaning set forth in Section
1.3.
"ESCROW AGREEMENT" shall have the meaning set forth in Section
1.3
"ESCROW AMOUNT" shall have the meaning set forth in Section
1.3.
"GAAP" shall mean generally accepted accounting principles in
effect in the United States of America as of the Signing Date.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, local,
tribal, foreign or other governmental agency, department, branch, commission,
board, bureau, court, instrumentality or body.
"HAZARDOUS MATERIAL" shall mean (i) any contaminant, liquid,
mass, material, matter, pollutant, solid, substance, or waste for which any
Environmental Law limits, prohibits, or regulates its disposal, generation,
handling, placement, recycling, release, storage, or treatment, (ii) any
carcinogenic, corrosive, explosive, flammable, infectious, mutagenic,
radioactive, or toxic substance, (iii) any diesel fuel, gasoline, or
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<PAGE> 51
other petroleum product in an unconfined manner, (iv) any substance that
contains polychlorinated biphenyls, (v) any substance that contains asbestos,
(vi) any substance that contains urea formaldehyde foam installation, (vii) any
substance that constitutes a nuisance upon any property, or (viii) any
substance that imposes a hazard to the health or safety of any individual.
"INDEMNITEE" shall have the meaning set forth in Section
11.3(a).
"INDEMNITOR" shall have the meaning set forth in Section
11.3(a).
"INDEPENDENT PERSON" shall have the meaning set forth in
Section 8.7(f).
"INSURANCE POLICIES" shall have the meaning set forth in
Section 4.15.
"INTANGIBLE ASSET" shall mean any patent, trademark, trademark
license, servicemark, servicemark license, computer software, trade name,
masthead, brand name, slogan, copyright, reprint right, franchise, license,
process, authorization, invention, know-how, formula, trade secret and other
intangible asset, together with any pending application, continuation-in-part
or extension therefor.
"INTERIM BALANCE SHEET" shall have the meaning set forth in
Section 4.6(b).
"LAW" shall mean any applicable code, statute, law, common
law, rule, regulation, order, ordinance, judgment, decree, order, writ or
injunction of any Governmental Authority.
"LAW AFFECTING CREDITORS' RIGHTS" shall mean any bankruptcy,
fraudulent conveyance or transfer, insolvency, moratorium, reorganization, or
other law affecting the enforcement of creditors' rights generally, and any
general principles of equity.
"MATERIAL ADVERSE CHANGE" shall mean, with respect to a
Person, that such Person has (i) breached a contract, which breach has had or
could reasonably be expected to have a Material Adverse Effect, (ii) incurred a
Claim or become a party to an Action that has had or could reasonably be
expected to have a Material Adverse Effect, (iii) suffered a Material Adverse
Effect, or (iv) violated any Law or Order which violation has had or could
reasonably be expected to have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to a
Person, the occurrence of an event or the existence of a circumstance that has
a material adverse effect on such Person's assets, business, cash flows,
financial condition, liabilities, operations, or prospects, including the
occurrence of any event or the existence of any circumstance that could
reasonably be expected to cause such an effect in the future, or prospects
taken as a whole.
"MATERIAL CONTRACTS" shall have the meaning set forth in
Section 4.16.
46
<PAGE> 52
"MAXIMUM LIABILITY" shall have the meaning set forth in
Section 11.10.
"ORDER" shall mean any consent decree, decree, determination,
injunction, judgment, order, or writ of any arbitrator or Governmental
Authority.
"PARTIAL TAX PERIOD" shall have the meaning set forth in
Section 8.7(a).
"PARTY" shall have the meaning set forth in the first
paragraph.
"PENSION BENEFIT PLAN" shall mean (i) an "employee pension
benefit plan" as defined in Section 3(2) of ERISA, and (ii) a "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA.
"PERMIT" shall mean any license, approval, certificate,
franchise, registration, permit or authorization issuable by any Governmental
Authority.
"PERMITTED ENCUMBRANCE" shall mean any Encumbrance directly
related to (i) Taxes that are not yet due and payable or Taxes that are being
contested in good faith by an appropriate proceeding, and in each case as to
which adequate reserves have been established in accordance with GAAP, (ii)
Encumbrances shown on the Interim Balance Sheet as securing specified
liabilities or obligations of Company with respect to which no breach or
default exists, (iii) workers', repairmen's and similar Encumbrances imposed by
Law that have been incurred in the ordinary course of business, (iv) retention
of title agreements or security agreements with suppliers entered into in the
ordinary course of business, and (v) the rights of others to customer deposits.
"PERSON" shall mean any association, bank, business trust,
corporation, estate, general partnership, Governmental Authority, individual,
joint stock company, joint venture, labor union, limited liability company,
limited partnership, non-profit corporation, professional association,
professional corporation, trust, or any other organization or entity.
