Exhibit 10.24
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
CBCA INC.,
U.S.I. HOLDINGS CORPORATION,
USI INSURANCE SERVICES CORP.,
USI CARE MANAGEMENT, INC.,
TEXAS PROFESSIONAL ADMINISTRATORS, INC.
AND
USI PRESCRIPTION BENEFITS MANAGEMENT CO.
Dated as of April l, 2002
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE............................................................. 1
1.1 Signing Payment............................................................... 1
1.2 Purchase and Sale of the Shares............................................... 2
1.3 Closing....................................................................... 2
1.4 Allocations................................................................... 2
1.5 Closing Deliveries by the Seller.............................................. 2
1.6 Closing Deliveries by Purchaser............................................... 2
1.7 Effective Date Balance Sheet.................................................. 3
1.8 Post Closing Revenue Adjustment............................................... 5
1.9 Certain Defined Terms......................................................... 7
1.10 Operations After Effective Time............................................... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF USIH, USIIS, USICM,
TPAI AND USIPBM..................................................................... 8
2.1 USICM Organization and Qualification; USICM Subsidiaries...................... 8
2.2 TPAI Organization and Qualification; TPAI Subsidiaries........................ 9
2.3 USIPBM Organization and Qualification; USIPBM Subsidiaries.................... 10
2.4 USICM Certificate of Incorporation and Bylaws................................. 11
2.5 TPAI Certificate of Incorporation and Bylaws.................................. 11
2.6 USIPBM Certificate of Incorporation and Bylaws................................ 11
2.7 USICM Capitalization.......................................................... 11
2.8 TPAI Capitalization........................................................... 13
2.9 USIPBM Capitalization......................................................... 14
2.10 Authority Relative to this Agreement.......................................... 15
2.11 No Conflict; Required Filings and Consents.................................... 15
2.12 Compliance; Permits........................................................... 15
2.13 Financial Statements.......................................................... 16
2.14 Absence of Certain Changes or Events.......................................... 17
2.15 Absence of Litigation and Claims.............................................. 21
2.16 Customers..................................................................... 22
2.17 Product and Service Warranties................................................ 22
2.18 Employee Benefit Plans........................................................ 22
2.19 Labor Matters................................................................. 26
2.20 Key Employees................................................................. 26
2.21 Material Contracts............................................................ 26
2.22 Guaranties, Intercompany Contracts............................................ 27
2.23 Restrictions on Business Activities........................................... 27
2.24 Title to Property............................................................. 27
2.25 Environmental Matters......................................................... 28
2.26 Intellectual Property......................................................... 29
2.27 Assets ....................................................................... 31
2.28 Insurance..................................................................... 31
2.29 Financial Condition........................................................... 31
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2.30 Regulatory Status............................................................. 31
ARTICLE III REPRESENTATIONS AND WARRANTIES OF USIH, USIIS AND
SELLER.............................................................................. 32
3.1 Organization and Qualification................................................ 32
3.2 Authority Relative to this Agreement.......................................... 32
3.3 No Conflict; Required Filings and Consents.................................... 32
3.4 Brokers....................................................................... 33
3.5 Stock Ownership of Company.................................................... 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................. 33
4.1 Organization and Qualification; Subsidiaries.................................. 33
4.2 Certificate of Incorporation and Bylaws....................................... 34
4.3 Authority Relative to this Agreement.......................................... 34
4.4 No Conflict; Required Filings and Consents.................................... 34
ARTICLE V CONDUCT PRIOR TO THE CLOSING ................................................. 35
5.1 Conduct of Business by Company and Seller..................................... 35
5.2 Exclusivity................................................................... 37
ARTICLE VI ADDITIONAL AGREEMENTS........................................................ 37
6.1 Access to Information......................................................... 37
6.2 Public Disclosure............................................................. 38
6.3 Reasonable Efforts; Notification.............................................. 38
6.4 Employee Benefits............................................................. 39
6.5 Third Party Consents.......................................................... 40
6.6 Non-Competition; Non-Solicitation............................................. 40
6.7 Transitional Services Agreement............................................... 41
6.8 Intercompany Arrangements..................................................... 41
6.9 Audit Assistance.............................................................. 41
6.10 Insurance Coverage............................................................ 42
6.11 Reports....................................................................... 42
6.12 Purchaser to Use Seller Services.............................................. 42
6.13 Seller to Use Purchaser Services.............................................. 42
6.14 Certain Employment Arrangements............................................... 42
6.15 Release of Seller............................................................. 43
6.16 Litigation Cooperation........................................................ 43
6.17 ▇▇▇▇▇▇ P&C Business........................................................... 43
6.18 USI Payable................................................................... 44
6.19 AGE Receivables............................................................... 44
ARTICLE VII CONDITIONS TO CLOSING....................................................... 44
7.1 Conditions to Obligations of Each Party....................................... 44
7.2 Additional Conditions to Obligations of Company and Seller.................... 44
7.3 Additional Conditions to the Obligations of Purchaser......................... 45
ARTICLE VIII TAX MATTERS................................................................ 46
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8.1 Definition of Taxes........................................................... 46
