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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
June 29, 1999
(Date of earliest event reported)
VESTA INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-12338 63-1097283
(Commission File No.) (IRS Employer Identification No.)
3760 River Run Drive 35243
Birmingham, Alabama (Zip Code)
(Address of principal
executive offices)
(205)970-7000
(Registrant's telephone number, including area code)
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Item 5. Other Events.
On June 29, 1999, the registrant issued a press release announcing the
execution of a Convertible Preferred Stock Purchase Agreement relating to the
issuance of preferred stock (the "Preferred Stock Purchase Agreement") and an
Acquisition Agreement relating to the sale of control of vesta County Mutual
Insurance Company (the "Acquisition Agreement"). Copies of the Preferred Stock
Purchase Agreement and the Acquisition Agreement are attached as exhibits 10.1
and 10.2 respectively, to this Form 8-K and incorporated herein by reference. A
copy of the press release is attached as Exhibit 99.1 to this Form 8-K and
incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description of Document
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10.1 Convertible Preferred Stock Purchase
Agreement by and between Vesta Insurance
Group, Inc. and Birmingham Investment Group,
LLC.
10.2 Acquisition Agreement between Vesta Insurance
Group, Inc., Vesta Management Corporation of
Texas and Employers Reinsurance Corporation.
99.1 Press release dated June 29, 1999 issued by
the registrant.
SIGNATURE
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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, thereto duly authorized.
Dated July 2, 1999.
VESTA INSURANCE GROUP, INC.
/s/ Norman W. Gayle III
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By: Norman W. Gayle III
Its: Executive Vice President and
Acting Chief Executive Officer
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Exhibit 10.1
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VESTA INSURANCE GROUP, INC.
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made and entered into by and among VESTA INSURANCE GROUP, INC., a Delaware
corporation (the "Company"), having its principal office at 3760 River Run
Drive, Birmingham, Alabama 35243, and Birmingham Investment Group, LLC (the
"Investor") acting on behalf of the investors named on the schedule of investors
attached hereto as Exhibit A (the "Schedule of Investors"), each of which may be
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herein referred to individually as "Investor" or collectively as "Investors,"
with reference to the following:
RECITALS
A. The Investor has received information from the Company which describes
the Company's offer (the "Offering") to issue and sell 2,950,000 shares of its
$.01 par value, Series A Convertible Preferred Stock (the "Preferred Stock").
The terms and conditions of the Preferred Stock are set forth in the Company's
Certificate of Designation of Preferences and Rights, attached hereto as Exhibit
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B (the "Certificate of Designation"). The Preferred Stock will be convertible
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into shares of the Company's $.01 par value, Common Stock ("Common Stock") at a
price of $4.25 per share subject to adjustment as set forth in the Certificate
of Designation.
B. Based upon the Investor's review of materials set forth on Schedule C
hereto received by them relating to the Offering and their discussions with
representatives of the Company, the Investor desires to purchase from the
Company 2,950,000 shares of the Company's Preferred Stock, at a purchase price
of $8.50 per share.
C. Based upon its investigation of Investor's experience in financial
investments, including its reliance on the investment representations made by
the Investor in Section 3 of the Agreement, and upon the Investor's ability to
evaluate the merits and risks of its investment hereunder and to bear the
economic risk thereof, the Company desires to sell the Preferred Stock to the
Investors.
AGREEMENT
In consideration of the foregoing and the representations, warranties,
conditions and covenants contained herein, the Company and the Investor hereby
agree as follows:
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1. Issuance and Sale of the Preferred Stock.
On the basis of the representations, warranties and covenants contained
herein, and subject to the terms and conditions of this Agreement, the Company
agrees to issue and sell to the Investor, and the Investor agrees to purchase
from the Company, 2,950,000 shares of the Preferred Stock by paying the Company
the purchase price of $25,075,000 (the "Purchase Price").
The consummation of the purchase and sale of the Preferred Stock pursuant
to this Agreement shall be held at the offices of Haskell Slaughter & Young,
L.L.C. at 10:00 a.m. on the second business day following the satisfaction or
waiver of the conditions to closing set forth in Sections 4 and 5 or on such
other date as the parties may mutually agree (the "Closing Date").
At the Closing, the Company will deliver a Preferred Stock certificate or
certificates to the Investor, registered in the Investor's name, representing
the number of shares purchased by the Investor hereunder, against payment of the
Purchase Price amount which may be made by check payable to the order of the
Company or by wire transfer of such amount to the Company's bank account.
2. Representations and Warranties of the Company.
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit C (the "Schedule of Exceptions"), the Company hereby represents and
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warrants to the Investor that:
2.1. Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as presently conducted and carry out the transactions
contemplated hereunder. The Company is duly qualified to transact business and
is in good standing in each jurisdiction of the United States in which the
failure so to qualify would have a material adverse effect on its business or
properties.
2.2. Capitalization. The authorized capital of the Company consists of:
a. Preferred Stock. 5,000,000 shares of $.01 par value Preferred Stock,
2,950,000 shares of which have been designated Series A Convertible Preferred
Stock, none of which has been issued or is outstanding. The rights, preferences
and privileges of the Preferred Stock are as set forth in the Restated
Certificate of Incorporation.
b. Common Stock. 100,000,000 shares of Common Stock, par value $.01 per
share, of which 18,681,237 shares are issued and outstanding.
c. All outstanding shares of Preferred Stock and Common Stock have been
duly authorized and validly issued, are fully paid and non-assessable, and were
or will be issued in compliance with all applicable federal and state securities
laws.
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d. Except for the 2,950,000 shares of Preferred Stock which will be
issued pursuant to this Agreement, which shares will be convertible into
5,900,000 shares of Common Stock subject to adjustment as set forth in the
Certificate of Designation, there are no outstanding options, warrants,
conversion rights, rights of first refusal, preemptive rights or other rights or
agreements for the purchase or acquisition from the Company of any of the
securities of the Company or rights thereto.
2.3. Subsidiaries. The Company does not presently own or control, directly
or indirectly, any interest in any other corporation, association, or other
business entity.
2.4. Authorization. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder including the issuance, sale and delivery of the Preferred
Stock and of the Common Stock issuable upon conversion of the Preferred Stock
(the "Common Conversion Shares") has been taken or will be taken prior to the
Closing. Upon execution and delivery, this Agreement will be a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting
enforcement of creditors' rights and by general equitable principles.
2.5. Validity of Securities. The Preferred Stock has been duly authorized
and upon issuance in accordance with the terms of this Agreement and the
Restated Certificate of Incorporation will be validly issued and outstanding,
fully paid and nonassessable. The Common Conversion Shares have been duly
authorized and reserved, and upon issuance in accordance with the terms of the
Certificate of Designation, will be validly issued and outstanding, fully paid
and nonassessable.
2.6. Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the valid execution and delivery of this Agreement,
or the offer, sale or issuance of securities of the Company hereunder, except
such as has already been obtained or as is not required to be obtained prior to
the Closing.
2.7. Litigation. To the best of the Company's knowledge, there is no
action, suit, proceeding or investigation pending or overtly threatened against
the Company which questions the validity of this Agreement or the right of the
Company to enter into it, or to consummate the transactions contemplated hereby,
or which might result, either individually or in the aggregate, in any material
adverse changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, nor is the Company aware that there is any basis for
the foregoing. The Company is not subject to the provisions of any order, writ,
action, judgment or decree of any court or government agency or instrumentality
which names the Company as a party.
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2.8. Patents and Trademarks. The Company has sufficient right, title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
licenses, information and proprietary rights, or adequate licenses, rights or
purchase options with respect to the foregoing, necessary for its business as
presently conducted, or is able to obtain on terms which will not materially
adversely affect its business all necessary permits, licenses and other
authority with respect thereto without any known conflict with or infringement
of the rights of others.
2.9. Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Restated Certificate of Incorporation or
Bylaws, as amended and in effect on and as of the date hereof and as of the date
of the Closing, or each of any material contract, agreement or instrument to
which it is a party or by which it is bound or, to its knowledge, of any
provision of any federal, state or local judgment, writ, decree, order, statute,
rule or governmental regulation applicable to the Company. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such violation or
contravene or constitute, with or without the passage of time and giving of
notice, either a default under any such provision or result in the creation or
imposition of any lien, charge or encumbrance upon any assets of the Company.
2.10. Agreements; Action.
a. Except for agreements explicitly identified herein or in the Company
Documents, there are no employment or other material agreements, understandings
or pro-posed transactions between the Company and any of its officers,
directors, affiliates, or any affiliate thereof.
b. Except in the ordinary course of business consistent with past
practices or as set forth in the Company Documents (as hereinafter defined),
there are no agreements, understandings, instruments, con-tracts or proposed
transactions to which the Company is a party or by which it is bound which
involve obligations of, or payments to the Company of, amounts in excess of one
million dollars ($1,000,000).
c. The Company is not a party to or is not bound by any contract,
agreement or instrument, or subject to any restriction under the Restated
Certificate of Incorporation or Bylaws, which materially and adversely affects
its business as now conducted, its properties or its financial conditions.
2.11. Registration Rights. Except as provided for in Section 6 of this
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.12. Disclosure. The Company has fully provided the Investor with all
the information which such Investor has requested relating to the Company and
the Offering. No representation, warranty or statement by the Company in this
Agreement or in any written statement or certificate furnished or to be
furnished to such Investor pursuant to this Agreement contains or will contain
any
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untrue statement of a material fact or, when taken together, omits or will omit
to state a material fact necessary to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
2.13. Corporate Documents.
a. The Company has heretofore furnished the Investor with a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by it with the SEC (as any such documents have since the
time of their original filing been amended, the "Company Documents") since
January 1, 1998, which are all the documents (other than preliminary material)
that it was required to file with the SEC since such date. As of their
respective dates, the Company Documents did not contain any untrue statements of
material facts or omit to state material facts required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. As of their respective dates, the Company
Documents complied in all material respects with the applicable requirements of
the Securities Act of 1933, as amended (the "Act"), and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated under such
statutes. The financial statements contained in the Company Documents, together
with the notes thereto, have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods indicated
(except as may be indicated in the notes thereto, or, in the case of the
unaudited financial statements, as permitted by Form 10-Q), reflect all known
liabilities of the Company required to be stated therein, including all known
contingent liabilities as of the end of each period reflected therein, and
present fairly the financial condition of the Company at said dates and the
consolidated results of operations and cash flows of the Company for the periods
then ended. The consolidated balance sheet of the Company at March 31, 1999
included in the Company Documents is herein sometimes referred to as the
"Company Balance Sheet."
b. Except as disclosed in the Company Documents and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practices, since the date of the Company Balance Sheet,
neither the Company nor any of its subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
have, or would be required to be reflected or reserved against on a consolidated
balance sheet of the Company (including the notes thereto) prepared in
accordance with generally accepted accounting principles as applied in preparing
the Company Balance Sheet.
2.14. Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims and encumbrances.
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2.15. Insurance. The Company maintains such types and amounts of insurance
with respect to its business and properties, on both a per occurrence and an
aggregate basis, as are customarily carried by persons or entities engaged in
the same or similar business as the Company.
2.16. No Adverse Changes. Except as set forth in the Company Documents,
since March 31, 1999, there has not been (1) any material adverse change in the
financial condition, results of operations, assets, liabilities, business or
prospects of the Company; (2) any material liability or obligation of any nature
whatsoever (contingent or otherwise) incurred by the Company, other than (a)
liabilities incurred in the ordinary course of business and (b) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company; (3) any
material asset or property of the Company made subject to a lien of any kind;
(4) any waiver of any material valuable right of the Company, or any
cancellation of any material debt or claim held by the Company; (5) any payment
of dividends on, other distributions with respect to, or any direct or indirect
redemption or acquisition of, any shares of the capital stock of the Company, or
any agreement or commitment therefor; (6) any issuance of any capital stock,
other than (a) upon the exercise of employee stock options, and (b) the issuance
of shares of Common Stock, or stock options to purchase Common Stock, to members
of the Board of Directors, key employees, special advisors and consultants of
the Company, all of which issuances were authorized by the Board of Directors,
including committees and individuals authorized by the Board of Directors; (7)
any sale, assignment or transfer of any tangible or intangible material assets
of the Company, except for sales, assignments or transfers in the ordinary
course of business; (8) any loan by the Company to any officer, director,
employee, consultant or shareholder of the Company, or any agreement or
commitment therefor other than routine travel or relocation advances, or loans
made in the ordinary course of business; (9) any material damage, destruction or
loss (whether or not covered by insurance) affecting the assets, property,
business or prospects of the Company; or (10) any change in the accounting
methods, practices or policies followed by the Company, including any change in
depreciation or amortization policies or rates.
2.17. Taxes. The Company has filed or caused to be filed all federal,
state and local tax returns which are required to be filed by it, and, to the
best of the Company's knowledge, all such returns are true and correct. Except
for taxes which are being contested in good faith by the Company or for which
adequate reserves are being held by the Company, the Company has paid or caused
to be paid all taxes pursuant to such returns or pursuant to any assessments
received by it or which it is obligated to with-hold from amounts owing to any
employee, creditor or third party. The income tax returns of the Company have
never been audited by any federal, state, or local authorities.
2.18. Securities Laws. Based in part upon the representations of the
Investor, the issuance, sale and delivery of the Preferred Stock pursuant to the
terms of this Agreement and the Common Conversion Shares pursuant to this
Agreement and the Certificate of Designation shall be exempt from the
registration requirements of Section 5 of the Act by virtue of Section 4(2)
thereof and Rule 506 promulgated thereunder, and any state securities laws by
virtue of Section 18 thereof.
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3. Representations and Warranties of the Investor.
The Investor hereby represents and warrants to the Company that:
3.1. Investment Representations.
a. The Investor is experienced in evaluating and investing in companies
such as the Company.
b. The Investor has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management and has had the
opportunity to inspect the Company's facilities. The Investor has made its own
independent investigation of the Company and has been furnished by the Company
with such information relating to the Company and the Offering as the Investor
has requested.
c. In making its decision to purchase the Preferred Stock pursuant to
this Agreement, the Investor has relied solely upon the information furnished or
made available by the Company as described in Section 3.1(b), the Company's
representations and warranties contained in Section 2 hereof and documents and
certificates delivered pursuant hereto.
d. The Investor understands that no federal or state agency has passed
upon an investment in the Preferred Stock or made any finding or determination
as to the advisability or fairness of an investment in the Preferred Stock.
e. The Investor understands that it must bear the economic risk of
investment in the Preferred Stock for an indefinite period of time because the
Preferred Stock and the Common Conversion Shares have not been registered under
the Act and, therefore, cannot be sold until they are either subsequently
registered under the Act or an exemption from such registration is available.
f. The Investor understands that, upon issuance of the Preferred Stock
and Common Conversion Shares, the certificates representing such shares shall
bear the legends set forth in Section 3.2 hereof.
g. The Investor understands that there is presently no established market
for the Preferred Stock to be issued by the Company pursuant to this Agreement
and it is uncertain whether any public market for the Preferred Stock will
develop.
h. The Investor is acquiring the Preferred Stock for investment for its
own account and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Preferred Stock and the Common
Conversion Shares have not been registered under the Act by reason of a
specified exemption from the registration provisions of the Act, which requires,
among other things, the bona fide nature of the Investor's investment intent as
expressed herein.
