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 June 30, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22922
THE WESTERN SYSTEMS CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0995978
- ------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Janney Montgomery Scott, Inc., 26 Broadway, New York, NY 10004
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 510-0688
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
On July 23, 1997 there were outstanding 7,929,421 shares of the
registrant's common stock, $.60 par value.
<PAGE>
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
INDEX
<TABLE>
<CAPTION>
Page(s)
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PART 1. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1997 (unaudited) and December 31, 1996 3.
Consolidated Statements of Operations - Six and Three Months Ended
June 30, 1997 and 1996 (unaudited) 4.
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and
1996 (unaudited) 5.
Notes to Interim Consolidated Financial Statements (unaudited) 6.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8.
PART 2. Other Information
SIGNATURES
EXHIBITS: Exhibit 11 - Computation of Earnings (Loss) Per Share
Exhibit 27 - Financial Data Schedule
</TABLE>
<PAGE>
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
CONSOLIDATED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $9,204,343 $2,073,697
Deferred tax asset (Note 3) - 857,000
Accounts receivable - 107,717
Rights to receive - net - 3,335,763
Prepaid expenses and other current assets 1,833 194,800
---------- ----------
TOTAL CURRENT ASSETS 9,206,176 6,568,977
---------- ----------
PROPERTY AND EQUIPMENT - NET - 81,871
---------- ----------
OTHER ASSETS:
Franchise agreement - net - 423,800
Security deposits - 9,483
Other assets - 34,941
---------- ----------
- 468,224
---------- ----------
TOTAL ASSETS $9,206,176 $7,119,072
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable - rights to receive $ - $ 633,436
Accrued liabilities 9,033 202,112
Income taxes payable (Note 3) 383,000 -
Capitalized lease obligations - current portion - 3,576
----------- ---------
TOTAL CURRENT LIABILITIES 392,033 839,124
----------- ---------
LONG-TERM DEBT:
Capitalized lease obligations - 12,026
----------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value, 2,000,000 shares authorized;
none issued or outstanding - -
Common stock, $.60 par value, 25,000,000 shares authorized;
7,903,421 shares issued and outstanding 4,742,053 4,742,053
Additional paid-in capital 5,542,062 5,542,062
Retained earnings (deficit) (1,469,972) (4,016,193)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,814,143 6,267,922
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,206,176 $ 7,119,072
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3.
<PAGE>
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
----------------------------- -------------------------
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 54,396 $ 5,109,892 $ -- $ 2,518,434
COST OF SALES 36,263 3,367,502 -- 1,653,902
----------- ----------- ----------- -----------
GROSS PROFIT 18,133 1,742,390 -- 864,532
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Franchise costs 7,254 706,385 -- 347,160
Operating expenses 153,830 1,119,167 52,915 578,337
----------- ----------- ----------- -----------
161,084 1,825,552 52,915 925,497
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (142,951) (83,162) (52,915) (60,965)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 236,316 69,746 121,957 34,425
Interest (expense) -- (1,925) -- (944)
Gain on sale of franchise - net of purchase
expenses (Note 2) 4,092,856 -- -- --
----------- ----------- ----------- -----------
4,329,172 67,821 121,957 33,481
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 4,186,221 (15,341) 69,042 (27,484)
----------- ----------- ----------- -----------
INCOME TAXES (Note 3):
Provision for income taxes:
Current 783,000 -- -- --
Deferred 857,000 -- -- --
----------- ----------- ----------- -----------
1,640,000 -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 2,546,221 $ (15,341) $ 69,042 $ (27,484)
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE $.32 $0.00 $.01 $0.00
==== ===== ==== =====
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 7,949,849 7,930,819 7,959,690 7,950,803
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4.
<PAGE>
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1997 1996
-------------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from franchisor for cardholder restaurant spending $ 179,359 $ 5,108,052
Cash paid for franchise fees (24,251) (706,782)
Cash paid for rights to receive -- (3,889,106)
Cash paid to suppliers and employees (315,258) (951,457)
Cash received from sale of operating assets 7,454,480 --
Interest received 236,316 69,746
Interest paid -- (1,925)
Income taxes paid (400,000) --
----------- -----------
Net cash provided (utilized) by operating activities 7,130,646 (371,472)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (24,225)
Security deposits -- (45)
----------- -----------
Net cash (utilized) by investing activities -- (24,270)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations -- (1,348)
----------- -----------
Net cash (utilized) by financing activities -- (1,348)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,130,646 (397,090)
Cash and cash equivalents, at beginning of year 2,073,697 3,040,620
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 9,204,343 $ 2,643,530
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
(UTILIZED) BY OPERATING ACTIVITIES:
Net income (loss) $ 2,546,221 $ (15,341)
Adjustments to reconcile net income to net cash provided (utilized) by
operating activities:
Deferred taxes 857,000 --
Allowance for unrealizable rights to receive -- 102,547
Depreciation and amortization -- 30,495
Net book value of assets transferred to buyer 534,493 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 107,717 (12,281)
Decrease (increase) in rights to receive 3,335,763 (513,220)
Decrease in prepaid expenses and other current assets 192,967 39,200
(Decrease) increase in accounts payable - rights to receive (633,436) 13,815
(Decrease) in accrued expenses (193,079) (16,687)
Increase in income taxes payable 383,000 --
----------- -----------
Net cash provided (utilized) by operating activities $ 7,130,646 $ (371,472)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5.
<PAGE>
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION:
Through January 3, 1997, the Company was operating under a
franchise agreement with Transmedia Network, Inc. ("Network")
which granted to the Company the right to operate a franchise in
California, Washington, Oregon and certain parts of Nevada, the
primary business of which was the acquisition of Rights to
Receive food and beverage credits from restaurants that accept
the Transmedia restaurant card (a private restaurant charge card
marketed and issued by Network). See Note 2 below regarding sale
of the franchise and certain assets of the Company.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements of The Western Systems Corp.
formerly The Western Transmedia Company, Inc. (the "Company")
and its subsidiary TM West Corp. ("TM West") contain all
adjustments necessary (consisting of normal recurring accruals
or adjustments only) to present fairly the Company's financial
position as of June 30, 1997 and the results of its operations
for the six and three month periods ended June 30, 1997 and 1996
and its cash flows for the six month periods ended June 30, 1997
and 1996.
The accounting policies followed by the Company are set forth in
Note 2 to the Company's consolidated financial statements
included in its Annual Report on Form 10-K for the year ended
December 31, 1996, which is incorporated herein by reference.
Specific reference is made to this report for a description of
the Company's securities and the notes to consolidated financial
statements included therein.
NOTE 2 - SALE OF OPERATING ASSETS:
On January 3, 1997, the Company sold its Transmedia Network
franchise for the states of California, Oregon, Washington and
parts of Nevada and substantially all of its operating assets,
other than cash and cash equivalents, to its franchisor,
Network, for cash of approximately $7,500,000 (the "Asset
Sale"). The Company also transferred its obligations under its
capital and operating leases to Network. In connection with
the Asset Sale, the Company and Network exchanged general
releases of all liabilities and obligations under the franchise
agreement. However, pursuant to the terms of the contract, in
the event the Rights to Receive of a certain restaurant group
become uncollectible within 12 months after the closing date,
the Company is obligated to repurchase those Rights to Receive
from Network, at the time the determination is made that such
Rights to Receive are uncollectible, at the then outstanding
full cash amount. The Company would then have the right to
recover damages, including the amount it paid to Network, from
the restaurant group and guarantors. At June 30, 1997 the
outstanding full cash amount of such Rights to Receive totaled
approximately $75,000.
Page 6.
<PAGE>
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - INCOME TAXES:
As of the year end of December 31, 1996 the Company established
a deferred tax asset of $857,000, based primarily upon available
net operating losses, to offset the anticipated gain from the
sale of substantially all of its assets on January 3, 1997. This
gain resulted in approximately $4,186,000 of income for the six
months ended June 30, 1997 and accordingly, the liability
resulting from the $1,640,000 provision for income taxes has
been offset by the deferred tax asset.
NOTE 4 - POTENTIAL ACQUISITION:
On April 30, 1997, the Company entered into an agreement to
acquire substantially all the assets and assume substantially all
the liabilities of American Country Insurance Company and its
wholly-owned subsidiary, American Country Financial Services
Corp. (collectively "American") for cash of $40,250,000.
Financing for the acquisition will be provided by the Company's
cash on hand of approximately $8,800,000, approximately
$26,400,000 from the sale by the Company of approximately
24,000,000 shares of its common stock and the balance from
borrowings from a bank under a revolving credit facility. The
transaction is subject to shareholder and regulatory approval and
is expected to close in the third quarter of 1997.
Page 7.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments
On January 3, 1997, the Company sold its Transmedia Network
franchise (the "Franchise") covering the States of California,
Oregon, Washington and parts of Nevada and substantially all of
its operating assets other than cash and cash equivalents (the
"Asset Sale") to its franchisor, Transmedia Network Inc.
("Network"), for a cash payment of approximately $7,500,000. On
April 30, 1997, the Company entered into an agreement to acquire
substantially all the assets and assume substantially all the
liabilities of American Country Insurance Company and its
wholly-owned subsidiary, American Country Financial Services
Corp. (collectively "American") for cash of $40,250,000.
Financing for the acquisition will be provided by the Company's
cash on hand of approximately $8,800,000, approximately
$26,400,000 from the sale by the Company of approximately
24,000,000 shares of its common stock and the balance from
borrowings from a bank under a revolving credit facility. The
transaction is subject to shareholder and regulatory approval
and is expected to close in the third quarter of 1997.
Results of Operations
As discussed above in "Recent Developments" the Company sold its
Franchise on January 3, 1997 and, accordingly, operated the
Franchise for only two days during the six-month period ended
June 30, 1997. Accordingly, the results of operations for the
six and three month periods ended June 30, 1997 are not
comparable to the similar periods in 1996.
The following information relates primarily to the business
carried on by the Company prior to the Asset Sale.
Page 8.
<PAGE>
Net sales for the two days of operations, during the six month
period ended June 30, 1997, were $54,396 all of which was earned
during the first quarter ended March 31, 1997. Net sales were
$5,109,892 for the six month period ended June 30, 1996. Net
sales for the three month period ended June 30, 1996 was
$2,518,434; the Company recorded no sales for the three month
period ended June 30, 1997.
The Company operated with an approximate 33% gross profit margin
from net sales of Rights to Receive to holders of the Transmedia
restaurant card ("Cardholders"). The Company's net sales
contributed $18,133 and $1,742,390 in gross profit for the six
month periods ended June 30, 1997 and 1996, respectively, and $0
and $864,532 for the three month periods ended June 30, 1997 and
1996, respectively.
The Company incurred Franchise costs of approximately 14% of net
sales. Franchise costs were $7,254 and $706,385 for the six
month periods ended June 30, 1997 and 1996, respectively, and $0
and $347,160 for the three month periods ended June 30, 1997 and
1996, respectively.
Operating expenses (selling, general and administrative
expenses) aggregated $153,830 and $1,119,167 for the six month
periods ended June 30, 1997 and 1996, respectively. Operating
expenses aggregated $52,915 and $578,337 for the three month
periods ended June 30, 1997 and 1996, respectively. These
decreases of approximately $965,000 and $525,000 for the six and
three month periods resulted from completion of the Asset Sale,
on January 3, 1997, following which the Company's operating
overhead was limited to the administrative, accounting and legal
costs of complying with public reporting and tax requirements.
For the six and three month periods ended June 30, 1997,
operating expenses consisted primarily of salaries and
payroll-related expenses, and professional and consulting fees.
For the six and three month periods ended June 30, 1996,
operating expenses consisted primarily of salaries and payroll
expenses, professional and consulting fees, rent and office
expenses, the Company's reserve for unrealizable Rights to
Receive, advertising and promotional expenses in connection with
attracting and maintaining California Cardholders (net of
Transmedia Network reimbursement), and marketing expenses in
connection with attracting and maintaining participating
California restaurants.
Interest income was approximately $236,000 and $70,000 for the
six month periods ending June 30, 1997 and 1996, respectively.
Interest income was approximately $122,000 and $34,000 for the
three month periods ending June 30, 1997 and 1996, respectively.
The approximately $167,000 and $88,000 increase in interest
income earned by the Company for the respective six and three
month periods was due to the interest earned on the
approximately $7,500,000 gross proceeds received from the Asset
Sale.
For the six month period ended June 30, 1997, the Company
generated income before provision for income taxes of $4,186,221
compared to a loss of $15,341 for the similar period in the
prior year. The increase was primarily attributable to the
Company's gain on the Asset Sale. For the three month period
ended June 30, 1997, the Company generated income before
provision for income taxes of $69,042 compared to a loss of
$27,484 for the three month period ended June 30, 1996.
Page 9.
<PAGE>
For the six month period ended June 30, 1997 the Company
established a financial statement provision for income taxes of
$1,640,000. The $1,640,000 amount is the full theoretical tax
expense on the Company's approximately $4,186,000 pretax income
at an assumed 40% combined Federal and California effective tax
rate. The tax provision does not give effect to the Company's
$1,950,000 net operating loss carryforwards and other deductible
temporary differences. Of the total $1,640,000 financial
statement tax expense, the $783,000 current portion is the
actual projected net "tax return" tax payable by the Company
after utilizing the Company's net operating loss carryforwards.
The $857,000 deferred portion is not actually payable and is
required under the provisions of SFAS 109 to reverse the
$857,000 tax asset recognized during the year ended December 31,
1996. This asset, which recorded the tax benefit of the
Company's $1,950,000 net operating carryforwards, was required
at the end of 1996 because it was more likely than not at that
time that the losses would be utilized. For the years ended
December 31, 1995 and earlier, the Company did not record such a
tax credit because at that time there was no assurance that the
Company would generate future taxable income.
For the six month periods ended June 30, 1997 and 1996, the
Company earned net income of $2,546,221 ($.32 per share) and a
loss of $15,341 ($.00 per share), respectively. The net income
was primarily attributable to the Company's gain on the Asset
Sale net of taxes and expenses. For the three month periods
ended June 30, 1997 and 1996 the Company realized income of
$69,042 ($.01 per share) and losses of $27,484 ($.00)
respectively.
Liquidity and Capital Resources
The Company's working capital was approximately $8,814,000 at
June 30, 1997 and $5,730,000 at December 31, 1996. The
approximately $3,084,000 increase was primarily attributable to
the Company's gain on the Asset Sale net of expenses and accrued
taxes.
The Company's cash balances were approximately $9,204,000 and
$2,074,000 at June 30, 1997 and December 31, 1996, respectively.
The approximately $7,130,000 increase was primarily attributable
to the cash proceeds from the Company's gain on the Asset Sale.
At June 30, 1997, the Company's had no debt, its net worth was
approximately $8,740,000 and its current ratio was 23.5:1.
Cash provided by operating activities for the six month period
ended June 30, 1997 was approximately $7,131,000, primarily as a
result of the proceeds ($7,454,000) received from the Asset
Sale, net of expenses. Cash utilized by operating activities for
the six month period ended June 30, 1996 was approximately
$371,000. Cash flow used in investing activities for the six
month period ended June 30, 1996 was primarily for the purchase
of office furniture and equipment. Cash flow used in financing
activities for the six month period ended June 30, 1996 was
$1,348 for the payment of capital lease obligations. The Company
did not have any cash flow from investing and financing
activities during the six month period ended June 30, 1997.
Page 10.
<PAGE>
The Company presently has outstanding 2,052,987 warrants which
expire December 31, 1997 which will be adjusted upon completion
of the sale of stock and acquisition discussed under "Recent
Developments," pursuant to their anti-dilution provisions, to
entitle the holder of each warrant to purchase approximately
2.19 shares of common stock at approximately $1.83 per share.
There can be no assurance, however, that the Warrants will be
exercised and provide the Company with additional financing.
See "Recent Developments" for the anticipated sources of funding
for the acquisition.
Inflation and Seasonality
Inflation did not significantly impact the Company's business
during 1996 nor the six months ended June 30, 1997. The Company
does not believe that its business was seasonal.
Forward-looking Statements
This report may contain forward-looking statements and
information that is based on management's beliefs and
assumptions, as well as information currently available to
management. When used in this document, the words "anticipate,"
"expect," "intend," and similar expressions are intended to
identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or
expected.
Page 11.
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
On April 30, 1997, the Company entered into an agreement to acquire
substantially all the assets and assume substantially all the liabilities of
American Country Insurance Company and its wholly-owned subsidiary, American
Country Financial Services Corp. (collectively, "American") for cash of
$40,250,000. Financing for the acquisition will be provided by the Company's
cash on hand of approximately $8,800,000, approximately $26,400,000 from the
sale by the Company of approximately 24,000,000 shares of its common stock and
the balance from borrowings from a bank under a revolving credit facility.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.15a Asset Purchase Agreement dated April 30,
1997 by and among the Company, American
Country Insurance Company, American
Country Financial Services Corp.,
American Country Holding Corp., David R.
Markin, Martin L. Solomon, Allan R.
Tessler, Wilmer J. Thomas, Jr., Daniel R.
DeLeo, Edwin W. Elder and Wayne R.
Hannah, Jr.
10.15b Amendment No. 1 to Asset Purchase
Agreement dated as of May 30, 1997.
<PAGE>
10.16 Investment Agreement dated as of April 30,
1997 among the Company, Frontier
Insurance Group, Inc., Martin L. Solomon
and Wilmer J. Thomas, Jr.
10.17 Agreement dated as of April 30, 1997
among the Company, Frontier Insurance
Group, Inc., William J. Barrett, Herbert
M. Gardner, Martin L. Solomon and Wilmer
J. Thomas, Jr. to create executive
committee.
10.18 Agreement dated as of April 30, 1997
among the Company, William J. Barrett,
Herbert M. Gardner, Martin L. Solomon and
Wilmer J. Thomas, Jr. regarding fees for
mergers and acquisition transactions.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended June 30, 1997.
Page 12.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTERN SYSTEMS CORP.
Date: July 24, 1997 By: /s/ William J. Barrett
-----------------------------------
William J. Barrett
Chief Executive Officer and Director
(Acting Principal Executive Officer,
Acting Principal Financial Officer and
Acting Principal Accounting Officer)
Page 13.
<PAGE>
Exhibit Index
10.15a Asset Purchase Agreement dated April 30, 1997 by and
among the Company, American Country Insurance Company,
American Country Financial Services Corp., American
Country Holding Corp., David R. Markin, Martin L.
Solomon, Allan R. Tessler, Wilmer J. Thomas, Jr., Daniel
R. DeLeo, Edwin W. Elder and Wayne R. Hannah, Jr.
10.15b Amendment No. 1 to Asset Purchase Agreement dated as of
May 30, 1997.
10.16 Investment Agreement datd as of April 30, 1997 among the
Company, Frontier Insurance Group, Inc., Martin L.
Solomon and Wilmer J. Thomas, Jr.
10.17 Agreement dated as of April 30, 1997 among the Company,
Frontier Insurance Group, Inc., William J. Barrett,
Herbert M. Gardner, Martin L. Solomon and Wilmer J.
Thomas, Jr. to create executive committee.
10.18 Agreement dated as of April 30, 1997 among the Company,
William J. Barrett, Herbert M. Gardner, Martin L. Solomon
and Wilmer J. Thomas, Jr. regarding fees for mergers and
acquisition transactions.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
Exhibit 10.15a
Asset Purchase Agreement
ANNEX A
ASSET PURCHASE AGREEMENT
BY AND AMONG
AMERICAN COUNTRY INSURANCE COMPANY,
AMERICAN COUNTRY FINANCIAL SERVICES CORP.,
AMERICAN COUNTRY HOLDING CORP.,
THE WESTERN SYSTEMS CORP.,
DAVID R. MARKIN,
MARTIN L. SOLOMON,
ALLAN R. TESSLER,
WILMER J. THOMAS, JR.,
DANIEL R. DeLEO,
EDWIN W. ELDER
AND
WAYNE R. HANNAH, JR.
