<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 . . . . . . . . . . . . . . . September 30, 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)
817-332-7761
(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 November 4, 1998: 18,434,626.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION.................................................................... 1
Item 1. Financial Statements..................................................................... 1
Condensed Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997.................................................................... 1
Condensed Statements of Operations (unaudited) for the three months and
nine months ended September 30, 1998 and 1997............................................ 2
Condensed Statements of Cash Flows (unaudited) for the nine months ended
September 30, 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........................................................................ 12
Item 1. Legal Proceedings........................................................................ 12
Item 2. Changes in Securities and Use of Proceeds................................................ 12
Item 5. Other Information........................................................................ 13
Item 6. Exhibits and Reports on Form 8-K......................................................... 13
Signatures......................................................................................... 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 58,647,587 $ 28,039,323
Investments ..................................................... 15,603,278 --
Accounts receivable, net ........................................ 13,986,096 10,976,672
Income taxes receivable ......................................... 121,076 149,041
Deferred income taxes ........................................... 721,997 1,434,000
Prepaid expenses and other current assets ....................... 7,629,213 4,154,417
------------ ------------
Total current assets ...................................... 96,709,247 44,753,453
Accounts receivable, excluding current portion ....................... -- 74,258
Property and equipment, net (accumulated depreciation
1998 $13,129,286; 1997 $10,382,308) ................................. 9,856,114 6,029,973
Intangibles and other assets ......................................... 20,066,820 17,039,634
------------ ------------
TOTAL ................................................................ $126,632,181 $ 67,897,318
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 654,58 $ 834,418
Accrued payroll and compensation ................................ 837,774 633,252
Other accrued expenses .......................................... 2,075,131 1,485,543
Unearned revenue ................................................ 2,030,323 5,053,165
Deferred compensation ........................................... 2,201,296 2,699,000
Income taxes payable ............................................ 2,106,657 3,063,000
Current portion of long-term debt ............................... 565,214 609,658
------------ ------------
Total current liabilities ................................. 10,470,975 14,378,036
------------ ------------
Deferred compensation ................................................ 406,846 1,657,017
Long-term debt ....................................................... -- 373,151
Deferred income taxes ................................................ 3,087,030 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, 18,431,701 shares issued and outstanding
in 1998; 15,286,875 shares issued and outstanding in 1997 ..... 184,317 101,913
Additional paid-in capital ...................................... 105,976,548 48,725,299
Retained earnings (accumulated deficit) ......................... 6,506,465 (61,098)
------------ ------------
Total shareholders' equity ................................ 112,667,330 48,766,114
------------ ------------
TOTAL ................................................................ $126,632,181 $ 67,897,318
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE> 4
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Outsourcing services ........................... $ 13,314,284 $ 8,178,318 $ 34,846,030 $ 22,572,215
Software and software services ................. 8,346,946 6,709,500 24,863,884 14,271,379
Other .......................................... 422,941 294,133 1,690,662 1,597,572
------------ ------------ ------------ ------------
Total revenues ........................... 22,084,171 15,181,951 61,400,576 38,441,166
------------ ------------ ------------ ------------
EXPENSES:
Cost of outsourcing services ................... 5,704,613 5,065,693 17,206,778 15,163,900
Cost of software and software services ......... 5,457,918 4,288,087 14,379,706 8,640,574
Cost of other revenues ......................... 284,280 341,215 1,150,078 1,037,710
Selling, general and administrative ............ 4,043,921 2,180,223 11,094,537 4,177,443
Research and development ....................... 796,921 211,267 1,895,486 890,867
Depreciation and amortization .................. 1,634,938 1,121,376 4,270,524 2,816,792
Purchased research and development ............. -- -- 2,000,000 3,000,000
Deferred compensation .......................... -- -- -- 3,949,000
Management fees to shareholder ................. -- 45,000 -- 1,245,000
------------ ------------ ------------ ------------
Total expenses .......................... 17,922,591 13,252,861 51,997,109 40,921,286
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) .......................... 4,161,580 1,929,090 9,403,467 (2,480,120)
OTHER INCOME (EXPENSE):
Interest income ................................ 829,269 186,566 2,127,437 261,103
Interest expense ............................... (8,966) (91,640) (48,750) (303,684)
Other .......................................... -- 1,635,959 -- 1,614,588
------------ ------------ ------------ ------------
Total other income (expense) .............. 820,303 1,730,885 2,078,687 1,572,007
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX .................. 4,981,883 3,659,975 11,482,154 (908,113)
INCOME TAX BENEFIT (EXPENSE) ..................... (1,743,656) (1,203,496) (4,853,510) 508,159
------------ ------------ ------------ ------------
NET INCOME (LOSS) ................................ $ 3,238,227 $ 2,456,479 $ 6,628,644 $ (399,954)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE (BASIC) .............. $ .18 $ .20 $ .38 $ (.04)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE (DILUTED) ............ $ .16 $ .18 $ .34 $ (.04)
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ................................................. $ 6,628,644 $ (399,954)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ................................... 4,270,524 2,816,792
Deferred income taxes ........................................... -- (2,785,000)
Purchased research and development .............................. 2,000,000 3,000,000
Gain on sale of subsidiary ...................................... -- (1,634,291)
Change in operating assets and liabilities:
Accounts receivable ........................................... (2,710,796) (3,885,723)
Prepaid expenses and other current assets ..................... (3,407,666) (1,039,637)
Other assets .................................................. (139,317) 438,165
Accounts payable .............................................. (192,365) (1,580,809)
Accrued payroll and compensation .............................. 223,541 (494,383)
Other accrued expenses ........................................ 381,848 980,289
Unearned revenue .............................................. (3,119,717) 270,546
Income taxes payable .......................................... 2,040,313 1,819,135
Deferred compensation ......................................... (216,891) 4,004,567
------------ ------------
Net cash provided by operating activities ............................ 5,758,118 1,509,697
------------ ------------
INVESTING ACTIVITIES:
Purchase of investments ........................................... (15,603,278) (13,198,953)
Proceeds from sale of subsidiary, net of cash relinquished ........ -- 2,499,262
Purchases of property and equipment ............................... (6,117,361) (1,275,273)
Capitalized research and development costs ........................ (1,510,926) (326,546)
Acquisition of subsidiary, net of cash acquired ................... (4,237,161) (17,118,849)
------------ ------------
Net cash used in investing activities ................................ (27,468,726) (29,420,359)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings .......................................... -- 8,677,503
Repayment of borrowings ........................................... (946,622) (10,646,191)
Repayment of borrowings from shareholder .......................... -- (995,706)
Contribution from shareholder ..................................... -- 10,500,000
Issuance of common stock, net of issuance costs paid .............. 52,877,321 34,244,192
Proceeds from exercises under stock plans, net .................... 388,173 --
Bank overdrafts ................................................... -- 265,407
------------ ------------
Net cash provided by financing activities ............................ 52,318,872 42,045,205
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................ 30,608,264 14,134,543
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ......................................................... 28,039,323 363,398
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 58,647,587 $ 14,497,941
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ..................................................... $ 48,750 $ 349,368
============ ============
Income taxes paid ................................................. $ 2,642,173 $ --
============ ============
Noncash investing activities - contribution of fixed assets
from shareholder ................................................ $ -- $ 1,308,191
============ ============
</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") 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 herein 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.
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
adoption of SOP 97-2 did not have a material effect on the Company's financial
position or results of operations.
In February 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use ("SOP 98-1"). SOP 98-1 is effective for transactions entered
into in fiscal years beginning after December 31, 1998. The Company believes the
adoption of SOP 98-1 will not have a material effect on the Company's financial
position or results of operations.
Reclassifications --Certain prior year amounts have been reclassified
to conform to current year presentation.
Investments-- Investments consist of debt securities classified as
assets held for sale. At September 30, 1998 the cost of the assets approximates
fair market value.
Net Income (Loss) Per Share -- Net income (loss) per share (basic) of
the Company is computed by dividing net income or loss by the weighted average
number of shares outstanding. The weighted average number of shares (basic) was
18,358,416 and 12,533,744 for the three months ended September 30, 1998 and
1997, respectively, and 17,370,488 and 11,185,364 for the nine months ended
September 30, 1998 and 1997, respectively. The weighted average number of shares
(diluted) was 20,353,515 and 13,793,312 for the three months ended September 30,
1998 and 1997, respectively, and 19,372,827 and 12,331,883 for the nine months
ended September 30, 1998 and 1997, respectively. The weighted average number of
shares amounts have been adjusted to reflect all stock splits and stock
dividends, including the three-for-two stock split that was made in the form of
a stock dividend and was effective on August 17, 1998.
4
<PAGE> 7
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 nine months ended
September 30, 1998 and 1997, under such agreements, the Company earned total
fees of approximately $19,375,020 and $12,696,562 respectively.
Prior to January 1, 1998, pursuant to various agreements, Millers
Mutual provided management and administration services to the Company. For the
nine months ended September 30, 1997, total fees paid by the Company to Millers
Mutual were approximately $1,245,000. 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 September 1998, total fees earned under this
agreement were $135,000.
During each of the nine month periods ended September 30, 1998 and
1997, the Company incurred rental expense of approximately $236,600, under a
month-to-month lease agreement with Millers Mutual.
There was a net receivable due from Millers Mutual of approximately
$3,360,000 as of September 30, 1998 and $1,301,000 as of December 31, 1997.
3. STOCK SPLIT
On July 21, 1998, the Board of Directors approved a three-for-two stock
split, to be effected in the form of a stock dividend, payable on August 17,
1998 to shareholders of record as of the close of business on July 31, 1998. Due
to this stock dividend, a transfer of approximately $61,000 from retained
earnings to common stock is reflected in the September 30, 1998 balance sheet.
Share amounts reflected on the Condensed Balance Sheets, weighted average common
shares outstanding and per share amounts for all periods presented have been
restated to reflect the stock split.
4. COMMITMENTS AND CONTINGENCIES
In February 1997, the Philadelphia Contributionship for the Insurance
of Houses from Loss by Fire ("PCIHLF") filed a lawsuit (Civil Action No.
97-CV-1262) against Strategic Data Systems, Inc. ("SDS"), which was acquired by
the Company in March 1997 and merged into the Company in July 1997, in the
United States District Court for the Eastern District of Pennsylvania. This suit
alleged that certain systems that SDS sold to PCIHLF in 1995 did not meet
PCIHLF's specifications. PCIHLF claimed damages in excess of $1,300,000. During
the nine months ended September 30, 1998, the Company and PCIHLF settled this
suit under terms having no material adverse effect on the Company.
The Company is not a party to any other legal proceedings that the
Company believes could have a material adverse effect on the Company's business,
financial condition or operating results.
5. SUBSEQUENT EVENTS
Acquisition of the Capital Stock of Arrow Claims Management, Inc. and
Certain Assets of Arrowhead General Insurance Agency, Inc. -- The Company
entered into a stock purchase agreement (the "Stock Purchase Agreement"), dated
as of October 29, 1998, with Arrow Claims Management, Inc. ("Arrow") and all of
Arrow's shareholders, pursuant to which the Company agreed to acquire from such
shareholders all of the outstanding capital stock of Arrow for $13.5 million in
cash (subject to adjustment). The Company also entered into an asset purchase
agreement (the "Asset Purchase Agreement"), dated as of October 29, 1998,with
Arrowhead General Insurance Agency, Inc. ("Arrowhead Agency"), pursuant to which
the Company agreed to acquire substantially all of those assets of Arrowhead
Agency related to its policy administration business for $6.5 million in cash
(subject to adjustment) and an option to purchase up to 280,000 shares of common
stock, par value $.01 per share, of the Company subject to achieving certain
performance objectives.
5
<PAGE> 8
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
INSpire Insurance Solutions, Inc.
Fort Worth, Texas
We have reviewed the accompanying condensed balance sheet of INSpire
Insurance Solutions, Inc. (the "Company") as of September 30, 1998, and the
related condensed statements of operations for the three months and nine months
ended September 30, 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 financial statements from which
they have been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
November 2, 1998
6
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Acquisition of the Capital Stock of Arrow Claims Management, Inc. and
Certain Assets of Arrowhead General Insurance Agency, Inc. -- The Company
entered into a stock purchase agreement (the "Stock Purchase Agreement"), dated
as of October 29, 1998, with Arrow Claims Management, Inc. ("Arrow") and all of
Arrow's shareholders, pursuant to which the Company agreed to acquire from such
shareholders all of the outstanding capital stock of Arrow for $13.5 million in
cash (subject to adjustment). The Company also entered into an asset purchase
agreement (the "Asset Purchase Agreement"), dated as of October 29, 1998,with
Arrowhead General Insurance Agency, Inc. ("Arrowhead Agency"), pursuant to which
the Company agreed to acquire substantially all of those assets of Arrowhead
Agency related to its policy administration business for $6.5 million in cash
(subject to adjustment) and an option to purchase up to 280,000 shares of common
stock, par value $.01 per share (the "Common Stock"), of the Company subject to
achieving certain performance objectives. Upon the consummation of the
transaction contemplated by the Stock Purchase Agreement and the Asset Purchase
Agreement, the Company will enter into (i) a registration rights agreement with
Arrowhead Agency pursuant to which Arrowhead Agency may demand that the Company
register, at the Company's expense, the shares of Common Stock underlying such
option under the Securities Act of 1933, as amended, (ii) ten year outsourcing
agreements to provide policy and claims administration services to Arrowhead
Agency, and (iii) a guaranty under which Arrowhead Agency will guarantee the
obligations of Arrow and its shareholders under the Stock Purchase Agreement.
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>
Three months ended Nine months ended
September 30, September 30,
--------------- ---------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Outsourcing services ........................... 60.3% 53.9% 56.8% 58.7%
Software and software services ................. 37.8 44.2 40.5 37.1
Other .......................................... 1.9 1.9 2.7 4.2
------ ------ ------ ------
Total revenues ............................ 100.0 100.0 100.0 100.0
------ ------ ------ ------
EXPENSES:
Cost of outsourcing services ................... 25.8 33.4 28.0 39.4
Cost of software and software services ......... 24.7 28.2 23.4 22.5
Cost of other revenues ......................... 1.3 2.2 1.9 2.7
Selling, general and administrative ............ 18.3 14.4 18.1 10.9
Research and development ....................... 3.6 1.4 3.0 2.3
Depreciation and amortization .................. 7.4 7.4 7.0 7.3
Purchased research and development ............. -- -- 3.3 7.8
Deferred compensation .......................... -- -- -- 10.3
Management fees to shareholder ................. -- 0.3 -- 3.3
Total expenses ............................ 81.1 87.3 84.7 106.5
OPERATING INCOME (LOSS) .......................... 18.9 12.7 15.3 (6.5)
OTHER INCOME ..................................... 3.7 11.4 3.4 4.1
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAX .................. 22.6 24.1 18.7 (2.4)
INCOME TAX BENEFIT (EXPENSE) ..................... (7.9) (7.9) (7.9) 1.3
------ ------ ------ ------
NET INCOME (LOSS) ................................ 14.7% 16.2% 10.8% (1.1)%
====== ====== ====== ======
</TABLE>
7
<PAGE> 10
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Total revenues were $22.1 million for the three months ended
September 30, 1998 compared to $15.2 million for the three months ended
September 30, 1997, an increase of $6.9 million or 45%. Outsourcing services
revenues were $13.3 million for the three months ended September 30, 1998
compared to $8.2 million for the three months ended September 30, 1997, an
increase of $5.1 million or 62%. The growth in outsourcing services revenues is
due primarily to: (i) the Company performing outsourcing services under eight
significant outsourcing contracts that it entered into after September 30, 1997
and (ii) an increase in outsourcing services after September 30, 1997 provided
under a significant claims administration agreement. Software and software
services revenues were $8.3 million for the three months ended September 30,
1998 compared to $6.7 million for the three months ended September 30, 1997, an
increase of $1.6 million or 24%. The growth in software and software services
revenues is primarily attributable to increased license fees and consulting
services revenues resulting from an increase of in-process installations of the
Windows into Property and Casualty System ("WPC") and increases in license fees
and consulting rates. This growth was slightly offset due to the sale of a
subsidiary on September 15, 1997, which had software and software services
revenues of approximately $1.1 million during the three months ended September
30, 1997.
Cost of Revenues. Cost of revenues, which is comprised mainly of
personnel costs, was $11.4 million for the three months ended September 30, 1998
compared to $9.7 million for the three months ended September 30, 1997, an
increase of $1.7 million or 18%. Cost of outsourcing services was $5.7 million
for the three months ended September 30, 1998 compared to $5.1 million for the
three months ended September 30, 1997, an increase of $600,000 or 12%. This
increase is primarily attributable to costs associated with the performance of
the nine significant outsourcing contracts described above. Cost of outsourcing
services as a percentage of outsourcing services revenues decreased to 43% for
the three months ended September 30, 1998 from 62% for the three months ended
September 30, 1997. 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. Cost of software and software
services was $5.5 million for the three months ended September 30, 1998 compared
to $4.3 million for the three months ended September 30, 1997, an increase of
$1.2 million or 28%. This increase is primarily attributable to the costs
associated with the increased consulting services related to the WPC
installations described above. Cost of software and software services as a
percentage of software and software services revenues remained fairly constant,
increasing to 65% for the three months ended September 30, 1998 from 64% for the
three months ended September 30, 1997.
Selling, General and Administrative. Selling, general and
administrative expenses were $4.0 million for the three months ended September
30, 1998 compared to $2.2 million for the three months ended September 30, 1997,
an increase of $1.8 million or 82%. Selling, general and administrative expenses
as a percentage of total revenues increased to 18% for the three months ended
September 30, 1998 from 14% for the three months ended September 30, 1997. This
increase is primarily due to additional executive management, 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 $797,000
for the three months ended September 30, 1998 compared to $211,000 for the three
months ended September 30, 1997, an increase of $586,000 or 278%. This increase
is due to the Company's increased focus on the development of new software
products and the expansion of the functionality of current software products.
This expense is comprised primarily of personnel, equipment and occupancy costs
related to software development. Research and development expense for the three
months ended September 30, 1998 and 1997 is net of capitalized software
development costs of $536,000 and $327,000, respectively.
Depreciation and Amortization. Depreciation and amortization expense
was $1.6 million for the three months ended September 30, 1998 compared to $1.1
million for the three months ended September 30, 1997, an increase of
approximately $500,000 or 45%. This increase is primarily attributable to: (i)
amortization of goodwill and capitalized software recorded in connection with
the acquisition of the outstanding capital stock of Paragon Interface, Inc. on
April 20, 1998 (the "Paragon Acquisition") and (ii) acquisitions of property and
equipment of $6.9 million in the aggregate since September 30, 1997 as a result
of the expansion in infrastructure to support the Company's growth.
8
<PAGE> 11
Other Income. Other income (expense) decreased to $820,000 for the
three months ended September 30, 1998 from $1.7 million for the three months
ended September 30, 1997. The decrease of $880,000 or 52% is primarily
attributable to the Company recognizing a gain on the sale of a subsidiary of
$1.6 million during the three months ended September 30, 1997 and not
recognizing a similar gain during the three months ended September 30, 1998,
which was offset by an increase in cash equivalents and investments purchased
with net proceeds from the Company's initial public offering in August 1997, and
follow-up public offering in March 1998. During the three months ended September
30, 1997, the Company did not have significant investments that earned interest
income throughout the entire period.
Net Income. Net income was $3.2 million, or $.16 per diluted share
($.18 per basic share), for the three months ended September 30, 1998 compared
to net income of $2.5 million, or $.18 per diluted share ($.20 per basic share),
for the three months ended September 30, 1997. Excluding the gain on sale of
subsidiary of $1.6 million ($1.0 million, net of tax), net income would have
been $1.4 million, or $.10 per diluted share ($.11 per basic share) for the
three months ended September 30, 1997.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Total revenues were $61.4 million for the nine months ended
September 30, 1998 compared to $38.4 million for the nine months ended September
30, 1997, an increase of $23.0 million or 60%. Outsourcing services revenues
were $34.8 million for the nine months ended September 30, 1998 compared to
$22.6 million for the nine months ended September 30, 1997, an increase of $12.2
million or 54%. The growth in outsourcing services revenues is due primarily to:
(i) the Company performing outsourcing services under eight significant
outsourcing contracts entered into after September 30, 1997 and (ii) an increase
in outsourcing services during 1998 provided under two other significant claims
administration agreements. Software and software services revenues were $24.9
million for the nine months ended September 30, 1998 compared to $14.3 million
for the nine months ended September 30, 1997, an increase of $10.6 million or
74%. The growth in software and software services revenues during the nine
months ended September 30, 1998 is primarily attributable to: (i) the
acquisition of Strategic Data Systems, Inc. ("SDS") on March 12, 1997 by the
Company (the "SDS Acquisition") and (ii) increased license fees and consulting
services revenues resulting from an increase of in-process installations of WPC
and increases in license fees and consulting rates. This growth was slightly
offset due to the sale of a subsidiary on September 15, 1997, which had software
and software services revenues of approximately $2.5 million during the nine
months ended September 30, 1997.
Cost of Revenues. Cost of revenues, which is comprised mainly of
personnel costs, was $32.7 million for the nine months ended September 30, 1998
compared to $24.8 million for the nine months ended September 30, 1997, an
increase of $7.9 million or 32%. Cost of outsourcing services was $17.2 million
for the nine months ended September 30, 1998 compared to $15.2 million for the
nine months ended September 30, 1997, an increase of $2.0 million or 13%. This
increase is primarily attributable to the increased costs associated with the
performance of the ten significant outsourcing contracts described above. Cost
of outsourcing services as a percentage of outsourcing services revenues
decreased to 49% for the nine months ended September 30, 1998 from 67% for the
nine months ended September 30, 1997. 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. Cost of software and
software services was $14.4 million for the nine months ended September 30, 1998
compared to $8.6 million for the nine months ended September 30, 1997, an
increase of $5.8 million or 67%. This increase is primarily attributable to the
additional cost of revenues associated with the SDS Acquisition and the costs
associated with the increased consulting services related to the WPC
installations described above. Cost of software and software services as a
percentage of software and software services revenues decreased to 58% for the
nine months ended September 30, 1998 from 61% for the nine months ended
September 30, 1997. This decrease is a result of economies of scale associated
with spreading certain fixed costs over a larger revenue base.
9
<PAGE> 12
Selling, General and Administrative. Selling, general and
administrative expenses, including management fees paid to shareholder, were
$11.1 million for the nine months ended September 30, 1998 compared to $5.4
million for the nine months ended September 30, 1997, an increase of $5.7
million or 106%. Selling, general and administrative expenses as a percentage of
total revenues increased to 18% for the nine months ended September 30, 1998
from 14% for the nine months ended September 30, 1997. This increase is
primarily due to additional executive management, 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 $1.9
million for the nine months ended September 30, 1998 compared to $891,000 for
the nine months ended September 30, 1997, an increase of $1.0 million or 113%.
This increase is due to the Company not incurring any significant research and
development expenses prior to the SDS Acquisition and the Company's increased
focus on the development of new software products and the expansion of the
functionality of current software products. This expense is comprised primarily
of personnel, equipment and occupancy costs related to software development.
Research and development expense for the nine months ended September 30, 1998
and 1997 is net of capitalized software development costs of $1.5 million and
$327,000, respectively.
Depreciation and Amortization. Depreciation and amortization expense
was $4.3 million for the nine months ended September 30, 1998 compared to $2.8
million for the nine months ended September 30, 1997, an increase of
approximately $1.5 million or 54%. This increase is primarily attributable to:
(i) amortization of goodwill and capitalized software recorded in connection
with the SDS Acquisition and the Paragon Acquisition and (ii) acquisitions of
property and equipment of $4.3 million in the aggregate since September 30, 1997
as a result of the expansion of 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 purchased research and
development. This amount, which is not deductible for tax purposes, was charged
to operations in March 1997. In addition, $3.9 million was charged to operations
as deferred compensation associated with stock options granted to executive
officers during the nine months ended September 30, 1997. In the purchase price
allocation of the Paragon Acquisition, $2.0 million was assigned to in-process
research and development. This amount was charged to operations in April 1998.
Other Income. Other income (expense) increased to $2.1 million for the
nine months ended September 30, 1998 from $1.6 million for the nine months ended
September 30, 1997. Other income for the nine months ended September 30, 1998 is
primarily attributable to interest income from cash equivalents and investments.
Other income for the nine months ended September 30, 1997 is primarily
attributable to a gain on sale of subsidiary.
Net Income. Net income was $6.6 million, or $.34 per diluted share
($.38 per basic share), for the nine months ended September 30, 1998 compared to
a net loss of $400,000, or $.04 per diluted share ($.04 per basic share), for
the nine months ended September 30, 1997. Excluding the impact on net income
resulting from the $2.0 million write-off of purchased research and development
associated with the Paragon Acquisition, net income would have been $8.6
million, or $.45 per diluted share ($.50 per basic share), for the nine months
ended September 30, 1998. Excluding the impact on the net loss resulting from
the charge to operations of $3.9 million of deferred compensation associated
with stock options granted to executive officers, the write-off of purchased
research and development of $3.0 million recorded in connection with the SDS
acquisition, and the gain on sale of subsidiary of $1.6 million, net income
would have been $3.0 million, or $.24 per diluted share ($.27 per basic share),
for the nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $58.6 million as of September 30, 1998
compared to $28.0 million as of December 31, 1997, an increase of $30.6 million.