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i. All information that the Investor has furnished to the Company with
respect to its organization, financial position and business experience is
correct as of the date of this Agreement and, if there should be any material
change in such information prior to the Company's execution of this Agreement,
the Investor will immediately furnish such revised or corrected information in
writing to the Company.
j. Each member of the Investor is an "accredited investor" (as defined in
Section 501 of Regulation D under the Act).
k. As of the date of this Agreement and as of the Closing Date, the
Investor has or will have sufficient funds, or firm commitments for sufficient
funds, to fulfill its obligations under this Agreement. The individuals set
forth on Exhibit E will guarantee the ability of the Investor to meet its
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obligations under this Section 3.1(k) and will join in this Agreement solely for
that limited purpose.
l. As of the date of this Agreement, the Investor is not aware of any
fact, or set of facts, it reasonably believes that would be sufficient grounds
for any state or federal regulator to deny approval of the consummation of the
transactions contemplated by this Agreement.
3.2. Legends. It is understood that the certificate(s) representing the
Preferred Stock and the certificate(s) representing the Common Conversion Shares
may bear one or all of the following legends:
a. "The securities evidenced by this Certificate have been acquired for
investment and have not been registered under the Securities Act of 1933 (the
"1933 Act") in reliance on certain exemptions contained therein, or under the
securities act of any state (the "State Acts") in reliance on certain exemptions
contained therein. These securities shall not be sold, transferred or otherwise
disposed of except in a transaction (i) registered under the 1933 Act or exempt
from registration thereunder and registered under the State Acts or exempt from
registration thereunder, or (ii) otherwise in compliance with the 1933 Act and
the State Acts."
b. Any legend required by the laws of any state.
Each Investor hereby understands and agrees that the Company shall have no
obligation to remove the legends set forth in Section 3.2 unless and until the
securities covered thereby have been registered or can be sold pursuant to Rule
144(k) promulgated under the Act.
3.3. Authorization. All corporate action on the part of the Investor, its
officers, directors and members necessary for the authorization, execution and
delivery of this Agreement and the performance of all obligations of the
Investor hereunder has been taken or will be taken prior to the Closing. Upon
execution and delivery, this Agreement will be a valid and binding obligation of
the Investor, enforceable in accordance with its terms, except as may be limited
by applicable
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bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application relating to or affecting enforcement of creditors' rights and by
general equitable principles.
4. Conditions of Investor's Obligations at the Respective Closing.
The obligations of the Investor to the Company under Section 1 of this
Agreement are subject to the fulfillment or waiver on or before the respective
Closing of each of the following conditions, the waiver of which shall not be
effective by or against the Investor unless in writing:
4.1. Material Adverse Change. Since the date of this Agreement, there have
been no material adverse changes, occurrences or developments in the business of
the Company that have, or would be expected to have, a material adverse effect
on the business, operations or financial condition of the Company, and Investor
shall not have discovered any fact or circumstance not disclosed by the Company
prior to the date of this Agreement that has resulted in, or could reasonably be
expected to result in, a material adverse effect on the business, operations or
financial condition of the Company.
4.2. Representations and Warranties. The representations and warranties of
the Company contained in Section 2 shall be true and correct on and as of the
Closing Date. Each other representation and warranty of the Company set forth
in this Agreement that is not so qualified shall be true and correct in all
material respects as of the Closing Date as though made at and as of such time,
except to the extent that any such representation and warranty expressly relates
to an earlier date (in which case any such representation and warranty that is
qualified as to materiality shall be true and correct, and any such
representation and warranty that is not so qualified shall be true and correct
in all material respects, as of such earlier date).
4.3. Performance. The Company shall have performed and complied with in
all material respects all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before such Closing.
4.4. Compliance Certificate. The Company's President or Chief Financial
Officer shall deliver to each Investor at the respective Closing a certificate,
dated the Closing Date, certifying that the conditions specified in Section 4
have been fulfilled.
4.5. Qualifications. All authorizations, approvals, or permits, including
necessary insurance regulatory approvals, solicitation permits and Hart-Scott-
Rodino approval, if any, of any governmental authority or regulatory body of the
United States or of any state that is required in connection with the lawful
issuance and sale of the Preferred Stock pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of the Closing Date. The
Investor shall have no obligation or responsibility under Section 1 of this
Agreement unless all such authorizations, approvals, or permits, whether
required to be obtained by the Company or by the Investor, are duly obtained and
are effective on and as of the Closing Date.
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4.6. Proceedings and Documents. All corporate and other proceedings,
including shareholder approval, if required, in connection with the transactions
contemplated hereby and all documents and instruments incident thereto shall be
reasonably satisfactory in form and substance to the Investor. The Investor
shall have received all such counterpart original and certified or other copies
of such documents as it may reasonably request.
4.7. Opinion of Company Counsel. The Investor shall have received from
counsel for the Company, an opinion, dated as of the respective Closing, and in
substantially the form attached hereto as Exhibit D.
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4.8. Legal Investment. At the time of the respective Closing, the purchase
of the Preferred Stock to be purchased by the Investor hereunder shall be
legally permitted by all laws and regulations to which the Investor and the
Company are subject.
4.9. Credit Facility. No later than the Closing Date, the Company shall
have entered into a credit facility in form and substance reasonably
satisfactory to the Investor, pursuant to that certain commitment letter
attached hereto as Exhibit F.
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4.10. No Change in Ratings of the Company. The Company shall have not
received any notice of downgrade, been placed on a "watch list" with negative
implications, or have notice of or be subject to any other similar event since
May 31, 1999, with respect to the Company's ratings by A.M. Best, Standard &
Poor's Corporation, Moody's Investor Service or Duff & Phelps.
4.11. Appointment of Directors. James A. Taylor and Larry D. Striplin,
Jr. shall have been appointed to the Board of Directors of the Company.
4.12. Employment Agreements With Existing Senior Management. The Company
and certain existing senior management of the Company shall have entered into
employment agreements in form and substance mutually satisfactory to both the
Investor and the Company.
4.13. Removal of Regulatory Limits. The limits imposed on the insurance
subsidiaries of the Company by the departments of insurance of Alabama and Ohio
shall have been removed.
4.14. No Defaults. The Company shall not be in default with respect to any
of its outstanding indebtedness and shall have received all necessary lender
approvals.
4.15. Amendments to Corporate Documents. All necessary amendments to the
Company's Restated Certificate of Incorporation and Bylaws to accomplish the
foregoing would be approved by the Company's stockholders or Board of Directors
as required.
4.16. Waiver of Business Combinations With Interested Stockholders. The
Company shall hereby and forthwith waive any and all provisions that would
prohibit or preclude a business
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combination with Investor as an interested stockholder of the Company as
provided in Section 203 of the General Corporation Law of the State of Delaware
(the "DGCL").
4.17. Orders, Decrees or Injunctions. Neither the Company nor any of its
subsidiaries, nor the Investor, shall be subject to any order, decree or
injunction by a court of competent jurisdiction which (i) prevents the
consummation of the transactions contemplated by this Agreement; or (ii) would
impose any material limitation on the ability of the Investor effectively to
exercise full rights of ownership of the Preferred Stock or the Common Stock of
the Company.
4.18. Statutes, Rules or Regulations. No statute, rule or regulation shall
have been enacted after the date of this Agreement by the government (or any
governmental agency) of the United States or any state, municipality or other
political subdivision thereof that makes the consummation of the transactions
contemplated by this Agreement hereby illegal.
5. Conditions of the Company's Obligations at the Respective Closing.
The obligations of the Company to the Investor under Section 1 of this
Agreement are subject to the fulfillment or waiver on or before the respective
Closing of each of the following conditions, the waiver of which shall not be
effective by or against the Company unless in writing.
5.1. Representations and Warranties. The representations and warranties of
the Investor contained in Section 3 shall be true on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.
5.2. Legal Investment. At the time of the respective Closing, the
purchase of the Preferred Stock to be purchased by the Investor hereunder shall
be legally permitted by all laws and regulations to which the Investor and the
Company are subject.
5.3. Qualifications. All authorizations, approvals, or permits, including
necessary insurance regulatory approvals, solicitation permits and Hart-Scott-
Rodino approval, if any, of any governmental authority or regulatory body of the
United States or of any state that is required in connection with the lawful
issuance and sale of the Preferred Stock pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of the Closing Date. The
Company shall have no obligation or responsibility under Section 1 of this
Agreement unless all such authorizations, approvals, or permits, whether
required to be obtained by the Company or by the Investor, are duly obtained and
are effective on and as of the Closing Date.
5.4. Proceedings and Documents. All corporate and other proceedings,
including shareholder approval, if required, in connection with the transactions
contemplated hereby and all documents and instruments incident thereto shall be
reasonably satisfactory in form and substance to the Company. The Company shall
have received all such counter-part original and certified or other copies of
such documents as it may reasonably request.
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5.5. Credit Facility. No later than the Closing Date, the Company shall
have entered into a credit facility in form and substance reasonably
satisfactory to the Company, pursuant to that certain commitment letter attached
hereto as Exhibit F.
---------
5.6. Orders, Decrees or Injunctions. Neither the Company nor any of its
subsidiaries, nor the Investor, shall be subject to any order, decree or
injunction by a court of competent jurisdiction which (i) prevents the
consummation of the transactions contemplated by this Agreement; or (ii) would
impose any material limitation on the ability of the Investor effectively to
exercise full rights of ownership of the Preferred Stock or the Common Stock of
the Company.
5.7. Statutes, Rules or Regulations. No statute, rule or regulation shall
have been enacted after the date of the Agreement by the government (or any
governmental agency) of the United States or any state, municipality or other
political subdivision thereof that makes the consummation of the transactions
contemplated by this Agreement hereby illegal.
6. Registration Rights.
The Company covenants and agrees as follows:
6.1. Definitions. For purposes of this Section 6:
a. The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
b. The term "Registrable Securities" means (a) the Preferred Stock, (b)
the Common Con-version Shares, and (c) any Common Stock of the Company issued as
a dividend or other distribution with respect to, or in exchange for or in
replacement of the Preferred Stock or Common Stock issued or issuable upon
conversion thereof; provided, however, that any Registrable Securities sold by a
person in a transaction in which his or her rights under this Section 6 are not
assigned shall no longer be deemed to be Registrable Securities from and after
such sale; as to any particular Registrable Securities, once issued, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Act and such securities shall have been disposed of in
accordance with such registration statement, (ii) they are eligible to be
distributed to the public pursuant to Rule 144(k) of the Act, or (iii) they
shall have ceased to be outstanding;
c. The term "Holder" means any Investor owning or having the right to
acquire Registrable Securities or any assignee of registration rights hereunder
in accordance with Section 6.13 hereof; and
d. The term "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently adopted by the
Securities and Exchange
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Commission (the "Commission") which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the Commission.
e. The term "Form S-1" means any such form under the Act as in effect on
the date hereof or any successor registration form under the Act subsequently
adopted by the Commission.
f. The term "Securities with Piggyback Rights" means securities of the
Company which are entitled upon request to be included in a registration
effected by the Company (including a registration statement effected by the
Company for shareholders).
6.2. Immediate Registration. Within thirty (30) days after the Closing
Date, the Company shall file a registration statement covering the Registrable
Securities on Form S-1 or Form S-3, as appropriate, under the Act, or a similar
document pursuant to any other statute then in effect corresponding to the Act,
and shall use its best efforts to effect, within ninety (90) days of the
Closing, the effectiveness of the Registration Statement and the registration
under the Act of all Registrable Securities.
6.3. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan, relating to a Rule 145 transaction or a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
such Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 7.6 hereof, the Company shall, subject to the
provisions of Section 6.8 hereof, cause to be registered under the Act all of
the Registrable Securities (except for Preferred Stock) that each such Holder
has requested to be registered to the extent permitted by applicable law and
regulation.
6.4. Obligations of the Company. Whenever required under this Section 6 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
a. Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective.
b. Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may
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be necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
c. Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
d. Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdiction.
e. In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
6.5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 6 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
6.6. Expenses of Demand Registration. All expenses incurred in connection
with registrations pursuant to Section 6.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
6.7. Expenses of Company Registration. The Company shall bear and pay all
costs of and incidental to any registration, filing or qualification of
Registrable Securities with respect to the registrations pursuant to Section 6.3
for each Investor (which right may be assigned as provided in Section 6.12),
including (without limitation) all registration, filing, and qualification fees,
printers' and accounting fees relating or apportionable thereto and the reason-
able fees and disbursements of one counsel for the selling Holders and the
Holders will bear and pay their pro rata portion of any underwriting discounts
and commissions.
6.8. Underwriting Requirements.
a. In connection with any offering involving an underwriting of shares,
the Company shall not be required under Section 6.3 to include any of the
Holders' securities in such underwriting
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unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it, and then only in such quantity as
will not, in the opinion of the underwriters, jeopardize the success of the
offering by the Company or the Company shareholders demanding such registration.
If the total amount of Registrable Securities that all selling Holders of
Securities with Piggyback Registration Rights under Section 6.3 request to be
included in such offering exceeds (when combined with the securities being
offered by the Company or its share-holders demanding such registration) the
amount of securities that the underwriters reasonably believe compatible with
the success of the offering, then the Company shall be required to include in
the offering only that number of such Registrable Securities which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders and
other holders of Securities with Piggyback Rights according to the total amount
of Securities with Piggyback Rights owned by each selling Holder or in such
other proportions as shall mutually be agreed to by such selling Holders), but
in no event shall the amount of securities of the selling Holders included in an
offering by the Company of its shares be reduced below twenty-five percent (25%)
of the total amount of securities included in such offering, unless, in the good
faith judgement of the Board of Directors, further reduction is necessary in
order to ensure that the offering raises sufficient capital to satisfy the
Company's regulatory obligations, or to prevent a lowering of a credit rating by
a nationally recognized credit rating service, provided that preference may be
given to other shareholders to the extent their securities have been included in
the registration upon exercise of a demand registration right held by them.
b. The Company shall have the right, upon the advice of the Board of
Directors of the Company, upon giving written notice to Investor of the exercise
of such right to require Investor not to sell any shares pursuant to the
registration statement filed pursuant hereto for a period (as determined in good
faith by the Board of Directors) from the date on which such notice is given (a
"black-out period"), if (i)(A) the Company is engaged in discussions or
negotiations with respect to, or has proposed or taken a substantial step to
commence, or there otherwise is pending, any merger, acquisition, other form of
business combination, divestiture, tender offer, financing or other transaction,
or there is an event or state of facts relating to the Company, in each case
which is material to the Company (as reasonably determined by the Board of
Directors) (any such negotiation, step, event or state of facts being herein
called "Material Activity"), (B) in the reasonable judgment of the Board of
Directors, after consultation with and acting upon the written advice of outside
counsel, disclosure of such Material Activity would be necessary or advisable
under applicable securities laws and (C) such disclosure would, in the
reasonable judgment of the Board of Directors, be adverse to the interests of
the Company, or (ii) the Board of Directors, in its reasonable judgment, after
consultation with and acting upon the written advice of outside counsel, deems
it necessary to file a post-effective amendment to such registration statement
or to prepare a supplement to, or otherwise amend, the form of prospectus
contained therein. During any such black-out period, Investor agrees not to
sell any Registrable Shares under such registration statement for such period of
time as the Board of Directors, acting on the written advice of outside counsel,
may in good faith deem advisable; provided, however, that no single black-out
period will be longer than sixty (60) calendar days and, in the aggregate, all
black-out periods in any twelve (12) month period shall not include more than
sixty (60) calendar days; provided, further, however, that no black-out period
may
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be imposed by the Company during the first thirty (30) calendar days after the
effectiveness of the registration statement filed pursuant to Section 6.2. The
period of effectiveness of any registration statement in effect at the time of a
black-out period and the termination period under Section 6.8 shall be extended
for a period equal to the black-out period.