"PERSONAL PROPERTY LEASES" shall have the meaning set forth in
Section 4.13(b).
"PLAN" shall mean any bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance, hospitalization or other
medical, life or other insurance, supplemental unemployment benefit, profit
sharing, pension, or retirement plan, program, agreement or arrangement.
"PURCHASE PRICE" shall have the meaning set forth in Section
1.2.
"PURCHASER" shall have the meaning set forth in first
paragraph.
"REAL PROPERTY LEASES" shall have the meaning set forth in
Section 4.12(a).
47
<PAGE> 53
"RELEASE" shall have the meaning set forth in Section 6.8.
"REPRESENTATIVES" shall mean, with respect to a Person, such
Person's directors, employees, officers, agents, accountants, affiliates,
consultants, investment bankers, attorneys, lenders, representatives and
shareholders.
"REQUIRED CONSENT" shall have the meaning set forth in Section
8.2(b).
"REQUIRED PERMIT" shall have the meaning set forth in Section
8.3(b).
"RETURNS" shall have the meaning set forth in Section 4.23(a).
"REVIEWED FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.6(a).
"SELLER" shall have the meaning set forth in the first
paragraph.
"Sellers' Agent" shall have the meaning set forth in Section
1.5.
"SELLERS' AGENT AGREEMENT" shall have the meaning set forth in
Section 1.5.
"SELLERS' KNOWLEDGE" shall mean the actual knowledge as of the
date that a specific representation or warranty is made or deemed made, after
reasonable inquiry, of an individual Seller or the executive officers of any
Seller that is a corporation.
"SETTLEMENT MEETING" shall have the meaning set forth in
Section 12.1.
"SHARES" shall have the meaning set forth in Section 1.1.
"SHORT TAX PERIOD" shall have the meaning set forth in Section
8.7(a).
"SIGNING DATE" shall have the meaning set forth in the first
paragraph.
"SUBJECT JURISDICTIONS" shall have the meaning set forth in
Section 8.7(b).
"SUBSCRIPTION RIGHT" shall have the meaning set forth in
Section 4.5(a).
"TAX" shall mean any assessment, charge, duty, fee, impost,
levy, tariff, or tax of any nature whatsoever imposed by any Governmental
Authority or payable pursuant to any tax sharing agreement, including any
income, payroll, withholding, excise, gift, alternative minimum, capital gain,
added value, social security, sales, use, real and personal property, use and
occupancy, business and occupation, mercantile, real estate, capital stock, and
franchise tax or charge, together with any related interest, penalties or
additions thereon.
48
<PAGE> 54
"TAX ITEMS" shall have the meaning set forth in Section
8.7(d).
"TRANSACTION DOCUMENTS" shall mean the Agreement, the Escrow
Agreement, the Sellers' Agent Agreement and all other documents and instruments
executed and delivered pursuant to or in furtherance of this Agreement.
"UNAUDITED FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.6(b).
"WELFARE BENEFIT PLAN" shall mean an "employee welfare benefit
plan" as defined in Section 3(1) of ERISA, including an employee welfare
benefit plan which is a "multiemployer welfare plan" as defined in Section
3(37) of ERISA and a "multiple employer welfare arrangement" as defined in
Section 3(40) of ERISA.
"YEAR-END BALANCE SHEET" shall have the meaning set forth in
Section 4.6(a).
Accounting Terms. Except as otherwise provided in this Agreement, all
accounting terms defined in this Agreement, whether defined in this Article or
otherwise, shall be construed in accordance with GAAP on a consolidated basis.
Articles, Sections, Exhibits and Schedules. Except as specifically
stated otherwise, references to Articles, Sections, Exhibits and Schedules
refer to the Articles, Sections, Exhibits and Schedules of this Agreement.
Attorneys' Fees. Whenever this Agreement refers to a Person's
"attorneys' fees and expenses," such reference also shall include any fees and
expenses of accountants, experts, investigators, and other professional
advisors whose services such Person's attorney considered advisable in
connection with the prosecution or defense of the particular matter.
Breach. The term "breach" with respect to any contract or instrument
means any breach or violation of, or default under, such contract or
instrument, any conflict with another contract or instrument or any emergence
of a right of another party to such contract or instrument to accelerate,
cancel, modify or terminate such contract or instrument, including any such
breach, violation, default, conflict, or right that will arise after notice or
lapse of time.
Disclosure Thresholds. The establishment of any monetary thresholds
for the disclosure of particular items shall not create a materiality standard
under this Agreement.
Drafting. Neither this Agreement nor any provision set forth in this
Agreement shall be interpreted in favor of or against any Party because such
Party or its legal counsel drafted this Agreement or such provision. No prior
draft of this Agreement or any
49
<PAGE> 55
provision set forth in this Agreement shall be used when interpreting this
Agreement or its provisions.
