<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: August 17 1998
(Date of earliest event reported)
GAINSCO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 001-09828 75-1617013
(State or other jurisdiction (Commission File Number) (IRS Employer Identification No.)
of incorporation)
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500 COMMERCE STREET, FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 336-2500
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ITEM 5. OTHER EVENTS.
On August 17, 1998, the Company entered into Stock Purchase Agreements
(the "Agreements") for the acquisition of all of the outstanding capital stock
of National Speciality Lines, Inc. ("NSL"), a licensed managing general agency
specializing in the underwriting and servicing of nonstandard private passenger
automobile insurance in Florida, De la Torre Insurance Adjusters, Inc. ("DLT"),
a claim adjustment company and Lalande Financial Group, Inc., a servicing
company which provides services to NSL and DLT. The Agreements call for the
payment of $18 million in cash at the closing, which is expected to take place
early in the fourth quarter of 1998, $2 million within thirty days of the first
day of the month immediately following the date on which ninety percent (90%) or
more of the policies written by or though NSL are policies in force of the
Company and up to $20 million over a period of five years pursuant to earn out
provisions. The purchase price was determined in arms length negotiations with
Messrs. McRae B. Johnston, Carlos De la Torre, Michael Johnston, and Ralph
Mayoral (the "Sellers"), the holders of all outstanding shares of the companies
to be acquired. Other than the proposed acquisition and the related employment
contracts, the Sellers have no material relationship with either the Company or
any of its affiliates, any director or officer of the registrant, or any
associate of any such director or officer. It is anticipated that the
acquisitions will be funded with borrowings or internally generated funds.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
No Financial statements or pro forma financial statements are required
to be filed as a part of this report. The following is a list of exhibits filed
as part of this Current Report on Form 8-K:
EXHIBIT
NO. EXHIBIT
99.5 Press release by the Company dated August 18, 1998 announcing
execution of definitive agreements to acquire Lelande Group.
99.6 Stock Purchase Agreement with Carlos De la Torre dated August
17, 1998.
99.7 Stock Purchase Agreement with McRae B. Johnston dated August
17, 1998.
99.8 Stock Purchase Agreement with Michael Johnston dated August
17, 1998.
99.9 Stock Purchase Agreement with Ralph Mayoral dated August 17,
1998.
99.10 Employment Agreement with Carlos De la Torre dated August 17,
1998.
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99.11 Employment Agreement with McRae B. Johnston dated August 17,
1998.
99.12 Employment Agreement with Michael Johnston dated August 17,
1998.
99.13 Employment Agreement with Ralph Mayoral dated August 17, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
GAINSCO, INC.
By /s/ SAM ROSEN
--------------------------------
Sam Rosen, Corporate Secretary
Dated: August 26, 1998
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GAINSCO, INC.
EXHIBIT INDEX
NUMBER AND DESCRIPTION OF EXHIBITS*
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<CAPTION>
EXHIBIT
NO. EXHIBIT
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<S> <C>
99.5 Press release by the Company dated August 18, 1998 announcing
executing of definitive agreements to acquire Lelande Group.
99.6 Stock Purchase Agreement with Carlos De la Torre dated August
17, 1998.
99.7 Stock Purchase Agreement with McRae B. Johnston dated August
17, 1998.
99.8 Stock Purchase Agreement with Michael Johnston dated August
17, 1998.
99.9 Stock Purchase Agreement with Ralph Mayoral dated August 17,
1998.
99.10 Employment Agreement with Carlos De la Torre dated August 17,
1998.
99.11 Employment Agreement with McRae B. Johnston dated August 17,
1998.
99.12 Employment Agreement with Michael Johnston dated August 17,
1998.
99.13 Employment Agreement with Ralph Mayoral dated August 17, 1998.
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* Exhibits not listed are inapplicable.
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EXHIBIT 99.5
THE GAINSCO COMPANIES
NEWS
GAINSCO to Acquire Nonstandard Private Passenger Automobile Insurance
Operation
FORT WORTH, Texas, August 18 /PRNewswire/ -- GAINSCO, INC. (NYSE: GNA)
today announced it had executed definitive agreements to acquire Lalande Group,
a privately-owned Miami, Florida-based operation specializing in underwriting,
servicing and claims adjusting in the nonstandard private passenger automobile
insurance market in Florida.
"This is the first major step in our transformation process to expand
and diversify the earnings base of our Company," said Glenn W. Anderson,
President & CEO of GAINSCO. "The Lalande Group is a strong, disciplined, and
highly integrated marketing, underwriting, and claims organization that is
operating very successfully in the Florida nonstandard private passenger auto
marketplace. The combination of our two organizations will generate a valuable
new source of underwriting earnings and establish a strong foundation for
expansion beyond Florida in the future, working together with GAINSCO's agency
force."
Lalande Group has two principal corporations. The first is National
Speciality Lines, Inc. (NSL), a managing general agency established in 1989
which markets nonstandard private passenger insurance through over 500 retail
agencies in Florida and expects to produce approximately $45 million in gross
premiums written in 1998. The second is De la Torre Insurance Adjusters, Inc.
(DLT), a 20-year old automobile claims adjusting operation that provides
services to NSL and to third parties for a fee. After completion of the
acquisition, Lalande Group will operate from its existing Miami, Florida base.
"We are very excited about the opportunity to be joining the GAINSCO
team," said McRae Johnston, a 21-year veteran of the auto insurance industry and
President of NSL, and Carlos De la Torre, a 28-year claim veteran and President
of DLT. "We have seen a commonality of spirit and drive among our companies, and
we look forward to the profitable growth of this business line for GAINSCO."
The purchase price consideration will consist of $18 million in cash at
closing plus up to an additional $22 million in cash over approximately five
years linked directly to operating performance. The acquisition is expected to
be minimally accretive in 1999 during the transition period to a totally
integrated business line and is expected to provide significant accretion in
subsequent years. The transaction is expected to be dilutive in 1998 and to be
funded with borrowings or internally generated funds.
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The transaction is expected to close by early in the fourth quarter of
1998.
GAINSCO's financial advisor for the transaction was Wasserstein
Perrella & Co. Lalande Group was advised by Metis Financial, LLC.
GAINSCO, INC. is a vertically integrated property and casualty
insurance holding company specializing in underwriting excess and surplus lines.
Its insurance companies are all rated "A" (Excellent) by A.M. Best.
Statements made in this release that are not strictly historical may be
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements involve certain risks and uncertainties that could cause actual
results to differ materially from those contained in the forward-looking
statements. Important factors include, but are not limited to, (a) heightened
competition, including price competition from existing competitors, from newly
formed competitors and from the entry into GAINSCO's markets of standard
insurance companies which historically have not competed in the Company's
specialty markets, (b) contraction of the markets for the Company's various
lines of business, (c) development and performance of new specialty programs,
(d) the ongoing level of claims and claims-related expenses, (e) adequacy of
claim reserves, (f) the ability to complete value-adding acquisitions, (g) the
ability of the Company to fully integrate newly acquired companies and their
customers and mangers into GAINSCO, and (h) general economic conditions.
Please refer to the Company's SEC filings for further information.
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EXHIBIT 99.6
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of August ___,
1998, by and among GAINSCO, INC., a Texas corporation ("Buyer"), Carlos De la
Torre ("C. De la Torre"), Rosa De la Torre ("R. De la Torre" and, together with
C. De la Torre, the "De la Torres" or "Sellers"), National Specialty Lines,
Inc., a Florida corporation ("NSL"), De La Torre Insurance Adjusters, Inc., a
Florida corporation ("DLT") and Lalande Financial Group, Inc., a Florida
corporation ("Lalande").
RECITALS
WHEREAS, C. De la Torre is the record and beneficial owner of 10
shares of common stock, $1.00 par value per share ("NSL Common Stock"), of NSL;
and
WHEREAS, the De la Torres are the record and beneficial owner of 200
shares of common stock, $1.00 par value per share ("DLT Common Stock"), of DLT;
and
WHEREAS, C. De la Torre is the record and beneficial owner of 100
shares of common stock, $1.00 par value per share ("Lalande Common Stock"), of
Lalande; and
WHEREAS, C. De la Torre and the De la Torres desire to sell, and Buyer
desires to purchase, all of the issued and outstanding shares of NSL Common
Stock, DLT Common Stock and Lalande Common Stock owned by C. De la Torre and
the De la Torres (the "Shares"), for the consideration and on the terms set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements set forth and for other good and valuable consideration, the
adequacy, sufficiency and receipt of which are hereby acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"ACQUIRED COMPANY"--any of NSL, DLT, Lalande, or their respective
Subsidiaries, and the term "Acquired Companies" means NSL, DLT, Lalande, and
their respective Subsidiaries, collectively.
"APPLICABLE CONTRACT"--any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
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"BEST EFFORTS"--the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"COMPANIES"--NSL, DLT and Lalande, collectively.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including (a) the sale of the Shares by Sellers to Buyer; (b)
the execution, delivery, and performance of the C. De la Torre Employment
Agreement and the Sellers' Release; (c) the performance by Buyer, Sellers and
the Companies of their respective covenants and obligations under this
Agreement; and (d) Buyer's acquisition and ownership of the Shares and exercise
of control over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DISCLOSURE LETTER"--the disclosure letter delivered by Sellers to
Buyer concurrently with the execution and delivery of this Agreement.
"EMPLOYEE BENEFIT PLAN"--any "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined
in Section 3(1) of ERISA), "Multi-employer Plan" (as defined in Section 3(37)
of ERISA), plan of deferred compensation, medical plan, life insurance plan,
long-term disability plan, dental plan or other plan providing for the welfare
of any of NSL's, DLT's or Lalande's employees or former employees or
beneficiaries thereof (as applicable), personnel policy (including but not
limited to vacation time, holiday pay, bonus programs, moving expense
reimbursement programs and sick leave), excess benefit plan, bonus or incentive
plan (including but not limited to stock options, restricted stock, stock bonus
and deferred bonus plans), salary reduction agreement, change- of-control
agreement, employment agreement, consulting agreement or any other benefit,
program or contract.
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
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"ENVIRONMENTAL LAW"--the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Water Pollution Control Act, the
Safe Drinking Water Act, the Federal Clean Water Act, the Federal Clean Air
Act, the Federal Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Federal Solid Waste Disposal Act, the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Occupational Safety and Health Act, each as amended,
and all other environmental statutes enacted by any Governmental Body, and any
executive order, ordinances, rules or regulations promulgated under any of the
foregoing.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by any Acquired Company.
"GAAP"--United States generally accepted accounting principles,
applied on a basis consistent with the basis on which the NSL Balance Sheet,
the DLT Balance Sheet, the Lalande Interim Balance Sheet, and the other
financial statements referred to in Sections 3.4, 4.4 and 5.4, respectively,
were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY"--any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
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<PAGE> 4
"INSURANCE PERMIT"--any Governmental Authorization in any jurisdiction
to underwrite, place, sell or otherwise transact insurance or reinsurance, or
to engage in premium finance activities.
"INVESTMENT GUIDELINES"--a written statement of the current investment
programs, containing the investment policies and guidelines.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course
of conducting a reasonable investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such
Person (or by any Person or group of Persons exercising similar authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), in the ordinary course of the
normal day- to-day operations of other Persons that are in the same line of
business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership
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of a limited partnership; (d) any charter or similar document adopted or filed
in connection with the creation, formation, or organization of a Person; and
(e) any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN AFFILIATE"--with respect to any Person, any other person or
entity with whom the Person constitutes all or part of a controlled group, or
which would be treated with the Person as under common control or whose
employees would be treated as employed by the Person, under Section 414 of the
IRC and any regulations, administrative rulings and case law interpreting the
foregoing.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPRIETARY RIGHTS AGREEMENT"--any confidentiality, noncompetition,
or proprietary rights agreement.
"PURCHASE AGREEMENTS"--collectively, (a) that certain Stock Purchase
Agreement, dated the date hereof, by and among Buyer, McRae B. Johnston ("M.B.
Johnston"), NSL, and Lalande; (b) that certain Stock Purchase Agreement, dated
the date hereof, by and among Buyer, Michael Johnston ("M. Johnston") and NSL;
and (c) that certain Stock Purchase Agreement, dated the date hereof, by and
among Buyer, Ralph Mayoral ("R. Mayoral") and DLT.
"RELATED PERSON"--with respect to a particular individual, (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and (d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c).
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For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting power of a
Person or equity securities or other equity interests representing at least ten
percent (10%) of the outstanding equity securities or equity interests in a
Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SUBSIDIARY"--with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct
the business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred) are held by the Owner or one or more of its
Subsidiaries.
"TAX"--any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
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"YEAR 2000 COMPLIANT"--with respect to any item shall mean that such
item: (i) from now until January 1, 2000, must correctly operate, store,
process and produce data containing dates before January 1, 2000; (ii) from now
until January 1, 2000, must correctly operate, store, process and produce data
containing dates after December 31, 1999; (iii) from January 1, 2000, must
correctly operate, store, process and produce data containing dates before
January 1, 2000; (iv) from January 1, 2000, must correctly operate, store,
process and produce data containing dates after December 31, 1999; (v) must be
able to handle the date January 1, 2001 correctly; (vi) must recognize the year
2000 as a leap year (e.g., February 2000 is recognized as a valid date, Julian
date 00060 is recognized as February 29, 2000, Julian date 00366 is recognized
as December 31, 2000, arithmetic operations performed recognize that the year
2000 has 366 days and binary date 36584 is recognized as February 29, 2000);
(vii) must be able to correctly process data containing the date September 9,
1999; (viii) must provide date data century recognition correctly; (ix) must
correctly accommodate calculations with same century and multi-century
formulas; (x) must correctly provide date values and date data interface values
that reflect the century; (xi) must be able to correctly manage and manipulate
data involving dates, including single century and multi-century formulas and
must not cause an abnormally ending scenario within the application or result
in the generation of incorrect values involving such dates; (xii) must ensure
that date-related user interface functions and data fields correctly include
the indication of the century; and (xiii) must ensure that all date-related
functions correctly include an indication of the century. For purposes of this
definition, "correctly" shall mean accurately and without delay, corruption,
interruption or error relating to the time at which or the date on which such
items are operating.
ARTICLE II
SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Sellers will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Sellers.
2.2 Purchase Price. The purchase price (the "Purchase Price") for
the Shares shall be (i) $8,280,000 in cash (the "Initial Purchase Price") plus
(ii) the payments made pursuant to Section 2.3 hereof, if any.
2.3 Earnout Payments.
(a) The terms below shall have the following respective meanings
for the purposes of this Section 2.3:
"ACQUIRED COMPANIES" means, for purposes of this Section 2.3,
NSL, DLT, Lalande, and their respective Subsidiaries, collectively,
and any business or businesses conducted by Buyer, or by any
subsidiaries or affiliated corporations of Buyer, that represent a
succession to and a continuation of the business conducted by NSL,
DLT, Lalande, and their respective subsidiaries, collectively, as the
same may be expanded or contracted from and after Closing.
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"CHANGE OF CONTROL" means any of the following:
(1) any consolidation or merger of the Buyer in
which the Buyer is not the continuing or surviving corporation
or pursuant to which shares of the Buyer's common stock would
be converted into cash, securities or other property, other
than a merger of the Buyer in which the holders of the Buyer's
common stock immediately prior to the merger have the same
percentage ownership of common stock of the surviving
corporation immediately after the merger;
(2) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets or a majority of the
liabilities of the Buyer;
(3) any approval by the shareholders of the Buyer
of any plan or proposal for the liquidation or dissolution of
the Buyer;
(4) the cessation of control (by virtue of their
not constituting a majority of directors) of the Buyer's Board
of Directors by the individuals (the "Continuing Directors")
who (x) at the date of this Agreement were directors or (y)
become directors after the date of this Agreement and whose
election or nomination for election by the Buyer's
shareholders, was approved by a vote of at least two-thirds of
the directors then in office who were directors at the date of
this Agreement or whose election or nomination for election
was previously so approved;
(5) (A) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended ("Beneficial Ownership")) of
at least an aggregate of 20% of the voting power of the
Buyer's outstanding voting securities by any person or group
(as such term is used in Rule 13d-5 under such Act) who
Beneficially Owned less than 10% of the voting power of the
Buyer's outstanding voting securities on the date hereof, (B)
the acquisition of Beneficial Ownership of an additional 5% of
the voting power of the Buyer's outstanding voting securities
by any person or group who Beneficially Owned at least 10% of
the voting power of the Buyer's outstanding voting securities
on the date hereof, or (C) the execution by the Buyer and a
shareholder of a contract that by its terms grants such
shareholder (in its, hers or his capacity as a shareholder) or
such shareholder's Affiliate (as defined in Rule 405
promulgated under the Securities Act of 1933 (an "Affiliate"))
including, without limitation, such shareholder's nominee to
the Board of Directors (in its, hers or his capacity as an
Affiliate of such shareholder), the right to veto or block
decisions or actions of the Board of Directors; provided,
however, that notwithstanding the foregoing, the events
described in items (A), (B) or (C) above shall not constitute
a Change in Control hereunder if the shareholder is (aa) a
trustee or other fiduciary holding
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securities under an employee benefit plan of the Buyer and
acting in such capacity, (bb) a corporation owned, directly or
indirectly, by the shareholders of the Buyer in substantially
the same proportions as their ownership of voting securities
of the Buyer or (cc) in the case of an acquisition described
in items (A) or (B) above, any other person whose acquisition
of shares of voting securities is approved in advance by a
majority of the Continuing Directors, unless such acquisition
is greater than 40% of the voting power of the Buyer's
outstanding voting securities; provided further, however that
none of the following shall constitute a Change in Control:
(aa) the right of the holders of any voting securities of the
Buyer to vote as a class on any matter or (bb) any vote
required of disinterested or unaffiliated directors or
shareholders including, without limitation, pursuant to Rule
16b-3 promulgated pursuant to the Securities Exchange Act of
1934; or
(6) subject to applicable law, in a Chapter 11
bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Buyer to a case under
Chapter 7.
"CHANGE OF CONTROL TRIGGER" means, after a Change in Control,
a material change in the management direction and prospects of the
Acquired Companies in place immediately prior to the Change of
Control, including (i) a termination of C. De la Torre or M.B.
Johnston Without Cause or for Employer Breach, as defined in the
Employment Agreements of C. De la Torre and M.B. Johnston,
respectively; or (ii) a material reduction or restriction in the
territory for expansion of the Acquired Companies; or (iii) a material
change in the operating strategy of the Acquired Companies.
"COMPUTATION STATEMENT" means a statement setting forth in
reasonable detail Buyer's calculation of the Pre-Tax Earnings of the
Acquired Companies during the applicable Earnout Period and the
calculation of the Earnout Amount for such Earnout Period.
"EARNED PREMIUMS" means earned premiums as defined by
generally accepted accounting principles, consistently applied.
"EARNOUT CONSIDERATION" means $8,284,000.
"EARNOUT PERIOD" means the following periods, as applicable:
(i) the first Earnout Period will commence on the Integration Date
and will terminate one day prior to the first anniversary of the
Integration Date; (ii) the second Earnout Period will commence on the
first anniversary of the Integration Date and will terminate one day
prior to the second anniversary of the Integration Date; and (iii) the
third Earnout Period will commence on the second anniversary of the
Integration Date and will terminate one day prior to the third
anniversary of the Integration Date.
"EARNOUT RATIO" means, for each applicable Earnout Period, the
quotient of (i) the difference between (A) Pre-Tax Earnings for that
Earnout Period and (B) the Threshold
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<PAGE> 10
Earnout Level for that Earnout Period and (ii) the difference between
(A) the Maximum Earnout Level for that Earnout Period and (B) the
Threshold Earnout Level for that Earnout Period; provided, however,
that in the event the Threshold Earnout Level for such Earnout Period
is equal to or exceeds the Pre-Tax Earnings for the Earnout Period,
the Earnout Ratio shall be zero (0).
"INCURRED LOSSES AND LOSS ADJUSTMENT EXPENSES" means, for any
period, (A) case basis reserves plus losses incurred but not reported
("IBNR"), including development of losses for the applicable Earnout
Period, as of the end of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period,
plus (B) losses and Loss Adjustment Expenses paid during the period
and less (C) case basis reserves plus IBNR, including development of
losses for the applicable Earnout Period, as of the beginning of the
period, using the latest information available at the conclusion of
each Earnout Period or Release Period.
"INTEGRATION DATE" means the earlier of (i) the first day of
the calendar quarter immediately following the date on which ninety
percent (90%) or more of the policies written by or through the
Acquired Companies are policies in force of Subsidiaries of Buyer or
(ii) July 1, 2000, if Buyer has not provided the ability or means to
enable ninety percent (90%) or more of direct and/or assumed policies
written by or through the Acquired Companies to be policies in force
of Subsidiaries of Buyer.
"LOSS ADJUSTMENT EXPENSES" means, for any period, expenses
incurred in the course of investigating and settling claims,
including, without limitation, legal and adjusters' fees and the costs
of paying claims and related expenses.
"LOSS RATIO" means, for any period, the quotient of (i)
Incurred Losses and Loss Adjustment Expenses for the period and (ii)
Earned Premiums for the period.
"MAXIMUM EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $11,000,000; (ii) for the second Earnout Period,
$16,000,000; and (iii) for the third Earnout Period, $22,000,000.
"MAXIMUM EARNOUT PAYMENT" means the following payments,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, 25% of the Earnout Consideration; (ii) for the second
Earnout Period, 25% of the Earnout Consideration; and (iii) for the
third Earnout Period, 50% of the Earnout Consideration.
"PAYMENT DATE" means the date sixty (60) days after the
termination of each Earnout Period (or the next succeeding business
day if such date is not a business day).
"PRE-TAX EARNINGS" means, for each Earnout Period, (a) the net
earnings, before all income taxes and interest expense, of Buyer and
its Subsidiaries, attributable to the operation of the Acquired
Companies, less (b) the amount of the Support Functions Reimbursement,
plus (c) investment income on initial imputed capital of $15,000,000,
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<PAGE> 11
effective as of the Integration Date, for such Earnout Period, less
(d) an annual imputed cost of capital charge based on the
then-outstanding prime rate at the beginning of each year plus 1% for
any incremental growth capital investments attributable to the
Acquired Companies. Such incremental capital will be based on capital
purchases and a ratio of 2.5 to 1 of (x) net written premiums to (y)
net book value less deferred acquisition costs, in accordance with
generally accepted accounting principles, consistently applied.
Pre-Tax Earnings shall be calculated (i) on the accrual basis of
accounting in accordance with generally accepted accounting principles
consistently applied and (ii) as though the Acquired Companies were a
single corporation with all of its shares owned by persons who are
neither directly nor indirectly related to Buyer.
"RATING REDUCTION" means the occurrence of a rating by A.M.
Best Company of Buyer's insurance companies, as a group, below A-
("Excellent").
"RELEASE DATE" means the date sixty (60) days after the
termination of each Release Period (or the next succeeding business
day if such date is not a business day).
"RELEASE PERIOD" means the following periods, as applicable:
(i) the first Release Period for the first Earnout Period will
commence one day after the termination date of the first Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the first Earnout Period will
commence one day after the first anniversary of the termination date
of the first Earnout Period and will terminate on the second
anniversary of such termination date; (ii) the first Release Period
for the second Earnout Period will commence one day after the
termination date of the second Earnout Period and will terminate on
the first anniversary of such termination date, and the second Release
Period for the second Earnout Period will commence one day after the
first anniversary of the termination date of the second Earnout Period
and will terminate on the second anniversary of such termination date;
and (iii) the first Release Period for the third Earnout Period will
commence one day after the termination date of the third Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the third Earnout Period will
commence one day after the first anniversary of the termination date
of the third Earnout Period and will terminate on the second
anniversary of such termination date.
"SELLERS' ADVISORY REPRESENTATIVE" means M.B. Johnston, acting
on behalf of himself, C. De la Torre, R. De la Torre, M. Johnston and
R. Mayoral, collectively, or any successor thereto appointed by
unanimous agreement of such persons who are not the Sellers' Advisory
Representative.
"SUBSEQUENT EARNOUT PAYMENT" means (i) the Maximum Earnout
Payment for that Earnout Period multiplied by (ii) the Earnout Ratio
for that Earnout Period.
"SUPPORT FUNCTIONS REIMBURSEMENT" means a monthly fee charged
to the Acquired Companies to cover Buyer's expenses in connection with
providing direct support functions, such as information systems
support, actuarial support, human
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<PAGE> 12
resources support and accounting support. In the event the Acquired
Companies require special attention for any unusual circumstance in
any month, the monthly fee may be increased for that month to reflect
an amount Buyer reasonably determines is the true cost to Buyer of
providing management and support functions to the Acquired Companies.
In such case Buyer shall provide, as part of its Computation
Statement, the basis for such increased monthly fee.
"THRESHOLD EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $6,000,000; (ii) for the second Earnout Period,
$8,000,000; and (iii) for the third Earnout Period, $10,000,000.
(b) Integration Consideration. Except as provided in this
Agreement, Buyer will deliver to Sellers additional consideration (the
"Integration Consideration") for the Shares equal to $920,000 within thirty
(30) days after the Integration Date.
(c) Subsequent Earnout Payments.
(i) On the Payment Date for the first Earnout Period,
Buyer will deliver to Sellers additional consideration (the "First
Earnout Period Subsequent Earnout Payment") for the Shares, equal to
the Subsequent Earnout Payment for the first Earnout Period multiplied
by 50%; provided, however, that the amount paid pursuant to this
clause (i) shall not exceed 50% of the Maximum Earnout Payment for the
first Earnout Period.
(ii) On the Payment Date for the second Earnout Period,
Buyer will deliver to Sellers additional consideration (the "Second
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the second Earnout Period;
provided, however, that the amount paid pursuant to this clause (ii)
shall not exceed 50% of the Maximum Earnout Payment for the second
Earnout Period.
(iii) On the Payment Date for the third Earnout Period,
Buyer will deliver to Sellers additional consideration (the "Third
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the third Earnout Period;
provided, however, that the amount paid pursuant to this clause (iii)
shall not exceed 50% of the Maximum Earnout Payment for the third
Earnout Period.
(iv) Delivery of Computation Statements. At the
conclusion of each Earnout Period, Buyer shall prepare a Computation
Statement for the Earnout Amount earned during such Earnout Period and
shall provide such Computation Statement to the Sellers' Advisory
Representative for his review and comments within forty-five (45) days
after the termination of such Earnout Period, with a copy thereof to
Metis Financial LLC. If, within thirty (30) days after delivery of
the Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Computation Statement shall be conclusive and binding on Sellers. In
the event the Sellers' Advisory Representative gives Buyer such notice
of dispute within such 30-day period, Buyer shall
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<PAGE> 13
pay any amounts due hereunder that are not in dispute, and the
Sellers' Advisory Representative and Buyer will use their best efforts
to settle the dispute within 30 days after the giving of such notice.
Any dispute unresolved after such 30-day period shall be submitted to
a national public accounting firm satisfactory to the Sellers'
Advisory Representative and Buyer, or, in the absence of agreement on
such firm, to a panel of three public accounting firms, one designated
by the Sellers' Advisory Representative, one designated by Buyer and
one jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Sellers are entitled to an Earnout Amount which exceeds the Earnout
Amount set forth on the applicable Computation Statement by an
aggregate amount greater than ten percent (10%) of such Earnout
Amount, Buyer shall pay the cost of the arbitration. Otherwise,
Sellers shall pay the cost of the arbitration. Buyer shall maintain
books and records for the Acquired Companies in a manner which will
facilitate its calculation of each Earnout Amount and the review by
the Sellers' Advisory Representative of each Computation Statement.
Buyer shall make available, at Buyer's offices during normal business
hours, to the Sellers' Advisory Representative and his attorneys,
accountants and other representatives for examination, such of its
books of account, contracts, licenses, leases, instruments,
commitments, sale orders, purchase orders, records, accountant's work
papers and other documents as are relevant to the preparation of the
Computation Statement.
(d) Retroactive Payments.
(i) First Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the first Earnout Period, Buyer will
deliver to Sellers additional consideration (the
"First Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the first anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period x 75%) - First Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment and the
First Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the first Earnout Period,
Buyer shall only pay Sellers an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the first Earnout Period and (ii) the
First Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Sellers; and further
provided that if the First Period Second Year Payment
is less than zero, no amount shall be paid to
Sellers.
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<PAGE> 14
(B) On the second anniversary of the Payment Date
for the first Earnout Period, Buyer will deliver to Sellers
additional consideration (the "First Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the second anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period) - First Earnout Period Subsequent Earnout Payment - First
Period Second Year Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment, the First
Period Second Year Payment and the First Period Third
Year Payment exceeds the Maximum Earnout Payment for
the first Earnout Period, Buyer shall only pay
Sellers an amount equal to the (i) the Maximum
Earnout Payment for the first Earnout Period less
(ii) the First Earnout Period Subsequent Earnout
Payment less (iii) the First Period Second Year
Payment, unless such amount is less than zero, in
which case Buyer shall pay no amount to Sellers; and
further provided that if the First Period Third Year
Payment is less than zero, Sellers shall pay the
integral amount of the First Period Third Year
Payment to Buyer, not to exceed the sum of (x) the
First Earnout Period Subsequent Earnout Payment and
(y) the First Period Second Year Payment.
The Future Earnout Amount for the First Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment less (iv)
the First Period Third Year Payment, unless such
amount is less than zero, in which case the Future
Earnout Amount for the First Earnout Period shall be
equal to zero.
(ii) Second Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the second Earnout Period, Buyer
will deliver to Sellers additional consideration (the
"Second Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the first anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period x 75%) - Second Earnout Period Subsequent
Earnout Payment.
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<PAGE> 15
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment and the
Second Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the second Earnout
Period, Buyer shall only pay Sellers an amount equal
to the difference between (i) 75% of the Maximum
Earnout Payment for the second Earnout Period and
(ii) the Second Earnout Period Subsequent Earnout
Payment, unless such amount is less than zero, in
which case Buyer shall pay no amount to Sellers; and
further provided that if the Second Period Second
Year Payment is less than zero, no amount shall be
paid to Sellers.
(B) On the second anniversary of the Payment Date
for the second Earnout Period, Buyer will deliver to Sellers
additional consideration (the "Second Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the second anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period) - Second Earnout Period Subsequent
Earnout Payment - Second Period Second Year Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment, the Second
Period Second Year Payment and the Second Period
Third Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the second Earnout Period and (y)
the Future Earnout Amount for the First Earnout
Period, Buyer shall only pay Sellers an amount equal
to the (i) the Maximum Earnout Payment for the second
Earnout Period plus (ii) the Future Earnout Amount
for the First Earnout Period less (iii) the Second
Earnout Period Subsequent Earnout Payment less (iv)
the Second Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Sellers; and further provided that
if the Second Period Third Year Payment is less than
zero, Sellers shall pay the integral amount of the
Second Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Second Earnout Period
Subsequent Earnout Payment and (y) the Second Period
Second Year Payment.
The Future Earnout Amount for the Second Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the second Earnout Period plus (ii) the
Future Earnout Amount for the First Earnout Period
less (iii) the Second Earnout Period Subsequent
Earnout Payment less (iv) the Second
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<PAGE> 16
Period Second Year Payment less (v) the Second Period
Third Year Payment, unless such amount is less than
zero, in which case the Future Earnout Amount for the
Second Earnout Period shall be equal to zero.
(iii) Third Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the third Earnout Period, Buyer will
deliver to Sellers additional consideration (the
"Third Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the
third Earnout Period recomputed as of the first anniversary of the end
of the third Earnout Period) x Earned Premiums for the third Earnout
Period) + Pre-Tax Earnings for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period) / (Maximum Earnout Level
for the third Earnout Period - Threshold Earnout Level for the third
Earnout Period)) x Maximum Earnout Payment for the third Earnout
Period x 75%) - Third Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment and the
Third Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the third Earnout Period,
Buyer shall only pay Sellers an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the third Earnout Period and (ii) the
Third Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Sellers; and further
provided that if the Third Period Second Year Payment
is less than zero, no amount shall be paid to
Sellers.
(B) On the second anniversary of the Payment Date
for the third Earnout Period, Buyer will deliver to Sellers
additional consideration (the "Third Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the second anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period) - Third Earnout Period Subsequent Earnout Payment - Third
Period Second Year Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment, the Third
Period Second Year Payment and the Third Period Third
Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the third Earnout Period and (y)
the Future Earnout Amount for the Second Earnout
Period, Buyer shall only pay Sellers an amount equal
to (i) the Maximum Earnout Payment for the third
Earnout Period
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<PAGE> 17
plus (ii) the Future Earnout Amount for the Second
Earnout Period less (iii) the Third Earnout Period
Subsequent Earnout Payment less (iv) the Third Period
Second Year Payment, unless such amount is less than
zero, in which case Buyer shall pay no amount to
Sellers; and further provided that if the Third
Period Third Year Payment is less than zero, Sellers
shall pay the integral amount of the Third Period
Third Year Payment to Buyer, not to exceed the sum of
(x) the Third Earnout Period Subsequent Earnout
Payment and (y) the Third Period Second Year Payment.
(iv) Delivery of Retroactive Computation Statements. At
the conclusion of each Release Period, Buyer shall prepare a
Retroactive Computation Statement for the Pre-Tax Earnings recomputed
for the applicable Earnout Period and shall provide such Retroactive
Computation Statement to the Sellers' Advisory Representative for his
review and comments within forty-five (45) days after the termination
of such Release Period, with a copy thereof to Metis Financial LLC.
If, within thirty (30) days after delivery of the Retroactive
Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Retroactive Computation Statement shall be conclusive and binding on
Sellers. In the event the Sellers' Advisory Representative gives
Buyer such notice of dispute within such 30-day period, Buyer shall
pay any amounts due hereunder that are not in dispute, and the
Sellers' Advisory Representative and Buyer will use their best efforts
to settle the dispute within 30 days after the giving of such notice.
Any dispute unresolved after such 30-day period shall be submitted to
a national public accounting firm satisfactory to the Sellers'
Advisory Representative and Buyer, or, in the absence of agreement on
such firm, to a panel of three public accounting firms, one designated
by the Sellers' Advisory Representative, one designated by Buyer and
one jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Sellers are entitled to such disputed amount, Buyer shall pay the cost
of the arbitration. Otherwise, Sellers shall pay the cost of the
arbitration. Buyer shall maintain books and records for the Acquired
Companies in a manner which will facilitate its recomputation of the
Pre-Tax Earnings applicable for each Earnout Period and the review by
the Sellers' Advisory Representative of each Retroactive Computation
Statement. Buyer shall make available, at Buyer's offices during
normal business hours, to the Sellers' Advisory Representative and his
attorneys, accountants and other representatives for examination, such
of its books of account, contracts, licenses, leases, instruments,
commitments, sale orders, purchase orders, records, accountant's work
papers and other documents as are relevant to the preparation of the
Retroactive Computation Statement.
(e) Change of Control. Notwithstanding anything in this Section
2.3 to the contrary, after a Change in Control of Buyer and in the event of a
Change of Control Trigger, Buyer will deliver to Sellers additional
compensation for the Shares, in lieu of any further payments that may be
required under this Section 2.3 on or after the date of such Change of Control
Trigger, as follows:
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<PAGE> 18
(i) If the Change of Control Trigger occurs prior to or
during the first Earnout Period, an amount equal to $2,329,875 plus
the greater of:
(A) the Subsequent Earnout Payment for the first
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the first Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
first Earnout Period; provided, however, that such amount
shall not exceed the Maximum Earnout Payment for the first
Earnout Period; or
(B) $776,625.
(ii) If the Change of Control Trigger occurs during the
second Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) $1,553,250 plus the greater of:
(A) the Subsequent Earnout Payment for the second
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the second Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
second Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the second Earnout Period and (y) the Future Earnout
Amount for the First Earnout Period; or
(B) $776,625.
(iii) If the Change of Control Trigger occurs during the
third Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) the greater of:
(A) the Subsequent Earnout Payment for the third
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the third Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
third Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the third Earnout Period and (y) the Future Earnout Amount
for the Second Earnout Period;
(B) $1,553,250; or
(C) the sum of all amounts earned by Sellers
pursuant to this Section 2.3 attributable to the first two
Earnout Periods as recalculated in accordance with Section
2.3(d) as of the end of the last calendar quarter prior to the
date of the Change of Control Trigger, multiplied by 75%.
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<PAGE> 19
(iv) Buyer shall deliver the amount owed to Sellers
pursuant to this Section 2.3(e) within sixty (60) days of the date of
the Change of Control Trigger.
(v) Any dispute, controversy or claim arising out of or
in relation to or connection to this Section 2.3(e), including without
limitation any dispute as to whether a Change of Control Trigger has
occurred, shall be exclusively and finally settled by arbitration, and
Buyer or the Sellers' Advisory Representative (each, for the purpose
of this Section 2.3(e)(v), a "Party" and collectively, the "Parties")
may submit such dispute, controversy or claim to arbitration.
(A) Arbitrators. The arbitration shall be heard
and determined by one arbitrator, who shall be impartial and
who shall be selected by mutual agreement of the Parties;
provided, however, that if the dispute and any dispute under
corresponding provisions of any of the respective Purchase
Agreements involve, in the aggregate more than $3,750,000,
then the arbitration shall be heard and determined by three
(3) arbitrators. If three (3) arbitrators are necessary as
provided above, then (i) each Party shall appoint an
arbitrator of its choice within thirty (30) days of the
submission of a notice of arbitration and (ii) the
Party-appointed arbitrators shall in turn appoint a presiding
arbitrator of the tribunal within thirty (30) days following
the appointment of the last Party- appointed arbitrator. If
(x) the Parties cannot agree on the sole arbitrator, (y) one
Party refuses to appoint its Party-appointed arbitrator within
said thirty (30) day period or (z) the Party-appointed
arbitrators cannot reach agreement on a presiding arbitrator
of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United
States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. If
the Senior United States District Judge for the Northern
District of Texas refuses or fails to act as the appointing
authority within ninety (90) days after being requested to do
so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall
appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. All
decisions and awards by the arbitration tribunal shall be made
by majority vote.
(B) Proceedings. Unless otherwise expressly
agreed in writing by the Parties to the arbitration
proceedings:
(1) The arbitration proceedings shall be
held in Fort Worth, Texas, at a site chosen by mutual
agreement of the Parties, or if the Parties cannot
reach agreement on a location within thirty (30) days
of the appointment of the last arbitrator, then at a
site chosen by the arbitrators;
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<PAGE> 20
(2) The arbitrators shall be and remain
at all times wholly independent and impartial;
(3) The arbitration proceedings shall be
conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, as amended from time to time;
(4) Any procedural issues not determined
under the arbitral rules selected pursuant to item
(3) above shall be determined by the law of the place
of arbitration, other than those laws which would
refer the matter to another jurisdiction;
(5) The costs of the arbitration
proceedings (including attorneys' fees and costs)
shall be borne in the manner determined by the
arbitrators;
(6) The decision of the arbitrators
shall be reduced to writing; final and binding
without the right of appeal; the sole and exclusive
remedy regarding any claims, counterclaims, issues or
accounting presented to the arbitrators; made and
promptly paid in United States dollars free of any
deduction or offset; and any costs or fees incident
to enforcing the award shall, to the maximum extent
permitted by law, be charged against the Person
resisting such enforcement;
(7) The award shall include interest
from the date of any breach or violation of this
Section 2.3(e), as determined by the arbitral award,
and from the date of the award until paid in full, at
5% per annum; and
(8) Judgment upon the award may be
entered in any court having jurisdiction over the
person or the assets of the Person owing the judgment
or application may be made to such court for a
judicial acceptance of the award and an order of
enforcement, as the case may be.
(f) After a Rating Reduction of Buyer, thirty (30) days after the
end of each quarter during each Earnout Period, Buyer shall place an amount
into an escrow account, such that the escrow account contains an amount equal
to the Subsequent Earnout Payment for such Earnout Period, as calculated
pursuant to Section 2.3(c) but based on the Pre-Tax Earnings of such quarter on
an annualized basis. The escrow agent shall then be responsible for all
payments under Sections 2.3(c) and (d). Buyer and Sellers shall, within 180
days after Closing, negotiate a form of an escrow agreement and use their Best
Efforts to identify a financial institution that would be willing to perform
the transactions contemplated by this Section 2.3(f). In the event that no
such financial institution is identified, Buyer and Sellers shall negotiate in
good faith to determine a mutually acceptable alternative.
(g) An example of the payments to be made pursuant to this Section
2.3 is attached hereto as Exhibit B. Such example is for illustrative purposes
only.
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<PAGE> 21
2.4 Closing. The purchase and sale (the "Closing") provided for
in this Agreement will take place at the offices of Haynes and Boone, LLP, at
201 Main Street, Suite 2200, Fort Worth, Texas, at 10:00 a.m. (local time) on a
date that is no later than five (5) days after all conditions to Closing have
been satisfied, or at such other time and place as the parties may agree.
Subject to the provisions of Article XI, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.4 will not result in the termination of
this Agreement and will not relieve any party of any obligation under this
Agreement.
2.5 Closing Obligations. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificate(s) representing the Shares, duly endorsed
(or accompanied by duly executed stock powers), for transfer to Buyer;
(ii) a release in the form of Exhibit 2.5(a)(ii) executed
by Sellers ("Sellers' Release");
(iii) an employment agreement in the form of Exhibit
2.5(a)(iii), executed by C. De la Torre ("C. De la Torre Employment
Agreement");
(iv) a certificate executed by Sellers and the Companies,
representing and warranting to Buyer that each of Sellers' and the
Companies' representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Disclosure
Letter delivered by Sellers and the Companies to Buyer prior to the
Closing Date in accordance with Section 7.5); and
(v) an opinion of Packman, Neuwahl & Rosenberg, P.A.,
dated the Closing Date, in the form agreed to by the parties.
(b) Buyer will deliver to Sellers:
(i) $8,280,000 by wire transfer payable to the order of
Sellers.
(ii) a certificate executed by Buyer, representing and
warranting to Seller that each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Buyer's Disclosure Letter prior to the Closing Date
in accordance with Section 8.4);
(iii) the C. De la Torre Employment Agreement, executed by
Buyer;
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<PAGE> 22
(iv) an opinion of Haynes and Boone, LLP, dated the
Closing Date, in the form agreed to by the parties; and
(v) the Interest due pursuant to Section 2.6 hereof.
2.6 Interest on Purchase Price. In the event that the Closing
Date does not occur within ninety (90) days of the date of this Agreement, for
any reason solely the fault of Buyer, Buyer shall pay Sellers interest on the
Initial Purchase Price, commencing on the 91st day after the date of this
Agreement and continuing to accrue until the Closing Date, at an interest rate
of 5% per annum (the "Interest"). The Interest shall be payable at Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF C. DE LA TORRE AND NSL
C. De la Torre and NSL jointly and severally represent and warrant to
Buyer as follows:
3.1 Organization and Good Standing.
(a) Part 3.1 of the Disclosure Letter contains a complete and
accurate list, for NSL and each Subsidiary of NSL (NSL, together with each
Subsidiary of NSL, collectively referred to herein as the "NSL Acquired
Companies"), of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each shareholder and the number of shares held by
each). Each NSL Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each NSL Acquired Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification. No jurisdiction, other than those listed in Part 3.1 of the
Disclosure Letter, has claimed, in writing, that any NSL Acquired Company is
required to hold a Governmental Authorization, and none of the NSL Acquired
Companies files or is required to file any Tax Returns in any other
jurisdiction.
(b) C. De la Torre has delivered to Buyer copies of the
Organizational Documents of each NSL Acquired Company, as currently in effect.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of NSL and C. De la Torre, enforceable against NSL and C. De la
Torre in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
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<PAGE> 23
laws affecting creditors' rights generally and by general principles of equity.
Upon the execution and delivery by C. De la Torre of the C. De la Torre
Employment Agreement and the Sellers' Release (collectively, the "Sellers'
Closing Documents"), the Sellers' Closing Documents will constitute the legal,
valid, and binding obligations of C. De la Torre, enforceable against C. De la
Torre in accordance with their respective terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and by general principles of equity.
C. De la Torre has all right, power, authority, and capacity to execute and
deliver this Agreement and the Sellers' Closing Documents and to perform his
obligations under this Agreement and the Sellers' Closing Documents. NSL has
all corporate right, power and authority to execute and deliver this Agreement
and to perform its obligations under this Agreement.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the NSL Acquired Companies; (ii) conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any NSL Acquired Company or
C. De la Torre, or any of the assets owned or used by any NSL Acquired Company,
may be subject; (iii) conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
suspend, terminate, or modify, any Insurance Permit or other Governmental
Authorization that is held by any NSL Acquired Company or that otherwise
relates to the business of, or any of the assets owned or used by, any NSL
Acquired Company; (iv) conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or (v) result in the imposition
or creation of any Encumbrance upon or with respect to any of the assets owned
or used by any NSL Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, neither
C. De la Torre nor any NSL Acquired Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
3.3 Capitalization. The authorized equity securities of NSL
consist of 100 shares of common stock, $1.00 par value per share, of which
21.0526 shares are issued and outstanding. The ownership of NSL is as set
forth on Exhibit A hereto. C. De la Torre is and will be on the Closing Date
the record and beneficial owner and holder of 10 shares of NSL Common Stock,
free and clear of all Encumbrances. NSL has no other class or series of
capital stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any NSL Acquired
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the NSL
Acquired Companies. With the exception
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<PAGE> 24
of the shares listed on Exhibit A hereto, all of the outstanding equity
securities and other securities of each NSL Acquired Company are owned of
record and beneficially by one or more of the NSL Acquired Companies, free and
clear of all Encumbrances.
Except as set forth in Part 3.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any NSL Acquired Company. All of the
outstanding equity securities of each NSL Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of any NSL Acquired Company. None of the
outstanding equity securities or other securities of any NSL Acquired Company
was issued in violation of the Securities Act or any other Legal Requirement.
No NSL Acquired Company owns, or has any Contract to acquire, any equity
securities or other securities of any Person (other than NSL Acquired
Companies) or any direct or indirect equity or ownership interest in any other
business. Except as set forth in Part 3.3 of the Disclosure Letter, there are
no restrictions upon the voting or transfer of, or the declaration or payment
of any dividend or distribution on, any shares of capital stock of any NSL
Acquired Company.
3.4 Financial Statements. C. De la Torre has delivered to Buyer:
(a) audited balance sheets of the NSL Acquired Companies as of December 31 in
each of the years 1995 and 1996, and the related audited statements of income,
changes in shareholders' equity, and cash flow for each of the fiscal years
then ended, together with the report thereon of Rachlin, Cohen & Holtz (or the
predecessors thereto, Mukamal, Appel, Fromberg & Margolies, P.A.), independent
certified public accountants, (b) a balance sheet of the NSL Acquired
Companies as of December 31, 1997 (including the notes thereto, the "NSL
Balance Sheet"), and the related statements of income, changes in
shareholders' equity, and cash flow for the fiscal year then ended, together
with the report thereon of Rachlin, Cohen & Holtz, independent certified public
accountants. C. De la Torre shall deliver to Buyer at least fifteen (15) days
prior to Closing a reviewed balance sheet of the NSL Acquired Companies as of
July 31, 1998 (the "NSL Interim Balance Sheet") and the related reviewed
statements of income, changes in shareholders' equity, and cash flow for the
seven (7) months then ended, including in each case the notes thereto. Such
financial statements and notes fairly present the financial condition and the
results of operations, changes in shareholders' equity, and cash flow of the
NSL Acquired Companies at the respective dates of and for the periods referred
to in such financial statements, all in accordance with GAAP, subject, in the
case of interim financial statements, to normal recurring year-end adjustments
(the effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the NSL Balance Sheet); the financial
statements referred to in this Section 3.4 reflect the consistent application
of such accounting principles throughout the periods involved, except as
disclosed in the notes to such financial statements. No financial statements of
any Person other than the NSL Acquired Companies are required by GAAP to be
included in the financial statements of NSL.
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<PAGE> 25
3.5 Books and Records. The books of account, minute books, stock
record books, and other records of the NSL Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
NSL Acquired Companies contain accurate and complete records of all meetings
held of, and corporate action taken by, the shareholders, the Boards of
Directors, and committees of the Boards of Directors of the NSL Acquired
Companies, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the NSL Acquired Companies.
3.6 Title to Properties; Encumbrances. Part 3.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any NSL Acquired Company. C. De la Torre
has delivered or made available to Buyer copies of the deeds and other
instruments (as recorded) by which the NSL Acquired Companies acquired such
real property and interests, and copies of all title insurance policies,
opinions, abstracts, and surveys in the possession of C. De la Torre or the NSL
Acquired Companies and relating to such property or interests. The Acquired
Companies own (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentence) all the
properties and assets (whether real, personal, or mixed and whether tangible or
intangible) that they purport to own located in the facilities owned or
operated by the NSL Acquired Companies or reflected as owned in the books and
records of the NSL Acquired Companies, including all of the properties and
assets reflected in the NSL Balance Sheet and the NSL Interim Balance Sheet
(except for personal property sold since the date of the NSL Balance Sheet and
the NSL Interim Balance Sheet, as the case may be, in the Ordinary Course of
Business), and all of the properties and assets purchased or otherwise acquired
by the NSL Acquired Companies since the date of the NSL Balance Sheet (except
for personal property acquired and sold since the date of the NSL Balance Sheet
in the Ordinary Course of Business and consistent with past practice), which
subsequently purchased or acquired properties and assets (other than short-term
investments) are listed in Part 3.6 of the Disclosure Letter. All material
properties and assets reflected in the NSL Balance Sheet and the NSL Interim
Balance Sheet are free and clear of all Encumbrances and are not, in the case
of real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature.
3.7 Accounts Receivable. All accounts receivable of the NSL
Acquired Companies that are reflected on the NSL Balance Sheet or the NSL
Interim Balance Sheet or on the accounting records of the NSL Acquired
Companies as of the Closing Date (collectively, the "NSL Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the NSL Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on
the NSL Balance Sheet or the NSL Interim Balance Sheet or on the accounting
records of the NSL Acquired Companies as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the NSL Accounts Receivable as of the Closing Date than the reserve with
respect to the NSL Accounts Receivable as reflected
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<PAGE> 26
in the NSL Interim Balance Sheet and will not represent a material adverse
change in the composition of such NSL Accounts Receivable in terms of aging).
Subject to such reserves, each of the NSL Accounts Receivable either has been
or, to the Knowledge of NSL and C. De la Torre, will be collected in full,
without any set-off, within ninety days after the day on which it first becomes
due and payable. There is no contest, claim, or right of set-off, other than
returns in the Ordinary Course of Business, under any Contract with any obligor
of an NSL Accounts Receivable relating to the amount or validity of such NSL
Accounts Receivable. Part 3.7 of the Disclosure Letter contains a complete and
accurate list of all NSL Accounts Receivable as of the date of the NSL Interim
Balance Sheet, which list sets forth the aging of such NSL Accounts Receivable.
3.8 No Undisclosed Liabilities. Except as set forth in Part 3.8
of the Disclosure Letter, the NSL Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the NSL Balance Sheet or the NSL
Interim Balance Sheet and current liabilities incurred in the Ordinary Course
of Business since the respective dates thereof.
3.9 Taxes.
(a) The NSL Acquired Companies or C. De la Torre, as applicable,
have filed or caused to be filed (on a timely basis since 1995) all Tax Returns
that are or were required to be filed by or with respect to any of the NSL
Acquired Companies, pursuant to applicable Legal Requirements. C. De la Torre
has delivered or made available to Buyer copies of, and Part 3.9 of the
Disclosure Letter contains a complete and accurate list of, all such Tax
Returns filed since January 1, 1995. The NSL Acquired Companies or C. De la
Torre, as applicable, have paid, or made provision for the payment of, all
Taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by C. De la Torre or any NSL
Acquired Company, except such Taxes, if any, as are listed in Part 3.9 of the
Disclosure Letter and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in
the NSL Balance Sheet and the NSL Interim Balance Sheet.
(b) Part 3.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 3.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 3.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any NSL Acquired Company or C. De la Torre for all taxable years since 1995
with respect to or that are directly or indirectly related to any NSL Acquired
Company, and the resulting deficiencies proposed by the IRS. Except as
described in Part 3.9 of the Disclosure Letter, neither C. De la Torre nor any
NSL Acquired Company has given or been requested to give waivers or extensions
(or is or would be subject to a waiver or extension given by any other Person)
of any statute of limitations relating to the payment of Taxes of, with respect
to, or that are directly or indirectly related to any NSL Acquired Company or
for which C. De la Torre or any NSL Acquired Company may be liable.
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<PAGE> 27
(c) The charges, accruals, and reserves with respect to, or that
are directly or indirectly related to, Taxes on the respective books of each
NSL Acquired Company are adequate (determined in accordance with GAAP) and are
at least equal to that NSL Acquired Company's liability for Taxes. There exists
no proposed tax assessment against any NSL Acquired Company or C. De la Torre
with respect to or that is directly or indirectly related to any NSL Acquired
Company except as disclosed in the NSL Balance Sheet or in Part 3.9 of the
Disclosure Letter. All Taxes with respect to or that are directly or indirectly
related to any NSL Acquired Company that any NSL Acquired Company or C. De la
Torre is or was required by Legal Requirements to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Body or other Person.
(d) All Tax Returns filed by any NSL Acquired Company or by C. De
la Torre with respect to or that are directly or indirectly related to any NSL
Acquired Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by any NSL Acquired Company after the
date of this Agreement. Each NSL Acquired Company is an "S" corporation (or a
Qualified Subchapter S Subsidiary, as the case may be), and NSL has had a valid
"S" corporation election in effect under Section 1362(a) of the IRC since
January 1, 1996. During the consistency period (as defined in Section
338(h)(4) of the IRC with respect to the sale of the Shares to Buyer), no NSL
Acquired Company or target affiliate (as defined in Section 338(h)(6) of the
IRC with respect to the sale of the Shares to Buyer) has sold or will sell any
property or assets to Buyer or to any member of the affiliated group (as
defined in Section 338(h)(5) of the IRC) that includes Buyer. Part 3.9 of the
Disclosure Letter lists all such target affiliates.
3.10 No Material Adverse Change. Since the date of the NSL Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any NSL Acquired
Company, and no event has occurred or circumstance exists that may result in
such a material adverse change.
3.11 Employee Benefit Plans. Except as set forth in Part 3.11 of
the Disclosure Letter, neither NSL nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in NSL or such Plan Affiliate having any material debt, liability,
claim or obligation of any kind or nature, whether accrued, absolute,
contingent, direct, indirect, known or unknown, perfected or inchoate or
otherwise and whether or not due or to become due. Correct and complete copies
of all Employee Benefit Plans of NSL previously have been furnished to Buyer.
The Employee Benefit Plans of NSL are in compliance in all material respects
with governing documents and agreements and with applicable laws. There has
not been any act or omission by NSL under ERISA or the terms of the Employee
Benefit Plans of NSL, or any other applicable law or agreement which could give
rise to any liability of NSL, whether under ERISA, the IRC or other laws or
agreements. Neither NSL nor any Plan Affiliate maintains or contributes to, or
has maintained or contributed to, any Employee Benefit Plan subject to Title IV
of ERISA.
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<PAGE> 28
3.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 3.12 of the Disclosure Letter,
each NSL Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any
of its assets.
(b) Part 3.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization, including each Governmental
Authorization to conduct insurance, insurance agency or brokerage and premium
finance business and each Insurance Permit, that is held by any NSL Acquired
Company or that otherwise relates to the business of, or to any of the assets
owned or used by, any NSL Acquired Company. Each Governmental Authorization
listed or required to be listed in Part 3.12 of the Disclosure Letter is valid
and in full force and effect. Each NSL Acquired Company owns or possesses all
right, title and interest in and to all of the Governmental Authorizations and
Insurance Permits that are necessary to enable it to carry on the business of
such NSL Acquired Company as presently conducted. Each NSL Acquired Company
has taken all necessary action to maintain such Governmental Authorizations.
No loss or expiration of any such Governmental Authorization is threatened,
pending or, to the Knowledge of NSL and C. De la Torre, reasonably foreseeable.
The consummation of the transactions contemplated hereby will not result in the
suspension, modification, cancellation, revocation or nonrenewal of any such
Governmental Authorization. Except for compliance with periodic renewal
procedures, no approvals or authorizations are required to permit the NSL
Acquired Companies to continue their business as presently conducted, following
the Closing.
(c) None of the NSL Acquired Companies or, to the Knowledge of C.
De la Torre and NSL, any of its agents or brokers are engaged in any insurance
agency or brokerage or premium finance business in any jurisdiction in which it
is not duly authorized or qualified to transact such business.
(d) Except as set forth in Part 3.12 of the Disclosure Letter,
each of the NSL Acquired Companies has filed all material reports, statements,
registrations, applications, filings or other documents and submissions
required to be filed with, or provided to any Governmental Body. Except as set
forth in Part 3.12 of the Disclosure Letter, all such reports, statements,
registrations, applications, filings, documents and submissions were in
compliance in all material respects with all applicable Legal Requirements when
filed, and no material deficiencies have been asserted by any Governmental Body
with respect thereto.
(e) C. De la Torre has furnished to Buyer true and complete copies
of all annual and quarterly statements filed with or submitted to any state
insurance regulatory authority and all reports of examinations (whether
financial, market conduct or other) issued by any state insurance regulatory
authorities in respect of any of the NSL Acquired Companies covering, in whole
or in part, any period on or after January 1, 1993, together with true and
complete copies of all written responses submitted by or on behalf of any of C.
De la Torre, the NSL Acquired Companies or their Affiliates in respect of any
such report of examination. In addition, C. De la Torre has made, or has
caused the NSL Acquired Companies to make, available to Buyer all files of C.
De la Torre and the NSL Acquired Companies relating to correspondence with
insurance regulatory authorities and other Governmental Bodies.
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<PAGE> 29
3.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
NSL Acquired Company or that otherwise relates to or may affect the business
of, or any of the assets owned or used by, any NSL Acquired Company; or (ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
To the Knowledge of C. De la Torre and NSL, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding
not in the Ordinary Course of Business of the NSL Acquired Companies. C. De la
Torre has delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 3.13 of the Disclosure
Letter. The Proceedings listed in Part 3.13 of the Disclosure Letter will not
have a material adverse effect on the business, operations, assets, condition,
or prospects of any NSL Acquired Company.
(b) Except as set forth in Part 3.13 of the Disclosure Letter: (i)
there is no Order to which any of the NSL Acquired Companies, or any of the
assets owned or used by any NSL Acquired Company, is subject; and (ii) each NSL
Acquired Company is, and at all times since January 1, 1995 has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject.
(c) Except as set forth in Part 3.13 of the Disclosure Letter, no
claim is pending nor, to the Knowledge of C. De la Torre or NSL, threatened
against any of the NSL Acquired Companies by any state insurance Governmental
Body.
3.14 Absence of Certain Changes and Events. Except as set forth in
Part 3.14 of the Disclosure Letter, since the date of the NSL Balance Sheet,
the NSL Acquired Companies have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in any NSL Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any NSL Acquired Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any NSL Acquired Company of any shares of
any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any NSL Acquired
Company;
(c) payment or increase by any NSL Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
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(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any NSL
Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any NSL Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the NSL Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or
transaction involving a total remaining commitment by or to any NSL Acquired
Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any NSL Acquired Company or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of any NSL Acquired
Company, including the sale, lease, or other disposition of any of the NSL
Intellectual Property Assets (as defined in Section 3.20)
(h) cancellation or waiver of any claims or rights with a value to
any NSL Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any NSL
Acquired Company;
(j) agreement, whether oral or written, by any NSL Acquired
Company to do any of the foregoing; or
(k) change in its business, underwriting, billing, reserving,
reinsurance, investment or claims adjustment policies and practices or any
change in any activity that (i) has had the effect of accelerating the
recording and billing of premiums or accounts receivable or delaying the
payment of expenses or the establishment of loss and loss adjustment expense
and other reserves in connection with the business or any material accounts of
any of the NSL Acquired Companies or (ii) has had the effect of materially
altering, modifying or changing the historic financial or accounting practices
or policies of any of the NSL Acquired Companies, including accruals of and
reserves for Taxes.
3.15 Contracts; No Defaults.
(a) Part 3.15(a) of the Disclosure Letter contains a complete and
accurate list, and C. De la Torre has delivered to Buyer true and complete
copies, of all the material Contracts of each NSL Acquired Company. Part
3.15(a) of the Disclosure Letter sets forth reasonably complete details
concerning such Contracts, including the parties to the Contracts, the amount
of the remaining commitment of the NSL Acquired Companies under the Contracts,
and the NSL Acquired Companies' office where details relating to the Contracts
are located.
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(b) Except as set forth in Part 3.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 3.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 3.15(c) of the Disclosure Letter:
(i) each NSL Acquired Company is, and at all times since
January 1, 1995 has been, in full compliance with all applicable terms
and requirements of each Contract under which such NSL Acquired
Company has or had any obligation or liability or by which such NSL
Acquired Company or any of the assets owned or used by such NSL
Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an NSL Acquired Company has
or had any rights is, and at all times since January 1, 1995 has been,
in full compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any NSL Acquired Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
(iv) no NSL Acquired Company has given to or received from
any other Person, at any time since January 1, 1995, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
(d) The Contracts relating to the sale or provision of services by
the NSL Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
3.16 Insurance.
(a) C. De la Torre has delivered to Buyer true and complete copies
of all policies of insurance to which any NSL Acquired Company is a party or
under which any NSL Acquired Company, or any director of any NSL Acquired
Company, is or has been covered at any time within the three (3) years
preceding the date of this Agreement;
(b) Part 3.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy in the possession of C. De la
Torre or any of the NSL Acquired Companies. NSL and C. De la Torre have no
Knowledge of any loss experience that would affect future potential
insurability with respect to such policies.
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(c) Except as set forth in Part 3.16(c) of the Disclosure Letter:
(i) All policies to which any NSL Acquired Company is a
party or that provide coverage to any NSL Acquired Company or any
director or officer of an NSL Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the NSL Acquired
Companies for all risks to which the NSL Acquired Companies are
normally exposed; (C) are sufficient for compliance with all Legal
Requirements and Contracts to which any NSL Acquired Company is a
party or by which any of them is bound; and (D) will continue in full
force and effect following the consummation of the Contemplated
Transactions.
(ii) No NSL Acquired Company has received (A) any refusal
of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The NSL Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any NSL Acquired Company is a party or that
provides coverage to any NSL Acquired Company or director thereof.
(iv) The NSL Acquired Companies have given notice to the
insurer of all claims that may be insured thereby.
3.17 Environmental Matters. Except as set forth in Part 3.17 of
the Disclosure Letter, to the Knowledge of C. De la Torre and NSL, each of the
NSL Acquired Companies is in compliance with all Environmental Laws, the
failure to comply with which could have a Material Adverse Effect. Neither C.
De la Torre nor any of the NSL Acquired Companies has received notice of any
material violation by any of the NSL Acquired Companies of, or material default
by the same under, any Environmental Law, and neither C. De la Torre nor NSL
has any Knowledge of any existing facts or circumstances that are likely to
result in any such violation or default. There is no action, suit, claim,
proceeding or investigation pending or, to the Knowledge of C. De la Torre and
NSL, threatened against any of the NSL Acquired Companies that alleges or would
allege any violation of any Environmental Law.
3.18 Employees.
(a) Part 3.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
NSL Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and,
with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any NSL Acquired
Company's pension,
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retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other Employee Benefit Plan or any Director Plan.
(b) No employee or director of any NSL Acquired Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement, between such employee or director and any other
Person that in any way adversely affects or will affect (i) the performance of
his duties as an employee or director of the NSL Acquired Companies, or (ii)
the ability of any NSL Acquired Company to conduct its business, including any
Proprietary Rights Agreement with C. De la Torre or the NSL Acquired Companies
by any such employee or director. To C. De la Torre's and NSL's Knowledge, no
director, officer, or other key employee of any NSL Acquired Company intends to
terminate his employment with such NSL Acquired Company.
(c) Part 3.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the NSL Acquired Companies, or their dependents, receiving benefits
or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
3.19 Labor Relations; Compliance. Except as set forth on Part 3.19
of the Disclosure Letter, since January 1, 1995, no NSL Acquired Company has
been or is a party to any collective bargaining or other labor Contract. Since
January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of NSL and C. De la Torre, there is not
Threatened, (a) any strike, slowdown, picketing, work stoppage, lockout or
employee grievance process, (b) any Proceeding against or affecting any NSL
Acquired Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters or (c) any application for
certification of a collective bargaining agent. Each NSL Acquired Company has
complied in all respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining and occupational safety and health. No NSL
Acquired Company is liable for the payment of any compensation, damages, taxes,
fines, penalties, or other amounts, however designated, for failure to comply
with any of the foregoing Legal Requirements.
3.20 Intellectual Property.
(a) Each NSL Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 3.20(a) of the Disclosure
Letter (the "NSL Intellectual Property Assets"), (ii) neither owns nor uses any
such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each NSL Acquired
Company owns, or possesses adequate and enforceable rights to use without
payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such NSL Acquired Company.
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<PAGE> 34
(b) Except as set forth in Part 3.20(b) of the Disclosure Letter,
NSL has no Knowledge nor has received any notice to the effect that any service
it or any other NSL Acquired Company provides or sells, or any process or
method it employs in its business for the use by it or another of any such
service, may infringe, or is in conflict with, any asserted right of another.
There is no pending or Threatened claim or litigation action against any NSL
Acquired Company contesting its right to use or the validity of any of the NSL
Intellectual Property Assets or asserting its misuse of any of the foregoing,
which would deprive it of the right to assert its rights thereunder or which
would prevent the sale of any service provided or sold by it.
(c) Each NSL Acquired Company has established a strategic plan and
provided Buyer with an accurate and complete copy of such plan and a schedule
of the amount of capital and resources reasonably believed to be necessary to
institute software systems such that each NSL Acquired Company will be Year
2000 Compliant upon the completion of such plan.
3.21 Certain Payments. Since January 1, 1995, no NSL Acquired
Company or director, officer, agent, or employee of any NSL Acquired Company,
or any other Person associated with or acting for or on behalf of any NSL
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any NSL Acquired Company or any affiliate of an NSL Acquired Company, or (iv)
in violation of any Legal Requirement or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the NSL
Acquired Companies.