6.9. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 6.
6.10. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 6:
a. To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors and partners of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities joint or several to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (a) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (b) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (c) any violation or
alleged violation by the Company of the Act, the 1934 Act, any state securities
law or any rule or regulation promulgated under the Act, the 1934 Act or any
state securities law; and the Company will reimburse each such Holder, officer,
director and partners of each Holder, underwriter or controlling person for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section 6.10
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld); provided further,
however, that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any such untrue statement, alleged untrue
statement, omission or alleged omission made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or the amended prospectus
filed with the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any underwriter if a copy
of the Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Act. The Company shall not be liable under any of the foregoing
circumstances for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
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b. To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter (within the meaning of
the Act) for the Company or such other Holders, any person who controls such
underwriter, and any other Holder selling securities in such registration
statement or any of its directors, officers or partners or any person who
controls such Holder, against any losses, claims, damages, or liabilities (joint
or several) to which the Company or any such director, officer, partners,
controlling person, or underwriter or controlling person, or other such Holder
or director, officer or controlling person may become subject, under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, partner,
controlling person, underwriter or controlling person, other Holder, officer,
director, partner, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 6.10 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
c. Promptly after receipt by an indemnified party, under this Section
6.10, of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 6.10, notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
6.10, but the omission so to notify the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than under
this Section 6.10.
6.11. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the Commission that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
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a. make and keep current public information available, as that term is
understood and defined in Commission Rule 144, at all times after the Closing;
b. take such action as is reasonably necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities;
c. file with the Commission in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
d. furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (a) a written statement by the Company that
it has complied with the reporting requirements of Commission Rule 144, the Act
and the 1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies); (b) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company; and (c) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the
Commission which permits the selling of any such securities without registration
or pursuant to such form.
6.12. Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 6 may be assigned by a
Holder to (1) any affiliate of such Holder, or if such Holder is a partner-ship,
any partner or partners of such Holder, and (2) any other transferee or assignee
of such securities provided that (a) such assignment or transfer relates to not
less than 500,000 Common Conversion Shares, or 250,000 shares of Preferred
Stock, subject to any adjustment for stock splits, subdivision or similar
capital reorganization of the Company's capital stock, (b) the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned, (c) such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act, (d) such rights may not be assigned to any person or
entity which, in the Company's reasonable judgment, is a competitor of the
Company, and (e) without the Company's written consent, such rights may not be
assigned to anyone who is not an accredited investor or to anyone for whom
regulatory approval is required without such approval first being obtained. No
such assignment shall occur prior to the Closing Date without the Company's
consent.
7. Covenants.
7.1. Conduct of the Company's Business. From the date hereof until the
earliest of (a) the termination of this Agreement or (b) the Closing, except for
activities previously disclosed in writing to the Investor or set forth on
Schedule 7.1 hereto, the Company shall conduct its business only in the ordinary
course, consistent with past practice.
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7.2. Standstill Agreement. Without the prior written consent of the
Company, for a period of three years from the Closing Date, the Investor will
not acquire, offer to acquire, or agree to acquire, directly or indirectly, by
purchase or otherwise, any voting securities or direct or indirect rights or
options to acquire any voting securities of the Company if, as a result of such
acquisition, the Investor or any "group" (within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934) of which the Investor is a member would
then beneficially own 40% or more of such outstanding voting securities of the
Company. In addition, without prior written consent of the Company, for a
period of two years, the Investor agrees not to (a) make, or in any way
participate, directly or indirectly, in any "solicitation" of proxies to vote
(as such terms are used in the proxy rules of the Commission) or to seek to
advise or influence any person or entity with respect to the voting of greater
than 40% of the voting securities of the Company; or (b) form, join or in any
way participate in a "group" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 with respect to greater than 40% of the voting
securities of the Company. For a period of two years from the Closing Date,
Investor will not acquire, offer to acquire, or agree to acquire by purchase, by
joining a partnership, limited partnership, syndicate or other "group" (as such
term is used in Section 13(d)(3) of the Exchange Act, hereinafter referred to as
a "13D Group"), greater than 40% of the voting securities of the Company. The
Investor may, however, acquire up to 40% of the voting securities of the Company
and, in that event, the Investor will obtain all necessary regulatory approvals
in acquiring up to 40% of the voting securities of the Company, and the Company
will cooperate with the Investor to obtain such approvals. Prior to acquiring
any shares of capital stock of the Company, other than upon exercise of its
rights hereunder and the Preferred Stock, the Investor shall give written notice
of its intention to do so to the Company. Within (10) ten days after receipt of
such notice, the Company will advise the Investor, in writing, if it believes
that the proposed acquisition would require regulatory approval or would violate
the provisions of this paragraph, and the Company and the Investor will
cooperate to obtain regulatory approval to consummate the proposed acquisition
or in structuring the transaction in such a way that it does not violate this
paragraph.
The Investor shall not participate, in, or encourage, the formation of any
13D Group which owns or seeks to acquire beneficial ownership of or otherwise
act in respect of, greater than 40% of the voting securities, other than any 13D
Group which is comprised exclusively of the Investor and any other permitted
transferee or transferee of Preferred Stock from the Investor.
7.3. Notice of Subsequent Events. The Company shall notify the Investor of
any changes, additions or events which would cause any material change in or
material addition to the Schedule of Exceptions delivered by the Company under
this Agreement, promptly after the occurrence of the same. If the effect of
such change or addition would, individually or in the aggregate with the effect
of changes or additions previously disclosed pursuant to this Section 7.3,
constitute a material adverse effect on the notifying party, the Investor may,
within ten (10) days after receipt of such notice, but prior to closing, elect
to terminate this Agreement.
7.4. Public Disclosures. The Company and the Investor will consult with
each other, and agree upon the contents thereof, before issuing any press
release or otherwise making any public
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statement with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation and agreement except as may be required by applicable law
or requirements of the New York Stock Exchange.
7.5. Approvals; Governmental Filings. From and after execution of this
Agreement, the Company and the Investor shall use their respective best efforts
to obtain all third party consents and approvals, if any, including from
stockholders of the Company, financial institutions, regulatory authorities and
other persons, necessary to consummate the transactions contemplated hereby.
The parties hereto will cooperate in the preparation and filing of any required
governmental or regulatory notices and filings. Without limiting the foregoing,
promptly after execution of this Agreement, the parties shall cooperate in
preparing and making all necessary filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and obtaining the early termination of the
waiting period thereunder.
7.6. Meeting of Stockholders. The Company will take all steps necessary in
accordance with its Restated Certificate of Incorporation and Bylaws and the
DGCL to call, give notice of, convene and hold a meeting of its stockholders
(the "Stockholders' Meeting") as soon as reasonably practicable after the date
of this Agreement for the purpose of approving the transactions contemplated by
this Agreement and for such other purposes as may be necessary. Unless this
Agreement shall have been validly terminated as provided herein, the Board of
Directors of Directors, subject to Section 7.9, will (i) recommend to its
stockholders the approval of this Agreement, the transactions contemplated
hereby and any other matters submitted to the stockholders in connection
therewith, to the extent such approval is required, and (ii) use its reasonable
good faith efforts to obtain the approval by its stockholders of this Agreement
and the transactions contemplated hereby.
7.7. Proxy Statement. As soon as practicable after the date of this
Agreement, the Company shall prepare and distribute to its stockholders a proxy
statement (the "Proxy Statement") designed to provide its stockholders with such
information as needed about this Agreement in order to comply with the
provisions of the 1934 Act and the DGCL. The Investor shall provide the Company
with such information as shall be reasonably requested by the Company in order
to prepare the Proxy Statement. The information supplied by the Company for
inclusion in the Proxy Statement shall not, at the time of the mailing of the
Proxy Statement, the Stockholders' Meeting or the Closing, contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by the Investor for inclusion in the Proxy
Statement shall not, at the time of the mailing of the Proxy Statement, the
Stockholders' Meeting or the Closing, contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. If at any
time prior to the Closing any fact or circumstance should be discovered by
either party which should be set forth in an amendment or supplement to the
Proxy Statement, that party shall promptly inform the other party and the
Company shall promptly prepare and distribute such amendment or supplement to
the Proxy Statement.
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7.8. Use of Proceeds. The Company shall use all proceeds from the
Offering to reduce its outstanding debt under its Amended and Restated Credit
Agreement among Vesta Insurance Group, Inc., the Lenders named therein,
SouthTrust Bank of Alabama as Documentation Agent and First Union National Bank
of North Carolina, as administrative agent dated April 8, 1997, as amended (the
"Revolving Credit Facility").
7.9. Non-Solicitation.
a. During the Exclusivity Period (as defined below), the Company and its
affiliates shall not, and shall not authorize or permit any officer, director,
employee, agent, advisor or other representative (each, a "Representative") of
the Company or any of its affiliates to, directly or indirectly, (i) solicit or
initiate, or encourage the submission of, any Proposal (as defined below), (ii)
except to the extent necessary, if any, to satisfy the Company's fiduciary
obligations, participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Proposal or Alternative Transaction (as defined below),
other than with the Investor, or (iii) except to the extent necessary, if any,
to satisfy the Company's fiduciary obligations, authorize, engage in or enter
into any agreement with respect to, any Alternative Transaction. The Company
will promptly advise the Investor of, and communicate to the Investor the terms
of, any Proposal that the Company, any of its affiliates or any of their
respective Representatives may receive during the Exclusivity Period.
b. For purposes of this Agreement: (i) "Proposal" means any inquiry,
proposal or offer from any person relating to an Alternative Transaction; (ii)
"Alternative Transaction" means any (A) direct or indirect acquisition or
purchase of any equity securities of, or other equity interest in, any member of
the Company that if consummated would result in any person beneficially owning
(or having the right to acquire) 10% or more of any class of equity securities
of or of the equity interest in any member of the Company or which would require
approval under any federal, state or local law, rule, regulation or order
governing or relating to the current or contemplated operations of any member of
the Company, (B) merger, consolidation, business combination, sale of a material
portion of the assets (including, without limitation, by means of any
reinsurance or renewal rights transaction), recapitalization, liquidation,
dissolution or similar transaction involving any member of the Company, or (C)
other transaction the consummation of which would reasonably be expected to
impede, interfere with, prevent or materially delay the transactions with the
Investor contemplated by this Agreement or which would reasonably be expected to
materially dilute the benefits of such transactions to the Investor; and (iii)
"Control Transaction" means any transaction that involves a (A) merger or
consolidation or similar business combination involving the Company or a
significant subsidiary of the Company (other than a "merger of equals"
transaction), (B) sale of all or substantially all of the assets of the Company,
or (C) sale or issuance of Company Common Stock or other equity securities of
the Company to a person which, following the completion of such sale or
issuance, will beneficially own Company Common Stock or other equity securities
of the Company representing 10% of the voting power with respect to the election
of the directors of the Company.
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c. For purposes of this Agreement, "Exclusivity Period" means the period
commencing upon the Company's execution hereof and ending on the earlier of
(i) the termination of this Agreement pursuant to paragraph 8 hereof or (ii) the
Closing Date. For purposes of this paragraph 7, the term "person" shall be
construed broadly to include any corporation, partnership or other entity and
any "group" (within the meaning of Rule 13d-5 under the Securities Exchange Act
of 1934, as amended).
d. In the event of any breach or threatened breach of any of the
provisions of this paragraph 7 by the Company, the Investor shall be entitled to
equitable relief by way of injunction in addition to any other rights or
remedies available to it.
7.10. Conversion of the Preferred Stock; Director Nominees. In the
event that the Preferred Stock is automatically converted into Common Stock of
the Company pursuant to the Certificate of Designation of Preferences and Rights
of Series A Convertible Preferred Stock (the "Certificate of Designation"),
subsequent to such conversion for as long as the Investor owns at least 15% of
the issued and outstanding Common Stock of the Company, the Investor shall be
entitled to designate nominees to the Company's Board of Directors as if it were
the sole holder of all of the Preferred Stock as set forth in the Certificate of
Designation.
8. Termination. This Agreement shall terminate upon the earliest to
occur of (a) the mutual written agreement of the Company and the Investor, (b)
the delivery of written notice by the Investor to the Company or by the Company
to the Investor after the Company announces, or enters into any agreement with
respect to, a Control Transaction or any Control Transaction is consummated, (c)
the delivery by the Investor to the Company of written notice to terminate in
the Investor's sole discretion based on its determination that a material
adverse change has occurred in the business, operations, prospects or financial
condition of the Company and (d) unless extended by the parties hereto in
writing, 5:00 p.m. Central Time on December 31, 1999. In addition, upon any
such termination any obligations under this Agreement shall terminate and no
party shall have any liability whatsoever to any other party other than as set
forth in paragraph 9.
9. Fees and Expenses. The parties hereto shall each bear their own
respective costs and expenses in connection with the transactions contemplated
hereby; provided, however, that if this Agreement is terminated pursuant to
Section 8(b) hereof, the Company shall, promptly upon request therefor,
reimburse Investor for its costs and expenses (including, without limitation,
the reasonable fees and expenses of its counsel and other representatives of the
Investor) in connection with the transactions contemplated hereby. In the event
the transactions contemplated by this Agreement are consummated, the expenses
incurred by the Investor shall be borne by the Company.
10. Survival of Representations and Warranties; Indemnification
10.1. Survival of Warranties. The warranties, representations and
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery
22
<PAGE>
of this Agreement and the Closing and for a period of six years following the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor.
10.2. Indemnification. The Company will indemnify and hold harmless
Investor and its representatives, stockholders, 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 the Company in
this Agreement (without giving effect to any supplement to the Schedule of
Exceptions), the Schedule of Exceptions, the supplements to the Schedule of
Exceptions, or any other certificate or document delivered by the Company
pursuant to this Agreement;
b. any breach of any representation or warranty made by the Company 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 Schedule of
Exceptions, other than any such breach that is disclosed in a supplement to the
Schedule of Exceptions and is expressly identified in the certificate delivered
pursuant to Section 4 as having caused the condition specified in Section 4 not
to be satisfied;
c. any breach by the Company of any covenant or obligation of the
Company 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 any such person with (or any person acting on their behalf) in
connection with any of the transactions contemplated by this Agreement.
The remedies provided in this Section 10 will not be exclusive of or limit
any other remedies that may be available to the Investor or the other
Indemnified Persons.
11. Miscellaneous
11.1. Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Investor shall not assign this Agreement in any manner
which violates this Agreement. Further, without the written consent of the
Company, the Investor shall not assign this Agreement during the period
subsequent to the first regulatory filing seeking approval to consummate the
transactions contemplated by this Agreement and prior to the Closing. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective
23
<PAGE>
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
11.2. Further Assurances. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
11.3. "Including." The word "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation," "but not limited to," or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the possible scope of the general
statement, term or matter.