Headings. Article and section headings are used in this Agreement
only as a matter of convenience and shall not have any effect upon the
construction or interpretation of this Agreement.
Include. The term "include" or any derivative of such term does not
mean that the items following such term are the only types of such items.
Or. The term "or" shall not be interpreted as excluding any of the
items described.
Plural and Singular Words. Whenever the plural form of a word is used
in this Agreement, that word shall include the singular form of that word.
Whenever the singular form of a word is used in this Agreement, that word shall
include the plural form of that word.
Predecessors. Any of Sellers' representations and warranties
concerning any Claim against Company, any liability or obligation of Company,
or any violation of Law by Company shall include any Claims with respect to
each predecessor of the Company, including all direct and indirect predecessors
of any such predecessor.
Pronouns. Whenever a pronoun of a particular gender is used in this
Agreement, if appropriate that pronoun also shall refer to the other gender and
the neuter. Whenever a neuter pronoun is used in this Agreement, if
appropriate that pronoun also shall refer to the masculine and feminine gender.
Representations and Warranties. Sellers' representations and
warranties under this Agreement shall mean the representations and warranties
set forth in Articles III and IV and the reaffirmation of Sellers'
representations and warranties in certificates delivered pursuant to Sections
2.2(a) and 2.3(a). Purchaser's representations and warranties under this
Agreement shall mean the representations and warranties set forth in Article V
and the reaffirmation of those representations and warranties in the
certificates delivered pursuant to Section 2.4(d).
Statutes. Any reference to Law or any specific statute shall include
any changes to such law or statute after the Signing Date, any successor law or
statute, and any regulations and rules promulgated under such law or statute
and any successor law or statute, whether promulgated before or after the
Signing Date.
50
<PAGE> 56
The following list sets forth the schedules to the Stock Purchase
Agreement 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
<TABLE>
<S> <C>
Schedule 1.1 Shareholders
Schedule 4.5 Capitalization
Schedule 4.6(a) Year-End Financial Statements
Schedule 4.6(b) Unaudited Financial Statements
Schedule 4.9(a) Sufficiency of the Assets
Schedule 4.12(b) Leases
Schedule 4.13(a) Owned Tangible Personal Property
Schedule 4.13(b) Leased Tangible Personal Property
Schedule 4.15 Insurance
Schedule 4.16 Contracts
Schedule 4.19 Permits
Schedule 4.20(a) Owned Intangible Assets
Schedule 4.20(b) Licensed Intangible Assets
Schedule 4.21 Employees
Schedule 4.22(a) Welfare Benefits
Schedule 4.22(b) Pension Benefit Plans
Schedule 4.22(c) Other Employee Benefit Plans
Schedule 4.24 Bank Accounts
Schedule 4.26 Affiliated Transactions
Schedule 6.3(b) Prohibited Actions
Schedule 7.2 Management Options
Schedule 8.2(b) Required Consents
Schedule 8.3(b) Required Permits
</TABLE>
<PAGE> 1
EXHIBIT 3.3
FIRST AMENDMENT
TO
THE INSPIRE INSURANCE SOLUTIONS, INC.
BYLAWS
This First Amendment to the INSpire Insurance Solutions, Inc. Bylaws,
dated as of July 30, 1997 (the "Bylaws"), hereby amends the Bylaws as follows
effective as of March 27, 1998:
1. Section 2.5.4. is hereby amended and restated to read in its
entirety as follows:
"Section 2.5.4. 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. "Broker non-votes" (as defined in this
Section 2.5.4) will be counted for the purpose of determining the
presence of a quorum at any meeting but will be treated as not present
and not entitled to vote on any applicable matter. For purposes of this
Section 2.5.4, "broker non-votes" are shares held by brokers or
nominees as to which they have no discretionary power to vote on a
particular matter and have received no instructions from the beneficial
owners thereof or persons entitled to vote thereon."
2. As amended and restated by the foregoing, the Bylaws shall remain in
full force and effect.
INSPIRE INSURANCE SOLUTIONS, INC.
By:
------------------------------------
F. George Dunham, III
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 4.3
FIRST AMENDMENT
TO
INSPIRE INSURANCE SOLUTIONS, INC.
RIGHTS AGREEMENT
This First Amendment to the Rights Agreement by and between INSpire
Insurance Solutions, Inc. and U.S. Trust Company of Texas, N.A. dated as of July
30, 1997 (the "Rights Agreement") hereby amends the Rights Agreement as follows
effective as of April 7, 1998:
1. Section 7(b), which describes the Exercise Price, is hereby amended by
deleting the first sentence and inserting in its place the following sentence:
"The Exercise Price shall be $100.00 for each one one-hundredth (1/100) of
a share of Preferred Stock issued pursuant to the exercise of a Right."
2. As amended by the foregoing, the Rights Agreement shall remain in full
force and effect.
