<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
AMERICAN BANKERS INSURANCE GROUP, INC.
11222 QUAIL ROOST DRIVE
MIAMI, FLORIDA 33157
(305) 253-2244
Commission File Number: 0-9633
State of Incorporation: Florida
I.R.S. Employer Identification Number: 59-1985922
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 report), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Common Stock - Par Value $1.00
43,085,965 Shares Outstanding on August 3, 1998
1
<PAGE> 2
Form 10-Q
Company or group of companies for which report is filed:
AMERICAN BANKERS INSURANCE GROUP, INC.
This quarterly report, filed pursuant to Rule 13A-13 of the General Rules and
Regulations under the Securities Exchange Act of 1934, consists of the following
information as specified in Form 10-Q.
Part I - Financial Information
Item 1 - Financial Statements
1. Consolidated Balance Sheets at June 30, 1998 and December 31, 1997.
2. Consolidated Statements of Income for the three months ended June
30, 1998 and 1997.
3. Consolidated Statements of Comprehensive Income for the three months
ended June 30, 1998 and 1997.
4. Consolidated Statements of Income for the six months ended June 30,
1998 and 1997.
5. Consolidated Statements of Comprehensive Income for the six months
ended June 30, 1998 and 1997.
6. Consolidated Statements of Cash Flows for the six months ended June
30, 1998 and 1997.
7. Notes to Consolidated Financial Statements.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Part II - Other Information
Item 1 - Legal Proceedings
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports
a. Exhibits.
The following exhibits are included herein:
(2.1) Agreement and Plan of Merger among American Bankers Insurance
Group, Inc., ABIG acquisition Corp. A. and MS Diversified
Corporation dated as of May 18, 1998.
(2.2) Purchase Agreement among American Bankers Insurance Group,
Inc. and Dominion Automobile Association Limited dated as of
March 9, 1998.
(3.1) Corporate By-Laws, as amended, through May 1998.
(27) Financial Data Schedule
b. Report on Form 8-K.
None
2
<PAGE> 3
Form 10-Q
SIGNATURE
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.
AMERICAN BANKERS
INSURANCE GROUP, INC.
August 10, 1998
Date
Robert Hill
Principal Accounting Officer
3
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PART I
FINANCIAL INFORMATION
4
<PAGE> 5
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Investments
Held-to-maturity securities, at amortized cost $ 806,494 $ 836,608
Available-for-sale securities, at fair value 1,077,785 973,790
Equity securities, at approximate market value 147,694 141,274
Mortgage loans on real estate 6,975 9,322
Policy loans 9,676 9,315
Short-term and other investments 190,749 184,923
----------- -----------
Total investments 2,239,373 2,155,232
----------- -----------
Cash 5,896 23,265
Accounts receivable, net of allowance for doubtful
accounts of $6,059 in 1998 and $5,619 in 1997 134,990 144,330
Reinsurance receivable 293,257 270,692
Accrued investment income 25,289 25,228
Deferred policy acquisition costs 450,546 458,289
Prepaid reinsurance premiums 607,236 565,162
Other assets 151,364 140,253
----------- -----------
Total assets $ 3,907,951 $ 3,782,451
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $ 320,967 $ 311,181
Unearned premiums 1,477,003 1,436,034
Claim liabilities 570,027 555,797
----------- -----------
2,367,997 2,303,012
Other policyholders' funds 4,878 4,786
Notes payable 353,725 242,592
Deferred income taxes 48,076 51,666
Accrued commissions and other expenses 135,667 150,147
Other liabilities 187,422 216,379
----------- -----------
Total liabilities 3,097,765 2,968,582
----------- -----------
Commitments and Contingencies (Note 5)
STOCKHOLDERS' EQUITY
Preferred stock: $3.125 Series B Cumulative Convertible Preferred Stock
Authorized 10,000 shares
Issued and Outstanding 1,983 shares in 1998 and 2,300 shares in 1997 $ 99,163 $ 115,000
Common stock of $1 par value. Authorized 100,000 shares
Issued and Outstanding 43,088 shares in 1998 and 41,806 shares in 1997 43,088 41,806
Additional paid-in capital 243,210 212,010
Accumulated Other Comprehensive Income 18,670 12,096
Retained earnings 424,204 449,444
Less:
Treasury stock, at cost - 271 shares in 1998 and 271 shares in 1997 (8,110) (8,110)
Unamortized restricted stock (10,039) (6,252)
Collateralization of loan to Leveraged Employee
Stock Ownership Plan 0 (2,125)
----------- -----------
Total stockholders' equity 810,186 813,869
----------- -----------
Total liabilities and stockholders' equity $ 3,907,951 $ 3,782,451
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands except per common share data)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Gross collected premiums $ 696,939 $ 666,605
========= =========
Premiums and other revenues:
Net premiums earned $ 362,860 $ 365,011
Net investment income 36,527 33,342
Realized investment gains 6,836 3,104
Other income 7,790 4,583
--------- ---------
Total premiums and other revenues 414,013 406,040
--------- ---------
Benefits and expenses:
Net benefits, claims, losses and settlement expenses 126,249 134,038
Commissions 158,960 148,862
Operating expense 82,613 78,907
Merger termination fee 0 0
Interest expense 5,482 4,062
--------- ---------
Total benefits and expenses 373,304 365,869
--------- ---------
Income before taxes 40,709 40,171
--------- ---------
Income tax expense (benefit):
Current 9,563 14,074
Deferred 977 (2,521)
--------- ---------
10,540 11,553
--------- ---------
Net Income $ 30,169 $ 28,618
========= =========
Per common share and common equivalent share data
Basic:
Net Income $ 0.67 $ 0.65
========= =========
Weighted average number of shares outstanding 42,662 41,522
========= =========
Diluted:
Net Income $ 0.64 $ 0.61
========= =========
Weighted average number of shares outstanding 46,932 46,996
========= =========
Dividends per common share $ 0.11 $ 0.11
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net income $ 30,169 $ 28,618
-------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (779) (2,383)
Unrealized gains on securities:
Unrealized holding gains arising during period 2,985 10,100
Less: reclassification adjustment for gains included in net income (4,311) 0
-------- --------
Subtotal unrealized gains on securities (1,326) 10,100
Minimum pension liability adjustment 0 0
-------- --------
Other comprehensive (loss) income (2,105) 7,717
-------- --------
Comprehensive income $ 28,064 $ 36,335
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Gross collected premiums $ 1,394,810 $1,303,731
=========== ==========
Premiums and other revenues:
Net premiums earned $ 719,707 $ 728,786
Net investment income 71,705 65,448
Realized investment gains 9,014 5,034
Other income 13,754 11,653
----------- ----------
Total premiums and other revenues 814,180 810,921
----------- ----------
Benefits and expenses:
Net benefits, claims, losses and settlement expenses 249,187 272,928
Commissions 312,725 300,499
Operating expense 171,516 151,990
Merger termination fee 100,000 0
Interest expense 9,659 8,019
----------- ----------
Total benefits and expenses 843,087 733,436
----------- ----------
(Loss) income before taxes (28,907) 77,485
----------- ----------
Income tax (benefit) expense:
Current (10,383) 23,578
Deferred (6,013) (1,130)
----------- ----------
(16,396) 22,448
----------- ----------
Net (Loss) Income $ (12,511) $ 55,037
=========== ==========
Per common share and common equivalent share data
Primary:
Net (Loss) Income $ (0.37) $ 1.24
=========== ==========
Weighted average number of shares outstanding 42,328 41,365
=========== ==========
Diluted:
Net Income $ N/A $ 1.18
=========== ==========
Weighted average number of shares outstanding 46,951 46,836
=========== ==========
Dividends per common share $ 0.22 $ 0.21
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net (loss) income $(12,511) $ 55,037
-------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (1,174) (3,423)
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period 12,290 (493)
Less: reclassification adjustment for gains included in net income (4,542) 0
-------- --------
Subtotal unrealized gains on securities 7,748 (493)
Minimum pension liability adjustment 0 0
-------- --------
Other comprehensive income (loss) 6,574 (3,916)
-------- --------
Comprehensive (loss) income $ (5,937) $ 51,121
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
AMERICAN BANKERS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (12,511) $ 55,037
Adjustment to reconcile net income to net cash provided by
operating activities:
Change in policy liabilities, unearned premiums, claim
liabilities, reinsurance receivable and prepaid reinsurance premiums 5,418 77,599
Change in other assets and other liabilities (45,943) (26,459)
Decrease in accounts receivable 9,468 14,656
Increase in accrued investment income (61) (1,032)
Decrease in accrued commissions and expenses (14,480) (33,321)
Increase (decrease) in policyholders' funds 92 (973)
Increase in policy loans (361) (469)
Amortization of deferred policy acquisition costs 267,336 272,162
Amortization of cost of insurance acquired 616 759
Policy acquisition costs deferred (259,594) (300,786)
Provision for amortization and depreciation 6,330 6,205
Provision for deferred income taxes (6,013) (1,130)
Net gain on sale of investments (9,014) (5,034)
Compensation and tax effect on stock option shares 6,809 1,091
Net cash flow from purchases and sales of trading securities 0 8,880
--------- ---------
Net cash (used in) provided by operating activities (51,908) 67,185
--------- ---------
INVESTING ACTIVITIES:
Purchase of investments
Held-to-maturity securities (27,731) (51,457)
Available-for-sale securities (434,849) (809,411)
Proceeds from sale of investments
Available-for-sale securities 272,102 728,472
Mortgage loans 2,348 395
Real Estate 12 18
Proceeds from maturities of investments
Held-to-maturity securities 55,951 36,734
Available-for-sale securities 71,633 34,465
Increase in short-term investments (6,665) (29,502)
Transactions related to capital assets
Capital expenditures (4,713) (10,306)
Sales of capital assets 56 58
--------- ---------
Net cash used in investing activities (71,856) (100,534)
--------- ---------
FINANCING ACTIVITIES:
Proceeds of issuance of debt 116,981 20,384
Dividends paid to shareholders (12,718) (12,050)
Proceeds from issuance of stock 2,197 2,080
--------- ---------
Net cash provided by financing activities 106,460 10,414
--------- ---------
Net decrease in cash (17,304) (22,935)
Cash as beginning of period 23,265 30,434
Rate change effect on cash flow (65) 80
--------- ---------
Cash at end of period $ 5,896 $ 7,579
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 10,303 $ 7,942
Income taxes $ 4,769 $ 21,222
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
AMERICAN BANKERS INSURANCE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
(1) Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. These statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report Form 10-K for the year ended December 31, 1997. Certain items have been
reclassed to conform with 1998 presentation.
(2) Adoption of New FASB Statement
The Company adopted FASB Statement 130, "Reporting Comprehensive Income."
Components of comprehensive income for the Company include items such as foreign
currency translation and unrealized gains (losses) of available-for-sale
securities.
(3) Comprehensive Income
Related tax effects allocated to each component of other comprehensive income
for the six months June 30, 1998 (000's omitted)
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
<S> <C> <C> <C>
Foreign currency translation adjustments $ (2,336) $ 1,162 $ (1,174)
-------- -------- --------
Unrealized gains on securities:
Unrealized holding gains arising during period 17,790 (5,500) 12,290
Less: reclassification adjustment for gains
realized in net income 6,987 (2,445) 4,542
-------- -------- --------
Net unrealized gains 10,803 (3,055) 7,748
-------- -------- --------
Minimum pension liability adjustment 0 0 0
-------- -------- --------
Other comprehensive income $ 8,467 $ (1,893) $ 6,574
======== ======== ========
</TABLE>
11
<PAGE> 12
Accumulated Other Comprehensive Income Balances
Accumulated
Foreign Unrealized Other
Currency Gains on Comprehensive
Items Securities Income
-------- ---------- -------------
Beginning balance $(14,141) $ 26,237 $ 12,096
Current-period change (1,174) 7,748 6,574
-------- -------- --------
Ending balance $(15,315) $ 33,985 $ 18,670
======== ======== ========
The provisions of FASB Statement 130 were adopted as of January 1, 1998.
(4) Reinsurance
The Company accounts for reinsurance contracts under FASB Statement 113. The
Company recognizes the income on reinsurance contracts principally on a pro-rata
basis over the life of the policies covered under the reinsurance agreements.
Reinsurance Recoverables on Unpaid Losses are included as an asset in the
Balance Sheet under the caption "Reinsurance Receivable." Ceded Unearned
Premiums are included as an asset in the Balance Sheet under the caption
"Prepaid Reinsurance Premiums."
The effect of reinsurance on premiums earned is as follows for the six months
and three months ended June 30, 1998 and 1997:
(in thousands)
Six Months Ended
June 30, 1998 June 30, 1997
------------ -------------
Direct premiums $ 1,284,949 $ 1,216,630
Reinsurance assumed 60,643 80,862
Reinsurance ceded (625,885) (568,706)
----------- -----------
Net premiums earned $ 719,707 $ 728,786
=========== ===========
(in thousands)
Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Direct premiums $ 648,614 $ 618,688
Reinsurance assumed 23,605 45,791
Reinsurance ceded (309,359) (299,468)
--------- ---------
Net premiums earned $ 362,860 $ 365,011
========= =========
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<PAGE> 13
(5) Commitments and Contingencies
For a comprehensive description of the Company's litigation, see Item III of the
Company's 1997 Form 10-K.
Alabama and Related Litigation:
Certain of ABIG's subsidiaries, including the Company, are presently parties to
a number of individual consumer and class action lawsuits pending in Alabama
involving premium, rate, marketing, sales practices, disclosure, and policy
coverage issues. While a number of similar suits have been filed in other
jurisdictions, the insurance and finance industries have been targeted in
Alabama by plaintiffs' lawyers who enjoy a favorable judicial climate. The
Company typically has been named as a co-defendant with one or several retailer
or finance companies who have sold the Company's product to a consumer. Other
insurers are also joined as co-defendants in some of the suits.
Although the Alabama lawsuits and similar suits pending in Mississippi and other
jurisdictions generally involve relatively small amounts of actual or
compensatory damages, they typically assert claims requesting substantial
punitive awards or purport to represent a large class of policyholders. The
Company denies any wrongdoing in any of these suits and believes that it has not
engaged in any conduct that would warrant an award of punitive damages or that
the class allegations have merit. The Company has been advised by legal counsel
that it has meritorious defenses to all claims being asserted against it.
While no one case is necessarily significant in terms of financial risk to the
Company, the judicial climate in Alabama and Mississippi is such that the
outcome of these cases is extremely unpredictable. Moreover, class action
lawsuits to which the Company is a party do not lend themselves to potential
damage calculation. Without admitting any wrongdoing, the Company has settled a
number of these suits, but there are still a significant number of cases
pending, and it is expected that more suits alleging essentially the same causes
of action are likely to continue to be filed during 1998. The Company intends to
continue to defend itself vigorously against all such suits and believes, based
on information currently available, that any liabilities that could result are
not expected to have a material effect on the Company's financial position.
Merger-related Litigation:
In late January and early February 1998, Cendant Corporation ("Cendant")
commenced litigation (the "Cendant Florida Litigation") in the United States
District Court for the Southern District of Florida, Miami Division, against the
Company, members of the Company's Board, American International Group, Inc.
("AIG") and a wholly owned subsidiary of AIG, challenging the validity of
certain provisions in the merger agreement the Company originally entered into
with AIG on December 21, 1997, which agreement was amended in January 1998 and
again at the end of February 1998 ("AIG Merger Agreement"), with respect to
acquisition proposals by third parties. Cendant's complaint in the Cendant
Florida Litigation also challenged the terms of the stock option agreement
between the Company and AIG. Pursuant to the terms of a settlement agreement
providing for the termination of the AIG Merger Agreement and the payment to AIG
by the Company of $100 million and by Cendant of $10 million (the "Settlement
Agreement"), Cendant has taken the necessary actions to cause the dismissal of
all claims asserted in the Cendant Florida Litigation against all defendants,
including the Company and members of the Company's Board. Also pursuant to the
terms of the Settlement Agreement, AIG has taken the necessary actions to cause
the dismissal of claims against Cendant alleging violations of the federal
securities laws in connection with Cendant's bid to acquire the Company.
In late January and early February 1998, five putative class actions on behalf
of American Bankers' shareholders were filed in United States District Court for
the Southern District of Florida alleging causes of action arising out of the
proposed merger with AIG including claims that certain members of the Company's
Board breached their fiduciary duties and that the Company violated certain
provision of the federal securities laws in connection with the proposed merger
with AIG. The Company and its directors believe that the claims asserted in
these actions are totally without merit and intend to vigorously contest them.
The District Court judge ordered that these cases be consolidated and that the
plaintiffs file a consolidated complaint. That consolidated complaint was filed
and the Company and directors filed an answer. The parties are presently engaged
in various pretrial matters.
13
<PAGE> 14
Other:
The Company is involved with a number of cases in the ordinary course of
business relating to insurance matters, or more infrequently, certain corporate
matters. Generally, the Company's liability is limited to specific amounts
relating to insurance or policy coverage for which provision has been made in
the financial statements. Other cases involve general corporate matters which
generally do not represent significant contingencies for the Company.
14
<PAGE> 15
(6) Segment Information
Gross collected premiums, net premiums earned and (loss) income before
federal income taxes are summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
Six Months Ended
June 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
GROSS COLLECTED PREMIUMS:
Life $ 474,637 $ 404,389
Property and Casualty 920,173 899,342
----------- -----------
Total $ 1,394,810 $ 1,303,731
=========== ===========
NET PREMIUMS EARNED:
Life $ 218,005 $ 190,659
Property and Casualty 501,702 538,127
----------- -----------
Total $ 719,707 $ 728,786
=========== ===========
(LOSS) INCOME BEFORE INCOME TAXES:
Life $ 33,244 $ 32,465
Property and Casualty 63,492 59,722
Other (115,984) (6,683)
----------- -----------
(19,248) 85,504
Interest Expense 9,659 8,019
----------- -----------
Total (Loss) Income before Income Taxes $ (28,907) $ 77,485
=========== ===========
</TABLE>
(7) Accounting for Investments
The Company accounts for its investments according to the Financial Accounting
Standards Board's Statement 115 - Accounting for Certain Investments in Debt and
Equity Securities.
This Statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. Those investments are to be classified in three categories and
accounted for as follows:
Held-to-Maturity - Securities for which the enterprise has the positive intent
and ability to hold to maturity. These securities are carried at amortized cost.
Available-for-Sale - Securities not classified as trading or held-to-maturity.
These securities are carried at market value with the unrealized holding gain or
loss reported as a separate component of equity, net of the income tax effect.
Trading Securities - Securities that are bought and held principally for the
purpose of selling them in the near term. These securities are carried at market
value with the unrealized holding gain or loss included in earnings.
15
<PAGE> 16
The detail of Cost and Statement Value for the Fixed Maturities and Equity
Securities held at June 30, 1998 is as follows:
(in thousands)
Amortized Statement
Cost Value
---------- ----------
Fixed Maturities
Held-to-Maturity Securities $ 806,494 $ 806,494
Available-for-Sale Securities 1,057,299 1,077,785
Trading Securities -- --
---------- ----------
Total Fixed Maturities $1,863,793 $1,884,279
========== ==========
Net unrealized gain $ 20,486
==========
Market
Cost Value
---------- ----------
Equity Securities
Held-to-Maturity Securities $ -- $ --
Available-for-Sale Securities 118,073 147,694
Trading Securities -- --
---------- ----------
Total Equity Securities $ 118,073 $ 147,694
========== ==========
Net unrealized gain $ 29,621
==========
The net unrealized gain for "Available-for-Sale Securities" increased by
$7,748,000 (net of $3,055,000 in deferred income taxes) from December 31, 1997
to June 30, 1998.
An analysis of the realized gains and losses of the Company for the six months
ended June 30, 1998, is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Gross realized gains from sales of Available-for-Sale Securities $ 11,961
Gross realized losses from sales of Available-for-Sale Securities (2,884)
--------
Net realized gain from investment activity 9,077
Net realized loss from other investment activity (63)
--------
Total realized gain $ 9,014
========
</TABLE>
The Company uses the specific identification method to determine cost for
computing the realized gains and losses.
16
<PAGE> 17
(8) Earnings per Share
The Company adopted FASB Statement 128 "Earnings per Share" for the period
ending December 31, 1997. This Statement replaces the presentation of primary
and fully diluted EPS with a presentation of basic and diluted EPS. All prior
year data has been restated to conform with the provisions of this Statement and
to reflect the two-for-one stock split effective September 1997. The following
is the required reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic EPS:
Net Income (Loss) $ 30,169 $ 28,618 $(12,511) $ 55,037
Less convertible preferred stock dividends 1,554 1,797 3,351 3,594
-------- -------- -------- --------
Income (Loss) available to common stockholders 28,615 26,821 (15,862) 51,443
======== ======== ======== ========
Weighted average shares outstanding 42,662 41,522 42,328 41,365
======== ======== ======== ========
Net Income (Loss) - per share $ 0.67 $ 0.65 $ (0.37) $ 1.24
======== ======== ======== ========
Diluted EPS:
Income (Loss) available to common stockholders $ 28,615 $ 26,821 $(15,862) $ 51,443
Convertible preferred stock dividends 1,554 1,797 3,351 3,594
Convertible debentures interest 0 58 15 114
-------- -------- -------- --------
Income available to common stockholders plus assumed conversions 30,169 28,676 N/A 55,151
======== ======== ======== ========
Weighted average shares outstanding-Basic EPS 42,662 41,522 42,328 41,365
Common stock options 309 580 661 577
Convertible Preferred Stock 3,961 4,594 3,962 4,594
Convertible debentures 0 300 0 300
-------- -------- -------- --------
Weighted average shares outstanding-Diluted EPS 46,932 46,996 46,951 46,836
======== ======== ======== ========
Net Income - per share $ 0.64 $ 0.61 N/A $ 1.18
======== ======== ======== ========
</TABLE>
17
<PAGE> 18
AMERICAN BANKERS INSURANCE GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Gross collected premiums increased $30.3 million or 5% to $696.9 million for the
three months ended June 30, 1998, from $666.6 million for the same period of
1997. Approximately 91% or $27.7 million of the increase came from the Company's
largest product lines - Credit Unemployment, Credit A&H, and Credit Life.
During the three months ended June 30, 1998, total premiums and other revenues
were $414.0 million, an increase of $8.0 million over total premiums and other
revenues of $406.0 million for the same period in 1997. The overall growth in
invested assets generated an additional $3.2 million of investment income for
the second quarter of 1998 as compared to the same period of 1997. Realized
gains contributed $3.7 million to the increase in revenues.
The benefits and claims ratio improved to 35% for the three months ended June
30, 1998 compared to 37% for the same period of 1997. However, this improvement
was partially offset by an increase in the commission ratio from 41% for the
three months ended June 30, 1997, to 44% for the same period in 1998.
Net income for the second quarter of 1998 was $30.2 million. Included in the net
income are merger related expenses of approximately $2.3 million, net of tax.
Excluding these expenses, the Company reported net income of $32.5 million. This
compares with net income of $28.6 million for the same period in 1997. (See
discussion in "Change of Control of the Company" below.)
Net loss for the six months ended June 30,1998 was $12.5 million. The loss is
primarily the result of a merger termination fee paid to American International
Group and other merger related expenses totaling $74.4 million, net of tax.
Excluding the termination fee and other merger related expenses, the Company's
net income for the six months ended June 30, 1998 was $61.9 million.
FINANCIAL CONDITION
Stockholders' Equity decreased $3.7 million from $813.9 million at December 31,
1997, to $810.2 million at June 30, 1998. The primary cause for the decrease was
the first quarter 1998 net loss of $42.7 million.
Liquidity and Capital Resources
On June 30, 1998, $2.2 billion of securities, short-term investments and cash
comprised 57% of the Company's total assets. The securities were principally
readily marketable and did not include any significant concentration in private
placements.
In connection with the execution of the Cendant Merger Agreement, (as discussed
in the "Change of Control of the Company" below) the Company paid American
International Group, Inc. (AIG) a fee of $100 million for the termination of the
AIG Merger Agreement and certain other related agreements. The Company paid the
fee principally with funds provided by its credit facility. The Cendant Merger
Agreement also requires the Company, under certain circumstances, to pay Cendant
a fee of $94.9 million plus expenses, if the Merger is not consummated. If such
payments were required, the Company expects to obtain such funds from available
credit facilities and/or operating cash flows.
Under the short-term credit facility and medium-term note programs, the Company
has available $96 million for short-term liquidity needs as of the end of second
quarter 1998. Consummation of the merger as contemplated by the Cendant Merger
Agreement will, unless consents or waivers are obtained from the group of banks
under the credit facility, constitute an event of default and result in the
termination of the credit facility. This event may impact the Company's
liquidity if it is required to repay all outstanding loans and advances pursuant
to the credit facility and the unavailability of further loans and advances
under the credit facility.
18
<PAGE> 19
The Company does not hold significant investments in equity securities;
consequently, market changes in the equity securities markets do not
significantly affect the investment portfolio.
Prior to the closing of the pending merger with Cendant Corporation, the Company
expects to continue its policy of paying regular cash dividends; however, future
dividends are dependent on the Company's future earnings, capital requirements
and financial condition. In addition, the payment of dividends is subject to the
restrictions, and conditions described in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
CHANGE OF CONTROL OF THE COMPANY
The Company entered into an Agreement and Plan of Merger, dated March 23, 1998,
by and among Cendant Corporation ("Cendant"), Season Acquisition Corporation
("Season") and the Company (the "Cendant Merger Agreement") pursuant to which
(i) the previously announced tender offer by Season is being conducted (the
"Offer") and (ii) upon consummation of the Offer, the merger of the Company with
and into Season will be consummated (the "Merger"). The execution of the Cendant
Merger Agreement followed the public announcement by Cendant on January 27, 1998
of its proposal to acquire the Company for $58 per share of Common Stock, to be
paid in cash and common stock of Cendant and the subsequent announcement by
Cendant on March 16, 1998, increasing the per share price for its proposal from
$58 to $67.
Under the terms of the Cendant Merger Agreement, Season is offering to purchase
23,501,260 outstanding shares of Common Stock at a price of $67.00 per Common
Share, net to the seller in cash, without interest thereon. Following the
consummation of the Offer, the Company will be merged with and into Season with
Season continuing as the surviving corporation. Season will succeed to the
business of the Company and will assume the name American Bankers Insurance
Group, Inc. As a result of the Merger, each Common Share then outstanding (other
than Common Shares owned by Cendant, Season or any direct or indirect subsidiary
of the company and in each case not held on behalf of third parties) will be
converted into, and become exchangeable for, that number of shares of Cendant
Common Stock having a value equal to the amount derived by dividing $67.00 by
the average closing prices of the Cendant Common Stock as reported on the NYSE
composite transactions reporting system (as reported by the New York City
edition of the Wall Street Journal) for the ten trading days ending on the third
trading day prior to the date the Merger is consummated. In addition, pursuant
to the Merger, each of the then outstanding $3.125 Series B Cumulative
Convertible Preferred Shares ("Preferred Shares") will be converted into one
share of Cendant Preferred Stock having substantially similar terms to the
Preferred Shares, except that such shares shall be convertible into shares of
Cendant Common Stock in accordance with the terms of the Preferred Shares.
The consummation of the Merger is conditioned upon several requirements,
including shareholder and regulatory approval. If the Company fails to
consummate the Merger, under certain circumstances, the Company will be
obligated to pay a termination fee to Cendant of $94.9 million plus expenses.
Cendant's proposal to acquire the Company followed an announcement by the
Company that it had entered into an agreement with American International Group,
Inc. ("AIG") for the acquisition by AIG of 100 percent of the outstanding stock
of the Company pursuant to the merger (the "AIG Merger") of the Company with and
into AIGF, Inc., a Florida corporation and a newly formed wholly-owned
subsidiary of AIG, in accordance with the terms of the Agreement and Plan of
Merger, dated as of December 21, 1997 among the Company, AIG and AIGF as amended
and restated as of January 7, 1998, amended by Amendment No. 1 thereto dated as
of January 28, 1998, and as further amended and restated as of February 28, 1998
(the "AIG Merger Agreement"). In connection with the AIG Merger Agreement, the
Company had granted AIG an option to purchase a number of newly issued shares of
Common Stock equal to approximately 19.9% of the outstanding number of shares of
Common Stock pursuant to the Stock Option Agreement dated as of December 21,
1997, as amended and restated as of February 28, 1998 (the "Stock Option
Agreement"). In addition, Messrs. Landon and Gaston who hold approximately 8.3%
of the outstanding Common Stock had entered into a voting agreement (the "Voting
Agreement") with AIG pursuant to which these stockholders agreed to vote their
shares of Common Stock in favor of adoption of the AIG Merger Agreement and
approval of the AIG Merger and to grant to AIG an irrevocable proxy with respect
to such shares of Common Stock, subject to certain conditions.
The AIG Merger Agreement, Stock Option Agreement and Voting Agreement have been
terminated. On March 18, 1998, the Company, AIG and Cendant entered into a
settlement agreement (the "Settlement Agreement") pursuant to which AIG agreed
to temporarily waive certain provisions of the AIG Merger Agreement, which
waiver permitted the Company to terminate the AIG Merger Agreement and enter
into the Cendant Merger Agreement. On March 23, 1998,
19
<PAGE> 20
in accordance with the terms of the Settlement Agreement, the Company paid to
AIG a termination fee of $100 million principally from funds provided by its
short-term credit facility and Cendant paid $5 million, and agreed to pay an
additional $5 million to AIG in respect of AIG's expenses, and the Company and
AIG entered into a termination agreement which resulted in the termination of
the AIG Merger Agreement, the Stock Option Agreement and the Voting Agreement.
The merger is subject to approval by regulatory authorities and the Company's
shareholders which are expected to be obtained by the end of 1998. In connection
with the Merger, the Company will recognize certain expenses associated with the
accelerated vesting of benefits under several compensation plans, including
employee stock options and restricted stock. The Company estimates that the
after-tax charge related to the acceleration of such benefits will be
approximately $6 million. Certain officers of the Company have severance
agreements which entitle them to receive specified payments under certain
circumstances following a change in control. The maximum amount that the Company
could incur pursuant to such severance agreements is approximately $12.7
million, net of tax.
In April 1998, Cendant announced that it had discovered potential accounting
irregularities in certain of its business units, and that it expects to restate
annual and quarterly net income and earnings per share for 1997 and may restate
certain other previous periods relating to those businesses. Cendant further
announced that the Audit Committee of its Board of Directors was performing an
investigation into those potential accounting irregularities.
In early July 1998, Cendant announced that it believed that the potential
accounting irregularities were greater than those initially discovered in April
and revised its estimates for its restatement of net income and earnings per
share. In late July 1998, Cendant announced that the Audit Committee had
received an oral summary of the conclusions of Arthur Andersen LLP's virtually
complete forensic audit and that their conclusions were consistent with the
revised estimates announced in early July.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - SAFE HARBOR CAUTIONARY
STATEMENT
Except for the historical information contained herein, certain of the matters
discussed in this quarterly report are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995, which involve certain
risks and uncertainties, including but not limited to, changes in general
economic conditions, interest rates, consumer confidence, competition,
environmental factors, and governmental regulations affecting the Company's
operations. See the Company's Annual Report Form on 10-K for the year ended
December 31, 1997, for a further discussion of these and other risks and
uncertainties applicable to the Company's business.
20
<PAGE> 21
PART II
OTHER INFORMATION
21
<PAGE> 22
Item 1 - Legal Proceedings
Commitments and Contingencies information which appears on page 13 elsewhere in
this report is incorporated by reference in this item. Additional information
regarding litigation can be found in the Company's 1997 Annual Report on Form
10-K.
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 6(a) - Exhibits
(2.1) Agreement and Plan of Merger among American Bankers Insurance Group, Inc.,
ABIG acquisition Corp. A. and MS Diversified Corporation dated as of May
18, 1998.
(2.2) Purchase Agreement among American Bankers Insurance Group, Inc. and
Dominion Automobile Association Limited dated as of March 9, 1998.
(3.1) Corporate By-Laws, as amended, through May 1998.