3.22 Disclosure.
(a) No representation or warranty of C. De la Torre or NSL in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to C. De la Torre or NSL that has
specific application to C. De la Torre or any NSL Acquired Company (other than
general economic or industry conditions) and that materially adversely affects
or, as far as C. De la Torre or NSL can reasonably foresee, materially
threatens, the assets, business, prospects, financial condition, or results of
operations of the NSL Acquired Companies (on a consolidated basis) that has not
been set forth in this Agreement or the Disclosure Letter.
3.23 Relationships with Related Persons. Except as set forth in
Part 3.23 of the Disclosure Letter, neither C. De la Torre nor any Related
Person of C. De la Torre or of any NSL Acquired Company has, or since January
1, 1996 has had, any interest in any property (whether real, personal, or mixed
and whether tangible or intangible), used in or pertaining to the
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NSL Acquired Companies' businesses. Except as set forth in Part 3.23 of the
Disclosure Letter, neither C. De la Torre nor any Related Person of C. De la
Torre or of any NSL Acquired Company is, or since January 1, 1996, has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a
material financial interest in any transaction with any NSL Acquired Company,
or (ii) engaged in competition with any NSL Acquired Company with respect to
any line of the products or services of such NSL Acquired Company ("NSL
Competing Business") in any market presently served by such NSL Acquired
Company. Except as set forth in Part 3.23 of the Disclosure Letter, neither C.
De la Torre nor any Related Person of C. De la Torre or of any NSL Acquired
Company is a party to any Contract with, or has any claim or right against, any
NSL Acquired Company.
3.24 Agents and Producers. Part 3.24 of the Disclosure Letter lists
all agents, brokers, producers, underwriting managers and other Persons of
each of the NSL Acquired Companies who were paid, directly or indirectly, at
least $25,000 in commissions by or through any of the NSL Acquired Companies,
during the year ended December 31, 1997, including the total amount of
commissions paid to such Persons in such year. To the Knowledge of NSL and C.
De la Torre, each of the NSL Acquired Companies generally enjoys good relations
with the Persons listed on Part 3.24 of the Disclosure Letter as a whole, and
also generally enjoys good relations with its other insurance agents, brokers
and producers as a whole. To the Knowledge of C. De la Torre and NSL, all
Persons listed on Part 3.24 of the Disclosure Letter are duly licensed to act
as agents, brokers or producers in the jurisdictions where they engage in such
activities.
3.25 Threats of Cancellation. Except as set forth in Part 3.25 of
the Disclosure Letter hereto, since January 1, 1996, no policyholder or group
of policyholders under a group policy, or agent, broker, producer or other
Person writing, selling or producing insurance, reinsurance or retrocessional
coverage, which, individually or in the aggregate together with other related
policyholders, agents, brokers and producers, accounted for one percent (1%) or
more of the aggregate gross premiums written by or through the NSL Acquired
Companies in any year ended since December 31, 1996, has terminated or given
written notice of termination of its relationship with any of the NSL Acquired
Companies. The NSL Acquired Companies have received no notice that any such
policyholder, group of policyholders, agent, broker, producer or other such
Person will or is reasonably likely to terminate such relationship as a result
of the transactions contemplated by this Agreement.
3.26 Investments. Part 3.26 of the Disclosure Letter contains (a)
a true and complete list of all securities and other investments owned by each
of the NSL Acquired Companies as of the end of the most recent calendar month,
including the date of purchase, book value or amortized cost, market value and
carrying value thereof on the books and records of account of such NSL Acquired
Company as of such date and (b) the Investment Guidelines of each such NSL
Acquired Company. Except as set forth in Part 3.26 of the Disclosure Letter,
none of the securities and other investments owned by such Persons is in
default in the payment of principal or interest or dividends. All such
securities and other investments substantially comply with the Investment
Guidelines and all insurance laws and regulations of each of the jurisdictions
to which the NSL Acquired Companies are subject with respect thereto.
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3.27 Bank Accounts. Part 3.27 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the NSL Acquired Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
3.28 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, C. De la Torre, each NSL Acquired Company and their agents
have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND DLT
Sellers and DLT jointly and severally represent and warrant to Buyer
as follows:
4.1 Organization and Good Standing.
(a) Part 4.1 of the Disclosure Letter contains a complete and
accurate list, for DLT and each Subsidiary of DLT (DLT, together with each
Subsidiary of DLT, collectively referred to herein as the "DLT Acquired
Companies"), of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each shareholder and the number of shares held by
each). Each DLT Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each DLT Acquired Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification. No jurisdiction, other than those listed in Part 4.1 of the
Disclosure Letter, has claimed, in writing, that any DLT Acquired Company is
required to hold a Governmental Authorization, and none of the DLT Acquired
Companies files or is required to file any Tax Returns in any other
jurisdiction.
(b) Sellers have delivered to Buyer copies of the Organizational
Documents of each DLT Acquired Company, as currently in effect.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of DLT and Sellers, enforceable against DLT and Sellers in
accordance with its terms, except as enforceability
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may be limited by bankruptcy, insolvency, reorganization, moratorium and other
laws affecting creditors' rights generally and by general principles of equity.
Upon the execution and delivery by Sellers of the Sellers' Closing Documents,
the Sellers' Closing Documents will constitute the legal, valid, and binding
obligations of Sellers, enforceable against Sellers in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity. Sellers have all right,
power, authority, and capacity to execute and deliver this Agreement and the
Sellers' Closing Documents and to perform their obligations under this
Agreement and the Sellers' Closing Documents. DLT has all corporate right,
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement.
(b) Except as set forth in Part 4.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the DLT Acquired Companies; (ii) conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any DLT Acquired Company or
any Seller, or any of the assets owned or used by any DLT Acquired Company, may
be subject; (iii) conflict with, or result in a violation of any of the terms
or requirements of, or give any Governmental Body the right to revoke, suspend,
terminate, or modify, any Governmental Authorization that is held by any DLT
Acquired Company or that otherwise relates to the business of, or any of the
assets owned or used by, any DLT Acquired Company; (iv) conflict with, or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; or (v) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by any DLT Acquired Company.
Except as set forth in Part 4.2 of the Disclosure Letter, no Seller or
DLT Acquired Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 Capitalization. The authorized equity securities of DLT
consist of 500 shares of common stock, $1.00 par value per share, of which
228.571 shares are issued and outstanding. The ownership of DLT is as set
forth on Exhibit A hereto. Sellers are and will be on the Closing Date the
record and beneficial owners and holders of 200 shares of DLT Common Stock,
free and clear of all Encumbrances. DLT has no other class or series of
capital stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any DLT Acquired
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the DLT
Acquired Companies. With the exception of the shares listed on Exhibit A
hereto, all of the outstanding equity securities and other securities of each
DLT Acquired Company are owned of record and beneficially by one or more of the
DLT Acquired Companies, free and clear of all Encumbrances.
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Except as set forth in Part 4.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any DLT Acquired Company. All of the
outstanding equity securities of each DLT Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of any DLT Acquired Company. None of the
outstanding equity securities or other securities of any DLT Acquired Company
was issued in violation of the Securities Act or any other Legal Requirement.
No DLT Acquired Company owns, or has any Contract to acquire, any equity
securities or other securities of any Person (other than DLT Acquired
Companies) or any direct or indirect equity or ownership interest in any other
business. Except as set forth in Part 4.3 of the Disclosure Letter, there are
no restrictions upon the voting or transfer of, or the declaration or payment
of any dividend or distribution on, any shares of capital stock of any DLT
Acquired Company.
4.4 Financial Statements. Sellers have delivered to Buyer: (a)
unaudited balance sheets of the DLT Acquired Companies as of December 31 in
each of the years 1995 and 1996, and the related unaudited statements of
income for each of the fiscal years then ended and (b) an unaudited balance
sheet of the DLT Acquired Companies as of December 31, 1997 (including the
notes thereto, the "DLT Balance Sheet"), and the related unaudited statements
of income for the fiscal year then ended. Sellers shall deliver to Buyer at
least fifteen (15) days prior to Closing: (a) audited balance sheets of the DLT
Acquired Companies as of December 31 in each of the years 1996 and 1997, and
the related audited statements of income, changes in shareholders' equity and
cash flows for each of the fiscal years then ended and (b) a reviewed balance
sheet of the DLT Acquired Companies as of July 31, 1998 (the "DLT Interim
Balance Sheet") and the related reviewed statements of income, changes in
shareholders' equity and cash flows for the seven (7) months then ended,
including in each case the notes thereto. Such financial statements and notes
fairly present the financial condition and the results of operations of the DLT
Acquired Companies at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP, subject, in the case
of interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the DLT Balance Sheet); the financial
statements referred to in this Section 4.4 reflect the consistent application
of such accounting principles throughout the periods involved, except as
disclosed in the notes to such financial statements. No financial statements of
any Person other than the DLT Acquired Companies are required by GAAP to be
included in the financial statements of DLT.
4.5 Books and Records. The books of account, minute books, stock
record books, and other records of the DLT Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
DLT Acquired Companies contain accurate and complete records of all meetings
held of, and
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corporate action taken by, the shareholders, the Boards of Directors, and
committees of the Boards of Directors of the DLT Acquired Companies, and no
meeting of any such shareholders, Board of Directors, or committee has been
held for which minutes have not been prepared and are not contained in such
minute books. At the Closing, all of those books and records will be in the
possession of the DLT Acquired Companies.
4.6 Title to Properties; Encumbrances. Part 4.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any DLT Acquired Company. Sellers have
delivered or made available to Buyer copies of the deeds and other instruments
(as recorded) by which the DLT Acquired Companies acquired such real property
and interests, and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Sellers or the DLT Acquired Companies and
relating to such property or interests. The Acquired Companies own (with good
and marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that they purport
to own located in the facilities owned or operated by the DLT Acquired
Companies or reflected as owned in the books and records of the DLT Acquired
Companies, including all of the properties and assets reflected in the DLT
Balance Sheet and the DLT Interim Balance Sheet (except for personal property
sold since the date of the DLT Balance Sheet and the DLT Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the DLT Acquired
Companies since the date of the DLT Balance Sheet (except for personal property
acquired and sold since the date of the DLT Balance Sheet in the Ordinary
Course of Business and consistent with past practice), which subsequently
purchased or acquired properties and assets (other than short-term investments)
are listed in Part 4.6 of the Disclosure Letter. All material properties and
assets reflected in the DLT Balance Sheet and the DLT Interim Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature.
4.7 Accounts Receivable. All accounts receivable of the DLT
Acquired Companies that are reflected on the DLT Balance Sheet or the DLT
Interim Balance Sheet or on the accounting records of the DLT Acquired
Companies as of the Closing Date (collectively, the "DLT Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the DLT Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on
the DLT Balance Sheet or the DLT Interim Balance Sheet or on the accounting
records of the DLT Acquired Companies as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the DLT Accounts Receivable as of the Closing Date than the reserve with
respect to the DLT Accounts Receivable as reflected in the DLT Interim Balance
Sheet and will not represent a material adverse change in the composition of
such DLT Accounts Receivable in terms of aging). Subject to such reserves, each
of the DLT Accounts Receivable either has been or, to the Knowledge of DLT and
Sellers, will be collected in full, without any set-off, within ninety days
after the day on which it first becomes due and payable. There is no contest,
claim, or right of set-off, other than returns
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in the Ordinary Course of Business, under any Contract with any obligor of a
DLT Accounts Receivable relating to the amount or validity of such DLT Accounts
Receivable. Part 4.7 of the Disclosure Letter contains a complete and accurate
list of all DLT Accounts Receivable as of the date of the DLT Interim Balance
Sheet, which list sets forth the aging of such DLT Accounts Receivable.
4.8 No Undisclosed Liabilities. Except as set forth in Part 4.8
of the Disclosure Letter, the DLT Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the DLT Balance Sheet or the DLT
Interim Balance Sheet and current liabilities incurred in the Ordinary Course
of Business since the respective dates thereof.
4.9 Taxes.
(a) The DLT Acquired Companies or Sellers, as applicable, have
filed or caused to be filed (on a timely basis since 1995) all Tax Returns that
are or were required to be filed by or with respect to any of the DLT Acquired
Companies, pursuant to applicable Legal Requirements. Sellers have delivered or
made available to Buyer copies of, and Part 4.9 of the Disclosure Letter
contains a complete and accurate list of, all such Tax Returns filed since
January 1, 1995. The DLT Acquired Companies or Sellers, as applicable, have
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Sellers or any DLT Acquired Company, except such Taxes,
if any, as are listed in Part 4.9 of the Disclosure Letter and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the DLT Balance Sheet and the DLT
Interim Balance Sheet.
(b) Part 4.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 4.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 4.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any DLT Acquired Company or Sellers for all taxable years since 1995 with
respect to or that are directly or indirectly related to any DLT Acquired
Company, and the resulting deficiencies proposed by the IRS. Except as
described in Part 4.9 of the Disclosure Letter, no Seller or DLT Acquired
Company has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of, with respect to, or
that are directly or indirectly related to any DLT Acquired Company or for
which Sellers or any DLT Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to, or that
are directly or indirectly related to, Taxes on the respective books of each
DLT Acquired Company are adequate (determined in accordance with GAAP) and are
at least equal to that DLT Acquired Company's liability for Taxes. There exists
no proposed tax assessment against any DLT Acquired Company
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<PAGE> 41
or Sellers with respect to or that is directly or indirectly related to any DLT
Acquired Company except as disclosed in the DLT Balance Sheet or in Part 4.9 of
the Disclosure Letter. All Taxes with respect to or that are directly or
indirectly related to any DLT Acquired Company that any DLT Acquired Company or
Seller is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(d) All Tax Returns filed by any DLT Acquired Company or by
Sellers with respect to or that are directly or indirectly related to any DLT
Acquired Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by any DLT Acquired Company after the
date of this Agreement. Each DLT Acquired Company is an "S" corporation (or a
Qualified Subchapter S Subsidiary, as the case may be), and DLT has had a valid
"S" corporation election in effect under Section 1362(a) of the IRC since
January 1, 1996. During the consistency period (as defined in Section
338(h)(4) of the IRC with respect to the sale of the Shares to Buyer), no DLT
Acquired Company or target affiliate (as defined in Section 338(h)(6) of the
IRC with respect to the sale of the Shares to Buyer) has sold or will sell any
property or assets to Buyer or to any member of the affiliated group (as
defined in Section 338(h)(5) of the IRC) that includes Buyer. Part 4.9 of the
Disclosure Letter lists all such target affiliates.
4.10 No Material Adverse Change. Since the date of the DLT Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any DLT Acquired
Company, and no event has occurred or circumstance exists that may result in
such a material adverse change.
4.11 Employee Benefit Plans. Except as set forth in Part 4.11 of
the Disclosure Letter, neither DLT nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in DLT or such Plan Affiliate having any material debt, liability,
claim or obligation of any kind or nature, whether accrued, absolute,
contingent, direct, indirect, known or unknown, perfected or inchoate or
otherwise and whether or not due or to become due. Correct and complete copies
of all Employee Benefit Plans of DLT previously have been furnished to Buyer.
The Employee Benefit Plans of DLT are in compliance in all material respects
with governing documents and agreements and with applicable laws. There has
not been any act or omission by DLT under ERISA or the terms of the Employee
Benefit Plans of DLT, or any other applicable law or agreement which could give
rise to any liability of DLT, whether under ERISA, the IRC or other laws or
agreements. Neither DLT nor any Plan Affiliate maintains or contributes to, or
has maintained or contributed to, any Employee Benefit Plan subject to Title IV
of ERISA.
4.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 4.12 of the Disclosure Letter,
each DLT Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any
of its assets.
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<PAGE> 42
(b) Part 4.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any DLT
Acquired Company or that otherwise relates to the business of, or to any of the
assets owned or used by, any DLT Acquired Company. Each Governmental
Authorization listed or required to be listed in Part 4.12 of the Disclosure
Letter is valid and in full force and effect. Each DLT Acquired Company owns or
possesses all right, title and interest in and to all of the Governmental
Authorizations that are necessary to enable it to carry on the business of such
DLT Acquired Company as presently conducted. Each DLT Acquired Company has
taken all necessary action to maintain such Governmental Authorizations. No
loss or expiration of any such Governmental Authorization is threatened,
pending or, to the Knowledge of DLT and Sellers, reasonably foreseeable. The
consummation of the transactions contemplated hereby will not result in the
suspension, modification, cancellation, revocation or nonrenewal of any such
Governmental Authorization. Except for compliance with periodic renewal
procedures, no approvals or authorizations are required to permit the DLT
Acquired Companies to continue their business as presently conducted, following
the Closing.
(c) Except as set forth in Part 4.12 of the Disclosure Letter,
each of the DLT Acquired Companies has filed all material reports, statements,
registrations, applications, filings or other documents and submissions
required to be filed with, or provided to, any Governmental Body. Except as
set forth in Part 4.12 of the Disclosure Letter, all such reports, statements,
registrations, applications, filings, documents and submissions were in
compliance in all material respects with all applicable Legal Requirements when
filed, and no material deficiencies have been asserted by any Governmental Body
with respect thereto.
4.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 4.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
DLT Acquired Company or that otherwise relates to or may affect the business
of, or any of the assets owned or used by, any DLT Acquired Company; or (ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
To the Knowledge of each of the Sellers and DLT, (1) no such
Proceeding has been Threatened, and (2) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding not in the Ordinary Course of Business of the DLT Acquired
Companies. Sellers have delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
4.13 of the Disclosure Letter. The Proceedings listed in Part 4.13 of the
Disclosure Letter will not have a material adverse effect on the business,
operations, assets, condition, or prospects of any DLT Acquired Company.
(b) Except as set forth in Part 4.13 of the Disclosure Letter: (i)
there is no Order to which any of the DLT Acquired Companies, or any of the
assets owned or used by any DLT Acquired Company, is subject; and (ii) each DLT
Acquired Company is, and at all times since January 1, 1995 has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject.
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4.14 Absence of Certain Changes and Events. Except as set forth in
Part 4.14 of the Disclosure Letter, since the date of the DLT Balance Sheet,
the DLT Acquired Companies have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in any DLT Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any DLT Acquired Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any DLT Acquired Company of any shares of
any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any DLT Acquired
Company;
(c) payment or increase by any DLT Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any DLT
Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any DLT Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the DLT Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, sales representative, joint venture, credit, or
similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to any DLT Acquired Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any DLT Acquired Company or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of any DLT Acquired
Company, including the sale, lease, or other disposition of any of the DLT
Intellectual Property Assets (as defined in Section 4.20);
(h) cancellation or waiver of any claims or rights with a value to
any DLT Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any DLT
Acquired Company;
(j) agreement, whether oral or written, by any DLT Acquired
Company to do any of the foregoing; or
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(k) change in its business, billing or claims adjustment policies
and practices or any change in any activity that (i) has had the effect of
accelerating the recording and billing of accounts receivable or delaying the
payment of expenses in connection with the business or any material accounts of
any of the DLT Acquired Companies or (ii) has had the effect of materially
altering, modifying or changing the historic financial or accounting practices
or policies of any of the DLT Acquired Companies, including accruals of and
reserves for Taxes.
4.15 Contracts; No Defaults.
(a) Part 4.15(a) of the Disclosure Letter contains a complete and
accurate list, and Sellers have delivered to Buyer true and complete copies, of
all the material Contracts of each DLT Acquired Company. Part 4.15(a) of the
Disclosure Letter sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining
commitment of the DLT Acquired Companies under the Contracts, and the DLT
Acquired Companies' office where details relating to the Contracts are located.
(b) Except as set forth in Part 4.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 4.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 4.15(c) of the Disclosure Letter:
(i) each DLT Acquired Company is, and at all times since
January 1, 1995 has been, in full compliance with all applicable terms
and requirements of each Contract under which such DLT Acquired
Company has or had any obligation or liability or by which such DLT
Acquired Company or any of the assets owned or used by such DLT
Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an DLT Acquired Company has
or had any rights is, and at all times since January 1, 1995 has been,
in full compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any DLT Acquired Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
(iv) no DLT Acquired Company has given to or received from
any other Person, at any time since January 1, 1995, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
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(d) The Contracts relating to the sale or provision of services by
the DLT Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
4.16 Insurance.
(a) Sellers have delivered to Buyer true and complete copies of
all policies of insurance to which any DLT Acquired Company is a party or under
which any DLT Acquired Company, or any director of any DLT Acquired Company, is
or has been covered at any time within the three (3) years preceding the date
of this Agreement;
(b) Part 4.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy in the possession of Sellers
or any of the DLT Acquired Companies. DLT and Sellers have no Knowledge of any
loss experience that would affect future potential insurability with respect to
such policies.
(c) Except as set forth in Part 4.16(c) of the Disclosure Letter:
(i) All policies to which any DLT Acquired Company is a
party or that provide coverage to any DLT Acquired Company or any
director or officer of an DLT Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the DLT Acquired
Companies for all risks to which the DLT Acquired Companies are
normally exposed; (C) are sufficient for compliance with all Legal
Requirements and Contracts to which any DLT Acquired Company is a
party or by which any of them is bound; and (D) will continue in full
force and effect following the consummation of the Contemplated
Transactions.
(ii) No DLT Acquired Company has received (A) any refusal
of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The DLT Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any DLT Acquired Company is a party or that
provides coverage to any DLT Acquired Company or director thereof.
(iv) The DLT Acquired Companies have given notice to the
insurer of all claims that may be insured thereby.
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4.17 Environmental Matters. Except as set forth in Part 4.17 of the
Disclosure Letter, to the Knowledge of each of the Sellers and DLT, each of the
DLT Acquired Companies is in compliance with all Environmental Laws, the
failure to comply with which could have a Material Adverse Effect. None of the
Sellers or the DLT Acquired Companies have received notice of any material
violation by any of the DLT Acquired Companies of, or material default by the
same under, any Environmental Law, and none of the Sellers nor DLT has any
Knowledge of any existing facts or circumstances that are likely to result in
any such violation or default. There is no action, suit, claim, proceeding or
investigation pending or, to the Knowledge of Sellers and DLT, threatened
against any of the DLT Acquired Companies that alleges or would allege any
violation of any Environmental Law.
4.18 Employees.
(a) Part 4.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
DLT Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and,
with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any DLT Acquired
Company's pension, retirement, profit-sharing, thrift- savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other Employee Benefit Plan or
any Director Plan.
(b) No employee or director of any DLT Acquired Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement, between such employee or director and any other
Person that in any way adversely affects or will affect (i) the performance of
his duties as an employee or director of the DLT Acquired Companies, or (ii)
the ability of any DLT Acquired Company to conduct its business, including any
Proprietary Rights Agreement with Sellers or the DLT Acquired Companies by any
such employee or director. To the Sellers' and DLT's Knowledge, no director,
officer, or other key employee of any DLT Acquired Company intends to terminate
his employment with such DLT Acquired Company.
(c) Part 4.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the DLT Acquired Companies, or their dependents, receiving benefits
or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
4.19 Labor Relations; Compliance. Except as set forth on Part 4.19
of the Disclosure Letter, since January 1, 1995, no DLT Acquired Company has
been or is a party to any collective bargaining or other labor Contract. Since
January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of DLT and Sellers, there is not Threatened,
(a) any strike, slowdown, picketing, work stoppage, lockout or employee
grievance process, (b)
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any Proceeding against or affecting any DLT Acquired Company relating to the
alleged violation of any Legal Requirement pertaining to labor relations or
employment matters or (c) any application for certification of a collective
bargaining agent. Each DLT Acquired Company has complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining
and occupational safety and health. No DLT Acquired Company is liable for the
payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
4.20 Intellectual Property.
(a) Each DLT Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 4.20(a) of the Disclosure
Letter (the "DLT Intellectual Property Assets"), (ii) neither owns nor uses any
such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each DLT Acquired
Company owns, or possesses adequate and enforceable rights to use without
payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such DLT Acquired Company.
(b) Except as set forth in Part 4.20(b) of the Disclosure Letter,
DLT has no Knowledge nor has received any notice to the effect that any service
it or any other DLT Acquired Company provides or sells, or any process or
method it employs in its business for the use by it or another of any such
service, may infringe, or is in conflict with, any asserted right of another.
There is no pending or Threatened claim or litigation action against any DLT
Acquired Company contesting its right to use or the validity of any of the DLT
Intellectual Property Assets or asserting its misuse of any of the foregoing,
which would deprive it of the right to assert its rights thereunder or which
would prevent the sale of any service provided or sold by it.
(c) Each DLT Acquired Company has established a strategic plan and
provided Buyer with an accurate and complete copy of such plan and a schedule
of the amount of capital and resources reasonably believed to be necessary to
institute software systems such that each DLT Acquired Company will be Year
2000 Compliant upon the completion of such plan.
4.21 Certain Payments. Since January 1, 1995, no DLT Acquired
Company or director, officer, agent, or employee of any DLT Acquired Company,
or any other Person associated with or acting for or on behalf of any DLT
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any DLT Acquired Company or any affiliate of an DLT Acquired Company, or (iv)
in violation of any Legal Requirement or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the DLT
Acquired Companies.
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4.22 Disclosure.
(a) No representation or warranty of Sellers or DLT in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to any Seller or DLT that has specific
application to any Seller or any DLT Acquired Company (other than general
economic or industry conditions) and that materially adversely affects or, as
far as any Seller or DLT can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition, or results of operations of
the DLT Acquired Companies (on a consolidated basis) that has not been set
forth in this Agreement or the Disclosure Letter.
4.23 Relationships with Related Persons. Except as set forth in
Part 4.23 of the Disclosure Letter, no Seller or any Related Person of Sellers
or of any DLT Acquired Company has, or since January 1, 1996 has had, any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to the DLT Acquired Companies'
businesses. Except as set forth in Part 4.23 of the Disclosure Letter, no
Seller or any Related Person of Sellers or of any DLT Acquired Company is, or
since January 1, 1996, has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i)
had business dealings or a material financial interest in any transaction with
any DLT Acquired Company, or (ii) engaged in competition with any DLT Acquired
Company with respect to any line of the products or services of such DLT
Acquired Company ("DLT Competing Business") in any market presently served by
such DLT Acquired Company. Except as set forth in Part 4.23 of the Disclosure
Letter, no Seller or any Related Person of Sellers or of any DLT Acquired
Company is a party to any Contract with, or has any claim or right against, any
DLT Acquired Company.
4.24 Investments. Part 4.24 of the Disclosure Letter contains a
true and complete list of all securities and other investments owned by each of
the DLT Acquired Companies as of the end of the most recent calendar month,
including the date of purchase, book value or amortized cost, market value and
carrying value thereof on the books and records of account of such Persons as
of such date. Except as set forth in Part 4.24 of the Disclosure Letter, none
of the securities and other investments owned by such Persons is in default in
the payment of principal or interest or dividends.
4.25 Bank Accounts. Part 4.25 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the DLT Acquired Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
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4.26 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, Sellers, each DLT Acquired Company and their agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection
with this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF C. DE LA TORRE AND LALANDE
C. De la Torre and Lalande jointly and severally represent and warrant
to Buyer as follows:
5.1 Organization and Good Standing.
(a) Part 5.1 of the Disclosure Letter contains a complete and
accurate list, for Lalande and each Subsidiary of Lalande (Lalande, together
with each Subsidiary of Lalande, collectively referred to herein as the
"Lalande Acquired Companies"), of its name, its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including the identity of each shareholder and the number of
shares held by each). Each Lalande Acquired Company is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts. Each Lalande Acquired Company is duly qualified to
do business as a foreign corporation and is in good standing under the laws of
each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by
it, requires such qualification. No jurisdiction, other than those listed in
Part 5.1 of the Disclosure Letter, has claimed, in writing, that any Lalande
Acquired Company is required to hold a Governmental Authorization, and none of
the Lalande Acquired Companies files or is required to file any Tax Returns in
any other jurisdiction.
(b) C. De la Torre has delivered to Buyer copies of the
Organizational Documents of each Lalande Acquired Company, as currently in
effect.
5.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Lalande and C. De la Torre, enforceable against Lalande and C. De
la Torre in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and by general principles of equity. Upon the
execution and delivery by C. De la Torre of the Seller's Closing Documents, the
Seller's Closing Documents will constitute the legal, valid, and binding
obligations of C. De la Torre, enforceable against C. De la Torre in accordance
with their respective terms, except as enforceability may be
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limited by bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and by general principles of equity. C.
De la Torre has all right, power, authority, and capacity to execute and
deliver this Agreement and the Seller's Closing Documents and to perform his
obligations under this Agreement and the Seller's Closing Documents. Lalande
has all corporate right, power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
(b) Except as set forth in Part 5.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the Lalande Acquired Companies; (ii) conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which any
Lalande Acquired Company or C. De la Torre, or any of the assets owned or used
by any Lalande Acquired Company, may be subject; (iii) conflict with, or result
in a violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, suspend, terminate, or modify, any Governmental
Authorization that is held by any Lalande Acquired Company or that otherwise
relates to the business of, or any of the assets owned or used by, any Lalande
Acquired Company; (iv) conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or (v) result in the imposition
or creation of any Encumbrance upon or with respect to any of the assets owned
or used by any Lalande Acquired Company.
Except as set forth in Part 5.2 of the Disclosure Letter, neither C.
De la Torre nor any Lalande Acquired Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
5.3 Capitalization. The authorized equity securities of Lalande
consist of 500 shares of common stock, $1.00 par value per share, of which 200
shares are issued and outstanding. The ownership of Lalande is as set forth on
Exhibit A hereto. C. De la Torre is and will be on the Closing Date the record
and beneficial owner and holder of 100 shares of Lalande Common Stock, free and
clear of all Encumbrances. Lalande has no other class or series of capital
stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any Lalande
Acquired Company to issue, sell or otherwise cause to become outstanding any of
its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the
Lalande Acquired Companies. With the exception of shares listed on Exhibit A
hereto, all of the outstanding equity securities and other securities of each
Lalande Acquired Company are owned of record and beneficially by one or more of
the Lalande Acquired Companies, free and clear of all Encumbrances.
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Except as set forth in Part 5.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any Lalande Acquired Company. All of the
outstanding equity securities of each Lalande Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of any Lalande Acquired Company. None of the
outstanding equity securities or other securities of any Lalande Acquired
Company was issued in violation of the Securities Act or any other Legal
Requirement. No Lalande Acquired Company owns, or has any Contract to acquire,
any equity securities or other securities of any Person (other than Lalande
Acquired Companies) or any direct or indirect equity or ownership interest in
any other business. Except as set forth in Part 5.3 of the Disclosure Letter,
there are no restrictions upon the voting or transfer of, or the declaration or
payment of any dividend or distribution on, any shares of capital stock of any
Lalande Acquired Company.
5.4 Financial Statements. C. De la Torre shall deliver to Buyer
no later than fifteen (15) days prior to Closing a reviewed balance sheet of
the Lalande Acquired Companies as of July 31, 1998 (the "Lalande Interim
Balance Sheet") and the related reviewed statements of income for the seven (7)
months then ended, including in each case the notes thereto. Such financial
statements and notes fairly present the financial condition and the results of
operations of the Lalande Acquired Companies at the respective dates of and for
the periods referred to in such financial statements, all in accordance with
GAAP, subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that, if presented,
would not differ materially from those included in the Lalande Interim Balance
Sheet); the financial statements referred to in this Section 5.4 reflect the
consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such financial statements. No
financial statements of any Person other than the Lalande Acquired Companies
are required by GAAP to be included in the financial statements of Lalande.
5.5 Books and Records. The books of account, minute books, stock
record books, and other records of the Lalande Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
Lalande Acquired Companies contain accurate and complete records of all
meetings held of, and corporate action taken by, the shareholders, the Boards
of Directors, and committees of the Boards of Directors of the Lalande Acquired
Companies, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Lalande Acquired Companies.
5.6 Title to Properties; Encumbrances. Part 5.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any Lalande Acquired Company. C. De la
Torre has delivered or made available to Buyer copies of the deeds and other
instruments (as recorded) by which the Lalande Acquired Companies acquired such
real property and interests, and copies of all title insurance policies,
opinions, abstracts, and
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surveys in the possession of C. De la Torre or the Lalande Acquired Companies
and relating to such property or interests. The Acquired Companies own (with
good and marketable title in the case of real property, subject only to the
matters permitted by the following sentence) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own located in the facilities owned or operated by the Lalande
Acquired Companies or reflected as owned in the books and records of the
Lalande Acquired Companies, including all of the properties and assets
reflected in the Lalande Interim Balance Sheet (except for personal property
sold since the date of the Lalande Interim Balance Sheet, as the case may be,
in the Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by the Lalande Acquired Companies since the
date of the Lalande Interim Balance Sheet (except for personal property
acquired and sold since the date of the Lalande Interim Balance Sheet in the
Ordinary Course of Business and consistent with past practice), which
subsequently purchased or acquired properties and assets (other than short-term
investments) are listed in Part 5.6 of the Disclosure Letter. All material
properties and assets reflected in the Lalande Interim Balance Sheet are free
and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature.
5.7 Accounts Receivable. All accounts receivable of the Lalande
Acquired Companies that are reflected on the Lalande Interim Balance Sheet or
on the accounting records of the Lalande Acquired Companies as of the Closing
Date (collectively, the "Lalande Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior to the
Closing Date, the Lalande Accounts Receivable are or will be as of the Closing
Date current and collectible net of the respective reserves shown on Lalande
Interim Balance Sheet or on the accounting records of the Lalande Acquired
Companies as of the Closing Date (which reserves are adequate and calculated
consistent with past practice and, in the case of the reserve as of the Closing
Date, will not represent a greater percentage of the Lalande Accounts
Receivable as of the Closing Date than the reserve with respect to the Lalande
Accounts Receivable as reflected in the Lalande Interim Balance Sheet and will
not represent a material adverse change in the composition of such Lalande
Accounts Receivable in terms of aging). Subject to such reserves, each of the
Lalande Accounts Receivable either has been or, to the Knowledge of Lalande and
C. De la Torre, will be collected in full, without any set-off, within ninety
days after the day on which it first becomes due and payable. There is no
contest, claim, or right of set-off, other than returns in the Ordinary Course
of Business, under any Contract with any obligor of a Lalande Accounts
Receivable relating to the amount or validity of such Lalande Accounts
Receivable. Part 5.7 of the Disclosure Letter contains a complete and accurate
list of all Lalande Accounts Receivable as of the date of the Lalande Interim
Balance Sheet, which list sets forth the aging of such Lalande Accounts
Receivable.
5.8 No Undisclosed Liabilities. Except as set forth in Part 5.8
of the Disclosure Letter, the Lalande Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Lalande Interim Balance Sheet
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
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5.9 Taxes.
(a) The Lalande Acquired Companies have filed or caused to be
filed (on a timely basis since 1995) all Tax Returns that are or were required
to be filed by or with respect to any of them, pursuant to applicable Legal
Requirements. C. De la Torre has delivered or made available to Buyer copies
of, and Part 5.9 of the Disclosure Letter contains a complete and accurate list
of, all such Tax Returns filed since January 1, 1995. The Lalande Acquired
Companies have paid, or made provision for the payment of, all Taxes that have
or may have become due pursuant to those Tax Returns or otherwise, or pursuant
to any assessment received by C. De la Torre or any Lalande Acquired Company,
except such Taxes, if any, as are listed in Part 5.9 of the Disclosure Letter
and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the Lalande Interim
Balance Sheet.
(b) Part 5.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 5.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 5.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any Lalande Acquired Company for all taxable years since 1995, and the
resulting deficiencies proposed by the IRS. Except as described in Part 5.9 of
the Disclosure Letter, neither C. De la Torre nor any Lalande Acquired Company
has given or been requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of any Lalande Acquired Company or
for which any Lalande Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on
the respective books of each Lalande Acquired Company are adequate (determined
in accordance with GAAP) and are at least equal to that Lalande Acquired
Company's liability for Taxes. There exists no proposed tax assessment against
any Lalande Acquired Company except as disclosed in the Lalande Interim Balance
Sheet or in Part 5.9 of the Disclosure Letter. All Taxes that any Lalande
Acquired Company is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by any Lalande Acquired Company are
true, correct, and complete. There is no tax sharing agreement that will
require any payment by any Lalande Acquired Company after the date of this
Agreement. No Lalande Acquired Company is an "S" corporation (or a Qualified
Subchapter S Subsidiary, as the case may be). During the consistency period
(as defined in Section 338(h)(4) of the IRC with respect to the sale of the
Shares to Buyer), no Lalande Acquired Company or target affiliate (as defined
in Section 338(h)(6) of the IRC with respect to the sale of the Shares to
Buyer) has sold or will sell any property or assets to Buyer or to any member
of the affiliated group (as defined in Section 338(h)(5) of the IRC) that
includes Buyer. Part 5.9 of the Disclosure Letter lists all such target
affiliates.
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5.10 No Material Adverse Change. Since December 31, 1997, there
has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of any Lalande Acquired Company,
and no event has occurred or circumstance exists that may result in such a
material adverse change.
5.11 Employee Benefit Plans. Except as set forth in Part 5.11 of
the Disclosure Letter, neither Lalande nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in Lalande or such Plan Affiliate having any material debt,
liability, claim or obligation of any kind or nature, whether accrued,
absolute, contingent, direct, indirect, known or unknown, perfected or inchoate
or otherwise and whether or not due or to become due. Correct and complete
copies of all Employee Benefit Plans of Lalande previously have been furnished
to Buyer. The Employee Benefit Plans of Lalande are in compliance in all
material respects with governing documents and agreements and with applicable
laws. There has not been any act or omission by Lalande under ERISA or the
terms of the Employee Benefit Plans of Lalande, or any other applicable law or
agreement which could give rise to any liability of Lalande, whether under
ERISA, the IRC or other laws or agreements. Neither Lalande nor any Plan
Affiliate maintains or contributes to, or has maintained or contributed to, any
Employee Benefit Plan subject to Title IV of ERISA.
5.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 5.12 of the Disclosure Letter,
each Lalande Acquired Company is, and at all times since January 1, 1995 has
been, in full compliance with each Legal Requirement that is or was applicable
to it or to the conduct or operation of its business or the ownership or use of
any of its assets.
(b) Part 5.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any Lalande
Acquired Company or that otherwise relates to the business of, or to any of the
assets owned or used by, any Lalande Acquired Company. Each Governmental
Authorization listed or required to be listed in Part 5.12 of the Disclosure
Letter is valid and in full force and effect. Each Lalande Acquired Company
owns or possesses all right, title and interest in and to all of the
Governmental Authorizations that are necessary to enable it to carry on the
business of such Lalande Acquired Company as presently conducted. Each Lalande
Acquired Company has taken all necessary action to maintain such Governmental
Authorizations. No loss or expiration of any such Governmental Authorization
is threatened, pending or, to the Knowledge of Lalande and C. De la Torre,
reasonably foreseeable. The consummation of the transactions contemplated
hereby will not result in the suspension, modification, cancellation,
revocation or nonrenewal of any such Governmental Authorization. Except for
compliance with periodic renewal procedures, no approvals or authorizations are
required to permit the Lalande Acquired Companies to continue their business as
presently conducted, following the Closing.
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(c) Except as set forth in Part 5.12 of the Disclosure Letter,
each of the Lalande Acquired Companies has filed all material reports,
statements, registrations, applications, filings or other documents and
submissions required to be filed with, or provided to, any Governmental Body.
Except as set forth in Part 5.12 of the Disclosure Letter, all such reports,
statements, registrations, applications, filings, documents and submissions
were in compliance in all material respects with all applicable Legal
Requirements when filed, and no material deficiencies have been asserted by any
Governmental Body with respect thereto.
5.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 5.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
Lalande Acquired Company or that otherwise relates to or may affect the
business of, or any of the assets owned or used by, any Lalande Acquired
Company; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Knowledge of C. De la Torre and Lalande, (1) no such Proceeding
has been Threatened, and (2) no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such
Proceeding not in the Ordinary Course of Business of the Lalande Acquired
Companies. C. De la Torre has delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
5.13 of the Disclosure Letter. The Proceedings listed in Part 5.13 of the
Disclosure Letter will not have a material adverse effect on the business,
operations, assets, condition, or prospects of any Lalande Acquired Company.
(b) Except as set forth in Part 5.13 of the Disclosure Letter: (i)
there is no Order to which any of the Lalande Acquired Companies, or any of the
assets owned or used by any Lalande Acquired Company, is subject; and (ii) each
Lalande Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with all of the terms and requirements of each Order to
which it, or any of the assets owned or used by it, is or has been subject.
5.14 Absence of Certain Changes and Events. Except as set forth in
Part 5.14 of the Disclosure Letter, since December 31, 1997, the Lalande
Acquired Companies have conducted their businesses only in the Ordinary Course
of Business and there has not been any:
(a) change in any Lalande Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any Lalande Acquired Company; issuance of any security convertible
into such capital stock; grant of any registration rights; purchase,
redemption, retirement, or other acquisition by any Lalande Acquired Company of
any shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Lalande
Acquired Company;
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(c) payment or increase by any Lalande Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any
Lalande Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any Lalande Acquired Company, whether or not covered by insurance, materially
and adversely affecting the properties, assets, business, financial condition,
or prospects of the Lalande Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, sales representative, joint venture, credit, or
similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to any Lalande Acquired Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any Lalande Acquired Company or mortgage, pledge, or imposition of
any lien or other encumbrance on any material asset or property of any Lalande
Acquired Company, including the sale, lease, or other disposition of any of the
Lalande Intellectual Property Assets (as defined in Section 5.20)
(h) cancellation or waiver of any claims or rights with a value to
any Lalande Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any Lalande
Acquired Company;
(j) agreement, whether oral or written, by any Lalande Acquired
Company to do any of the foregoing; or
(k) change in its business or billing or any change in any
activity that (i) has had the effect of accelerating the recording and billing
of accounts receivable or delaying the payment of expenses in connection with
the business or any material accounts of any of the Lalande Acquired Companies
or (ii) has had the effect of materially altering, modifying or changing the
historic financial or accounting practices or policies of any of the Lalande
Acquired Companies, including accruals of and reserves for Taxes.
5.15 Contracts; No Defaults.
(a) Part 5.15(a) of the Disclosure Letter contains a complete and
accurate list, and C. De la Torre has delivered to Buyer true and complete
copies, of all the material Contracts of each Lalande Acquired Company. Part
5.15(a) of the Disclosure Letter sets forth reasonably complete
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details concerning such Contracts, including the parties to the Contracts, the
amount of the remaining commitment of the Lalande Acquired Companies under the
Contracts, and the Lalande Acquired Companies' office where details relating to
the Contracts are located.
(b) Except as set forth in Part 5.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 5.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 5.15(c) of the Disclosure Letter:
(i) each Lalande Acquired Company is, and at all times
since January 1, 1995 has been, in full compliance with all applicable
terms and requirements of each Contract under which such Lalande
Acquired Company has or had any obligation or liability or by which
such Lalande Acquired Company or any of the assets owned or used by
such Lalande Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an Lalande Acquired Company
has or had any rights is, and at all times since January 1, 1995 has
been, in full compliance with all applicable terms and requirements of
such Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any Lalande Acquired Company or
other Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
(iv) no Lalande Acquired Company has given to or received
from any other Person, at any time since January 1, 1995, any notice
or other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
(d) The Contracts relating to the sale or provision of services by
the Lalande Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
5.16 Insurance.
(a) C. De la Torre has delivered to Buyer true and complete copies
of all policies of insurance to which any Lalande Acquired Company is a party
or under which any Lalande Acquired Company, or any director of any Lalande
Acquired Company, is or has been covered at any time within the three (3) years
preceding the date of this Agreement;
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(b) Part 5.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy in the possession of C. De la
Torre or any of the Lalande Acquired Companies. Lalande and C. De la Torre
have no Knowledge of any loss experience that would affect future potential
insurability with respect to such policies.
(c) Except as set forth in Part 5.16(c) of the Disclosure Letter:
(i) All policies to which any Lalande Acquired Company is
a party or that provide coverage to any Lalande Acquired Company or
any director or officer of an Lalande Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the Lalande Acquired
Companies for all risks to which the Lalande Acquired Companies are
normally exposed; (C) are sufficient for compliance with all Legal
Requirements and Contracts to which any Lalande Acquired Company is a
party or by which any of them is bound; and (D) will continue in full
force and effect following the consummation of the Contemplated
Transactions.
(ii) No Lalande Acquired Company has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The Lalande Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any Lalande Acquired Company is a party or
that provides coverage to any Lalande Acquired Company or director
thereof.
(iv) The Lalande Acquired Companies have given notice to
the insurer of all claims that may be insured thereby.
5.17 Environmental Matters. Except as set forth in Part 5.17 of the
Disclosure Letter, to the Knowledge of C. De la Torre and Lalande, each of the
Lalande Acquired Companies is in compliance with all Environmental Laws, the
failure to comply with which could have a Material Adverse Effect. Neither C.
De la Torre nor any of the Lalande Acquired Companies has received notice of
any material violation by any of the Lalande Acquired Companies of, or material
default by the same under, any Environmental Law, and neither C. De la Torre
nor Lalande has any Knowledge of any existing facts or circumstances that are
likely to result in any such violation or default. There is no action, suit,
claim, proceeding or investigation pending or, to the Knowledge of C. De la
Torre and Lalande, threatened against any of the Lalande Acquired Companies
that alleges or would allege any violation of any Environmental Law.
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5.18 Employees.
(a) Part 5.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Lalande Acquired Companies, including each employee on leave of absence or
layoff status: employer; name; job title; current compensation paid or payable
and, with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any Lalande Acquired
Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other Employee Benefit Plan or
any Director Plan.
(b) No employee or director of any Lalande Acquired Company is a
party to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement, between such employee or director and any other
Person that in any way adversely affects or will affect (i) the performance of
his duties as an employee or director of the Lalande Acquired Companies, or
(ii) the ability of any Lalande Acquired Company to conduct its business,
including any Proprietary Rights Agreement with C. De la Torre or the Lalande
Acquired Companies by any such employee or director. To C. De la Torre's and
Lalande's Knowledge, no director, officer, or other key employee of any Lalande
Acquired Company intends to terminate his employment with such Lalande Acquired
Company.
(c) Part 5.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the Lalande Acquired Companies, or their dependents, receiving
benefits or scheduled to receive benefits in the future: name, pension benefit,
pension option election, retiree medical insurance coverage, retiree life
insurance coverage, and other benefits.
5.19 Labor Relations; Compliance. Except as set forth on Part 5.19
of the Disclosure Letter, since January 1, 1995, no Lalande Acquired Company
has been or is a party to any collective bargaining or other labor Contract.
Since January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of Lalande and C. De la Torre, there is not
Threatened, (a) any strike, slowdown, picketing, work stoppage, lockout or
employee grievance process, (b) any Proceeding against or affecting any Lalande
Acquired Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters or (c) any application for
certification of a collective bargaining agent. Each Lalande Acquired Company
has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining and occupational safety and
health. No Lalande Acquired Company is liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
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5.20 Intellectual Property.
(a) Each Lalande Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 5.20(a) of the Disclosure
Letter (the "Lalande Intellectual Property Assets"), (ii) neither owns nor uses
any such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each Lalande
Acquired Company owns, or possesses adequate and enforceable rights to use
without payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such Lalande Acquired Company.
(b) Except as set forth in Part 5.20(b) of the Disclosure Letter,
Lalande has no Knowledge nor has received any notice to the effect that any
service it or any other Lalande Acquired Company provides or sells, or any
process or method it employs in its business for the use by it or another of
any such service, may infringe, or is in conflict with, any asserted right of
another. There is no pending or Threatened claim or litigation action against
any Lalande Acquired Company contesting its right to use or the validity of any
of the Lalande Intellectual Property Assets or asserting its misuse of any of
the foregoing, which would deprive it of the right to assert its rights
thereunder or which would prevent the sale of any service provided or sold by
it.
(c) Each Lalande Acquired Company has established a strategic plan
and provided Buyer with an accurate and complete copy of such plan and a
schedule of the amount of capital and resources reasonably believed to be
necessary to institute software systems such that each Lalande Acquired Company
will be Year 2000 Compliant upon the completion of such plan.
5.21 Certain Payments. Since January 1, 1995, no Lalande Acquired
Company or director, officer, agent, or employee of any Lalande Acquired
Company, or any other Person associated with or acting for or on behalf of any
Lalande Acquired Company, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any Lalande Acquired Company or any affiliate of an Lalande Acquired Company,
or (iv) in violation of any Legal Requirement or (b) established or maintained
any fund or asset that has not been recorded in the books and records of the
Lalande Acquired Companies.
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5.22 Disclosure.
(a) No representation or warranty of C. De la Torre or Lalande in
this Agreement and no statement in the Disclosure Letter omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) There is no fact known to C. De la Torre or Lalande that has
specific application to C. De la Torre or any Lalande Acquired Company (other
than general economic or industry conditions) and that materially adversely
affects or, as far as C. De la Torre or Lalande can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of the Lalande Acquired Companies (on a consolidated
basis) that has not been set forth in this Agreement or the Disclosure Letter.
5.23 Relationships with Related Persons. Except as set forth in
Part 5.23 of the Disclosure Letter, neither C. De la Torre nor any Related
Person of C. De la Torre or of any Lalande Acquired Company has, or since
January 1, 1996 has had, any interest in any property (whether real, personal,
or mixed and whether tangible or intangible), used in or pertaining to the
Lalande Acquired Companies' businesses. Except as set forth in Part 5.23 of
the Disclosure Letter, neither C. De la Torre nor any Related Person of C. De
la Torre or of any Lalande Acquired Company is, or since January 1, 1996, has
owned (of record or as a beneficial owner) an equity interest or any other
financial or profit interest in, a Person that has (i) had business dealings or
a material financial interest in any transaction with any Lalande Acquired
Company, or (ii) engaged in competition with any Lalande Acquired Company with
respect to any line of the products or services of such Lalande Acquired
Company ("Lalande Competing Business") in any market presently served by such
Lalande Acquired Company. Except as set forth in Part 5.23 of the Disclosure
Letter, neither C. De la Torre nor any Related Person of C. De la Torre or of
any Lalande Acquired Company is a party to any Contract with, or has any claim
or right against, any Lalande Acquired Company.
5.24 Bank Accounts. Part 5.24 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the Lalande Acquired Companies has an account or safe deposit box or maintains
a banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
5.25 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, C. De la Torre, each Lalande Acquired Company and their
agents have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
6.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Texas.
6.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. Upon the execution and delivery by Buyer
of the C. De la Torre Employment Agreement, the C. De la Torre Employment
Agreement will constitute the legal, valid, and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Buyer has all corporate right, power, and authority to
execute and deliver this Agreement and the C. De la Torre Employment Agreement
and to perform its obligations under this Agreement and the C. De la Torre
Employment Agreement.
(b) Except as set forth in Part 6.2 of the Buyer's Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time) (i) conflict
with, or result in a violation of any provision of the Organizational Documents
of Buyer; (ii) conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Buyer, or any of the assets owned
or used by Buyer, may be subject; (iii) conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, suspend, terminate, or modify, any Insurance Permit or other
Governmental Authorization that is held by Buyer or that otherwise relates to
the business of, or any of the assets owned or used by, Buyer; (iv) conflict
with, or result in a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or (v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Buyer.
Except as set forth in Part 6.2 of the Buyer's Disclosure Letter,
Buyer is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
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6.3 Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
6.4 Certain Proceedings. There is no pending Proceeding that has
been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
6.5 Brokers or Finders. Except as set forth in Part 6.5 of the
Buyer's Disclosure Letter, Buyer and its officers and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
6.6 Loss Reserves. The Loss Reserves (as defined below) of the
wholly-owned subsidiaries of GAINSCO that are insurance companies (the "GAINSCO
Insurance Subsidiaries"), as set forth in the most recent unaudited
consolidated balance sheet of GAINSCO (the "GAINSCO Balance Sheet"), net of
reinsurance recoverables (other than intercompany reinsurance), are fairly
stated in the GAINSCO Balance Sheet in accordance with generally accepted
actuarial standards and principles. For the purpose of this Section 6.6, "Loss
Reserves" means all reserves for all losses and loss adjustment expenses,
including, without limitation, case reserves, reserves for loss adjustment
expenses, both allocated and unallocated, reserves for incurred but not
reported losses and loss adjustment expenses, and otherwise determined in
accordance with those generally accepted actuarial standards and principles
applied in determining such Loss Reserves reflected in the GAINSCO Balance
Sheet.
6.7 Disclosure.
(a) No representation or warranty of Buyer in this Agreement and
no statement in the Buyer's Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Buyer that has specific application
to Buyer (other than general economic or industry conditions) and that
materially adversely affects or, as far as Buyer can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of Buyer (on a consolidated basis) that has not been set
forth in this Agreement or the Buyer's Disclosure Letter.
ARTICLE VII
COVENANTS OF SELLERS AND THE COMPANIES
AT OR PRIOR TO CLOSING DATE
7.1 Access and Investigation. Subject to the terms of that certain
Non-Disclosure Agreement, dated June 15, 1998, from M.B. Johnston, the De la
Torres, M. Johnston and R. Mayoral to Buyer (the "Non-Disclosure Agreement"),
between the date of this Agreement and the
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Closing Date, Sellers and the Companies will, and will cause each Acquired
Company and its Representatives to, (a) afford Buyer and its Representatives
(collectively, "Buyer's Advisors") full and free access to each Acquired
Company, its personnel, properties, contracts, books and records, and all other
documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may reasonably request.
7.2 Operation of the Businesses of the Acquired Companies.
Between the date of this Agreement and the Closing Date, Sellers and the
Companies will, and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the
Ordinary Course of Business and in accordance with all valid regulations, laws
and orders of all Governmental Bodies;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such Acquired
Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report from time to time to Buyer concerning the
status of the business, operations, and finances of such Acquired Company.
7.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement or described in the Disclosure Letter, between the date of this
Agreement and the Closing Date, Sellers and the Companies will not, and will
cause each Acquired Company not to, without the prior consent of Buyer, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in
Sections 3.14, 4.14 and 5.14, respectively, is likely to occur.
7.4 Required Approvals. As promptly as practicable after the date
of this Agreement, Sellers will, and will cause each Acquired Company to, make
all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing Date, Sellers will,
and will cause each Acquired Company to, (a) cooperate with Buyer with respect
to all filings that Buyer elects to make or is required by Legal Requirements
to make in connection with the Contemplated Transactions and (b) cooperate with
Buyer in obtaining all consents identified in Part 6.2 of the Buyer's
Disclosure Letter (including taking all actions requested by Buyer to cause
early termination of any applicable waiting period under the HSR Act).
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7.5 Notification. Between the date of this Agreement and the
Closing Date, Sellers will promptly notify Buyer in writing if Sellers or any
Acquired Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Sellers' or the Company's representations and
warranties as of the date of this Agreement, or if Sellers or the Company
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Disclosure Letter if the Disclosure Letter were dated the date of the
occurrence or discovery of any such fact or condition, Sellers will promptly
deliver to Buyer a supplement to the Disclosure Letter specifying such change.
During the same period, Sellers will promptly notify Buyer of the occurrence of
any Breach of any covenant of Sellers or the Company in this Article VII or of
the occurrence of any event that may make the satisfaction of the conditions in
Article IX impossible or unlikely. No notice given pursuant to this Section
7.5 will contain any untrue statement or omit to state a material fact
necessary to make the statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading.
7.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, Sellers will cause all indebtedness owed
to an Acquired Company by Sellers or any Related Person of any Seller to be
paid in full contemporaneous with Closing.
7.7 Best Efforts. Between the date of this Agreement and the
Closing Date, Sellers will use their Best Efforts to cause the conditions in
Articles IX and X to be satisfied.
7.8 Certain Indebtedness.
(a) Contemporaneous with Closing, each Acquired Company shall pay,
and Sellers shall cause each Acquired Company to pay, any indebtedness owed by
any Acquired Company to Agents Financial Services, Inc., a Florida corporation
("AFS"), in full.
(b) Contemporaneous with Closing, all indebtedness owed by AFS to
any Acquired Company shall be paid in full.
7.9 Disposition of AFS Shares. Contemporaneous with Closing, NSL
shall sell all shares of capital stock of AFS owned by NSL to M.B. Johnston and
C. De la Torre, at the book value as of the most recent month preceding the
Closing.
7.10 Reviewed Financial Statements of the Acquired Companies. C. De
la Torre or Sellers, as applicable, shall deliver the financial statements as
required by Sections 3.4, 4.4 and 5.4.
7.11 NSL Stockholders' Agreement. Contemporaneous with Closing, C.
De la Torre and R. De la Torre shall execute all documents necessary to
terminate that certain Stockholders' Agreement, dated December 14, 1993, by and
among M.B. Johnston, C. De la Torre, M. Johnston and NSL.
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7.12 M&C Inspection Services, Inc.. At or prior to Closing, C. De
la Torre and R. De la Torre shall execute all documents necessary to dissolve
or liquidate M&C Inspection Services, Inc.
ARTICLE VIII
COVENANTS OF BUYER PRIOR TO CLOSING DATE
8.1 Approvals of Governmental Bodies. As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions (including all filings under the HSR Act). Between the date of
this Agreement and the Closing Date, Buyer will (a) cooperate with Sellers with
respect to all filings that Sellers elect to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions and (b)
cooperate with Sellers in obtaining all consents identified in Part 6.2 of the
Buyer's Disclosure Letter; provided that this Agreement will not require Buyer
to dispose of or make any change in any portion of its business or to incur any
other burden to obtain a Governmental Authorization.
8.2 Best Efforts. Except as set forth in the proviso to Section
8.1, between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Articles IX and X to be satisfied.
8.3 Access. Between the date of this Agreement and the Closing
Date, Buyer shall provide to Sellers responses to Sellers' reasonable due
diligence requests.
8.4 Notification. Between the date of this Agreement and the
Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Buyer's representations and warranties as of the date of this Agreement, or if
Buyer becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Buyer's Disclosure Letter if the Buyer's Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, Buyer will promptly deliver to Seller a supplement to the Buyer's
Disclosure Letter specifying such change. During the same period, Buyer will
promptly notify Seller of the occurrence of any Breach of any covenant of Buyer
in this Article VIII or of the occurrence of any event that may make the
satisfaction of the conditions in Article X impossible or unlikely. No notice
given pursuant to this Section 8.4 will contain any untrue statement or omit to
state a material fact necessary to make the statements therein or in this
Agreement, in light of the circumstances in which they were made, not
misleading.
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ARTICLE IX
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
9.1 Accuracy of Representations. Each of C. De la Torre's,
Sellers' and the Company's representations and warranties in this Agreement
must have been accurate in all material respects as of the date of this
Agreement, and must be accurate in all material respects as of the Closing Date
as if made on the Closing Date, without giving effect to any supplement to the
Disclosure Letter.
9.2 Sellers' Performance. Each of the covenants and obligations
that C. De la Torre, Sellers and the Company are required to perform or to
comply with pursuant to this Agreement at or prior to the Closing must have
been duly performed and complied with in all material respects.
9.3 Consents. Each of the Consents identified in Parts 3.2, 4.2
and 5.2 of the Disclosure Letter and Part 6.2 of the Buyer's Disclosure Letter
must have been obtained and must be in full force and effect.
9.4 Additional Documents. Each of the following documents must
have been delivered to Buyer:
(a) an opinion of Packman, Neuwahl & Rosenberg, P.A., dated the
Closing Date, in the form agreed to by the parties;
(b) estoppel certificates executed on behalf of all landlords,
lenders and lessors of the Acquired Companies, dated as of a date not more than
five (5) days prior to the Closing Date;
(c) executed stock purchase agreements, pursuant to which Buyer
shall obtain all of the outstanding shares of capital stock of NSL, DLT and
Lalande;
(d) if applicable, wire transfer instructions concerning the
amount to be transferred to Sellers pursuant to Section 2.5(b)(i); and
(e) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 10.4(a), (ii) evidencing the accuracy of any of C. De la Torre's,
Sellers' and the Company's representations and warranties, (iii) evidencing the
performance by C. De la Torre, Sellers and the Company of, or the compliance by
C. De la Torre, Sellers and the Company with, any covenant or obligation
required to be performed or complied with by C. De la Torre, Sellers and the
Company, (iv) evidencing the satisfaction of any condition referred to in this
Article IX or (v) otherwise facilitating the consummation or performance of any
of the Contemplated Transactions.
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9.5 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies or (b)
is entitled to all or any portion of the Purchase Price payable for the Shares.
9.6 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable
Legal Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental
Body. Neither the consummation nor the performance of the Contemplated
Transactions will directly or indirectly violate an Order.
9.7 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
9.8 Regulatory Approval. Buyer or a Subsidiary of Buyer shall
have obtained the necessary regulatory approval to write nonstandard private
passenger automotive insurance in the State of Florida or have contracted with
another entity to enable it to write business that would be wholly or partially
reinsured with a Subsidiary or Subsidiaries of Buyer.
9.9 NSL Stockholders' Agreement. That certain Stockholders'
Agreement, dated December 14, 1993, by and among M.B. Johnston, C. De la Torre,
M. Johnston and NSL shall have been terminated by all of the shareholders of
NSL.
9.10 M&C Inspection Services, Inc. M&C Inspection Services, Inc.
shall have been liquidated or dissolved.
ARTICLE X
CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
10.1 Accuracy of Representations. Each of Buyer's representations
and warranties in this Agreement must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Buyer's Disclosure Letter.
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10.2 Buyer's Performance. Each of the covenants and obligations
that Buyer is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing must have been performed and complied with in all
material respects.
10.3 Consents. Each of the Consents identified in Parts 3.2, 4.2
and 5.2 of the Disclosure Letter and Part 6.2 of the Buyer's Disclosure Letter
must have been obtained and must be in full force and effect.
10.4 Additional Documents. Buyer must have caused the following
documents to be delivered to Sellers:
(a) an opinion of Haynes and Boone, LLP, dated the Closing Date,
in the form agreed to by the parties; and
(b) such other documents as Sellers may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 9.4(a), (ii) evidencing the accuracy of any representation or warranty
of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with by Buyer, (ii) evidencing the satisfaction of any condition referred to in
this Article X or (v) otherwise facilitating the consummation of any of the
Contemplated Transactions.
10.5 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Seller or any Person affiliated
with Seller to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
Governmental Body. Neither the consummation nor the performance of the
Contemplated Transactions will directly or indirectly violate an Order.
10.6 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
ARTICLE XI
TERMINATION
11.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
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(a) by either Buyer or Sellers if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived or such Breach has not been remedied within thirty
(30) days after written notice is given specifying the Breach and demanding it
to be remedied;
(b) (i) by Buyer if any of the conditions in Article IX has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition
on or before the Closing Date; or (ii) by Sellers, if any of the conditions in
Article X has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Sellers to comply with their obligations under this Agreement) and Sellers have
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1998, or such later date as the parties may agree upon; or
(e) (i) by Buyer if a material Breach of any provision of any of
the Purchase Agreements has been committed by any party other than Buyer
thereto and such Breach has not been waived or such Breach has not been
remedied within thirty (30) days after written notice is given specifying the
Breach and demanding it to be remedied, or (ii) by Buyer if any of the
conditions precedent to Buyer's obligation to close any of the Purchase
Agreements has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer has not
waived such condition on or before the Closing Date.
11.2 Effect of Termination. Each party's right of termination
under Section 11.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
11.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 13.1 and 13.3 will survive;
provided, however, that if this Agreement is terminated by a party because of
the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
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ARTICLE XII
INDEMNIFICATION; REMEDIES
12.1 Survival; Right to Indemnification Not Affected by Knowledge.
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter, the
certificates delivered pursuant to Section 2.5(a)(iv), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
12.2 Indemnification and Payment of Damages by Sellers. Sellers
will indemnify and hold harmless Buyer, the Acquired Companies, and their
respective Representatives, shareholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by C. De la
Torre, Sellers, each Seller under the respective Purchase Agreements, NSL, DLT
or Lalande in this Agreement or any of the respective Purchase Agreements
(without giving effect to any supplement to the Disclosure Letter or any
Disclosure Letter delivered pursuant to the respective Purchase Agreements),
the Disclosure Letter, any Disclosure Letter delivered pursuant to the
respective Purchase Agreements, the supplements to the Disclosure Letter, the
supplements to any Disclosure Letter delivered pursuant to the respective
Purchase Agreements, or any other certificate or document delivered by C. De la
Torre, Sellers, the Companies, or any of the Sellers under the respective
Purchase Agreements or the Companies under this Agreement or the respective
Purchase Agreements;
(b) any Breach of any representation or warranty made by C. De la
Torre, Sellers, each Seller under the respective Purchase Agreements, NSL, DLT
or Lalande in this Agreement or any of the respective Purchase Agreements as if
such representation or warranty were made on and as of the Closing Date without
giving effect to any supplement to the Disclosure Letter or any Disclosure
Letter delivered pursuant to the respective Purchase Agreements, other than any
such Breach that is disclosed in a supplement to the Disclosure Letter or a
supplement to any Disclosure Letter delivered pursuant to the respective
Purchase Agreements and is expressly
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identified in the certificates delivered pursuant to Section 2.5(a)(iv) or the
corresponding section in each respective Purchase Agreement as having caused
the condition specified in Section 9.1 or the corresponding section in each
respective Purchase Agreement not to be satisfied;
(c) any Breach by C. De la Torre, Sellers, each Seller under the
respective Purchase Agreements, NSL, DLT or Lalande of any covenant or
obligation of C. De la Torre, Sellers, each Seller under the respective
Purchase Agreements, or the Companies;
(d) any claim by any Person, other than Metis Financial LLC, for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with C.
De la Torre, Sellers, each Seller under the respective Purchase Agreements,
NSL, any other NSL Acquired Company, DLT, any other DLT Acquired Company,
Lalande or any other Lalande Acquired Company (or any Person acting on their
behalf) in connection with any of the Contemplated Transactions; or
(e) any claim by any Person with respect to AFS;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 12.2 and 12.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 12.2 and 12.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 12.2
and 12.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 12.2 and 12.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller shall have no
obligation to make any payment, in the aggregate, to Indemnified Persons under
Sections 12.2 and 12.3 in excess of the Seller's proportional share of the
aggregate Purchase Price received by Seller and each Seller under the
respective Purchase Agreements pursuant to Article II of this Agreement and the
respective Purchase Agreements.