8.2 Tax Representations........................................................... 47
8.3 Section 338(h)(10) Elections.................................................. 47
8.4 FIRPTA Certificate............................................................ 48
8.5 Tax Returns................................................................... 48
8.6 Tax Indemnity................................................................. 49
8.7 Refunds and Credits........................................................... 50
8.8 Termination of Tax Sharing Agreements......................................... 50
8.9 Conduct of Audits and Other Procedural Matters................................ 51
8.10 Assistance and Cooperation.................................................... 51
8.11 Survival...................................................................... 52
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................................ 52
9.1 Termination................................................................... 52
9.2 Notice of Termination; Effect of Termination.................................. 53
9.3 Fees and Expenses............................................................. 53
9.4 Amendment..................................................................... 54
9.5 Extension; Waiver............................................................. 54
ARTICLE X GENERAL PROVISIONS............................................................ 54
10.1 Survival of Representations and Warranties.................................... 54
10.2 Indemnification by Seller..................................................... 54
10.3 Indemnification by Purchaser.................................................. 57
10.4 Notices....................................................................... 58
10.5 Interpretation................................................................ 59
10.6 Counterparts.................................................................. 59
10.7 Entire Agreement; Third Party Beneficiaries................................... 59
10.8 Severability.................................................................. 59
10.9 Other Remedies; Specific Performance.......................................... 60
10.10 Governing Law................................................................. 60
10.11 Rules of Construction......................................................... 60
10.12 Assignment.................................................................... 60
10.13 WAIVER OF JURY TRIAL.......................................................... 60
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INDEX OF EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B Form of Security Agreement
Exhibit C Form of Guaranty
Exhibit D Form of Transitional Services Agreement
Exhibit E Form of Legal Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
Professional Corporation
Exhibit F Form of Legal Opinion of ▇▇▇▇▇▇▇▇▇ & Falconer, LLP
Schedule 1 Procedures
Schedule 2 Severance Arrangements
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made and entered into as of April 1, 2002,
among CBCA Inc., a Delaware corporation ("Purchaser"), U.S.I. Holdings
Corporation, a Delaware corporation ("USIH"), USI Insurance Services Corp., a
Delaware corporation and a wholly owned subsidiary of USIH ("USIIS"), USI Care
Management, Inc., a New York corporation and a wholly owned subsidiary of USIIS
("USICM"), Texas Professional Administrators, Inc., a Texas corporation and a
wholly owned subsidiary of USIIS ("TPAI") and USI Prescription Benefits
Management Co., a Connecticut corporation and a wholly owned subsidiary of USIIS
("USIPBM"). USIH and USIIS are referred to collectively in this Agreement as
"Seller." Each of USICM, TPAI and USIPBM individually and collectively are
referred to in this Agreement as "Company."
RECITALS
A. WHEREAS, USIIS owns all the issued and outstanding shares of common
stock, no par value per share, of USICM ("USICM Common Stock");
B. WHEREAS, USIIS owns all the issued and outstanding shares of common
stock, $0.10 par value per share, of TPAI ("TPAI Common Stock");
C. WHEREAS, USIIS owns all the issued and outstanding shares of common
stock, $0.01 par value per share, of USIPBM ("USIPBM Common Stock"). USICM
Common Stock, TPAI Common Stock and USIPBM Common Stock are referred to
collectively in this Agreement as the "Shares";
D. WHEREAS USIIS wishes to sell to Purchaser, and Purchaser wishes to
purchase from USIIS, the Shares, upon the terms and subject to the conditions
set forth herein;
E. It is intended by the parties that the purchase from Seller of each of
the USICM Common Stock, the TPAI Common Stock and the USIPBM Common Stock
pursuant to the terms of this Agreement each shall constitute a "qualified stock
purchase" of the respective Company by Purchaser within the meaning of Section
338(d)(3) of the Code.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Signing Payment. Upon the execution of this Agreement, Purchaser
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agrees to pay Seller $250,000 cash (the "Signing Payment") which may be applied
against the cash portion of the aggregate Purchase Price (as defined below) in
the manner provided below and is refundable only as expressly provided by
Section 9.2 of this Agreement. If the
transactions contemplated by this Agreement are not closed and the Signing
Payment is not so refunded, Seller shall be entitled to keep and retain the
entirety of the Signing Payment in consideration of the making of this
Agreement.
1.2 Purchase and Sale of the Shares. Upon the terms and subject to the
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conditions of this Agreement, at the Closing, USIIS shall sell to Purchaser, and
Purchaser shall purchase from USIIS, the Shares.
1.3 Closing. Upon the terms and subject to the conditions of this
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Agreement, the sale and purchase of the Shares contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at the offices of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, One Market, ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 A.M. San Francisco
time on April 16, 2002, or at such other place or at such other time or on such
other date as the Seller and Purchaser may mutually agree upon in writing (the
day on which the Closing takes place being the "Closing Date"). "Effective Time"
shall mean 12:01 A.M. on April 1, 2002.
1.4 Allocations. For the period between the Effective Time and the
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Closing Date, Purchaser, Seller and the Company shall make such allocations and
adjustments in respect of cash flow, income, expenses and other accounting
matters as may be appropriate in order for the transactions contemplated by this
Agreement to be and have been, as between Purchaser and Seller, consummated on
and as of the Effective Time. Within thirty (30) days following the Closing
Date, the parties shall reconcile cash flows attributable to the operations of
the Company during such period, and the amount due from Seller to Purchaser or
from Purchaser to Seller, as the case may be, shall be paid within ten (10) days
following the end of such period. The Transition Agreement as completed,
executed and delivered at the Closing may include such further and additional
terms and conditions regarding such reconciliation, allocations, adjustments and
other matters as the parties may determine to be appropriate.