(27) Financial Data Schedule (for SEC use only)
Item 6(b) - Reports on Form 8-K
None
22
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
Among
AMERICAN BANKERS INSURANCE GROUP, INC.,
ABIG ACQUISITION CORP. A.
and
MS DIVERSIFIED CORPORATION
Dated as of May 18, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
RECITALS
ARTICLE I
The Merger; Closing; Effective Time
<S> <C> <C>
1.1. The Merger...............................................................................................1
1.2. Closing..................................................................................................1
1.3. Effective Time...........................................................................................2
ARTICLE II Charter and By-Laws of the Surviving Corporation
2.1. The Charter..............................................................................................2
2.2. The By-Laws..............................................................................................2
ARTICLE III Officers and Directors of the Surviving Corporation
3.1. Directors................................................................................................2
3.2. Officers.................................................................................................3
ARTICLE IV Effect of the Merger on Capital Stock;Exchange of Certificates
4.1. Effect on Capital Stock..................................................................................3
4.2. Dissenting Shares........................................................................................4
4.3. Stock Options and Stock Appreciation Rights..............................................................4
4.4. Cancellation of Shares...................................................................................5
4.5. Exchange of Certificates for Shares......................................................................5
(a) Exchange Agent..................................................................................5
(b) Exchange Fund...................................................................................6
(c) Exchange Procedures.............................................................................6
(d) Transfers.......................................................................................7
(e) Termination of Exchange Fund....................................................................7
(f) Lost, Stolen or Destroyed Certificates..........................................................7
(g) Withholding Rights..............................................................................7
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE V Representations and Warranties
<S> <C> <C>
5.1. Representations and Warranties of the Company............................................................8
(a) Organization, Good Standing and Qualification...................................................8
(b) Capital Structure..............................................................................10
(c) Corporate Authority, Approval and Fairness.....................................................11
(d) Governmental Filings; No Violations............................................................11
(e) Financial Statements...........................................................................12
(f) Absence of Certain Changes.....................................................................13
(g) Litigation and Liabilities.....................................................................14
(h) Employee Benefits..............................................................................14
(i) Compliance with Laws; Permits..................................................................16
(j) Takeover Statutes..............................................................................17
(k) Environmental Matters..........................................................................18
(1) Taxes..........................................................................................19
(m) Labor Matters..................................................................................21
(n) Intellectual Property..........................................................................21
(o) Material Contracts.............................................................................22
(p) Brokers and Finders............................................................................23
(q) Insurance Matters..............................................................................23
(r) Liabilities and Reserves.......................................................................25
(s) Separate Accounts..............................................................................25
(t) Real Property..................................................................................26
(u) Interested Party Transactions..................................................................26
(v) Disclosure.....................................................................................26
5.2. Representations and Warranties of Parent and Merger Subsidiary..........................................27
(a) Organization, Good Standing and Qualification..................................................27
(b) Capitalization of Merger Subsidiary............................................................27
(c) Corporate Authority............................................................................27
(d) Governmental Filings...........................................................................27
(e) Legal Proceedings..............................................................................28
(f) Brokers and Finders............................................................................28
ARTICLE VI Covenants
6.1. Interim Operations......................................................................................28
6.2. Acquisition Proposals...................................................................................30
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
6.3. Non-Disclosure..........................................................................................31
6.4. Stockholders Meetings...................................................................................33
6.5. Filings; Other Actions, Notification....................................................................33
6.6. Access..................................................................................................34
6.7. Publicity...............................................................................................34
6.8. Expenses................................................................................................35
6.9. Indemnification; Directors' and Officers' Insurance; Set-off Right......................................35
6.10 Takeover Statute........................................................................................36
6.11 Restrictive Covenants...................................................................................37
6.12 Future Consideration....................................................................................37
6.13 Officers' Certifications................................................................................37
6.14 Service Contract Administration Agreement...............................................................37
6.15 No-Post Closing Share Transfers.........................................................................37
ARTICLE VII Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger..............................................38
(a) Stockholder Approval...........................................................................38
(b) Regulatory Consents............................................................................38
(c) Litigation.....................................................................................38
(d) Blue Sky Approvals.............................................................................38
7.2. Conditions to Obligations of Parent and Merger Subsidiary...............................................38
(a) Representations and Warranties.................................................................38
(b) Performance of Obligations of the Company......................................................39
(c) Consents.......................................................................................39
(d) Dissenting Shares..............................................................................39
(e) No Material Adverse Changes....................................................................39
(f) Opinions of Counsel............................................................................39
(g) Consent of Option Holders......................................................................39
(h) Service Contract Administration Agreement......................................................40
7.3. Conditions to Obligation of the Company.................................................................40
(a) Representations and Warranties.................................................................40
(b) Performance of Obligations of Parent and Merger Subsidiary.....................................40
(c) Consents Under Agreement.......................................................................40
ARTICLE VIII Termination
8.1. Termination by Mutual Consent...........................................................................41
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
8.2. Termination by Either Parent or the Company.............................................................41
8.3. Termination by the Company..............................................................................41
8.4. Termination by Parent...................................................................................42
8.5. Effect of Termination and Abandonment...................................................................42
ARTICLE IX Miscellaneous and General
9.1. Survival................................................................................................43
9.2. Modification or Amendment...............................................................................44
9.3. Waiver of Conditions....................................................................................44
9.4. Counterparts............................................................................................44
9.5. Governing Law; Waiver of Jury Trial.....................................................................44
9.6. Notices.................................................................................................45
9.7. Entire Agreement: No Other Representations..............................................................46
9.8. No Third Party Beneficiaries............................................................................46
9.9. Obligations of Parent and of the Company................................................................46
9.10 Severability............................................................................................47
9.11 Interpretation..........................................................................................47
9.12 Assignment..............................................................................................47
</TABLE>
-iv-
<PAGE> 6
Exhibit A -- Form of Confidentiality Agreement
Exhibit B -- Form of Officers' Certificates
Exhibit C -- Form of Opinion of Brunini, Grantham, Grower & Hewes, PLLC
Exhibit D -- Form of Opinion of Tom L. Ostenson, Esq.
-v-
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "AGREEMENT"),
dated as of May 18, 1998, among AMERICAN BANKERS INSURANCE GROUP, INC., a
Florida corporation ("PARENT"), ABIG ACQUISITION CORP. A, a Florida corporation
and a wholly-owned subsidiary of Parent ("MERGER SUBSIDIARY"), and MS
DIVERSIFIED CORPORATION, a Mississippi corporation (the "COMPANY," the Company
and Merger Subsidiary sometimes being hereinafter collectively referred to as
the "CONSTITUENT CORPORATIONS").
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger
Subsidiary and the Company have determined that the merger of Merger Subsidiary
with and into the Company (the "MERGER") upon the terms and subject to the
conditions set forth in this Agreement is advisable and have approved the
Merger;
WHEREAS, the Company, Parent and Merger Subsidiary desire to make
certain representations, warranties, covenants and agreements in connection with
this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.3) the
Merger Subsidiary shall be merged with and into the Company and the separate
corporate existence of the Merger Subsidiary shall thereupon cease. The Company
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "SURVIVING CORPORATION"), and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth in Article III. The
Merger shall have the effects specified in the Mississippi Business Corporation
Act, as amended (the "MBCA") and the Florida Business Corporation Act, as
amended (the "FBCA").
1.2. CLOSING. The closing of the Merger (the "CLOSING") shall take
place (i) at the offices of Jorden Burt Boros Cicchetti Berenson & Johnson LLP,
777 Brickell Avenue, Suite 500, Miami, Florida 33131, at 10:00 A.M. within five
business days after the last to be fulfilled or
<PAGE> 8
waived of the conditions set forth in Article VII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Parent may agree in writing (the "CLOSING
DATE").
1.3. EFFECTIVE TIME. In connection with and at the time of the Closing,
the Company and Parent (i) will cause Articles of Merger (the "MISSISSIPPI
ARTICLES OF MERGER") to be executed, acknowledged and, as soon as practicable
following the Closing, filed with the Secretary of State of the State of
Mississippi (the "MISSISSIPPI SECRETARY") as provided in Section 79-4-11.05 of
the MBCA, and (ii) will cause Articles of Merger (the "FLORIDA ARTICLES OF
MERGER and collectively with the Mississippi Articles of Merger, the "ARTICLES
OF MERGER") to be executed, acknowledged and, as soon as practicable following
the Closing, filed with the Secretary of State of the State of Florida (the
"FLORIDA SECRETARY") as provided in Section 607.1105 of the FBCA. The Merger
shall become effective at the time that is the later of when the Mississippi
Secretary accepts for record the Mississippi Articles of Merger or when the
Florida Secretary accepts for record the Florida Articles of Merger, or at such
later time agreed by the parties and established under the Articles of Merger
(the "EFFECTIVE TIME").
ARTICLE II
Charter and By-Laws
of the Surviving Corporation
2.1. THE CHARTER. The Second Amended and Restated Articles of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be the charter of the Surviving Corporation (the "CHARTER"), until
duly amended as provided therein or by applicable law.
2.2. THE BY-LAWS. The by-laws of Company in effect at the Effective
Time shall be the by-laws of the Surviving Corporation (the "BY-LAWS"), until
thereafter amended as provided therein or by applicable law.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. DIRECTORS. The directors of Merger Subsidiary at the Effective
Time shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or
2
<PAGE> 9
removal in accordance with the Charter and the By-Laws. Prior to the Effective
Time, the Company shall cause each of its directors (other than James B. Stuart,
Jr.) to resign effective immediately following the Effective Time. Immediately
after the Effective Time, Parent shall cause Harold Hogue and Robert Furman to
be appointed as directors of the Surviving Corporation.
3.2. OFFICERS. The officers of the Company at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
(except that, immediately after the Effective Time, the Company shall elect (i)
Gerald Gaston as Chairman of the Board (in replacement of Carl Herrin), (ii)
Steven Williams as President and Chief Executive Officer (in replacement of
James B. Stuart, Jr.), and (iii) James B. Stuart, Jr. as Vice Chairman of the
Board), to hold office in each case until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Charter and the By-Laws.
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. EFFECT ON CAPITAL STOCK. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Each share of common stock, no par value, of the Company
(a "SHARE" or, collectively, the "SHARES"), issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Parent and Shares to be
canceled pursuant to subparagraph (b) below and Dissenting Shares (collectively,
the "EXCLUDED SHARES")) shall be converted into, and become exchangeable for,
the right to receive (i) a price of $10.556 per Share, in cash without interest
(the "PER SHARE PRICE), plus (ii) subject to section 6.9(e) and section 6.12,
the right to receive the Per Share Future Consideration (as defined below) (the
Per Share Price and the Per Share Future Consideration is referred to hereafter
as the "PER SHARE MERGER CONSIDERATION"). The "PER SHARE FUTURE CONSIDERATION"
shall be equal to the total number of shares of Search Financial Services, Inc.
common stock, $.01 par value ("SEARCH COMMON STOCK"), owned by the Company and
any Subsidiary of the Company (excluding any shares of Search Common Stock
acquired by Parent pursuant to its right of set-off under Section 6.9(e)) on
July 31, 1999, or such earlier date that the Company determines to distribute
the Search Common Stock (the "FUTURE CONSIDERATION DISTRIBUTION DATE"), divided
by the sum of (i) the number of Shares issued and outstanding immediately prior
to the Effective Time (other than the Excluded Shares), plus (ii) the aggregate
number of Option Shares (as defined below) for which a cash payment will become
payable pursuant to Section 4.3(a).
3
<PAGE> 10
(b) Each Share held in the treasury of the Company and each
Share owned by the Company or by any direct or indirect Subsidiary of the
Company, shall be canceled and retired without payment of any consideration
therefor.
(c) Each share of common stock, par value $.01 per share, of
Merger Subsidiary issued and outstanding immediately prior to the Effective Time
shall be converted into one validly issued, fully paid and nonassessable share
of common stock, no par value, of the Surviving Corporation.
(d) Each Option (as defined below) issued and outstanding
immediately prior to the Effective Time shall be canceled and retired without
payment of any consideration therefor (other than the consideration payable
pursuant to Section 4.3).
4.2. DISSENTING SHARES.
(a) Notwithstanding the provisions of Section 4.1 or any other
provision of this Agreement to the contrary, Shares that are issued and
outstanding immediately prior to the Effective Time and held by shareholders who
have not voted such Shares in favor of the approval and adoption of this
Agreement and who shall have properly demanded appraisal of such Shares in
accordance with the MBCA (the "DISSENTING SHARES") shall not be converted into
the right to receive the Per Share Price and the Per Share Future Consideration
at or after the Effective Time, unless and until the holder of such Dissenting
Shares shall have failed to perfect or shall have effectively withdrawn or lost
such right to appraisal and payment under the MBCA. If a holder of Dissenting
Shares shall have so failed to perfect or shall have effectively withdrawn or
lost such right to appraisal and payment, then, as of the Effective Time or the
occurrence of such event, whichever last occurs, such holder's Dissenting Shares
shall be converted into and represent solely the right to receive the Per Share
Price, without any interest thereon, and a right to receive the Per Share Future
Consideration, as provided in Section 4.1 hereof.
(b) The Company shall give Parent (i) prompt notice of any
written demands for appraisal, withdrawals of demands for appraisal and any
other instruments served pursuant to Article 13 (or any successor or
replacement) of the MBCA which are received by the Company, and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the MBCA. The Company will not voluntarily make any payment
with respect to any demands for appraisal and will not, except with the prior
written consent of Parent, settle or offer to settle any such demands.
4.3. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. As a result of the
Merger, each option and stock appreciation right (an "OPTION" and all such
options and stock appreciation
4
<PAGE> 11
rights, collectively, "OPTIONS") which has been granted under the Company's
Executive Stock Option Incentive Plan, which was approved by the Company's board
of directors on February 18, 1987, and the Company's Executive Stock Option
Incentive Plan, which was approved by the Company's board of directors on April
20, 1993 (collectively, the "OPTION PLANS") and which is outstanding at the
Effective Time, whether or not then exercisable, will be deemed converted into,
and the holder of each such Option will be entitled to receive:
(a) from the Exchange Agent upon surrender of the Option for
cancellation, an amount of cash (the "OPTION CASH CONSIDERATION") equal
to the product of:
(i) the positive difference, if any, between the Per Share
Price and the exercise price of each of the Shares issuable
under such Option (each of such Shares, an "OPTION SHARE" and
collectively, the "OPTION SHARES"), times
(ii) the number of Option Shares covered by such Option, plus
(b) from the Company on the Future Consideration Distribution Date, the
number of shares of Search Common Stock (or, at the Company's option,
the cash equivalent for any fractional shares of Search Common Stock)
equal to the product of:
(i) the Per Share Future Consideration, times
(ii) the number of Option Shares covered by such Option.
4.4. CANCELLATION OF SHARES. At the Effective Time, all Shares shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each certificate (a "CERTIFICATE") formerly representing any of such
Shares (other than Excluded Shares) shall thereafter represent only the right to
the Merger Consideration. Each Share issued and outstanding immediately prior to
the Effective Time and owned by the Company or any direct or indirect subsidiary
of the Company (in each case other than Shares that are owned on behalf of third
parties), shall, by virtue of the Merger and without any action on the part of
the holder thereof, cease to be outstanding, shall be canceled and retired
without payment of any consideration therefor and shall cease to exist.
4.5. EXCHANGE OF CERTIFICATES FOR SHARES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall designate
a bank or trust company located in the United States and reasonably satisfactory
to the Company (the "Exchange Agent") to act as exchange agent in effecting,
INTER ALIA, the exchange for the Per Share Price
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multiplied by the number of Shares formerly represented thereby, of certificates
(the "Certificates") that, prior to the Effective Time, represented Shares
entitled to payment pursuant to Section 4.1(a)
(b) EXCHANGE FUND. Promptly after the Effective Time, Parent shall
deposit, or shall cause to be deposited, with the Exchange Agent, for the
benefit of the holders of Shares, an amount in cash (the "EXCHANGE FUND") equal
to the sum of (i) the Aggregate Per Share Price (as defined below), and (ii) the
aggregate amount of cash payable pursuant to Section 4.3 in respect of Options
outstanding immediately prior to the Effective Time. The "AGGREGATE PER SHARE
PRICE" shall mean the Per Share Price multiplied by the number of Shares that,
immediately prior to the Effective Time, represented Shares entitled to payment
pursuant to Section 4.1(a). The Exchange Fund shall be held by the Exchange
Agent for the benefit of holders of the Shares and shall not be used for any
purpose except as set forth in this Agreement.
(c) EXCHANGE PROCEDURES.
(i) At such time as the Closing Date is set under Section 1.2,
the Surviving Corporation shall cause the Exchange Agent to mail to each holder
of record of Certificates a form of letter of transmittal and instructions for
use in effecting the surrender of the Certificates in exchange for the Per Share
Price, in such form and having such provisions as Parent and the Company may
reasonably agree; provided, however, that such materials shall disclose to such
holders of record that no surrender and exchange will take effect until the
later of (i) the Effective Time, or (ii) the Exchange Agent's receipt in good
order of a Certificate surrendered by the holder of record for cancellation
together with a duly executed letter of transmittal. The Surviving Corporation
shall instruct the Exchange Agent to disburse, as promptly as reasonably
practicable after the later of (i) the Effective Time, or (ii) the Exchange
Agent's receipt in good order of a Certificate surrendered by the holder of
record for cancellation together with a duly executed letter of transmittal, to
the holder of record of such surrendered Certificate the Per Share Price
multiplied by the number of Shares represented by such surrendered Certificate,
and the Certificate so surrendered shall forthwith be canceled. No interest will
be paid or accrued on any amount payable upon due surrender of the Certificates.
(ii) At such time as the Closing Date is set under Section
1.2, the Surviving Corporation shall cause the Exchange Agent to mail to each
holder of record of Options a form of letter of transmittal and instructions for
use in effecting the surrender of the Options in exchange for the Option Share
Price, in such form and having such provisions as Parent and the Company may
reasonably agree; provided, however, that such materials shall disclose to such
holders of record that no surrender and exchange will take effect until the
later to occur of (i) the Effective Time, or (ii) the Exchange Agent's receipt
in good order of an Option for cancellation together with a duly executed letter
of transmittal. The Surviving Corporation shall instruct the Exchange Agent to
disburse, as promptly as reasonably practicable after the later of (i) the
Effective Time,
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or (ii) the Exchange Agent's receipt in good order of an Option surrendered by
the holder of record for cancellation together with a duly executed letter of
transmittal, to the holder of record of such surrendered Option the Option Cash
Consideration in respect of such Option, and the Option so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount payable
upon due surrender of the Options.
(d) TRANSFERS. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) that remains unclaimed by
the former holders of Shares of the Company for 180 days after the Effective
Time shall be paid to Parent. Any such former holders of Shares of the Company
who have not theretofore complied with this Article IV shall thereafter look
only to Parent for payment of the Per Share Price payable pursuant to Section
4.1 and Section 4.2(c) upon due surrender of their Certificates (or affidavits
of loss in lieu thereof), in each case, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation, the
Exchange Agent or any other Person (as defined below) shall be liable to any
former holder of Shares for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
For the purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d)) or
either entity of any kind or nature.
(f) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond in customary amount in indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will pay in exchange for
such lost, stolen or destroyed Certificate the Per Share Price payable in
respect thereof pursuant to Section 4.1(a).
(g) WITHHOLDING RIGHTS. Parent shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of Shares such amounts as Parent reasonably determines Parent is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "CODE"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
Parent, such withheld amounts shall be treated for all purposes of the Agreement
as having been paid to the holder of the Shares in respect of which such
deduction and withholding was made by Parent.
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ARTICLE V
Representations and Warranties
5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the corresponding sections or subsections of the disclosure letter delivered
to Parent by the Company on or prior to entering into this Agreement (the
"COMPANY DISCLOSURE LETTER"), the Company hereby represents and warrants to
Parent and Merger Subsidiary that:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Mississippi and each of its Subsidiaries (other than Air
Transportation, L.L.C.) is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of organization and
each of the Company and its Subsidiaries has all requisite corporate or similar
power and authority to own and operate its properties and assets and to carry on
its business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the ownership
or operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in good standing
would not, individually or in the aggregate, have a Company Material Adverse
Effect (as defined below). The Company has made available to Parent a complete
and correct copy of the Company's and its Subsidiaries' charter and by-laws,
each as amended to date. The Company's and its Subsidiaries' charter and by-laws
so delivered are in full force and effect.
As used in this Agreement, the term (i) "SUBSIDIARY" (or, in the case
of more than one Subsidiary, "SUBSIDIARIES") means, with respect to the Company,
Parent or Merger Subsidiary, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the securities
or ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
is directly or indirectly owned or controlled by such party or by one or more of
its respective Subsidiaries or by such party and any one or more of its
respective Subsidiaries, (ii) "AFFILIATE" (or, in the case of more than one
Affiliate, "AFFILIATES") means, with respect to the Company, Parent or Merger
Subsidiary, as the case may be, any entity, whether incorporated or
unincorporated, that is a Subsidiary of, directly or indirectly controls, or is
under common control with, the Company, Parent or Merger Subsidiary, as the case
may be, and (iii) "COMPANY MATERIAL ADVERSE EFFECT" means any change, effect, or
circumstance that, individually or when taken together with all other changes,
effects and circumstances that have occurred prior to the date of determination
of the occurrence of the Company Material Adverse Effect, is or is reasonably
likely (A) to be adverse to the condition (financial or otherwise), operations,
properties, results of operations, or business or prospects of the Company and
its Subsidiaries in an amount in excess of $500,000, or (B) to prevent,
materially delay or materially impair the ability of the Company either (I) to
perform its
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obligations under this Agreement or (II) to consummate the Merger or any of the
other transactions contemplated by this Agreement.
The Company conducts its insurance operations through the Subsidiaries
set forth on Section 5.1(a) of the Company Disclosure Letter (collectively, the
"COMPANY INSURANCE SUBSIDIARIES"). Each of the Company Insurance Subsidiaries is
(i) duly licensed or authorized as an insurance company and, where applicable, a
reinsurer in its jurisdiction of incorporation, (ii) duly licensed or authorized
as an insurance company and, where applicable, a reinsurer in each other
jurisdiction where it is required to be so licensed or authorized, and (iii)
duly authorized in its jurisdiction of incorporation and each other applicable
jurisdiction to write each line of business reported as being written in the
Company SAP Statements (as hereinafter defined), except, in any such case, where
the failure to be so licensed or authorized would not, individually or in the
aggregate, have a Company Material Adverse Effect. The Company and each of the
Company Insurance Subsidiaries has made all required filings under applicable
insurance holding company statutes except where the failure to file would not,
individually or in the aggregate, have a Company Material Adverse Effect.
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(b) CAPITAL STRUCTURE.
(i) The authorized stock of the Company consists of 70,000,000
shares comprised of (A) 50,000,000 Shares, of which 5,042,450 Shares are
outstanding on the date hereof, (B) 10,000,000 shares of Class A preferred
stock, no par value, of which no shares are outstanding on the date hereof, and
(C) 10,000,000 shares of Class B preferred stock, no par value, of which no
shares are outstanding on the date hereof. All of the outstanding Shares have
been duly authorized and are validly issued, fully paid and nonassessable. The
Company has no commitments to issue or deliver Shares, except that, as of the
date hereof, there were 354,177 Option Shares subject to issuance pursuant to
the Company's Option Plans. The Company Disclosure Letter contains a correct and
complete list of each outstanding Option (including each outstanding stock
appreciation right) to purchase or acquire Shares under each of the Company's
Option Plans, including the plan, the holder, date of grant, exercise price and
number of Shares subject thereto. The Company has no commitments to issue or
deliver shares of its Class A or Class B preferred stock. Section 5.1(b) of the
Company Disclosure Letter contains a true and correct list of the holders of the
5,042,450 outstanding Shares as of the date of this Agreement.
(ii) Each of the outstanding shares of capital stock or other
securities of each of the Company's Subsidiaries (other than Air Transportation,
L.L.C.) is duly authorized, validly issued, fully paid and nonassessable and
owned by the Company or a direct or indirect wholly-owned subsidiary of the
Company, free and clear of any lien, pledge, security interest, claim or other
encumbrance. The Company owns 700 of the 1,000 outstanding units of interest in
Air Transportation, L.L.C., free and clear of any lien, pledge, security
interest, claim or other encumbrance.
(iii) Except as set forth in this subsection (b) and in the
Option Plans, there are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments to issue or sell any
shares of capital stock or other securities of the Company or any of its
Subsidiaries (other than with respect to the issuance of shares of common stock,
$1.00 par value, and shares of Class A Preferred Stock, $1.00 par value, of MS
Diversified Life Insurance Company ("MSD LIFE" and such shares of common and
preferred stock, "MSD PERMITTED SHARES") to an Automobile Dealer Agent (as
defined below); provided, that (i) any such MSD Permitted Shares shall be
issuable by MSD Life only in the ordinary course of MSD Life's business and in
amounts consistent with past practices, and (ii) the issuance of any such MSD
Permitted Shares shall not cause MS Life Insurance Company to own less than 51%
of the outstanding shares of common stock of MSD Life) or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company or any
of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. The Company does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or, except as
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referred to in this subsection (b), convertible into or exercisable for
securities having the right to vote) with the shareholders of the Company on any
matter ("VOTING DEBT"). The term "AUTOMOBILE DEALER AGENT" shall mean any
automobile dealer that directly or through affiliates of such automobile dealer
has been appointed as an insurance agent by MSD Life.
(c) CORPORATE AUTHORITY, APPROVAL AND FAIRNESS.
(i) The Company has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate the
Merger, subject only to approval of the Merger by the holders of at least a
majority of the outstanding Shares (the "COMPANY COMMON STOCK REQUISITE VOTE").
This Agreement is a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles (the "BANKRUPTCY AND EQUITY EXCEPTION").
(ii) The board of directors of the Company (A) has unanimously
declared that the Agreement, the Merger and the other transactions contemplated
hereby and thereby are advisable and in the best interests of the Company, (B)
has authorized, approved and adopted in all respects the Agreement, the Merger
and the other transactions contemplated hereby and thereby, and (C) has received
the opinion of its financial advisors, Morgan Keegan & Company, Inc. ("MORGAN
KEEGAN"), to the effect that the consideration to be received by the holders of
the Shares in the Merger is fair from a financial point of view to such holders.
(d) GOVERNMENTAL FILINGS; NO VIOLATIONS.
(i) Other than the filings and/or notices (A) pursuant to
Section 1.3, (B) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT"), (C) to comply with state securities or "blue-sky"
laws, (D) the filing of appropriate documents with, and approval of, the
respective Commissioners of Insurance or similar regulatory authorities of the
states listed in Section 5.1(d) of the Company Disclosure Letter, and (E) such
notices and consents as may be required under the antitrust notification
insurance laws of the states listed in Section 5.1(d) of the Company Disclosure
Letter, no notices, reports or other filings are required to be made by the
Company or any of its Subsidiaries with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the Company or
any of its Subsidiaries from, any governmental or regulatory authority, agency,
commission, body or other governmental entity ("GOVERNMENTAL ENTITY"), in
connection with the execution and delivery of this Agreement by the Company and
the consummation by the Company of the Merger and the other transactions
contemplated hereby and thereby, except those that the failure to make or obtain
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
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(ii) The execution, delivery and performance of this Agreement
by the Company does not, and the consummation by the Company of the Merger and
the other transactions contemplated hereby and thereby will not, constitute or
result in (A) a breach or violation of, or a default under, the charter or
by-laws of the Company or the comparable governing instruments of any of its
Subsidiaries, (B) a breach or violation of, or a default under, the acceleration
of any obligations or the creation of a lien, pledge, security interest or other
encumbrance on the assets of the Company or any of its Subsidiaries (with or
without notice, lapse of time or both) pursuant to, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation
("CONTRACTS") binding upon the Company or any of its Subsidiaries or (provided,
as to consummation, the filings and notices are made, and approvals are
obtained, as referred to in Section 5. 1 (d)(i)), any Law (as defined in Section
5. 1 (i)) or governmental or non-governmental permit or license to which the
Company or any of its Subsidiaries is subject, or (C) any change in the rights
or obligations of any party under any of the Contracts, except, in the case of
clause (B) or (C) above, for any breach, violation, default, acceleration,
creation or change that would not, individually or in the aggregate, have a
Company Material Adverse Effect. Section 5.1(d) of the Company Disclosure Letter
sets forth, to the knowledge of the Company and its Subsidiaries, a correct and
complete list of Contracts of the Company and its Subsidiaries pursuant to which
consents or waivers are or may be required prior to consummation of the
transactions contemplated by this Agreement (whether or not subject to the
exception set forth with respect to clauses (B) and (C) above). The phrase "to
the knowledge of the Company and its Subsidiaries" when used in this Agreement
shall mean the knowledge of any one or more of the Company and its respective
Subsidiaries.
(e) FINANCIAL STATEMENTS.
(i) The Company has previously delivered to Parent true and
complete copies of the Company's (A) audited consolidated balance sheet as of
December 31, 1997 (the "AUDIT DATE") and audited consolidated statements of
income, cash flows and stockholders' equity for the three years ended December
31, 1997 together with all notes thereto (collectively, the "AUDITED FINANCIAL
STATEMENTS"), and (B) any regularly prepared unaudited consolidated balance
sheets and unaudited consolidated statements of income, cash flows and
stockholders' equity for all subsequent monthly periods ended more than 30 days
prior to the date hereof together with all notes thereto (collectively, the
"UNAUDITED FINANCIAL STATEMENTS" and together with the Audited Financial
Statements, the "COMPANY FINANCIAL STATEMENTS"). Each of the Company Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") throughout the periods indicated (except as may be indicated
in the notes thereto), subject, in the case of the Unaudited Financial
Statements, only to normal year-end audit adjustments that will not be material
in amount or effect. The consolidated balance sheets included in each of the
Company Financial Statements (including the related notes and schedules) fairly
present the consolidated financial position of the Company and its Subsidiaries
as of the dates thereof and each of the consolidated statements of income and of
changes in financial
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position included in the Company Financial Statements (including any related
notes and schedules) fairly present the results of operations, retained earnings
and changes in financial position, as the case may be, of the Company and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.
(ii) The Company has previously delivered to Parent true and
complete copies of the annual and quarterly statements of each of the Company
Insurance Subsidiaries as filed with the applicable insurance regulatory
authorities for the years ended December 31, 1995, 1996 and 1997, including all
exhibits, interrogatories, notes, schedules and any actuarial opinions,
affirmations or certifications or other supporting documents filed in connection
therewith (collectively, the "COMPANY SAP STATEMENTS"). Each of the Company SAP
Statements were prepared in conformity with statutory accounting practices
("SAP") prescribed or permitted by the applicable insurance regulatory authority
consistently applied for the periods covered thereby and present fairly the
statutory financial position of such Company Insurance Subsidiaries as at the
respective dates thereof and the results of operations of such Subsidiaries for
the respective periods then ended. Each of the Company SAP Statements complied
in all material respects with all applicable laws, rules and regulations when
filed, and, to the knowledge of the Company and its Subsidiaries, no material
deficiency has been asserted with respect to any Company SAP Statements by the
applicable insurance regulatory body or any other governmental agency or body.
The statutory balance sheets and income statements included in the Company SAP
Statements have been audited by Harper, Rains, Stokes & Knight, and the Company
has made available to Parent true and complete copies of all audit opinions
related thereto. The Company has made available to Parent true and complete
copies of all examination reports of insurance departments and any insurance
regulatory agencies since January 1, 1994 relating to the Company Insurance
Subsidiaries.
(f) ABSENCE OF CERTAIN CHANGES. Since September 30, 1997, the Company
and its Subsidiaries have conducted the businesses of the Company and its
Subsidiaries, taken as a whole, only in, and have not engaged in any material
transaction other than according to, the ordinary and usual course of such
businesses and except as reflected in the Audited Financial Statements there has
not been (i) any change in the financial condition, management, properties,
prospects, business or results of operations of the Company and its Subsidiaries
or, to the knowledge of the Company and its Subsidiaries, any development or
combination of developments which, individually or in the aggregate, has had or
is reasonably likely to have a Company Material Adverse Effect; (ii) any
material damage, destruction or other casualty loss with respect to any material
asset or property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance; (iii) any declaration,
setting aside or payment of any dividend or other distribution in respect of the
stock of the Company (except for normal, recurring dividends paid in the
ordinary course of the Company's business and consistent with past practices),
(iv) any change
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by the Company in accounting principles, practices or methods other than those
required by GAAP or SAP; (v) any material addition, or any development involving
a prospective material addition, to the Company's consolidated reserves for
future policy benefits or other policy claims and benefits; or (vi) any material
change in the accounting, actuarial, investment, reserving, underwriting or
claims administration policies, practices, procedures, methods, assumptions or
principles of any Company Insurance Subsidiary. Since September 30, 1997, there
has not been any increase in, or any amendment to any of the Compensation and
Benefit Plans (as hereinafter defined) outside the ordinary course or which
results in an increase in, the compensation payable or that could become payable
by the Company or any of its Subsidiaries to any of their respective officers or
key employees in an amount in excess of $10,000.00 per annum.
(g) LITIGATION AND LIABILITIES. There are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the Company and its Subsidiaries, threatened
against the Company or any of its Subsidiaries, directors or officers or (ii)
obligations or liabilities of any nature, whether or not accrued, contingent or
otherwise, including those relating to environmental and occupational safety and
health matters, or any other facts or circumstances that to the knowledge of the
Company and its Subsidiaries can reasonably be expected to result in any claims
against, or obligations or liabilities of, the Company or any of its
Subsidiaries, except for those that would not, individually or in the aggregate,
have a Company Material Adverse Effect. There are no suits, claims or
proceedings pending or, to the knowledge of the Company and its Subsidiaries,
threatened against the Company or any of its Subsidiaries under Article XI
(Indemnification) of the Company's Charter or under any similar provision of the
charter or articles of incorporation of any of its Subsidiaries.
(h) EMPLOYEE BENEFITS.
(i) A copy of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment, termination,
severance, change of control, compensation, medical, health or other plan,
agreement, policy or arrangement that covers employees, directors, former
employees or former directors of the Company and its Subsidiaries (the
"COMPENSATION AND BENEFIT PLANS") and any trust agreement or insurance contract
forming a part of such Compensation and Benefit Plans has been made available to
Parent prior to the date hereof. The Compensation and Benefit Plans are listed
in Section 5.1(h) of the Company Disclosure Letter and any "change of control"
or similar provisions therein are specifically identified in Section 5.1(h) of
the Company Disclosure Letter. Section 5.1(h) of the Company Disclosure Letter
also sets forth an accurate list of all officers, directors and key employees of
the Company and its Subsidiaries, as of the date hereof, all employment
agreements with such Persons and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such Persons as of the date hereof.
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(ii) All Compensation and Benefit Plans are in substantial
compliance with all applicable law, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Compensation
and Benefit Plan that is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA (a "PENSION PLAN") and that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service (the "IRS") with respect to "TRA" (as defined
in Section 1 of Rev. Proc. 93-39), and the Company is not aware of any
circumstances reasonably likely to result in revocation of any such favorable
determination letter. There is no pending or, to the knowledge of the Company
and its Subsidiaries, threatened litigation relating to the Compensation and
Benefit Plans. Neither the Company nor any of its Subsidiaries has engaged in a
transaction with respect to any Compensation and Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
the Company or any of its Subsidiaries to a tax or penalty imposed by either
Section 4975 of the Code or Section 502 of ERISA.
(iii) No liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by the Company or any of its Subsidiaries
with respect to any ongoing, frozen or terminated "SINGLE-EMPLOYER PLAN", within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any of them, or the single-employer plan of any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA AFFILIATE"). The Company and its Subsidiaries have not contributed,
or been obligated to contribute, to a multiemployer plan under Subtitle E of
Title IV of ERISA at any time. No notice of a "REPORTABLE EVENT", within the
meaning of Section 4043 of ERISA for which the 30-day reporting requirement has
not been waived, has been required to be filed for any Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(iv) All contributions required to be made under the terms of
any Compensation and Benefit Plan as of the date hereof have been timely made or
have been reflected on the most recent consolidated balance sheet filed in the
Company Financial Statements. Neither any Pension Plan nor any single-employer
plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or
not waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA. Neither the Company nor its Subsidiaries has provided, or is required to
provide, security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan,
as of the last day of the most recent plan year ended prior to the date hereof,
the actuarially determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Pension Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such Pension
Plan, and there has been no material change in the financial condition of such
Pension Plan since the last day of the most recent plan year.
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(vi) Neither the Company nor its Subsidiaries have any
obligations for retiree health and life benefits under any Compensation and
Benefit Plan, except as set forth in Section 5.1(h) of the Company Disclosure
Letter. The Company or its Subsidiaries may amend or terminate any such plan
under the terms of such plan at any time without incurring any material
liability thereunder.
(vii) The consummation of the Merger and the other
transactions contemplated by this Agreement, either alone or in connection with
a subsequent termination of employment, will not (x) entitle any employees of
the Company or its Subsidiaries to severance pay, (y) accelerate the time of
payment or vesting or trigger any payment of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any of the Compensation and Benefit Plans or (z) result in any breach or
violation of, or a default under, any of the Compensation and Benefit Plans.