Except as otherwise provided herein, the remedies provided in this Section 12.2
will not be exclusive of or limit any other remedies that may be available to
Buyer or the other Indemnified Persons.
12.3 Indemnification and Payment of Damages by Sellers --
Environmental Matters. In addition to the provisions of Section 12.2, Sellers
will indemnify and hold harmless Buyer, the Acquired Companies, and the other
Indemnified Persons for, and will pay to Buyer, the Acquired Companies, and the
other Indemnified Persons the amount of, any Damages (including costs of
cleanup, containment, or other remediation) arising, directly or indirectly,
from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out
of or relating to: (i) (A) the ownership, operation, or condition at any time
on or prior to the Closing Date of the Facilities or any other properties and
assets (whether real, personal, or mixed and whether
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tangible or intangible) in which C. De la Torre, Sellers, each Seller under the
respective Purchase Agreements, any NSL Acquired Company, any DLT Acquired
Company or any Lalande Acquired Company has or had an interest, or (B) any
Hazardous Materials or other contaminants that were present on the Facilities
or such other properties and assets at any time on or prior to the Closing
Date; or (ii) (A) any Hazardous Materials or other contaminants, wherever
located, that were, or were allegedly, generated, transported, stored, treated,
Released, or otherwise handled by C. De la Torre, Sellers, each Seller under
the respective Purchase Agreements, any NSL Acquired Company, any DLT Acquired
Company or any Lalande Acquired Company or by any other Person for whose
conduct they are or may be held responsible at any time on or prior to the
Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by C. De la Torre, Sellers, each Seller under the respective Purchase
Agreements, any NSL Acquired Company, any DLT Acquired Company or any Lalande
Acquired Company or by any other Person for whose conduct they are or may be
held responsible; or
(b) any bodily injury (including illness, disability, and death,
and regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of
C. De la Torre, Sellers, each Seller under the respective Purchase Agreements,
any NSL Acquired Company, any DLT Acquired Company or any Lalande Acquired
Company or any other Person for whose conduct they are or may be held
responsible, in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the Facilities or the
operation of the Acquired Companies or any Acquired Company under the
respective Purchase Agreements, prior to the Closing Date, or from Hazardous
Material that was (i) present or suspected to be present on or before the
Closing Date on or at the Facilities (or present or suspected to be present on
any other property, if such Hazardous Material emanated or allegedly emanated
from any of the Facilities and was present or suspected to be present on any of
the Facilities on or prior to the Closing Date) or (ii) Released or allegedly
Released by C. De la Torre, Sellers, each Seller under the respective Purchase
Agreements, any NSL Acquired Company, any DLT Acquired Company or any Lalande
Acquired Company or any other Person for whose conduct they are or may be held
responsible, at any time on or prior to the Closing Date;
provided, however, that Sellers shall have no obligation to make any payment to
Indemnified Persons under Sections 12.2 and 12.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 12.2 and 12.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 12.2
and 12.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 12.2 and 12.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Sellers on demand; and further provided that Sellers shall have no
obligation to make any payment, in the aggregate, to Indemnified Persons under
Sections 12.2 and 12.3 in excess of the Sellers' proportional share of the
aggregate Purchase Price received by Sellers and each Sellers under the
respective Purchase Agreements pursuant to Article II of this Agreement and the
respective Purchase Agreements.
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Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 12.3. The procedure
described in Section 12.7 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 12.3.
12.4 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of any
Damages arising, directly or indirectly, from or in connection with
(a) any Breach of any representation or warranty made by Buyer in
this Agreement (without giving effect to any supplement to the Buyer's
Disclosure Letter), the Buyer's Disclosure Letter, the supplements to the
Buyer's Disclosure Letter, or any other certificate or document delivered by
Buyer pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Buyer in
this Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Buyer's Disclosure
Letter, other than any such Breach that is disclosed in a supplement to the
Buyer's Disclosure Letter and is expressly identified in the certificate
delivered pursuant to Section 2.5(b)(ii) as having caused the condition
specified in Section 10.1 not to be satisfied;
(c) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement;
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on
its behalf) in connection with any of the Contemplated Transactions; or
(e) payments owed to Sellers pursuant to Section 2.3 hereof that
are not paid when due;
provided, however, that Buyer shall have no obligation to make any payment to
Sellers under this Section 12.4 unless the aggregate amount to which Sellers
are entitled by reason of all claims under this Section 12.4 and to any other
Seller (as defined in the respective Purchase Agreements) under the respective
Purchase Agreements exceeds $50,000 in the aggregate of all amounts collectible
under the Acquired Companies' errors and omissions policies, it being
understood that once such amount is exceeded, the aggregate of all claims under
this Section 12.4 and under corresponding sections of the Purchase Agreements
shall be payable by Buyer on demand.
The remedies provided in this Section 12.4 will not be exclusive of or limit
any other remedies that may be available to Sellers.
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12.5 Time Limitations. If the Closing occurs, C. De la Torre and
Sellers will have no liability (for indemnification or otherwise) with respect
to any representation or warranty, or covenant or obligation to be performed
and complied with prior to the Closing Date, other than those in Sections 3.3,
3.9, 3.11, 3.17, 4.3, 4.9, 4.11, 4.17, 5.3, 5.9, 5.11 and 5.17, unless on or
before the earlier of (i) the second anniversary of the Date for the third
Earnout Period or (ii) July 1, 2003, Buyer notifies C. De la Torre or the
Sellers, as applicable, of a claim specifying the factual basis of that claim
in reasonable detail to the extent then known by Buyer; a claim with respect to
Section 3.3, 3.9, 3.11, 3.17, 4.3, 4.9, 4.11, 4.17, 5.3, 5.9, 5.11 or 5.17, or
a claim for indemnification or reimbursement not based upon any representation
or warranty or any covenant or obligation to be performed and complied with
prior to the Closing Date, may be made at any time. If the Closing occurs,
Buyer will have no liability (for indemnification or otherwise) with respect to
any representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before July 1, 2003,
Sellers notifies Buyer of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Sellers.
12.6 Right of Set-Off. Upon notice to C. De la Torre or the
Sellers, as applicable, specifying in reasonable detail the basis for such
set-off, Buyer may set off any amount to which it may be entitled under this
Article XII against amounts otherwise payable to Sellers under this Agreement
or to any other Seller (as defined in the respective Purchase Agreements) under
the respective Purchase Agreements. The exercise of such right of set-off by
Buyer in good faith, whether or not ultimately determined to be justified, will
not constitute a Breach of this Agreement. Neither the exercise of nor the
failure to exercise such right of set-off shall constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to it. Any amount set-off pursuant to this Section 12.6
shall be considered a reduction in the Purchase Price of that amount.
12.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section
12.2 or 12.4, or (to the extent provided in the last sentence of Section 12.3)
Section 12.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement
of such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except and only to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice.
(b) If any Proceeding referred to in Section 12.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes not related to the Acquired Companies, be entitled to
participate in such Proceeding with respect to the Acquired Companies and, to
the extent that it wishes (unless (i) the indemnifying party is also a party to
such Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its
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financial capacity to defend such Proceeding and provide indemnification with
respect to such Proceeding), to assume the defense of such Proceeding with
counsel satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Article XII for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, subsequently incurred by the indemnified party
in connection with the defense of such Proceeding, other than reasonable costs
of investigation. If the indemnifying party assumes the defense of a
Proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims
may be effected by the indemnifying party without the indemnified party's
consent unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on any
other claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party; and (iii) the indemnified party will have no liability with respect to
any compromise or settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within ten days after the indemnified
party's notice is given, give notice to the indemnified party of its election
to assume the defense of such Proceeding, the indemnifying party will be bound
by any determination made in such Proceeding or any compromise or settlement
effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding,
but the indemnifying party will not be bound by any determination of a
Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
12.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
12.9 Reduction for Insurance, etc. The amount that Seller shall be
liable to pay to, for, or on behalf of an Indemnified Person pursuant to this
Article XII or the amount that Buyer shall be liable to pay to, for or on
behalf of Seller pursuant to this Article XII (either, an "Indemnifiable Loss")
shall be reduced (including without limitation, retroactively) by any insurance
proceeds actually recovered by or on behalf of such Indemnified Person or
Seller, as applicable (an "Indemnitee"), related to the Indemnifiable Loss. If
an Indemnitee shall have received or shall have had paid on its behalf an
indemnity payment in respect of an Indemnifiable Loss and shall subsequently
receive directly or indirectly insurance proceeds in respect of such
Indemnifiable Loss, then such Indemnitee shall pay to such indemnifying party
(the "Indemnifying Party") the net amount of such insurance proceeds or, if
less, the amount of such indemnity payment. An Indemnitee promptly shall, at
the sole expense of the Indemnifying Party, use all reasonable
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efforts to recover insurance proceeds which may be due such Indemnitee. Any
reduction to an Indemnifiable Loss by reason of any insurance proceeds actually
recovered shall not reduce the maximum amount of liability for which the
Indemnifying Party shall be obligated pursuant to this Article XII.
ARTICLE XIII
GENERAL PROVISIONS
13.1 Expenses. Except as otherwise expressly provided in this
Agreement, the Acquired Companies shall be responsible for the obligations of
the Acquired Companies and Sellers with regard to Metis Financial LLC and
expenses incurred in connection with the preparation and execution of this
Agreement and the Contemplated Transactions, including all fees, expenses of
agents, representatives, counsel, and accountants and the HSR Act filing fee.
Buyer shall be responsible for any obligations disclosed on Part 6.5 of the
Buyer's Disclosure Letter. In the event of termination of this Agreement, the
obligation of Buyer to pay such expenses will be subject to any rights of Buyer
arising from a breach of this Agreement by another party.
13.2 Public Announcements. Except as provided in the
Non-Disclosure Agreement, any public announcement or similar publicity with
respect to this Agreement or the Contemplated Transactions will be issued, if
at all, at such time and in such manner as Buyer determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing
Sellers shall, and shall cause the Acquired Companies to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person other than any professional advisors of Sellers. Sellers and Buyer will
consult with each other concerning the means by which the Acquired Companies'
employees, customers, and suppliers and others having dealings with the
Acquired Companies will be informed of the Contemplated Transactions, and Buyer
will have the right to be present for any such communication.
13.3 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Sellers will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained
in confidence from another party or an Acquired Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of
the Contemplated Transactions, or (c) the furnishing or use of such information
is required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Sellers waive, and
will upon Buyer's request cause the Acquired
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Companies to waive, any cause of action, right, or claim arising out of the
access of Buyer or its representatives to any trade secrets or other
confidential information of the Acquired Companies except for the competitive
misuse by Buyer of such trade secrets or confidential information.
The terms of the Non-Disclosure Agreement shall continue to remain in
effect, and the parties thereto shall continue to be governed by its terms.
13.4 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
Sellers:
Carlos De la Torre
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
Rosa De la Torre
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
Buyer:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
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with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
NSL:
National Specialty Lines, Inc.
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Attention: McRae B. Johnston
Facsimile No.: (305) 222-1318
DLT:
De La Torre Insurance Adjusters, Inc.:
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Attention: Carlos De la Torre
Facsimile No.: (305) 222-1318
Lalande:
Lalande Financial Group, Inc.
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Attention: McRae B. Johnston
Facsimile No.: (305) 222-1318
13.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Texas, County of Tarrant, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Texas, Fort Worth
Division, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in
the world.
13.6 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
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13.7 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. The rights of Buyer and Seller
hereunder are in addition to all other rights provided by law. Neither the
failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
13.8 Entire Agreement and Modification. Except for the terms of
the Non-Disclosure Agreement, this Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the parties hereto.
13.9 Disclosure Letter.
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
13.10 Assignments, Successors, and No Third-party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give
any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns. In the event Buyer assigns any of
its rights under this Agreement to any Subsidiary of Buyer and such Subsidiary
does not fulfill its obligations under this Agreement, Buyer shall assume and
fulfill such Subsidiary's obligations under this Agreement.
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13.11 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
13.12 Article and Section Headings, Construction. The headings of
Articles and Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Article"
or "Articles" refer to the corresponding Article or Articles of this Agreement,
and all references to "Section" or "Sections" refer to the corresponding
Section or Sections of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word "including" does not limit the
preceding words or terms.
13.13 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
13.14 Governing Law. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.
13.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
13.16 Errors and Omissions Policies. Buyer shall use its Best
Efforts to cause the Acquired Companies to maintain the errors and omissions
policies of the Acquired Companies in effect as the date of this Agreement, or,
in the event that any of such errors and omissions policies are cancelled,
Buyer shall cause the Acquired Companies to purchase tail coverage per the
terms of such policies.
* * * * *
- 81 -
<PAGE> 82
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
-------------------------------------------
Carlos De la Torre
-------------------------------------------
Rosa De la Torre
NATIONAL SPECIALTY LINES, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: President
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
----------------------------------------
Name: Carlos De la Torre
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: Vice President
- 82 -
<PAGE> 83
GAINSCO, INC.
By:
----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive
Officer
- 83 -
<PAGE> 84
EXHIBIT A
CAPITALIZATION OF COMPANIES
NATIONAL SPECIALTY LINES, INC.
<TABLE>
<CAPTION>
Seller Number of Shares
------ ----------------
<S> <C>
C. De la Torre 10.0000
M.B. Johnston 10.0000
M. Johnston 1.0526
-------
Total 21.0526
</TABLE>
DE LA TORRE INSURANCE ADJUSTERS, INC.
<TABLE>
<CAPTION>
Seller Number of Shares
------ ----------------
<S> <C>
De la Torres 200.000
R. Mayoral 28.571
-------
Total 228.571
</TABLE>
LALANDE FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
Seller Number of Shares
------ ----------------
<S> <C>
M.B. Johnston 100
C. De la Torre 100
---
Total 200
</TABLE>
- 84 -
<PAGE> 85
EXHIBIT B
EXAMPLE OF EARNOUT PAYMENTS
- 85 -
<PAGE> 86
FORM OF DISCLOSURE LETTER
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Ladies and Gentlemen:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), Carlos
De la Torre ("C. De la Torre"), Rosa De la Torre ("R. De la Torre" and,
together with C. De la Torre, "Sellers"), National Specialty Lines, Inc., a
Florida corporation ("NSL"), De La Torre Insurance Adjusters, Inc. ("DLT"), and
Lalande Financial Group, Inc. ("Lalande"), pursuant to which Sellers are to
sell and Buyer is to purchase the Shares (as defined in the Agreement), as
provided in the Agreement.
This letter constitutes the Disclosure Letter referred to in the
Agreement. The representations and warranties of C. De la Torre, Sellers, NSL,
DLT and Lalande in the Agreement are made and given subject to the disclosures
in this Disclosure Letter. The disclosures in this Disclosure Letter are to be
taken as relating to the representations and warranties in the section of the
Agreement to which they expressly relate and to no other representation or
warranty in the Agreement.
Terms defined in the Agreement are used with the same meaning in this
Disclosure Letter. References to Appendices are to the Appendices to this
Disclosure Letter.
By reference to the Agreement (using the numbering in such
Agreement), the following matters are disclosed:
* * * * *
- 86 -
<PAGE> 87
Very truly yours,
-------------------------------------------
Carlos De la Torre
-------------------------------------------
Rosa De la Torre
NATIONAL SPECIALTY LINES, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: President
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
----------------------------------------
Name: Carlos De la Torre
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: Vice President
- 87 -
<PAGE> 88
Buyer acknowledges receipt of the Disclosure Letter of which this is a
duplicate (including the Appendices referred to therein).
Dated:
-------------------------------------
GAINSCO, INC.
By:
----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive
Officer
- 88 -
<PAGE> 89
FORM OF BUYER'S DISCLOSURE LETTER
Carlos De la Torre
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
Rosa De la Torre
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
Dear Sellers:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), Carlos
De la Torre ("C. De la Torre"), Rosa De la Torre ("R. De la Torre" and,
together with C. De la Torre, "Sellers"), National Specialty Lines, Inc., a
Florida corporation ("NSL"), De La Torre Insurance Adjusters, Inc. ("DLT"), and
Lalande Financial Group, Inc. ("Lalande"), pursuant to which Sellers are to
sell and Buyer is to purchase the Shares (as defined in the Agreement), as
provided in the Agreement.
This letter constitutes the Buyer's Disclosure Letter referred to in
Article VI of the Agreement. The representations and warranties of the Buyer in
Article VI of the Agreement are made and given subject to the disclosures in
this Buyer's Disclosure Letter. The disclosures in this Buyer's Disclosure
Letter are to be taken as relating to the representations and warranties in the
section of the Agreement to which they expressly relate and to no other
representation or warranty in the Agreement.
Terms defined in the Agreement are used with the same meaning in this
Buyer's Disclosure Letter. References to Appendices are to the Appendices to
this Buyer's Disclosure Letter.
By reference to Article VI of the Agreement (using the numbering in
such Article), the following matters are disclosed:
* * * * *
- 89 -
<PAGE> 90
Very truly yours,
GAINSCO, INC.
By:
----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive
Officer
- 90 -
<PAGE> 91
Sellers acknowledge receipt of the Buyer's Disclosure Letter of which
this is a duplicate (including the Appendices referred to therein).
Dated:
-------------------------------------
-------------------------------------------
Carlos De la Torre
-------------------------------------------
Rosa De la Torre
NATIONAL SPECIALTY LINES, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: President
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
----------------------------------------
Name: Carlos De la Torre
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: Vice President
- 91 -
<PAGE> 92
EXHIBIT 2.5(a)(ii)
SELLERS' RELEASE
This Release is being executed and delivered in accordance with
Section 2.5(a)(ii) of the Stock Purchase Agreement dated _________, 1998 (the
"Agreement") among GAINSCO, INC., a Texas corporation ("Buyer"), Carlos De la
Torre ("C. De la Torre"), Rosa De la Torre ("R. De la Torre" and, together with
C. De la Torre, "Sellers"), National Specialty Lines, Inc., a Florida
corporation ("NSL"), De La Torre Insurance Adjusters, Inc. ("DLT"), and Lalande
Financial Group, Inc. ("Lalande"). Capitalized terms used in this Release
without definition have the respective meanings given to them in the Agreement.
Each Seller acknowledges that execution and delivery of this Release
is a condition to Buyer's obligation to purchase the outstanding capital stock
of NSL, DLT and Lalande pursuant to the Agreement and that Buyer is relying on
this Release in consummating such purchase.
Each Seller, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged and intending to be legally bound,
in order to induce Buyer to purchase the outstanding capital stock of NSL, DLT
and Lalande pursuant to the Agreement, hereby agrees as follows:
Each Seller, on behalf of himself and each of his Related Persons,
hereby releases and forever discharges the Buyer, the Companies, each of the
other Acquired Companies, and each of their respective individual, joint or
mutual, past, present and future Representatives, affiliates, shareholders,
controlling persons, Subsidiaries, successors and assigns (individually, a
"Releasee" and collectively, "Releasees") from any and all claims, demands,
Proceedings, causes of action, Orders, obligations, contracts, agreements,
debts and liabilities whatsoever, whether known or unknown, suspected or
unsuspected, both at law and in equity, which each of the Sellers or any of
their respective Related Persons now has, have ever had or may hereafter have
against the respective Releasees arising contemporaneously with or prior to the
Closing Date or on account of or arising out of any matter, cause or event
occurring contemporaneously with or prior to the Closing Date, including, but
not limited to, any rights to indemnification or reimbursement from any
Acquired Company, whether pursuant to their respective Organizational
Documents, contract or otherwise and whether or not relating to claims pending
on, or asserted after, the Closing Date; provided, however, that nothing
contained herein shall operate to release any obligations of Buyer arising
under the Agreement.
Each Seller hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or
causing to be commenced, any proceeding of any kind against any Releasee, based
upon any matter purported to be released hereby.
Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, each Seller, jointly and severally, shall indemnify
and hold harmless each Releasee from and against all loss, liability, claim,
damage (including incidental and consequential damages) or expense (including
costs of investigation and defense and reasonable attorney's fees) whether or
- 92 -
<PAGE> 93
not involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of the Sellers or any of
their Related Persons of any claim or other matter purported to be released
pursuant to this Release and (ii) the assertion by any third party of any claim
or demand against any Releasee which claim or demand arises directly or
indirectly from, or in connection with, any assertion by or on behalf of the
Sellers or any of their Related Persons against such third party of any claims
or other matters purported to be released pursuant to this Release.
If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This Release shall
be governed by and construed under the laws of the State of Texas without
regard to principles of conflicts of law.
All words used in this Release will be construed to be of such gender
or number as the circumstances require.
IN WITNESS WHEREOF, each of the undersigned have executed and
delivered this Release as of this ___ day of _____________, 1998.
-------------------------------------------
Carlos De la Torre
-------------------------------------------
Rosa De la Torre
NATIONAL SPECIALTY LINES, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: President
- 93 -
<PAGE> 94
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
----------------------------------------
Name: Carlos De la Torre
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: Vice President
- 94 -
<PAGE> 95
EXHIBIT 2.5(a)(iii)
C. DE LA TORRE EMPLOYMENT AGREEMENT
- 95 -
<PAGE> 1
EXHIBIT 99.7
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of August ___,
1998, by and among GAINSCO, INC., a Texas corporation ("Buyer"), McRae B.
Johnston ("M.B. Johnston" or "Seller"), National Specialty Lines, Inc., a
Florida corporation ("NSL") and Lalande Financial Group, Inc., a Florida
corporation ("Lalande").
RECITALS
WHEREAS, M.B. Johnston is the record and beneficial owner of 10 shares
of common stock, $1.00 par value per share ("NSL Common Stock"), of NSL; and
WHEREAS, M.B. Johnston is the record and beneficial owner of 100
shares of common stock, $1.00 par value per share ("Lalande Common Stock"), of
Lalande; and
WHEREAS, M.B. Johnston desires to sell, and Buyer desires to purchase,
all of the issued and outstanding shares of NSL Common Stock and Lalande Common
Stock owned by M.B. Johnston (the "Shares"), for the consideration and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements set forth and for other good and valuable consideration, the
adequacy, sufficiency and receipt of which are hereby acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"ACQUIRED COMPANY"--any of NSL, Lalande, or their respective
Subsidiaries, and the term "Acquired Companies" means NSL, Lalande, and their
respective Subsidiaries, collectively.
"APPLICABLE CONTRACT"--any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"BEST EFFORTS"--the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure
<PAGE> 2
to perform or comply with, such representation, warranty, covenant, obligation,
or other provision, or (b) any claim (by any Person) or other occurrence or
circumstance that is or was inconsistent with such representation, warranty,
covenant, obligation, or other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence, or circumstance.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"COMPANIES"--NSL and Lalande, collectively.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including (a) the sale of the Shares by Seller to Buyer; (b)
the execution, delivery, and performance of the M.B. Johnston Employment
Agreement and the Seller's Release; (c) the performance by Buyer, Seller and
the Companies of their respective covenants and obligations under this
Agreement; and (d) Buyer's acquisition and ownership of the Shares and exercise
of control over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to
Buyer concurrently with the execution and delivery of this Agreement.
"EMPLOYEE BENEFIT PLAN"--any "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined
in Section 3(1) of ERISA), "Multi-employer Plan" (as defined in Section 3(37)
of ERISA), plan of deferred compensation, medical plan, life insurance plan,
long-term disability plan, dental plan or other plan providing for the welfare
of any of NSL's or Lalande's employees or former employees or beneficiaries
thereof (as applicable), personnel policy (including but not limited to
vacation time, holiday pay, bonus programs, moving expense reimbursement
programs and sick leave), excess benefit plan, bonus or incentive plan
(including but not limited to stock options, restricted stock, stock bonus and
deferred bonus plans), salary reduction agreement, change-of-control agreement,
employment agreement, consulting agreement or any other benefit, program or
contract.
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENTAL LAW"--the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Water Pollution Control Act, the
Safe Drinking Water Act, the Federal Clean Water Act, the Federal Clean Air
Act, the Federal Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Federal Solid
- 2 -
<PAGE> 3
Waste Disposal Act, the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Occupational Safety and
Health Act, each as amended, and all other environmental statutes enacted by
any Governmental Body, and any executive order, ordinances, rules or
regulations promulgated under any of the foregoing.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by any Acquired Company.
"GAAP"--United States generally accepted accounting principles,
applied on a basis consistent with the basis on which the NSL Balance Sheet,
the Lalande Interim Balance Sheet, and the other financial statements referred
to in Sections 3.4 and 4.4, respectively, were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY"--any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INSURANCE PERMIT"--any Governmental Authorization in any jurisdiction
to underwrite, place, sell or otherwise transact insurance or reinsurance, or
to engage in premium finance activities.
"INVESTMENT GUIDELINES"--a written statement of the current investment
programs, containing the investment policies and guidelines.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
- 3 -
<PAGE> 4
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course
of conducting a reasonable investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such
Person (or by any Person or group of Persons exercising similar authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any
amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN AFFILIATE"--with respect to any Person, any other person or
entity with whom the Person constitutes all or part of a controlled group, or
which would be treated with the Person as
- 4 -
<PAGE> 5
under common control or whose employees would be treated as employed by the
Person, under Section 414 of the IRC and any regulations, administrative
rulings and case law interpreting the foregoing.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPRIETARY RIGHTS AGREEMENT"--any confidentiality, noncompetition,
or proprietary rights agreement.
"PURCHASE AGREEMENTS"--collectively, (a) that certain Stock Purchase
Agreement, dated the date hereof, by and among Buyer, Carlos De la Torre ("C.
De la Torre"), Rosa De la Torre ("R. De la Torre" and, together with C. De la
Torre, the "De la Torres"), NSL, De La Torre Insurance Adjusters, Inc., a
Florida corporation ("DLT"), and Lalande; (b) that certain Stock Purchase
Agreement, dated the date hereof, by and among Buyer, Michael Johnston ("M.
Johnston") and NSL; and (c) that certain Stock Purchase Agreement, dated the
date hereof, by and among Buyer, Ralph Mayoral ("R. Mayoral") and DLT.
"RELATED PERSON"--with respect to a particular individual, (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and (d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting power of a
Person or equity securities or other equity interests representing at least ten
percent (10%) of the outstanding equity securities or equity interests in a
Person.
- 5 -
<PAGE> 6
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SUBSIDIARY"--with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct
the business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred) are held by the Owner or one or more of its
Subsidiaries.
"TAX"--any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
"YEAR 2000 COMPLIANT"--with respect to any item shall mean that such
item: (i) from now until January 1, 2000, must correctly operate, store,
process and produce data containing dates before January 1, 2000; (ii) from now
until January 1, 2000, must correctly operate, store, process and produce data
containing dates after December 31, 1999; (iii) from January 1, 2000, must
correctly operate, store, process and produce data containing dates before
January 1, 2000; (iv) from January 1, 2000, must correctly operate, store,
process and produce data containing dates after December 31, 1999; (v) must be
able to handle the date January 1, 2001 correctly; (vi) must recognize the year
2000 as a leap year (e.g., February 2000 is recognized as a valid date,
- 6 -
<PAGE> 7
Julian date 00060 is recognized as February 29, 2000, Julian date 00366 is
recognized as December 31, 2000, arithmetic operations performed recognize that
the year 2000 has 366 days and binary date 36584 is recognized as February 29,
2000); (vii) must be able to correctly process data containing the date
September 9, 1999; (viii) must provide date data century recognition
correctly; (ix) must correctly accommodate calculations with same century and
multi-century formulas; (x) must correctly provide date values and date data
interface values that reflect the century; (xi) must be able to correctly
manage and manipulate data involving dates, including single century and
multi-century formulas and must not cause an abnormally ending scenario within
the application or result in the generation of incorrect values involving such
dates; (xii) must ensure that date-related user interface functions and data
fields correctly include the indication of the century; and (xiii) must ensure
that all date-related functions correctly include an indication of the century.
For purposes of this definition, "correctly" shall mean accurately and without
delay, corruption, interruption or error relating to the time at which or the
date on which such items are operating.
ARTICLE II
SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Seller will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Seller.
2.2 Purchase Price. The purchase price (the "Purchase Price") for
the Shares shall be (i) $7,912,800 in cash (the "Initial Purchase Price") plus
(ii) the payments made pursuant to Section 2.3 hereof, if any.
2.3 Earnout Payments.
(a) The terms below shall have the following respective meanings
for the purposes of this Section 2.3:
"ACQUIRED COMPANIES" means, for purposes of this Section 2.3,
NSL, DLT, Lalande, and their respective Subsidiaries, collectively,
and any business or businesses conducted by Buyer, or by any
subsidiaries or affiliated corporations of Buyer, that represent a
succession to and a continuation of the business conducted by NSL,
DLT, Lalande, and their respective subsidiaries, collectively, as the
same may be expanded or contracted from and after Closing.
"CHANGE OF CONTROL" means any of the following:
(1) any consolidation or merger of the Buyer in
which the Buyer is not the continuing or surviving corporation
or pursuant to which shares of the Buyer's common stock would
be converted into cash, securities or other property, other
than a merger of the Buyer in which the holders of the Buyer's
common stock
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<PAGE> 8
immediately prior to the merger have the same percentage
ownership of common stock of the surviving corporation
immediately after the merger;
(2) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets or a majority of the
liabilities of the Buyer;
(3) any approval by the shareholders of the Buyer
of any plan or proposal for the liquidation or dissolution of
the Buyer;
(4) the cessation of control (by virtue of their
not constituting a majority of directors) of the Buyer's Board
of Directors by the individuals (the "Continuing Directors")
who (x) at the date of this Agreement were directors or (y)
become directors after the date of this Agreement and whose
election or nomination for election by the Buyer's
shareholders, was approved by a vote of at least two-thirds of
the directors then in office who were directors at the date of
this Agreement or whose election or nomination for election
was previously so approved;
(5) (A) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended ("Beneficial Ownership")) of
at least an aggregate of 20% of the voting power of the
Buyer's outstanding voting securities by any person or group
(as such term is used in Rule 13d-5 under such Act) who
Beneficially Owned less than 10% of the voting power of the
Buyer's outstanding voting securities on the date hereof, (B)
the acquisition of Beneficial Ownership of an additional 5% of
the voting power of the Buyer's outstanding voting securities
by any person or group who Beneficially Owned at least 10% of
the voting power of the Buyer's outstanding voting securities
on the date hereof, or (C) the execution by the Buyer and a
shareholder of a contract that by its terms grants such
shareholder (in its, hers or his capacity as a shareholder) or
such shareholder's Affiliate (as defined in Rule 405
promulgated under the Securities Act of 1933 (an "Affiliate"))
including, without limitation, such shareholder's nominee to
the Board of Directors (in its, hers or his capacity as an
Affiliate of such shareholder), the right to veto or block
decisions or actions of the Board of Directors; provided,
however, that notwithstanding the foregoing, the events
described in items (A), (B) or (C) above shall not constitute
a Change in Control hereunder if the shareholder is (aa) a
trustee or other fiduciary holding securities under an
employee benefit plan of the Buyer and acting in such
capacity, (bb) a corporation owned, directly or indirectly, by
the shareholders of the Buyer in substantially the same
proportions as their ownership of voting securities of the
Buyer or (cc) in the case of an acquisition described in items
(A) or (B) above, any other person whose acquisition of shares
of voting securities is approved in advance by a majority of
the Continuing Directors, unless such acquisition is greater
than 40% of the voting power of the Buyer's outstanding voting
securities; provided further, however that none of the
following shall constitute a Change in Control: (aa) the right
of the holders of any voting securities of the Buyer to vote
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<PAGE> 9
as a class on any matter or (bb) any vote required of
disinterested or unaffiliated directors or shareholders
including, without limitation, pursuant to Rule 16b-3
promulgated pursuant to the Securities Exchange Act of 1934;
or
(6) subject to applicable law, in a Chapter 11
bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Buyer to a case under
Chapter 7.
"CHANGE OF CONTROL TRIGGER" means, after a Change in Control,
a material change in the management direction and prospects of the
Acquired Companies in place immediately prior to the Change of
Control, including (i) a termination of C. De la Torre or M.B.
Johnston Without Cause or for Employer Breach, as defined in the
Employment Agreements of C. De la Torre and M.B. Johnston,
respectively; or (ii) a material reduction or restriction in the
territory for expansion of the Acquired Companies; or (iii) a material
change in the operating strategy of the Acquired Companies.
"COMPUTATION STATEMENT" means a statement setting forth in
reasonable detail Buyer's calculation of the Pre-Tax Earnings of the
Acquired Companies during the applicable Earnout Period and the
calculation of the Earnout Amount for such Earnout Period.
"EARNED PREMIUMS" means earned premiums as defined by
generally accepted accounting principles, consistently applied.
"EARNOUT CONSIDERATION" means $8,792,000.
"EARNOUT PERIOD" means the following periods, as applicable:
(i) the first Earnout Period will commence on the Integration Date
and will terminate one day prior to the first anniversary of the
Integration Date; (ii) the second Earnout Period will commence on the
first anniversary of the Integration Date and will terminate one day
prior to the second anniversary of the Integration Date; and (iii) the
third Earnout Period will commence on the second anniversary of the
Integration Date and will terminate one day prior to the third
anniversary of the Integration Date.
"EARNOUT RATIO" means, for each applicable Earnout Period, the
quotient of (i) the difference between (A) Pre-Tax Earnings for that
Earnout Period and (B) the Threshold Earnout Level for that Earnout
Period and (ii) the difference between (A) the Maximum Earnout Level
for that Earnout Period and (B) the Threshold Earnout Level for that
Earnout Period; provided, however, that in the event the Threshold
Earnout Level for such Earnout Period is equal to or exceeds the
Pre-Tax Earnings for the Earnout Period, the Earnout Ratio shall be
zero (0).
"INCURRED LOSSES AND LOSS ADJUSTMENT EXPENSES" means, for any
period, (A) case basis reserves plus losses incurred but not reported
("IBNR"), including development of losses for the applicable Earnout
Period, as of the end of the period, using the latest
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<PAGE> 10
information available at the conclusion of each Earnout Period or
Release Period, plus (B) losses and Loss Adjustment Expenses paid
during the period and less (C) case basis reserves plus IBNR,
including development of losses for the applicable Earnout Period, as
of the beginning of the period, using the latest information available
at the conclusion of each Earnout Period or Release Period.
"INTEGRATION DATE" means the earlier of (i) the first day of
the calendar quarter immediately following the date on which ninety
percent (90%) or more of the policies written by or through the
Acquired Companies are policies in force of Subsidiaries of Buyer or
(ii) July 1, 2000, if Buyer has not provided the ability or means to
enable ninety percent (90%) or more of direct and/or assumed policies
written by or through the Acquired Companies to be policies in force
of Subsidiaries of Buyer.
"LOSS ADJUSTMENT EXPENSES" means, for any period, expenses
incurred in the course of investigating and settling claims,
including, without limitation, legal and adjusters' fees and the costs
of paying claims and related expenses.
"LOSS RATIO" means, for any period, the quotient of (i)
Incurred Losses and Loss Adjustment Expenses for the period and (ii)
Earned Premiums for the period.
"MAXIMUM EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $11,000,000; (ii) for the second Earnout Period,
$16,000,000; and (iii) for the third Earnout Period, $22,000,000.
"MAXIMUM EARNOUT PAYMENT" means the following payments,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, 25% of the Earnout Consideration; (ii) for the second
Earnout Period, 25% of the Earnout Consideration; and (iii) for the
third Earnout Period, 50% of the Earnout Consideration.
"PAYMENT DATE" means the date sixty (60) days after the
termination of each Earnout Period (or the next succeeding business
day if such date is not a business day).
"PRE-TAX EARNINGS" means, for each Earnout Period, (a) the net
earnings, before all income taxes and interest expense, of Buyer and
its Subsidiaries, attributable to the operation of the Acquired
Companies, less (b) the amount of the Support Functions Reimbursement,
plus (c) investment income on initial imputed capital of $15,000,000,
effective as of the Integration Date, for such Earnout Period, less
(d) an annual imputed cost of capital charge based on the
then-outstanding prime rate at the beginning of each year plus 1% for
any incremental growth capital investments attributable to the
Acquired Companies. Such incremental capital will be based on capital
purchases and a ratio of 2.5 to 1 of (x) net written premiums to (y)
net book value less deferred acquisition costs, in accordance with
generally accepted accounting principles, consistently applied.
Pre-Tax Earnings shall be calculated (i) on the accrual basis of
accounting in accordance with generally accepted accounting principles
consistently applied and (ii) as though the
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<PAGE> 11
Acquired Companies were a single corporation with all of its shares
owned by persons who are neither directly nor indirectly related to
Buyer.
"RATING REDUCTION" means the occurrence of a rating by A.M.
Best Company of Buyer's insurance companies, as a group, below A-
("Excellent").
"RELEASE DATE" means the date sixty (60) days after the
termination of each Release Period (or the next succeeding business
day if such date is not a business day).
"RELEASE PERIOD" means the following periods, as applicable:
(i) the first Release Period for the first Earnout Period will
commence one day after the termination date of the first Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the first Earnout Period will
commence one day after the first anniversary of the termination date
of the first Earnout Period and will terminate on the second
anniversary of such termination date; (ii) the first Release Period
for the second Earnout Period will commence one day after the
termination date of the second Earnout Period and will terminate on
the first anniversary of such termination date, and the second Release
Period for the second Earnout Period will commence one day after the
first anniversary of the termination date of the second Earnout Period
and will terminate on the second anniversary of such termination date;
and (iii) the first Release Period for the third Earnout Period will
commence one day after the termination date of the third Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the third Earnout Period will
commence one day after the first anniversary of the termination date
of the third Earnout Period and will terminate on the second
anniversary of such termination date.
"SELLERS' ADVISORY REPRESENTATIVE" means M.B. Johnston, acting
on behalf of himself, C. De la Torre, R. De la Torre, M. Johnston and
R. Mayoral, collectively, or any successor thereto appointed by
unanimous agreement of such persons who are not the Sellers' Advisory
Representative.
"SUBSEQUENT EARNOUT PAYMENT" means (i) the Maximum Earnout
Payment for that Earnout Period multiplied by (ii) the Earnout Ratio
for that Earnout Period.
"SUPPORT FUNCTIONS REIMBURSEMENT" means a monthly fee charged
to the Acquired Companies to cover Buyer's expenses in connection with
providing direct support functions, such as information systems
support, actuarial support, human resources support and accounting
support. In the event the Acquired Companies require special
attention for any unusual circumstance in any month, the monthly fee
may be increased for that month to reflect an amount Buyer reasonably
determines is the true cost to Buyer of providing management and
support functions to the Acquired Companies. In such case Buyer shall
provide, as part of its Computation Statement, the basis for such
increased monthly fee.
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<PAGE> 12
"THRESHOLD EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $6,000,000; (ii) for the second Earnout Period,
$8,000,000; and (iii) for the third Earnout Period, $10,000,000.
(b) Integration Consideration. Except as provided in this
Agreement, Buyer will deliver to Seller additional consideration (the
"Integration Consideration") for the Shares equal to $879,200 within thirty
(30) days after the Integration Date.
(c) Subsequent Earnout Payments.
(i) On the Payment Date for the first Earnout Period,
Buyer will deliver to Seller additional consideration (the "First
Earnout Period Subsequent Earnout Payment") for the Shares, equal to
the Subsequent Earnout Payment for the first Earnout Period multiplied
by 50%; provided, however, that the amount paid pursuant to this
clause (i) shall not exceed 50% of the Maximum Earnout Payment for the
first Earnout Period.
(ii) On the Payment Date for the second Earnout Period,
Buyer will deliver to Seller additional consideration (the "Second
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the second Earnout Period;
provided, however, that the amount paid pursuant to this clause (ii)
shall not exceed 50% of the Maximum Earnout Payment for the second
Earnout Period.
(iii) On the Payment Date for the third Earnout Period,
Buyer will deliver to Seller additional consideration (the "Third
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the third Earnout Period;
provided, however, that the amount paid pursuant to this clause (iii)
shall not exceed 50% of the Maximum Earnout Payment for the third
Earnout Period.
(iv) Delivery of Computation Statements. At the
conclusion of each Earnout Period, Buyer shall prepare a Computation
Statement for the Earnout Amount earned during such Earnout Period and
shall provide such Computation Statement to the Sellers' Advisory
Representative for his review and comments within forty-five (45) days
after the termination of such Earnout Period, with a copy thereof to
Metis Financial LLC. If, within thirty (30) days after delivery of
the Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Computation Statement shall be conclusive and binding on Seller. In
the event the Sellers' Advisory Representative gives Buyer such notice
of dispute within such 30-day period, Buyer shall pay any amounts due
hereunder that are not in dispute, and the Sellers' Advisory
Representative and Buyer will use their best efforts to settle the
dispute within 30 days after the giving of such notice. Any dispute
unresolved after such 30-day period shall be submitted to a national
public accounting firm satisfactory to the Sellers' Advisory
Representative and Buyer, or, in the absence of agreement on such
firm, to a panel of three public accounting firms, one designated by
the Sellers' Advisory Representative, one designated by Buyer and one
jointly designated by the other two firms. The decision of
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<PAGE> 13
such accounting firm or such panel of accounting firms, as the case
may be, with respect to such dispute shall be final and binding on the
parties hereto. If, as a result of such arbitration, it is determined
that Seller is entitled to an Earnout Amount which exceeds the Earnout
Amount set forth on the applicable Computation Statement by an
aggregate amount greater than ten percent (10%) of such Earnout
Amount, Buyer shall pay the cost of the arbitration. Otherwise,
Seller shall pay the cost of the arbitration. Buyer shall maintain
books and records for the Acquired Companies in a manner which will
facilitate its calculation of each Earnout Amount and the review by
the Sellers' Advisory Representative of each Computation Statement.
Buyer shall make available, at Buyer's offices during normal business
hours, to the Sellers' Advisory Representative and his attorneys,
accountants and other representatives for examination, such of its
books of account, contracts, licenses, leases, instruments,
commitments, sale orders, purchase orders, records, accountant's work
papers and other documents as are relevant to the preparation of the
Computation Statement.
(d) Retroactive Payments.
(i) First Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the first Earnout Period, Buyer will
deliver to Seller additional consideration (the
"First Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the first anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period x 75%) - First Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment and the
First Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the first Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the first Earnout Period and (ii) the
First Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the First Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the first Earnout Period, Buyer will deliver to Seller
additional consideration (the "First Period Third Year
Payment") for the Shares equal to the:
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<PAGE> 14
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the second anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period) - First Earnout Period Subsequent Earnout Payment - First
Period Second Year Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment, the First
Period Second Year Payment and the First Period Third
Year Payment exceeds the Maximum Earnout Payment for
the first Earnout Period, Buyer shall only pay Seller
an amount equal to the (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment, unless
such amount is less than zero, in which case Buyer
shall pay no amount to Seller; and further provided
that if the First Period Third Year Payment is less
than zero, Seller shall pay the integral amount of
the First Period Third Year Payment to Buyer, not to
exceed the sum of (x) the First Earnout Period
Subsequent Earnout Payment and (y) the First Period
Second Year Payment.
The Future Earnout Amount for the First Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment less (iv)
the First Period Third Year Payment, unless such
amount is less than zero, in which case the Future
Earnout Amount for the First Earnout Period shall be
equal to zero.
(ii) Second Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the second Earnout Period, Buyer
will deliver to Seller additional consideration (the
"Second Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the first anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period x 75%) - Second Earnout Period Subsequent
Earnout Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment and the
Second Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the second Earnout
Period, Buyer shall only pay Seller an amount equal
to the difference
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<PAGE> 15
between (i) 75% of the Maximum Earnout Payment for
the second Earnout Period and (ii) the Second Earnout
Period Subsequent Earnout Payment, unless such amount
is less than zero, in which case Buyer shall pay no
amount to Seller; and further provided that if the
Second Period Second Year Payment is less than zero,
no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the second Earnout Period, Buyer will deliver to Seller
additional consideration (the "Second Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the second anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period) - Second Earnout Period Subsequent
Earnout Payment - Second Period Second Year Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment, the Second
Period Second Year Payment and the Second Period
Third Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the second Earnout Period and (y)
the Future Earnout Amount for the First Earnout
Period, Buyer shall only pay Seller an amount equal
to the (i) the Maximum Earnout Payment for the second
Earnout Period plus (ii) the Future Earnout Amount
for the First Earnout Period less (iii) the Second
Earnout Period Subsequent Earnout Payment less (iv)
the Second Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Second Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Second Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Second Earnout Period
Subsequent Earnout Payment and (y) the Second Period
Second Year Payment.
The Future Earnout Amount for the Second Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the second Earnout Period plus (ii) the
Future Earnout Amount for the First Earnout Period
less (iii) the Second Earnout Period Subsequent
Earnout Payment less (iv) the Second Period Second
Year Payment less (v) the Second Period Third Year
Payment, unless such amount is less than zero, in
which case the Future Earnout Amount for the Second
Earnout Period shall be equal to zero.
(iii) Third Earnout Period Retroactive Payments.
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<PAGE> 16
(A) On the first anniversary of the
Payment Date for the third Earnout Period, Buyer will
deliver to Seller additional consideration (the
"Third Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the first anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period x 75%) - Third Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment and the
Third Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the third Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the third Earnout Period and (ii) the
Third Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the Third Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the third Earnout Period, Buyer will deliver to Seller
additional consideration (the "Third Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the second anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period) - Third Earnout Period Subsequent Earnout Payment - Third
Period Second Year Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment, the Third
Period Second Year Payment and the Third Period Third
Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the third Earnout Period and (y)
the Future Earnout Amount for the Second Earnout
Period, Buyer shall only pay Seller an amount equal
to (i) the Maximum Earnout Payment for the third
Earnout Period plus (ii) the Future Earnout Amount
for the Second Earnout Period less (iii) the Third
Earnout Period Subsequent Earnout Payment less (iv)
the Third Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Third Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Third Period Third Year Payment to Buyer, not
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<PAGE> 17
to exceed the sum of (x) the Third Earnout Period
Subsequent Earnout Payment and (y) the Third Period
Second Year Payment.
(iv) Delivery of Retroactive Computation Statements. At
the conclusion of each Release Period, Buyer shall prepare a
Retroactive Computation Statement for the Pre-Tax Earnings recomputed
for the applicable Earnout Period and shall provide such Retroactive
Computation Statement to the Sellers' Advisory Representative for his
review and comments within forty-five (45) days after the termination
of such Release Period, with a copy thereof to Metis Financial LLC.
If, within thirty (30) days after delivery of the Retroactive
Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Retroactive Computation Statement shall be conclusive and binding on
Seller. In the event the Sellers' Advisory Representative gives Buyer
such notice of dispute within such 30-day period, Buyer shall pay any
amounts due hereunder that are not in dispute, and the Sellers'
Advisory Representative and Buyer will use their best efforts to
settle the dispute within 30 days after the giving of such notice.
Any dispute unresolved after such 30-day period shall be submitted to
a national public accounting firm satisfactory to the Sellers'
Advisory Representative and Buyer, or, in the absence of agreement on
such firm, to a panel of three public accounting firms, one designated
by the Sellers' Advisory Representative, one designated by Buyer and
one jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Seller is entitled to the such disputed amount, Buyer shall pay the
cost of the arbitration. Otherwise, Seller shall pay the cost of the
arbitration. Buyer shall maintain books and records for the Acquired
Companies in a manner which will facilitate its recomputation of the
Pre-Tax Earnings applicable for each Earnout Period and the review by
the Sellers' Advisory Representative of each Retroactive Computation
Statement. Buyer shall make available, at Buyer's offices during
normal business hours, to the Sellers' Advisory Representative and his
attorneys, accountants and other representatives for examination, such
of its books of account, contracts, licenses, leases, instruments,
commitments, sale orders, purchase orders, records, accountant's work
papers and other documents as are relevant to the preparation of the
Retroactive Computation Statement.
(e) Change of Control. Notwithstanding anything in this Section
2.3 to the contrary, after a Change in Control of Buyer and in the event of a
Change of Control Trigger, Buyer will deliver to Seller additional compensation
for the Shares, in lieu of any further payments that may be required under this
Section 2.3 on or after the date of such Change of Control Trigger, as follows:
(i) If the Change of Control Trigger occurs prior to or
during the first Earnout Period, an amount equal to $2,472,750 plus
the greater of:
(A) the Subsequent Earnout Payment for the first
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing
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on the beginning of the first Earnout Period and terminating
on the date of the Change of Control Trigger for the Pre-Tax
Earnings for the first Earnout Period; provided, however, that
such amount shall not exceed the Maximum Earnout Payment for
the first Earnout Period; or
(B) $824,250.
(ii) If the Change of Control Trigger occurs during the
second Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) $1,648,500 plus the greater of:
(A) the Subsequent Earnout Payment for the second
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the second Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
second Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the second Earnout Period and (y) the Future Earnout
Amount for the First Earnout Period; or
(B) $824,250.
(iii) If the Change of Control Trigger occurs during the
third Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) the greater of:
(A) the Subsequent Earnout Payment for the third
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the third Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
third Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the third Earnout Period and (y) the Future Earnout Amount
for the Second Earnout Period;
(B) $1,648,500; or
(C) the sum of all amounts earned by Seller
pursuant to this Section 2.3 attributable to the first two
Earnout Periods as recalculated in accordance with Section
2.3(d) as of the end of the last calendar quarter prior to the
date of the Change of Control Trigger, multiplied by 75%.
(iv) Buyer shall deliver the amount owed to Seller
pursuant to this Section 2.3(e) within sixty (60) days of the date of
the Change of Control Trigger.
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<PAGE> 19
(v) Any dispute, controversy or claim arising out of or
in relation to or connection to this Section 2.3(e), including without
limitation any dispute as to whether a Change of Control Trigger has
occurred, shall be exclusively and finally settled by arbitration, and
Buyer or the Sellers' Advisory Representative (each, for the purpose
of this Section 2.3(e)(v), a "Party" and collectively, the "Parties")
may submit such dispute, controversy or claim to arbitration.
(A) Arbitrators. The arbitration shall be heard
and determined by one arbitrator, who shall be impartial and
who shall be selected by mutual agreement of the Parties;
provided, however, that if the dispute and any dispute under
corresponding provisions of any of the respective Purchase
Agreements involve, in the aggregate, more than $3,750,000,
then the arbitration shall be heard and determined by three
(3) arbitrators. If three (3) arbitrators are necessary as
provided above, then (i) each Party shall appoint an
arbitrator of its choice within thirty (30) days of the
submission of a notice of arbitration and (ii) the
Party-appointed arbitrators shall in turn appoint a presiding
arbitrator of the tribunal within thirty (30) days following
the appointment of the last Party-appointed arbitrator. If
(x) the Parties cannot agree on the sole arbitrator, (y) one
Party refuses to appoint its Party-appointed arbitrator within
said thirty (30) day period or (z) the Party-appointed
arbitrators cannot reach agreement on a presiding arbitrator
of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United
States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. If
the Senior United States District Judge for the Northern
District of Texas refuses or fails to act as the appointing
authority within ninety (90) days after being requested to do
so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall
appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. All
decisions and awards by the arbitration tribunal shall be made
by majority vote.
(B) Proceedings. Unless otherwise expressly
agreed in writing by the Parties to the arbitration
proceedings:
(1) The arbitration proceedings shall be
held in Fort Worth, Texas, at a site chosen by mutual
agreement of the Parties, or if the Parties cannot
reach agreement on a location within thirty (30) days
of the appointment of the last arbitrator, then at a
site chosen by the arbitrators;
(2) The arbitrators shall be and remain
at all times wholly independent and impartial;
(3) The arbitration proceedings shall be
conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, as amended from time to time;
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<PAGE> 20
(4) Any procedural issues not determined
under the arbitral rules selected pursuant to item
(3) above shall be determined by the law of the place
of arbitration, other than those laws which would
refer the matter to another jurisdiction;
(5) The costs of the arbitration
proceedings (including attorneys' fees and costs)
shall be borne in the manner determined by the
arbitrators;
(6) The decision of the arbitrators
shall be reduced to writing; final and binding
without the right of appeal; the sole and exclusive
remedy regarding any claims, counterclaims, issues or
accounting presented to the arbitrators; made and
promptly paid in United States dollars free of any
deduction or offset; and any costs or fees incident
to enforcing the award shall, to the maximum extent
permitted by law, be charged against the Person
resisting such enforcement;
(7) The award shall include interest
from the date of any breach or violation of this
Section 2.3(e), as determined by the arbitral award,
and from the date of the award until paid in full, at
5% per annum; and
(8) Judgment upon the award may be
entered in any court having jurisdiction over the
person or the assets of the Person owing the judgment
or application may be made to such court for a
judicial acceptance of the award and an order of
enforcement, as the case may be.
(f) After a Rating Reduction of Buyer, thirty (30) days after the
end of each quarter during each Earnout Period, Buyer shall place an amount
into an escrow account, such that the escrow account contains an amount equal
to the Subsequent Earnout Payment for such Earnout Period, as calculated
pursuant to Section 2.3(c) but based on the Pre-Tax Earnings of such quarter on
an annualized basis. The escrow agent shall then be responsible for all
payments under Sections 2.3(c) and (d). Buyer and Sellers shall, within 180
days after Closing, negotiate a form of an escrow agreement and use their Best
Efforts to identify a financial institution that would be willing to perform
the transactions contemplated by this Section 2.3(f). In the event that no
such financial institution is identified, Buyer and Sellers shall negotiate in
good faith to determine a mutually acceptable alternative.
(g) An example of the payments to be made pursuant to this Section
2.3 is attached hereto as Exhibit B. Such example is for illustrative purposes
only.
2.4 Closing. The purchase and sale (the "Closing") provided for
in this Agreement will take place at the offices of Haynes and Boone, LLP, at
201 Main Street, Suite 2200, Fort Worth, Texas, at 10:00 a.m. (local time) on a
date that is no later than five (5) days after all conditions to Closing have
been satisfied, or at such other time and place as the parties may agree.
Subject to the provisions of Article X, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.4 will not
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<PAGE> 21
result in the termination of this Agreement and will not relieve any party of
any obligation under this Agreement.
2.5 Closing Obligations. At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed
(or accompanied by duly executed stock powers), for transfer to Buyer;
(ii) a release in the form of Exhibit 2.5(a)(ii) executed
by Seller ("Seller's Release");
(iii) an employment agreement in the form of Exhibit
2.5(a)(iii), executed by M.B. Johnston ("M.B. Johnston Employment
Agreement");
(iv) a certificate executed by Seller and the Companies,
representing and warranting to Buyer that each of Seller's and the
Companies' representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Disclosure
Letter delivered by Seller and the Companies to Buyer prior to the
Closing Date in accordance with Section 6.5); and
(v) an opinion of Packman, Neuwahl & Rosenberg, P.A.,
dated the Closing Date, in the form of agreed to by the parties.
(b) Buyer will deliver to Seller:
(i) $7,912,800 by wire transfer payable to the order of
Seller;
(ii) a certificate executed by Buyer, representing and
warranting to Seller that each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Buyer's Disclosure Letter prior to the Closing Date
in accordance with Section 7.4);
(iii) the M.B. Johnston Employment Agreement, executed by
Buyer;
(iv) an opinion of Haynes and Boone, LLP, dated the
Closing Date, in the form agreed to by the parties; and
(v) the Interest due pursuant to Section 2.6 hereof.
2.6 Interest on Purchase Price. In the event that the Closing
Date does not occur within ninety (90) days of the date of this Agreement, for
any reason solely the fault of Buyer, Buyer
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<PAGE> 22
shall pay Seller interest on the Purchase Price, commencing on the 91st day
after the date of this Agreement and continuing to accrue until the Closing
Date, at an interest rate of five percent (5%) per annum (the "Interest"). The
Interest shall be payable at Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER AND NSL
Seller and NSL jointly and severally represent and warrant to Buyer as
follows:
3.1 Organization and Good Standing.
(a) Part 3.1 of the Disclosure Letter contains a complete and
accurate list, for NSL and each Subsidiary of NSL (NSL, together with each
Subsidiary of NSL, collectively referred to herein as the "NSL Acquired
Companies"), of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each shareholder and the number of shares held by
each). Each NSL Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each NSL Acquired Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification. No jurisdiction, other than those listed in Part 3.1 of the
Disclosure Letter, has claimed, in writing, that any NSL Acquired Company is
required to hold a Governmental Authorization, and none of the NSL Acquired
Companies files or is required to file any Tax Returns in any other
jurisdiction.
(b) Seller has delivered to Buyer copies of the Organizational
Documents of each NSL Acquired Company, as currently in effect.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of NSL and Seller, enforceable against NSL and Seller in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity. Upon the execution and
delivery by Seller of the M.B. Johnston Employment Agreement and the Seller's
Release (collectively, the "Seller's Closing Documents"), the Seller's Closing
Documents will constitute the legal, valid, and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Seller has all right, power, authority, and capacity to
execute and deliver this Agreement and the Seller's
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<PAGE> 23
Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents. NSL has all corporate right, power and authority
to execute and deliver this Agreement and to perform its obligations under this
Agreement.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the NSL Acquired Companies; (ii) conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any NSL Acquired Company or
Seller, or any of the assets owned or used by any NSL Acquired Company, may be
subject; (iii) conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, suspend,
terminate, or modify, any Insurance Permit or other Governmental Authorization
that is held by any NSL Acquired Company or that otherwise relates to the
business of, or any of the assets owned or used by, any NSL Acquired Company;
(iv) conflict with, or result in a violation or breach of any provision of, or
give any Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; or (v) result in the imposition or creation of
any Encumbrance upon or with respect to any of the assets owned or used by any
NSL Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, neither
Seller nor any NSL Acquired Company is or will be required to give any notice
to or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 Capitalization. The authorized equity securities of NSL
consist of 100 shares of common stock, $1.00 par value per share, of which
21.0526 shares are issued and outstanding. The ownership of NSL is as set
forth on Exhibit A hereto. Seller is and will be on the Closing Date the
record and beneficial owner and holder of 10 shares of NSL Common Stock, free
and clear of all Encumbrances. NSL has no other class or series of capital
stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any NSL Acquired
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the NSL
Acquired Companies. With the exception of the shares listed on Exhibit A
hereto, all of the outstanding equity securities and other securities of each
NSL Acquired Company are owned of record and beneficially by one or more of the
NSL Acquired Companies, free and clear of all Encumbrances.
Except as set forth in Part 3.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any NSL Acquired Company. All of the
outstanding equity securities of each NSL Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no
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<PAGE> 24
Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of any NSL Acquired Company. None of the outstanding equity
securities or other securities of any NSL Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. No NSL Acquired
Company owns, or has any Contract to acquire, any equity securities or other
securities of any Person (other than NSL Acquired Companies) or any direct or
indirect equity or ownership interest in any other business. Except as set
forth in Part 3.3 of the Disclosure Letter, there are no restrictions upon the
voting or transfer of, or the declaration or payment of any dividend or
distribution on, any shares of capital stock of any NSL Acquired Company.
3.4 Financial Statements. Seller has delivered to Buyer:has
delivered to Buyer: (a) audited balance sheets of the NSL Acquired Companies
as of December 31 in each of the years 1995 and 1996, and the related audited
statements of income, changes in shareholders' equity, and cash flow for each
of the fiscal years then ended, together with the report thereon of Rachlin,
Cohen & Holtz (or the predecessors thereto, Mukamal, Appel, Fromberg &
Margolies, P.A.), independent certified public accountants, (b) a balance
sheet of the NSL Acquired Companies as of December 31, 1997 (including the
notes thereto, the "NSL Balance Sheet"), and the related statements of income,
changes in shareholders' equity, and cash flow for the fiscal year then ended,
together with the report thereon of Rachlin, Cohen & Holtz, independent
certified public accountants. Seller shall deliver to Buyer at least fifteen
(15) days prior to Closing a reviewed balance sheet of the NSL Acquired
Companies as of July 31, 1998 (the "NSL Interim Balance Sheet") and the related
reviewed statements of income, changes in shareholders' equity, and cash flow
for the seven (7) months then ended, including in each case the notes thereto.
Such financial statements and notes fairly present the financial condition and
the results of operations, changes in shareholders' equity, and cash flow of
the NSL Acquired Companies at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP, subject,
in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the NSL Balance Sheet); the financial
statements referred to in this Section 3.4 reflect the consistent application
of such accounting principles throughout the periods involved, except as
disclosed in the notes to such financial statements. No financial statements of
any Person other than the NSL Acquired Companies are required by GAAP to be
included in the financial statements of NSL.
3.5 Books and Records. The books of account, minute books, stock
record books, and other records of the NSL Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
NSL Acquired Companies contain accurate and complete records of all meetings
held of, and corporate action taken by, the shareholders, the Boards of
Directors, and committees of the Boards of Directors of the NSL Acquired
Companies, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the NSL Acquired Companies.
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<PAGE> 25
3.6 Title to Properties; Encumbrances. Part 3.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any NSL Acquired Company. Seller has
delivered or made available to Buyer copies of the deeds and other instruments
(as recorded) by which the NSL Acquired Companies acquired such real property
and interests, and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Seller or the NSL Acquired Companies and
relating to such property or interests. The Acquired Companies own (with good
and marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that they purport
to own located in the facilities owned or operated by the NSL Acquired
Companies or reflected as owned in the books and records of the NSL Acquired
Companies, including all of the properties and assets reflected in the NSL
Balance Sheet and the NSL Interim Balance Sheet (except for personal property
sold since the date of the NSL Balance Sheet and the NSL Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the NSL Acquired
Companies since the date of the NSL Balance Sheet (except for personal property
acquired and sold since the date of the NSL Balance Sheet in the Ordinary
Course of Business and consistent with past practice), which subsequently
purchased or acquired properties and assets (other than short-term investments)
are listed in Part 3.6 of the Disclosure Letter. All material properties and
assets reflected in the NSL Balance Sheet and the NSL Interim Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature.
3.7 Accounts Receivable. All accounts receivable of the NSL
Acquired Companies that are reflected on the NSL Balance Sheet or the NSL
Interim Balance Sheet or on the accounting records of the NSL Acquired
Companies as of the Closing Date (collectively, the "NSL Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the NSL Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on
the NSL Balance Sheet or the NSL Interim Balance Sheet or on the accounting
records of the NSL Acquired Companies as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the NSL Accounts Receivable as of the Closing Date than the reserve with
respect to the NSL Accounts Receivable as reflected in the NSL Interim Balance
Sheet and will not represent a material adverse change in the composition of
such NSL Accounts Receivable in terms of aging). Subject to such reserves, each
of the NSL Accounts Receivable either has been or, to the Knowledge of NSL and
Seller, will be collected in full, without any set-off, within ninety days
after the day on which it first becomes due and payable. There is no contest,
claim, or right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of an NSL Accounts Receivable
relating to the amount or validity of such NSL Accounts Receivable. Part 3.7 of
the Disclosure Letter contains a complete and accurate list of all NSL Accounts
Receivable as of the date of the NSL Interim Balance Sheet, which list sets
forth the aging of such NSL Accounts Receivable.
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<PAGE> 26
3.8 No Undisclosed Liabilities. Except as set forth in Part 3.8
of the Disclosure Letter, the NSL Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the NSL Balance Sheet or the NSL
Interim Balance Sheet and current liabilities incurred in the Ordinary Course
of Business since the respective dates thereof.
3.9 Taxes.
(a) The NSL Acquired Companies or Seller, as applicable, have
filed or caused to be filed (on a timely basis since 1995) all Tax Returns that
are or were required to be filed by or with respect to any of the NSL Acquired
Companies, pursuant to applicable Legal Requirements. Seller has delivered or
made available to Buyer copies of, and Part 3.9 of the Disclosure Letter
contains a complete and accurate list of, all such Tax Returns filed since
January 1, 1995. The NSL Acquired Companies or Seller, as applicable, have
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Seller or any NSL Acquired Company, except such Taxes,
if any, as are listed in Part 3.9 of the Disclosure Letter and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the NSL Balance Sheet and the NSL
Interim Balance Sheet.
(b) Part 3.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 3.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 3.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any NSL Acquired Company or Seller for all taxable years since 1995 with
respect to or that are directly or indirectly related to any NSL Acquired
Company, and the resulting deficiencies proposed by the IRS. Except as
described in Part 3.9 of the Disclosure Letter, neither Seller nor any NSL
Acquired Company has given or been requested to give waivers or extensions (or
is or would be subject to a waiver or extension given by any other Person) of
any statute of limitations relating to the payment of Taxes of, with respect
to, or that are directly or indirectly related to any NSL Acquired Company or
for which Seller or any NSL Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to, or that
are directly or indirectly related to, Taxes on the respective books of each
NSL Acquired Company are adequate (determined in accordance with GAAP) and are
at least equal to that NSL Acquired Company's liability for Taxes. There exists
no proposed tax assessment against any NSL Acquired Company or Seller with
respect to or that is directly or indirectly related to any NSL Acquired
Company except as disclosed in the NSL Balance Sheet or in Part 3.9 of the
Disclosure Letter. All Taxes with respect to or that are directly or indirectly
related to any NSL Acquired Company that any NSL Acquired Company or Seller is
or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
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<PAGE> 27
(d) All Tax Returns filed by any NSL Acquired Company or by Seller
with respect to or that are directly or indirectly related to any NSL Acquired
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by any NSL Acquired Company after the date of this
Agreement. Each NSL Acquired Company is an "S" corporation (or a Qualified
Subchapter S Subsidiary, as the case may be), and NSL has had a valid "S"
corporation election in effect under Section 1362(a) of the IRC since January
1, 1996. During the consistency period (as defined in Section 338(h)(4) of the
IRC with respect to the sale of the Shares to Buyer), no NSL Acquired Company
or target affiliate (as defined in Section 338(h)(6) of the IRC with respect to
the sale of the Shares to Buyer) has sold or will sell any property or assets
to Buyer or to any member of the affiliated group (as defined in Section
338(h)(5) of the IRC) that includes Buyer. Part 3.9 of the Disclosure Letter
lists all such target affiliates.
3.10 No Material Adverse Change. Since the date of the NSL Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any NSL Acquired
Company, and no event has occurred or circumstance exists that may result in
such a material adverse change.