1.5 Closing Deliveries by the Seller. At the Closing, the Seller shall
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deliver or cause to be delivered to Purchaser:
(a) stock certificates evidencing the Shares duly endorsed in
blank, or accompanied by stock powers duly executed in blank, in form
satisfactory to Purchaser and with all required stock transfer tax stamps
affixed;
(b) a receipt for the Purchase Price (as defined below);
(c) $1,250,000 due in respect of the AGE Receivable (as defined
below) by wire transfer in immediately available funds to Purchaser; and
(d) the opinions, certificates and other documents required to be
delivered pursuant to Section 7.3.
1.6 Closing Deliveries by Purchaser. At the Closing, Purchaser shall
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deliver to the Seller:
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(a) the Purchase Price (as defined below) by application of the
Signing Payment and wire transfer in immediately available funds of the balance
of the Purchase Price to Seller; and
(b) a Secured Non-Negotiable Subordinated Promissory Note duly
executed by Purchaser in the form of Exhibit A hereto;
(c) a Security Agreement duly executed by Purchaser and Company
and Subsidiaries in the form of Exhibit B hereto;
(d) a Guaranty duly executed by the Company and Subsidiaries in
the Form of Exhibit C hereto;
(e) the ▇▇▇▇ of sale for the AGE Receivable; and
(f) the certificates and other documents required to be delivered
pursuant to Section 7.2.
1.7 Effective Date Balance Sheet
(a) Within sixty (60) days after the Closing Date, Purchaser will
prepare and deliver to Seller a balance sheet of Company as of the Effective
Time (the "Effective Date Balance Sheet"). The Effective Date Balance Sheet will
be prepared utilizing United States generally accepted accounting principles
("GAAP") consistent with past practices, accounting principles and the policies
and procedures specified on Schedule 1 hereto (the "Procedures"). Purchaser will
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retain KPMG LLP (the "Auditing Firm") to audit the Effective Date Balance Sheet
and to render its report thereon, as addressed to Purchaser and Seller, stating
that the Effective Date Balance Sheet has been prepared in accordance with the
terms of this Section 1.6(a) and setting forth Working Capital Shortfall (as
defined in Section 1.6(e)) and the Excess Debt Amount (as defined in Section
1.6(e)), if any. Such report of the Auditing Firm will be delivered by Purchaser
to Seller together with the Effective Date Balance Sheet. The date on which the
Effective Date Balance Sheet, and the report thereon of the Auditing Firm is
received by Seller is referred to herein as the "First Delivery Date." Purchaser
shall be responsible for all fees of Auditing Firm relating to the preparation
of the Effective Date Balance Sheet.
(b) The Effective Date Balance Sheet will be deemed to be the
final, binding and conclusive Effective Date Balance Sheet (the "Final Effective
Date Balance Sheet") for all purposes on the thirtieth (30th) day after the
First Delivery Date unless Seller delivers to Purchaser written notice of its
disagreement (a "Notice of Disagreement") on or prior to such date specifying in
reasonable detail the nature of Seller's objections to the Effective Date
Balance Sheet. Within such thirty (30) day period, Purchaser and the Company
shall provide Seller and its auditors with reasonable access during normal
business hours to the accounts and records of the operations of Company relating
to the Effective Date Balance Sheet. Seller shall not make any objection in the
Notice of Disagreement concerning any individual item on the Effective Date
Balance Sheet, unless Seller asserts that the Effective Date Balance Sheet was
not prepared in accordance with the terms of Section 1.6(a) with respect to such
item and that as a result thereof the Effective Date Balance Sheet does not
accurately set forth the calculation of the Working Capital Shortfall or Excess
Debt Amount; provided, however, that no Notice of
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Disagreement may be delivered unless the objections concerning individual items
exceed an aggregate of $25,000. Seller hereby waives the right to assert any
objection with respect to the Effective Date Balance Sheet that is not asserted
in a Notice of Disagreement delivered to Purchaser by Seller within thirty (30)
days after the First Delivery Date. If a Notice of Disagreement is delivered to
Purchaser by Seller within such 30-day period, then the Effective Date Balance
Sheet (as adjusted, if necessary) will be deemed to be the Final Effective Date
Balance Sheet for all purposes on the earlier of (i) the date Purchaser and
Seller resolve in writing all differences they have with respect to the
Effective Date Balance Sheet or (ii) the date the disputed matters are resolved
in writing by the Unaffiliated Firm (as defined below). In the event that
disputed matters are resolved by the Unaffiliated Firm, the Final Effective Date
Balance Sheet will consist of the applicable amounts from the Effective Date
Balance Sheet (or amounts otherwise agreed to in writing by Purchaser and
Seller) as to items that have not been submitted for resolution to the
Unaffiliated Firm, and the amounts determined by the Unaffiliated Firm as to
items that were submitted for resolution by the Unaffiliated Firm.