Net cash provided by operating activities was $5.8 million for the nine months
ended September 30, 1998 compared to net cash provided by operating activities
of $1.5 million for the nine months ended September 30, 1997. Net cash used in
investing activities was $27.5 million for the nine months ended September 30,
1998, which is primarily attributable to: (i) the purchase of $15.6 million in
investments, (ii) the purchase of $6.1 million in property and equipment and
(iii) the Paragon Acquisition. Net cash used in investing activities was $29.4
million for the nine months ended September 30, 1997, which is primarily
10
<PAGE> 13
attributable to (i) the SDS Acquisition, and (ii) the purchase of $13.2 million
in investments. Net cash provided by financing activities was $52.3 million for
the nine months ended September 30, 1998, which is primarily attributable to the
follow-on public offering on March 27, 1998, compared to net cash provided by
financing activities of $42.0 million for the nine months ended September 30,
1997, which is primarily due to the Company's initial public offering on August
22, 1997 and capital contributions from a shareholder.
The Company believes that cash generated from operations and its net
proceeds from the initial public offering and follow-on public 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 continuing its assessment of Year 2000
issues and taking steps to prevent these issues from adversely affecting its
future operating results. This readiness process includes, but is not limited
to, preparing an inventory of potential Year 2000 issues, determining functions
affected, performing remediation as necessary, developing testing and recording
results.
In its assessment of Year 2000 issues, the Company is specifically
focusing on its software applications and associated software products,
hardware, facilities, communications equipment and security systems. During 1997
and 1998, the Company implemented financial and human resources systems that are
designed to be Year 2000 compliant.
In addition to evaluating its own systems for Year 2000 compliance, the
Company is also 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, or
internal systems of, such entities are vulnerable to Year 2000 issues.
Total costs associated with the Company's Year 2000 readiness process,
consisting of both internal and external resources, are expected to range
between $2.0 and $2.5 million. The Company anticipates financing these costs
with cash generated from operations. The Company has not yet fully completed it
Year 2000 assessment and remediation efforts. The estimated time to complete
assessment, testing and full compliance is June 30, 1999. Based on its
experience to date, the Company presently believes that the Year 2000 issues
will not pose significant operational problems for the Company directly or as a
result of any Year 2000 issues of suppliers or customers.
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
adoption of SOP 97-2 did not have a material effect on the Company's financial
position or results of operations.
In February 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use ("SOP 98-1"). SOP 98-1 is effective for transactions entered
into in fiscal years beginning after December 31, 1998. The Company believes the
adoption of SOP 98-1 will not have a material effect on the Company's financial
position or results of operations.
11
<PAGE> 14
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 Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings that the Company
believes could have a material adverse effect on the Company's business,
financial condition or operating results.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During 1997, the Company entered into a bank credit facility with
NationsBank of Texas, N.A. ("NationsBank"). Under the terms of this bank credit
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. On July 3, 1998, the Company terminated this
bank credit facility. The Company intends to retain any future earnings to fund
growth and does not anticipate paying any cash dividends in the foreseeable
future.
Pursuant to a Registration Statement on Form S-1 (Registration No.
333-31173), which became effective on August 22, 1997, filed in connection with
the initial public offering (the "IPO") of the Common Stock and the related
Series A Junior Preferred Stock Purchase Rights, the Company sold 3,191,250
shares of Common Stock and The Millers Mutual Fire Insurance Company ("Millers
Mutual") sold 3,133,750 shares of Common Stock.
Net offering proceeds of the IPO were used to repay approximately $2.8
million in borrowings from Millers Mutual and approximately $7.2 million in
borrowings from NationsBank. During the three months and nine months ended
September 30, 1998, the Company used approximately $2.9 million and $6.5
million, respectively, of net offering proceeds of the IPO for general corporate
purposes, including working capital and purchases of property and equipment.
Except for compensation and reimbursement of expenses paid to directors and
officers of the Company, none of such net offering proceeds used during the
three months and nine months ended September 30, 1998 was paid directly or
indirectly to directors or officers of the Company, general partners of the
Company or their associates, persons owning 10% or more of any class of equity
securities of the Company, or to affiliates of the Company. The remaining net
offering proceeds of the IPO have been invested in cash equivalents and
investments with various maturity dates and will be used for general corporate
purposes, including working capital, research and development and possible
acquisitions. Except for the acquisition of the capital stock of Arrow and
substantially all of the assets of Arrowhead Agency relating to its policy
administration business, the Company has no present commitments or
understandings with respect to the acquisition of any business, although the
Company continues to monitor potential acquisition opportunities.
12
<PAGE> 15
ITEM 5. OTHER INFORMATION
On September 3, 1998, John C. Aldredge was elected Senior Vice
President - Research and Development of the Company. Prior to joining the
Company, Mr. Aldredge served as President - ITS Training Division for Insurance
Technology Services.
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 as of October 29,
1998, by and among the Company Arrow Claims Management, Inc.
and the shareholders of Arrow Claims Management, Inc.
2.2 Form of Asset Purchase Agreement, dated as of October 29,
1998, by and among the Company and Arrowhead General Insurance
Agency, 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
(Incorporated by reference to Exhibit 3.3 of the Company's
Form 10-Q for the three months ended March 31, 1998 filed on
May 14, 1998).
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 (Incorporated by
reference to Exhibit 4.3 of the Company's Form 10-Q for the
three months ended March 31, 1998 filed on May 14, 1998).
10.1 Form of Employment Agreement, dated and effective as of
September 3, 1998, by and between the Company and John C.
Aldredge.
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 September 30, 1998.
13
<PAGE> 16
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.
Date: November 13, 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
14
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C> <C>
2.1 Form of Stock Purchase Agreement, dated as of October 29,
1998, by and among the Company Arrow Claims Management, Inc.
and the shareholders of Arrow Claims Management, Inc.
2.2 Form of Asset Purchase Agreement, dated as of October 29,
1998, by and among the Company and Arrowhead General Insurance
Agency, 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
(Incorporated by reference to Exhibit 3.3 of the Company's
Form 10-Q for the three months ended March 31, 1998 filed on
May 14, 1998).
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 (Incorporated by
reference to Exhibit 4.3 of the Company's Form 10-Q for the
three months ended March 31, 1998 filed on May 14, 1998).
10.1 Form of Employment Agreement, dated and effective as of
September 3, 1998, by and between the Company and John C.
Aldredge.
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.,
ARROW CLAIMS MANAGEMENT, INC.
and
ALL THE SHAREHOLDERS OF
ARROW CLAIMS MANAGEMENT, INC.
regarding the sale of 100% of the outstanding capital stock of Arrow Claims
Management, Inc.
dated as of October 29, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
[to be completed only after the agreement
is substantially finalized]
</TABLE>
<PAGE> 3
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule Description
- -------- -----------
Schedule 1.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ownership of the Shares
Schedule 4.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jurisdictions of Incorporation
Schedule 4.5(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization
Schedule 4.5(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exceptions to Capitalization
Schedule 4.5(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subsidiaries
Schedule 4.6(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year-End Financial Statements
Schedule 4.6(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interim Financial Statements
Schedule 4.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exceptions to Certain Changes
Schedule 4.12(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned Real Property
Schedule 4.12(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased Real Property
Schedule 4.13(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned Personal Property
Schedule 4.13(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased Personal Property
Schedule 4.15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance
Schedule 4.16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Material Contracts
Schedule 4.17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Litigation; Orders
Schedule 4.17(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exceptions to Litigation; Orders
Schedule 4.19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permits
Schedule 4.20(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned Intangible Assets
Schedule 4.20(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Licensed Intangible Assets
Schedule 4.21(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees
Schedule 4.21(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment and Labor Contracts
Schedule 4.22(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Welfare Benefit Plans
Schedule 4.22(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension Benefit Plans
Schedule 4.22(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee Arrangements
Schedule 4.24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank Accounts and Powers of Attorney
Schedule 4.26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exceptions to Affiliate Transactions
Schedule 6.3(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exceptions to Prohibited Transactions
Schedule 6.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transferred Assets
Schedule 8.2(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Required Consents
Schedule 8.3(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Required Permits
Schedule 9.1(m) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted Software
Schedule 12.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice Information
Exhibit Description
- ------- -----------
Exhibit 2.2(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Guaranty
Exhibit 2.3(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Opinion of Company's Counsel
Exhibit 2.4(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Opinion of Purchaser's Counsel
Exhibit 9.1(l)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Claims Administration Services Agreement
Exhibit 9.1(l)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Policy Administration Services Agreement
</TABLE>
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of October
29, 1998 (the "SIGNING DATE"), is made by and among INSpire Insurance
Solutions, Inc., a Texas corporation ("PURCHASER"), Arrow Claims Management,
Inc., a Delaware corporation ("COMPANY"), and the Persons listed on the
signature pages hereto (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 administration of policies and
claims for certain insurance companies (such business being herein referred to
as the "BUSINESS").
B. Sellers own all the issued and outstanding shares of Company's
common stock, par value $.01 per share (the "COMMON STOCK"), which shares
constitute all the issued and outstanding equity securities of Company.
C. Each Seller desires to sell, and Purchaser desires to
purchase, the Shares, 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 will sell and assign to Purchaser, and
Purchaser will 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.
Section 1.2 Purchase Price. The total consideration for the
Shares will be the difference of $13,500,000 (the "BASE PURCHASE PRICE") minus
the Adjustment Amount calculated pursuant to Section 1.5 (the Base Purchase
Price minus the Adjustment Amount, the "FINAL PURCHASE PRICE").
<PAGE> 5
Section 1.3 Payment of Base Purchase Price. On the Signing Date,
Purchaser will cause a duly authorized officer of Purchaser to provide Company
with written documentation of a deposit by Purchaser of the Base Purchase Price
into a segregated bank account that is under the exclusive control of Purchaser
(the "SEGREGATED ACCOUNT"). At the Closing, Purchaser will pay to Sellers from
such segregated account an aggregate amount equal to the Base Purchase Price
(or the Final Purchase Price if the Adjustment Amount is deemed final in
accordance with Section 1.5(d)) (the "CLOSING CASH PAYMENT") by wire transfer
of immediately available funds to the bank accounts and in the amounts set
forth on a notice given by Sellers to Purchaser not later than three business
days prior to the Closing Date.
Section 1.4 Allocation of the Purchase Price. As soon as
practicable, but not later than 120 days after the Closing Date, the Parties
will agree upon the allocation of the Base Purchase Price and Company's
liabilities (and all other capitalizable costs) among Company's assets,
liabilities and agreements set forth in Section 6.7, and will set forth such
allocation on a statement (the "ALLOCATION STATEMENT"). The Allocation
Statement will be revised to reflect any changes in the Direct Written Premiums
shown on the Final Closing Premium Statement from the Direct Written Premiums
shown on the Closing Premium Statement, whether or not such changes result in
an adjustment to the Base Purchase Price. If the Parties fail to agree on the
allocation of the Base Purchase Price within 120 days after the Closing Date,
then the disagreement will be resolved as soon as practicable thereafter, but
not later than 180 days after the Closing Date, by one of the largest four
national accounting firms, which accounting firm will be jointly selected by
Purchaser on the one hand and Sellers on the other hand. The Parties
acknowledge that the scope of such accounting firm's work will be limited to
resolving only those items to which the Parties do not agree regarding the
allocation of the Base Purchase Price. The decision of the accounting firm
will be final and binding upon the Parties. The fees, costs and expenses of
the accounting firm selected to resolve any disagreements regarding the
Allocation Statement will be borne equally by Purchaser on the one hand and
Sellers on the other hand. Each Party will file all Tax returns, and execute
such other documents as may be required by any taxing authority, in a manner
consistent with the Allocation Statement.
Section 1.5 Purchase Price Adjustment.
(a) Closing Premium Statement. As soon as reasonably
practicable, but not later than the later to occur of the Signing Date or
November 13, 1998, Company will delivery to Purchaser a statement detailing the
amount of Direct Written Premiums recognized by Company in the calendar months
August 1998, September 1998 and October 1998 (such statement, together with the
supporting workpapers, the "CLOSING PREMIUM STATEMENT"). The amount set forth
on the Closing Premium Statement will be calculated in accordance with GAAP;
provided, however, that the Closing Premium Statement will not be required to
have any of the notes to the financial statements as required by GAAP. Company
will give Purchaser and its Representatives reasonable access to Company's
facilities and the Books and Records so as to enable Purchaser to verify the
amounts set forth on the Closing Premium Statement.
(b) Review of Closing Premium Statement. As soon as
practicable, but not later than 30 days after the delivery of the Closing
Premium Statement, Purchaser will inform
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Sellers and Company in writing of any objection to the Closing Premium
Statement, which objection, if any, will set forth in reasonable detail
Purchaser's objections and the basis for those objections (the "OBJECTION
NOTICE"). If Purchaser so objects and the Parties do not resolve such
objections on a mutually agreeable basis within 45 days after the delivery of
the Closing Premium Statement, then the disagreement will be resolved as soon
as practicable thereafter, but not later than 75 days after the delivery of the
Closing Premium Statement, by one of the largest four national accounting
firms, which accounting firm will be selected jointly by Purchaser on the one
hand and Sellers on the other hand. The Parties acknowledge that the scope of
such accounting firm's work will be limited to resolving the objections set
forth in the Objection Notice. The decision of such accounting firm will be
final and binding upon the Parties. The Closing Premium Statement (as
adjusted, if applicable, by the agreement of the Parties or the decision of the
accounting firm, the "FINAL CLOSING PREMIUM STATEMENT") and the amount of
Direct Written Premiums recognized by Company in the calendar months August
1998, September 1998 and October 1998 (the "WRITTEN PREMIUM AMOUNT") will be
deemed final upon the earlier to occur of (i) the agreement of the Parties,
(ii) the decision of the accounting firm, or (iii) the failure of Purchaser to
deliver an Objection Notice to Sellers and Company within 30 days after the
delivery of the Closing Premium Statement. Each Party will bear the fees,
costs and expenses of its own accountants, will share equally (between
Purchaser on the one hand and Sellers on the other hand) the fees, costs and
expenses of the accounting firm selected by the Parties to resolve any
disagreements regarding the Objection Notice and will permit each other and
each other's Representatives reasonable access to the books and records
necessary to perform the analysis contemplated by this Section.
(c) Purchase Price Adjustment; Procedure. Upon the Final
Closing Premium Statement being deemed final in accordance with Section 1.5(b),
the Base Purchase Price will be adjusted, if at all, as follows: if the product
of the Written Premium Amount multiplied by four is less than $200,000,000,
then the Base Purchase Price will be reduced by an amount equal to the product
of (i) the Base Purchase Price multiplied by (ii) a fraction consisting of (A)
a numerator equal to the difference of $200,000,000 minus the product of the
Written Premium Amount multiplied by four and (B) a denominator equal to
$200,000,000 (such amount, together with interest thereon calculated at a rate
equal to eight percent (8.0%) compounded daily from the Closing Date to the
date the Final Closing Premium Statement is deemed final in accordance with
Section 1.5(b), the "ADJUSTMENT AMOUNT").
(d) Adjustment Procedure. Purchaser must first seek
payment of the Adjustment Amount pursuant to the right of set-off under the
Option Agreement and thereafter severally and directly from Sellers. Such
payment from Sellers, if any, will be made within five business days after the
final determination of the number of Option Shares (as defined in the Option
Agreement) that vest pursuant to Section 2.4 of the Option Agreement.
Section 1.6 Delivery of Schedules. The Parties acknowledge that
the Schedules to be delivered pursuant to this Agreement will not be delivered
on the Signing Date. The Parties agree that all Schedules will be delivered no
later than November 6, 1998. If the Party to whom a particular Schedule is
delivered does not object in writing to the contents of such Schedule by
November 11, 1998, then that particular Schedule will be deemed final and the
disclosures made
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thereon will be deemed made as of the Signing Date. Any Schedule to which a
written objection is raised will be deemed final upon the mutual agreement of
the Parties as to the content of such Schedule and the disclosures made thereon
will be deemed made as of the Signing Date.
ARTICLE II.
CLOSING
Section 2.1 Closing. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") will take place at the offices
of Akin, Gump, Strauss, Hauer and Feld, 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." The Parties anticipate that the Closing
will occur within 35 days of the filing of the initial notification required
under the HSR Act.
Section 2.2 Deliveries by Sellers. At the Closing, Sellers or
each Seller, as the case may be, will deliver, or cause to be delivered, the
following:
(a) the closing certificates referred to in Sections
9.1(e);
(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) a receipt for the payment of that portion of the
Closing Cash Payment received by such Seller;
(d) an executed Guaranty, in substantially the form
attached hereto as Exhibit 2.2(d) (the "GUARANTY"); and
(e) 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 will
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 Charter Document of each Acquired
Company, recently certified by the Secretary of State (or other proper state
official) of the state of such Acquired Company's jurisdiction of
incorporation;
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(c) a certificate of existence and good standing (or the
functional equivalents) for each Acquired 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 such Acquired Company's jurisdiction of
incorporation;
(d) all Books and Records of each Acquired Company;
(e) an opinion of counsel addressed to Purchaser from
counsel for Company in substantially the form of Exhibit 2.3(e) attached
hereto;
(f) a title insurance policy (in an amount equal to the
fair market value of the insured parcel) naming Purchaser as the insured for
each parcel of Real Property;
(g) executed counterparts of all Required Consents and
Required Permits; and
(h) all other previously undelivered documents,
instruments and writings required to be delivered by any Acquired 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
will deliver, or cause to be delivered, the following:
(a) the Closing Cash Payment to Sellers in federal or
other immediately available funds by wire transfer in accordance with Section
1.3(a);
(b) the closing and secretary's certificates referred to
in Sections 9.2(c) and 9.2(d);
(c) the recorded Charter Document of Purchaser, recently
certified by the Secretary of State (or other proper state official) of the
State of Texas;
(d) 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;
(e) an opinion of counsel for Purchaser addressed to
Sellers in substantially the form of Exhibit 2.4(e) attached hereto;
(f) a certificate dated within ten business days of the
Closing from the Secretary of State of Texas (or other proper state official)
certifying as to Purchaser's good standing in such state;
(g) a receipt to each Seller for the delivery of the
number of Shares listed on Schedule 1.1 opposite the name of such Seller;
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(h) all other previously undelivered documents,
instruments and writings required to be delivered by Purchaser to any Acquired
Company at or prior to the Closing pursuant to this Agreement and such other
documents, instruments and certificates as any Acquired Company may reasonably
request in connection with the transactions contemplated by this Agreement.
Section 2.5 Simultaneous Deliveries. The delivery of the
documents required to be delivered at the Closing pursuant to this Agreement
will be deemed to occur simultaneously. No delivery will 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 will 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, free and clear of all Encumbrances. At the Closing, Seller will
transfer to Purchaser its entire right, title and interest in and to the
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 Document 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 such 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.
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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. Each Acquired Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction listed
opposite such Acquired Company on Schedule 4.1. Each Acquired Company is duly
qualified or licensed as a foreign corporation in each jurisdiction in which
the nature of such Acquired 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 each Acquired 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. Each Acquired 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 any Acquired Company, (c) violate any
Order to which any Acquired Company is a party or by which any Acquired 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 any Acquired Company, other than Permitted Encumbrances, or (f)
require any Consent from any Person.
Section 4.5 Capitalization.
(a) Company. Schedule 4.5(a)(1) 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 and outstanding
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shares of capital stock of Company other than the Shares. Except as listed on
Schedule 4.5(a)(2), there is 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 of any Person.
Other than the capital stock of the Subsidiaries, Company does not own any
shares of capital stock, partnership interests or other beneficial ownership
interests in any other Person.
(b) Subsidiaries. Schedule 4.5(b) lists the name of each
Person whose capital stock, equity securities or Subscription Right that
Company owns, either beneficially or of record (collectively, the
"SUBSIDIARIES"), and the total number of authorized, issued and outstanding
shares of such capital stock, equity securities or Subscription Right of each
Subsidiary. All the shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable. Company
owns all issued and outstanding shares of capital stock of each Subsidiary.
There is no authorized or outstanding Subscription Rights obligating any
Subsidiary 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 of any Subsidiary were issued or will be transferred pursuant to
this Agreement in violation of any preemptive or preferential rights of any
Person. No Subsidiary owns 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 the Acquired Companies as of December
31, 1997 (the "YEAR-END BALANCE SHEET" and such date the "BALANCE SHEET DATE"),
and December 31, 1996, with the related statements of operations and cash flows
for the fiscal years ended on such dates and the accompanying notes
(collectively, the "YEAR-END FINANCIAL STATEMENTS"). The Year-End Financial
Statements have been prepared in accordance with GAAP (except as noted
therein), and present fairly, in all material respects, the financial position
of the Acquired Companies as of the dates indicated and the results of their
operations and cash flows for the periods then ended.
(b) Interim Financial Statements. Attached hereto as
Schedule 4.6(b) are the balance sheet of the Acquired Companies as of September
30, 1998 (the "INTERIM BALANCE SHEET") and the related statement of operations
and cash flows for the eight month period ended on such date (collectively, the
"INTERIM FINANCIAL STATEMENTS"). The Interim Financial Statements have been
prepared in accordance with the Books and Records and with GAAP (except as
noted therein and the absence of detailed notes to such statements), and
present fairly, in all material respects, the financial position of the
Acquired Companies 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, none of the Assets or the business of any Acquired
Company is subject to any Claim
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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 any Acquired Company,
other than Claims incurred since the Balance Sheet Date in the ordinary course
of such Acquired Company's business consistent with past practices.
Section 4.8 Absence of Certain Changes. Since the Balance Sheet
Date, each Acquired Company has conducted its business only in the ordinary
course of business consistent with past practices and, without limiting the
generality of the foregoing and except as listed on Schedule 4.8, there has
been no (a) event or occurrence that has caused or will cause a Material
Adverse Change with respect to any Acquired Company, (b) amendment to the
Charter Documents of any Acquired Company, (c) payment of any dividend or
distribution made with respect to any Acquired Company's capital stock, (d)
redemption or purchase of any of any Acquired 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 any Acquired
Company of $10,000, (f) incurrence or guarantee of any debt by any Acquired
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 any Acquired Company, other than in the
ordinary course of business consistent with past practices, (h) waiver of any
material right or release of any debt or claim by any Acquired 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 any Acquired
Company, (j) destruction, damage or other loss to any material asset of any
Acquired 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 any Employee Benefit Plan of any Acquired Company, (l) sale,
lease, or other disposition of any assets used in the business of any Acquired
Company, other than the Transferred Assets and 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 any Acquired Company,
other than Permitted Encumbrances, (n) purchase or lease any assets used in the
business of any Acquired 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 any Acquired Company, other than payments or increases consistent
with past practice, (p) change in any accounting method used by any Acquired
Company, (q) acceleration related to the collection of accounts receivable of
any Acquired Company or delay related to the payment of accounts payable of any
Acquired 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. Except for the
Transferred Assets, the assets reflected on the Books and Records of the
Company (the "ASSETS") constitute all the assets, properties, licenses and
other arrangements which are presently being used or are reasonably related to
the Business, and are sufficient to operate the Business in a manner consistent
with past practice and historic capacity.
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(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, one of the
Acquired Companies will hold good, valid and indefeasible title to, or a valid
leasehold interest in, each of the Assets, free and clear of all Encumbrances,
other than Permitted Encumbrances.
Section 4.10 Accounts Receivable. All accounts receivable of the
Acquired Companies 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. Schedule 4.12(a) lists as of
the Signing Date each parcel of real property owned by any of the Acquired
Companies, including the street address of each property and a summary
description of the buildings and improvements thereon. Each parcel of real
property listed on Schedule 4.12(a) and any parcel of real property purchased
after the Signing Date in accordance with Section 6.3 (collectively, the "OWNED
REAL PROPERTY") is (i) in compliance with all Laws, including the Americans
with Disabilities Act and any building, fire, land use, occupancy, safety,
set-back, or zoning Law, (ii) not burdened by any covenant, easement,
encroachment, restrictive covenant, right-of-way, or servitude, other than
those specifically referenced in the title insurance policies delivered
pursuant to Section 2.3(f), and (iii) not subject to any condemnation, eminent
domain or similar Action.
(b) Leased Real Property. Schedule 4.12(b) lists all the
leases of real property to which any Acquired 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. No Acquired 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 any Acquired Company or any other Person. The appropriate
Acquired Company has received a nondisturbance agreement from any lessor's
lender under each of the Real Property Leases. True and complete copies of all
the Real Property Leases, any amendments thereto and the nondisturbance
agreements have been provided to Purchaser prior to the Signing Date.
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Section 4.13 Personal Property.
(a) Owned Personal Property. Schedule 4.13(a) lists as
of the Signing Date all of the personal property (including all machinery,
equipment, vehicles, structures, fixtures and furniture) owned by any Acquired
Company and used in the Business, located on its premises or shown on the
Interim Balance Sheet or acquired after the date thereof (except for assets
subsequently sold in the ordinary course of business and consistent with past
practice).
(b) Leased Personal Property. Schedule 4.13(b) lists as
of the Signing Date all the leases of personal property to which any Acquired
Company is a party. All of the leases on Schedule 4.13(b) and any leases of
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. No Acquired 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 thereunder by Company or 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. To Sellers' Knowledge, each
Acquired Company has complied with all Laws in the conduct of the Business. No
Acquired Company has received any notice from any Governmental Authority or
other Person asserting that Acquired Company has violated any Law.