11.4. "Material," or "Material Adverse Effect." "Material" means, when
used in connection with one or more entities, material to the business,
prospects, assets, properties, operations, results of operations or condition
(financial or other) of such entity or entities and all other entities with
which such entity or entities are consolidated for financial accounting
purposes, taken as a whole. "Material adverse change" or "material adverse
effect" means, when used in connection with one or more entities, any change,
effect, event, circumstance or occurrence that has, or is reasonably likely to
have, individually or in the aggregate, a material adverse impact on the
business, prospects, assets, properties, operations, results of operations or
condition (financial or other) of such entity or entities and all other entities
with which such entity or entities are consolidated for financial accounting
purposes, taken as a whole; provided, however, that "material adverse change"
and "material adverse effect" shall be deemed to exclude the impact of changes
in generally accepted accounting principles.
11.5. Knowledge. Whenever the term "knowledge," "best knowledge" or
similar expression is used in this Agreement, it shall mean knowledge of a
party's respective directors and the executive officers and to include the
assurance that such knowledge is based upon reasonable investigation unless
otherwise expressly provided.
11.6. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Alabama applicable to agreements between
residents of such state entered into and to be performed entirely within such
state.
11.7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.8. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
24
<PAGE>
11.9. Notices. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or telex, or seven days after deposit with
a domestic Post Office, by registered mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party below, or at such
other address as such party may designate by ten days' advance written notice to
the other parties:
a. If to the Company:
Vesta Insurance Group, Inc.
3760 River Run Drive
Birmingham, Alabama 35243
Attention: Norman W. Gayle, III, President & CEO
b. If to the Investor:
Birmingham Investment Group, LLC
17 North 20th Street
Birmingham, Alabama 35203
Attention: James A. Taylor, Manager
11.10. Entire Agreement; Amendment.
a. This Agreement (including the Exhibits hereto) and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof.
b. Any term of this Agreement, other than terms contained in Section 6,
may be amended, waived or discharged (either generally or in a particular
instance and either retroactively or prospectively), by a written instrument
signed by the Company and the Investor; provided, however, that, except for the
conditions set forth in Section 4 hereof, holders of a majority in interest of
the Common Conversion Shares, and excluding all Common Conversion Shares sold to
the public, may by written instrument waive satisfaction of any term or
condition which operates for the benefit of an Investor under this Agreement,
but in no event shall the obligations of an Investor hereunder be increased,
except upon the written consent of such Investor.
c. Any term of Section 6 may be amended and the observance of any term
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the con-sent of the Company and the
holders of a majority of the Registrable Securities (as defined in Section
6.1(1)).
d. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon the holder of any securities purchased under this
Agreement at the time outstanding (including
25
<PAGE>
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
11.11. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
11.12. No Rule of Construction. The parties acknowledge that this
Agreement was mutually prepared and that all parties have read and negotiated
the language used in this Agreement. The parties agree that, because all parties
participated in negotiating and drafting this Agreement, no rule of construction
shall apply to this Agreement which construes ambiguous language in favor of or
against any party by reason of that party's role in drafting this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
VESTA INSURANCE GROUP, INC.
By: /s/ Norman W. Gayle III
---------------------------------------------
Its: President and CEO
---------------------------------------------
BIRMINGHAM INVESTMENT GROUP, LLC
By: /s/ James A. Taylor
---------------------------------------------
Name: James A. Taylor
---------------------------------------------
Title: Manager
-------------------------------------------
/s/ Larry D. Striplin, Jr.
--------------------------------------------------
L.S.
Solely for purposes of Section 3.1(k) hereof.
/s/ James A. Taylor
--------------------------------------------------
L.S.
Solely for purposes of Section 3.1(k) hereof.
26
<PAGE>
Exhibit 10.2
------------
ACQUISITION AGREEMENT
THIS AGREEMENT, as of the _______ day of ______, 1999, is between Vesta
Insurance Group, Inc., a Delaware corporation ("VIG"), with its principal office
at 3760 River Run Drive, Birmingham, Alabama, Vesta Management Corporation of
Texas, a Texas corporation ("VESTA MANAGEMENT") with its principal office at
13740 Midway Road, Suite 714, Dallas, Texas, and Employers Reinsurance
Corporation, a Missouri corporation ("PURCHASER") with its principal office at
5200 Metcalf, Overland Park, Kansas.
P R E A M B L E
This transaction involves the acquisition by PURCHASER of the authority and
right to control and manage the affairs of Vesta County Mutual Insurance
Company.
Vesta County Mutual Insurance Company ("VESTA COUNTY MUTUAL") is a mutual
company organized under Chapter 17 of the Texas Insurance Code (the "Code") and
is located in Dallas, Texas.
VESTA MANAGEMENT currently has the authority to manage and control VESTA
COUNTY MUTUAL under the terms of a management agreement (the "MANAGEMENT
CONTRACT") dated January 22, 1997.
VIG, as sole shareholder of VESTA MANAGEMENT, is the ultimate controlling
person of VESTA COUNTY MUTUAL. For purposes of this AGREEMENT, VIG and VESTA
MANAGEMENT shall hereinafter be referred to jointly as "VESTA".
<PAGE>
PURCHASER desires to acquire, and VESTA desires to assign and transfer to
PURCHASER the authority and right to manage and control VESTA COUNTY MUTUAL
under the terms of the MANAGEMENT CONTRACT.
PURCHASER also desires to enter into a Loss Portfolio Transfer agreement
("Loss Portfolio Transfer") to acquire from VESTA COUNTY MUTUAL certain of its
business currently ceded to Vesta Fire Insurance Corporation, and VESTA desires
to effect such transfer.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties agree as follows:
ARTICLE I. ASSIGNMENT AND TRANSFER
-----------------------
1.1 The Management and Control. Subject to the terms and conditions of
--------------------------
this AGREEMENT, on the closing date (defined in Section 1.2 below), PURCHASER
agrees to acquire by assignment, and VESTA MANAGEMENT agrees to assign, transfer
and convey to PURCHASER, all rights and interests in the MANAGEMENT CONTRACT.
VIG joins in this assignment to PURCHASER, being the sole shareholder of VESTA
MANAGEMENT and the ultimate controlling person of VESTA COUNTY MUTUAL.
1.2 Closing Date. The closing shall occur on the fifth (5th) business day
------------
following the issuance of an official order of the Commissioner of Insurance of
Texas (the "COMMISSIONER") approving the acquisition by PURCHASER of control of
VESTA COUNTY MUTUAL through the assignment of the MANAGEMENT CONTRACT,
hereinafter referred to as the "CLOSING DATE", provided an earlier or later
CLOSING DATE may be mutually agreed upon by PURCHASER and VESTA.
2
<PAGE>
1.3 Closing Time and Place. The consummation of the transaction
----------------------
contemplated hereby (the "CLOSING") will take place on the CLOSING DATE at the
offices of Thompson, Coe, Cousins & Irons, L.L.P., 200 Crescent Court, 11/th/
Floor, Dallas, Texas, at 10:00 a.m. The effective time of the assignment and
transfer pursuant hereto shall be deemed to be 11:59:59 p.m. C.S.T. on the
CLOSING DATE.
ARTICLE II. PURCHASER'S INVESTMENT
----------------------
2.1 Purchase Price. At the CLOSING, PURCHASER shall pay to VESTA
--------------
MANAGEMENT the sum of Eleven Million Two Hundred Thousand Dollars
($11,200,000.00) in consideration of the assignment of the MANAGEMENT CONTRACT
to PURCHASER and the acquisition of control of VESTA COUNTY MUTUAL by PURCHASER,
which amount shall hereinafter be referred to as the "PURCHASE PRICE". Such
payment shall be made by wire transfer of United States funds to an account
designated by VESTA MANAGEMENT prior to the CLOSING DATE.
2.2 Surplus of Vesta County Mutual. Upon the CLOSING, PURCHASER will pay
------------------------------
into the surplus of VESTA COUNTY MUTUAL at least Two Million Five Hundred
Thousand Dollars ($2,500,000.00), in exchange for a surplus debenture to be
issued by VESTA COUNTY MUTUAL to PURCHASER. VESTA COUNTY MUTUAL'S surplus
debenture issued to PURCHASER shall be in substantially the same form as the
existing surplus debenture issued to VIG, a copy of which is attached hereto as
Exhibit 2.2. VIG'S surplus debenture, including all interest accrued through
the CLOSING, shall be paid and discharged by VESTA COUNTY MUTUAL concurrently
with the PURCHASER'S payment pursuant hereto.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF VESTA
---------------------------------------
3
<PAGE>
VESTA represents and warrants to PURCHASER that, as of the date of this
AGREEMENT and on the CLOSING DATE, the facts stated in this article are true and
correct:
3.1 Corporate Authorization. All corporate actions required to be taken
-----------------------
by VESTA to authorize them to enter into and to carry out this AGREEMENT have
been duly and properly taken. This AGREEMENT has been duly executed and
delivered by VESTA pursuant to such authorization and is valid and enforceable
against them in accordance with its terms.
3.2 Consents. Other than as described in Section 6.1, no approval,
--------
consent, authorization, or action of, or filing with any governmental body or
other third party is required for the execution, delivery or performance by
VESTA of this AGREEMENT or the other documents required to be executed by them
pursuant to the terms of this AGREEMENT.
3.3 No Breach or Violation. The execution and delivery of this AGREEMENT
----------------------
and the consummation of the transactions contemplated hereby, upon satisfaction
of the conditions set forth in Article VI, will not:
(a) result in the breach of any of the terms or conditions of, or
constitute a default under, or violate, as the case may be, the
respective certificates of incorporation or by-laws of VIG or VESTA
MANAGEMENT, or any material agreement, lease, mortgage, note, bond,
indenture, license or other document or undertaking to which VESTA is
a party; or
(b) result in a material violation of any rule or regulation, or
any order, writ, injunction or decree of any court, administrative
agency, or governmental body; provided, however, that no
representation or warranty is made hereunder in any manner whatsoever
with respect to any requirement of PURCHASER with respect to federal
or state antitrust laws.
4
<PAGE>
3.4 Representations and Warranties Concerning Vesta Management. VESTA'S
----------------------------------------------------------
representations and warranties concerning VESTA MANAGEMENT are:
3.4.1 Ownership of Vesta Management. VIG is the sole stockholder of
-----------------------------
VESTA MANAGEMENT.
3.4.2 Organization and Standing. VESTA MANAGEMENT is a corporation
-------------------------
duly organized, validly existing and in good standing under the laws
of the State of Texas and has full corporate power and authority to
carry on its business as now conducted and to enter into this
AGREEMENT.
3.4.3 Assets and Liabilities. VESTA MANAGEMENT'S sole asset is the
----------------------
MANAGEMENT CONTRACT, a copy of which is included in Exhibit 3.4.3,
under which VESTA MANAGEMENT manages the business affairs of VESTA
COUNTY MUTUAL and VESTA controls VESTA COUNTY MUTUAL. VESTA
MANAGEMENT has no liabilities whatsoever, nor has any claim therefor
been made which would give rise to any such liability, nor is there
any possibility of any such claim known to VESTA, which have, or will
have an effect upon the MANAGEMENT CONTRACT.
3.4.4 Litigation. There is no claim, action, suit proceeding,
----------
arbitration or litigation pending or threatened against VESTA
MANAGEMENT or its business or assets which involves the reasonable
likelihood of any judgment against, liability of, or material adverse
effect on VESTA MANAGEMENT or the MANAGEMENT CONTRACT. A claim,
action, suit, proceeding, arbitration or litigation shall be
considered "threatened" for purposes of this Subsection 3.4.4 if VESTA
has received a written notice that an action, suit or proceeding may
be commenced.
5
<PAGE>
3.4.5 No Material Changes. There has not occurred any event, or been
-------------------
realized any condition, which has had, or which will have, any
material adverse effect on the MANAGEMENT AGREEMENT, including, but
not limited to, any events effecting a material change in the business
relationship or course of dealing between VESTA MANAGEMENT and VESTA
COUNTY MUTUAL under the MANAGEMENT CONTRACT.
3.4.6 Assignment of Management Contract. VESTA MANAGEMENT may sell,
---------------------------------
assign, and transfer all of its rights and interests under the
MANAGEMENT CONTRACT without the approval of any persons, including,
without limitation, policyholders of VESTA COUNTY MUTUAL, except for
the approval of the Commissioner of Insurance, as described in
Subsection 6.1.1, and the approval of VESTA COUNTY MUTUAL.
3.5 Representations and Warranties. VESTA'S representations and
------------------------------
warranties are:
3.5.1 Organization and Existence. VESTA COUNTY MUTUAL is a Texas
--------------------------
county mutual insurance company is duly organized and validly existing
under Chapter 17 of the CODE and is in good standing under the laws of
the State of Texas, and has all requisite corporate power to carry on
its business as now being conducted; and is duly authorized and
licensed; and has all permits and governmental authorizations required
under all applicable laws, regulations, ordinances and orders of
public authorities necessary to carry on its business in Texas in the
manner now conducted. VESTA COUNTY MUTUAL holds a valid certificate
of authority issued by the Texas Department of Insurance, a copy of
which is attached as Exhibit 3.5.1 authorizing VESTA COUNTY MUTUAL to
conduct insurance business in Texas in accordance with Chapter 17 of
the
6
<PAGE>
CODE. A true and correct copy of the Articles of Incorporation of
VESTA COUNTY MUTUAL, as amended, as well as the Restated Bylaws, are
attached as part of Exhibit 3.5.1.
3.5.2 Voting Rights. The only persons entitled to vote with respect
-------------
to the affairs of VESTA COUNTY MUTUAL are its duly elected directors
and its members (i.e. policyholders who are holders of in force
policies of insurance issued by VESTA COUNTY MUTUAL), or the President
of VESTA COUNTY MUTUAL to the extent the President may be named in
proxies granted by its members.
3.5.3 Subsidiaries. VESTA COUNTY MUTUAL has no subsidiaries and has
------------
no proprietary interest, directly or indirectly, in any corporation,
association, partnership, firm, joint venture or other business
organization, and VESTA COUNTY MUTUAL does not control, directly or
indirectly, the management of any such entities.
3.5.4 Financial Statements. The statutory financial statements of
--------------------
VESTA COUNTY MUTUAL for each of the two years ended December 31, 1997
and 1998 ("Annual Statements"), and its Quarterly Statement as of
March 31, 1999 (collectively referred to herein as "Financial
Statements") have been prepared in a manner prescribed or permitted
under statutory authority of the Texas Department of Insurance on a
consistent basis during the periods covered by each Annual Statement.
Copies of such Financial Statements have been provided to PURCHASER
and are, to VESTA'S knowledge after due investigation, in all material
respects true, correct and complete and present fairly the financial
position of VESTA COUNTY MUTUAL at the respective dates thereof,
except as may be set forth in the notes thereto.
7
<PAGE>
3.5.5 Properties. VESTA COUNTY MUTUAL does not own or have an
----------
interest in any real property. VESTA COUNTY MUTUAL has good and
marketable title to, and is in possession of all its personal
properties and assets, including nonadmitted assets, reflected in the
Quarterly Statement of VESTA COUNTY MUTUAL as of March 31, 1999 (other
than properties and assets reflected in such Quarterly Statement that
have been sold or otherwise disposed of in the ordinary course of
business consistent with past practice), free and clear of all liens,
mortgages, pledges, security interests and encumbrances, subject to
applicable insurance laws and regulations.