3.11 Employee Benefit Plans. Except as set forth in Part 3.11 of
the Disclosure Letter, neither NSL nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in NSL or such Plan Affiliate having any material debt, liability,
claim or obligation of any kind or nature, whether accrued, absolute,
contingent, direct, indirect, known or unknown, perfected or inchoate or
otherwise and whether or not due or to become due. Correct and complete copies
of all Employee Benefit Plans of NSL previously have been furnished to Buyer.
The Employee Benefit Plans of NSL are in compliance in all material respects
with governing documents and agreements and with applicable laws. There has
not been any act or omission by NSL under ERISA or the terms of the Employee
Benefit Plans of NSL, or any other applicable law or agreement which could give
rise to any liability of NSL, whether under ERISA, the IRC or other laws or
agreements. Neither NSL nor any Plan Affiliate maintains or contributes to,
or has maintained or contributed to, any Employee Benefit Plan subject to Title
IV of ERISA.
3.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 3.12 of the Disclosure Letter,
each NSL Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any
of its assets.
(b) Part 3.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization, including each Governmental
Authorization to conduct insurance, insurance agency or brokerage and premium
finance business and each Insurance Permit, that is held by any NSL Acquired
Company or that otherwise relates to the business of, or to any of the assets
owned or used by, any NSL Acquired Company. Each Governmental Authorization
listed or required to be listed in Part 3.12 of the Disclosure Letter is valid
and in full force and effect.
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Each NSL Acquired Company owns or possesses all right, title and interest in
and to all of the Governmental Authorizations and Insurance Permits that are
necessary to enable it to carry on the business of such NSL Acquired Company as
presently conducted. Each NSL Acquired Company has taken all necessary action
to maintain such Governmental Authorizations. No loss or expiration of any
such Governmental Authorization is threatened, pending or, to the Knowledge of
NSL and Seller, reasonably foreseeable. The consummation of the transactions
contemplated hereby will not result in the suspension, modification,
cancellation, revocation or nonrenewal of any such Governmental Authorization.
Except for compliance with periodic renewal procedures, no approvals or
authorizations are required to permit the NSL Acquired Companies to continue
their business as presently conducted, following the Closing.
(c) None of the NSL Acquired Companies or, to the Knowledge of
Seller and NSL, any of its agents or brokers are engaged in any insurance
agency or brokerage or premium finance business in any jurisdiction in which it
is not duly authorized or qualified to transact such business.
(d) Except as set forth in Part 3.12 of the Disclosure Letter,
each of the NSL Acquired Companies has filed all material reports, statements,
registrations, applications, filings or other documents and submissions
required to be filed with, or provided to any Governmental Body. Except as set
forth in Part 3.12 of the Disclosure Letter, all such reports, statements,
registrations, applications, filings, documents and submissions were in
compliance in all material respects with all applicable Legal Requirements when
filed, and no material deficiencies have been asserted by any Governmental Body
with respect thereto.
(e) Seller has furnished to Buyer true and complete copies of all
annual and quarterly statements filed with or submitted to any state insurance
regulatory authority and all reports of examinations (whether financial, market
conduct or other) issued by any state insurance regulatory authorities in
respect of any of the NSL Acquired Companies covering, in whole or in part, any
period on or after January 1, 1993, together with true and complete copies of
all written responses submitted by or on behalf of any of Seller, the NSL
Acquired Companies or their Affiliates in respect of any such report of
examination. In addition, Seller has made, or has caused the NSL Acquired
Companies to make, available to Buyer all files of Seller and the NSL Acquired
Companies relating to correspondence with insurance regulatory authorities and
other Governmental Bodies.
3.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
NSL Acquired Company or that otherwise relates to or may affect the business
of, or any of the assets owned or used by, any NSL Acquired Company; or (ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
To the Knowledge of Seller and NSL, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the
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<PAGE> 29
commencement of any such Proceeding not in the Ordinary Course of Business of
the NSL Acquired Companies. Seller has delivered to Buyer copies of all
pleadings, correspondence, and other documents relating to each Proceeding
listed in Part 3.13 of the Disclosure Letter. The Proceedings listed in Part
3.13 of the Disclosure Letter will not have a material adverse effect on the
business, operations, assets, condition, or prospects of any NSL Acquired
Company.
(b) Except as set forth in Part 3.13 of the Disclosure Letter: (i)
there is no Order to which any of the NSL Acquired Companies, or any of the
assets owned or used by any NSL Acquired Company, is subject; and (ii) each NSL
Acquired Company is, and at all times since January 1, 1995 has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject.
(c) Except as set forth in Part 3.13 of the Disclosure Letter, no
claim is pending nor, to the Knowledge of Seller or NSL, threatened against any
of the NSL Acquired Companies by any state insurance Governmental Body.
3.14 Absence of Certain Changes and Events. Except as set forth in
Part 3.14 of the Disclosure Letter, since the date of the NSL Balance Sheet,
the NSL Acquired Companies have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in any NSL Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any NSL Acquired Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any NSL Acquired Company of any shares of
any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any NSL Acquired
Company;
(c) payment or increase by any NSL Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any NSL
Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any NSL Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the NSL Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any
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<PAGE> 30
Contract or transaction involving a total remaining commitment by or to any NSL
Acquired Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any NSL Acquired Company or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of any NSL Acquired
Company, including the sale, lease, or other disposition of any of the NSL
Intellectual Property Assets (as defined in Section 3.20)
(h) cancellation or waiver of any claims or rights with a value to
any NSL Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any NSL
Acquired Company;
(j) agreement, whether oral or written, by any NSL Acquired
Company to do any of the foregoing; or
(k) change in its business, underwriting, billing, reserving,
reinsurance, investment or claims adjustment policies and practices or any
change in any activity that (i) has had the effect of accelerating the
recording and billing of premiums or accounts receivable or delaying the
payment of expenses or the establishment of loss and loss adjustment expense
and other reserves in connection with the business or any material accounts of
any of the NSL Acquired Companies or (ii) has had the effect of materially
altering, modifying or changing the historic financial or accounting practices
or policies of any of the NSL Acquired Companies, including accruals of and
reserves for Taxes.
3.15 Contracts; No Defaults.
(a) Part 3.15(a) of the Disclosure Letter contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies, of
all the material Contracts of each NSL Acquired Company. Part 3.15(a) of the
Disclosure Letter sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining
commitment of the NSL Acquired Companies under the Contracts, and the NSL
Acquired Companies' office where details relating to the Contracts are located.
(b) Except as set forth in Part 3.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 3.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 3.15(c) of the Disclosure Letter:
(i) each NSL Acquired Company is, and at all times since
January 1, 1995 has been, in full compliance with all applicable terms
and requirements of each Contract under which such NSL Acquired
Company has or had any obligation or liability or by which such NSL
Acquired Company or any of the assets owned or used by such NSL
Acquired Company is or was bound;
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<PAGE> 31
(ii) each other Person that has or had any obligation or
liability under any Contract under which an NSL Acquired Company has
or had any rights is, and at all times since January 1, 1995 has been,
in full compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any NSL Acquired Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
(iv) no NSL Acquired Company has given to or received from
any other Person, at any time since January 1, 1995, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
(d) The Contracts relating to the sale or provision of services by
the NSL Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
3.16 Insurance.
(a) Seller has delivered to Buyer true and complete copies of all
policies of insurance to which any NSL Acquired Company is a party or under
which any NSL Acquired Company, or any director of any NSL Acquired Company, is
or has been covered at any time within the three (3) years preceding the date
of this Agreement;
(b) Part 3.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy in the possession of Seller or
any of the NSL Acquired Companies. NSL and Seller have no Knowledge of any
loss experience that would affect future potential insurability with respect to
such policies.
(c) Except as set forth in Part 3.16(c) of the Disclosure Letter:
(i) All policies to which any NSL Acquired Company is a
party or that provide coverage to any NSL Acquired Company or any
director or officer of an NSL Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the NSL Acquired
Companies for all risks to which the NSL Acquired Companies are
normally exposed; (C) are sufficient for compliance with all Legal
Requirements and Contracts to which any NSL Acquired Company is a
party or by which any of them is bound; and (D) will continue in full
force and effect following the consummation of the Contemplated
Transactions.
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<PAGE> 32
(ii) No NSL Acquired Company has received (A) any refusal
of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The NSL Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any NSL Acquired Company is a party or that
provides coverage to any NSL Acquired Company or director thereof.
(iv) The NSL Acquired Companies have given notice to the
insurer of all claims that may be insured thereby.
3.17 Environmental Matters. Except as set forth in Part 3.17 of
the Disclosure Letter, to the Knowledge of Seller and NSL, each of the NSL
Acquired Companies is in compliance with all Environmental Laws, the failure to
comply with which could have a Material Adverse Effect. Neither Seller nor any
of the NSL Acquired Companies has received notice of any material violation by
any of the NSL Acquired Companies of, or material default by the same under,
any Environmental Law, and neither Seller nor NSL has any Knowledge of any
existing facts or circumstances that are likely to result in any such violation
or default. There is no action, suit, claim, proceeding or investigation
pending or, to the Knowledge of Seller and NSL, threatened against any of the
NSL Acquired Companies that alleges or would allege any violation of any
Environmental Law.
3.18 Employees.
(a) Part 3.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
NSL Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and,
with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any NSL Acquired
Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other Employee Benefit Plan or
any Director Plan.
(b) No employee or director of any NSL Acquired Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement, between such employee or director and any other
Person that in any way adversely affects or will affect (i) the performance of
his duties as an employee or director of the NSL Acquired Companies, or (ii)
the ability of any NSL Acquired Company to conduct its business, including any
Proprietary Rights Agreement with Seller or the NSL Acquired Companies by any
such employee or director. To Seller's and NSL's Knowledge, no director,
officer, or other key
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<PAGE> 33
employee of any NSL Acquired Company intends to terminate his employment with
such NSL Acquired Company.
(c) Part 3.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the NSL Acquired Companies, or their dependents, receiving benefits
or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
3.19 Labor Relations; Compliance. Except as set forth on Part 3.19
of the Disclosure Letter, since January 1, 1995, no NSL Acquired Company has
been or is a party to any collective bargaining or other labor Contract. Since
January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of NSL and Seller, there is not Threatened, (a)
any strike, slowdown, picketing, work stoppage, lockout or employee grievance
process, (b) any Proceeding against or affecting any NSL Acquired Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters or (c) any application for certification of a
collective bargaining agent. Each NSL Acquired Company has complied in all
respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining and occupational safety and health. No NSL Acquired Company is
liable for the payment of any compensation, damages, taxes, fines, penalties,
or other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.
3.20 Intellectual Property.
(a) Each NSL Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 3.20(a) of the Disclosure
Letter (the "NSL Intellectual Property Assets"), (ii) neither owns nor uses any
such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each NSL Acquired
Company owns, or possesses adequate and enforceable rights to use without
payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such NSL Acquired Company.
(b) Except as set forth in Part 3.20(b) of the Disclosure Letter,
NSL has no Knowledge nor has received any notice to the effect that any service
it or any other NSL Acquired Company provides or sells, or any process or
method it employs in its business for the use by it or another of any such
service, may infringe, or is in conflict with, any asserted right of another.
There is no pending or Threatened claim or litigation action against any NSL
Acquired Company contesting its right to use or the validity of any of the NSL
Intellectual Property Assets or asserting its misuse of any of the foregoing,
which would deprive it of the right to assert its rights thereunder or which
would prevent the sale of any service provided or sold by it.
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<PAGE> 34
(c) Each NSL Acquired Company has established a strategic plan and
provided Buyer with an accurate and complete copy of such plan and a schedule
of the amount of capital and resources reasonably believed to be necessary to
institute software systems such that each NSL Acquired Company will be Year
2000 Compliant upon the completion of such plan.
3.21 Certain Payments. Since January 1, 1995, no NSL Acquired
Company or director, officer, agent, or employee of any NSL Acquired Company,
or any other Person associated with or acting for or on behalf of any NSL
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any NSL Acquired Company or any affiliate of an NSL Acquired Company, or (iv)
in violation of any Legal Requirement or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the NSL
Acquired Companies.
3.22 Disclosure.
(a) No representation or warranty of Seller or NSL in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Seller or NSL that has specific
application to Seller or any NSL Acquired Company (other than general economic
or industry conditions) and that materially adversely affects or, as far as
Seller or NSL can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the NSL
Acquired Companies (on a consolidated basis) that has not been set forth in
this Agreement or the Disclosure Letter.
3.23 Relationships with Related Persons. Except as set forth in
Part 3.23 of the Disclosure Letter, neither Seller nor any Related Person of
Seller or of any NSL Acquired Company has, or since January 1, 1996 has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to the NSL Acquired Companies'
businesses. Except as set forth in Part 3.23 of the Disclosure Letter, neither
Seller nor any Related Person of Seller or of any NSL Acquired Company is, or
since January 1, 1996, has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i)
had business dealings or a material financial interest in any transaction with
any NSL Acquired Company, or (ii) engaged in competition with any NSL Acquired
Company with respect to any line of the products or services of such NSL
Acquired Company ("NSL Competing Business") in any market presently served by
such NSL Acquired Company. Except as set forth in Part 3.23 of the Disclosure
Letter, neither Seller nor any Related Person of Seller or of any NSL Acquired
Company is a party to any Contract with, or has any claim or right against, any
NSL Acquired Company.
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<PAGE> 35
3.24 Agents and Producers. Part 3.24 of the Disclosure Letter lists
all agents, brokers, producers, underwriting managers and other Persons of
each of the NSL Acquired Companies who were paid, directly or indirectly, at
least $25,000 in commissions by or through any of the NSL Acquired Companies,
during the year ended December 31, 1997, including the total amount of
commissions paid to such Persons in such year. To the Knowledge of NSL and
Seller, each of the NSL Acquired Companies generally enjoys good relations with
the Persons listed on Part 3.24 of the Disclosure Letter as a whole, and also
generally enjoys good relations with its other insurance agents, brokers and
producers as a whole. To the Knowledge of Seller and NSL, all Persons listed
on Part 3.24 of the Disclosure Letter are duly licensed to act as agents,
brokers or producers in the jurisdictions where they engage in such activities.
3.25 Threats of Cancellation. Except as set forth in Part 3.25 of
the Disclosure Letter hereto, since January 1, 1996, no policyholder or group
of policyholders under a group policy, or agent, broker, producer or other
Person writing, selling or producing insurance, reinsurance or retrocessional
coverage, which, individually or in the aggregate together with other related
policyholders, agents, brokers and producers, accounted for one percent (1%) or
more of the aggregate gross premiums written by or through the NSL Acquired
Companies in any year ended since December 31, 1996, has terminated or given
written notice of termination of its relationship with any of the NSL Acquired
Companies. The NSL Acquired Companies have received no notice that any such
policyholder, group of policyholders, agent, broker, producer or other such
Person will or is reasonably likely to terminate such relationship as a result
of the transactions contemplated by this Agreement.
3.26 Investments. Part 3.26 of the Disclosure Letter contains (a)
a true and complete list of all securities and other investments owned by each
of the NSL Acquired Companies as of the end of the most recent calendar month,
including the date of purchase, book value or amortized cost, market value and
carrying value thereof on the books and records of account of such NSL Acquired
Company as of such date and (b) the Investment Guidelines of each such NSL
Acquired Company. Except as set forth in Part 3.26 of the Disclosure Letter,
none of the securities and other investments owned by such Persons is in
default in the payment of principal or interest or dividends. All such
securities and other investments substantially comply with the Investment
Guidelines and all insurance laws and regulations of each of the jurisdictions
to which the NSL Acquired Companies are subject with respect thereto.
3.27 Bank Accounts. Part 3.27 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the NSL Acquired Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
3.28 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, Seller, each NSL Acquired Company and their agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection
with this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLER AND LALANDE
Seller and Lalande jointly and severally represent and warrant to
Buyer as follows:
4.1 Organization and Good Standing.
(a) Part 4.1 of the Disclosure Letter contains a complete and
accurate list, for Lalande and each Subsidiary of Lalande (Lalande, together
with each Subsidiary of Lalande, collectively referred to herein as the
"Lalande Acquired Companies"), of its name, its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including the identity of each shareholder and the number of
shares held by each). Each Lalande Acquired Company is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts. Each Lalande Acquired Company is duly qualified to
do business as a foreign corporation and is in good standing under the laws of
each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by
it, requires such qualification. No jurisdiction, other than those listed in
Part 4.1 of the Disclosure Letter, has claimed, in writing, that any Lalande
Acquired Company is required to hold a Governmental Authorization, and none of
the Lalande Acquired Companies files or is required to file any Tax Returns in
any other jurisdiction.
(b) Seller has delivered to Buyer copies of the Organizational
Documents of each Lalande Acquired Company, as currently in effect.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Lalande and Seller, enforceable against Lalande and Seller in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and by general principles of equity. Upon the
execution and delivery by Seller of the Seller's Closing Documents, the
Seller's Closing Documents will constitute the legal, valid, and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity. Seller has all right,
power, authority, and capacity to execute and deliver this Agreement and the
Seller's Closing Documents and to perform his obligations under this Agreement
and the Seller's Closing Documents. Lalande has all corporate right, power and
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<PAGE> 37
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement.
(b) Except as set forth in Part 4.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the Lalande Acquired Companies; (ii) conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which any
Lalande Acquired Company or Seller, or any of the assets owned or used by any
Lalande Acquired Company, may be subject; (iii) conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, suspend, terminate, or modify, any Governmental
Authorization that is held by any Lalande Acquired Company or that otherwise
relates to the business of, or any of the assets owned or used by, any Lalande
Acquired Company; (iv) conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or (v) result in the imposition
or creation of any Encumbrance upon or with respect to any of the assets owned
or used by any Lalande Acquired Company.
Except as set forth in Part 4.2 of the Disclosure Letter, neither
Seller nor any Lalande Acquired Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
4.3 Capitalization. The authorized equity securities of Lalande
consist of 500 shares of common stock, $1.00 par value per share, of which 200
shares are issued and outstanding. The ownership of Lalande is as set forth on
Exhibit A hereto. Seller is and will be on the Closing Date the record and
beneficial owner and holder of 100 shares of Lalande Common Stock, free and
clear of all Encumbrances. Lalande has no other class or series of capital
stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any Lalande
Acquired Company to issue, sell or otherwise cause to become outstanding any of
its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the
Lalande Acquired Companies. With the exception of shares listed on Exhibit A
hereto, all of the outstanding equity securities and other securities of each
Lalande Acquired Company are owned of record and beneficially by one or more of
the Lalande Acquired Companies, free and clear of all Encumbrances.
Except as set forth in Part 4.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any Lalande Acquired Company. All of the
outstanding equity securities of each Lalande Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of
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any Lalande Acquired Company. None of the outstanding equity securities or
other securities of any Lalande Acquired Company was issued in violation of the
Securities Act or any other Legal Requirement. No Lalande Acquired Company
owns, or has any Contract to acquire, any equity securities or other securities
of any Person (other than Lalande Acquired Companies) or any direct or indirect
equity or ownership interest in any other business. Except as set forth in
Part 4.3 of the Disclosure Letter, there are no restrictions upon the voting or
transfer of, or the declaration or payment of any dividend or distribution on,
any shares of capital stock of any Lalande Acquired Company.
4.4 Financial Statements. Seller shall deliver to Buyer no later
than fifteen (15) days prior to Closing a reviewed balance sheet of the Lalande
Acquired Companies as of July 31, 1998 (the "Lalande Interim Balance Sheet")
and the related reviewed statements of income for the seven (7) months then
ended, including in each case the notes thereto. Such financial statements and
notes fairly present the financial condition and the results of operations of
the Lalande Acquired Companies at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP, subject,
in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the Lalande Interim Balance Sheet);
the financial statements referred to in this Section 4.4 reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements. No financial
statements of any Person other than the Lalande Acquired Companies are required
by GAAP to be included in the financial statements of Lalande.
4.5 Books and Records. The books of account, minute books, stock
record books, and other records of the Lalande Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
Lalande Acquired Companies contain accurate and complete records of all
meetings held of, and corporate action taken by, the shareholders, the Boards
of Directors, and committees of the Boards of Directors of the Lalande Acquired
Companies, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Lalande Acquired Companies.
4.6 Title to Properties; Encumbrances. Part 4.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any Lalande Acquired Company. Seller has
delivered or made available to Buyer copies of the deeds and other instruments
(as recorded) by which the Lalande Acquired Companies acquired such real
property and interests, and copies of all title insurance policies, opinions,
abstracts, and surveys in the possession of Seller or the Lalande Acquired
Companies and relating to such property or interests. The Acquired Companies
own (with good and marketable title in the case of real property, subject only
to the matters permitted by the following sentence) all the properties and
assets (whether real, personal, or mixed and whether tangible or intangible)
that they purport to own located in the facilities owned or operated by the
Lalande Acquired Companies or reflected
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as owned in the books and records of the Lalande Acquired Companies, including
all of the properties and assets reflected in the Lalande Interim Balance Sheet
(except for personal property sold since the date of the Lalande Interim
Balance Sheet, as the case may be, in the Ordinary Course of Business), and all
of the properties and assets purchased or otherwise acquired by the Lalande
Acquired Companies since the date of the Lalande Interim Balance Sheet (except
for personal property acquired and sold since the date of the Lalande Interim
Balance Sheet in the Ordinary Course of Business and consistent with past
practice), which subsequently purchased or acquired properties and assets
(other than short-term investments) are listed in Part 4.6 of the Disclosure
Letter. All material properties and assets reflected in the Lalande Interim
Balance Sheet are free and clear of all Encumbrances and are not, in the case
of real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature.
4.7 Accounts Receivable. All accounts receivable of the Lalande
Acquired Companies that are reflected on the Lalande Interim Balance Sheet or
on the accounting records of the Lalande Acquired Companies as of the Closing
Date (collectively, the "Lalande Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior to the
Closing Date, the Lalande Accounts Receivable are or will be as of the Closing
Date current and collectible net of the respective reserves shown on the
Lalande Interim Balance Sheet or on the accounting records of the Lalande
Acquired Companies as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve as of
the Closing Date, will not represent a greater percentage of the Lalande
Accounts Receivable as of the Closing Date than the reserve with respect to the
Lalande Accounts Receivable as reflected in the Lalande Interim Balance Sheet
and will not represent a material adverse change in the composition of such
Lalande Accounts Receivable in terms of aging). Subject to such reserves, each
of the Lalande Accounts Receivable either has been or, to the Knowledge of
Lalande and Seller, will be collected in full, without any set-off, within
ninety days after the day on which it first becomes due and payable. There is
no contest, claim, or right of set-off, other than returns in the Ordinary
Course of Business, under any Contract with any obligor of a Lalande Accounts
Receivable relating to the amount or validity of such Lalande Accounts
Receivable. Part 4.7 of the Disclosure Letter contains a complete and accurate
list of all Lalande Accounts Receivable as of the date of the Lalande Interim
Balance Sheet, which list sets forth the aging of such Lalande Accounts
Receivable.
4.8 No Undisclosed Liabilities. Except as set forth in Part 4.8
of the Disclosure Letter, the Lalande Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Lalande Interim Balance Sheet
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
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4.9 Taxes.
(a) The Lalande Acquired Companies have filed or caused to be
filed (on a timely basis since 1995) all Tax Returns that are or were required
to be filed by or with respect to any of them pursuant to applicable Legal
Requirements. Seller has delivered or made available to Buyer copies of, and
Part 4.9 of the Disclosure Letter contains a complete and accurate list of, all
such Tax Returns filed since January 1, 1995. The Lalande Acquired Companies
have paid, or made provision for the payment of, all Taxes that have or may
have become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Seller or any Lalande Acquired Company, except such
Taxes, if any, as are listed in Part 4.9 of the Disclosure Letter and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Lalande Interim Balance Sheet.
(b) Part 4.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 4.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 4.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any Lalande Acquired Company for all taxable years since 1995 and the
resulting deficiencies proposed by the IRS. Except as described in Part 4.9 of
the Disclosure Letter, neither Seller nor any Lalande Acquired Company has
given or been requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of any Lalande Acquired Company or
for which any Lalande Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on
the respective books of each Lalande Acquired Company are adequate (determined
in accordance with GAAP) and are at least equal to that Lalande Acquired
Company's liability for Taxes. There exists no proposed tax assessment against
any Lalande Acquired Company except as disclosed in the Lalande Interim Balance
Sheet or in Part 4.9 of the Disclosure Letter. All Taxes that any Lalande
Acquired Company is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by any Lalande Acquired Company are
true, correct, and complete. There is no tax sharing agreement that will
require any payment by any Lalande Acquired Company after the date of this
Agreement. No Lalande Acquired Company is an "S" corporation (or a Qualified
Subchapter S Subsidiary, as the case may be). During the consistency period
(as defined in Section 338(h)(4) of the IRC with respect to the sale of the
Shares to Buyer), no Lalande Acquired Company or target affiliate (as defined
in Section 338(h)(6) of the IRC with respect to the sale of the Shares to
Buyer) has sold or will sell any property or assets to Buyer or to any member
of the affiliated group (as defined in Section 338(h)(5) of the IRC) that
includes Buyer. Part 4.9 of the Disclosure Letter lists all such target
affiliates.
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4.10 No Material Adverse Change. Since December 31, 1997, there
has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of any Lalande Acquired Company,
and no event has occurred or circumstance exists that may result in such a
material adverse change.
4.11 Employee Benefit Plans. Except as set forth in Part 4.11 of
the Disclosure Letter, neither Lalande nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in Lalande or such Plan Affiliate having any material debt,
liability, claim or obligation of any kind or nature, whether accrued,
absolute, contingent, direct, indirect, known or unknown, perfected or inchoate
or otherwise and whether or not due or to become due. Correct and complete
copies of all Employee Benefit Plans of Lalande previously have been furnished
to Buyer. The Employee Benefit Plans of Lalande are in compliance in all
material respects with governing documents and agreements and with applicable
laws. There has not been any act or omission by Lalande under ERISA or the
terms of the Employee Benefit Plans of Lalande, or any other applicable law or
agreement which could give rise to any liability of Lalande, whether under
ERISA, the IRC or other laws or agreements. Neither Lalande nor any Plan
Affiliate maintains or contributes to, or has maintained or contributed to, any
Employee Benefit Plan subject to Title IV of ERISA.
4.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 4.12 of the Disclosure Letter,
each Lalande Acquired Company is, and at all times since January 1, 1995 has
been, in full compliance with each Legal Requirement that is or was applicable
to it or to the conduct or operation of its business or the ownership or use of
any of its assets.
(b) Part 4.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any Lalande
Acquired Company or that otherwise relates to the business of, or to any of the
assets owned or used by, any Lalande Acquired Company. Each Governmental
Authorization listed or required to be listed in Part 4.12 of the Disclosure
Letter is valid and in full force and effect. Each Lalande Acquired Company
owns or possesses all right, title and interest in and to all of the
Governmental Authorizations that are necessary to enable it to carry on the
business of such Lalande Acquired Company as presently conducted. Each Lalande
Acquired Company has taken all necessary action to maintain such Governmental
Authorizations. No loss or expiration of any such Governmental Authorization
is threatened, pending or, to the Knowledge of Lalande or Seller, reasonably
foreseeable. The consummation of the transactions contemplated hereby will not
result in the suspension, modification, cancellation, revocation or nonrenewal
of any such Governmental Authorization. Except for compliance with periodic
renewal procedures, no approvals or authorizations are required to permit the
Lalande Acquired Companies to continue their business as presently conducted,
following the Closing.
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(c) Except as set forth in Part 4.12 of the Disclosure Letter,
each of the Lalande Acquired Companies has filed all material reports,
statements, registrations, applications, filings or other documents and
submissions required to be filed with, or provided to, any Governmental Body.
Except as set forth in Part 4.12 of the Disclosure Letter, all such reports,
statements, registrations, applications, filings, documents and submissions
were in compliance in all material respects with all applicable Legal
Requirements when filed, and no material deficiencies have been asserted by any
Governmental Body with respect thereto.
4.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 4.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
Lalande Acquired Company or that otherwise relates to or may affect the
business of, or any of the assets owned or used by, any Lalande Acquired
Company; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Knowledge of Seller and Lalande, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding
not in the Ordinary Course of Business of the Lalande Acquired Companies.
Seller has delivered to Buyer copies of all pleadings, correspondence, and
other documents relating to each Proceeding listed in Part 4.13 of the
Disclosure Letter. The Proceedings listed in Part 4.13 of the Disclosure
Letter will not have a material adverse effect on the business, operations,
assets, condition, or prospects of any Lalande Acquired Company.
(b) Except as set forth in Part 4.13 of the Disclosure Letter: (i)
there is no Order to which any of the Lalande Acquired Companies, or any of the
assets owned or used by any Lalande Acquired Company, is subject; and (ii) each
Lalande Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with all of the terms and requirements of each Order to
which it, or any of the assets owned or used by it, is or has been subject.
4.14 Absence of Certain Changes and Events. Except as set forth in
Part 4.14 of the Disclosure Letter, since December 31, 1997, the Lalande
Acquired Companies have conducted their businesses only in the Ordinary Course
of Business and there has not been any:
(a) change in any Lalande Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any Lalande Acquired Company; issuance of any security convertible
into such capital stock; grant of any registration rights; purchase,
redemption, retirement, or other acquisition by any Lalande Acquired Company of
any shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Lalande
Acquired Company;
(c) payment or increase by any Lalande Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of
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Business) employee or entry into any employment, severance, or similar Contract
with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any
Lalande Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any Lalande Acquired Company, whether or not covered by insurance, materially
and adversely affecting the properties, assets, business, financial condition,
or prospects of the Lalande Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, sales representative, joint venture, credit, or
similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to any Lalande Acquired Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any Lalande Acquired Company or mortgage, pledge, or imposition of
any lien or other encumbrance on any material asset or property of any Lalande
Acquired Company, including the sale, lease, or other disposition of any of the
Lalande Intellectual Property Assets (as defined in Section 4.20);
(h) cancellation or waiver of any claims or rights with a value to
any Lalande Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any Lalande
Acquired Company;
(j) agreement, whether oral or written, by any Lalande Acquired
Company to do any of the foregoing; or
(k) change in its business or billing or any change in any
activity that (i) has had the effect of accelerating the recording and billing
of accounts receivable or delaying the payment of expenses in connection with
the business or any material accounts of any of the Lalande Acquired Companies
or (ii) has had the effect of materially altering, modifying or changing the
historic financial or accounting practices or policies of any of the Lalande
Acquired Companies, including accruals of and reserves for Taxes.
4.15 Contracts; No Defaults.
(a) Part 4.15(a) of the Disclosure Letter contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies, of
all the material Contracts of each Lalande Acquired Company. Part 4.15(a) of
the Disclosure Letter sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the
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remaining commitment of the Lalande Acquired Companies under the Contracts, and
the Lalande Acquired Companies' office where details relating to the Contracts
are located.
(b) Except as set forth in Part 4.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 4.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 4.15(c) of the Disclosure Letter:
(i) each Lalande Acquired Company is, and at all times
since January 1, 1995 has been, in full compliance with all applicable
terms and requirements of each Contract under which such Lalande
Acquired Company has or had any obligation or liability or by which
such Lalande Acquired Company or any of the assets owned or used by
such Lalande Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an Lalande Acquired Company
has or had any rights is, and at all times since January 1, 1995 has
been, in full compliance with all applicable terms and requirements of
such Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any Lalande Acquired Company or
other Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
(iv) no Lalande Acquired Company has given to or received
from any other Person, at any time since January 1, 1995, any notice
or other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
(d) The Contracts relating to the sale or provision of services by
the Lalande Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
4.16 Insurance.
(a) Seller has delivered to Buyer true and complete copies of all
policies of insurance to which any Lalande Acquired Company is a party or under
which any Lalande Acquired Company, or any director of any Lalande Acquired
Company, is or has been covered at any time within the three (3) years
preceding the date of this Agreement;
(b) Part 4.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each
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policy in the possession of Seller or any of the Lalande Acquired Companies.
Lalande and Seller have no Knowledge of any loss experience that would affect
future potential insurability with respect to such policies.
(c) Except as set forth in Part 4.16(c) of the Disclosure Letter:
(i) All policies to which any Lalande Acquired Company is
a party or that provide coverage to any Lalande Acquired Company or
any director or officer of an Lalande Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the Lalande Acquired
Companies for all risks to which the Lalande Acquired Companies are
normally exposed; (C) are sufficient for compliance with all Legal
Requirements and Contracts to which any Lalande Acquired Company is a
party or by which any of them is bound; and (D) will continue in full
force and effect following the consummation of the Contemplated
Transactions.
(ii) No Lalande Acquired Company has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The Lalande Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any Lalande Acquired Company is a party or
that provides coverage to any Lalande Acquired Company or director
thereof.
(iv) The Lalande Acquired Companies have given notice to
the insurer of all claims that may be insured thereby.
4.17 Environmental Matters. Except as set forth in Part 4.17 of the
Disclosure Letter, to the Knowledge of Seller and Lalande, each of the Lalande
Acquired Companies is in compliance with all Environmental Laws, the failure to
comply with which could have a Material Adverse Effect. Neither Seller nor any
of the Lalande Acquired Companies has received notice of any material violation
by any of the Lalande Acquired Companies of, or material default by the same
under, any Environmental Law, and neither Seller nor Lalande has any Knowledge
of any existing facts or circumstances that are likely to result in any such
violation or default. There is no action, suit, claim, proceeding or
investigation pending or, to the Knowledge of Seller and Lalande, threatened
against any of the Lalande Acquired Companies that alleges or would allege any
violation of any Environmental Law.
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4.18 Employees.
(a) Part 4.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Lalande Acquired Companies, including each employee on leave of absence or
layoff status: employer; name; job title; current compensation paid or payable
and, with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any Lalande Acquired
Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other Employee Benefit Plan or
any Director Plan.
(b) No employee or director of any Lalande Acquired Company is a
party to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement, between such employee or director and any other
Person that in any way adversely affects or will affect (i) the performance of
his duties as an employee or director of the Lalande Acquired Companies, or
(ii) the ability of any Lalande Acquired Company to conduct its business,
including any Proprietary Rights Agreement with Seller or the Lalande Acquired
Companies by any such employee or director. To Seller's and Lalande's
Knowledge, no director, officer, or other key employee of any Lalande Acquired
Company intends to terminate his employment with such Lalande Acquired Company.
(c) Part 4.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the Lalande Acquired Companies, or their dependents, receiving
benefits or scheduled to receive benefits in the future: name, pension benefit,
pension option election, retiree medical insurance coverage, retiree life
insurance coverage, and other benefits.
4.19 Labor Relations; Compliance. Except as set forth on Part 4.19
of the Disclosure Letter, since January 1, 1995, no Lalande Acquired Company
has been or is a party to any collective bargaining or other labor Contract.
Since January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of Lalande and Seller, there is not Threatened,
(a) any strike, slowdown, picketing, work stoppage, lockout or employee
grievance process, (b) any Proceeding against or affecting any Lalande Acquired
Company relating to the alleged violation of any Legal Requirement pertaining
to labor relations or employment matters or (c) any application for
certification of a collective bargaining agent. Each Lalande Acquired Company
has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining and occupational safety and
health. No Lalande Acquired Company is liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
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4.20 Intellectual Property.
(a) Each Lalande Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 4.20(a) of the Disclosure
Letter (the "Lalande Intellectual Property Assets"), (ii) neither owns nor uses
any such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each Lalande
Acquired Company owns, or possesses adequate and enforceable rights to use
without payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such Lalande Acquired Company.
(b) Except as set forth in Part 4.20(b) of the Disclosure Letter,
Lalande has no Knowledge nor has received any notice to the effect that any
service it or any other Lalande Acquired Company provides or sells, or any
process or method it employs in its business for the use by it or another of
any such service, may infringe, or is in conflict with, any asserted right of
another. There is no pending or Threatened claim or litigation action against
any Lalande Acquired Company contesting its right to use or the validity of any
of the Lalande Intellectual Property Assets or asserting its misuse of any of
the foregoing, which would deprive it of the right to assert its rights
thereunder or which would prevent the sale of any service provided or sold by
it.
(c) Each Lalande Acquired Company has established a strategic plan
and provided Buyer with an accurate and complete copy of such plan and a
schedule of the amount of capital and resources reasonably believed to be
necessary to institute software systems such that each Lalande Acquired Company
will be Year 2000 Compliant upon the completion of such plan.
4.21 Certain Payments. Since January 1, 1995, no Lalande Acquired
Company or director, officer, agent, or employee of any Lalande Acquired
Company, or any other Person associated with or acting for or on behalf of any
Lalande Acquired Company, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any Lalande Acquired Company or any affiliate of an Lalande Acquired Company,
or (iv) in violation of any Legal Requirement or (b) established or maintained
any fund or asset that has not been recorded in the books and records of the
Lalande Acquired Companies.
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4.22 Disclosure.
(a) No representation or warranty of Seller or Lalande in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Seller or Lalande that has specific
application to Seller or any Lalande Acquired Company (other than general
economic or industry conditions) and that materially adversely affects or, as
far as Seller or Lalande can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition, or results of operations of
the Lalande Acquired Companies (on a consolidated basis) that has not been set
forth in this Agreement or the Disclosure Letter.
4.23 Relationships with Related Persons. Except as set forth in
Part 4.23 of the Disclosure Letter, neither Seller nor any Related Person of
Seller or of any Lalande Acquired Company has, or since January 1, 1996 has
had, any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to the Lalande Acquired
Companies' businesses. Except as set forth in Part 4.23 of the Disclosure
Letter, neither Seller nor any Related Person of Seller or of any Lalande
Acquired Company is, or since January 1, 1996, has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial
interest in any transaction with any Lalande Acquired Company, or (ii) engaged
in competition with any Lalande Acquired Company with respect to any line of
the products or services of such Lalande Acquired Company ("Lalande Competing
Business") in any market presently served by such Lalande Acquired Company.
Except as set forth in Part 4.23 of the Disclosure Letter, neither Seller nor
any Related Person of Seller or of any Lalande Acquired Company is a party to
any Contract with, or has any claim or right against, any Lalande Acquired
Company.
4.24 Bank Accounts. Part 4.24 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the Lalande Acquired Companies has an account or safe deposit box or maintains
a banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
4.25 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, Seller, each Lalande Acquired Company and their agents
have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Texas.
5.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. Upon the execution and delivery by Buyer
of the M.B. Johnston Employment Agreement, the M.B. Johnston Employment
Agreement will constitute the legal, valid, and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Buyer has all corporate right, power, and authority to
execute and deliver this Agreement and the M.B. Johnston Employment Agreement
and to perform its obligations under this Agreement and the M.B. Johnston
Employment Agreement.
(b) Except as set forth in Part 5.2 of the Buyer's Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time) (i) conflict
with, or result in a violation of any provision of the Organizational Documents
of Buyer; (ii) conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Buyer, or any of the assets owned
or used by Buyer, may be subject; (iii) conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, suspend, terminate, or modify, any Insurance Permit or other
Governmental Authorization that is held by Buyer or that otherwise relates to
the business of, or any of the assets owned or used by, Buyer; (iv) conflict
with, or result in a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or (v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Buyer.
Except as set forth in Part 5.2 of the Buyer's Disclosure Letter,
Buyer is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
5.3 Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
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5.4 Certain Proceedings. There is no pending Proceeding that has
been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
5.5 Brokers or Finders. Except as set forth in Part 5.5 of the
Buyer's Disclosure Letter, Buyer and its officers and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
5.6 Loss Reserves. The Loss Reserves (as defined below) of the
wholly-owned subsidiaries of GAINSCO that are insurance companies (the "GAINSCO
Insurance Subsidiaries"), as set forth in the most recent unaudited
consolidated balance sheet of GAINSCO (the "GAINSCO Balance Sheet"), net of
reinsurance recoverables (other than intercompany reinsurance), are fairly
stated in the GAINSCO Balance Sheet in accordance with generally accepted
actuarial standards and principles. For the purpose of this Section 5.6, "Loss
Reserves" means all reserves for all losses and loss adjustment expenses,
including, without limitation, case reserves, reserves for loss adjustment
expenses, both allocated and unallocated, reserves for incurred but not
reported losses and loss adjustment expenses, and otherwise determined in
accordance with those generally accepted actuarial standards and principles
applied in determining such Loss Reserves reflected in the GAINSCO Balance
Sheet.
5.7 Disclosure.
(a) No representation or warranty of Buyer in this Agreement and
no statement in the Buyer's Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Buyer that has specific application
to Buyer (other than general economic or industry conditions) and that
materially adversely affects or, as far as Buyer can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of Buyer (on a consolidated basis) that has not been set
forth in this Agreement or the Buyer's Disclosure Letter.
ARTICLE VI
COVENANTS OF SELLER AND THE COMPANIES AT OR PRIOR TO CLOSING DATE
6.1 Access and Investigation. Subject to the terms of that
certain Non-Disclosure Agreement, dated June 15, 1998, from Seller, the De la
Torres, M. Johnston and R. Mayoral to Buyer (the "Non-Disclosure Agreement"),
between the date of this Agreement and the Closing Date, Seller and the
Companies will, and will cause each Acquired Company and its Representatives
to, (a) afford Buyer and its Representatives (collectively, "Buyer's Advisors")
full and free access to each Acquired Company, its personnel, properties,
contracts, books and records, and all other documents and data, (b) furnish
Buyer and Buyer's Advisors with copies
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of all such contracts, books and records, and other existing documents and data
as Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors
with such additional financial, operating, and other data and information as
Buyer may reasonably request.
6.2 Operation of the Businesses of the Acquired Companies.
Between the date of this Agreement and the Closing Date, Seller and the
Companies will, and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the
Ordinary Course of Business and in accordance with all valid regulations, laws
and orders of all Governmental Bodies;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such Acquired
Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report from time to time to Buyer concerning the
status of the business, operations, and finances of such Acquired Company.
6.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement or disclosed in the Disclosure Letter, between the date of this
Agreement and the Closing Date, Seller and the Companies will not, and will
cause each Acquired Company not to, without the prior consent of Buyer, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in
Sections 3.14 and 4.14, respectively, is likely to occur.
6.4 Required Approvals. As promptly as practicable after the date
of this Agreement, Seller will, and will cause each Acquired Company to, make
all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing Date, Seller will, and
will cause each Acquired Company to, (a) cooperate with Buyer with respect to
all filings that Buyer elects to make or is required by Legal Requirements to
make in connection with the Contemplated Transactions and (b) cooperate with
Buyer in obtaining all consents identified in Part 5.2 of the Buyer's
Disclosure Letter (including taking all actions requested by Buyer to cause
early termination of any applicable waiting period under the HSR Act).
6.5 Notification. Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller or any
Acquired Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller's or the Company's representations and
warranties as of the date of this Agreement, or if Seller or the Company
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that
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would (except as expressly contemplated by this Agreement) cause or constitute
a Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the
occurrence or discovery of any such fact or condition, Seller will promptly
deliver to Buyer a supplement to the Disclosure Letter specifying such change.
During the same period, Seller will promptly notify Buyer of the occurrence of
any Breach of any covenant of Seller or the Company in this Article VI or of
the occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely. No notice given pursuant to this Section
6.5 will contain any untrue statement or omit to state a material fact
necessary to make the statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading.
6.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, Seller will cause all indebtedness owed
to an Acquired Company by Seller or any Related Person of any Seller to be paid
in full contemporaneous with Closing.
6.7 Best Efforts. Between the date of this Agreement and the
Closing Date, Seller will use their Best Efforts to cause the conditions in
Articles VIII and IX to be satisfied.
6.8 Certain Indebtedness.
(a) Contemporaneous with Closing, each Acquired Company shall pay,
and Seller shall cause each Acquired Company to pay, any indebtedness owed by
any Acquired Company to Agents Financial Services, Inc., a Florida corporation
("AFS"), in full.
(b) Contemporaneous with Closing, all indebtedness owed by AFS to
any Acquired Company shall be paid in full.
6.9 Disposition of AFS Shares. Contemporaneous with Closing, NSL
shall sell all shares of capital stock of AFS owned by NSL to M.B. Johnston and
C. De la Torre, at the book value as of the most recent month preceding the
Closing.
6.10 Reviewed Financial Statements of the Acquired Companies.
Seller shall deliver the financial statements as required by Sections 3.4 and
4.4.
6.11 NSL Stockholders' Agreement. Contemporaneous with Closing,
Seller shall execute all documents necessary to terminate that certain
Stockholders' Agreement, dated December 14, 1993, by and among M.B. Johnston,
C. De la Torre, M. Johnston and NSL.
6.12 M&C Inspection Services, Inc.. At or prior to Closing, Seller
shall execute all documents necessary to dissolve or liquidate M&C Inspection
Services, Inc.
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ARTICLE VII
COVENANTS OF BUYER PRIOR TO CLOSING DATE
7.1 Approvals of Governmental Bodies. As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions (including all filings under the HSR Act). Between the date of
this Agreement and the Closing Date, Buyer will (a) cooperate with Seller with
respect to all filings that Seller elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions and (b)
cooperate with Seller in obtaining all consents identified in Part 5.2 of the
Buyer's Disclosure Letter; provided that this Agreement will not require Buyer
to dispose of or make any change in any portion of its business or to incur any
other burden to obtain a Governmental Authorization.
7.2 Best Efforts. Except as set forth in the proviso to Section
7.1, between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Articles VIII and IX to be
satisfied.
7.3 Access. Between the date of this Agreement and the Closing
Date, Buyer shall provide to Seller responses to the Seller's reasonable due
diligence requests.
7.4 Notification. Between the date of this Agreement and the
Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Buyer's representations and warranties as of the date of this Agreement, or if
Buyer becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Buyer's Disclosure Letter if the Buyer's Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, Buyer will promptly deliver to Seller a supplement to the Buyer's
Disclosure Letter specifying such change. During the same period, Buyer will
promptly notify Seller of the occurrence of any Breach of any covenant of Buyer
in this Article VII or of the occurrence of any event that may make the
satisfaction of the conditions in Article IX impossible or unlikely. No notice
given pursuant to this Section 7.4 will contain any untrue statement or omit to
state a material fact necessary to make the statements therein or in this
Agreement, in light of the circumstances in which they were made, not
misleading.
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ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
8.1 Accuracy of Representations. Each of Seller's and the
Company's representations and warranties in this Agreement must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter.
8.2 Seller's Performance. Each of the covenants and obligations
that Seller and the Company are required to perform or to comply with pursuant
to this Agreement at or prior to the Closing must have been duly performed and
complied with in all material respects.
8.3 Consents. Each of the Consents identified in Parts 3.2 and
4.2 of the Disclosure Letter and Part 5.2 of the Buyer's Disclosure Letter must
have been obtained and must be in full force and effect.
8.4 Additional Documents. Each of the following documents must
have been delivered to Buyer:
(a) an opinion of Packman, Neuwahl & Rosenberg, P.A., dated the
Closing Date, in the form agreed to by the parties;
(b) estoppel certificates executed on behalf of all landlords,
lenders and lessors of the Acquired Companies, dated as of a date not more than
five (5) days prior to the Closing Date;
(c) executed stock purchase agreements, pursuant to which Buyer
shall obtain all of the outstanding shares of capital stock of NSL, DLT, and
Lalande; and
(d) if applicable, wire transfer instructions concerning the
amount to be transferred to Seller pursuant to Section 2.5(b)(i); and
(e) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 9.4(a), (ii) evidencing the accuracy of any of Seller's and the
Company's representations and warranties, (iii) evidencing the performance by
Seller and the Company of, or the compliance by Seller and the Company with,
any covenant or obligation required to be performed or complied with by Seller
and the Company, (iv) evidencing the satisfaction of any condition referred to
in this Article VIII or (v) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
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8.5 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies or (b)
is entitled to all or any portion of the Purchase Price payable for the Shares.
8.6 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable
Legal Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental
Body. Neither the consummation nor the performance of the Contemplated
Transactions will directly or indirectly violate an Order.
8.7 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
8.8 Regulatory Approval. Buyer or a Subsidiary of Buyer shall have
obtained the necessary regulatory approval to write nonstandard private
passenger automotive insurance in the State of Florida or have contracted with
another entity to enable it to write business that would be wholly or partially
reinsured with a Subsidiary or Subsidiaries of Buyer.
8.9 NSL Stockholders' Agreement. That certain Stockholders'
Agreement, dated December 14, 1993, by and among M.B. Johnston, C. De la Torre,
M. Johnston and NSL shall have been terminated by all of the shareholders of
NSL.
8.10 M&C Inspection Services, Inc. M&C Inspection Services, Inc.
shall have been liquidated or dissolved.
ARTICLE IX
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Seller, in whole or in part):
9.1 Accuracy of Representations. Each of Buyer's representations
and warranties in this Agreement must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Buyer's Disclosure Letter.
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9.2 Buyer's Performance. Each of the covenants and obligations
that Buyer is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing must have been performed and complied with in all
material respects.
9.3 Consents. Each of the Consents identified in Parts 3.2 and
4.2 of the Disclosure Letter and Part 5.2 of the Buyer's Disclosure Letter must
have been obtained and must be in full force and effect.
9.4 Additional Documents. Buyer must have caused the following
documents to be delivered to Seller:
(a) an opinion of Haynes and Boone, LLP, dated the Closing Date,
in the form agreed to by the parties; and
(b) such other documents as Seller may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any representation or warranty
of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with by Buyer, (ii) evidencing the satisfaction of any condition referred to in
this Article IX or (v) otherwise facilitating the consummation of any of the
Contemplated Transactions.
9.5 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Seller or any Person affiliated
with Seller to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
Governmental Body. Neither the consummation nor the performance of the
Contemplated Transactions will directly or indirectly violate an Order.
9.6 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
ARTICLE X
TERMINATION
10.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has
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not been waived or such Breach has not been remedied within thirty (30) days
after written notice is given specifying the Breach and demanding it to be
remedied;
(b) (i) by Buyer if any of the conditions in Article VIII has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition
on or before the Closing Date; or (ii) by Seller, if any of the conditions in
Article IX has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Seller to comply with their obligations under this Agreement) and Seller has
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller;
(d) by either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1998, or such later date as the parties may agree upon; or
(e) (i) by Buyer if a material Breach of any provision of any of
the Purchase Agreements has been committed by any party other than Buyer
thereto and such Breach has not been waived or such Breach has not been
remedied within thirty (30) days after written notice is given specifying the
Breach and demanding it to be remedied, or (ii) by Buyer if any of the
conditions precedent to Buyer's obligation to close any of the Purchase
Agreements has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer has not
waived such condition on or before the Closing Date.
10.2 Effect of Termination. Each party's right of termination
under Section 10.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
10.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 12.1 and 12.3 will survive;
provided, however, that if this Agreement is terminated by a party because of
the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
ARTICLE XI
INDEMNIFICATION; REMEDIES
11.1 Survival; Right to Indemnification Not Affected by Knowledge.
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter,
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the certificates delivered pursuant to Section 2.5(a)(iv), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
11.2 Indemnification and Payment of Damages by Seller. Seller will
indemnify and hold harmless Buyer, the Acquired Companies, and their respective
Representatives, shareholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements (without giving
effect to any supplement to the Disclosure Letter or any Disclosure Letter
delivered pursuant to the respective Purchase Agreements), the Disclosure
Letter, any Disclosure Letter delivered pursuant to the respective Purchase
Agreements, the supplements to the Disclosure Letter, the supplements to any
Disclosure Letter delivered pursuant to the respective Purchase Agreements, or
any other certificate or document delivered by Seller, the Companies, or any of
the Sellers under the respective Purchase Agreements or the Companies under
this Agreement or the respective Purchase Agreements;
(b) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements as if such
representation or warranty were made on and as of the Closing Date without
giving effect to any supplement to the Disclosure Letter or any Disclosure
Letter delivered pursuant to the respective Purchase Agreements, other than any
such Breach that is disclosed in a supplement to the Disclosure Letter or a
supplement to any Disclosure Letter delivered pursuant to the respective
Purchase Agreements and is expressly identified in the certificates delivered
pursuant to Section 2.5(a)(iv) or the corresponding section in each respective
Purchase Agreement as having caused the condition specified in Section 8.1 or
the corresponding section in each respective Purchase Agreement not to be
satisfied;
(c) any Breach by Seller, each Seller under the respective
Purchase Agreements, NSL, DLT or Lalande of any covenant or obligation of
Seller, each Seller under the respective Purchase Agreements, NSL, DLT or
Lalande;
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(d) any claim by any Person, other than Metis Financial LLC, for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with
Seller, each Seller under the respective Purchase Agreements, NSL, any other
NSL Acquired Company, DLT, any other DLT Acquired Company, Lalande or any other
Lalande Acquired Company (as defined in the respective Purchase Agreements) (or
any Person acting on their behalf) in connection with any of the Contemplated
Transactions; or
(e) any claim by any Person with respect to AFS;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 11.2 and 11.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 11.2 and 11.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 11.2
and 11.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 11.2 and 11.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller shall have no
obligation to make any payment, in the aggregate, to Indemnified Persons under
Sections 11.2 and 11.3 in excess of the Seller's proportional share of the
aggregate Purchase Price received by Seller and each Seller under the
respective Purchase Agreements pursuant to Article II of this Agreement and the
respective Purchase Agreements.
The remedies provided in this Section 11.2 will not be exclusive of or limit
any other remedies that may be available to Buyer or the other Indemnified
Persons.
11.3 Indemnification and Payment of Damages by Seller --
Environmental Matters. In addition to the provisions of Section 11.2, Seller
will indemnify and hold harmless Buyer, the Acquired Companies, and the other
Indemnified Persons for, and will pay to Buyer, the Acquired Companies, and the
other Indemnified Persons the amount of, any Damages (including costs of
cleanup, containment, or other remediation) arising, directly or indirectly,
from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out
of or relating to: (i) (A) the ownership, operation, or condition at any time
on or prior to the Closing Date of the Facilities or any other properties and
assets (whether real, personal, or mixed and whether tangible or intangible) in
which Seller, each Seller under the respective Purchase Agreements, any NSL
Acquired Company, any DLT Acquired Company (as defined in the respective
Purchase Agreements) or any Lalande Acquired Company has or had an interest, or
(B) any Hazardous Materials or other contaminants that were present on the
Facilities or such other properties and assets at any time on or prior to the
Closing Date; or (ii) (A) any Hazardous Materials or other contaminants,
wherever located, that were, or were allegedly, generated, transported, stored,
treated, Released, or otherwise handled by Seller, each Seller under the
respective Purchase Agreements, any NSL Acquired Company, any DLT Acquired
Company (as defined in the
- 59 -
<PAGE> 60
respective Purchase Agreements) or any Lalande Acquired Company or by any other
Person for whose conduct they are or may be held responsible at any time on or
prior to the Closing Date, or (B) any Hazardous Activities that were, or were
allegedly, conducted by Seller, each Seller under the respective Purchase
Agreements, any NSL Acquired Company, any DLT Acquired Company (as defined in
the respective Purchase Agreements) or any Lalande Acquired Company or by any
other Person for whose conduct they are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death,
and regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of
Seller, each Seller under the respective Purchase Agreements, any NSL Acquired
Company, any DLT Acquired Company (as defined in the respective Purchase
Agreements), any Lalande Acquired Company or any other Person for whose conduct
they are or may be held responsible, in any way arising from or allegedly
arising from any Hazardous Activity conducted or allegedly conducted with
respect to the Facilities or the operation of the Acquired Companies or any
Acquired Company under the respective Purchase Agreements prior to the Closing
Date, or from Hazardous Material that was (i) present or suspected to be
present on or before the Closing Date on or at the Facilities (or present or
suspected to be present on any other property, if such Hazardous Material
emanated or allegedly emanated from any of the Facilities and was present or
suspected to be present on any of the Facilities on or prior to the Closing
Date) or (ii) Released or allegedly Released by Seller, each Seller under the
respective Purchase Agreements, any NSL Acquired Company, any DLT Acquired
Company (as defined in the respective Purchase Agreements), any Lalande
Acquired Company or any other Person for whose conduct they are or may be held
responsible, at any time on or prior to the Closing Date;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 11.2 and 11.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 11.2 and 11.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 11.2
and 11.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 11.2 and 11.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller shall have no
obligation to make any payment, in the aggregate, to Indemnified Persons under
Sections 11.2 and 11.3 in excess of the Seller's proportional share of the
aggregate Purchase Price received by Seller and each Seller under the
respective Purchase Agreements pursuant to Article II of this Agreement and the
respective Purchase Agreements.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 11.3. The procedure
described in Section 11.7 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 11.3.
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<PAGE> 61
11.4 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Seller, and will pay to Seller the amount of any
Damages arising, directly or indirectly, from or in connection with
(a) any Breach of any representation or warranty made by Buyer in
this Agreement (without giving effect to any supplement to the Buyer's
Disclosure Letter), the Buyer's Disclosure Letter, the supplements to the
Buyer's Disclosure Letter, or any other certificate or document delivered by
Buyer pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Buyer in
this Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Buyer's Disclosure
Letter, other than any such Breach that is disclosed in a supplement to the
Buyer's Disclosure Letter and is expressly identified in the certificate
delivered pursuant to Section 2.5(b)(ii) as having caused the condition
specified in Section 9.1 not to be satisfied;
(c) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement;
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on
its behalf) in connection with any of the Contemplated Transactions; or
(e) payments owed to Seller pursuant to Section 2.3 hereof that
are not paid when due;
provided, however, that Buyer shall have no obligation to make any payment to
Seller under this Section 11.4 unless the aggregate amount to which Seller is
entitled by reason of all claims under this Section 11.4 and to any other
Seller (as defined in the respective Purchase Agreements) under the respective
Purchase Agreements exceeds $50,000 in the aggregate of all amounts collectible
under the Acquired Companies' errors and omissions policies, it being
understood that once such amount is exceeded, the aggregate of all claims under
this Section 11.4 and under corresponding sections of the Purchase Agreements
shall be payable by Buyer on demand.
The remedies provided in this Section 11.4 will not be exclusive of or limit
any other remedies that may be available to Seller.
11.5 Time Limitations. If the Closing occurs, Seller will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.9, 3.11, 3.17, 4.3,
4.9, 4.11 and 4.17, unless on or before the earlier of (i) the second
anniversary of the Date for the third Earnout Period or (ii) July 1, 2003,
Buyer notifies Seller of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Buyer; a claim with respect to
Section 3.3, 3.9, 3.11, 3.17, 4.3, 4.9, 4.11 or 4.17, or a claim for
indemnification or reimbursement not based upon any representation or warranty
or any covenant or obligation to be performed and complied with prior to the
Closing Date, may be
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<PAGE> 62
made at any time. If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty,
or covenant or obligation to be performed and complied with prior to the
Closing Date, unless on or before July 1, 2003, Seller notifies Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Seller.
11.6 Right of Set-Off. Upon notice to Seller specifying in
reasonable detail the basis for such set-off, Buyer may set off any amount to
which it may be entitled under this Article XI against amounts otherwise
payable to Seller under this Agreement or to any other Seller (as defined in
the respective Purchase Agreements) under the respective Purchase Agreements.
The exercise of such right of set-off by Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute a Breach of this
Agreement. Neither the exercise of nor the failure to exercise such right of
set-off shall constitute an election of remedies or limit Buyer in any manner
in the enforcement of any other remedies that may be available to it. Any
amount set-off pursuant to this Section 11.6 shall be considered a reduction in
the Purchase Price of that amount.
11.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section
11.2 or 11.4, or (to the extent provided in the last sentence of Section 11.3)
Section 11.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement
of such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except and only to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice.
(b) If any Proceeding referred to in Section 11.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes not related to the Acquired Companies, be entitled to
participate in such Proceeding with respect to the Acquired Companies and, to
the extent that it wishes (unless (i) the indemnifying party is also a party to
such Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Article XI for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding,
subsequently incurred by the indemnified party in connection with the defense
of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified
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<PAGE> 63
party's consent unless (A) there is no finding or admission of any violation of
Legal Requirements or any violation of the rights of any Person and no effect
on any other claims that may be made against the indemnified party, and (B) the
sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no liability with
respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of
any Proceeding and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified party of
its election to assume the defense of such Proceeding, the indemnifying party
will be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding,
but the indemnifying party will not be bound by any determination of a
Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
11.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
11.9 Reduction for Insurance, etc. The amount that Seller shall be
liable to pay to, for, or on behalf of an Indemnified Person pursuant to this
Article XI or the amount that Buyer shall be liable to pay to, for or on behalf
of Seller pursuant to this Article XI (either, an "Indemnifiable Loss") shall
be reduced (including without limitation, retroactively) by any insurance
proceeds actually recovered by or on behalf of such Indemnified Person or
Seller, as applicable (an "Indemnitee"), related to the Indemnifiable Loss. If
an Indemnitee shall have received or shall have had paid on its behalf an
indemnity payment in respect of an Indemnifiable Loss and shall subsequently
receive directly or indirectly insurance proceeds in respect of such
Indemnifiable Loss, then such Indemnitee shall pay to such indemnifying party
(the "Indemnifying Party") the net amount of such insurance proceeds or, if
less, the amount of such indemnity payment. An Indemnitee promptly shall, at
the sole expense of the Indemnifying Party, use all reasonable efforts to
recover insurance proceeds which may be due such Indemnitee. Any reduction to
an Indemnifiable Loss by reason of any insurance proceeds actually recovered
shall not reduce the maximum amount of liability for which the Indemnifying
Party shall be obligated pursuant to this Article XI.
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<PAGE> 64
ARTICLE XII
GENERAL PROVISIONS
12.1 Expenses. Except as otherwise expressly provided in this
Agreement, the Acquired Companies shall be responsible for the obligations of
the Acquired Companies and Seller with regard to Metis Financial LLC and
expenses incurred in connection with the preparation and execution of this
Agreement and the Contemplated Transactions, including all fees, expenses of
agents, representatives, counsel, and accountants and the HSR Act filing fee.
Buyer shall be responsible for any obligations disclosed on Part 5.5 of the
Buyer's Disclosure Letter. In the event of termination of this Agreement, the
obligation of Buyer to pay such expenses will be subject to any rights of Buyer
arising from a breach of this Agreement by another party.
12.2 Public Announcements. Except as provided in the
Non-Disclosure Agreement, any public announcement or similar publicity with
respect to this Agreement or the Contemplated Transactions will be issued, if
at all, at such time and in such manner as Buyer determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing
Seller shall, and shall cause the Acquired Companies to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person other than any professional advisors of Seller. Seller and Buyer will
consult with each other concerning the means by which the Acquired Companies'
employees, customers, and suppliers and others having dealings with the
Acquired Companies will be informed of the Contemplated Transactions, and Buyer
will have the right to be present for any such communication.
12.3 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained
in confidence from another party or an Acquired Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of
the Contemplated Transactions, or (c) the furnishing or use of such information
is required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waives, and
will upon Buyer's request cause the Acquired Companies to waive, any cause of
action, right, or claim arising out of the access of Buyer or its
representatives to any trade secrets or other confidential information of the
Acquired Companies except for the competitive misuse by Buyer of such trade
secrets or confidential information.
The terms of the Non-Disclosure Agreement shall continue to remain in
effect, and the parties thereto shall continue to be governed by its terms.
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<PAGE> 65
12.4 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
Seller:
McRae B. Johnston
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
Buyer:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
NSL:
National Specialty Lines, Inc.:
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Attention: McRae B. Johnston
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<PAGE> 66
Facsimile No.: (305) 222-1318
Lalande:
Lalande Financial Group, Inc.:
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Attention: McRae B. Johnston
Facsimile No.: (305) 222-1318
12.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Texas, County of Tarrant, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Texas, Fort Worth
Division, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in
the world.
12.6 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
12.7 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. The rights of Buyer and Seller
hereunder are in addition to all other rights provided by law. Neither the
failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
12.8 Entire Agreement and Modification. Except for the terms of
the Non-Disclosure Agreement, this Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the parties hereto.
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<PAGE> 67
12.9 Disclosure Letter.
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
12.10 Assignments, Successors, and No Third-party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give
any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns. In the event Buyer assigns any of
its rights under this Agreement to any Subsidiary of Buyer and such Subsidiary
does not fulfill its obligations under this Agreement, Buyer shall assume and
fulfill such Subsidiary's obligations under this Agreement.
12.11 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
12.12 Article and Section Headings, Construction. The headings of
Articles and Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Article"
or "Articles" refer to the corresponding Article or Articles of this Agreement,
and all references to "Section" or "Sections" refer to the corresponding
Section or Sections of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word "including" does not limit the
preceding words or terms.
12.13 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
12.14 Governing Law. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.
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<PAGE> 68
12.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
12.16 Errors and Omissions Policies. Buyer shall use its Best
Efforts to cause the Acquired Companies to maintain the errors and omissions
policies of the Acquired Companies in effect as the date of this Agreement, or,
in the event that any of such errors and omissions policies are cancelled,
Buyer shall cause the Acquired Companies to purchase tail coverage per the
terms of such policies.
* * * * *
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<PAGE> 69
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
-------------------------------------------
McRae B. Johnston
NATIONAL SPECIALTY LINES, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
----------------------------------------
Name: McRae B. Johnston
Title: Vice President
GAINSCO, INC.
By:
----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
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<PAGE> 70
EXHIBIT A
CAPITALIZATION OF COMPANIES
NATIONAL SPECIALTY LINES, INC.
<TABLE>
<CAPTION>
Seller Number of Shares
------ ----------------
<S> <C>
C. De la Torre 10.0000
M.B. Johnston 10.0000
M. Johnston 1.0526
------------
Total 21.0526
</TABLE>
LALANDE FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
Seller Number of Shares
------ ----------------
<S> <C>
M.B. Johnston 100
C. De la Torre 100
--------
Total 200
</TABLE>
- 70 -
<PAGE> 71
EXHIBIT B
EXAMPLE OF EARNOUT PAYMENTS
- 71 -
<PAGE> 72
FORM OF DISCLOSURE LETTER
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Ladies and Gentlemen:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), McRae B.
Johnston ("Seller"), National Specialty Lines, Inc., a Florida corporation
("NSL") and Lalande Financial Group, Inc. ("Lalande"), pursuant to which Seller
is to sell and Buyer is to purchase the Shares (as defined in the Agreement),
as provided in the Agreement.