Section 4.15 Insurance. Schedule 4.15 lists as of the Signing
Date all insurance policies to which any Acquired 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 the Acquired Companies 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
is not less than the coverage customary in the Acquired Companies' industry and
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, Assets or Assumed Liabilities
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 $10,000 during any twelve month period the term
thereof, (b) not terminable prior to three month from 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 (collectively, the "MATERIAL CONTRACTS") are valid
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and binding and in full force and effect, subject to Laws Affecting Creditors'
Rights. No Acquired 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 an Acquired
Company or any other Person. Other than the Material Contracts, no Acquired
Company is a party to any contract which (x) requires the Consent of any Person
in order to consummate the transactions contemplated by this Agreement, (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 have been provided to Purchaser.
Section 4.17 Litigation; Orders. Schedule 4.17 lists and
describes all Actions pending, or to Sellers' Knowledge, threatened against or
affecting any Acquired Company, the Business or any of the Assets. There is no
Action pending or, to Sellers' Knowledge, threatened in writing affecting any
Acquired Company, the Business or any of the Assets which, if adversely
determined, would have, individually or in the aggregate, a Material Adverse
Effect. Except as listed on Schedule 4.17(1), no Acquired Company is subject
to any Order. True and complete copies of all material pleadings in the
Actions listed on Schedule 4.17 have been provided to Purchaser.
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. To Sellers' Knowledge, no
Acquired Company has caused or allowed the generation, treatment, manufacture,
processing, distribution, use, storage, discharge, release, disposal, transport
or handling of any Hazardous Materials at any of the properties or facilities
used in connection with the Business, including the Owned Real Property and the
premises subject to the Real Property Leases, except in compliance with all
Environmental Laws. To Sellers' Knowledge, no generation, treatment,
manufacture, processing, distribution, use, storage, discharge, release,
disposal, transport or handling of any Hazardous Materials has occurred at any
of the properties or facilities used in connection with the Business, including
the Owned Real Property and the premises subject to the Real Property Leases,
except in compliance with all Environmental Laws.
(c) Existence of an Action. No Acquired Company has
received any notice from any Governmental Authority or other Person alleging or
concerning any Claim against an Acquired Company under any Environmental Law,
whether for personal injuries or property damages. There is no Action pending
or, to Sellers' Knowledge, threatened affecting any Acquired Company with
respect to the Businesses 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. To Sellers' Knowledge, the
Acquired Companies are in possession of and in compliance with all Permits
required under the Environmental Laws
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with respect to the operation of the Business. There are no Actions pending
or, to Sellers' Knowledge, threatened which seek to modify, revoke or deny
renewal of any of such Permit. Sellers have no knowledge of any fact or
condition that is reasonably likely to give rise to any Action to modify,
revoke or deny renewal of any of such Permit. No Consent from any Person is
necessary for the transfer of any such Permit, and the consummation of the
transactions contemplated by this Agreement will not violate, alter, impair or
invalidate, in any respect, any such Permit.
(e) Miscellaneous. Without in any way limiting the
generality of the foregoing, to Sellers' Knowledge, (i) none of the off-site
locations where any Acquired Company has transported, released, discharged,
stored, disposed or arranged for the disposal of Hazardous Materials has been
identified as a facility that is subject to an existing Claim under any
Environmental Law or is the subject of any threatened Claim by any Person, (ii)
no underground improvement regulated by any Environmental Law, including any
storage or treatment tank, is located on the Owned Real Property or the
premises subject to the Real Property Leases, (iii) there is no asbestos
contained in or forming part of any Assets, and (iv) no polychlorinated
biphenyls or polychlorinated biphenyls-containing items are used or stored at
the Owned Real Property or the premises 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 assign such Permit. Each
Acquired 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.
Section 4.20 Intangible Assets.
(a) Owned Intangible Assets. Schedule 4.20(a) lists all
the Intangible Assets owned by any Acquired 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 prior to the Closing, (i) the Acquired
Company owns all right, title and interest in and to such Intangible Assets
free and clear of all Encumbrances, (ii) the Acquired 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.
(b) Licensed Intangible Assets. Schedule 4.20(b) lists
all licenses and contracts related to any Intangible Asset used by any Acquired
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. No Acquired Company has infringed upon
or misappropriated any Intangible Asset owned by another Person.
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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 the
Acquired Companies 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
and all vacation time owing to any employee of the Acquired Companies
(including all persons whose employment by any Acquired Company terminated
prior to the Signing Date) have been duly and adequately accrued on the
accounting Books and Records.
(b) Contracts. Schedule 4.21(b) lists each (i) contract
between any Acquired 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), each Acquired Company's employment of each Employee is
terminable at will without any penalty or severance obligation of any kind on
the part of such Acquired Company.
(c) Compliance with Labor Laws. Each Acquired 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 any Acquired 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 any Acquired Company. No Acquired
Company has 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 any Acquired Company
before the Equal Employment Opportunity Commission or the Department of Labor
or any state or local agency of similar jurisdiction.
(e) WARN Act. No Acquired Company nor any Person with
whom any Acquired 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.
(a) Welfare Benefit Plan. Schedule 4.22(a) lists, as of
the Signing Date, each Welfare Benefit Plan maintained by any Acquired Company
or to which any Acquired Company
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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. No Acquired Company has any 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 any Acquired 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 any Acquired Company
or to which any Acquired 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 the Acquired Companies' Pension Benefit
Plan and all related summary plan descriptions have been provided to Purchaser.
No Acquired Company presently maintains 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. No Acquired Company has any 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 any Acquired Company with respect to any past or present employee
of any Acquired 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. No Acquired Company has any 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 the Acquired
Companies' 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 any Acquired
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 any Acquired 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 any Acquired Company on or prior to the Closing
Date. No Acquired Company has made any 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 Acquired Company Employee Benefit Plan.
(f) Effect of Consummation. The consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee of any Acquired Company or any other individual to a bonus,
severance pay, unemployment
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compensation or similar payment, (ii) otherwise accelerate the time of payment
or vesting, or increase the amount of any compensation due to any current or
former employee of any Acquired 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 Acquired Company Employee Benefit Plan.
(g) No Penalties. No Acquired Company Employee Benefit
Plans or any trusts relating thereto have engaged in any transaction in
connection with which any Acquired 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 Acquired Company Employee Benefit Plans that could
subject any Acquired 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 Acquired 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 any Acquired Company with any Governmental Authority have been
timely filed. All Returns are true and correct and accurately reflect the Tax
liabilities of each Acquired 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. No Acquired
Company has 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 each Acquired 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. No Acquired Company nor, to Sellers' Knowledge, any other
corporation has filed an election under Section 341(f) of Code that is
applicable to any Acquired Company or any of the Assets. No Acquired Company
is 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 any Acquired
Company by reason of Section 280G of the Code. No Acquired Company is a
"foreign person" within the meaning of Section 1445(f)(3) of the Code. No
Acquired Company has ever 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 any Acquired Company has an
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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 any
Acquired 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 each
Acquired 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 any Acquired
Company, or to materially decrease its services to any Acquired Company or its
usage of the services of any Acquired Company.
Section 4.26 Affiliated Transactions. Since the Year-End Balance
Sheet Date, except as listed on Schedule 4.26 no Acquired Company has 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 stockholders of any
Acquired 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.
Section 4.27 Books and Records. The Books and Records of each
Acquired 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 statement furnished to Purchaser pursuant hereto or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact which affects the Business or financial condition
of any Acquired Company, or omits or 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 Seller or any Acquired Company.
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
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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 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 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.
Section 5.5 Full Disclosure. No representation or warranty of
Purchaser made in this Agreement, nor any written statement furnished to
Sellers pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact which
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.
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 will 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
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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.
Section 6.2 Pre-Closing Access to Information. From the Signing
Date through the Closing Date, Company and each Seller will afford to Purchaser
its Representatives access to the properties and the Books and Records of the
Acquired Companies.
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, will 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, (iv) confer with Purchaser regarding
operational matters of a material nature, (v) report periodically to Purchaser
regarding the status of the Businesses and the results of operations of the
Acquired Companies, and (vi) conduct the Businesses 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 will not, and Company will
cause each Subsidiary not to, 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 will 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 will not be deemed to have been
disclosed as of the Signing Date or to have cured any breach of a
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 will not, nor will 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 any Acquired Company, (b)
entertain or discuss any acquisition or investment proposals whatsoever, (c)
disclose to any third party any non-published information concerning any
Acquired Company, the Business or any Acquired Company's financial condition,
or (d) withdraw Seller's intention to sell the Shares to Purchaser.
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Section 6.6 Discharge of Encumbrances. Company and each Seller
will take, and Company will cause each Subsidiary to 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,
for itself and each of its Affiliates, that it has and may have access to
Confidential Information and that such Confidential Information does and will
constitute valuable, special and unique property of Purchaser. At no time will
Seller, and at no time will Seller allow its Affiliates or its Representatives
to, (i) use any Confidential Information in any manner adverse to the business
interests of Purchaser, or (ii) disclose any such Confidential Information to
any Person for any reason or purpose whatsoever. Upon the request of
Purchaser, each Seller will, and will cause its Affiliates and Representatives
to, 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, Affiliate
or Representative.
(b) Non-Competition Agreement. Each Seller agrees, and
will cause each of its Affiliates, not to provide, either directly or
indirectly, any of the Restricted Services within the United States of America
for so long as Purchaser provides services to any Affiliate of a Seller (such
time period, the "RESTRICTION PERIOD").
(c) Non-Solicitation Agreement. For a period equal to
the Restriction Period, each Seller will not, and will cause each of its
Affiliates not to, either on its own behalf or on behalf of any entity
providing Restricted Services, directly or indirectly to the extent that such
Seller is prohibited in engaging in such Restricted Services 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, any Acquired Company or Purchaser to
terminate such person's employment or agency, as the case may be, with such
entity, or (ii) solicit, divert, or attempt to solicit or divert, or otherwise
accept as a supplier or customer, any Person which sells any products and
services of any Acquired Company, furnishes products or services to, or
receives products and services from, Purchaser, nor will such Seller attempt to
induce any such supplier or customer to cease being (or any prospective
supplier or customer not to become) a supplier or customer of any Acquired
Company or Purchaser.
(d) 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
will not be affected or impaired thereby and will remain valid and enforceable.
(e) Injunctive Relief. In the event of a breach or
threatened breach by any Seller of any provision of this Section, each Acquired
Company and Purchaser will be entitled to an injunction to prevent irreparable
injury to such entity. Nothing herein will be construed as prohibiting any
Acquired Company or Purchaser from pursuing any other remedies available to
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such entity for such breach or threatened breach, including the recovery of
damages from such Seller.
(f) Acknowledgments of Seller. Each Seller acknowledges
that (i) any public disclosure of the Confidential Information will have an
adverse effect on the Acquired Companies, Purchaser and the Business, (ii) the
Acquired Companies and Purchaser would suffer irreparable injury if Seller
breaches any of the terms of this Section, (iii) the Acquired Companies 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 the Acquired Companies and Purchaser
with exclusive ownership of all such Confidential Information and (vii) the
terms of this Section preclude Seller from providing the Restricted Services.
Without limiting the foregoing, in the event that a court of competent
jurisdiction determines that the Restriction Period exceeds the maximum
reasonable and enforceable time period or that the designated area exceeds the
maximum reasonable and enforceable area, the Restriction Period or designated
area shall be deemed to become and thereafter shall be the maximum time period
or area which such court deems reasonable and enforceable.
Section 6.8 Transfer of Certain Assets. On or prior to the
Closing Date, Company will transfer to an Affiliate acceptable to Purchaser the
claims contracts and assets specified on Schedule 6.8 (the "TRANSFERRED
ASSETS").
ARTICLE VII.
COVENANTS OF PURCHASER
Section 7.1 Cooperation by Purchaser. From the Signing Date
through the Closing Date, Purchaser will 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 Pre-Closing Access to Information. Purchaser will
refrain from imposing any undue burden upon the Acquired Companies and Sellers
and from interfering with the operations and conduct of the Business.
Section 7.3 Purchasers' Consent. If any Acquired Company gives
written notice to Purchaser that such Acquired Company proposes to take any
action for which Purchaser's
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consent is required under Section 6.3 and if Purchaser has not delivered to
Company a written objection to such proposed action within 10 business days of
such Acquired Company's notice, then Purchaser will be deemed to have consented
to such proposed action. Purchaser's consent to any such proposed action will
not be unreasonably withheld.
Section 7.4 Maintenance of the Segregated Account. Until the
earlier to occur of the Closing or the termination of this Agreement pursuant
to Article X, Purchaser will maintain in the Segregated Account a balance equal
to the lesser of the Base Purchase Price or the Final Purchase Price.
ARTICLE VIII.
MUTUAL COVENANTS
Section 8.1 Governmental Consents.
(a) HSR Filing. Within five business days after the
Signing Date, each Party will take all actions and do all things necessary to
file the notification required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"). The Parties will use all
reasonable efforts to comply as promptly as practicable with any request made
pursuant to the HSR Act for additional information. Purchaser will pay the
statutory filing fees required by the HSR Act. The Parties anticipate all
applicable waiting periods under the HSR Act to be expired or terminated within
30 days of the filing of the initial notification required under the HSR Act.
(b) Other Governmental Consents. Promptly after the
Signing Date, each Party will take all actions and do all things necessary to
obtain all Consents required by any Governmental Authority to consummate the
transactions contemplated hereby. Each Party will reasonably cooperate with
the other Parties in obtaining the Consents specified in this Section.
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 (including
Purchaser's delivery to third parties of its financial statements) 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 will be required to pay any sum, to incur 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 will not be a condition to
Closing, and Closing will occur irrespective of whether any such Consent has
been obtained.
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Section 8.3 Permits.
(a) Cooperation and Reasonable Efforts. Each Party
hereby agrees to use reasonable efforts, to take reasonable actions (including
Purchaser's delivery to any Governmental Authority of its financial statements)
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 will file,
separately or jointly with any other Party, as the case may be, all
applications necessary to transfer or obtain the Permits. Each Party will use
reasonable efforts to resolve such objections, if any, as may be asserted by
any Governmental Authority with respect to the applications contemplated
hereby. Sellers, as a group, and Purchaser will each pay one-half of the fees
and expenses incurred in connection with transferring or obtaining all Permits.
(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 will not be a condition to
Closing, and Closing will 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 will 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 will have the right, at its own expense, to make copies of any such Books
and Records.
(b) Destruction. For a period of six years after Closing
(unless otherwise required by Law), no Party will 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 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 will, 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
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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.
(e) 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 will 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 8.5 Tax Matters.
(a) Apportionment of Income and Loss. For purposes of
apportioning taxable income or loss 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 will be determined by reference to the
operations of the Acquired Companies through the Closing Date as though it were
the last day of a taxable year. If required, appropriate elections will be
made with applicable taxable authorities to accomplish such result.
(b) Liability For Short Period Tax. Any taxable income
or loss with respect to a Short Tax Period will be included in the Acquired
Companies federal income Tax Return, and, if applicable, consolidated, unitary
or combined state income Tax Returns filed on behalf of the Acquired Companies
in all jurisdictions to which the Acquired Companies are subject to income Tax
(together with the United States federal Return, the "SUBJECT JURISDICTIONS").
Any income tax payable with respect to such Short Tax Period will be borne by
Sellers, as a group, and Purchaser as hereinafter provided; provided, however,
that any tax liability arising from an election made under Section 338 of the
Code will 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 attributable to such Partial Tax Periods will be computed
according to the apportionment rule of subsection (a) above. Any income tax
payable with respect to any such Partial Tax Period will be borne by the
Sellers, as a group, and Purchaser as hereinafter provided; provided, however,
that any tax liability arising from an election made under Section 338 of the
Code will 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
or any Subsidiary, Sellers will cause such Tax Return to be prepared, will
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, and will deliver the original of such Tax Return to
Purchaser, with copies of work papers that will permit Purchaser to review and
substantiate the accuracy of such Tax Return, at least 45 days prior to the due
date (including extensions) of such Tax Return. Sellers, severally, will pay
to Purchaser not less than 10 days 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 on such Tax
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Return (except any tax liability arising from an election made under Section
338 of the Code will be borne solely by Purchaser) less any amount reflected on
the Interim Financial Statement as a current tax liability.
(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 the Acquired Companies, Purchaser will cause such Tax
Return to be prepared and will cause to be included in such Tax Return all Tax
Items required to be included therein. Purchaser will 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 will be prorated on a daily basis) the
portion, if any, of the Tax due with respect to the period covered by such Tax
Return to be filed in a Subject Jurisdiction which is attributable to the
Acquired Companies 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 and (ii) any amount reflected on the Final Closing Premium
Statement as a current tax liability which remains unused as of the due date
for a particular Return. At least 45 days prior to the due date (including
extensions) of such Tax Return, Purchaser will deliver to each Seller a copy of
such Tax Return with copies of work papers which will permit Sellers to review
and substantiate the accuracy of such Returns. Sellers, severally, will pay to
Purchaser the amount of Tax due in the Subject Jurisdictions determined to be
attributable to the Partial Tax Period (except any tax liability arising from
an election made under Section 338 of the Code will be borne solely by
Purchaser) not less than 10 days prior to the due date (including extensions)
of such Tax Return.
(f) Appointment of Independent Person. If Purchaser and
Sellers' fail to agree by the day which is 30 days prior to the due date
(including extensions) of a Tax Return due pursuant to this Section, the
matters in dispute (but no other matters) will be submitted to a firm of
independent certified accountants mutually acceptable to Purchaser and Sellers,
as a group (the "INDEPENDENT PERSON"), which firm will make a final and binding
determination as to the matters in dispute within 15 days after its
appointment. The Independent Person will send its written determination, at
which point the determination of the Independent Person will be binding on
Purchaser and Sellers, absent fraud or manifest error. The fees and expenses
of the Independent Person will be borne equally by the Purchaser, on the one
hand, and the Sellers, on the other hand.
(g) Consistency. Any Tax Return to be prepared pursuant
to the provisions of this Section will 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 will be subject to the satisfaction of the following conditions, any
of which may be waived in writing by Purchaser.
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(a) Accuracy of Representations and Warranties. The
representations and warranties made by each Seller and, until the Closing,
Company in this Agreement will have been 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
will have been correct and complete as of the specified date.
(b) Performance of Covenants. Company and each Seller
will have 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. No Acquired Company has
undergone any Material Adverse Change since the Signing Date.
(d) Consents. Company and each Seller, as the case may
be, will have received and delivered to Purchaser all the Required Consents and
the Required Permits, each in form and substance satisfactory to Purchaser, and
will 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 will have delivered to Purchaser a certificate confirming (i)
the satisfaction of the conditions set forth in Sections 9.1(a), 9.1(b) and
9.1(c) and (ii) the continuing force and effect of the Required Consents and
Required Permits.
(f) Secretary's Certificate--Company. Company will have
delivered to Purchaser a certificate executed by the secretary or an assistant
secretary of Company certifying as to Company's Charter Documents, Company's
good standing, (iii) the resolutions in which Company's board of directors
approved this Agreement and the transactions contemplated hereby, and the
incumbency of Company's officers who execute any documents on behalf of Company
in connection with this Agreement.
(g) Secretary's Certificate--Acquired Companies. Company
will have caused each Acquired Company to deliver to Purchaser a certificate
executed by the secretary or an assistant secretary of such Acquired Company
certifying as to (i) such Acquired Company's Charter Documents, (ii) such
Acquired Company's good standing and (iii) the incumbency of such Acquired
Company's officers who execute any documents on behalf of such Acquired Company
in connection with this Agreement.
(h) Deliveries. Company and each Seller, as the case may
be, will have delivered the documents required by Sections 2.3 and 2.2,
respectively, and such other documents as Purchaser may reasonably require.
(i) Compliance with HSR Act. All applicable waiting
periods under the HSR Act will have expired or been terminated.
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(j) Consummation of Asset Purchase. The consummation of
the transactions set forth in that certain Asset Purchase Agreement, dated the
Signing Date, between Purchaser and Arrowhead General Insurance Agency, Inc.
(k) Transfer of the Transferred Assets. Company will
have consummated the transfer of the Transferred Assets.
(l) Claims and Policy Administration Services Agreements.
The execution and delivery by each of Arrowhead Management Company, Inc.,
Arrowhead General Insurance Agency, Inc. and the transferee of the Transferred
Assets of (i) a Claims Administration Services Agreement in substantially the
form attached hereto as Exhibit 9.1(l)(1) and (ii) a Policy Administration
Services Agreement in substantially the form attached hereto as Exhibit
9.1(l)(2).
(m) Establishment of a Ethical Wall. Company and each of
Arrowhead Management Company, Inc. and Arrowhead General Insurance Agency, Inc.
will have agreed to the establishment of written procedures related to the use
by Company of the software applications listed on Schedule 9.1(m).
(n) No Order or Action. No Order will be in effect
forbidding or enjoining the consummation of the transactions contemplated
hereby. No Action will 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.
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 will 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 will have
been 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 will have been correct and complete as
of the specified date.
(b) Performance of Covenants. Purchaser will have
performed and complied with all agreements, covenants and obligations required
by this Agreement to be performed by Purchaser prior to or at the Closing.
(c) Closing Certificate. An executive officer of
Purchaser will 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 will have
delivered to Company and each Seller a certificate executed by the secretary or
an assistant secretary of Purchaser certifying
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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 will have delivered the
documents required by Section 2.4 and such other documents as Sellers may
reasonably require.
(f) Compliance with HSR Act. All applicable waiting
periods under the HSR Act will have expired or been terminated.
(g) Consummation of the Asset Purchase. The consummation
of the transactions set forth in that certain Asset Purchase Agreement, dated
the Signing Date, between Purchaser and Arrowhead General Insurance Agency,
Inc.
(h) No Order or Action. No Order will be in effect
forbidding or enjoining the consummation of the transactions contemplated
hereby. No Action will 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.
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 will 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 the Parties;
(b) by Purchaser at any time after the occurrence of a
Material Adverse Change in any Acquired Company; or
(c) by Purchaser or Company or any Seller at any time on
or after December 31, 1998 if any of the conditions provided for in Section 9.1
or 9.2, respectively, will not have been met or waived in writing prior to such
date.
Section 10.2 Procedure Upon Termination. In the event of
termination pursuant to Section 10.1, written notice thereof will be
immediately given to the other Parties and the
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transactions contemplated by this Agreement will be terminated, without any
further action by any Party. If the transactions contemplated by this
Agreement are terminated as provided herein:
(a) each Party will 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 will not in any way limit, restrict
or relieve any Party of liability for any breach of this Agreement.
ARTICLE XI.
INDEMNIFICATION
Section 11.1 Indemnification of Purchaser.
(a) Several Indemnification Obligation. Each Seller
will, 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) 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) (as such certificates relate to the
representations and warranties set forth in Article III); and
(ii) Any failure by Seller to perform or observe
the covenant or agreement set forth in Section 6.7.
(b) Joint and Several Indemnification Obligation. Each
Seller and, until the Closing, Company will, joint and severally, indemnify,
defend, and hold Purchaser harmless from any and all Claims directly or
indirectly related or arising with respect to:
(i) 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 2.3(a);
(ii) 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 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;
(iii) The Transferred Assets;
(iv) Any Claim related to an Action arising out of
or in connection with the conduct of the Business on or prior to the Closing
Date, whether asserted before or after the Closing Date; and
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(v) Any failure of Seller to comply with all Laws
in the conduct of the Business on or prior to the Closing Date.
Section 11.2 Indemnification of Sellers. Purchaser will
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
(b) 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 after the Closing, any covenant or agreement
of Company set forth in this Agreement or in any agreement delivered pursuant
to this Agreement, (B) 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 will be subject to the following procedures:
(a) Defense of Claim. Within five days after a Party
entitled to indemnification (an "INDEMNITEE") receives a notice of any Claim
that may give rise to an indemnification obligation under this Agreement, the
Indemnitee will give the Party responsible for providing indemnification with
respect to such Claim (the "INDEMNITOR") notice of such Claim, together with a
copy of all documents relating to such Claim that the Indemnitee possesses.
The Indemnitor will then immediately undertake the defense of such Claim by
representatives of its own choosing, provided that the Indemnitee will have the
right to control and undertake such defense by representatives of its own
choosing if the Claim could have a continuing effect upon the Indemnitee or
involves any Environmental Law or Hazardous Material. The Indemnitor will
notify the Indemnitee of the Indemnitor's undertaking of the defense of a Claim
promptly after receiving the notice of the Claim. Similarly, the Indemnitee
will notify promptly the Indemnitor of the Indemnitee's election of its right
to control such defense under the circumstances described above. The failure
to give notice of a Claim within the period described above will not affect the
Indemnitee's rights to indemnification under this Agreement unless such delay
prejudices the Indemnitor.
(b) Participation of the Indemnitee. If ten 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 will have
the right to defend or settle such Claim on behalf of the Indemnitor.