(c) During the 30-day period following the delivery of a Notice
of Disagreement, Purchaser and Seller will seek in good faith to resolve any
differences they may have with respect to matters specified in the Notice of
Disagreement. If, at the end of such 30-day period, Purchaser and Seller have
not reached agreement on such matters, Purchaser and Seller will have an
additional fifteen (15) days to advise each other in writing of their respective
positions with respect to each of Seller's proposed adjustments that are in
dispute. Promptly following this 15-day period, Purchaser and Seller will
jointly engage PricewaterhouseCoopers LLP (or, if PricewaterhouseCoopers LLP is
unable or unwilling to act in such capacity, Deloitte & Touche LLP) (the
"Unaffiliated Firm") to resolve the matters which remain in dispute with respect
to the Effective Date Balance Sheet by arbitration in accordance with the
procedures set forth in this Section 1.6. In connection with such engagement,
Purchaser and Seller agree to execute, if requested by the Unaffiliated Firm, a
reasonable engagement letter including customary indemnities. Promptly after
such engagement of the Unaffiliated Firm, Purchaser or Seller will provide the
Unaffiliated Firm with a copy of this Agreement, the Effective Date Balance
Sheet, the Notice of Disagreement and any previously delivered written
positions. The Unaffiliated Firm will have the authority to request in writing
such additional written submissions from either Purchaser or Seller as it deems
appropriate, provided that a copy of any such submission will be provided to the
other party at the same time as it is provided to the Unaffiliated Firm. Neither
Purchaser nor Seller (nor any of their respective affiliates) will make any
additional submission to the Unaffiliated Firm except pursuant to such a written
request by the Unaffiliated Firm. Neither Purchaser nor Seller will communicate
(nor permit any of its affiliates to communicate) with the Unaffiliated Firm
without providing the other a reasonable opportunity to participate in such
communication with the Unaffiliated Firm (other than with respect to written
submissions in response to the written request of the Unaffiliated Firm). The
Unaffiliated Firm will have forty-five (45) days to review the documents
provided to it pursuant to this Section 1.6(c). Within such 45-day period, the
Unaffiliated Firm will furnish simultaneously to Purchaser and Seller its
written determination with respect to each of the adjustments in dispute
submitted to it for resolution. The Unaffiliated Firm will resolve the
differences regarding the Effective Date Balance Sheet based solely on the
information provided to the Unaffiliated Firm by Purchaser and Seller pursuant
to the terms of this Agreement (and not independent review). The Unaffiliated
Firm's authority will be limited to resolving disputes with respect to whether
the individual items on the Effective Date Balance Sheet in dispute was
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prepared in accordance with the terms of Section 1.6(a) (it being understood
that the Unaffiliated Firm will have no authority to make any adjustments to any
financial statements or amounts other than the Effective Date Balance Sheet and
amounts set forth therein respectively that are in dispute). In resolving any
disputed item, the Unaffiliated Firm may not assign a value to such item greater
than the greatest value for such item asserted by either Purchaser or Seller or
less than the smallest value for such item asserted by either Purchaser or
Seller.
(d) The decision of the Unaffiliated Firm will be, for all
purposes, conclusive, non-appealable, final and binding upon Purchaser and
Seller. The fees of the Unaffiliated Firm will be borne by Purchaser and Seller
in the same proportion that the dollar amount of disputed items lost by
Purchaser or Seller (as applicable) bears to the total dollar amount in dispute
resolved by the Unaffiliated Firm. Each of Purchaser and Seller will bear the
fees, costs and expenses of its own accountants and all of its other expenses in
connection with matters contemplated by this Section 1.6.
(e) "Working Capital Shortfall" shall mean that amount whereby
the Current Liabilities (as defined below) set forth in the Final Effective Date
Balance Sheet exceeds the Current Assets (as defined below) set forth in the
Final Effective Date Balance Sheet. "Working Capital Excess" shall mean that
amount whereby the Current Liabilities set forth in the Final Effective Date
Balance Sheet are less than the Current Assets set forth in the Final Effective
Date Balance Sheet. "Current Liabilities" and "Current Assets" shall each have
the meaning ascribed thereto under GAAP and shall be determined in accordance
with GAAP and the Procedures, excluding the current portion of any Debt (as
defined below) and excluding all intercompany balances cancelled pursuant to
Section 6.8. "Debt" shall mean all obligations for borrowed money, including
leases and obligations that are or should be classified as capital leases under
GAAP and excluding all intercompany balances cancelled pursuant to Section 6.8.
"Excess Debt Amount" means (i) any Debt (including accrued interest and fees
payable) included on the Final Effective Date Balance Sheet (excluding capital
leases) and (ii) Debt (including accrued interest and fees payable) on the Final
Effective Date Balance Sheet in excess of $2,500,000.
1.8 Post Closing Revenue Adjustment.
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(a) Purchaser shall deliver to Seller within sixty (60) days
after the date that is the one year anniversary of the Closing Date, a statement
setting forth the following:
(i) the revenue for Company for the twelve months ended
March 31, 2003 excluding revenue attributable to any customer of Company which
was a customer of Company as of March 31, 2002 but is no longer a customer of
Company as of March 31, 2003 ("Former Customers") (provided, however, that
Former Customers shall not include any customer of the Company that resulted in
less than $100,000 in revenue to Company during the twelve month period ending
March 31, 2002) (the "March 2003 Revenue"), as determined and calculated by
Purchaser in accordance with GAAP and the policies, practices and procedures
consistent with past practices and those utilized in the preparation of the
March 2002 Revenue Statement and the Procedures; and
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(ii) the actual, aggregate amount of Severance Payments (as
defined in Section 6.14) paid or incurred by Company or Purchaser by reason of
the termination of a Listed Employee (as defined in Section 6.14) during the one
year period following the Closing Date (the "Severance Amount").