This letter constitutes the Disclosure Letter referred to in the
Agreement. The representations and warranties of Seller, NSL and Lalande in the
Agreement are made and given subject to the disclosures in this Disclosure
Letter. The disclosures in this Disclosure Letter are to be taken as relating
to the representations and warranties in the section of the Agreement to which
they expressly relate and to no other representation or warranty in the
Agreement.
Terms defined in the Agreement are used with the same meaning in this
Disclosure Letter. References to Appendices are to the Appendices to this
Disclosure Letter.
By reference to the Agreement (using the numbering in such
Agreement), the following matters are disclosed:
* * * * *
Very truly yours,
---------------------------------------
McRae B. Johnston
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<PAGE> 73
NATIONAL SPECIALTY LINES, INC.
By:
-----------------------------------
Name: McRae B. Johnston
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
-----------------------------------
Name: McRae B. Johnston
Title: Vice President
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<PAGE> 74
Buyer acknowledges receipt of the Disclosure Letter of which this is a
duplicate (including the Appendices referred to therein).
Dated:
----------------------------------
GAINSCO, INC.
By:
-------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive
Officer
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<PAGE> 75
FORM OF BUYER'S DISCLOSURE LETTER
McRae B. Johnston
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Dear Mr. Johnston:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), McRae B.
Johnston ("Seller"), National Specialty Lines, Inc., a Florida corporation
("NSL"), and Lalande Financial Group, Inc. ("Lalande"), pursuant to which
Seller is to sell and Buyer is to purchase the Shares (as defined in the
Agreement), as provided in the Agreement.
This letter constitutes the Buyer's Disclosure Letter referred to in
Article V of the Agreement. The representations and warranties of the Buyer in
Article V of the Agreement are made and given subject to the disclosures in
this Buyer's Disclosure Letter. The disclosures in this Buyer's Disclosure
Letter are to be taken as relating to the representations and warranties in the
section of the Agreement to which they expressly relate and to no other
representation or warranty in the Agreement.
Terms defined in the Agreement are used with the same meaning in this
Buyer's Disclosure Letter. References to Appendices are to the Appendices to
this Buyer's Disclosure Letter.
By reference to Article V of the Agreement (using the numbering in
such Article), the following matters are disclosed:
* * * * *
Very truly yours,
GAINSCO, INC.
By:
-------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive
Officer
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<PAGE> 76
Seller acknowledges receipt of the Buyer's Disclosure Letter of which
this is a duplicate (including the Appendices referred to therein).
Dated:
------------------------------------
------------------------------------------
McRae B. Johnston
NATIONAL SPECIALTY LINES, INC.
By:
---------------------------------------
Name: McRae B. Johnston
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
---------------------------------------
Name: McRae B. Johnston
Title: Vice President
- 76 -
<PAGE> 77
EXHIBIT 2.5(a)(ii)
SELLER'S RELEASE
This Release is being executed and delivered in accordance with
Section 2.5(a)(ii) of the Stock Purchase Agreement dated _________, 1998 (the
"Agreement") among GAINSCO, INC., a Texas corporation ("Buyer"), McRae B.
Johnston ("Seller"), National Specialty Lines, Inc., a Florida corporation
("NSL"), and Lalande Financial Group, Inc., a Florida corporation ("Lalande").
Capitalized terms used in this Release without definition have the respective
meanings given to them in the Agreement.
Seller acknowledges that execution and delivery of this Release is a
condition to Buyer's obligation to purchase the outstanding capital stock of
NSL and Lalande pursuant to the Agreement and that Buyer is relying on this
Release in consummating such purchase.
Seller, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged and intending to be legally bound,
in order to induce Buyer to purchase the outstanding capital stock of NSL and
Lalande pursuant to the Agreement, hereby agrees as follows:
Seller, on behalf of himself and each of his Related Persons, hereby
releases and forever discharges the Buyer, the Companies, each of the other
Acquired Companies, and each of their respective individual, joint or mutual,
past, present and future Representatives, affiliates, shareholders, controlling
persons, Subsidiaries, successors and assigns (individually, a "Releasee" and
collectively, "Releasees") from any and all claims, demands, Proceedings,
causes of action, Orders, obligations, contracts, agreements, debts and
liabilities whatsoever, whether known or unknown, suspected or unsuspected,
both at law and in equity, which Seller or any of his respective Related
Persons now has, have ever had or may hereafter have against the respective
Releasees arising contemporaneously with or prior to the Closing Date or on
account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the Closing Date, including, but not limited
to, any rights to indemnification or reimbursement from any Acquired Company,
whether pursuant to their respective Organizational Documents, contract or
otherwise and whether or not relating to claims pending on, or asserted after,
the Closing Date; provided, however, that nothing contained herein shall
operate to release any obligations of Buyer arising under the Agreement.
Seller hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or
causing to be commenced, any proceeding of any kind against any Releasee, based
upon any matter purported to be released hereby.
Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, Seller, jointly and severally, shall indemnify and
hold harmless each Releasee from and against all loss, liability, claim, damage
(including incidental and consequential damages) or expense (including costs of
investigation and defense and reasonable attorney's fees) whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the
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<PAGE> 78
assertion by or on behalf of Seller or any of his Related Persons of any claim
or other matter purported to be released pursuant to this Release and (ii) the
assertion by any third party of any claim or demand against any Releasee which
claim or demand arises directly or indirectly from, or in connection with, any
assertion by or on behalf of Seller or any of his Related Persons against such
third party of any claims or other matters purported to be released pursuant to
this Release.
If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This Release shall
be governed by and construed under the laws of the State of Texas without
regard to principles of conflicts of law.
All words used in this Release will be construed to be of such gender
or number as the circumstances require.
IN WITNESS WHEREOF, each of the undersigned have executed and
delivered this Release as of this ___ day of _____________, 1998.
-----------------------------------------
McRae B. Johnston
NATIONAL SPECIALTY LINES, INC.
By:
--------------------------------------
Name: McRae B. Johnston
Title: President
LALANDE FINANCIAL GROUP, INC.
By:
--------------------------------------
Name: McRae B. Johnston
Title: Vice President
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<PAGE> 79
EXHIBIT 2.5(a)(iii)
M.B. JOHNSTON EMPLOYMENT AGREEMENT
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<PAGE> 1
EXHIBIT 99.8
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of August ___,
1998, by and among GAINSCO, INC., a Texas corporation ("Buyer"), Michael
Johnston ("M. Johnston" or "Seller"), and National Specialty Lines, Inc., a
Florida corporation ("NSL" or the "Company").
RECITALS
WHEREAS, M. Johnston is the record and beneficial owner of 1.0526
shares of common stock, $1.00 par value per share ("NSL Common Stock"), of NSL;
and
WHEREAS, M. Johnston desires to sell, and Buyer desires to purchase,
all of the issued and outstanding shares of NSL Common Stock owned by M.
Johnston (the "Shares"), for the consideration and on the terms set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements set forth and for other good and valuable consideration, the
adequacy, sufficiency and receipt of which are hereby acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"ACQUIRED COMPANY"--any of NSL or its Subsidiaries, and the term
"Acquired Companies" means NSL and its Subsidiaries, collectively.
"APPLICABLE CONTRACT"--any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"BEST EFFORTS"--the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
<PAGE> 2
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including (a) the sale of the Shares by Seller to Buyer; (b)
the execution, delivery, and performance of the M. Johnston Employment
Agreement and the Seller's Release; (c) the performance by Buyer, Seller and
the Company of their respective covenants and obligations under this Agreement;
and (d) Buyer's acquisition and ownership of the Shares and exercise of control
over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to
Buyer concurrently with the execution and delivery of this Agreement.
"EMPLOYEE BENEFIT PLAN"--any "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined
in Section 3(1) of ERISA), "Multi-employer Plan" (as defined in Section 3(37)
of ERISA), plan of deferred compensation, medical plan, life insurance plan,
long-term disability plan, dental plan or other plan providing for the welfare
of any of NSL's employees or former employees or beneficiaries thereof (as
applicable), personnel policy (including but not limited to vacation time,
holiday pay, bonus programs, moving expense reimbursement programs and sick
leave), excess benefit plan, bonus or incentive plan (including but not limited
to stock options, restricted stock, stock bonus and deferred bonus plans),
salary reduction agreement, change-of-control agreement, employment agreement,
consulting agreement or any other benefit, program or contract.
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENTAL LAW"--the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Water Pollution Control Act, the
Safe Drinking Water Act, the Federal Clean Water Act, the Federal Clean Air
Act, the Federal Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Federal Solid Waste Disposal Act, the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Occupational Safety and Health Act, each as amended,
and all other environmental statutes enacted by any Governmental Body, and any
executive order, ordinances, rules or regulations promulgated under any of the
foregoing.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
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<PAGE> 3
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by any Acquired Company.
"GAAP"--United States generally accepted accounting principles,
applied on a basis consistent with the basis on which the NSL Balance Sheet and
the other financial statements referred to in Section 3.4 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY"--any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INSURANCE PERMIT"--any Governmental Authorization in any jurisdiction
to underwrite, place, sell or otherwise transact insurance or reinsurance, or
to engage in premium finance activities.
"INVESTMENT GUIDELINES"--a written statement of the current investment
programs, containing the investment policies and guidelines.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter
- 3 -
<PAGE> 4
in the course of conducting a reasonable investigation concerning the existence
of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such
Person (or by any Person or group of Persons exercising similar authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any
amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN AFFILIATE"--with respect to any Person, any other person or
entity with whom the Person constitutes all or part of a controlled group, or
which would be treated with the Person as under common control or whose
employees would be treated as employed by the Person, under Section 414 of the
IRC and any regulations, administrative rulings and case law interpreting the
foregoing.
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<PAGE> 5
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPRIETARY RIGHTS AGREEMENT"--any confidentiality, noncompetition,
or proprietary rights agreement.
"PURCHASE AGREEMENTS"--collectively, (a) that certain Stock Purchase
Agreement, dated the date hereof, by and among Buyer, McRae B. Johnston ("M.B.
Johnston"), NSL and Lalande Financial Group, Inc., a Florida corporation
("Lalande"); (b) that certain Stock Purchase Agreement, dated the date hereof,
by and among Buyer, Carlos De la Torre ("C. De la Torre"), Rosa De la Torre
("R. De la Torre" and, together with C. De la Torre, the "De la Torres"), NSL,
De La Torre Insurance Adjusters, Inc., a Florida corporation ("DLT"), and
Lalande; and (c) that certain Stock Purchase Agreement, dated the date hereof,
by and among Buyer, Ralph Mayoral ("R. Mayoral") and DLT.
"RELATED PERSON"--with respect to a particular individual, (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and (d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting power of a
Person or equity securities or other equity interests representing at least ten
percent (10%) of the outstanding equity securities or equity interests in a
Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
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<PAGE> 6
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SUBSIDIARY"--with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct
the business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred) are held by the Owner or one or more of its
Subsidiaries.
"TAX"--any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
"YEAR 2000 COMPLIANT"--with respect to any item shall mean that such
item: (i) from now until January 1, 2000, must correctly operate, store,
process and produce data containing dates before January 1, 2000; (ii) from now
until January 1, 2000, must correctly operate, store, process and produce data
containing dates after December 31, 1999; (iii) from January 1, 2000, must
correctly operate, store, process and produce data containing dates before
January 1, 2000; (iv) from January 1, 2000, must correctly operate, store,
process and produce data containing dates after December 31, 1999; (v) must be
able to handle the date January 1, 2001 correctly; (vi) must recognize the year
2000 as a leap year (e.g., February 2000 is recognized as a valid date, Julian
date 00060 is recognized as February 29, 2000, Julian date 00366 is recognized
as December 31, 2000, arithmetic operations performed recognize that the year
2000 has 366 days and binary date 36584 is recognized as February 29, 2000);
(vii) must be able to correctly process
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<PAGE> 7
data containing the date September 9, 1999; (viii) must provide date data
century recognition correctly; (ix) must correctly accommodate calculations
with same century and multi-century formulas; (x) must correctly provide date
values and date data interface values that reflect the century; (xi) must be
able to correctly manage and manipulate data involving dates, including single
century and multi-century formulas and must not cause an abnormally ending
scenario within the application or result in the generation of incorrect values
involving such dates; (xii) must ensure that date-related user interface
functions and data fields correctly include the indication of the century; and
(xiii) must ensure that all date-related functions correctly include an
indication of the century. For purposes of this definition, "correctly" shall
mean accurately and without delay, corruption, interruption or error relating
to the time at which or the date on which such items are operating.
ARTICLE II
SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Seller will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Seller.
2.2 Purchase Price. The purchase price (the "Purchase Price") for
the Shares shall be (i) $1,011,600 in cash (the "Initial Purchase Price") plus
(ii) the payments made pursuant to Section 2.3 hereof, if any.
2.3 Earnout Payments.
(a) The terms below shall have the following respective meanings
for the purposes of this Section 2.3:
"ACQUIRED COMPANIES" means, for purposes of this Section 2.3,
NSL, DLT, Lalande, and their respective Subsidiaries, collectively,
and any business or businesses conducted by Buyer, or by any
subsidiaries or affiliated corporations of Buyer, that represent a
succession to and a continuation of the business conducted by NSL,
DLT, Lalande, and their respective subsidiaries, collectively, as the
same may be expanded or contracted from and after Closing.
"CHANGE OF CONTROL" means any of the following:
(1) any consolidation or merger of the Buyer in
which the Buyer is not the continuing or surviving corporation
or pursuant to which shares of the Buyer's common stock would
be converted into cash, securities or other property, other
than a merger of the Buyer in which the holders of the Buyer's
common stock immediately prior to the merger have the same
percentage ownership of common stock of the surviving
corporation immediately after the merger;
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<PAGE> 8
(2) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets or a majority of the
liabilities of the Buyer;
(3) any approval by the shareholders of the Buyer
of any plan or proposal for the liquidation or dissolution of
the Buyer;
(4) the cessation of control (by virtue of their
not constituting a majority of directors) of the Buyer's Board
of Directors by the individuals (the "Continuing Directors")
who (x) at the date of this Agreement were directors or (y)
become directors after the date of this Agreement and whose
election or nomination for election by the Buyer's
shareholders, was approved by a vote of at least two-thirds of
the directors then in office who were directors at the date of
this Agreement or whose election or nomination for election
was previously so approved;
(5) (A) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended ("Beneficial Ownership")) of
at least an aggregate of 20% of the voting power of the
Buyer's outstanding voting securities by any person or group
(as such term is used in Rule 13d-5 under such Act) who
Beneficially Owned less than 10% of the voting power of the
Buyer's outstanding voting securities on the date hereof, (B)
the acquisition of Beneficial Ownership of an additional 5% of
the voting power of the Buyer's outstanding voting securities
by any person or group who Beneficially Owned at least 10% of
the voting power of the Buyer's outstanding voting securities
on the date hereof, or (C) the execution by the Buyer and a
shareholder of a contract that by its terms grants such
shareholder (in its, hers or his capacity as a shareholder) or
such shareholder's Affiliate (as defined in Rule 405
promulgated under the Securities Act of 1933 (an "Affiliate"))
including, without limitation, such shareholder's nominee to
the Board of Directors (in its, hers or his capacity as an
Affiliate of such shareholder), the right to veto or block
decisions or actions of the Board of Directors; provided,
however, that notwithstanding the foregoing, the events
described in items (A), (B) or (C) above shall not constitute
a Change in Control hereunder if the shareholder is (aa) a
trustee or other fiduciary holding securities under an
employee benefit plan of the Buyer and acting in such
capacity, (bb) a corporation owned, directly or indirectly, by
the shareholders of the Buyer in substantially the same
proportions as their ownership of voting securities of the
Buyer or (cc) in the case of an acquisition described in items
(A) or (B) above, any other person whose acquisition of shares
of voting securities is approved in advance by a majority of
the Continuing Directors, unless such acquisition is greater
than 40% of the voting power of the Buyer's outstanding voting
securities; provided further, however that none of the
following shall constitute a Change in Control: (aa) the right
of the holders of any voting securities of the Buyer to vote
as a class on any matter or (bb) any vote required of
disinterested or unaffiliated directors or shareholders
including, without limitation, pursuant to Rule 16b-3
promulgated pursuant to the Securities Exchange Act of 1934;
or
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<PAGE> 9
(6) subject to applicable law, in a Chapter 11
bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Buyer to a case under
Chapter 7.
"CHANGE OF CONTROL TRIGGER" means, after a Change in Control,
a material change in the management direction and prospects of the
Acquired Companies in place immediately prior to the Change of
Control, including (i) a termination of C. De la Torre or M.B.
Johnston Without Cause or for Employer Breach, as defined in the
Employment Agreements of C. De la Torre and M.B. Johnston,
respectively; or (ii) a material reduction or restriction in the
territory for expansion of the Acquired Companies; or (iii) a material
change in the operating strategy of the Acquired Companies.
"COMPUTATION STATEMENT" means a statement setting forth in
reasonable detail Buyer's calculation of the Pre-Tax Earnings of the
Acquired Companies during the applicable Earnout Period and the
calculation of the Earnout Amount for such Earnout Period.
"EARNED PREMIUMS" means earned premiums as defined by
generally accepted accounting principles, consistently applied.
"EARNOUT CONSIDERATION" means $1,124,000.
"EARNOUT PERIOD" means the following periods, as applicable:
(i) the first Earnout Period will commence on the Integration Date
and will terminate one day prior to the first anniversary of the
Integration Date; (ii) the second Earnout Period will commence on the
first anniversary of the Integration Date and will terminate one day
prior to the second anniversary of the Integration Date; and (iii) the
third Earnout Period will commence on the second anniversary of the
Integration Date and will terminate one day prior to the third
anniversary of the Integration Date.
"EARNOUT RATIO" means, for each applicable Earnout Period, the
quotient of (i) the difference between (A) Pre-Tax Earnings for that
Earnout Period and (B) the Threshold Earnout Level for that Earnout
Period and (ii) the difference between (A) the Maximum Earnout Level
for that Earnout Period and (B) the Threshold Earnout Level for that
Earnout Period; provided, however, that in the event the Threshold
Earnout Level for such Earnout Period is equal to or exceeds the
Pre-Tax Earnings for the Earnout Period, the Earnout Ratio shall be
zero (0).
"INCURRED LOSSES AND LOSS ADJUSTMENT EXPENSES" means, for any
period, (A) case basis reserves plus losses incurred but not reported
("IBNR"), including development of losses for the applicable Earnout
Period, as of the end of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period,
plus (B) losses and Loss Adjustment Expenses paid during the period
and less (C) case basis reserves plus IBNR, including development of
losses for the applicable Earnout Period,
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<PAGE> 10
as of the beginning of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period.
"INTEGRATION DATE" means the earlier of (i) the first day of
the calendar quarter immediately following the date on which ninety
percent (90%) or more of the policies written by or through the
Acquired Companies are policies in force of Subsidiaries of Buyer or
(ii) July 1, 2000, if Buyer has not provided the ability or means to
enable ninety percent (90%) or more of direct and/or assumed policies
written by or through the Acquired Companies to be policies in force
of Subsidiaries of Buyer.
"LOSS ADJUSTMENT EXPENSES" means, for any period, expenses
incurred in the course of investigating and settling claims,
including, without limitation, legal and adjusters' fees and the costs
of paying claims and related expenses.
"LOSS RATIO" means, for any period, the quotient of (i)
Incurred Losses and Loss Adjustment Expenses for the period and (ii)
Earned Premiums for the period.
"MAXIMUM EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $11,000,000; (ii) for the second Earnout Period,
$16,000,000; and (iii) for the third Earnout Period, $22,000,000.
"MAXIMUM EARNOUT PAYMENT" means the following payments,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, 25% of the Earnout Consideration; (ii) for the second
Earnout Period, 25% of the Earnout Consideration; and (iii) for the
third Earnout Period, 50% of the Earnout Consideration.
"PAYMENT DATE" means the date sixty (60) days after the
termination of each Earnout Period (or the next succeeding business
day if such date is not a business day).
"PRE-TAX EARNINGS" means, for each Earnout Period, (a) the net
earnings, before all income taxes and interest expense, of Buyer and
its Subsidiaries, attributable to the operation of the Acquired
Companies, less (b) the amount of the Support Functions Reimbursement,
plus (c) investment income on initial imputed capital of $15,000,000,
effective as of the Integration Date, for such Earnout Period, less
(d) an annual imputed cost of capital charge based on the
then-outstanding prime rate at the beginning of each year plus 1% for
any incremental growth capital investments attributable to the
Acquired Companies. Such incremental capital will be based on capital
purchases and a ratio of 2.5 to 1 of (x) net written premiums to (y)
net book value less deferred acquisition costs, in accordance with
generally accepted accounting principles, consistently applied.
Pre-Tax Earnings shall be calculated (i) on the accrual basis of
accounting in accordance with generally accepted accounting principles
consistently applied and (ii) as though the Acquired Companies were a
single corporation with all of its shares owned by persons who are
neither directly nor indirectly related to Buyer.
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<PAGE> 11
"RATING REDUCTION" means the occurrence of a rating by A.M.
Best Company of Buyer's insurance companies, as a group, below A-
("Excellent").
"RELEASE DATE" means the date sixty (60) days after the
termination of each Release Period (or the next succeeding business
day if such date is not a business day).
"RELEASE PERIOD" means the following periods, as applicable:
(i) the first Release Period for the first Earnout Period will
commence one day after the termination date of the first Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the first Earnout Period will
commence one day after the first anniversary of the termination date
of the first Earnout Period and will terminate on the second
anniversary of such termination date; (ii) the first Release Period
for the second Earnout Period will commence one day after the
termination date of the second Earnout Period and will terminate on
the first anniversary of such termination date, and the second Release
Period for the second Earnout Period will commence one day after the
first anniversary of the termination date of the second Earnout Period
and will terminate on the second anniversary of such termination date;
and (iii) the first Release Period for the third Earnout Period will
commence one day after the termination date of the third Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the third Earnout Period will
commence one day after the first anniversary of the termination date
of the third Earnout Period and will terminate on the second
anniversary of such termination date.
"SELLERS' ADVISORY REPRESENTATIVE" means M.B. Johnston, acting
on behalf of himself, C. De la Torre, R. De la Torre, M. Johnston and
R. Mayoral, collectively, or any successor thereto appointed by
unanimous agreement of such persons who are not the Sellers' Advisory
Representative.
"SUBSEQUENT EARNOUT PAYMENT" means (i) the Maximum Earnout
Payment for that Earnout Period multiplied by (ii) the Earnout Ratio
for that Earnout Period.
"SUPPORT FUNCTIONS REIMBURSEMENT" means a monthly fee charged
to the Acquired Companies to cover Buyer's expenses in connection with
providing direct support functions, such as information systems
support, actuarial support, human resources support and accounting
support. In the event the Acquired Companies require special
attention for any unusual circumstance in any month, the monthly fee
may be increased for that month to reflect an amount Buyer reasonably
determines is the true cost to Buyer of providing management and
support functions to the Acquired Companies. In such case Buyer shall
provide, as part of its Computation Statement, the basis for such
increased monthly fee.
"THRESHOLD EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $6,000,000; (ii) for the second Earnout Period,
$8,000,000; and (iii) for the third Earnout Period, $10,000,000.
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<PAGE> 12
(b) Integration Consideration. Except as provided in this
Agreement, Buyer will deliver to Seller additional consideration (the
"Integration Consideration") for the Shares equal to $112,400 within thirty
(30) days after the Integration Date.
(c) Subsequent Earnout Payments.
(i) On the Payment Date for the first Earnout Period,
Buyer will deliver to Seller additional consideration (the "First
Earnout Period Subsequent Earnout Payment") for the Shares, equal to
the Subsequent Earnout Payment for the first Earnout Period multiplied
by 50%; provided, however, that the amount paid pursuant to this
clause (i) shall not exceed 50% of the Maximum Earnout Payment for the
first Earnout Period.
(ii) On the Payment Date for the second Earnout Period,
Buyer will deliver to Seller additional consideration (the "Second
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the second Earnout Period;
provided, however, that the amount paid pursuant to this clause (ii)
shall not exceed 50% of the Maximum Earnout Payment for the second
Earnout Period.
(iii) On the Payment Date for the third Earnout Period,
Buyer will deliver to Seller additional consideration (the "Third
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the third Earnout Period;
provided, however, that the amount paid pursuant to this clause (iii)
shall not exceed 50% of the Maximum Earnout Payment for the third
Earnout Period.
(iv) Delivery of Computation Statements. At the
conclusion of each Earnout Period, Buyer shall prepare a Computation
Statement for the Earnout Amount earned during such Earnout Period and
shall provide such Computation Statement to the Sellers' Advisory
Representative for his review and comments within forty-five (45) days
after the termination of such Earnout Period, with a copy thereof to
Metis Financial LLC. If, within thirty (30) days after delivery of
the Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Computation Statement shall be conclusive and binding on Seller. In
the event the Sellers' Advisory Representative gives Buyer such notice
of dispute within such 30-day period, Buyer shall pay any amounts due
hereunder that are not in dispute, and the Sellers' Advisory
Representative and Buyer will use their best efforts to settle the
dispute within 30 days after the giving of such notice. Any dispute
unresolved after such 30-day period shall be submitted to a national
public accounting firm satisfactory to the Sellers' Advisory
Representative and Buyer, or, in the absence of agreement on such
firm, to a panel of three public accounting firms, one designated by
the Sellers' Advisory Representative, one designated by Buyer and one
jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Seller is entitled to an Earnout Amount which exceeds the Earnout
Amount set forth on the applicable Computation Statement by an
aggregate
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<PAGE> 13
amount greater than ten percent (10%) of such Earnout Amount, Buyer
shall pay the cost of the arbitration. Otherwise, Seller shall pay
the cost of the arbitration. Buyer shall maintain books and records
for the Acquired Companies in a manner which will facilitate its
calculation of each Earnout Amount and the review by the Sellers'
Advisory Representative of each Computation Statement. Buyer shall
make available, at Buyer's offices during normal business hours, to
the Sellers' Advisory Representative and his attorneys, accountants
and other representatives for examination, such of its books of
account, contracts, licenses, leases, instruments, commitments, sale
orders, purchase orders, records, accountant's work papers and other
documents as are relevant to the preparation of the Computation
Statement.
(d) Retroactive Payments.
(i) First Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the first Earnout Period, Buyer will
deliver to Seller additional consideration (the
"First Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the first anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period x 75%) - First Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment and the
First Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the first Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the first Earnout Period and (ii) the
First Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the First Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the
Payment Date for the first Earnout Period, Buyer will
deliver to Seller additional consideration (the
"First Period Third Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the second anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
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<PAGE> 14
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period) - First Earnout Period Subsequent Earnout Payment - First
Period Second Year Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment, the First
Period Second Year Payment and the First Period Third
Year Payment exceeds the Maximum Earnout Payment for
the first Earnout Period, Buyer shall only pay Seller
an amount equal to the (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment, unless
such amount is less than zero, in which case Buyer
shall pay no amount to Seller; and further provided
that if the First Period Third Year Payment is less
than zero, Seller shall pay the integral amount of
the First Period Third Year Payment to Buyer, not to
exceed the sum of (x) the First Earnout Period
Subsequent Earnout Payment and (y) the First Period
Second Year Payment.
The Future Earnout Amount for the First Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment less (iv)
the First Period Third Year Payment, unless such
amount is less than zero, in which case the Future
Earnout Amount for the First Earnout Period shall be
equal to zero.
(ii) Second Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the second Earnout Period, Buyer
will deliver to Seller additional consideration (the
"Second Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the first anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period x 75%) - Second Earnout Period Subsequent
Earnout Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment and the
Second Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the second Earnout
Period, Buyer shall only pay Seller an amount equal
to the difference between (i) 75% of the Maximum
Earnout Payment for the second Earnout Period and
(ii) the Second Earnout Period Subsequent Earnout
Payment, unless such amount is less than zero, in
which case Buyer shall pay no
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<PAGE> 15
amount to Seller; and further provided that if the
Second Period Second Year Payment is less than zero,
no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the second Earnout Period, Buyer will deliver to Seller
additional consideration (the "Second Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the second anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period) - Second Earnout Period Subsequent
Earnout Payment - Second Period Second Year Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment, the Second
Period Second Year Payment and the Second Period
Third Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the second Earnout Period and (y)
the Future Earnout Amount for the First Earnout
Period, Buyer shall only pay Seller an amount equal
to the (i) the Maximum Earnout Payment for the second
Earnout Period plus (ii) the Future Earnout Amount
for the First Earnout Period less (iii) the Second
Earnout Period Subsequent Earnout Payment less (iv)
the Second Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Second Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Second Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Second Earnout Period
Subsequent Earnout Payment and (y) the Second Period
Second Year Payment.
The Future Earnout Amount for the Second Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the second Earnout Period plus (ii) the
Future Earnout Amount for the First Earnout Period
less (iii) the Second Earnout Period Subsequent
Earnout Payment less (iv) the Second Period Second
Year Payment less (v) the Second Period Third Year
Payment, unless such amount is less than zero, in
which case the Future Earnout Amount for the Second
Earnout Period shall be equal to zero.
(iii) Third Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the third Earnout Period, Buyer will
deliver to Seller additional consideration (the
"Third Period Second Year Payment") for the Shares
equal to the:
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<PAGE> 16
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the first anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period x 75%) - Third Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment and the
Third Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the third Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the third Earnout Period and (ii) the
Third Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the Third Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the third Earnout Period, Buyer will deliver to Seller
additional consideration (the "Third Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the second anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period) - Third Earnout Period Subsequent Earnout Payment - Third
Period Second Year Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment, the Third
Period Second Year Payment and the Third Period Third
Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the third Earnout Period and (y)
the Future Earnout Amount for the Second Earnout
Period, Buyer shall only pay Seller an amount equal
to (i) the Maximum Earnout Payment for the third
Earnout Period plus (ii) the Future Earnout Amount
for the Second Earnout Period less (iii) the Third
Earnout Period Subsequent Earnout Payment less (iv)
the Third Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Third Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Third Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Third Earnout Period
Subsequent Earnout Payment and (y) the Third Period
Second Year Payment.
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<PAGE> 17
(iv) Delivery of Retroactive Computation Statements. At
the conclusion of each Release Period, Buyer shall prepare a
Retroactive Computation Statement for the Pre-Tax Earnings recomputed
for the applicable Earnout Period and shall provide such Retroactive
Computation Statement to the Sellers' Advisory Representative for his
review and comments within forty-five (45) days after the termination
of such Release Period, with a copy thereof to Metis Financial LLC.
If, within thirty (30) days after delivery of the Retroactive
Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Retroactive Computation Statement shall be conclusive and binding on
Seller. In the event the Sellers' Advisory Representative gives Buyer
such notice of dispute within such 30-day period, Buyer shall pay any
amounts due hereunder that are not in dispute, and the Sellers'
Advisory Representative and Buyer will use their best efforts to
settle the dispute within 30 days after the giving of such notice.
Any dispute unresolved after such 30-day period shall be submitted to
a national public accounting firm satisfactory to the Sellers'
Advisory Representative and Buyer, or, in the absence of agreement on
such firm, to a panel of three public accounting firms, one designated
by the Sellers' Advisory Representative, one designated by Buyer and
one jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Seller is entitled to such disputed amount, Buyer shall pay the cost
of the arbitration. Otherwise, Seller shall pay the cost of the
arbitration. Buyer shall maintain books and records for the Acquired
Companies in a manner which will facilitate its recomputation of the
Pre-Tax Earnings applicable for each Earnout Period and the review by
the Sellers' Advisory Representative of each Retroactive Computation
Statement. Buyer shall make available, at Buyer's offices during
normal business hours, to the Sellers' Advisory Representative and his
attorneys, accountants and other representatives for examination, such
of its books of account, contracts, licenses, leases, instruments,
commitments, sale orders, purchase orders, records, accountant's work
papers and other documents as are relevant to the preparation of the
Retroactive Computation Statement.
(e) Change of Control. Notwithstanding anything in this Section
2.3 to the contrary, after a Change in Control of Buyer and in the event of a
Change of Control Trigger, Buyer will deliver to Seller additional compensation
for the Shares, in lieu of any further payments that may be required under this
Section 2.3 on or after the date of such Change of Control Trigger, as follows:
(i) If the Change of Control Trigger occurs prior to or
during the first Earnout Period, an amount equal to $316,125 plus the
greater of:
(A) the Subsequent Earnout Payment for the first
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the first Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
first Earnout Period;
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<PAGE> 18
provided, however, that such amount shall not exceed the
Maximum Earnout Payment for the first Earnout Period; or
(B) $105,375.
(ii) If the Change of Control Trigger occurs during the
second Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) $210,750 plus the greater of:
(A) the Subsequent Earnout Payment for the second
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the second Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
second Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the second Earnout Period and (y) the Future Earnout
Amount for the First Earnout Period; or
(B) $105,375.
(iii) If the Change of Control Trigger occurs during the
third Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) the greater of:
(A) the Subsequent Earnout Payment for the third
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the third Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
third Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the third Earnout Period and (y) the Future Earnout Amount
for the Second Earnout Period;
(B) $210,750; or
(C) the sum of all amounts earned by Seller
pursuant to this Section 2.3 attributable to the first two
Earnout Periods as recalculated in accordance with Section
2.3(d) as of the end of the last calendar quarter prior to the
date of the Change of Control Trigger, multiplied by 75%.
(iv) Buyer shall deliver the amount owed to Seller
pursuant to this Section 2.3(e) within sixty (60) days of the date of
the Change of Control Trigger.
(v) Any dispute, controversy or claim arising out of or
in relation to or connection to this Section 2.3(e), including without
limitation any dispute as to whether
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<PAGE> 19
a Change of Control Trigger has occurred, shall be exclusively and
finally settled by arbitration, and Buyer or the Sellers' Advisory
Representative (each, for the purpose of this Section 2.3(e)(v), a
"Party" and collectively, the "Parties") may submit such dispute,
controversy or claim to arbitration.
(A) Arbitrators. The arbitration shall be heard
and determined by one arbitrator, who shall be impartial and
who shall be selected by mutual agreement of the Parties;
provided, however, that if the dispute and any dispute under
corresponding provisions of any of the respective Purchase
Agreements involve, in the aggregate, more than $3,750,000,
then the arbitration shall be heard and determined by three
(3) arbitrators. If three (3) arbitrators are necessary as
provided above, then (i) each Party shall appoint an
arbitrator of its choice within thirty (30) days of the
submission of a notice of arbitration and (ii) the
Party-appointed arbitrators shall in turn appoint a presiding
arbitrator of the tribunal within thirty (30) days following
the appointment of the last Party-appointed arbitrator. If
(x) the Parties cannot agree on the sole arbitrator, (y) one
Party refuses to appoint its Party-appointed arbitrator within
said thirty (30) day period or (z) the Party-appointed
arbitrators cannot reach agreement on a presiding arbitrator
of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United
States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. If
the Senior United States District Judge for the Northern
District of Texas refuses or fails to act as the appointing
authority within ninety (90) days after being requested to do
so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall
appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. All
decisions and awards by the arbitration tribunal shall be made
by majority vote.
(B) Proceedings. Unless otherwise expressly
agreed in writing by the Parties to the arbitration
proceedings:
(1) The arbitration proceedings shall be
held in Fort Worth, Texas, at a site chosen by mutual
agreement of the Parties, or if the Parties cannot
reach agreement on a location within thirty (30) days
of the appointment of the last arbitrator, then at a
site chosen by the arbitrators;
(2) The arbitrators shall be and remain
at all times wholly independent and impartial;
(3) The arbitration proceedings shall be
conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, as amended from time to time;
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<PAGE> 20
(4) Any procedural issues not determined
under the arbitral rules selected pursuant to item
(3) above shall be determined by the law of the place
of arbitration, other than those laws which would
refer the matter to another jurisdiction;
(5) The costs of the arbitration
proceedings (including attorneys' fees and costs)
shall be borne in the manner determined by the
arbitrators;
(6) The decision of the arbitrators
shall be reduced to writing; final and binding
without the right of appeal; the sole and exclusive
remedy regarding any claims, counterclaims, issues or
accounting presented to the arbitrators; made and
promptly paid in United States dollars free of any
deduction or offset; and any costs or fees incident
to enforcing the award shall, to the maximum extent
permitted by law, be charged against the Person
resisting such enforcement;
(7) The award shall include interest
from the date of any breach or violation of this
Section 2.3(e), as determined by the arbitral award,
and from the date of the award until paid in full, at
5% per annum; and
(8) Judgment upon the award may be
entered in any court having jurisdiction over the
person or the assets of the Person owing the judgment
or application may be made to such court for a
judicial acceptance of the award and an order of
enforcement, as the case may be.
(f) After a Rating Reduction of Buyer, thirty (30) days after the
end of each quarter during each Earnout Period, Buyer shall place an amount
into an escrow account, such that the escrow account contains an amount equal
to the Subsequent Earnout Payment for such Earnout Period, as calculated
pursuant to Section 2.3(c) but based on the Pre-Tax Earnings of such quarter on
an annualized basis. The escrow agent shall then be responsible for all
payments under Sections 2.3(c) and (d). Buyer and Sellers shall, within 180
days after Closing, negotiate a form of an escrow agreement and use their Best
Efforts to identify a financial institution that would be willing to perform
the transactions contemplated by this Section 2.3(f). In the event that no
such financial institution is identified, Buyer and Sellers shall negotiate in
good faith to determine a mutually acceptable alternative.
(g) An example of the payments to be made pursuant to this Section
2.3 is attached hereto as Exhibit B. Such example is for illustrative purposes
only.
2.4 Closing. The purchase and sale (the "Closing") provided for
in this Agreement will take place at the offices of Haynes and Boone, LLP, at
201 Main Street, Suite 2200, Fort Worth, Texas, at 10:00 a.m. (local time) on a
date that is no later than five (5) days after all conditions to Closing have
been satisfied, or at such other time and place as the parties may agree.
Subject to the provisions of Article IX, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.4
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will not result in the termination of this Agreement and will not relieve any
party of any obligation under this Agreement.
2.5 Closing Obligations. At the Closing:
(a) Seller will deliver to Buyer:
(i) certificate(s) representing the Shares, duly endorsed
(or accompanied by duly executed stock powers), for transfer to Buyer;
(ii) a release in the form of Exhibit 2.5(a)(ii) executed
by Seller ("Seller's Release");
(iii) an employment agreement in the form of Exhibit
2.5(a)(iii), executed by M. Johnston ("M. Johnston Employment
Agreement");
(iv) a certificate executed by Seller and the Company,
representing and warranting to Buyer that each of Seller's and the
Company's representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Disclosure
Letter delivered by Seller and the Company to Buyer prior to the
Closing Date in accordance with Section 5.5); and
(v) an opinion of Packman, Neuwahl & Rosenberg, P.A.,
dated the Closing Date, in the form agreed to by the parties.
(b) Buyer will deliver to Seller:
(i) $1,011,600 by wire transfer payable to the order of
Seller.
(ii) a certificate executed by Buyer, representing and
warranting to Seller that each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Buyer's Disclosure Letter prior to the Closing Date
in accordance with Section 6.4);
(iii) the M. Johnston Employment Agreement, executed by
Buyer;
(iv) an opinion of Haynes and Boone, LLP, dated the
Closing Date, in the form agreed to by the parties; and
(v) the Interest due pursuant to Section 2.6 hereof.
2.6 Interest on Purchase Price. In the event that the Closing
Date does not occur within ninety (90) days of the date of this Agreement, for
any reason solely the fault of Buyer shall pay
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<PAGE> 22
Seller interest on the Purchase Price, commencing on the 91st day after the
date of this Agreement and continuing to accrue until the Closing Date, at an
interest rate of five percent (5%) per annum (the "Interest"). The Interest
shall be payable at Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER AND NSL
Seller and NSL jointly and severally represent and warrant to Buyer as
follows:
3.1 Organization and Good Standing.
(a) Part 3.1 of the Disclosure Letter contains a complete and
accurate list, for NSL and each Subsidiary of NSL (NSL, together with each
Subsidiary of NSL, collectively referred to herein as the "NSL Acquired
Companies"), of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each shareholder and the number of shares held by
each). Each NSL Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each NSL Acquired Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification. No jurisdiction, other than those listed in Part 3.1 of the
Disclosure Letter, has claimed, in writing, that any NSL Acquired Company is
required to hold a Governmental Authorization, and none of the NSL Acquired
Companies files or is required to file any Tax Returns in any other
jurisdiction.
(b) Seller has delivered to Buyer copies of the Organizational
Documents of each NSL Acquired Company, as currently in effect.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of NSL and Seller, enforceable against NSL and Seller in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity. Upon the execution and
delivery by Seller of the M. Johnston Employment Agreement and the Seller's
Release (collectively, the "Seller's Closing Documents"), the Seller's Closing
Documents will constitute the legal, valid, and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Seller has all right, power, authority, and capacity to
execute and deliver this Agreement and the Seller's
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<PAGE> 23
Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents. NSL has all corporate right, power and authority
to execute and deliver this Agreement and to perform its obligations under this
Agreement.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the NSL Acquired Companies; (ii) conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any NSL Acquired Company or
Seller, or any of the assets owned or used by any NSL Acquired Company, may be
subject; (iii) conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, suspend,
terminate, or modify, any Insurance Permit or other Governmental Authorization
that is held by any NSL Acquired Company or that otherwise relates to the
business of, or any of the assets owned or used by, any NSL Acquired Company;
(iv) conflict with, or result in a violation or breach of any provision of, or
give any Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; or (v) result in the imposition or creation of
any Encumbrance upon or with respect to any of the assets owned or used by any
NSL Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, neither
Seller nor any NSL Acquired Company is or will be required to give any notice
to or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 Capitalization. The authorized equity securities of NSL
consist of 100 shares of common stock, $1.00 par value per share, of which
21.0526 shares are issued and outstanding. The ownership of NSL is as set
forth on Exhibit A hereto. Seller is and will be on the Closing Date the
record and beneficial owner and holder of 1.0526 shares of NSL Common Stock,
free and clear of all Encumbrances. NSL has no other class or series of
capital stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any NSL Acquired
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the NSL
Acquired Companies. With the exception of the shares listed on Exhibit A
hereto, all of the outstanding equity securities and other securities of each
NSL Acquired Company are owned of record and beneficially by one or more of the
NSL Acquired Companies, free and clear of all Encumbrances.
Except as set forth in Part 3.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any NSL Acquired Company. All of the
outstanding equity securities of each NSL Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no
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<PAGE> 24
Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of any NSL Acquired Company. None of the outstanding equity
securities or other securities of any NSL Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. No NSL Acquired
Company owns, or has any Contract to acquire, any equity securities or other
securities of any Person (other than NSL Acquired Companies) or any direct or
indirect equity or ownership interest in any other business. Except as set
forth in Part 3.3 of the Disclosure Letter, there are no restrictions upon the
voting or transfer of, or the declaration or payment of any dividend or
distribution on, any shares of capital stock of any NSL Acquired Company.
3.4 Financial Statements. Seller has delivered to Buyer: (a)
audited balance sheets of the NSL Acquired Companies as of December 31 in each
of the years 1995 and 1996, and the related audited statements of income,
changes in shareholders' equity, and cash flow for each of the fiscal years
then ended, together with the report thereon of Rachlin, Cohen & Holtz (or the
predecessors thereto, Mukamal, Appel, Fromberg & Margolies, P.A.), independent
certified public accountants, (b) a balance sheet of the NSL Acquired
Companies as of December 31, 1997 (including the notes thereto, the "NSL
Balance Sheet"), and the related statements of income, changes in
shareholders' equity, and cash flow for the fiscal year then ended, together
with the report thereon of Rachlin, Cohen & Holtz, independent certified public
accountants. Seller shall deliver to Buyer at least fifteen (15) days prior to
Closing a reviewed balance sheet of the NSL Acquired Companies as of July 31,
1998 (the "NSL Interim Balance Sheet") and the related reviewed statements of
income, changes in shareholders' equity, and cash flow for the seven (7) months
then ended, including in each case the notes thereto. Such financial statements
and notes fairly present the financial condition and the results of operations,
changes in shareholders' equity, and cash flow of the NSL Acquired Companies at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse) and
the absence of notes (that, if presented, would not differ materially from
those included in the NSL Balance Sheet); the financial statements referred to
in this Section 3.4 reflect the consistent application of such accounting
principles throughout the periods involved, except as disclosed in the notes to
such financial statements. No financial statements of any Person other than the
NSL Acquired Companies are required by GAAP to be included in the financial
statements of NSL.
3.5 Books and Records. The books of account, minute books, stock
record books, and other records of the NSL Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
NSL Acquired Companies contain accurate and complete records of all meetings
held of, and corporate action taken by, the shareholders, the Boards of
Directors, and committees of the Boards of Directors of the NSL Acquired
Companies, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the NSL Acquired Companies.
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<PAGE> 25
3.6 Title to Properties; Encumbrances. Part 3.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any NSL Acquired Company. Seller has
delivered or made available to Buyer copies of the deeds and other instruments
(as recorded) by which the NSL Acquired Companies acquired such real property
and interests, and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Seller or the NSL Acquired Companies and
relating to such property or interests. The Acquired Companies own (with good
and marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that they purport
to own located in the facilities owned or operated by the NSL Acquired
Companies or reflected as owned in the books and records of the NSL Acquired
Companies, including all of the properties and assets reflected in the NSL
Balance Sheet and the NSL Interim Balance Sheet (except for personal property
sold since the date of the NSL Balance Sheet and the NSL Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the NSL Acquired
Companies since the date of the NSL Balance Sheet (except for personal property
acquired and sold since the date of the NSL Balance Sheet in the Ordinary
Course of Business and consistent with past practice), which subsequently
purchased or acquired properties and assets (other than short-term investments)
are listed in Part 3.6 of the Disclosure Letter. All material properties and
assets reflected in the NSL Balance Sheet and the NSL Interim Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature.
3.7 Accounts Receivable. All accounts receivable of the NSL
Acquired Companies that are reflected on the NSL Balance Sheet or the NSL
Interim Balance Sheet or on the accounting records of the NSL Acquired
Companies as of the Closing Date (collectively, the "NSL Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the NSL Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on
the NSL Balance Sheet or the NSL Interim Balance Sheet or on the accounting
records of the NSL Acquired Companies as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the NSL Accounts Receivable as of the Closing Date than the reserve with
respect to the NSL Accounts Receivable as reflected in the NSL Interim Balance
Sheet and will not represent a material adverse change in the composition of
such NSL Accounts Receivable in terms of aging). Subject to such reserves, each
of the NSL Accounts Receivable either has been or, to the Knowledge of NSL and
Seller, will be collected in full, without any set-off, within ninety days
after the day on which it first becomes due and payable. There is no contest,
claim, or right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of an NSL Accounts Receivable
relating to the amount or validity of such NSL Accounts Receivable. Part 3.7 of
the Disclosure Letter contains a complete and accurate list of all NSL Accounts
Receivable as of the date of the NSL Interim Balance Sheet, which list sets
forth the aging of such NSL Accounts Receivable.
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<PAGE> 26
3.8 No Undisclosed Liabilities. Except as set forth in Part 3.8
of the Disclosure Letter, the NSL Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the NSL Balance Sheet or the NSL
Interim Balance Sheet and current liabilities incurred in the Ordinary Course
of Business since the respective dates thereof.
3.9 Taxes.
(a) The NSL Acquired Companies or Seller, as applicable, have
filed or caused to be filed (on a timely basis since 1995) all Tax Returns that
are or were required to be filed by or with respect to any of the NSL Acquired
Companies, pursuant to applicable Legal Requirements. Seller has delivered or
made available to Buyer copies of, and Part 3.9 of the Disclosure Letter
contains a complete and accurate list of, all such Tax Returns filed since
January 1, 1995. The NSL Acquired Companies or Seller, as applicable, have
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Seller or any NSL Acquired Company, except such Taxes,
if any, as are listed in Part 3.9 of the Disclosure Letter and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the NSL Balance Sheet and the NSL
Interim Balance Sheet.
(b) Part 3.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 3.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 3.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any NSL Acquired Company or Seller for all taxable years since 1995 with
respect to or that are directly or indirectly related to any NSL Acquired
Company, and the resulting deficiencies proposed by the IRS. Except as
described in Part 3.9 of the Disclosure Letter, neither Seller nor any NSL
Acquired Company has given or been requested to give waivers or extensions (or
is or would be subject to a waiver or extension given by any other Person) of
any statute of limitations relating to the payment of Taxes of, with respect
to, or that are directly or indirectly related to any NSL Acquired Company or
for which Seller or any NSL Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to, or that
are directly or indirectly related to, Taxes on the respective books of each
NSL Acquired Company are adequate (determined in accordance with GAAP) and are
at least equal to that NSL Acquired Company's liability for Taxes. There exists
no proposed tax assessment against any NSL Acquired Company or Seller with
respect to or that is directly or indirectly related to any NSL Acquired
Company except as disclosed in the NSL Balance Sheet or in Part 3.9 of the
Disclosure Letter. All Taxes with respect to or that are directly or indirectly
related to any NSL Acquired Company that any NSL Acquired Company or Seller is
or was required by Legal Requirements to withhold or collect
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<PAGE> 27
have been duly withheld or collected and, to the extent required, have been
paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by any NSL Acquired Company or by Seller
with respect to or that are directly or indirectly related to any NSL Acquired
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by any NSL Acquired Company after the date of this
Agreement. Each NSL Acquired Company is an "S" corporation (or a Qualified
Subchapter S Subsidiary, as the case may be), and NSL has had a valid "S"
corporation election in effect under Section 1362(a) of the IRC since January
1, 1996. During the consistency period (as defined in Section 338(h)(4) of the
IRC with respect to the sale of the Shares to Buyer), no NSL Acquired Company
or target affiliate (as defined in Section 338(h)(6) of the IRC with respect to
the sale of the Shares to Buyer) has sold or will sell any property or assets
to Buyer or to any member of the affiliated group (as defined in Section
338(h)(5) of the IRC) that includes Buyer. Part 3.9 of the Disclosure Letter
lists all such target affiliates.
3.10 No Material Adverse Change. Since the date of the NSL Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any NSL Acquired
Company, and no event has occurred or circumstance exists that may result in
such a material adverse change.
3.11 Employee Benefit Plans. Except as set forth in Part 3.11 of
the Disclosure Letter, neither NSL nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in NSL or such Plan Affiliate having any material debt, liability,
claim or obligation of any kind or nature, whether accrued, absolute,
contingent, direct, indirect, known or unknown, perfected or inchoate or
otherwise and whether or not due or to become due. Correct and complete copies
of all Employee Benefit Plans of NSL previously have been furnished to Buyer.
The Employee Benefit Plans of NSL are in compliance in all material respects
with governing documents and agreements and with applicable laws. There has
not been any act or omission by NSL under ERISA or the terms of the Employee
Benefit Plans of NSL, or any other applicable law or agreement which could give
rise to any liability of NSL, whether under ERISA, the IRC or other laws or
agreements. Neither NSL nor any Plan Affiliate maintains or contributes to, or
has maintained or contributed to, any Employee Benefit Plan subject to Title IV
of ERISA.
3.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 3.12 of the Disclosure Letter,
each NSL Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any
of its assets.
(b) Part 3.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization, including each Governmental
Authorization to conduct insurance, insurance agency or brokerage and premium
finance business and each Insurance Permit, that is
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<PAGE> 28
held by any NSL Acquired Company or that otherwise relates to the business of,
or to any of the assets owned or used by, any NSL Acquired Company. Each
Governmental Authorization listed or required to be listed in Part 3.12 of the
Disclosure Letter is valid and in full force and effect. Each NSL Acquired
Company owns or possesses all right, title and interest in and to all of the
Governmental Authorizations and Insurance Permits that are necessary to enable
it to carry on the business of such NSL Acquired Company as presently
conducted. Each NSL Acquired Company has taken all necessary action to
maintain such Governmental Authorizations. No loss or expiration of any such
Governmental Authorization is threatened, pending or, to the Knowledge of NSL
and Seller, reasonably foreseeable. The consummation of the transactions
contemplated hereby will not result in the suspension, modification,
cancellation, revocation or nonrenewal of any such Governmental Authorization.
Except for compliance with periodic renewal procedures, no approvals or
authorizations are required to permit the NSL Acquired Companies to continue
their business as presently conducted, following the Closing.
(c) None of the NSL Acquired Companies or, to the Knowledge of
Seller and NSL, any of its agents or brokers are engaged in any insurance
agency or brokerage or premium finance business in any jurisdiction in which it
is not duly authorized or qualified to transact such business.
(d) Except as set forth in Part 3.12 of the Disclosure Letter,
each of the NSL Acquired Companies has filed all material reports, statements,
registrations, applications, filings or other documents and submissions
required to be filed with, or provided to any Governmental Body. Except as set
forth in Part 3.12 of the Disclosure Letter, all such reports, statements,
registrations, applications, filings, documents and submissions were in
compliance in all material respects with all applicable Legal Requirements when
filed, and no material deficiencies have been asserted by any Governmental Body
with respect thereto.
(e) Seller has furnished to Buyer true and complete copies of all
annual and quarterly statements filed with or submitted to any state insurance
regulatory authority and all reports of examinations (whether financial, market
conduct or other) issued by any state insurance regulatory authorities in
respect of any of the NSL Acquired Companies covering, in whole or in part, any
period on or after January 1, 1993, together with true and complete copies of
all written responses submitted by or on behalf of any of Seller, the NSL
Acquired Companies or their Affiliates in respect of any such report of
examination. In addition, Seller has made, or has caused the NSL Acquired
Companies to make, available to Buyer all files of Seller and the NSL Acquired
Companies relating to correspondence with insurance regulatory authorities and
other Governmental Bodies.
3.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
NSL Acquired Company or that otherwise relates to or may affect the business
of, or any of the assets owned or used by, any NSL Acquired Company; or (ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
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<PAGE> 29
To the Knowledge of Seller and NSL, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding not in
the Ordinary Course of Business of the NSL Acquired Companies. Seller has
delivered to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.13 of the Disclosure Letter. The
Proceedings listed in Part 3.13 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of any NSL Acquired Company.
(b) Except as set forth in Part 3.13 of the Disclosure Letter: (i)
there is no Order to which any of the NSL Acquired Companies, or any of the
assets owned or used by any NSL Acquired Company, is subject; and (ii) each NSL
Acquired Company is, and at all times since January 1, 1995 has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject.
(c) Except as set forth in Part 3.13 of the Disclosure Letter, no
claim is pending nor, to the Knowledge of Seller or NSL, threatened against any
of the NSL Acquired Companies by any state insurance Governmental Body.
3.14 Absence of Certain Changes and Events. Except as set forth in
Part 3.14 of the Disclosure Letter, since the date of the NSL Balance Sheet,
the NSL Acquired Companies have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in any NSL Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any NSL Acquired Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any NSL Acquired Company of any shares of
any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any NSL Acquired
Company;
(c) payment or increase by any NSL Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any NSL
Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any NSL Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the NSL Acquired Companies, taken as a whole;
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(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or
transaction involving a total remaining commitment by or to any NSL Acquired
Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any NSL Acquired Company or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of any NSL Acquired
Company, including the sale, lease, or other disposition of any of the NSL
Intellectual Property Assets (as defined in Section 3.20)
(h) cancellation or waiver of any claims or rights with a value to
any NSL Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any NSL
Acquired Company;
(j) agreement, whether oral or written, by any NSL Acquired
Company to do any of the foregoing; or
(k) change in its business, underwriting, billing, reserving,
reinsurance, investment or claims adjustment policies and practices or any
change in any activity that (i) has had the effect of accelerating the
recording and billing of premiums or accounts receivable or delaying the
payment of expenses or the establishment of loss and loss adjustment expense
and other reserves in connection with the business or any material accounts of
any of the NSL Acquired Companies or (ii) has had the effect of materially
altering, modifying or changing the historic financial or accounting practices
or policies of any of the NSL Acquired Companies, including accruals of and
reserves for Taxes.
3.15 Contracts; No Defaults.
(a) Part 3.15(a) of the Disclosure Letter contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies, of
all the material Contracts of each NSL Acquired Company. Part 3.15(a) of the
Disclosure Letter sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining
commitment of the NSL Acquired Companies under the Contracts, and the NSL
Acquired Companies' office where details relating to the Contracts are located.
(b) Except as set forth in Part 3.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 3.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 3.15(c) of the Disclosure Letter:
(i) each NSL Acquired Company is, and at all times since
January 1, 1995 has been, in full compliance with all applicable terms
and requirements of each Contract under which such NSL Acquired
Company has or had any obligation or liability or by which
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such NSL Acquired Company or any of the assets owned or used by such
NSL Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an NSL Acquired Company has
or had any rights is, and at all times since January 1, 1995 has been,
in full compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any NSL Acquired Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
(iv) no NSL Acquired Company has given to or received from
any other Person, at any time since January 1, 1995, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
(d) The Contracts relating to the sale or provision of services by
the NSL Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
3.16 Insurance.
(a) Seller has delivered to Buyer true and complete copies of all
policies of insurance to which any NSL Acquired Company is a party or under
which any NSL Acquired Company, or any director of any NSL Acquired Company, is
or has been covered at any time within the three (3) years preceding the date
of this Agreement;
(b) Part 3.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy in the possession of Seller or
any of the NSL Acquired Companies. NSL and Seller have no Knowledge of any
loss experience that would affect future potential insurability with respect to
such policies.
(c) Except as set forth in Part 3.16(c) of the Disclosure Letter:
(i) All policies to which any NSL Acquired Company is a
party or that provide coverage to any NSL Acquired Company or any
director or officer of an NSL Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the NSL Acquired
Companies for all risks to which the NSL Acquired Companies are
normally exposed; (C) are sufficient for compliance with all
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Legal Requirements and Contracts to which any NSL Acquired Company is
a party or by which any of them is bound; and (D) will continue in
full force and effect following the consummation of the Contemplated
Transactions.
(ii) No NSL Acquired Company has received (A) any refusal
of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The NSL Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any NSL Acquired Company is a party or that
provides coverage to any NSL Acquired Company or director thereof.
(iv) The NSL Acquired Companies have given notice to the
insurer of all claims that may be insured thereby.
3.17 Environmental Matters. Except as set forth in Part 3.17 of
the Disclosure Letter, to the Knowledge of Seller and NSL, each of the NSL
Acquired Companies is in compliance with all Environmental Laws, the failure to
comply with which could have a Material Adverse Effect. Neither Seller nor any
of the NSL Acquired Companies has received notice of any material violation by
any of the NSL Acquired Companies of, or material default by the same under,
any Environmental Law, and neither Seller nor NSL has any Knowledge of any
existing facts or circumstances that are likely to result in any such violation
or default. There is no action, suit, claim, proceeding or investigation
pending or, to the Knowledge of Seller and NSL, threatened against any of the
NSL Acquired Companies that alleges or would allege any violation of any
Environmental Law.
3.18 Employees.
(a) Part 3.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
NSL Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and,
with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995, any change in compensation since January 1,
1995; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under any NSL Acquired Company's pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other Employee Benefit Plan or any Director Plan.
(b) No employee or director of any NSL Acquired Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement,
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between such employee or director and any other Person that in any way
adversely affects or will affect (i) the performance of his duties as an
employee or director of the NSL Acquired Companies, or (ii) the ability of any
NSL Acquired Company to conduct its business, including any Proprietary Rights
Agreement with Seller or the NSL Acquired Companies by any such employee or
director. To Seller's and NSL's Knowledge, no director, officer, or other key
employee of any NSL Acquired Company intends to terminate his employment with
such NSL Acquired Company.
(c) Part 3.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the NSL Acquired Companies, or their dependents, receiving benefits
or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
3.19 Labor Relations; Compliance. Except as set forth on Part 3.19
of the Disclosure Letter, since January 1, 1995, no NSL Acquired Company has
been or is a party to any collective bargaining or other labor Contract. Since
January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of NSL and Seller, there is not Threatened, (a)
any strike, slowdown, picketing, work stoppage, lockout or employee grievance
process, (b) any Proceeding against or affecting any NSL Acquired Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters or (c) any application for certification of a
collective bargaining agent. Each NSL Acquired Company has complied in all
respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining and occupational safety and health. No NSL Acquired Company is
liable for the payment of any compensation, damages, taxes, fines, penalties,
or other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.
3.20 Intellectual Property.
(a) Each NSL Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 3.20(a) of the Disclosure
Letter (the "NSL Intellectual Property Assets"), (ii) neither owns nor uses any
such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each NSL Acquired
Company owns, or possesses adequate and enforceable rights to use without
payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such NSL Acquisition Company.
(b) Except as set forth in Part 3.20(b) of the Disclosure Letter,
NSL has no Knowledge nor has received any notice to the effect that any service
it or any other NSL Acquired Company provides or sells, or any process or
method it employs in its business for the use by it or another of any such
service, may infringe, or is in conflict with, any asserted right of another.
There is
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no pending or Threatened claim or litigation action against any NSL Acquired
Company contesting its right to use or the validity of any of the NSL
Intellectual Property Assets or asserting its misuse of any of the foregoing,
which would deprive it of the right to assert its rights thereunder or which
would prevent the sale of any service provided or sold by it.
(c) Each NSL Acquired Company has established a strategic plan and
provided Buyer with an accurate and complete copy of such plan and a schedule
of the amount of capital and resources reasonably believed to be necessary to
institute software systems such that each NSL Acquired Company will be Year
2000 Compliant upon the completion of such plan.
3.21 Certain Payments. Since January 1, 1995, no NSL Acquired
Company or director, officer, agent, or employee of any NSL Acquired Company,
or any other Person associated with or acting for or on behalf of any NSL
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any NSL Acquired Company or any affiliate of an NSL Acquired Company, or (iv)
in violation of any Legal Requirement or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the NSL
Acquired Companies.
3.22 Disclosure.
(a) No representation or warranty of Seller or the Company in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Seller or the Company that has
specific application to Seller or any NSL Acquired Company (other than general
economic or industry conditions) and that materially adversely affects or, as
far as Seller or the Company can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition, or results of operations of
the NSL Acquired Companies (on a consolidated basis) that has not been set
forth in this Agreement or the Disclosure Letter.
3.23 Relationships with Related Persons. Except as set forth in
Part 3.23 of the Disclosure Letter, neither Seller nor any Related Person of
Seller or of any NSL Acquired Company has, or since January 1, 1996 has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to the NSL Acquired Companies'
businesses. Except as set forth in Part 3.23 of the Disclosure Letter, neither
Seller nor any Related Person of Seller or of any NSL Acquired Company is, or
since January 1, 1996, has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i)
had business dealings or a material financial interest in any transaction with
any NSL Acquired Company, or (ii) engaged in competition with any NSL Acquired
Company with respect to any line of the products or services of such NSL
Acquired Company ("NSL Competing Business") in any market presently served by
such NSL Acquired
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Company. Except as set forth in Part 3.23 of the Disclosure Letter, neither
Seller nor any Related Person of Seller or of any NSL Acquired Company is a
party to any Contract with, or has any claim or right against, any NSL Acquired
Company.
3.24 Agents and Producers. Part 3.24 of the Disclosure Letter lists
all agents, brokers, producers, underwriting managers and other Persons of
each of the NSL Acquired Companies who were paid, directly or indirectly, at
least $25,000 in commissions by or through any of the NSL Acquired Companies,
during the year ended December 31, 1997, including the total amount of
commissions paid to such Persons in such year. To the Knowledge of NSL and
Seller, each of the NSL Acquired Companies generally enjoys good relations with
the Persons listed on Part 3.24 of the Disclosure Letter as a whole, and also
generally enjoys good relations with its other insurance agents, brokers and
producers as a whole. To the Knowledge of Seller and NSL, all Persons listed
on Part 3.24 of the Disclosure Letter are duly licensed to act as agents,
brokers or producers in the jurisdictions where they engage in such activities.
3.25 Threats of Cancellation. Except as set forth in Part 3.25 of
the Disclosure Letter hereto, since January 1, 1996, no policyholder or group
of policyholders under a group policy, or agent, broker, producer or other
Person writing, selling or producing insurance, reinsurance or retrocessional
coverage, which, individually or in the aggregate together with other related
policyholders, agents, brokers and producers, accounted for one percent (1%) or
more of the aggregate gross premiums written by or through the NSL Acquired
Companies in any year ended since December 31, 1996, has terminated or given
written notice of termination of its relationship with any of the NSL Acquired
Companies. The NSL Acquired Companies have received no notice that any such
policyholder, group of policyholders, agent, broker, producer or other such
Person will or is reasonably likely to terminate such relationship as a result
of the transactions contemplated by this Agreement.
3.26 Investments. Part 3.26 of the Disclosure Letter contains (a)
a true and complete list of all securities and other investments owned by each
of the NSL Acquired Companies as of the end of the most recent calendar month,
including the date of purchase, book value or amortized cost, market value and
carrying value thereof on the books and records of account of such NSL Acquired
Company as of such date and (b) the Investment Guidelines of each such NSL
Acquired Company. Except as set forth in Part 3.26 of the Disclosure Letter,
none of the securities and other investments owned by such Persons is in
default in the payment of principal or interest or dividends. All such
securities and other investments substantially comply with the Investment
Guidelines and all insurance laws and regulations of each of the jurisdictions
to which the NSL Acquired Companies are subject with respect thereto.
3.27 Bank Accounts. Part 3.27 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the NSL Acquired Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
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3.28 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, Seller, each NSL Acquired Company and their agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection
with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Texas.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. Upon the execution and delivery by Buyer
of the M. Johnston Employment Agreement, the M. Johnston Employment Agreement
will constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Buyer has all corporate right, power, and authority to
execute and deliver this Agreement and the M. Johnston Employment Agreement and
to perform its obligations under this Agreement and the M. Johnston Employment
Agreement.
(b) Except as set forth in Part 4.2 of the Buyer's Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time) (i) conflict
with, or result in a violation of any provision of the Organizational Documents
of Buyer; (ii) conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Buyer, or any of the assets owned
or used by Buyer, may be subject; (iii) conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, suspend, terminate, or modify, any Insurance Permit or other
Governmental Authorization that is held by Buyer or that otherwise relates to
the business of, or any of the assets owned or used by, Buyer; (iv) conflict
with, or result in a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or (v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Buyer.