Notwithstanding whether the Indemnitor commences at any time to defend against
a Claim, the Indemnitee will have the right to participate in such defense by
representatives of its own choosing. The Indemnitee will bear any expense of
such participation if the Indemnitor is defending against the Claim unless
defenses exist to the Indemnitee that are unavailable to the Indemnitor or the
Indemnitor otherwise possesses a conflict of interest with respect to the
Indemnitee. Under such circumstances, the Indemnitor will reimburse the
Indemnitee for the
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Indemnitee's reasonable attorneys' fees and expenses. In addition, the
Indemnitor will 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. 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 will not be subject
to the Indemnitor's Basket or Maximum Liability. The Indemnitor will make such
reimbursement payments to the Indemnitee upon the Indemnitee's submission of
periodic invoices describing such fees and expenses in reasonable detail.
(c) Settlement of Claims. The Indemnitor may settle any
Claim at its own expense, provided that the Indemnitor will not settle any
Claim or consent to the entry of any judgment without the consent of the
Indemnitee if such settlement or 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
requires the Indemnitee or any of the Indemnitee's Representatives.
(d) 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 will promptly reimburse the Indemnitor for all expenses with respect
to such defense or settlement, including the Indemnitor's reasonable attorneys'
fees and expenses.
(e) Cooperation. In connection with any indemnity
obligation, the Indemnitee will cooperate with all reasonable requests of the
Indemnitor.
(f) Payment--Net of Insurance Proceeds. The amount of
any damage or indemnification payable pursuant to this Article will be net of
any insurance proceeds actually received by the Indemnitee in connection with
the circumstances giving rise to the Claim. The calculation of net insurance
proceeds will give effect to all costs incurred by the Indemnitee for such
insurance recovery, including all costs associated with retrospective premium
adjustments, experienced-based premium adjustments, and indemnification
obligations. Nothing in this Section will be construed or interpreted as a
guaranty of any level or amount of insurance recovery with respect to any Claim
hereunder.
(g) Payment--Net of Tax Benefit and Detriment. The
Parties will treat any payment or receipt of damages or indemnification
hereunder as an adjustment to the Final Purchase Price on all Tax Returns,
except for the interest component of any such payment, which the Parties will
treat as interest income or expense, as the case may be. To the extent that
any damage or indemnification payment exclusive of the interest component
constitutes taxable income to the Indemnitee, the amount of such damage or
indemnification payment will be increased by the amount of any income Tax
attributable to such payment and the reimbursement of any related income Taxes.
To the extent that any damage or indemnification payment
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exclusive of the interest component constitutes a reduction of taxable income
to the Indemnitee, the amount of such damage or indemnification payment will be
decreased by the amount of any income Tax attributable to such reduction of
taxable income.
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 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, the Indemnitee
will assign any rights that it may have to recover such amounts to the
Indemnitor.
Section 11.6 Other Indemnitees. Upon Purchaser's request, Sellers
will indemnify any of Purchaser's Representatives to the same extent as
Purchaser. Conversely, upon any Seller's request Purchaser will indemnify any
of Seller's Representatives to the same extent as such Seller. No
Representative of any Party, however, will 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 will
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 will 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 will 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 with respect to a Claim except
for such unenforceability will 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 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 or made a
payment to another Person.
Section 11.9 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. Sellers and Company, on the one
hand, and Purchaser, on the other hand, will not be liable for any Claim for
damages or indemnification with respect to a breach of representations and
warranties under this Agreement until the aggregate amount of such Claims for
damages and indemnification concerning breaches of representations and
warranties exceeds $10,000 (as the case may be, the "BASKET"); provided,
however, that the Basket will not apply to any breach of the representations
and warranties set
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forth in Sections 3.1 or 4.5. If the aggregate amount of such Claims for which
Sellers and Company, on the one hand, and Purchaser, on the other hand, is
responsible exceeds the Basket, the Indemnitor will then only be responsible
for the amount of such excess.
Section 11.10 Liability Not Limited to Set-Off Under the Option
Agreement. Each Party acknowledges and agrees that (a) the value of the Option
Shares (as defined in the Option Agreement) is not intended to be, nor will
that amount be construed as, Sellers' or Company's maximum amount of damages or
indemnification with respect to any Claim for a breach of such Party's
representations and warranties under this Agreement and (b) Purchaser may
pursue any rights or remedies available at law or in equity in connection with
this Agreement notwithstanding the availability of the right of set-off under
the Option Agreement.
Section 11.11 Liabilities for Special Indemnities and Breaches of
Covenants. Sellers' Basket will be inapplicable with respect to any Claim for
damages or indemnification concerning Sellers' breach of any representation and
warranty that the indemnities pursuant to Sections 11.1(b)(iii), 11.1(b)(iv)
and 11.1(b)(v) cover. Any damages or indemnification with respect to any such
Claims will not count toward Sellers' Basket. A Party's Basket will be
inapplicable with respect to any Claim for damages or indemnification
concerning such Party's breach of any of its covenants under this Agreement or
any other terms of this Agreement applicable to such Party, other than the
representations and warranties to which such Party's Basket apply.
Section 11.12 Consequential Damages. A Party will be (a) liable
for any consequential, incidental, punitive, or special damages with respect to
any breach of this Agreement, and (b) responsible for indemnifying an
Indemnitee for any consequential, incidental, punitive, or special damages that
such Indemnitee incurs if within the scope of such Party's indemnification
obligation.
Section 11.13 Interest. A Party will pay interest computed at the
then current prime rate on (a) any Claim for damages with respect to such
Party's breach of this Agreement from the date of 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 11.14 Notice of Breach Prior to Closing. If before the
Closing a Party notifies another Party of its breach of this Agreement, such
notification will 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 11.15 Discovery of Breach Prior to Closing. If before the
Closing a Party discovers that another Party has breached this Agreement, such
discovery will 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 11.16 Survival of Terms. The agreements, covenants,
indemnity obligations, representations and warranties, and other terms of this
Agreement, Purchaser's closing
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certificate, each Seller's closing certificate, Company's closing certificate
and any other documents contemplated under this Agreement will survive the
Closing and any investigation or notice by any Party, provided that the
representations and warranties of each Party under this Agreement will expire
30 days after the expiration of the applicable statute of limitations, as such
statutory period may be extended from time to time. Notwithstanding the
general expiration of each Party's representations and warranties described
above, the representations and warranties set forth in Article III, Sections
4.2 (Power and Authority), 4.3 (Authorization; Execution and Validity), 4.4 (No
Conflict), 4.5 (Capitalization), 4.9(c) (Title to Assets), 4.28 (Full
Disclosure) and 4.29 (Brokers) will survive forever, subject to all defenses
available under Law, including the expiration of any applicable statute of
limitations. A Party will 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 unless such Party receives notice of the
Claim with respect to such inaccuracy before such representation and warranty
expires. With respect to any such Claim received before the expiration of a
particular representation or warranty, the Party responsible for such
representation or warranty will remain responsible for any damage or
indemnification amounts claimed notwithstanding the subsequent expiration of
such representation or warranty.
Section 11.17 Negligence and Strict Liability. THE PROVISIONS OF
THIS AGREEMENT CONCERNING CLAIMS FOR DAMAGES AND INDEMNIFICATION WILL 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.
ARTICLE XII.
MISCELLANEOUS
Section 12.1 Amendment. No amendment of this Agreement will be
effective unless in a writing signed by the Parties.
Section 12.2 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed to be an original
agreement, but all of which will 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 will promptly thereafter deliver an originally
executed signature page to the other Parties, provided that any failure to
deliver such an originally executed signature page will not affect the
validity, legality, or enforceability of this Agreement.
Section 12.3 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 12.4 Expenses. Each Party will bear its own expenses with
respect to the negotiation and preparation of this Agreement and the Closing,
including any fees and expenses
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of its Representatives, provided that if a Party terminates this Agreement
because of another Party's breach of this Agreement, the non-breaching Party
will be entitled to seek reimbursement of its expenses as part of its damages
with respect to such breach. Sellers, as a group, will bear any Tax imposed in
connection with the transfer of the Assets to Purchaser pursuant to this
Agreement.
Section 12.5 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
Section 12.6 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
will be void. Notwithstanding the foregoing, 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 12.7 No Third Party Beneficiaries. This Agreement is
solely for the benefit of the Parties and no other Person will have any right,
interest, or claim under this Agreement.
Section 12.8 Notices. All claims, consents, designations,
notices, waivers, and other communications in connection with this Agreement
will be in writing. Such claims, consents, designations, notices, waivers, and
other communications will 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 the address or location set forth on Schedule 12.8 (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).
Section 12.9 Public Announcements. The Parties will agree on the
terms of any press releases or other public announcements related to this
Agreement, and will 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 New York Stock Exchange or
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 12.10 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 12.11 Schedules. All references in this Agreement to
schedules will mean the schedules identified in this Agreement, which are
incorporated into this Agreement and will be
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deemed a part of this Agreement for all purposes. Each Section of this
Agreement that refers to a schedule will have a separate schedule. In
addition, any disclosure under a particular section's schedule will 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 will 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 12.12 Severability. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction will 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 will be given effect to the extent possible in the
jurisdiction where such provision is prohibited or unenforceable.
Section 12.13 Successors. This Agreement will be binding upon and
will inure to the benefit of each Party and its heirs, legal representatives,
permitted assigns, and successors, provided that this Section will 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.
Section 12.14 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 12.15 Waiver. No provision of this Agreement will 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, will 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 will 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.
Section 12.16 Attorney's Fees. In the event of any Action among
the Parties seeking enforcement of any of the terms and conditions of this
Agreement, the prevailing party in such Action will be awarded its reasonable
costs and expenses, including its court costs and reasonable attorneys' fees.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each Party executed, or has caused a duly
authorized officer to execute, this Agreement as of the Signing Date.
PURCHASER: INSpire INSURANCE SOLUTIONS, INC.
By:
---------------------------------------
William J. Smith, III, President
COMPANY: ARROW CLAIMS MANAGEMENT, INC.
By:
-------------------------------------
Kevin McDonald, President
SELLERS:
----------------------------------------
John C. Gall, as Trustee of [insert name of
trust] fbo Patrick Kilkenny
----------------------------------------
Marianne Harmon, in her individual capacity
----------------------------------------
Myron Sima, in his individual capacity
----------------------------------------
Gary Kadota, in his individual capacity
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<PAGE> 41
APPENDIX A
DEFINITIONS AND RULES OF INTERPRETATION
Definitions. Unless the context otherwise requires, the terms defined
in this Appendix will have the meanings specified below for all purposes of
this Agreement:
(a) "ACCOUNTS RECEIVABLE" will have the meaning set forth
in Section 4.10.
(b) "ACQUIRED COMPANIES" means Company and the
Subsidiaries.
(c) "ACTION" means any action, arbitration proceeding,
cause of action, charge, counterclaim, cross claim, inquiry, investigation,
legal action, litigation, Order, proceeding, or suit.
(d) "ADJUSTMENT AMOUNT" will have the meaning set forth
in Section 1.5(c).
(e) "AFFILIATE" means with respect to a Person means any
other Person that directly or indirectly controls, is controlled by, or is
under common control with such Person. For the purposes of this definition,
control means the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise. Control shall be presumed by an individual that is a
director, executive officer, general partner, manager, or similar functionary
of a Person, or a Person that beneficially owns more than 10% of any class of
securities of such Person having general voting rights. For purpose of this
Agreement, each of Arrowhead Management Company, Inc., Arrowhead General
Insurance Agency, Inc. and each Affiliate of such Person shall be considered an
Affiliate of each Seller.
(f) "AGREEMENT" will have the meaning set forth in the
first paragraph.
(g) "ALLOCATION STATEMENT" will have the meaning set
forth in Section 1.4.
(h) "ASSETS" will have the meaning set forth in Section
4.9(a).
(i) "BALANCE SHEET DATE" will have the meaning set forth
in Section 4.6(a).
(j) "BANK ACCOUNTS" will have the meaning set forth in
Section 4.24.
(k) "BASE PURCHASE PRICE" will have the meaning set
forth in Section 1.2.
(l) "BASKET" will have the meaning set forth in Section
11.9.
(m) "BOOKS AND RECORDS" will mean all the books and
records maintained by or for any Acquired Company, including all accounting
records, minute books, stock records, computerized records and storage media
and the software used in connection therewith.
(n) "BUSINESS" will have the meaning set forth in
Recital A.
<PAGE> 42
(o) "CHARTER DOCUMENTS" will 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.
(p) "CLAIM" will mean any arbitration award, assessment,
charge, citation, claim, damage, demand, directive, expense, fine, interest,
joint or several liability, Lawsuit, notice, obligation, payment, penalty, or
summons of any kind or nature whatsoever, including any damages incurred
because of the claimant's negligence or gross negligence or any strict
liability imposed upon the claimant, any consequential or punitive damages, and
any reasonable attorneys' fees and expenses. A Claim will be considered to
exist even though it may be conditional, contingent, indirect, potential,
secondary, unaccrued, unasserted, unknown, unliquidated, or unmatured.
(q) "CLOSING" will have the meaning set forth in Section
2.1.
(r) "CLOSING CASH PAYMENT" will have the meaning set
forth in Section 1.3.
(s) "CLOSING DATE" will have the meaning set forth in
Section 2.1.
(t) "CLOSING PREMIUM STATEMENT" will have the meaning set
forth in Section 1.5(a).
(u) "CODE" will mean the Internal Revenue Code of 1986,
as amended.
(v) "COMMON STOCK" will have the meaning set forth in
Recital B.
(w) "COMPANY" will have the meaning set forth in the
first paragraph.
(x) "CONFIDENTIAL INFORMATION" means any proprietary
information, and any information which Purchaser reasonably considers to be
proprietary, pertaining to each of the Acquired Company's and Purchaser's 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.
(y) "CONSENT" will mean a consent, approval, order,
authorization or waiver from, notice to or declaration, registration or filing
with any Person.
(z) "DIRECT WRITTEN PREMIUMS" means the aggregate amount
of premiums paid to Arrowhead by insureds. For purposes of calculating Direct
Written Premiums, a lump-
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sum premium payment will be prorated equally over the term of the policy
pursuant to which such premium payment was made.
(aa) "EMPLOYEE BENEFIT PLAN" will 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.
(bb) "EMPLOYEES" will have the meaning set forth in
Section 4.21(a).
(cc) "ENCUMBERED INSTRUMENT" will mean any contract and
lease that by its terms requires Consent from a third party in order to
transfer the rights and obligations thereunder.
(dd) "ENCUMBRANCE" will mean any title defect or
objection, mortgage, lien, deed of trust, equity, judgment, claim, 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.
(ee) "ENVIRONMENTAL LAW" will 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.
(ff) "ERISA" will mean the Employee Retirement Income
Security Act of 1974, as amended.
(gg) "FINAL CLOSING PREMIUM STATEMENT" will have the
meaning set forth in Section 1.5(b).
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(hh) "FINAL PURCHASE PRICE" will have the meaning set forth
in Section 1.2.
(ii) "GAAP" will mean generally accepted accounting
principles in effect in the United States of America as of the Signing Date.
(jj) "GOVERNMENTAL AUTHORITY" will mean any federal,
state, local, tribal, foreign or other governmental agency, department, branch,
commission, board, bureau, court, instrumentality or body.
(kk) "HAZARDOUS MATERIAL" will 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 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.
(ll) "HSR ACT" will have the meaning set forth in
Section 8.1.
(mm) "INDEMNITEE" will have the meaning set forth in
Section 11.3(a).
(nn) "INDEMNITOR" will have the meaning set forth in
Section 11.3(a).
(oo) "INDEPENDENT PERSON" will have the meaning set forth
in Section 8.6(f).
(pp) "INSURANCE POLICIES" will have the meaning set forth
in Section 4.15.
(qq) "INTANGIBLE ASSET" will mean any patent, trademark,
trademark 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.
(rr) "INTERIM BALANCE SHEET" will have the meaning set
forth in Section 4.6(b).
(ss) "INTERIM FINANCIAL STATEMENTS" will have the meaning
set forth in Section 4.6(b).
(tt) "LAW" will mean any applicable code, statute, law,
common law, rule, regulation, order, ordinance, judgment, decree, order, writ
or injunction of any Governmental Authority.
(uu) "LAW AFFECTING CREDITORS' RIGHTS" will 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.
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<PAGE> 45
(vv) "MATERIAL ADVERSE CHANGE" will mean, with respect to
a Person, that such Person has (i) breached a Material Contract, (ii) incurred
a Claim or become a party to an Action that could have a significant and
detrimental effect upon it, (iii) suffered a Material Adverse Effect, or (iv)
violated any Law or Order to which it or any of its assets is subject or bound.
(ww) "MATERIAL ADVERSE EFFECT" will 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, prospects, or relationships,
including the occurrence of any event or the existence of any circumstance that
could cause such an effect in the future.
(xx) "MATERIAL CONTRACTS" will have the meaning set forth
in Section 4.16.
(yy) "MAXIMUM LIABILITY" will have the meaning set forth
in Section 11.10.
(zz) "OBJECTION NOTICE" will have the meaning set forth
in Section 1.5(b).
(aaa) "OPTION AGREEMENT" means that certain Option
Agreement, dated as of the Closing Date, between Purchaser and Arrowhead
General Insurance Agency, Inc.
(bbb) "ORDER" will mean any consent decree, decree,
determination, injunction, judgment, order, or writ of any arbitrator or
Governmental Authority.
(ccc) "OWNED REAL PROPERTY" will have the meaning set
forth in Section 4.12(a).
(ddd) "PARTIAL TAX PERIOD" will have the meaning set forth
in Section 8.6(a).
(eee) "PARTY" will have the meaning set forth in the first
paragraph.
(fff) "PENSION BENEFIT PLAN" will 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.
(ggg) "PERMIT" will mean any license, approval,
certificate, franchise, registration, permit or authorization issuable by any
Governmental Authority.
(hhh) "PERMITTED ENCUMBRANCE" will 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 Claims 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
with suppliers entered into in the ordinary course of business, and (v) the
rights of others to customer deposits.
(iii) "PERSON" will mean any association, bank, business
trust, corporation, estate, general partnership, Governmental Authority,
individual, joint stock company, joint
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<PAGE> 46
venture, labor union, limited liability company, limited partnership,
non-profit corporation, professional association, professional corporation,
trust, or any other organization or entity.
(jjj) "PERSONAL PROPERTY LEASES" will have the meaning set
forth in Section 4.13(b).
(kkk) "PLAN" will 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.
(lll) "PURCHASER" will have the meaning set forth in first
paragraph.
(mmm) "REAL PROPERTY LEASES" will have the meaning set forth
in Section 4.12(a).
(nnn) "REPRESENTATIVES" will mean, with respect to a
Person, such Person's directors, employees, officers, agents, accountants,
affiliates, consultants, investment bankers, attorneys, lenders,
representatives and shareholders.
(ooo) "REQUIRED CONSENT" will have the meaning set forth
in Section 8.2(b).
(ppp) "REQUIRED PERMIT" will have the meaning set forth in
Section 8.3(b).
(qqq) "RESTRICTED SERVICES" means any actions directly or
indirectly related to providing or soliciting third party administrator
services in connection with property and casualty insurance lines.
(rrr) "RESTRICTION PERIOD" will have the meaning set forth
in Section 6.7(b).
(sss) "RETURNS" will have the meaning set forth in Section
4.23(a).
(ttt) "SEGREGATED ACCOUNT" will have the meaning set forth
in Section 1.3.
(uuu) "SELLER" will have the meaning set forth in the first
paragraph.
(vvv) "SELLERS' KNOWLEDGE" will mean the actual knowledge
as of the date that a specific representation or warranty is made or deemed
made, after reasonable inquiry, of each Seller, Patrick Kilkenny, Sue Brown,
and Kevin McDonald.
(www) "SHARES" will have the meaning set forth in Section
1.1.
(xxx) "SHORT TAX PERIOD" will have the meaning set forth
in Section 8.6(a).
(yyy) "SIGNING DATE" will have the meaning set forth in
the first paragraph.
(zzz) "SUBJECT JURISDICTIONS" will have the meaning set
forth in Section 8.6(b).
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(aaaa) "SUBSCRIPTION RIGHT" will have the meaning set forth
in Section 4.5(a).
(bbbb) "SUBSIDIARY" will have the meaning set forth in
Section 4.5(b).
(cccc) "TAX" will 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.
(dddd) "TAX ITEMS" will have the meaning set forth in
Section 8.6(d).
(eeee) "TRANSACTION DOCUMENTS" will mean the Agreement and
all other documents and instruments executed and delivered pursuant to or in
furtherance of this Agreement.
(ffff) "TRANSFERRED ASSETS" will have the meaning set forth
in Section 6.8.
(gggg) "WELFARE BENEFIT PLAN" will 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.
(hhhh) "WRITTEN PREMIUM AMOUNT will have the meaning set
forth in Section 1.5(b).
(iiii) "YEAR-END BALANCE SHEET" will have the meaning set
forth in Section 4.6(a).
(jjjj) "YEAR-END FINANCIAL STATEMENTS" will 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, will 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 will 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.
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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 will not create a materiality standard
under this Agreement.
Drafting. Neither this Agreement nor any provision set forth in this
Agreement will 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 provision set forth in this Agreement will 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 will 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" will 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 will include the singular form of that word.
Whenever the singular form of a word is used in this Agreement, that word will
include the plural form of that word.
Predecessors. Any of Sellers' representations and warranties
concerning any Claim against an Acquired Company, any liability or obligation
of an Acquired Company, or any violation of Law by an Acquired Company will
include any Claims with respect to each predecessor of the Acquired Companies,
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 will refer to the other gender and
the neuter. Whenever a neuter pronoun is used in this Agreement, if
appropriate that pronoun also will refer to the masculine and feminine gender.
Representations and Warranties. Sellers' representations and
warranties under this Agreement will 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 will 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).
8
<PAGE> 49
Statutes. Any reference to Law or any specific statute will 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.
9
<PAGE> 50
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
<TABLE>
<CAPTION>
Schedule Description
- -------- -----------
<S> <C>
Schedule 1.2........................................................................................Excluded Assets
Schedule 4.5(a)(1)...................................................................................Capitalization
Schedule 4.5(a)(2).....................................................................Exceptions to Capitalization
Schedule 4.5(b)........................................................................................Subsidiaries
Schedule 4.6(a).......................................................................Year-End Financial Statements
Schedule 4.6(b)........................................................................Interim Financial Statements
Schedule 4.8..........................................................................Exceptions to Certain Changes
Schedule 4.12(a)................................................................................Owned Real Property
Schedule 4.12(b)...............................................................................Leased Real Property
Schedule 4.13(a)............................................................................Owned Personal Property
Schedule 4.13(b)...........................................................................Leased Personal Property
Schedule 4.15.............................................................................................Insurance
Schedule 4.16....................................................................................Material Contracts
Schedule 4.17....................................................................................Litigation; Orders
Schedule 4.19...............................................................................................Permits
Schedule 4.20(a)............................................................................Owned Intangible Assets
Schedule 4.20(b).........................................................................Licensed Intangible Assets
Schedule 4.21(a)..........................................................................................Employees
Schedule 4.21(b).....................................................................Employment and Labor Contracts
Schedule 4.22(a)..............................................................................Welfare Benefit Plans
Schedule 4.22(b)..............................................................................Pension Benefit Plans
Schedule 4.22(c)..............................................................................Employee Arrangements
Schedule 4.24..................................................................Bank Accounts and Powers of Attorney
Schedule 4.26..................................................................Exceptions to Affiliate Transactions
Schedule 6.3(b)...............................................................Exceptions to Prohibited Transactions
Schedule 8.2(b)...................................................................................Required Consents
Schedule 8.3(b)....................................................................................Required Permits
Schedule 9.1(l).................................................................................Restricted Software
Schedule 11.1....................................................................................Retained Employees
Schedule 13.8....................................................................................Notice Information
</TABLE>
<PAGE> 1
EXHIBIT 2.2
================================================================================
ASSET PURCHASE AGREEMENT
between
INSpire INSURANCE SOLUTIONS, INC.
and
ARROWHEAD GENERAL INSURANCE AGENCY, INC.
regarding the sale of a certain business and the assets related to such business
dated as of October 29, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
[to be completed only after the agreement
is substantially finalized]
</TABLE>
<PAGE> 3
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
Schedule Description
- -------- -----------
<S> <C>
Schedule 1.2............................................................Excluded Assets
Schedule 4.5(a)(1).......................................................Capitalization
Schedule 4.5(a)(2).........................................Exceptions to Capitalization
Schedule 4.5(b)............................................................Subsidiaries
Schedule 4.6(a)...........................................Year-End Financial Statements
Schedule 4.6(b)............................................Interim Financial Statements
Schedule 4.8..............................................Exceptions to Certain Changes
Schedule 4.12(a)....................................................Owned Real Property
Schedule 4.12(b)...................................................Leased Real Property
Schedule 4.13(a)................................................Owned Personal Property
Schedule 4.13(b)...............................................Leased Personal Property
Schedule 4.15.................................................................Insurance
Schedule 4.16........................................................Material Contracts
Schedule 4.17........................................................Litigation; Orders
Schedule 4.19...................................................................Permits
Schedule 4.20(a)................................................Owned Intangible Assets
Schedule 4.20(b).............................................Licensed Intangible Assets
Schedule 4.21(a)..............................................................Employees
Schedule 4.21(b).........................................Employment and Labor Contracts
Schedule 4.22(a)..................................................Welfare Benefit Plans
Schedule 4.22(b)..................................................Pension Benefit Plans
Schedule 4.22(c)..................................................Employee Arrangements
Schedule 4.24......................................Bank Accounts and Powers of Attorney
Schedule 4.26......................................Exceptions to Affiliate Transactions
Schedule 6.3(b)...................................Exceptions to Prohibited Transactions
Schedule 8.2(b).......................................................Required Consents
Schedule 8.3(b)........................................................Required Permits
Schedule 9.1(l).....................................................Restricted Software
Schedule 11.1........................................................Retained Employees
Schedule 13.8........................................................Notice Information
</TABLE>
<TABLE>
<CAPTION>
Exhibit Description
- -------- -----------
<S> <C>
Exhibit 2.2(b).................................................Form of Option Agreement
Exhibit 3.2(g)......................................Form of Opinion of Seller's Counsel
Exhibit 3.2(h)....................................Form of Registration Rights Agreement
Exhibit 3.3(d)...................................Form of Opinion of Purchaser's Counsel
Exhibit 9.1(k)(1)......................Form of Claims Administration Services Agreement
Exhibit 9.1(k)(2)......................Form of Policy Administration Services Agreement
</TABLE>
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT"), dated as of October
29, 1998 (the "SIGNING DATE"), is made by and between Arrowhead General
Insurance Agency, Inc., a Minnesota corporation ("SELLER"), and INSpire
Insurance Solutions, Inc., a Texas corporation ("PURCHASER"). Seller and
Purchaser are sometimes collectively referred to as the "PARTIES," and
individually referred to as a "PARTY."