April 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
ARTICLE I TERMS OF PURCHASE AND SALE ....................................... 2
1.1 Sale of the Company's Assets ....................................... 2
1.2 Sale of ACFS Assets ................................................ 2
1.3 Assumption of Company Liabilities ................................. 2
1.4 Assumption of ACFS Liabilities .................................... 2
1.5 Deliveries ......................................................... 2
1.6 The Closing ...................................................... 3
1.7 Purchase Price and Payment ....................................... 3
1.8 Liabilities ...................................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND ACFS, AND ACHC REGARDING THE COMPANY AND ACFS .................. 4
2.1 Organization ...................................................... 4
2.2 Financial Statements ............................................. 4
2.3 Absence of Certain Changes or Events .............................. 5
2.4 Title to Assets ................................................... 6
2.5 Proprietary Information .......................................... 6
2.6 Commitments ...................................................... 6
2.7 Litigation ......................................................... 7
2.8 Compliance with Laws ............................................. 7
2.9 Corporate Power and Authority; No Conflicts ........................ 7
2.10 Employee Benefit Plans ............................................. 8
2.11 Consents ......................................................... 10
2.12 Subsidiaries ...................................................... 10
2.13 Real Property; Leases ............................................. 10
2.14 Environmental Matters ............................................. 10
2.15 Undisclosed Liabilities .......................................... 11
2.16 Insurance Coverage ................................................ 11
2.17 Insurance Reports; Regulatory Filings .............................. 11
2.18 Labor Relations ................................................... 11
2.19 Reserves ......................................................... 11
2.20 Insurance Business ................................................ 12
2.21 Investments ...................................................... 13
2.22 Disclosure ......................................................... 13
2.23 Disclaimer ......................................................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACHC AND THE
FORMER SHAREHOLDERS ................................................ 13
3.1 Litigation ......................................................... 13
3.2 Power and Authority; No Conflict ................................. 14
3.3 [Intentionally omitted.] .......................................... 14
3.4 Disclosure ......................................................... 14
3.5 [Intentionally omitted.] .......................................... 14
3.6 Relationship of the Former Shareholders with Related Persons ...... 14
3.7 Title ............................................................ 14
3.8 Disclaimer ......................................................... 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYERS
AND WESTERN ...................................................... 15
4.1 Organization ...................................................... 15
4.2 Corporate Power and Authority; No Conflicts ........................ 15
4.3 Consents ......................................................... 15
4.4 Availability of Funds ............................................. 15
4.5 Litigation ......................................................... 16
4.6 Vote Required ...................................................... 16
4.7 Western Vote ...................................................... 16
</TABLE>
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ARTICLE V COVENANTS OF THE COMPANY, ACFS, ACHC AND THE
FORMER SHAREHOLDERS ................................................ 16
5.1 Conduct of Business ................................................ 16
5.2 Access ............................................................ 17
5.3 Further Assurances ................................................ 18
5.4 Acquisition Proposals ............................................. 18
5.5 Advice of Changes ................................................ 18
5.6 Interim Financial Information .................................... 18
5.7 Termination of Affiliate Arrangements .............................. 18
5.8 Non-Competition Agreements ....................................... 18
5.9 Consents ......................................................... 18
5.10 Insurance Licenses ................................................ 18
ARTICLE VI COVENANTS OF THE BUYERS AND WESTERN .............................. 19
6.1 Books and Records; Personnel ....................................... 19
6.2 Assumed Liabilities ................................................ 19
6.3 Further Assurances ................................................ 19
6.4 Conduct Prior to Closing .......................................... 20
6.5 Insurance License and Permit Application; Form A Filing ............ 20
6.6 Western Corporate Action .......................................... 20
6.7 Formation of Sub 1 and Sub 2 ....................................... 20
ARTICLE VII ADDITIONAL COVENANTS ............................................. 20
7.1 Tax Matters ...................................................... 20
7.2 HSR Act Notification ............................................. 21
7.3 SEC Reports ...................................................... 22
7.4 Meeting of Stockholders .......................................... 22
7.5 Proxy Statement ................................................... 22
7.6 Best Efforts; Consents; Filings .................................... 22
7.7 Public Announcement ................................................ 22
7.8 Name ............................................................... 23
7.9 Non-Competition Covenant .......................................... 23
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF THE BUYERS AND WESTERN ............ 24
8.1 Representations, Warranties and Covenants of the Company, ACFS, ACHC
and the Former Shareholders ....................................... 24
8.2 Litigation ......................................................... 24
8.3 Stockholder Approval; Third Party Consents ........................ 24
8.4 Governmental Consents ............................................. 24
8.5 Opinion of the Sellers= Counsel .................................... 24
8.6 No Material Adverse Change ....................................... 24
8.7 Best's Rating ...................................................... 24
8.8 Insurance Department Examination ................................. 24
8.9 Indemnification from Checker Motors Corporation .................. 25
8.10 Name ............................................................... 25
8.11 Assumption Agreements ............................................. 25
8.12 Section 1445 Certificate .......................................... 25
8.13 Payment of Amended and Restated Buyer Notes ........................ 25
ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF THE SELLERS,
ACHC AND THE FORMER SHAREHOLDERS ................................. 25
9.1 Representations, Warranties and Covenants of the Buyer ............ 25
9.2 Litigation ......................................................... 25
9.3 [Intentionally omitted.] .......................................... 25
9.4 Governmental Consents ............................................. 25
9.5 Releases ......................................................... 26
9.6 Opinion of the Counsel to the Buyers and Western .................. 26
9.7 Assumption Agreements ............................................. 26
9.8 Stockholder Approval ............................................. 26
</TABLE>
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ARTICLE X COVENANTS RELATED TO EMPLOYMENT AND EMPLOYEE BENEFITS
ARRANGEMENTS ....................................... 26
10.1 Assumption of Pension Plan ........................ 26
10.2 Assumption of 401(k) Plan ........................... 26
10.3 Employment .......................................... 26
10.4 Indemnity .......................................... 26
10.5 Benefit Plans ....................................... 26
ARTICLE XI TERMINATION PRIOR TO CLOSING ........................ 27
11.1 Termination ....................................... 27
11.3 Effect of Termination .............................. 27
ARTICLE XII MISCELLANEOUS ....................................... 27
12.1 Survival .......................................... 27
12.2 Indemnification .................................... 28
12.3 Interpretive Provisions ........................... 29
12.4 Entire Agreement .................................... 29
12.5 Successors and Assigns .............................. 29
12.6 Headings .......................................... 29
12.7 Modification and Waiver ........................... 29
12.8 Broker's Fees ....................................... 29
12.9 Expenses .......................................... 30
12.10 Consulting Fees .................................... 30
12.11 Notices ............................................. 30
12.12 Governing Law ....................................... 32
12.13 Counterparts ....................................... 32
12.14 Certain Definitions ................................. 32
12.15 No Third Party Beneficiaries ........................ 37
</TABLE>
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ASSET PURCHASE AGREEMENT
This Agreement, made and entered into as of April 30, 1997 (the
"Agreement"), by and among American Country Insurance Company, an Illinois
insurance company (the "Company"), American Country Financial Services Corp., an
Illinois corporation ("ACFS" and, together with the Company, the "Sellers" and
either of the Sellers individually, a "Seller"), American Country Holding Corp.,
a Delaware corporation ("ACHC"), The Western Systems Corp., a Delaware
corporation ("Western"), David R. Markin ("Markin"), Martin L. Solomon
("Solomon"), Allan R. Tessler ("Tessler"), Wilmer J. Thomas, Jr. ("Thomas"),
Daniel R. DeLeo ("DeLeo"), Edwin W. Elder ("Elder") and Wayne R. Hannah, Jr.
("Hannah" and, collectively with Markin, Solomon, Tessler, Thomas, DeLeo and
Elder, the "Former Shareholders"). The Sellers, ACHC, Sub 2 (defined below),
Western, the Former Shareholders and Sub 1 (defined below) are referred to
collectively herein as the "Parties."
W I T N E S S E T H :
WHEREAS, the Company is a wholly owned subsidiary of ACHC;
WHEREAS, ACFS is a wholly owned subsidiary of the Company;
WHEREAS, Western, through its wholly-owned subsidiaries, desires to
purchase and the Company desires to sell substantially all of the Company's
assets upon the terms and subject to the conditions set forth herein; and
WHEREAS, (i) prior to the closing of the purchase of the assets of the
Company, Western intends to form a wholly-owned subsidiary of Western, which,
upon its formation, is expected to be an Illinois company, and Western intends
to cause such subsidiary to become a party to this Agreement as a Buyer ("Sub 2"
or a "Buyer") and (ii) prior to the closing of the purchase of the assets of the
Company, Western intends to form another wholly-owned subsidiary of Western,
which, upon its formation, is expected to be an Illinois insurance company, and
Western intends to cause such subsidiary to become a party to this Agreement as
a Buyer ("Sub 1" or a "Buyer" and, together with Sub 2, the "Buyers" (it being
understood that, where appropriate, the term "Buyers" as used herein shall be
deemed to include Sub 2 and Sub 1, each upon its formation and execution by it
of a counterpart of this Agreement as contemplated by Section 6.7 hereof)).
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, and upon the terms and subject to the
conditions hereinafter set forth, the Parties do hereby agree as follows
(Section 12.14 hereof sets forth the definitions of capitalized terms used
herein, or references the Sections in which such terms are defined):
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ARTICLE I
TERMS OF PURCHASE AND SALE
1.1 Sale of the Company's Assets.
(a) Company Assets to be Sold. On the Closing Date and subject to the terms
and conditions of this Agreement, the Company shall sell, convey, transfer,
assign and deliver to Sub 1, and Western shall cause Sub 1 to purchase from the
Company, all of the Company's right, title and interest in and to, the assets,
properties, rights and business of the Company of every type and description,
real, personal and mixed, tangible and intangible, wherever located and whether
or not reflected on the books and records of the Company, including, without
limitation, all assets, properties, rights and business of the Company, other
than the Company Excluded Assets, as the same may exist on the Closing Date
(collectively, the "Company Acquired Assets").
(b) Company Assets Excluded from Sale. Anything herein to the contrary
notwithstanding, the right, title and interest of the Company in and to the
assets of the Company listed on Exhibit 1.1(b) hereto (the "Company Excluded
Assets") shall not be purchased and sold hereunder, and the Company shall retain
all right, title and interest thereto.
1.2 Sale of ACFS Assets.
(a) On the Closing Date and subject to the terms and conditions of this
Agreement, ACFS shall sell, convey, transfer, assign and deliver to Sub 2 and
Western shall cause Sub 2 to purchase from ACFS, all of ACFS's right, title and
interest in and to the assets, properties, rights and business of ACFS of every
type and description, real, personal and mixed, tangible and intangible,
wherever located and whether or not reflected on the books and records of ACFS,
including, without limitation, all assets, properties, rights and business of
ACFS, other than the ACFS Excluded Assets, as the same may exist on the Closing
Date (collectively, the "ACFS Acquired Assets" and, together with the Company
Acquired Assets, the "Acquired Assets").
(b) ACFS Assets Excluded from Sale. Anything herein to the contrary
notwithstanding, the right, title and interest of ACFS in and to the assets of
ACFS listed on Exhibit 1.2(b) hereto (the "ACFS Excluded Assets" and, together
with the Company Excluded Assets, the "Excluded Assets") shall not be purchased
and sold hereunder, and ACFS shall retain all right, title and interest thereto.
1.3 Assumption of Company Liabilities.
(a) Company Liabilities to be Assumed. Upon the terms and subject to the
conditions of this Agreement, at the Closing, Western shall cause Sub 1 to
assume, and agree to pay, perform and discharge when due, any and all debts,
liabilities and obligations of the Company (whether fixed or contingent, matured
or unmatured, arising by law or by contract or otherwise, other than the Company
Excluded Liabilities (collectively, all such liabilities, other than the Company
Excluded Liabilities, the "Company Assumed Liabilities").
(b) Company Excluded Liabilities. Anything herein to the contrary
notwithstanding, Sub 1 shall not assume the liabilities of the Company that are
listed on Exhibit 1.3(b) hereto (collectively, the "Company Excluded
Liabilities").
1.4 Assumption of ACFS Liabilities.
(a) ACFS Liabilities to be Assumed. Upon the terms and subject to the
conditions of this Agreement, at the Closing, Western shall cause Sub 2 to
assume, and agree to pay, perform and discharge when due, any and all debts,
liabilities and obligations of ACFS (whether fixed or contingent, matured or
unmatured, arising by law or by contract or otherwise, other than the ACFS
Excluded Liabilities (collectively, all such liabilities, other than the ACFS
Excluded Liabilities, the "ACFS Assumed Liabilities" and, together with the
Company Assumed Liabilities, the "Assumed Liabilities").
(b) ACFS Excluded Liabilities. Anything herein to the contrary
notwithstanding, Sub 2 shall not assume the liabilities of ACFS that are listed
on Exhibit 1.4(b) hereto (collectively, the "ACFS Excluded Liabilities" and,
together with the Company Excluded Liabilities, the "Excluded Liabilities").
1.5 Deliveries. At the Closing, (i) the Company shall deliver to Sub 1 duly
executed instruments of transfer and assignment of the Company Acquired Assets
(including, without limitation, the Company Assignment
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Agreement) sufficient to vest in Sub 1 the interests in the Company Acquired
Assets being conveyed at the Closing in accordance with the terms of this
Agreement, (ii) ACFS shall deliver to Sub 2 duly executed instruments of
transfer and assignment of the ACFS Acquired Assets (including, without
limitation, the ACFS Assignment Agreement) sufficient to vest in Sub 2 the
interests in the ACFS Acquired Assets being conveyed at the Closing in
accordance with the terms of this Agreement, (iii) Western shall cause Sub 1 to
deliver to the Company duly executed instruments of assumption (including,
without limitation, the Reinsurance Assumption Agreement and the Company
Assumption Agreement) evidencing the assumption by Sub 1 of the Company Assumed
Liabilities and (iv) Western shall cause Sub 2 to deliver to ACFS duly executed
instruments of assumption (including, without limitation, the ACFS Assumption
Agreement) evidencing the assumption by Sub 2 of the ACFS Assumed Liabilities.
1.6 The Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York, commencing at 9:00
a.m., New York City time, on the date which is not later than five business days
after the satisfaction (or waiver) of each of the conditions to the Buyers' and
Western's obligations and the Sellers' and ACHC's obligations, as set forth in
Articles VIII and IX, respectively, or at such other time or place or on such
other date as may be mutually agreed to by the Parties in writing, subject to
Article XI hereof (the "Closing Date").
1.7 Purchase Price and Payment. The aggregate purchase price to be paid by the
Buyers for the Acquired Assets (the "Purchase Price") shall be an amount in cash
equal to $40,250,000. Payment of the Purchase Price shall be in U.S. dollars,
and shall be made, on the Closing Date, by wire transfer or delivery of other
immediately available funds to the respective accounts of each of the Sellers at
a bank or banks specified in advance in writing by each such Seller. Within six
months after the Closing, the Buyers shall deliver a schedule to the Sellers
allocating the sum of the Purchase Price and the Assumed Liabilities between the
Company and ACFS and among the Acquired Assets. To the extent the Buyers and the
Sellers agree upon the allocation made pursuant to the schedule prepared by the
Buyers under this Section 1.7, all Tax returns filed by or on behalf of the
Buyers and the Sellers shall be prepared consistently with such allocation and
the parties agree to prepare and file all Tax returns consistently with the
treatment of the transaction pursuant to this Agreement as a purchase and sale
of assets.
1.8 Liabilities.
(a) Each of the Buyers and Western understands and agrees that, from and
after the Closing, except for the Excluded Liabilities and except for any
obligations expressly incurred by the Sellers under this Agreement, neither of
the Sellers nor any of their Affiliates shall have any liability or
responsibility for any liability or obligation of or arising out of or relating
to any Seller (or any of its predecessors) or its assets or business (including,
in each case, as to Environmental Matters), of whatever kind or nature, whether
contingent or absolute, whether arising prior to, on or after, and whether
determined or indeterminable on the Closing Date, and whether or not
specifically referred to as the "Assumed Liabilities." In addition, from and
after the Closing, none of the Former Shareholders or their Affiliates (other
than the Sellers and ACHC) shall have any liability hereunder, including any
liability for the Excluded Liabilities or the obligations of the Sellers or ACHC
under this Agreement.
(b) Effective upon (and subject to the occurrence of) the Closing, Sub 1
shall pay or perform each Company Assumed Liability and Sub 2 shall pay or
perform each ACFS Assumed Liability (or reimburse the appropriate Seller
therefor) on the later of (i) the date on which such Assumed Liability is due or
is otherwise paid or performed in accordance with the Sellers' prior practices
or (ii) within five (5) days after the applicable Seller advises the applicable
Buyer of the amount thereof, provided that such Buyer may dispute such Assumed
Liability with the third party to whom such Assumed Liability is owed, in good
faith, by appropriate procedure after written notice to the applicable Seller of
its intent to do so and such Seller's consent thereto (which consent shall not
be unreasonably withheld or delayed). The grant to such Buyer of such right to
dispute shall not in any way affect the obligations of such Buyer to indemnify
the Sellers, ACHC and the Former Shareholders, pursuant to Section 12.2 hereof.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ACFS, AND ACHC
REGARDING THE COMPANY AND ACFS
The Company, ACFS and ACHC represent and warrant to the Buyers and Western
as follows (for purposes of the following representations and warranties, where
appropriate, the defined term "Company" shall be deemed to include ACFS and any
matters set forth on any schedule relating to ACFS shall specifically refer to
ACFS):
2.1 Organization. Each of the Company and ACFS is a corporation duly organized,
validly existing and in good standing under laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as it is now being conducted. Each of the Company and ACFS is duly
qualified to do business and is in good standing as a foreign corporation in all
jurisdictions where the nature of the property owned or leased by it, or the
nature of the business conducted by it, makes such qualification necessary and
the absence of such qualification would have a Material Adverse Effect.
2.2 Financial Statements.
(a) Statutory Financial Statements. The Company has delivered to Western
each of the following statutory financial statements (collectively, the
"Statutory Financial Statements"):
(i) audited statutory-basis balance sheets and the related statutory-basis
statements of income, changes in capital and surplus and cash flows as of and
for the fiscal years ended December 31, 1994, 1995 and 1996 (December 31,
1996 being the "Most Recent Fiscal Year End") of the Company;
(ii) if available, unaudited statutory-basis quarterly financial
statements of the Company (the annual or quarterly statutory financial
statements, as appropriate, dated as of and for the later of the Most Recent
Fiscal Year End and any quarter ending after December 31, 1996 being the
"Most Recent Statutory Financial Statements" and the date of such year end or
quarter end, as appropriate, being the "Most Recent Fiscal Month End"); and
(iii) the Statutory Financial Statements have been prepared in conformity
with accounting practices prescribed or permitted by the Illinois Insurance
Department. The variances between such practices and SAP and the effects on
the Statutory Financial Statements are described, in all material respects,
in the notes thereto. The information included in the notes to the Statutory
Financial Statements presents fairly, in all material respects, capital and
surplus and net income of the Company in conformity with SAP at and for the
periods covered thereby. The Statutory Financial Statements present fairly in
all material respects the financial position of the Company at and for the
periods covered thereby, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting practices prescribed
or permitted by the Illinois Insurance Department; provided, however, that
the Most Recent Statutory Financial Statements, if as of and for a date after
the Most Recent Fiscal Year End, are subject to year-end adjustments in
accordance with the accounting principles prescribed by the Illinois
Insurance Department, but which will not result in any Material Adverse
Effect.
(b) GAAP Financial Statements. As soon as practicable and in no event later
than ten days after the date hereof, the Company will deliver to Western each of
the following financial statements (collectively, the "GAAP Financial
Statements" and, together with the Statutory Financial Statements, the
"Financial Statements"):
(i) audited GAAP statements of income, changes in capital and surplus and
cash flows as of and for the fiscal years ended December 31, 1994, 1995 and
1996 for the Company;
(ii) audited GAAP consolidated balance sheets as of and for the fiscal
years ended December 31, 1995 and 1996;
(iii) if available, unaudited GAAP quarterly financial statements of the
Company as of and for any quarter ended after December 31, 1996 (the annual
or quarterly GAAP financial statements, as appropriate, dated as of and for
the later of the Most Recent Fiscal Year End and any quarter ending after
December 31, 1996 being the "Most Recent Consolidated GAAP Financial
Statements");
(iv) unaudited GAAP quarterly financial statements of the Company for any
comparable quarterly period in 1996 for which 1997 GAAP quarterly financial
statements are provided (the "Comparable GAAP Statements"); and
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(v) the GAAP Financial Statements present fairly, in all material
respects, the financial position of the Company at and for the periods
covered thereby, and the related results of its operations and cash flows for
the years then ended, and the GAAP Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, except that the Most Recent Consolidated GAAP Financial
Statements and the Comparable GAAP Statements, if any, are subject to
year-end adjustments in accordance with GAAP and lack footnotes and other
presentation items, but which will not result in any Material Adverse Effect.
2.3 Absence of Certain Changes or Events. Except as set forth in Section
2.3 of the Disclosure Schedule, the Most Recent Consolidated GAAP Financial
Statements or the Most Recent Statutory Financial Statements, since the Most
Recent Fiscal Year End, the Company and ACFS have conducted their businesses in
the Ordinary Course of Business, and neither the Company nor ACFS has:
(a) changed in any material respect the Company's reserves for losses,
claims and expenses, or its rates, actuarial assumptions, policy forms,
contractual arrangements, claims or procedures;
(b) suffered any damage, destruction or casualty loss (not covered by
insurance) to its physical properties which individually or in the aggregate
have had a Material Adverse Effect;
(c) incurred or discharged any obligation or liability or entered into any
other transaction except in the Ordinary Course of Business and except for
obligations, liabilities and transactions that do not individually or in the
aggregate have a Material Adverse Effect;
(d) suffered any material adverse change in its working capital, assets,
liabilities, operations or business or financial condition which individually or
in the aggregate have had a Material Adverse Effect;
(e) increased the rate or terms of compensation payable or to become
payable to its directors, officers or employees or increased the rate or terms
of any Business Benefit Plan covering any of its directors, officers or
employees, except in each case increases occurring in the Ordinary Course of
Business in accordance with its customary practices (including normal periodic
performance reviews and related compensation and benefit increases) or as
required by any pre-existing Commitment;
(f) created, permitted, suffered or assumed any Encumbrance on any of its
properties or assets, tangible or intangible, other than Permitted Exceptions;
(g) acquired or disposed of any assets or properties, or entered into any
agreement or other arrangement for such acquisition or disposition, except
acquisitions and dispositions in the Ordinary Course of Business;
(h) forgiven or canceled any debts or claims, or waived any rights, except
in the Ordinary Course of Business and except for forgiveness, cancellations and
waivers that do not individually or in the aggregate have a Material Adverse
Effect;
(i) changed in any material respect its accounting practices, policies or
principles, or changed its depreciation or amortization policies or rates
adopted by it other than changes which do not individually or in the aggregate
have a Material Adverse Effect or changes required by changes in GAAP, SAP or
applicable Insurance Laws, which do not individually or in the aggregate have a
Material Adverse Effect;
(j) entered into any employment agreement or adopted any Business Benefit
Plan other than those which do not individually or in the aggregate have a
Material Adverse Effect;
(k) (i) declared, set aside or paid any dividends or other distribution in
respect of the Stock of the Company, or shares of capital stock of, or other
equity interests in, ACFS or (ii) redeemed, purchased or otherwise acquired any
of the Company's securities or any of the securities of ACFS;
(l) transferred any asset, liability or obligations to or from any
Affiliate to the Company or ACFS or entered into any agreements with an
Affiliate;
(m) created, incurred, assumed, entered into or suffered to exist any
indebtedness for borrowed money or guaranteed any obligation of any Person; or
(n) agreed to take any action described in this Section 2.3.
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2.4 Title to Assets. The Company and ACFS have good and marketable title to
all of the Company Acquired Assets and ACFS Acquired Assets, respectively, free
and clear of all Encumbrances, except (a) as set forth in Section 2.4 of the
Disclosure Schedule, (b) liens for taxes not yet due and payable or due but not
delinquent or being contested in good faith by appropriate proceedings and (c)
Encumbrances which individually or in the aggregate do not have a Material
Adverse Effect (the matters set forth in the foregoing clauses (a), (b) and (c)
being referred to herein as the "Permitted Exceptions"). Except for the Excluded
Assets, the Company Acquired Assets and ACFS Acquired Assets include all rights,
properties and other assets necessary to permit the Company and ACFS,
respectively, to conduct their businesses in substantially the same manner as
has been heretofore conducted (it being understood that no representation or
warranty is being made as to the effect that not including the Excluded Assets
will or may have on the Company or ACFS, respectively, or their respective
business). The instruments of transfer to be executed and delivered by the
Sellers in connection with the transactions contemplated by this Agreement are
valid and binding obligations of each of the Sellers and are sufficient to
transfer to the applicable Buyer all rights, title and interest of the Sellers
in and to the Acquired Assets.
2.5 Proprietary Information. Neither the Company nor ACFS owns or uses any
United States or foreign trademarks, trade names, service marks, patents or
copyrights, and there are no applications pending therefor; nor does either have
any royalty, commission, licensing or other agreement with respect thereto. To
the Company's knowledge, neither the Company nor ACFS has interfered with,
infringed upon, misappropriated, or violated any material patent, copyright,
tradename or trademark right of any third party in any material respect, and
neither the Company nor ACFS has received any charge, complaint, claim, demand,
or notice alleging any such interference, infringement, misappropriation, or
violation.
2.6 Commitments. Section 2.6 of the Disclosure Schedule sets forth a list,
as of the date hereof, of each of the following written or oral agreements,
arrangements or commitments (including any and all amendments thereto) to which
the Company or ACFS is a party or by which the Company or ACFS is bound
(collectively, the "Commitments"):
(a) all reinsurance, retrocession, coinsurance or other similar
commitments, agreements or arrangements;
(b) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in excess
of $50,000 per annum in any one case;
(c) any agreement (or group of related agreements) for the purchase or sale
of supplies, products, or other personal property, or for the furnishing or
receipt of services, the performance of which will extend over a period of more
than one year or involve consideration in excess of $50,000 in any one case;
(d) any agreement concerning a partnership or joint venture or which
otherwise entitles any Person to share in the profits, revenues or cash flows of
the Company or ACFS or which requires any payments or other distributions based
thereon;
(e) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation or under which it has imposed an Encumbrance
on any of its assets, tangible or intangible, in excess of $50,000 in any one
case or $200,000 in the aggregate;
(f) any material agreement concerning confidentiality;
(g) any material sales agency or distributorship agreements;
(h) any agreements between the Company and ACFS or any of their respective
Affiliates;
(i) any material brokerage and finder's agreements;
(j) agreements and commitments for capital expenditures in excess of
$50,000 for any single project or $200,000 in the aggregate;
(k) any material employment, consulting, severance or agency agreement;
(l) any agreement under which it has advanced or loaned any amount to any
of its directors, officers and employees other than the advancement of expenses
in the Ordinary Course of Business;
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(m) other agreements, arrangements or commitments which are material to the
business or financial condition of the Company or ACFS;
(n) any power of attorney granted by the Company or ACFS to a third party;
(o) any agreement with any director, officer, shareholder or Affiliate or
other organization in which such Person, or anyone related to such Person, has a
direct or indirect financial interest;
(p) any agreement containing covenants limiting its freedom to compete in
any line of business or in any geographic area; and
(q) any agreement with, or undertaking or commitments to any governmental
or regulatory authority.