(viii) All Compensation and Benefit Plans covering current or
former non-U.S. employees or former employees of the Company and its
Subsidiaries comply in all material respects with applicable local law. The
Company and its Subsidiaries have no material unfunded liabilities with respect
to any Pension Plan that covers such non-U.S. employees.
(ix) No amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer, director or independent
contractor of the Company who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.28OG-1) under any employment
arrangement would be treated as an "excess parachute payment" (as such term is
defined in Section 28OG(b)(1) of the Code). Schedule 5.1(h)(ix) contains a true
and complete list of each such employment arrangement in existence as of the
date hereof. To the extent that any employment arrangement set forth on Schedule
5.1(h)(ix) has been superseded, the new arrangement is not materially different
than the superseded arrangement.
(i) COMPLIANCE WITH LAWS; PERMITS.
(i) The business and operations of the Company and the Company
Insurance Subsidiaries have been conducted in compliance with all applicable
statutes and regulations regulating the business of insurance and all applicable
orders and directives of insurance regulatory authorities and market conduct
recommendations resulting from market conduct examinations of insurance
regulatory authorities (collectively, "INSURANCE LAWS"), except where the
failure to so conduct such business and operations would not, individually or in
the aggregate, have a Company Material Adverse Effect. Notwithstanding the
generality of the foregoing, except where the failure to do so would not,
individually or in the aggregate, have a Company Material Adverse Effect, each
Company Insurance Subsidiary and, to the knowledge of the
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<PAGE> 23
Company and its Subsidiaries, its agents have marketed, sold and issued
insurance products in compliance with Insurance Laws applicable to the business
of such Company Insurance Subsidiary and in the respective jurisdictions in
which such products have been sold, including, without limitation, in compliance
with (i) all applicable prohibitions against "redlining" or withdrawal of
business lines, (ii) all applicable requirements relating to the disclosure of
the nature of insurance products as policies of insurance and (iii) all
applicable requirements relating to insurance product projections and
illustrations. Except as would not, individually or in the aggregate, have a
Company Material Adverse Effect, (i) there is no pending or, to the knowledge of
the Company and its Subsidiaries, threatened charge by any insurance regulatory
authority that any of the Company Insurance Subsidiaries has violated, nor is
there any pending or, to the knowledge of the Company and its Subsidiaries,
threatened investigation by any insurance regulatory authority with respect to
possible violations of, any applicable Insurance Laws; (ii) none of the Company
Insurance Subsidiaries is subject to any order or decree of any insurance
regulatory authority relating specifically to such Company Insurance Subsidiary
(as opposed to insurance companies generally); and (iii) the Company Insurance
Subsidiaries have filed all reports required to be filed with any insurance
regulatory authority on or before the date hereof.
(ii) In addition to Insurance Laws, the businesses of each of
the Company and its Subsidiaries have not been, and were not being, conducted in
violation of any federal, state, local or foreign law, statute, ordinance, rule,
regulation, judgment, order, injunction, decree, arbitration award, agency
requirement, license or permit of any Governmental Entity (collectively with
Insurance Laws, "LAWS"), except for violations or possible violations that would
not, individually or in the aggregate, have a Company Material Adverse Effect.
No investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending or, to the knowledge of the
Company and its Subsidiaries, threatened, nor, to the knowledge of the Company
and its Subsidiaries, has any Governmental Entity indicated an intention to
conduct the same, except for those the outcome of which would not, individually
or in the aggregate, have a Company Material Adverse Effect. To the knowledge of
the Company and its Subsidiaries, no material change is required in the
Company's or any of its Subsidiaries' processes, properties or procedures in
connection with any such Laws, and the Company has not received any notice or
communication of any material noncompliance with any such Laws that has not been
cured as of the date hereof. The Company and its Subsidiaries each has all
permits, licenses, trademarks, patents, trade names, copyrights, service marks,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business presently conducted
except those the absence of which would not, individually or in the aggregate,
have a Company Material Adverse Effect.
(j) TAKEOVER STATUTES. Prior to entering into this Agreement, the
Company has taken all actions necessary such that no restrictive provision of
any "fair price," "moratorium," "control share acquisition," "interested
shareholder" or other similar anti-takeover statute or regulation (including the
Mississippi Shareholder Protection Act and the Mississippi Control Share Act
under
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<PAGE> 24
the MBCA) (each a "TAKEOVER STATUTE") or restrictive provision of any
applicable anti-takeover provision in the charter or by-laws of the Company is,
or at the Effective Time will be, applicable to the Company, Parent, the Shares,
the Merger or any other transaction contemplated by this Agreement.
(k) ENVIRONMENTAL MATTERS. Except for such matters that would not,
individually or in the aggregate, have a Company Material Adverse Effect: (i)
the Company and its Subsidiaries have complied with all applicable Environmental
Laws; (ii) the properties currently owned or operated by the Company or any of
its Subsidiaries (including soils, groundwater, surface water, buildings or
other structures) are not contaminated with any Hazardous Substances; (iii) the
properties formerly owned or operated by the Company or any of its Subsidiaries
were not contaminated with Hazardous Substances during the period of ownership
or operation by the Company or any of its Subsidiaries; (iv) neither the Company
nor any of its Subsidiaries is subject to liability for any Hazardous Substance
disposal or contamination on any third party property; (v) neither the Company
nor any of its Subsidiaries has been associated with any release or threat of
release of any Hazardous Substance; (vi) neither the Company nor any of its
Subsidiaries has received any notice, demand, letter, claim or request for
information alleging that the Company or any of its Subsidiaries may be in
violation of or liable under any Environmental Law; (vii) neither the Company
nor any of its Subsidiaries is subject to any orders, decrees, injunctions or
other arrangements with any Governmental Entity or is subject to any indemnity
or other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving the Company or any of its Subsidiaries
that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use, or transfer of any
property of the Company or any of its Subsidiaries pursuant to any Environmental
Law.
As used herein, the term "ENVIRONMENTAL LAW" means any federal, state,
local or foreign law, statute, ordinance, regulation, judgment, order, decree,
arbitration award, agency requirement, license, permit, authorization or
opinion, relating to: (A) the protection, investigation or restoration of the
environment, health and safety, or natural resources, (B) the handling, use,
presence, disposal, release or threatened release of any Hazardous Substance or
(C) noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property.
As used herein, the term "HAZARDOUS SUBSTANCE" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law; (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint polychlorinated biphenyls, radioactive materials or radon;
or (C) any other substance which may be the subject of regulatory action by any
Government Authority pursuant to any Environmental Law.
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(1) TAXES. Except as provided in Section 5.1(l) of the Company
Disclosure Letter and except for such matters that would not, individually or in
the aggregate, have a Company Material Adverse Effect:
(i) the Company and each of its Subsidiaries have filed
completely and correctly all Tax Returns (as defined below) that are required by
all applicable laws to be filed by them, and (x) have paid, or made adequate
provision for the payment of, all Taxes (as defined below) which have or may
become due and payable pursuant to those Tax Returns, have paid all estimated
Taxes due and (y) have paid all other charges, claims and assessments received
to date other than those charges, claims and assessments for Taxes being
contested in good faith for which adequate provision has been made on the most
recent balance sheet included in the Company Financial Statements;
(ii) all Taxes which the Company and its Subsidiaries are
required by law to withhold and collect have been duly withheld and collected,
and have been paid over, in a timely manner, to the proper Taxing Authorities
(as defined below) to the extent due and payable;
(iii) neither the Company nor any of its Subsidiaries have
executed any waiver to extend, or otherwise taken or failed to take any action
that would have the effect of extending, the applicable statute of limitations
in respect of any Tax liabilities of the Company or its Subsidiaries for the
fiscal years prior to and including the most recent fiscal year;
(iv) the Company and its Subsidiaries have never been members
of any consolidated group for income tax purposes other than the consolidated
group of which the Company is the common parent; and the Company and its
Subsidiaries are not parties to any tax sharing agreement or arrangement, other
than with each other;
(v) no liens for Taxes exist with respect to any of the assets
or properties of the Company or its Subsidiaries, except for statutory liens for
Taxes not yet due or payable or that are being contested in good faith;
(vi) There are no income Tax Returns filed by or on behalf of
the Company or any of its Subsidiaries that are currently the subject of an
audit or examination (or for which notice of an upcoming audit or examination
has been given to the Company or any of its Subsidiaries) by the Internal
Revenue Service or appropriate Taxing Authority, and as to each of the income
Tax Returns filed by or on behalf of each of the Company and its Subsidiaries
for which the statute of limitations has not expired, there has been no
extension of any applicable statute of limitations;
(vii) all Taxes due with respect to any completed and settled
audit, examination or deficiency litigation with any Taxing Authority have been
paid in full;
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<PAGE> 26
(viii) there is no audit, examination, deficiency, or refund
litigation pending with respect to any Taxes, and during the past four years no
Taxing Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes;
(ix) neither the Company nor any of its Subsidiaries is bound
by any currently effective private ruling, closing agreement or similar
agreement with any Taxing Authority relating to a material amount of Taxes;
(x) neither the Company nor any of its Subsidiaries is
required to include in a taxable period ending after the Effective Time, any
taxable income attributable to income that economically accrued in a prior
taxable period as a result of Section 481 of the Code, the installment method of
accounting or any comparable provision of state or local Tax law;
(xi) (A) no amount of property of the Company or any of its
Subsidiaries is "TAX EXEMPT PROPERTY" within the meaning of Section 168(h) of
the Code, (B) no amount of assets of the Company or any of its Subsidiaries is
subject to a lease under Section 7701(h) of the Code, and (C) neither the
Company nor any of its Subsidiaries is a party to any lease made pursuant to
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
prior to the date of enactment of the Tax Equity and Fiscal Responsibility Act
of 1982; and
(xii) immediately following the Merger, neither the Company
nor any of its Subsidiaries will have any material amount of income or gain that
has been deferred under Treasury Regulation Section 1.1502-13, or any material
excess loss account in a Subsidiary under Treasury Regulation Section 1.1502-19;
and
(xiii) the Company is not a "consenting corporation" within
the meaning of Section 341(f) of the Code.
As used in this Agreement, (i) the term "TAX" (including, with
correlative meaning, the terms "Taxes" and "TAXABLE") shall mean, with respect
to any Person, (a) all taxes, domestic or foreign, including without limitation
any income (net, gross or other, including recapture of any tax items such as
investment tax credits), alternative or add-on minimum tax, gross income, gross
receipts, premium, gains, sales, use, ad valorem, transfer, recording,
franchise, profits, property (real or personal, tangible or intangible), fuel,
license, withholding (whether on amounts paid to or by such Person), payroll,
employment, unemployment, social security, excise, severance, stamp, occupation,
or environmental tax, customs, duties, or other like assessments or governmental
charges of any kind whatsoever, together with any interest, penalties, additions
or additional amounts imposed with respect thereto (including, without
limitation, penalties for failure to file Tax Returns), (b) any joint or several
liability of such Person with any other Person for the payment of any amounts of
the type described in clause (a) hereof, and (c) any liability of such
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<PAGE> 27
Person for the payment of any amounts of the type described in clause (a) hereof
as a result of any express or implied obligation to indemnify any other Person;
(ii) the term "TAX RETURNS" shall mean all returns, consolidated or otherwise
(including without limitation information returns), required to be filed with
any Taxing Authority; and (iii) the term "TAXING AUTHORITY" shall mean any
authority responsible for the imposition, collection or administration of any
Tax.
(m) LABOR MATTERS. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization. No
work stoppage or labor strike against the Company or any of its Subsidiaries is
pending or, to the knowledge of the Company and its Subsidiaries, threatened.
Neither the Company nor any of its Subsidiaries is involved in or, to the
knowledge of the Company and its Subsidiaries, threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any employee of the Company or any of its Subsidiaries,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, have a Company Material Adverse Effect. Neither the Company
nor any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act which would, individually or in the
aggregate, have a Company Material Adverse Effect.
(n) INTELLECTUAL PROPERTY.
(i) The Company and/or each of its Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials that are used in the
business of the Company and its Subsidiaries as currently conducted, except for
any such failures to own, be licensed or possess that would not, individually or
in the aggregate, have a Company Material Adverse Effect, and to the knowledge
of the Company and its Subsidiaries all patents, trademarks, trade names,
service marks and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting.
(ii) Except as would not, individually or in the aggregate,
have a Company Material Adverse Effect:
(A) neither the Company nor any of its Subsidiaries is, nor will any of
them be, as a result of the execution and delivery of this Agreement or
the performance of their obligations hereunder, in violation of any
licenses, sublicenses and other agreements as to which the Company or
any of its Subsidiaries is a party and pursuant to which the Company or
any of its Subsidiaries is authorized to use any third-party patents,
trademarks, service marks, and copyrights ("THIRD-PARTY INTELLECTUAL
PROPERTY RIGHTS");
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(B) no claims are currently pending or, to the knowledge of the Company
and its Subsidiaries, are threatened by any Person with respect to (I)
the patents, registered and material unregistered trademarks and
service marks, registered copyrights, trade names, and any applications
therefor owned by the Company or any its Subsidiaries (the "COMPANY
INTELLECTUAL PROPERTY RIGHTS"); (II) any trade secret of the Company or
any of its Subsidiaries; or (III) Third-Party Intellectual Property
Rights;
(C) to the knowledge of the Company and its Subsidiaries, there are no
valid grounds for any bona fide claims (I) to the effect that the sale,
licensing or use of any product as now used, sold or licensed or
proposed for use, sale or license by the Company or any of its
Subsidiaries, infringes on any copyright, patent, trademark, service
mark or trade secret; (II) against the use by the Company or any of its
Subsidiaries, of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs
and applications used in the business of the Company or any of its
Subsidiaries as currently conducted or as proposed to be conducted;
(III) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property Rights or other trade secret of the
Company or any of its Subsidiaries; or (IV) challenging the license or
legally enforceable right to use of the Third-Party Intellectual Rights
by the Company or any of its Subsidiaries; and
(D) to the knowledge of the Company and its Subsidiaries, there is no
unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property Rights by any third party, including any
employee or former employee of the Company or any of its Subsidiaries.
(o) MATERIAL CONTRACTS. All of the material contracts of the Company
and its Subsidiaries are in full force and effect. True and complete copies of
all such material contracts have been delivered or have been made available by
the Company to Parent. Neither the Company nor any of its Subsidiaries nor any
other party is in breach of or in default under any such contract except for
such breaches and defaults as would not, individually or in the aggregate, have
a Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is party to any agreement containing any provision or covenant
limiting the ability of the Company, any of its Subsidiaries or, except as
specifically identified on Section 5.1(o) of the Company Disclosure Letter,
assuming the consummation of the transactions contemplated by this Agreement,
Parent or any Affiliate of Parent, to (A) sell any products or services of or to
any other Person, (B) engage in any line of business, (C) compete with or to
obtain products or services from any Person or limiting the ability of any
Person to provide products or services to the Company or any of its
Subsidiaries, or (D) acquire securities of any Person.
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<PAGE> 29
(p) BROKERS AND FINDERS. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Merger or the other transactions contemplated in this Agreement except
that the Company has employed Morgan Keegan as its financial advisor, the
arrangements with which have been disclosed to Parent prior to the date hereof.
(q) INSURANCE MATTERS.
(i) Except as otherwise would not, individually or in the
aggregate, have a Company Material Adverse Effect, all policies, binders, slips,
certificates, annuity contracts and participation agreements and other
agreements of insurance, whether individual or group, in effect as of the date
hereof (including all applications, supplements, endorsements, riders and
ancillary agreements in connection therewith) that are issued by the Company
Insurance Subsidiaries (the "COMPANY INSURANCE CONTRACTS") and any and all
marketing materials, are, to the extent required under applicable law, on forms
approved by applicable insurance regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for
objection, and such forms comply with the insurance statutes, regulations and
rules applicable thereto and, as to premium rates established by the Company or
any Company Insurance Subsidiary which are required to be filed with or approved
by insurance regulatory authorities, the rates have been so filed or approved,
the premiums charged conform thereto, and such premiums comply with the
insurance statutes, regulations and rules applicable thereto.
(ii) All reinsurance and coinsurance treaties or agreements,
including retrocessional agreements, to which the Company or any Company
Insurance Subsidiary is a party or under which the Company or any Company
Insurance Subsidiary has any existing rights, obligations or liabilities are in
full force and effect, except for such treaties or agreements the failure to be
in full force and effect of which would not, individually or in the aggregate,
have a Company Material Adverse Effect. Neither the Company nor any Company
Insurance Subsidiary, nor, to the knowledge of the Company and its Subsidiaries,
any other party to a reinsurance or coinsurance treaty or agreement to which the
Company or any Company Insurance Subsidiary is a party, is in default in any
material respect as to any provision thereof, and no such agreement contains any
provision providing that the other party thereto may terminate such agreement by
reason of the transactions contemplated by this Agreement. The Company has not
received any notice to the effect that the financial condition of any other
party to any such agreement is impaired with the result that a default
thereunder may reasonably be anticipated, whether or not such default may be
cured by the operation of any offset clause in such agreement. No insurer or
reinsurer or group of affiliated insurers or reinsurers accounted for the
direction to the Company and the Company Insurance Subsidiaries or the ceding by
the Company and the Company Insurance Subsidiaries of insurance or reinsurance
business in an aggregate amount equal to two percent or more of the consolidated
gross premium income of the Company and the Company Insurance Subsidiaries for
the year ended December 31, 1996.
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(iii) Prior to the date hereof, the Company has delivered or
made available to Parent a true and complete copy of any actuarial reports
prepared by actuaries, independent or otherwise, with respect to the Company or
any Company Insurance Subsidiary since December 31, 1994, and all attachments,
addenda, supplements and modifications thereto (the "COMPANY ACTUARIAL
ANALYSES"). The information and data furnished by the Company or any Company
Insurance Subsidiary to its independent actuaries in connection with the
preparation of the Company Actuarial Analyses were accurate in all material
respects. Furthermore, to the knowledge of the Company and its Subsidiaries,
each Company Actuarial Analysis was based upon an accurate inventory of policies
in force for the Company and the Company Insurance Subsidiaries, as the case may
be, at the relevant time of preparation, was prepared using appropriate modeling
procedures accurately applied and in conformity with generally accepted
actuarial standards consistently applied, and the projections contained therein
were properly prepared in accordance with the assumptions stated therein.
(iv) None of Standard & Poor's Corporation, Moody's Investors
Service, Inc. or A.M. Best Company has announced that it has under surveillance
or review its rating of the financial strength or claims-paying ability of any
Company Insurance Subsidiary and the Company has no reason to believe that any
rating presently held by the Company Insurance Subsidiaries is likely to be
modified, qualified, lowered or placed under such surveillance for any reason,
including as a result of the transactions contemplated hereby.
(v) Except as would not reasonably be expected to have a
Company Material Adverse Effect, all annuity contracts and life insurance
policies issued by each Company Insurance Subsidiary to an annuity holder
domiciled in the United States meet all definitional or other requirements for
qualification under the Code section applicable (or intended to be applicable)
to such annuity contracts or life insurance policies, including, without
limitation, the following: (A) each life insurance policy meets the requirements
of sections 101(f), 817(h) or 7702 of the Code, as applicable; (B) no life
insurance contract issued by any Company Insurance Company is a "modified
endowment contract" within the meaning of section 7702A of the Code unless and
to the extent that the holders of the policies have been notified of their
classification; (C) each annuity contract issued, entered into or sold by any
Company Insurance Subsidiary qualifies as an annuity under federal tax law; (D)
each annuity contract meets the requirements of, and has been administered
consistent with section 817(h) and 72 of the Code including but not limited to
section 72(s) of the Code (except for those contracts specifically excluded from
such requirement pursuant to section 72(s)(5) of the Code); (E) each annuity
contract intended to qualify under sections 130, 403(a), 403(b) or 408(b) of the
Code contains all provisions required for qualification under such sections of
the Code; (F) each annuity contract marketed as, or in connection with, plans
that are intended to qualify under section 401, 403, 408 or 457 of the Code
complies with the requirements of such section; and (G) none of the Company
Insurance Subsidiaries have entered into any agreement or are involved in any
discussions or negotiations
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<PAGE> 31
and there are no audits, examinations, investigations or other proceedings with
the IRS with respect to the failure of any life insurance policy under section
7702 or 817(h) of the Code or the failure of any annuity contract to meet the
requirements of section 72(s) of the Code. There are no "hold harmless"
indemnification agreements respecting the tax qualification or treatment of any
product or plan sold, issued, entered into or administered by the Company
Insurance Subsidiaries, and there have been no claims asserted by any Person
under such "hold harmless" indemnification agreements so set forth.
(r) LIABILITIES AND RESERVES.
(i) The reserves carried on the Company SAP Statements of each
Company Insurance Subsidiary for future insurance policy benefits, losses,
claims and similar purposes were, as of the respective dates of such Company SAP
Statements, in compliance in all material respects with the requirements for
reserves established by the insurance departments of the state of domicile of
such Company Insurance Subsidiary, were determined in all material respects in
accordance with generally accepted actuarial standards and principles
consistently applied, and were fairly stated in all material respects in
accordance with sound actuarial and statutory accounting principles. The Company
reasonably believes that such reserves were adequate in the aggregate to cover
the total amount of all reasonably anticipated liabilities of the Company and
each Company Insurance Subsidiary under all outstanding insurance, reinsurance
and other applicable agreements as of the respective dates of such Company SAP
Statements. The admitted assets of each Company Insurance Subsidiary as
determined under applicable Laws are in an amount at least equal to the minimum
amounts required by applicable Laws. In addition, the Company has delivered or
made available to Parent copies of all work papers used as the basis for
establishing the reserves for the Company and the Company Insurance Subsidiaries
at December 31, 1995, December 31, 1996 and December 31, 1997, respectively.
(ii) Except for regular periodic assessments in the ordinary
course of business or assessments based on developments which are publicly known
within the insurance industry, to the knowledge of the Company and its
Subsidiaries, no claim or assessment is pending or threatened against any
Company Insurance Subsidiary which is peculiar or unique to such Company
Insurance Subsidiary by any state insurance guaranty association in connection
with such association's fund relating to insolvent insurers which if determined
adversely, would, individually or in the aggregate, have a Company Material
Adverse Effect.
(s) SEPARATE ACCOUNTS. None of the Company Insurance Subsidiaries
maintains any separate accounts. Neither the Company nor any of its Subsidiaries
conducts activities of or is otherwise deemed under applicable law to control an
"investment advisor" as such term is defined in Section 2(a)(20) of the
Investment Advisers Act of 1940, as amended (the "ADVISERS ACT"), whether or not
registered under the Advisers Act. Neither the Company nor any of its
Subsidiaries is an "investment company" as defined under the Investment Company
Act of 1940,
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<PAGE> 32
and neither the Company nor any of its Subsidiaries sponsors any Person that is
such an investment company."
(t) REAL PROPERTY. Section 5.1(t) of the Company Disclosure Letter sets
forth a correct and complete list of all real property owned, leased or
subleased by the Company or any of its Subsidiaries (collectively, the "REAL
PROPERTY"). The Company or its Subsidiaries are the sole and exclusive legal and
equitable owners of all right, title and interest in, and have good, marketable
and insurable title to, all of the Real Property identified as being owned by
the Company or any of its Subsidiaries, free and clear of all Liens, except as
set forth in Section 5.1(t) of the Company Disclosure Letter. All leases for the
Real Property are in full force and effect in accordance with their respective
terms, and there are no existing defaults or events which with notice or lapse
of time or both would constitute defaults under any such leases. Neither the
consummation of the Merger nor any of the other transactions contemplated by
this Agreement shall cause the termination of any such leases or have a material
adverse effect on any of the Company's or its Subsidiaries' rights under any of
such leases.
(u) INTERESTED PARTY TRANSACTIONS. No officer or director of the
Company or Person who owns at least five percent (5%) of the outstanding stock
of the Company (nor any parent, child or spouse of any such Person, or any
trust, partnership or corporation in which any such Person has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
that furnished or sold, or furnishes or sells, services or products which the
Company furnishes or sells, or proposes to furnish or sell, or (ii) any interest
in any entity which purchases from or sells or furnishes to, the Company, any
goods or services; provided, that ownership of no more than one percent (1%) of
the outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest in any entity" for purposes of this section 5.1(u), and
further provided that this sentence shall exclude any entity that is an
Automobile Dealer Agent or Financial Institution Agent (as defined below) if
such entity engages only in insurance agency transactions with one or more
Company Insurance Subsidiaries on terms substantially similar to insurance
agency transactions between the Company Insurance Subsidiaries and their other
insurance agents. The term "FINANCIAL INSTITUTION AGENT" shall mean any bank or
other financial institution that directly or through affiliates of such bank or
other financial institution has been appointed as an insurance agent by Life
Insurance Company of Mississippi.
(v) DISCLOSURE. The representations and warranties and statements of
the Company contained in this Agreement do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material fact
necessary to make such representations, warranties and statements, in light of
the circumstances under which they are made, not misleading.
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5.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY.
Except as set forth in the corresponding sections or subsections of the
disclosure letter delivered to the Company by Parent on or prior to entering
into this Agreement (the "Parent Disclosure Letter'), Parent and Merger
Subsidiary each hereby represent and warrant to the Company that:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of Parent and
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as presently conducted. Parent has made
available to the Company a complete and correct copy of Parent's and Merger
Subsidiary's charter and by-laws, each as amended to the date hereof Parent's
and Merger Subsidiary's charter and by-laws so delivered are in full force and
effect.
(b) CAPITALIZATION OF MERGER SUBSIDIARY. The authorized stock of Merger
Subsidiary consists of 1,000 shares of Common Stock, par value $0.01 per share,
100 of which are duly authorized, validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding stock of Merger Subsidiary is,
and at the Effective Time will be, owned by Parent, and there are (i) no other
shares of stock or voting securities of Merger Subsidiary, (ii) no securities of
Merger Subsidiary convertible into or exchangeable for shares of stock or voting
securities of Merger Subsidiary and (iii) no options or other rights to acquire
from Merger Subsidiary, and no obligations of Merger Subsidiary to issue or
deliver, any stock, voting securities or securities convertible into or
exchangeable for stock or voting securities of Merger Subsidiary. Merger
Subsidiary has not conducted any business prior to the date hereof and has no,
and prior to the Effective Time will have no, assets, liabilities or obligations
of any nature other than those incident to its formation and pursuant to this
Agreement and the Merger and the other transactions contemplated by this
Agreement.
(c) CORPORATE AUTHORITY. Each of the Parent and Merger Subsidiary has
all requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and to consummate the Merger. This Agreement is a valid and binding
agreement of Parent and Merger Subsidiary, enforceable against each of Parent
and Merger Subsidiary in accordance with its terms, subject to the Bankruptcy
and Equity Exception.
(d) GOVERNMENTAL FILINGS. Other than the filings and/or notices (A)
pursuant to Section 1.3, (B) under the HSR Act, (C) to comply with state
securities or "blue-sky" laws, (D) the filing of appropriate documents with, and
approval of, the respective Commissioners of Insurance of the states of
Mississippi and Florida, (E) such notices and consents as may be required under
the antitrust notification insurance laws of Arkansas, Georgia, Kentucky, and
Tennessee, and (F) to the Mississippi Department of Banking and the Tennessee
Motor Vehicle Commission, no notices, reports or other filings are required to
be made by Parent or Merger Subsidiary with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
Parent or Merger
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Subsidiary from, any Governmental Entity, in connection with the execution and
delivery of this Agreement by Parent and Merger Subsidiary and the consummation
by Parent and Merger Subsidiary of the Merger and the other transactions
contemplated hereby, except those that the failure to make or obtain would not
materially delay or materially impair the ability of Parent or Merger Subsidiary
either to Perform its obligations under this Agreement or to consummate the
Merger or any of the other transactions contemplated by this Agreement.
(e) LEGAL PROCEEDINGS. There is no action, suit or proceeding by or
before any Governmental Authority which questions the validity of the Agreement
or any action taken or to be taken by Parent or Merger Subsidiary in connection
with the Merger or any other transactions contemplated by this Agreement.
Neither Parent nor Merger Subsidiary, nor any of their respective assets, are
subject to any judgment or other agreement which restricts the ability of Parent
or Merger Subsidiary from consummating the Merger or any other transactions
contemplated by this Agreement.
(f) BROKERS AND FINDERS. Neither Parent nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Merger or the other transactions contemplated by this Agreement.
ARTICLE VI
Covenants
6.1. INTERIM OPERATIONS. The Company covenants and agrees as to itself
and its Subsidiaries that, from the date hereof and prior to the Effective Time
(unless Parent shall otherwise approve in writing, and except as otherwise
expressly contemplated by this Agreement or set forth in Section 6.1 of the
Company Disclosure Schedule):
(a) its and its Subsidiaries' businesses shall be conducted in the
ordinary and usual course (it being understood and agreed that nothing contained
herein shall permit the Company to enter into or engage in (through acquisition,
product extension or otherwise) the business of selling any products or services
materially different from existing products or services of the Company and its
Subsidiaries or to enter into or engage in new lines of business without
Parent's prior written approval);
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(b) to the extent consistent with (a) above, it and its Subsidiaries
shall use their respective reasonable best efforts to preserve their respective
business organization intact and maintain their respective existing relations
and goodwill with customers, suppliers, reinsurers, distributors, creditors,
lessors, employees and business associates;
(c) it shall not (i) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Subsidiaries; (ii) amend its charter or
by-laws; (iii) split, combine or reclassify its outstanding shares of capital
stock; (iv) authorize, declare, set aside or pay any dividend payable in cash,
stock or property in respect of any capital stock (except for the payment of a
cash dividend by the Company: (i) on any normal record date for a quarterly
dividend that is prior to the Closing Date, at a rate not to exceed $0.065 per
share per quarter, and (ii) if the Closing Date is more than forty five days
after the last normal record date for a quarterly cash dividend, at a rate not
to exceed $0.065 per share per quarter multiplied by a fraction (A) the
numerator of which is the number of days between the last normal record date and
the Closing Date, and (B) the denominator of which is 91); or (v) repurchase,
redeem or otherwise acquire, or permit any of its Subsidiaries to purchase or
otherwise acquire, any shares of its stock or any securities convertible into or
exchangeable or exercisable for any shares of its stock;
(d) neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class or
any other property or assets (other than the issuance of MSD Permitted Shares to
an Automobile Dealer Agent by MSD Life in the ordinary course of MSD Life's
business and in amounts consistent with past practices and only if the issuance
of any such MSD Permitted Shares shall not cause MS Life Insurance Company to
own less than 51% of the outstanding shares of common stock of MSD Life); (ii)
other than in the ordinary and usual course of business, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any other
property or assets (including capital stock of any of its Subsidiaries) or incur
or modify any material indebtedness or other liability; or (iii) make or
authorize or commit for any capital expenditures other than in amounts not
exceeding $50,000 in the aggregate (other than a computer system upgrade not
exceeding $100,000 in the aggregate) or, by any means, make any acquisition of,
or investment in, assets or stock of any other Person or entity, including by
way of assumption reinsurance, in excess of $25,000 individually or $100,000 in
the aggregate (other than in connection with ordinary course investment
activities);
(e) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans, or increase the salary, wage, bonus,
severance benefits or other compensation of any employees except increases not
in excess of $10,000.00 per annum occurring in the ordinary and usual course of
business (which shall include normal periodic performance reviews and related
compensation and benefit increases consistent with the Company's past
practices).
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(f) neither it nor any of its Subsidiaries shall pay, discharge, settle
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of (i) pending litigation for which the total settlement
consideration does not exceed $30,000 for any one lawsuit and $150,00 in the
aggregate for all lawsuits, (ii) claims, liabilities or obligations legally due
and payable and arising in the ordinary and usual course of business, and (iii)
claims arising under the terms of products, contracts or policies issued by the
Company Insurance Subsidiaries in the ordinary and usual course of business;
(g) neither it nor any of its Subsidiaries shall make or change any Tax
election, settle any material audit, file any amended tax returns or permit any
insurance policy naming it as a beneficiary or loss-payable payee to be canceled
or terminated except in the ordinary and usual course of business;
(h) neither it nor any of its Subsidiaries shall enter into any
agreement containing any provision or covenant limiting the ability of the
Company or any Subsidiary of the Company (or, after the Effective Time, Parent
or any Affiliate of Parent) to (A) sell any products or services of or to any
other Person, (B) engage in any line of business, (C) compete with or to obtain
products or services from any Person or limiting the ability of any Person to
provide products or services to the Company or any of its Subsidiaries, or (D)
acquire securities of any Person;
(i) neither it nor any of its Subsidiaries shall enter into any new
quota share or other reinsurance transaction (A) which does not contain standard
cancellation and termination provisions, (B) which, except in the ordinary
course of business, materially increases or reduces the Company Insurance
Subsidiaries' consolidated ratio of net written premiums to gross written
premiums or (C) pursuant to which $500,000 or more in gross written premiums are
ceded by the Company Insurance Subsidiaries to any Person other than the Company
or any of its Subsidiaries;
(j) neither it nor any of the Company Insurance Subsidiaries will alter
or amend in any material respect their existing investment guidelines or
policies;
(k) neither it nor any of its Subsidiaries shall take any action or
omit to take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(l) neither it nor any of its Subsidiaries will authorize or enter into
an agreement to do any of the foregoing.
6.2. ACQUISITION PROPOSALS. The Company will not, and will not permit
or cause any of its Subsidiaries or any of the officers and directors of it or
its Subsidiaries to, and shall direct its
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and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate or solicit any proposal
or offer with respect to a merger, reorganization, share exchange, consolidation
or similar transaction involving, or any purchase of 15% or more of the assets
or any equity securities of, the Company or any of its Subsidiaries (any such
proposal or offer being hereinafter referred to as an "ACQUISITION PROPOSAL").