PRELIMINARY STATEMENTS
A. Seller is a general insurance agency that also provides third party
policy and claims administration services for property and casualty lines of
insurance (such third party policy and claims administration services being
herein referred to as the "BUSINESS," and that portion of Seller which conducts
the Business, the "DIVISION").
B. Seller desires to sell and assign to Purchaser, and Purchaser
desires to purchase and assume from Seller, all the Business and substantially
all of the assets of the Division, in each case on the terms and subject to the
conditions set forth in this Agreement.
C. 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.
IDENTIFICATION OF ASSETS AND LIABILITIES
Section 1.1 Sale of Purchased Assets. Subject to the terms and
conditions and in reliance upon the representations and warranties of Seller
contained in this Agreement, at the Closing Seller will (or Seller will cause
its Affiliates to) sell and transfer to Purchaser, and Purchaser will purchase
and receive from Seller, all the assets of Seller (except for Excluded Assets)
which are presently being used in the conduct of, or are reasonably related to,
the Business as they exist on the Closing Date, free and clear of all
Encumbrances other than Permitted Encumbrances (the "PURCHASED ASSETS"). Without
limiting the generality of the preceding sentence, the Purchased Assets include
all of the following assets which are presently being used in the conduct of, or
are reasonably related to, the Business:
(a) the leasehold or subleasehold interests of Seller in the Real
Property Leases;
(b) the Intangible Assets of Seller, whether owned or licensed, and all
goodwill attendant thereto;
<PAGE> 5
(c) furniture and fixtures of Seller;
(d) computer and other equipment of Seller;
(e) automobiles and other vehicles owned, leased or used by Seller;
(f) supplies and sundry items, including telephone numbers, keys and
lock combinations;
(g) contracts, agreements, leases, licenses, arrangements, commitments,
franchises, and understandings, whether written or oral, to which Seller is a
party;
(h) rights and claims under insurance policies for damage to Purchased
Assets to the extent that any damaged Purchased Assets have not been repaired or
replaced prior to Closing;
(i) Permits of Seller, including all Permits relating to operation and
ownership of the Purchased Assets;
(j) prepaid expenses, including monies held by third parties and loans
to employees;
(k) Books and Records;
(l) technical documentation owned by Seller, including material and
tooling specifications, purchasing specifications, invention records, research
records, inspection processes and equipment lists; and
(m) claims and causes of action of Seller relating to or arising out of
the Business, except to the extent that any claim or cause of action against
third parties can be used as a defense, counterclaim or offset against any suit
brought by third parties against Seller with respect to any Excluded
Liabilities.
Section 1.2 Excluded Assets. The term "EXCLUDED ASSETS" will mean the
assets of Seller specified on Schedule 1.2, and will not be construed to include
any assets of Seller not specifically listed on Schedule 1.2.
Section 1.3 Assumed Liabilities. Subject to the terms and conditions and in
reliance upon the representations and warranties of Seller contained in this
Agreement, at the Closing Seller will assign to Purchaser, and Purchaser will
assume from Seller, all the liabilities of Seller which (a) relate exclusively
to the ownership or conduct of the Business, and (b) are reflected on the
Year-End Balance Sheet or were incurred in the ordinary course of business since
the Balance Sheet Date, including obligations related to accrued vacation,
holiday and sick leave (collectively, the "ASSUMED LIABILITIES").
Section 1.4 Excluded Liabilities. Except for the Assumed Liabilities,
Purchaser has not agreed to pay, will not be required to assume and will have no
liability or obligation with respect to, any liability or obligation, direct or
indirect, absolute or contingent, of Seller or the Division, any subsidiary or
affiliate of Seller or the
2
<PAGE> 6
Division or any other Person (collectively, the "EXCLUDED LIABILITIES"), and
Seller agrees that it will take all actions and do all things necessary to
ensure that Purchaser is not liable for any Excluded Liabilities. Without
limiting the generality of the preceding sentence, the Excluded Liabilities
include all of the following:
(a) liabilities related to Taxes and Environmental Laws for all periods
prior to the Closing Date;
(b) liabilities related to any Action arising out of or in connection
with the ownership or conduct of the Business by Seller or the Division, whether
asserted before or after the Closing Date and whether known or unknown on the
Closing Date;
(c) liabilities related to any former or current employee or agent of
Seller or the Division, including any liabilities under or associated with any
Employee Benefit Plan, any Actions asserted by or on behalf of any former or
current employee or agent of Seller or the Division, any claims for wages,
overtime pay, bonuses, commissions or other forms of compensation, and any
claims under any policies of Seller or the Division related to its Employees;
provided, however, that the Excluded Liabilities does not include obligations
related to accrued vacation, holiday and sick leave; and
(d) liabilities, costs and expenses incurred by Seller or the Division
in connection with the negotiation, execution or performance of this Agreement
and the transactions contemplated hereby.
ARTICLE II.
PURCHASE PRICE AND RELATED TERMS
Section 2.1 Base Purchase Price. In addition to the assumption by Purchaser
of the Assumed Liabilities, the total consideration for the Purchased Assets
will be the sum of $13,500,000 (the "BASE PURCHASE PRICE"), minus the Adjustment
Amount calculated pursuant to Section 2.4 (the Base Purchase Price minus the
Adjustment Amount, the "FINAL PURCHASE PRICE").
Section 2.2 Payment of Base Purchase Price. On the Signing Date, Purchaser
will cause a duly authorized officer of Purchaser to provide Seller with written
documentation of a deposit by Purchaser of the Base Purchase Price into a
segregated bank account that is under the exclusive control of Purchaser (the
"SEGREGATED ACCOUNT"). At the Closing, Purchaser will (a) pay to Seller from the
Segregated Account an amount equal to $6,500,000 (or $6,500,000 minus the
Adjustment Amount if the Adjustment Amount is deemed final in accordance with
Section 2.4(b)) (such amount, the "CLOSING CASH PAYMENT") by wire transfer of
immediately available funds to the bank account set forth on a notice given by
Seller to Purchaser not later than three business days prior to the Closing Date
and (b) deliver to Seller an Option Agreement substantially in the form attached
as Exhibit 2.2(b) (the "OPTION AGREEMENT").
Section 2.3 Allocation of the Purchase Price. As soon as practicable, but
not later than 120 days after the Closing Date, the Parties will agree upon the
allocation of the Base Purchase Price (and all other capitalizable costs) among
the Purchased Assets and Assumed Liabilities, and will set forth such allocation
on a statement (the "ALLOCATION STATEMENT"). The Allocation
3
<PAGE> 7
Statement will be revised to reflect any changes in the Direct Written Premiums
shown on the Final Closing Premium Statement from the Direct Written Premiums
shown on the Closing Premium Statement, whether or not such changes result in an
adjustment to the Base Purchase Price. If the Parties fail to agree on the
allocation of the Purchase Price within 120 days after the Closing Date, then
the disagreement will be resolved as soon as practicable thereafter, but not
later than 180 days after the Closing Date, by one of the largest four national
accounting firms, which accounting firm will be jointly selected by the Parties.
The Parties acknowledge that the scope of such accounting firm's work will be
limited to resolving only those items to which the Parties do not agree
regarding the allocation of the Base Purchase Price. The decision of the
accounting firm will be final and binding upon the Parties. The Parties will
share equally the fees, costs and expenses of the accounting firm selected to
resolve any disagreements regarding the Allocation Statement. Each Party will
file all Tax returns, and execute such other documents as may be required by any
taxing authority, in a manner consistent with the Allocation Statement. Each
Party will prepare Internal Revenue Service Form 8594 pursuant to Section 1060
of the Code relating to the transactions contemplated by this Agreement based on
the Allocation Statement, and will deliver such form to each other. Each Party
will file such form with all relevant taxing authorities.
Section 2.4 Purchase Price Adjustment.
(a) Closing Premium Statement. As soon as reasonably practicable, but
not later than the later to occur of the Signing Date or November 13, 1998,
Seller will delivery to Purchaser a statement detailing the amount of Direct
Written Premiums recognized by Seller in the calendar months August 1998,
September 1998 and October 1998 (such statement, together with the supporting
workpapers, the "CLOSING PREMIUM STATEMENT"). The amount set forth on the
Closing Premium Statement will be calculated in accordance with GAAP; provided,
however, that the Closing Premium Statement will not be required to have any of
the notes to the financial statements as required by GAAP. Seller will give
Purchaser and its Representatives reasonable access to Seller's facilities and
the Books and Records so as to enable Purchaser to verify the amounts set forth
on the Closing Premium Statement.
(b) Review of Closing Premium Statement. As soon as practicable, but
not later than 30 days after the delivery of the Closing Premium Statement,
Purchaser will inform Seller in writing of any objection to the Closing Premium
Statement, which objection, if any, will set forth in reasonable detail
Purchaser's objections and the basis for those objections (the "OBJECTION
NOTICE"). If Purchaser so objects and the Parties do not resolve such objections
on a mutually agreeable basis within 45 days after the delivery of the Closing
Premium Statement, then the disagreement will be resolved as soon as practicable
thereafter, but not later than 75 days after the delivery of the Closing Premium
Statement, by one of the largest four national accounting firms, which
accounting firm will be selected jointly by the Parties. The Parties acknowledge
that the scope of such accounting firm's work will be limited to resolving the
objections set forth in the Objection Notice. The decision of such accounting
firm will be final and binding upon the Parties. The Closing Premium Statement
(as adjusted, if applicable, by the agreement of the Parties or the decision of
the accounting firm, the "FINAL CLOSING PREMIUM STATEMENT") and the amount of
Direct Written Premiums recognized by Seller in the calendar months August 1998,
September 1998 and October 1998 (the "WRITTEN PREMIUM AMOUNT") will
4
<PAGE> 8
be deemed final upon the earlier to occur of (i) the agreement of the Parties,
(ii) the decision of the accounting firm, or (iii) the failure of Purchaser to
deliver an Objection Notice to Seller within 30 days after the delivery of the
Closing Premium Statement. Each Party will bear the fees, costs and expenses of
its own accountants, will share equally the fees, costs and expenses of the
accounting firm selected by the Parties to resolve any disagreements regarding
the Objection Notice and will permit each other and each other's Representatives
reasonable access to the books and records necessary to perform the analysis
contemplated by this Section.
(c) Purchase Price Adjustment; Procedure. Upon the Final Closing
Premium Statement being deemed final in accordance with Section 2.4(b), the Base
Purchase Price will be adjusted, if at all, as follows: if the product of the
Written Premium Amount multiplied by four is less than $200,000,000, then the
Base Purchase Price will be reduced by an amount equal to the product of (i) the
Base Purchase Price multiplied by (ii) a fraction consisting of (A) a numerator
equal to the difference of $200,000,000 minus the product of the Written Premium
Amount multiplied by four and (B) a denominator equal to $200,000,000 (such
amount, together with interest thereon calculated at a rate equal to eight
percent (8.0%) compounded daily from the Closing Date to the date the Final
Closing Premium Statement is deemed final in accordance with Section 2.4(b), the
"ADJUSTMENT AMOUNT").
(d) Adjustment Procedure. Purchaser must first seek payment of the
Adjustment Amount from the Closing Cash Payment, thereafter pursuant to the
right of set-off under the Option Agreement and thereafter from Seller. Such
payment from Seller, if any, will be made within five business days after the
final determination of the number of Option Shares (as defined in the Option
Agreement) that vest pursuant to Section 2.4 of the Option Agreement.
Section 2.5 Delivery of Schedules. The Parties acknowledge that the
Schedules to be delivered pursuant to this Agreement will not be delivered on
the Signing Date. The Parties agree that all Schedules will be delivered no
later than November 6, 1998. If the Party to whom a particular Schedule is
delivered does not object in writing to the contents of such Schedule by
November 11, 1998, then that particular Schedule will be deemed final and the
disclosures made thereon will be deemed made as of the Signing Date. Any
Schedule to which a written objection is raised will be deemed final upon the
mutual agreement of the Parties as to the content of such Schedule and the
disclosures made thereon will be deemed made as of the Signing Date.
ARTICLE III.
CLOSING
Section 3.1 Closing. The consummation of the transactions contemplated by
this Agreement (the "CLOSING") will take place at the offices of Akin, Gump,
Strauss, Hauer and Feld, 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201 on
the first business day following the date on which all of the conditions
contained 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." The Parties anticipate that the Closing will occur within 35 days of the
filing of the initial notification required under the HSR Act.
5
<PAGE> 9
Section 3.2 Deliveries by Seller. At the Closing, Seller will deliver, or
cause to be delivered, to Purchaser the following:
(a) a bill of sale in form and substance reasonably acceptable to
Purchaser;
(b) a lease assignment and estoppel certificate with respect to each
Real Property Lease, each in recordable form;
(c) instruments of assignment with respect to the Intangible Assets,
each in recordable form;
(d) documents evidencing the transfers of all motor vehicles and
registrations;
(e) such other instruments of conveyance and transfer as will be
necessary to vest in Purchaser good and valid title to the Purchased Assets,
free and clear of all Encumbrances other than Permitted Encumbrances;
(f) the officers' certificates referred to in Sections 9.1(d) and
9.1(e);
(g) an opinion of counsel in substantially the form of Exhibit 3.2(g)
attached hereto;
(h) an executed Registration Rights Agreement in substantially the form
of Exhibit 3.2(h) attached hereto (the "REGISTRATION RIGHTS AGREEMENT");
(i) executed counterparts of all Required Consents and Required
Permits;
(j) all Books and Records;
(k) a certificate dated within ten business days of the Closing from
the Secretary of State of Minnesota (or other proper state official) certifying
as to Seller's good standing in such state;
(l) a receipt for the payment of the Closing Cash Payment and the
delivery of the Option Agreement; and
(m) all other previously undelivered documents, instruments and
writings required to be delivered by Seller to Purchaser at or prior to the
Closing pursuant to this Agreement.
Section 3.3 Deliveries by Purchaser. At the Closing, Purchaser will deliver
to Seller the following:
(a) federal or other immediately available funds by wire transfer to
Seller in an amount of the Closing Cash Payment;
(b) the Option Agreement;
6
<PAGE> 10
(c) the officer's certificates referred to in Sections 9.2(c) and
9.2(d);
(d) an opinion of counsel in substantially the form of Exhibit 3.3(d)
attached hereto;
(e) a certificate dated within ten business days of the Closing from
the Secretary of State of Texas (or other proper state official) certifying as
to Purchaser's good standing in such state;
(f) an instrument of assumption by Purchaser of the Assumed Liabilities
in form and substance reasonably acceptable to Seller;
(g) an executed Registration Rights Agreement; and
(h) all other previously undelivered documents, instruments and
writings required to be delivered by Purchaser to Seller at or prior to the
Closing pursuant to this Agreement.
Section 3.4 Simultaneous Deliveries. The delivery of the documents required
to be delivered at the Closing pursuant to this Agreement will be deemed to
occur simultaneously. No delivery will be effective until each Party has
received or waived receipt of all the documents that this Agreement entitles
such Party to receive.
Section 3.5 Bulk Sale; Sales and Transfer Taxes. The Parties agree not to
comply with the bulk transfer provisions of any jurisdiction in which any of the
Purchased Assets are located. Except for the Assumed Liabilities, Purchaser will
have no liability or obligation to Seller, to Seller's creditors or to others,
growing out of or arising from the sale by Seller of the Purchased Assets to
Purchaser under the provisions of this Agreement; nor will Purchaser be liable
for any Tax liabilities, including any sales tax or title transfer fee
attributable to the sale of the Purchased Assets. Any Taxes and any transfer,
recording or similar fees and charges arising out of or in connection with the
transfer of the Purchased Assets will be borne by Seller.
Section 3.6 Mail Received After Closing. On and after the Closing,
Purchaser may receive and open all mail addressed to Seller and deal with the
contents thereof in its discretion to the extent that such mail and the contents
thereof relate to the Business or any of the Purchased Assets or Assumed
Liabilities. Purchaser agrees to deliver or to cause to be delivered to Seller
all mail received by Purchaser which is addressed to Seller and does not relate
to the Business, the Purchased Assets or the Assumed Liabilities.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller 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.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Minnesota. Seller is duly qualified or licensed
as a foreign corporation in each jurisdiction in
7
<PAGE> 11
which the Purchased Assets are owned or leased by Seller, or the nature of the
Business makes such qualification or licensing necessary, except those
jurisdictions wherein the failure to so qualify could not have a Material
Adverse Effect on Seller. Prior to the Signing Date, Seller has delivered to
Purchaser true and complete copies of Seller's Charter Documents as in effect on
the Signing Date.
Section 4.2 Power and Authority. Seller 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 documents and
instruments to be delivered by Seller pursuant to the terms hereof (such
documents and instruments, together with this Agreement, the "TRANSACTION
DOCUMENTS"). Seller has all requisite corporate power and authority necessary to
own, operate and lease the Purchased 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 Seller and delivered to Purchaser, will be duly
authorized, 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 4.4 No Conflict; Seller 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, (c) violate any Order to which
Seller is a party or by which Seller 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 of the Purchased Assets, other than
Permitted Encumbrances, or require any Consent from any Person.
Section 4.5 Capitalization.
(a) Seller. Schedule 4.5(a)(1) lists the total number of authorized,
issued and outstanding shares of capital stock of Seller. All the outstanding
shares have been duly authorized and validly issued and are fully paid and
non-assessable. There are no issued and outstanding shares of capital stock of
Seller other than as listed on Schedule 4.5(a)(1). Except as listed on Schedule
4.5(a)(2), there is no authorized or outstanding option, subscription, warrant,
call, right, commitment or other agreement ("SUBSCRIPTION RIGHT") obligating
Seller 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 in violation of any preemptive or preferential rights of any
Person. Other than the capital stock of the Subsidiaries, Seller does not own
any shares of capital stock, partnership interests or other beneficial ownership
interests in any other Person. None of the Business is conducted in any
Subsidiary.
(b) Subsidiaries. Schedule 4.5(b) lists the name of each Person whose
capital stock, equity securities or Subscription Right that Seller owns, either
beneficially or of record (collectively, the "SUBSIDIARIES"), and the total
number of authorized, issued and outstanding shares of such capital stock,
equity securities or Subscription Right of each Subsidiary. All the shares of
capital stock of each Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable. Seller owns all issued and outstanding
shares of capital stock of each
8
<PAGE> 12
Subsidiary. There is no authorized or outstanding Subscription Rights obligating
any Subsidiary 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 of any Subsidiary were issued or will be transferred pursuant
to this Agreement in violation of any preemptive or preferential rights of any
Person. No Subsidiary owns any shares of capital stock, partnership interests or
other beneficial ownership interests in any other Person.
Section 4.6 Financial Statements--Division.
(a) Year-End Financial Statements. Attached hereto as Schedule 4.6(a)
are the balance sheets of the Division as of December 31, 1997 (the "YEAR-END
BALANCE SHEET" and such date the "BALANCE SHEET DATE"), and December 31, 1996,
with the related statements of operations and cash flows for the fiscal years
ended on such dates and the accompanying notes (collectively, the "YEAR-END
FINANCIAL STATEMENTS"). The Year-End Financial Statements have been prepared in
accordance with GAAP (except as noted therein), and present fairly, in all
material respects, the financial position of the Division as of the dates
indicated and the results of its operations and cash flows for the periods then
ended.
(b) Interim Financial Statements. Attached hereto as Schedule 4.6(b)
are the unaudited balance sheet of the Division as of September 30, 1998 (the
"INTERIM BALANCE SHEET") and the related statement of operations and cash flows
for the eight month period ended on such date (collectively, the "INTERIM
FINANCIAL STATEMENTS"). The Interim Financial Statements have been prepared in
accordance with the Books and Records and with GAAP (except as noted therein and
the absence of detailed notes to such statements), and present fairly, in all
material respects, the financial position of the Division 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, the Purchased Assets and the Business are not 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 Purchased Assets or the Business, other than
Claims incurred since the Balance Sheet Date in the ordinary course of Seller's
business consistent with past practices.
Section 4.8 Absence of Certain Changes. Since the Balance Sheet Date,
Seller has conducted its business only in the ordinary course of business
consistent with past practices and, without limiting the generality of the
foregoing and except as listed on Schedule 4.8, there has been no (a) event or
occurrence that has caused or will cause a Material Adverse Change, (b)
amendment to the Charter Documents, (c) payment of any dividend or distribution
made with respect to Seller's capital stock, (d) redemption or purchase of any
of Seller'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 Seller of $$10,000, (f) incurrence or guarantee of any debt,
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, other than in the ordinary course of business
consistent with past practices, (h) waiver of any material right or release of
any debt or claim, other than waivers or releases given in the ordinary course
of business consistent with past practices, (i) amendment or termination of any
Permit, (j)
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destruction, damage or other loss to any of the Purchased Assets 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 any Employee
Benefit Plan, (l) sale, lease, or other disposition of any assets used in the
Business, other than the Excluded Assets and 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 Purchased Assets, other than
Permitted Encumbrances, (n) purchase or lease any assets used in the Business,
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 Seller, other
than payments or increases consistent with past practice, (p) change in any
accounting method, (q) acceleration related to the collection of accounts
receivable or delay related to the payment of accounts payable, or (r) agreement
or commitment to take any action described in this Section. Section 4.9
Sufficiency and Condition of and Title to the Purchased Assets.
(a) Sufficiency of the Purchased Assets. The Purchased Assets
constitute all of the assets, properties, licenses and other arrangements which
are presently being used or are reasonably related to the Business, and are
sufficient to operate the Business in a manner consistent with past practice and
at Seller's historic capacity.
(b) Condition of the Purchased Assets Each of the Purchased 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 Purchased Assets. At the Closing, Seller will transfer
to Purchaser good, valid and indefeasible title to, or a valid leasehold
interest in, each of the Purchased Assets, free and clear of all Encumbrances,
other than Permitted Encumbrances.
Section 4.10 Accounts Receivable. All accounts receivable of Seller
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. Schedule 4.12(a) lists as of the Signing Date each
parcel of real property owned by Seller used in the Business, including the
street address of each property and a summary description of the buildings and
improvements thereon. Each parcel of real property listed on Schedule 4.12(a)
and any parcel of real property purchased after the
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Signing Date in accordance with Section 6.3 (collectively, the "OWNED REAL
PROPERTY") is (i) in compliance with all Laws, including the Americans with
Disabilities Act and any building, fire, land use, occupancy, safety, set-back,
or zoning Law, (ii) not burdened by any covenant, easement, encroachment,
restrictive covenant, right-of-way, or servitude, other than those specifically
referenced in the title insurance policies delivered pursuant to Section 3.2(b),
and (iii) not subject to any condemnation, eminent domain or similar Action.
(b) Leased Real Property. Schedule 4.12(b) lists all the leases of real
property to which Seller is a party and which are used in the Business and 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 Seller nor, to Seller's 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
Seller or any other Person. Seller has received a nondisturbance agreement from
any lessor's lender under each of the Real Property Leases. True and complete
copies of all the Real Property Leases, any amendments thereto and the
nondisturbance agreements have been provided to Purchaser prior to the Signing
Date.
Section 4.13 Personal Property.
(a) Owned Personal Property. Schedule 4.13(a) lists as of the Signing
Date all of the personal property (including all machinery, equipment, vehicles,
structures, fixtures and furniture) owned by Seller and used in the Business,
located on its premises or shown on the Interim Balance Sheet or acquired after
the date thereof (except for inventory subsequently sold in the ordinary course
of business and consistent with past practice).
(b) Leased Personal Property. Schedule 4.13(b) lists as of the Signing
Date all the leases of personal property used in the Business to which Seller is
a party. All of the leases on Schedule 4.13(b) and any leases of 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 Seller nor, to Seller's 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 thereunder by
Seller or 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. To Seller's Knowledge, Seller has
complied with all Laws in the conduct of the Business. Seller has not received
any notice from any Governmental Authority or other Person asserting that Seller
has violated any Law.