Purchaser will retain Auditing Firm to audit the March 2003 Revenue and the
Severance Amount and to render its report thereon, as addressed to Purchaser and
Seller, stating that the March 2003 Revenue and the Severance Amount have been
prepared in accordance with the terms of this Section 1.8(a). Such report of the
Auditing Firm will be delivered by Purchaser to Seller together with the March
2003 Revenue and the Severance Amount. The date on which the March 2003 Revenue
and Severance Amount is received by Seller is referred to herein as the "Second
Delivery Date." Purchaser shall be responsible for all fees of Auditing Firm
relating to the preparation of the March 2003 Revenue and the Severance Amount.
(b) The March 2003 Revenue will be deemed to be the final,
binding and conclusive March 2003 Revenue (the "Final March 2003 Revenue") and
the Severance Amount will be deemed to be the final, binding and conclusive
Severance Amount (the "Final Severance Amount") for all purposes on the
thirtieth (30th) day after the Second Delivery Date unless Seller delivers to
Purchaser written notice of its disagreement (a "Dispute Notice") on or prior to
such date specifying in reasonable detail the nature of Seller's objections to
the March 2003 Revenue or the Severance Amount or both. Within such thirty (30)
day period, Purchaser and Company shall provide Seller and its auditors with
reasonable access during normal business hours to the accounts and records of
the operations of Company relating to the March 2003 Revenue and the Severance
Amount. Seller hereby waives the right to assert any objection with respect to
the March 2003 Revenue and the Severance Amount that is not asserted in a
Dispute Notice delivered to Purchaser by Seller within thirty (30) days after
the Delivery Date. If a Dispute Notice is delivered to Purchaser by Seller
within such 30-day period, then the March 2003 Revenue (as adjusted, if
necessary) and the Severance Amount (as adjusted, if necessary) will be deemed
to be the Final March 2003 Revenue and the Final Severance Amount on the earlier
of (i) the date Purchaser and Seller resolve in writing all differences they
have with respect to the March 2003 Revenue and/or the Severance Amount or (ii)
the date the disputed matters are resolved in writing by the Unaffiliated Firm
(as defined above). In the event that disputed matters are resolved by the
Unaffiliated Firm, the Final March 2003 Revenue and the Final Severance Amount
will be the amount determined by the Unaffiliated Firm.
(c) During the 30-day period following the delivery of a Revenue
Dispute Notice, Purchaser and Seller will seek in good faith to resolve any
differences they may have with respect to matters specified in the Dispute
Notice. If, at the end of such 30-day period, Purchaser and Seller have not
reached agreement on such matters, Purchaser and Seller will have an additional
fifteen (15) days to advise each other in writing of their respective positions
with respect to each of Seller's proposed adjustments that are in dispute.
Promptly following this 15-day period, Purchaser and Seller will jointly engage
the Unaffiliated Firm to resolve the matters which remain in dispute with
respect to the March 2003 Revenue and/or Severance Amount by arbitration in
accordance with the procedures set forth in this Section 1.8. In connection with
such engagement, Purchaser and Seller agree to execute, if requested by the
Unaffiliated Firm, a reasonable engagement letter including customary
indemnities. Promptly after such engagement of the Unaffiliated Firm, Purchaser
or Seller will provide the Unaffiliated
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Firm with a copy of this Agreement, the March 2003 Revenue, the Severance
Amount, the Dispute Notice and any previously delivered written positions. The
Unaffiliated Firm will have the authority to request in writing such additional
written submissions from either Purchaser or Seller as it deems appropriate,
provided that a copy of any such submission will be provided to the other party
at the same time as it is provided to the Unaffiliated Firm. Neither Purchaser
nor Seller (nor any of their respective affiliates) will make any additional
submission to the Unaffiliated Firm except pursuant to such a written request by
the Unaffiliated Firm. Neither Purchaser nor Seller will communicate (nor permit
any of its affiliates to communicate) with the Unaffiliated Firm without
providing the other a reasonable opportunity to participate in such
communication with the Unaffiliated Firm (other than with respect to written
submissions in response to the written request of the Unaffiliated Firm). The
Unaffiliated Firm will have forty-five (45) days to review the documents
provided to it pursuant to this Section 1.8(c). Within such 45-day period, the
Unaffiliated Firm will furnish simultaneously to Purchaser and Seller its
written determination with respect to each of the adjustments in dispute
submitted to it for resolution. The Unaffiliated Firm will resolve the
differences regarding the March 2003 Revenue and/or Severance Amount based
solely on the information provided to the Unaffiliated Firm by Purchaser and
Seller pursuant to the terms of this Agreement (and not independent review). The
Unaffiliated Firm's authority will be limited to resolving disputes with respect
to whether the March 2003 Revenue and/or Severance Amount was prepared in
accordance with the terms of Section 1.8(a) (it being understood that the
Unaffiliated Firm will have no authority to make any adjustments to any
financial statements or amounts other than the March 2003 Revenue, the Severance
Amount and amounts set forth therein that are in dispute). In resolving any
disputed item, the Unaffiliated Firm may not assign a value to such item greater
than the greatest value for such item asserted by either Purchaser or Seller or
less than the smallest value for such item asserted by either Purchaser or
Seller.