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Except as set forth in Part 4.2 of the Buyer's Disclosure Letter,
Buyer is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.4 Certain Proceedings. There is no pending Proceeding that has
been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
4.5 Brokers or Finders. Except as set forth in Part 4.5 of the
Buyer's Disclosure Letter, Buyer and its officers and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
4.6 Loss Reserves. The Loss Reserves (as defined below) of the
wholly-owned subsidiaries of GAINSCO that are insurance companies (the "GAINSCO
Insurance Subsidiaries"), as set forth in the most recent unaudited
consolidated balance sheet of GAINSCO (the "GAINSCO Balance Sheet"), net of
reinsurance recoverables (other than intercompany reinsurance), are fairly
stated in the GAINSCO Balance Sheet in accordance with generally accepted
actuarial standards and principles. For the purpose of this Section 4.6, "Loss
Reserves" means all reserves for all losses and loss adjustment expenses,
including, without limitation, case reserves, reserves for loss adjustment
expenses, both allocated and unallocated, reserves for incurred but not
reported losses and loss adjustment expenses, and otherwise determined in
accordance with those generally accepted actuarial standards and principles
applied in determining such Loss Reserves reflected in the GAINSCO Balance
Sheet.
4.7 Disclosure.
(a) No representation or warranty of Buyer in this Agreement and
no statement in the Buyer's Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Buyer that has specific application
to Buyer (other than general economic or industry conditions) and that
materially adversely affects or, as far as Buyer can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of Buyer (on a consolidated basis) that has not been set
forth in this Agreement or the Buyer's Disclosure Letter.
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ARTICLE V
COVENANTS OF SELLER AND THE COMPANY AT OR PRIOR TO CLOSING DATE
5.1 Access and Investigation. Subject to the terms of that certain
Non-Disclosure Agreement, dated June 15, 1998, from M.B. Johnston, the De la
Torres, M. Johnston and R. Mayoral to Buyer (the "Non-Disclosure Agreement"),
between the date of this Agreement and the Closing Date, Seller and the Company
will, and will cause each NSL Acquired Company and its Representatives to, (a)
afford Buyer and its Representatives (collectively, "Buyer's Advisors") full
and free access to each NSL Acquired Company, its personnel, properties,
contracts, books and records, and all other documents and data, (b) furnish
Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
5.2 Operation of the Businesses of the NSL Acquired Companies.
Between the date of this Agreement and the Closing Date, Seller and the Company
will, and will cause each NSL Acquired Company to:
(a) conduct the business of such NSL Acquired Company only in the
Ordinary Course of Business and in accordance with all valid regulations, laws
and orders of all Governmental Bodies;
(b) use their Best Efforts to preserve intact the current business
organization of such NSL Acquired Company, keep available the services of the
current officers, employees, and agents of such NSL Acquired Company, and
maintain the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with
such NSL Acquired Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report from time to time to Buyer concerning the
status of the business, operations, and finances of such NSL Acquired Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement or disclosed in the Disclosure Letter, between the date of this
Agreement and the Closing Date, Seller and the Company will not, and will cause
each NSL Acquired Company not to, without the prior consent of Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.14 is likely to occur.
5.4 Required Approvals. As promptly as practicable after the date
of this Agreement, Seller will, and will cause each NSL Acquired Company to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing
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Date, Seller will, and will cause each NSL Acquired Company to, (a) cooperate
with Buyer with respect to all filings that Buyer elects to make or is required
by Legal Requirements to make in connection with the Contemplated Transactions
and (b) cooperate with Buyer in obtaining all consents identified in Part 4.2
of the Buyer's Disclosure Letter (including taking all actions requested by
Buyer to cause early termination of any applicable waiting period under the HSR
Act).
5.5 Notification. Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller or any NSL
Acquired Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller's or the Company's representations and
warranties as of the date of this Agreement, or if Seller or any NSL Acquired
Company becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Disclosure Letter if the Disclosure Letter were dated the
date of the occurrence or discovery of any such fact or condition, Seller will
promptly deliver to Buyer a supplement to the Disclosure Letter specifying such
change. During the same period, Seller will promptly notify Buyer of the
occurrence of any Breach of any covenant of Seller or the Company in this
Article V or of the occurrence of any event that may make the satisfaction of
the conditions in Article VII impossible or unlikely. No notice given pursuant
to this Section 5.5 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein or in this Agreement, in
light of the circumstances in which they were made, not misleading.
5.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, Seller will cause all indebtedness owed
to an NSL Acquired Company by Seller or any Related Person of any Seller to be
paid in full contemporaneous with Closing.
5.7 Best Efforts. Between the date of this Agreement and the
Closing Date, Seller will use their Best Efforts to cause the conditions in
Articles VII and VIII to be satisfied.
5.8 Certain Indebtedness.
(a) Contemporaneous with Closing, each NSL Acquired Company shall
pay, and Seller shall cause each NSL Acquired Company to pay, any indebtedness
owed by any NSL Acquired Company to Agents Financial Services, Inc., a Florida
corporation ("AFS"), in full.
(b) Contemporaneous with Closing, all indebtedness owed by AFS to
any NSL Acquired Company shall be paid in full.
5.9 Reviewed Financial Statements of the Acquired Companies.
Seller shall deliver the financial statements as required by Section 3.4.
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5.10 NSL Stockholders' Agreement. Contemporaneous with Closing,
Seller shall execute all documents necessary to terminate that certain
Stockholders' Agreement, dated December 14, 1993, by and among M.B. Johnston,
C. De la Torre, M. Johnston and NSL.
5.11 M&C Inspection Services, Inc.. At or prior to Closing, Seller
shall execute all documents necessary to dissolve or liquidate M&C Inspection
Services, Inc.
ARTICLE VI
COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 Approvals of Governmental Bodies. As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions (including all filings under the HSR Act). Between the date of
this Agreement and the Closing Date, Buyer will (a) cooperate with Seller with
respect to all filings that Seller elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions and (b)
cooperate with Seller in obtaining all consents identified in Part 4.2 of the
Buyer's Disclosure Letter; provided that this Agreement will not require Buyer
to dispose of or make any change in any portion of its business or to incur any
other burden to obtain a Governmental Authorization.
6.2 Best Efforts. Except as set forth in the proviso to Section
6.1, between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Articles VII and VIII to be
satisfied.
6.3 Access. Between the date of this Agreement and the Closing
Date, Buyer shall provide to Seller responses to the Seller's reasonable due
diligence requests.
6.4 Notification. Between the date of this Agreement and the
Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Buyer's representations and warranties as of the date of this Agreement, or if
Buyer becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Buyer's Disclosure Letter if the Buyer's Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, Buyer will promptly deliver to Seller a supplement to the Buyer's
Disclosure Letter specifying such change. During the same period, Buyer will
promptly notify Seller of the occurrence of any Breach of any covenant of Buyer
in this Article VI or of the occurrence of any event that may make the
satisfaction of the conditions in Article VIII impossible or unlikely. No
notice given pursuant to this Section 6.4 will contain any untrue statement or
omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading.
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ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
7.1 Accuracy of Representations. Each of Seller's and the
Company's representations and warranties in this Agreement must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter.
7.2 Seller's Performance. Each of the covenants and obligations
that Seller and the Company are required to perform or to comply with pursuant
to this Agreement at or prior to the Closing must have been duly performed and
complied with in all material respects.
7.3 Consents. Each of the Consents identified in Part 3.2 of the
Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must have been
obtained and must be in full force and effect.
7.4 Additional Documents. Each of the following documents must
have been delivered to Buyer:
(a) an opinion of Packman, Neuwahl & Rosenberg, P.A., dated the
Closing Date, in the form agreed to by the parties;
(b) estoppel certificates executed on behalf of all landlords,
lenders and lessors of the Acquired Companies, dated as of a date not more than
five (5) days prior to the Closing Date;
(c) executed stock purchase agreements, pursuant to which Buyer
shall obtain all of the outstanding shares of capital stock of NSL, DLT, and
Lalande.
(d) if applicable, wire transfer instructions concerning the
amount to be transferred to Seller pursuant to Section 2.5(b)(i); and
(e) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any of Seller's and the
Company's representations and warranties, (iii) evidencing the performance by
Seller and the Company of, or the compliance by Seller and the Company with,
any covenant or obligation required to be performed or complied with by such
Seller, (iv) evidencing the satisfaction of any condition referred to in this
Article VII or (v) otherwise facilitating the consummation or performance of
any of the Contemplated Transactions.
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7.5 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies or (b)
is entitled to all or any portion of the Purchase Price payable for the Shares.
7.6 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable
Legal Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental
Body. Neither the consummation nor the performance of the Contemplated
Transactions will directly or indirectly violate an Order.
7.7 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
7.8 Disposition of AFS Shares. Contemporaneous with Closing, NSL
shall have sold all shares of capital stock of AFS owned by NSL to M.B.
Johnston and C. De la Torre, at the book value as of the most recent month
preceding the Closing.
7.9 Regulatory Approval. Buyer or a Subsidiary of Buyer shall have
obtained the necessary regulatory approval to write nonstandard private
passenger automotive insurance in the State of Florida or have contracted with
another entity to enable it to write business that would be wholly or partially
reinsured with a Subsidiary or Subsidiaries of Buyer.
8.9 NSL Stockholders' Agreement. That certain Stockholders'
Agreement, dated December 14, 1993, by and among M.B. Johnston, C. De la Torre,
M. Johnston and NSL shall have been terminated by all of the shareholders of
NSL.
8.10 M&C Inspection Services, Inc. M&C Inspection Services, Inc.
shall have been liquidated or dissolved.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Seller, in whole or in part):
8.1 Accuracy of Representations. Each of Buyer's representations
and warranties in this Agreement must have been accurate in all material
respects as of the date of this Agreement,
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and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date, without giving effect to any supplement to the Buyer's
Disclosure Letter.
8.2 Buyer's Performance. Each of the covenants and obligations
that Buyer is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing must have been performed and complied with in all
material respects.
8.3 Consents. Each of the Consents identified in Part 3.2 of the
Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must have been
obtained and must be in full force and effect.
8.4 Additional Documents. Buyer must have caused the following
documents to be delivered to Seller:
(a) an opinion of Haynes and Boone, LLP, dated the Closing Date,
in the form agreed to by the parties; and
(b) such other documents as Seller may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 7.4(a), (ii) evidencing the accuracy of any representation or warranty
of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with by Buyer, (ii) evidencing the satisfaction of any condition referred to in
this Article VIII or (v) otherwise facilitating the consummation of any of the
Contemplated Transactions.
8.5 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Seller or any Person affiliated
with Seller to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
Governmental Body. Neither the consummation nor the performance of the
Contemplated Transactions will directly or indirectly violate an Order.
8.6 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
ARTICLE IX
TERMINATION
9.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
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(a) by either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived or such Breach has not been remedied within thirty
(30) days after written notice is given specifying the Breach and demanding it
to be remedied;
(b) (i) by Buyer if any of the conditions in Article VII has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition
on or before the Closing Date; or (ii) by Seller, if any of the conditions in
Article VIII has not been satisfied as of the Closing Date or if satisfaction
of such a condition is or becomes impossible (other than through the failure of
Seller to comply with their obligations under this Agreement) and Seller has
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1998, or such later date as the parties may agree upon; or
(e) (i) by Buyer if a material Breach of any provision of any of
the Purchase Agreements has been committed by any party other than Buyer
thereto and such Breach has not been waived or such Breach has not been
remedied within thirty (30) days after written notice is given specifying the
Breach and demanding it to be remedied, or (ii) by Buyer if any of the
conditions precedent to Buyer's obligation to close any of the Purchase
Agreements has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer has not
waived such condition on or before the Closing Date.
9.2 Effect of Termination. Each party's right of termination
under Section 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 11.1 and 11.3 will survive;
provided, however, that if this Agreement is terminated by a party because of
the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
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ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification Not Affected by Knowledge.
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter, the
certificates delivered pursuant to Section 2.5(a)(iv), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification and Payment of Damages by Seller. Seller will
indemnify and hold harmless Buyer, the Acquired Companies, and their respective
Representatives, shareholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements (without giving
effect to any supplement to the Disclosure Letter or any Disclosure Letter
delivered pursuant to the respective Purchase Agreements), the Disclosure
Letter, any Disclosure Letter delivered pursuant to the respective Purchase
Agreements, the supplements to the Disclosure Letter, the supplements to any
Disclosure Letter delivered pursuant to the respective Purchase Agreements, or
any other certificate or document delivered by Seller, the Companies, or any of
the Sellers under the respective Purchase Agreements or the Companies under
this Agreement or the respective Purchase Agreements;
(b) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements as if such
representation or warranty were made on and as of the Closing Date without
giving effect to any supplement to the Disclosure Letter or any Disclosure
Letter delivered pursuant to the respective Purchase Agreements, other than any
such Breach that is disclosed in a supplement to the Disclosure Letter or a
supplement to any Disclosure Letter delivered pursuant to the respective
Purchase Agreements and is expressly identified in the certificates delivered
pursuant to Section 2.5(a)(iv) or the corresponding section in each respective
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Purchase Agreement as having caused the condition specified in Section 7.1 or
the corresponding section in each respective Purchase Agreement not to be
satisfied;
(c) any Breach by Seller, each Seller under the respective
Purchase Agreements, NSL, DLT or Lalande of any covenant or obligation of
Seller, each Seller under the respective Purchase Agreements, NSL, DLT or
Lalande;
(d) any claim by any Person, other than Metis Financial LLC, for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with
Seller, each Seller under the respective Purchase Agreements, NSL, any other
NSL Acquired Company, DLT, any other DLT Acquired Company (as defined in the
respective Purchase Agreements), Lalande or any other Lalande Acquired Company
(as defined in the respective Purchase Agreements) (or any Person acting on
their behalf) in connection with any of the Contemplated Transactions; or
(e) any claim by any Person with respect to AFS;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 10.2
and 10.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 10.2 and 10.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller shall have no
obligation to make any payment, in the aggregate, to Indemnified Persons under
Sections 10.2 and 10.3 in excess of the Seller's proportional share of the
aggregate Purchase Price received by Seller and each Seller under the
respective Purchase Agreements pursuant to Article II of this Agreement and the
respective Purchase Agreements.
The remedies provided in this Section 10.2 will not be exclusive of or limit
any other remedies that may be available to Buyer or the other Indemnified
Persons.
10.3 Indemnification and Payment of Damages by Seller --
Environmental Matters. In addition to the provisions of Section 10.2, Seller
will indemnify and hold harmless Buyer, the Acquired Companies, and the other
Indemnified Persons for, and will pay to Buyer, the Acquired Companies, and the
other Indemnified Persons the amount of, any Damages (including costs of
cleanup, containment, or other remediation) arising, directly or indirectly,
from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out
of or relating to: (i) (A) the ownership, operation, or condition at any time
on or prior to the Closing Date of the Facilities or any other properties and
assets (whether real, personal, or mixed and whether tangible or intangible) in
which Seller, each Seller under the respective Purchase Agreements,
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any NSL Acquired Company, any DLT Acquired Company (as defined in the
respective Purchase Agreements) or any Lalande Acquired Company (as defined in
the respective Purchase Agreements) has or had an interest, or (B) any
Hazardous Materials or other contaminants that were present on the Facilities
or such other properties and assets at any time on or prior to the Closing
Date; or (ii) (A) any Hazardous Materials or other contaminants, wherever
located, that were, or were allegedly, generated, transported, stored, treated,
Released, or otherwise handled by Seller, each Seller under the respective
Purchase Agreements, any NSL Acquired Company, any DLT Acquired Company (as
defined in the respective Purchase Agreements) or any Lalande Acquired Company
(as defined in the respective Purchase Agreements) or by any other Person for
whose conduct they are or may be held responsible at any time on or prior to
the Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Seller, each Seller under the respective Purchase Agreements, any
NSL Acquired Company, any DLT Acquired Company (as defined in the respective
Purchase Agreements) or any Lalande Acquired Company (as defined in the
respective Purchase Agreements) or by any other Person for whose conduct they
are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death,
and regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of
Seller, each Seller under the respective Purchase Agreements, any NSL Acquired
Company, any DLT Acquired Company (as defined in the respective Purchase
Agreements), any Lalande Acquired Company (as defined in the respective
Purchase Agreements) or any other Person for whose conduct they are or may be
held responsible, in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Acquired Companies or any Acquired Company
under the respective Purchase Agreements prior to the Closing Date, or from
Hazardous Material that was (i) present or suspected to be present on or before
the Closing Date on or at the Facilities (or present or suspected to be present
on any other property, if such Hazardous Material emanated or allegedly
emanated from any of the Facilities and was present or suspected to be present
on any of the Facilities on or prior to the Closing Date) or (ii) Released or
allegedly Released by Seller, each Seller under the respective Purchase
Agreements, any NSL Acquired Company, any DLT Acquired Company (as defined in
the respective Purchase Agreements), any Lalande Acquired Company (as defined
in the respective Purchase Agreements) or any other Person for whose conduct
they are or may be held responsible, at any time on or prior to the Closing
Date;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 10.2
and 10.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 10.2 and 10.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller
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shall have no obligation to make any payment, in the aggregate, to Indemnified
Persons under Sections 10.2 and 10.3 in excess of the Seller's proportional
share of the aggregate Purchase Price received by Seller and each Seller under
the respective Purchase Agreements pursuant to Article II of this Agreement and
the respective Purchase Agreements.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.7 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Seller, and will pay to Seller the amount of any
Damages arising, directly or indirectly, from or in connection with
(a) any Breach of any representation or warranty made by Buyer in
this Agreement (without giving effect to any supplement to the Buyer's
Disclosure Letter), the Buyer's Disclosure Letter, the supplements to the
Buyer's Disclosure Letter, or any other certificate or document delivered by
Buyer pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Buyer in
this Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Buyer's Disclosure
Letter, other than any such Breach that is disclosed in a supplement to the
Buyer's Disclosure Letter and is expressly identified in the certificate
delivered pursuant to Section 2.5(b)(ii) as having caused the condition
specified in Section 8.1 not to be satisfied;
(c) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement;
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on
its behalf) in connection with any of the Contemplated Transactions; or
(e) payments owed to Seller pursuant to Section 2.3 hereof that
are not paid when due;
provided, however, that Buyer shall have no obligation to make any payment to
Seller under this Section 10.4 unless the aggregate amount to which Seller is
entitled by reason of all claims under this Section 10.4 and to any other
Seller (as defined in the respective Purchase Agreements) under the respective
Purchase Agreements exceeds $50,000 in the aggregate of all amounts collectible
under the Acquired Companies' errors and omissions policies, it being
understood that once such amount is exceeded, the aggregate of all claims under
this Section 10.4 and under corresponding sections of the Purchase Agreements
shall be payable by Buyer on demand.
The remedies provided in this Section 10.4 will not be exclusive of or limit
any other remedies that may be available to Seller.
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10.5 Time Limitations. If the Closing occurs, Seller will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.9, 3.11 and 3.17,
unless on or before the earlier of (i) the second anniversary of the Date for
the third Earnout Period or (ii) July 1, 2003, Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Section 3.3, 3.9, 3.11 or 3.17 or
a claim for indemnification or reimbursement not based upon any representation
or warranty or any covenant or obligation to be performed and complied with
prior to the Closing Date, may be made at any time. If the Closing occurs,
Buyer will have no liability (for indemnification or otherwise) with respect to
any representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before July 1, 2003,
Seller notifies Buyer of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Seller.
10.6 Right of Set-Off. Upon notice to Seller specifying in
reasonable detail the basis for such set-off, Buyer may set off any amount to
which it may be entitled under this Article X against amounts otherwise payable
to Seller under this Agreement or to any other Seller (as defined in the
respective Purchase Agreements) under the respective Purchase Agreements. The
exercise of such right of set-off by Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute a Breach of this
Agreement. Neither the exercise of nor the failure to exercise such right of
set-off shall constitute an election of remedies or limit Buyer in any manner
in the enforcement of any other remedies that may be available to it. Any
amount set-off pursuant to this Section 10.6 shall be considered a reduction in
the Purchase Price of that amount.
10.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section
10.2 or 10.4, or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement
of such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except and only to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes not related to the Acquired Companies, be entitled to
participate in such Proceeding with respect to the Acquired Companies and, to
the extent that it wishes (unless (i) the indemnifying party is also a party to
such Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the
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indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Article X for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding,
subsequently incurred by the indemnified party in connection with the defense
of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that
are paid in full by the indemnifying party; and (iii) the indemnified party
will have no liability with respect to any compromise or settlement of such
claims effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does
not, within ten days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made in
such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding,
but the indemnifying party will not be bound by any determination of a
Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
10.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
10.9 Reduction for Insurance, etc. The amount that Seller shall be
liable to pay to, for, or on behalf of an Indemnified Person pursuant to this
Article X or the amount that Buyer shall be liable to pay to, for or on behalf
of Seller pursuant to this Article X (either, an "Indemnifiable Loss") shall be
reduced (including without limitation, retroactively) by any insurance proceeds
actually recovered by or on behalf of such Indemnified Person or Seller, as
applicable (an "Indemnitee"), related to the Indemnifiable Loss. If an
Indemnitee shall have received or shall have had paid on its behalf an
indemnity payment in respect of an Indemnifiable Loss and shall subsequently
receive directly or indirectly insurance proceeds in respect of such
Indemnifiable Loss, then such Indemnitee shall pay to such indemnifying party
(the "Indemnifying Party") the net amount of such insurance proceeds or, if
less, the amount of such indemnity payment. An Indemnitee promptly shall, at
the sole expense of the Indemnifying Party, use all reasonable efforts to
recover insurance proceeds which may be due such Indemnitee. Any reduction to
an Indemnifiable Loss by reason of any insurance proceeds actually recovered
shall not reduce the
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maximum amount of liability for which the Indemnifying Party shall be obligated
pursuant to this Article X.
ARTICLE XI
GENERAL PROVISIONS
11.1 Expenses. Except as otherwise expressly provided in this
Agreement, the Acquired Companies shall be responsible for the obligations of
the Acquired Companies and Seller with regard to Metis Financial LLC and
expenses incurred in connection with the preparation and execution of this
Agreement and the Contemplated Transactions, including all fees, expenses of
agents, representatives, counsel, and accountants and the HSR Act filing fee.
Buyer shall be responsible for any obligations disclosed on Part 4.5 of the
Buyer's Disclosure Letter. In the event of termination of this Agreement, the
obligation of Buyer to pay such expenses will be subject to any rights of Buyer
arising from a breach of this Agreement by another party.
11.2 Public Announcements. Except as provided in the
Non-Disclosure Agreement, any public announcement or similar publicity with
respect to this Agreement or the Contemplated Transactions will be issued, if
at all, at such time and in such manner as Buyer determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing
Seller shall, and shall cause the Acquired Companies to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person other than any professional advisors of Seller. Seller and Buyer will
consult with each other concerning the means by which the Acquired Companies'
employees, customers, and suppliers and others having dealings with the
Acquired Companies will be informed of the Contemplated Transactions, and Buyer
will have the right to be present for any such communication.
11.3 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained
in confidence from another party or an Acquired Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of
the Contemplated Transactions, or (c) the furnishing or use of such information
is required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waives, and
will upon Buyer's request cause the Acquired Companies to waive, any cause of
action, right, or claim arising out of the access of Buyer or its
- 51 -
<PAGE> 52
representatives to any trade secrets or other confidential information of the
Acquired Companies except for the competitive misuse by Buyer of such trade
secrets or confidential information.
The terms of the Non-Disclosure Agreement shall continue to remain in
effect, and the parties thereto shall continue to be governed by its terms.
11.4 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
Seller:
Michael Johnston
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
Buyer:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
- 52 -
<PAGE> 53
NSL:
National Specialty Lines, Inc.
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Attention: McRae B. Johnston
Facsimile No.: (305) 222-1318
11.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Texas, County of Tarrant, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Texas, Fort Worth
Division, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in
the world.
11.6 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
11.7 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. The rights of Buyer and Seller
hereunder are in addition to all other rights provided by law. Neither the
failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
11.8 Entire Agreement and Modification. Except for the terms of
the Non-Disclosure Agreement, this Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the parties hereto.
- 53 -
<PAGE> 54
11.9 Disclosure Letter.
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
11.10 Assignments, Successors, and No Third-party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give
any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns. In the event Buyer assigns any of
its rights under this Agreement to any Subsidiary of Buyer and such Subsidiary
does not fulfill its obligations under this Agreement, Buyer shall assume and
fulfill such Subsidiary's obligations under this Agreement.
11.11 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
11.12 Article and Section Headings, Construction. The headings of
Articles and Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Article"
or "Articles" refer to the corresponding Article or Articles of this Agreement,
and all references to "Section" or "Sections" refer to the corresponding
Section or Sections of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word "including" does not limit the
preceding words or terms.
11.13 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
11.14 Governing Law. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.
- 54 -
<PAGE> 55
11.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11.16 Errors and Omissions Policies. Buyer shall use its Best
Efforts to cause the Acquired Companies to maintain the errors and omissions
policies of the Acquired Companies in effect as the date of this Agreement, or,
in the event that any of such errors and omissions policies are cancelled,
Buyer shall cause the Acquired Companies to purchase tail coverage per the
terms of such policies.
* * * * *
- 55 -
<PAGE> 56
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
---------------------------------------------
Michael Johnston
NATIONAL SPECIALTY LINES, INC.
By:
------------------------------------------
Name: McRae B. Johnston
Title: President
GAINSCO, INC.
By:
------------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
- 56 -
<PAGE> 57
EXHIBIT A
CAPITALIZATION OF COMPANY
NATIONAL SPECIALTY LINES, INC.
<TABLE>
<CAPTION>
Seller Number of Shares
------ ----------------
<S> <C>
C. De la Torre 10.0000
M.B. Johnston 10.0000
M. Johnston 1.0526
----------------
Total 21.0526
</TABLE>
- 57 -
<PAGE> 58
EXHIBIT B
EXAMPLE OF EARNOUT PAYMENTS
- 58 -
<PAGE> 59
FORM OF DISCLOSURE LETTER
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Ladies and Gentlemen:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), Michael
Johnston ("Seller"), and National Specialty Lines, Inc., a Florida corporation
("NSL"), pursuant to which Seller (as defined in the Agreement) is to sell and
Buyer is to purchase the Shares (as defined in the Agreement), as provided in
the Agreement.
This letter constitutes the Disclosure Letter referred to in the
Agreement. The representations and warranties of Seller and NSL in the
Agreement are made and given subject to the disclosures in this Disclosure
Letter. The disclosures in this Disclosure Letter are to be taken as relating
to the representations and warranties in the section of the Agreement to which
they expressly relate and to no other representation or warranty in the
Agreement.
Terms defined in the Agreement are used with the same meaning in this
Disclosure Letter. References to Appendices are to the Appendices to this
Disclosure Letter.
By reference to the Agreement (using the numbering in such
Agreement), the following matters are disclosed:
* * * * *
Very truly yours,
-----------------------------
Michael Johnston
- 59 -
<PAGE> 60
NATIONAL SPECIALTY LINES, INC.
By:
--------------------------------
Name: McRae B. Johnston
Title: President
- 60 -
<PAGE> 61
Buyer acknowledges receipt of the Disclosure Letter of which this is a
duplicate (including the Appendices referred to therein).
Dated:
--------------------------------------
GAINSCO, INC.
By:
-----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
- 61 -
<PAGE> 62
FORM OF BUYER'S DISCLOSURE LETTER
Michael Johnston
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Dear Mr. Johnston:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), Michael
Johnston ("Seller"), and National Specialty Lines, Inc., a Florida corporation
("NSL"), pursuant to which Seller (as defined in the Agreement) is to sell and
Buyer is to purchase the Shares (as defined in the Agreement), as provided in
the Agreement.
This letter constitutes the Buyer's Disclosure Letter referred to in
Article IV of the Agreement. The representations and warranties of the Buyer in
Article IV of the Agreement are made and given subject to the disclosures in
this Buyer's Disclosure Letter. The disclosures in this Buyer's Disclosure
Letter are to be taken as relating to the representations and warranties in the
section of the Agreement to which they expressly relate and to no other
representation or warranty in the Agreement.
Terms defined in the Agreement are used with the same meaning in this
Buyer's Disclosure Letter. References to Appendices are to the Appendices to
this Buyer's Disclosure Letter.
By reference to Article IV of the Agreement (using the numbering in
such Article), the following matters are disclosed:
Very truly yours,
GAINSCO, INC.
By:
-----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
- 62 -
<PAGE> 63
Seller acknowledges receipt of the Buyer's Disclosure Letter of which
this is a duplicate (including the Appendices referred to therein).
Dated:
-----------------------------------
-----------------------------------------
Michael Johnston
NATIONAL SPECIALTY LINES, INC.
By:
--------------------------------------
Name: McRae B. Johnston
Title: President
- 63 -
<PAGE> 64
EXHIBIT 2.5(a)(ii)
SELLER'S RELEASE
This Release is being executed and delivered in accordance with
Section 2.5(a)(ii) of the Stock Purchase Agreement dated _________, 1998 (the
"Agreement") among GAINSCO, INC., a Texas corporation ("Buyer"), Michael
Johnston ("Seller"), and National Specialty Lines, Inc., a Florida corporation
("NSL"). Capitalized terms used in this Release without definition have the
respective meanings given to them in the Agreement.
Seller acknowledges that execution and delivery of this Release is a
condition to Buyer's obligation to purchase the outstanding capital stock of
NSL pursuant to the Agreement and that Buyer is relying on this Release in
consummating such purchase.
Seller, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged and intending to be legally bound,
in order to induce Buyer to purchase the outstanding capital stock of NSL
pursuant to the Agreement, hereby agrees as follows:
Seller, on behalf of himself and each of his Related Persons, hereby
releases and forever discharges the Buyer, the Company, each of the other
Acquired Companies, and each of their respective individual, joint or mutual,
past, present and future Representatives, affiliates, shareholders, controlling
persons, Subsidiaries, successors and assigns (individually, a "Releasee" and
collectively, "Releasees") from any and all claims, demands, Proceedings,
causes of action, Orders, obligations, contracts, agreements, debts and
liabilities whatsoever, whether known or unknown, suspected or unsuspected,
both at law and in equity, which Seller or any of his respective Related
Persons now has, have ever had or may hereafter have against the respective
Releasees arising contemporaneously with or prior to the Closing Date or on
account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the Closing Date, including, but not limited
to, any rights to indemnification or reimbursement from any Acquired Company,
whether pursuant to their respective Organizational Documents, contract or
otherwise and whether or not relating to claims pending on, or asserted after,
the Closing Date; provided, however, that nothing contained herein shall
operate to release any obligations of Buyer arising under the Agreement.
Seller hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or
causing to be commenced, any proceeding of any kind against any Releasee, based
upon any matter purported to be released hereby.
Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, Seller, jointly and severally, shall indemnify and
hold harmless each Releasee from and against all loss, liability, claim, damage
(including incidental and consequential damages) or expense (including costs of
investigation and defense and reasonable attorney's fees) whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of Seller or any of his
Related Persons of any claim or other matter purported to be released pursuant
to this Release and (ii) the assertion by any third party of any
- 64 -
<PAGE> 65
claim or demand against any Releasee which claim or demand arises directly or
indirectly from, or in connection with, any assertion by or on behalf of Seller
or any of his Related Persons against such third party of any claims or other
matters purported to be released pursuant to this Release.
If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This Release shall
be governed by and construed under the laws of the State of Texas without
regard to principles of conflicts of law.
All words used in this Release will be construed to be of such gender
or number as the circumstances require.
IN WITNESS WHEREOF, each of the undersigned have executed and
delivered this Release as of this ___ day of _____________, 1998.
--------------------------------------
Michael Johnston
NATIONAL SPECIALTY LINES, INC.
By:
-----------------------------------
Name: McRae B. Johnston
Title: President
- 65 -
<PAGE> 66
EXHIBIT 2.5(a)(iii)
M. JOHNSTON EMPLOYMENT AGREEMENT
- 66 -
<PAGE> 1
EXHIBIT 99.9
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of August ___,
1998, by and among GAINSCO, INC., a Texas corporation ("Buyer"), Ralph Mayoral
("R. Mayoral" or "Seller"), and De La Torre Insurance Adjusters, Inc., a
Florida corporation ("DLT" or the "Company").
RECITALS
WHEREAS, R. Mayoral is the record and beneficial owner of 28.571
shares of common stock, $1.00 par value per share ("DLT Common Stock"), of DLT;
and
WHEREAS, R. Mayoral desires to sell, and Buyer desires to purchase,
all of the issued and outstanding shares of DLT Common Stock owned by R.
Mayoral (the "Shares"), for the consideration and on the terms set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements set forth and for other good and valuable consideration, the
adequacy, sufficiency and receipt of which are hereby acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"ACQUIRED COMPANY"--any of DLT or its Subsidiaries, and the term
"Acquired Companies" means DLT and its Subsidiaries, collectively.
"APPLICABLE CONTRACT"--any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"BEST EFFORTS"--the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was
<PAGE> 2
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including (a) the sale of the Shares by Seller to Buyer; (b)
the execution, delivery, and performance of the R. Mayoral Employment Agreement
and the Seller's Release; (c) the performance by Buyer, Seller and the Company
of their respective covenants and obligations under this Agreement; and (d)
Buyer's acquisition and ownership of the Shares and exercise of control over
the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to
Buyer concurrently with the execution and delivery of this Agreement.
"EMPLOYEE BENEFIT PLAN"--any "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined
in Section 3(1) of ERISA), "Multi-employer Plan" (as defined in Section 3(37)
of ERISA), plan of deferred compensation, medical plan, life insurance plan,
long-term disability plan, dental plan or other plan providing for the welfare
of any of DLT's employees or former employees or beneficiaries thereof (as
applicable), personnel policy (including but not limited to vacation time,
holiday pay, bonus programs, moving expense reimbursement programs and sick
leave), excess benefit plan, bonus or incentive plan (including but not limited
to stock options, restricted stock, stock bonus and deferred bonus plans),
salary reduction agreement, change-of-control agreement, employment agreement,
consulting agreement or any other benefit, program or contract.
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENTAL LAW"--the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Water Pollution Control Act, the
Safe Drinking Water Act, the Federal Clean Water Act, the Federal Clean Air
Act, the Federal Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Federal Solid Waste Disposal Act, the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Occupational Safety and Health Act, each as amended,
and all other environmental statutes enacted by any Governmental Body, and any
executive order, ordinances, rules or regulations promulgated under any of the
foregoing.
-2-
<PAGE> 3
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by any Acquired Company.
"GAAP"--United States generally accepted accounting principles,
applied on a basis consistent with the basis on which the DLT Balance Sheet and
the other financial statements referred to in Section 3.4 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY"--any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INSURANCE PERMIT"--any Governmental Authorization in any jurisdiction
to underwrite, place, sell or otherwise transact insurance or reinsurance, or
to engage in premium finance activities.
"INVESTMENT GUIDELINES"--a written statement of the current investment
programs, containing the investment policies and guidelines.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
- 3 -
<PAGE> 4
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course
of conducting a reasonable investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such
Person (or by any Person or group of Persons exercising similar authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any
amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN AFFILIATE"--with respect to any Person, any other person or
entity with whom the Person constitutes all or part of a controlled group, or
which would be treated with the Person as under common control or whose
employees would be treated as employed by the Person, under Section 414 of the
IRC and any regulations, administrative rulings and case law interpreting the
foregoing.
- 4 -
<PAGE> 5
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPRIETARY RIGHTS AGREEMENT"--any confidentiality, noncompetition,
or proprietary rights agreement.
"PURCHASE AGREEMENTS"--collectively, (a) that certain Stock Purchase
Agreement, dated the date hereof, by and among Buyer, McRae B. Johnston ("M.B.
Johnston"), National Specialty Lines, Inc., a Florida corporation ("NSL"), and
Lalande Financial Group, Inc., a Florida corporation ("Lalande"); (b) that
certain Stock Purchase Agreement, dated the date hereof, by and among Buyer,
Carlos De la Torre ("C. De la Torre"), Rosa De la Torre ("R. De la Torre" and,
together with C. De la Torre, the "De la Torres"), NSL, DLT, and Lalande; and
(c) that certain Stock Purchase Agreement, dated the date hereof, by and among
Buyer, Michael Johnston ("M. Johnston") and NSL.
"RELATED PERSON"--with respect to a particular individual, (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and (d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting power of a
Person or equity securities or other equity interests representing at least ten
percent (10%) of the outstanding equity securities or equity interests in a
Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
- 5 -
<PAGE> 6
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SUBSIDIARY"--with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct
the business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred) are held by the Owner or one or more of its
Subsidiaries.
"TAX"--any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
"YEAR 2000 COMPLIANT"--with respect to any item shall mean that such
item: (i) from now until January 1, 2000, must correctly operate, store,
process and produce data containing dates before January 1, 2000; (ii) from now
until January 1, 2000, must correctly operate, store, process and produce data
containing dates after December 31, 1999; (iii) from January 1, 2000, must
correctly operate, store, process and produce data containing dates before
January 1, 2000; (iv) from January 1, 2000, must correctly operate, store,
process and produce data containing dates after December 31, 1999; (v) must be
able to handle the date January 1, 2001 correctly; (vi) must recognize the year
2000 as a leap year (e.g., February 2000 is recognized as a valid date, Julian
date 00060 is recognized as February 29, 2000, Julian date 00366 is recognized
as December 31, 2000, arithmetic operations performed recognize that the year
2000 has 366 days and binary date 36584 is recognized as February 29, 2000);
(vii) must be able to correctly process
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<PAGE> 7
data containing the date September 9, 1999; (viii) must provide date data
century recognition correctly; (ix) must correctly accommodate calculations
with same century and multi-century formulas; (x) must correctly provide date
values and date data interface values that reflect the century; (xi) must be
able to correctly manage and manipulate data involving dates, including single
century and multi-century formulas and must not cause an abnormally ending
scenario within the application or result in the generation of incorrect values
involving such dates; (xii) must ensure that date-related user interface
functions and data fields correctly include the indication of the century; and
(xiii) must ensure that all date-related functions correctly include an
indication of the century. For purposes of this definition, "correctly" shall
mean accurately and without delay, corruption, interruption or error relating
to the time at which or the date on which such items are operating.
ARTICLE II
SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Seller will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Seller.
2.2 Purchase Price. The purchase price (the "Purchase Price") for
the Shares shall be (i) $795,600 in cash (the "Initial Purchase Price") plus
(ii) the payments made pursuant to Section 2.3 hereof, if any.
2.3 Earnout Payments.
(a) The terms below shall have the following respective meanings
for the purposes of this Section 2.3:
"ACQUIRED COMPANIES" means, for purposes of this Section 2.3,
NSL, DLT, Lalande, and their respective Subsidiaries, collectively,
and any business or businesses conducted by Buyer, or by any
subsidiaries or affiliated corporations of Buyer, that represent a
succession to and a continuation of the business conducted by NSL,
DLT, Lalande, and their respective subsidiaries, collectively, as the
same may be expanded or contracted from and after Closing.
"CHANGE OF CONTROL" means any of the following:
(1) any consolidation or merger of the Buyer in
which the Buyer is not the continuing or surviving corporation
or pursuant to which shares of the Buyer's common stock would
be converted into cash, securities or other property, other
than a merger of the Buyer in which the holders of the Buyer's
common stock immediately prior to the merger have the same
percentage ownership of common stock of the surviving
corporation immediately after the merger;
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<PAGE> 8
(2) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets or a majority of the
liabilities of the Buyer;
(3) any approval by the shareholders of the Buyer
of any plan or proposal for the liquidation or dissolution of
the Buyer;
(4) the cessation of control (by virtue of their
not constituting a majority of directors) of the Buyer's Board
of Directors by the individuals (the "Continuing Directors")
who (x) at the date of this Agreement were directors or (y)
become directors after the date of this Agreement and whose
election or nomination for election by the Buyer's
shareholders, was approved by a vote of at least two-thirds of
the directors then in office who were directors at the date of
this Agreement or whose election or nomination for election
was previously so approved;
(5) (A) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended ("Beneficial Ownership")) of
at least an aggregate of 20% of the voting power of the
Buyer's outstanding voting securities by any person or group
(as such term is used in Rule 13d-5 under such Act) who
Beneficially Owned less than 10% of the voting power of the
Buyer's outstanding voting securities on the date hereof, (B)
the acquisition of Beneficial Ownership of an additional 5% of
the voting power of the Buyer's outstanding voting securities
by any person or group who Beneficially Owned at least 10% of
the voting power of the Buyer's outstanding voting securities
on the date hereof, or (C) the execution by the Buyer and a
shareholder of a contract that by its terms grants such
shareholder (in its, hers or his capacity as a shareholder) or
such shareholder's Affiliate (as defined in Rule 405
promulgated under the Securities Act of 1933 (an "Affiliate"))
including, without limitation, such shareholder's nominee to
the Board of Directors (in its, hers or his capacity as an
Affiliate of such shareholder), the right to veto or block
decisions or actions of the Board of Directors; provided,
however, that notwithstanding the foregoing, the events
described in items (A), (B) or (C) above shall not constitute
a Change in Control hereunder if the shareholder is (aa) a
trustee or other fiduciary holding securities under an
employee benefit plan of the Buyer and acting in such
capacity, (bb) a corporation owned, directly or indirectly, by
the shareholders of the Buyer in substantially the same
proportions as their ownership of voting securities of the
Buyer or (cc) in the case of an acquisition described in items
(A) or (B) above, any other person whose acquisition of shares
of voting securities is approved in advance by a majority of
the Continuing Directors, unless such acquisition is greater
than 40% of the voting power of the Buyer's outstanding voting
securities; provided further, however that none of the
following shall constitute a Change in Control: (aa) the right
of the holders of any voting securities of the Buyer to vote
as a class on any matter or (bb) any vote required of
disinterested or unaffiliated directors or shareholders
including, without limitation, pursuant to Rule 16b-3
promulgated pursuant to the Securities Exchange Act of 1934;
or
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<PAGE> 9
(6) subject to applicable law, in a Chapter 11
bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Buyer to a case under
Chapter 7.
"CHANGE OF CONTROL TRIGGER" means, after a Change in Control,
a material change in the management direction and prospects of the
Acquired Companies in place immediately prior to the Change of
Control, including (i) a termination of C. De la Torre or M.B.
Johnston Without Cause or for Employer Breach, as defined in the
Employment Agreements of C. De la Torre and M.B. Johnston,
respectively; or (ii) a material reduction or restriction in the
territory for expansion of the Acquired Companies; or (iii) a material
change in the operating strategy of the Acquired Companies.
"COMPUTATION STATEMENT" means a statement setting forth in
reasonable detail Buyer's calculation of the Pre-Tax Earnings of the
Acquired Companies during the applicable Earnout Period and the
calculation of the Earnout Amount for such Earnout Period.
"EARNED PREMIUMS" means earned premiums as defined by
generally accepted accounting principles, consistently applied.
"EARNOUT CONSIDERATION" means $1,800,000.
"EARNOUT PERIOD" means the following periods, as applicable:
(i) the first Earnout Period will commence on the Integration Date
and will terminate one day prior to the first anniversary of the
Integration Date; (ii) the second Earnout Period will commence on the
first anniversary of the Integration Date and will terminate one day
prior to the second anniversary of the Integration Date; and (iii) the
third Earnout Period will commence on the second anniversary of the
Integration Date and will terminate one day prior to the third
anniversary of the Integration Date.
"EARNOUT RATIO" means, for each applicable Earnout Period, the
quotient of (i) the difference between (A) Pre-Tax Earnings for that
Earnout Period and (B) the Threshold Earnout Level for that Earnout
Period and (ii) the difference between (A) the Maximum Earnout Level
for that Earnout Period and (B) the Threshold Earnout Level for that
Earnout Period; provided, however, that in the event the Threshold
Earnout Level for such Earnout Period is equal to or exceeds the
Pre-Tax Earnings for the Earnout Period, the Earnout Ratio shall be
zero (0).
"INCURRED LOSSES AND LOSS ADJUSTMENT EXPENSES" means, for any
period, (A) case basis reserves plus losses incurred but not reported
("IBNR"), including development of losses for the applicable Earnout
Period, as of the end of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period,
plus (B) losses and Loss Adjustment Expenses paid during the period
and less (C) case basis reserves plus IBNR, including development of
losses for the applicable Earnout Period,
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<PAGE> 10
as of the beginning of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period.
"INTEGRATION DATE" means the earlier of (i) the first day of
the calendar quarter immediately following the date on which ninety
percent (90%) or more of the policies written by or through the
Acquired Companies are policies in force of Subsidiaries of Buyer or
(ii) July 1, 2000, if Buyer has not provided the ability or means to
enable ninety percent (90%) or more of direct and/or assumed policies
written by or through the Acquired Companies to be policies in force
of Subsidiaries of Buyer.
"LOSS ADJUSTMENT EXPENSES" means, for any period, expenses
incurred in the course of investigating and settling claims,
including, without limitation, legal and adjusters' fees and the costs
of paying claims and related expenses.
"LOSS RATIO" means, for any period, the quotient of (i)
Incurred Losses and Loss Adjustment Expenses for the period and (ii)
Earned Premiums for the period.
"MAXIMUM EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $11,000,000; (ii) for the second Earnout Period,
$16,000,000; and (iii) for the third Earnout Period, $22,000,000.
"MAXIMUM EARNOUT PAYMENT" means the following payments,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, 25% of the Earnout Consideration; (ii) for the second
Earnout Period, 25% of the Earnout Consideration; and (iii) for the
third Earnout Period, 50% of the Earnout Consideration.
"PAYMENT DATE" means the date sixty (60) days after the
termination of each Earnout Period (or the next succeeding business
day if such date is not a business day).
"PRE-TAX EARNINGS" means, for each Earnout Period, (a) the net
earnings, before all income taxes and interest expense, of Buyer and
its Subsidiaries, attributable to the operation of the Acquired
Companies, less (b) the amount of the Support Functions Reimbursement,
plus (c) investment income on initial imputed capital of $15,000,000,
effective as of the Integration Date, for such Earnout Period, less
(d) an annual imputed cost of capital charge based on the
then-outstanding prime rate at the beginning of each year plus 1% for
any incremental growth capital investments attributable to the
Acquired Companies. Such incremental capital will be based on capital
purchases and a ratio of 2.5 to 1 of (x) net written premiums to (y)
net book value less deferred acquisition costs, in accordance with
generally accepted accounting principles, consistently applied.
Pre-Tax Earnings shall be calculated (i) on the accrual basis of
accounting in accordance with generally accepted accounting principles
consistently applied and (ii) as though the Acquired Companies were a
single corporation with all of its shares owned by persons who are
neither directly nor indirectly related to Buyer.
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<PAGE> 11
"RATING REDUCTION" means the occurrence of a rating by A.M.
Best Company of Buyer's insurance companies, as a group, below A-
("Excellent").
"RELEASE DATE" means the date sixty (60) days after the
termination of each Release Period (or the next succeeding business
day if such date is not a business day).
"RELEASE PERIOD" means the following periods, as applicable:
(i) the first Release Period for the first Earnout Period will
commence one day after the termination date of the first Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the first Earnout Period will
commence one day after the first anniversary of the termination date
of the first Earnout Period and will terminate on the second
anniversary of such termination date; (ii) the first Release Period
for the second Earnout Period will commence one day after the
termination date of the second Earnout Period and will terminate on
the first anniversary of such termination date, and the second Release
Period for the second Earnout Period will commence one day after the
first anniversary of the termination date of the second Earnout Period
and will terminate on the second anniversary of such termination date;
and (iii) the first Release Period for the third Earnout Period will
commence one day after the termination date of the third Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the third Earnout Period will
commence one day after the first anniversary of the termination date
of the third Earnout Period and will terminate on the second
anniversary of such termination date.
"SELLERS' ADVISORY REPRESENTATIVE" means M.B. Johnston, acting
on behalf of himself, C. De la Torre, R. De la Torre, M. Johnston and
R. Mayoral, collectively, or any successor thereto appointed by
unanimous agreement of such persons who are not the Sellers' Advisory
Representative.
"SUBSEQUENT EARNOUT PAYMENT" means (i) the Maximum Earnout
Payment for that Earnout Period multiplied by (ii) the Earnout Ratio
for that Earnout Period.
"SUPPORT FUNCTIONS REIMBURSEMENT" means a monthly fee charged
to the Acquired Companies to cover Buyer's expenses in connection with
providing direct support functions, such as information systems
support, actuarial support, human resources support and accounting
support. In the event the Acquired Companies require special
attention for any unusual circumstance in any month, the monthly fee
may be increased for that month to reflect an amount Buyer reasonably
determines is the true cost to Buyer of providing management and
support functions to the Acquired Companies. In such case Buyer shall
provide, as part of its Computation Statement, the basis for such
increased monthly fee.
"THRESHOLD EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $6,000,000; (ii) for the second Earnout Period,
$8,000,000; and (iii) for the third Earnout Period, $10,000,000.
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<PAGE> 12
(b) Integration Consideration. Except as provided in this
Agreement, Buyer will deliver to Seller additional consideration (the
"Integration Consideration") for the Shares equal to $88,400 within thirty (30)
days after the Integration Date.
(c) Subsequent Earnout Payments.
(i) On the Payment Date for the first Earnout Period,
Buyer will deliver to Seller additional consideration (the "First
Earnout Period Subsequent Earnout Payment") for the Shares, equal to
the Subsequent Earnout Payment for the first Earnout Period multiplied
by 50%; provided, however, that the amount paid pursuant to this
clause (i) shall not exceed 50% of the Maximum Earnout Payment for the
first Earnout Period.
(ii) On the Payment Date for the second Earnout Period,
Buyer will deliver to Seller additional consideration (the "Second
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the second Earnout Period;
provided, however, that the amount paid pursuant to this clause (ii)
shall not exceed 50% of the Maximum Earnout Payment for the second
Earnout Period.
(iii) On the Payment Date for the third Earnout Period,
Buyer will deliver to Seller additional consideration (the "Third
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the third Earnout Period;
provided, however, that the amount paid pursuant to this clause (iii)
shall not exceed 50% of the Maximum Earnout Payment for the third
Earnout Period.
(iv) Delivery of Computation Statements. At the
conclusion of each Earnout Period, Buyer shall prepare a Computation
Statement for the Earnout Amount earned during such Earnout Period and
shall provide such Computation Statement to the Sellers' Advisory
Representative for his review and comments within forty-five (45) days
after the termination of such Earnout Period, with a copy thereof to
Metis Financial LLC. If, within thirty (30) days after delivery of
the Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Computation Statement shall be conclusive and binding on Seller. In
the event the Sellers' Advisory Representative gives Buyer such notice
of dispute within such 30-day period, Buyer shall pay any amounts due
hereunder that are not in dispute, and the Sellers' Advisory
Representative and Buyer will use their best efforts to settle the
dispute within 30 days after the giving of such notice. Any dispute
unresolved after such 30-day period shall be submitted to a national
public accounting firm satisfactory to the Sellers' Advisory
Representative and Buyer, or, in the absence of agreement on such
firm, to a panel of three public accounting firms, one designated by
the Sellers' Advisory Representative, one designated by Buyer and one
jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Seller is entitled to an Earnout Amount which exceeds the Earnout
Amount set forth on the applicable Computation Statement by an
aggregate
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<PAGE> 13
amount greater than ten percent (10%) of such Earnout Amount, Buyer
shall pay the cost of the arbitration. Otherwise, Seller shall pay
the cost of the arbitration. Buyer shall maintain books and records
for the Acquired Companies in a manner which will facilitate its
calculation of each Earnout Amount and the review by the Sellers'
Advisory Representative of each Computation Statement. Buyer shall
make available, at Buyer's offices during normal business hours, to
the Sellers' Advisory Representative and his attorneys, accountants
and other representatives for examination, such of its books of
account, contracts, licenses, leases, instruments, commitments, sale
orders, purchase orders, records, accountant's work papers and other
documents as are relevant to the preparation of the Computation
Statement.
(d) Retroactive Payments.
(i) First Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the first Earnout Period, Buyer will
deliver to Seller additional consideration (the
"First Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the first anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period x 75%) - First Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment and the
First Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the first Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the first Earnout Period and (ii) the
First Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the First Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the first Earnout Period, Buyer will deliver to Seller
additional consideration (the "First Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the second anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
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<PAGE> 14
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period) - First Earnout Period Subsequent Earnout Payment - First
Period Second Year Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment, the First
Period Second Year Payment and the First Period Third
Year Payment exceeds the Maximum Earnout Payment for
the first Earnout Period, Buyer shall only pay Seller
an amount equal to the (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment, unless
such amount is less than zero, in which case Buyer
shall pay no amount to Seller; and further provided
that if the First Period Third Year Payment is less
than zero, Seller shall pay the integral amount of
the First Period Third Year Payment to Buyer, not to
exceed the sum of (x) the First Earnout Period
Subsequent Earnout Payment and (y) the First Period
Second Year Payment.
The Future Earnout Amount for the First Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment less (iv)
the First Period Third Year Payment, unless such
amount is less than zero, in which case the Future
Earnout Amount for the First Earnout Period shall be
equal to zero.
(ii) Second Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the second Earnout Period, Buyer
will deliver to Seller additional consideration (the
"Second Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the first anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period x 75%) - Second Earnout Period Subsequent
Earnout Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment and the
Second Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the second Earnout
Period, Buyer shall only pay Seller an amount equal
to the difference between (i) 75% of the Maximum
Earnout Payment for the second Earnout Period and
(ii) the Second Earnout Period Subsequent Earnout
Payment, unless such amount is less than zero, in
which case Buyer shall pay no
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<PAGE> 15
amount to Seller; and further provided that if the
Second Period Second Year Payment is less than zero,
no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the second Earnout Period, Buyer will deliver to Seller
additional consideration (the "Second Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the second anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period) - Second Earnout Period Subsequent
Earnout Payment - Second Period Second Year Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment, the Second
Period Second Year Payment and the Second Period
Third Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the second Earnout Period and (y)
the Future Earnout Amount for the First Earnout
Period, Buyer shall only pay Seller an amount equal
to the (i) the Maximum Earnout Payment for the second
Earnout Period plus (ii) the Future Earnout Amount
for the First Earnout Period less (iii) the Second
Earnout Period Subsequent Earnout Payment less (iv)
the Second Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Second Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Second Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Second Earnout Period
Subsequent Earnout Payment and (y) the Second Period
Second Year Payment.
The Future Earnout Amount for the Second Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the second Earnout Period plus (ii) the
Future Earnout Amount for the First Earnout Period
less (iii) the Second Earnout Period Subsequent
Earnout Payment less (iv) the Second Period Second
Year Payment less (v) the Second Period Third Year
Payment, unless such amount is less than zero, in
which case the Future Earnout Amount for the Second
Earnout Period shall be equal to zero.
(iii) Third Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the third Earnout Period, Buyer will
deliver to Seller additional consideration (the
"Third Period Second Year Payment") for the Shares
equal to the:
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<PAGE> 16
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the first anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period x 75%) - Third Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment and the
Third Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the third Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the third Earnout Period and (ii) the
Third Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the Third Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the third Earnout Period, Buyer will deliver to Seller
additional consideration (the "Third Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the second anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period) - Third Earnout Period Subsequent Earnout Payment - Third
Period Second Year Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment, the Third
Period Second Year Payment and the Third Period Third
Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the third Earnout Period and (y)
the Future Earnout Amount for the Second Earnout
Period, Buyer shall only pay Seller an amount equal
to (i) the Maximum Earnout Payment for the third
Earnout Period plus (ii) the Future Earnout Amount
for the Second Earnout Period less (iii) the Third
Earnout Period Subsequent Earnout Payment less (iv)
the Third Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Third Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Third Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Third Earnout Period
Subsequent Earnout Payment and (y) the Third Period
Second Year Payment.
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<PAGE> 17
(iv) Delivery of Retroactive Computation Statements. At
the conclusion of each Release Period, Buyer shall prepare a
Retroactive Computation Statement for the Pre-Tax Earnings recomputed
for the applicable Earnout Period and shall provide such Retroactive
Computation Statement to the Sellers' Advisory Representative for his
review and comments within forty-five (45) days after the termination
of such Release Period, with a copy thereof to Metis Financial LLC.
If, within thirty (30) days after delivery of the Retroactive
Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Retroactive Computation Statement shall be conclusive and binding on
Seller. In the event the Sellers' Advisory Representative gives Buyer
such notice of dispute within such 30-day period, Buyer shall pay any
amounts due hereunder that are not in dispute, and the Sellers'
Advisory Representative and Buyer will use their best efforts to
settle the dispute within 30 days after the giving of such notice.
Any dispute unresolved after such 30-day period shall be submitted to
a national public accounting firm satisfactory to the Sellers'
Advisory Representative and Buyer, or, in the absence of agreement on
such firm, to a panel of three public accounting firms, one designated
by the Sellers' Advisory Representative, one designated by Buyer and
one jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Seller is entitled to the such disputed amount, Buyer shall pay the
cost of the arbitration. Otherwise, Seller shall pay the cost of the
arbitration. Buyer shall maintain books and records for the Acquired
Companies in a manner which will facilitate its recomputation of the
Pre-Tax Earnings applicable for each Earnout Period and the review by
the Sellers' Advisory Representative of each Retroactive Computation
Statement. Buyer shall make available, at Buyer's offices during
normal business hours, to the Sellers' Advisory Representative and his
attorneys, accountants and other representatives for examination, such
of its books of account, contracts, licenses, leases, instruments,
commitments, sale orders, purchase orders, records, accountant's work
papers and other documents as are relevant to the preparation of the
Retroactive Computation Statement.
(e) Change of Control. Notwithstanding anything in this Section
2.3 to the contrary, after a Change in Control of Buyer and in the event of a
Change of Control Trigger, Buyer will deliver to Seller additional compensation
for the Shares, in lieu of any further payments that may be required under this
Section 2.3 on or after the date of such Change of Control Trigger, as follows:
(i) If the Change of Control Trigger occurs prior to or
during the first Earnout Period, an amount equal to $506,250 plus the
greater of:
(A) the Subsequent Earnout Payment for the first
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the first Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
first Earnout Period;
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<PAGE> 18
provided, however, that such amount shall not exceed the
Maximum Earnout Payment for the first Earnout Period; or
(B) $168,750.
(ii) If the Change of Control Trigger occurs during the
second Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) $337,500 plus the greater of:
(A) the Subsequent Earnout Payment for the second
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the second Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
second Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the second Earnout Period and (y) the Future Earnout
Amount for the First Earnout Period; or
(B) $168,750.
(iii) If the Change of Control Trigger occurs during the
third Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) the greater of:
(A) the Subsequent Earnout Payment for the third
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the third Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
third Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the third Earnout Period and (y) the Future Earnout Amount
for the Second Earnout Period;
(B) $337,500; or
(C) the sum of all amounts earned by Seller
pursuant to this Section 2.3 attributable to the first two
Earnout Periods as recalculated in accordance with Section
2.3(d) as of the end of the last calendar quarter prior to the
date of the Change of Control Trigger, multiplied by 75%.
(iv) Buyer shall deliver the amount owed to Seller
pursuant to this Section 2.3(e) within sixty (60) days of the date of
the Change of Control Trigger.
(v) Any dispute, controversy or claim arising out of or
in relation to or connection to this Section 2.3(e), including without
limitation any dispute as to whether
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<PAGE> 19
a Change of Control Trigger has occurred, shall be exclusively and
finally settled by arbitration, and Buyer or the Sellers' Advisory
Representative (each, for the purpose of this Section 2.3(e)(v), a
"Party" and collectively, the "Parties") may submit such dispute,
controversy or claim to arbitration.
(A) Arbitrators. The arbitration shall be heard
and determined by one arbitrator, who shall be impartial and
who shall be selected by mutual agreement of the Parties;
provided, however, that if the dispute and any dispute under
corresponding provisions of any of the respective Purchase
Agreements involve, in the aggregate, more than $3,750,000,
then the arbitration shall be heard and determined by three
(3) arbitrators. If three (3) arbitrators are necessary as
provided above, then (i) each Party shall appoint an
arbitrator of its choice within thirty (30) days of the
submission of a notice of arbitration and (ii) the
Party-appointed arbitrators shall in turn appoint a presiding
arbitrator of the tribunal within thirty (30) days following
the appointment of the last Party-appointed arbitrator. If
(x) the Parties cannot agree on the sole arbitrator, (y) one
Party refuses to appoint its Party-appointed arbitrator within
said thirty (30) day period or (z) the Party-appointed
arbitrators cannot reach agreement on a presiding arbitrator
of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United
States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. If
the Senior United States District Judge for the Northern
District of Texas refuses or fails to act as the appointing
authority within ninety (90) days after being requested to do
so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall
appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. All
decisions and awards by the arbitration tribunal shall be made
by majority vote.
(B) Proceedings. Unless otherwise expressly
agreed in writing by the Parties to the arbitration
proceedings:
(1) The arbitration proceedings shall be
held in Fort Worth, Texas, at a site chosen by mutual
agreement of the Parties, or if the Parties cannot
reach agreement on a location within thirty (30) days
of the appointment of the last arbitrator, then at a
site chosen by the arbitrators;
(2) The arbitrators shall be and remain
at all times wholly independent and impartial;
(3) The arbitration proceedings shall be
conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, as amended from time to time;
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<PAGE> 20
(4) Any procedural issues not determined
under the arbitral rules selected pursuant to item
(3) above shall be determined by the law of the place
of arbitration, other than those laws which would
refer the matter to another jurisdiction;
(5) The costs of the arbitration
proceedings (including attorneys' fees and costs)
shall be borne in the manner determined by the
arbitrators;
(6) The decision of the arbitrators
shall be reduced to writing; final and binding
without the right of appeal; the sole and exclusive
remedy regarding any claims, counterclaims, issues or
accounting presented to the arbitrators; made and
promptly paid in United States dollars free of any
deduction or offset; and any costs or fees incident
to enforcing the award shall, to the maximum extent
permitted by law, be charged against the Person
resisting such enforcement;
(7) The award shall include interest
from the date of any breach or violation of this
Section 2.3(e), as determined by the arbitral award,
and from the date of the award until paid in full, at
5% per annum; and
(8) Judgment upon the award may be
entered in any court having jurisdiction over the
person or the assets of the Person owing the judgment
or application may be made to such court for a
judicial acceptance of the award and an order of
enforcement, as the case may be.
(f) After a Rating Reduction of Buyer, thirty (30) days after the
end of each quarter during each Earnout Period, Buyer shall place an amount
into an escrow account, such that the escrow account contains an amount equal
to the Subsequent Earnout Payment for such Earnout Period, as calculated
pursuant to Section 2.3(c) but based on the Pre-Tax Earnings of such quarter on
an annualized basis. The escrow agent shall then be responsible for all
payments under Sections 2.3(c) and (d). Buyer and Sellers shall, within 180
days after Closing, negotiate a form of an escrow agreement and use their Best
Efforts to identify a financial institution that would be willing to perform
the transactions contemplated by this Section 2.3(f). In the event that no
such financial institution is identified, Buyer and Sellers shall negotiate in
good faith to determine a mutually acceptable alternative.
(g) An example of the payments to be made pursuant to this Section
2.3 is attached hereto as Exhibit B. Such example is for illustrative purposes
only.
2.4 Closing. The purchase and sale (the "Closing") provided for
in this Agreement will take place at the offices of Haynes and Boone, LLP, at
201 Main Street, Suite 2200, Fort Worth, Texas, at 10:00 a.m. (local time) on a
date that is no later than five (5) days after all conditions to Closing have
been satisfied, or at such other time and place as the parties may agree.
Subject to the provisions of Article IX, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.4 will not
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<PAGE> 21
result in the termination of this Agreement and will not relieve any party of
any obligation under this Agreement.
2.5 Closing Obligations. At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed
(or accompanied by duly executed stock powers), for transfer to Buyer;
(ii) a release in the form of Exhibit 2.5(a)(ii) executed
by Seller ("Seller's Release");
(iii) an employment agreement in the form of Exhibit
2.5(a)(iii), executed by R. Mayoral ("R. Mayoral Employment
Agreement");
(iv) a certificate executed by Seller and the Company,
representing and warranting to Buyer that each of Seller's and the
Company's representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Disclosure
Letter delivered by Seller and the Company to Buyer prior to the
Closing Date in accordance with Section 5.5); and
(v) an opinion of Packman, Neuwahl & Rosenberg, P.A.,
dated the Closing Date, in the form agreed to by the parties.
(b) Buyer will deliver to Seller:
(i) $795,600 by wire transfer payable to the order of
Seller.
(ii) a certificate executed by Buyer, representing and
warranting to Seller that each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Buyer's Disclosure Letter prior to the Closing Date
in accordance with Section 6.4);
(iii) the R. Mayoral Employment Agreement, executed by
Buyer;
(iv) an opinion of Haynes and Boone, LLP, dated the
Closing Date, in the form agreed to by the parties; and
(v) the Interest due pursuant to Section 2.6 hereof.
2.6 Interest on Purchase Price. In the event that the Closing
Date does not occur within ninety (90) days of the date of this Agreement, for
any reason solely the fault of Buyer, Buyer
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<PAGE> 22
shall pay Seller interest on the Purchase Price, commencing on the 91st day
after the date of this Agreement and continuing to accrue until the Closing
Date, at an interest rate of five percent (5%) per annum (the "Interest"). The
Interest shall be payable at Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER AND DLT
Seller and DLT jointly and severally represent and warrant to Buyer as
follows:
3.1 Organization and Good Standing.
(a) Part 3.1 of the Disclosure Letter contains a complete and
accurate list, for DLT and each Subsidiary of DLT (DLT, together with each
Subsidiary of DLT, collectively referred to herein as the "DLT Acquired
Companies"), of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each shareholder and the number of shares held by
each). Each DLT Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each DLT Acquired Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification. No jurisdiction, other than those listed in Part 3.1 of the
Disclosure Letter, has claimed, in writing, that any DLT Acquired Company is
required to hold a Governmental Authorization, and none of the DLT Acquired
Companies files or is required to file any Tax Returns in any other
jurisdiction.