Section 4.15 Insurance. Schedule 4.15 lists as of the Signing Date all
insurance policies to which Seller is a party or which insure the Business or
any of the Purchased 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
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substantially the same coverage from an insurer that is financially sound and
reputable. The Insurance Policies provide Seller with adequate insurance
coverage against the risks involved in the conduct of the Business and ownership
of the Purchased Assets. The coverage provided by the Insurance Policies is not
less than the coverage customary in Seller's industry and 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, Purchased Assets or Assumed Liabilities or
by which any of the Purchased Assets is bound, pursuant to which the obligations
of any party thereto are, or are contemplated to be, in respect of any such
contract (a) in excess of $10,000 during any twelve month period the term
thereof, (b) not terminable prior to three month from the Signing Date, or
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 (collectively, the "MATERIAL CONTRACTS") are valid and binding and in full
force and effect, subject to Laws Affecting Creditors' Rights. Neither Seller
nor, to Seller's 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 Seller or any other Person. Other than
the Material Contracts, Seller 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, (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 have been provided to Purchaser.
Section 4.17 Litigation; Orders. Schedule 4.17 lists and describes all
Actions pending, or to Seller's Knowledge, threatened against or affecting
Seller, the Business or any of the Purchased Assets. There is no Action pending
or, to Seller's Knowledge, threatened in writing affecting Seller, the Business
or any of the Purchased Assets which, if adversely determined, would have,
individually or in the aggregate, a Material Adverse Effect. Seller is not
subject to any Order. True and complete copies of all material pleadings in the
Actions listed on Schedule 4.17 have been provided to Purchaser.
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. To Seller's Knowledge, Seller has neither
caused nor allowed the generation, treatment, manufacture, processing,
distribution, use, storage, discharge, release, disposal, transport or handling
of any Hazardous Materials at any of the properties or facilities used in
connection with the Business, including the Owned Real Property and the premise
subject to the Real Property Leases, except in compliance with all Environmental
Laws. To Seller's Knowledge, no generation, treatment, manufacture, processing,
distribution, use, storage, discharge, release, disposal, transport or handling
of any Hazardous Materials has occurred at any of the properties or facilities
used in connection with
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the Business, including the Owned Real Property and the premises subject to the
Real Property Leases, except in compliance with all Environmental Laws.
(c) Existence of an Action. Seller has not received any notice from any
Governmental Authority or other Person alleging or concerning any Claim against
Seller under any Environmental Law, whether for personal injuries or property
damages. There is no Action pending or, to Seller's Knowledge, threatened
affecting Seller with respect to the Business alleging or concerning any Claim
under any Environmental Law, whether for personal injuries or property damages,
nor does Seller have any knowledge of any fact or condition that could give rise
to such a Claim.
(d) Environmental Permits. To Seller's Knowledge, Seller is in
possession of and in compliance with all Permits required under the
Environmental Laws with respect to the operation of the Business. There are no
Actions pending or, to Seller's Knowledge, threatened which seek to modify,
revoke or deny renewal of any of such Permit. Seller has no knowledge of any
fact or condition that is reasonably likely to give rise to any Action to
modify, revoke or deny renewal of any of such Permit. No Consent from any Person
is necessary for the transfer of any such Permit, and the consummation of the
transactions contemplated by this Agreement will not violate, alter, impair or
invalidate, in any respect, any such Permit.
(e) Miscellaneous. Without in any way limiting the generality of the
foregoing, to Seller's Knowledge (i) none of the off-site locations where Seller
has transported, released, discharged, stored, disposed or arranged for the
disposal of Hazardous Materials has been identified as a facility that is
subject to an existing Claim under any Environmental Law or is the subject of
any threatened Claim by any Person, (ii) no underground improvement regulated by
any Environmental Law, including any storage or treatment tank, is located on
the Owned Real Property or the premises subject to the Real Property Leases,
(iii) there is no asbestos contained in or forming part of any Purchased Assets,
and no polychlorinated biphenyls or polychlorinated biphenyls-containing items
are used or stored at the Owned Real Property or the premises subject to the
Real Property Leases.
Section 4.19 Permits. Schedule 4.19 lists all the Permits related to the
Purchased Assets or operation of the Business, and indicates those Permits for
which the Consent of any Person is required to assign such Permit. Seller 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 Seller's Knowledge,
threatened in writing to revoke or limit any Permit listed on Schedule 4.19.
Section 4.20 Intangible Assets.
(a) Owned Intangible Assets. Schedule 4.20(a) lists all the Intangible
Assets used in the Business and owned by Seller 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 prior to the Closing, (i) Seller owns
all right, title and interest in and to such Intangible Assets free and clear of
all Encumbrances, (ii) Seller 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.
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(b) Licensed Intangible Assets. Schedule 4.20(b) lists all licenses and
contracts related to any Intangible Asset used by Seller in the Business 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. Seller has not infringed upon or misappropriated any
Intangible Asset owned by another Person.
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 Seller employed in
the conduct of the Business 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
and all vacation time owing to any employee of Seller (including all persons
whose employment by Seller terminated prior to the Signing Date) have been duly
and adequately accrued on the accounting Books and Records of Seller.
(b) Contracts. Schedule 4.21(b) lists each (i) contract between Seller
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), Seller's employment of each
Employee is terminable at will without any penalty or severance obligation of
any kind on the part of Seller.
(c) Compliance with Labor Laws. Seller 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 Seller 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
Seller's Knowledge, no basis for any such charge, complaint or grievance exists.
There is no labor strike, slowdown or work stoppage pending or threatened
against Seller. Seller has neither experienced any significant work stoppages
nor 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
Seller before the Equal Employment Opportunity Commission or the Department of
Labor or any state or local agency of similar jurisdiction.
Section 4.22 Employee Benefits.
(a) Welfare Benefit Plan. Schedule 4.22(a) lists, as of the Signing
Date, each Welfare Benefit Plan maintained by Seller or to which Seller
contributes or is required to contribute with respect to any Person. True,
correct and complete copies of the plan documents for each of
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Seller's Welfare Benefit Plans and all related summary plan descriptions have
been provided to Purchaser. Except as provided for in the Year-End Balance Sheet
(or in the footnotes thereto), as of the Signing Date Seller 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 Seller (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 Seller or to which Seller
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
Seller's Pension Benefit Plan and all related summary plan descriptions have
been provided to Purchaser. Seller 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. Except as provided for in the
Year-End Balance Sheet (or in the footnotes thereto), as of the Signing Date
Seller 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
Seller with respect to any past or present employee of Seller.
(d) Benefit Plan Compliance. All of Seller'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.
(e) No Title IV Liability. No liability under Title IV of ERISA has
been or will be incurred by Seller on or prior to the Closing Date.
(f) Effect of Consummation. The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee of Seller or any other individual to a bonus, severance pay,
unemployment compensation or similar payment, or (ii) otherwise accelerate the
time of payment or vesting, or increase the amount of any compensation due to
any current or former employee of Seller.
(g) WARN Act. Neither Seller nor any Person with whom Seller 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 4.23 Taxes.
(a) Tax Returns. All Tax returns, reports, and declarations of
estimated Tax (collectively, "RETURNS") which were required to be filed by
Seller with any Governmental Authority have been timely filed. All Returns are
true and correct and accurately reflect the Tax liabilities of Seller. All Taxes
shown to be due pursuant to such Returns, other than Taxes being
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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. Seller 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 Seller's
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 Seller from and in respect of 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 Seller nor, to Seller's
Knowledge, any other corporation has filed an election under Section 341(f) of
Code that is applicable to Seller or any of the Purchased Assets. Seller 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 Seller by reason of
Section 280G of the Code. Seller is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Code. Seller 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
Seller 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
Seller in any matter concerning the Business. Each of the 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 Seller 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 Seller, or to materially decrease its services
to Seller or its usage of the services of Seller.
Section 4.26 Affiliated Transactions. Since the Year-End Balance Sheet
Date, except as listed on Schedule 4.26 Seller 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 stockholders of Seller 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.
Section 4.27 Books and Records. The Books and Records of Seller, 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 Seller made
in this Agreement, nor any written statement furnished to Purchaser pursuant
hereto or in connection
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with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact which affects the Business or financial condition
of Seller, or omits or 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 Seller.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller 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 Seller 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 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 by Purchaser and delivered to Seller, 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.
Section 5.5 Full Disclosure. No representation or warranty of Purchaser
made in this Agreement, nor any written statement furnished to Seller pursuant
hereto or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact which affects the business
or financial condition of Purchaser, or omits or will omit to state a
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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.
ARTICLE VI.
COVENANTS OF SELLER
Section 6.1 Cooperation by Seller. From the Signing Date through the
Closing Date, Seller will 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 Seller, to be satisfied on or prior to Closing.
Section 6.2 Pre-Closing Access to Information. From the Signing Date
through the Closing Date, Seller will afford to Purchaser its Representatives
access to the properties and the Books and Records of Seller.
Section 6.3 Conduct of Business.
(a) Ordinary Course. From the Signing Date through the Closing
Date, Seller, in connection with the conduct of the Business, will 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, (iv) confer with Purchaser regarding operational matters of a material
nature, (v) report periodically to Purchaser regarding the status of the
Businesses and the results of operations of Seller, and (vi) conduct the
Businesses 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 Seller will 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 4.7 occur or become likely to occur.
Section 6.4 Supplements to Schedules. If, between the Signing Date and the
Closing Date, 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 Seller
will 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 will not be deemed to have been disclosed as of the Signing Date or to
have cured any breach of a representations and warranties made in this
Agreement, unless so agreed to in writing by Purchaser.
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Section 6.5 Post-Closing Conduct of Business. Immediately following the
Closing, Seller will take all actions and do all things necessary to (a) cease
all activities which constitute the conduct of the Businesses (other than
matters related to the transition of the Businesses to Purchaser), (b) change
the name of Seller to a name that is not similar to its current corporate name,
and (c) terminate all of its assumed name filings.
Section 6.6 Standstill. Until the earlier to occur of the Closing or the
termination of this Agreement pursuant to Article X, Seller will not, nor will
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
Seller, (b) entertain or discuss any acquisition or investment proposals
whatsoever, (c) disclose to any third party any non-published information
concerning Seller, the Business or Seller's financial condition, or (d) withdraw
Seller's intention to sell the Purchased Assets to Purchaser.
Section 6.7 Discharge of Encumbrances. Seller will take all actions and do
all things necessary to cause all Encumbrances other than Permitted Encumbrances
on any Purchased Assets to be terminated or otherwise discharged at or prior to
the Closing.
Section 6.8 Non-Disclosure; Non-Competition; Non-Solicitation.
(a) Non-Disclosure Agreement. Seller acknowledges, for itself and each
of its Affiliates, that it has and may have access to Confidential Information
and that such Confidential Information does and will constitute valuable,
special and unique property of Purchaser. At no time will Seller, and at no time
will Seller allow its Affiliates or its Representatives to, (i) use any
Confidential Information in any manner adverse to the business interests of
Purchaser, or (ii) disclose any such Confidential Information to any Person for
any reason or purpose whatsoever. Upon the request of Purchaser, Seller will,
and will cause its Affiliates and Representatives to, 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 Seller, Affiliate or Representative.
(b) Non-Competition Agreement. Seller agrees, and will cause each of
its Affiliates, not to provide, either directly or indirectly, any of the
Restricted Services within the United States of America for so long as Purchaser
provides services to Seller or any Affiliate of Seller (such time period, the
"RESTRICTIVE PERIOD").
(c) Non-Solicitation Agreement. For a period equal to the Restrictive
Period, Seller will not, and will cause each of its Affiliates not to, either on
its own behalf or on behalf of any entity providing Restrictive Services,
directly or indirectly to the extent that 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, Purchaser
(including those Employees who accept employment with Purchaser pursuant to
Article XI) to terminate such person's employment or agency, as the case may be,
with Purchaser, or (ii) solicit, divert, or attempt to solicit or divert, or
otherwise accept as a supplier or customer, any Person which sells any products
and services of Purchaser, furnishes products or services to, or receives
products
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and services from, Purchaser, nor will Seller attempt to induce any such
supplier or customer to cease being (or any prospective supplier or customer not
to become) a supplier or customer of Purchaser.
(d) Independent Covenants. The covenants contained 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 will not be affected
or impaired thereby and will remain valid and enforceable.
(e) Injunctive Relief. In the event of a breach or threatened breach by
Seller of any provision of this Section, Purchaser will be entitled to an
injunction to prevent irreparable injury to such Purchaser. Nothing herein will
be construed as prohibiting Purchaser from pursuing any other remedies available
to Purchaser for such breach or threatened breach, including the recovery of
damages from Seller.
(f) Acknowledgments of Seller. Seller acknowledges that (i) any public
disclosure of the Confidential Information will have an adverse effect on
Purchaser and the Business, (ii) Purchaser would suffer irreparable injury if
Seller breaches any of the terms of this Section, (iii) Purchaser will be at a
substantial competitive disadvantage if Purchaser 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
Purchaser with exclusive ownership of all such Confidential Information and
(vii) the terms of this Section preclude Seller from providing the Restricted
Services. Without limiting the foregoing, in the event that a court of competent
jurisdiction determines that the Restriction Period exceeds the maximum
reasonable and enforceable time period or that the designated area exceeds the
maximum reasonable and enforceable area, the Restriction Period or designated
area shall be deemed to become and thereafter shall be the maximum time period
or area which such court deems reasonable and enforceable.
ARTICLE VII.
COVENANTS OF PURCHASER
Section 7.1 Cooperation by Purchaser. From the Signing Date through the
Closing Date, Purchaser will 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 Seller 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.
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Section 7.2 Pre-Closing Access to Information. Purchaser will refrain from
imposing any undue burden upon Seller and from interfering with the operations
and conduct of the Business.
Section 7.3 Purchasers' Consent. If Seller gives written notice to
Purchaser that Seller proposes to take any action for which Purchaser's consent
is required under Section 6.3 and if Purchaser has not delivered to Seller a
written objection to such proposed action within 10 business days of Seller's
notice, then Purchaser will be deemed to have consented to such proposed action.
Purchaser's consent to any such proposed action will not be unreasonably
withheld.
Section 7.4 Maintenance of the Segregated Account. Until the earlier to
occur of the Closing or the termination of this Agreement pursuant to Article X,
Purchaser will maintain in the Segregated Account a balance equal to the lesser
of the Base Purchase Price or the Final Purchase Price.
ARTICLE VIII.
MUTUAL COVENANTS
Section 8.1 Governmental Consents.
(a) HSR Filing. Within five business days after the Signing Date, each
Party will take all actions and do all things necessary to file the notification
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"). The Parties will use all reasonable efforts to comply
as promptly as practicable with any request made pursuant to the HSR Act for
additional information. Purchaser will pay the statutory filing fees required by
the HSR Act. The Parties anticipate all applicable waiting periods under the HSR
Act to be expired or terminated within 30 days of the filing of the initial
notification required under the HSR Act.
(b) Other Governmental Consents. Promptly after the Signing Date, each
Party will take all actions and do all things necessary to obtain all Consents
required by any Governmental Authority to consummate the transactions
contemplated hereby. Each Party will reasonably cooperate with the other Parties
in obtaining the Consents specified in this Section.
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 (including Purchaser's delivery
to third parties of its financial statements) 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, neither Party will be required
to pay any sum, to incur 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
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third party prior to Closing (collectively, the "REQUIRED CONSENTS"). Except for
the Required Consents, the obtaining of any Consents related to the Encumbered
Instruments will not be a condition to Closing, and Closing will occur
irrespective of whether any such Consent has been obtained.
(c) Post-Closing Efforts to Obtain Consents. In the event any Consent
necessary to effect the transfer and assignment of any Encumbered Instrument is
not obtained on or prior to Closing, each Party will, for a period of one year
following the Closing Date, (i) abide by the requirements of Section 8.2(a), and
(ii) cooperate with each other in any lawful and reasonable arrangement to
provide that Purchaser will receive the benefits under any Encumbered Instrument
not assigned and transferred at the Closing by reason of the failure to obtain
such Consent (a "NON-TRANSFERRED INSTRUMENT"), including, if necessary, at the
request and expense (unless any such failure of performance by a third party is
due to the failure to obtain the Consent of such third party to the transfer and
assignment of the Non-Transferred Instrument) of Seller, enforcing performance
by any third party of its obligations in respect of such Non-Transferred
Instrument; provided that, to the extent the Parties are successful in providing
the material benefits of any Non-Transferred Instrument to Purchaser, such
Purchaser will pay, honor and discharge when due all liabilities of Seller
related thereto to the extent the liabilities were incurred after the Closing
Date. Seller will immediately transfer and assign to Purchaser any
Non-Transferred Instrument for which a Consent has been received.
(d) No Assignment. Notwithstanding anything to the contrary in this
Agreement, Seller will not transfer or assign any interest in any Encumbered
Instrument, and Purchaser will not assume any liability arising thereunder or
resulting therefrom, if an assignment or transfer or an attempt to make an
assignment or transfer of such Encumbered Instrument without the Consent of a
third party would constitute a breach or violation thereof or a violation of
Law, or affect adversely the rights of Purchaser or Seller thereunder, until
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 (including Purchaser's delivery
to any Governmental Authority of its financial statements) 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 will file, separately or jointly
with the other Party, as the case may be, all applications necessary to transfer
or obtain the Permits. Each Party will use reasonable efforts to resolve such
objections, if any, as may be asserted by any Governmental Authority with
respect to the applications contemplated hereby. Seller and Purchaser will each
pay one-half of the fees and expenses incurred in connection with transferring
or obtaining all Permits.
(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 will not be a condition to Closing, and Closing will
occur irrespective of whether any such Permit has been transferred or obtained.
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(c) Post-Closing Efforts to Obtain Permits. In the event any Permit is
not obtained on or prior to Closing, each Party will, for a period of one year
following the Closing Date, (i) abide by the requirements of Section 8.3(a), and
(ii) cooperate with each other in any lawful and reasonable arrangement to
provide that Purchaser will receive the benefits under any Permit not
transferred to or obtained by Purchaser at the Closing (a "NON-TRANSFERRED
PERMIT"); provided that, to the extent the Parties are successful in providing
the material benefits of any Non-Transferred Permit to Purchaser, Purchaser will
pay, honor and discharge when due all liabilities of Seller related thereto to
the extent the liabilities were incurred after the Closing Date. Seller will
immediately transfer and assign to Purchaser any Non-Transferred Permit for
which a Consent has been received.
(d) No Assignment. Notwithstanding anything to the contrary in this
Agreement, Seller will not transfer or assign any interest in any Permit, and
Purchaser will not assume any liability arising thereunder or resulting
therefrom, if an assignment or transfer or an attempt to make an assignment or
transfer of such Permit without the Consent of a Governmental Authority would
constitute a breach or violation thereof or a violation of Law, or affect
adversely the rights of Purchaser or Seller thereunder, until such Consent has
been obtained.
Section 8.4 Taxes. The Parties will provide each other with such assistance
as may reasonably be requested by them in connection with the preparation of any
Return, any Tax audit or other examination by any Governmental Authority, or any
judicial or administrative proceedings related to liability for Taxes. The
Parties will retain and provide each other with any records or information which
may be relevant to such preparation, audit, examination, proceeding or
determination. Such assistance will include making employees available on a
mutually convenient basis to provide and explain such records and information,
and will include providing copies of any relevant Returns and supporting work
schedules. The Party requesting assistance hereunder will reimburse the other
for reasonable out-of-pocket expenses incurred in providing such assistance.
Section 8.5 Books and Records.
(a) Access. For a period of six years after Closing, each Party will
provide the other Party 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 will have the right,
at its own expense, to make copies of any such Books and Records.
(b) Destruction. For a period of six years after the Closing (unless
otherwise required by Law) no Party will 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 Party 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 documents and other
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materials requested and made available pursuant to this Section and may
condition the other Party's access to documents and other materials that it
deems confidential to the execution and delivery of an agreement by the other
Party not to disclose or misuse such information.
(d) Assistance. Each Party will, 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 Party does not have any adverse
interest.
Section 8.6 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 will execute and deliver all instruments and documents and
take all other action that the other Party may reasonably request to consummate
or to evidence the consummation of the transactions contemplated by this
Agreement.
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 will
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 Seller in this Agreement will have been 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 will have been correct and complete as of the specified date.
(b) Performance of Covenants. Seller will have performed and complied
with all agreements, covenants and obligations required by this Agreement to be
performed by Seller prior to or at the Closing.
(c) Consents. Seller will have received and delivered to Purchaser all
the Required Consents and the Required Permits, each in form and substance
satisfactory to Purchaser, and will have given all notices required to be given
to any Persons prior to the consummation of the transactions contemplated by
this Agreement.
(d) Closing Certificate. An executive officer of Seller will have
delivered to Purchaser a certificate confirming the satisfaction of the
conditions set forth in Sections 9.1(a) and 9.1(b), and the continuing force and
effect of the Required Consents and Required Permits.
(e) Secretary's Certificate. Seller will have delivered to Purchaser a
certificate executed by the Secretary or an Assistant Secretary of Seller
certifying as to (i) Seller's Charter Documents, (ii) Seller's good standing,
(iii) the resolutions in which Seller's board of directors approved this
Agreement and the transactions contemplated hereby, and
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(iv) the incumbency of Seller's officers who execute any documents on behalf of
Seller in connection with this Agreement.
(f) Legal Opinion. Seller will have delivered to Purchaser the legal
opinion referred to in Section 3.2(h).
(g) Deliveries. Seller will have delivered to Purchaser the documents
required by Section 3.2 and such other documents as Purchaser may reasonably
require.
(h) Compliance with HSR Act. All applicable waiting periods under the
HSR Act will have expired or been terminated.
(i) No Order or Action. No Order will be in effect forbidding or
enjoining the consummation of the transactions contemplated hereby. No Action
will 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.
(j) Consummation of Stock Purchase. The consummation of the
transactions set forth in that certain Stock Purchase Agreement, dated the
Signing Date, between Purchaser, Arrow Claims Management, Inc. and all the
shareholders of Arrow Claims Management, Inc.
(k) Claims and Policy Administration Services Agreements. The execution
and delivery by each of Arrowhead Management Company, Inc., Arrowhead General
Insurance Agency, Inc. and the transferee of the Transferred Assets of (i) a
Claims Administration Services Agreement in substantially the form attached
hereto as Exhibit 9.1(k)(1) and (ii) a Policy Administration Services Agreement
in substantially the form attached hereto as Exhibit 9.1(k)(2).
(l) Establishment of a Ethical Wall. Company and each of Arrowhead
Management Company, Inc. and Arrowhead General Insurance Agency, Inc. will have
agreed to the establishment of written procedures related to the use by Company
of the software applications listed on Schedule 9.1(l).
(m) No Material Adverse Change. Seller has not undergone any Material
Adverse Change since the Signing Date.
Section 9.2 Conditions Precedent to Seller's Obligations. The obligation of
Seller to consummate the transactions contemplated by this Agreement will be
subject to the satisfaction of the following conditions, any of which may be
waived in writing by Seller.
(a) Accuracy of Representations and Warranties. The representations and
warranties made by Purchaser in this Agreement will have been 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 will have been correct and complete as of the specified date.
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(b) Performance of Covenants. Purchaser will have performed and
complied with all agreements, covenants and obligations required by this
Agreement to be performed by Purchaser prior to or at the Closing.
(c) Closing Certificate. An executive officer of Purchaser will have
delivered to 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 will have delivered to 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) Legal Opinion. Purchaser will have delivered to Seller the legal
opinion referred to in Section 3.3(d).
(f) Deliveries. Purchaser will have delivered to Seller the documents
required by Section 3.3 and such other documents as Seller may reasonably
require.
(g) Compliance with HSR Act. All applicable waiting periods under the
HSR Act will have expired or been terminated.
(h) Consummation of Stock Purchase. The consummation of the
transactions set forth in that certain Stock Purchase Agreement, dated the
Signing Date, between Purchaser, Arrow Claims Management, Inc. and all the
shareholders of Arrow Claims Management, Inc.
(i) No Order. No Order will be in effect forbidding or enjoining the
consummation of the transactions contemplated hereby. No Action will be pending
or threatened before any court or other Governmental Authority seeking to enjoin
the Closing or seeking damages against Seller or any of its Representatives as a
result of any of the transactions contemplated by this Agreement, provided that
neither Seller nor any of its affiliates instituted such Action.
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 will 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 the Parties;
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(b) by Purchaser at any time after the occurrence of a Material Adverse
Change in Seller; or
(c) by Purchaser or Seller at any time on or after December 31, 1998 if
any of the conditions provided for in Section 9.1 or 9.2, respectively, will not
have been met or waived in writing prior to such date.
Section 10.2 Procedure Upon Termination. In the event of termination
pursuant to Section 10.1, written notice thereof will be immediately given to
the other Party and the transactions contemplated by this Agreement will be
terminated, without any further action by either Party. If the transactions
contemplated by this Agreement are terminated as provided herein:
(a) each Party will return all documents, work papers and other
materials of the other party, whether obtained before or after the execution
hereof, to the party furnishing the same; and
(b) such termination will not in any way limit, restrict or relieve any
Party of liability for any breach of this Agreement.
ARTICLE XI.