The Company and ACFS previously have delivered to Western a correct and
complete copy of each such written Commitment. Except as set forth in Section
2.6 of the Disclosure Schedule, neither the Company nor ACFS has knowledge of
any pending or threatened bankruptcy, insolvency or similar proceeding with
respect to any party to such agreements and no event has occurred which (with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder by the Company or ACFS or, to the
Company's knowledge, any other party thereto. Except as set forth on Section 2.6
of the Disclosure Schedule, to the knowledge of the Company, all of the
contracts, agreements and arrangements referred to, or required to be referred
to, in the Disclosure Schedule are valid and binding and are in full force and
effect and are enforceable in accordance with their terms.
2.7 Litigation. Except as set forth in Section 2.7 of the Disclosure Schedule,
there is no action, counterclaim, suit, hearing, investigation or proceeding of,
in or before any court, governmental authority or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator or other
forum for dispute resolution ("Litigation") pending or, to the Company's
knowledge, threatened against the Company or ACFS, or to which any of them is a
named party (i) with respect to which there is a reasonable likelihood of a
determination which would have a Material Adverse Effect or (ii) which seeks to
enjoin or obtain damages in respect of the consummation of the transactions
contemplated hereby. Except as set forth in the Disclosure Schedule or the
Financial Statements or the Regulatory Filings filed prior to the date of this
Agreement (including, without limitation, all documents referenced therein),
neither the Company nor ACFS is currently under review by the Illinois Insurance
Department, any other insurance department or agency or any other governmental
authority or subject to any outstanding orders, rulings, injunctions, judgments,
charges or decrees that have a Material Adverse Effect.
2.8 Compliance with Laws. Except as set forth in Section 2.8 of the Disclosure
Schedule, the Company and ACFS are in compliance with all applicable laws, rules
and regulations of federal, state, local and foreign governments (and all
agencies thereof) currently in effect, except where the failure to comply
therewith would not have a Material Adverse Effect. The Company and ACFS have
all permits, licenses, Insurance Licenses, and authorizations of governmental or
regulatory authorities (collectively, the "Permits") necessary or required for
the conduct of their businesses as presently conducted, except where the absence
thereof does not individually or in the aggregate have a Material Adverse
Effect. Section 2.8 of the Disclosure Schedule sets forth each Insurance License
and other Permit which the Company or ACFS possesses. There is no Litigation
pending or, to the Company's knowledge, threatened, seeking the revocation,
cancellation or suspension or any adverse modification, of any such Permits with
respect to which there is a reasonable likelihood of a determination which would
have a Material Adverse Effect. No event has occurred with respect to any
Insurance License which permits, or after notice or lapse of time (or both)
would permit, revocation or termination of any Insurance License, or would
result in any other impairment of the rights of the holder thereof, and no
terminations thereof have been threatened. Except as set forth in Section 2.8 of
the Disclosure Schedule, neither the Company nor ACFS has received any notice of
any violations or other deficiencies, which notice has been issued or which
deficiencies have been alleged to exist by any insurance department or other
official of any state, including those states in which the Company is licensed,
which violations or deficiencies have not been fully and completely remedied,
cured or otherwise satisfied as of the date hereof.
2.9 Corporate Power and Authority; No Conflicts. Each of the Company and ACFS
has the right, power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by each of the Company and ACFS of this Agreement and
the consummation by each of the Company and ACFS of the transactions
contemplated hereby have been duly
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authorized by all necessary corporate action on the part of each of the Company
and ACFS. This Agreement has been duly and validly executed and delivered by
each of the Company and ACFS and constitutes the valid and binding obligation of
each of the Company and ACFS, enforceable against each of them in accordance
with its terms. The execution, delivery and performance by each of the Company
and ACFS of this Agreement and the consummation by each of the Company and ACFS
of the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, (i) violate any provision of law, rule or
regulation to which the Company or ACFS is subject, (ii) violate any order,
judgment or decree applicable to the Company or ACFS or (iii) violate any
provision of the Certificate of Incorporation or the By-laws of the Company or
ACFS; except, in each case, for violations, breaches or defaults which in the
aggregate would not materially hinder or impair the consummation of the
transactions contemplated hereby.
2.10 Employee Benefit Plans.
(a) Section 2.10 of the Disclosure Schedule lists all material Business
Benefit Plans. True and complete copies thereof, as amended, including either
the original plan or the most recent restatement and all subsequent amendments
(other than any Multiemployer Plans), have previously been delivered to Western.
Except as set forth in Section 2.10 of the Disclosure Schedule, with respect to
each material Business Benefit Plan other than any Multiemployer Plan, true and
complete copies of the following have been delivered to Western:
(i) any related ERISA summary plan description or other summary of plan
provisions distributed to participants or beneficiaries for such plan;
(ii) the most recent determination letter, if any, received from the IRS
regarding such plan;
(iii) any pending applications, filings, or notices with respect thereto
with the IRS, PBGC or DOL;
(iv) the financial statements and annual reports on the Form 5500 series
for such plan for the last two years;
(v) the latest actuarial valuation, if any, for such plan;
(vi) each trust agreement, insurance contract or document setting forth
any other funding arrangement, if any, with respect to such plan;
(vii) each opinion or ruling from the IRS, DOL, or PBGC concerning such
plan in the prior 12 months; and
(viii) each Registration Statement, amendment thereto and prospectus
relating thereto filed with the SEC or furnished to participants in
connection with such plan.
(b) Except as set forth in Section 2.10 of the Disclosure Schedule, each of
the Business Benefit Plans intended to qualify under Section 401(a) of the Code
has received a favorable determination letter from the IRS to the effect that it
is qualified under Section 401(a) of the Code, and has never received notice or
determination by any governmental agency that it is not so qualified.
(c) Except as set forth in Section 2.10 of the Disclosure Schedule, to the
knowledge of ACHC and the Former Shareholders, the Business Benefit Plans (other
than any Multiemployer Plans, with respect to which the Company makes no
representations) sponsored or maintained by the Business have been maintained
and operated in material compliance accordance with their terms and all
provisions of applicable law.
(d) Except as set forth in Section 2.10 of the Disclosure Schedule, neither
the Company nor ACFS has participated in or contributed to any Multiemployer
Plan nor to the knowledge of ACHC and the Sellers does any of them have any
other liability, including any potential withdrawal liability, with respect to
any Multiemployer Plan, and none of them has incurred any current or potential
withdrawal liability as a result of a complete or partial withdrawal (or
potential partial withdrawal) from any such Multiemployer Plan by the Business
or by any member of the controlled or affiliated group of the Sellers, ACHC or
the Former Shareholders.
(e) Funding Matters.
(1) Except as set forth in Section 2.10 of the Disclosure Statement, no
liability to the PBGC has been incurred with respect to the Business
Benefit Plans. All premiums due and payable to the PBGC with respect to
the Business Benefit Plans have been paid in a timely manner. As of the
date of this
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Agreement, the PBGC has not instituted proceedings to terminate any of
the Business Benefit Plans. To the Sellers' knowledge, no event has
occurred and there exists no condition or set of circumstances which
would reasonably be expected to result in the involuntary termination of
any of the Business Benefit Plans by the PBGC pursuant to Section 4042 of
ERISA.
(2) Except as set forth in Section 2.10 of the Disclosure Schedule, the
current present value of all projected benefit obligations under each of
the Business Benefit Plans which is subject to Title IV of ERISA did not,
as of its latest valuation date, exceed the then current value of the
Business Plan Assets attributable to such benefit liabilities, based upon
reasonable actuarial assumptions currently used for such Business Benefit
Plan. In addition, except as set forth in the Disclosure Schedule, each
of the Business Benefit Plans which is subject to Title IV of ERISA is
fully funded on a termination basis such that the net fair market value
of the assets equals or exceeds the present value of the accrued benefits
under such Business Benefit Plan. The representation made in the
preceding sentence is based upon the reasonable actuarial assumptions
currently used for such Business Benefit Plan with such modifications as
are required by the PBGC for determining benefits on a termination basis.
(3) Except as set forth in Section 2.10 of the Disclosure Schedule, no
accumulated funding deficiency (as defined in Section 302(a)(2) of ERISA)
whether or not waived and regardless of the reason arising, exists with
respect to any Business Benefit Plan.
(4) Prior to the date of this Agreement or before the Closing Date, to
the knowledge of ACHC and the Sellers, no action has or will be taken,
the effect of which would reasonably be expected to subject the Business
or any member of the controlled or affiliated group of the Business to
any increased annual liability or withdrawal liability as a result of a
plan reorganization.
(5) Except as set forth in Section 2.10 of the Disclosure Schedule, none
of the Business Benefit Plans has been terminated or partially terminated
within the past 5 years, no contributions to any such Business Benefit
Plans been discontinued (within the meaning of Section 411 of the Code),
and there have been no events within the past 5 years which would
reasonably be expected to constitute grounds for such a termination,
partial termination or discontinuance of contributions. There has been no
withdrawal of a substantial employer (as described in Section 4063 of
ERISA) from any of the Business Benefit Plans.
(6) Except as set forth in the Disclosure Schedule, no member of the
controlled or affiliated group of the Sellers has withdrawn from any
Multiemployer Plan within the past 5 years.
(f) For the past 5 years, to the knowledge of ACHC and the Sellers, Summary
Plan Descriptions and all other returns, reports, registration statements,
prospectuses, documents, statements and communications which are required to
have been filed, published or disseminated under ERISA or other federal law and
the other rules and regulations promulgated by the DOL under ERISA and the
Treasury Department or by the SEC with respect to the Business Benefit Plans
have been so filed, published or disseminated.
(g) To the knowledge of ACHC and the Sellers, except as set forth in
Section 2.10 of the Disclosure Schedule:
(1) Neither the Business, any Business Benefit Plan, any trust or
arrangement created under any of them, nor any trustee who is an
Employee, fiduciary who is an Employee, custodian who is an Employee, or
administrator who is an Employee of the Business and a fiduciary of any
Business Benefit Plans has engaged in any "prohibited transaction" (as
such term is defined in ERISA to or the Code) which would reasonably be
expected to subject any of the foregoing persons or entities or any
person or entity dealing with them to any material tax, penalty, or other
material cost or material liability of any kind; and
(2) No Reportable Event (other than a Reportable Event for which the
statutory notice requirements have been waived by regulation) has
occurred with respect to any Business Benefit Plan.
(h) Other than claims for benefits arising in the ordinary course of the
administration or operation of the Business Benefit Plans, no claims,
investigations, litigation, or arbitrations are pending or threatened against
any Business Benefit Plan or against the Business with regard to any Business
Benefit Plan, any trust or arrangement created under or as a part of any
Business Benefit Plan, any trustee, fiduciary, custodian, administrator or other
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person or entity holding or controlling assets of any Business Benefit Plan and
to the knowledge of ACHC and the Sellers, no circumstance exists that would
reasonably be expected to give rise to any such claim or claims exist.
(i) Except as set forth in the Disclosure Schedule, the execution or
performance of the transactions contemplated by this Agreement are not
reasonably expected to create, accelerate or increase any obligations under any
Business Benefit Plan, including any obligation to make a payment that would be
nondeductible under Section 280G of the Code or any other Code provisions.
2.11 Consents. Except for (i) those Commitments indicated by a double or single
asterisk on Section 2.6 of the Disclosure Schedule and (ii) the Commitment
listed on Exhibit 8.3 hereof, no consent, approval or authorization of, or
exemption by, or filing with, any governmental authority (other than applicable
requirements, if any, pursuant to the HSR Act, Required Insurance Filings, and
Required Insurance Approvals) or any other Person is required in connection with
the execution, delivery and performance by the Company or ACFS of this Agreement
or the taking of any other action contemplated hereby, excluding, however,
consents, approvals, authorizations, exemptions and filings, if any, which any
Buyer or Western or any other Person is required to obtain or make or instances
where the failure to obtain such consents, approvals or authorizations, or to
make such filings or notifications, would not, either individually or in the
aggregate, prevent the Company or ACFS from performing its respective
obligations under this Agreement.
2.12 Subsidiaries. Other than ACFS, there is no corporation or other Person
with respect to which the Company or ACFS either (a) owns on the date hereof or
will own, directly or indirectly, on the Closing Date a majority of the common
stock or other equity interest of or (b) has the power to vote or direct the
voting of sufficient securities to elect a majority of the directors thereof.
Neither the Company nor ACFS controls any corporation, partnership, trust, or
other business association which is not a subsidiary of the Company or ACFS.
2.13 Real Property; Leases.
(a) Neither the Company nor ACFS owns any real property.
(b) Section 2.13 of the Disclosure Schedule sets forth all real property
leased or subleased to either the Company or ACFS or which the Company or ACFS
have agreed to purchase or lease (the "Leased Property"). The Company and ACFS
have delivered to Western correct and complete copies of the leases, subleases
and other applicable agreements for each Leased Property. With respect to each
such Leased Property:
(i) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(ii) neither the Company nor ACFS has assigned, transferred, conveyed,
mortgaged, deeded in trust, or Encumbered any interest in the leasehold or
subleasehold;
(iii) all Leased Properties have received all approvals of Governmental
Entities (including Permits) required in connection with the operation
thereof;
(iv) except for Permitted Exceptions, no Leased Property is subject to any
governmental decree or order (or threatened or proposed order known to the
Company) to be sold or taken by public authority or any rights of way,
building use restrictions, exceptions, variances, reservations or limitations
of any nature whatsoever which would have a Material Adverse Effect; and
(v) The plants, structures and equipment owned or leased by the Company
and ACFS are structurally sound with no known material defects, are in good
and safe operating condition and repair and are adequate for the uses to
which they are being put.
2.14 Environmental Matters. To the Company's knowledge, except as set forth in
Section 2.14 of the Disclosure Schedule or the Financial Statements filed prior
to the date of this Agreement:
(a) Each of the Company and ACFS (i) has complied in all material respects
with the Environmental, Health and Safety Laws and (ii) has obtained all Permits
which are required under the Environmental, Health and Safety Laws for its
operation and each such entity has been in substantial compliance with all terms
and conditions of such Permits;
(b) No Hazardous Substance has been discharged into the environment by the
Company or ACFS or on or from the premises of the Company or ACFS by any Person
which is required by the Environmental, Health and Safety Laws to be remediated
by or at the expense of the Company or ACFS;
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(c) There are no past, pending or threatened Environmental Claims asserted
against the Company or ACFS; and
(d) There are not now and there have never been any underground storage
tanks located at, on or under the Leased Property.
2.15 Undisclosed Liabilities. Except as reflected and adequately reserved
against in the Most Recent Statutory Financial Statements or disclosed in
Section 2.15 of the Disclosure Schedule, or as contemplated by this Agreement,
neither the Company nor ACFS has any debts, liabilities or obligations of any
nature (whether known or unknown, absolute or contingent), except (a) any debts,
liabilities or obligations incurred after the date of the Most Recent Statutory
Balance Sheet in the Ordinary Course of Business which shall in no event exceed
$100,000 in the aggregate, and (b) reserves as described in Section 2.19.
2.16 Insurance Coverage. Section 2.16 of the Disclosure Schedule contains a
list, as of the date hereof of all material insurance policies maintained by or
for the benefit of the Company and ACFS (the "Insurance Policies"). The Company
and ACFS have made available to Western copies complete and correct in all
material respects of all of the Insurance Policies together with all riders and
other written amendments thereto. The Insurance Policies are in full force and
effect, and all premiums due thereon have, to date, been paid. The Company and
ACFS have complied with the terms and provisions of the Insurance Policies
except where the failure to comply does not individually or in the aggregate
have a Material Adverse Effect.
2.17 Insurance Reports; Regulatory Filings.
(a) Section 2.17 of the Disclosure Schedule sets forth a list of all
reports of examination issued by the insurance authorities of each state in
which the Company and ACFS have filed Statutory Financial Statements since
December 31, 1991 (the "Insurance Reports"). Except as indicated in such
Statutory Financial Statements, Insurance Reports, other Regulatory filings or
on Section 2.17 of the Disclosure Schedule:
(i) no deficiencies have been asserted to the Company or ACFS by any such
regulatory authority with respect to such Statutory Financial Statements and
Insurance Reports;
(ii) since December 31, 1991, no fine or penalty has been imposed on the
Company or ACFS by any insurance regulatory authority or any court or other
governmental authority; and
(iii) no deposits have been made by the Company or ACFS with any insurance
regulatory authority which were not shown in the Statutory Financial
Statements or the most recent Statutory Financial Statements for any
quarterly period ending after December 31, 1996.
(b) Section 2.17 of the Disclosure Schedule sets forth a list of all
reports, statements, documents, registrations, filings, including, without
limitation, all rate and form filings, submissions, or applications required by
any applicable Insurance Laws to be filed regularly by the Company or ACFS
during any year (collectively, the "Regulatory Filings"). The Company and ACFS
have properly made the Regulatory Filings with the appropriate insurance
regulatory authority or any other authority with which such Regulatory Filings
must be filed or submitted, and the Regulatory Filings comply with all
applicable Insurance Laws. No material deficiencies have been asserted by any
such regulatory authority with respect to the Regulatory Filings. Since January
1, 1991, there have been no material disputes or controversies with or
investigations undertaken by any such regulatory authorities, except as set
forth in Section 2.17 of the Disclosure Schedule. Any disputes or controversies
with or undertaken by any such regulatory authorities have been resolved without
a Material Adverse Effect on the Company or ACFS or are currently being
contested or resolved by the Company or ACFS in good faith and in accordance
with any Insurance Laws.
2.18 Labor Relations. There is no collective bargaining agreement or other
labor contract covering employees of the Company or ACFS, and no union or other
labor organization is seeking to organize, or to be recognized as a collective
bargaining unit of employees of the Company or ACFS or for any similar purpose.
2.19 Reserves. The aggregate actuarial reserves and other actuarial amounts
held in respect of Assumed Liabilities with respect to Insurance Contracts of
the Company as established or reflected in the Most Recent Statutory Financial
Statements:
(a) (i) were determined in accordance with generally accepted actuarial
standards consistently applied, (ii) were fairly stated in accordance with said
actuarial principles and (iii) were based on actuarial assumptions that are in
accordance with industry standards and applicable Insurance Laws;
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(b) meet in all material respects the requirements of the Insurance Laws of
all jurisdictions in which the Company is licensed; and
(c) are adequate (under generally accepted actuarial standards consistently
applied) to cover the total amount of all reasonably anticipated matured and
unmatured claims, benefits or Assumed Liabilities of the Company under all
outstanding Insurance Contracts pursuant to which the Company has any liability.
For purposes of this clause (c), (i) the adequacy of reserves shall be
determined only on the basis of facts and circumstances known or anticipated or
which reasonably should have been known or anticipated (based on procedures
consistently applied, in accordance with industry standards and applicable
Insurance Laws by the Company in connection with assessing the adequacy of
reserves from time to time) by the Company as of the date hereof and (ii) the
fact that reserves covered by any such representation may be subsequently
adjusted at times and under circumstances consistent with the Company's ordinary
practice of periodically reassessing the adequacy of its reserves shall not be
used, in any manner whatsoever, to support any claim regarding the accuracy of
such representation; provided, however, that such adjustments do not result in a
Material Adverse Effect.
2.20 Insurance Business.
(a) All Insurance Contracts issued by the Company and now in force are, to
the extent required under applicable Law, on forms approved by applicable
insurance regulatory authorities in the jurisdictions where issued or have been
filed with and not objected to by such authorities within the period provided
for objection. All Insurance Contracts are consistent with all rate and form
regulatory filings currently in effect for the Company in each jurisdiction in
which the Company is licensed to write such Insurance Contracts. Subject to the
Buyers and Western obtaining any appropriate Insurance Licenses and all
necessary Permits and entering into the appropriate Reinsurance Assumption
Agreement, the transactions contemplated by this Agreement will not (i) affect
the validity of any Insurance Contract issued by the Company or (ii) render any
admissible assets of the Company inadmissible under the applicable Insurance
Laws of any applicable jurisdiction or the regulations promulgated thereunder.
(b) Except as set forth in Section 2.20 of the Disclosure Schedule or the
Statutory Financial Statements filed by the Company prior to the date of this
Agreement, the Company is in compliance with all capital and surplus
requirements of the state of Illinois and every other state in which the Company
is licensed to write insurance.
(c) Except as set forth in Section 2.20 of the Disclosure Schedule or the
Statutory Financial Statements or the Regulatory Filings filed by the Company
prior to the date of this Agreement, there is no judgment, order, Law or
regulation or other instrument binding on the Company or ACFS or either of their
assets or properties which has or would reasonably be expected to have the
effect of prohibiting or materially restricting any business practice of or the
conduct of business by the Company or ACFS as presently conducted or which has
any other Material Adverse Effect.
(d) Except as set forth in Section 2.20 of the Disclosure Schedule, all
benefits payable by the Company under Insurance Contracts have in all material
respects been paid (or provision for payment thereof has been made) in
accordance with the terms of the Insurance Contracts under which they arose and
the Company's claims manual, such payments were not delinquent and were paid (or
will be paid) without fines or penalties, except for such benefits for which the
Company reasonably believes there is a reasonable basis to contest payment and
is currently contesting payment in a diligent and continuous manner.
(e) Except as set forth in Section 2.20 of the Disclosure Schedule, since
the date of the Most Recent Statutory Financial Statements, all amounts
recoverable under reinsurance, coinsurance or other similar Contracts
(including, without limitation, amounts based on paid and unpaid Losses) are
fully collectible, except such as to which noncollectibility would not,
individually or in the aggregate, have a Material Adverse Effect.
(f) Section 2.20 of the Disclosure Schedule lists each insurance agent or
broker authorized to write, sell or produce business for the Company. Except as
set forth in the Disclosure Schedule:
(i) Each insurance agent or broker, at the time such agent or broker
wrote, sold or produced business for the Company, was duly licensed as an
insurance agent or broker for the type of business written, sold or produced
by such insurance agent or broker in the particular jurisdiction in which
such agent or broker wrote, sold or produced such business for the Company,
except for such failures to be so licensed as would not, individually or in
the aggregate, have a Material Adverse Effect;
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(ii) No insurance agent or broker violated any term or provision of any
Law, judgment, order or decree by writing, selling or producing such business
for the Company, except for such violations as would not, individually or in
the aggregate, have a Material Adverse Effect; and
(iii) Each insurance agent or broker has promptly remitted to the Company
all amounts required in accordance with any agreement, arrangement or
contract between such insurance agent or broker and the Company, except for
such failures to remit which do not, individually or in the aggregate, have a
Material Adverse Effect.
(g) All of the Investment Assets of each of the Company and ACFS included
in its Most Recent Statutory Financial Statements as admitted assets comply in
all material respects with the requirements for qualification as admitted assets
under the investment provisions of the Insurance Laws of the State of Illinois
and the applicable Insurance Laws of each of the other jurisdictions in which
the Company or ACFS possesses an Insurance License. None of the Investment
Assets of the Company and ACFS fail to qualify or are not permitted investments
under the investment provisions of the Insurance Laws of the State of Illinois
and the applicable Insurance Laws of each of the other jurisdictions in which
the Company or ACFS possess an Insurance License.
(h) Neither the Company nor ACFS is required to maintain nor does either
maintain any statutory deposits in any states in which it is licensed to engage
in the insurance business, except in the amounts, and with respect to the
states, set forth in Section 2.20 of the Disclosure Schedule or the Statutory
Financial Statements. All of such deposits are maintained in amounts and in all
other material respects, in accordance with applicable Insurance Laws.