3.5.6 Absence of Certain Changes or Events. Since March 31, 1999,
------------------------------------
there has not occurred, nor has there been: (i) any material, adverse
change in the operations, business, properties or assets of VESTA
COUNTY MUTUAL, nor, to the best knowledge and belief of VESTA, is
there currently any other condition of any character materially and
adversely affecting the business of VESTA COUNTY MUTUAL or that, with
the passage of time, is likely to have such effect; or (ii) any
borrowing or loan obligating VESTA COUNTY MUTUAL ; or (iii) any
transaction by VESTA COUNTY MUTUAL that was not in the ordinary course
of business conducted on a basis consistent with past practice.
3.5.7 Tax Matters. Other than as disclosed in the Closing Balance
-----------
Sheet:
(a) VESTA and VESTA COUNTY MUTUAL have no liability or obligation for
or in respect of Taxes that would be imposed on or adversely
affect PURCHASER, or that would adversely affect the MANAGEMENT
CONTRACT, the Loss Portfolio Transfer or the consummation of the
transactions contemplated hereby, and
8
<PAGE>
(b) no Tax imposed on VESTA or VESTA COUNTY MUTUAL for any period
ending or prior to the CLOSING would be imposed on or adversely
affect the PURCHASER or would adversely affect the MANAGEMENT
CONTRACT, the Loss Portfolio Transfer or the consummation of the
transactions contemplated hereby;
(c) all federal, foreign, state, county, local and other Taxes due
and payable by VESTA COUNTY MUTUAL, on or before the date of this
AGREEMENT, have been paid;
(d) VESTA COUNTY MUTUAL has filed all Tax returns and reports
required to be filed by it with all such taxing authorities and
all such Tax returns were correct and complete in all material
respects;
(e) VESTA COUNTY MUTUAL has (or by the CLOSING DATE will have) paid,
or adequately reserved for the payment of Taxes with respect to
periods ending on or prior to the CLOSING DATE;
(f) no claim has been made by a Tax authority in respect to tax
returns filed by VESTA COUNTY MUTUAL, and
(g) no claim has been made by a tax authority in a jurisdiction where
VESTA COUNTY MUTUAL does not file a Tax return.
VESTA COUNTY MUTUAL is not a party to any tax sharing or similar agreement
with any third party. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the filing of any tax return,
the payment of any tax or the assessment of any tax or deficiency of any nature
against VESTA COUNTY MUTUAL. Additional tax matters appear in Article XI.
9
<PAGE>
3.5.8 Employees. VESTA COUNTY MUTUAL has no employees and is not subject
---------
to any collective bargaining agreements. VESTA COUNTY MUTUAL has no
liability to any of its insurance agents as a result of termination, or for
any other reason, except commissions due in the ordinary course of
business.
3.5.9 No Default. VESTA COUNTY MUTUAL is not currently in default with
----------
respect to any material obligation to be performed by it under any
contract, lease, agreement, commitment or undertaking to which it is a
party, or by which it or any of its assets or properties are bound, nor has
VESTA COUNTY MUTUAL waived any material right under any such contract,
lease, agreement, commitment or undertaking (except to the extent VESTA
COUNTY MUTUAL may have waived rights in the ordinary course of
administering insurance policies).
3.5.10 Surplus. The surplus of VESTA COUNTY MUTUAL meets the surplus
-------
requirements of the Texas Insurance Code for VESTA COUNTY MUTUAL as of the
date of the date of this AGREEMENT and will meet such requirements upon the
CLOSING provided PURCHASER complies with Section 2.2.
3.5.11 Associations. VESTA COUNTY MUTUAL is not a member of any guaranty
------------
associations, or any insurance pools, funds or facilities, except for the
Texas Catastrophe Property Insurance Pool.
3.6 Contracts. Other than the MANAGEMENT CONTRACT, all agreements to
---------
which VESTA COUNTY MUTUAL is a party are scheduled and described in Exhibit 3.6
attached hereto. Except as described in Exhibit 3.6, no party to the agreements
is in any material default thereunder, nor, to the knowledge of VESTA, does
there exist any condition which, with the passage of time or notice, or both,
might constitute such a material default by any party thereto. No such
agreement will be
10
<PAGE>
breached by, or prohibit any transactions contemplated by, this AGREEMENT.
Except for agreements described in Exhibit 3.6 (copies of which have been
delivered to PURCHASER), VESTA COUNTY MUTUAL is not a party to, nor bound by,
any written or oral contract, other than insurance policies issued in the
ordinary course of business, including any: (i) employment contract, consulting
contract or contract providing for the services of an independent contractor
(other than agency contracts entered into with insurance agents in the ordinary
course of business); (ii) contract with any labor union or association; (iii)
lease with respect to any property, real or personal, whether as lessor or
lessee; (iv) contract or commitment for the purchase of materials, supplies or
equipment; (v) sale or franchise agreement or legally enforceable commitment or
obligation with respect thereto; (vi) contract or commitment for capital
expenditures; (vii) contract relating to patents, trademarks, trade names,
copyrights, inventions, processes, formulae or trade secrets; or (viii) contract
or commitment for the sale of its products (other than contracts entered into
with insurance agents in the ordinary course of business).
3.7 Service Marks and Trademarks. VESTA COUNTY MUTUAL does not own, nor
----------------------------
has it applied for, any patents, patent applications, patent licenses,
copyrights, inventions, service marks, trademarks, trademark application,
trademark licenses, trade names or brand names. There is not currently any
pending or, to the best knowledge and belief of VESTA, threatened claim that
either party has infringed upon, or owes compensation to any other person with
respect to their use of any of such properties.
3.8 Litigation. Other than claims relating to coverage under insurance
----------
policies issued by VESTA COUNTY MUTUAL, there is no claim, action, suit,
litigation, arbitration, proceeding or governmental investigation pending
against either VESTA MANAGEMENT or VESTA COUNTY MUTUAL, or, to the best
knowledge and belief of VESTA, threatened against either VESTA MANAGEMENT or
VESTA COUNTY MUTUAL, or any of their businesses, operations, assets or
11
<PAGE>
properties. A claim, action, suit, litigation, arbitration, proceeding or
governmental investigation shall be considered "threatened", for purposes of
this section, if either VESTA or VESTA COUNTY MUTUAL has received a written
notice that an action, suit or proceeding may be commenced.
3.9 Compliance with Laws. VESTA MANAGEMENT and VESTA COUNTY MUTUAL are in
--------------------
substantial compliance with all laws, regulations, rules and decrees of all
governmental authorities whatsoever, including, without limitation, those
relating to the conduct of their businesses and the ownership of their assets,
and VESTA MANAGEMENT and VESTA COUNTY MUTUAL have, and shall have on the CLOSING
DATE, all required permits, licenses, certificates and authorizations necessary
for the conduct of their businesses and the ownership of their assets. Subject
to the satisfaction of the conditions of Article VI, the execution, delivery and
performance of this AGREEMENT will not (i) result in the breach or violation of
any statute or regulation applicable to VESTA COUNTY MUTUAL; (ii) cause to be
terminated or modified, or in any way adversely affected, any permit, license,
certificate or governmental authorization of any kind now held by VESTA COUNTY
MUTUAL relevant to the continued conduct of any of its business as heretofore
conducted; or (iii) cause VESTA COUNTY MUTUAL to require any additional permit,
license, certificate or governmental authorization of any kind in order to
continue to conduct its business as heretofore conducted.
3.10 Bank Accounts. A schedule setting forth the name of each bank,
-------------
custodian and safe deposit facility in which VESTA COUNTY MUTUAL has an account,
funds or securities in custody, or safe deposit box, the style and number of
each such account or safe deposit box, and the names of all persons authorized
to write checks upon such accounts or have access, is attached hereto as Exhibit
3.10.
3.11 Management Contract Free of Debt and Security Interests. The
-------------------------------------------------------
MANAGEMENT CONTRACT, and all rights or income appurtenant thereto or granted
thereunder, is free and clear of any
12
<PAGE>
and all pledges, liens, encumbrances, mortgages, or security interests, or
impingements of any kind upon VESTA MANAGEMENT'S right to exercise full
authority in accordance with its terms.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
PURCHASER represents and warrants to VESTA that, as of the date of this
AGREEMENT and on the CLOSING DATE, the facts are true and correct.
4.1. Organization and Standing. PURCHASER is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of Missouri, and has full
power and authority to carry on its business as now conducted and to own all of
its properties and assets.
4.2 Corporate Authorization. All corporate action required to be taken by
-----------------------
PURCHASER to authorize PURCHASER to enter into and carry out this AGREEMENT has
been duly and properly taken. This AGREEMENT has been duly executed and
delivered by PURCHASER, and is valid and enforceable against PURCHASER in
accordance with its terms.
4.3 Compliance. The execution and delivery of this AGREEMENT and the
----------
consummation of the transactions contemplated hereby, upon satisfaction of the
conditions set forth in Article VI, will not: (i) result in the breach of any of
the terms or conditions of, or constitute a default under or violate, as the
case may be, the Certificate of Incorporation or By-laws of PURCHASER or any
material agreement, lease, mortgage, note, bond, indenture, license or other
document or undertaking to which PURCHASER, or any of its affiliates, is bound,
or by which any of its or their properties or assets may be affected; or (ii)
result in a material violation of any rule or regulation, or any writ,
injunction, order or decree of any court, administrative agency or governmental
body.
13
<PAGE>
4.4 Financial Condition. PURCHASER'S financial condition, business
-------------------
experience and other qualifications are sufficient to obtain all necessary
approvals and authorizations, including that described in Subsection 6.1.1
hereof, and to consummate the transactions contemplated by this AGREEMENT.
4.5 Consents. Other than as described in Article VI, no approval,
--------
consent, authorization or action of or filing with any governmental body or
other third party is required for the execution, delivery or performance by
PURCHASER of this AGREEMENT or any other documents required to be executed by
PURCHASER pursuant to the terms of this AGREEMENT.
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
5.1 Conduct of Business by Vesta Pending Closing. VESTA covenants,
--------------------------------------------
pending the CLOSING, unless provided herein or otherwise agreed to in writing by
PURCHASER, that (a) no changes will be made in the business operations of VESTA
COUNTY MUTUAL; and (b) no change will be made in the MANAGEMENT CONTRACT, nor
will VESTA issue any options or similar rights entitling any other party to
acquire any direct or indirect interest in the MANAGEMENT CONTRACT.
5.2 Access to Records. VESTA shall permit PURCHASER and its
-----------------
representatives full access to, and make available for inspection during normal
business hours, all of the books, records, financial information and other
documents related to the business affairs of VESTA MANAGEMENT and VESTA COUNTY
MUTUAL (or portions of documents which are so related) which VESTA has in its
possession or control and shall furnish PURCHASER with such copies thereof as
PURCHASER may reasonably request. Pending the CLOSING hereunder, PURCHASER and
its representatives (i) will preserve the confidentiality of all such books,
records, financial information and other documents inspected regarding VESTA
MANAGEMENT and VESTA COUNTY MUTUAL, (ii) will not make use of such material and
information for any purpose other than evaluating the business of VESTA
14
<PAGE>
MANAGEMENT and VESTA COUNTY MUTUAL or obtaining financing for the transactions
contemplated by this AGREEMENT, and (iii) will not voluntarily disclose to
others, or permit the use by others of, any such material or information. In
the event this AGREEMENT is terminated prior to CLOSING, PURCHASER shall, at
VESTA'S request, (i) return or destroy all such copies, and (ii) destroy all
notes, memoranda, correspondence and other documents reflecting information
obtained from VESTA pursuant to this section. PURCHASER shall thereafter
maintain the confidentiality of all such information.
5.3 Material Change. VESTA shall promptly inform PURCHASER in writing of
---------------
any event or condition which has had, or is reasonably likely to have, a
material adverse effect on the business or assets of VESTA MANAGEMENT or VESTA
COUNTY MUTUAL.
5.4 Contracts. Except as provided herein, or as described in Exhibit 5.4,
---------
VESTA shall not waive any material right or cancel or amend any material
contract, debt or claim of VESTA COUNTY MUTUAL, nor will VESTA permit VESTA
COUNTY MUTUAL to assume or enter into any contract, lease, obligation,
indebtedness, commitment, or purchase or sale of assets without PURCHASER'S
prior written consent. VESTA COUNTY MUTUAL shall, however, enter into
amendments (copies of which are attached as part of Exhibit 5.4) to certain
contracts as follows:
(a) The 100% Quota Share Reinsurance Agreement with Vesta Fire Insurance
Corporation shall be amended to terminate all new and renewal business
commencing with the CLOSING, except for (i) Vendor's Single Interest
insurance and (ii) private passenger automobile insurance, written
through J. Gordon Gaines of Texas, Inc.; and
(b) The Managing General Agency Agreement with J. Gordan Gaines of Texas,
Inc. shall be amended to terminate the authority to write insurance
business on behalf of VESTA COUNTY MUTUAL, provided that for a period
of two years from the date of
15
<PAGE>
CLOSING, the authority will remain in effect for new and renewal (i)
Vendor's Single Interest insurance produced for its own account; (ii)
private passenger automobile insurance produced for its own account
and not written by, through or in conjunction with, any other general
agency under contract to VESTA COUNTY MUTUAL, including, but not
limited to, those described in Exhibit 3.6, and (iii) private
passenger automobile insurance written for the account of Superior
Insurance Company but such authority shall be limited to a total
premium written through VESTA COUNTY MUTUAL in an amount not to exceed
$10,000,000 any one year, the first year to begin on the date of
CLOSING.
5.5 Ordinary Course of Business. Except as contemplated hereunder, the
---------------------------
business of VESTA COUNTY MUTUAL shall be conducted only in the ordinary course
and in a manner consistent with past practice, provided, however, that (i) all
intercompany obligations between VESTA MANAGEMENT, VESTA COUNTY MUTUAL, VIG or
Vesta Fire Insurance Corporation, or any other of VIG'S affiliates, shall be
settled at or prior to CLOSING, and (ii) VESTA COUNTY MUTUAL may make payments
to VESTA MANAGEMENT pursuant to the MANAGEMENT CONTRACT. The payment and
discharge of the Surplus Debenture debt to VIG shall be made as described in
Section 2.2 in accordance with the COMMISSIONER'S order described in Subsection
6.1.3.
5.6 Borrowing. No borrowing or agreement for borrowing shall be made by
---------
VESTA COUNTY MUTUAL.
5.7 Assets and Properties. VESTA will in good faith use all reasonable
---------------------
efforts to maintain and preserve all assets and properties of VESTA COUNTY
MUTUAL.
5.8 Insurance. Until CLOSING, VESTA MANAGEMENT will maintain in effect
---------
insurance coverage against loss of, or damage to the properties, if any, of
VESTA COUNTY MUTUAL and against
16
<PAGE>
the liabilities and risks of the business of VESTA COUNTY MUTUAL in amounts and
kinds not less favorable than those currently in effect, as well as fidelity
insurance applicable to the officers, directors and other employees of VESTA
COUNTY MUTUAL.
5.9 Books of Accounts. VESTA will cause VESTA COUNTY MUTUAL to maintain
-----------------
and continue to keep its books, accounts and records in a manner that is
consistent with prior practice.
5.10 Compliance with Law. VESTA will cause VESTA COUNTY MUTUAL to comply
-------------------
in all material respects with all laws, rules, regulations, orders and decrees
of any governmental authority applicable to VESTA COUNTY MUTUAL.