INSPIRE INSURANCE SOLUTIONS, INC.
By:
----------------------------------
F. George Dunham, III
President and Chief Executive Officer
U.S. TRUST COMPANY OF TEXAS, N.A.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
this 28th day of April, 1998, to be effective the date hereof (the "Effective
Date"), by and between INSpire Insurance Solutions, Inc., a Texas corporation
("Employer"), and William J. Smith, III, a resident of Connecticut ("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
President and Chief Operating 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 five (5) years, commencing on the Effective Date and
terminating on April 27, 2003, unless such employment is terminated or extended
prior to the expiration of said period as hereinafter provided.
2. Duties of Employee.
(a) President and Chief Operating 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 President, and Chief Operating Officer, or
such other capacity as Employer and Employee may agree upon; provided
that Employee shall not be required to report to anyone other than the
Chairman and Chief Executive Officer and to the Board of Directors. 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.
(b) Other Positions. Employer acknowledges and agrees that,
during the term of this Agreement, Employee may, upon notice to and
subject to the continuing approval by the Board of Directors, devote
some of his professional and business-related time, skills and best
efforts to serving as a director of one or more other non-competitive
business entities and that Employee may receive compensation as a
director of such businesses. In
<PAGE> 2
addition, nothing herein shall be construed to prohibit Employee from
serving on the boards of non profit community or charitable or
religious organizations or similar entities or engaging in personal and
passive investment activities, provided such activities do not
interfere with the performance of his duties hereunder or violate the
non-competition and nondisclosure provisions set forth herein.
3. Compensation.
(a) Base Salary. Employer shall pay Employee an annual base
salary of Three Hundred Twenty-Five Thousand Dollars ($325,000.00) 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 be entitled to participate in the
INSpire Insurance Solutions, Inc. 1998 Annual Bonus Plan, a copy of
which has been provided to Employee (the "Bonus Plan"), for each year
during the term of this Agreement. Employer agrees that the Bonus Plan
shall not be terminated during the term of this Agreement.
(c) Deferred Compensation
(i) Annual Vesting of Deferred Compensation. In
consideration of entering this Agreement and accepting
employment hereunder, Employee is entitled to $500,000, which
amount shall vest and become payable in five (5) equal annual
installments of $100,000 payable in cash on each April 28
during the term of this Agreement provided Employee is
employed hereunder on such date.
(ii) Deferred Compensation Termination Benefit. In
addition to any amounts payable pursuant to Section 3(c)(i)
above, in the event of a termination of this Agreement for any
reason other than cause (as defined in Section 8(b) hereof)
prior to the fifth anniversary of the date hereof, an
Additional Deferred Lump Sum shall become immediately due and
payable in cash, which amount shall be determined accordance
with the following schedule:
<TABLE>
<CAPTION>
If Termination of Employment Occurs On or Before The Additional Deferred Lump Sum Due and
April 28, Immediately Payable Shall be:
<S> <C>
1999 $500,000
2000 $375,000
2001 $250,000
2002 $125,000
</TABLE>
(iii) All amounts payable under this Section 3(c) are
exclusive of any other amounts payable under this Agreement.
2
<PAGE> 3
(d) Stock Options. Employee shall be granted, on the date
hereof, stock options for shares of common stock of Employer pursuant
to the terms of a Stock Option Agreement granted under the INSpire
Insurance Solutions, Inc. Second Amended and Restated 1997 Stock Option
Plan, 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(d) attached hereto.
(e) 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.
(f) Signing Bonus. Upon the execution of this Agreement,
Employer shall pay to Employee the sum of $50,000 as a signing bonus in
consideration of his willingness to enter into this Agreement. Such
amount shall be paid by wire transfer to Employee's account pursuant to
wire instructions provided in writing by Employee.
4. Benefits.
(a) Generally. During the term of this Agreement, Employee
shall be entitled to participate with other senior executive 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.
(b) Without limiting the generality of the foregoing, Employee
shall be entitled to the following:
(i) Medical Insurance. Group medical and dental insurance
for himself and his family with premiums paid by
Employer under Employer insurance plans in effect for
employees of Employer during the term of this
Agreement and subject to eligibility and other
provisions of such plans.
(ii) Memberships. Throughout the term of this Agreement,
Employer shall assume the cost of the membership and
dues for Employee and members of his family to (A) a
golf club in the greater Fort Worth area selected by
Employee and approved by Employer and (B) either the
City Club or the Fort Worth Club.