2.21 Investments. Section 2.21 of the Disclosure Schedule sets forth a schedule
of the Company's Investment Assets as of March 31, 1997. Except as set forth
therein and except for the stock of ACFS, neither the Company nor ACFS owns any
capital stock or other securities or has any other investment in any Person.
2.22 Disclosure. No representations, warranties, assurances or statements by
the Company, ACFS or ACHC in this Agreement and no statement contained in any
document (including the Financial Statements and the Disclosure Schedule),
certificates or other writings furnished or to be furnished by the Company, ACFS
or ACHC (or caused to be furnished by the Company, ACFS or ACHC) to any Buyer or
Western or any of their representatives pursuant to the provisions hereof
contains or will contain any untrue statement of material fact, or omits or will
omit to state any fact necessary, in light of the circumstances under which it
was made, in order to make the statements herein or therein not misleading.
2.23 Disclaimer. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT AND IN THE
ANCILLARY DOCUMENTS, ACHC, THE COMPANY AND ACFS MAKE NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AND THE ASSETS AND BUSINESS OF THE COMPANY AND
ACFS BEING SOLD TO THE BUYERS AT THE CLOSING ARE TO BE CONVEYED HEREUNDER "AS IS
WHERE IS" ON THE CLOSING DATE, AND IN THEIR THEN PRESENT CONDITION, AND THE
BUYERS AND WESTERN SHALL RELY UPON THEIR OWN EXAMINATION THEREOF. IN ANY EVENT,
ACHC, THE COMPANY AND ACFS MAKE NO WARRANTY OF MERCHANTABILITY, SUITABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, OR QUALITY, WITH RESPECT TO ANY OF THE
TANGIBLE ASSETS BEING SO SOLD, OR AS TO THE CONDITION OR WORKMANSHIP THEREOF, OR
THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
ACHC AND THE FORMER SHAREHOLDERS
ACHC represents and warrants to the Buyers and Western and, solely with
respect to the representations and warranties contained in Section 3.6 and
solely with respect to himself, each of the Former Shareholders represents and
warrants, as follows:
3.1 Litigation. There is no Litigation pending, or to ACHC's knowledge,
threatened, involving the Company, ACFS or the Acquired Assets or which seeks to
enjoin or obtain damages in respect of the transactions contemplated hereby.
Neither ACHC nor any of its Affiliates is subject to any outstanding orders,
rulings, judgments or decrees which would impair the ability of ACHC to perform
its obligations hereunder.
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3.2 Power and Authority; No Conflict. ACHC is a corporation duly organized,
validly existing in good standing under the laws of the State of Delaware, and
has all requisite corporate power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery, and performance by ACHC of this Agreement and the
consummation by ACHC of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of ACHC. This Agreement
has been duly and validly executed and delivered by ACHC and constitutes the
valid and binding obligation of ACHC, enforceable against it in accordance with
its terms. The execution, delivery and performance by ACHC of this Agreement and
the consummation by ACHC of the transactions contemplated hereby, will not, with
or without the giving of notice or the lapse of time, or both, (i) violate any
provision of law, rule or regulation to which ACHC is subject, (ii) violate any
order, judgment or decree applicable to ACHC, (iii) violate any provision of the
Certificate of Incorporation or By-laws of ACHC or (iv) result in any breach of
or constitute a default under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
Encumbrance on any of the properties or assets of ACHC or any of its Affiliates
(other than the Company or ACFS) pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, Permit, franchise or other instrument or
obligation to which ACHC is a party or by which ACHC or any of their properties
(other than the Company or ACFS) is bound or affected; except, in each case, for
violations which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby.
3.3 [Intentionally omitted.]
3.4 Disclosure. No representations, warranties, assurances or statements by
ACHC or the Former Shareholders in this Agreement and no statement contained in
any document, certificate or other writing furnished by ACHC or the Former
Shareholders (or caused to be furnished by ACHC or the Former Shareholders) to
any Buyer or Western or any of their representatives pursuant to the provisions
hereof contains or will contain any untrue statement of a material fact, or
omits or will omit to state any fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
3.5 [Intentionally omitted.]
3.6 Relationship of the Former Shareholders with Related Persons. Except as set
forth in Section 3.6 of the Disclosure Schedule, none of the Former Shareholders
or their respective Affiliates or, to their knowledge, their relatives (in each
case, excluding ACHC) owns or has any other interest, directly or indirectly, in
any corporation, joint venture, partnership, limited liability company or other
entity or association that (i) competes with the Company or ACFS, (ii) sells or
purchases, or has in the past 12 months sold or purchased, products or services
to or from the Company or ACFS, (iii) leases, or has in the past 12 months
leased, real or personal property to or from the Company or ACFS or (iv)
otherwise does business with the Company or ACFS, except for ownership of less
than five percent (5%) of the outstanding capital stock of any company that is
publicly traded on any exchange or in the over-the-counter market.
3.7 Title. ACHC holds of record and owns beneficially 24,990.5 of the 25,000
outstanding shares of the Company, free and clear of any restrictions on
transfer (other than restrictions under the Automatic Repurchase and Pledge
Agreement, the Securities Act, applicable Insurance Laws, and state securities
laws), taxes, Encumbrances, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands.
3.8 Disclaimer. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT AND THE
ANCILLARY DOCUMENTS, NEITHER ACHC NOR ANY OF THE FORMER SHAREHOLDERS MAKES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AND THE ASSETS AND BUSINESS OF
THE COMPANY AND ACFS BEING SOLD TO THE BUYERS AT THE CLOSING ARE TO BE CONVEYED
HEREUNDER "AS IS WHERE IS" ON THE CLOSING DATE, AND IN THEIR THEN PRESENT
CONDITION, AND THE BUYERS AND WESTERN SHALL RELY UPON THEIR OWN EXAMINATION
THEREOF. IN ANY EVENT, ACHC AND THE FORMER SHAREHOLDERS MAKE NO WARRANTY OF
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR QUALITY,
WITH RESPECT TO ANY OF THE TANGIBLE ASSETS BEING SO SOLD, OR AS TO THE CONDITION
OR WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE BUYERS AND WESTERN
Each Buyer and Western hereby represents and warrants to the Sellers as
follows (for purposes of the following representations and warranties, where
appropriate, the defined term "Buyers" shall be deemed to include Sub 2 and Sub
1, each upon its formation, and any representation and warranty made by a Buyer
shall be deemed to be made by such Buyer as of the date of its execution of a
counterpart of this Agreement as contemplated by Section 6.7 hereof):
4.1 Organization. Each of the Buyers and Western is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby, except for the (i) Required Insurance
Approvals and (ii) in the case of Western, Stockholder Approval. Each of the
Buyers and Western has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted, and each is duly qualified and in good standing to do business in
each jurisdiction in which the character of its properties owned or leased or
the nature of the business conducted by it makes such qualification necessary,
other than where the failure to be so organized, validly existing and in good
standing, or to have such power and authority, as the case may be, would not
have a material adverse effect on the transactions contemplated hereby.
4.2 Corporate Power and Authority; No Conflicts. The execution, delivery and
performance by each Buyer and Western of this Agreement and the consummation by
each Buyer and Western of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of each Buyer and
Western, except, in the case of Western, for Stockholder Approval. This
Agreement has been duly and validly executed and delivered by each Buyer and
Western and, in the case of Western, subject to the receipt of Stockholder
Approval, constitutes the valid and binding obligation of each of them,
enforceable against each of them in accordance with its terms. Subject to
obtaining the consents and approvals referred to in Section 4.3 hereof, or on
Exhibit 4.3 hereto and, in the case of Western, Stockholder Approval, the
execution, delivery and performance by each Buyer and Western of this Agreement
and the consummation by each Buyer and Western of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time, or
both, (i) subject to obtaining the Required Insurance Approvals and any
approvals required under the HSR Act and, in the case of Western, Stockholder
Approval, violate any provision of law, rule or regulation to which any Buyer or
Western is subject, (ii) violate any order, judgment or decree applicable to any
Buyer or Western, (iii) subject in the case of Western to Stockholder Approval,
violate any provision of the organizational documents of any Buyer or Western,
(iv) result in any breach of or constitute a default under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of any Encumbrance on any of the properties or assets of any
Buyer or Western or any of their respective Affiliates pursuant to any, note,
bond, mortgage, indenture, contract, agreement, lease, Permit, franchise or
other instrument or obligation to which any Buyer or Western is a party or by
which any Buyer or Western or any of their respective properties are bound or
affected; except, in each case, for violations which in the aggregate would not
materially hinder or impair the consummation of the transactions contemplated
hereby. The Sellers have been provided with true and correct copies of the
charter and by-laws of Western.
4.3 Consents. Except as set forth in Exhibit 4.3 hereto, no consent, approval
or authorization of, or exemption by, or filing with, any governmental authority
(other than applicable requirements, if any, pursuant to the HSR Act, the
Securities Exchange Act, Required Insurance Filings and Required Insurance
Approvals) or any other Person (other than Stockholder Approval) is required in
connection with the execution, delivery and performance by the Buyers or Western
of this Agreement, or the taking of any other action contemplated hereby,
excluding, however, consents, approvals, authorizations, exemptions and filings,
if any, which the Sellers or ACHC or any other Person are required to obtain or
make or instances where the failure to obtain such consents, approvals or
authorizations, or to make such filings or notifications, would not, either
individually or in the aggregate, prevent the Buyers or Western from performing
its respective obligations under this Agreement.
4.4 Availability of Funds. Western has written commitments from financial
institutions to provide an aggregate of $7.0 million in connection with the
transactions contemplated herein, subject to the execution of definitive
financing agreements and the fulfillment of the conditions precedent thereunder.
Each Buyer and/or Western, as appropriate, will have, on the Closing Date,
funds, which, together with the funds of the other Buyer and/or Western, as
appropriate, are sufficient to consummate the transactions contemplated by this
Agreement.
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4.5 Litigation. There is no Litigation pending or, to knowledge of any Buyer or
Western, threatened against any Buyer or Western or any of their respective
Affiliates (i) with respect to which there is a reasonable likelihood of a
determination which would have a material adverse effect on the ability of any
Buyer or Western to perform its respective obligations under this Agreement, or
(ii) which seeks to enjoin or obtain damages in respect of the consummation of
the transactions contemplated hereby. No Buyer or Western or any of their
respective Affiliates is subject to any outstanding orders, rulings, judgments
or decrees which would have a material adverse effect on the ability of any
Buyer or Western to perform its respective obligations under this Agreement.
4.6 Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of common stock of Western is the only vote of the holders of
any class or series of Western capital stock necessary to consummate the
transactions contemplated by this Agreement.
4.7 Western Vote. Western represents that its officers and directors who own
Western common stock will vote in favor of all such matters as may be necessary
to effectuate the transactions contemplated by this Agreement, including,
without limitation, voting in favor of increasing Western's authorized shares of
common stock.
ARTICLE V
COVENANTS OF THE COMPANY, ACFS,
ACHC AND THE FORMER SHAREHOLDERS
Each of the Company, ACFS, ACHC and, solely with respect to the covenants
contained in Sections 5.4, 5.5 and 5.7 and solely with respect to himself, each
of the Former Shareholders hereby covenants and agrees with the Buyers and
Western as follows:
5.1 Conduct of Business. Except as may be otherwise contemplated by this
Agreement or set forth in Section 5.1 of the Disclosure Schedule, or except as
the Buyers or Western may otherwise consent to in writing (which consent shall
not be unreasonably withheld), from the date hereof and prior to the Closing,
(a) the Company and ACFS will:
(i) in all material respects, operate only in the Ordinary Course of
Business; provided, however that (x) payment of the federal income taxes
shown as due on the Tax Statement prepared pursuant to Section 7.1(c) hereof
for the period from January 1, 1997 through the Closing Date shall not be
considered as operating Outside of the Ordinary Course of Business and (y)
the payment or prepayment of state and local income taxes and franchise taxes
based on net income for the period beginning on January 1, 1997 and ending on
the Closing Date solely in those jurisdictions in which the Company or ACFS
does not file such tax returns on a combined, consolidated or unitary basis
with any other Person shall not be considered as operating Outside of the
Ordinary Course of Business, other than the payment or prepayment of any such
taxes relating to the sale of assets by the Sellers pursuant to this
Agreement or incurred as a result of an election made pursuant to Section
338(h)(10) of the Code in connection with the sale of the shares of the
Company pursuant to the Assignment Agreement;
(ii) use reasonable efforts to preserve intact their respective business
organizations;
(iii) maintain their respective properties and equipment in sufficient
operating condition and repair to enable them to operate their businesses in
all material respects in the manner in which such businesses are currently
operated, except for damages by reason of fire, flood, earthquake or other
acts of God;
(iv) continue all material existing Insurance Policies (or comparable
insurance) of or relating to the Company and ACFS in full force and effect;
(v) use reasonable efforts to preserve their relationships with their
employees, policyholders, insureds, agents, brokers, suppliers, and others
having material business relationships with them such that their respective
businesses will not be materially impaired; and
(vi) take all such reasonable actions as may be necessary to maintain,
preserve, renew and keep in force all licenses and permits of the Company
relating to the insurance business, including, without limitation, making all
Regulatory Filings or other filings and reports.
(b) the Company and ACFS will not, and ACHC will not permit the Company or
ACFS to:
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(i) take or omit to take any action, the effect of which would reasonably
be expected to cause any of the representations or warranties set forth in
Article II or Article III to be inaccurate as of the Closing Date or prevent
the Company, ACFS or ACHC from complying with any obligation contained in
this Agreement;
(ii) make, or propose to make, any change in its underwriting, investment
and other insurance practices which would cause a Material Adverse Effect;
(iii) declare, set aside, or pay any dividend or make any distribution
with respect to its capital stock, or make any loan to ACHC or to any Former
Shareholder, or redeem, purchase, or otherwise acquire any of its capital
stock or any other distribution from the Company to ACHC or any Former
Shareholder or to any other person or entity;
(iv) issue, sell or repurchase any capital stock of the Company or ACFS or
otherwise effect or agree to effect any change in the debt or equity
capitalization of the Company or ACFS or take any action which would affect
the current ownership by ACHC of the equity of the Company, or the Company's
ownership of the equity of ACFS;
(v) amend its certificate of incorporation or By-Laws or other
organizational documents or change the financial or tax accounting methods or
practices followed by the Company or ACFS, except as may be required by
changes in GAAP, SAP or applicable Insurance Laws;
(vi) license, sell, transfer, lease, pledge or otherwise dispose of or
encumber any of its tangible or intangible assets, except in each case in the
Ordinary Course of Business;
(vii) cancel or forgive any indebtedness or incur any indebtedness for
borrowed money or guarantee any such indebtedness or guarantee, endorse or
otherwise become responsible for the obligations of others, or make loans or
advances other than in the Ordinary Course of Business;
(viii) enter into any new transaction between ACHC or any Former
Shareholder, or any of their respective Affiliates or relatives, on the one
hand, and the Company or ACFS or any director, officer or employee of the
Company or ACFS, on the other hand; provided, however, that the Company may
enter into a consulting agreement as of the Closing Date with Markin
providing for the terms set forth in Item 6 of Section 2.3 of the Disclosure
Schedule and otherwise in such form as Western and Markin mutually shall
agree;
(ix) enter into any material contract or agreement or any amendment to, or
release any third party from its obligations under, any material contract,
agreement or instrument; grant or pay any increases in salary or benefits
(other than regularly scheduled increases in the Ordinary Course of Business
consistent with past practice); or adopt or amend any collective bargaining
agreement or Business Benefit Plans;
(x) make any capital expenditure in excess of $50,000 in any one case or
$200,000 in the aggregate;
(xi) materially reduce, or make any material change in the overall quality
or maturity characteristics of, the Investment Assets reflected in Section
2.22 of the Disclosure Schedule;
(xii) purchase, or enter into any agreement or arrangement for, any
Investment Asset, except for purchases, agreements or arrangements for
Investment Assets with a National Association of Insurance Commissioners
rating of "1", or except as otherwise approved by the Buyers, which approval
shall not be unreasonably withheld;
(xiii) dispose of, destroy or cause to be disposed of or destroyed any of
the books and records of the Company or ACFS; or
(xiv) authorize any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
5.2 Access. From the date hereof and prior to the Closing, the Company, ACFS
and ACHC shall provide the Buyers and Western with such information as the
Buyers and Western may from time to time reasonably request with respect to the
Company and ACFS and the transactions contemplated by this Agreement, and shall
provide the Buyers and Western and their representatives reasonable access
during regular business hours and upon reasonable notice to the properties,
books and records of the Company and ACFS as the Buyers and Western may from
time to time reasonably request. Any disclosure whatsoever during such
investigation by the Buyers and
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Western shall not constitute an enlargement of or additional representations or
warranties of ACHC, the Company or ACFS beyond those specifically set forth in
this Agreement. All such information and access shall be subject to the terms
and conditions of the letter agreement dated February 10, 1997 (the
"Confidentiality Agreement").
5.3 Further Assurances. At any time or from time to time after the Closing,
ACHC, the Company and ACFS shall, at the request of the Buyers and Western and
at the expense of the Buyers and Western, execute and deliver any further
instruments or documents and take all such further action, as the Buyers or
Western may reasonably request in order to (i) vest in Sub 1 title to and
possession of the Company Acquired Assets, (ii) vest in Sub 2 title to and
possession of the ACFS Acquired Assets, (iii) perfect and record, if necessary,
the sale, transfer, assignment, conveyance and delivery to the applicable Buyer
of the applicable Acquired Assets, and (iv) otherwise evidence the consummation
of the transactions contemplated hereby.
5.4 Acquisition Proposals. From the date hereof until the termination of this
Agreement or the Closing Date, whichever first occurs, none of ACHC or any
Former Shareholder will, nor will any of them cause the Company or ACFS to,
directly or indirectly, (i) take any action to solicit or initiate any offer or
indication of interest from any Person with respect to any Acquisition Proposal
(defined below), (ii) engage in discussions or negotiations with, enter into any
agreements relating to an Acquisition Proposal with, or provide any information
or assistance to, any Person that may be considering making or has made, an
Acquisition Proposal, or (iii) vote their shares of Stock in favor of any such
Acquisition Proposal. "Acquisition Proposal" means any proposal for a merger or
other business combination involving the Company or ACFS, or the acquisition of
any equity interest in, or a substantial portion of the assets of, the Company
or ACFS, other than the transactions contemplated by this Agreement.
5.5 Advice of Changes. The Company, ACFS, ACHC and, with respect to Section 3.6
only, the Former Shareholders shall promptly advise the Buyers and Western in
writing of any event occurring after the date hereof which would render any
representation or warranty of the Company, ACFS, ACHC or, with respect to
Section 3.6 only, a Former Shareholder, contained in this Agreement untrue or
inaccurate, if made on or as of the date of such event or as of the Closing
Date, or which prevents the Company, ACFS, ACHC or the Former Shareholders from
complying with any of their respective obligations hereunder.
5.6 Interim Financial Information. As promptly as practicable after each
regular accounting period subsequent to the Most Recent Fiscal Month End and
prior to the Closing Date, the Company will deliver to the Buyers periodic
financial reports in the form which it customarily prepares for its internal
purposes concerning the Company and ACFS and, if available, unaudited statements
of the financial position of the Company and ACFS (SAP and GAAP) as of the last
day of each accounting period, and statements of income and changes in the
financial position of the Company and ACFS for the period then ended.
5.7 Termination of Affiliate Arrangements. Prior to the Closing, except as set
forth on Exhibit 5.7 hereto or for obligations arising under this Agreement or
any Ancillary Documents, (i) each contract, agreement or other arrangement
existing as of the date of this Agreement or as of the Closing Date imposing any
obligation on the Company or ACFS for the benefit of ACHC or any Former
Shareholder or their respective Affiliates, shall be terminated and (ii) all
intercompany balances or other obligations owed by the Company or ACFS to ACHC
shall be canceled and the Company and ACFS completely discharged from liability
in connection therewith.
5.8 Non-Competition Agreements. Simultaneous with the execution of this
Agreement, each of David R. Markin and Allan R. Tessler shall enter into a
Non-Competition Agreement, substantially in the forms attached hereto as
Exhibits 5.8 (a) and 5.8(b) hereto, respectively.
5.9 Consents. The Sellers and ACHC shall use all reasonable commercial efforts,
but shall not be required, to obtain the consents with respect to the
Commitments indicated by a double asterisk on Section 2.6 of the Disclosure
Schedule. The Buyers and Western agree that the Sellers and ACHC shall not be
required to attempt to obtain the consents with respect to the Commitments
indicated by a single asterisk on such Section 2.6.
5.10 Insurance Licenses. In the event any of the Insurance Licenses granted to
a Seller cannot be assigned to the Buyers hereunder, (i) the Sellers shall cause
such Insurance License to be retired and (ii) from and after the Closing, the
Sellers shall not transact any insurance business pursuant to any such Insurance
License, nor shall they transfer or assign any such Insurance License to any
other Person or in any way permit any other Person to transact insurance
business pursuant to any such Insurance License.
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ARTICLE VI
COVENANTS OF THE BUYERS AND WESTERN
Each of the Buyers and Western hereby covenants and agrees with the Sellers
and ACHC as follows:
6.1 Books and Records; Personnel.
(a) The Buyers and Western shall not dispose of or destroy any of the books
and records of the Company and ACFS relating to periods prior to the Closing
("Books and Records") without first offering such records to the Sellers, ACHC
and the Former Shareholders.
(b) The Buyers and Western shall allow each of the Sellers, ACHC and the
Former Shareholders and each of their agents reasonable access to all Books and
Records during normal working hours at the respective Buyers' principal place of
business or at any location where any Books and Records are stored (or, if
stored in a warehouse or similar facility, at any office location of the
Buyers), and each of the Sellers and ACHC and each of the Former Shareholders
shall have the right, at its or his own expense, to make copies of any Books and
Records; provided, however, that any such access or copying shall be had or done
in such a manner so as not to interfere with the normal conduct of the Buyers'
business and the Buyer shall not move such records outside of the continental
United States.
(c) The Buyers and Western shall make available to each of the Sellers and
ACHC upon written request (i) copies of any Books and Records, (ii) the Buyers'
personnel to assist the Sellers and ACHC in locating and obtaining any Books and
Records, and (iii) any of the Buyers' personnel whose assistance or
participation is reasonably required by any Seller and ACHC in anticipation of,
or preparation for, existing or future Litigation, tax returns or other matters
in which any Seller or ACHC or any of their Affiliates is involved. The Sellers
and ACHC, as applicable, shall reimburse the Buyers and Western for the
reasonable out-of-pocket expenses incurred by any of them in performing the
covenants contained in this Section 6.1(c).
(d) The foregoing provisions of this Section 6.1 shall be in addition to
the obligations of the Buyers and Western under Sections 7.1(a) and 12.2(c)(ii).
6.2 Assumed Liabilities.
(a) As of the Closing Date, the Buyers and Western (each, a "Releasor" and
collectively, the "Releasors") each hereby will (i) fully, unconditionally and
irrevocably release and discharge each of the Sellers, ACHC and the Former
Shareholders, and each of their past and present officers, directors,
shareholders, managers, agents, trustees, representatives, advisors,
consultants, employees, successors, assigns, subsidiaries or Affiliates (each a
"Releasee," and collectively, the "Releasees") from all claims, causes of
action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims and
demands whatsoever, which the Releasors or the Releasors' past and present
directors, officers, shareholders, managers, agents, representatives, advisors,
consultants, employees, successors, assigns, subsidiaries or Affiliates ever
had, now have, or hereafter can, shall or may have, against the Releasees,
separately or collectively, for, upon, by reason of, in connection with, with
respect to, or arising out of, any of the Assumed Liabilities or otherwise,
whether known or unknown, from the beginning of the world to the Closing Date,
(ii) hereby covenant and agree not to sue the Releasees with respect thereto and
(iii) waive any rights that ever arose or may have arisen in the past or may
arise in the future in favor of any of them with respect thereto in each case
except as specifically provided in this Agreement or any Ancillary Document.