5.11 Encumbrances. VESTA will not make, grant or incur any mortgage,
------------
easement, lien, restriction, encumbrance or security interest or any kind
regarding VESTA COUNTY MUTUAL, or any of its properties or assets, (other than
liens for Taxes not yet due and payable), and will prevent VESTA COUNTY MUTUAL
from taking or permitting any such action.
5.12 Continued Disclosure. If any event or change of circumstance occurs
--------------------
or arises prior to the CLOSING which, had it occurred or been in existence on
the date hereof, would have required disclosure hereunder, then VESTA shall give
prompt notice thereof in writing to PURCHASER.
5.13 Prohibited Activity. Without the prior written consent of PURCHASER,
-------------------
VESTA will prevent VESTA COUNTY MUTUAL from the date of this AGREEMENT through
the CLOSING DATE, except in the ordinary course of business, from doing any of
the following: (i) except as specifically contemplated hereunder, make any
change in its Articles of Incorporation or By-Laws; (ii) be in material default
under any contract, agreement, commitment or undertaking of any kind (for
purposes of this subsection only, "material" shall mean a payment of, or
obligation to pay more than $5,000 under any one contract or $25,000 under all
contracts binding VESTA COUNTY MUTUAL);
17
<PAGE>
(iii) violate or fail to comply with, in any material respect, laws applicable
to VESTA COUNTY MUTUAL or its properties or business.
5.14 Ratings. The parties hereto shall cooperate in notifying rating
-------
services of the proposed sale. No communication to any such service with regard
to this transaction shall be made by one party without a good faith effort to
obtain prior approval from the other.
ARTICLE VI. CONDITIONS
----------
6.1 Approvals Required Prior to Closing. The following approvals shall be
-----------------------------------
obtained by the parties hereto as a condition to the CLOSING:
6.1.1 Approval of Commissioner. The approval of the COMMISSIONER
------------------------
shall be obtained for the acquisition by PURCHASER of control of VESTA
COUNTY MUTUAL in accordance with Sec. 5 of Art. 21.49-1, of the CODE.
PURCHASER shall, in connection with its application for acquisition of
control of VESTA COUNTY MUTUAL, obtain the approval of the COMMISSIONER for
any affiliated transactions subject to Sec. 4 of Art 2.49-1 of the CODE
effective upon the CLOSING, including, without limitation, (i) a
reinsurance agreement between VESTA COUNTY MUTUAL and the PURCHASER and
(ii) the investment commitment of PURCHASER to supply the surplus of VESTA
COUNTY MUTUAL in accordance with Section 2.2.
6.1.2 Approval of Vesta County Mutual. The approval of VESTA COUNTY
-------------------------------
MUTUAL shall be obtained by VESTA for the sale and assignment of the
MANAGEMENT CONTRACT.
6.1.3 Other Approvals of Commissioner. VESTA shall cause VESTA
-------------------------------
COUNTY MUTUAL to obtain any other approvals for any transactions or
changes involving
18
<PAGE>
VESTA COUNTY MUTUAL provided by the AGREEMENT for which the approval
of the COMMISSIONER is required prior to CLOSING, including, without
limitation, (i) any affiliated transactions referred to in Section
5.4, (ii) the payment of Two Million Five Hundred Thousand Dollars
($2,500,000.00), together with accrued interest from the date of the
last payment under the Surplus Debenture, to VIG in order to fully
discharge the Surplus Debenture dated March 10, 1997, a copy of which
is attached as Exhibit 2.2, and (iii) the issuance of a successor
surplus debenture to the PURCHASER, or its designee, in accordance
with Section 2.2.
6.2 Conditions Precedent to the Obligation of Purchaser to Close. The
------------------------------------------------------------
obligations of PURCHASER under this AGREEMENT are subject to the fulfillment or
satisfaction, prior to or at the CLOSING, of each of the following conditions:
6.2.1 Proceedings. No preliminary or permanent injunction or other
-----------
order (including a temporary restraining order) of any state, federal
or local court or other governmental agency or of any foreign
jurisdiction, which prevents the consummation of the transactions the
subject of this AGREEMENT, or prohibits PURCHASER'S acquisition of
control of VESTA COUNTY MUTUAL, shall have been issued and remain in
effect, and no other action or proceeding by any such court or
governmental agency shall have been asserted, instituted or entered to
restrain or prohibit the carrying out of the transactions contemplated
hereby.
6.2.2. Approvals. All approvals and authorizations required for the
---------
transactions contemplated hereby by VESTA (including approvals
described in Section 6.1) shall have been obtained from appropriate
state, local and federal governmental agencies, or from VESTA COUNTY
MUTUAL, as the case may be.
19
<PAGE>
6.2.3 Representations and Warranties. All representations and
------------------------------
warranties of VESTA contained in this AGREEMENT shall be true and
correct in all material respects as of the CLOSING DATE, except as may
be otherwise expressly contemplated by this AGREEMENT.
6.2.4 Performance of Agreements; Instruments of Transfer. VESTA
--------------------------------------------------
shall have (i) fully performed in all material respects all
obligations, agreements, conditions and commitments to be fulfilled by
VESTA pursuant to the terms hereof on or prior to the CLOSING DATE;
(ii) tendered to PURCHASER, or it's designee, the assignment of the
MANAGEMENT CONTRACT (subject to the COMMISSIONER'S approval as
required by Subsection 6.1.1), and (iii) notified PURCHASER that it is
prepared to deliver all documents and records described in Section
7.1.
6.2.5 No Material Adverse Change. No material adverse change
--------------------------
affecting the VESTA COUNTY MUTUAL shall have occurred between the date
of this AGREEMENT and the CLOSING DATE.
6.3 Conditions Precedent to the Obligation of Vesta to Close.
--------------------------------------------------------
The obligations of VESTA under this AGREEMENT are subject to the
fulfillment or satisfaction, prior to or at the CLOSING, of each of the
following conditions.
6.3.1 Proceedings. No preliminary or permanent injunction or other
-----------
order (including a temporary restraining order) of any state, federal
or local court or other governmental agency or of any foreign
jurisdictions, which prevents the consummation of the transactions the
subject of this AGREEMENT or prohibits PURCHASER'S acquisition of the
MANAGEMENT CONTRACT or the control of VESTA COUNTY MUTUAL, shall have
been issued and remain in effect, and no other action or proceeding by
any
20
<PAGE>
such court or governmental agency shall have been asserted,
instituted, or entered to restrain or prohibit the carrying out of the
transactions contemplated by this AGREEMENT.
6.3.2 Approvals. All approvals and authorizations required for
---------
the transactions contemplated hereby (including approvals described in
Section 6.1) shall have been obtained from appropriate state, local
and federal governmental agencies.
6.3.3 Representations and Warranties. Except as may be otherwise
------------------------------
contemplated by this AGREEMENT, all representations and warranties of
PURCHASER contained in this AGREEMENT shall be true and correct in all
material respects as of the CLOSING DATE.
6.3.4 Performance of Agreements; Instruments of Transfer.
--------------------------------------------------
PURCHASER shall have fully performed in all material respects all
obligations, agreements, conditions and commitments to be fulfilled by
PURCHASER pursuant to the terms hereof on or prior to the CLOSING DATE
and shall have tendered the payments, documents, instruments and
certificates required by Section 7.2.
6.4 Attorneys' Opinions. Attorneys' opinions of the respective parties
-------------------
shall be as follows.
6.4.1 Opinion of Counsel for Vesta. To the effect that:
----------------------------
(a) VIG AND VESTA MANAGEMENT are corporations duly incorporated,
validly existing and in good standing under the laws of their
states of domicile and have all requisite corporate powers to
enter into and form this AGREEMENT;
21
<PAGE>
(b) All corporate and other proceedings required to be taken on
the part of VIG and VESTA MANAGEMENT to authorize them to carry
out this AGREEMENT have been duly and properly taken;
(c) This AGREEMENT has been duly authorized, executed and
delivered by VIG and VESTA MANAGEMENT, and constitutes a valid
and binding obligation of VIG and VESTA MANAGEMENT, enforceable
against them in accordance with its terms, except to the extent
limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application
affecting the rights of creditors and secured parties generally;
(d) The consummations of the transactions contemplated by this
AGREEMENT will not result in the breach of, or constitute a
default under the Articles of Incorporation or Bylaws of either
VIG or VESTA MANAGEMENT; and
(e) VESTA COUNTY MUTUAL is a county mutual insurance company
authorized and formed under Chapter 17 of the CODE and currently
holds a valid certificate of authority to do the business of
insurance described therein.
6.4.2 Opinion of Counsel of Purchaser. To the effect that:
-------------------------------
(a) PURCHASER is a corporation duly incorporated, validly existing
and in good standing under the laws of the state of Missouri, and has
all requisite corporate power to enter into and perform this
AGREEMENT.
(b) All corporate and other proceedings required to be taken on the
part of PURCHASER to authorize it to carry out this AGREEMENT have
been duly and properly taken;
22
<PAGE>
(c) This AGREEMENT has been duly authorized, executed and delivered
by PURCHASER, and constitutes a valid and binding obligation of
PURCHASER, enforceable against PURCHASER in accordance with its terms,
except to the extent limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general
application affecting the rights of creditors and secured parties
generally; and
(d) The consummations of the transactions contemplated by this
AGREEMENT will not result in the breach of, or constitute a default
under the Articles of Incorporation or Bylaws of the PURCHASER.
6.4.3 Attorney's Reliance. The opinions of counsel may, as to matters of
-------------------
fact, be given in reliance upon certificates of their respective clients'
officers or directors, certificates of public officials and, as to matters of
law involving another jurisdiction (other than the state of domicile of a
party subject to the opinion), upon the opinions of local counsel. The
opinions may contain such exceptions, qualifications and explanations as
shall be reasonably acceptable to the other party and its counsel.
ARTICLE VII. CLOSING DOCUMENTS
-----------------
7.1 Vesta's Obligations. At the CLOSING, VESTA shall deliver to PURCHASER
-------------------
the following:
7.1.1 Resolutions. Copies of resolutions of the boards of directors
-----------
(certified by the secretary, the assistant secretary, or other
appropriate officer) of VIG and VESTA MANAGEMENT, authorizing the
execution, delivery and performance of this AGREEMENT and the
transactions contemplated hereby.
23
<PAGE>
7.1.2 Assignment. An assignment by VESTA MANAGEMENT of the
----------
MANAGEMENT CONTRACT, duly and property executed, a draft copy of which
is attached hereto as Exhibit 7.1.2.
7.1.3 Management Contract. The original signed document.
-------------------
7.1.4 Books and Records. The original corporate minute books and
-----------------
stock ledger books of VESTA COUNTY MUTUAL and such other documents,
books and records regarding the business of VESTA COUNTY MUTUAL as may
be requested by PURCHASER upon reasonable notice delivered prior to
the CLOSING DATE.
7.1.5 Resignations. Resignations of all directors and officers of
------------
VESTA COUNTY MUTUAL (the names of which are listed on Exhibit 7.1.5)
in a sequence permitting substitution of personnel designated by
PURCHASER.
7.1.6 Officer's Certificate. A certificate, in a form reasonably
---------------------
satisfactory to PURCHASER, signed by duly authorized officers of
VESTA, stating that to such officers' best knowledge and belief all
representations and warranties of VESTA set forth in Article III are
true and correct as of the CLOSING DATE.
7.1.7 Official Orders and Other Proof. A copy of the official order,
-------------------------------
if any, described in Subsection 6.1.3 and proof of VESTA COUNTY
MUTUAL'S approval, as described in Subsection 6.1.2.
7.1.8 Loss Portfolio Transfer. An executed Loss Portfolio Transfer,
-----------------------
the form of which is attached hereto as Exhibit 7.1.8.
7.1.9 Contract Terminations and Amendments. Executed terminations of
------------------------------------
any agreements between VESTA COUNTY MUTUAL and VESTA or any affiliate
(excluding the MANAGEMENT CONTRACT) except that (i) the 100% Quota
Share
24
<PAGE>
Reinsurance Agreement with Vesta Fire Insurance Corporation and (ii)
the Managing General Agency Agreement with J. Gordan Gaines of Texas,
Inc., shall be amended as provided in Section 5.4.
7.1.10 Attorney's Opinion. The attorney's opinion described in
------------------
Subsection 6.4.1.
7.1.11 Closing Balance Sheet. VESTA shall deliver to PURCHASER at
---------------------
CLOSING a balance sheet prepared to reflect the financial condition of
VESTA COUNTY MUTUAL as of the CLOSING ("Closing Balance Sheet")
reflecting the financial condition after the results of operations
following the Quarterly Financial Statement of March 31, 1999, as well
as the transactions authorized by this AGREEMENT prior to or at
CLOSING. The Closing Balance Sheet shall show assets equal to
liabilities. The Closing Balance Sheet, for these purposes will
contain "assets" and "liabilities" and will not reflect the surplus of
VESTA COUNTY MUTUAL represented by the surplus debenture, to be paid
and discharged upon CLOSING.
7.2 Purchaser's Obligation. At the CLOSING, PURCHASER shall deliver to
----------------------
VESTA the following:
7.2.1 Resolutions. Copies of resolutions of PURCHASER'S Board of
-----------
Directors, certified by the Secretary, or Assistant Secretary, or
other appropriate officer of PURCHASER, authorizing the execution,
delivery and performance by PURCHASER of this AGREEMENT and the
transactions contemplated hereby.
7.2.2 Payment. Funds in the amount of the PURCHASE PRICE paid in
-------
accordance with section 2.1 and confirmation of the contribution to
VESTA COUNTY MUTUAL in consideration of the Surplus Note to VESTA
COUNTY MUTUAL in accordance with Section 2.2.
25
<PAGE>
7.2.3 Officer's Certificate. A certificate, in a form reasonably
---------------------
satisfactory to VESTA, signed by a duly authorized officer of
PURCHASER, stating that to the officer's best knowledge and belief all
representations and warranties of PURCHASER set forth in Article IV
are true and complete as of the CLOSING DATE.
7.2.4 Official Order. A copy of the Official Order (or orders)
--------------
described in Subsection 6.1.1.
7.2.5 Attorney's Opinion. The attorney's opinion described in
------------------
Subsection 6.4.2, which may be rendered by PURCHASER'S General
Counsel..
ARTICLE VIII. TERMINATION
-----------
8.1 After Passage of Time. If this AGREEMENT has not been consummated and
---------------------
closed by August 20, 1999 (and not otherwise terminated pursuant to this
article) it shall then be automatically terminated with no further force and
effect unless extended by written agreement of the parties.
8.2 By Vesta. If the CLOSING shall not have occurred within ten (10) days
--------
from the CLOSING DATE (as determined by Section 1.2) through no fault of VESTA,
and the conditions of Section 6.2 have been met or satisfied, VESTA may
terminate its obligations under this AGREEMENT by written notice to PURCHASER,
and may exercise such remedies for PURCHASER'S failure to perform, if any, as
may be available at law or in equity.
8.3 By Purchaser. If the CLOSING shall not have occurred within ten (10)
------------
days from the CLOSING DATE (as determined by Section 1.2), through no fault of
PURCHASER, and the conditions of Section 6.3 have been met or satisfied,
PURCHASER may terminate its obligations under this AGREEMENT by written notice
to VESTA, and may exercise such remedies for VESTA'S failure to perform, if any,
as may be available at law or in equity.