Nothing contained in this Agreement shall prevent the Company or its board of
directors from at any time (A) providing information in response to a request
therefor by a Person who has made an unsolicited bona fide written Acquisition
Proposal if the Board of Directors receives from the Person so requesting such
information an executed confidentiality agreement substantially in the form
attached hereto as Exhibit A; (B) engaging in any negotiations or discussions
with any Person who has made an unsolicited bona fide written Acquisition
Proposal; or (C) recommending such an Acquisition Proposal to the stockholders
of the Company, if and only to the extent that, (i) in each such case referred
to in clause (A), (B) or (C) above, the Board of Directors of the Company
determines in good faith after consultation with outside legal counsel that such
action is necessary in order for its directors to comply with their respective
fiduciary duties under applicable law and (ii) in each case referred to in
clause (B) or (C) above, the Board of Directors of the Company determines in
good faith (after consultation with its financial advisor) that such Acquisition
Proposal, if accepted, is reasonably likely to be consummated, taking into
account all legal, financial and regulatory aspects of the proposal and the
Person making the proposal and would, if consummated, result in a more favorable
transaction than the transaction contemplated by this Agreement, taking into
account the long-term prospects and interests of the Company and its
stockholders (any such more favorable Acquisition Proposal being referred to in
this Agreement as a "SUPERIOR PROPOSAL"). The Company will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing. The
Company agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence in this Section 6.2 of
the obligations undertaken in this Section 6.2 and in Section 6.3. The Company
will notify Parent immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep Parent informed, on a current basis, on the status and
terms of any such proposals or offers and the status of any such negotiations or
discussions. The Company also will promptly request each Person that has
heretofore executed a confidentiality agreement in connection with its
consideration of an Acquisition Proposal to return all confidential information
heretofore furnished to such Person by or on behalf of it or any of its
Subsidiaries.
6.3. NON-DISCLOSURE. No party to this Agreement (nor any of their
respective officers, employees, counsel, accountants and other authorized
representatives ("REPRESENTATIVES")) shall disclose to any third party, other
than potential lenders or potential acquirors of Parent, any
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confidential or proprietary information about the business, assets or operations
of the Company or its Subsidiaries or about the transaction contemplated hereby,
except as may be required by law or in connection with a Superior Proposal. The
parties hereto agree that the remedy at law for any breach of the requirements
of this Section 6.3 will be inadequate and that any breach would cause such
immediate and permanent damage as would be impossible to ascertain, and
therefore, the parties hereto agree and consent that in the event of any breach
of this subsection, in addition to any and all other legal and equitable
remedies available for such breach, including a recovery of damages, the
non-breaching parties shall be entitled to obtain preliminary or permanent
injunctive relief without the necessity of proving actual damage by reason of
such breach and, to the extent permissible under applicable law, a temporary
restraining order may be granted immediately on commencement of such action.
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6.4. STOCKHOLDERS MEETINGS.
(a) The Company will take, in accordance with its charter and by-laws,
all action necessary to convene a meeting of holders of Shares (the
"SHAREHOLDERS MEETING") as promptly as practicable, but in no event more than 45
days after the date hereof, for the purpose of voting on whether to approve the
Merger. Subject to fiduciary obligations under applicable law, the Company's
board of directors shall recommend such approval, shall not withdraw or modify
such recommendation and shall take all lawful action to solicit such approval.
Without limiting the generality of the foregoing, in the event that the
Company's board of directors withdraws or modifies its recommendation, the
Company nonetheless shall cause the Shareholders Meeting to be convened and a
vote taken with respect to the Merger and the board of directors shall
communicate to the Company's shareholders its basis for such withdrawal or
modification as contemplated by Section 79-4-11.03(b)(1) of the MBCA.
(b) Parent shall vote all shares of common stock owned by Parent in
Merger Subsidiary in favor of the Merger.
6.5. FILINGS; OTHER ACTIONS, NOTIFICATION.
(a) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) all best efforts (i) to cause
to be done all things, necessary, proper or advisable on its part under this
Agreement and applicable Laws to consummate and make effective the Merger and
the other transactions contemplated by this Agreement as soon as practicable,
including preparing and filing as promptly as practicable all documentation to
effect all necessary notices, reports and other filings, and (ii) to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party (a
"NECESSARY THIRD PARTY") and/or any Governmental Entity in connection with, as a
result of or in order to consummate the Merger or any of the other transactions
contemplated by this Agreement, including, without limitation, upon request of
Parent, all material consents required in connection with the consummation of
the Merger; provided, however, that nothing in this Section 6.5 shall require,
or be construed to require, Parent, in connection with the receipt of any
regulatory approval, to proffer to, or agree to (i) sell or hold separate and
agree to sell or to discontinue to or limit, before or after the Effective Time,
any assets, businesses, or interest in any assets or businesses of Parent, the
Company or any of their respective Affiliates (or to consent to any sale, or
agreement to sell, or discontinuance or limitation by the Company of any of its
assets or businesses) or (ii) agree to any conditions relating to, or changes or
restriction in, the operations of any such asset or businesses which, in either
case, could, in the judgment of the Parent's board of directors, materially and
adversely impact the economic or business benefits to Parent of the transactions
contemplated by this Agreement. Subject to applicable laws relating to the
exchange of information, Parent and the Company shall have the right to review
in advance, and to the extent practicable each will consult the other on, all
the information relating to Parent or
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the Company, as the case may be, and any of their respective Subsidiaries, that
appear in any filing made with, or written materials submitted to, any Necessary
Third Party and/or any Governmental Entity in connection with the Merger and the
other transactions contemplated by this Agreement. In exercising the foregoing
right, each of the Company and Parent shall act reasonably and as promptly as
practicable.
(b) The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the any statement, filing, notice or
application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any Necessary Third Party and/or any Governmental
Entity in connection with the Merger and the transactions contemplated by this
Agreement.
(c) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any Necessary Third Party and/or any Governmental Entity
with respect to the Merger and the other transactions contemplated by this
Agreement. The Company and Parent each shall give prompt notice to the other of
any change that is reasonably likely to prevent, materially delay or materially
impair the ability of the Company or Parent (as the case may be) either (i) to
perform its obligations under this Agreement or (ii) to consummate the Merger or
any of the other transactions contemplated by this Agreement.
6.6. ACCESS. Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company shall (and shall cause its Subsidiaries
to) afford Parent's Representatives access, during normal business hours
throughout the period prior to the Effective Time, to the Company's and its
Subsidiaries' management, properties, books, contracts and records and, during
such period, shall (and shall cause its Subsidiaries to) furnish promptly to
Parent all information concerning the Company's and its Subsidiaries' business,
properties and personnel as may reasonably be requested, provided that no
investigation pursuant to this Section shall affect or be deemed to modify any
representation or warranty made by the Company, and provided, further, that the
foregoing shall not require the Company to permit any inspection, or to disclose
any information, that in the reasonable judgment of the Company would result in
the disclosure of any trade secrets of third parties or violate any of its
obligations with respect to confidentiality if the Company shall have used all
reasonable efforts to obtain the consent of such third party to such inspection
or disclosure. All requests for information made pursuant to this Section 6.6
shall be directed to an executive officer of the Company or such Person as may
be designated by the Company's officers.
6.7. PUBLICITY. The Company and Parent each shall consult with each
other prior to issuing any press releases or otherwise making public
announcements with respect to the Merger
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and the other transactions contemplated by this Agreement and prior to making
any filings with any Necessary Third Party and/or any Governmental Entity
(including any national securities exchange) with respect thereto, except as may
be required by law or by obligations pursuant to any listing agreement with or
rules of any national securities exchange or interdealer quotation service.
6.8. EXPENSES. Except as otherwise provided in Section 8.5(b), whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the Merger and the other transactions contemplated by
this Agreement shall be paid by the party incurring such expense.
6.9. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE; SET-OFF
RIGHT.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to, and the Surviving Corporation agrees to, indemnify and hold
harmless in accordance with the Company's Charter, and subject to the
limitations of the MBCA and Mississippi law, each present and former director
and officer of the Company (when acting in such capacity) determined as of the
Effective Time (each, an "INDEMNIFIED PARTY" and, collectively, the "INDEMNIFIED
PARTIES"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "COSTS")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
pertaining to acts or omissions, or alleged acts or omissions, by them in their
capacities as such, and which arise out of matters existing or occurring at or
prior to the Effective Time, whether asserted or claimed prior to, at or after
the Effective Time (and Parent shall also cause the Surviving Corporation, and
the Surviving Corporation agrees to, advance expenses in accordance with the
Company's Charter, and subject to the limitations of the MBCA and Mississippi
law, provided the Person to whom expenses are advanced provides a written
affirmation of his or her good faith belief that the standard of conduct
necessary for indemnification has been met, and an undertaking to repay such
advances if it is ultimately determined that such Person is not entitled to
indemnification).
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.9, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent and the
Surviving Corporation thereof, but the failure to so notify shall not relieve
the Surviving Corporation of any liability it may have to such Indemnified Party
if such failure does not materially prejudice the Surviving Corporation. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) the Surviving Corporation shall
have the right to assume the defense thereof and the Surviving Corporation shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, except that if the Surviving Corporation
elects not to assume such defense or
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counsel for the Indemnified Parties advises that there are issues which raise
conflicts of interest between the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that the Surviving Corporation shall be obligated
pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction unless the use of one counsel for such
Indemnified Parties would present such counsel with a conflict of interest, (ii)
the Indemnified Parties will cooperate in the defense of any such matter and
(iii) the Surviving Corporation shall not be liable for any settlement effected
without its prior written consent; and provided further, that the Surviving
Corporation shall not have any obligation hereunder to any Indemnified Party if
and when a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
(c) The Surviving Corporation shall use reasonable efforts to maintain
the Company's existing officers' and directors' liability insurance ("D&O
INSURANCE") or D&O Insurance that is substantially comparable (as determined in
good faith by the Surviving Corporation) to the Company's existing D&O Insurance
for a period of three years after the Effective Time so long as the annual
premium therefor is not in excess of 150% of the last annual premium paid prior
to the date hereof (such last annual premium being hereinafter referred to as
the "CURRENT PREMIUM"); provided, however, that if the existing D&O Insurance or
substantially comparable D&O Insurance cannot be acquired during the three-year
period for not in excess of 150% of the Current Premium, then the Surviving
Corporation will obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
150% of the Current Premium.
(d) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
(e) In the event of any breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement, Parent shall be
entitled to set-off against the Search Common Stock all Costs incurred or
suffered by Parent or any Affiliate of Parent as a result of any such breach.
6.10. TAKEOVER STATUTE. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and the Company and its board of directors shall grant
such approvals and take such actions as are necessary so that such transactions
may be consummated as promptly as practicable on the terms contemplated by this
Agreement or by the Merger and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
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6.11. RESTRICTIVE COVENANTS. To the extent Parent determines that any
of the items identified in Section 5.1(o) of the Company Disclosure Letter may,
after the Effective Time, impose restrictions or obligation on Parent or any
Affiliate of Parent (other than the Company and its Subsidiaries), then promptly
following the execution of this Agreement, the Company shall use its reasonable
best efforts to cause Parent and any such Affiliate of Parent to be exempted
from such restrictions or obligations.
6.12. FUTURE CONSIDERATION. Prior to the Future Consideration
Distribution Date, and subject to Parent's right of set-off under section
6.9(e), Parent shall not permit and shall not permit any of its Affiliates to,
transfer, sell, or otherwise dispose of the Search Common Stock (other than
transfers to Parent or any of its Affiliates). No later than ten (10) business
days after the Future Consideration Distribution Date, and subject to Parent's
right of set-off under section 6.9(e), Parent shall deliver the Per Share Future
Consideration (or an amount in cash equal to the value of the Search Common
Stock to have been distributed) to any Person entitled, pursuant to Section
4.1(a) of this Agreement, to receive the Per Share Future Consideration;
provided, however, that if Parent determines in good faith that the aggregate
value of the Search Common Stock owned by Parent or any of its Affiliates
(excluding any shares of Search Common Stock acquired by Parent pursuant to its
right of set-off under section 6.9(e)) is less than $10,000 on the Future
Consideration Distribution Date, Parent shall have no obligation to make such
distribution.
6.13 OFFICERS' CERTIFICATIONS. Concurrent with the execution of this
Agreement, the Company shall deliver to Parent copies of certificates, in the
form attached as composite Exhibit B hereto, executed, respectively, by James B.
Stuart, Jr., Harold A. Hogue, Robert S. Furman, Thomas L. Ostenson, and John E.
Gough (collectively, the "CERTIFYING OFFICERS").
6.14 SERVICE CONTRACT ADMINISTRATION AGREEMENT. The Company shall use
commercially reasonable efforts to cause Section 10 (entitled "Covenant not to
Compete") of that certain Service Contract Administration Agreement, effective
October 1, 1995 between United Service Protection, Inc. and Lyndon-DFS Warranty
Services, Inc. (as successor in interest to ITT Lyndon Property Insurance
Company) (the "ITT LYNDON SERVICE CONTRACT") to be modified in a manner
satisfactory to Purchaser.
6.15. NO-POST CLOSING SHARE TRANSFERS. The Company covenants and agrees
that the Company shall close its stock transfer books effective as of the close
of business on the day immediately prior to the Closing Date (the "SHARE
TRANSFER CUT-OFF TIME"), and at the Closing the Company shall deliver to Parent
a true and correct list of the holders of the Company's shares as of the Share
Transfer Cut-Off Time. From the Share Transfer Cut-Off Time through the
Effective Time, the Company shall not permit any transfers of Shares to be
effected on the stock transfer books of the Company.
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ARTICLE VII
Conditions
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) STOCKHOLDER APPROVAL. The Merger shall have been duly approved by
holders of Shares constituting the Company Requisite Vote and shall have been
duly approved by the sole stockholder of Merger Subsidiary in accordance with
applicable law.
(b) REGULATORY CONSENTS. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and, other than the filing provided for in Section 1.3, all notices,
reports and other filings required to be made prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries with, and all
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Effective Time by the Company or Parent or any of their
respective Subsidiaries from, any Governmental Entity (collectively,
"GOVERNMENTAL CONSENTS"), in connection with the execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby shall have been made or obtained (as the case may be).
(c) LITIGATION. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger
(collectively, an "ORDER").
(d) BLUE SKY APPROVALS. Parent shall have received all state securities
and "blue sky" permits and approvals, if any, necessary to consummate the
transactions contemplated hereby.
7.2. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. The
obligations of Parent and Merger Subsidiary to effect the Merger are also
subject to the satisfaction or waiver by Parent at or prior to the Effective
Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement; and the representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the Closing Date as though made on and as of the Closing Date (except to
the extent any such representation or warranty expressly speaks as of an earlier
date), and Parent shall have received a certificate signed on behalf of the
Company by an
38
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executive officer of the Company to such effect as well as certificates from the
Certifying Officers confirming, as of the Closing Date, the respective
certifications delivered pursuant to section 6.13 hereof.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects (and, as to the Company's obligations under
Section 6.1(d)(i) hereof, in all respects) all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(c) CONSENTS. The Company shall have obtained the consent or approval
of each Person whose consent or approval shall be required under any Contract to
which the Company or any of its Subsidiaries is a party, except (i) those
identified under items 2 and 3 of Section 5.1(d)(ii) of the Company Disclosure
Letter, and (ii) those for which the failure to obtain such consents or
approvals would not, individually or in the aggregate, have a Company Material
Adverse Effect; and no such consent or approval, and no Governmental Consent
shall impose any condition or conditions relating to, or requiring changes or
restrictions in, the operations of any asset or businesses of the Company,
Parent or their respective Subsidiaries which could, in the judgment of Parent's
board of directors, individually or in the aggregate, materially and adversely
impact the economic or business benefits to Parent and its Subsidiaries of the
transactions contemplated by this Agreement.
(d) DISSENTING SHARES. No more than 10% of the Shares eligible to
receive the Per Share Merger Consideration under Section 4.1(a) shall be
Dissenting Shares.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have been any change,
effect, or circumstance that, individually or when taken together with all other
changes, effects and circumstances occurring, after the execution of this
Agreement is or is reasonably likely to be material and adverse to the condition
(financial or otherwise), operations, properties, results of operations, or
business or prospects of the Company and its Subsidiaries taken as a whole.
(f) OPINIONS OF COUNSEL. The Company shall have delivered the written
opinion of: (i) Brunini, Grantham, Grower & Hewes, PLLC, as counsel to the
Company, dated the Closing Date and substantially in the form of Exhibit C
hereto, and (ii) Thomas L. Ostenson, Esq., General Counsel of the Company, dated
the Closing Date and substantially in the form of Exhibit D hereto.
(g) CONSENT OF OPTION HOLDERS. As to each Person eligible to
participate in the Company's Option Plans, the names of which are listed in
Section 7.2 of the Company Disclosure Schedule, the Company shall have delivered
the written consent signed by each such Person to the
39
<PAGE> 46
termination of all Option Plans as well as to the terms and conditions under
which all Options shall be canceled pursuant to Article IV hereof.
(h) SERVICE CONTRACT ADMINISTRATION AGREEMENT. Either (i) Section 10
(entitled "Covenant not to Compete") of the ITT Lyndon Service Contract shall
have been modified in a manner satisfactory to Purchaser, or (ii) upon
Purchaser's request, the Company shall have promptly provided a notice of
termination under the ITT Lyndon Service Contract to Lyndon-DFS Warranty
Services, Inc. (as successor in interest to ITT Lyndon Property Insurance
Company).
7.3. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Merger Subsidiary set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement, and the
representations and warranties of Parent and Merger Subsidiary set forth in this
Agreement shall be true and correct as of the Closing Date as though made on and
as of the Closing Date (except to the extent any such representation or warranty
expressly speaks as of an earlier date), and the Company shall have received a
certificate signed on behalf of Parent by an executive officer of Parent and on
behalf of Merger Subsidiary by an executive officer of Merger Subsidiary to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. Each of
Parent and Merger Subsidiary shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by an executive officer of Parent and on behalf of Merger
Subsidiary by an executive officer of Merger Subsidiary to such effect.
(c) CONSENTS UNDER AGREEMENT. Parent shall have obtained the consent or
approval of each Person whose consent or approval shall be required in order to
consummate the transactions contemplated by this Agreement or under any Contract
to which Parent or any of its Subsidiaries is a party, except those for which
failure to obtain such consents or approvals is not, individually or in the
aggregate, reasonably likely to prevent or to materially burden or materially
impair the ability of Parent to consummate the transactions contemplated by this
Agreement.
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ARTICLE VIII
Termination
8.1. TERMINATION BY MUTUAL CONSENT . This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company and Parent referred
to in Section 7.1(a), by mutual written consent of the Company and Parent by
action of their respective Boards of Directors.
8.2. TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement may be
terminated and the Merger may be abandoned (i) by action of the Board of
Directors of either Parent or the Company if the Merger shall not have been
consummated by September 30, 1998, whether such date is before or after the date
of approval by the shareholders of the Company (the "TERMINATION DATE"), (ii) by
action of the Board of Directors of Parent, if the Company Requisite Vote shall
not have been obtained at a meeting duly convened therefor or at any adjournment
or postponement thereof, (iii) by action of the Board of Directors of the
Company, if the Company Requisite Vote shall not have been obtained at a meeting
duly convened therefor or at any adjournment or postponement thereof and prior
to or at the time of such meeting no Person shall have made an Acquisition
Proposal to the Company or any of its Subsidiaries or any of its shareholders or
shall have publicly announced an intention (whether or not conditional) to make
an Acquisition Proposal with respect to the Company or any of its Subsidiaries,
or (iv) by action of the Board of Directors of either Parent or the Company if
any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether before
or after the approval by the stockholders of the Company or Parent); provided,
that the right to terminate this Agreement pursuant to clause (i) above shall
not be available to any party that has breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the occurrence of the failure of the Merger to be consummated.
8.3. TERMINATION BY THE COMPANY. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, by action
of the Board of Directors of the Company:
(a) if (i) the Company is not in material breach of any of the
terms of this Agreement, (ii) the Merger shall not have been approved by the
Company Requisite Vote, (iii) the Board of Directors of the Company authorizes
the Company, subject to complying with the terms of this Agreement, to enter
into a binding written agreement concerning a transaction that constitutes a
Superior Proposal and the Company notifies Parent in writing that it intends to
enter into such an agreement, attaching the most current version of such
agreement to such notice, (iv) Parent does not make, prior to twenty days after
receipt of the Company's written notification of its intention to enter into a
binding agreement for a Superior Proposal (the "ALTERNATIVE TRANSACTION
NOTICE"), an offer that the Board of Directors of the Company determines, in
good faith after consultation with its financial advisors, is at least as
favorable, as the Superior Proposal, taking into account the long term prospects
and interests of the Company and its stockholders, and
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<PAGE> 48
(v) the Company prior to such termination pays to Parent in immediately
available funds the Parent Expenses (as hereinafter defined) required to be paid
pursuant to Section 8.5. Without limiting the generality of the foregoing, the
Company agrees and acknowledges (x) that it cannot terminate this Agreement
pursuant to this Section 8.3(a) in order to enter into a binding agreement
referred to in clause (iii) above until at least twenty days after Parent's
receipt of the Alternative Transaction Notice and (y) to notify Parent promptly
if the Company's intention to enter into a written agreement referred to in its
Alternative Transaction Notice shall change at any time after giving such
notification.
(b) If there has been a material breach by Parent or Merger Subsidiary
of any representation, warranty, covenant or agreement contained in this
Agreement that is not curable or, if curable, is not cured within 20 days after
written notice of such breach is given by the Company to the party committing
such breach.
8.4. TERMINATION BY PARENT. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent if (a) the Company enters into a binding agreement
for a Superior Proposal or the Board of Directors of the Company shall have
withdrawn or adversely modified its approval or recommendation of this Agreement
or failed to reconfirm its recommendation of this Agreement within ten business
days after a reasonable written request by Parent to do so, or (b) there has
been a material breach by the Company of any representation, warranty, covenant
or agreement contained in this Agreement that is not curable or, if curable, is
not cured within 20 days after written notice of such breach is given by Parent
to the party committing such breach.
8.5. EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than as set forth in Section 9.1) shall
become void and of no effect with no liability on the part of any party hereto
(or of any of its directors, officers, employees, agents, legal and financial
advisors or other representatives); provided, however, except as otherwise
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any breach of this Agreement.
(b) In the event that this Agreement is terminated (I) by the
Company pursuant to Section 8.3(a), or (II) by Parent pursuant to Section 8.4,
then the Company shall promptly, but in no event later than two days after the
earliest to occur of the date of such termination, the date of entrance into an
agreement concerning a transaction that constitutes an Acquisition Proposal, or
the date Parent shall have requested payment of its charges and expenses
incurred in connection with the transactions contemplated hereby ("PARENT
EXPENSES"), pay to Parent the amount of such Parent Expenses up to a maximum of
$300,000, payable by wire transfer of same day funds. The Company acknowledges
that the agreements contained in this Section 8.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and
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<PAGE> 49
Merger Subsidiary would not enter into this Agreement; accordingly, if the
Company fails to promptly pay the amount due pursuant to this Section 8.5(b),
and, in order to obtain such payment, Parent or Merger Subsidiary commences a
suit which results in a judgment against the Company for the Parent Expenses set
forth in this paragraph (b), the Company shall pay to Parent or Merger
Subsidiary its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest from the date of termination of this Agreement
on the amounts owed at the prime rate of The Chase Manhattan Bank, in effect
from time to time during such period plus two percent.
(c) In the event that this Agreement is terminated by the
Company pursuant to 8.3(b), then Parent shall promptly, but in no event later
than two days after the earliest to occur of the date of such termination, or
the date the Company shall have requested payment of its charges and expenses
incurred in connection with the transactions contemplated hereby ("COMPANY
EXPENSES"), pay to the Company the amount of such Company Expenses up to a
maximum of $300,000, payable by wire transfer of same day funds. Parent
acknowledges that the agreements contained in this Section 8.5(c) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, the Company would not enter into this Agreement;
accordingly, if Parent fails to promptly pay the amount due pursuant to this
Section 8.5(c), and, in order to obtain such payment, the Company commences a
suit which results in a judgment against Parent for the Company Expenses set
forth in this paragraph (c), Parent shall pay to the Company its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest from the date of termination of this Agreement on the amounts owed at
the prime rate of The Chase Manhattan Bank, in effect from time to time during
such period plus two percent.
(d) If (i) the ITT Lyndon Service Contract terminates as the
result of the Company providing, at Parent's request pursuant to Section 7.2(h)
hereof, a notice of termination to Lyndon-DFS Warranty Services, Inc. (as
successor in interest to ITT Lyndon Property Insurance Company), (ii) this
Agreement terminates for any reason other than as the result of a termination by
Parent pursuant to Section 8.4 hereof, and (iii) the Company has made a good
faith effort to have the ITT Lyndon Service Contract reinstated, then Parent
shall pay to the Company, no later than ten days after the later to occur of the
termination of the ITT Lyndon Service Contract or this Agreement, $80,000 as
consideration for the Company's termination of the ITT Lyndon Service Contract.
ARTICLE IX
Miscellaneous and General
9.1. SURVIVAL. This Article IX and the agreements of the Company,
Parent and Merger Subsidiary contained in Sections 6.9 (Indemnification;
Directors' and Officers' Insurance; Set-off Right) shall survive the
consummation of the Merger. This Article IX, the agreements of the Company,
Parent and Merger Subsidiary contained in Section 6.3 (Non-Disclosure), Section
6.6 (Access), insofar as it relates to the Company's and Parent's respective
confidentiality obligations, Section 6.8 (Expenses) and Section 8.5 (Effect of
Termination and Abandonment) shall survive the termination of this Agreement.
All representations and warranties of the Company shall survive the consummation
of the Merger until July 31, 1999. All other representations, warranties,
covenants and agreements in this Agreement shall not survive the consummation of
the Merger or the termination of this Agreement.
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9.2. MODIFICATION OR AMENDMENT. Subject to the provisions of applicable
law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW; WAIVER OF JURY TRIAL.
(A) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF FLORIDA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF, EXCEPT THAT MATTERS RELATING TO THE VALIDITY AND EFFECTS OF THE MERGER
AND THE FIDUCIARY OBLIGATIONS OF THE DIRECTORS OF THE COMPANY REFERRED TO IN
SECTION 6.2 AND 6.4 HEREOF SHALL BE GOVERNED BY THE APPLICABLE PROVISIONS OF THE
MISSISSIPPI BUSINESS CORPORATION LAW.
(B) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
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<PAGE> 51
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
(C) THE COMPANY AND MERGER SUBSIDIARY EACH AGREES THAT, IN
CONNECTION WITH ANY LEGAL SUIT OR PROCEEDING ARISING WITH RESPECT TO THIS
AGREEMENT, IT SHALL SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF FLORIDA AND AGREES TO VENUE IN SUCH COURTS.
THE COMPANY AND MERGER SUBSIDIARY EACH HEREBY APPOINTS THE SECRETARY OF THE
COMPANY AND MERGER SUBSIDIARY, RESPECTIVELY, AS ITS AGENT FOR SERVICE OF PROCESS
FOR PURPOSES OF THE FOREGOING SENTENCE ONLY.
9.6. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
IF TO PARENT OR MERGER SUBSIDIARY
American Bankers Insurance Group, Inc.
11222 Quail Roost Drive
Miami, Florida 33157
Attention: Chief Executive Officer
fax: (305) 252-7068
45
<PAGE> 52
with a copy to:
Steven Kass, Esq.,
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
777 Brickell Avenue, Suite 500
Miami, Florida 33131
fax: (305) 372-9928
IF TO THE COMPANY
James B. Stuart, Jr.
President and Chief Executive Officer
MS Diversified Corporation
715 S. Pear Orchard, Suite 400
Ridgeland, MS 39157
fax: (601) 978-6709
with a copy to:
Robert D. Drinkwater, Esq.
Brunini, Grantham, Grower & Hewes, PLLC
1400 Trustmark Building
248 East Capitol Street
Jackson, MS 39201
fax: (601) 960-6902
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. ENTIRE AGREEMENT: NO OTHER REPRESENTATIONS. This Agreement
(including any exhibits hereto), the Company Disclosure Letter, and the Parent
Disclosure Letter constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties both written and
oral, among the parties, with respect to the subject matter hereof.
9.8. NO THIRD PARTY BENEFICIARIES. Except as provided in Section 6.9
(Indemnification; Directors' and Officers' Insurance; Set-Off Right), this
Agreement is not intended to confer upon any Person other than the parties
hereto and their shareholders any rights or remedies hereunder.
9.9. OBLIGATIONS OF PARENT AND OF THE COMPANY. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this
46
<PAGE> 53
Agreement requires a Subsidiary of the Company to take any action, such
requirement shall be deemed to include an undertaking on the part of the Company
to cause such Subsidiary to take such action and, after the Effective Time, on
the part of the Surviving Corporation to cause such Subsidiary to take such
action.
9.10. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.11. INTERPRETATION. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.12. ASSIGNMENT. This Agreement shall not be assignable by operation
of law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another wholly-owned direct or indirect Subsidiary to be
a Constituent Corporation in lieu of Merger Subsidiary, in which event all
references herein to Merger Subsidiary shall be deemed references to such other
Subsidiary, except that all representations and warranties made herein with
respect to Merger Subsidiary as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other Subsidiary as of
the date of such designation.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto or their duly authorized officers as of the date first
written above.
MS DIVERSIFIED CORPORATION
By:
--------------------------------
Name:
Title:
47
<PAGE> 54
AMERICAN BANKERS INSURANCE GROUP, INC.
By:
-----------------------------------
Name:
Title:
ABIG ACQUISITION CORP. A
By:
-----------------------------------
Name:
Title:
48
<PAGE> 55
EXHIBIT A
FORM OF CONFIDENTIALITY AGREEMENT
<PAGE> 56
EXHIBIT B
FORM OF OFFICERS' CERTIFICATES
<PAGE> 57
EXHIBIT C
FORM OF OPINION OF BRUNINI, GRANTHAM, GROWER & HEWES, PLLC
<PAGE> 58
EXHIBIT D
FORM OF OPINION OF TOM L. OSTENSON, ESQ.
<PAGE> 59
COMPANY DISCLOSURE LETTER
<PAGE> 1
DOMINION AUTOMOBILE ASSOCIATION LIMITED
Confidential
March 9,1998
Westminster Mercantile Inc.
201 King Street
London, Ontario
N6A 4T3
Attention: Mr. Robert W. Trollope, President
Dear Sir:
Re. Purchase by Dominion Automobile Association Limited(the "Buyer")
from Westminster Mercantile Inc. (the "Seller") of the Assets of the
Seller Used by the Seller in Conducting its Dominion Automobile
Association, North American Automobile Association-Zellers Division,
Dominion Automobile Association International Travel Agency and
Printing Businesses (Collectively, the "Businesses")
Unless otherwise defined in the body of this letter agreement, all capitalized
terms shall have the respective meanings attributed to them in Schedule "A".
1. Offer to purchase.
a. Purchased Assets and Assumed Liabilities. The Buyer acknowledges having
received the Seller's unaudited financial information with respect to
the Businesses for the four (4) consecutive 12-month periods, the last
one ended November 30, 1997, a copy of which is annexed as Exhibit "I"
to Schedule "A" hereto. Subject to the terms of this letter agreement
and in reliance on the representations and warranties set out in the
certificate of the Seller and Robert W. Trollope to be delivered on
Closing, a copy of which appears as Schedule "B" to this letter
agreement, the Buyer hereby offers:
i. to purchase from the Seller:
A. the lands and premises municipally known as 201 King
Street, London, Ontario constituting the Real
Property;
B. the leases of premises occupied by the Seller in
Saint John, New Brunswick and St Foy, Quebec (the
"Leases");
C. all of the property and assets of the Seller used by
it in conducting its Dominion Automobile Association
("DAA") business (the "DAA
<PAGE> 2
Page 2
Assets"), all of which is located at the Real Property or at either of
the premises subject to the Leases, and includes the tangible property
and assets listed in Schedule "C" hereto;
D. all the property and assets used by the Seller in conducting its North
American Automobile Association Zellers Division ("NAAA") business (the
"NAAA Assets"), all of which is located at the Real Property and
includes the tangible property and assets listed in Schedule "D"
hereto;
E. all the property and assets of the Seller used by it in conducting its
Dominion Automobile Association International Travel Agency ("ITA")
business (the "ITA Assets"), all of which is located at the Real
Property and includes the tangible property and assets listed in
Schedule "E" hereto;
F. all the property and assets of the Seller used by it in conducting its
printing business (the "Printing Assets"), all of which is located at
the Real Property and includes the tangible property and assets of the
Seller listed in Schedule "F" hereto;
G. the trade marks, logos, business styles and names used by the Seller in
carrying on any of the Businesses and all know how forming part of the
DAA Assets, the NAAA Assets and the "ITA" Assets, as the case may be
(the "Intellectual Property");
H. all accounts receivable for each of the Businesses outstanding as at
the close of business on the Effective Date (the "Receivables"); and
I. without in any way limiting the right of the Buyer to any other
reserve, adjustment or recovery in respect of any of the Businesses,
all experience-rated refunds payable by Mutual Life of Canada in
respect of any insurance taken out and maintained by the Seller with
Mutual Life of Canada at any time and from time to time for the benefit
of the DM members, Seller employees or otherwise in respect of any of
the Businesses,
together with the benefit of all revenues and receipts from all business and
transactions conducted by the Businesses from and after the Effective Date until
the Time of Closing as hereinafter provided (collectively, the "Purchased
Assets"); and
<PAGE> 3
Page 3
ii. to assume, pay, satisfy, discharge, perform and fulfill:
A. from and after the Effective Date only those
liabilities and obligations of the Seller to the
extent that they relate to any of the Businesses, the
Purchased Assets (provided such liabilities affecting
the Purchased Assets relate to their use as part of
the Businesses), and any contracts, commitments and
agreements to be assigned to the Buyer pursuant to
subsection 1.a., including, without limitation, as
summarized and forming the assumed liabilities set
out in the Statement of Adjustments annexed hereto as
Schedule "K", together with such payments that have
been made that have not yet cleared the respective
bank account but have been recognized in creating the
cash (general ledger) for such account, and all
experience-rated payments or adjustments payable to
Mutual Life of Canada in respect of any insurance
taken out and maintained by the Seller with Mutual
Life of Canada at any time and from time to time for
the benefit of the DAA members, Seller employees or
otherwise in respect of any of the Businesses; and
B. all expenses, outgoings and liabilities made or
incurred in carrying on the Businesses in the
ordinary and usual course from and after the
Effective Date until the Time of Closing,
(collectively, the "Assumed Liabilities"). From and after
Closing, the Buyer hereby indemnifies and saves the Seller
harmless from and against any liabilities (whether accrued,
actual, contingent or otherwise), claims and demands
whatsoever in connection with the Assumed Liabilities. Unless,
but only to the extent that it is immediately disputed in
writing (any such disputed amount to be subject to
arbitration, as hereinafter provided), the Buyer agrees to
remit payment to the Seller forthwith upon the Seller advising
the Buyer in writing of any such claims, demands, costs,
expenses and losses so incurred or suffered by the Seller,
for an aggregate purchase price equal to SIX MILLION ONE HUNDRED
THOUSAND ($6,100,000.00) DOLLARS (the "Purchase Price"), subject to any
Purchase Price adjustments contemplated by the terms of this letter
agreement. At closing, the Buyer shall pay to the Seller the amount of
FIVE MILLION ($5,000,000.00) DOLLARS (the "Closing Date Payment") by
immediately available funds.
b. Exclusions. Etc. For greater certainty, the parties agree that:
<PAGE> 4
Page 4
i. the Purchased Assets include:
A. all cash on deposit with the Seller's bankers as at the
opening of business on Monday, March 2, 1998 which relate to
the Businesses; and
B. the Receivables;
ii. the NAAA Assets include only those assets of the Seller used by it in
conducting its business with Zellers, and the definition of NAAA Assets
excludes all other property of the Seller;
iii. the Purchased Assets do not include:
A. that certain vacant real property located in the Province of
Quebec and owned by the Seller;
B. any property and assets of the Seller not used in any of the
Businesses, including, without limitation, the Seller's
investment portfolio, and any loans by the Seller to employees
and field agents of the Businesses (which loans shall not
include any advances against commissions to field agents
outstanding at the Effective Date properly recorded on the
books and records of the Seller) (the "Seller Loans"), which
investment portfolio and Seller Loans shall be retained by the
Seller; and
C. the personal property and chattels specifically identified as
assets of the Seller excluded from the Purchased Assets as set
out in each of Schedules "C", "D", "E" and "F" ; and
iv. the Assumed Liabilities do not include:
A. any of the expenses and liabilities, whether or not recorded
on the books of the Seller, which do not relate to the
Businesses as acquired by the Buyer, including without
limiting the generality of the foregoing, all club expenses,
corporate credit cards and charges, automobile leases,
automobile insurance, gas cards and charges, and similar perks
and benefits; or
B. insurance on the building and improvements located on the Real
Property.