(b) The Buyers and Western agree that effective from and after the Closing,
the Sellers, ACHC and the Former Shareholders or their Affiliates shall have no
obligation for the self-insured retention portion of any product liability,
general liability, medical and other claims included in the Assumed Liabilities,
which claims were made or are to be made in the future in respect of periods
prior to the Closing ("Claims"), for which the Company or ACFS is responsible
vis a vis the Company's or ACFS's insurers (the "Company's Insurers"), so that
from and after the Closing, neither the Buyers nor Western will look to the
Sellers, ACHC, the Former Shareholders or their Affiliates for reimbursement of
any payment made by any of the Company's Insurers in respect of any Claim.
6.3 Further Assurances. At any time or from time to time after the Closing, the
Buyers and Western shall, at the request of a Seller, ACHC or any Former
Shareholder and at the expense of such Seller, ACHC or Former
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Shareholder, as applicable, execute and deliver any further instruments or
documents and take all such further action as such Seller or ACHC may reasonably
request in order to evidence the consummation of the transactions contemplated
hereby.
6.4 Conduct Prior to Closing. Neither the Buyers nor Western will take or omit
to take any action, the effect of which would reasonably be expected to cause
any of the representations or warranties set forth in Article IV hereof to be
inaccurate as of the Closing Date or prevent the Buyers or Western from
complying with any obligation of the Buyers or Western set forth in this
Agreement.
6.5 Insurance License and Permit Application; Form A Filing. Each of the Buyers
and Western agree to use its respective best efforts to: (a) promptly make its
respective filings, including Required Insurance Filings, and thereafter make
any other required submissions under applicable laws and regulations, including
any Insurance Law, necessary to obtain Insurance Licenses, Permits and Required
Insurance Approvals, including with respect to the formation of Sub 1 and the
authorization of Sub 1 to do business as an insurance company in the State of
Illinois; and (b) to submit a complete Form A Filing to the Illinois Department
of Insurance on or before the twenty-eighth (28th) day following the date
hereof, a copy of which shall be forwarded to the Sellers and their counsel.
6.6 Western Corporate Action. Western shall take all actions necessary in
accordance with the General Corporation Law of the State of Delaware, the
federal securities laws, and Western's Certificate of Incorporation and By-laws
in order to effectuate the transactions contemplated by this Agreement,
including, without limitation, obtaining Stockholder Approval.
6.7 Formation of Sub 1 and Sub 2. As soon as practicable after the date hereof
(and in any event prior to the Closing), Western shall (i) cause Sub 1 to be
formed as an Illinois insurance corporation having all requisite corporate power
under Illinois law to enter into and perform its obligations under this
Agreement, (ii) cause Sub 2 to be formed as an Illinois corporation having all
requisite corporate power under Illinois law to enter into and perform its
obligations under this Agreement and (iii) cause Sub 1 and Sub 2 to execute a
counterpart of this Agreement as a "Buyer" hereunder. Upon such execution by Sub
1, Sub 1 shall become a Party hereto and shall be bound by the provisions hereof
as a Buyer hereunder, and upon such execution by Sub 2, Sub 2 shall become a
Party hereto and shall be bound by the provisions hereof as a Buyer hereunder.
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Tax Matters.
(a) After the Closing Date, each of the Buyers and Western and each of the
Sellers and ACHC shall cooperate fully with each other and make available or
cause to be made available to each other in a timely manner such tax data, prior
tax returns and filings and other information as may be reasonably required for
the preparation by the Buyers and Western or by the Sellers and ACHC of any tax
returns, elections, consents or certificates required to be prepared and filed
by the Buyers or Western or by the Sellers or ACHC and any audit or other
examination by any taxing authority, or judicial or administrative proceeding
relating to liability for Taxes. The Buyers and Western and the Sellers and ACHC
will retain and provide to each other all records and other information which
may be relevant to any such tax return, audit or examination, proceeding or
determination and will provide each other with any final determination of any
such audit or examination, proceeding or determination that affects any amount
required to be shown on any tax return of any of the Buyers, Western, the
Sellers and ACHC for any period. Each of the Buyers and Western and the Sellers
and ACHC will retain copies of all tax returns, supporting work schedules and
other records and documents relating to tax periods or portions thereof ending
prior to or on the Closing Date until the expiration of any applicable statute
of limitations or extension thereof. Any information disclosed or provided by
the Buyers and Western to the Sellers and ACHC, or disclosed or provided by the
Sellers and ACHC to the Buyers and Western shall be kept strictly confidential,
shall be used only for the purposes set forth in this Article VII, and shall not
be disclosed to any third party except as may be required by law.
(b) Except as provided with respect to those taxes that are not Assumed
Liabilities but are payable pursuant to the Tax Statement as provided in Section
7.1(c), each of the Buyers and Western shall cause to be prepared and the
Sellers shall, upon timely receipt from the Buyers and after review thereof,
cause to be timely filed, all required tax returns relating to taxes assumed by
the Buyers (e.g., state sales taxes), but imposed on the Sellers, for any
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period which ends on or before the Closing Date for which tax returns shall not
have been filed as of the Closing Date. Not later than five days before the due
date for payment of taxes with respect to such tax returns, the Buyers shall pay
to the Sellers an amount equal to the taxes shown due on such tax returns.
(c) Within 45 days following the Closing Date, the Buyers shall cause to be
prepared and shall deliver to the Sellers a computation of (i) the federal
income tax liability of each of the Company and ACFS and (ii) the liability of
each of the Company and ACFS for income tax or franchise tax based on net income
for each state, locality and foreign jurisdiction in which either the Company or
ACFS is subject to such tax (the "Tax Statement"), in each case (w) computed, in
the case of Federal income taxes, (1) solely in the event that the parties to
the Assignment Agreement have not agreed upon the amount of the 1997 Taxes on or
prior to the Closing Date, for the period January 1, 1997 through the date prior
to the date of acquisition of the Company and ACFS by ACHC pursuant to the Tax
Sharing Agreement, and (2) for the period beginning on the date of the
acquisition of the Company and ACFS by ACHC through the Closing Date; and, in
the case of such state, local and foreign taxes, computed for the period
beginning on the date of acquisition of the Company and ACFS by ACHC through and
including the Closing Date, (x) excluding any such Tax liability of the Company
or ACFS based solely upon the sale of assets by the Sellers pursuant to this
Agreement and any Tax liability of the Company or ACFS as a result of an
election made pursuant to Section 338(h)(10) of the Code in connection with the
sale of the shares of the Company pursuant to the Assignment Agreement, (y)
subtracting the amount of any payments in respect of such Taxes made by the
Company or ACFS to the appropriate taxing authorities and (z) subtracting the
amount of any distributions made by the Company or ACFS in respect of such Taxes
on or prior to the Closing Date, pursuant to the Tax Sharing Agreement or
pursuant to any tax sharing or similar agreement or arrangement among any of the
Company, ACFS and ACHC and any of their respective Affiliates. The Tax Statement
shall (i) be prepared in a manner consistent with past practice used in the
preparation of the relevant income and franchise tax returns of or with respect
to the Company and ACFS, unless a past practice has been finally determined to
be incorrect by the applicable taxing authority or a contrary treatment is
required by law and (ii) include only the operations of the Company and ACFS as
such operations would be reported for the relevant jurisdiction if a tax return
were filed for either or both the Company and ACFS, as applicable in the
relevant jurisdiction. Unless the Sellers, within 15 days after receipt of the
Tax Statement, provide written notice to the Buyers objecting to the
computations set forth on the Tax Statement, the Buyers shall pay to the Sellers
the amounts shown as due thereon. If such written notice is given to the Buyers
by the Sellers and the parties are unable to agree upon the amounts due within
30 days after such notice is received by the Buyers, the Buyers and the Sellers
shall jointly designate a nationally recognized firm of independent public
accountants which is not affiliated with any of the Parties. Such accounting
firm shall determine the amounts to be paid to the Sellers and such
determination shall be final and binding upon the Parties. The fees, costs and
expenses of such accounting firm shall be borne 50% by the Buyers and Western
and 50% by the Sellers and ACHC.
(d) ACHC and the Sellers shall promptly notify Western and the Buyers in
writing upon receipt by ACHC or the Sellers of notice of any pending or
threatened Tax audits of or assessments against the Sellers in respect of income
or franchise taxes for those periods included on the Tax Statement. The Buyers
and Western shall have the sole right to represent the interests of the Sellers
in any Tax audit or administrative or court proceeding relating to such taxes
and to employ counsel of its own choice. In the event that a taxing jurisdiction
successfully asserts a deficiency solely (i) in respect of the income and
franchise taxes of the Company and ACFS that are included on the Tax Statement
and (ii) for the period beginning on the date of the acquisition of the Company
and ACFS by ACHC through the Closing Date, the Buyers shall prepare a revised
Tax Statement in conformity with the first two sentences of Section 7.1(c)
hereof adjusted to take the amount finally determined to be due in respect of
such deficiency into account and shall pay to the Sellers the additional amount
of tax (and any interest and penalties successfully asserted solely in respect
of such additional amount of tax) computed pursuant to such revised Tax
Statement.
(e) Notwithstanding any other provision of this Agreement, the parties
expressly agree that the Buyers and Western shall not assume any Excluded
Liabilities, including, without limitation, any Tax liabilities of any Seller,
ACHC or any of their respective Affiliates under Treasury Regulation Section
1.1502-6 or any comparable provision of state or local law.
7.2 HSR Act Notification. If necessary, the Sellers and ACHC and the Buyers and
Western shall each promptly prepare and file a notification with the United
States Justice Department (the "Justice Department") and the Federal Trade
Commission (the "FTC"). Western shall inform the Sellers by July 10, 1997
whether such notice is required by the HSR Act. The Parties shall cooperate with
each other in connection with the preparation of such
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notification, including sharing information concerning sales and ownership and
such other information as may be needed to complete such notification, and
providing a copy of such notification to the other prior to filing. Each of the
Parties shall keep all information about any other Party obtained in connection
with the preparation of such notification confidential. The Buyers or Western
shall pay the filing fee required under the regulations promulgated pursuant to
the HSR Act. In the event any Party shall receive a request for additional
information or documentary material from the Justice Department or the FTC, (i)
the Buyers and Western shall be primarily responsible for responding to such
request, and (ii) the Sellers and ACHC shall not respond to such request or
furnish any additional information or documentary material without first
notifying the Buyers and Western in writing.
7.3 SEC Reports. Western shall promptly deliver to the Sellers and ACHC true
and correct copies of any report, statement or schedule filed by Western with
the SEC subsequent to the date hereof and prior to the Closing.
7.4 Meeting of Stockholders. Western shall, as soon as practicable after the
date of this Agreement, take all action necessary in accordance with Delaware
Law and its Certificate of Incorporation and By-Laws to convene a meeting of its
stockholders to consider and vote upon, among other things, such transactions
contemplated by this Agreement as may require stockholder approval (the
"Stockholders' Meeting"). Western shall use its reasonable best efforts to
solicit or secure from stockholders of Western proxies or votes in favor of any
approval of the transactions contemplated by this Agreement as may be required
by Delaware Law, the Securities Act and the Exchange Act.
7.5 Proxy Statement. As soon as practicable after the execution of this
Agreement, Western shall prepare and file with the SEC a preliminary proxy
statement, and a form of proxy, in connection with obtaining Stockholder
Approval (such proxy statement/prospectus, together with any amendments thereof
or supplements thereto and the form of proxy, in each case in the form or forms
mailed to Western's stockholders, being referred to herein as the "Proxy
Statement"). Western will use all reasonable efforts to have or cause the Proxy
Statement to become effective as promptly as practicable, and shall take any
action required to be taken under any applicable federal or state securities
Laws. Each of the Sellers, ACHC and Western shall obtain and furnish all
information concerning it and the holders of its capital stock as the other may
reasonably request in connection with such actions. As promptly as practicable
after the Proxy Statement shall have become effective, Western shall mail the
Proxy Statement to all of its stockholders.
7.6 Best Efforts; Consents; Filings. Subject to the terms and conditions of
this Agreement, Western, the Buyers, ACHC and the Sellers each shall use its
reasonable best efforts to (i) take promptly, or cause to be taken, all
appropriate action, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Agreement; (ii) obtain
from any Governmental Entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by Western
or the Buyers (or any of their respective subsidiaries) (including, without
limitation, Required Insurance Filings and Required Insurance Approvals) in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated herein, including, without
limitation, the acquisition of the Acquired Assets by the Buyers (as set forth
herein); (iii) make all necessary filings, and thereafter make any other
required submissions, notifications and filings with respect to this Agreement
and the acquisition of the Acquired Assets required under (A) the Securities Act
and the Exchange Act and the rules and regulations thereunder, and any other
applicable Law, including, without limitation, any other federal or state
securities laws and (B) the HSR Act, if required, provided, however, that
Western, the Sellers and ACHC shall cooperate with each other in connection with
the making of all such filings, including, without limitation, providing copies
of all such documents to the non-filing party and its advisors prior to any
filing and, if requested, to accept all reasonable additions, deletions or
changes suggested by the non-filing party in connection therewith; and (iv)
remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto all benefits
contemplated by this Agreement.
7.7 Public Announcement. A press release (the "Press Release") shall be jointly
issued by Western and ACHC as soon as practicable after notice has been given to
A.M. Best of the execution of this Agreement; provided, that Western and ACHC
shall use their best efforts to give such notice to A.M. Best. Western and ACHC
shall consult with each other before issuing any press release with respect to
the transactions contemplated by this Agreement and the purchase of the Acquired
Assets (other than the Press Release) and shall not issue any such press release
(other than the Press Release), unless required by Law, prior to such
consultation.
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7.8 Name. The Sellers shall permit the Buyers and Western to use the name
"American Country" (the "Name") as its proposed name solely in connection with
carrying out their respective obligations hereunder; provided, however, that if
the transaction contemplated by this Agreement is terminated for any reason
whatsoever, the Buyers shall, and Western shall cause the Buyers to, immediately
cease and desist from any and all use of the Name and no Buyer shall use the
Name in connection with any matter whatsoever.
7.9 Non-Competition Covenant.
(a) Each of ACHC and the Company acknowledges and agrees that its covenants
contained in this Section 7.9 are essential to protect the business and goodwill
being purchased by the Buyers and that the Buyers would not purchase the
Acquired Assets but for the agreements and covenants contained in this Section
7.9. Accordingly, each of ACHC and the Company agrees that, from and after the
Closing, it will not, either directly or indirectly, individually, in
partnership, jointly, or in conjunction with any Person, whether as principal,
agent, shareholder or in any other capacity whatsoever:
(i) engage in the Company Business in the Territory;
(ii) solicit or contact potential customers or policyholders on behalf of,
associate with, invest in, obtain any interest in, advise, lend money to or
guarantee the debts or obligations of any Person, which is engaged in the
Company Business in the Territory;
(iii) solicit or accept business from any of the Company's customers or
policyholders, including actively sought prospective customers or
policyholders, for the purposes of providing products or services the same or
substantially similar to those provided in connection with the Company
Business;
(iv) except as requested by the Buyers or Western, persuade or attempt to
persuade any employee of the Company to terminate his or her service with the
Company; or
(v) persuade or attempt to persuade any customer or policyholder of the
Company to terminate or modify such customer's or policyholder's relationship
with the Company.
Notwithstanding anything to the contrary in this Section 7.9, ACHC and the
Company may acquire and/or hold up to five percent (5%) of the capital stock,
other equity interest or public debt of any corporation the stock, other equity
interest or public debt of which is publicly traded.
(b) Each of ACHC and the Company acknowledges and agrees that its breach of
any of the covenants or agreements contained in this Section 7.9 would cause
irreparable injury to the Buyers and Western and that remedies at law for any
actual or threatened breach by ACHC or the Company of such covenants or
agreements would be inadequate. Accordingly, in the event ACHC or the Company
breaches or threatens to breach any of the covenants contained in this Section
7.9, the Buyers and Western shall be entitled to specific performance, or
immediate, preliminary or permanent injunctive relief, as well as money damages
and attorneys' fees and costs. Each of ACHC and the Company agrees that the
existence of any claim or cause of action by ACHC or the Company against the
Buyers or Western, whether predicated upon this Agreement or any other contract
or document executed in connection herewith, shall not constitute a defense to
the enforcement by the Buyers of such covenants.
(c) It is the intention of ACHC, the Company, Western and the Buyers that
the provisions of this Section 7.9 be enforced to the fullest extent permissible
under the laws and public policies of each state and jurisdiction in which such
enforcement is sought, but that the unenforceability (or the modification to
confirm with such laws or public policies) of any provision hereof shall not
render unenforceable or impair the remainder of this Section 7.9, which shall be
deemed amended to delete or modify, as necessary, the invalid or unenforceable
provisions. Such parties further agree to alter the remainder of this Section
7.9 in order to render the same valid and enforceable.
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ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE BUYERS
AND WESTERN
The obligations of the Buyers and Western hereunder shall be subject to the
satisfaction (or waiver) on or prior to the Closing Date of all of the following
conditions:
8.1 Representations, Warranties and Covenants of the Company, ACFS, ACHC and
the Former Shareholders. Each of the Company and ACFS shall have complied in all
material respects with their respective agreements and covenants contained
herein to be performed on or prior to the Closing Date, and the representations
and warranties of each of the Company, ACFS, ACHC and the Former Shareholders
contained herein and not modified by a materiality qualification shall be true
in all material respects, and all other representations and warranties shall be
true in all respects, on and as of the Closing Date with the same effect as
though made on and as of the Closing Date, except (a) as otherwise contemplated
hereby, and (b) to the extent that any such representations and warranties were
made as of a specified date and as to such representations and warranties the
same shall continue on the Closing Date to have been true in all material
respects as of the specified date; provided, however, that the foregoing shall
not be a condition to the obligations of the Buyers and Western hereunder unless
the failure of such compliance, as stated above, or the failure of the
representations and warranties to be true, as stated above, in the aggregate
could have a Material Adverse Effect. The Buyers shall have received a
certificate of an officer of each of the Company, ACFS and ACHC and a
certificate of the Former Shareholders, each such certificate dated as of the
Closing Date and signed by the applicable officer or all of the Former
Shareholders, as applicable, certifying as to the fulfillment of the condition
set forth in this Section 8.1 (the "Officer's Certificate" or the "Former
Shareholders' Certificate," as applicable).
8.2 Litigation. No suit, investigation, action or other proceeding shall be
pending or overtly threatened by an unrelated third party against any of the
Parties before any court or governmental agency, which has resulted in the
restraint or prohibition of any such party, or could result in the obtaining of
material damages or other relief from such party which could have a Material
Adverse Effect, or a material adverse effect in connection with this Agreement
or the consummation of the transactions contemplated hereby.
8.3 Stockholder Approval; Third Party Consents. Western shall have received
Stockholder Approval. The Buyers and Western shall have received the consents
set forth on Exhibit 8.3 and such consents shall be in full force and effect.
8.4 Governmental Consents. (a) If applicable, the waiting period under the HSR
Act shall have expired or been terminated, (b) each of the Required Insurance
Approvals shall have been obtained, and (c) all other consents, approvals,
authorizations, exemptions and waivers from, by, in respect of, or filings with
governmental or regulatory bodies, authorities, officials or agencies required
in order to enable the Buyers and Western to consummate the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect.
8.5 Opinion of the Sellers' Counsel. The Buyers and Western shall have received
the opinions of counsel to ACHC and the Sellers, dated the Closing Date, setting
forth such opinions as may be agreed to by counsel to the Buyers and Western and
counsel to ACHC and the Sellers.
8.6 No Material Adverse Change. Except as set forth in Section 2.3 of the
Disclosure Schedule, the Company and ACFS shall not have suffered any Material
Adverse Effect since the Most Recent Fiscal Year End.
8.7 Best's Rating. The Company shall have maintained a Best's Rating of A-
(Excellent), and no modifiers shall be attached to such rating, prior to and
through the Closing Date unless such rating has been lowered or such modifiers
attached solely and clearly as a result of (a) the proposed capital structure of
the Buyers or (b) the proposed business plans of the Buyers.
8.8 Insurance Department Examination. No findings, recommendations,
requirements or restrictions on the Company or its assets or operations, except
for those which, individually or in the aggregate, would not have a Material
Adverse Effect shall have been issued, proposed or threatened or otherwise made
known to the Company, Sub 2 and Western by the Illinois Department of Insurance,
pursuant to the examination of the condition and affairs of the Company for the
period January 1, 1993 through December 31, 1996, or otherwise, on or before the
Closing Date.
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8.9 Indemnification from Checker Motors Corporation. CMC shall have executed
and delivered an indemnification agreement in such form as may be agreed to by
the respective parties thereto (the "Indemnification Agreement") pursuant to
which CMC agrees to indemnify the Buyers and Western from any Losses incurred as
a result of (i) partial or complete withdrawal by a member of the affiliated or
controlled group of CMC from the National Industrial Group Pension Plan and any
other Multiemployer Plan in which any member of the affiliated or controlled
group of CMC has participated, and (ii) the maintenance and termination of the
Checker Motors Pension Plan (other than Losses relating to former or current
employees of the Company or ACFS).
8.10 Name. The Company and ACFS each shall have changed its name to exclude the
words "American" or "Country."
8.11 Assumption Agreements. The Company shall have executed the Reinsurance
Assumption Agreement and the Company and ACFS shall have executed the Company
Assumption Agreement and the ACFS Assumption Agreement, respectively, in such
forms as may be agreed to by the parties thereto.
8.12 Section 1445 Certificate. Each Seller shall have furnished the Buyers with
a certificate that such Seller is not a foreign person within the meaning of
Section 1445 of the Code, which certificate shall set forth all information
required by, and otherwise be executed in accordance with, Treasury Regulation
Section 1.1445-2(b).
8.13 Payment of Amended and Restated Buyer Notes. The Buyers and Western shall
have received satisfactory evidence that ACHC has given irrevocable instructions
that the Amended and Restated Buyer Notes be repaid with the proceeds of the
transactions contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS,
ACHC AND THE FORMER SHAREHOLDERS
The obligations of each Seller, ACHC, and the Former Shareholders hereunder
shall be subject to the satisfaction (or waiver) on or prior to the Closing Date
of all of the following conditions:
9.1 Representations, Warranties and Covenants of the Buyer. Each of the Buyers
and Western shall have complied in all material respects with their agreements
and covenants contained herein to be performed on or prior to the Closing Date,
and the representations and warranties of each of the Buyers and Western
contained herein and not modified by a material qualification shall be true in
all material respects, and all other representations and warranties shall be
true in all respects, on and as of the Closing Date with the same effect as
though made on and as of the Closing Date, except (a) as otherwise contemplated
hereby, and (b) to the extent that any such representations and warranties were
made as of a specified date and as to such representations and warranties the
same shall continue on the Closing Date to have been true in all material
respects as of the specified date. The Sellers shall have received certificates
of each of the Buyers and Western, dated as of the Closing Date and signed by an
officer of each of the Buyers or Western, as appropriate, certifying as to the
fulfillment of the condition set forth in this Section 9.1 (the "Buyer's
Certificate" or "Western's Certificate").