(d) The decision of the Unaffiliated Firm will be, for all
purposes, conclusive, non-appealable, final and binding upon Purchaser and
Seller. The fees of the Unaffiliated Firm will be borne by Purchaser and Seller
in the same proportion that the dollar amount of disputed items lost by
Purchaser or Seller (as applicable) bears to the total dollar amount in dispute
resolved by the Unaffiliated Firm. Each of Purchaser and Seller will bear the
fees, costs and expenses of its own accountants and all of its other expenses in
connection with matters contemplated by this Section 1.7.
(e) For purposes of this Agreement, the "Revenue Adjustment
Amount" shall mean 0.5 multiplied by the excess, if any, of (x) $67,275,000 over
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(y) the Final March 2003 Revenue. For purposes of this Agreement, the "Severance
Adjustment Amount" shall mean 0.5 multiplied by the Final Severance Amount.
1.9 Certain Defined Terms. For purposes of this Agreement, the
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following terms shall have the following respective meanings:
"Deferred Payment Amount" shall mean that dollar amount equal to
$13,000,000 minus any Working Capital Shortfall plus any Working Capital Excess
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minus the Revenue Adjustment Amount minus the Severance Adjustment Amount minus
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the Excess Debt Amount; provided, however, that notwithstanding anything to the
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contrary in this Agreement, the Deferred Payment Amount shall not exceed
$13,000,000.
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"Purchase Price" shall mean (a) $24,000,000 cash (which includes the
Signing Payment) and (b) the principal amount and accrued interest payable
pursuant to the Promissory Note (as defined below).
"Promissory Note" shall mean that certain 8% secured promissory note whose
principal amount shall equal the Deferred Payment Amount, in substantially the
form of Exhibit A hereto and secured by the Security Agreement in substantially
---------
the from of Exhibit B hereto.
---------
1.10 Operations After Effective Time. From and after the Effective
-------------------------------
Time, Seller shall operate Company for the benefit of Purchaser and in the
normal course of business with a view to maximizing the earnings of Company.
Without limiting the generality of the foregoing, after the Effective Time,
Seller shall continue to make any scheduled or required capital expenditures,
collect and remit or credit to Company accounts all receivables and continue
providing whatever services Seller or its affiliates have traditionally provided
Company. Any cash credited to Company's account with Seller, or through any
centralized cash management system maintained by Seller, shall be retained by or
paid to Company at Closing without any adjustment of the Purchase Price and
without being taken into account in preparation of the Effective Date Balance
Sheet. Any receivables collected by Seller or any of its affiliates after the
Effective Time which relates to the business of Company shall be promptly
remitted to Purchaser. Seller shall designate one of its senior officers as a
liaison person for the purpose of communicating with officers of Purchaser
during the period from the Effective Time through the Closing and assuring
compliance with this section.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF USIH, USIIS, USICM, TPAI AND USIPBM
For purposes of the following Article II, each representation and warranty
of Company shall be deemed to be a representation and warranty of each of USICM,
TPAI and USIPBM. As of the date hereof and as of the Closing Date, USIH and
USIIS, each individually and collectively as Seller, and USICM, TPAI and USIPBM,
each individually and collectively as Company, represent and warrant to
Purchaser, jointly and severally, as follows:
2.1 USICM Organization and Qualification; USICM Subsidiaries.
--------------------------------------------------------
(a) USICM is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted. Except
as set forth in Section 2.1(a) of the exceptions disclosed in writing in the
disclosure schedule supplied by Seller and Company to Purchaser dated as of the
date hereof and certified by duly authorized officers of Seller and Company (the
"Company Schedule"), USICM and each USICM Subsidiary (as defined in Section 2.1)
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("USICM Approvals")
necessary to own, lease and operate the assets it purports to own, operate or
lease and to carry on its business as it is now being
-8-
conducted except where the failure to have such USICM Approvals would not have a
Material Adverse Effect on USICM.
(b) Section 2.1 (b) of the Company Schedule sets forth: (i) the
name of each corporation, partnership, joint venture or other entity in which
USICM has, directly or indirectly, an equity interest representing 50% or more
of the equity interests therein (each a "USICM Subsidiary"); (ii) the number and
type of outstanding equity securities of each USICM Subsidiary and a list of the
holders thereof; (iii) the jurisdiction of organization of each USICM
Subsidiary; and (iv) the name of each corporation, partnership, joint venture or
other entity in which USICM has, directly or indirectly, an equity interest
representing less than 50% of the equity interests therein. USICM has not agreed
nor is obligated to make nor is bound by any written, oral or other agreement,
contract, subcontract, lease, binding understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan,
commitment or undertaking of any nature, as of the date hereof or as may
hereafter be in effect (a "USICM Contract") under which it may become obligated
to make any future investment in or capital contribution to any other entity.
USICM does not directly or indirectly own any equity or similar interest in or
any interest convertible, exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business,
association or entity.
(c) USICM and each USICM Subsidiary is qualified or licensed to
do business as a foreign corporation, and is in good standing, in each
jurisdiction where the nature of their business makes such qualification or
licensing necessary and where the failure to be so duly qualified or licensed
would either individually or in the aggregate have a Material Adverse Effect on
USICM.