26
<PAGE>
8.4 Failure To Comply After Diligent Effort. Notwithstanding the
---------------------------------------
foregoing, a party hereto may not pursue against the other party hereto legal or
equitable remedies where such other party's failure to comply with a requirement
hereunder arises from its inability to secure a necessary consent or approval
from a governmental authority, and such other party has made an effort to secure
such approval as required by Section 10.2.
ARTICLE IX. INDEMNIFICATION
---------------
9.1 Indemnification by Vesta. Subject to the limits set forth in this
------------------------
article, VESTA hereby covenants and agrees to indemnify, protect, defend and
hold PURCHASER and VESTA COUNTY MUTUAL, their officers, directors, shareholders,
employees, agents and affiliates, harmless from and against any and all loss,
liability, damage and expense (including, without limitation, all actions,
suits, proceedings, claims, demands, assessments, judgments, costs, fines,
expenses, Taxes, injunctions and penalties, and any and all reasonable legal and
accounting fees incident to any of the foregoing) suffered or incurred as a
result of (i) VESTA'S breach of any covenant, warranty or representation, term,
condition or agreement contained in this AGREEMENT, and (ii) any material
inaccuracy in the representations and warranties of VESTA set forth herein.
9.2 Indemnification by Purchaser. Subject to the limits set forth in this
----------------------------
article, PURCHASER hereby covenants and agrees to indemnify, protect, defend and
hold VESTA and their officers, directors, shareholders, employees, agents and
affiliates, harmless from and against any and all loss, liability, damage and
expense (including, without limitation, all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, fines, expenses, injunctions and
penalties, and any and all reasonable legal and accounting fees incident to any
of the foregoing) suffered or incurred as a result of (i) PURCHASER'S breach of
any covenant, warranty or representation, term, condition or agreement
27
<PAGE>
contained in this AGREEMENT, and (ii) any material inaccuracy in the
representations and warranties of PURCHASER set forth herein.
9.3 Survival of Representations and Warranties. The several warranties
------------------------------------------
and representations of the parties contained in this AGREEMENT, or in any
instrument delivered pursuant hereto, shall survive the CLOSING DATE and shall
remain in full force and effect until January 1, 2002, and shall be effective
with respect to any inaccuracy therein or breach thereof, notice of which shall
have been duly given prior to such date, in accordance with Section 9.4 hereof.
Neither party shall assert any claim against the other for indemnification
hereunder with respect to any inaccuracy or breach of such representations or
warranties (or for monetary damages which are claimed to have arisen from the
breach of a covenant or undertaking) unless and until the amount of claim or
claims with respect thereto shall exceed $25,000 calculated on a cumulative
basis, and not a per item basis. Notwithstanding the foregoing, the limitations
on the period of survival in this section shall not apply to any covenant or
undertaking which is to be performed following the CLOSING, or with respect to
any Tax obligation or any representation, warranty or indemnification provided
in Sections 3.1, 3.3, 3.4.1 or 3.5.7 or this Article IX or Article XI, each of
which shall survive until the expiration of the applicable statute of
limitations.
9.4 Notice and Opportunity to Defend. If either party becomes aware of a
--------------------------------
matter which it believes may be indemnifiable pursuant to Sections 9.1 or 9.2,
the party seeking indemnification ("Indemnitee") shall give the other party
obligated to provide indemnification (the "Indemnifying Party") prompt written
notice of such matter. If such matter involves (i) any claim or (ii) the
commencement of any action or proceeding by a third person, the Indemnitee shall
give such Indemnifying Party prompt written notice of such claim or the
commencement of such action or proceedings. Such notice shall be a condition
precedent to any liability of the Indemnifying Party hereunder. Such
Indemnifying Party shall have a period of 15 days within which to respond to
such notice. If such Indemnifying Party accepts
28
<PAGE>
responsibility within such 15-day period, such Indemnifying Party may handle,
defend or pay the liability for any such matter, at its own expense and by
counsel chosen by the Indemnifying Party and reasonably satisfactory to the
Indemnitee, and the Indemnifying Party shall promptly provide the Indemnitee
with such written confirmations as may be reasonably required by the Indemnitee
to assure that the Indemnifying Party will assume, and be responsible for, the
entire liability for which Indemnifying Party is responsible hereunder, subject
to the limitation in Section 9.6. The Indemnitee shall have the right to
participate at its own expense in the defense of such asserted liability. The
Indemnitee agrees to cooperate fully with the Indemnifying Party and its counsel
in the defense against any such asserted liability. It is provided, however,
that any compromise settlement of such asserted liability by the Indemnifying
Party shall require the prior written consent of the Indemnitee, which consent
shall not be unreasonably withheld.
In the case of any indemnity obligation relating to taxes, if the
Indemnitee withholds such consent and the Indemnifying Party believes such
withholding of consent to be unreasonable, then a determination of the
reasonableness of such consent and withholding shall be made by an Arbitrator
(as described below), the expenses and fees of whom shall be borne by the
parties equally. The Arbitrator shall be a tax partner of a Big 5 certified
public accounting firm who is agreeable to both parties. The decision of the
Arbitrator shall be final and binding on both parties with respect to the
reasonableness of the Indemnitee's decision not to accept the settlement offer
by Indemnifying Party. Should the Arbitrator decide that Indemnitee's position
is reasonable, the settlement offer will be declined by both parties. The
Arbitrator shall be selected by the good faith agreement of the parties within
30 days after written notice of one party to the other of their disagreement.
Arbitration shall be held at an agreed upon location within 30 days from the
selection of the Arbitrator.
29
<PAGE>
In the case of any indemnity obligation other than the one relating to
Taxes or in the case in which the Arbitrator of a Tax issue described above
decides that Indemnitee's position is unreasonable, if the Indemnitee refuses
its consent to a bona fide offer of settlement which the Indemnifying Party
---- ----
wishes to accept, the Indemnifying Party may tender such matter to Indemnitee to
be handled, free of any further participation by the Indemnifying Party, at the
sole expense of the Indemnitee. In such event, the obligation of the
Indemnifying Party to the Indemnitee shall be equal to the lesser of (i) the
amount of the offer of settlement which the Indemnitee refused to accept, plus
the costs and expenses (payment of which is provided for hereunder) of the
Indemnitee prior to the date the Indemnifying Party notifies the Indemnitee of
the offer of settlement, or (ii) the actual out-of-pocket amount the Indemnitee
is obligated to pay as a result of such party's continuing to pursue such
matter. An Indemnifying Party shall be entitled to recover from the Indemnitee
any additional expenses incurred by such Indemnifying Party as a result of the
decision of the Indemnitee to pursue such matter. If such Indemnifying Party
rejects responsibility for such matter in whole or in part, or does not respond
within such 15-day period to such notice described above, the Indemnitee shall
be free to pursue, without prejudice to any of its rights hereunder, such
remedies as may be available to such party under applicable law, including its
right to indemnification hereunder.
9.5 Adjustment for Insurance and Taxes. The gross amount which an
----------------------------------
Indemnifying Party is liable to pay to, or on behalf of the Indemnitee pursuant
to this article (the "Indemnifiable Loss") shall be reduced by any insurance
proceeds actually recovered by or on behalf of such Indemnitee (from any insurer
who is not an affiliate of the Indemnitee) related to the Indemnifiable Loss,
and increased to fully recover any Tax cost associated with the indemnity
payment and the insurance or other recovery. 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
30
<PAGE>
of such Indemnifiable Loss (from any insurer who is not an affiliate of the
Indemnitee), such Indemnitee shall pay to such Indemnifying Party the amount of
such insurance proceeds or, if less, the amount of such indemnity payment.
9.6 Maximum Liability. The maximum liability of any party hereto as a
-----------------
result of any action brought by the other party hereto pursuant to the terms of
this AGREEMENT (including that arising from Article IX) is an amount equal to
the PURCHASE PRICE. Notwithstanding the foregoing, the limitations on the
Maximum Liability in this Section 9.6 shall not apply with respect to any
liability or obligations for or in respect of Taxes, or any specific Tax
indemnification granted in Section 3.5.7, Article IX or Article XI hereof.
ARTICLE X. COVENANTS AND AGREEMENTS
------------------------
10.1 Application for Commissioner's Approval. Following execution of this
---------------------------------------
AGREEMENT, PURCHASER will promptly file an application for the approval(s)
described in Subsection 6.1.1.
10.2 Best Efforts. During the period commencing on the date of the
------------
execution hereof and continuing until the CLOSING DATE, PURCHASER, or its
designee, and VESTA shall incur usual and necessary expenses required by
governmental or professional entities to use their best efforts to obtain all
approvals, consents and authorizations needed to effect the transactions
contemplated hereby as expeditiously as reasonably possible, and to comply
promptly with all requests or requirements which applicable federal, state or
local law or governmental officials may impose on them with respect to the
transactions which are the subject of this AGREEMENT.
10.3 Disclosures. Neither VESTA nor PURCHASER, without the prior written
-----------
consent of the other, will make any public announcement concerning this
AGREEMENT or the transactions contemplated hereby prior to the CLOSING DATE;
provided, however, that if in the opinion of counsel
31
<PAGE>
of any party such disclosure is legally required, they will cooperate in
preparing any notice or press release.
10.4 Books, Records and Information.
------------------------------
10.4.1 Inspection. PURCHASER agrees that all documents delivered
----------
to it by VESTA pursuant to this AGREEMENT or otherwise in possession
of VESTA COUNTY MUTUAL on the CLOSING DATE shall be open for
inspection by representatives of VESTA at any time during regular
business hours until such time as such documents are destroyed or
possession thereof is given up to the other party, and that VESTA may
during such period at its expense make such copies thereof as it may
reasonably request. VESTA agrees that all documents retained by VESTA
after the CLOSING DATE related to VESTA COUNTY MUTUAL shall be open
for inspection by representatives of PURCHASER at any time during
regular business hours until such time as documents are destroyed or
possession thereof is given up to the other party, and that PURCHASER
may during such period at its expense make such copies thereof as it
may reasonably request. VESTA agrees to provide PURCHASER or VESTA
COUNTY MUTUAL with draft schedules and such information regarding the
affairs of VESTA COUNTY MUTUAL within their possession as is needed to
prepare VESTA COUNTY MUTUAL'S Annual Statement for 1999.
10.4.2 Retention. During the period ending on the sixth
---------
anniversary of the CLOSING DATE, no party shall destroy or give up
possession of any item referred to in Subsection 10.4.1 without first
offering to the other the opportunity, at such other's expense (but
without any other payment), to obtain the same. Thereafter each party
shall be free to dispose of such items, subject, however, to the
provisions of Section 11.4.
32
<PAGE>
Notwithstanding the foregoing, tax records, tax returns, tax
deductions or other tax information shall in no event be disposed of
prior to the time permitted under Section 11.5.
10.5 Names.
-----
10.5.1 Use of Names and Marks. PURCHASER specifically agrees that
----------------------
from and after the CLOSING DATE, or upon the approval of a new name
for VESTA COUNTY MUTUAL, if later, neither PURCHASER nor VESTA COUNTY
MUTUAL, and any affiliate thereof, will make use of word "VESTA" or
any name, mark or term confusingly similar therewith, except for the
sole purpose of historical identification of any products sold by
VESTA COUNTY MUTUAL prior to the CLOSING DATE.
10.5.2 Name Change. VESTA MANAGEMENT will cause to be called a
-----------
meeting of the policyholders of VESTA COUNTY MUTUAL for the purpose of
amending the Articles of Incorporation of VESTA COUNTY MUTUAL and will
cause VESTA COUNTY MUTUAL to take all action necessary to approve a
change in the name of VESTA COUNTY MUTUAL which would eliminate
"VESTA" therefrom as soon as possible after the CLOSING. In connection
therewith, VESTA MANAGEMENT shall cause proxy material, including a
notice, a proxy statement and a form of proxy, to be prepared and
distributed in accordance with all applicable laws and regulations.
Such proxy shall contain the recommendation of the Board of Directors
of VESTA COUNTY MUTUAL to its policyholders that they vote to change
the name of VESTA COUNTY MUTUAL to a name recommended by PURCHASER,
and upon receipt of such policyholder approval, VESTA COUNTY MUTUAL
shall promptly take all action necessary to the secure COMMISSIONER'S
approval for the name change and to have
33
<PAGE>
the name change take effect as soon as possible after the CLOSING
DATE. In the event approvals from the COMMISSIONER and the
policyholders for the change of name are not received prior to
CLOSING, VESTA hereby grants a limited license to VESTA COUNTY MUTUAL
to continue to use the name "VESTA" (in the same manner and for the
same purposes it is currently used) until the name change is
effective.
10.6 Amendments to the Articles of Incorporation. In addition to the
-------------------------------------------
amendment of the Articles of Incorporation for purposes of changing the name of
VESTA COUNTY MUTUAL, VESTA MANAGEMENT agrees to cause the Board of Directors of
VESTA COUNTY MUTUAL to approve other amendments reasonably requested by
PURCHASER and, if necessary, to cause notice thereof to be given to the
policyholders, as well as proxy materials containing such other amendments, as
required by applicable laws and regulations.
10.7 Assumption of Liabilities. PURCHASER, upon the CLOSING, shall enter
-------------------------
into an agreement for the Loss Portfolio Transfer (in the form attached hereto
as Exhibit 7.1.8) to assume all liabilities ceded by VESTA COUNTY MUTUAL to
Vesta Fire Insurance Corporation, excluding Vendor's Single Interest insurance,
as of 11:59:59 p.m. C.S.T. on the CLOSING DATE.
10.8 Assumption of Brokers Obligations. PURCHASER, upon CLOSING, shall
---------------------------------
enter into an agreement (in the form attached hereto as Exhibit 10.8) to assume
all obligations of Vesta Fire Insurance Corporation to brokers for the services
provided relating to the business written by VESTA COUNTY MUTUAL. Copies of
such agreements with brokers are a part of and accompany Exhibit 10.8.
10.9 Post Closing Adjustment. Inasmuch as agents accounts for insurance
-----------------------
transactions prior to CLOSING will not be reported to VESTA COUNTY MUTUAL until
after the CLOSING, and because the amount due under the terms of the MANAGEMENT
CONTRACT through the date of
34
<PAGE>
CLOSING may not be finally determined until after the books are closed of VESTA
COUNTY MUTUAL on December 31, 1999, it is agreed that a post-closing adjustment
shall be made to the Closing Balance Sheet on or before March 1, 2000, to
properly reflect all transactions as of the CLOSING DATE. At that time, VESTA
COUNTY MUTUAL shall remit to VESTA MANAGEMENT any additional amount due under
the MANAGEMENT CONTRACT as of the CLOSING DATE, or VESTA MANAGEMENT shall remit
to VESTA COUNTY MUTUAL any overpayment of fees under the MANAGEMENT CONTRACT
based upon the adjusted Closing Balance Sheet. It is understood and agreed that
any increase in accrued premium tax liability of VESTA COUNTY MUTUAL shown on
the adjusted Closing Balance Sheet shall be offset by any corresponding accrued
receivable from agents for any such premium tax liability, or inversely , any
decrease of accrued premium tax liability will be offset by any decrease in
accrued receivables from agents relative to such premium tax. However, any
overpayment in prepaid premium taxes paid by VESTA COUNTY MUTUAL prior to
CLOSING shall be properly accounted for on the adjusted Closing Balance Sheet.