9.2 Litigation. No suit, investigation, action or other proceeding shall be
pending or overtly threatened by an unrelated third party against any Party
before any court or governmental agency, which has resulted in the restraint or
prohibition of any such party, or could result in the obtaining of material
damages or other relief from such party which could have a Material Adverse
Effect, or a material adverse effect in connection with this Agreement or the
consummation of the transactions contemplated hereby.
9.3 [Intentionally omitted.].
9.4 Governmental Consents. (a) If applicable, the applicable waiting period
under the HSR Act shall have expired or been terminated, (b) each of the
Required Insurance Approvals shall have been obtained, and (c) all other
consents, approvals, authorizations, exemptions and waivers from, by, in respect
of, or filings with governmental or regulatory bodies, authorities, officials or
agencies required in order to enable the Sellers and ACHC to consummate the
transactions contemplated hereby shall have been obtained (except for such
consents, approvals, authorizations, exemptions and waivers, the absence of
which would not prohibit consummation of such transactions or render such
consummation illegal).
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9.5 Releases. Each of the Sellers shall have executed a General Release of each
of the Former Shareholders substantially in the form of Exhibit 9.5 hereto.
9.6 Opinion of the Counsel to the Buyers and Western. The Sellers shall have
received an opinion of Paul, Weiss, Rifkind, Wharton & Garrison and/or Epstein
Becker & Green, P.C., dated the Closing Date, setting forth such opinions as may
be agreed to by counsel to ACHC and the Sellers and counsel to the Buyers and
Western.
9.7 Assumption Agreements. Sub 1 shall have executed the Reinsurance Assumption
Agreement and Sub 1 and Sub 2 shall have executed the Company Assumption
Agreement and the ACFS Assumption Agreement, respectively, in such forms as may
be agreed to by the respective parties thereto.
9.8 Stockholder Approval. Western shall have received the Stockholder Approval.
ARTICLE X
COVENANTS RELATED TO EMPLOYMENT
AND EMPLOYEE BENEFITS ARRANGEMENTS
The Parties hereby covenant and agree as follows:
10.1 Assumption of Pension Plan. As of the Closing Date, Western (or Sub 1) and
the Company shall enter into a Pension Plan Assumption and Trust Sponsor
Substitution Agreement, in such form as may be agreed to by the parties thereto,
pursuant to which Western (or Sub 1) will assume sponsorship of the American
Country Insurance Company Pension Plan (the "Company Pension Plan") and all
liabilities of the Company thereunder with respect to participants and
beneficiaries under the Company Pension Plan and will be substituted for the
Company as sponsor of the trust thereunder. Service taken into account under the
Company Pension Plan prior to the Closing with the Sellers shall be treated as
service with the Buyers for all purposes under the Company Pension Plan.
10.2 Assumption of 401(k) Plan. As of the Closing Date, Western (or Sub 1) and
the Company shall enter into a 401(k) Plan Assumption and Trust Sponsor
Substitution Agreement, in such form as may be agreed to by the parties thereto,
pursuant to which Western (or Sub 1) will assume sponsorship of the American
Country Insurance Company Employees 401(k) Plan (the "Company 401(k) Plan") and
all liabilities of the Company thereunder with respect to participants and
beneficiaries under the Company 401(k) Plan and will be substituted for the
Company as sponsor of the trust thereunder. Service taken into account under the
Company 401(k) Plan prior to the Closing with the Sellers shall be treated as
service with the Buyers for all purposes under the American Country 401(k) Plan.
10.3 Employment. As of the Closing Date, the Buyers shall offer continued
employment to all Employees of the Company and ACFS on such date (including
employees on leave of absence or disability) on terms and conditions identical
to those immediately prior to the Closing; provided, however, that nothing in
this agreement shall be construed to limit in any way the ability of the Buyers
to terminate the employment or any of the terms and conditions of employment of
any Employee or the terms of any Business Benefit Plan at any time after the
Closing.
10.4 Indemnity. In addition to the obligations of the Buyers pursuant to
Section 12.2 hereof, Western and the Business shall jointly and severally
indemnify the Sellers and their affiliates and hold each of them harmless from
and against any Losses which may be incurred or suffered by any of them under
the WARN Act arising out of, or relating to, any action taken by the Buyers or
the Business on or after the Closing Date; provided, however, that as of the
Closing, Company has not incurred any liability or obligation under WARN or any
similar state law and within the six-month period immediately following the
Closing, will not incur any such liability or obligation if, during such
six-month period, only terminations of employment in the normal course of
operations occur.
10.5 Benefit Plans. Without limiting the generality of Section 6.3, the Buyers
shall, or shall cause the Business to, assume all employment-related liabilities
and obligations of the Company and ACFS, Sellers, CRA, CMC and members of their
controlled or affiliated group (including the Business) with respect to the
Employees and their dependents and beneficiaries, including, but not limited to,
(i) liabilities and obligations for benefits, compensation, contributions),
insurance and health maintenance organization premiums, reserves and
administrative expenses whether incurred or accrued before, on or after the
Closing Date and whether or not reported as of the Closing Date, (ii)
liabilities and obligations arising under the continuation coverage requirements
of Section 4980B of the Code and Section 601 of ERISA with respect to all
Employees (or any beneficiary or dependent of
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any Employee) who, as of the Closing Date, have exercised or are eligible to
exercise their right to such continuation coverage, and (iii) liabilities and
obligations to provide post-retirement health and life insurance benefits to
Employees (whether or not currently retired); and the Buyers and the Business
shall jointly and severally indemnify the Sellers, CRA and CMC and hold each of
them harmless from and against any Losses which any of them may incur or suffer
in respect of any of the foregoing liabilities and obligations.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) By the Sellers in writing if there is a condition in Article IX that
has not been fulfilled or waived on or prior to August 31, 1997; or
(b) By the Buyers and Western in writing if there is a condition in Article
VIII that has not been fulfilled or waived on or prior to August 31, 1997; or
(c) By the mutual written consent of ACHC and the Sellers, on the one hand,
and the Buyers and Western, on the other hand; or
(d) By Western and the Buyers, on the one hand, and ACHC and the Sellers,
on the other hand, in writing, without liability (other than pursuant to
Section 12.9) to the terminating Party on account of such termination
(provided the terminating Party is not otherwise in default or in breach of
this Agreement), if the Closing shall not have occurred on or before August
31, 1997, including because of the failure by the Buyers or Western to obtain
Required Insurance Approvals; or
(e) By Western, the Buyers, ACHC or the Sellers, in writing, if there shall
be (i) any law or regulation (including any Insurance Law) that makes
consummation of the transactions contemplated hereby illegal or otherwise
prohibited or (ii) any judgment, injunction, order or decree (including,
without limitation, under the HSR Act, if required, the Exchange Act or any
applicable Insurance Law) enjoining the Parties from consummating the
transactions contemplated hereby, provided that the Parties shall have used
their reasonable good faith efforts to have any such judgment, injunction,
order or decree lifted and the same shall not have been lifted within
forty-five (45) days after entry by any court or governmental or regulatory
authority; or
(f) By the Sellers and ACHC, in writing, if a Form A filing and an
application for Insurance Licenses have not been submitted by Western on
behalf of itself and Sub 1, as appropriate, to the Illinois Department of
Insurance by the twenty-eighth (28th) day following the date hereof;
provided, however, that notice of such termination must be given prior to the
submission of the filing; or
(g) By Western, if it is unable, in good faith and after using its
reasonable best efforts, to obtain Stockholder Approval.
11.2 Automatic Termination. This Agreement shall be terminated automatically,
without any action by any Party hereto, if (i) the stockholders of Western have
failed to give the Stockholder Approval after the matter shall have been
submitted to such stockholders for a vote thereon or (ii) the applicable
insurance departments, agencies or commissions have denied the Required
Insurance Approvals.
11.3 Effect of Termination. Termination of this Agreement pursuant to this
Article XI shall terminate all obligations of the Parties hereunder, except for
the obligations under Sections 11.3, 12.8, 12.9 and 12.11; provided, however,
that termination pursuant to clause (a), (b), (d) or (f) of Section 11.1 shall
not relieve a defaulting or breaching Party from any liability to any other
Party hereto, including but not limited to liability under Section 12.9.
ARTICLE XII
MISCELLANEOUS
12.1 Survival. Except as otherwise set forth in this Section 12.1 or in
Section 12.2, the representations and warranties made by any party to this
Agreement or in any agreement (other than in the Non-Competition Agreements) or
certificate (including any Ancillary Document executed by the Company, ACFS,
ACHC or any Former Shareholder) shall expire at the Closing, together with any
right to indemnification or otherwise with respect
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thereto. The covenants and agreements contained herein to be performed or
complied with prior to the Closing shall expire at the Closing and the covenants
and agreements to be performed or complied with after the Closing shall, except
as otherwise provided herein, survive indefinitely.
12.2 Indemnification.
(a) If the Closing shall occur, each Seller and ACHC shall indemnify the
Buyers, Western and their Affiliates and hold each of them harmless from and
against all Losses which are incurred or suffered by any of them by reason of
the failure by any of the Sellers or ACHC to perform or comply with any of its
respective covenants or agreements contained herein (including, without
limitation, the obligations of the Sellers or ACHC, as applicable, to pay or
otherwise satisfy the Excluded Liabilities) which are to be performed or
complied with after the Closing.
(b) If the Closing shall occur, in addition to the indemnity obligations of
the Buyers and Western set forth in Article X hereof, the Buyers and Western
shall jointly and severally indemnify the Sellers, ACHC and the Former
Shareholders and their Affiliates and hold each of them harmless from and
against all Losses which are incurred or suffered by any of them by reason of
(i) the breach by the Buyers or Western of any of their respective
representations or warranties made herein, (ii) the failure by the Buyers or
Western to perform or comply with any of the covenants or agreements contained
herein (including, without limitation, the covenants of the Buyers and Western
set forth in Article X hereof) and (iii) the obligations of the Buyers and
Western to pay or otherwise satisfy the Assumed Liabilities or arising out of
any Assumed Liability, or (iv) the conduct by the Buyers or Western of their
respective businesses or their use of the Assumed Assets after the Closing.
(c) (i) In the event that any Party shall incur or suffer any Losses in
may be sought by such Party pursuant to the provisions of this Section
12.2, the party seeking and entitled to be indemnified hereunder (the
"Indemnitee") shall assert a claim for indemnification by written notice
(a "Notice") to the party from whom indemnification is permitted to be
sought (the "Indemnitor") stating the nature and basis of such claim, and
accompanied by any documentation required by Section 12.2. In the case of
Losses arising by reason of any third party claim, the Notice shall be
given within 30 days of the filing or other written assertion of such
claim against the Indemnitee, but the failure of the Indemnitee to give
the Notice within such time period shall not prohibit recovery hereunder
except to the extent that the Indemnitor is prejudiced thereby.
(ii) The Indemnitee shall provide to the Indemnitor on request all
information and documentation reasonably necessary to support and verify
any Losses which the Indemnitee believes give rise to a claim for
indemnification hereunder and shall give the Indemnitor and its counsel
reasonable access to all books, records and personnel in the possession
or under the control of the Indemnitee which would have bearing on such
claim.
(iii) In the case of third party claims for which indemnification is
sought, the Indemnitor shall have the option (x) to conduct any
proceedings or negotiations in connection therewith, (y) to take all
other steps to settle or defend any such claim (provided that the
Indemnitor shall not settle any such claim without the consent of the
Indemnitee (which consent shall not be unreasonably withheld) and (z) to
employ counsel to contest any such claim or liability in the name of the
Indemnitee or otherwise. In any event, the Indemnitee shall be entitled
to participate at its own expense and by its own counsel in any
proceedings relating to any third party claim. The Indemnitor shall,
within 30 days of receipt of the Notice, notify the Indemnitee of its
intention to assume the defense of such claim. Until the Indemnitee has
received notice of the Indemnitor's election whether to defend any claim,
the Indemnitee shall take reasonable steps to defend (but may not settle)
such claim, and, if the Indemnitor shall decline to assume the defense of
any such claim, or shall fail to notify the Indemnitee within 30 days
after receipt of the Notice of the Indemnitee's election to defend such
claim, the Indemnitee shall defend against such claim (provided that the
Indemnitee shall not settle such claim without the consent of the
Indemnitor, which consent shall not be unreasonably withheld). The
expenses of all proceedings, contests or lawsuits in respect of such
claims shall be borne by the Indemnitor, but only if the Indemnitor is
responsible pursuant hereto to indemnify the Indemnitee in respect of the
third party claim and, if applicable, only to the extent required by
Section 12.2(a). Regardless of which Party shall assume the defense of
the claim, the Parties agree to cooperate fully with one another in
connection therewith. If (and to the extent) the Indemnitor is
responsible pursuant hereto to indemnify the Indemnitee in respect of the
third party claim, then within
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ten days after the occurrence of a final non-appealable determination
with respect to such third party claim, the Indemnitor shall pay to the
Indemnitee the amount of any Losses (or such portion thereof as the
Indemnitor shall be responsible for pursuant to the provisions hereof,
and in the event that any Losses incurred by the Indemnitee do not
involve payment by the Indemnitee of a third party claim, then, if (and
to the extent) the Indemnitor is responsible pursuant hereto to indemnify
the Indemnitee against such Losses, the Indemnitor shall within ten days
after agreement on the amount of Losses or the occurrence of a final
non-appealable determination of such amount, to pay to the Indemnitee the
amount of such Losses or such portion thereof as the Indemnitor shall be
responsible for pursuant to the provisions hereof.
(d) If the Closing shall occur, the indemnification provided in this
Section 12.2 shall be the sole and exclusive remedy against any Party.
(e) Nothing in this Agreement shall be interpreted to deny, limit or in any
way modify the remedies of the Buyers or Western under applicable law in the
event of fraud or intentional misrepresentation.
(f) Each of the Parties acknowledges that the remedies at law for any
actual or threatened breach of the obligations and agreements by the Buyers and
Western set forth in Section 1.6 of this Agreement with respect to the payment
of the Purchase Price would be inadequate. Therefore, each Seller and each Buyer
and Western agrees that the Parties shall be entitled to specific performance of
such obligations or agreements, or injunctive relief against activities in
violation of said obligations and agreements, or both.
12.3 Interpretive Provisions. Whenever used in this Agreement, unless expressly
stated otherwise, (a) "to ACHC's knowledge" or "to the knowledge of ACHC" (or
words of like import) shall mean to the actual knowledge of ACHC, and those
persons listed on Exhibit 12.3(A) under the heading "ACHC," (b) "to the
Company's knowledge" or "to ACFS's knowledge" or "to the knowledge of the
Company" or "to the knowledge of ACFS" or "to the Sellers' knowledge" or "to the
knowledge of the Sellers" (or words of like import) shall mean to the actual
knowledge of the Company, ACFS or the Sellers, as the case may be, and those
persons listed in Exhibit 12.3(A) under the heading "The Company or Sellers"
(with respect to such entities) and under the heading "ACFS" (with respect to
ACFS), (c) "to Western's knowledge" or "to the knowledge of Western" (or words
of like import) shall mean to the actual knowledge of Western and those persons
listed on Exhibit 12.3(B) and (d) "to the Former Shareholders' knowledge" or "to
the knowledge of the Former Shareholders" (or words of like import) shall mean
to the actual knowledge of any of the Former Shareholders.
12.4 Entire Agreement. This Agreement (including the Disclosure Schedule and
all Exhibits hereto) and the Confidentiality Agreement constitute the sole
understanding of the Parties with respect to the subject matter hereof.
12.5 Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the Parties hereto; provided, however, that this Agreement may not be
assigned by any Party without the prior written consent of the other Parties
hereto, except that Western may, at its election, assign this Agreement to any
Affiliate so long as (a) the representations and warranties of Western made
herein are equally true of such assignee and (b) such assignment does not have
any adverse consequences to the Sellers or any of their Affiliates (including,
without limitation, any adverse tax consequences or any adverse effect on the
ability of Western or its assignees to consummate (or timely consummate) the
transactions contemplated hereby), such assignment of this Agreement or any of
the rights or obligations hereunder shall not relieve Western of its obligations
under this Agreement until after the Closing, at which time Western shall be
relieved of its obligations hereunder.
12.6 Headings. The headings of the Articles, Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.7 Modification and Waiver. No amendment, modification or alteration of the
terms or provisions of this Agreement shall be binding unless the same shall be
in writing and duly executed by the parties hereto, except that any of the terms
or provisions of this Agreement may be waived in writing at any time by the
Party which is entitled to the benefits of such waived terms or provisions. No
waiver of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not similar). No
delay on the part of any Party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.
12.8 Broker's Fees. Each of the Parties hereto (i) represents and warrants that
it has not taken and will not take any action that would cause the other Parties
hereto to have any obligation or liability to any person for a finder's
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or broker's fee, and (ii) agrees to indemnify the other Parties hereto for
breach of the foregoing representation and warranty, whether or not the Closing
occurs.
12.9 Expenses.
(a) If the Closing shall occur, the Sellers shall pay (or reimburse the
Company for amounts previously paid with respect to) the fees and expenses set
forth in clause (b) below (the "Expenses").
(b) For purposes of this Section 12.9, the term "Expenses" shall mean the
following fees and expenses, but only to the extent such fees and expenses were
incurred on or after February 1, 1997 and in connection with the transactions
contemplated by this Agreement:
(i) the reasonable fees and expenses (which are supported by reasonable
documentation) of Hutton Ingram Yuzek Gainen Carroll & Bertolotti, counsel to
the Sellers; and
(ii) the reasonable fees and expenses (which are supported by reasonable
documentation) of Sonnenschein Nath & Rosenthal, counsel to the Sellers.
(c) If the Closing shall not occur, the Buyers and/or Western shall pay, or
reimburse the Company for amounts previously paid with respect to, (i) the
Expenses, (ii) the reasonable fees and expenses (which are supported by
reasonable documentation) of Beermann, Swerdlove, Woloshin, Barezky, Becker,
Genin & London (but only to the extent such fees and expenses were incurred on
or after February 1, 1997) and (iii) miscellaneous fees (which are supported by
reasonable documentation), such as fees incurred in connection with any filing
or presentation to A.M. Best in connection with its rating (but only to the
extent such fees were incurred on or after February 1, 1997), up to a maximum
aggregate amount of $90,000 for all such Expenses and fees and expenses referred
to in clauses (i) through (iii) of this clause (c); provided, that this clause
(c) shall apply only if (x) Western has not submitted an application for
Insurance Licenses to the Illinois Department of Insurance by the 28th day
following the date hereof, (and the Sellers have elected to terminate the
Agreement as provided in Section 11.1(f)), (y) Western is unable, in good faith
and after using its reasonable best efforts, to obtain Stockholder Approval, or
(z) the Closing shall not have occurred on or before August 31, 1997, and all of
the conditions set forth in Article VIII to the Buyers' and Western's
obligations to close shall have been satisfied (or, to the extent a condition
cannot reasonably be satisfied prior to the Closing, the Sellers and ACHC shall
have provided evidence, reasonably satisfactory to Western and the Buyers, of
their ability to satisfy such condition) or waived. Notwithstanding anything to
the contrary in this Section 12.9, this clause (c) shall not apply if the
Agreement has been terminated by reason of Section 11.2(ii).
(d) In any event, (i) the Sellers shall pay (or reimburse the Company for
amounts previously paid with respect to) all reasonable fees and expenses (which
are supported by reasonable documentation) incurred in connection with the
transfer of shares from SCSM to ACHC and any amounts owed to Berenson Minella &
Co., financial advisor to the Sellers and ACHC, in connection with the
transactions contemplated by this Agreement and (ii) the Buyers or Western shall
pay the expenses incurred in connection with the conversion of Statutory
Financial Statements to GAAP Financial Statements and the reasonable fees and
expenses (which are supported by reasonable documentation) of Beermann,
Swerdlove, Woloshin, Barezky, Becker, Genin & London relating to the
transactions contemplated hereby.
(e) Except as otherwise provided herein, each Party hereto shall pay all
costs and expenses incurred by such Party or on its or his behalf in connection
with this Agreement and the transactions contemplated hereby, including, without
limiting the generality of the foregoing, fees and expenses of its own financial
consultants, accountants and counsel.
12.10 Consulting Fees. In the event the Closing occurs after July 31, 1997, the
monthly consulting fees payable to each of Markin and Tessler shall be increased
to $100,000 for the month of August 1997, $75,000 of which shall be pro-rated to
reflect the actual number of days elapsed since July 31, 1997 until the Closing
Date.
12.11 Notices. Any notice, request, instruction or other document to be given
hereunder by any Party hereto to any other party shall be in writing and shall
be given (and will be deemed to have been duly given upon receipt) by delivery
in person, by electronic facsimile transmission with a confirmation of delivery,
by overnight courier or by registered or certified mail, postage prepaid,
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if to the Former Shareholders, to:
Daniel R. DeLeo
American Country Insurance Company
222 N. LaSalle Street
Chicago, Illinois 60601-1105
Telephone: (312) 456-2000
Telecopy: (312) 456-2605
Edwin W. Elder
American Country Insurance Company
222 N. LaSalle Street
Chicago, Illinois 60601-1105
Telephone: (312) 456-2000
Telecopy: (312) 456-2605
Wayne R. Hannah, Jr.
c/o Sonnenschein Nath & Rosenthal
Sears Tower--Suite 8000
233 South Wacker Drive
Chicago, Illinois 60606
Telephone: (312) 876-8000
Telecopy: (312) 876-7934
David R. Markin
70 Blossom Way
Palm Beach, Florida 33480
Telephone: (561) 832-7148
Telecopy: (561) 832-8574
Martin L. Solomon
P.O. Box 70
Coconut Grove, Florida 33233
Telephone: (305) 662-9206
Telecopy: (305) 662-8632
Allan R. Tessler
P.O. Box 9205
1100 Pine Siskin
Jackson, Wyoming 83001
Telephone: (307) 733-1815
Telecopy: (307) 733-1817
Wilmer J. Thomas, Jr.
272 Undermountain Road
Salisbury, Connecticut 06068
Telephone: (203) 435-2546
Telecopy: (203) 435-2548
with a copy to:
Hutton Ingram Yuzek Gainen
Carroll & Bertolotti
250 Park Avenue
New York, New York 10177
Attn: Paulette Kendler, Esq.
Telephone: (212) 907-9650
Telecopy: (212) 907-9681
if to ACHC, prior to or after the Closing, to:
American Country Holding Corp.
c/o Checker Motors Corporation
2016 North Pitcher Drive
Kalamazoo, MI 49007
Attn: David R. Markin
Telephone: (616) 343-6121
Telecopy: (616) 343-6823
with a copy to:
Hutton Ingram Yuzek Gainen
Carroll & Bertolotti
250 Park Avenue
New York, New York 10177
Attn: Paulette Kendler, Esq.
Telephone: (212) 907-9650
Telecopy: (212) 907-9681
if to the Company or ACFS, prior to the Closing, to:
American Country Insurance Company
222 N. LaSalle Street
Chicago, Illinois 60601-1105
Attention: Edwin W. Elder, President
Telephone: (312) 456-2000
Telecopy: (312) 456-2605
with a copy to:
Hutton Ingram Yuzek Gainen
Carroll & Bertolotti
250 Park Avenue
New York, New York 10177
Attention: Paulette Kendler, Esq.
Telephone: (212) 907-9650
Telecopy: (212) 907-9681
if to Sub 2, Sub 1 or Western after the Closing, to:
The Western Systems Corp.
c/o Janney Montgomery Scott Inc.