2.2 TPAI Organization and Qualification; TPAI Subsidiaries.
------------------------------------------------------
(a) TPAI is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted. Except
as set forth in Section 2.2(a) of the Company Schedule, TPAI and each TPAI
Subsidiary (as defined in Section 2.2) is in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("TPAI Approvals") necessary to own, lease and operate the
assets it purports to own, operate or lease and to carry on its business as it
is now being conducted except where the failure to have such TPAI Approvals
would not have a Material Adverse Effect on TPAI.
(b) Section 2.2(b) of the Company Schedule sets forth: (i) the
name of each corporation, partnership, joint venture or other entity in which
TPAI has, directly or indirectly, an equity interest representing 50% or more of
the equity interests therein (each a "TPAI Subsidiary"); (ii) the number and
type of outstanding equity securities of each TPAI Subsidiary and a list of the
holders thereof; (iii) the jurisdiction of organization of each TPAI Subsidiary;
and (iv) the name of each corporation, partnership, joint venture or other
entity in which TPAI has, directly or indirectly, an equity interest
representing less than 50% of the equity interests therein. TPAI has not agreed
nor is obligated to make nor is bound by any written, oral or other agreement,
contract, subcontract, lease, binding understanding, instrument, note, option,
-9-
warranty, purchase order, license, sublicense, insurance policy, benefit plan,
commitment or undertaking of any nature, as of the date hereof or as may
hereafter be in effect (a "TPAI Contract") under which it may become obligated
to make any future investment in or capital contribution to any other entity.
TPAI does not directly or indirectly own any equity or similar interest in or
any interest convertible, exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business,
association or entity.
(c) TPAI and each TPAI Subsidiary is qualified or licensed to do
business as a foreign corporation, and is in good standing, in each jurisdiction
where the nature of their business makes such qualification or licensing
necessary and where the failure to be so duly qualified or licensed would either
individually or in the aggregate have a Material Adverse Effect on TPAI.
2.3 USIPBM Organization and Qualification; USIPBM Subsidiaries.
----------------------------------------------------------
(a) USIPBM is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted. Except
as set forth in Section 2.3(a) of the Company Schedule, USIPBM and each USIPBM
Subsidiary (as defined in Section 2.3) is in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("USIPBM Approvals") (USICM Approvals, TPAI Approvals and
USIPBM Approvals are referred to collectively in this Agreement as "Approvals")
necessary to own, lease and operate the assets it purports to own, operate or
lease and to carry on its business as it is now being conducted except where the
failure to have such USIPBM Approvals would not have a Material Adverse Effect
on USIPBM.
(b) Section 2.3(b) of the Company Schedules sets forth: (i) the
name of each corporation, partnership, joint venture or other entity in which
USIPBM has, directly or indirectly, an equity interest representing 50% or more
of the equity interests therein (each a "USIPBM Subsidiary") (each of a USICM
Subsidiary, TPAI Subsidiary and USIPBM Subsidiary are referred to collectively
in this Agreement as a "Subsidiary"); (ii) the number and type of outstanding
equity securities of each USIPBM Subsidiary and a list of the holders thereof;
(iii) the jurisdiction of organization of each USIPBM Subsidiary; and (iv) the
name of each corporation, partnership, joint venture or other entity in which
USIPBM has, directly or indirectly, an equity interest representing less than
50% of the equity interests therein. USIPBM has not agreed nor is obligated to
make nor is bound by any written, oral or other agreement, contract,
subcontract, lease, binding understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan, commitment
or undertaking of any nature, as of the date hereof or as may hereafter be in
effect (a "USIPBM Contract") (each of a USICM Contract, TPAI Contract and USIPBM
Contract are referred to collectively in this Agreement as a "Contract") under
which it may become obligated to make any future investment in or capital
contribution to any other entity. USIPBM does not directly or indirectly own any
equity or similar interest in or any interest convertible, exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business, association or entity.
-10-
(c) USIPBM and each USIPBM Subsidiary is qualified or licensed to
or do business as a foreign corporation, and is in good standing, in each
jurisdiction where the nature of their business makes such qualification or
licensing necessary and where the failure to be so duly qualified or licensed
would either individually or in the aggregate have a Material Adverse Effect on
USIPBM.
2.4 USICM Certificate of Incorporation and Bylaws. USICM has
---------------------------------------------
previously furnished to Purchaser a complete and correct copy of its Certificate
of Incorporation and Bylaws as amended to date (together, the "USICM Charter
Documents"). Such USICM Charter Documents are in full force and effect. USICM is
not in violation of any of the provisions of USICM Charter Documents. USICM has
previously furnished to Purchaser a complete and correct copy of the certificate
of incorporation, articles of incorporation, bylaws and other organizational
documents, as amended to date, for each of its Subsidiaries (together the "USICM
Subsidiary Charter Documents"). Such USICM Subsidiary Charter Documents are in
full force and effect and none of the Subsidiaries are in violation of any of
the provisions of the applicable USICM Subsidiary Charter Documents.