(iii) Moving Expenses. Employer shall reimburse Employee
and members of his family for all reasonable costs
associated with their relocation to the greater Fort
Worth, TX area from Wilton, CT, including any net
taxes associated with reimbursement of such payments
after taking account of the tax effect of permitted
deductions. Such reimbursement shall include,
3
<PAGE> 4
without limitation, the cost of house hunting trips
to Fort Worth by Employee and members of this family,
all the expenses associated with location and
purchase of a new home (including to the extent
applicable, expenses in nature of real estate
commissions, legal fees, title searches, inspections
and closing costs), expenses associated with the sale
of Employee's present home in Wilton, CT (including
to the extent applicable, expenses in the nature of
real estate commissions, legal fees, title searches,
inspections and closing costs). Employee shall
maintain such records as may be reasonably necessary
to evidence the foregoing, and shall provide copies
thereof the Employer upon request.
(iv) IBM Option Reclamation. In the event that by reason
of Employee's employment or other affiliation with
Employer hereunder, Employee shall be required to
forfeit, shall lose the right to the favorable
exercise price of or be otherwise penalized in his
right to exercise, the fully vested and exercisable
options to purchase shares of stock of IBM
Corporation (the "IBM Options") granted him by his
previous employer (each an "IBM Option Penalty"),
including the costs in contesting the imposition of
the IBM Option Penalty, the Employer shall pay in
cash to Employee the value of the foregone
opportunity resulting from the IBM Option Penalty and
the amount of any such contest, as such value or
amount is reasonably determined by Employee assuming
the current exercise of the IBM Options, together
with any taxes attributable to such payment, upon
Employee's submission to Employer of evidence of the
IBM Option Penalty; provided that, the aggregate
amount payable in respect of the IBM Option Penalty
shall not exceed $170,000. Payments of amounts
payable hereunder shall be made within ten (10)
business days of submission of such evidence to
Employer.
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:
4
<PAGE> 5
(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 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
5
<PAGE> 6
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 180 days written notice to
Employee; provided, Employee shall provide such assistance to Employer
in training his successor and generally preparing for an orderly
transition as may be reasonably requested by Employer.
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 Employee with
notice pursuant to Section 8(c) 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 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.
(e) 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
6
<PAGE> 7
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, limited liability company or association of which
he owns five percent (5%) or more of the common equity 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.
7
<PAGE> 8
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):
(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 any 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 any tax benefit bonuses paid upon the lapse or resale
8
<PAGE> 9
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.
(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
9
<PAGE> 10
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.
(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.
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<PAGE> 11
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 (with electronic confirmation of successful transmission)
to the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
<TABLE>
<CAPTION>
<S> <C>
(a) If to Employer: INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: Secretary
Facsimile No.: (800) 826-9865
with a copy to: Terry M. Schpok, P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, TX 75201-4675
Facsimile: (214) 969-4343
(b) If to Employee:
William J. Smith,
III 121 Skunk Lane
Wilton, CT 06897
Facsimile: (203) 834-9610
with a copy to: Sabino Rodriguez, III
Day, Berry & Howard
One Canterbury Green
Stamford, CT 06901
Facsimile: (203) 977-7301
</TABLE>
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<PAGE> 12
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.
INSPIRE INSURANCE SOLUTIONS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
EMPLOYEE:
-----------------------------------
F. George Dunham, III
12
<PAGE> 13
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> 14
EXHIBIT B
RESTRICTED AREA
The United States of America
<PAGE> 15
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 INSpire Insurance Solutions, 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 INSpire Insurance Solutions, Inc. or any of its subsidiaries 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 INSpire Insurance Solutions, Inc. or any of its subsidiaries.
<PAGE> 16
SCHEDULE 3(d)
STOCK OPTIONS
<TABLE>
<CAPTION>
<S> <C>
Name of Optionee: William J. Smith III
Number of Shares: 250,000 shares
Date of Grant: April 21, 1998
Option Exercise Price: Closing Price as reported on NASDAQ on Date of Grant.
Vesting: 50,000 shares per year commencing on first
anniversary of Date of Grant.
Additional Provisions: Accelerated vesting and other terms as provided in
Stock Option Agreement.
Term: 6 years
</TABLE>
<PAGE> 1
EXHIBIT 10.2
INSPIRE INSURANCE SOLUTIONS, INC.
SECOND AMENDED AND RESTATED 1997 STOCK OPTION PLAN
ARTICLE I.
PURPOSES
1.1 Purpose of Plan. The purposes of the INSpire Insurance Solutions,
Inc. Second Amended and Restated 1997 Stock Option Plan (the "Plan") are to
advance the interests of INSpire Insurance Solutions, 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. The Plan amends and
restates the Amended and Restated 1997 Stock Option Plan adopted by the Company
effective July 30, 1997 in order to (i) incorporate prior amendments to Section
5.4(a) to permit the Board or the Committee to include in any Stock Option
Agreement issued under the Plan initially or by amendment, additional
alternative methods of exercising options granted under the Plan; (ii)
incorporate prior amendments to Section 5.5(a) and Section 2.1(h) to clarify
certain provisions in the definitions of Change of Control and Fair Market
Value; (iii) revise Section 3.2 to increase the maximum aggregate number of
shares which may be optioned and sold under the Plan from 2,250,000 to 3,000,000
shares of Common Stock; and (iv) revise Section 7.1 to clarify by whom the Plan
shall be administered.