26 Broadway
New York, New York 10004
Attention: William J. Barrett, Chairman
Telephone: (212) 510-0688
Telecopy: (212) 510-0683
Martin L. Solomon
P.O. Box 70
Coconut Grove, Florida 33233
Telephone: (305) 662-9206
Telecopy: (305) 662-8632
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with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 100196064
Attention: Judith R. Thoyer, Esq.
Telephone: (212) 373-3002
Telecopy: (212) 757-3990
and a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue--12th Floor
New York, New York 10177
Attention: Sidney Todres, Esq.
Telephone: (212) 351-4735
Telecopy: (212) 661-0989
or at such other address for a party as shall be specified by like notice.
12.12 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed wholly within such jurisdiction. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America, in each case located in New York County for any Litigation arising out
of or relating to this Agreement and the transactions contemplated hereby, and
further agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Section 12.11 herein
shall be effective service of process for any Litigation brought against it in
any such court. Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any Litigation
arising out of this Agreement or the transactions contemplated hereby in the
courts of the State of New York or the United States of America, in each case
located in New York County, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such
Litigation brought in any such court has been brought in an inconvenient forum.
12.13 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall for all purposes be deemed to be an original and all of
which shall constitute the same instrument.
12.14 Certain Definitions. The following terms shall have the meanings set
forth for purposes of this Agreement and the Disclosure Schedule.
"Accredited Investor" shall have the meaning set forth in Regulation D
promulgated under the Securities Act of 1933, as amended.
"ACFS" is defined in the Recitals.
"ACFS Acquired Assets" is defined in Section 1.2.
"ACFS Assumed Liabilities" is defined in Section 1.4(a).
"ACFS Assignment Agreement" means the ACFS Assignment Agreement referred to
in Section 1.5, in such form as may be agreed to by the parties hereto.
"ACFS Assumption Agreement" means the ACFS Assumption Agreement referred to
in Sections 8.11 and 9.7.
"ACFS Excluded Assets" is defined in Section 1.2(b).
"ACFS Excluded Liabilities" is defined in Section 1.4(b).
"ACHC" is defined in the Recitals.
"Acquired Assets" is defined in Section 1.2.
"Acquisition Proposal" is defined in Section 5.5.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act. For purposes of this Agreement, the Company
and ACFS each shall be deemed to be an Affiliate of each of ACHC and the Former
Shareholders.
"A.M. Best" means the A.M. Best Company, Inc.
"Amended and Restated Buyer Note" means any of the Non-Recourse Promissory
Notes, each dated April 17, 1997, by ACHC to each of the Noteholders.
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"Ancillary Document" means the Officer's Certificate, the Former
Shareholders' Certificate, Western's Certificate, the Buyer's Certificate or any
other document executed in connection herewith.
"Assignment Agreement" shall mean the Assignment and Assumption Agreement,
dated as of April 17, 1997, by and among CRA, SCSM, ACHC, the Company and ACFS.
"Assumed Liabilities" is defined in Section 1.4(a).
"Automatic Repurchase and Pledge Agreement" means the Amended and Restated
Repurchase and Pledge Agreement, dated as of April 17, 1997, among the David R.
Markin Charitable Remainder Unitrust #1 dated December 16, 1996, Martin L.
Solomon, the Martin L. Solomon 1996 Charitable Remainder Unitrust, the Allan R.
Tessler Charitable Remainder Unitrust #1 dated December 16, 1996, the Douglas
Trust, Jay H. Harris and American Country Holding Corp.
"Best's Rating" shall mean A.M. Best's opinion, expressed as a rating, of
the Company's financial condition and operating performance.
"Books and Records" is defined in Section 6.2(a).
"Business" means individually and collectively the Company and ACFS, and
any predecessor to any of them.
"Business Benefit Plans" shall mean (1) each and every "employee benefit
plan," as defined in Section 3(3) of ERISA, maintained or contributed to by the
Business or in which the Business participates (or at any time during the
preceding five years maintained, contributed to or otherwise participated in),
(2) whether or not an "employee benefit plan" as so defined, each and every
pension, supplemental pension, accidental death and dismemberment, life and
health insurance benefits (including medical, dental, vision and
hospitalization), short or long-term disability, savings, bonus, deferred
compensation, incentive compensation, holiday, vacation, severance pay, salary
continuation, sick pay, sick leave, tuition reimbursement, service award,
company car, scholarship, relocation, patent award, fringe benefit, and other
employee benefit arrangements, plans, contracts, policies or practices of the
Business providing employee or executive compensation or benefits to one or more
Employees, or each (3) each and every plan or arrangement adopted, maintained or
contemplated to be adopted or maintained by the Business pursuant to the
covenants contained in Article X of this Agreement. The term "Business Benefit
Plan" shall include the American Country Insurance Company Pension Plan and the
American Country Insurance Company 401(k) Plan.
"Buyer" is defined in the Recitals.
"Buyer's Certificate" is defined in Section 9.1.
"Claims" is defined in Section 6.3(b).
"Closing" is defined in Section 1.5.
"Closing Date" is defined in Section 1.5.
"CMC" means Checker Motors Corp., a Delaware corporation that was formerly
a subsidiary of SCSM and formerly known as CMC Kalamazoo Inc.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitments" is defined in Section 2.6.
"Company" is defined in the Recitals.
"Company Acquired Assets" is defined in Section 1.1(a).
"Company Acquired Policies" is defined in Exhibit 1.1(a).
"Company Assumed Liabilities" is defined in Section 1.3(a).
"Company Assignment Agreement" means the Company Assignment Agreement
referred to in Section 1.5, in such form as may be agreed to by the parties
hereto.
"Company Assumption Agreement" means the Company Assumption Agreement
referred to in Sections 8.11 and 9.7.
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<PAGE>
"Company Business" means the underwriting and marketing of commercial
property and casualty insurance, including specialty transportation coverage
(taxi cabs and limousines), and personal insurance lines for auto and
homeowners' coverage.
"Company Excluded Assets" is defined in Section 1.1(b).
"Company Excluded Liabilities" is defined in Section 1.3(b).
"Company's Insurers" is defined in Section 6.3(b).
"Company 401(k) Plan" is defined in Section 10.2.
"Company Pension Plan" is defined in Section 10.1.
"Comparable GAAP Statements" is defined in Section 2.2(b)(iv).
"Confidentiality Agreement" is defined in Section 5.3.
"CRA" means CRA Holdings Inc., a Delaware corporation that was formerly
known as Great Dane Holdings, Inc.
"Disclosure Schedule" is defined in Section 2.1.
"DOL" means the United States Department of Labor.
"Employees" means all current employees (including those on lay-off,
disability or leave of absence, whether paid or unpaid), former employees and
retired employees of the Business, and the term "Employee" shall mean any of the
Employees.
"Encumbrance" means any mortgage, pledge, lien, charge, title defect,
claim, objection, security interest or other encumbrance with respect to any
Acquired Asset.
"Environmental Claim" means any and all administrative, regulatory or
judicial actions, causes of action, suits, obligations, liabilities, losses,
proceedings, decrees, judgments, penalties, fines, fees, demands, demand
letters, orders, directives, claims (including any claims involving liability in
tort, strict, absolute or otherwise), liens, notices of noncompliance or
violation, and legal and consultant fees and costs of investigations or
proceedings, relating in any way to any Environmental, Health and Safety Law, or
arising from the presence or release (or alleged presence or release) into the
environment of any Hazardous Substance (hereinafter "Claims") including, without
limitation, and regardless of the merit of such Claim, any and all claims by any
governmental or regulatory authority or by any third party or other person for
enforcement, mitigation, cleanup, removal, response, remediation or other
actions or damages, contribution, indemnification, cost recovery, compensation
or injunctive or declaratory relief pursuant to any Environmental, Health and
Safety Law or any alleged injury or threat of injury to human health, safety,
natural resources or the environment.
"Environmental, Health and Safety Laws" means all federal and state laws,
rules and regulations relating to health, safety, hazardous substances, and
environmental matters. Such laws and regulations include but are not limited to
the Resource Conservation and Recovery Act, 42 U.S.C. ' 6901 et seq., as
amended; CERCLA; the Toxic Substances Control Act, 15 U.S.C. ' 2601 et seq., as
amended, the Clean Water Act, 42 U.S.C. ' 466 et seq., as amended; the Clean Air
Act, 46 U.S.C. ' 7401 et seq., as amended.
"Environmental Matters" means any matter arising out of or relating to
Environmental Health and Safety Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" is defined in Section 1.2(b).
"Excluded Liabilities" is defined in Section 1.4(b).
"Expenses" is defined in Section 12.9(b).
"Financial Statements" is defined in Section 2.2(b).
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<PAGE>
"Former Shareholders" is defined in the Recitals.
"Former Shareholders' Certificate" is defined in Section 8.1.
"FTC" is defined in Section 7.2.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"GAAP Financial Statements" is defined in Section 2.2(b).
"Governmental Entity" means a court, legislature, governmental agency,
commission or administrative or regulatory authority or instrumentality,
domestic or foreign.
"Hazardous Substance" means any substance, material, product, derivative,
compound, mixture, mineral, chemical, waste, medical waste or gas, in each case
whether naturally occurring, human-made or the by-product of any process,
including but not limited to petroleum or petroleum products that is now or
hereafter becomes defined or included within the definition of a "hazardous
substance," "hazardous waste," "hazardous material," "toxic chemical," "toxic
substance," "hazardous chemical," "extremely hazardous substance," "pollutant,"
"contaminant," or any other words of similar meaning under any Environmental,
Health and Safety Laws.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indemnification Agreement" is defined in Section 8.12.
"Indemnitee" is defined in Section 12.2(c)(i).
"Indemnitor" is defined in Section 12.2(c)(i).
"Insurance Contracts" mean any contract of insurance to which the Company
is a party, including, without limitation, insurance contracts, reinsurance
contracts, fidelity bonds, surety bonds and funding agreements.
"Insurance Law" means any Law relating to the insurance business or the
operations thereof.
"Insurance License" means a Permit granted by a Governmental Entity to
transact insurance business.
"Insurance Policies" is defined in Section 2.16.
"Insurance Reports" is defined in Section 2.17(a).
"Investment Assets" shall mean bonds, notes, debentures, mortgage loans,
collateral loans and all other instruments of indebtedness, stocks, partnership
interests and other equity interests (including, without limitation, equity
interests in Subsidiaries), real estate and leasehold and other interests
therein, certificates issued by or interests in trusts, cash on hand and on
deposit, personal property and interests therein and all other assets acquired
for investment purposes.
"Justice Department" is defined in Section 7.2.
"Law" means an applicable law, ordinance, rule or regulation enacted or
promulgated, or an order issued or rendered, by any Governmental Entity.
"Leased Property" is defined in Section 2.13(b).
"Litigation" is defined in Section 2.7.
"Losses" means any and all claims, lawsuits, liabilities, damages, costs
(including court costs) or expenses (including, without limitation, reasonable
attorneys' and accountants' fees and any disbursements of either of them).
"Material Adverse Effect" means any event, occurrence, fact, condition,
change or effect that, individually or in the aggregate, is materially adverse
to the business, operations or financial condition of the Company and its
subsidiaries or ACFS taken as a whole, it being understood that in evaluating
the financial condition of the Company and ACFS, the working capital, assets and
liabilities of the Company and ACFS, shall inter alia, be considered.
"Most Recent Consolidated GAAP Financial Statements" is defined in Section
2.2(b)(ii).
"Most Recent Fiscal Month End" is defined in Section 2.2(ii).
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<PAGE>
"Most Recent Fiscal Year End" is defined in Section 2.2(a)(i).
"Most Recent Statutory Balance Sheet" means the balance sheet set forth in
the Most Recent Statutory Financial Statements.
"Most Recent Statutory Financial Statements" is defined in Section
2.2(a)(ii).
"Multiemployer Plan" means a Business Benefit Plan which is a
"multiemployer plan" as such term is defined in section 3(37) or section
4001(a)(3) of ERISA.
"1997 Taxes" shall have the meaning set forth in the Assignment Agreement.
"Noteholders" means, collectively, Martin L. Solomon 1996 Charitable
Remainder Unitrust, Martin L. Solomon and The Douglas Trust.
"Notice" is defined in Section 12.2(c)(i).
"Officer's Certificate" is defined in Section 8.1.
"Ordinary Course of Business" means the ordinary course of business of the
Company and ACFS consistent with past custom and practice.
"Parties" is defined in the Recitals.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" is defined in Section 2.8.
"Permitted Exceptions" is defined in Section 2.4.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock Company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Purchase Price" is defined in Section 1.6.
"Regulatory Filings" is defined in Section 2.17(b).
"Reinsurance Assumption Agreement" means the Reinsurance Assumption
Agreement referred to in Sections 8.11 and 9.7.
"Releasee" is defined in Section 6.3(a).
"Releasor" is defined in Section 6.2(a).
"Reportable Event" has the meaning set forth in ERISA ' 4043.
"Required Insurance Approvals" means the approval of the transactions
contemplated hereby by the requisite insurance department, agency or commission
in the states of Illinois, Indiana and any other jurisdictions where, in the
aggregate, the failure to obtain such approval would have a Material Adverse
Effect.
"Required Insurance Filings" means any filing of or with respect to this
Agreement with the requisite insurance department, agency or commission in each
of the states of Illinois, Indiana, Iowa, Michigan and Wisconsin, and any other
jurisdictions as required by applicable law.
"SAP" means statutory accounting practices required or permitted by
applicable insurance departments, commissions or regulatory authorities applied
on a consistent basis.
"SCSM" means SCSM Holdings, Inc., a Delaware corporation.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Seller" is defined in the Recitals.
36
<PAGE>
"Statutory Financial Statements" is defined in Section 2.2(a).
"Stock" means the common stock, par value $100 per share, of the Company.
"Stockholder Approval" means any approvals by the stockholders of Western
necessary to effectuate the transactions contemplated by this Agreement.
"Taxes" means (i) all United States federal, state or local taxes and
foreign taxes, charges, levies, fees, imposts, duties or other assessments and
all additions to tax, penalties and interest relating thereto and (ii) any Taxes
(defined in (i) above) for which a Seller is liable (a) as a transferee, (b) as
an indemnitor, guarantor, surety or in a similar capacity under any contract,
arrangement, understanding or commitment, whether oral or written or (c) under
Treasury Regulation Section 1.1502-6 or any comparable provision of state or
local tax law.
"Tax Statement" is defined in Section 7.1(c).
"Tax Sharing Agreement" shall have the meaning set forth in paragraph 7(a)
of the Assignment Agreement.
"Territory" means the states of Illinois, Indiana, Michigan, Wisconsin and
Iowa.
"WARN Act" means Worker Adjustment and Retraining Notification Act of 1988,
as amended.
"Western" is defined in the Recitals.
"Western's Certificate" is defined in Section 9.1.
12.15 No Third Party Beneficiaries. This Agreement does not create, and shall
not be construed as in any manner creating, any rights enforceable by any person
not a party to this Agreement (except as provided in Section 12.5 hereof).
Without limiting the generality of the foregoing, no provision of this Agreement
shall create any third party beneficiary rights in any Employee or former
Employee (including any beneficiary or dependent thereof) of the Company or ACFS
in respect of continued employment (or resumed employment) or any other matters,
and no provision of this Agreement shall create any such rights in any such
persons in respect of any benefits that may be provided, directly or indirectly,
under any Business Benefit Plan.
37
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf as of the date first above
written.
AMERICAN COUNTRY INSURANCE COMPANY
By: /s/ Edwin W. Elder, III
-------------------------------
Name: Edwin W. Elder, III
Title: President
AMERICAN COUNTRY FINANCIAL SERVICES CORP.
By: /s/ Edwin W. Elder, III
-------------------------------
Name: Edwin W. Elder, III
Title: President
AMERICAN COUNTRY HOLDING CORP.
By: /s/ Daniel R. DeLeo
-------------------------------
Name: Daniel R. DeLeo
Title:
THE WESTERN SYSTEMS CORP.
By: /s/ William J. Barrett
-------------------------------
Name: William J. Barrett
Title: Chairman of the Board
38
<PAGE>
/s/ Daniel R. DeLeo
-------------------------------
Daniel R. DeLeo
/s/ Edwin W. Elder
-------------------------------
Edwin W. Elder
/s/ Wayne R. Hannah, Jr.
-------------------------------
Wayne R. Hannah, Jr.
/s/ David R. Martin
-------------------------------
David R. Martin
/s/ Martin L. Solomon
-------------------------------
Martin L. Solomon
/s/ Allan R. Tessler
-------------------------------
Allan R. Tessler
/s/ Wilmer J. Thomas, Jr.
-------------------------------
Wilmer J. Thomas, Jr.
39
Exhibit 10.15b
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
Amendment No. 1, dated as of May 30, 1997 (the "Amendment"), to the Asset
Purchase Agreement, made and entered into as of April 30, 1997 (the
"Agreement"), by and among American Country Insurance Company, an Illinois
insurance company (the "Company"), American Country Financial Services Corp., an
Illinois corporation ("ACFS" and, together with the Company, the "Sellers" and
either of the Sellers individually, a "Seller"), American Country Holding
Corp., a Delaware corporation ("ACHC"), The Western Systems Corp., a Delaware
corporation ("Western"), David R. Markin ("Markin"), Martin L. Solomon
("Solomon"), Allan R. Tessler ("Tessler"), Wilmer J. Thomas, Jr. ("Thomas"),
Daniel R. DeLeo ("DeLeo"), Edwin W. Elder ("Elder") and Wayne R. Hannah, Jr.
("Hannah" and, collectively with Markin, Solomon, Tessler, Thomas, DeLeo and
Elder, the "Former Shareholders"). The Sellers, ACHC, Sub 2 (as defined in the
Agreement), Western, the Former Shareholders and Sub 1 (as defined in the
Agreement) are referred to collectively herein as the "Parties."
W I T N E S S E T H :
WHEREAS, the Parties hereto have entered into the Agreement;
WHEREAS, pursuant to the Agreement, each of the Buyers and Western agreed
to use its respective best efforts to submit a complete Form A filing to the
Illinois Department of Insurance on or before the twenty-eighth day following
date of the Agreement;
WHEREAS, representatives of the Buyers and Western, on the one hand, and
representatives of the Illinois Department of Insurance, on the other hand, have
commenced formal discussions as to the most appropriate means to complete the
transaction comtemplated by the Agreement; and
WHEREAS, the Parties desire to amend the Agreement to reflect the ongoing
discussions with the Illinois Department of Insurance and other matters with
respect to obtaining Required Insurance Approvals.
NOW, THEREFORE, in consideration of the recitals and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby do agree to
amend the Agreement, effective as of April 30, 1997, as follows:
1. The first sentence of the Preamble to the Agreement is amended by
inserting the words "as such agreement may be amended, restated, modified or
<PAGE>
2
supplemented form time to time," prior to the words "the "Agreement" contained
in the first parenthetical phrase appearing therein.
2. The heading to Section 6.5 is amended by deleting the words "Form A
Filing" appearing therein and by adding in place thereof the words "Insurance
Regulatory Procedures".
3. Section 6.5 of the Agreement is amended by amending clause (b)
appearing therein and adding a new clause (c), such amended clause (b) and new
clause (c) to read in their entirety as follows:
"(b) promptly to commence the Insurance Regulatory Procedures and to use
its best efforts to continue to work with the Illinois Department of
Insurance to complete the transactions contemplated by this Agreement
on a timely basis and (c) promptly to submit any applications or other
materials requested by the Illinois Department of Insurance (copies of
which will be forwarded to the Sellers and their counsel) in
connection with the transactions contemplated by this Agreement."
4. Clause (f) of Section 11.1 of the Agreement is amended to read in its
entirety as follows:
"(f) By the Sellers and ACHC, in writing, if the Insurance Regulatory
Procedures have not been commenced by Western on behalf of itself and
Sub 1, as appropriate, with the Illinois Department of Insurance by
the twenty-eighth (28th) day following the date hereof; or"
5. Subclause (x) contained in clause (c) of Section 12.9 of the Agreement
is amended to read in its entirety as follows:
"(x) Western has not commenced the Insurance Regulatory Procedures with the
Illinois Department of Insurance by the twenty-eighth (28th) day
following the date hereof (and the Sellers have elected to terminate
the Agreement as provided in Section 11.1(f)),"
6. Section 12.14 of the Agreement is amended by including a new definition
for "Insurance Regulatory Procedures" following the definition of "Insurance
Policies" appearing therein, such definition to read in its entirety as follows:
""Insurance Regulatory Procedures" means the formal process
(including, but not limited to, meetings and any filings and/or other
submissions deemed necessary by Western, its counsel or the Illinois
Department of Insurance) established by Western with the Illinois
Department of Insurance in order to complete the transactions
comtemplated by this Agreement."
<PAGE>
3
7. Item No. 2 of Exhibit 4.3 to the Agreement is amended to read in its
entirety as follows:
"2. Required approvals from the Illinois Department of Insurance"
8. Capitalized terms used herein and not defined shall be used as defined
in the Agreement.
9. Except as amended hereby, all of the terms of the Agreement shall remain
and continue in full force and effect and are hereby confirmed in all respects.
10. This Amendment shall be construed in accordance with and governed by
the laws of the State of New York applicable to agreements made and to be
performed wholly within such jurisdiction.
11. This Amendment may be executed in one or more counterparts, each of
which shall for all purposes by deemed to be an original and all of which shall
constitute the same instrument.
12. In case any one or more of the provisions contained in this Amendment
shall be invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
<PAGE>
4
IN WITNESS WHEREOF, each of the Parties hereto has caused this amendment
No. 1 to the Asset Purchase Agreement to be executed on its behalf as of the
date first above written.
AMERICAN COUNTRY INSURANCE
COMPANY
By: /s/ Edwin W. Elder
------------------------------
Name: Edwin W. Elder
Title: President
AMERICAN COUNTRY INSURANCE
SERVICES CORP.
By: /s/ Edwin W. Elder
------------------------------
Name: Edwin W. Elder
Title: President
AMERICAN COUNTRY HOLDING CORP.
By:
------------------------------
Name:
Title:
THE WESTERN SYSTEMS CORP.
By: /s/ William J. Barrett
------------------------------
Name: William J. Barrett
Title: Acting Chief Executive Officer
<PAGE>
/s/ Daniel R. DeLeo
--------------------------------
Daniel R. DeLeo
/s/ Edwin W. Elder
--------------------------------
Edwin W. Elder
/s/ Wayne R. Hannah, Jr.
--------------------------------
Wayne R. Hannah, Jr.
/s/ David R. Markin
--------------------------------
David R. Markin
/s/ Martin L. Solomon
--------------------------------
Martin L. Solomon
/s/ Allan R. Tessler
--------------------------------
Allan R. Tessler
/s/ Wilmer J. Thomas, Jr.
--------------------------------
Wilmer J. Thomas, Jr.
Exhibit 10.16
THE WESTERN SYSTEMS CORP.
INVESTMENT AGREEMENT
--------------------
INVESTMENT AGREEMENT dated as of April 30, 1997 by and among THE WESTERN
SYSTEMS CORP. (the "Company"), FRONTIER INSURANCE GROUP, INC. (a "Subscriber",
"Corporate Subscriber" or "Frontier"), MARTIN L. SOLOMON, at P.O. Box 70,
Coconut Grove, Florida 33233 (a "Subscriber" or "Individual Subscriber"), and
WILMER J. THOMAS, JR., at 272 Undermountain Road, Salisbury, Connecticut 06068
(a "Subscriber" or "Individual Subscriber").