EMPLOYEE MATTERS
Section 11.1 Offer of Employment. Effective as of the Closing Date,
Purchaser will offer those Employees specified on Schedule 11.1 an employment at
will position with such Purchaser in connection with the Business (collectively,
the "RETAINED EMPLOYEES"). Each Retained Employee will be offered employment
with Purchaser at substantially the same position and salary at which such
Retained Employee is employed by Seller as of the Closing Date.
Section 11.2 Benefit Plans, Accrued Benefits, etc. The Parties acknowledge
that Purchaser is not under any obligation whatsoever to provide any benefits to
the Retained Employees other than those benefits currently offered or provided
to the employees of Purchaser in a comparable position. The Parties further
acknowledge that Purchaser is not assuming any obligation of Seller under any
Employee Benefit Plans or under any policy of Seller related to its Employees,
including any obligations related to overtime pay.
Section 11.3 COBRA.
(a) COBRA Liability. Seller agrees to provide any and all continuation
coverage to Employees (other than Retained Employees) and their qualified
beneficiaries (as defined in Section 4980B(g)(1) of the Code) that may be
required under Section 4980B of the Code or Part 6 of Title I of ERISA as a
result of any events that occur on or prior to the Closing Date, including the
consummation of the transactions contemplated by this Agreement.
(b) COBRA Information. Seller agrees to use its best efforts to provide
expeditiously to Purchaser or its Representatives all information that such
Person deems necessary to determine whether there has been any failure to comply
with the continuation health
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care requirements of Section 4980B of the Code and Part 6 of Title I of ERISA as
such requirements have applied to any group health plan maintained by or for
Seller which failure occurred with respect to any current or former employee of
Seller or any spouse, former spouse, dependent child, or former dependent child
of any such employee, on or prior to the Closing Date. Seller further agrees to
use its best efforts to provide expeditiously to Purchaser or its
Representatives all information that such Person deems necessary to correct any
failures to comply with such continuation health care coverage requirements.
Such information will include the identification of all covered employees (as
defined in Section 4980(B)(f)(7) of the Code) and their qualified beneficiaries
(as defined in Section 4980B(g)(1) of the Code), the identification of all
qualifying events with respect to such covered employees or qualified
beneficiaries (as defined in Section 4980B(f)(3) of the Code) and information
otherwise demonstrating compliance with all of the continuation health coverage
requirements of Section 4980B of the Code and Part 6 of Title I of ERISA.
ARTICLE XII.
INDEMNIFICATION
Section 12.1 Indemnification of Purchaser. Seller will indemnify, defend,
and hold Purchaser 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 Seller under this Agreement;
(b) Breaches of Covenants. Any failure to perform or observe any
covenant or agreement to be performed by Seller set forth in this Agreement or
any document delivered to Purchaser pursuant to this Agreement, including the
agreement of Seller contained in Section 11.3(a); or
(c) Failure to Pay or Perform Excluded Liabilities. Any failure of
Seller to pay or perform any of the Excluded Liabilities.
(d) Failure to Comply with Laws. Any failure of Seller to comply with
all Laws in the conduct of the Business on or prior to the Closing Date.
Section 12.2 Indemnification of Seller. Purchaser will indemnify, defend,
and hold Seller 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 under this Agreement;
(b) Breaches of Covenants. Any failure to perform or observe any
covenant or agreement to be performed by Purchaser set forth in this Agreement
or any document delivered to Seller pursuant to this Agreement; or
(c) Failure to Pay or Perform Assumed Liabilities. Any failure of
Purchaser to pay or perform any of the Assumed Liabilities.
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Section 12.3 Indemnification Procedure. The indemnification obligations
under this Agreement will be subject to the following procedures:
(a) Defense of Claim. Within five days after a Party entitled to
indemnification (an "INDEMNITEE") receives a notice of any Claim that may give
rise to an indemnification obligation under this Agreement, the Indemnitee will
give the Party responsible for providing indemnification with respect to such
Claim (the "INDEMNITOR") notice of such Claim, together with a copy of all
documents relating to such Claim that the Indemnitee possesses. The Indemnitor
will then immediately undertake the defense of such Claim by representatives of
its own choosing, provided that the Indemnitee will have the right to control
and undertake such defense by representatives of its own choosing if the Claim
could have a continuing effect upon the Indemnitee or involves any Environmental
Law or Hazardous Material. The Indemnitor will notify the Indemnitee of the
Indemnitor's undertaking of the defense of a Claim promptly after receiving the
notice of the Claim. Similarly, the Indemnitee will notify the Indemnitor of the
Indemnitee's election of its right to control such defense under the
circumstances described above. The failure to give notice of a Claim within the
period described above will not affect the Indemnitee's rights to
indemnification under this Agreement unless such delay prejudices the
Indemnitor.
(b) Participation of the Indemnitee. If ten 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 will have the right
to defend or settle such Claim on behalf of the Indemnitor. Notwithstanding
whether the Indemnitor commences at any time to defend against a Claim, the
Indemnitee will have the right to participate in such defense by representatives
of its own choosing. The Indemnitee will bear any expense of such participation
if the Indemnitor is defending against the Claim unless defenses exist to the
Indemnitee that are unavailable to the Indemnitor or the Indemnitor otherwise
possesses a conflict of interest with respect to the Indemnitee. Under such
circumstances, the Indemnitor will reimburse the Indemnitee for the Indemnitee's
reasonable attorneys' fees and expenses. In addition, the Indemnitor will
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. 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 will not be subject to the Indemnitor's Basket.
The Indemnitor will make such reimbursement payments to the Indemnitee upon the
Indemnitee's submission of periodic invoices describing such fees and expenses
in reasonable detail.
(c) Settlement of Claims. The Indemnitor may settle any Claim at its
own expense, provided that the Indemnitor will not settle any Claim or consent
to the entry of any judgment without the consent of the Indemnitee if such
settlement or 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.
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(d) 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 will promptly
reimburse the Indemnitor for all expenses with respect to such defense or
settlement, including the Indemnitor's reasonable attorneys' fees and expenses.
(e) Cooperation. In connection with any indemnity obligation, the
Indemnitee will cooperate with all reasonable requests of the Indemnitor.
(f) Payment--Net of Insurance Proceeds. The amount of any damage or
indemnification payable pursuant to this Article XII will be net of any
insurance proceeds actually received by the Indemnitee in connection with the
circumstances giving rise to the Claim. The calculation of net insurance
proceeds will give effect to all costs incurred by the Indemnitee for such
insurance recovery, including all costs associated with retrospective premium
adjustments, experienced-based premium adjustments, and indemnification
obligations. Nothing in this section will be construed or interpreted as a
guaranty of any level or amount of insurance recovery with respect to any Claim
hereunder.
(g) Payment--Net of Tax Benefit and Detriment. The Parties will treat
any payment or receipt of damages or indemnification hereunder as an adjustment
to the Final Purchase Price on all Tax Returns, except for the interest
component of any such payment, which the Parties will treat as interest income
or expense, as the case may be. To the extent that any damage or indemnification
payment exclusive of the interest component constitutes taxable income to the
Indemnitee, the amount of such damage or indemnification payment will be
increased by the amount of any income Tax attributable to such payment and the
reimbursement of any related income Taxes. To the extent that any damage or
indemnification payment exclusive of the interest component constitutes a
reduction of taxable income to the Indemnitee, the amount of such damage or
indemnification payment will be decreased by the amount of any income Tax
attributable to such reduction of taxable income.
Section 12.4 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 if such Claim was within the scope of the Indemnitor's
indemnification obligations under this Agreement.
Section 12.5 Assignment of Claims. If any amounts for which the Indemnitor
is responsible are recoverable from a third party, the Indemnitee will assign
any rights that it may have to recover such amounts to the Indemnitor.
Section 12.6 Other Indemnitees. Upon Purchaser's request, Seller will
indemnify any of Purchaser's Representatives to the same extent as Purchaser.
Conversely, upon Seller's request Purchaser will indemnify any of Seller's
Representatives to the same extent as Seller. No Representative of any Party,
however, will be a third party beneficiary of the indemnification provisions
contained 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 will have no recourse against the
Party releasing or waiving such
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Claim. To the extent that a Party requests another Party to indemnify such
Party's Representatives, such Party will cause its Representatives to comply
with the indemnification provisions and abide by the indemnification limitations
set forth in this Agreement.
Section 12.7 Contribution. If the indemnity obligations provided for in
this Agreement are held unenforceable in whole or in part for any reason, each
Party will 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 with respect to a Claim except for such
unenforceability will 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 12.8 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 or made a payment to
another Person.
Section 12.9 Basket. The Parties acknowledge that all the representations
and warranties contained 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 will 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 $10,000 (the "BASKET").
If the aggregate amount of such Claims for which a Party is responsible exceeds
the Basket, such Party will then only be responsible for the amount of such
excess.
Section 12.10 Liability Not Limited to Set-Off Under the Option Agreement.
Each Party acknowledges and agrees that (a) the value of the Option Shares (as
defined in the Option Agreement) is not intended to be, nor will that amount be
construed as, Seller's maximum amount of damages or indemnification with respect
to any Claim for a breach of representations and warranties under this Agreement
and (b) Purchaser may pursue any rights or remedies available at law or in
equity in connection with this Agreement notwithstanding the availability of the
right of set-off under the Option Agreement.
Section 12.11 Liabilities for Special Indemnities and Breaches of
Covenants. Seller's Basket will be inapplicable with respect to any Claim for
damages or indemnification concerning Seller's breach of any representation and
warranty that the indemnities pursuant to Sections 12.1(c) and 12.1(d) cover.
Any damages or indemnification with respect to any such Claims will not count
toward Seller's Basket. A Party's Basket will be inapplicable with respect to
any Claim for damages or indemnification concerning such Party's breach of any
of its covenants under this Agreement or any other terms of this Agreement
applicable to such Party, other than the representations and warranties to which
such Party's Basket apply.
Section 12.12 Consequential Damages. A Party will be (a) liable for any
consequential, incidental, punitive, or special damages with respect to any
breach of this Agreement, and (b) responsible for indemnifying an Indemnitee for
any consequential, incidental, punitive, or
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special damages that such Indemnitee incurs if within the scope of such Party's
indemnification obligation.
Section 12.13 Interest. A Party will pay interest computed at the then
current prime rate on (a) any Claim for damages with respect to such Party's
breach of this Agreement from the date of 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 12.14 Notice of Breach. If before the Closing a Party notifies
another Party of its breach of this Agreement, such notification will 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 12.15 Discovery of Breach. If before the Closing a Party discovers
that another Party has breached this Agreement, such discovery will 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 12.16 Survival of Terms. The agreements, covenants, indemnity
obligations, representations and warranties, and other terms of this Agreement,
Purchaser's closing certificate, Seller's closing certificate, and any other
documents contemplated under this Agreement will survive the Closing and any
investigation or notice by any Party, provided that the representations and
warranties of each Party under this Agreement will expire 30 days after the
expiration of the applicable statute of limitations, as such statutory period
may be extended from time to time. Notwithstanding the general expiration of
each Party's representations and warranties described above, Seller's
representations and warranties contained in Sections 4.2 (Power and Authority),
4.3 (Authorization; Execution and Validity), 4.4 (No Conflict), 4.9(c) (Title to
Purchased Assets), 4.28 (Full Disclosure) and 4.29 (Brokers) will survive
forever, subject to all defenses available under Law, including the expiration
of any applicable statute of limitations. A Party will 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 unless such
Party receives notice of the Claim with respect to such inaccuracy before such
representation and warranty expires. With respect to any such Claim received
before the expiration of a particular representation or warranty, the Party
responsible for such representation or warranty will remain responsible for any
damage or indemnification amounts claimed notwithstanding the subsequent
expiration of such representation or warranty.
Section 12.17 Negligence and Strict Liability. THE PROVISIONS OF THIS
AGREEMENT CONCERNING CLAIMS FOR DAMAGES AND INDEMNIFICATION WILL 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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ARTICLE XIII.
MISCELLANEOUS
Section 13.1 Amendment. No amendment of this Agreement will be effective
unless in a writing signed by the Parties.
Section 13.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original agreement, but all
of which will 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 will promptly thereafter deliver an originally executed signature page to
the other Party, provided that any failure to deliver such an originally
executed signature page will 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 will 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 will be entitled to seek reimbursement of its expenses
as part of its damages with respect to such breach. Seller will bear any Tax
imposed in connection with the transfer of the Purchased Assets to Purchaser
pursuant to this Agreement.
Section 13.5 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF
THE STATE OF DELAWARE REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
Section 13.6 No Assignment. No Party may assign its benefits or delegate
its duties under this Agreement without the prior consent of the other Party.
Any attempted assignment or delegation without such prior consent will be void.
Notwithstanding the foregoing, after the Closing Purchaser may assign its rights
under this Agreement to a purchaser of all of the assets or equity of Purchaser
without Seller's consent, and any such purchaser and any subsequent purchasers
of all of the assets or equity of Purchaser may similarly assign such rights.
Section 13.7 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the Parties and no other Person will have any right, interest, or
claim under this Agreement.
Section 13.8 Notices. All claims, consents, designations, notices, waivers,
and other communications in connection with this Agreement will be in writing.
Such claims, consents, designations, notices, waivers, and other communications
will 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
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transmittal when transmitted by certified mail, postage prepaid, return receipt
requested; in each case when transmitted to a Party at its address set forth on
Schedule 13.8 (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).
Section 13.9 Public Announcements. The Parties will agree on the terms of
any press releases or other public announcements related to this Agreement, and
will 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 New York Stock Exchange or 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 13.10 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 13.11 Schedules. All references in this Agreement to schedules will
mean the schedules identified in this Agreement, which are incorporated into
this Agreement and will be deemed a part of this Agreement for all purposes.
Each Section of this Agreement that refers to a schedule will have a separate
schedule. In addition, any disclosure under a particular section's schedule will
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 will not be a disclosure
under any other section's schedule or any other subsection, unless so noted
specifically on such schedule. Seller has 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 13.12 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction will 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 will be given effect to the extent possible in the
jurisdiction where such provision is prohibited or unenforceable.
Section 13.13 Successors. This Agreement will be binding upon and will
inure to the benefit of each Party and its heirs, legal representatives,
permitted assigns, and successors, provided that this Section will 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.
Section 13.14 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 13.15 Waiver. No provision of this Agreement will 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, will be deemed a waiver of a
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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 will 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.
Section 13.16 Attorney's Fees. In the event of any Action among the Parties
seeking enforcement of any of the terms and conditions of this Agreement, the
prevailing party in such Action will be awarded its reasonable costs and
expenses, including its court costs and reasonable attorneys' fees.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by a duly authorized officer as of the Signing Date.
SELLER: ARROWHEAD GENERAL INSURANCE AGENCY, INC.
By:
------------------------------------
J. Richard Hoye, President
PURCHASER: INSpire INSURANCE SOLUTIONS, INC.
By:
------------------------------------
William J. Smith, III, President
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APPENDIX A
DEFINITIONS AND RULES OF INTERPRETATION
Definitions. Unless the context otherwise requires, the terms defined in
this Appendix will have the meanings specified below for all purposes of this
Agreement:
(a) "ACCOUNTS RECEIVABLE" will have the meaning set forth in Section
4.10.
(b) "ACTION" means any action, arbitration proceeding, cause of action,
charge, counterclaim, cross claim, inquiry, investigation, legal action,
litigation, Order, proceeding, or suit.
(c) "AFFILIATE" means with respect to a Person means any other Person
that directly or indirectly controls, is controlled by, or is under common
control with such Person. For the purposes of this definition, control means the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise. Control shall be presumed by an individual that is a director,
executive officer, general partner, manager, or similar functionary of a Person,
or a Person that beneficially owns more than 10% of any class of securities of
such Person having general voting rights. For purpose of this Agreement, each of
Patrick Kilkenny and Arrowhead Management Company, Inc., and each Affiliate of
such Person shall be considered an Affiliate of each Seller.
(d) "AGREEMENT" will have the meaning set forth in the first paragraph.
(e) "ALLOCATION STATEMENT" will have the meaning set forth in Section
2.3.
(f) "ASSUMED LIABILITIES" will have the meaning set forth in Section
1.3.
(g) "BALANCE SHEET DATE" will have the meaning set forth in Section
4.5(a).
(h) "BANK ACCOUNTS" will have the meaning set forth in Section 4.24.
(i) "BASE PURCHASE PRICE" will have the meaning set forth in Section
2.1.
(j) "BASKET" will have the meaning set forth in Section 12.9.
(k) "BOOKS AND RECORDS" will mean all the books and records maintained
by or for Seller, including all accounting records, minute books, stock records,
computerized records and storage media and the software used in connection
therewith.
(l) "BUSINESS" will have the meaning set forth in Recital A.
(m) "CHARTER DOCUMENTS" will 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.
<PAGE> 41
(n) "CLAIM" will mean any arbitration award, assessment, charge,
citation, claim, damage, demand, directive, expense, fine, interest, joint or
several liability, Lawsuit, notice, obligation, payment, penalty, or summons of
any kind or nature whatsoever, including any damages incurred because of the
claimant's negligence or gross negligence or any strict liability imposed upon
the claimant, any consequential or punitive damages, and any reasonable
attorneys' fees and expenses. A Claim will be considered to exist even though it
may be conditional, contingent, indirect, potential, secondary, unaccrued,
unasserted, unknown, unliquidated, or unmatured.
(o) "CLOSING" will have the meaning set forth in Section 3.1.
(p) "CLOSING CASH PAYMENT" will have the meaning set forth in Section
2.2.
(q) "CLOSING DATE" will have the meaning set forth in Section 3.1.
(r) "CLOSING PREMIUM STATEMENT" will have the meaning set forth in
Section 2.4(a).
(s) "CODE" will mean the Internal Revenue Code of 1986, as amended.
(t) "CONFIDENTIAL INFORMATION" means any proprietary information, and
any information which Purchaser reasonably considers to be proprietary,
pertaining to each of Seller's and Purchaser's 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.
(u) "CONFIDENTIALITY AGREEMENT" will have the meaning set forth in
Section 6.2.
(v) "CONSENT" will mean a consent, approval, order, authorization or
waiver from, notice to or declaration, registration or filing with any Person.
(w) "DIRECT WRITTEN PREMIUMS" means the aggregate amount of premiums
paid to Seller by insureds. For purposes of calculating Direct Written Premiums,
a lump-sum premium payment will be prorated equally over the term of the policy
pursuant to which such premium payment was made.
(x) "DIVISION" will have the meaning set forth in Recital A.
(y) "EMPLOYEE BENEFIT PLAN" will 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
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stock, restricted stock or stock appreciation plan, (ix) severance plan, or (x)
other employee arrangement, commitment, custom, policy or practice.
(z) "EMPLOYEES" will have the meaning set forth in Section 4.21(a).
(aa) "ENCUMBERED INSTRUMENT" will mean any the contract and lease to be
assigned by Seller and assumed by Purchaser pursuant to the terms of this
Agreement that by its terms require Consent from a third party in order to
transfer and assign the rights and obligations thereunder.
(bb) "ENCUMBRANCE" will mean any title defect or objection, mortgage,
lien, deed of trust, equity, judgment, claim, 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.
(cc) "ENVIRONMENTAL LAW" will 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.
(dd) "ERISA" will mean the Employee Retirement Income Security Act of
1974, as amended.
(ee) "EXCLUDED ASSETS" will have the meaning set forth in Section 1.2.
(ff) "EXCLUDED LIABILITIES" will have the meaning set forth in Section
1.4.
(gg) "FINAL CLOSING PREMIUM STATEMENT" will have the meaning set forth
in Section 2.4(b).
(hh) "FINAL PURCHASE PRICE" will have the meaning set forth in Section
2.1.
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(ii) "GAAP" will mean generally accepted accounting principles in
effect in the United States of America as of the Signing Date.
(jj) "GOVERNMENTAL AUTHORITY" will mean any federal, state, local,
tribal, foreign or other governmental agency, department, branch, commission,
board, bureau, court, instrumentality or body.
(kk) "HAZARDOUS MATERIAL" will 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 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.
(ll) "HSR ACT" will have the meaning set forth in Section 8.1.
(mm) "INDEMNITEE" will have the meaning set forth in Section 12.3(a).
(nn) "INDEMNITOR" will have the meaning set forth in Section 12.3(a).
(oo) "INSURANCE POLICIES" will have the meaning set forth in Section
4.15.
(pp) "INTANGIBLE ASSET" will mean any patent, trademark, trademark
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.
(qq) "INTERIM BALANCE SHEET" will have the meaning set forth in Section
4.5(b).
(rr) "LAW" will mean any applicable code, statute, law, common law,
rule, regulation, order, ordinance, judgment, decree, order, writ or injunction
of any Governmental Authority.
(ss) "LAW AFFECTING CREDITORS' RIGHTS" will 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.
(tt) "MATERIAL ADVERSE CHANGE" will mean, with respect to a Person,
that such Person has (i) breached a Material Contract, (ii) incurred a Claim or
become a party to an Action that could have a significant and detrimental effect
upon it, (iii) suffered a Material Adverse Effect, or (iv) violated any Law or
Order to which it or any of its assets is subject or bound.
(uu) "MATERIAL ADVERSE EFFECT" will 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, prospects,
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or relationships, including the occurrence of any event or the existence of any
circumstance that could cause such an effect in the future.
(vv) "MATERIAL CONTRACTS" will have the meaning set forth in Section
4.16.
(ww) "NON-TRANSFERRED INSTRUMENT" will have the meaning set forth in
Section 8.2(c).
(xx) "NON-TRANSFERRED PERMIT" will have the meaning set forth in
Section 8.3(c).
(yy) "OBJECTION NOTICE" will have the meaning set forth in Section
2.4(b).
(zz) "OPTION AGREEMENT" will have the meaning set forth in Section 2.2.
(aaa) "ORDER" will mean any consent decree, decree, determination,
injunction, judgment, order, or writ of any arbitrator or Governmental
Authority.
(bbb) "OWNED REAL PROPERTY" will have the meaning set forth in Section
4.12(a).
(ccc) "PARTY" will have the meaning set forth in the first paragraph.
(ddd) "PENSION BENEFIT PLAN" will mean an "employee pension benefit
plan" as defined in Section 3(2) of ERISA, and a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA.
(eee) "PERMIT" will mean any license, approval, certificate, franchise,
registration, permit or authorization issuable by any Governmental Authority.
(fff) "PERMITTED ENCUMBRANCE" will 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 Claims
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 with suppliers entered
into in the ordinary course of business, and (v) the rights of others to
customer deposits.
(ggg) "PERSON" will 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.
(hhh) "PERSONAL PROPERTY LEASES" will have the meaning set forth in
Section 4.13(b).
(iii) "PLAN" will mean any bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance, hospitalization or other
medical, life or
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other insurance, supplemental unemployment benefit, profit sharing, pension, or
retirement plan, program, agreement or arrangement.
(jjj) "PURCHASED ASSETS" will have the meaning set forth in Section
1.1.
(kkk) "PURCHASER" will have the meaning set forth in first paragraph.
(lll) "REAL PROPERTY LEASES" will have the meaning set forth in Section
4.12(a).
(mmm) "REGISTRATION RIGHTS AGREEMENT" will have the meaning set forth
in Section 3.2(i).
(nnn) "REPRESENTATIVES" will mean, with respect to a Person, such
Person's directors, employees, officers, agents, accountants, affiliates,
consultants, investment bankers, attorneys, lenders, representatives and
shareholders.
(ooo) "REQUIRED CONSENT" will have the meaning set forth in Section
8.2(b).
(ppp) "REQUIRED PERMIT" will have the meaning set forth in Section
8.3(b).
(qqq) "RESTRICTED SERVICES" means any actions directly or indirectly
related to providing or soliciting third party administrator services in
connection with property and casualty insurance lines.
(rrr) "RESTRICTION PERIOD" will have the meaning set forth in Section
6.8(b).
(sss) "RETAINED EMPLOYEES" will have the meaning set forth in Section
11.1.
(ttt) "RETURNS" will have the meaning set forth in Section 4.23(a).
(UUU) "SEGREGATED ACCOUNT" will have the meaning set forth in Section
2.2.
(vvv) "SELLER" will have the meaning set forth in the first paragraph.
(www) "SELLER'S KNOWLEDGE" will mean the actual knowledge as of the
date that a specific representation or warranty is made or deemed made, after
reasonable inquiry, of Patrick Kilkenny, Marianne Harmon, Myron Sima, Gary
Kadota, Sue Brown and Kevin McDonald.
(xxx) "SIGNING DATE" will have the meaning set forth in the first
paragraph.
(yyy) "TAX" will 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.
(zzz) "TRANSACTION DOCUMENTS" will have the meaning set forth in
Section 4.2.
6
<PAGE> 46
(aaaa) "INTERIM FINANCIAL STATEMENTS" will have the meaning set forth
in Section 4.5(b).
(bbbb) "WELFARE BENEFIT PLAN" will 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.
(cccc) "WRITTEN PREMIUM AMOUNT" will have the meaning set forth in
Section 2.4(b).
(dddd) "YEAR-END BALANCE SHEET" will have the meaning set forth in
Section 4.5(a).
(eeee) "YEAR-END FINANCIAL STATEMENTS" will have the meaning set forth
in Section 4.5(a).
Accounting Terms. Except as otherwise provided in this Agreement, all
accounting terms defined in this Agreement, whether defined in this Article or
otherwise, will 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 will 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 will not create a materiality standard under this
Agreement.