(b) Seller has delivered to Buyer copies of the Organizational
Documents of each DLT Acquired Company, as currently in effect.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of DLT and Seller, enforceable against DLT and Seller in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity. Upon the execution and
delivery by Seller of the R. Mayoral Employment Agreement and the Seller's
Release (collectively, the "Seller's Closing Documents"), the Seller's Closing
Documents will constitute the legal, valid, and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Seller has all right, power, authority, and capacity to
execute and deliver this Agreement and the Seller's
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<PAGE> 23
Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents. DLT has all corporate right, power and authority
to execute and deliver this Agreement and to perform its obligations under this
Agreement.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the DLT Acquired Companies; (ii) conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any DLT Acquired Company or
Seller, or any of the assets owned or used by any DLT Acquired Company, may be
subject; (iii) conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, suspend,
terminate, or modify, any Governmental Authorization that is held by any DLT
Acquired Company or that otherwise relates to the business of, or any of the
assets owned or used by, any DLT Acquired Company; (iv) conflict with, or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; or (v) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by any DLT Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, neither
Seller nor any DLT Acquired Company is or will be required to give any notice
to or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 Capitalization. The authorized equity securities of DLT
consist of 500 shares of common stock, $1.00 par value per share, of which
228.571 shares are issued and outstanding. The ownership of DLT is as set
forth on Exhibit A hereto. Seller is and will be on the Closing Date the
record and beneficial owner and holder of 28.571 shares of DLT Common Stock,
free and clear of all Encumbrances. DLT has no other class or series of
capital stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any DLT Acquired
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the DLT
Acquired Companies. With the exception of the shares listed on Exhibit A
hereto, all of the outstanding equity securities and other securities of each
DLT Acquired Company are owned of record and beneficially by one or more of the
DLT Acquired Companies, free and clear of all Encumbrances.
Except as set forth in Part 3.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any DLT Acquired Company. All of the
outstanding equity securities of each DLT Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no
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<PAGE> 24
Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of any DLT Acquired Company. None of the outstanding equity
securities or other securities of any DLT Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. No DLT Acquired
Company owns, or has any Contract to acquire, any equity securities or other
securities of any Person (other than DLT Acquired Companies) or any direct or
indirect equity or ownership interest in any other business. Except as set
forth in Part 3.3 of the Disclosure Letter, there are no restrictions upon the
voting or transfer of, or the declaration or payment of any dividend or
distribution on, any shares of capital stock of any DLT Acquired Company.
3.4 Financial Statements. Seller has delivered to Buyer: (a)
unaudited balance sheets of the DLT Acquired Companies as of December 31 in
each of the years 1995 and 1996, and the related unaudited statements of
income for each of the fiscal years then ended and (b) an unaudited balance
sheet of the DLT Acquired Companies as of December 31, 1997 (including the
notes thereto, the "DLT Balance Sheet"), and the related unaudited statements
of income for the fiscal year then ended. Sellers shall deliver to Buyer at
least fifteen (15) days prior to Closing: (a) audited balance sheets of the DLT
Acquired Companies as of December 31 in each of the years 1996 and 1997, and
the related audited statements of income, changes in shareholders' equity and
cash flows for each of the fiscal years then ended and (b) a reviewed balance
sheet of the DLT Acquired Companies as of July 31, 1998 (the "DLT Interim
Balance Sheet") and the related reviewed statements of income, changes in
shareholders' equity and cash flows for the seven (7) months then ended,
including in each case the notes thereto. Such financial statements and notes
fairly present the financial condition and the results of operations of the DLT
Acquired Companies at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP, subject, in the case
of interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the DLT Balance Sheet); the financial
statements referred to in this Section 3.4 reflect the consistent application
of such accounting principles throughout the periods involved, except as
disclosed in the notes to such financial statements. No financial statements of
any Person other than the DLT Acquired Companies are required by GAAP to be
included in the financial statements of DLT.
3.5 Books and Records. The books of account, minute books, stock
record books, and other records of the DLT Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
DLT Acquired Companies contain accurate and complete records of all meetings
held of, and corporate action taken by, the shareholders, the Boards of
Directors, and committees of the Boards of Directors of the DLT Acquired
Companies, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the DLT Acquired Companies.
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<PAGE> 25
3.6 Title to Properties; Encumbrances. Part 3.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any DLT Acquired Company. Seller has
delivered or made available to Buyer copies of the deeds and other instruments
(as recorded) by which the DLT Acquired Companies acquired such real property
and interests, and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Seller or the DLT Acquired Companies and
relating to such property or interests. The Acquired Companies own (with good
and marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that they purport
to own located in the facilities owned or operated by the DLT Acquired
Companies or reflected as owned in the books and records of the DLT Acquired
Companies, including all of the properties and assets reflected in the DLT
Balance Sheet and the DLT Interim Balance Sheet (except for personal property
sold since the date of the DLT Balance Sheet and the DLT Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the DLT Acquired
Companies since the date of the DLT Balance Sheet (except for personal property
acquired and sold since the date of the DLT Balance Sheet in the Ordinary
Course of Business and consistent with past practice), which subsequently
purchased or acquired properties and assets (other than short-term investments)
are listed in Part 3.6 of the Disclosure Letter. All material properties and
assets reflected in the DLT Balance Sheet and the DLT Interim Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature.
3.7 Accounts Receivable. All accounts receivable of the DLT
Acquired Companies that are reflected on the DLT Balance Sheet or the DLT
Interim Balance Sheet or on the accounting records of the DLT Acquired
Companies as of the Closing Date (collectively, the "DLT Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the DLT Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on
the DLT Balance Sheet or the DLT Interim Balance Sheet or on the accounting
records of the DLT Acquired Companies as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the DLT Accounts Receivable as of the Closing Date than the reserve with
respect to the DLT Accounts Receivable as reflected in the DLT Interim Balance
Sheet and will not represent a material adverse change in the composition of
such DLT Accounts Receivable in terms of aging). Subject to such reserves, each
of the DLT Accounts Receivable either has been or, to the Knowledge of DLT and
Seller, will be collected in full, without any set-off, within ninety days
after the day on which it first becomes due and payable. There is no contest,
claim, or right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of a DLT Accounts Receivable
relating to the amount or validity of such DLT Accounts Receivable. Part 3.7 of
the Disclosure Letter contains a complete and accurate list of all DLT Accounts
Receivable as of the date of the DLT Interim Balance Sheet, which list sets
forth the aging of such DLT Accounts Receivable.
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<PAGE> 26
3.8 No Undisclosed Liabilities. Except as set forth in Part 3.8
of the Disclosure Letter, the DLT Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the DLT Balance Sheet or the DLT
Interim Balance Sheet and current liabilities incurred in the Ordinary Course
of Business since the respective dates thereof.
3.9 Taxes.
(a) The DLT Acquired Companies or Seller, as applicable, have
filed or caused to be filed (on a timely basis since 1995) all Tax Returns that
are or were required to be filed by or with respect to any of the DLT Acquired
Companies, pursuant to applicable Legal Requirements. Seller has delivered or
made available to Buyer copies of, and Part 3.9 of the Disclosure Letter
contains a complete and accurate list of, all such Tax Returns filed since
January 1, 1995. The DLT Acquired Companies or Seller, as applicable, have
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Seller or any DLT Acquired Company, except such Taxes,
if any, as are listed in Part 3.9 of the Disclosure Letter and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the DLT Balance Sheet and the DLT
Interim Balance Sheet.
(b) Part 3.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 3.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 3.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any DLT Acquired Company or Seller for all taxable years since 1995 with
respect to or that are directly or indirectly related to any DLT Acquired
Company, and the resulting deficiencies proposed by the IRS. Except as
described in Part 3.9 of the Disclosure Letter, neither Seller nor any DLT
Acquired Company has given or been requested to give waivers or extensions (or
is or would be subject to a waiver or extension given by any other Person) of
any statute of limitations relating to the payment of Taxes of, with respect
to, or that are directly or indirectly related to any DLT Acquired Company or
for which Seller or any DLT Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to, or that
are directly or indirectly related to, Taxes on the respective books of each
DLT Acquired Company are adequate (determined in accordance with GAAP) and are
at least equal to that DLT Acquired Company's liability for Taxes. There exists
no proposed tax assessment against any DLT Acquired Company or Seller with
respect to or that is directly or indirectly related to any DLT Acquired
Company except as disclosed in the DLT Balance Sheet or in Part 3.9 of the
Disclosure Letter. All Taxes with respect to or that are directly or indirectly
related to any DLT Acquired Company that any DLT Acquired Company or Seller is
or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
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(d) All Tax Returns filed by any DLT Acquired Company or by Seller
with respect to or that are directly or indirectly related to any DLT Acquired
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by any DLT Acquired Company after the date of this
Agreement. Each DLT Acquired Company is an "S" corporation (or a Qualified
Subchapter S Subsidiary, as the case may be), and DLT has had a valid "S"
corporation election in effect under Section 1362(a) of the IRC since January
1, 1996. During the consistency period (as defined in Section 338(h)(4) of the
IRC with respect to the sale of the Shares to Buyer), no DLT Acquired Company
or target affiliate (as defined in Section 338(h)(6) of the IRC with respect to
the sale of the Shares to Buyer) has sold or will sell any property or assets
to Buyer or to any member of the affiliated group (as defined in Section
338(h)(5) of the IRC) that includes Buyer. Part 3.9 of the Disclosure Letter
lists all such target affiliates.
3.10 No Material Adverse Change. Since the date of the DLT Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any DLT Acquired
Company, and no event has occurred or circumstance exists that may result in
such a material adverse change.
3.11 Employee Benefit Plans. Except as set forth in Part 3.11 of
the Disclosure Letter, neither DLT nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in DLT or such Plan Affiliate having any material debt, liability,
claim or obligation of any kind or nature, whether accrued, absolute,
contingent, direct, indirect, known or unknown, perfected or inchoate or
otherwise and whether or not due or to become due. Correct and complete copies
of all Employee Benefit Plans of DLT previously have been furnished to Buyer.
The Employee Benefit Plans of DLT are in compliance in all material respects
with governing documents and agreements and with applicable laws. There has
not been any act or omission by DLT under ERISA or the terms of the Employee
Benefit Plans of DLT, or any other applicable law or agreement which could give
rise to any liability of DLT, whether under ERISA, the IRC or other laws or
agreements. Neither DLT nor any Plan Affiliate maintains or contributes to, or
has maintained or contributed to, any Employee Benefit Plan subject to Title IV
of ERISA.
3.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 3.12 of the Disclosure Letter,
each DLT Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any
of its assets.
(b) Part 3.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any DLT
Acquired Company or that otherwise relates to the business of, or to any of the
assets owned or used by, any DLT Acquired Company. Each Governmental
Authorization listed or required to be listed in Part 3.12 of the Disclosure
Letter is valid and in full force and effect. Each DLT Acquired Company owns or
possesses all right, title and interest in and to all of the Governmental
Authorizations that are necessary to enable it
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to carry on the business of such DLT Acquired Company as presently conducted.
Each DLT Acquired Company has taken all necessary action to maintain such
Governmental Authorizations. No loss or expiration of any such Governmental
Authorization is threatened, pending or, to the Knowledge of DLT and Seller,
reasonably foreseeable. The consummation of the transactions contemplated
hereby will not result in the suspension, modification, cancellation,
revocation or nonrenewal of any such Governmental Authorization. Except for
compliance with periodic renewal procedures, no approvals or authorizations are
required to permit the DLT Acquired Companies to continue their business as
presently conducted, following the Closing.
(c) Except as set forth in Part 3.12 of the Disclosure Letter,
each of the DLT Acquired Companies has filed all material reports, statements,
registrations, applications, filings or other documents and submissions
required to be filed with, or provided to any Governmental Body. Except as set
forth in Part 3.12 of the Disclosure Letter, all such reports, statements,
registrations, applications, filings, documents and submissions were in
compliance in all material respects with all applicable Legal Requirements when
filed, and no material deficiencies have been asserted by any Governmental Body
with respect thereto.
3.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
DLT Acquired Company or that otherwise relates to or may affect the business
of, or any of the assets owned or used by, any DLT Acquired Company; or (ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
To the Knowledge of Seller and DLT, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding not in
the Ordinary Course of Business of the DLT Acquired Companies. Seller has
delivered to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.13 of the Disclosure Letter. The
Proceedings listed in Part 3.13 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of any DLT Acquired Company.
(b) Except as set forth in Part 3.13 of the Disclosure Letter: (i)
there is no Order to which any of the DLT Acquired Companies, or any of the
assets owned or used by any DLT Acquired Company, is subject; and (ii) each DLT
Acquired Company is, and at all times since January 1, 1995 has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject.
3.14 Absence of Certain Changes and Events. Except as set forth in
Part 3.14 of the Disclosure Letter, since the date of the DLT Balance Sheet,
the DLT Acquired Companies have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in any DLT Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any DLT Acquired Company;
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issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
any DLT Acquired Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Organizational Documents of any DLT Acquired
Company;
(c) payment or increase by any DLT Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any DLT
Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any DLT Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the DLT Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to any DLT Acquired Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any DLT Acquired Company or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of any DLT Acquired
Company, including the sale, lease, or other disposition of any of the DLT
Intellectual Property Assets (as defined in Section 3.20)
(h) cancellation or waiver of any claims or rights with a value to
any DLT Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any DLT
Acquired Company;
(j) agreement, whether oral or written, by any DLT Acquired
Company to do any of the foregoing; or
(k) change in its business or claims adjustment policies and
practices or any change in any activity that (i) has had the effect of
accelerating the recording and billing of accounts receivable or delaying the
payment of expenses in connection with the business or any material accounts of
any of the DLT Acquired Companies or (ii) has had the effect of materially
altering, modifying or changing the historic financial or accounting practices
or policies of any of the DLT Acquired Companies, including accruals of and
reserves for Taxes.
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3.15 Contracts; No Defaults.
(a) Part 3.15(a) of the Disclosure Letter contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies, of
all the material Contracts of each DLT Acquired Company. Part 3.15(a) of the
Disclosure Letter sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining
commitment of the DLT Acquired Companies under the Contracts, and the DLT
Acquired Companies' office where details relating to the Contracts are located.
(b) Except as set forth in Part 3.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 3.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 3.15(c) of the Disclosure Letter:
(i) each DLT Acquired Company is, and at all times since
January 1, 1995 has been, in full compliance with all applicable terms
and requirements of each Contract under which such DLT Acquired
Company has or had any obligation or liability or by which such DLT
Acquired Company or any of the assets owned or used by such DLT
Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an DLT Acquired Company has
or had any rights is, and at all times since January 1, 1995 has been,
in full compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any DLT Acquired Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
(iv) no DLT Acquired Company has given to or received from
any other Person, at any time since January 1, 1995, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
(d) The Contracts relating to the sale or provision of services by
the DLT Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
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3.16 Insurance.
(a) Seller has delivered to Buyer true and complete copies of all
policies of insurance to which any DLT Acquired Company is a party or under
which any DLT Acquired Company, or any director of any DLT Acquired Company, is
or has been covered at any time within the three (3) years preceding the date
of this Agreement;
(b) Part 3.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy in the possession of Seller or
any of the DLT Acquired Companies. DLT and Sellers have no Knowledge of any
loss experience that would affect future potential insurability with respect to
such policies.
(c) Except as set forth in Part 3.16(c) of the Disclosure Letter:
(i) All policies to which any DLT Acquired Company is a
party or that provide coverage to any DLT Acquired Company or any
director or officer of an DLT Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the DLT Acquired
Companies for all risks to which the DLT Acquired Companies are
normally exposed; (C) are sufficient for compliance with all Legal
Requirements and Contracts to which any DLT Acquired Company is a
party or by which any of them is bound; and (D) will continue in full
force and effect following the consummation of the Contemplated
Transactions.
(ii) No DLT Acquired Company has received (A) any refusal
of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The DLT Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any DLT Acquired Company is a party or that
provides coverage to any DLT Acquired Company or director thereof.
(iv) The DLT Acquired Companies have given notice to the
insurer of all claims that may be insured thereby.
3.17 Environmental Matters. Except as set forth in Part 3.17 of
the Disclosure Letter, to the Knowledge of Seller and DLT, each of the DLT
Acquired Companies is in compliance with all Environmental Laws, the failure to
comply with which could have a Material Adverse Effect. Neither Seller nor any
of the DLT Acquired Companies has received notice of any material violation by
any of the DLT Acquired Companies of, or material default by the same under,
any Environmental Law, and neither Seller nor DLT has any Knowledge of any
existing facts or
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circumstances that are likely to result in any such violation or default.
There is no action, suit, claim, proceeding or investigation pending or, to the
Knowledge of Seller and DLT, threatened against any of the DLT Acquired
Companies that alleges or would allege any violation of any Environmental Law.
3.18 Employees.
(a) Part 3.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
DLT Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and,
with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any DLT Acquired
Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other Employee Benefit Plan or
any Director Plan.
(b) No employee or director of any DLT Acquired Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement, between such employee or director and any other
Person that in any way adversely affects or will affect (i) the performance of
his duties as an employee or director of the DLT Acquired Companies, or (ii)
the ability of any DLT Acquired Company to conduct its business, including any
Proprietary Rights Agreement with Seller or the DLT Acquired Companies by any
such employee or director. To Seller's and DLT's Knowledge, no director,
officer, or other key employee of any DLT Acquired Company intends to terminate
his employment with such DLT Acquired Company.
(c) Part 3.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the DLT Acquired Companies, or their dependents, receiving benefits
or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
3.19 Labor Relations; Compliance. Except as set forth on Part 3.19
of the Disclosure Letter, since January 1, 1995, no DLT Acquired Company has
been or is a party to any collective bargaining or other labor Contract. Since
January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of DLT and Seller, there is not Threatened, (a)
any strike, slowdown, picketing, work stoppage, lockout or employee grievance
process, (b) any Proceeding against or affecting any DLT Acquired Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters or (c) any application for certification of a
collective bargaining agent. Each DLT Acquired Company has complied in all
respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining and occupational safety and health. No DLT Acquired Company is
liable for the payment of any
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compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.20 Intellectual Property.
(a) Each DLT Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 3.20(a) of the Disclosure
Letter (the "DLT Intellectual Property Assets"), (ii) neither owns nor uses any
such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each DLT Acquired
Company owns, or possesses adequate and enforceable rights to use without
payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such DLT Acquired Company.
(b) Except as set forth in Part 3.20(b) of the Disclosure Letter,
DLT has no Knowledge nor has received any notice to the effect that any service
it or any other DLT Acquired Company provides or sells, or any process or
method it employs in its business for the use by it or another of any such
service, may infringe, or is in conflict with, any asserted right of another.
There is no pending or Threatened claim or litigation action against any DLT
Acquired Company contesting its right to use or the validity of any of the DLT
Intellectual Property Assets or asserting its misuse of any of the foregoing,
which would deprive it of the right to assert its rights thereunder or which
would prevent the sale of any service provided or sold by it.
(c) Each DLT Acquired Company has established a strategic plan and
provided Buyer with an accurate and complete copy of such plan and a schedule
of the amount of capital and resources reasonably believed to be necessary to
institute software systems such that each DLT Acquired Company will be Year
2000 Compliant upon the completion of such plan.
3.21 Certain Payments. Since January 1, 1995, no DLT Acquired
Company or director, officer, agent, or employee of any DLT Acquired Company,
or any other Person associated with or acting for or on behalf of any DLT
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any DLT Acquired Company or any affiliate of an DLT Acquired Company, or (iv)
in violation of any Legal Requirement or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the DLT
Acquired Companies.
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3.22 Disclosure.
(a) No representation or warranty of Seller or DLT in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Seller or DLT that has specific
application to Seller or any DLT Acquired Company (other than general economic
or industry conditions) and that materially adversely affects or, as far as
Seller or DLT can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the DLT
Acquired Companies (on a consolidated basis) that has not been set forth in
this Agreement or the Disclosure Letter.
3.23 Relationships with Related Persons. Except as set forth in
Part 3.23 of the Disclosure Letter, neither Seller nor any Related Person of
Seller or of any DLT Acquired Company has, or since January 1, 1996 has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to the DLT Acquired Companies'
businesses. Except as set forth in Part 3.23 of the Disclosure Letter, neither
Seller nor any Related Person of Seller or of any DLT Acquired Company is, or
since January 1, 1996, has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i)
had business dealings or a material financial interest in any transaction with
any DLT Acquired Company, or (ii) engaged in competition with any DLT Acquired
Company with respect to any line of the products or services of such DLT
Acquired Company ("DLT Competing Business") in any market presently served by
such DLT Acquired Company. Except as set forth in Part 3.23 of the Disclosure
Letter, neither Seller nor any Related Person of Seller or of any DLT Acquired
Company is a party to any Contract with, or has any claim or right against, any
DLT Acquired Company.
3.24 Investments. Part 4.24 of the Disclosure Letter contains a
true and complete list of all securities and other investments owned by each of
the DLT Acquired Companies as of the end of the most recent calendar month,
including the date of purchase, book value or amortized cost, market value and
carrying value thereof on the books and records of account of such Persons as
of such date. Except as set forth in Part 4.24 of the Disclosure Letter, none
of the securities and other investments owned by such Persons is in default in
the payment of principal or interest or dividends.
3.25 Bank Accounts. Part 3.25 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the DLT Acquired Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
3.26 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, Seller, each DLT Acquired Company and their agents have
incurred no obligation or liability,
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contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Texas.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. Upon the execution and delivery by Buyer
of the R. Mayoral Employment Agreement, the R. Mayoral Employment Agreement
will constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Buyer has all corporate right, power, and authority to
execute and deliver this Agreement and the R. Mayoral Employment Agreement and
to perform its obligations under this Agreement and the R. Mayoral Employment
Agreement.
(b) Except as set forth in Part 4.2 of the Buyer's Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time) (i) conflict
with, or result in a violation of any provision of the Organizational Documents
of Buyer; (ii) conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Buyer, or any of the assets owned
or used by Buyer, may be subject; (iii) conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, suspend, terminate, or modify, any Insurance Permit or other
Governmental Authorization that is held by Buyer or that otherwise relates to
the business of, or any of the assets owned or used by, Buyer; (iv) conflict
with, or result in a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or (v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Buyer.
Except as set forth in Part 4.2 of the Buyer's Disclosure Letter,
Buyer is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the
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execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
4.3 Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.4 Certain Proceedings. There is no pending Proceeding that has
been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
4.5 Brokers or Finders. Except as set forth in Part 4.5 of the
Buyer's Disclosure Letter, Buyer and its officers and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
4.6 Loss Reserves. The Loss Reserves (as defined below) of the
wholly-owned subsidiaries of GAINSCO that are insurance companies (the "GAINSCO
Insurance Subsidiaries"), as set forth in the most recent unaudited
consolidated balance sheet of GAINSCO (the "GAINSCO Balance Sheet"), net of
reinsurance recoverables (other than intercompany reinsurance), are fairly
stated in the GAINSCO Balance Sheet in accordance with generally accepted
actuarial standards and principles. For the purpose of this Section 4.6, "Loss
Reserves" means all reserves for all losses and loss adjustment expenses,
including, without limitation, case reserves, reserves for loss adjustment
expenses, both allocated and unallocated, reserves for incurred but not
reported losses and loss adjustment expenses, and otherwise determined in
accordance with those generally accepted actuarial standards and principles
applied in determining such Loss Reserves reflected in the GAINSCO Balance
Sheet.
4.7 Disclosure.
(a) No representation or warranty of Buyer in this Agreement and
no statement in the Buyer's Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Buyer that has specific application
to Buyer (other than general economic or industry conditions) and that
materially adversely affects or, as far as Buyer can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of Buyer (on a consolidated basis) that has not been set
forth in this Agreement or the Buyer's Disclosure Letter.
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ARTICLE V
COVENANTS OF SELLER AND THE COMPANY AT OR PRIOR TO CLOSING DATE
5.1 Access and Investigation. Subject to the terms of that certain
Non-Disclosure Agreement, dated June 15, 1998, from M.B. Johnston, the De la
Torres, M. Johnston and R. Mayoral to Buyer (the "Non-Disclosure Agreement"),
between the date of this Agreement and the Closing Date, Seller and the Company
will, and will cause each DLT Acquired Company and its Representatives to, (a)
afford Buyer and its Representatives (collectively, "Buyer's Advisors") full
and free access to each DLT Acquired Company, its personnel, properties,
contracts, books and records, and all other documents and data, (b) furnish
Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
5.2 Operation of the Businesses of the DLT Acquired Companies.
Between the date of this Agreement and the Closing Date, Seller and the Company
will, and will cause each DLT Acquired Company to:
(a) conduct the business of such DLT Acquired Company only in the
Ordinary Course of Business and in accordance with all valid regulations, laws
and orders of all Governmental Bodies;
(b) use their Best Efforts to preserve intact the current business
organization of such DLT Acquired Company, keep available the services of the
current officers, employees, and agents of such DLT Acquired Company, and
maintain the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with
such DLT Acquired Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report from time to time to Buyer concerning the
status of the business, operations, and finances of such DLT Acquired Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement or disclosed in the Disclosure Letter, between the date of this
Agreement and the Closing Date, Seller and the Company will not, and will cause
each DLT Acquired Company not to, without the prior consent of Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.14 is likely to occur.
5.4 Required Approvals. As promptly as practicable after the date
of this Agreement, Seller will, and will cause each DLT Acquired Company to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing Date, Seller will, and
will cause each DLT Acquired Company to, (a) cooperate with Buyer with respect
to all filings that Buyer elects to make or is required by Legal Requirements
to make in connection with the Contemplated Transactions and (b) cooperate with
Buyer in obtaining all consents identified in Part 4.2 of the Buyer's
Disclosure Letter (including taking all actions requested by Buyer to cause
early termination of any applicable waiting period under the HSR Act).
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5.5 Notification. Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller or any DLT
Acquired Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller's or the Company's representations and
warranties as of the date of this Agreement, or if Seller or any DLT Acquired
Company becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Disclosure Letter if the Disclosure Letter were dated the
date of the occurrence or discovery of any such fact or condition, Seller will
promptly deliver to Buyer a supplement to the Disclosure Letter specifying such
change. During the same period, Seller will promptly notify Buyer of the
occurrence of any Breach of any covenant of Seller or the Company in this
Article V or of the occurrence of any event that may make the satisfaction of
the conditions in Article VII impossible or unlikely. No notice given pursuant
to this Section 5.5 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein or in this Agreement, in
light of the circumstances in which they were made, not misleading.
5.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, Seller will cause all indebtedness owed
to an DLT Acquired Company by Seller or any Related Person of any Seller to be
paid in full contemporaneous with Closing.
5.7 Best Efforts. Between the date of this Agreement and the
Closing Date, Seller will use their Best Efforts to cause the conditions in
Articles VII and VIII to be satisfied.
5.8 Certain Indebtedness.
(a) Contemporaneous with Closing, each DLT Acquired Company shall
pay, and Seller shall cause each DLT Acquired Company to pay, any indebtedness
owed by any DLT Acquired Company to Agents Financial Services, Inc., a Florida
corporation ("AFS"), in full.
(b) Contemporaneous with Closing, all indebtedness owed by AFS to
any DLT Acquired Company shall be paid in full.
5.9 Audited Financial Statements of DLT. At least 15 days prior
to Closing, Seller shall provide Buyer with audited consolidated balance sheets
of the DLT Acquired Companies as of December 31, 1996 and 1997, and the related
consolidated statements of income. Such financial statements and notes will
fairly present the financial condition and the results of operations, changes
in shareholders' equity, and cash flow of the DLT Acquired Companies at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP and will reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements.
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7.10 Reviewed Financial Statements of the Acquired Companies.
Seller shall deliver the financial statements as required by Section 3.4.
7.11 M&C Inspection Services, Inc.. At or prior to Closing, C. De
la Torre and R. De la Torre shall execute all documents necessary to dissolve
or liquidate M&C Inspection Services, Inc.
ARTICLE VI
COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 Approvals of Governmental Bodies. As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions (including all filings under the HSR Act). Between the date of
this Agreement and the Closing Date, Buyer will (a) cooperate with Seller with
respect to all filings that Seller elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions and (b)
cooperate with Seller in obtaining all consents identified in Part 4.2 of the
Buyer's Disclosure Letter; provided that this Agreement will not require Buyer
to dispose of or make any change in any portion of its business or to incur any
other burden to obtain a Governmental Authorization.
6.2 Best Efforts. Except as set forth in the proviso to Section
6.1, between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Articles VII and VIII to be
satisfied.
6.3 Access. Between the date of this Agreement and the Closing
Date, Buyer shall provide to Seller responses to the Seller's reasonable due
diligence requests.
6.4 Notification. Between the date of this Agreement and the
Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Buyer's representations and warranties as of the date of this Agreement, or if
Buyer becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Buyer's Disclosure Letter if the Buyer's Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, Buyer will promptly deliver to Seller a supplement to the Buyer's
Disclosure Letter specifying such change. During the same period, Buyer will
promptly notify Seller of the occurrence of any Breach of any covenant of Buyer
in this Article VI or of the occurrence of any event that may make the
satisfaction of the conditions in Article VIII impossible or unlikely. No
notice given pursuant to this Section 6.4 will contain any untrue statement or
omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading.
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ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
7.1 Accuracy of Representations. Each of Seller's and the
Company's representations and warranties in this Agreement must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter.
7.2 Seller's Performance. Each of the covenants and obligations
that Seller and the Company are required to perform or to comply with pursuant
to this Agreement at or prior to the Closing must have been duly performed and
complied with in all material respects.
7.3 Consents. Each of the Consents identified in Part 3.2 of the
Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must have been
obtained and must be in full force and effect.
7.4 Additional Documents. Each of the following documents must
have been delivered to Buyer:
(a) an opinion of Packman, Neuwahl & Rosenberg, P.A., dated the
Closing Date, in the form agreed to by the parties;
(b) estoppel certificates executed on behalf of all landlords,
lenders and lessors of the Acquired Companies, dated as of a date not more than
five (5) days prior to the Closing Date;
(c) executed stock purchase agreements, pursuant to which Buyer
shall obtain all of the outstanding shares of capital stock of NSL and Lalande.
(d) if applicable, wire transfer instructions concerning the
amount to be transferred to Seller pursuant to Section 2.5(b)(i); and
(e) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any of Seller's and DLT's
representations and warranties, (iii) evidencing the performance by Seller and
DLT of, or the compliance by Seller and DLT with, any covenant or obligation
required to be performed or complied with by Seller and DLT, (iv) evidencing
the satisfaction of any condition referred to in this Article VII or (v)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
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7.5 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies or (b)
is entitled to all or any portion of the Purchase Price payable for the Shares.
7.6 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable
Legal Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental
Body. Neither the consummation nor the performance of the Contemplated
Transactions will directly or indirectly violate an Order.
7.7 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
7.8 Disposition of AFS Shares. Contemporaneous with Closing, NSL
shall sell all shares of capital stock of AFS owned by NSL to M.B. Johnston and
C. De la Torre, at the book value as of the most recent month preceding the
Closing.
7.10 Regulatory Approval. Buyer or a Subsidiary of Buyer shall have
obtained the necessary regulatory approval to write nonstandard private
passenger automotive insurance in the State of Florida or have contracted with
another entity to enable it to write business that would be wholly or partially
reinsured with a Subsidiary or Subsidiaries of Buyer.
7.11 NSL Stockholders' Agreement. That certain Stockholders'
Agreement, dated December 14, 1993, by and among M.B. Johnston, C. De la Torre,
M. Johnston and NSL shall have been terminated by all of the shareholders of
NSL.
7.12 M&C Inspection Services, Inc. M&C Inspection Services, Inc.
shall have been liquidated or dissolved.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Seller, in whole or in part):
8.1 Accuracy of Representations. Each of Buyer's representations
and warranties in this Agreement must have been accurate in all material
respects as of the date of this Agreement,
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and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date, without giving effect to any supplement to the Buyer's
Disclosure Letter.
8.2 Buyer's Performance. Each of the covenants and obligations
that Buyer is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing must have been performed and complied with in all
material respects.
8.3 Consents. Each of the Consents identified in Part 3.2 of the
Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must have been
obtained and must be in full force and effect.
8.4 Additional Documents. Buyer must have caused the following
documents to be delivered to Seller:
(a) an opinion of Haynes and Boone, LLP, dated the Closing Date,
in the form agreed to by the parties; and
(b) such other documents as Seller may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 7.4(a), (ii) evidencing the accuracy of any representation or warranty
of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with by Buyer, (ii) evidencing the satisfaction of any condition referred to in
this Article VIII or (v) otherwise facilitating the consummation of any of the
Contemplated Transactions.
8.5 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Seller or any Person affiliated
with Seller to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
Governmental Body. Neither the consummation nor the performance of the
Contemplated Transactions will directly or indirectly violate an Order.
8.6 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
ARTICLE IX
TERMINATION
9.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
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(a) by either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived or such Breach has not been remedied within thirty
(30) days after written notice is given specifying the Breach and demanding it
to be remedied;
(b) (i) by Buyer if any of the conditions in Article VII has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition
on or before the Closing Date; or (ii) by Seller, if any of the conditions in
Article VIII has not been satisfied as of the Closing Date or if satisfaction
of such a condition is or becomes impossible (other than through the failure of
Seller to comply with their obligations under this Agreement) and Seller has
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1998, or such later date as the parties may agree upon; or
(e) (i) by Buyer if a material Breach of any provision of any of
the Purchase Agreements has been committed by any party other than Buyer
thereto and such Breach has not been waived or such Breach has not been
remedied within thirty (30) days after written notice is given specifying the
Breach and demanding it to be remedied, or (ii) by Buyer if any of the
conditions precedent to Buyer's obligation to close any of the Purchase
Agreements has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer has not
waived such condition on or before the Closing Date.
9.2 Effect of Termination. Each party's right of termination
under Section 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 11.1 and 11.3 will survive;
provided, however, that if this Agreement is terminated by a party because of
the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
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ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification Not Affected by Knowledge.
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter, the
certificates delivered pursuant to Section 2.5(a)(iv), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification and Payment of Damages by Seller. Seller will
indemnify and hold harmless Buyer, the Acquired Companies, and their respective
Representatives, shareholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements (without giving
effect to any supplement to the Disclosure Letter), the Disclosure Letter, any
Disclosure Letter delivered pursuant to the respective Purchase Agreements, the
supplements to the Disclosure Letter, the supplements to any Disclosure Letter
delivered pursuant to the respective Purchase Agreements, or any other
certificate or document delivered by Seller, NSL, DLT, Lalande or any of the
Sellers under this Agreement or under the respective Purchase Agreements;
(b) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements as if such
representation or warranty were made on and as of the Closing Date without
giving effect to any supplement to the Disclosure Letter or any Disclosure
Letter delivered pursuant to the respective Purchase Agreements, other than any
such Breach that is disclosed in a supplement to the Disclosure Letter or a
supplement to any Disclosure Letter delivered pursuant to the respective
Purchase Agreements and is expressly identified in the certificate delivered
pursuant to Section 2.5(a)(iv) or the corresponding section in each Purchase
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Agreement as having caused the condition specified in Section 7.1 or the
corresponding section in each respective Purchase Agreement not to be
satisfied;
(c) any Breach by Seller, each Seller under the respective
Purchase Agreements, NSL, DLT or Lalande of any covenant or obligation of
Seller, each Seller under the respective Purchase Agreements, NSL, DLT or
Lalande in this Agreement;
(d) any claim by any Person, other than Metis Financial LLC, for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with
Seller, NSL, any other NSL Acquired Company (as defined in the respective
Purchase Agreements), DLT, any other DLT Acquired Company, Lalande or any other
Lalande Acquired Company (as defined in the respective Purchase Agreements) (or
any Person acting on their behalf) in connection with any of the Contemplated
Transactions; or
(e) any claim by any Person with respect to AFS;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 10.2
and 10.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 10.2 and 10.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller shall have no
obligation to make any payment, in the aggregate, to Indemnified Persons under
Sections 10.2 and 10.3 in excess of the Seller's proportional share of the
aggregate Purchase Price received by Seller and each Seller under the
respective Purchase Agreements pursuant to Article II of this Agreement and the
respective Purchase Agreements.
The remedies provided in this Section 10.2 will not be exclusive of or limit
any other remedies that may be available to Buyer or the other Indemnified
Persons.
10.3 Indemnification and Payment of Damages by Seller --
Environmental Matters. In addition to the provisions of Section 10.2, Seller
will indemnify and hold harmless Buyer, the Acquired Companies, and the other
Indemnified Persons for, and will pay to Buyer, the Acquired Companies, and the
other Indemnified Persons the amount of, any Damages (including costs of
cleanup, containment, or other remediation) arising, directly or indirectly,
from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out
of or relating to: (i) (A) the ownership, operation, or condition at any time
on or prior to the Closing Date of the Facilities or any other properties and
assets (whether real, personal, or mixed and whether tangible or intangible) in
which Seller, each Seller under the respective Purchase Agreements,
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any DLT Acquired Company, any NSL Acquired Company (as defined in the
respective Purchase Agreements) or any Lalande Acquired Company (as defined in
the respective Purchase Agreements) has or had an interest, or (B) any
Hazardous Materials or other contaminants that were present on the Facilities
or such other properties and assets at any time on or prior to the Closing
Date; or (ii) (A) any Hazardous Materials or other contaminants, wherever
located, that were, or were allegedly, generated, transported, stored, treated,
Released, or otherwise handled by Seller, each Seller under the respective
Purchase Agreements, any NSL Acquired Company, (as defined in the respective
Purchase Agreements), any DLT Acquired Company or any Lalande Acquired Company
(as defined in the respective Purchase Agreements) or by any other Person for
whose conduct they are or may be held responsible at any time on or prior to
the Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Seller, each Seller under the respective Purchase Agreements, any
DLT Acquired Company, any NSL Acquired Company (as defined in the respective
Purchase Agreements) or any Lalande Acquired Company (as defined in the
respective Purchase Agreements) or by any other Person for whose conduct they
are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death,
and regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of
Seller, each Seller under the respective Purchase Agreements, any DLT Acquired
Company, any NSL Acquired Company (as defined in the respective Purchase
Agreements), any Lalande Acquired Company (as defined in the respective
Purchase Agreements) or any other Person for whose conduct they are or may be
held responsible, in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Acquired Companies or any Acquired Company
under the respective Purchase Agreements prior to the Closing Date, or from
Hazardous Material that was (i) present or suspected to be present on or before
the Closing Date on or at the Facilities (or present or suspected to be present
on any other property, if such Hazardous Material emanated or allegedly
emanated from any of the Facilities and was present or suspected to be present
on any of the Facilities on or prior to the Closing Date) or (ii) Released or
allegedly Released by Seller, each Seller under the respective Purchase
Agreements, any DLT Acquired Company, any NSL Acquired Company (as defined in
the respective Purchase Agreements), any Lalande Acquired Company (as defined
in the respective Purchase Agreements) or any other Person for whose conduct
they are or may be held responsible, at any time on or prior to the Closing
Date;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 10.2
and 10.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 10.2 and 10.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller
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shall have no obligation to make any payment, in the aggregate, to Indemnified
Persons under Sections 10.2 and 10.3 in excess of the Seller's proportional
share of the aggregate Purchase Price received by Seller and each Seller under
the respective Purchase Agreements pursuant to Article II of this Agreement and
the respective Purchase Agreements.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.7 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Seller, and will pay to Seller the amount of any
Damages arising, directly or indirectly, from or in connection with
(a) any Breach of any representation or warranty made by Buyer in
this Agreement (without giving effect to any supplement to the Buyer's
Disclosure Letter), the Buyer's Disclosure Letter, the supplements to the
Buyer's Disclosure Letter, or any other certificate or document delivered by
Buyer pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Buyer in
this Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Buyer's Disclosure
Letter, other than any such Breach that is disclosed in a supplement to the
Buyer's Disclosure Letter and is expressly identified in the certificate
delivered pursuant to Section 2.5(b)(ii) as having caused the condition
specified in Section 9.1 not to be satisfied;
(c) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement;
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on
its behalf) in connection with any of the Contemplated Transactions; or
(e) payments owed to Seller pursuant to Section 2.3 hereof that
are not paid when due;
provided, however, that Buyer shall have no obligation to make any payment to
Seller under this Section 10.4 unless the aggregate amount to which Seller is
entitled by reason of all claims under this Section 10.4 and to any other
Seller (as defined in the respective Purchase Agreements) under the respective
Purchase Agreements exceeds $50,000 in the aggregate of all amounts collectible
under the Acquired Companies' errors and omissions policies, it being
understood that once such amount is exceeded, the aggregate of all claims under
this Section 10.4 and under corresponding sections of the Purchase Agreements
shall be payable by Buyer on demand.
The remedies provided in this Section 10.4 will not be exclusive of or limit
any other remedies that may be available to Seller.
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10.5 Time Limitations. If the Closing occurs, Seller will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.9, 3.11 and 3.17,
unless on or before the earlier of (i) the second anniversary of the Date for
the third Earnout Period or (ii) July 1, 2003, Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Section 3.3, 3.9, 3.11 and 3.17,
or a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time. If the
Closing occurs, Buyer will have no liability (for indemnification or otherwise)
with respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, unless on or before July
1, 2003, Seller notifies Buyer of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Seller.
10.6 Right of Set-Off. Upon notice to Seller specifying in
reasonable detail the basis for such set-off, Buyer may set off any amount to
which it may be entitled under this Article XI against amounts otherwise
payable to Seller under this Agreement or to any other Seller (as defined in
the respective Purchase Agreements) under the respective Purchase Agreements.
The exercise of such right of set-off by Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute a Breach of this
Agreement. Neither the exercise of nor the failure to exercise such right of
set-off shall constitute an election of remedies or limit Buyer in any manner
in the enforcement of any other remedies that may be available to it. Any
amount set-off pursuant to this Section 10.6 shall be considered a reduction in
the Purchase Price of that amount.
10.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section
10.2 or 10.4, or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement
of such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except and only to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes not related to the Acquired Companies, be entitled to
participate in such Proceeding with respect to the Acquired Companies and, to
the extent that it wishes (unless (i) the indemnifying party is also a party to
such Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its
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<PAGE> 49
election to assume the defense of such Proceeding, the indemnifying party will
not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Article X for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, subsequently
incurred by the indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If the indemnifying
party assumes the defense of a Proceeding, (i) it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that
are paid in full by the indemnifying party; and (iii) the indemnified party
will have no liability with respect to any compromise or settlement of such
claims effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does
not, within ten days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made in
such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding,
but the indemnifying party will not be bound by any determination of a
Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
10.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
10.9 Reduction for Insurance, etc. The amount that Seller shall be
liable to pay to, for, or on behalf of an Indemnified Person pursuant to this
Article X or the amount that Buyer shall be liable to pay to, for or on behalf
of Seller pursuant to this Article X (either, an "Indemnifiable Loss") shall be
reduced (including without limitation, retroactively) by any insurance proceeds
actually recovered by or on behalf of such Indemnified Person or Seller, as
applicable (an "Indemnitee"), related to the Indemnifiable Loss. If an
Indemnitee shall have received or shall have had paid on its behalf an
indemnity payment in respect of an Indemnifiable Loss and shall subsequently
receive directly or indirectly insurance proceeds in respect of such
Indemnifiable Loss, then such Indemnitee shall pay to such indemnifying party
(the "Indemnifying Party") the net amount of such insurance proceeds or, if
less, the amount of such indemnity payment. An Indemnitee promptly shall, at
the sole expense of the Indemnifying Party, use all reasonable efforts to
recover insurance proceeds which may be due such Indemnitee. Any reduction to
an Indemnifiable Loss by reason of any insurance proceeds actually recovered
shall not reduce the maximum amount of liability for which the Indemnifying
Party shall be obligated pursuant to this Article X.
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<PAGE> 50
ARTICLE XI
GENERAL PROVISIONS
11.1 Expenses. Except as otherwise expressly provided in this
Agreement, the Acquired Companies shall be responsible for the obligations of
the Acquired Companies and Seller with regard to Metis Financial LLC and
expenses incurred in connection with the preparation and execution of this
Agreement and the Contemplated Transactions, including all fees, expenses of
agents, representatives, counsel, and accountants and the HSR Act filing fee.
Buyer shall be responsible for any obligations disclosed on Part 4.5 of the
Buyer's Disclosure Letter. In the event of termination of this Agreement, the
obligation of Buyer to pay such expenses will be subject to any rights of Buyer
arising from a breach of this Agreement by another party.
11.2 Public Announcements. Except as provided in the
Non-Disclosure Agreement, any public announcement or similar publicity with
respect to this Agreement or the Contemplated Transactions will be issued, if
at all, at such time and in such manner as Buyer determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing
Seller shall, and shall cause the Acquired Companies to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person, other than any professional advisors of Seller. Seller and Buyer will
consult with each other concerning the means by which the Acquired Companies'
employees, customers, and suppliers and others having dealings with the
Acquired Companies will be informed of the Contemplated Transactions, and Buyer
will have the right to be present for any such communication.
11.3 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained
in confidence from another party or an Acquired Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of
the Contemplated Transactions, or (c) the furnishing or use of such information
is required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waives, and
will upon Buyer's request cause the Acquired Companies to waive, any cause of
action, right, or claim arising out of the access of Buyer or its
- 50 -
<PAGE> 51
representatives to any trade secrets or other confidential information of the
Acquired Companies except for the competitive misuse by Buyer of such trade
secrets or confidential information.
The terms of the Non-Disclosure Agreement shall continue to remain in
effect, and the parties thereto shall continue to be governed by its terms.
11.4 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
Seller:
Ralph Mayoral
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
Buyer:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
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<PAGE> 52
DLT:
De La Torre Insurance Adjusters, Inc.:
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Attention: Carlos De la Torre
Facsimile No.: (305) 222-1318
11.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Texas, County of Tarrant, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Texas, Fort Worth
Division, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in
the world.
11.6 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
11.7 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. The rights of Buyer and Seller
hereunder are in addition to all other rights provided by law. Neither the
failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
11.8 Entire Agreement and Modification. Except for the terms of
the Non-Disclosure Agreement, this Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the parties hereto.
- 52 -
<PAGE> 53
11.9 Disclosure Letter.
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
11.10 Assignments, Successors, and No Third-party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give
any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns. In the event Buyer assigns any of
its rights under this Agreement to any Subsidiary of Buyer and such Subsidiary
does not fulfill its obligations under this Agreement, Buyer shall assume and
fulfill such Subsidiary's obligations under this Agreement.
11.11 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
11.12 Article and Section Headings, Construction. The headings of
Articles and Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Article"
or "Articles" refer to the corresponding Article or Articles of this Agreement,
and all references to "Section" or "Sections" refer to the corresponding
Section or Sections of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word "including" does not limit the
preceding words or terms.
11.13 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
11.14 Governing Law. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.
- 53 -
<PAGE> 54
11.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11.16 Errors and Omissions Policies. Buyer shall use its Best
Efforts to cause the Acquired Companies to maintain the errors and omissions
policies of the Acquired Companies in effect as the date of this Agreement, or,
in the event that any of such errors and omissions policies are cancelled,
Buyer shall cause the Acquired Companies to purchase tail coverage per the
terms of such policies.
* * * * *
- 54 -
<PAGE> 55
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
--------------------------------------------
Ralph Mayoral
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-----------------------------------------
Name: Carlos De la Torre
Title: President
GAINSCO, INC.
By:
-----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
- 55 -
<PAGE> 56
EXHIBIT A
CAPITALIZATION OF COMPANY
DE LA TORRE INSURANCE ADJUSTERS, INC.
<TABLE>
<CAPTION>
Seller Number of Shares
------ ----------------
<S> <C>
De la Torres 200.000
R. Mayoral 28.571
----------------
Total 228.571
</TABLE>
- 56 -
<PAGE> 57
EXHIBIT B
EXAMPLE OF EARNOUT PAYMENTS
- 57 -
<PAGE> 58
FORM OF DISCLOSURE LETTER
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Ladies and Gentlemen:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), Ralph
Mayoral ("Seller"), and De La Torre Insurance Adjusters, Inc., a Florida
corporation ("DLT"), pursuant to which Seller is to sell and Buyer is to
purchase the Shares (as defined in the Agreement), as provided in the
Agreement.
This letter constitutes the Disclosure Letter referred to in the
Agreement. The representations and warranties of Seller and DLT in the
Agreement are made and given subject to the disclosures in this Disclosure
Letter. The disclosures in this Disclosure Letter are to be taken as relating
to the representations and warranties in the section of the Agreement to which
they expressly relate and to no other representation or warranty in the
Agreement.
Terms defined in the Agreement are used with the same meaning in this
Disclosure Letter. References to Appendices are to the Appendices to this
Disclosure Letter.
By reference to the Agreement (using the numbering in such
Agreement), the following matters are disclosed:
* * * * *
Very truly yours,
----------------------------------
Ralph Mayoral
- 58 -
<PAGE> 59
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-----------------------------------------
Name: Carlos De la Torre
Title: President
- 59 -
<PAGE> 60
Buyer acknowledges receipt of the Disclosure Letter of which this is a
duplicate (including the Appendices referred to therein).
Dated:
--------------------------------------
GAINSCO, INC.
By:
-----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
- 60 -
<PAGE> 61
FORM OF BUYER'S DISCLOSURE LETTER
Ralph Mayoral
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Dear Mr. Mayoral:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), Ralph
Mayoral ("Seller"), and De La Torre Insurance Adjusters, Inc., a Florida
corporation ("DLT"), pursuant to which Seller is to sell and Buyer is to
purchase the Shares (as defined in the Agreement), as provided in the
Agreement.
This letter constitutes the Buyer's Disclosure Letter referred to in
Article IV of the Agreement. The representations and warranties of the Buyer in
Article IV of the Agreement are made and given subject to the disclosures in
this Buyer's Disclosure Letter. The disclosures in this Buyer's Disclosure
Letter are to be taken as relating to the representations and warranties in the
section of the Agreement to which they expressly relate and to no other
representation or warranty in the Agreement.
Terms defined in the Agreement are used with the same meaning in this
Buyer's Disclosure Letter. References to Appendices are to the Appendices to
this Buyer's Disclosure Letter.
By reference to Article IV of the Agreement (using the numbering in
such Article), the following matters are disclosed:
* * * * *
Very truly yours,
GAINSCO, INC.
By:
-----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
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<PAGE> 62
Seller acknowledges receipt of the Buyer's Disclosure Letter of which
this is a duplicate (including the Appendices referred to therein).
Dated:
--------------------------------------
--------------------------------------------
Ralph Mayoral
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-----------------------------------------
Name: Carlos De la Torre
Title: President
- 62 -
<PAGE> 63
EXHIBIT 2.5(a)(ii)
SELLER'S RELEASE
This Release is being executed and delivered in accordance with
Section 2.5(a)(ii) of the Stock Purchase Agreement dated _________, 1998 (the
"Agreement") among GAINSCO, INC., a Texas corporation ("Buyer"), Ralph Mayoral
("Seller"), and De La Torre Insurance Adjusters, Inc., a Florida corporation
("DLT"). Capitalized terms used in this Release without definition have the
respective meanings given to them in the Agreement.
Seller acknowledges that execution and delivery of this Release is a
condition to Buyer's obligation to purchase the outstanding capital stock of
DLT pursuant to the Agreement and that Buyer is relying on this Release in
consummating such purchase.
Seller, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged and intending to be legally bound,
in order to induce Buyer to purchase the outstanding capital stock of DLT
pursuant to the Agreement, hereby agrees as follows:
Seller, on behalf of himself and each of his Related Persons, hereby
releases and forever discharges the Buyer, the Company, each of the other
Acquired Companies, and each of their respective individual, joint or mutual,
past, present and future Representatives, affiliates, shareholders, controlling
persons, Subsidiaries, successors and assigns (individually, a "Releasee" and
collectively, "Releasees") from any and all claims, demands, Proceedings,
causes of action, Orders, obligations, contracts, agreements, debts and
liabilities whatsoever, whether known or unknown, suspected or unsuspected,
both at law and in equity, which Seller or any of his respective Related
Persons now has, have ever had or may hereafter have against the respective
Releasees arising contemporaneously with or prior to the Closing Date or on
account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the Closing Date, including, but not limited
to, any rights to indemnification or reimbursement from any Acquired Company,
whether pursuant to their respective Organizational Documents, contract or
otherwise and whether or not relating to claims pending on, or asserted after,
the Closing Date; provided, however, that nothing contained herein shall
operate to release any obligations of Buyer arising under the Agreement.
Seller hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or
causing to be commenced, any proceeding of any kind against any Releasee, based
upon any matter purported to be released hereby.
Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, Seller, jointly and severally, shall indemnify and
hold harmless each Releasee from and against all loss, liability, claim, damage
(including incidental and consequential damages) or expense (including costs of
investigation and defense and reasonable attorney's fees) whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of Seller or any of his
Related Persons of any claim or other matter purported to be released pursuant
to this Release and (ii) the assertion by any third party of any
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<PAGE> 64
claim or demand against any Releasee which claim or demand arises directly or
indirectly from, or in connection with, any assertion by or on behalf of Seller
or any of his Related Persons against such third party of any claims or other
matters purported to be released pursuant to this Release.
If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This Release shall
be governed by and construed under the laws of the State of Texas without
regard to principles of conflicts of law.
All words used in this Release will be construed to be of such gender
or number as the circumstances require.
IN WITNESS WHEREOF, each of the undersigned have executed and
delivered this Release as of this ___ day of _____________, 1998.
-------------------------------------------
Ralph Mayoral
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
----------------------------------------
Name: Carlos De la Torre
Title: President
- 64 -
<PAGE> 65
EXHIBIT 2.5(a)(iii)
R. MAYORAL EMPLOYMENT AGREEMENT
- 65 -
<PAGE> 1
EXHIBIT 99.10
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of
________________, 1998, by and among De La Torre Insurance Adjusters, Inc., a
Florida corporation (the "Employer"), Carlos De la Torre (the "Executive") and
GAINSCO, INC., a Texas corporation ("GAINSCO").
RECITALS
Concurrently with the execution and delivery of this Agreement, GAINSCO
is purchasing all of the issued and outstanding shares of capital stock of
National Specialty Lines, Inc., a Florida corporation ("NSL"), Employer, and
Lalande Financial Group, Inc., a Florida corporation ("Lalande") owned by the
Executive pursuant to a Stock Purchase Agreement (the "Stock Purchase
Agreement") dated ______________, 1998, among GAINSCO, Executive, Rosa De la
Torre, NSL, Employer, and Lalande. Employer and GAINSCO desire the Executive's
continued employment with the Employer, and the Executive wishes to accept such
continued employment, upon the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the premises, mutual covenants and
agreements set forth and for other good and valuable consideration, the
adequacy, sufficiency and receipt of which are hereby acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Article I.
"Basic Compensation"--Salary and Benefits.
"Board of Directors"--the board of directors of the Employer.
"Confidential Information"--information that is used in the Employer's
business and
(a) is proprietary to, about or created by the Employer;
(b) gives the Employer some competitive advantage, the opportunity of
obtaining such advantage or the disclosure of which could be detrimental to the
interests of the Employer;
(c) is not typically disclosed to non-employees by the Employer, or
otherwise is treated as confidential by the Employer; or
<PAGE> 2
(d) is designated as Confidential Information by the Employer or from
all the relevant circumstances should reasonably be assumed by the Executive to
be confidential to the Employer.
Confidential Information shall not include (i) information already in
Executive's possession prior to the date of this Agreement and that was not
acquired or obtained from Employer or pursuant to a confidentiality agreement;
(ii) information that is obtained or was previously obtained by the Executive
from a third Person who, insofar as is known to the Executive after reasonable
inquiry, is not prohibited from transmitting the information to the Executive by
contractual, legal or fiduciary obligation to the Employer; or (iii) information
that is, or becomes, generally available to the public other than as a result of
a direct or indirect disclosure by the Executive.
"Effective Date"--the date stated in the first paragraph of the
Agreement.
"Employee Invention"--all discoveries, inventions, improvements,
designs, innovations and works of authorship (including all data and records
pertaining thereto) that relate to the business of Employer, whether or not able
to be patented, copyrighted or reduced to writing, that Employee may discover,
invent or originate during the term of his employment hereunder, and for a
period of six months thereafter, either alone or with others and whether or not
during working hours or by the use of the facilities of Employer.
"Fiscal Year"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
ARTICLE II
EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Article VI, the term (the
"Term") of the Executive's employment under this Agreement will be three (3)
years, beginning on the Effective Date and ending on the third anniversary of
the Effective Date.
2.3 Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive Officer
of Employer, and will initially serve as President of Employer. The Executive
will devote his entire business time, attention, skill, and energy exclusively
to the business of Employer, will use his best efforts to promote the success of
Employer's business, and will cooperate fully with the Board of Directors of
Employer
-2-
<PAGE> 3
in the advancement of the best interests of Employer. If the Executive is
elected as a director of the Employer, or as a director or officer of any of its
affiliates, the Executive will fulfill his duties as such director or officer
without additional compensation.
2.4 Travel. Neither the Employer nor GAINSCO will unreasonably require
Executive to travel outside of the Miami-Dade County and Broward County,
Florida, area.
ARTICLE III
COMPENSATION
3.1 Basic Compensation.
(a) Salary. The Executive will be paid an annual salary of $125,000,
subject to adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary payroll
practices, but no less frequently than monthly. The Salary will be reviewed by
the Board of Directors not less frequently than annually.
(b) Benefits. The Executive will, during the Term, be permitted to
participate in such pension, life insurance, hospitalization, major medical,
disability and other employee benefit plans of the Employer that may be in
effect from time to time, to the extent the Executive is eligible under the
terms of those plans (collectively, the "Benefits").
3.2 Stock Options. The Executive shall be entitled to participate in
any stock option plan, employee stock ownership plan or similar plan of GAINSCO,
subject to the approval of the Chief Executive Officer of GAINSCO and to the
extent the Executive is eligible under the terms of such plan.
ARTICLE IV
FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay a reasonable automobile allowance to
Executive and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
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ARTICLE V
VACATIONS AND HOLIDAYS
The Executive will be entitled to eight (8) weeks' paid vacation each
Fiscal Year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time. Vacation must be taken by the
Executive at such time or times as approved by the Chairman of the Board or
Chief Executive Officer of Employer. The Executive will also be entitled to the
paid holidays set forth in the Employer's policies.
ARTICLE VI
TERMINATION
6.1 (a) Disability. Employer may terminate this Agreement for
Disability. "Disability" shall exist if because of ill health, physical or
mental disability, or any other reason beyond his control, and notwithstanding
reasonable accommodations made by Employer, the Executive shall have been
unable, unwilling or shall have failed to perform his duties under this
Agreement, as determined in good faith by the Chairman of the Board of GAINSCO,
for a period of 180 consecutive days, or if, in any 12-month period, the
Executive shall have been unable or unwilling or shall have failed to perform
his duties for a period of 270 days, irrespective of whether or not such days
are consecutive.
(b) Cause. Employer may terminate the Executive's employment for Cause.
Termination for "Cause" shall mean termination because of the Executive's (i)
gross incompetence, (ii) willful gross misconduct that causes material economic
harm to Employer or GAINSCO or that brings substantial discredit to Employer's
or GAINSCO's reputation, (iii) failure to follow directions of the Board of
Directors that are consistent with his duties under this Agreement, (iv) final,
nonappealable conviction of a felony involving moral turpitude, or (v) material
breach of any provision of this Agreement. Items (i), (iii) and (v) of this
subsection shall not constitute Cause unless Employer notifies the Executive
thereof in writing, specifying in reasonable detail the basis therefor and
stating that it is grounds for Cause, and unless the Executive fails to cure
such matter within 60 days after such notice is sent or given under this
Agreement. The Executive shall be permitted to respond and to defend himself
before the Board of Directors or any appropriate committee thereof within a
reasonable time after written notification of any proposed termination for Cause
under item (i), (ii), (iii) or (v) of this subsection.
(c) Without Cause. During the Term, Employer may terminate the
Executive's employment Without Cause, subject to the provisions of subsection
6.2(d). Termination "Without Cause" shall mean termination of the Executive's
employment by Employer other than termination for Cause or for Disability.
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(d) Employer Breach. The Executive may terminate his employment
hereunder for Employer Breach. For purposes of this Agreement "Employer Breach"
shall mean (i) the relocation of the Executive outside of the Miami-Dade County
and Broward County, Florida, area or (ii) any material breach of this Agreement
by Employer, including without limitation any material reduction Executive's
Salary or in the authority, duties and responsibilities that the Executive has
on the date of this Agreement; provided, however, that a material breach of this
Agreement by Employer shall not constitute Employer Breach unless the Executive
notifies Employer in writing of the breach, specifying in reasonable detail the
nature of the breach and stating that such breach is grounds for Employer
Breach, and unless Employer fails to cure such breach within 60 days after such
notice is sent or given under this Agreement.
(e) Without Good Reason. During the Term, the Executive may terminate
his employment Without Good Reason. Termination "Without Good Reason" shall mean
termination of the Executive's employment by the Executive other than
termination for Employer Breach.
(f) Explanation of Termination of Employment. Any party terminating
this Agreement shall give prompt written notice ("Notice of Termination") to the
other party hereto advising such other party of the termination of this
Agreement. Within thirty (30) days after notification that the Agreement has
been terminated, the terminating party shall deliver to the other party hereto a
written explanation, which shall state in reasonable detail the basis for such
termination and shall indicate whether termination is being made for Cause,
Without Cause or for Disability (if Employer has terminated the Agreement) or
for Employer Breach or Without Good Reason (if the Executive has terminated the
Agreement).
(g) Date of Termination. "Date of Termination" shall mean the date on
which Notice of Termination is sent or given under this Agreement.
6.2 Compensation During Disability or Upon Termination.
(a) During Disability. During any period that the Executive fails to
perform his duties hereunder because of ill health, physical or mental
disability, or any other reason beyond his control, he shall continue to receive
his full Basic Compensation until the Date of Termination.
(b) Termination for Disability. If Employer shall terminate the
Executive's employment for Disability, Employer's obligation to pay Basic
Compensation shall terminate, except that Employer shall pay the Executive (i)
accrued but unpaid Basic Compensation through the Date of Termination, and (ii)
the benefits set forth in Section 6.2(e).
(c) Termination for Cause or Without Good Reason. If Employer shall
terminate the Executive's employment for Cause or if the Executive shall
terminate his employment Without Good Reason, then Employer's obligation to pay
Basic Compensation shall terminate, except that Employer shall pay the Executive
his accrued but unpaid Basic Compensation through the Date of Termination.
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(d) Termination Without Cause or for Employer Breach. If Employer shall
terminate the Executive's employment Without Cause or if the Executive shall
terminate his employment for Employer Breach, then Employer shall pay to the
Executive, as severance pay in a lump sum on the 15th day following the Date of
Termination, the following amounts:
(i) his then-unpaid Salary through the Date of Termination at
the rate in effect as of the Date of Termination; and
(ii) in lieu of any further Salary for periods subsequent to
the Date of Termination, an amount equal to the balance of Executive's
Base Salary through the remainder of the Term.
If the Executive terminates his employment for Employer Breach based upon a
material reduction by Employer of the Executive's Salary, then for purposes of
this subsection 6.2(d), the Executive's Salary as of the Date of Termination
shall be deemed to be the Executive's Salary immediately prior to the reduction
that the Executive claims as grounds for Employer Breach.
(e) Employee Benefits. Unless Employer terminates the Executive's
employment for Cause or the Executive terminates his employment Without Good
Reason, Employer shall maintain in full force and effect (to the extent
consistent with past practice), for the continued benefit of the Executive and,
if applicable, his wife and children, the Benefits that Executive was entitled
to receive immediately prior to the Date of Termination (subject to the general
terms and conditions of the plans and programs under which he receives such
benefits) for twelve months or the balance of the Term, whichever is shorter,
provided that his continued participation or, if applicable, the participation
of his wife and children, is possible under the general terms and conditions of
such plans and programs.
(f) No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Section 6.2 by seeking other
employment or otherwise.
6.3 Death of Executive. If the Executive dies prior to the expiration
of this Agreement, the Executive's employment and other obligations under this
Agreement shall automatically terminate and all compensation, to which the
Executive is or would have been entitled hereunder (including without limitation
under Section 3.1), shall terminate as of the end of the month in which the
Executive's death occurs; provided, however, that for the balance of the Term,
the Executive's wife and children shall be entitled to receive the Benefits that
they were entitled to receive immediately prior to the death of the Executive
(subject to the general terms and conditions of the plans and programs under
which they receive such benefits) for twelve months or the balance of the Term,
whichever is shorter, provided that their continued participation is possible
under the general terms and conditions of such plans and programs.
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ARTICLE VII
NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 Acknowledgments by the Executive. The Executive acknowledges that
(a) during the Term and as a part of his employment, the Executive will be
afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Executive possesses substantial technical expertise
and skill with respect to the Employer's business, the Employer desires to
obtain exclusive ownership of each Employee Invention, and the Employer will be
at a substantial competitive disadvantage if it fails to acquire exclusive
ownership of each Employee Invention; (d) GAINSCO has required that the
Executive make the covenants in this Article VII as a condition to GAINSCO's
purchase of the shares of capital stock of NSL, Employer and Lalande owned by
Executive, pursuant to the Stock Purchase Agreement; and (e) the provisions of
this Article VII are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 Agreements of the Executive. In consideration of the compensation
and benefits to be paid or provided to the Executive by the Employer under this
Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Term, the Executive will hold in
confidence the Confidential Information and will not disclose it to any
Person except with the specific prior written consent of the Employer
or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled to all
of the protections and benefits under applicable law. If any
information that the Employer deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret for purposes
of this Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The Executive
hereby waives any requirement that the Employer submit proof of the
economic value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other than
as a result of a direct or indirect disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while traveling, or
except as otherwise specifically authorized by the Employer) any
document, record, notebook, plan, model, component, device, or computer
software or
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code, whether embodied in a disk or in any other form (collectively,
the "Proprietary Items"). The Executive recognizes that, as between the
Employer and the Executive, all of the Proprietary Items, whether or
not developed by the Executive, are the exclusive property of the
Employer. Upon termination of this Agreement by either party, or upon
the request of the Employer during the Term, the Executive will return
to the Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or other physical
embodiment of any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order
to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign
jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance in support
of the Employer's rights to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
ARTICLE VIII
NON-COMPETITION AND NON-INTERFERENCE
8.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) the services to be performed by him under this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character; (b) the Employer's
business is currently national in scope
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and its services and products are marketed throughout the United States; (c) the
Employer competes with other businesses that are or could be located in any part
of the United States; (d) GAINSCO has required that the Executive make the
covenants set forth in this Article VIII as a condition to GAINSCO's purchase of
the shares of capital stock of NSL, Employer and Lalande owned by Executive,
pursuant to the Stock Purchase Agreement; and (e) the provisions of this Article
VIII are reasonable and necessary to protect the Employer's business.