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c. Receivables. The Seller agrees to assign the Receivables to the Buyer on
Closing and to provide a complete and accurate list of all the Receivables to
the Buyer, together with such authorizations as may be necessary to negotiate
any cheques, automatic deposits or other payment procedures used by the Seller
in respect of any of the Receivables or payments from any of the customers of
any of the Businesses. Each party acknowledges that from and after Closing it
may come into the possession of funds that are the property of the other party.
Each party agrees to account to the other party in a timely manner for any such
funds of the other coming into its possession or control.
d. Allocation of the Purchase Price. The Buyer and Seller agree to allocate (and
to report the sale and purchase of the Purchased Assets for all federal,
provincial and local tax purposes in a manner consistent with such allocation)
the Purchase Price for accounting purposes among the Purchased Assets on the
following basis: (i) SIX MILLION ONE HUNDRED THOUSAND ($6,100,000.00) DOLLARS to
goodwill, (ii) SEVEN HUNDRED AND FIFTY THOUSAND ($750,000.00) DOLLARS to the
Real Property (subject to the post-Closing adjustment herein provided), (ii)
THREE HUNDRED THIRTY-SIX THOUSAND FOUR HUNDRED AND EIGHTY ($336,480.00) DOLLARS
to the tangible personal properly forming part of the Purchased Assets, and (iv)
as to the balance, to the remaining assets being acquired and liabilities being
acquired and assumed by the Buyer under the terms of this letter agreement The
Buyer and Seller agree to cooperate and to act reasonably in agreeing as to any
more particular allocations which may be required within the general allocations
referred to above.
e. Interest Payment. The Buyer agrees to pay to the Seller on or before the time
of payment of the final adjustment as provided for in subsection 9.f. herein an
amount in respect of interest which the Seller would have earned on the Closing
Date Payment had the transaction contemplated by this Letter Agreement closed on
the Effective Date (the "Interest Payment"). The Interest Payment shall be
calculated by multiplying the amount of the Closing Date Payment by the daily
rate equivalent of the Royal Bank of Canada prime rate plus one percent (1%) per
annum times the number of days from the Effective Date to the Closing Date.
2. Binding Agreement. Each of the parties acknowledges that this offer shall
constitute a binding agreement of purchase and sale for the Purchased Assets
only if this offer is accepted by the Seller, as provided below, and the
obligations of each of the parties to complete the transactions contemplated by
this letter agreement on Closing shall be subject to satisfaction (or waiver by
the party in question, as hereinafter provided) of each of the conditions
precedent to Closing set out in section 6 of this offer (the "Conditions") for
the benefit of the party in question.
3. Time and Place of Closing. The closing (the "Closing") shall take place on
the Closing Date at the offices of Harrison, Elwood, 450 Talbot Street, London,
Ontario, at
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12:30p.m., London time (the "Time of Closing"), or at such other time and place
as the parties mutually agree in writing.
4. Covenants of the Seller.
a. Operation of the Businesses During the Interim Period. The Seller hereby
confirms to the Buyer that for the period beginning December 1,1997 and ending
at the Time of Closing (the "Interim Period"), it will have:
i. operated each of the Businesses in the normal course;
ii. given the Buyer and its representatives complete access to all
of the books,records, properties, contracts and commitments of
the Businesses; and
iii. instructed and authorized its auditors and lawyers to
co-operate with the Buyer and its representatives and to
provide all such information relating to each of the
Businesses as reasonably requested by them.
b. Accounting for Certain Interim Period Operations Post-Closing. The management
and operation of each of the Businesses (other than the ITA Business) by the
Seller (which Seller warrants to have carried on in the ordinary and usual
course) from and after the Effective Date shall be for the account of Buyer,
and, as set out above, the Buyer shall be entitled to the benefit of all
revenues and receipts from all transactions from and after the Effective Date
until the Time of Closing and shall be responsible for all expenses, outgoings
and liabilities made or incurred by the Seller in carrying on the Businesses
(other than the ITA Business) in the ordinary and usual course of business from
and after the Effective Date until the Time of Closing. Seller shall not charge
any fees and expenses, including those to its solicitors, relating to the sale
of the Businesses (other than the ITA Business) against any such revenues and
receipts, all of which expenses shall be to the sole account of the Seller. If
the difference between all such revenues and receipts from all of the Businesses
(other than the ITA Business) from and after the Effective Date to the Time of
Closing and the said reasonable expenses, outgoings and liabilities from and
after the Effective Date to the Time of Closing is a positive number, the Seller
shall pay an amount equal thereto to the Buyer within ten (10) Business Days
immediately following Closing, as contemplated by subsection 9.i. of this letter
agreement. If the difference is a negative number, the Buyer shall pay an amount
equal thereto to the Seller within ten (10) Business Days immediately following
Closing, as contemplated by subsection 9.i. of this letter agreement.
c. Accounting for ITA Business Interim Period Operations Post-Closing. The
Seller agrees to act as the Buyer's agent in operating the ITA Business until
such time as the Buyer qualifies under all applicable laws to conduct the
business of a travel agent with the
<PAGE> 7
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right and capacity to make airline ticket bookings from the Real Property, in
keeping with the manner in which the ITA Business is presently conducted by the
Seller. To the extent permitted by law, the Seller agrees to manage and to
operate the ITA Business in the ordinary and usual course from and after the
Effective Date to the date on which the Buyer so qualifies to conduct the ITA
Business (the "ITA Qualification Date") for the account of Buyer. The Buyer
shall be entitled to the benefit of all revenues and receipts from all
transactions from and after the Effective Date until the ITA Qualification Date
and shall be responsible for all expenses, outgoings and liabilities made or
incurred by the Seller in carrying on the ITA Business in the ordinary and usual
course of business from and after the Effective Date until the ITA Qualification
Date. If the difference between all such revenues and receipts from the ITA
Business from and after the Effective Date to the ITA Qualification Date and the
said reasonable expenses, outgoings and liabilities from and after the Effective
Date to the ITA Qualification Date is a positive number, the Seller shall pay an
amount equal thereto to the Buyer within ten (10) Business Days immediately
following the ITA Qualification Date, as contemplated by subsection 9.h. of this
letter agreement. If the difference is a negative number, the Buyer shall pay an
amount equal thereto to the Seller within ten (10) Business Days immediately
following the ITA Qualification Date, as contemplated by subsection 9.h. of this
letter agreement. The Buyer will use its best efforts to make all necessary
applications and take and do all things necessary to so qualify to conduct the
ITA Business and to keep the Seller informed as to its progress with the intent
that such qualification shall be in place on or before the date of the final
order or decision referred to in subsection 9.f. of this letter agreement.
d. Seller Loans. From and after Closing, the Buyer will not permit any
deductions from wages, salaries or commissions paid by it to any of its
employees or field agents of charges or other payments relating to any
outstanding and unpaid Seller Loan. From and after Closing, the Seller hereby
indemnifies and holds the Buyer harmless from and against all actions, causes of
action, claims, demands, costs, expenses and losses of every nature whatsoever
incurred by the Buyer arising out of the creditor-debtor relationship between
the Seller and any of its past employees or field agents in respect of any
Seller Loan. The Seller hereby acknowledges that the Buyer has not guaranteed
payment or collection of any of the Seller Loans. The Seller undertakes to
obtain such written acknowledgments from the debtors under the Seller Loans
addressed to the Buyer as the Buyer may reasonably require from time to time
following Closing. Unless, but only to the extent that it is immediately
disputed in writing (any such disputed amount to be subject to arbitration, as
hereinafter provided), the Seller agrees to remit payment to the Buyer forthwith
upon the Buyer advising the Seller in writing of any such claims, demands,
costs, expenses and losses so incurred or suffered by the Buyer.
e. Seller Indemnity Re. Certain Trade-Mark Infringement Claims From and after
Closing, the Seller hereby indemnifies and holds the Buyer harmless from and
against all
<PAGE> 8
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actions, causes of action, claims, demands, costs, expenses and losses of every
nature whatsoever incurred by the Buyer arising out of any claim by either the
American Automobile Association or the Canadian Automobile Association that any
registered or unregistered trade-mark used by the Seller in any of the
Businesses, as such trade-marks are used by the Seller at the Closing Date,
infringes the intellectual property owned by either the American Automobile
Association or the Canadian Automobile Association or constitutes passing-off by
the Seller. Unless, but only to the extent that it is immediately disputed in
writing (any such disputed amount to be subject to arbitration, as hereinafter
provided), the Seller agrees to remit payment to the Buyer forthwith upon the
Buyer advising the Seller in writing of any such claims, demands, costs,
expenses and losses so incurred or suffered by the Buyer.
f. Seller Indemnity for Termination Expenses. In furtherance of the matters
contemplated by subsection 5.e. hereof, the Seller hereby assumes full
responsibility for any costs, claims, demands and expenses (the "Termination
Expenses") incurred by either the Seller or the Buyer and arising out of the
termination of the Excluded Field Agent contracts, and the Seller hereby
indemnifies and holds the Buyer harmless from and against all actions, causes of
action, claims, demands, costs, expenses and losses of every nature whatsoever
incurred by the Seller arising out of the termination of the contractual or
other arrangements with the Excluded Field Agents. Unless, but only to the
extent that it is immediately disputed in writing (any such disputed amount to
be subject to arbitration, as hereinafter provided), the Seller agrees to remit
payment to the Buyer forthwith upon the Buyer advising the Seller in writing of
any such claims, demands, costs, expenses and losses so incurred or suffered by
the Buyer.
g. Robert Trembley. The Seller agrees that it shall be solely responsible for
dealing with the claim by Robert Trembley against the DAA Business and the
health coverage provided to DAA field agents by Mutual Life Insurance Company,
and to hold each of the Buyer and Mutual Life Insurance Company harmless from
any costs, demands, expenses, claims, actions and causes of action arising out
of the claims made by Robert Trembley. The advance to Robert Trembley by the
Seller shall be excluded from the Receivables and shall be retained by the
Seller.
5. Covenants of the Buyer. The Buyer hereby covenants with the Seller:
a. To Pay the Purchase Price. To pay the Purchase Price at the
time and in the manner provided for in section 8 of this
letter agreement subject to the satisfaction (or waiver by the
party in question, as hereinafter provided) of each of the
Conditions on Closing, and subject to any escrow or Purchase
Price adjustments contemplated by the terms of this letter
agreement;
<PAGE> 9
Page 9
b. To Pay Applicable Sales Taxes. The Buyer shall be liable for
and shall pay all federal and provincial sales taxes
(including any tax imposed by the Retail Sales Tax Act
(Ontario)) and all other taxes, duties, fees or other like
charges of any jurisdiction property payable in connection
with the transfer of the Purchased Assets by the Seller to the
Buyer) save and except for land transfer tax payable on the
transfer of the Real Property;
c. To Give Notice to Investment Canada. On the acceptance of this
offer by the Seller, to provide notice of this transaction to
Industry Canada if required by the Investment Canada Act, and
comply with the requirements (if any) imposed on the Buyer
under the said Act and to deliver to the Seller a copy of the
response letter from Industry Canada under the Investment
Canada Act;
d. To Make Offers of Employment to Seller Employees. On the
Closing Date, to offer employment to all employees of the
Seller on terms and conditions no less favorable than those by
which such employees are employed by the Seller; provided, the
parties agree as follows:
i. the Buyer agrees to continue the employment of each
of Heath Trollope, Kent Trollope and Todd Lewicki
(the "Retained Employees") from and after Closing;
and
ii. if at any time within one (1) year following Closing
the Buyer determines for any reason whatsoever to
terminate the employment of all or any of the
Retained Employees, then for each Retained Employee,
the Buyer agrees to give written notice to the Seller
of the Buyer's intention to terminate the employment
of the affected Retained Employee. The Buyer agrees
to consult with the Seller on the manner in which the
affected Retained Employee is to be notified and
otherwise dealt with on termination of his employment
The Seller agrees that the sole responsibility of the
Buyer to any Retained Employee whose employment is so
terminated shall be limited to two weeks' wages or
two weeks' notice in lieu thereof, and the Seller
hereby indemnifies and holds the Buyer harmless from
and against all actions, causes of action, claims,
demands, expenses, costs and losses of every nature
whatsoever incurred by the Buyer arising out of the
termination of the employment of any of the Retained
Employees within the said one (1) year period
following Closing (apart from the said two weeks'
wages or notice in lieu thereof), and agrees to pay
all other costs, claims, demands and expenses
<PAGE> 10
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incurred by the Buyer in terminating the employment
of all or any of the Retained Employees. Unless, but
only to the extent that it is immediately disputed in
writing (any such disputed amount to be subject to
arbitration, as hereinafter provided), the Seller
agrees to remit payment to the Buyer forthwith upon
the Buyer advising the Seller in writing of any such
claims, demands, costs, expenses and losses so
incurred or suffered by the Buyer;
e. Re. Excluded Field Agents. within 30 days of Closing, the
Buyer shall:
i. identify in writing by notice to the Seller the names
of not more than 40 field agents (generally from the
group of field agents with low 1997 commissions
earned) whose contracts it proposes to terminate (the
"Excluded Field Agents");
ii. deliver notices of termination of the contracts with
the Excluded Field Agents in such form as the parties
shall agree, acting reasonably; and
iii. deliver such notices to the other field agents
engaged in the conduct of any of the Businesses as
the Buyer in its sole discretion may determine; and
f. Re. Office Use Following Closing. The Buyer agrees to permit
Mr. Robert W. Trollope to use during normal business hours
during the 90 days immediately following Closing an office in
the building on the Real Property designated by the Buyer.
6. Conditions of Closing. The parties agree that the only conditions precedent
to the closing of the transactions contemplated by this letter agreement shall
be:
a. Compliance with Planning Act (Ontario). For the benefit of
both of the parties, compliance with the provisions of the
Planning Act (Ontario) with respect to the purchase of the
Real Property;
b. For the Benefit of the Buyer. For the benefit of the Buyer, it
being understood that these conditions are included for the
exclusive benefit of the Buyer and may be waived in writing in
whole or in part by the Buyer:
i. receipt of the deliveries contemplated by section 7
of this letter agreement;
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Page 11
ii. that the Seller is at Closing not in breach of any
material covenant, representation or warranty given
by it to the Buyer;
iii. that during the Interim Period, there shall have been
no material adverse change in any of the Businesses;
iv. that at Closing, the Buyer shall receive a transfer
of the Real Property in registerable form, free and
clear of any and all Liens, apart from Permitted
Encumbrances, and the Seller shall have provided
answers (satisfactory to the Buyer, acting
reasonably) to any proper requisitions by the Buyer
as to title to the Real Property;
v. receipt of a Phase 1 environmental report on the Real
Property acceptable to the Buyer (the "Phase 1
Report");
vi. receipt of an undertaking by the Seller to the Buyer
to cause to be filed a notice of discontinuance of
Action No.22363 issued out of Ontario Court of
Justice (General Division) London commenced by North
American Automobile Associate Limited against Zellers
Inc.;
vii. receipt of evidence satisfactory to the Buyer
relating to the status (and the potential effect on
the Businesses) of any claims by the American
Automobile Association, the Canadian Automobile
Association or others against the Seller that the
Seller is infringing the trade marks, intellectual
property or the goodwill of any such claimant;
viii. production by the Seller of a copy (or copies) of the
business licence(s) or permit(s) issued to it in 1983
(or thereafter) permitting the Seller to use the
building situate on the Real Property for each of the
Businesses or evidence satisfactory to the Buyer that
the current uses of the ground floor of the building
constitute legal non-conforming uses under applicable
City of London by-laws; and
ix. delivery of assignments and transfers of all the the
Purchased Assets other than the Real Property, free
and clear of any and all Liens, apart from Permitted
Encumbrances; and
C. For the Benefit of the Seller. For the benefit of the Seller,
it being understood that these conditions are included for the
exclusive benefit of the Seller and may be waived in writing
in whole or in part by the Seller:
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Page 12
i. receipt of the deliveries contemplated by section 8
of this letter agreement;
ii. receipt of the Seller's $1,000,000 letter of credit
posted with Beneficial Canada Inc. or other
arrangement in respect thereof satisfactory to the
Seller, acting reasonably;
iii. receipt of payment of the Closing Date Payment; and
iv. the Buyer not being in breach of any material
covenant, representation or warranty given by it on
Closing.
7. Deliveries by the Seller on Closing. On Closing, the Seller agrees to cause
to be executed and delivered to the Buyer (or cause to be done) each of the
following:
a. the joint and several representation and warranty certificate
and indemnity by the Seller and Robert W. Trollope in favour
of the Buyer in the form annexed as Schedule "B" to this
letter agreement;
b. joint election of the Buyer and the Seller under section 167
of the Excise Tax Act (Canada) executed by the Seller;
c. a transfer to the Buyer in registerable form of title to the
Real Property, as aforesaid;
d. certified cheque for $9,725.00 of the Seller payable to the
Ontario Minister of Finance representing the tax payable under
the Land Transfer Tax Act (Ontario) on the purchase of the
Real Property;
e. a statutory declaration of an officer of the Seller re.
section 116 of the Income Tax Act (Canada);
f. a statutory declaration of possession of a senior officer of
the Seller with respect to the Seller's use and occupation of
the Real Property;
g. Excise Tax Act (Canada) goods and services tax certificate
executed by the Buyer with respect to the Real Property;
h. Buyer Real Property utilities and realty tax undertaking to
readjust, bill of sale and warranty; provided the foregoing
shall be without duplication of any adjustment to the purchase
price for the Real Property arising out of
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subsection 9.g. of this letter agreement;
i. conditional assignments to the Buyer of each of the Leases;
j. an undertaking by the Seller to use its best efforts to obtain
consents of each of the subject landlords to the assignment of
the Lease in question; provided the Seller shall not be
otherwise obligated to the Buyer if such consents are not
obtained and an undertaking by the Seller to cause a notice of
discontinuance of Action No.22363 against Zellers to be filed;
k. an assignment to the Buyer of the DAA membership contracts and
rights;
l. individual conditional assignments to the Buyer of the DAA
corporate agent contracts;
m. an assignment to the Buyer of DAA field agents contracts and
rights;
n. an assignment to the Buyer of DAA service provider and
supplier contracts;
o. a general conveyance to the Buyer of the other DAA Assets;
p. a general conveyance to the Buyer of the other NAAA Assets;
q. a general conveyance to the Buyer of the other ITA Assets;
r. a bill of sale in favour of the Buyer of the Printing Assets;
s. Retail Sales Tax Act (Ontario) section 6 certificate in
respect of the Seller;
t. trade-mark assignment to the Buyer in registrable form of all
registered trademarks used by the Seller in any of the
Businesses;
u. trade-mark and trade name assignment to the Buyer of all other
Intellectual Property;
v. joint waiver of the Buyer and the Seller of compliance with
the Bulk Sales Act (Ontario) executed by the Seller;
w. assignment to the Buyer of all rights of the Seller under
certain assumed insurance policies, pension and other benefit
plans by way of novation, and the transfer of all funds in
respect of any of the foregoing, including those
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Page 14
funds deposited with Royal Bank of Canada as at the Time of
Closing and on the ITA Qualification Date, as the case may be;
x. transfer of interests in deposits and claims re. ITA Business;
y. a transfer of the Receivables, together with a list of the
names and addresses of the subject account debtors, the
balance owed, the method of payment, advice in respect of
payment arrangements concerning potential future renewals, and
appropriate powers of attorney and authorizations (as
reasonably required);
z. copy of a financing statement registered under the Personal
Property Security Act (Ontario) with respect to the foregoing
absolute assignment of accounts;
aa. joint election of the Buyer and the Seller under section 22 of
the Income Tax Act (Canada) in respect of the Receivables
executed by the Seller, such signed election to be held
pending receipt of the report of the auditors contemplated by
section 9 hereof;
bb. statements for discharge purposes and discharges in
registerable form from each person holding a Lien on any of
the Purchased Assets, other than a Permitted Encumbrance;
cc. a certified copy of a special resolution of the Seller
authorizing the sale of the Purchased Assets to the Buyer and
the execution and delivery of this letter agreement, and all
documentation ancillary thereto, including all transfers,
assignments, general conveyances and other documentation
necessary to convey the Purchased Assets to the Buyer;
dd. opinion of counsel to the Seller in the form annexed hereto as
Schedule "G";
ee. possession and control of the Purchased Assets and all books,
records, contracts and commitments, in the possession or under
the control of the Seller and relating to any of the
Businesses;
ff. Seller receipt for the Closing Date Payment;
gg. copy of the Real Property price adjustment agreement referred
to in subsection 9.g., executed by the Seller; and
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Page 15
hh. payment to the Buyer of the Adjustment Prepayment; and
ii. such further and other documentation, including appropriate
statutory elections, as may be reasonably required by the
Buyer to complete the transactions contemplated by this letter
agreement.
8. Deliveries by the Buyer on Closing. On Closing, the Buyer agrees to execute
and deliver to the Seller (or cause to be done) each of:
a. a representation and warranty certificate and indemnity of the
Buyer in the form annexed as Schedule "H" to this letter
agreement;
b. joint election of the Buyer and the Seller under section 167
of the Excise Tax Act (Canada) executed by the Buyer;
c. joint election of the Buyer and the Seller under section 22 of
the Income Tax Act (Canada) in respect of the Receivables
executed by the Buyer, such signed election to be held pending
receipt of the determination of the auditors in respect of the
matters contemplated by section 9 hereof;
d. offers of employment to each of the employees of the Seller
executed by the Seller;
e. copies of consulting agreements between the Buyer and each of
Robert W. Trollope, Joseph Lewicki and Cliff Ingram:
f. Seller Real Property utilities and realty tax undertaking to
readjust; provided the foregoing shall be without duplication
of any adjustment to the purchase price for the Real Property
arising out of subsection 9.g. of this letter agreement;
g. an assumption agreement in respect of the Assumed Liabilities
and indemnity of the Seller with respect to claims by
creditors of any of the Businesses (which claims form part of
the Assumed Liabilities), including, to the extent that they
are in respect of claims forming part of the Assumed
Liabilities, claims arising out of the parties' non-compliance
with the Bulk Sales Act (Ontario), both duly executed by the
Buyer;
h. certified copy of a resolution of the board of directors of
the Buyer authorizing the purchase of the Purchased Assets
from the Seller, the execution and delivery of this letter
agreement, and all documentation
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ancillary thereto;
i. an opinion of counsel to the Buyer in the form annexed as
Schedule "I" to this letter agreement;
j. payment to it of the Closing Date Payment;
k. joint waiver of the Buyer and the Seller of compliance with
the Bulk Sales Act (Ontario) executed by the Buyer;
l. copy of the Real Property price adjustment agreement referred
to in subsection 9.g., executed by the Seller;
m. Buyer receipt for the Adjustment Prepayment; and
n. such further and other documentation, including appropriate
statutory elections, as may be reasonably required by the
Seller to complete the transactions contemplated by this
letter agreement.
9. Purchase Price Adjustment.
a. Estimated Adjustment at Closing. The Purchase Price shall be adjusted based
on the value of the assets being acquired by the Buyer and the liabilities being
assumed by the Buyer as at February 28th, 1998 (the "Effective Date'). To the
extent that the value of such assets exceeds the value of such liabilities as at
the Effective Date, the Purchase Price shall be adjusted upwards by the amount
of such difference and to the extent that the value of such liabilities exceeds
the value of such assets as at the Effective Date, the Purchase Price shall be
adjusted downwards by the amount of such difference. For the purposes of
Closing, in particular, the determination of the amount of the Closing Date
Payment the Buyer and Seller have estimated a downward adjustment (i.e. value of
liabilities exceeds value of assets) to the Purchase Price of ONE MILLION ONE
HUNDRED THOUSAND ($1,100,000.00) DOLLARS (the "Estimated Adjustment"). In
addition, the Seller agrees to pay to the Buyer on Closing the amount of THREE
HUNDRED THOUSAND ($300,000.00) DOLLARS representing a prepayment for the final
adjustment to be made pursuant to the provisions hereof (the "Adjustment
Prepayment").
b. Statement of Adjustments. Schedule "K" attached hereto sets out the form of
Statement of Adjustments to be utilized by the parties in making the adjustments
to the Purchase Price provided for herein. Set out on such Statement of
Adjustments is the list of those assets and liabilities forming part of the
Purchased Assets and Assumed Liabilities which will be subject to adjustment and
also sets out the value of such assets and liabilities as at November 30,1997
and as at January 31, 1998, as determined from
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the books and records of the Seller.
c. Tangible Personal Property. Also set out on the Statement of Adjustments are
agreed values for furniture and equipment, and the mainframe computer as at the
Effective Date which the Buyer and Seller have agreed shall not be subject to
any adjustment.
d. Adjustment Determination. As soon as possible subsequent to the Closing Date,
but in no event later than sixty (60) days following the Closing Date, the
Statement of Adjustments shall be prepared by the Buyer by setting out the
values as at February 28, 1998 of the assets and liabilities listed on the
Statement of Adjustments. Such values shall be determined in accordance with
generally accepted accounting principles consistently applied, using
methodologies consistent with those employed historically by the Seller, in
particular the methodologies employed by the Seller in determining the values of
such assets and liabilities as at November 30th, 1997 and as at January 31, 1998
which were recorded in the books and records of the Seller. For greater
certainty, provisions for claims and deferred revenue shall be determined for
the purposes of the Statement of Adjustments based on methodologies consistent
with those employed historically by the Seller, and adjustments shall be made
without duplication of the adjustments made pursuant to the mutual undertakings
to adjust in respect of utilities, etc. exchanged between the parties at Closing
and any adjustment to the price for the Real Property under subsection 9.g. of
this letter agreement. For greater certainty, in the determination of the
Payable Mutual Life reflected in Schedule 'K', all Mutual Life experience-rated
refunds shall be properly reflected on the Schedule 'K' Statement of Adjustments
in accordance with generally accepted accounting principles. No actual cheque or
bank draft was received by DAA in the month of February, 1998.
e. Access to Information. The Seller and its auditors shall be entitled to
review and assist in the preparation of the Statement of Adjustments and to have
access to and to receive copies of the working papers for the Statement of
Adjustments prior to its finalization. In the event of a dispute between the
Buyer and the Seller as to any of the values as at February 28, 1998 set out in
the Statement of Adjustments, such dispute shall be resolved by arbitration in
accordance with the provisions of subsection 14.f. herein.
f. Timing of Any Adjustment Payment. Within seven (7) days of the date on which
the Buyer and Seller have agreed to the Statement of Adjustments as evidenced by
the signature of duly authorized officers of the Buyer and Seller on the
Statement of Adjustments, or within seven (7) days of any final order or
decision in respect of the adjusted purchase price rendered by an arbitrator,
the Buyer and Seller agree to make any payment which may be required as follows:
<PAGE> 18
Page 18
i. if the amount by which the value of the liabilities exceed the
value of the assets as at February 28th, 1998 as set out on
the Statement of Adjustments is greater than the aggregate of
the Estimated Adjustment and the Adjustment Prepayment, the
Seller shall pay to the Buyer, in immediately available funds,
the amount of such difference; and
ii. if the amount by which the value of the liabilities exceed the
value of the assets as at February 28th, 1998 as set out on
the Statement of Adjustments is less than the aggregate of the
Estimated Adjustment and the Adjustment Prepayment, the Buyer
shall pay to the Seller, in immediately available funds, the
amount of such difference.
g. Real Property Price Adjustment. In order to determine the value of the Real
Property as at the Effective Date, the Buyer and Seller have agreed to utilize
the procedure set forth in the agreement attached hereto as Schedule "L". The
Buyer and Seller agree that the value of the Real Property determined in
accordance with such procedure shall be the value of the Real Property for the
purposes of the Statement of Adjustments.
h. Timing of ITA Business Interim Period Payment. Immediately following the ITA
Qualification Date, representatives of the Buyer and Seller will review the
books and records relating to the conduct of the ITA Business during the period
between the Effective Date and the ITA Qualification Date and make a
determination in writing within 10 Business Days of the ITA Qualification Date
of the adjusting payment if any) to be made by the Buyer or the Seller, as the
case may be under the provisions of subsection 4.c. of this letter agreement.
i. Timing of Other Interim Period Payment. Immediately following Closing,
representatives of the Buyer and Seller will review the books and records
relating to the conduct of the Businesses (other than the ITA Business) during
the period between the Effective Date and the Closing Date and make a
determination in writing within 10 Business Days of Closing of the adjusting
payment (if any) to be made by the Buyer or the Seller, as the case may be under
the provisions of subsection 4.c. of this letter agreement.
10. Health Tax Claim. The parties refer to the Health Tax Claim, acknowledge
that each of the Buyer and the Seller has an interest in the outcome of the
Health Tax Claim, and agree that the following provisions shall apply to the
Health Tax Claim and the manner in which it shall be dealt with by the parties:
a. All information concerning the Health Tax Claim shall be
shared by the parties. Each party shall provide the other
party reasonable access to its
<PAGE> 19
Page 19
books and records relating to the HealthTax Claim at all times
until a final determination is made in respect of Health Tax
Claim.
b. Following closing, representatives of the Buyer and the Seller
shall meet and settle on an approach to the Health Tax Claim
and the manner in which the defence shall be pleaded and
prosecuted.
c. If the parties cannot agree on any material element of the
said defence to the Health Tax Claim, then the dispute shall
be settled by arbitration under Schedule "J" to this letter
agreement.
d. If the Sellet wishes to accept written offer of settlement
from the Ministry of Finance ("Ministry") in respect of the
Health Tax Claim that the Buyer does not wish the Seller to
accept, then the Buyer shall have the right to take an
assignment of the Health Tax Claim by notice in writing to the
Seller. Upon receipt of such notice in writing, the Seller
shall pay the amount for which the Ministry offered to settle
the claim (including costs, interest and penalties to the date
of payment). The amount so paid by the Seller shall be paid to
the Buyer's counsel to be held by such counsel in trust
pending settlement or final determination of the Health Tax
Claim, and to be paid to the Minister of Finance on the
ultimate settlement or determination, or paid to the Buyer to
the extent that the amount so held exceeds the amount then due
to the Minister in respect of the Health Tax Claim. Upon
receipt of such payment from the seller to counsel to the
Buyer, the Buyer shall execute and deliver an indemnity (in
form and substance acceptable to the Seller, acting
reasonably) indemnifying the Seller from and against any
losses, costs, demands, expenses, interest, penalties, and
judgments arising out of the Health Tax Claim, and the Buyer
shall have the right to defend, settle or otherwise deal with
the Health Tax Claim from and after the date of assignment,
without any input or notice to the Seller, save only the
foregoing escrow arrangement and indemnity.
e. The parties acknowledge and agree that, in order to preserve
the appeal process initiated by the Seller in respect of the
Health Tax Claim, the amount of One Hundred and Seventy-three
Thousand One Hundred and Twenty-Nine Dollars and Fifty-Five
Cents ($173,129.55) is required to be paid to the Ministry of
Finance by March 14th, 1998. The Seller acknowledges that it
has the responsibility to make such payment and it agrees to
do so. The Buyer agrees that such payment shall be for the
account of the Seller and should the Health Tax Claim be
settled or resolved for any amount less than the amount of
such payment, such excess shall be returned to the Seller for
its account.
<PAGE> 20
Page 20
11. Non-Merger. The rights and obligations of the parties (apart from the
Conditions) shall survive the closing of the transactions contemplated by this
letter agreement, shall not merge on Closing or on the delivery of any
documentation at or following Closing (whether or not provided for in this
letter agreement), and shall remain binding on each of the parties hereto in
accordance with their respective terms following Closing and any subsequent
payment or other date for performance of any of the obligations by either party
under the terms of this letter agreement
12. Termination. The obligation of the Buyer to purchase the Purchased Assets
shall be subject to the satisfaction of each of the Conditions in its favour or
waiver by it in writing of any such Condition not so satisfied. The obligation
of the Seller to sell to the Buyer the Purchased Assets shall be subject to the
satisfaction of each of the Conditions in its favour or waiver by it in writing
of any such Condition not so satisfied. Each of the parties covenants and agrees
to use all commercially reasonable efforts in the circumstances to satisfy the
Conditions and to co-operate with the other party in its respective efforts to
do so. If any of the Conditions is not met or waived by the party entitled to do
so, then the obligations of each of the parties to complete the transactions
contemplated by this letter agreement on Closing shall be at an end and of no
further force or effect, and provided that such party has fulfilled its
obligations under the -preceding sentence, no party shall be liable hereunder to
the other party. The letter agreement may also be terminated by the mutual
written consent of the Seller and the Buyer.