Drafting. Neither this Agreement nor any provision contained in this
Agreement will be interpreted in favor of or against either Party because such
Party or its legal counsel drafted this Agreement or such provision. No prior
draft of this Agreement or any provision contained in this Agreement will 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 will not have any effect upon the construction or
interpretation of this Agreement.
7
<PAGE> 47
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" will 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 will include the singular form of that word. Whenever
the singular form of a word is used in this Agreement, that word will include
the plural form of that word.
Predecessors. Any of Seller's representations and warranties concerning any
Claim against Seller, any liability or obligation of Seller, or any violation of
Law by Seller will include any Claims with respect to each predecessor of
Seller, 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 will refer to the other gender and
the neuter. Whenever a neuter pronoun is used in this Agreement, if appropriate
that pronoun also will refer to the masculine and feminine gender.
Representations and Warranties. Seller's representations and warranties
under this Agreement will mean the representations and warranties contained in
Article IV and the reaffirmation of Seller's representations and warranties in
Seller's Closing Certificate. Purchaser's representations and warranties under
this Agreement will mean the representations and warranties contained in Article
V and the reaffirmation of those representations and warranties in Purchaser's
Closing Certificate.
Statutes. Any reference to Law or any specific statute will 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.
8
<PAGE> 48
The following list sets forth the schedules to the Asset Purchase Agreement that
have been omitted from this Exhibit 2.2. The Company agrees to furnish
supplementally a copy of any omitted schedule to the Securities and Exchange
Commission upon request.
<TABLE>
<CAPTION>
Schedule Description
- -------- -----------
<S> <C>
Schedule 1.1................................................................................Ownership of the Shares
Schedule 4.1.........................................................................Jurisdictions of Incorporation
Schedule 4.5(a)(1)...................................................................................Capitalization
Schedule 4.5(a)(2).....................................................................Exceptions to Capitalization
Schedule 4.5(b)........................................................................................Subsidiaries
Schedule 4.6(a).......................................................................Year-End Financial Statements
Schedule 4.6(b)........................................................................Interim Financial Statements
Schedule 4.8..........................................................................Exceptions to Certain Changes
Schedule 4.12(a)................................................................................Owned Real Property
Schedule 4.12(b)...............................................................................Leased Real Property
Schedule 4.13(a)............................................................................Owned Personal Property
Schedule 4.13(b)...........................................................................Leased Personal Property
Schedule 4.15.............................................................................................Insurance
Schedule 4.16....................................................................................Material Contracts
Schedule 4.17....................................................................................Litigation; Orders
Schedule 4.17(1)...................................................................Exceptions to Litigation; Orders
Schedule 4.19...............................................................................................Permits
Schedule 4.20(a)............................................................................Owned Intangible Assets
Schedule 4.20(b).........................................................................Licensed Intangible Assets
Schedule 4.21(a)..........................................................................................Employees
Schedule 4.21(b).....................................................................Employment and Labor Contracts
Schedule 4.22(a)..............................................................................Welfare Benefit Plans
Schedule 4.22(b)..............................................................................Pension Benefit Plans
Schedule 4.22(c)..............................................................................Employee Arrangements
Schedule 4.24..................................................................Bank Accounts and Powers of Attorney
Schedule 4.26..................................................................Exceptions to Affiliate Transactions
Schedule 6.3(b)...............................................................Exceptions to Prohibited Transactions
Schedule 6.8.....................................................................................Transferred Assets
Schedule 8.2(b)...................................................................................Required Consents
Schedule 8.3(b)....................................................................................Required Permits
Schedule 9.1(m).................................................................................Restricted Software
Schedule 12.8....................................................................................Notice Information
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
this 3rd day of September, 1998, to be effective on September 3, 1998 (the
"Effective Date"), by and between INSpire Insurance Solutions, Inc., a Texas
corporation ("Employer"), and John C. Aldredge, a resident of Texas
("Employee").
W I T N E S S E T H:
WHEREAS, Employer is a corporation engaged in business in the State of
Texas and throughout the United States;
WHEREAS, Employer desires to employ Employee in the capacity of Senior
Vice President -- Research and Development, 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 approximately three (3) years, commencing on the
Effective Date and terminating on August 30, 2001, unless such employment is
terminated or extended prior to the expiration of said period as hereinafter
provided.
2. Duties of Employee. Employee agrees that during the term of this
Agreement, he will devote his full professional and business-related time,
skills and best efforts to the businesses of Employer in the capacity of Senior
Vice President -- Research and Development, or such other capacity as Employer
and Employee may agree upon. If there are major significant changes in the
duties or responsibilities of Employee from those listed as Prohibited
Activities on Exhibit A attached hereto, that are not mutually agreed upon,
Employee may terminate his employment within sixty (60) days of any such change.
In addition, Employee shall devote all necessary time and his best efforts in
the performance of any other duties as may be assigned to him from time to time
by the Board of Directors of Employer including, but not limited to, serving on
Employer's Board of Directors if elected. Employee shall devote his full
professional and business skills to Employer as his primary responsibility.
Employee may engage in personal, passive investment activities provided such
activities do not interfere with the performance of his duties hereunder and
violate the noncompetition and nondisclosure provisions set forth herein.
<PAGE> 2
3. Compensation.
(a) Base Salary. Employer shall pay Employee an annual base
salary of one hundred fifty-five thousand dollars ($155,000) per annum
(or fraction for portions of a year). Such base salary will be adjusted
from time to time in accordance with then current standard salary
administration guidelines of Employer. Employee's salary shall be
subject to all appropriate federal and state withholding taxes and
shall be payable in accordance with the normal payroll procedures of
Employer.
(b) Annual Bonus. In addition to the salary set forth in
Section 3(a) hereof, Employee shall be entitled to participate in the
INSpire Insurance Solutions, Inc. 1998 Annual Bonus Plan each year
during the term of this Agreement.
(c) Stock Options. Employee shall be granted stock options for
shares of common stock of Employer pursuant to the terms of a Stock
Option Agreement granted under the INSpire Insurance Solutions 1997
Second Amended and Restated Stock Option Plan, as amended, a copy of
which has been provided to Employee. The number of shares of common
stock, exercise price and date of grant for such options is set forth
in such Stock Option Agreement.
(d) Phone Allowance. During the term of this Agreement,
Employer shall provide Employee with a monthly phone allowance of fifty
dollars ($50.00). Such allowance shall be paid by Employer to Employee
on the first workday of each month or on such other day during the
month as Employer and Employee shall mutually determine.
4. Fringe Benefits. The terms of this Agreement shall not foreclose
Employee from participating with other employees of Employer in such fringe
benefit or incentive compensation plans as may be authorized and adopted from
time to time by Employer; provided, however, that Employee must meet any and all
eligibility provisions required under said fringe benefit or incentive
compensation plans. Employee may be granted such other fringe benefits or
perquisites as Employee and Employer may from time to time agree upon.
5. Vacations. Employee shall be entitled to the number of paid vacation
days in each calendar year as shall be determined by the Board of Directors of
Employer from time to time. In no event, however, shall Employee be entitled to
less than three 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.
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<PAGE> 3
7. Working Facilities. Employee shall be furnished an office and such
other facilities and services suitable to his position and adequate for the
performance of his duties, which shall be consistent with the policies of
Employer.
8. Termination. The employment relationship between Employee and
Employer created hereunder shall terminate before the expiration of the stated
term of this Agreement upon the occurrence of any one of the following events:
(a) Death or Permanent Disability. The death or permanent
disability of Employee. For the purpose of this Agreement, the
"permanent disability" of Employee shall mean Employee's inability,
because of his injury, illness, or other incapacity (physical or
mental), to perform the essential functions of the position
contemplated herein, with or without reasonable accommodation to
Employee with respect to such injury, illness or other incapacity, for
a continuous period of 150 days or for 180 days out of a continuous
period of 360 days. Such permanent disability shall be deemed to have
occurred on the 150th consecutive day or on the 180th day within the
specified period, whichever is applicable.
(b) Termination for Cause. The following events, which for
purposes of this Agreement shall constitute "cause" for termination:
(1) The willful breach by Employee of any provision of
Sections 2, 11, 12, or 13 hereof (including but not limited to
a refusal to follow lawful directives of the Board of Directors
of Employer) after notice to Employee of the particular details
thereof and a period of 10 days thereafter within which to cure
such breach and the failure of Employee to cure such breach
within such 10 day period;
(2) Any act of fraud, misappropriation or embezzlement by
Employee with respect to any aspect of Employer's business;
(3) The illegal use of drugs by Employee during the term
of this Agreement that, in the determination of the Board of
Directors of Employer, substantially interferes with Employee's
performance of his duties hereunder;
(4) Substantial failure of performance by Employee that is
repeated or continued after 30 day written notice to Employee
of such failure and that is reasonably determined by the Board
of Directors of Employer to be materially injurious to the
business or interests of Employer and which failure is not
cured by Employee within such 30 day period; or
(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
3
<PAGE> 4
Employee's employment for any of the reasons set forth above, Employer
shall have no further obligations hereunder from and after the
effective date of termination (other than as set forth below) and shall
have all other rights and remedies available under this or any other
agreement and at law or in equity.
(c) Termination by Employee with Notice. Employee may
terminate this Agreement without liability to Employer arising from the
resignation of Employee upon one (1) year written notice to Employer.
Employer retains the right after proper notice of Employee's voluntary
termination to require Employee to cease employment immediately;
provided, however, in such event, Employer shall remain obligated to
pay Employee his salary during the one (1) year notice period or the
remaining term of this Agreement, whichever is less. During such one
(1) year notice period, Employee shall provide such consulting services
to Employer as Employer may reasonably request and shall assist
Employer in training his successor and generally preparing for an
orderly transition.
(d) Termination by Employer with Notice. Employer may
terminate this Agreement at any time upon one (1) year written notice
to Employee; provided, however, upon such notice Employee shall not be
required to perform any services for Employer other than during the
period of three (3) months immediately following the receipt of such
notice of termination in which Employee shall assist Employer in
training his successor and generally preparing for an orderly
transition.
9. Compensation Upon Termination.
(a) General. Upon the termination of Employee's employment
under this Agreement before the expiration of the stated term hereof
for any reason, Employee shall be entitled to (i) the salary earned by
him before the effective date of termination, as provided in Section
3(a) hereof, prorated on the basis of the number of full days of
service rendered by Employee during the year to the effective date of
termination, (ii) any accrued, but unpaid, vacation or sick leave
benefits, (iii) any authorized but unreimbursed business expenses, and
(iv) any accrued, but unpaid annual bonus.
(b) Termination For Other Than Cause. If such termination is
the result of the discharge of Employee by Employer for any reason
other than (i) his death or permanent disability, (ii) by Employer or
Employee with notice pursuant to Section 8(d) or 8(c), respectively, or
(iii) for cause (as defined in Section 8(b) hereof), then Employee
shall be entitled to receive as a severance payment an amount equal to
the salary (excluding bonuses) that Employee would have received for
the remainder of the term 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.
4
<PAGE> 5
(c) Termination For Cause. If the employment relationship
hereunder is terminated by Employer for cause (as defined in Section
8(b) hereof), Employee shall not be entitled to any severance
compensation, except as provided in Section 9(a) above.
(d) Termination by Employer with Notice. If the employment
relationship is terminated by Employer other than for cause or the
permanent disability of Employee, then Employee shall be entitled to
receive as a severance payment and as compensation for all services
performed hereunder pursuant to Section 8(d) hereof an amount equal to
the salary that Employee would have received for the remainder of the
term of this Agreement or one (1) year, whichever is less, in
accordance with the regular payroll periods of Employer during the
applicable period.
(e) Termination by Employee with Notice. If the employment
relationship is terminated by Employee pursuant to the provisions of
Section 8(c) hereof, Employee shall be entitled to receive as a
severance payment and as compensation for all services performed
hereunder pursuant to Section 8(c) hereof the salary that Employee
would have received for the remainder of the term of this Agreement or
one (1) year, whichever is less, in accordance with the regular payroll
period of Employer during the applicable period.
(f) Survival. The provisions of Sections 9, 11, 12, and 13
hereof shall survive the termination of the employment relationship
hereunder and this Agreement to the extent necessary or reasonably
appropriate to effect the intent of the parties hereto as expressed in
such provisions.
10. Other Agreements. This Agreement shall be separate and apart from,
and shall be deemed to alter the terms of, any executive compensation
agreements, deferred compensation agreements, bonus agreements, general
employment benefits plans, stock option plans and any other plans or
agreements entered into between Employee and Employer pursuant to which
Employee has been granted specific rights, benefits or options.
11. Noncompetition. Employee agrees that, during his employment with
Employer and for a period of three (3) years from the date of termination
of his employment with Employer, he will not directly or indirectly compete
with Employer by engaging in the activities set forth on Exhibit A attached
hereto and incorporated herein by reference (the "Prohibited Activities")
within the geographic area that is set forth on Exhibit B attached hereto
(the "Restricted Area"). For purposes of this Section 11, Employee
recognizes and agrees that Employer conducts and will conduct business in
the entire Restricted Area and that Employee will perform his duties for
Employer within the entire Restricted Area. Employee shall be deemed to be
engaged in and carrying on the Prohibited Activities if he engages in the
Prohibited Activities in any capacity whatsoever, including, but not
limited to, by or through a partnership of which he is a general or limited
partner or an employee engaged in such activities, or by or through a
corporation or association of which he owns five percent (5%) or more of
the stock or of which he is an officer, director, employee, member,
representative, joint venturer, independent contractor, consultant or agent
who is engaged in such activities.
5
<PAGE> 6
Employee agrees that during the three (3) year period described above, he
will notify Employer of the name and address of each employer with whom he
has accepted employment during such period. Such notification shall be made
in writing within five (5) days after Employee accepts any employment or
new employment by certified mail, return receipt requested.
12. Confidential Data. Employee further agrees that, during his
employment with Employer and thereafter, he will keep confidential and not
divulge to anyone, disseminate nor appropriate for his own benefit or the
benefit of another any confidential information described in Exhibit C
attached hereto and incorporated by reference herein (the "Confidential
Data"). Employee hereby acknowledges and agrees that this prohibition
against disclosure of Confidential Data is in addition to, and not in lieu
of, any rights or remedies that Employer may have available pursuant to the
laws of any jurisdiction or at common law to prevent the disclosure of
trade secrets, and the enforcement by Employer of its rights and remedies
pursuant to this Agreement shall not be construed as a waiver of any other
rights or available remedies that it may possess in law or equity absent
this Agreement.
13. Nonsolicitation of Employees. Employee covenants that, during his
employment with Employer and for a period of one (1) year from the date of
termination of his employment with Employer, he will not (i) directly or
indirectly induce or attempt to induce any employee of Employer to
terminate his or her employment or (ii) without prior written consent of
Employer, offer employment either on behalf of himself or on behalf of any
other individual or entity to any employee of Employer or to any terminated
employee of Employer.
14. Property of Employer. Employee acknowledges that from time to time
in the course of providing services pursuant to this Agreement he shall
have the opportunity to inspect and use certain property, both tangible and
intangible, of Employer and Employee hereby agrees that such property shall
remain the exclusive property of Employer, and Employee shall have no right
or proprietary interest in such property, whether tangible or intangible,
including, without limitation, Employee's customer and supplier lists,
contract forms, books of account, computer programs and similar property.
15. Equitable Relief. Employee acknowledges that the services to be
rendered by him are of a special, unique, unusual, extraordinary, and
intellectual character, which gives them a peculiar value, and the loss of
which cannot reasonably or adequately be compensated in damages in an
action at law, and that a breach by him of any of the provisions contained
in this Agreement will cause Employer irreparable injury and damage.
Employee further acknowledges that he possesses unique skills, knowledge
and ability and that competition by him in violation of this Agreement or
any other breach of the provisions of this Agreement would be extremely
detrimental to Employer. By reason thereof, Employee agrees that Employer
shall be entitled, in 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.
6
<PAGE> 7
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 annual amount of total cash compensation,
excluding payments made under tax benefit bonuses paid upon the lapse
of resale restrictions on common stock for certain officers, of
Employee for the two (2) calendar years (or period of employment with
Employer if less than 2 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 annual amount of total cash
compensation, excluding payments made under tax benefit bonuses paid
upon the lapse or resale restrictions on common stock for certain
officers, of Employee for the two (2) calendar years (or period of
employment with Employer if less than 2 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
7
<PAGE> 8
the Code prohibits such deduction shall be reimbursed by Employee to
the full extent of such disallowance within six (6) months after the
date of which the amount of such disallowance has been finally
determined and Employer has paid the deficiency with respect to such
disallowance. Employer shall legally defend any proposed disallowance
by the Internal Revenue Service and the amount required to be
reimbursed by Employee shall be the amount determined by an appropriate
court in a final, nonappealable decision that is actually disallowed as
a deduction. In lieu of payment to Employer by Employee, Employer may,
in its discretion, withhold amounts from Employee's future compensation
payments until the amount owed to Employer has been fully recovered. No
such withholding shall occur prior to the date on which Employee would
be required to make reimbursement as provided herein.
(e) If the limitation set forth in this Section 16(c) may at
any time become applicable to the amounts otherwise due pursuant to
paragraphs (a) and (b) of Section 16, then Employer shall continue to
pay Employee all amounts as provided under paragraphs (a) and (b) of
Section 16 until such time as cumulative payments equal the aggregate
amount as limited by paragraph (c), and Employee may terminate his
employment relationship with Employer on three (3) months notice at any
time within the last twelve (12) months of the time period during which
the payments described in this Section 16(e) will be paid without
affecting his rights to receive such payments.
(f) Employer shall have no obligation to pay the amounts set
forth in paragraphs (a) and (b) of Section 16 as limited by paragraph
(c) if there is reasonable proof that the noncompetition or
confidential data provisions of Sections 11 and 12, respectively, of
this Agreement are being violated.
(g) In the event the employment relationship is terminated for
cause (pursuant to Section 8(b) hereof) following a Change of Control,
Employer shall not be obligated to make any further payments of the
compensation amounts provided for in this Agreement, except as provided
in Section 9(a) above. Notwithstanding any other provision of this
Agreement, except for paragraphs (e) and (j) of this Section 16, which
shall control in the event Employee terminates employment as provided
in paragraphs (e) and (j), in the event Employee voluntarily terminates
employment following a Change of Control for other than Good Reason, as
defined hereinafter, compensation amounts set forth in paragraphs (a)
and (b) shall be payable only for a one (1) year period following
termination of employment.
"Good Reason" to terminate employment with Employer occurs if:
(1) duties are assigned that are materially inconsistent with previous
duties; (2) duties and responsibilities are substantially reduced; (3)
base compensation is reduced not as part of an across the board
reduction for all senior officers or executives; (4) participation
under compensation plans or arrangements generally made available to
persons at Employee's 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.
8
<PAGE> 9
(h) In the event Employee is involuntarily terminated by
Employer without cause, Employee voluntarily terminates employment for
Good Reason or the employment relationship is terminated by death or
permanent disability of Employee, Employer's obligation to pay the
compensation amounts provided in this Section 16 shall survive
termination of employment.
(i) In the event of termination of employment during the
pendency of a "Potential Change of Control", as hereinafter defined,
paragraphs (g) and (h) of this Section 16 shall apply as if an actual
Change of Control had taken place. A "Potential Change of Control"
shall be deemed to have occurred if: (1) Employer has entered into an
agreement or letter of intent the consummation of which would result in
a Change of Control; (2) any person publicly announces an intention to
take or to consider taking actions that, if consummated, would
constitute a Change of Control; or (3) the Board of Directors of
Employer or a committee thereof in its reasonable judgment makes a
determination that a Potential Change of Control for purposes of this
Agreement has occurred. A Potential Change of Control remains pending
for purposes of receiving payments under this Agreement until the
earlier of the occurrence of a Change of Control or a determination by
the Board of Directors or a committee thereof (at any time) that a
Change of Control is no longer reasonably expected to occur.
(j) Notwithstanding anything contained in this Agreement to
the contrary, Employee and Employer, or the person, corporation,
partnership or other entity acquiring control of Employer pursuant to
this Section 16, with the concurrence of the Chief Executive Officer
and Compensation Committee of the Board of Directors of Employer, may
mutually agree that Employee, with three (3) months' notice, may
terminate his employment and receive a lump sum payment equal to the
present value of remaining payments under this Agreement discounted by
the then current Treasury Bill rate for the remaining term of this
Agreement.
17. Successors Bound. This Agreement shall be binding upon Employer and
Employee, their respective heirs, executors, administrators or successors
in interest, including without limitation, any corporation, partnership or
other entity acquiring control of Employer pursuant to Section 16 hereof.
18. Severability and Reformation. The parties hereto intend all
provisions of this Agreement to be enforced to the fullest extent permitted
by law. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall
be fully severable, and this Agreement shall be construed and enforced as
if such illegal, invalid, or unenforceable provision were never a part
hereof, and the remaining provisions shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance.
19. Integrated Agreement. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter
hereof, and there are no
9
<PAGE> 10
agreements, understandings, specific restrictions, warranties or
representations relating to said subject matter between the parties other
than those set forth herein or herein provided for.
20. Attorneys' Fees. If any action at law or in equity, including any
action for declaratory or injunctive relief, is brought to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees from the nonprevailing
party, which fees may be set by the court in the trial of such action, or
may be enforced in a separate action brought for that purpose, and which
fees shall be in addition to any other relief which may be awarded.
21. Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, mailed by certified mail
(return receipt requested) or sent by overnight delivery service, cable,
telegram, facsimile transmission or telex to the parties at the following
addresses or at such other addresses as shall be specified by the parties
by like notice:
(a) If to Employer: INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas 76102-2799
Attention: F. George Dunham, III
Facsimile No.: (800) 826-9865
(b) If to Employee: 7205 Dye Drive
Dallas, Texas 75248
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
10
<PAGE> 11
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:
----------------------------------------
John C. Aldredge
11
<PAGE> 12
EXHIBIT A
PROHIBITED ACTIVITIES
Acting in any capacity, either individually or with any corporation,
partnership or other entity, directly or indirectly, in providing, or proposing
to provide, data processing software systems, related automation support
services and information services to the insurance industry, including, but not
limited to, application software, processing, consulting and related services,
in the performance of any of the following types of duties in any part of the
insurance industry:
1. The performance of the sales and marketing functions.
2. The responsibility for sales revenue generation.
3. The responsibility for customer satisfaction.
4. The responsibility for research and development of insurance data
base products.
5. The responsibility for the research and development of information
data processing systems and services.
6. The providing of input to pricing of products.
7. The planning and management of data processing services resources.
8. The coordination of the efforts of the various aspects of computer
systems services organizations with other functions.
9. The planning and management of information services resources.
10. The providing and management of an operations staff to support the
above listed activities.
<PAGE> 13
EXHIBIT B
RESTRICTED AREA
Fifty mile radius of the city limits of the following cities and any
additional cities where Employer or any subsidiary of Employer maintains an
office at any time during which Employee is employed by Employer:
Fort Worth, Texas Milwaukee, Wisconsin
Dallas, Texas Sheboygan, Wisconsin
Boston, Massachusetts
Columbia, South Carolina
<PAGE> 14
EXHIBIT C
CONFIDENTIAL INFORMATION
1. All software/systems (including all present, planned and future
software), whether licenses or unlicensed, developed by or on behalf of or
otherwise acquired by 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. 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.
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average shares outstanding ................................... 18,358 12,534 17,370 11,186
======== ======== ======== ========
Net income (loss) ............................................ $ 3,238 $ 2,456 $ 6,628 $ (400)
======== ======== ======== ========
Per share amount ............................................. $ .18 $ .20 $ .38 $ (.04)
======== ======== ======== ========
Diluted
Average shares outstanding ................................... 18,358 12,534 17,370 11,186
Net effect of dilutive stock options based on the
treasury stock method using the average market price ....... 1,996 1,259 2,003 1,146
-------- -------- -------- --------
Total ........................................................ 20,354 13,793 19,373 12,332
======== ======== ======== ========
Net income (loss) ............................................ $ 3,238 $ 2,456 $ 6,629 $ (400)
======== ======== ======== ========
Per share amount ............................................. $ .16 $ .18 $ .34 $ (.04)
======== ======== ======== ========
</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
period ended September 30, 1998, as indicated in our report dated November 2,
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 September 30, 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
November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ON AUGUST 17, 1998, INSPIRE INSURANCE SOLUTIONS, INC. EFFECTED A THREE-FOR-TWO
STOCK SPLIT. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THE STOCK
SPLIT/FN.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 58,648
<SECURITIES> 15,603
<RECEIVABLES> 14,392
<ALLOWANCES> 285
<INVENTORY> 0
<CURRENT-ASSETS> 96,709
<PP&E> 22,985
<DEPRECIATION> 13,129
<TOTAL-ASSETS> 126,632
<CURRENT-LIABILITIES> 10,471
<BONDS> 0
0
0
<COMMON> 184
<OTHER-SE> 112,483
<TOTAL-LIABILITY-AND-EQUITY> 126,632
<SALES> 0
<TOTAL-REVENUES> 61,401
<CGS> 0
<TOTAL-COSTS> 51,997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 11,482
<INCOME-TAX> 4,854
<INCOME-CONTINUING> 6,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,629
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.34
</TABLE>