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.
(e) "Company" means INSpire Insurance Solutions, 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
such an employee.
<PAGE> 2
(h) "Fair Market Value" on any date for which fair market
value is to be determined hereunder means the reported closing price on
the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading, or, if the shares of
Common Stock are not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automated Quotation National Market (the "NASDAQ National Market"), or,
if the shares of Common Stock are not quoted on the NASDAQ National
Market, the average of the highest reported bid and the lowest reported
asked prices as furnished by the National Association of Securities
Dealers, Inc. (the "NASD") through NASDAQ, or, if not so reported
through NASDAQ as reported through the National Quotation Bureau,
Incorporated ("NQBI") or a similar organization if NASDAQ or NQBI is no
longer reporting such information. For options approved at such times
as the Common Stock is not reported or quoted by any such organization
(including options approved prior to the initial public stock offering
of the Company), the fair market value of the shares of Common Stock
shall be the fair market value thereof determined in good faith by the
Committee. In addition to the above rules, Fair Market Value shall be
determined without regard to any restriction other than a restriction
which, by its terms, will never lapse.
(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 INSpire Insurance Solutions, Inc. Second
Amended and Restated 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.
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 3,000,000 shares, all or any part of which may be issued
pursuant to Options; provided, however,
2
<PAGE> 3
that the maximum number of shares of Common Stock which may be issued to an
Optionee under the Plan during the term of the Plan shall not exceed 1,200,000
(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.
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 nonemployee 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 or
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.
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
3
<PAGE> 4
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 Incentive Options. No Incentive
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 Incentive Option shall be exercisable during the Optionee's
lifetime only by him or her. No transfer of an Incentive 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) Assignability of Nonqualified Options. Nonqualified
Options granted hereunder may be transferred by the Optionee thereof to
one or more permitted transferees; provided that (i) there may be no
consideration for such transfer, (ii) the Optionee (or such Optionee's
estate or representative) shall remain obligated to satisfy all
employment tax and other withholding tax obligations associated with
the exercise of the Options, (iii) the Optionee shall notify the
Company in writing that such transfer has occurred, the identity and
address of the permitted transferee and the relationship of the
permitted transferee to the Optionee and (iv) such transfer shall be
effected pursuant to transfer documents approved from time to time by
the Committee. To the extent a Nonqualified Option transferred pursuant
to this Section 5.3(d) is not fully exercisable as of the date of
transfer thereof, the Optionee shall specify in the transfer document
whether and to what extent the transferred Options (if less than all of
the Options subject to the applicable Nonqualified Stock Option
Agreement) are exercisable, subject to the limitations on
exercisability contained in the applicable Nonqualified Stock Option
Agreement. Furthermore, to the extent the Optionee transfers Options
that are not exercisable as of the date of transfer and such Options
are less than all of the Options subject to the applicable Nonqualified
Stock Option Agreement, the Optionee shall specify in the transfer
documents, subject to the limitations on exercisability contained in
the applicable Nonqualified Stock Option Agreement, when the
transferred Options become exercisable as Options under the applicable
Nonqualified Stock Option Agreement subsequent to such transfer. No
permitted transferee may further assign or transfer the
4
<PAGE> 5
transferred Option otherwise than by will or the laws of descent and
distribution. Following any permitted transfer, any such Options shall
continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer; provided that for purposes of
Sections 5.4(a), 5.4(b), 5.5, 5.6, Article VII, and Article IX hereof
the term "Optionee" shall be deemed to refer also to each permitted
transferee. The events of termination of relationship in Article VI
hereof shall continue to be applied with respect to the original
Optionee, following which the Options shall be exercisable by the
transferee only to the extent, and for the periods specified in Article
VI and the shares issued upon exercise of Options shall be subject to
repurchase pursuant to Section 9.3. The term "permitted transferees"
shall mean one or more of the following: (i) any member of the
optionee's immediate family; (ii) a trust established for the exclusive
benefit of one or more members of such immediate family; or (iii) a
partnership in which such immediate family members are the only
partners. The term "immediate family" is defined for such purpose as
spouses, children, stepchildren and grandchildren, including
relationships arising from adoption.
(e) 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.
(f) 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) Manner of Exercise. Shares of Common Stock purchased upon
exercise of Options shall at the time of purchase be paid for in full.