13. Schedules. The following are the schedules annexed to this offer and the
terms of each such schedule is hereby incorporated by reference into (and shall
be deemed to be part of) this letter agreement:
Schedule "A" Certain Definitions
Schedule "B" Seller and Robert W. Trollope Representation and Warranty
Certificate and Indemnity
Schedule "C" DAA Assets
Schedule "D" NAAA Assets
Schedule "E" ITA Assets
Schedule "F" Printing Assets
Schedule "G" Opinion of Seller's Counsel
Schedule "H" Buyer Representation and Warranty Certificate and
Indemnity
Schedule "I" Opinion of Buyer's Counsel
Schedule "J" Arbitration
Schedule "K" Statement of Adjustments
Schedule "L" Agreement Regarding Valuation of the Real Property
<PAGE> 21
Page 21
14. Miscellaneous
a. Own Expenses. Each of the Seller and the Buyer agrees to be responsible for
its own legal and audit fees and other changes incurred in connection with the
preparation and settlement of this letter agreement, all negotiations between
the parties,due diligence. Each party confirms that there are no finder's or
broker's fees payable in connection herewith and the consummation of the
transactions contemplated hereby.
b. Further Assurances. Each of the Seller and the Buyer shall from time to time
at the request and expense of the requesting party and without further
consideration, execute and deliver such other instruments of transfer,
conveyance and assignment and such other documents and take such further action
as the other may reasonably require to more effectively complete any matter
provided for in this letter agreement or in any agreement or other document
executed pursuant to this letter agreement or any of the respective obligations
intended to be created thereby.
c. Entire Agreement. The offer and the documents referred to in it constitute
the entire agreement between the Seller and the Buyer pertaining to the within
transaction and supersede any prior or contemporaneous agreements, negotiations
and discussions, whether written or oral. There are no representations,
warranties, covenants, conditions or agreements between the Parties in
connection with the within transaction except as expressly set forth in the
offer or in any document expressly referred to in the offer. No amendment,
waiver or termination of this letter agreement shall be binding unless executed
in writing by each of the Seller and the Buyer and no such amendment or waiver
shall extend to anything other than the specific subject matter thereof. The
failure at any time of the Seller and the Buyer to insist on strict performance
of any provision of this letter agreement shall not limit the ability of that
party to insist at any future time whatsoever on the performance of the same or
any other provision (except insofar as that party may have given a valid and
effective written waiver or release).
d. Invalidity of Provisions. The invalidity or enforceability of any provision
of this letter agreement shall not impair or affect the validity or
enforceability of any other provision hereof and any such invalid or
unenforceable provisions shall be deemed to be separate, severable and distinct.
Any such invalid provision may be severed from the balance of this letter
agreement, provided the intent of the parties is preserved in the remaining
provisions hereof.
e. Time of the Essence. Time shall be of the essence of this letter agreement.
f. Arbitration. The parties agree that any dispute between them shall be dealt
with in accordance with the provisions of Schedule "J" to this letter agreement.
<PAGE> 22
Page 22
g. Rights Cumulative. All rights and remedies of the parties under this letter
agreement shall, except as otherwise specifically provided herein, be cumulative
and non-exclusive of any rights or remedies which they may have by operation of
law, or otherwise.
h. Survival. The termination of this letter agreement shall not affect or impair
the powers, obligations, duties, rights and liabilities of the parties in any
way or respect relating to any transaction or event Occurring prior to such
termination.
i. Currency. All dollar amounts stated herein are expressed in terms of Canadian
dollars and all payments herein shall be made in Canadian dollars.
j. Applicable Law. This letter agreement shall be governed by and construed in
accordance with, and the respective rights and obligations of the Parties shall
be governed by, the laws of the Province of Ontario and the federal laws of
Canada applicable therein.
k. Notices. Any notice required or permitted to be given hereunder shall be in
writing and shall be effectively given if (i) delivery personally or by courier,
or (ii) sent by telecopier, addressed:
in the case of a notice to the Seller, as follows:
to each of Westminster Mercantile Inc. and
Mr. Robert W. Trollope at
R.R. 1, Darwood
Hyde Park
Ontario. NOM 1ZO
with a copy to Mr. Peter Lockyer at
Messrs. Harrison, Elwood
Barristers & Solicitors
P.O. Box 3237
450 Talbot Street
London, Ontario. N6A 4K3
Fax No.: (519) 667-3362
<PAGE> 23
Page 23
and in the case of a notice to the Buyer, as follows:
5001 Yonge Street
Suite 1700
North York, Ontario
M2N 647
Attention: David Blakely
Fax No.: (416) 733-7826
Any notice so given will be deemed conclusively to have been given and received
on the day of delivery when so personally delivered; on the third day following
the sending thereof by private courier, and on the same date when telecopied
unless the notice is sent to the other party after 4:00 p.m. (Toronto time) in
which case it will be deemed to have been given and received on the day after
transmission. Any party hereto or others mentioned above may change any
particulars of its address for notice by notice to the others in the manner
aforesaid.
l. Successors and Assigns. This letter agreement shall become effective when it
shall have been executed by the Seller and the Buyer and thereafter shall be
binding upon and enure to the benefit of the Seller and the Buyer. Neither the
Buyer nor the Seller may assign its rights or obligations hereunder without the
express written consent of the other party.
m. Procedure on Indemnification. Any indemnification of the Buyer by the Seller
contained in this Letter Agreement shall be subject to the procedure set out as
subsection II. entitled "Notification of and Participation in Claims" appearing
on page 10 of Schedule "B'"annexed to this Letter Agreement, with such changes
as may be required by the context, in particular, there shall be only one
Indemnitor which shall be the Seller.
*****
This offer is irrevocable until noon on March 9, 1998, at which time if this
offer has not been accepted by the Seller, it shall be deemed withdrawn and of
no further force and effect. The transactions contemplated by this offer shall
close on Monday, March 9, 1998
<PAGE> 24
Page 24
or on such other date as the Buyer and Seller may agree in writing (the "Closing
Date"). The transaction shall be effective from and after 11:59 pm. on February
28, 1998.
Yours very truly,
DOMINION AUTOMOBILE ASSOCIATION LIMITED
Per:
Name: David Blakely
Title: Director
I have authority to bind the Corporation
FOR VALUE RECEIVED, the undersigned hereby accepts the said offer and agrees to
sell the Purchased Assets to the Buyer, subject to the terms of this offer and
in reliance on the representations and warranties of the Buyer set out in the
certificate to be delivered by it to the Seller on Closing, as above provided,
this 9th day of March, 1998.
Per: WESTMINSTER MERCANTILE INC.
Name: Robert W. Trollope
Title: President
I have authority to bind the Corporation
<PAGE> 25
Schedule "A" - Page 1
Where used in the annexed offer to purchase, the defined terms set out below
shall have the following meanings:
"AAA Demand" has the meaning attributed to it in section 14 of Schedule 'B' to
the letter agreement;
"Adjustment Prepayment" has the meaning attributed to it in subsection 9.a. of
the letter agreement;
"Assumed Liabilities" has the meaning attributed to it in paragraph 1.a.ii. of
the letter agreement;
"Business Day" means any day, other than Saturday, Sunday or any statutory
holiday in the Province of Ontario on which financial institutions in Toronto,
Ontario are open for business;
"Businesses" means, collectively, the Dominion Automobile Association business,
North American Automobile Association-Zellers Division business, Dominion
Automobile Association international Travel Agency business and the printing
business conducted by the Seller;
"Buyer means Dominion Automobile Association Limited;
"Closing" means the completion of the transaction of purchase and sale
contemplated by the letter agreement;
"Closing Date" has the meaning attributed to it on page 17 of the letter
agreement;
"Closing Date Payment" has the meaning attributed to it in subsection 1 a. of
the letter agreement;
"Conditions" has the meaning attributed to it in section 2 of the letter
agreement;
"DAA" has the meaning attributed to it in subparagraph 1.a.i.C. of the letter
agreement;
"DAA Assets" has the meaning attributed to it in subparagraph 1.a.i.C. of the
letter agreement;
"DAA Business" means the Dominion Automobile Association business conducted by
the Seller;
<PAGE> 26
Schedule "A" - Page 2
"Effective Date" has the meaning attributed to it in subsection 9.a. of the
letter agreement;
"Estimated Adjustment" has the meaning attributed to it in subsection 9.a. of
the letter agreement;
"Excluded Field Agents" has the meaning attributed to it in subsection 5.e. of
the letter agreement;
"Financial Information" means the Seller's unaudited financial information with
respect to the Businesses for the four (4) consecutive 12-month periods, the
last one ended November 30, 1997, a copy of which is annexed hereto as Exhibit
A-2;
"generally accepted accounting principles" means generally accepted accounting
principles in Canada and statements and interpretations (if applicable) issued
by the Canadian Institute of Chartered Accountants or any successor body in
effect from time to time, unless otherwise stated;
"Health Tax Claim" means the claim against the Seller by the Minister of Finance
under the Employer Health Tax Act (Ontario), file no. 46602;
"Intellectual Property" has the meaning attributed to it in subparagraph
1.a.i.G. of the letter agreement;
"Interest Payment" has the meaning attributed to it in subsection 1.e. of the
letter agreement;
"Interim Period" has the meaning attributed to it in subsection 4.a. of the
letter agreement;
"ITA" has the meaning attributed to it in subparagraph 1.a.i.E. of the letter
agreement;
"ITA Assets" has the meaning attributed to it in subparagraph 1.a.i.E. of the
letter agreement;
"ITA Business" means the Dominion Automobile Association International Travel
Agency business conducted by the Seller;
"ITA Qualification Date" has the meaning attributed to it in subsection 4.c. of
the letter agreement;
<PAGE> 27
Schedule "A" - Page 3
"Leases" has the meaning attributed to it in subparagraph 1.a.i.B. of the
letter agreement;
"Lien" means any bailment1 privilege, claim levy, execution, seizure,
attachment, garnishment, security interest, purchase-money security interest,
exception, reservation, right of pre-emption, ownership interest, mortgage,
charge, hypothec, pledge, lien or other encumbrance whatsoever, whether fixed or
floating and howsoever created or arising, or any security agreement, lease,
sublease, conditional sale agreement, option, assignment, title retention
agreement, or other agreement to create any of the foregoing;
"letter agreement" means the annexed offer to purchase;
"NAAA" has the meaning attributed to it in subparagraph 1.a.i.D. of the letter
agreement;
"NAAA Assets" has the meaning attributed to it in subparagraph 1.a.i.D. of the
letter agreement;
"NAAA Business" means North American Automobile Association-Zellers Division
business conducted by the Seller;
"Permitted Encumbrances" means, with respect to the Purchased Assets: (a)
mechanics', workers', repairmen's, employees' or other like Liens arising in the
ordinary course of business; (b) any Lien in favour of any government or
governmental authority for the taxes, assessments and governmental charges due
and being diligently contested in good faith by appropriate proceedings (and
adequate provision for the payment of which has been made); (c) Liens incurred
and pledges and deposits made in connection with workmen's compensation,
unemployment insurance, old age pensions and similar legislation; (d) security
given in the ordinary course of business to a public utility or any municipal,
governmental or public authority in connection with the current operations of
the Businesses; (e) Liens arising out of the leasing and purchasing of personal
property by the Businesses in the ordinary course of business or otherwise
incurred by them for the purpose of securing the payment of any purchase price
(or the financing or refinancing of any purchase price) of such assets, provided
the charge therefor is limited to the assets in question and proceeds derived
therefrom and further provided such liens have been disclosed in writing to the
Buyer prior to Closing; (f) any Liens (apart from the foregoing and apart from
those contemplated by paragraph nos. (g) and (h) below) that affect the
Businesses or the purchased assets the aggregate value of which at Closing does
not exceed the sum of $25,000; (g) Lien in favour of Dana Commercial Credit
Canada Inc. and registered under the provisions of the Personal Property
Security Act (Ontario) (the "PPSA") as File Number 837347544; and (h) with
respect to the Real Property:
<PAGE> 28
Schedule "A" Page 4
i. the reservations, limitations, provisos and conditions
expressed in the original patent from the Crown;
ii. the exceptions and qualifications as set out in the Land
Titles Act(Ontario);
iii. the priority of any liens under the Construction Lien Act
(Ontario) to the extent of any deficiency in the holdbacks
required to be made under the said Act, if applicable;
iv. any discrepancies and encroachments that might be revealed by
an up-to-date survey. We refer to the survey of the Real
Property prepared by Archibald, Gray & McKay Ltd., Bruce Baker
O.L.S. dated February 19, 1998;
v. any an all unregistered liens, charges, adverse claims,
security interests or other encumbrances of any nature
whatsoever now or hereafter claimed or held by Her Majesty the
Queen in Right of Canada, Her Majesty the Queen in Right of
any Province of Canada, or by any other governmental
department, agency or authority under or pursuant to any
applicable legislation, statute or regulation including liens
in respect of municipal realty taxes, hydro rates and water
rates and charges;
vi. all municipal and governmental by-laws and regulations
affecting the use and occupancy of the Real Property, provided
the same are complied with;
vii. any unpaid lien for realty taxes, rates and assessments; and
viii. any unregistered statutory liens or levies;
"Phase 1 Report" has the meaning attributed to it in paragraph 6.b.v. of the
letter agreement;
"Printing Assets" has the meaning attributed to it in subparagraph 1.a.i.F. of
the letter agreement;
"Purchase Price" has the meaning attributed to it in paragraph 1.a.ii. of the
letter agreement;
"Purchased Assets" has the meaning attributed to it in paragraph 1.a.i. of the
letter agreement;
<PAGE> 29
Schedule "A" - Page 5
"Real Property" means Part Lot 7, S/W King Street, Part Lot 1, Plan 84 (W), City
of London, County of Middlesex, municipally known as 201 King Street, London,
Ontario;
"Receivables" has the meaning attributed to it in subparagraph 1.a.i.l. of the
letter agreement;
"Retained Employees" has the meaning attributed to it in subsection 5.d. of the
letter agreement;
"Seller" means Westminster Mercantile Inc.;
"Seller Loans" means the Seller's investment portfolio of loans, including loans
to employees and field agents of the Businesses;
"Statement of Adjustments" is the statement set out as Schedule "K" to the
letter agreement;
"Termination Expenses" has the meaning attributed to it in subsection 4.f. of
the letter agreement; and
"Time of Closing" has the meaning attributed to it in section 3 of the letter
agreement.
<PAGE> 30
Schedule "B" - Page 1
CERTIFICATE AND INDEMNITY
TO DOMINION AUTOMOBILE ASSOCIATION LIMITED (the "Buyer")
Unless otherwise defined in this certificate and indemnity, all capitalized and
other defined terms shall have the respective meanings attributed to them in
Schedule "A" to the letter agreement dated March 9, 1998 to which the Buyer and
the Seller are parties (the "Agreement").
In consideration of the closing of the purchase and sale of the Purchased Assets
and the assumption of the Assumed Liabilities pursuant to the Agreement and for
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by the undersigned) each of the undersigned hereby severally
represents and warrants to the Buyer as follows:
1. Existence. The Seller is a subsisting corporation duly and validly
incorporated and organized under the laws of Canada;
2. Power. Authority. etc. The Seller has all necessary corporate power,
authority and capacity to execute, and deliver and perform its obligations under
the Agreement; and all other agreements, instruments and documents to be
delivered pursuant to the Agreement to which the Seller is a party and to carry
out its obligations and to consummate the transactions contemplated hereunder
and thereunder;
3. Due Authorization The execution and delivery of the Agreement and all other
agreements, instruments and documents to be delivered pursuant thereto to which
the Seller is a party, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action
on the part of the Seller.
4. Enforceability of Obligations. The Agreement has been duly executed and
delivered by the Seller. When executed and delivered, each agreement, instrument
and document to be delivered pursuant to the Agreement to which the Seller is a
party will have been duly executed and delivered by the Seller. The Agreement
constitutes (and when executed and delivered, each agreement, instrument and
document to be delivered pursuant thereto to which it is a party will
constitute) a valid and binding obligation of the Seller, enforceable against it
in accordance with its terms, subject only to:
a. limitations with respect to enforcement imposed by law in
connection with bankruptcy or similar proceedings which may
affect the enforcement of creditors' rights generally;
<PAGE> 31
Schedule "B"- Page 2
b. the qualification that equitable remedies, including specific
performance and injunction, are in the discretion of the court
from which they are sought; and
c. any other qualifications as to enforceability identified by
counsel to the Seller in any opinion letter rendered by such
counsel in connection with the transactions contemplated by
the Agreement.
5. Compliance with Other Instruments. The execution, delivery and performance by
the Seller of the Agreement and all other agreements, instruments and documents
to be delivered pursuant thereto to which the Seller is a party, and the
consummation by the Seller of the transactions contemplated hereby and thereby,
in accordance with the terms hereof and thereof, will not result in any material
violation of or material conflict with, constitute a material default (with or
without notice or the passage of time) under, give rise to a right of
termination, cancellation or acceleration of, or result in the imposition of any
Lien upon the Purchased Assets pursuant to the Agreement, under, or require any
consent under, any term, condition or provision of (a) the constating or
organizational documents of the Seller, or (b) any material agreement or
material instrument to which the Seller is a party or by which it is bound, save
as known to the Buyer at Closing.
6. Consents. Each authorization, consent, waiver, approval, or filing with any
Person that is required to be obtained by the Seller in connection with the
execution, delivery and performance of the Agreement and all other agreements,
instruments and documents to be delivered pursuant to the Agreement to which the
Seller is a party, the absence of which would materially adversely affect such
execution, delivery or performance has been obtained and is in full force and
effect, save as known to the Buyer at Closing.
7. Re. the Purchased Assets.
a. the Seller is the registered and beneficial owner of, and has
good and valid title to, all of the Purchased Assets, free and
clear of all Liens, apart from Permitted Encumbrances. Upon
consummation of the transactions contemplated by the
Agreement, the Buyer will acquire good and valid title to the
Purchased Assets, free and clear of all Liens, apart from
Permitted Encumbrances;
b. there is no agreement, option or other right or privilege
outstanding in favour of any Person for the purchase from the
Seller of any of the Purchased Assets, or limiting or
restricting in any manner the Seller's ability to sell the
Purchased Assets;
c. each of the lists of DAA members, employees and field agents,
and service providers and suppliers delivered at Closing by
the Seller is complete and accurate in all material respects;
<PAGE> 32
Schedule "B" - Page 3
d. neither the Seller nor the subject insurer is in default with
respect to any of the material provisions contained in either
of the following policies of insurance and to the best of my
knowledge the insurer under each of the DAA Member Policy and
the BC Policy is a responsible insurer;
e. to the best of my knowledge each of the contracts to be
assigned to the Buyer on Closing is in good standing, and the
Seller either has the right to assign each of the said
contracts or win use its reasonable efforts to assist in
obtaining any consent required for such assignment;
f. the Seller has delivered at Closing complete and accurate set
its source code and object code for all its proprietary
software (which proprietary software utilizes the Mantis
software), and has all right, title and interest necessary in
such proprietary software to assign it to the Buyer, free of
liens and adverse claims of any nature whatsoever apart from
Permitted Encumbrances;
g. the Seller has delivered at Closing full and complete copies
of all data bases in respect of any of the Purchased Assets or
used by it in any of the Businesses, free of Liens and adverse
claims of any nature whatsoever, apart from Permitted
Encumbrances; and
h. as a consequence of the Buyer buying the Purchased Assets, the
Buyer will have acquired all of the assets currently being
used in the DAA Business.
8. Re. the Assumed Liabilities. In keeping with generally accepted accounting
principles, the Assumed Liabilities are accurately and fully reflected in the
Financial Information, and the Seller is not in default of any of its
obligations in respect of any of the Assumed Liabilities.
9. Not a Non-Resident. The Seller is not a non-resident of Canada for the
purposes of the Income Tax Act (Canada).
10. Bankruptcy. The Seller is not insolvent and has not (a) proposed a
compromise or arrangement to its creditors generally, (b) had any petition for a
receiving order in bankruptcy filed against it, (c) taken any proceeding with
respect to a compromise or arrangement or become subject to such proceeding
apart from the Employer Health Tax claim by the Ministry of Finance, file
no.46602 (the "Health Tax Claim"), (d) taken any proceeding or become subject to
any proceeding to have itself declared bankrupt or wound up, (e) taken any
proceeding or become subject to any proceeding to have a receiver appointed over
any part of its assets, (f) had any encumbrancer take possession of any of its
property, or (g) had any execution or distress levied upon any of its property.
<PAGE> 33
Schedule "B" - Page 4
11. Brokers. No broker, finder or intermediary has been engaged by the Seller.
12. Seller Litigation Apart from the claims described in Exhibit B-12, to the
best of the knowledge of each of the undersigned, there is no action, suit,
proceeding, claim or investigation at law or in equity, or before any court or
before any arbitrator or before or by any federal, provincial or other
governmental department, commission, bureau, agency or instrumentality, domestic
or foreign, existing or, to the best of the knowledge of either of the
undersigned threatened by or against the Seller relating to or affecting any of
the Purchased Assets, or for the purpose of enjoining or preventing the
consummation of the transactions contemplated by the Agreement or otherwise
claiming that such consummation is improper or which, if decided adversely,
could adversely affect the rights of the Buyer or impose liability on the Buyer.
No principal of the Seller is in dispute or litigation with any customer or
corporate agent of any of the Businesses.
13. Seller Records Complete. All material property and assets of the Seller have
been fairly and properly recorded in its books and records. All books and
records of the Businesses will have been delivered to the Buyer on Closing.
14. Intellectual Properties. All the trademarks, trade names and material
copyrights used or required for the proper carrying on of each of the Businesses
(the Intellectual Property) are described in Exhibit B-14-1 annexed to this
certificate and indemnity. The Seller has the right to sell, assign and transfer
the Intellectual Property to the Buyer as herein contemplated. All trademarks
and material copyrights described in Exhibit B-14-1 are valid and subsisting,
and validly registered by the Seller and such trademarks and copyrights (and any
applications in respect thereof) are all owned by the Seller, free and clear of
all Liens, apart from Permitted Encumbrances. All trademarks and trade names
described in Exhibit B-14-2 are unregistered, but nevertheless, are valid and
subsisting, owned by the Seller, used by it, free and clear of all Liens, apart
from Permitted Encumbrances, and no one has contested or challenged either
ownership or use. The Seller has not entered into any oral or written license
agreements or arrangements under which any Person has been granted or allowed
the right to use any of the Intellectual Property. No person has threatened or
commenced any legal proceeding against the Seller claiming infringement, adverse
ownership, invalidity, lack of distinctiveness or conflict with respect to any
of the Intellectual Property or challenging any rights of the Seller in and to
the Intellectual Property, or relating to any trade secrets, know-how
confidential or proprietary information or the right of the Seller to use any or
all of the Intellectual Property in the conduct of one or more of the
Businesses, and without limiting the generality of the foregoing the Seller's
unregistered trademarks "Dominion Automobile Association", "DAA", "North
American Automobile Association", and/or any design incorporating the foregoing,
have been adopted and used by the Seller in Canada since at least as early as
1960 without any claim of infringement having been asserted by or against the
Seller by or against the current owner, or any predecessor in title or other
user of the names or trademarks "Canadian Automobile Association", "CAA", and/or
any design incorporating any of the foregoing. To the best of
<PAGE> 34
Schedule "B" - Page 5
the Seller's knowledge and belief, the conduct of the Business does not infringe
upon the trademarks, trade names, designs, copyrights, trade secrets, know-how
or confidential or proprietary information of any other Person and no Person is
infringing the trademarks, trade names, designs, copyrights, trade secrets,
know-how or confidential or proprietary information of the Seller. The foregoing
is subject to the qualification that the Seller did receive a certain letter
addressed to it by the American Automobile Association in October, 1995, in
which the American Automobile Association demands that the Seller cease and
desist in its use of the DAA trademark in the United States of America (the "AAA
Demand"). Notwithstanding the disclosure of the foregoing exception to the
Buyer, the undersigned each acknowledge that their respective indemnities of the
Buyer shall apply and be enforceable against each of the undersigned as a result
of any claim or action taken by the American Automobile Association in respect
of the use of the DAA trademark to the date hereof, and at any time in the
future in any manner that is consistent with the use of the DAA trademark to the
date hereof.
15. Seller Assigned Contracts. To the best of the Seller's knowledge, the Seller
is not in breach or default of any material agreement, document or other
instrument to be assigned to the Buyer under the Agreement, and no state of
facts exists which after notice, lapse of time or both would constitute a breach
or default of any such agreement, document or other instrument.
16. Contracts. Etc. Other Than In The Ordinary Course of Business. Since
November 30, 1997 and other than as disclosed to the Buyer in writing:
a. the Seller has conducted the Businesses in the ordinary course
of business.
b. the Seller has not entered into any individual material
contract, commitment or lease transaction in excess of
$10,000;
c. there has not been any material adverse change in the
financial condition, assets, liabilities, personnel of any of
the Businesses or in the Seller's relationships with members,
agents or suppliers;
d. the Seller has not incurred any material liability or
obligation of any nature (whether accrued, absolute,
contingent or otherwise) which forms part of the Assumed
LiaAbilities, except in the ordinary course of business, other
than as disclosed by the Seller's Financial Information;
e. the Seller has not granted, renewed, suffered, incurred or
permitted any Lien, other than Permitted Encumbrances; and
f. the Seller has not made any material change in any method of
its accounting or auditing practices or procedures.
<PAGE> 35
Schedule "B" - Page 6
17. Financial Information The Seller's unaudited financial information that has
been given to you is complete and accurately reflects the operations of the
Businesses as at November 30, 1997, and:
a. has been presented from information prepared in accordance
with generally accepted accounting principles applied on a
basis consistent with those of preceding fiscal periods;
b. presents fairly the financial position of the Seller as at
November 30, 1997, and the results of the operations of the
Businesses; and
c. are consistent with the Seller's books and records.
18. Seller Title to its Property. Except as disclosed in writing, at Closing,
the Seller owns and will own and have good and marketable title to all the
Purchased Assets, free and clear of all Liens, other than Permitted
Encumbrances.
19. Compliance with Applicable Laws. Each of the Businesses has been conducted
in compliance in all respects with all applicable laws, statutes, ordinances,
judgments, decrees, orders, rules and regulations.
20. Collective Agreements. The Seller has not made any Contracts with any labour
union or employee association nor made commitments to or conducted negotiations
with any labour union or employee association with respect to any future
agreements and, the Seller is not aware of any current attempts to organize or
establish any labour union or employee association with respect to any employees
of the Seller nor is there any certification of any such union with regard to a
bargaining unit. Other than grievances brought in the ordinary and normal course
of the Businesses, none of which could, individually or collectively with other
such grievances, have a material adverse effect on the Businesses or the right
or the ability of the Seller or the Buyer to carry on the Businesses
substantially in the manner in which they have heretofore been carried on, there
are no grievances against the Seller of which the Seller has received written
notice under any collective agreement Exhibit B-20 describes all work stoppage
and strikes (legal or otherwise) that the Businesses have experienced in the
past five years, including the dates and length of each such occurrence.
21. Employees. Except as described in Exhibit B-21, there are no complaints,
claims or charges outstanding, or to the best of the knowledge of the Seller,
anticipated, nor are there any orders, decisions, directors or convictions
currently registered or outstanding by any tribunal or agency against or in
respect of the Seller under or in respect of any applicable employment
legislation.
<PAGE> 36
Schedule "B" Page 7
22. Employment Accruals. All accruals for premiums for employment insurance,
health premiums, Canada Pension Plan premiums, accrued wages, salaries and
commissions and employee benefit plan payments have been made or are reflected
in the books and records of the Seller and the Statement of Adjustments, but no
such accruals have been made for unpaid vacation pay.
23. Pension and Other Benefit Plans.
a. true, correct and up-to-date copies of all the Seller's
pension plan and its health and benefit plans with Mutual Life
of Canada, and related documents, have been provided by the
Seller to the Buyer;
b. the December 31, 1997 KPMG financial statements in respect of
the pension plan delivered to the Buyer are true and accurate;
c. that no amendments have been made and no improvements to the
said plans promised, as at Closing;
d. that all employee data provided is true and correct;
e. that all contributions or premiums required to be paid under
the plans have been paid in a timely fashion in accordance
with the plans and any related federal or provincial
legislation or regulations;
f. that there have been no improper withdrawals, applications or
transfers of assets from the plan or fund;
g. each plan has all required status under the Income Tax Act
(Canada) or other relevant tax legislation;
h. that all material obligations regarding the plans have been
satisfied and there are no outstanding defaults or violations
by any party thereto;
i. that there are no outstanding actions or claims with respect
to the plans or the assets thereof (excluding the payment of
benefits in the ordinary course); and
j. that neither the Seller nor its agents has been in breach of
any fiduciary obligation with respect to the administration of
any of the plans;
<PAGE> 37
Schedule "B" - Page 8
FOR VALUE RECEIVED, subject to compliance with the procedures set out below for
the making of any Claim by the Buyer, the Seller hereby indemnifies and agrees
to hold the Buyer harmless from and against all expenses (including, but not
limited to, reasonable legal fees) claims, demands, actions, causes of action,
obligations, damages, losses, costs and liabilities (hereinafter collectively
referred to as "Claims") which may be made or brought against it or which it may
suffer or incur as a result of, in respect of or arising out of any breach or
non-fulfillment of any covenant contained in the Agreement or any agreement,
instrument or document delivered pursuant to the Agreement or any material
breach of any representation or warranty by or of the Seller contained herein or
therein;
I. Limitation on Claims. The covenants, representations and warranties of the
parties contained in this Agreement are now and at the Closing shall be true and
correct and notwithstanding the Closing or any inquiry or investigation on the
part of any party hereto, such covenants, representations and warranties shall
not merge in, be superseded or prejudiced by and shall survive the Closing and
continue in full force and effect for the benefit of the respective party
provided further that:
a. all the covenants, representations and warranties of the
Seller shall terminate at the expiration of two (2) years
following the Closing, except to the extent that, during such
period, where notice of a Claim has been given to a party
hereto in respect of a breach of any such covenant,
representation or warranty, such covenant, representation or
warranty shall continue in full force until the final
determination of such Claim. In no other case shall such a
covenant, representation or warranty survive the said 2-year
period;
b. prior to the Seller making any payment pursuant to its
liability under this certificate and indemnity and prior to
its carrying out its obligation hereunder to indemnify and
hold harmless the Buyer, as aforesaid, the Seller shall have
the right to review, or cause its employees, officers or
representatives to review, all records, documents or practices
of the Buyer relating in any manner to the subject matter of
the alleged liability and obligations of the Seller pursuant
to this certificate and indemnity in respect of which any
Claim is made, and the Buyer shall co-operate fully in
facilitating such review such that it may be carried out
promptly and without delay by the Sellers and any
indemnification payment shall be made by the Seller forthwith
following such review to the extent that it is supported by
the findings of the Seller. Any dispute as to the liability of
the Seller under this certificate and indemnity shall be
settled in accordance with the arbitration provisions of the
Agreement;
<PAGE> 38
Schedule "B" - Page 9
c. the amount of any Claim recoverable by the Buyer hereunder
shall have deducted from it that amount (if any) representing
any net saving in any taxes that could be achieved by the
Buyer as a result of the loss represented by the Claim,
whether or not the Buyer prepares and files its tax returns to
take such benefit. Any dispute as to the tax-adjusted amount
of any Claim shall be settled by arbitration between the
Parties as provided by subsection 14.f. of the Agreement;
d. in the event that the Claimant subsequently recovers all or
part of a Claim from any other Person, the Claimant shall
forthwith repay to the Indemnitors the amount so recovered
upon to an amount not exceeding the amount theretofore paid by
the Indemnitors by way of indemnity; and
e. save and except with respect to the AAA Demand and anything at
any time arising out of it (all of which are specifically
excluded from the following limitation) for the purposes of
the indemnities under this certificate and indemnity alone
(and for no other indemnity given under the letter agreement)
to the extent that any inaccuracy or breach of any
representation or warranty made in this certificate and
indemnity is expressly disclosed to the Buyer by the Seller in
the letter agreement or any schedule attached thereto in such
a manner and with such particulars as to allow the Buyer to
make a reasonable assessment of the facts giving rise to the
inaccuracy or breach and the associated liability in respect
thereof, or to the extent that such inaccuracy or breach is
actually known to the Buyer prior to or at the Time of
Closing, and the Buyer completes the transactions contemplated
hereunder, the Buyer's entitlement to indemnification under
this certificate and indemnity in respect of such inaccuracy
or breach shall be reduced accordingly. The foregoing
limitation shall not apply to the Buyer in respect of any
Claim made in respect of any tax matters.
II. Notification of and Participation in Claims. No claim for indemnification
will arise until notice thereof is given to the Seller and to Robert W. Trollope
(the "Indemnitors"). Such notice shall be sent within a reasonable time
following the determination by the Buyer (the "Claimant") that a claim for
indemnity exists.
a. Promptly upon receipt by the Claimant of notice of any third
party Claim in respect of which the Claimant proposes to
demand indemnification from the Indenmitors, the Claimant
shall give notice to that effect to the Indemnitors with
reasonable promptness.
b. The Indemnitors shall have the right by notice to the Claimant
not later than 30 clear days after receipt of the notice
described in subsection ll.a. of this certificate and
indemnity to assume the control of the defence, compromise
<PAGE> 39
Schedule "B" - Page 10
or settlement of the third party claim, provided that:
i such assumption shall, by its terms, be without cost
to the Claimant; and
ii. no third party Claim shall be compromised or settled
without the prior written consent of the Claimant if
such settlement or compromise could reasonably be
anticipated to have an adverse effect on the
Business, and the the Claimant hereby covenants and
agrees not to unreasonably withhold or delay any such
consent.
c. Upon the assumption of control by the Indemnitors, as
aforesaid, the Indemnitors shall, at their expense, diligently
proceed with the defence, compromise or settlement of the
third party Claim at Indemnitors' sole expense, including
employment of counsel reasonably satisfactory to the Claimant
and, in connection therewith, the Claimant shall co-operate
fully to make available to the Indemnitors all pertinent
information and witnesses under the Claimant's control, make
such assignments and take such other steps as in the opinion
of counsel for the Indemnitors are necessary to enable the
Indemnitors to conduct such defence.
d. Subject to the foregoing provisions of this certificate and
indemnity, the final determination of any such third party
Claim, including all related costs and expenses, will be
binding and conclusive upon the parties hereto and the Buyer
as to the validity or invalidity, as the case may be, of such
third party Claim against the Indemnitors hereunder.
e. Should the Indemnitors fail to give notice to the Claimant as
provided in subsection ll.b., the Claimant shall be entitled
to make such settlement of the third party Claim as in its
discretion may appear advisable, and such settlement or any
other final determination of the third party Claim shall be
binding upon the Indemnitors.
f. If the Claimant fails to respond to a request for its consent
or unreasonably refuses to consent to a compromise or
settlement of a particular Claim negotiated by the Indemnitors
in respect of which consent is required, the Indemnitors may
pay to the Claimant an amount necessary to indemnify the
Claimant pursuant to this certificate and indemnity as though
the matter had been settled or compromised upon the terms
negotiated by the Indemnitors
<PAGE> 40
Schedule "B" - Page 11
and the Claimant shall deliver to the Indemnitors a final and
final release in respect of all amounts claimed in respect of
such Claim.