ARTICLE XI. ADDITIONAL TAX MATTERS
----------------------
11.1 Review by Vesta. All returns, reports and declarations prepared by
---------------
VESTA COUNTY MUTUAL related to any periods for which VESTA has any liability
pursuant to subsection 3.5.7. shall be subject to the review by VESTA.
11.2 Tax Treatment of Transactions. VESTA and PURCHASER agree that for Tax
-----------------------------
purposes (i) the transfer of the rights and interests in the MANAGEMENT CONTRACT
are a sale by VESTA of all of its interest in the MANAGEMENT CONTRACT, and (ii)
the transactions effected by the Loss Portfolio Transfer Agreement to acquire
the VESTA COUNTY MUTUAL business is reinsurance.
35
<PAGE>
VESTA and PURCHASER agree not to take any position inconsistent with these
positions for Tax purposes.
11.3 Allocation of Purchaser Price. The parties agree that the
-----------------------------
consideration payable by PURCHASER to VESTA at the CLOSING DATE pursuant to this
AGREEMENT (after taking into account the reinsurance premiums, ceded
liabilities, ceding commissions and other related items under the Loss Portfolio
Agreement) shall be allocated in accordance with Section 1060 of the Code and
Temporary Treasury Regulation Section 1.1060-1T. VESTA and PURCHASER shall
mutually agree (such agreement not to be unreasonably withheld) as to the
allocation of such consideration amount to the MANAGEMENT CONTRACT and the
business transferred under the Loss Portfolio Transfer Agreement. Each party
agrees to file with its federal income Tax returns an initial asset acquisition
statement and any supplemental statements on Internal Revenue Service Form 8594
(Asset Acquisition Statement) required by Temporary Treasury Regulation Section
1.1060-1T, consistent with the preceding sentence.
11.4 Tax Refunds.
-----------
(a) VESTA shall be entitled to an amount equal to all refunds of
federal income taxes of VESTA COUNTY MUTUAL, and all refunds of state,
local or other Taxes of VESTA COUNTY MUTUAL with respect to taxable
periods or partial periods through the CLOSING DATE (and any interest
thereon), which are not shown on the Closing Balance Sheet of VESTA
COUNTY MUTUAL as of the CLOSING DATE. PURCHASER will pay such amount
to VESTA, within five business days after receipt of any such refunds
by VESTA COUNTY MUTUAL. This Section 11.4(a) shall not apply to any
refund attributable to any loss carryback and shall not be construed
to require
36
<PAGE>
VESTA COUNTY MUTUAL to effect any such carryback or to file any
amended return or refund claim, notwithstanding Section 11.5.
(b) VESTA COUNTY MUTUAL shall be entitled to all refunds of federal
income taxes and all refunds of state, local or foreign taxes of VESTA
COUNTY MUTUAL for taxable periods or partial periods occurring after
the CLOSING DATE (and any interest thereon). VESTA shall pay to VESTA
COUNTY MUTUAL, within five business days after receipt thereof, any
such refunds received by VESTA.
11.5 Cooperation and Exchange of Information. The parties shall provide
---------------------------------------
each other with such cooperation and information as either of them reasonably
may request of the other in filing any tax return, amended return or claim for
refund, determining a liability for taxes or a right to refund of taxes, or in
conducting any audit or other proceeding in respect of taxes. Such cooperation
and information shall include providing copies of all relevant portions of tax
returns relating to VESTA COUNTY MUTUAL, together with accompanying schedules
and related workpapers, documents relating to rulings or other determinations by
taxing authorities and records concerning the ownership and tax basis of
property, which either party may possess. Each party shall make its employees
available on a mutually convenient basis to provide explanations of any
documents or information provided hereunder. Notwithstanding the foregoing,
neither party shall be required unreasonably to prepare any document, or
determine any information not then in its possession, in response to a request
under this section. Except as otherwise provided in this AGREEMENT, the party
requesting assistance hereunder shall reimburse the other for any reasonable
out-of-pocket costs incurred in providing any return, document or other written
information. Each party will retain all tax returns, schedules and workpapers,
and all material records or other documents relating thereto, until the
expiration of the statute of limitations (including extensions) for the taxable
years to which such returns and other documents relate and, unless such returns
and other
37
<PAGE>
documents are offered to the other party, until the final determination of any
payments which may be required in respect of such years under this AGREEMENT.
Any information obtained under this section shall be kept confidential, except
as may be otherwise necessary in connection with the filing of returns or claims
for refund or in conducting any audit or other proceeding.
11.6 Filing Procedures. VESTA and PURCHASER shall mutually agree (such
-----------------
agreement not to be unreasonably withheld) as to the steps, if any, taken by the
Purchaser in connection with the filing of any Tax returns, amended Tax returns,
claim for refund, court petition or any litigation and consent to any settlement
in connection therewith with respect to any Tax of VESTA COUNTY MUTUAL relating
to any Tax period ending on or prior to the CLOSING DATE. Neither VESTA or
PURCHASER shall (or shall cause or permit any affiliate thereof to) amend,
refile or otherwise modify (or grant an extension of any statute of limitations
with respect to) any Tax return relating in whole or in part to VESTA COUNTY
MUTUAL with respect to any Tax year or period ending on or before the CLOSING
DATE without the prior written consent of the other party, which consent may not
be reasonably withheld.
11.7 Allocation Between Periods. For purpose of the representations made
--------------------------
in Subsection 3.5.7, including any determination of estimated Taxes, the
presentation of the Closing Balance Sheet, and the determination of tax refunds
for any tax period that includes but does not end on the Closing Date, and the
presentation of Financial Statements, all Taxes shall be determined on the basis
of an interim closing of the books of VESTA COUNTY MUTUAL as though its Tax year
ended on the Closing Date.
11.8 Definition of Tax. "Tax" (and, with correlative meaning, "Taxes")
-----------------
means any federal, state, local or foreign Taxes, charges, fees, levies or other
assessments, including, without limitation any net income Tax or franchise Tax
based on net income, or alternative or add-on minimum Taxes, any gross income,
gross receipts, premium, sales, use, ad valorem, value added, transfer, profits,
license, payroll,
38
<PAGE>
employment, withholding, excise, severance, stamp, occupation, property,
environmental (including Taxes under Section 59A of the Code), capital stock,
social security (or similar), unemployment, disability, registration, estimated,
or windfall profit Tax, custom duty or other Tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest credit
or charge, penalty (including any penalty for failure to file a Tax return),
addition to Tax or additional amount imposed by any Tax authority, whether
disputed or not.
ARTICLE XII. MISCELLANEOUS
-------------
12.1 Broker's Fees. Neither party has agreed to pay any commission or
-------------
other compensation to any broker, finder or similar agent in connection with the
transactions contemplated by this AGREEMENT.
12.2 Expenses. Except as specifically set forth elsewhere herein, each of
--------
the parties hereto shall pay its own expenses and costs incurred or to be
incurred by it in negotiating, closing and carrying out this AGREEMENT.
12.3 Notices. Any notice or communication given pursuant hereto by any
-------
party hereto to any other party shall be in writing and delivered or mailed by
registered or certified mail, postage prepaid, return receipt requested (notice
so mailed shall deemed given when mailed) as follows:
(a) If to Vesta:
-----------
Vesta Insurance Group, Inc.
P. O. Box 43360
3760 River Run Drive
Birmingham, Alabama 35243
Attn: Donald W. Thornton
Senior Vice President,
General Counsel and Secretary
(b) If to Purchaser:
---------------
Employers Reinsurance Corporation
39
<PAGE>
5200 Metcalf
Overland Park, Kansas 66201
Attn: Kathryn Benes Baker
Vice President
Associate General Counsel
12.4 Integration. This AGREEMENT is the entire agreement between the
-----------
parties hereto with respect to the subject matter hereof and supersedes all
prior communications, representations, agreements and understandings, whether
oral or written, between the parties hereto. There are no oral or written
agreements, understandings, representations or warranties between the parties
hereto with respect to the subject matter hereof other than those set forth in
this AGREEMENT. The headings contained in this AGREEMENT and the Table of
Contents are for reference purposes only and shall not affect the meaning or
interpretation of this AGREEMENT.
12.5 Assignment and Amendment of Agreement. This AGREEMENT may be assigned
-------------------------------------
by PURCHASER to any affiliate, provided the assignee is not a corporation
chartered by the state of Texas. This AGREEMENT shall be binding on the
successors and assigns of the parties hereto. This AGREEMENT may be amended
only by written agreement of the parties hereto.
12.6 Applicable Law. This AGREEMENT shall be construed in accordance with
--------------
the laws of the State of Texas applicable to contracts made and to be performed
entirely within said jurisdiction.
12.7 Reasonable Assurances. Each party agrees that it will execute and
---------------------
deliver, or cause to be executed and delivered, on or after the date of this
AGREEMENT, all such other instruments, and will take all reasonable actions, as
the other party may reasonably request from time to time in order to effectuate
the provisions and purposes of this AGREEMENT.
12.8 Incorporation of Exhibits and Attachments. The Exhibits hereto are
-----------------------------------------
incorporated into this AGREEMENT and shall be deemed a part hereof as if set
forth herein in full. Reference herein to "this
40
<PAGE>
AGREEMENT" and the words "herein," and words of similar import refer to this
Acquisition Agreement including its Exhibits and Attachments as an entirety.
12.9 "Affiliates". As used in this AGREEMENT with respect to VESTA
------------
MANAGEMENT, VIG or PURCHASER, the term "affiliate" shall mean any entity or
natural person controlling, controlled by or under common control with VESTA
MANAGEMENT, VIG or PURCHASER, as the case may be.
IN WITNESS WHEREOF, the parties have duly executed, through their
respective authorized officers, this AGREEMENT as of the date first above
written.
ATTEST: [SEAL] EMPLOYERS REINSURANCE CORPORATION
By: /s/ Kathryn Benes Baker
______________________ -------------------------
Title: Secretary Title: Vice President &
Associate General Counsel
ATTEST: [SEAL] VESTA INSURANCE GROUP, INC.
Donald W. Thornton By: /s/ Norman W. Gayle III
- ---------------------- ------------------------
Title: Secretary Title: President and CEO
ATTEST: [SEAL] VESTA MANAGEMENT CORPORATION
Donald W. Thornton By: /s/ James E. Tait
- ---------------------- ------------------
Title: Secretary Title: Executive VP
41
<PAGE>
Exhibit 99.1
------------
VESTA INSURANCE GROUP ANNOUNCES THE SIGNING
OF THREE DEFINITIVE AGREEMENTS
Agreements Aimed at Enhancing Company's Financial Flexibility
BIRMINGHAM, Ala., June 29 /PRNewswire/ -- Vesta Insurance Group, Inc. (NYSE: VTA
- -news), announced today the signing of three definitive agreements that will
provide an additional $55 million dollars to the Company. The agreements, which
include a private placement of convertible preferred securities, the commitment
for refinancing the Company's current credit facility and the sale of a
management contract of a non-core asset, are aimed at enhancing the Company's
financial flexibility.
Upon closing of the agreements, the Company will use the proceeds to pay off its
current $55 million bank facility and replace it with a new $20 million
facility. The agreements, which are currently expected to close within 90-120
days, are subject to regulatory approval.
Vesta Insurance announced an agreement for a $25 million investment in Vesta
through a private placement of its Series A Convertible Preferred Stock with the
Birmingham Investment Group, LLC. led by James A. Taylor, Chairman of the Board
and Chief Executive Officer of The Banc Corporation (Nasdaq: TBNC - news). The
Birmingham Investment Group, LLC. has agreed to purchase from the Company
2,950,000 shares of the Company's Preferred Stock at a price of $8.50 per share.
Each share of Preferred Stock will be convertible into two shares of common
stock and will carry a dividend rate of 9% prior to conversion. The Preferred
Stock will automatically be converted into shares of Common Stock at the date at
which the stock of the Company achieves an average closing price of $8.00 per
share for twenty consecutive trading days. Two members of the Birmingham
Investment Group, LLC., James A. Taylor and Larry D. Striplin, Jr. are expected
to join the Company's board of directors upon closing. The private placement is
subject to shareholder approval.
"The decision by this group to take such a substantial position in Vesta
Insurance underscores the success we have had implementing our turnaround
plan," stated James E. Tait, Executive Vice President and Chief Financial
Officer of Vesta Insurance Group. "We are very pleased that the Birmingham
Investment Group, LLC. has agreed to become a shareholder of Vesta Insurance."
Vesta Insurance also announced that it received a commitment from The Banc
Corporation and its subsidiary, The Bank, to refinance $20 million of its
current revolving credit facility. The new facility has an initial term of two-
years and will accrue interest at The Bank's daily prime rate.
<PAGE>
Commenting on the transactions, James A. Taylor said, "The members of The
Birmingham Investment Group, most of whom are founding investors of The Banc
Corporation, have tremendous respect and appreciation for what Norman Gayle and
Jim Tait have done at Vesta. We have reviewed Vesta's operating strategy and its
prospects for the future and are confident that the employees, shareholders, and
customers of Vesta will benefit from the completion of these transactions and
Norman and Jim's leadership going forward."
On The Banc Corporation's involvement, Taylor added, "This is also a unique
opportunity for The Bank to align itself with an organization that understands
the concept of community relationships and providing personalized service to its
customers. In addition to the new credit facility, The Bank also hopes to expand
the relationship with Vesta by managing their deposit and investment
relationships in the future."
In addition to the private placement agreement and the commitment for a new
credit facility, Vesta also announced that it entered into an $11.2 million
agreement with Employers Reinsurance Corporation to sell it the authority and
the right to control and manage the affairs of Vesta County Mutual Insurance
Company. The closing of the transaction is contingent on approval from the
Commissioner of Insurance of Texas.
"Upon completion of the three agreements we announced today, both our capital
structure and our financial flexibility will be significantly enhanced," stated
Norman W. Gayle, President and Chief Executive Officer of Vesta Insurance Group,
Inc. "We negotiated a credit commitment with more favorable terms, secured a
significant equity investment from experienced investors, and will reduce our
bank debt by $35 million." Going forward, we look to build upon the momentum we
have created for continued profitability."
Vesta Insurance Group, Inc., headquartered in Birmingham, Alabama, is a holding
company for a group of property and casualty insurance companies.
Any statement contained in this report which is not a historical fact, or which
might otherwise be considered a statement concerning the management's plans
and/or objectives for future operations or the Company's anticipated future
economic performance, whether expressed or implied, is meant as and should be
considered a forward-looking statement as the term is defined in the Private
Securities Litigation Reform Act of 1995. Any such forward-looking statements
contained in this press release are based on the assumption that the
transactions announced herein will actually be consummated, and a failure to
consummate any of these transaction may cause actual future operations and
results to differ materially from those contemplated by the forward looking
statements. In addition, these forward-looking statements are based on other
assumptions and opinions concerning a variety of known and unknown risks,
including but not necessarily limited to changes in market conditions, natural
disasters and other catastrophic events; increased competition, changes in
availability and costs of reinsurance; changes in governmental regulations, in
general economic conditions, as well as other risks more completely described in
the Company's filings with the Securities and Exchange Commission, including its
most recent annual report on Form 10-K. If any of these assumptions or opinions
prove incorrect, any
2
<PAGE>
forward-looking statements made on such assumptions or opinions may also prove
materially incorrect in one or more respects.
3