The Company shall satisfy its employment tax and other tax withholding
obligations by requiring the Optionee (or such Optionee's estate or
representative) to pay the amount of employment tax and withholding
tax, if any, that must be paid under federal, state and local law due
to the exercise of the Option. To the extent that the right to purchase
shares has accrued hereunder, Options may be exercised from time to
time by written notice to the Company stating the full number of shares
with respect to which the Option is being exercised and the time of
delivery thereof, which shall be at least fifteen days after the giving
of such notice unless an earlier date shall have been mutually agreed
upon by the Optionee (or other person entitled to exercise the Option)
and the Company, accompanied by payment to the Company of the purchase
price in full and the amount of employment tax and withholding
5
<PAGE> 6
tax due, if any, upon the exercise of the Option. Such payment shall be
effected (i) by certified or official bank check, (ii) if so permitted
by the Company, by the delivery of a number of shares of Common Stock
(plus cash if necessary) having a fair market value equal to the amount
of such purchase price and employment or withholding tax or (iii) by
delivery of the equivalent thereof acceptable to the Company. The
Company will, as soon as reasonably possible notify the Optionee (or
such Optionee's representative) of the amount of employment tax and
other withholding tax that must be paid under federal, state and local
law due to the exercise of the Option. At the time of delivery, the
Company shall, without transfer or issue tax to the Optionee (or other
person entitled to exercise the Option), deliver to the Optionee (or to
such other person) at the principal office of the Company, or such
other place as shall be mutually agreed upon, a certificate or
certificates for the shares of Common Stock, provided, however, that
the time of delivery may be postponed by the Company for such period as
may be required for it with reasonable diligence to comply with any
requirements of law. The foregoing notwithstanding, the Committee may
permit in an Option Agreement, at the time of the grant of an Option or
by later amendment to an Option Agreement, an alternative exercise of
an Option by a "cashless exercise" with a broker or by the surrender of
the Option, if the Committee so permits, in exchange for an amount,
payable in cash or shares of Common Stock (except for fractional shares
which shall be paid in cash) valued at Fair Market Value as of the date
of such surrender, that is equal to the difference between (i) the
aggregate Fair Market Value of the shares subject to the portion of the
Option being exercised, minus (ii) the total exercise price for the
portion of the Option being exercised. In the applicable Option
Agreement the Committee may require an Optionee to accept either cash
or shares in settlement of any Option so surrendered or may permit the
Optionee to request, subject to Committee approval, cash or shares to
be received in settlement. Withholding upon such an alternative
exercise shall be effected by any lawful means approved by the
Committee and agreed to with Optionee.
(b) Rights of Optionee in Stock. Neither any Optionee, any
permitted transferee nor the legal representatives, heirs, legatees or
distributees of any Optionee or permitted transferee 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 Change of Control.
(a) A "Change of Control" for purposes of this Plan shall
mean: (i) the acquisition, by a single entity (or group of affiliated
entities) that is not directly or indirectly controlled by the existing
shareholders, of more than 50% of the Common Stock issued and
outstanding immediately prior to such acquisition; or (ii) the
dissolution or liquidation of the Company or the consummation of any
merger or consolidation of the
6
<PAGE> 7
Company or any sale or other disposition of all or substantially all of
its assets, if the shareholders of the Company immediately before such
transaction own directly or indirectly, immediately after consummation
of such transaction, equity securities (other than options and other
rights to acquire equity securities) possessing less than 50% of the
voting power of the surviving or acquiring corporation. All adjustments
under this Section shall be made by the Committee, whose determination
as to what adjustments shall be made and the extent thereof shall be
final, binding and conclusive for all purposes of the Plan and of each
Option Agreement.
(b) Change of Control with Provision Being Made Therefor. If
in connection with a Change of Control a written provision is made for
the assumption and continuance of any Option granted under the Plan, or
the substitution for such option of a new Option covering the shares of
the successor employer corporation, with appropriate adjustment as to
the number and kind of shares and prices, the option granted under the
Plan, or the new Option substituted therefor, as the case may be, shall
continue in the manner and under the terms provided.
(c) Change of Control Without Provision Being Made Therefor.
If no written provision is made in connection with a Change of Control
for the continuance and assumption of any Option granted under the Plan
or for the substitution of any Option covering the shares of the
successor employer corporation, then, the holder of any such Option
shall be entitled, prior to the effective date of any such Change of
Control, to purchase the full number of shares not previously exercised
under such Option, without regard to the periods and installments of
exercisability made pursuant to Section 5.3 if (and only if) such
Option has not at that time expired or been terminated, failing which
purchase, any unexercised portion shall be deemed cancelled as of the
effective date of such Change of Control.
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 reasonably deemed satisfactory by the
Board of Directors, (ii) the abuse of illegal drugs or 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
7
<PAGE> 8
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 reasonable 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 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 Other Terminations. 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
8
<PAGE> 9
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.