IN WITNESS WHEREOF the undersigned have duly
executed this certificate and indemnity as of the 28th day of
February, 1998.
WESTMINSTER MERCANTILE INC.
Per:
-------------------------------------
Name: Robert W. Trollope
Title: President
I have authority to bind the Corporation
SIGNED, SEALED AND DELIVERED
in the presence of )
)
)
Witness ) Robert W. Trollope
<PAGE> 41
This is Exhibit B-12 referred to in the Annexed Certificate and Indemnity
Seller Litigation
1. The Health Tax Claim.
2. The claim for coverage under the medical benefit plan forming part of
the Purchased Assets by Robert Trembley.
3. Claim against Zellers Inc. (Action No.22363 issued out of the Ontario
Court of Justice(General Division) London).
4. Action against Donald E. Stuart and Lorna Stuart.
5. Action against Group Mart in Small Claims Court for $3,000.
<PAGE> 42
Trade-marks Registration Nos.
- ----------- -----------------
NORTH AMERICAN AUTOMOBILE TMA413,933
ASSOCIATION (DESIGN)
NORTH AMERICAN AUTOMOBILE TMA413,932
ASSOCIATION/L'ASSSOCIATION:
MOTORISTE NORD-AMERICAINE(DESlGN)
L'ASSOCIATION MOTORISTE NORD TNA420,976
AMERICAINE QUEBEC (DESIGN)
DOMINION AUTOMOBILE ASSOCIATION TMA104,785
((DESIGN))
<PAGE> 43
This is Exhibit B-14-2 referred to in the Annexed Certificate and Indemnity
Unregistered Intellectual Property
(see next page)
<PAGE> 44
Unregistered Trade-marks
------------------------
1. DAA/DOMINION AUTOMOBILE ASSOCIATION (OVAL DESIGN) See attached.
2. DAA/L'ASSOCIATION DE L'AUTOMOBILE QUEBEC (OVAL DESIGN) See attached.
3. DOMINION AUTOMOBILE ASSOCIATION
4. NORTH AMERICAN AUTOMOBILE ASSOCIATION
5. L'ASSOCIATION DE L'AUTOMOBILE
6. L'ASSOCIATION MOTORISTE NORD AMERICAINE.
7. DOMINION AUTOMOBILE ASSOCIATION INTERNATIONAL TRAVEL AGENCY
8. DOMINION HOME ASSOCIATION
9. L'ASSOCIATION DU DOMICILE
10. CANADIAN MOTOR LEAGUE/CML
See attached
11. CML QUEBEC
See attached
12. CANADIAN MOTOR LEAGUE/CML/CLUB MOTORISTE CANADIEN
<PAGE> 45
This is Exhibit B-20 referred to in the Annexed Certificate and Indemnity
Work Stoppages and Strikes
Nil.
<PAGE> 46
This is Exhibit B-21 referred to in the Annexed Certificate and Indemnity
Matters Under or In Respect or Any Applicable Employment Legislation
1. The Health Tax Claim
<PAGE> 47
SCHEDULE "C"
TANGIBLE ASSETS USED IN DAA BUSINESS
Description London Quebec St. John
Desks 99 3 2
Tables 59 3 0
Chairs 173 7 5
Chairs-Executive 21 0 0
Credenzas 5 0 0
Bookcases 4 0 0
Low Cabinets 14 1 2
High Cabinets 8 0 1
Typewriters 24 2 1
Dictaphone 2 0 0
Calculators 24 0 0
Personal Computers 24 0 0
Computer Printers 24 0 0
2 Drawer Files 11 0 0
4 Drawer Files 40 2 2
5 Drawer Files 48 2 0
Cheque Files 3 0 0
6 Drawer Files 8 0 0
7 Drawer Files 2 0 0
Open Files 3 0 0
Cheque Protector 2 0 0
Photo Copiers 2 1 0
Phone System 1 0 0
Fax Machines 2 0 1
The above list does not include:
Furniture and equipment in the office of R.W. Trollope
Furniture and equipment in the Westminster Mercantile Inc. accounting office
Three 5 drawer legal filing cabinets in the general office
All of which are excluded from the transaction contemplated by the Agreement and
shall be retained by Westminster Mercantile Inc.
<PAGE> 48
SCHEDULE "D"
TANGIBLE ASSETS USED IN THE NORTH AMERICAN AUTOMOBILE
Nil.
<PAGE> 49
SCHEDULE "E"
TANGIBLE ASSETS USED IN THE INTERNATIONAL TRAVEL AGENCY BUSINESS
2 - L-shaped secretarial desks
7 - chairs
2- large blue file cabinets
2 - storage cabinet (one in ITA office and one across the hall)
4 - five-drawer filing cabinets (across the ball)
1 -display table
1 - Olympia AEG typewriter
1- metal typing table
1 - Olympia Professional typewriter
Attached is a list of rental equipment used in the Travel Agency at a monthly
rental of $646.05, including taxes.
The travel agency uses general office telephone lines, office supplies,
photocopier and fAX: machines.
<PAGE> 50
SCHEDULE "F"
LIST OF TANGIBLE ASSETS USED IN THE PRINTING DIVISION
1 -desk
2-chairs
3- five-drawer filing cabinets
2- one-drawer filing cabinets
6- tables of various sizes
1 - light table
1 - drafting table
3- metal shelving units
1 - wood storage cabinet
1- air conditioner
1- large fan on stand
1 - l2" table fan
Wood built-in storage shelves in print manager's office and print shop
1 - A.B. Dick folder
1- Polar-Mohar cutter
1- Multi 1250 offset press - 2 colour
1- Challenge Drill
1- Baumfolder
1 -Nuarc Platemaker
1 -Heidelberg offset press
Printing supplies - ordered on a monthly basis
<PAGE> 51
This is Schedule "G" referred to in the Annexed Letter Agreement
March 9, 1998
Cassels Brock & Blackwell
Barristers & Solicitors
Scotia Plaza
2100-40 King Street West
Toronto, Ontario
and
Dominion Automobile Association Limited
201 King Street
London, Ontario
N6A 1C9
Dear Sirs:
Re: Asset Purchase Agreement between Westminster Mercantile Inc. and
Dominion Automobile Association Limited dated March 9, 1998
We have acted as counsel to Westminster Mercantile Inc. (the "Seller")
in connection with the letter agreement dated March 9, 1998 (the "Letter
Agreement") between the Seller and Dominion Automobile Association Limited (the
"Buyer") providing for the purchase of certain assets of the Seller by the
Buyer. In this regard, we have participated in the preparation and settlement of
the Letter Agreement, and those further and ancillary documents contemplated by
the Letter Agreement (collectively, the "Other Documents").
Unless otherwise indicated, all terms used herein that are defined in
the Letter Agreement have the respective meanings given to them in the Letter
Agreement.
We have examined such corporate records of the Seller, such
certificates of officers of the Seller, public officials and others and original
or copies of such other agreements, instruments, certificates and other
documents as we have deemed necessary or advisable as a basis for the opinions
expressed herein. In particular, we have relied, as to the opinion referred in
Section 1 hereof, on a certificate of compliance for the Seller issued by
Industry Canada dated March , 1998.
<PAGE> 52
-2-
For the purposes of the opinions expressed therein, we have assumed:
(a) the genuineness of all signatures, the legal capacity of all
individuals, the authenticity of all documents submitted to us as originals and
the conformity to authentic originals of all documents submitted to us as
certified or photostatic copies or as facsimiles;
(b) that each of the Letter Agreement and the Other Documents has been
duly authorized, executed and delivered by and constitutes a legal, valid and
binding obligation of each patty thereto other than the Seller; and
(c) the corporate records of the Seller provided to us contain all of
the constating documents, by-laws and resolutions of directors and shareholders
pertaining to the Seller;
The opinions expressed herein are limited to the laws of the Province
of Ontario and the federal laws of Canada applicable therein
Our opinion expressed in paragraph 5 as to the enforceability against
the Seller of the Letter Agreement and the Other Documents is subject to:
(a) bankruptcy, insolvency and other laws affecting the rights of
creditors generally; and
(b) the qualification that equitable remedies, including, without
limitation, specific performance and injunction, may be granted only in the
discretion of a court of competent jurisdiction
Based and relying on and subject to the foregoing, we are of the
opinion that:
1. The Seller is a corporation incorporated and subsisting under the laws of
Canada.
2. The Seller has all necessary corporate power and authority to execute and
deliver each of the Letter Agreement and the Other Documents and to perform its
obligations thereunder.
3. All necessary corporate action has been taken by the Seller to authorize the
execution and delivery by it of each of the Letter Agreement and the Other
Documents and the performance of its obligations thereunder.
4. The execution and delivery of each of the Letter Agreement and the Other
Documents by the Seller and the performance of its obligations thereunder will
not result in the breach or violation of any of the provisions of, or conflict
with the constating documents, by-laws or resolutions of the board of directors
(or any committee thereof) or shareholders of the Seller.
5. Each of the Letter Agreement and the Other Documents has been duly executed
and delivered by the Seller and constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms.
<PAGE> 53
-3-
The opinions expressed herein are provided solely for the benefit of
the addressees in connection with the transactions contemplated by the Letter
Agreement and may not be used nor relied on by the addressees for any other
purpose or by any other person for any purpose whatsoever, in each case without
our prior written consent.
Yours truly,
HARRISON, ELWOOD
<PAGE> 54
Schedule "H"- Page 1
CERTIFICATE AND INDEMNITY
TO WESTMINSTER MERCANTILE INC. (the "Seller")
Unless otherwise defined in this certificate and indemnity, all capitalized and
other defined terms shall have the respective meanings attributed to them in
Schedule "A" to the letter agreement dated March 9, 1998 to which the Buyer and
the Seller are parties (the "Agreement").
In consideration of the closing of the purchase and sale of the Purchased Assets
and the assumption of the Assumed Liabilities pursuant to the Agreement and for
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by the undersigned) the undersigned hereby represents and warrants
to the Seller as follows:
1. Existence. The Buyer is a subsisting corporation duly and validly
incorporated and organized under the laws of Canada;
2. Power, Authority, etc. The Buyer has all necessary corporate power, authority
and capacity to execute, and deliver and perform its obligations under the
Agreement, and all other agreements, instruments and documents to be delivered
pursuant to the Agreement to which the Buyer is a party and to carry out its
obligations and to consummate the transactions contemplated hereunder and
thereunder.
3. Due Authorization. The execution and delivery of the Agreement and all other
agreements, instruments and documents to be delivered pursuant thereto to which
the Buyer is a party, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action
on the part of the Buyer.
4. Enforceability of Obligations. The Agreement has been duly executed and
delivered by the Buyer. When executed and delivered, each agreement, instrument
and document to be delivered pursuant to the Agreement to which the Buyer is a
party will have been duly executed and delivered by the Buyer. The Agreement
constitutes (and when executed and delivered, each agreement, instrument and
document to be delivered pursuant thereto to which the Buyer is a party will
constitute) a valid and binding obligation of the Buyer, enforceable against the
Buyer in accordance with its terms, subject only to:
a. limitations with respect to enforcement imposed by law in
connection with bankruptcy or similar proceedings which may
affect the enforcement of creditors' rights generally;
b. the qualification that equitable remedies, including specific
performance and injunction, are in the discretion of the court
from which they are sought; and
c. any other qualifications as to enforceability identified by
counsel to the Buyer in any opinion letter rendered by such
counsel in connection with the transactions contemplated by
the Agreement.
5. Buyer a Non-Canadian. The Buyer is a non-Canadian for the purposes of the
Investment Canada Act (Canada) and will give forthwith on Closing, notice to
Industry Canada under the said Act
<PAGE> 55
Schedule "H" - Page 2
6. Bankruptcy. The Buyer is not insolvent and has not (a) proposed a compromise
or arrangement to its creditors generally, (b) had any petition for a receiving
order in bankruptcy filed against it, (c) taken any proceeding with respect to a
compromise or arrangement or become subject to such proceeding, (d) taken any
proceeding or become subject to any proceeding to have itself declared bankrupt
or wound-up, (e) taken any proceeding or become subject to any proceeding to
have a receiver appointed over any part of its assets, (f) had any encumbrancer
take possession of any of its property, or (g) had any execution or distress
levied upon any of its property.
7. Brokers. The Buyer has not, directly or indirectly, entered into any
agreement which would entitle any broker, finder or intermediary to make a valid
claim against the Seller for a fee or commission for or on account of the
transactions provided for in the Agreement
FOR VALUE RECEIVED, subject to compliance with the procedures set out below for
the making of any Claim by the Seller, the Buyer hereby indemnifies and agrees
to hold the Seller harmless from and against all expenses (including, but not
limited to, reasonable legal fees) claims, demands, actions, causes of action,
obligations, damages, losses, costs and liabilities (hereinafter collectively
referred to as "Claims") which may be made or brought against it or which it may
suffer or incur as a result of, in respect of or arising out of any breach or
non-fulfillment of any covenant contained in the Agreement or any agreement,
instrument or document delivered pursuant to the Agreement or any material
breach of any representation or warranty by or of the Buyer contained herein or
therein;
I. Limitation on Claims. The covenants, representations and warranties of the
parties contained in this Agreement are now and at the Closing shall be true and
correct and notwithstanding the Closing or any inquiry or investigation on the
part of any party hereto, such covenants, representations and warranties shall
not merge in, be superseded or prejudiced by and shall survive the Closing and
continue in full force and effect for the benefit of the respective party
provided further that:
a. all the covenants, representations and warranties of the Buyer
shall terminate at the expiration of two (2) years following
the Closing, except to the extent that, during such period,
where notice of a Claim has been given to a party hereto in
respect of a breach of any such covenant, representation or
warranty, such covenant, representation or warranty shall
continue in full force until the final determination of such
Claim. In no other case shall such a covenant, representation
or warranty survive the said 2-year period;
b. prior to the Buyer making any payment pursuant to its
liability under this certificate and indemnity and prior to
its carrying out its obligation hereunder to indemnify and
hold harmless the Seller, as aforesaid, the Buyer shall have
the right to review, or cause its employees, officers or
representatives to review, all records, documents or practices
of the Seller relating in any manner to the subject matter of
the alleged liability and obligations of the Buyer pursuant to
this certificate and indemnity in respect of which any Claim
is made, and the Seller shall co-operate fully in facilitating
such review such that it may be carried out promptly and
without delay by the Buyers and any indemnification payment
shall be made by the Buyer forthwith following such review to
the extent that it is supported by the findings of the Buyer.
Any dispute as to the liability of the Buyer under this
certificate and indemnity shall be settled in accordance with
the arbitration provisions of the Agreement;
<PAGE> 56
Schedule "H" - Page 3
c. the amount of any Claim recoverable by the Seller hereunder
shall have deducted from it that amount (if any) representing
any net saving in any taxes that could be achieved by the
Seller as a result of the loss represented by the Claim,
whether or not the Seller prepares and files its tax returns
to take such benefit. Any dispute as to the tax-adjusted
amount of any Claim shall be settled by arbitration between
the Parties as provided by subsection 13.f. of the Agreement;
d. in the event that the Claimant subsequently recovers all or
part of a Claim from any other Person, the Claimant shall
forthwith repay to the Indemnitors the amount so recovered
upon to an amount not exceeding the amount theretofore paid by
the Indemnitors by way of Indemnity; and
e. for the purposes of the Indemnities under this certificate and
indemnity alone (and for no other indemnity given under the
letter agreement) to the extent that any inaccuracy or breach
of any representation or warranty made in this certificate and
indemnity is expressly disclosed to the Seller by the Buyer in
the letter agreement or any schedule attached thereto in such
a manner and with such particulars as to allow the Seller to
make a reasonable assessment of the facts giving rise to the
inaccuracy or breach and the associated liability in respect
thereof, or to the extent that such inaccuracy or breach is
actually known to the Seller prior to or at the Time of
Closing, and the Seller completes the transactions
contemplated hereunder, the Seller's entitlement to
indemnification under this certificate and indemnity in
respect of such inaccuracy or breach shall be reduced
accordingly. The foregoing limitation shall not apply to the
Seller in respect of any Claim made in respect of any tax
matters.
II. Notification of and Participation in Claims. No claim for indemnification
will arise until notice thereof is given to the Buyer (the "Indemnitor"). Such
notice shall be sent within a reasonable time following the determination by the
Seller (the "Claimant") that a claim for indemnity exists.
a. Promptly upon receipt by the Claimant of notice of any third
party Claim in respect of which the Claimant proposes to
demand indemnification from the Indemnitor, the Claimant shall
give notice to that effect to the Indemnitor with reasonable
promptness.
b. The Indemnitor shall have the right by notice to the Claimant
not later than 30 clear days after receipt of the notice
described in subsection II.a. of this certificate and
indemnity to assume the control of the defence, compromise or
settlement of the third party claim, provided that:
I. such assumption shall, by its terms, be without cost
to the Claimant; and
II. no third party Claim shall be compromised or settled
without the prior written consent of the Claimant if
such settlement or compromise could reasonably be
anticipated to have an adverse effect on the
Business, and the Claimant hereby covenants and
agrees not to unreasonably withhold or delay any such
consent.
c. Upon the assumption of control by the Indemnitor, as
aforesaid, the Indemnitor shall, at
<PAGE> 57
Schedule "H" - Page 4
their expense, diligently proceed with the defence, compromise
or settlement of the third party Claim at Indemnitor' sole
expense, including employment of counsel reasonably
satisfactory to the Claimant and, in connection therewith, the
Claimant shall co-operate fully to make available to the
Indemnitor all pertinent information and witnesses under the
Claimant's control, make such assignments and take such other
steps as in the opinion of counsel for the Indemnitor are
necessary to enable the Indemnitor to conduct such defence.
d. Subject to the foregoing provisions of this certificate and
indemnity, the final determination of any such third party
Claim, including all related costs and expenses, will be
binding and conclusive upon the parties hereto and the Seller
as to the validity or invalidity, as the case may be, of such
third party Claim against the Indemnitor hereunder.
e. Should the Indemnitor fail to give notice to the Claimant as
provided in subsection II.b., the Claimant shall be entitled
to make such settlement of the third party Claim as in its
discretion may appear advisable, and such settlement or any
other final determination of the third party Claim shall be
binding upon the Indemnitor.
f. If the Claimant fails to respond to a request for its consent
or unreasonably refuses to consent to a compromise or
settlement of a particular Claim negotiated by the Indemnitor
in respect of which consent is required, the Indemnitor may
pay to the Claimant an amount necessary to indemnify the
Claimant pursuant to this certificate and indemnity as though
the matter had been settled or compromised upon the terms
negotiated by the Indemnitor and the Claimant shall deliver to
the Indemnitor a full and final release in respect of all
amounts claimed in respect of such Claim.
IN WITNESS WHEREOF the undersigned have duly executed this certificate and
indemnity as of the 28th day of February, 1998.
DOMINION AUTOMOBILE ASSOCIATION LIMITED
Per:
-----------------------------------------
Name: David Blakely
Title: Director
I have authority to bind the Corporation
<PAGE> 58
Schedule "I" - Page 1
March 9, 1998
Harrison, Elwood
Barristers & Solicitors
[address]
London, Ontario.
and
Westminster Mercantile Inc
[address]
London, Ontario.
Dear Sirs:
Re: Asset Purchase Agreement - Westminster Mercantile Inc. and Dominion
Automobile Association Limited dated March 9, 1998
We have acted as counsel to Dominion Automobile Association Limited (the
"Buyer") in connection with the letter agreement dated March 9, 1998 (the
"Letter Agreement") between the Buyer and Westminster Mercantile Inc. (the
"Seller") providing for the purchase of certain assets of the Seller by the
Buyer. In this regard, we have participated in the preparation and settlement of
the Letter Agreement, and those further and ancillary documents contemplated by
the Letter Agreement (collectively, the "Other Documents").
Unless otherwise indicated, all terms used herein that are defined in the Letter
Agreement have the respective meanings given to them in the Letter Agreement.
We have examined such corporate records of the Buyer, such certificates of
officers of the Buyer, public officials and others, and original or copies of
such other agreements, instruments, certificates and other documents as we have
deemed necessary or advisable as a basis for the opinions expressed herein. In
particular, we have relied, as to certain matters of fact, on a compliance
certificate for the Buyer issued by Industry Canada dated February 26,1998.
For the purposes of the opinions expressed therein, we have assumed:
(a) the genuineness of all signatures, the legal capacity of all
individuals, the authenticity of all documents submitted to us as
originals and the conformity to authentic originals of all documents
submitted to us as certified or photostatic copies or as facsimiles;
and
<PAGE> 59
Schedule "I"- Page 2
(b) that each of the Letter Agreement and the Other Documents has been duly
authorized, executed and delivered by and constitutes a legal, valid
and binding obligation of each party thereto other than the Buyer.
The opinions expressed herein are limited to the laws of the Province of Ontario
and the federal laws of Canada applicable therein.
Our opinion expressed in paragraph 5 as to the enforceability against the Buyer
of the Letter Agreement is subject to:
(i) bankruptcy, insolvency and other laws affecting the rights of creditors
generally; and
(ii) the qualification that equitable remedies, including, without
limitation, specific performance and injunction, may be granted only in
the discretion of a court of competent jurisdiction.
Based and relying on and subject to the foregoing, we are of the opinion that:
1. The Buyer is a corporation duly incorporated and validly subsisting
under the laws of Canada.
2. The Buyer has all necessary corporate power and authority to execute
and deliver each of the Letter Agreement and the Other Documents and to
perform its obligations thereunder.
3. All necessary corporate action has been taken by the Buyer to authorize
the execution and delivery by it of each of the Letter Agreement and
the Other Documents and the performance of its obligations thereunder.
4. The execution and delivery of each of the Letter Agreement and the
Other Documents by the Buyer and the performance of its obligations
thereunder will not result in the breach or violation of any of the
provisions of, or conflict with the constating documents, by-laws or
resolutions of the board of directors (or any committee thereof) or
shareholders of the Buyer.
5. Each of the Letter Agreement and the Other Documents has been duly
executed and delivered by the Buyer and constitutes a legal, valid and
binding obligation of the Buyer, enforceable against the Buyer in
accordance with its terms.
The opinions expressed herein are provided solely for the benefit of the
addressees in
<PAGE> 60
Schedule "I" - Page 3
connection with the transactions contemplated by the Letter Agreement and may
not be used nor relied on by the addressees for any other purpose or by any
other person for any purpose whatsoever, in each case without our prior written
consent.
Yours truly
CASSELS BROCK & BLACKWELL
<PAGE> 61
Schedule "J" Page 1
1. The parties agree that any dispute under the letter agreement shall be
automatically referred to arbitration in accordance with this Schedule
"J". Unless otherwise defined in the body of this Schedule "J", all
capitalized or defined terms shall have the respective meanings
attributed to them in Schedule "A" to the letter agreement.
2. In the event that any disagreement arises between the Seller and the
Buyer under this letter agreement or any matter arising hereunder, or
whenever any arbitration is otherwise required or permitted by the
terms of the letter agreement, arbitration proceedings shall be
commenced by the party (Buyer or the Seller, as the case may be)
desiring arbitration (the "Initiating Party") by giving written notice
to the other party (Buyer or Seller, as the case may be) (the
"Responding Party") specifying the matter to be arbitrated and
requesting an arbitration thereof. In the event that the Initiating
Party and the Responding Party are unable to agree upon a single
arbitrator within seven (7) Business Days after delivery of such
notice, the Initiating Party shall, by written notice to the Responding
Party, designate an arbitrator. Either the Seller (if the Initiating
Party is Buyer) or the Buyer (if the Initiating Party is Seller) shall,
within five (5) Business Days thereafter, be entitled to appoint a
second arbitrator by written notice to the Initiating Party, and the
two (2) arbitrators so appointed shall thereupon meet and select a
third arbitrator acceptable to the first two (2) arbitrators, who shall
be the Chairman. In the event that the Responding Party fails to
appoint an arbitrator within the time limit aforesaid and deliver
notice thereof to the Initiating Party, the Initiating Party shall be
entitled to appoint an arbitrator on behalf of the Responding Party and
the Initiating Party is hereby irrevocably appointed the agent of the
Responding Party for such purpose. In the event that the two
arbitrators so appointed are unable to agree upon a third arbitrator,
then the Initiating Party shall be entitled to make application to
Ontario Court (General Division) pursuant to the Arbitrations Act
(Ontario) for selection of the third arbitrator, who shall be the
Chairman, and the provisions of the Arbitrations Act (Ontario) shall
govern such selection. In all cases, the arbitrators shall be qualified
by profession or occupation to decide the matter in dispute.
3. The arbitrator or arbitrators so appointed shall thereupon proceed to
hear the submissions of the Parties in accordance with such procedures
as such arbitrator or arbitrators may establish, and shall render a
decision, together with written reasons therefor, within 90 days after
the date of delivery of the notice requesting the arbitration by the
Initiating Party to the Responding Party. A decision of the arbitrator
or a majority of the arbitrators (where there are three arbitrators)
shall be final and binding on the Parties and shall not be subject to
appeal.
<PAGE> 62
Schedule "J" Page 2
4. If the arbitrators have allowed their time or extended time for making
an award, as provided in the Arbitrations Act (Ontario), to expire
without making an award or if the Chairman shall have delivered to the
parties to the arbitration a notice in writing stating that the
arbitrators cannot agree or if there is not a majority of the
arbitrators in agreement, any party to the arbitration may apply to the
Ontario Court (General Division) or to a judge thereof to appoint an
umpire who shall have the like power to act in the reference and to
make an award as if he had been duly appointed by all the parties to
the submission and by the consent of all of the parties who originally
appointed the arbitrators in question.
5. If an umpire is appointed pursuant to the foregoing section 4, such
umpire shall make the award within one (1) month after the original or
extended time appointed for making the award of the arbitrators has
expired (or on or before any later date to which the parties to the
reference by any writing signed by them may from time to time extend
the time for making the award, or if the Parties have not agreed, then
within such time as the court or judge appointing such umpire may deem
proper).
<PAGE> 63
SCHEDULE "K" - STATEMENT OF ADJUSTMENT
<TABLE>
<CAPTION>
VALUE AS VALUE AS VALUE AS
AT 30-NOV-97 AT 31-JAN-98 AT 28-FEB 98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DAA Assets - Current - Cash (General Ledger) $ 268,493 4,238
NAAA Assets - Current - Cash (General Ledger) 55,134 76,485
ITA Assets - Current - Cash (General Ledger) 105,670 61,223
DAA 2 Assets - Current Memb Fees Rec-Field Force 393,780 365,607
DAA 3 Assets - Current - Memb Fees Rec-Corporations 158,869 151,647
DAA 4 Asscts - Current - Due from Field Force (120) 1,531
DAA 5 Assets - Current - Due from Members 0 0
DAA 6 Assets - Current - Due from Employees 254 2,571
DAA 7 Assets - Current - Accts Receivable-Printing 0 0
DAA 8 Assets - Current - Deposits 843 843
DAA 9 Assets - Current - Prepaid Expenses 32,989 25,073
DAA 10 Assets - Current - Prepaid Commissions 1,605,695 1,711,220
DAA 11 Assets - Fixed - Furniture & Equipment 241,480 241,480 241,480*
DAA 12 Assets - Fixed - Mainframe Computer 95,000 95,000 95,000*
DAA 13 Assets - Fixed - Other 0 0
DAA 14 Assets - Fixed - Property-201 King SL 1,000,000 750,000** ***
ITA 32 Assets - Current - Deposits 0 0
ITA 33 Assets - Current - Accounts Receivable 8,167 9,730
ITA 34 Assets - Current - Taxes Receivable 377 433
NAAA 42 Assets - Current - Memb Fees Receivable 1,859 1,441
NAAA 43 Assets - Current - Memb Fees Receivable-Zellers 47,046 13,917
NAAA 44 Assets - Current - Taxes Receivable 482 788
NAAA 45 Assets - Current - Prepaid Expenses 0 0
NAAA 46 Assets - Current - Prepaid Commissions 0 0
TOTAL ASSETS 4,016,018 3,513,227
DAA 15 Liabilities - Current - Payable Suppliers 65,679 53,551
DAA 16 Liabilities - Current - Payable Mutual life 149,750 (15,973)
DAA 17 Liabilities - Current - Payable Medicare 0 0
DAA 18 Liabilities - Current - Taxes Payable 42,162 14,612
DAA 19 Liabilities - Current - Deferred Revenue 3,305,273 3,498,403
DAA 20 Liabilities - Current - Benefits Payable 9 0
DAA 21 Liabilities - Current - Due Agents 2,973 3,379
DAA 22 Liabilities - Current - Accrued Commissions (40,615) (36,530)
DAA 23 Liabilities - Current - Accrued Legal/Audit 0 0
DAA 24 Liabilities - Current - Accrued Other 41,000 21,016
DAA 25 Liabilities - Current - Claim Provision 1,224,782 1,225,128
DAA 26 Liabilities - Current - Deposits 68,527 70,610
DAA 27 Liabilities - Current - Capital Leases 0 0
ITA 35 Liabilities - Current - Accounts Payable 22,544 3,113
ITA 36 Liabilities - Current - Taxes Payable 1,432 1,435
NAAA 47 Liabilities - Current - Accounts Payable 0 0
NAAA 48 Liabilities - Current - Commission Payable 0 0
NAAA 49 Liabilities - Current - Taxes Payable 495 1,845
NAAA 50 Liabilities - Current - Accrued Expenses 0 0
NAAA 51 Liabilities - Current - Claim Provision 42,248 48,763
TOTAL LIABILITIES 4,926,259 4,889,353
EXCESS LIABILITIES OVER ASSETS 910,241 1,376,126
* Agreed Value. No Adjustment required.
** Estimated Value for purposes of Closing.
*** Special Valuation Procedure to be used.
AGREED this day of ,1998.
DOMINION AUTOMOBILE ASSOCIATION LIMITED WESTMINSTER MERCANTILE INC.
Per:___________________________________________________ Per____________
Duly Authorized Officer Duly Authorized Officer
</TABLE>
<PAGE> 64
Schedule L - Page 1
AGREEMENT REGARDING VALUATION OF REAL PROPERTY
BETWEEN:
WESTMINSTER MERCANTILE INC.
(the "Seller")
OF THE FIRST PART
AND
DOMINION AUTOMOBILE ASSOCIATION LIMITED
(the "Buyer")
OF THE SECOND PART
WHEREAS:
A. The Seller has sold to the Buyer the property municipally known as 201
King Street, London, Ontario, being Part Lot 7, S/W King Street, Part
Lot 1, Plan 84 (W), City of London, County of Middlesex (the "Real
Property");
B. For the purposes of closing the transaction, the parties fixed a
selling and purchase price for the Real Property of $750,000.00,
subject to the adjustment (if any) arising out the procedures provided
for in this agreement;
C. The Buyer has paid the Seller (and by its execution of this agreement,
the Seller acknowledges receipt of) the sum of $750,000.00 for the Real
Property;
D. The Buyer retained Valco Consultants Inc. ("Valco"), who prepared and
<PAGE> 65
Schedule L - Page 2
provided to the Buyer a written appraisal dated February 26,1998 of the current
market value of the Real Property (the "Valco Appraisal") at $550,000;
E. The Seller retained Egerton Associates Limited ("Egerton") who gave a
verbal opinion to the Seller on Monday, February 23, 1998 to the effect
that the current market value of the Real Property in the opinion of
Egerton at between $900,000 and $950,000. Egerton has been requested by
the Buyer to provide immediately, a written appraisal (the "Egerton
Appraisal");
F. The Buyer and the Seller have agreed to the arbitration procedures set
out in this agreement to determine the definitive and final purchase
price for the Real Property, as between the Buyer and the Seller;
In consideration of the terms and conditions set forth below, and for other good
and valuable consideration (the receipt and sufficiency of which are
acknowledged by the parties), the parties agree as follows:
1. Selection of Arbitrator. The arbitration shall be conducted by a single
arbitrator (the "Arbitrator"). The Arbitrator shall have been appointed by
mutual agreement of Valco and Egerton from those employees or principals of
those real estate appraisal firms listed in Exhibit "I" hereto who are
Accredited Members of the Appraisal Institute of Canada (A.A.C.I.) or who are
Certified Real Estate Appraisers (C.R.A.). Valco and Egerton have advised the
parties that they have selected Charles Abromaitis as the Arbitrator. The
parties shall settle with the Arbitrator the basis on which the costs charged by
him will be calculated. If required to do so by the Arbitrator, each of the
parties agrees to pay one-half of the Arbitrator's reasonable estimate of such
costs into a trust account maintained by Harrison, Elwood, counsel to the
Seller, out of which trust deposit the Arbitrator shall be paid upon completion
of the arbitration.
<PAGE> 66
Schedule L - Page 3
2. The Arbitrator shall be instructed by the parties that time is of the essence
in these proceedings, and he shall be requested to make a determination of the
current market value of the Real Property, and to the extent reasonably
possible, to do so within thirty (30) days of the submission of this matter to
him for arbitration.
3. The arbitration shall take place in London, Ontario.
4. The arbitration award shall (a) be given in writing and shall be final and
binding on the Seller and the Buyer, (b) not subject to any appeal, and (c) deal
with the question of costs of arbitration on the basis that each of the Seller
and the Buyer shall be responsible for one-half of such costs.
5. Judgment upon the award rendered may be entered in any court having
jurisdiction, or application may be made to such count for a judicial
recognition of the award or an order of enforcement as the case may be.
6. In exercising his expertise as a real estate appraiser, the Arbitrator shall
be instructed (and shall agree) to take the information contained in each of the
following reports into account in making his determination of the current market
value of the Real Property:
a. A written copy of the Valco Appraisal, together with such
support documentation as Valco, acting reasonably, deems
necessary and appropriate in support thereof.
b. A written copy of the Egerton Appraisal, together with such
support documentation as Egerton, acting reasonably, deems
necessary and appropriate in support thereof.
<PAGE> 67
Schedule L - Page 4
c. A written copy of the Phase 1 environmental report in respect
of the Real Property dated March, 1998 prepared by Trow
Consulting Engineers Ltd. ("Trow") at the request of the
Buyer.
d. The Arbitrator shall have full access to review the premises
receive such further submissions from each of Valco, Egerton
and Trow as he may request in writing, with written notice to
each of the Buyer and Seller.