8.2 Covenants of the Executive. In consideration of the acknowledgments
by the Executive, and in consideration of the compensation and benefits to be
paid or provided to the Executive by the Employer, the Executive covenants that
he will not, directly or indirectly:
(a) during the Term, except in the course of his employment hereunder,
directly or indirectly, engage or invest in, own, manage, operate, finance,
control, or participate in the ownership, management, operation, financing, or
control of, be employed by, associated with, or in any manner connected with,
lend the Executive's name or any similar name to, lend Executive's credit to or
render services or advice to, any business whose products, services or
activities compete in whole or in part with the products, services or activities
of the Employer, GAINSCO or any affiliate thereof anywhere in the world;
provided, however, that the Executive may purchase or otherwise acquire up to
(but not more than) five percent (5%) of any class of securities of any
enterprise involved in the Business (but without otherwise participating in the
activities of such enterprise), other than GAINSCO, if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934; and further provided
that Executive may purchase securities of GAINSCO in those purchase windows
authorized for GAINSCO's officers by the chief executive officer of GAINSCO;
(b) during the Post-Agreement Period (as defined below), directly or
indirectly, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control of,
be employed by, associated with, or in any manner connected with, lend the
Executive's name or any similar name to, lend Executive's credit to or render
services or advice to, any business whose products, services or activities are
involved in, directly or indirectly or in whole or in part, the Business (as
defined below) in the geographical areas in which Employer, GAINSCO or any
affiliate thereof is involved in the Business as of the date of termination of
Executive's employment hereunder and during the Post-Employment Period;
provided, however, that the Executive may purchase or otherwise acquire,
directly or indirectly, up to (but not more than) five percent of any class of
securities of any enterprise involved in the Business (but without otherwise
participating in the activities of such enterprise), if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934;
(c) whether for the Executive's own account or for the account of any
other Person, at any time during the Term and the Post-Agreement Period, solicit
business of the same or similar type being carried on by the Employer, from any
Person known by the Executive to be a customer of the Employer, whether or not
the Executive had personal contact with such Person during and by reason of the
Executive's employment with the Employer;
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(d) whether for the Executive's own account or the account of any other
Person (i) at any time during the Term and the Post-Agreement Period, solicit,
employ, or otherwise engage as an employee, independent contractor, or
otherwise, any Person who is or was an employee of the Employer at any time
during the Term or in any manner induce or attempt to induce any employee of the
Employer to terminate his employment with the Employer; or (ii) at any time
during the Term and the Post-Agreement Period, interfere with the Employer's
relationship with any Person, including any Person who at any time during the
Term was an employee, agent, insurer, or customer of the Employer; or
(e) at any time during or after the Term, disparage the Employer or any
of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Agreement Period" means the
period beginning on the date of termination of the Executive's employment with
the Employer, plus the remainder of the Term, if any, not fulfilled by Executive
due to the termination of this Agreement by Employer for Cause or by Executive
Without Good Reason, plus three years; provided, however, that, notwithstanding
anything to the contrary in this Agreement or the Stock Purchase Agreement, in
the event of a Change of Control Trigger (as defined in the Stock Purchase
Agreement), the "plus three years" tail of the Post-Agreement Period shall be
reduced in proportion to the Earnout Consideration (as defined in the Stock
Purchase Agreement) not received by the Seller (as defined in the Stock Purchase
Agreement). The three-year period will be defined as 36 months which will then
be multiplied by a fraction, the numerator of which is the total of all payments
received by Seller under Section 2.3 of the Stock Purchase Agreement, and the
denominator of which is the Earnout Consideration, and rounded to the next whole
month. By way of example, but not of limitation, if a Change of Control Trigger
occurs during the first Earnout Period (as defined in the Stock Purchase
Agreement), and as a result thereof, Seller received $2,000,000 out of a total
possible Earnout Consideration of $10,000,000 to be received by Seller, the
36-month period of the Post-Agreement Period shall be reduced so that it equals
two-tenths of 36 months rounded to the next whole month, or 8 months; and
provided further that in no event shall the tail period be reduced to fewer than
six months.
For purposes of this Section 8.2, the term "Business" means the business of
writing, underwriting, selling, claims adjusting, premium financing or acting as
an agent with respect to nonstandard private passenger automotive insurance.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
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The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. GAINSCO or the Employer
may notify such employer that the Executive is bound by this Agreement and, at
the Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
ARTICLE IX
GENERAL PROVISIONS
9.1 Injunctive Relief and Additional Remedy. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a breach
of the provisions of this Agreement (including any provision of Articles VII and
VIII) would be irreparable and that an award of monetary damages to the Employer
for such a breach would be an inadequate remedy. Consequently, the Employer will
have the right, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise to
specifically enforce any provision of this Agreement, and the Employer will not
be obligated to post bond or other security in seeking such relief.
9.2 Covenants of Articles VII and VIII Are Essential and Independent
Covenants. The covenants by the Executive in Articles VII and VIII are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, GAINSCO would not have purchased the capital stock of NSL,
Employer and Lalande owned by Executive under the Stock Purchase Agreement and
the Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Articles VII and VIII are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against GAINSCO, will not excuse the
Executive's breach of any covenant in Articles VII or VIII.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Articles VII and
VIII.
9.3 Representations and Warranties by the Executive. The Executive
represents and warrants to the Employer that the execution and delivery by the
Executive of this Agreement do not, and the performance by the Executive of the
Executive's obligations hereunder will not, with or without the giving of notice
or the passage of time, or both: (a) violate any judgment, writ, injunction, or
order of any court, arbitrator, or governmental agency applicable to the
Executive; or (b) conflict with, result in the breach of any provisions of or
the termination of, or constitute
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a default under, any agreement to which the Executive is a party or by which the
Executive is or may be bound.
9.4 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right of the party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement.
9.6 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
which all or substantially all of its assets may be transferred. The duties and
covenants of the Executive under this Agreement, being personal, may not be
delegated.
9.7 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
De La Torre Insurance Adjusters, Inc.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: President
Facsimile No.: (817) 335-1230
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Executive:
Carlos De la Torre
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
GAINSCO:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
9.8 Entire Agreement; Amendments. This Agreement, the Stock Purchase
Agreement, and the documents executed in connection with the Stock Purchase
Agreement, contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
9.9 Governing Law. This Agreement will be governed by the laws of the
State of Florida without regard to conflicts of laws principles.
9.10 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement shall be
brought against either of the parties in
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the courts of the State of Florida, County of Miami-Dade, or, if it has or can
acquire jurisdiction, in the United States District Court for the Southern
District of Florida, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on either
party anywhere in the world.
9.11 Section and Article Headings, Construction. The headings of
Sections and Articles in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" and "Article" or "Articles" refer to the corresponding Section or
Sections and Article or Articles of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
9.12 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL
IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EXECUTIVE:
--------------------------------------------
Carlos De la Torre
GAINSCO, INC.
By:
-----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
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DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-----------------------------------------
Name: Carlos De la Torre
Title: President
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EXHIBIT 99.11
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of
________________, 1998, by and among National Specialty Lines, Inc., a Florida
corporation (the "Employer"), McRae B. Johnston (the "Executive") and GAINSCO,
INC., a Texas corporation ("GAINSCO").
RECITALS
Concurrently with the execution and delivery of this Agreement, GAINSCO
is purchasing all of the issued and outstanding shares of capital stock of
Employer and Lalande Financial Group, Inc., a Florida corporation ("Lalande")
owned by the Executive pursuant to a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated ______________, 1998, among GAINSCO, Executive,
Employer and Lalande. Employer and GAINSCO desire the Executive's continued
employment with the Employer, and the Executive wishes to accept such continued
employment, upon the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the premises, mutual covenants and agreements set
forth and for other good and valuable consideration, the adequacy, sufficiency
and receipt of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Article I.
"Basic Compensation"--Salary and Benefits.
"Board of Directors"--the board of directors of the Employer or other
company if so specified.
"Confidential Information"--information that is used in the Employer's
business and
(a) is proprietary to, about or created by the Employer;
(b) gives the Employer some competitive advantage, the opportunity of
obtaining such advantage or the disclosure of which could be detrimental to the
interests of the Employer;
(c) is not typically disclosed to non-employees by the Employer, or
otherwise is treated as confidential by the Employer; or
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(d) is designated as Confidential Information by the Employer or from
all the relevant circumstances should reasonably be assumed by the Executive to
be confidential to the Employer.
Confidential Information shall not include (i) information already in
Executive's possession prior to the date of this Agreement and that was not
acquired or obtained from Employer or pursuant to a confidentiality agreement;
(ii) information that is obtained or was previously obtained by the Executive
from a third Person who, insofar as is known to the Executive after reasonable
inquiry, is not prohibited from transmitting the information to the Executive by
contractual, legal or fiduciary obligation to the Employer; or (iii) information
that is, or becomes, generally available to the public other than as a result of
a direct or indirect disclosure by the Executive.
"Effective Date"--the date stated in the first paragraph of the
Agreement.
"Employee Invention"--all discoveries, inventions, improvements,
designs, innovations and works of authorship (including all data and records
pertaining thereto) that relate to the business of Employer, whether or not able
to be patented, copyrighted or reduced to writing, that Employee may discover,
invent or originate during the term of his employment hereunder, and for a
period of six months thereafter, either alone or with others and whether or not
during working hours or by the use of the facilities of Employer.
"Fiscal Year"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
ARTICLE II
EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Article VI, the term of the
Executive's employment under this Agreement will be three (3) years, beginning
on the Effective Date and ending on the third anniversary of the Effective Date
(the "Initial Term"). The Agreement will be extended for additional one-year
periods on each anniversary of the Effective Date unless either party delivers
written notice of election not to renew to the other party at least 45 days
prior to the applicable anniversary of the Effective Date (the Initial Term plus
all such extended periods are sometimes collectively referred to herein as the
"Term").
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2.3 Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive Officer
of GAINSCO, and will initially serve as President of Employer. The Executive
will devote his entire business time, attention, skill, and energy exclusively
to the business of Employer, will use his best efforts to promote the success of
Employer's business, and will cooperate fully with the Board of Directors of
GAINSCO in the advancement of the best interests of Employer. If the Executive
is elected as a director of the Employer, or as a director or officer of any of
its affiliates, the Executive will fulfill his duties as such director or
officer without additional compensation.
ARTICLE III
COMPENSATION
3.1 Basic Compensation.
(a) Salary. The Executive will be paid an annual salary of $280,000,
subject to adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary payroll
practices, but no less frequently than monthly. The Salary will be reviewed by
the Board of Directors not less frequently than annually.
(b) Benefits. The Executive will, during the Term, be permitted to
participate in such pension, life insurance, hospitalization, major medical,
disability and other employee benefit plans of the Employer that may be in
effect from time to time, to the extent the Executive is eligible under the
terms of those plans (collectively, the "Benefits").
3.2 Stock Options. The Executive shall be entitled to participate in
any stock option plan, employee stock ownership plan or similar plan of GAINSCO,
subject to the approval of the Chief Executive Officer of GAINSCO and to the
extent the Executive is eligible under the terms of such plan.
ARTICLE IV
FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay a reasonable automobile allowance to
Executive and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
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entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
ARTICLE V
VACATIONS AND HOLIDAYS
The Executive will be entitled to three (3) weeks' paid vacation each
Fiscal Year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time. Vacation must be taken by the
Executive at such time or times as approved by the Chairman of the Board or
Chief Executive Officer of GAINSCO. The Executive will also be entitled to the
paid holidays set forth in the Employer's policies.
ARTICLE VI
TERMINATION
6.1 (a) Disability. Employer may terminate this Agreement for
Disability. "Disability" shall exist if because of ill health, physical or
mental disability, or any other reason beyond his control, and notwithstanding
reasonable accommodations made by Employer, the Executive shall have been
unable, unwilling or shall have failed to perform his duties under this
Agreement, as determined in good faith by the Chairman of the Board of GAINSCO,
for a period of 180 consecutive days, or if, in any 12-month period, the
Executive shall have been unable or unwilling or shall have failed to perform
his duties for a period of 270 days, irrespective of whether or not such days
are consecutive.
(b) Cause. Employer may terminate the Executive's employment for Cause.
Termination for "Cause" shall mean termination because of the Executive's (i)
gross incompetence, (ii) willful gross misconduct that causes material economic
harm to Employer or GAINSCO or that brings substantial discredit to Employer's
or GAINSCO's reputation, (iii) failure to follow directions of the Board of
Directors that are consistent with his duties under this Agreement, (iv) final,
nonappealable conviction of a felony involving moral turpitude, or (v) material
breach of any provision of this Agreement. Items (i), (iii) and (v) of this
subsection shall not constitute Cause unless Employer notifies the Executive
thereof in writing, specifying in reasonable detail the basis therefor and
stating that it is grounds for Cause, and unless the Executive fails to cure
such matter within 60 days after such notice is sent or given under this
Agreement. The Executive shall be permitted to respond and to defend himself
before the Board of Directors or any appropriate committee thereof within a
reasonable time after written notification of any proposed termination for Cause
under item (i), (ii), (iii) or (v) of this subsection.
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(c) Without Cause. During the Term, Employer may terminate the
Executive's employment Without Cause, subject to the provisions of subsection
6.2(d). Termination "Without Cause" shall mean termination of the Executive's
employment by Employer other than termination for Cause or for Disability.
(d) Employer Breach. The Executive may terminate his employment
hereunder for Employer Breach. For purposes of this Agreement "Employer Breach"
shall mean (i) the relocation of the Executive outside of the Miami-Dade County
and Broward County, Florida, area or (ii) any material breach of this Agreement
by Employer, including without limitation any material reduction in Executive's
Salary or in the authority, duties and responsibilities that the Executive has
on the date of this Agreement; provided, however, that a material breach of this
Agreement by Employer shall not constitute Employer Breach unless the Executive
notifies Employer in writing of the breach, specifying in reasonable detail the
nature of the breach and stating that such breach is grounds for Employer
Breach, and unless Employer fails to cure such breach within 60 days after such
notice is sent or given under this Agreement.
(e) Without Good Reason. During the Term, the Executive may terminate
his employment Without Good Reason. Termination "Without Good Reason" shall mean
termination of the Executive's employment by the Executive other than
termination for Employer Breach.
(f) Explanation of Termination of Employment. Any party terminating
this Agreement shall give prompt written notice ("Notice of Termination") to the
other party hereto advising such other party of the termination of this
Agreement. Within thirty (30) days after notification that the Agreement has
been terminated, the terminating party shall deliver to the other party hereto a
written explanation, which shall state in reasonable detail the basis for such
termination and shall indicate whether termination is being made for Cause,
Without Cause or for Disability (if Employer has terminated the Agreement) or
for Employer Breach or Without Good Reason (if the Executive has terminated the
Agreement).
(g) Date of Termination. "Date of Termination" shall mean the date on
which Notice of Termination is sent or given under this Agreement.
6.2 Compensation During Disability or Upon Termination.
(a) During Disability. During any period that the Executive fails to
perform his duties hereunder because of ill health, physical or mental
disability, or any other reason beyond his control, he shall continue to receive
his full Basic Compensation until the Date of Termination.
(b) Termination for Disability. If Employer shall terminate the
Executive's employment for Disability, Employer's obligation to pay Basic
Compensation shall terminate, except that Employer shall pay the Executive (i)
accrued but unpaid Basic Compensation through the Date of Termination, and (ii)
the benefits set forth in Section 6.2(e).
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(c) Termination for Cause or Without Good Reason. If Employer shall
terminate the Executive's employment for Cause or if the Executive shall
terminate his employment Without Good Reason, then Employer's obligation to pay
Basic Compensation shall terminate, except that Employer shall pay the Executive
his accrued but unpaid Basic Compensation through the Date of Termination.
(d) Termination Without Cause or for Employer Breach. If Employer shall
terminate the Executive's employment Without Cause or if the Executive shall
terminate his employment for Employer Breach, then Employer shall pay to the
Executive, as severance pay in a lump sum on the 15th day following the Date of
Termination, the following amounts:
(i) his then-unpaid Salary through the Date of Termination at
the rate in effect as of the Date of Termination; and
(ii) in lieu of any further Salary for periods subsequent to
the Date of Termination, an amount equal to the balance of Executive's
Base Salary through the remainder of the Term.
If the Executive terminates his employment for Employer Breach based upon a
material reduction by Employer of the Executive's Salary, then for purposes of
this subsection 6.2(d), the Executive's Salary as of the Date of Termination
shall be deemed to be the Executive's Salary immediately prior to the reduction
that the Executive claims as grounds for Employer Breach.
(e) Employee Benefits. Unless Employer terminates the Executive's
employment for Cause or the Executive terminates his employment Without Good
Reason, Employer shall maintain in full force and effect (to the extent
consistent with past practice), for the continued benefit of the Executive and,
if applicable, his wife and children, the Benefits that Executive was entitled
to receive immediately prior to the Date of Termination (subject to the general
terms and conditions of the plans and programs under which he receives such
benefits) for twelve months or the balance of the Term, whichever is shorter,
provided that his continued participation or, if applicable, the participation
of his wife and children, is possible under the general terms and conditions of
such plans and programs.
(f) No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Section 6.2 by seeking other
employment or otherwise.
6.3 Death of Executive. If the Executive dies prior to the expiration
of this Agreement, the Executive's employment and other obligations under this
Agreement shall automatically terminate and all compensation, to which the
Executive is or would have been entitled hereunder (including without limitation
under Section 3.1), shall terminate as of the end of the month in which the
Executive's death occurs; provided, however, that for the balance of the Term,
the Executive's wife and children shall be entitled to receive the Benefits that
they were entitled to receive immediately prior to the death of the Executive
(subject to the general terms and conditions of the plans and programs under
which they receive such benefits) for twelve
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months or the balance of the Term, whichever is shorter, provided that their
continued participation is possible under the general terms and conditions of
such plans and programs.
ARTICLE VII
NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 Acknowledgments by the Executive. The Executive acknowledges that
(a) during the Term and as a part of his employment, the Executive will be
afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Executive possesses substantial technical expertise
and skill with respect to the Employer's business, the Employer desires to
obtain exclusive ownership of each Employee Invention, and the Employer will be
at a substantial competitive disadvantage if it fails to acquire exclusive
ownership of each Employee Invention; (d) GAINSCO has required that the
Executive make the covenants in this Article VII as a condition to GAINSCO's
purchase of the shares of capital stock of Employer and Lalande owned by
Executive, pursuant to the Stock Purchase Agreement; and (e) the provisions of
this Article VII are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 Agreements of the Executive. In consideration of the compensation
and benefits to be paid or provided to the Executive by the Employer under this
Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Term, the Executive will hold in
confidence the Confidential Information and will not disclose it to any
Person except with the specific prior written consent of the Employer
or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled to all
of the protections and benefits under applicable law. If any
information that the Employer deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret for purposes
of this Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The Executive
hereby waives any requirement that the Employer submit proof of the
economic value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other than
as a result of a direct or indirect disclosure by the Executive.
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(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while traveling, or
except as otherwise specifically authorized by the Employer) any
document, record, notebook, plan, model, component, device, or computer
software or code, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). The Executive recognizes that,
as between the Employer and the Executive, all of the Proprietary
Items, whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Term, the
Executive will return to the Employer all of the Proprietary Items in
the Executive's possession or subject to the Executive's control, and
the Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order
to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign
jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance in support
of the Employer's rights to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
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ARTICLE VIII
NON-COMPETITION AND NON-INTERFERENCE
8.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) the services to be performed by him under this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character; (b) the Employer's
business is currently national in scope and its services and products are
marketed throughout the United States; (c) the Employer competes with other
businesses that are or could be located in any part of the United States; (d)
GAINSCO has required that the Executive make the covenants set forth in this
Article VIII as a condition to GAINSCO's purchase of the shares of capital stock
of Employer and Lalande owned by Executive, pursuant to the Stock Purchase
Agreement; and (e) the provisions of this Article VIII are reasonable and
necessary to protect the Employer's business.
8.2 Covenants of the Executive. In consideration of the acknowledgments
by the Executive, and in consideration of the compensation and benefits to be
paid or provided to the Executive by the Employer, the Executive covenants that
he will not, directly or indirectly:
(a) during the Term, except in the course of his employment hereunder,
directly or indirectly, engage or invest in, own, manage, operate, finance,
control, or participate in the ownership, management, operation, financing, or
control of, be employed by, associated with, or in any manner connected with,
lend the Executive's name or any similar name to, lend Executive's credit to or
render services or advice to, any business whose products, services or
activities compete in whole or in part with the products, services or activities
of the Employer, GAINSCO or any affiliate thereof anywhere in the world;
provided, however, that the Executive may purchase or otherwise acquire up to
(but not more than) five percent (5%) of any class of securities of any
enterprise involved in the Business (but without otherwise participating in the
activities of such enterprise), other than GAINSCO, if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934; and further provided
that Executive may purchase securities of GAINSCO in those purchase windows
authorized for GAINSCO's officers by the chief executive officer of GAINSCO;
(b) during the Post-Agreement Period (as defined below), directly or
indirectly, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control of,
be employed by, associated with, or in any manner connected with, lend the
Executive's name or any similar name to, lend Executive's credit to or render
services or advice to, any business whose products, services or activities are
involved in, directly or indirectly or in whole or in part, the Business (as
defined below) in the geographical areas in which Employer, GAINSCO or any
affiliate thereof is involved in the Business as of the date of termination of
Executive's employment hereunder and during the Post-Employment Period;
provided, however, that the Executive may purchase or otherwise acquire,
directly or indirectly, up to (but not more than) five percent of any class of
securities of any enterprise involved in the Business (but without otherwise
participating in the activities of such
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enterprise), if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(c) whether for the Executive's own account or for the account of any
other Person, at any time during the Term and the Post-Agreement Period, solicit
business of the same or similar type being carried on by the Employer, from any
Person known by the Executive to be a customer of the Employer, whether or not
the Executive had personal contact with such Person during and by reason of the
Executive's employment with the Employer;
(d) whether for the Executive's own account or the account of any other
Person (i) at any time during the Term and the Post-Agreement Period, solicit,
employ, or otherwise engage as an employee, independent contractor, or
otherwise, any Person who is or was an employee of the Employer at any time
during the Term or in any manner induce or attempt to induce any employee of the
Employer to terminate his employment with the Employer; or (ii) at any time
during the Term and the Post-Agreement Period, interfere with the Employer's
relationship with any Person, including any Person who at any time during the
Term was an employee, agent, insurer, or customer of the Employer; or
(e) at any time during or after the Term, disparage the Employer or any
of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Agreement Period" means the
period beginning on the date of termination of the Executive's employment with
the Employer, plus the remainder of the Term, if any, not fulfilled by Executive
due to the termination of this Agreement by Employer for Cause or by Executive
Without Good Reason, plus three years; provided, however, that, notwithstanding
anything to the contrary in this Agreement or the Stock Purchase Agreement, in
the event of a Change of Control Trigger (as defined in the Stock Purchase
Agreement), the "plus three years" tail of the Post-Agreement Period shall be
reduced in proportion to the Earnout Consideration (as defined in the Stock
Purchase Agreement) not received by the Seller (as defined in the Stock Purchase
Agreement). The three-year period will be defined as 36 months which will then
be multiplied by a fraction, the numerator of which is the total of all payments
received by Seller under Section 2.3 of the Stock Purchase Agreement, and the
denominator of which is the Earnout Consideration, and rounded to the next whole
month. By way of example, but not of limitation, if a Change of Control Trigger
occurs during the first Earnout Period (as defined in the Stock Purchase
Agreement), and as a result thereof, Seller received $2,000,000 out of a total
possible Earnout Consideration of $10,000,000 to be received by Seller, the
36-month period of the Post-Agreement Period shall be reduced so that it equals
two-tenths of 36 months rounded to the next whole month, or 8 months; and
provided further that in no event shall the tail period be reduced to fewer than
six months.
For purposes of this Section 8.2, the term "Business" means the business of
writing, underwriting, selling, claims adjusting, premium financing or acting as
an agent with respect to nonstandard private passenger automotive insurance.
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If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. GAINSCO or the Employer
may notify such employer that the Executive is bound by this Agreement and, at
the Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
ARTICLE IX
GENERAL PROVISIONS
9.1 Injunctive Relief and Additional Remedy. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a breach
of the provisions of this Agreement (including any provision of Articles VII and
VIII) would be irreparable and that an award of monetary damages to the Employer
for such a breach would be an inadequate remedy. Consequently, the Employer will
have the right, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise to
specifically enforce any provision of this Agreement, and the Employer will not
be obligated to post bond or other security in seeking such relief.
9.2 Covenants of Articles VII and VIII Are Essential and Independent
Covenants. The covenants by the Executive in Articles VII and VIII are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, GAINSCO would not have purchased the capital stock of Employer
and Lalande owned by Executive under the Stock Purchase Agreement and the
Employer would not have entered into this Agreement or employed or continued the
employment of the Executive. The Employer and the Executive have independently
consulted their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer.
The Executive's covenants in Articles VII and VIII are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against GAINSCO, will not excuse the
Executive's breach of any covenant in Articles VII or VIII.
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If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Articles VII and
VIII.
9.3 Representations and Warranties by the Executive. The Executive
represents and warrants to the Employer that the execution and delivery by the
Executive of this Agreement do not, and the performance by the Executive of the
Executive's obligations hereunder will not, with or without the giving of notice
or the passage of time, or both: (a) violate any judgment, writ, injunction, or
order of any court, arbitrator, or governmental agency applicable to the
Executive; or (b) conflict with, result in the breach of any provisions of or
the termination of, or constitute a default under, any agreement to which the
Executive is a party or by which the Executive is or may be bound.
9.4 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right of the party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement.
9.6 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
which all or substantially all of its assets may be transferred. The duties and
covenants of the Executive under this Agreement, being personal, may not be
delegated.
9.7 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
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If to Employer:
National Specialty Lines, Inc.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: President
Facsimile No.: (817) 335-1230
Executive:
McRae B. Johnston
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
GAINSCO:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
9.8 Entire Agreement; Amendments. This Agreement, the Stock Purchase
Agreement, and the documents executed in connection with the Stock Purchase
Agreement, contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior
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agreements and understandings, oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
9.9 Governing Law. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
9.10 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement shall be
brought against either of the parties in the courts of the State of Texas,
County of Tarrant, or, if it has or can acquire jurisdiction, in the United
States District Court for the Northern District of Texas, Fort Worth Division,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on either party anywhere in the world.
9.11 Section and Article Headings, Construction. The headings of
Sections and Articles in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" and "Article" or "Articles" refer to the corresponding Section or
Sections and Article or Articles of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
9.12 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL
IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EXECUTIVE:
.
---------------------------------------------
McRae B. Johnston
GAINSCO, INC.
By:
------------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
NATIONAL SPECIALTY LINES, INC.
By:
------------------------------------------
Name: McRae B. Johnston
Title: President
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EXHIBIT 99.12
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of
________________, 1998, by and among National Specialty Lines, Inc., a Florida
corporation (the "Employer"), Michael Johnston (the "Executive") and GAINSCO,
INC., a Texas corporation ("GAINSCO").
RECITALS
Concurrently with the execution and delivery of this Agreement,
GAINSCO is purchasing all of the issued and outstanding shares of capital stock
of Employer owned by the Executive pursuant to a Stock Purchase Agreement (the
"Stock Purchase Agreement") dated ______________, 1998, among GAINSCO,
Executive and Employer. Employer and GAINSCO desire the Executive's continued
employment with the Employer, and the Executive wishes to accept such continued
employment, upon the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the premises, mutual covenants and agreements set
forth and for other good and valuable consideration, the adequacy, sufficiency
and receipt of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Article I.
"Basic Compensation"--Salary and Benefits.
"Board of Directors"--the board of directors of the Employer.
"Confidential Information"--information that is used in the Employer's
business and
(a) is proprietary to, about or created by the Employer;
(b) gives the Employer some competitive advantage, the opportunity
of obtaining such advantage or the disclosure of which could be detrimental to
the interests of the Employer;
(c) is not typically disclosed to non-employees by the Employer,
or otherwise is treated as confidential by the Employer; or
(d) is designated as Confidential Information by the Employer or
from all the relevant circumstances should reasonably be assumed by the
Executive to be confidential to the Employer.
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Confidential Information shall not include (i) information already in
Executive's possession prior to the date of this Agreement and that was not
acquired or obtained from Employer or pursuant to a confidentiality agreement;
(ii) information that is obtained or was previously obtained by the Executive
from a third Person who, insofar as is known to the Executive after reasonable
inquiry, is not prohibited from transmitting the information to the Executive
by contractual, legal or fiduciary obligation to the Employer; or (iii)
information that is, or becomes, generally available to the public other than
as a result of a direct or indirect disclosure by the Executive.
"Effective Date"--the date stated in the first paragraph of the
Agreement.
"Employee Invention"--all discoveries, inventions, improvements,
designs, innovations and works of authorship (including all data and records
pertaining thereto) that relate to the business of Employer, whether or not
able to be patented, copyrighted or reduced to writing, that Employee may
discover, invent or originate during the term of his employment hereunder, and
for a period of six months thereafter, either alone or with others and whether
or not during working hours or by the use of the facilities of Employer.
"Fiscal Year"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
ARTICLE II
EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Article VI, the term of the
Executive's employment under this Agreement will be three (3) years, beginning
on the Effective Date and ending on the third anniversary of the Effective Date
(the "Initial Term"). Prior to the beginning of the third year of the Initial
Term, the Agreement will be extended for additional one-year periods on each
anniversary of the Effective Date unless either party delivers written notice
of election not to renew to the other party at least 45 days prior to the
applicable anniversary of the Effective Date (the Initial Term plus any and all
such extended periods are sometimes collectively referred to herein as the
"Term").
2.3 Duties. The Executive will have such duties as are assigned
or delegated to the Executive by the Board of Directors or Chief Executive
Officer of Employer, and will initially serve as Executive Vice President of
Employer. The Executive will devote his entire business
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time, attention, skill, and energy exclusively to the business of Employer,
will use his best efforts to promote the success of Employer's business, and
will cooperate fully with the Board of Directors of Employer in the advancement
of the best interests of Employer. If the Executive is elected as a director of
the Employer, or as a director or officer of any of its affiliates, the
Executive will fulfill his duties as such director or officer without
additional compensation.
ARTICLE III
COMPENSATION
3.1 Basic Compensation.
(a) Salary. The Executive will be paid an annual salary of
$160,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Salary will be
reviewed by the Board of Directors not less frequently than annually.
(b) Benefits. The Executive will, during the Term, be permitted
to participate in such pension, life insurance, hospitalization, major medical,
disability and other employee benefit plans of the Employer that may be in
effect from time to time, to the extent the Executive is eligible under the
terms of those plans (collectively, the "Benefits").
3.2 Stock Options. The Executive shall be entitled to participate
in any stock option plan, employee stock ownership plan or similar plan of
GAINSCO, subject to the approval of the Chief Executive Officer of GAINSCO and
to the extent the Executive is eligible under the terms of such plan.
ARTICLE IV
FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay a reasonable automobile allowance to
Executive and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant
to this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
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ARTICLE V
VACATIONS AND HOLIDAYS
The Executive will be entitled to three (3) weeks' paid vacation each
Fiscal Year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time. Vacation must be taken by the
Executive at such time or times as approved by the Chairman of the Board or
Chief Executive Officer of Employer. The Executive will also be entitled to the
paid holidays set forth in the Employer's policies.
ARTICLE VI
TERMINATION
6.1 (a) Disability. Employer may terminate this Agreement
for Disability. "Disability" shall exist if because of ill health, physical or
mental disability, or any other reason beyond his control, and notwithstanding
reasonable accommodations made by Employer, the Executive shall have been
unable, unwilling or shall have failed to perform his duties under this
Agreement, as determined in good faith by the Chairman of the Board of GAINSCO,
for a period of 180 consecutive days, or if, in any 12-month period, the
Executive shall have been unable or unwilling or shall have failed to perform
his duties for a period of 270 days, irrespective of whether or not such days
are consecutive.
(b) Cause. Employer may terminate the Executive's employment for
Cause. Termination for "Cause" shall mean termination because of the
Executive's (i) gross incompetence, (ii) willful gross misconduct that causes
material economic harm to Employer or GAINSCO or that brings substantial
discredit to Employer's or GAINSCO's reputation, (iii) failure to follow
directions of the Board of Directors that are consistent with his duties under
this Agreement, (iv) final, nonappealable conviction of a felony involving
moral turpitude, or (v) material breach of any provision of this Agreement.
Items (i), (iii) and (v) of this subsection shall not constitute Cause unless
Employer notifies the Executive thereof in writing, specifying in reasonable
detail the basis therefor and stating that it is grounds for Cause, and unless
the Executive fails to cure such matter within 60 days after such notice is
sent or given under this Agreement. The Executive shall be permitted to
respond and to defend himself before the Board of Directors or any appropriate
committee thereof within a reasonable time after written notification of any
proposed termination for Cause under item (i), (ii), (iii) or (v) of this
subsection.
(c) Without Cause. During the Term, Employer may terminate the
Executive's employment Without Cause, subject to the provisions of subsection
6.2(d). Termination "Without Cause" shall mean termination of the Executive's
employment by Employer other than termination for Cause or for Disability.
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(d) Employer Breach. The Executive may terminate his employment
hereunder for Employer Breach. For purposes of this Agreement "Employer
Breach" shall mean any material breach of this Agreement by Employer, including
without limitation any material reduction in Executive's Salary; provided,
however, that a material breach of this Agreement by Employer shall not
constitute Employer Breach unless the Executive notifies Employer in writing of
the breach, specifying in reasonable detail the nature of the breach and
stating that such breach is grounds for Employer Breach, and unless Employer
fails to cure such breach within 60 days after such notice is sent or given
under this Agreement.
(e) Without Good Reason. During the Term, the Executive may
terminate his employment Without Good Reason. Termination "Without Good
Reason" shall mean termination of the Executive's employment by the Executive
other than termination for Employer Breach.
(f) Explanation of Termination of Employment. Any party
terminating this Agreement shall give prompt written notice ("Notice of
Termination") to the other party hereto advising such other party of the
termination of this Agreement. Within thirty (30) days after notification that
the Agreement has been terminated, the terminating party shall deliver to the
other party hereto a written explanation, which shall state in reasonable
detail the basis for such termination and shall indicate whether termination is
being made for Cause, Without Cause or for Disability (if Employer has
terminated the Agreement) or for Employer Breach or Without Good Reason (if the
Executive has terminated the Agreement).
(g) Date of Termination. "Date of Termination" shall mean the
date on which Notice of Termination is sent or given under this Agreement.
6.2 Compensation During Disability or Upon Termination.
(a) During Disability. During any period that the Executive fails
to perform his duties hereunder because of ill health, physical or mental
disability, or any other reason beyond his control, he shall continue to
receive his full Basic Compensation until the Date of Termination.
(b) Termination for Disability. If Employer shall terminate the
Executive's employment for Disability, Employer's obligation to pay Basic
Compensation shall terminate, except that Employer shall pay the Executive (i)
accrued but unpaid Basic Compensation through the Date of Termination, and (ii)
the benefits set forth in Section 6.2(e).
(c) Termination for Cause or Without Good Reason. If Employer
shall terminate the Executive's employment for Cause or if the Executive shall
terminate his employment Without Good Reason, then Employer's obligation to pay
Basic Compensation shall terminate, except that Employer shall pay the
Executive his accrued but unpaid Basic Compensation through the Date of
Termination.
(d) Termination Without Cause or for Employer Breach. If
Employer shall terminate the Executive's employment Without Cause or if the
Executive shall terminate his employment
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for Employer Breach, then Employer shall pay to the Executive, as severance pay
in a lump sum on the 15th day following the Date of Termination, the following
amounts:
(i) his then-unpaid Salary through the Date of Termination at the
rate in effect as of the Date of Termination; and
(ii) in lieu of any further Salary for periods subsequent to the
Date of Termination, an amount equal to the balance of Executive's Base
Salary through the remainder of the Term.
If the Executive terminates his employment for Employer Breach based upon a
material reduction by Employer of the Executive's Salary, then for purposes of
this subsection 6.2(d), the Executive's Salary as of the Date of Termination
shall be deemed to be the Executive's Salary immediately prior to the reduction
that the Executive claims as grounds for Employer Breach.
(e) Employee Benefits. Unless Employer terminates the
Executive's employment for Cause or the Executive terminates his employment
Without Good Reason, Employer shall maintain in full force and effect (to the
extent consistent with past practice), for the continued benefit of the
Executive and, if applicable, his wife and children, the Benefits that
Executive was entitled to receive immediately prior to the Date of Termination
(subject to the general terms and conditions of the plans and programs under
which he receives such benefits) for twelve months or the balance of the Term,
whichever is shorter, provided that his continued participation or, if
applicable, the participation of his wife and children, is possible under the
general terms and conditions of such plans and programs.
(f) No Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Section 6.2 by seeking
other employment or otherwise.
6.3 Death of Executive. If the Executive dies prior to the
expiration of this Agreement, the Executive's employment and other obligations
under this Agreement shall automatically terminate and all compensation, to
which the Executive is or would have been entitled hereunder (including without
limitation under Section 3.1), shall terminate as of the end of the month in
which the Executive's death occurs; provided, however, that for the balance of
the Term, the Executive's wife and children shall be entitled to receive the
Benefits that they were entitled to receive immediately prior to the death of
the Executive (subject to the general terms and conditions of the plans and
programs under which they receive such benefits) for twelve months or the
balance of the Term, whichever is shorter, provided that their continued
participation is possible under the general terms and conditions of such plans
and programs.
ARTICLE VII
NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
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7.1 Acknowledgments by the Executive. The Executive acknowledges
that (a) during the Term and as a part of his employment, the Executive will be
afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Executive possesses substantial technical expertise
and skill with respect to the Employer's business, the Employer desires to
obtain exclusive ownership of each Employee Invention, and the Employer will be
at a substantial competitive disadvantage if it fails to acquire exclusive
ownership of each Employee Invention; (d) GAINSCO has required that the
Executive make the covenants in this Article VII as a condition to GAINSCO's
purchase of the shares of capital stock of Employer owned by Executive,
pursuant to the Stock Purchase Agreement; and (e) the provisions of this
Article VII are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 Agreements of the Executive. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Term, the Executive will
hold in confidence the Confidential Information and will not disclose
it to any Person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of
this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under applicable law. If any
information that the Employer deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret for purposes
of this Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The Executive
hereby waives any requirement that the Employer submit proof of the
economic value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other
than as a result of a direct or indirect disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while traveling, or
except as otherwise specifically authorized by the Employer) any
document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in any other
form (collectively, the "Proprietary Items"). The Executive recognizes
that, as between the Employer and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this Agreement
by either party, or upon
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the request of the Employer during the Term, the Executive will return
to the Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or other physical
embodiment of any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the Employer may
request in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the United
States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance in
support of the Employer's rights to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that
should a dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
ARTICLE VIII
NON-COMPETITION AND NON-INTERFERENCE
8.1 Acknowledgments by the Executive. The Executive acknowledges
that: (a) the services to be performed by him under this Agreement are of a
special, unique, unusual, extraordinary, and intellectual character; (b) the
Employer's business is currently national in scope and its services and
products are marketed throughout the United States; (c) the Employer competes
with other businesses that are or could be located in any part of the United
States; (d) GAINSCO has required that the Executive make the covenants set
forth in this Article VIII as a condition to GAINSCO's purchase of the shares
of capital stock of Employer owned by
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Executive, pursuant to the Stock Purchase Agreement; and (e) the provisions of
this Article VIII are reasonable and necessary to protect the Employer's
business.
8.2 Covenants of the Executive. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Term, except in the course of his employment
hereunder, directly or indirectly, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or in any manner
connected with, lend the Executive's name or any similar name to, lend
Executive's credit to or render services or advice to, any business whose
products, services or activities compete in whole or in part with the products,
services or activities of the Employer, GAINSCO or any affiliate thereof
anywhere in the world; provided, however, that the Executive may purchase or
otherwise acquire up to (but not more than) five percent (5%) of any class of
securities of any enterprise involved in the Business (but without otherwise
participating in the activities of such enterprise), other than GAINSCO, if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of
1934; and further provided that Executive may purchase securities of GAINSCO in
those purchase windows authorized for GAINSCO's officers by the chief executive
officer of GAINSCO;
(b) during the Post-Agreement Period (as defined below), directly
or indirectly, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control of,
be employed by, associated with, or in any manner connected with, lend the
Executive's name or any similar name to, lend Executive's credit to or render
services or advice to, any business whose products, services or activities are
involved in, directly or indirectly or in whole or in part, the Business (as
defined below) in the geographical areas in which Employer, GAINSCO or any
affiliate thereof is involved in the Business as of the date of termination of
Executive's employment hereunder and during the Post-Employment Period;
provided, however, that the Executive may purchase or otherwise acquire,
directly or indirectly, up to (but not more than) five percent of any class of
securities of any enterprise involved in the Business (but without otherwise
participating in the activities of such enterprise), if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934;
(c) whether for the Executive's own account or for the account of
any other Person, at any time during the Term and the Post-Agreement Period,
solicit business of the same or similar type being carried on by the Employer,
from any Person known by the Executive to be a customer of the Employer,
whether or not the Executive had personal contact with such Person during and
by reason of the Executive's employment with the Employer;
(d) whether for the Executive's own account or the account of any
other Person (i) at any time during the Term and the Post-Agreement Period,
solicit, employ, or otherwise engage as an employee, independent contractor, or
otherwise, any Person who is or was an employee of
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the Employer at any time during the Term or in any manner induce or attempt to
induce any employee of the Employer to terminate his employment with the
Employer; or (ii) at any time during the Term and the Post-Agreement Period,
interfere with the Employer's relationship with any Person, including any
Person who at any time during the Term was an employee, agent, insurer, or
customer of the Employer; or
(e) at any time during or after the Term, disparage the Employer
or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Agreement Period" means the
period beginning on the date of termination of the Executive's employment with
the Employer, plus the remainder of the Term, if any, not fulfilled by
Executive due to the termination of this Agreement by Employer for Cause or by
Executive Without Good Reason, plus three years; provided, however, that, in
the event that Executive's employment is terminated Without Cause or for
Employer Breach, the Post-Agreement Period shall terminate on the first
anniversary of the Date of Termination.
Notwithstanding anything to the contrary in this Agreement or the Stock
Purchase Agreement, in the event of a Change of Control Trigger (as defined in
the Stock Purchase Agreement), the "plus three years" tail of the
Post-Agreement Period shall be reduced in proportion to the Earnout
Consideration (as defined in the Stock Purchase Agreement) not received by the
Seller (as defined in the Stock Purchase Agreement). The three-year period
will be defined as 36 months which will then be multiplied by a fraction, the
numerator of which is the total of all payments received by Seller under
Section 2.3 of the Stock Purchase Agreement, and the denominator of which is
the Earnout Consideration, and rounded to the next whole month. By way of
example, but not of limitation, if a Change of Control Trigger occurs during
the first Earnout Period (as defined in the Stock Purchase Agreement), and as a
result thereof, Seller received $2,000,000 out of a total possible Earnout
Consideration of $10,000,000 to be received by Seller, the 36-month period of
the Post-Agreement Period shall be reduced so that it equals two-tenths of 36
months rounded to the next whole month, or 8 months; and provided further that
in no event shall the tail period be reduced to fewer than six months.
For purposes of this Section 8.2, the term "Business" means the business of
writing, underwriting, selling, claims adjusting, premium financing or acting
as an agent with respect to nonstandard private passenger automotive insurance.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
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The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. GAINSCO or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
ARTICLE IX
GENERAL PROVISIONS
9.1 Injunctive Relief and Additional Remedy. The Executive
acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of
Articles VII and VIII) would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently, the Employer will have the right, in addition to any other rights
it may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provision of this Agreement,
and the Employer will not be obligated to post bond or other security in
seeking such relief.
9.2 Covenants of Articles VII and VIII Are Essential and
Independent Covenants. The covenants by the Executive in Articles VII and VIII
are essential elements of this Agreement, and without the Executive's agreement
to comply with such covenants, GAINSCO would not have purchased the capital
stock of Employer owned by Executive under the Stock Purchase Agreement and the
Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Articles VII and VIII are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against GAINSCO, will not excuse the
Executive's breach of any covenant in Articles VII or VIII.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Articles VII and
VIII.
9.3 Representations and Warranties by the Executive. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute
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a default under, any agreement to which the Executive is a party or by which
the Executive is or may be bound.
9.4 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
9.6 Binding Effect; Delegation of Duties Prohibited. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and facsimile numbers set forth below (or to such other addresses and
facsimile numbers as a party may designate by notice to the other parties):
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If to Employer:
National Specialty Lines, Inc.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: President
Facsimile No.: (817) 335-1230
Executive:
Michael Johnston
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
GAINSCO:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
9.8 Entire Agreement; Amendments. This Agreement, the Stock
Purchase Agreement, and the documents executed in connection with the Stock
Purchase Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
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subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
9.9 Governing Law. This Agreement will be governed by the laws of
the State of Florida without regard to conflicts of laws principles.
9.10 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement shall be
brought against either of the parties in the courts of the State of Florida,
County of Miami-Dade, or, if it has or can acquire jurisdiction, in the United
States District Court for the Southern District of Florida, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on either party anywhere in the world.
9.11 Section and Article Headings, Construction. The headings of
Sections and Articles in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" and "Article" or "Articles" refer to the corresponding Section or
Sections and Article or Articles of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
9.12 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
9.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY
TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EXECUTIVE:
--------------------------------------------
Michael Johnston
GAINSCO, INC.
By:
-----------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
NATIONAL SPECIALTY LINES, INC.
By:
-----------------------------------------
Name: McRae B. Johnston
Title: President
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EXHIBIT 99.13
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of
________________, 1998, by and among De La Torre Insurance Adjusters, Inc., a
Florida corporation (the "Employer"), Ralph Mayoral (the "Executive") and
GAINSCO, INC., a Texas corporation ("GAINSCO").
RECITALS
Concurrently with the execution and delivery of this Agreement,
GAINSCO is purchasing all of the issued and outstanding shares of capital
stock of Employer owned by the Executive pursuant to a Stock Purchase Agreement
(the "Stock Purchase Agreement") dated ______________, 1998, among GAINSCO,
Executive and Employer. Employer and GAINSCO desire the Executive's continued
employment with the Employer, and the Executive wishes to accept such continued
employment, upon the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the premises, mutual covenants and agreements set
forth and for other good and valuable consideration, the adequacy, sufficiency
and receipt of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Article I.
"Basic Compensation"--Salary and Benefits.
"Board of Directors"--the board of directors of the Employer.
"Confidential Information"--information that is used in the Employer's
business and
(a) is proprietary to, about or created by the Employer;
(b) gives the Employer some competitive advantage, the opportunity
of obtaining such advantage or the disclosure of which could be detrimental to
the interests of the Employer;
(c) is not typically disclosed to non-employees by the Employer,
or otherwise is treated as confidential by the Employer; or
(d) is designated as Confidential Information by the Employer or
from all the relevant circumstances should reasonably be assumed by the
Executive to be confidential to the Employer.
<PAGE> 2
Confidential Information shall not include (i) information already in
Executive's possession prior to the date of this Agreement and that was not
acquired or obtained from Employer or pursuant to a confidentiality agreement;
(ii) information that is obtained or was previously obtained by the Executive
from a third Person who, insofar as is known to the Executive after reasonable
inquiry, is not prohibited from transmitting the information to the Executive
by contractual, legal or fiduciary obligation to the Employer; or (iii)
information that is, or becomes, generally available to the public other than
as a result of a direct or indirect disclosure by the Executive.
"Effective Date"--the date stated in the first paragraph of the
Agreement.
"Employee Invention"--all discoveries, inventions, improvements,
designs, innovations and works of authorship (including all data and records
pertaining thereto) that relate to the business of Employer, whether or not
able to be patented, copyrighted or reduced to writing, that Employee may
discover, invent or originate during the term of his employment hereunder, and
for a period of six months thereafter, either alone or with others and whether
or not during working hours or by the use of the facilities of Employer.
"Fiscal Year"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
ARTICLE II
EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Article VI, the term of the
Executive's employment under this Agreement will be three (3) years, beginning
on the Effective Date and ending on the third anniversary of the Effective Date
(the "Initial Term"). Prior to the beginning of the third year of the Initial
Term, the Agreement will be extended for additional one-year periods on each
anniversary of the Effective Date unless either party delivers written notice
of election not to renew to the other party at least 45 days prior to the
applicable anniversary of the Effective Date (the Initial Term plus any and all
such extended periods are sometimes collectively referred to herein as the
"Term").
2.3 Duties. The Executive will have such duties as are assigned
or delegated to the Executive by the Board of Directors or Chief Executive
Officer of Employer, and will initially serve as Vice President of Employer.
The Executive will devote his entire business time,
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attention, skill, and energy exclusively to the business of Employer, will use
his best efforts to promote the success of Employer's business, and will
cooperate fully with the Board of Directors of Employer in the advancement of
the best interests of Employer. If the Executive is elected as a director of
the Employer, or as a director or officer of any of its affiliates, the
Executive will fulfill his duties as such director or officer without
additional compensation.
ARTICLE III
COMPENSATION
3.1 Basic Compensation.
(a) Salary. The Executive will be paid an annual salary of
$160,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Salary will be
reviewed by the Board of Directors not less frequently than annually.
(b) Benefits. The Executive will, during the Term, be permitted
to participate in such pension, life insurance, hospitalization, major medical,
disability and other employee benefit plans of the Employer that may be in
effect from time to time, to the extent the Executive is eligible under the
terms of those plans (collectively, the "Benefits").
3.2 Stock Options. The Executive shall be entitled to participate
in any stock option plan, employee stock ownership plan or similar plan of
GAINSCO, subject to the approval of the Chief Executive Officer of GAINSCO and
to the extent the Executive is eligible under the terms of such plan.
ARTICLE IV
FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay a reasonable automobile allowance to
Executive and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant
to this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
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<PAGE> 4
ARTICLE V
VACATIONS AND HOLIDAYS
The Executive will be entitled to three (3) weeks' paid vacation each
Fiscal Year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time. Vacation must be taken by the
Executive at such time or times as approved by the Chairman of the Board or
Chief Executive Officer of Employer. The Executive will also be entitled to the
paid holidays set forth in the Employer's policies.
ARTICLE VI
TERMINATION
6.1 (a) Disability. Employer may terminate this Agreement
for Disability. "Disability" shall exist if because of ill health, physical or
mental disability, or any other reason beyond his control, and notwithstanding
reasonable accommodations made by Employer, the Executive shall have been
unable, unwilling or shall have failed to perform his duties under this
Agreement, as determined in good faith by the Chairman of the Board of GAINSCO,
for a period of 180 consecutive days, or if, in any 12-month period, the
Executive shall have been unable or unwilling or shall have failed to perform
his duties for a period of 270 days, irrespective of whether or not such days
are consecutive.
(b) Cause. Employer may terminate the Executive's employment for
Cause. Termination for "Cause" shall mean termination because of the
Executive's (i) gross incompetence, (ii) willful gross misconduct that causes
material economic harm to Employer or GAINSCO or that brings substantial
discredit to Employer's or GAINSCO's reputation, (iii) failure to follow
directions of the Board of Directors that are consistent with his duties under
this Agreement, (iv) final, nonappealable conviction of a felony involving
moral turpitude, or (v) material breach of any provision of this Agreement.
Items (i), (iii) and (v) of this subsection shall not constitute Cause unless
Employer notifies the Executive thereof in writing, specifying in reasonable
detail the basis therefor and stating that it is grounds for Cause, and unless
the Executive fails to cure such matter within 60 days after such notice is
sent or given under this Agreement. The Executive shall be permitted to
respond and to defend himself before the Board of Directors or any appropriate
committee thereof within a reasonable time after written notification of any
proposed termination for Cause under item (i), (ii), (iii) or (v) of this
subsection.
(c) Without Cause. During the Term, Employer may terminate the
Executive's employment Without Cause, subject to the provisions of subsection
6.2(d). Termination "Without Cause" shall mean termination of the Executive's
employment by Employer other than termination for Cause or for Disability.
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<PAGE> 5
(d) Employer Breach. The Executive may terminate his employment
hereunder for Employer Breach. For purposes of this Agreement "Employer
Breach" shall mean any material breach of this Agreement by Employer, including
without limitation any material reduction in Executive's Salary; provided,
however, that a material breach of this Agreement by Employer shall not
constitute Employer Breach unless the Executive notifies Employer in writing of
the breach, specifying in reasonable detail the nature of the breach and
stating that such breach is grounds for Employer Breach, and unless Employer
fails to cure such breach within 60 days after such notice is sent or given
under this Agreement.
(e) Without Good Reason. During the Term, the Executive may
terminate his employment Without Good Reason. Termination "Without Good
Reason" shall mean termination of the Executive's employment by the Executive
other than termination for Employer Breach.
(f) Explanation of Termination of Employment. Any party
terminating this Agreement shall give prompt written notice ("Notice of
Termination") to the other party hereto advising such other party of the
termination of this Agreement. Within thirty (30) days after notification that
the Agreement has been terminated, the terminating party shall deliver to the
other party hereto a written explanation, which shall state in reasonable
detail the basis for such termination and shall indicate whether termination is
being made for Cause, Without Cause or for Disability (if Employer has
terminated the Agreement) or for Employer Breach or Without Good Reason (if the
Executive has terminated the Agreement).
(g) Date of Termination. "Date of Termination" shall mean the
date on which Notice of Termination is sent or given under this Agreement.
6.2 Compensation During Disability or Upon Termination.
(a) During Disability. During any period that the Executive fails
to perform his duties hereunder because of ill health, physical or mental
disability, or any other reason beyond his control, he shall continue to
receive his full Basic Compensation until the Date of Termination.
(b) Termination for Disability. If Employer shall terminate the
Executive's employment for Disability, Employer's obligation to pay Basic
Compensation shall terminate, except that Employer shall pay the Executive (i)
accrued but unpaid Basic Compensation through the Date of Termination, and (ii)
the benefits set forth in Section 6.2(e).
(c) Termination for Cause or Without Good Reason. If Employer
shall terminate the Executive's employment for Cause or if the Executive shall
terminate his employment Without Good Reason, then Employer's obligation to pay
Basic Compensation shall terminate, except that Employer shall pay the
Executive his accrued but unpaid Basic Compensation through the Date of
Termination.
(d) Termination Without Cause or for Employer Breach. If
Employer shall terminate the Executive's employment Without Cause or if the
Executive shall terminate his employment
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<PAGE> 6
for Employer Breach, then Employer shall pay to the Executive, as severance pay
in a lump sum on the 15th day following the Date of Termination, the following
amounts:
(i) his then-unpaid Salary through the Date of
Termination at the rate in effect as of the Date of Termination; and
(ii) in lieu of any further Salary for periods subsequent
to the Date of Termination, an amount equal to the balance of
Executive's Base Salary through the remainder of the Term.
If the Executive terminates his employment for Employer Breach based upon a
material reduction by Employer of the Executive's Salary, then for purposes of
this subsection 6.2(d), the Executive's Salary as of the Date of Termination
shall be deemed to be the Executive's Salary immediately prior to the reduction
that the Executive claims as grounds for Employer Breach.
(e) Employee Benefits. Unless Employer terminates the
Executive's employment for Cause or the Executive terminates his employment
Without Good Reason, Employer shall maintain in full force and effect (to the
extent consistent with past practice), for the continued benefit of the
Executive and, if applicable, his wife and children, the Benefits that
Executive was entitled to receive immediately prior to the Date of Termination
(subject to the general terms and conditions of the plans and programs under
which he receives such benefits) for twelve months or the balance of the Term,
whichever is shorter, provided that his continued participation or, if
applicable, the participation of his wife and children, is possible under the
general terms and conditions of such plans and programs.
(f) No Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Section 6.2 by seeking
other employment or otherwise.
6.3 Death of Executive. If the Executive dies prior to the
expiration of this Agreement, the Executive's employment and other obligations
under this Agreement shall automatically terminate and all compensation, to
which the Executive is or would have been entitled hereunder (including without
limitation under Section 3.1), shall terminate as of the end of the month in
which the Executive's death occurs; provided, however, that for the balance of
the Term, the Executive's wife and children shall be entitled to receive the
Benefits that they were entitled to receive immediately prior to the death of
the Executive (subject to the general terms and conditions of the plans and
programs under which they receive such benefits) for twelve months or the
balance of the Term, whichever is shorter, provided that their continued
participation is possible under the general terms and conditions of such plans
and programs.
ARTICLE VII
NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
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7.1 Acknowledgments by the Executive. The Executive acknowledges
that (a) during the Term and as a part of his employment, the Executive will be
afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Executive possesses substantial technical expertise
and skill with respect to the Employer's business, the Employer desires to
obtain exclusive ownership of each Employee Invention, and the Employer will be
at a substantial competitive disadvantage if it fails to acquire exclusive
ownership of each Employee Invention; (d) GAINSCO has required that the
Executive make the covenants in this Article VII as a condition to GAINSCO's
purchase of the shares of capital stock of Employer owned by Executive,
pursuant to the Stock Purchase Agreement; and (e) the provisions of this
Article VII are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 Agreements of the Executive. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Term, the Executive will
hold in confidence the Confidential Information and will not disclose
it to any Person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of
this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under applicable law. If any
information that the Employer deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret for purposes
of this Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The Executive
hereby waives any requirement that the Employer submit proof of the
economic value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other
than as a result of a direct or indirect disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while traveling, or
except as otherwise specifically authorized by the Employer) any
document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in any other
form (collectively, the "Proprietary Items"). The Executive recognizes
that, as between the Employer and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this Agreement
by either party, or upon
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<PAGE> 8
the request of the Employer during the Term, the Executive will return to the
Employer all of the Proprietary Items in the Executive's possession or subject
to the Executive's control, and the Executive shall not retain any copies,
abstracts, sketches, or other physical embodiment of any of the Proprietary
Items.
(b) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the Employer may
request in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the United
States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance in
support of the Employer's rights to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that
should a dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
ARTICLE VIII
NON-COMPETITION AND NON-INTERFERENCE
8.1 Acknowledgments by the Executive. The Executive acknowledges
that: (a) the services to be performed by him under this Agreement are of a
special, unique, unusual, extraordinary, and intellectual character; (b) the
Employer's business is currently national in scope and its services and
products are marketed throughout the United States; (c) the Employer competes
with other businesses that are or could be located in any part of the United
States; (d) GAINSCO has required that the Executive make the covenants set
forth in this Article VIII as a condition to GAINSCO's purchase of the shares
of capital stock of Employer owned by
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Executive, pursuant to the Stock Purchase Agreement; and (e) the provisions of
this Article VIII are reasonable and necessary to protect the Employer's
business.
8.2 Covenants of the Executive. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Term, except in the course of his employment
hereunder, directly or indirectly, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or in any manner
connected with, lend the Executive's name or any similar name to, lend
Executive's credit to or render services or advice to, any business whose
products, services or activities compete in whole or in part with the products,
services or activities of the Employer, GAINSCO or any affiliate thereof
anywhere in the world; provided, however, that the Executive may purchase or
otherwise acquire up to (but not more than) five percent (5%) of any class of
securities of any enterprise involved in the Business (but without otherwise
participating in the activities of such enterprise), other than GAINSCO, if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of
1934; and further provided that Executive may purchase securities of GAINSCO in
those purchase windows authorized for GAINSCO's officers by the chief executive
officer of GAINSCO;
(b) during the Post-Agreement Period (as defined below), directly
or indirectly, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control of,
be employed by, associated with, or in any manner connected with, lend the
Executive's name or any similar name to, lend Executive's credit to or render
services or advice to, any business whose products, services or activities are
involved in, directly or indirectly or in whole or in part, the Business (as
defined below) in the geographical areas in which Employer, GAINSCO or any
affiliate thereof is involved in the Business as of the date of termination of
Executive's employment hereunder and during the Post-Employment Period;
provided, however, that the Executive may purchase or otherwise acquire,
directly or indirectly, up to (but not more than) five percent of any class of
securities of any enterprise involved in the Business (but without otherwise
participating in the activities of such enterprise), if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934;
(c) whether for the Executive's own account or for the account of
any other Person, at any time during the Term and the Post-Agreement Period,
solicit business of the same or similar type being carried on by the Employer,
from any Person known by the Executive to be a customer of the Employer,
whether or not the Executive had personal contact with such Person during and
by reason of the Executive's employment with the Employer;
(d) whether for the Executive's own account or the account of any
other Person (i) at any time during the Term and the Post-Agreement Period,
solicit, employ, or otherwise engage as an employee, independent contractor, or
otherwise, any Person who is or was an employee of
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<PAGE> 10
the Employer at any time during the Term or in any manner induce or attempt to
induce any employee of the Employer to terminate his employment with the
Employer; or (ii) at any time during the Term and the Post-Agreement Period,
interfere with the Employer's relationship with any Person, including any
Person who at any time during the Term was an employee, agent, insurer, or
customer of the Employer; or
(e) at any time during or after the Term, disparage the Employer
or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Agreement Period" means the
period beginning on the date of termination of the Executive's employment with
the Employer, plus the remainder of the Term, if any, not fulfilled by
Executive due to the termination of this Agreement by Employer for Cause or by
Executive Without Good Reason, plus three years; provided, however, that, in
the event that Executive's employment is terminated Without Cause or for
Employer Breach, the Post-Agreement Period shall terminate on the first
anniversary of the Date of Termination.
Notwithstanding anything to the contrary in this Agreement or the Stock
Purchase Agreement, in the event of a Change of Control Trigger (as defined in
the Stock Purchase Agreement), the "plus three years" tail of the
Post-Agreement Period shall be reduced in proportion to the Earnout
Consideration (as defined in the Stock Purchase Agreement) not received by the
Seller (as defined in the Stock Purchase Agreement). The three-year period
will be defined as 36 months which will then be multiplied by a fraction, the
numerator of which is the total of all payments received by Seller under
Section 2.3 of the Stock Purchase Agreement, and the denominator of which is
the Earnout Consideration, and rounded to the next whole month. By way of
example, but not of limitation, if a Change of Control Trigger occurs during
the first Earnout Period (as defined in the Stock Purchase Agreement), and as a
result thereof, Seller received $2,000,000 out of a total possible Earnout
Consideration of $10,000,000 to be received by Seller, the 36-month period of
the Post-Agreement Period shall be reduced so that it equals two-tenths of 36
months rounded to the next whole month, or 8 months; and provided further that
in no event shall the tail period be reduced to fewer than six months.
For purposes of this Section 8.2, the term "Business" means the business of
writing, underwriting, selling, claims adjusting, premium financing or acting
as an agent with respect to nonstandard private passenger automotive insurance.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
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The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. GAINSCO or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
ARTICLE IX
GENERAL PROVISIONS
9.1 Injunctive Relief and Additional Remedy. The Executive
acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of
Articles VII and VIII) would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently, the Employer will have the right, in addition to any other rights
it may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provision of this Agreement,
and the Employer will not be obligated to post bond or other security in
seeking such relief.
9.2 Covenants of Articles VII and VIII Are Essential and
Independent Covenants. The covenants by the Executive in Articles VII and VIII
are essential elements of this Agreement, and without the Executive's agreement
to comply with such covenants, GAINSCO would not have purchased the capital
stock of Employer owned by Executive under the Stock Purchase Agreement and the
Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Articles VII and VIII are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against GAINSCO, will not excuse the
Executive's breach of any covenant in Articles VII or VIII.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Articles VII and
VIII.
9.3 Representations and Warranties by the Executive. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute
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a default under, any agreement to which the Executive is a party or by which
the Executive is or may be bound.
9.4 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
9.6 Binding Effect; Delegation of Duties Prohibited. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and facsimile numbers set forth below (or to such other addresses and
facsimile numbers as a party may designate by notice to the other parties):
If to Employer:
De La Torre Insurance Adjusters, Inc.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: President
Facsimile No.: (817) 335-1230
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<PAGE> 13
Executive:
Ralph Mayoral
730 Northwest 107th Avenue
Second Floor
Miami, Florida 33172
Facsimile No.: (305) 222-1318
with a copy to:
Robert A. Stamen
Packman, Neuwahl & Rosenberg
1500 San Remo Avenue, Suite 125
Coral Gables, Florida 33146
Facsimile No.: (305) 665-1244
GAINSCO:
GAINSCO, INC.
500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Facsimile No.: (817) 338-1454
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
Facsimile No.: (817) 347-6650
9.8 Entire Agreement; Amendments. This Agreement, the Stock
Purchase Agreement, and the documents executed in connection with the Stock
Purchase Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
9.9 Governing Law. This Agreement will be governed by the laws of
the State of Florida without regard to conflicts of laws principles.
9.10 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement shall be
brought against either of the parties in
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<PAGE> 14
the courts of the State of Florida, County of Miami-Dade, or, if it has or can
acquire jurisdiction, in the United States District Court for the Southern
District of Florida, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any
action or proceeding referred to in the preceding sentence may be served on
either party anywhere in the world.
9.11 Section and Article Headings, Construction. The headings of
Sections and Articles in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" and "Article" or "Articles" refer to the corresponding Section or
Sections and Article or Articles of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
9.12 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
9.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY
TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
* * * * *
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EXECUTIVE:
----------------------------------------------
Ralph Mayoral
GAINSCO, INC.
By:
-------------------------------------------
Name: Glenn W. Anderson
Title: President and Chief Executive Officer
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-------------------------------------------
Name: Carlos De la Torre
Title: President
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