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 Committee of the Board of Directors consisting of not less than
three directors who qualify as Non-Employee Directors (as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended) and "outside
directors" for purposes of Section 162(m) of the Code as may be appointed by the
Board of the Company, all of whom are members of the Board. Any such committee
appointed by the Board, or the Board itself during such periods as no such
properly constituted and appointed committee exists, is herein referred to as
the "Committee." A majority of the Committee shall constitute a quorum thereof
and the actions of a majority of the Committee approved 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 Committee. Vacancies occurring on the
Committee shall be filled by the Board. The 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 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 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
Committee shall take into account the nature of the services rendered by the
respective Optionees, their past, present and potential contribution to the
9
<PAGE> 10
Company's success and such other factors as the Committee may deem relevant. The
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 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
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 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 incentive stock 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.
10
<PAGE> 11
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 the issuance of shares of
Common Stock to any permitted transferee 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. In no event shall the Company be required to register shares of
Common Stock for issuance to a permitted transferee and any requested exercise
of Options by a permitted transferee shall be subject to any applicable prior
registration of the shares of Common Stock issuable upon such exercise.
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.
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:
11
<PAGE> 12
(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 as published in the Wall Street
Journal; 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:
[OBJECT OMITTED]
P = A - L
-----
S
P = the purchase price (book value) 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 Company has exercised
12
<PAGE> 13
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 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
13
<PAGE> 14
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.
9.9 Prior Option Agreements. Each Option Agreement entered into prior
to the effective date of this INSpire Insurance Solutions, Inc. Second Amended
and Restated 1997 Stock Option Plan is hereby amended to conform to the
provisions of the Plan.
9.10 Effective Dates. The Plan originally became effective on March 12,
1997 and was amended effective July 30, 1997. The second amendment and
restatement effected hereby is effective February 16, 1998, subject to any
required shareholder approval.
IN WITNESS WHEREOF, upon authorization of the Board of Directors and
the Shareholders of the Company, the undersigned has caused the INSpire
Insurance Solutions, Inc. Second Amended and Restated 1997 Stock Option plan to
be executed effective as of the 16th day of February 1998.
--------------------------------------
F. George Dunham, III
President and Chief Executive Officer
14
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT
TO
THE INSPIRE INSURANCE SOLUTIONS, INC.
1997 DIRECTOR STOCK OPTION PLAN
This First Amendment to the INSpire Insurance Solutions, Inc. Director
Stock Option Plan (the "Plan") hereby amends the Plan as follows effective as of
February 16, 1998:
1. Section 3(c) of the Plan, which describes the amount of stock
options granted annually to Nonemployee Directors, hereby is amended by deleting
the sentence thereof and inserting in its place the following sentence:
"each Nonemployee Director who has previously been granted
Non-Qualified Options under the Plan shall be granted additional
Non-Qualified Options to purchase 2,500 shares of Common Stock on the
day immediately after each annual meeting subsequent to which such
Nonemployee Director is first elected (or appointed) as a Director of
the Company if such Nonemployee Director continues to serve as a
Director on such date of grant."
2. As amended by the foregoing, the Plan shall remain in full force and
effect.
INSPIRE INSURANCE SOLUTIONS, INC.
By:
--------------------------------------
F. George Dunham, III
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Basic
Average shares outstanding ................................ 10,308 7,000
------- -------
Total ..................................................... 10,308 7,000
Net income (loss) ......................................... $ 2,319 $(3,495)
======= =======
Per share amount .......................................... $ .22 $ (.50)
======= =======
Diluted
Average shares outstanding ................................ 10,308 7,000
Net effect of dilutive stock options based on the
treasury stock method using the average market price ... 1,413 --
------- -------
Total ..................................................... 11,721 7,000
======= =======
Net income (loss) ......................................... $ 2,319 $(3,495)
======= =======
Per share amount .......................................... $ .20 $ (.50)
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 15.1
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
condensed financial information of INSpire Insurance Solutions, Inc. for the
periods ended March 31, 1998 and 1997, as indicated in our report dated April
17, 1998; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in this
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated by reference in Registration Statement No. 333-36271 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, as amended, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and 11
of that Act.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
May 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF OPERATIONS AND BALANCE SHEET OF INSPIRE INSURANCE SOLUTIONS, INC.
AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,721
<SECURITIES> 8,541
<RECEIVABLES> 10,636
<ALLOWANCES> 248
<INVENTORY> 0
<CURRENT-ASSETS> 85,774
<PP&E> 14,599
<DEPRECIATION> 8,853
<TOTAL-ASSETS> 108,436
<CURRENT-LIABILITIES> 7,297
<BONDS> 783
0
0
<COMMON> 119
<OTHER-SE> 97,879
<TOTAL-LIABILITY-AND-EQUITY> 97,998
<SALES> 0
<TOTAL-REVENUES> 18,356
<CGS> 0
<TOTAL-COSTS> 15,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 3,741
<INCOME-TAX> 1,421
<INCOME-CONTINUING> 2,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,319
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.20)
</TABLE>