7. Regardless of the current market value for the Real Property determined by
the Arbitrator under this arbitration, for purposes of adjustments to the
Purchase Price contemplated by section 2 of this agreement:
a. if the current market value for the Real Property made by the
Arbitrator is $500,000.00 or less, then it shall be deemed to
be $500,000.00; and
b. if the current market value for the Real Property made by the
Arbitrator is $900,000.00 or more, then it shall be deemed to
be $900,000.00.
8. Upon the Arbitrator rendering his decision, the Seller and the Buyer agree to
adjust the Purchase Price to an amount equal to the current market value for the
Real Property as so determined by the Arbitrator under section 6 of this
Agreement, and:
a. if the current market value for the Real Property as
determined by the Arbitrator (the "Appraised Value") is less
than $750,000.00, then the Seller shall pay to the Buyer the
difference between the Appraised Value (subject to the
application of the limitation set in section 7 hereof) and
$750,000.00;
<PAGE> 68
Schedule L - Page 5
b. if the Appraised Value is more than $750,000.00, then the
Buyer shall pay to the Seller the difference between the
Appraised Value (subject to the application of the limitation
set in section 7 hereof) and $750,000.00; and
c. if the Appraised Value is $750,000.00, the dispute shall be at
an end and neither the Buyer nor the Seller shall be obligated
to the other, subject only to their respective obligations to
the Arbitrator for any costs awarded by him.
Any payment by the Buyer and the Seller, as the case may be, shall be made to
the Seller and the Buyer, as the case may be, by the earlier of:
a. April 30,1998; and,
b. The date on which final adjustments are completed of a certain
asset purchase agreement of even date to which this Agreement
relates.
IN WITNESS WHEREOF the parties hereto have hereunto duly executed this
<PAGE> 69
Schedule L - Page 6
Agreement as of the day and year first above written.
DOMINION AUTOMOBILE ASSOCIATION LIMITED
Per:
-----------------------------------------------
Name: David Blakely
Title: Director
I have authority to bind the Corporation
WESTMINSTER MERCANTILE INC. HARRISON, ELWOOD
Per: ______________________________ Per: __________________________
Name: Robert W. Trollope Peter Lockyer, Partner
Title: President
I have authority to bind the Corporation
<PAGE> 70
Schedule L - Page - 7
SCHEDULE "A"
APPRAISER LIST
1. L.J. Simmons Group Inc. - London, Ontario
2. Charles Abromaitis - London, Ontario
<PAGE> 71
THIS AGREEMENT made as of the 28th day of February, 1998.
BETWEEN:
DOMINION AUTOMOBILE ASSOCIATION LIMITED, a
corporation duly incorporated under the laws of Canada,
(hereinafter called the "Purchaser")
OF THE FIRST PART
and
MR. ROBERT TROLLOPE, of the City of London, in the
Province of Ontario,
(hereinafter called the "Vendor")
OF THE SECOND PART
RECITALS:
A. The Vendor is the beneficial and registered owner of 10 common shares
(hereinafter called the "Purchased Shares") in the capital of National
Automobile Association Inc., a corporation incorporated pursuant to the
laws of Canada (hereinafter called "National"); and
B. The Purchaser has agreed to purchase, and the Vendor has agreed to
sell, the Purchased Shares, in accordance with the terms and conditions
herein set forth;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the covenants herein contained, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Shares to be Purchased and Sold. Subject to the terms and conditions hereof,
the Vendor hereby agrees to sell, assign and transfer to the Purchaser and the
Purchaser hereby agrees to purchase from the Vendor as of the Time of Closing
(as hereinafter defined) the Purchased Shares.
2. Purchase Price. The purchase price payable for the Purchased Shares shall be
one dollar ($1.00).
<PAGE> 72
2
3. Payment of the Purchase Price. The purchase price for the Purchased Shares
shall be paid and satisfied by delivery of the sum of One ($1.00) Dollar in cash
to the Vendor, or as be shall direct.
4. Representations and Warranties. The Vendor hereby represents and warrants to
the Purchaser as follows and hereby acknowledges and confirms that the Purchaser
is relying on such representations and warranties in connection with the
purchase by the Purchaser of the Purchased Shares:
(a) National has been incorporated and organized and is validly
subsisting under the laws of Canada;
(b) the authorized capital of National consists of an unlimited
number of common shares of which, as of the date hereof, 10
common shares (and no more) have been issued and are
outstanding;
(c) the Purchased Shares are now and will be at the Time of
Closing (as defined in paragraph 5 hereof) beneficially owned
by the Vendor with good and marketable title, free of all
liens, charges and other encumbrances whatsoever;
(d) no person, firm or corporation has now or will have at the
Time of Closing (as defined in paragraph 5 hereof) any
agreement (other than this agreement) or option or right
capable of becoming an agreement or option for the purchase
from the Vendor of any of the Purchased Shares;
(e) the Balance Sheet attached hereto as Schedule "A" presents
fairly the assets, liabilities and financial condition of
National as at the date of the Balance Sheet; and
(f) National has not carried on any active business since
approximately 1988.
5. Closing. The closing of the sale and purchase of the Purchased Shares shall
take place at such time and date as the Purchaser and Vendor may determine, the
actual day when such closing is to take place being herein referred to as the
"Day of Closing" and the actual time when such closing is to take place being
herein referred to as the "Time of Closing".
6. General.
6.1 The representations and warranties herein contained shall survive the
closing of the sale and purchase of the Purchased Shares and shall continue in
full force and effect for the benefit of the Purchaser provided, however, that
no claim in respect thereof shall be valid unless it is made within a period of
one year of the Day of Closing.
<PAGE> 73
3
6.2 The Vendor covenants to do, or cause to be done, all acts, deeds or things
necessary to complete the transaction of purchase and sale of the Purchased
Shares herein provided for so that following closing, the Purchaser may be the
beneficial holder of the Purchased Shares, including without limitation the
delivery to the Purchaser of a certificate or certificates representing the
Purchased Shares duly endorsed for transfer, and causing the transfer of such
shares to be duly and validly recorded on the books of National in the name of
the Purchaser.
6.3 The provisions of this agreement shall enure to the benefit of and shall be
binding upon the successors and assigns of each of the Vendor and the Purchaser.
DOMINION AUTOMOBILE ASSOCIATION LIMITED
Per:
Duly Authorized Officer
_________________________________
Robert W. Trollope
<PAGE> 74
NATIONAL AUTOMOBILE ASSOCIATION LIMITED
FINANCIAL STATEMENT
YEAR ENDED NOVEMBER 30 1996
ASSETS
CASH $100.00
LIABILITIES
0.00
EQUITY
COMMON SHARES $100.00
<PAGE> 75
NATIONAL AUTOMOBILE ASSOCIATION LIMITED
INCOME STATEMENT
YEAR ENDED NOVEMBER 30, 1996
REVENUES 0.00
EXPENSES 0.00
PROFIT 0.00
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Exhibit 3.1
ARTICLE I
MEETINGS
SECTION 1. ANNUAL MEETINGS
The Annual Meeting of stockholders of the Corporation shall be held at
the principal office of the Corporation in the State of Florida or at such other
place within or without the state of Florida as may be determined by the Board
of Directors and as may be designated in the notice of such meeting. The Annual
Meeting shall be held in each year on such date as the Board of Directors may
designate at a meeting or by unanimous written consent which shall be held or
fully executed not less than thirty (30) days prior to the date so designated
for the Annual Meeting. The business to be transacted at such meeting shall be
the election of Directors and such other business as may be properly brought
before the meeting.
SECTION 2. SPECIAL MEETINGS
Special Meetings of the stockholders may be held any place within or
without the state of Florida upon call of the Board of Directors, the Executive
Committee, the Chief Executive Officer, or when requested in writing by the
holders of not less than 75% of all the Voting Shares, as defined in Article VII
of the Articles of Incorporation of the Corporation entitled to vote at the
meeting (such meeting, if requested by the stockholders, to be held at the
office of the Corporation), at such time as may be fixed by the Board of
Directors or the Executive Committee or the Chief Executive Officer or such
stockholders, as may be stated in the call and notice.
SECTION 3. NOTICE OF MEETINGS
Written notice of the time, place and purpose, or purposes of every
meeting of shareholders shall be delivered not less than ten (10) nor more than
sixty (60) days before the meeting, either personally or by mail (the act of
mailing being deemed completed service), by or at the direction of the
President, the Secretary, or the officer or persons calling the meeting to each
stockholder of record entitled to vote at such meeting, and upon any stockholder
who, by reason of any action proposed at such meeting, would be entitled to have
his shares of stock appraised if such action be taken. If mailed, such notice
shall be directed to such stockholder at his last address as its appears on the
stock books of the Corporation unless he shall have filed with the Secretary of
Corporation a written request that notices intended for him be mailed to the
address designated in such request. Such further notice shall be given by mail,
publication or otherwise, as may be required by the Articles of Incorporation of
the Corporation, by resolution of the Board of Directors or Executive Committee
or by law.
SECTION 4. QUORUM
A majority of the shares entitled to vote represented in person or by
proxy shall constitute a quorum at the meeting of stockholders. If a quorum is
present, the affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of all
stockholders unless otherwise provided by statute or the Articles of
Incorporation of
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the Corporation. If at any meeting of stockholders, there should be less than a
full quorum present, the stockholders of the majority of the shares of stock
entitled to vote so present or represented may adjourn the meeting from time to
time without notice other than announcement at the meeting until a quorum shall
have been obtained, when any business may be transacted which might have been
transacted at the meeting as first convened had there been a full quorum.
SECTION 5. VOTING
At all meetings of the stockholders, each holder of record of
outstanding shares of the stock of the Corporation entitled to vote thereat may
so vote either in person or by proxy appointed by instrument in writing executed
by such holder or his duly authorized attorney. No proxy shall be valid after
the expiration of eleven (11) months from the date thereof, unless the
stockholder executing it shall have specified therein a longer time during which
it is to continue in force.
SECTION 6. RECORD OF SHAREHOLDERS
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or in order to make a determination of
stockholders for any other purpose, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the stock transfer book shall be closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten (10) days
immediately preceding the meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any determination of stockholders,
such date in any case not more than sixty (60) days and, in case of a meeting,
not less than ten (10) days prior to the date on which the particular action
requiring such determination of stockholders is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date of such determination of stockholders.
When the determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this section, such determination
shall apply to any new record date for the adjourned meeting.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND QUALIFICATIONS
The number of Directors constituting the entire Board of the
Corporation shall be not less or more than as authorized by the Articles of
Incorporation of the Corporation, and shall be fifteen (15) until otherwise
determined by the resolution adopted by affirmative vote of a majority of the
entire Board of Directors.
SECTION 2. MEETINGS OF THE BOARD
The Board of Directors shall hold its Annual Meeting as set forth in
Section 3 hereafter. Special Meetings of the Board may be held at any time and
at any place within or without the continental United States upon the call of
the Chairman of the Board, the Chief Executive Officer of the Corporation, or
any two Directors. Except with respect to the Annual Meeting of Directors,
notice of all Directors' Meetings, whether regular or special, shall be given to
each Director by either personal delivery, mail, facsimile, telegram or
cablegram at least two (2) days before the meeting unless waived pursuant to
Section 8 hereafter.
SECTION 3. ANNUAL MEETING OF DIRECTORS
The Annual Meeting of the Board of Directors shall be held on the same
date and in the same place as the Annual Stockholders' meeting and shall convene
immediately after the conclusion of the Annual Meeting of the Stockholders. No
notice of such meeting shall be required.
SECTION 4. QUORUM
The attendance of not less than a majority of the number of Directors
at the time constituting the full Board of Directors in accordance with the
Articles of Incorporation of the Corporation and these By-Laws shall be
necessary to constitute a regular quorum for the transaction of business;
provided; however, that if the attendance at such meeting is less than that
required for a regular quorum as aforesaid but is one-third (1/3) or more of the
full Board of Directors, the number so present shall constitute a special quorum
which may proceed to adopt resolutions or take other action which; however,
shall not be binding upon the Corporation until such resolutions or actions
respectively have been approved in writing by a sufficient number of Directors
(in addition to those voting therefore at the meeting) to constitute a total of
not less than a majority of the full Board. When such resolutions or other
action has been presented in writing to any absent Director or Directors, such
resolutions, or other actions shall be deemed approved by said absent Director
unless his disapproval is received in writing by the Secretary within fifteen
(15) days after receipt by such Director of such resolutions or other action.
Any action taken at a meeting at which a quorum is present shall require consent
and approval of at least a majority of
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<PAGE> 4
the full Board. If at any meeting of the Board, there shall be less than a full
quorum present, a majority of the Directors present may adjourn the meeting from
time to time without notice other than announcement at the meeting until a
quorum shall have been obtained, when any business may be transacted which might
have been transacted at the meeting as first convened had there been a full
quorum.
SECTION 5. VACANCIES AND REMOVAL
Vacancies in the Board of Directors shall be filled as prescribed by
the Articles of Incorporation of the Corporation. The Directors so chosen shall
hold office until the next election of the class for which such directors shall
have been chosen and until their successors shall be elected and qualified.
Directors may be removed and vacancies caused by their removal may be filled as
prescribed by the Articles of Incorporation of the Corporation, and new
Directors so chosen shall hold office until the next election of the class for
which such Directors shall have been chosen and until their successors shall be
elected and qualified.
SECTION 6. COMPENSATION
Each Director of the Corporation and each member of the Executive
Committee, the Building Committee, the Compensation and Nominating Committee,
the Audit Committee, the Planning Committee, the Audit Committee, or any special
committee shall receive such compensation as the Board may by resolution
determine to be proper and reasonable. Nothing herein shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor. Directors residing outside the county in which any
meeting of the Board of Directors is held shall be entitled to reimbursement for
reasonable expenses of attending such meeting or meetings.
SECTION 7. INDEMNITY
The Corporation shall indemnify each Director and Officer and may, by
action of the Board of Directors, indemnify other employees, and agents to the
fullest extent permitted under Florida Statutes now or hereafter in force.
SECTION 8. WAIVER OF NOTICE
A Director may waive in writing notice of a special meeting of the
Board either before or after the meeting; and his waiver shall be deemed the
equivalent of his having been given notice. Attendance of a Director at a
meeting shall constitute waiver of notice at that meeting unless he attends for
the express purpose of objecting to the transaction of business because the
meeting has not been lawfully called or convened.
SECTION 9. ADVISORY DIRECTORS
In addition to the regular Board of Directors, this Corporation may
have and establish, by appropriate resolutions of the Board of Directors, one or
more, but not exceeding 15 Advisory
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<PAGE> 5
Directors who shall perform the following duties as designated by the Chairman
of the Board: (a) to render advice and counsel to the Board of Directors; (b) to
perform other such duties as may by mutually agreeable to the Chairman of the
Board and such Advisory Directors. Any Advisory Director may be removed, with or
without cause, by a vote of the Board of Directors. Advisory Directors shall not
vote at the meetings of the Board of Directors, but shall be entitled to
participate therein to the extent permitted by resolution of the Board of
Directors. Advisory Directors shall, at the discretion of the Board of
Directors, be entitled to a retainer for their services associated therewith, to
a fixed sum to compensate Advisory Directors for attendance at any regular or
special meeting or meeting of a committee, and to reimbursement for expenses
incurred in connection with attendance at any meeting.
The Advisory Directors shall serve in an advisory capacity only and
their decisions shall not be binding on the Board of Directors. Advisory
Directors shall not be, nor shall they have any of the duties, responsibilities
or liabilities of, Directors of the Corporation. Nothing herein shall be
construed to preclude any Advisory Director from serving the Corporation in any
other capacity as an officer or agent and receiving compensation therefor.
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<PAGE> 6
ARTICLE III
OFFICER
SECTION 1. OFFICERS AND AGENTS
The Board of Directors, at its Annual Meeting, shall elect from its
members a Chief Executive Officer of the Corporation, a President, a Chairman of
the Board of Directors, and a chairman for each committee of the Board. The
Board of Directors shall also elect at such meeting Vice Presidents, the
Secretary, the Treasurer, and such other officers as it may deem appropriate.
Any two or more offices may be held by the same person provided; however, that
the office of President and Secretary or Assistant Secretary may not be held by
the same person.
SECTION 2. TERM OF OFFICE
The term of office of all officers shall be one (1) year and until
their respective successors are chosen and qualified, but any officer or agent
elected or appointed by the Board of Directors may be removed, with or without
cause, at any time by the affirmative vote of the majority of the full Board of
Directors.
SECTION 3. GENERAL POWERS AND DUTIES
The officers, agents, and employees of the Corporation shall each have
such powers and duties in the management of the property and affairs of the
corporation, subject to the control of the Board of Directors, as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be prescribed by the Board of Directors. The Board of Directors
may require any such officer, agent, or employee to give security for the
faithful performance of his duties.
SECTION 4. SPECIAL POWERS AND DUTIES OF OFFICERS
Without modifying or limiting the general powers and the duties
authorized and assigned by Section 3 above, the following named officers shall
have the following special powers and duties, provided; however, that the Board
of Directors or Executive Committee may, by resolution, shift, consolidate,
change or eliminate any of said powers or duties, except where such duties or
powers are set by the laws of the state of Florida.
CHAIRMAN OF THE BOARD
The Chairman of the Board shall preside as Chairman at all meetings of
the Board of Directors and shall perform such other duties as may be assigned
him by the Board of Directors, the Executive Committee, or the Chief Executive
Officer of the Corporation. In the absence of the Chairman, the Vice Chairman,
if there be one, shall preside over meetings of the Board of Directors, and
shall have such other duties as may be assigned to him by the Board of
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<PAGE> 7
Directors, the Executive Committee, or the Chief Executive Officer of the
Corporation.
CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall preside at all meetings of the
stockholders, shall be charged with supervision of the offices of the
Corporation and of its personnel, shall have responsibility for the general and
active management of the business of the Corporation, and shall see that all the
orders and resolutions of the Board are carried into effect, subject; however,
to the right of the Board to delegate any specific powers to any other officer
or officers of the Corporation.
PRESIDENT
The President, in the absence or disability of the Chief Executive
Officer, shall act in his stead and place and shall discharge the duties of
Chief Executive Officer and possess his powers. At the direction of the Board of
Directors or the Executive Committee, he may assume charge and supervision of
the offices of the Corporation and of its personnel and may actively supervise
and direct the conduct of its business. He shall also perform such other duties
as may be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer. The President may also execute contracts in the name of the
Corporation and appoint and discharge agents and employees. The President shall
be responsible to the Chief Executive Officer.
EXECUTIVE VICE PRESIDENT AND OTHER VICE PRESIDENTS.
The Board may designate and appoint an Executive Vice President, who,
in the absence or disability of the President, shall act in the stead and place,
and shall discharge the duties of the President and possess his powers. At the
direction of the Board of Directors or the Executive Committee, he may assume
charge and supervision of the offices of the Corporation and of its personnel,
and may actively supervise and direct the conduct of its business. He shall also
perform such other duties as may be assigned to him by the Board, the Executive
Committee, the Chief Executive Officer, or the President as shall any other Vice
Presidents of the Corporation.
The Board may designate and appoint such other Vice presidents as it
may, in its discretion, choose to do.
In the absence or disability of the Chief Executive Officer, the
President and of the Executive Vice President, any other Vice President
designated by the Board of Directors or the Executive Committee may discharge
the duties of the Chief Executive Officer and shall possess his powers.
TREASURER
The Treasurer shall have custody of all funds and securities of the
Corporation which may come into his hands; shall be charged with the maintenance
and supervision of the accounts and
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financial records and reports; and shall be charged with the preparation and
filing of all tax returns. When necessary or proper, he shall endorse on behalf
of the corporation for collection, checks, notes and other obligations, and
shall deposit same to the credit of the Corporation. He shall see that all
balances due to the Corporation by its agents and brokers, or otherwise, are
promptly paid and shall promptly report to the Chief Executive Officer any
unusual delay in such payments, as well as any default in the payment of rent or
of interest or principal on any and all investments belonging to the
Corporation. He shall keep faithful and accurate account of all receipts and
expenditures and of all other items which enter into the accounting requirements
of the Corporation, and when requested, shall render, furnish and submit such
financial statements, balance sheets, profit and loss statements or other
accounting reports and schedules as the Board, the Executive Committee, or the
Chief Executive Officer may direct. He shall also supervise the statistical work
and records of the Corporation. He shall also perform such other duties as may
be assigned to him by the Board or Executive Committee. In the absence or
disability of the Treasurer or when specifically authorized by the Board of
Directors of the Executive Committee, an Assistant Treasurer may perform all or
any of the duties of the Treasurer herein set forth and such other duties as may
be assigned by the Board or the Executive Committee.
SECRETARY
The Secretary shall have immediate charge of the minute books of the
Corporation. He shall have charge of the stock certificate books, the transfer
book and stock ledgers. He shall keep accurate minutes of all proceedings of the
regular and special meetings of the shareholders and of Directors; he, shall
attend to the giving and serving of all notices; and when so ordered, he shall
affix the corporate seal to all documents requiring such seal and shall make the
necessary attestation or certification; and shall have such other duties as may
from time to time be assigned to him by the Board or the Executive Committee. In
the absence or disability of the Secretary or when specifically authorized by
the Board of Directors or the Executive Committee, an Assistant Secretary may
perform all or any of the administrative duties of the Secretary herein set
forth.
SECTION 5. EXECUTION OF DOCUMENTS
The Board of Directors or the Executive Committee may, by appropriate
resolution, designate such officers of the Corporation, or of American Bankers
Insurance Company of Florida or American Bankers Life Assurance Company of
Florida as are authorized and empowered to make and execute all deeds, releases,
leases, agreements, contracts, bills of sale, assignments, Power of Attorney or
of substitution, and other instruments of writing which may be needful to sell,
assign, transfer, convey, release and assure or lease to any party, whether
purchaser, lessee or transferee, any estate or property, real or personal,
stocks, bonds, loans, storage receipts, certificates of deposit, scrip or
evidences of debt or demand standing in the name of the Corporation or any
officer on behalf of the Corporation, or held or controlled by it; and to affix
the corporate seal of the Corporation to any and all such instruments of writing
and to acknowledge or prove the said instruments or any of them and the proper
execution, sealing and delivery thereof. The Board of Directors or the Executive
Committee from time to time may authorize other officers or agents of the
Corporation or of American Bankers Insurance Company
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of Florida or American Bankers Life Assurance Company of Florida to perform any
or all of said duties.
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ARTICLE IV
COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE
The Board of Directors shall designate an Executive Committee to
consist of not less than three (3) Directors of the Corporation and by
resolution shall designate the Chairman of said Committee. The Executive
Committee shall have and exercise, when the Board is not in session, so far as
the Board of Directors may lawfully delegate to it, all of the powers of the
Board in the management of the business and affairs of the Corporation and any
and all subsidiaries of the Corporation and shall have power to authorize the
seal of the Corporation and any subsidiary of the Corporation to be affixed to
all papers which may require it; but the Executive Committee shall not have
power to fill vacancies in the Board, or to change the membership of, or to fill
vacancies in the Executive Committee, the Compensation and Nominating Committee,
the Audit Committee, the Building Committee or the Planning Committee, or to
make or amend By-Laws of the Corporation, or any subsidiary thereof. The Board
shall have the power at any time to fill vacancies in, to change the membership
of, to change the number of members of, or to dissolve the Executive Committee.
Such number of the members of the Executive Committee as the Board of Directors
may by resolution determine shall constitute a quorum. All action taken by the
Executive Committee shall be reported to the Board at its meeting next
succeeding such action.
SECTION 2. COMPENSATION AND NOMINATING COMMITTEE
The Board of Directors shall, by resolution, designate a Compensation
and Nominating Committee to consist of not less than two (2) directors of the
Corporation, none of whom shall be (i) current or former employees of the
Corporation or any of its subsidiaries or (ii) directors of the Corporation who
receive any remuneration (other than de minimis remuneration as determined under
Treasury Regulation 1.162-27), directly or indirectly, from the Corporation or
any of its subsidiaries in any capacity other than as a director ("Outside
Director"). The Board of Directors shall, by resolution also designate the
Chairman of the Compensation and Nominating Committee.
The Compensation and Nominating Committee shall establish the
compensation package of the Chairman of the Board of Directors, the Chief
Executive Officer and the President of the Corporation. The Compensation and
Nominating Committee shall review and approve the compensation package suggested
by Management for all other officers of the Corporation and its major
subsidiaries. The Committee shall be responsible for the administration of all
perquisites offered to officers of the Corporation and its major subsidiaries,
including, but not necessarily limited to, pension, retirement or profit-sharing
plans, management incentive plans, restricted or qualified stock plans, and
insurance benefits. The Committee shall have full power and authority to select
employees to participate in the Corporation's various stock option plans, to
determine the amount and timing of grants, to interpret each plan and establish
rules for their administration.
In addition, the Committee shall assist the Chairman of the Board and
the Chief Executive Officer of the Corporation in development of a management
succession plan.
The Committee, subject to the control of the Board of Directors or the
Executive Committee, shall also recommend and implement criteria regarding
composition of the Board of
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Directors, including, but not limited to, seeking out possible candidates to
fill directorships, determining the desirable balance of expertise and
composition of the Board of Directors and evaluating the performance of current
directors; aid in attracting qualified candidates of directorships; review the
management slate of directors to be elected by the shareholders and recommend to
the Board of Directors the inclusion of the slate in the proxy statement; review
the qualification of candidates for corporate officership, and recommend the
officers for approval by the Board of Directors.
The Committee shall fix its own rules and procedures and shall meet, at
least once quarterly, with its annual meeting prior to the annual Board of
Directors meeting, and at any other time at the request of the Board of
Directors, the Chairman of the Compensation and Nominating Committee or the
Chief Executive Officer of the Corporation. The Chairman of the Compensation and
Nominating Committee may request any members of the management of the
Corporation or any of its subsidiaries to attend meetings as the Chairman deems
necessary. The Board of Directors shall have the power at any time to fill
vacancies in, to change the membership of or to change the number of members of
the Compensation and Nominating Committee, provided, however, that the
Compensation and Nominating Committee shall only consist of Outside Directors
and have no fewer than two (2) members. The Board of Directors may, at any time,
dissolve the Compensation and Nominating Committee. Such number of members of
the Compensation and Nominating Committee as the Board of Directors may by
resolution determine shall constitute a quorum. All action taken by the
Compensation and Nominating Committee shall be reported to the Board at its
meeting next succeeding such action.
SECTION 3. AUDIT COMMITTEE
The Board of Directors shall designate an Audit Committee to consist of
not less than three (3) Directors of the Corporation, none of whom shall be
inside Directors, and by resolution shall designate the Chairman of said
Committee. Subject to the control of the Board of Directors or the Executive
Committee, the Audit Committee shall as to the Corporation and each of its
subsidiaries: recommend the selection of the independent auditors to the Board
of Directors and review the arrangements and scope of the independent audit;
review all financial statements before publication, and review matters of
concern to the Audit Committee, the auditors or management relating to these
statements or the results of any audit thereof; consider the comments from the
independent auditors with respect to any weakness in internal controls and the
consideration given corrective action taken by management; review the internal
accounting procedures and controls with the Corporation's and the respective
subsidiary's financial and accounting staff; review the activities, reports and
recommendations of the Corporation's and respective subsidiary's internal
auditors and management's supervision and control of that department; and
complete any other requests made by the Board of Directors. The Audit Committee
shall fix its own rules and procedures and shall meet, at least once annually,
on sufficient occasions to fulfill its duties, at the request of the Board of
Directors, the Chairman of the Audit Committee, or the chief financial officer.
During any meeting of the Committee at which financial statements are to be
reviewed, the chief financial officer of the Corporation or the respective
subsidiary or his representative shall be present. The internal auditor and/or a
representative of the Corporation's or the respective subsidiary's auditors may
be invited to any meeting of the Committee by the Chairman of the
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Committee. The Board of Directors shall have the power at any time to fill
vacancies in, to change the number of members of, or to dissolve the Audit
Committee. Such number of the members of the Committee as the Board of Directors
may by resolution determine shall constitute a quorum. All action taken by the
Audit Committee shall be reported to the Board at its meeting next succeeding
such action.
SECTION 4. BUILDING COMMITTEE
The Board of Directors shall designate a Building Committee to consist
of not less than three (3) directors and by resolution shall designate the
Chairman of said Committee. Subject to the control of the Board of Directors or
the Executive Committee, the Building Committee shall formulate the building
plans of the Corporation to include liaison with architects, engineers, general
contractors, governmental agencies, lending institutions, planners, and
consultants as necessary. The Building Committee shall recommend to the Board of
Directors comprehensive plans for construction, design, financing, decorating,
furnishing, and equipping of office space necessary to accommodate the growth
objectives of the Corporation and shall perform the same functions with respect
to and shall oversee the management of the Corporation's real properties held
for investment. The Building Committee shall fix its own rules and procedures
and shall meet as frequently as necessary to fulfill its duties. The Board of
Directors shall have the power at any time to fill vacancies in, to choose the
number of members of, or to dissolve the Building Committee. Such number of the
members of the Building Committee as the Board of Directors may by resolution
determine shall constitute a quorum. All action taken by the Building Committee
shall be reported to the Board at its meeting next succeeding such action.
SECTION 5. PLANNING COMMITTEE
The Board of Directors shall designate a Planning Committee to consist
of not less than three (3) Directors of the Corporation and by resolution shall
designate the Chairman of said Committee. Subject to the control of the Board of
Directors or the Executive Committee, the Planning Committee shall periodically
review and recommend to the Board of Directors the plans, goals, and objectives
of the Corporation and its major subsidiaries; shall review the Consolidated
Profit Plan, the Capital Plan and the Business Plans for each business segment
of the Corporation annually; and shall monitor, throughout the year, the
operating results of each such business segment and the consolidated profit
results. The Planning Committee shall fix its own rules and procedures and shall
meet at least once annually, or on sufficient occasions to fulfill its duties,
and at any other time at the request of the Board of Directors, the Chairman of
the Planning Committee or the Chief Executive Officer of the Corporation. The
Chairman may request any members of management of the corporation or any of its
subsidiaries to attend meetings as he deems necessary. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of, to change the number of members of, or to dissolve, the Planning Committee.
Such number of members of the Committee as the Board of Directors may by
resolution determine shall constitute a quorum. All action taken by the Planning
Committee shall be reported to the Board at its meeting next succeeding such
action.
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SECTION 6. COMMITTEES
The Board of Directors may, in its discretion, by resolution, appoint
other committees which shall have and may exercise such powers as shall be
conferred or authorized by the resolution appointing them. A majority of any
such committee, composed of more than two members may determine its actions and
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board shall have power at any time to change the members
of such committee, to fill vacancies and to discharge any such committee.
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ARTICLE V
COMMON STOCK
SECTION 1. CERTIFICATE OF SHARES
The interest of each stockholder shall be evidenced by certificates for
shares of stock of the Corporation in such form as the Board of Directors may
from time to time prescribe. The certificates of stock shall be signed by the
President or a Vice President and the Secretary or an Assistant Secretary and
sealed with the seal of the Corporation, and shall be countersigned and
registered in such manner, if any, as the Board may by resolution prescribe;
provided that, in case such certificates are required by such resolution to be
signed by a Transfer Agent or Transfer Clerk or by a Registrar, the signatures
of the President or a Vice President and the Secretary or any Assistant
Secretary, and the seal of the Corporation upon such certificates may be
facsimiles, engraved, or printed. In case such officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such before such certificate is issued, it may be issued by the corporation
with the same effect as if such officer had not ceased to be such at the date of
its issue.
SECTION 2. TRANSFERS
Shares in the capital stock of the Corporation shall be transferred
only on the books of the Corporation by the holder thereof in person or by his
attorney or in case of death by his personal representative, upon surrender for
cancellation of certificates for the same number of shares with an assignment
and power of transfer endorsed thereon or attached thereto, duly executed, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require.
SECTION 3. LOST OR DESTROYED STOCK CERTIFICATE
No certificate for shares of stock of the Corporation shall be issued
in place of any certificates alleged to have been lost, stolen or destroyed,
except upon production of such evidence of the loss, theft or destruction and
upon indemnification of the Corporation and its agents, to such extent and in
such manner as the Board of Directors may from time to time prescribe.
SECTION 4. CONTROL-SHARE ACQUISITIONS STAT DOES NOT APPLY
Florida Statutes Section 607.0902 (1990), and any amendments thereto
(the "Statute"), does not apply to control-share acquisitions (as defined in the
Statute) of shares of stock of the Corporation occurring on or after November
14, 1990.
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ARTICLE VI
CHECKS, NOTES, ETC.
All checks and drafts on the Corporation bank accounts and all bills of
exchange, and promissory notes and all acceptances, obligations, and other
instruments for payment of money shall be signed by such officers of the
Corporation or such officers of American Bankers Insurance Company of Florida or
American Bankers Life Assurance Company of Florida or such agents as shall be
thereunto authorized from time to time by the Board of Directors or the
Executive Committee. No bills or notes shall be signed by or on behalf of the
Corporation unless the Board of Directors or the Executive Committee shall
expressly authorize the same and shall designate the officers who shall execute
same.
ARTICLE VII
INSPECTORS OF ELECTION
In advance of any meeting of the shareholders, the Board of Directors
may appoint Inspectors of Election who need not be shareholders to act at such
meetings or any adjournment thereof. If Inspectors of Election are not so
appointed by the Board of Directors, the Chairman of any such meeting may
appoint such Inspectors of Election. If neither the Board of Directors or the
Chairman of the meeting appoint Inspectors of Election, any shareholder or proxy
thereof may request the election thereof and those individuals appointed shall
be by majority vote of the shares present and entitled to vote. In no event
shall there be more than three (3) Inspectors of Election and no person who is a
candidate for office shall act as an Inspector. In case any person appointed an
Inspector fails to appear or refuses to act, the vacancy may be filled by
appointment made by the Board of Directors in advance of the convening of the
meeting or at the meeting by the person or officer acting as Chairman.
ARTICLE VIII
AMENDMENTS
The By-Laws of the Corporation may be repealed or amended and new
By-Laws may be adopted by either the majority vote of the full Board of
Directors or at any meeting of the shareholders of record of a majority of the
outstanding stock entitled to vote thereat, provided notice of the meeting is
given in accordance with these By-Laws and provided further that notice may be
waived as provided by Section 3 of Article I hereof, but the Board of Directors
may not amend or repeal any By-Law adopted by shareholders if the shareholders
specifically provide such By-Law is not subject to amendment or repeal by the
Directors.
15
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