INTRODUCTION
A. There is being executed concurrently herewith a certain asset purchase
agreement (the "Asset Purchase Agreement") by and among the Company, American
Country Insurance Company ("ACIC") and its subsidiary American Country Financial
Services, Inc. ("ACFS") et al, which provides for, or contemplates, inter alia:
1. The sale of the assets of ACIC and ACFS, subject to all but certain
excluded liabilities (the "Excluded Liabilities"), for a purchase price of
$40,250,000, to two subsidiaries of the Company, Subsidiary One and Subsidiary
Two.
2. The funding by the Company of the $40,250,000 purchase price with
funds obtained from the following sources:
a. Approximately $9,000,000 of funds on hand and approximately
$6,000,000 to be borrowed from a financial institution; and
b. Approximately $27,000,000 in aggregate subscriptions from the
Subscribers for approximately 75% of the equity of the Company.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements, and upon the terms and subject to the conditions
hereinafter set forth, the Subscribers and the Company hereby agree as follows:
Section 1. Subscription. Subject to the terms and conditions set forth
herein, each Subscriber hereby subscribes for and agrees to purchase from the
Company at the Closing,
<PAGE>
for an amount (the "Subscription Amount") equal to the net cash and cash
equivalents of the Company on the Closing Date minus any and all liabilities of
the type that are recorded on a balance sheet prepared in accordance with
generally accepted accounting principles, including any tax liabilities incurred
prior to the Closing Date (a) 7,903,421 shares of the Company's common stock,
$.60 par value ("Common Stock"), which, when issued, will constitute twenty-five
percent (25%) of the issued and outstanding shares of Common Stock (after the
issuance of all of the Subscriber Shares) and (b) 77,337 additional shares of
Common Stock. If, prior to the Closing Date, shares of Common Stock are issued
upon exercise of any of the options described in Section 6.4, there shall be
issued to each of the Subscribers additional shares of Common Stock so that such
shares, together with the 7,903,421 shares referred to above, constitute
twenty-five percent (25%) of the issued and outstanding shares of Common Stock
of the Company, and there shall be issued, in lieu of the 77,337 shares referred
to in (b) such fewer number of shares as shall give effect to the issuance of
shares upon exercise of the options (such number to be calculated using the same
principles as were employed to fix the number 77,337). The Common Stock to be so
issued to the Subscribers is hereafter referred to as the Subscriber Shares.
Section 2. Payment of Subscription Amount and Issuance of Subscriber
Shares. The closing ("Closing") of the purchase of Subscriber Shares shall take
place concurrently with the closing of the transactions contemplated by the
Asset Purchase Agreement. At the Closing, each Subscriber shall make payment of
the Subscription Amount by wire transfer and the Company shall issue the
Subscriber Shares to each Subscriber. The date of such issuance is the Closing
Date.
Section 3. Securities Law Matters; Restrictions on Transferability of
Shares Relating Thereto. (a) Each Subscriber understands and agrees that the
sale and/or transfer of the Subscriber Shares is restricted and that:
(i) The Subscriber Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), or the laws of any other
jurisdiction, and cannot be sold or transferred by the Subscriber unless
they are subsequently registered or an exemption from registration is
available (including compliance with Rule 144 under the Act), together with
compliance with applicable state securities laws.
(ii) The certificate(s) representing the Subscriber Shares will bear a
restrictive legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired for investment, and may not be sold or transferred in the
absence of an effective Registration Statement for the shares under
2
<PAGE>
the Securities Act of 1933 and such Blue Sky Laws as might be
applicable, unless an opinion of counsel satisfactory to the Company
first be obtained that such is not then necessary."
Section 4. Certain Representations. Each Subscriber hereby severally
represents and warrants to the Company as follows:
(a) Investment Intent. The Subscriber Shares are being acquired for
the Subscriber's own account for the Subscriber's own investment and not on
behalf of other persons and not with a view to, or for the sale in connection
with, the distribution thereof.
(b) Full Disclosure and Access to Information. The Subscriber has been
adequately informed as to the Company's current status as a non-operating
company, its proposed acquisition of ACIC and ACFS and the risks attendant
thereto, has had the opportunity to ask questions of and receive answers from
officers of the Company concerning the Company and of the officers of ACIC and
ACFS concerning ACIC and ACFS, and has been given full access to all
documentation, data and other information requested. Further, the Subscriber
acknowledges that the Company has delivered to the Subscriber, and the
Subscriber has received from the Company a Form 10-K of the Company for the
period ended December 31, 1996, and a copy of the Asset Purchase Agreement.
(c) Accredited Investor. The Subscriber represents and warrants that
such Subscriber is an "accredited investor" under one or more of the categories
specified in Rule 501 under the Act promulgated by the Commission as a part of
Regulation D.
Section 5. Limited Registration Rights. Any time after the Closing, and
from time to time, Subscriber shall have the right, on a pro rata basis, and in
each instance subject to the underwriter's "step-back" requirements, if any, to
"piggyback" their respective Subscriber Shares whenever the Company proposes to
register any of its Common Stock under the Act other than (a) a registration
primarily for sales of securities to employees of the Company or resales
thereof, (b) a registration primarily for sales of securities issued upon
exercise of options or warrants outstanding or (c) a registration in connection
with a merger or other business combination. Each Subscriber agrees not to
effect any public sale or distribution of the Subscriber Shares so registered
except as part of the shares being sold through the underwriter, for such period
of time following the effectiveness of the registration as the underwriter shall
require.
The Company shall pay all expenses incurred in connection with the
registration of shares of Common Stock included in such registration. In
connection with such registration the Company will indemnify the registering
Subscribers substantially to the same extent as is customary for indemnification
and contribution in favor of selling shareholders of similar offerings and the
registering Subscribers will indemnify the Company (and the underwriters, if
3
<PAGE>
applicable) with respect to information furnished by them in writing to the
Company for inclusion therein substantially to the same extent as the
underwriters indemnify the Company.
Section 6. Representations and Warranties of the Company.
The Company hereby represents and warrants to each Subscriber as follows:
6.1 Organization and Good Standing; Articles and Bylaws. The Company
is a corporation duly organized and existing under, and by virtue of, the laws
of the State of Delaware and is in good standing under such laws. The Company
has requisite corporate power to own its properties and assets, and to carry on
its business as presently conducted (the Company presently conducts no
business).
6.2 Corporate Power. The Company has all requisite legal and corporate
power to execute and deliver this Agreement and at the Closing Date will have
all requisite power, to sell and issue the Subscriber Shares hereunder, and to
carry out and perform its obligations under the terms of this Agreement.
6.3 Subsidiaries. At or prior to the Closing, the Company will have
two subsidiaries, Subsidiary One and Subsidiary Two, organized to acquire the
assets of ACIC and ACFS, respectively, and the Company does not otherwise own or
control, directly or indirectly, any other corporation, association or business
entity.
6.4 Capitalization.
The total number of shares of stock which the Company has
authority to issue is twenty-seven million (27,000,000) shares consisting of
twenty-five million (25,000,000) shares of Common Stock and two million
(2,000,000) shares of Preferred Stock, $.10 par value per share ("Preferred
Stock"), of which there are shares of Common Stock and no shares of Preferred
Stock outstanding. There are also outstanding warrants to purchase 2,052,987
shares of Common Stock at $4.00 per share (prior to the dilution to be caused by
the issuance of the Subscriber Shares) and options to purchase 474,000 shares of
Common Stock at exercise prices ranging from $.60 per share to $3.75 per share.
Pending the Closing, the Company will issue no shares of preferred stock or
Common Stock, except upon the exercise of any of the options or warrants
described in this Agreement, or any additional options or warrants to acquire
Common Stock.
6.5 Authorization. The Board of Directors of the Company has
authorized the execution and delivery of this Agreement. Subject to approval of
its shareholders, at the Closing, the Company will be authorized to issue and
deliver the Subscriber Shares and to perform the Company's obligations
hereunder. Such shareholder approval will be sought prior to the Closing. This
Agreement, when executed and delivered by the Company, shall
4
<PAGE>
constitute a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors, rules of law governing
specific performance, injunctive relief or other equitable remedies, and
limitations of public policy. The Subscriber Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued and will be fully
paid and nonassessable; provided, however, that the Subscriber Shares may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein. Except as contemplated herein, the Subscriber Shares, are
not subject to any preemptive rights or rights of first refusal.
6.6 Litigation. There are no actions, suits, proceedings or
investigations pending or threatened against the Company or its properties
before any court or governmental agency, which, either in any case or in the
aggregate, might result in any material adverse change in the business,
prospects, financial condition or equity ownership of the Company or any of its
properties or assets, or in any material liability on the part of the Company,
and none of which affects the validity of this Agreement or any action taken or
to be taken in connection herewith. The Company is not a party or subject to any
writ, order, decree or judgment and has no plans to initiate any legal action.
6.7 Financial Statements. The Financial Statements of the Company
contained in its Form 10-K for the period ended December 31, 1996 present fairly
the financial condition of the Company at that date and the results of
operations and cash flows for the three years then ended.
6.8 Cash Availability. At the Closing, the Company, after receiving
the Subscription Amounts, will have cash or cash equivalents of approximately
$35,200,000 and approximately $6,000,000 representing the proceeds of the
borrowings by the Company contemplated hereby. Such amounts, aggregating
approximately $41,000,000, will be net of all liabilities of the Company as at
the Closing including liability for taxes.
Section 7. Investment Opportunities. The parties hereto (other than
Frontier) acknowledge (i) Frontier is an insurance holding company which,
through its subsidiaries, conducts business as a specialty property and casualty
insurer and reinsurer (ii) Frontier has made acquisitions and is actively
seeking acquisitions in the insurance industry and (iii) Frontier is presented
with acquisitions proposals on an ongoing basis. The parties, accordingly, agree
that Frontier may pursue any acquisition freely, free of any obligation to any
of the other parties hereto and that neither Frontier nor any designee of
Frontier on the Company's Board of Directors shall have any duty, commitment or
obligation to present any acquisition or acquisition proposal to the Company,
its Board of Directors or any other party hereto or to give any notice thereof
to any such entity or person.
5
<PAGE>
Section 8. Death of Subscriber Prior to Issuance of Subscriber Shares.
If either Individual Subscriber shall die prior to the Closing Date
and his rights and obligations hereunder have not previously been assigned to an
affiliate (as hereinafter defined), (a) the deceased Subscriber's estate shall
be released from any and all obligations hereunder and (b) the surviving
Individual Subscriber shall have a three (3) day option to be substituted, with
respect to all or a portion of the deceased rights and obligations, as a party
to this Agreement in place of the deceased Individual Subscriber with all (or a
portion, as the case may be) of the rights and obligations of the deceased
Individual Subscriber hereunder. If such option is not exercised during such
period, Frontier shall be so substituted for the deceased Individual Subscriber.
If the surviving Individual Subscriber shall die, Frontier shall likewise be so
substituted for such deceased Individual Subscriber as a party to this
Agreement.
Section 9. Conditions to Closing of Subscribers.
The Subscribers' obligations to purchase the Subscriber Shares at the
Closing are subject to the fulfillment on or prior to the Closing Date of the
following conditions:
9.1 Representations and Warranties Accurate. The representations and
warranties made by the Company in Section 5 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of said dates.
9.2 The Closing of the Asset Purchase Agreement. All transfers and
acts contemplated by the Asset Purchase Agreement shall be taking place
concurrently with the Closing.
9.3 Shareholder Approval. Approval by the shareholders of the Company
shall have been obtained for the amendments to the Company's Certificate of
Incorporation: (i) increasing its authorized capital stock in amounts sufficient
to permit the issuance of the Subscriber Shares and (ii) eliminating provisions
presently contained therein providing for a classified board of directors.
9.4 Election of Directors. The following persons (if living as of the
Closing Date) shall have been elected directors of the Company:
Wilmer J. Thomas, Jr.
Martin L. Solomon
William J. Barrett
Herbert M. Gardner
Peter H. Foley
Edward W. Elder
6
<PAGE>
Section 10. Conditions to Closing by the Company.
The Company's obligation to sell and issue the Subscriber Shares at
the Closing, is subject to the fulfillment of the following conditions:
10.1 Representations. All representations made by the Subscribers in
this Agreement shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if they had been
made on and as of said dates.
10.2 The Closing of the Asset Purchase Agreement. All transfers and
acts contemplated by the Asset Purchase Agreement shall be taking place
concurrently with the Closing.
Section 11. Termination.
This Agreement may be terminated at any time prior to the Closing:
(a) By mutual written consent of all the parties hereto; and
(b) By any party hereto if the Closing shall not have occurred on or
prior to August 31, 1997, unless the failure of such an
occurrence shall be due to the failure of the party seeking to
terminate to perform or observe the covenants, agreements and
provisions hereof to be performed or observed by such party
prior to the Closing.
Section 12. Miscellaneous.
(a) This Agreement shall be governed in all respects by the laws
of the State of New York without giving effect to its conflicts of laws
principles.
(b) Each Subscriber irrevocably consents that any legal action or
proceeding against him or it arising out of this Agreement may be brought in any
Federal or State court located in the State of New York. Each Subscriber, by the
execution and delivery of this Agreement, expressly and irrevocably assents and
submits to the personal jurisdiction of any of such court.
(c) This Agreement may not be assigned or otherwise transferred
by any Subscriber without the written consent of the Company and the other
Subscribers, except each Subscriber shall be entitled to assign all or a portion
of his rights under this Agreement to one or more affiliates as defined in the
next sentence. An Affiliate is a member of a Subscriber's family, a trust for
the benefit of one or more members of a Subscriber's family, or a business
entity controlled by or under common control with a Subscriber and/or a family
limited partnership of which a Subscriber is a general partner.
7
<PAGE>
(d) All notices, requests, consents, demands and other
communications shall be in writing and shall be deemed to be duly given when
sent by electronic facsimile transmission with a confirmation of delivery, by
postage prepaid, registered or certified mail to the Company and to any
Subscriber at the address listed in the heading of this Agreement or such other
address as may from time to time be furnished in writing to the Company.
(e) The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Subscriber and the
closing of the transactions contemplated hereby.
(f) Except as otherwise provided herein, the provisions of this
Agreement shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto.
(g) This Agreement and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof. This Agreement may not
be amended, waived, discharged or terminated other than by a written instrument
signed by all of the parties hereto.
(h) This Agreement may be executed in one or more counterparts,
each of which shall for all purposes be deemed to be an original and all of
which shall constitute the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
THE WESTERN SYSTEMS CORP.
By: /s/ William J. Barrett
------------------------------
Name: William J. Barrett
Title: Chairman of the Board
FRONTIER INSURANCE GROUP, INC.
By: /s/ Peter H. Foley
------------------------------
Name: Peter H. Foley
Title: Executive Vice President
/s/ Martin L. Solomon
------------------------------
MARTIN L. SOLOMON
/s/ Wilmer J. Thomas, Jr.
------------------------------
WILMER J. THOMAS, JR.
9
Exhibit 10.17
AGREEMENT dated as of April 30, 1997 by and among THE WESTERN SYSTEMS
CORP. (the "Company"), FRONTIER INSURANCE GROUP, INC. ("Frontier"), WILLIAM J.
BARRETT ("Barrett"), HERBERT M. GARDNER ("Gardner"), MARTIN L. SOLOMON
("Solomon"), and WILMER J. THOMAS, JR. ("Thomas" and together with Frontier,
Barrett, Gardner and Solomon, the "Stockholders").
INTRODUCTION
A. There is being executed concurrently herewith a certain
asset purchase agreement (the "Asset Purchase Agreement") by and among the
Company, American Country Insurance Company ("ACIC") and its subsidiary American
Country Financial Services, Inc. ("ACFS") et al, providing for the sale of
assets of ACIC and ACFS to subsidiaries of the Company (the "Subsidiaries").
B. The parties hereto recognize the special expertise of Frontier in
the insurance business and wish to set up a mechanism whereby Frontier can
provide management services to the subsidiary of Western that is acquiring the
assets and name of ACIC (the "Insurance Subsidiary"), and through Frontier's
designee on the Board of Directors of Western, Peter H. Foley, implement certain
decisions.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree as follows:
1. Creation of Executive Committee. The Board of Directors of Western
will cause the Insurance Subsidiary to create an Executive Committee for at
least one year, consisting of the following persons (all of whom will be
directors of the Insurance Subsidiary):
William J. Barrett
Peter H. Foley
Martin L. Solomon
2. Chairman. Peter Foley will serve as Chairman of the Executive
Committee.
3. Role of the Executive Committee. The Executive Committee (through
its Chairman) will review the business of the Insurance Subsidiary in detail,
including a review of such matters as staffing levels, lines of business and
other operational issues. The Chairman will report to the Executive Committee
the results of his review of the business and his recommendations for action.
The Executive Committee will have power and authority, consistent with Illinois
law, to execute and carry out its decisions through its Chairman.
<PAGE>
2
4. Fees. Western and Frontier will structure a fee arrangement to
compensate Frontier for its services to Western and its Insurance Subsidiary. In
doing so, the fees payable to Frontier shall take into account the Agreement
dated April 30, 1997 among the parties hereto with respect to certain M&A fees
and other fees payable to Frontier.
5. Miscellaneous. This Agreement may be terminated any time by mutual
written consent of all of the parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
THE WESTERN SYSTEMS CORP.
By: /s/ William J. Barrett
------------------------------
Name: William J. Barrett
Title: Chairman of the Board
FRONTIER INSURANCE GROUP, INC.
By: /s/ Peter H. Foley
------------------------------
Name: Peter H. Foley
Title: Executive Vice President
/s/ William J. Barrett
------------------------------
WILLIAM J. BARRETT
/s/ Herbert M. Gardner
------------------------------
HERBERT M. GARDNER
/s/ Martin L. Solomon
------------------------------
MARTIN L. SOLOMON
/s/ Wilmer J. Thomas, Jr.
------------------------------
WILMER J. THOMAS, JR.
Exhibit 10.18
AGREEMENT dated as of April 30, 1997 by and among THE WESTERN SYSTEMS
CORP. (the "Company"), FRONTIER INSURANCE GROUP, INC. ("Frontier"), WILLIAM J.
BARRETT ("Barrett"), HERBERT M. GARDNER ("Gardner"), MARTIN L. SOLOMON
("Solomon"), and WILMER J. THOMAS, JR. ("Thomas" and together with Frontier,
Barrett, Gardner and Solomon, the "Stockholders").
INTRODUCTION
A. There is being executed concurrently herewith a certain asset
purchase agreement (the "Asset Purchase Agreement") by and among the Company,
American Country Insurance Company ("ACIC") and its subsidiary American Country
Financial Services, Inc. ("ACFS") et al, providing for the sale of assets of
ACIC and ACFS to subsidiaries of the Company (the "Subsidiaries").
B. The parties hereto wish to set forth their understanding regarding
certain services that may be provided to the Subsidiaries following the
closing of the Asset Purchase Agreement by Frontier or any of the other
Stockholders with respect to the matters covered herein.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree as follows:
Section 1. Mergers and Acquisitions Transactions. If any of Frontier,
Solomon, Thomas, Barrett or Gardner (or any investment banking firm or other
entity with which he is then affiliated) shall introduce to Western a merger or
other acquisition transaction (a "Transaction"), which he or it actively works
on (on behalf of Western), and the Transaction is closed by one or the other
Subsidiary, then the appropriate Stockholder or Stockholders shall receive an
aggregate fee (the "M&A Fee") based upon the following formula:
(a) For Transactions in which the consideration paid is under
$15,000,000:
5% of first $1,000,000 of consideration;
4% of second $1,000,000 of consideration;
3% of third $1,000,000 of consideration;
2% of fourth $1,000,000 of consideration;
and 1% of all other consideration up to $15,000,000.
(b) For Transactions in which the consideration paid is
$15,000,000 or more, the M&A Fee will be 1%.
<PAGE>
2
(c) The parties will further define, on a deal-by-deal basis,
which items are to be included in consideration for this purpose.
(d) The M&A Fee shall be paid in cash.
(e) Notwithstanding the foregoing, there shall be only one M&A
Fee paid in connection with any one Transaction.
Section 2. Portfolio of Business.
(a) If Frontier or any other Stockholder introduces the
Subsidiary engaged in the insurance business to a portfolio of business (the
"Portfolio"), which such Subsidiary acquires, Frontier or such Stockholder (or
any investment banking firm or other entity with which he is then affiliated)
will be entitled to a fee ("Portfolio Fee") of 1% of the gross premiums written
with respect to such Portfolio over the three-year period from the acquisition
of such Portfolio. If, however, Frontier reinsures any portion of such
Portfolio, Frontier will not be entitled to the Portfolio Fee.
(b) The Portfolio Fee shall be payable, in cash, on a monthly
or other agreed upon basis as and when premiums are written.
Section 3. Other Business Areas.
(a) Frontier shall, prior to the Closing under the Asset
Purchase Agreement (if acceptable to the Company) and, in any event, after the
Closing of the Asset Purchase Agreement, review all areas of the business of
the Subsidiaries, including, without limitation, as appropriate, their finance
functions, human resource functions, claims procedures, accounting and computer
and related systems. Frontier will make a proposal to the Board of Directors of
Western as to the services Frontier can provide to the Subsidiaries in those
areas, the estimated time period for carrying out the proposal, and the
proposed fees to be paid to Frontier for such services.
(b) If Western proceeds with Frontier's proposal, Frontier will
be entitled to be paid the agreed-upon fee, in cash, for such service.
(c) Any of the other Stockholders may also make similar
proposals to Western as to areas not covered by Western.
Section 4. Miscellaneous.
(a) This Agreement may be terminated any time by mutual written
consent of all of the parties.
<PAGE>
3
(b) This Agreement shall be governed in all respects by the
laws of the State of New York without giving effect to its conflicts of laws
principles.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
THE WESTERN SYSTEMS CORP.
By: /s/ William J. Barrett
------------------------------
Name: William J. Barrett
Title: Chairman of the Board
FRONTIER INSURANCE GROUP, INC.
By: /s/ Peter H. Foley
------------------------------
Name: Peter H. Foley
Title: Executive Vice President
/s/ William J. Barrett
------------------------------
WILLIAM J. BARRETT
/s/ Herbert M. Gardner
------------------------------
HERBERT M. GARDNER
/s/ Martin L. Solomon
------------------------------
MARTIN L. SOLOMON
/s/ Wilmer J. Thomas, Jr.
------------------------------
WILMER J. THOMAS, JR.
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY INC.)
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
--------------------------- ---------------------
1997 1996 1997 1996
-------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME APPLICABLE TO COMMON STOCK $ 2,546,221 $ (15,341) $ 69,042 $ (27,484)
=========== =========== =========== ===========
SHARES:
Weighted average number of common shares outstanding 7,903,421 7,903,421 7,903,421 7,903,421
Assumed conversions of stock options 46,428 27,398 56,259 27,586
----------- ----------- ----------- -----------
TOTAL WEIGHTED AVERAGE SHARES
OUTSTANDING 7,949,849 7,930,819 7,959,690 7,950,803
=========== =========== =========== ===========
PRIMARY EARNINGS PER COMMON SHARE $ .32 $.00 $.01 $.00
===== ==== ==== ====
</TABLE>
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the six months ended June 30, 1997 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000315411
<NAME> THE WESTERN SYSTEMS CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,204,343
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,206,176
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,206,176
<CURRENT-LIABILITIES> 392,033
<BONDS> 0
0
0
<COMMON> 4,742,053
<OTHER-SE> 4,072,090
<TOTAL-LIABILITY-AND-EQUITY> 9,206,176
<SALES> 54,396
<TOTAL-REVENUES> 54,396
<CGS> 36,263
<TOTAL-COSTS> 43,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,186,221
<INCOME-TAX> 1,640,000
<INCOME-CONTINUING> 2,546,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,546,221
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