2.5 TPAI Certificate of Incorporation and Bylaws. TPAI has previously
--------------------------------------------
furnished to Purchaser a complete and correct copy of its Certificate of
Incorporation and Bylaws as amended to date (together, the "TPAI Charter
Documents"). Such TPAI Charter Documents are in full force and effect. TPAI is
not in violation of any of the provisions of TPAI Charter Documents. TPAI has
previously furnished to Purchaser a complete and correct copy of the certificate
of incorporation, articles of incorporation, bylaws and other organizational
documents, as amended to date, for each of its Subsidiaries (together the "TPAI
Subsidiary Charter Documents"). Such TPAI Subsidiary Charter Documents are in
full force and effect and none of the TPAI Subsidiaries are in violation of any
of the provisions of the applicable TPAI Subsidiary Charter Documents.
2.6 USIPBM Certificate of Incorporation and Bylaws. USIPBM has
----------------------------------------------
previously furnished to Purchaser a complete and correct copy of its Certificate
of Incorporation and Bylaws as amended to date (together, the "USIPBM Charter
Documents") (USICM Charter Documents, TPAI charter Documents and USIPBM Charter
Documents are referred to collectively in this Agreement as "Company Charter
Documents"). Such USIPBM Charter Documents are in full force and effect. USIPBM
is not in violation of any of the provisions of USIPBM Charter Documents. USIPBM
has previously furnished to Purchaser a complete and correct copy of the
certificate of incorporation, articles of incorporation, bylaws and other
organizational documents, as amended to date, for each of its Subsidiaries
(together the "USIPBM Subsidiary Charter Documents") (USICM Charter Documents,
TPAI Charter Documents and USIPBM Charter Documents are referred to collectively
in this Agreement as "Subsidiary Charter Documents"). Such USIPBM Subsidiary
Charter Documents are in full force and effect and none of the USIPBM
Subsidiaries are in violation of any of the provisions of the applicable USIPBM
Subsidiary Charter Documents.
2.7 USICM Capitalization.
--------------------
(a) The authorized capital stock of USICM consists of 200 shares
of USICM Common Stock (the "USICM Shares"). At the close of business on the date
of this
-11-
Agreement (1) 200 shares of USICM Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable; (ii) no shares of
USICM Common Stock were held by USICM Subsidiaries; (iii) no shares of USICM
Common Stock were available or reserved for issuance pursuant to any employee
stock plan or upon conversion of any options or warrants; and (iv) all 200
shares of issued and outstanding USICM Common Stock were held by USIIS. All
outstanding shares of USICM Common Stock have been issued and granted in
compliance with (1) all applicable federal and state securities laws and other
applicable Legal Requirements (as defined below) and (ii) all requirements set
forth in applicable contracts, agreements, and instruments. For the purposes of
this Agreement, "Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Entity (as defined in
Section 2.11).
(b) As of the date of this Agreement, there are no equity
securities, partnership interests or similar ownership interests of any class of
equity security of any Subsidiary of USICM, or any security exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.7(b) of the Company Schedule,
there are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which USICM or any of its
Subsidiaries is a party or by which it is bound obligating USICM or any USICM
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption
or acquisition of, any shares of capital stock, partnership interests or similar
ownership interests of USICM or any USICM Subsidiary or obligating USICM or any
USICM Subsidiary to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement. As of the date of this Agreement, except as contemplated by this
Agreement, there are no registration rights and there is no voting trust, proxy,
rights plan, anti-takeover plan or other agreement or understanding to which
USICM or any of its Subsidiaries is a party or by which they are bound with
respect to any equity security of any class of USICM or with respect to any
equity security, partnership interest or similar ownership interest of any class
of any of its Subsidiaries.
(c) Except as is set forth in Section 2.7(c) of the Company
Schedule, there are no outstanding contractual obligations of USICM to
repurchase, redeem or otherwise acquire any shares of USICM Common Stock or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person (as defined below). The USICM
Shares constitute all the issued and outstanding capital stock of USICM and are
owned of record and beneficially solely by USIIS free and clear of all
Encumbrances (as defined below). Upon consummation of the transactions
contemplated by this Agreement and registration of the USICM Shares in the name
of Purchaser in the stock records of USICM, Purchaser will own all the issued
and outstanding capital stock of USICM free and clear of all Encumbrances. Upon
consummation of the transactions contemplated by this Agreement, the USICM
Shares will be fully paid and nonassessable. The stock register of USICM
accurately records: (i) the name and address of each Person owning shares of
capital stock of USICM and (ii) the certificate number of each certificate
evidencing shares of capital stock issued by
-12-
USICM, the number of shares evidenced by each such certificate, the date of
issuance thereof and, in the case of cancellation, the date of cancellation.
2.8 TPAI Capitalization.
-------------------
(a) The authorized capital stock of TPAI consists of 1,000,000
shares of TPAI Common Stock (the "TPAI Shares"). At the close of business on the
date of this Agreement (i) 31,076 shares of TPAI Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
no shares of TPAI Common Stock were held by TPAI Subsidiaries; (iii) no shares
of TPAI Common Stock were available or reserved for issuance pursuant to any
employee stock plan or upon conversion of any options or warrants; and (iv) all
31,076 shares of issued and outstanding TPAI Common Stock were held by USIIS.
All outstanding shares of TPAI Common Stock have been issued and granted in
compliance with (i) all applicable federal and state securities laws and other
applicable Legal Requirements and (ii) all requirements set forth in applicable
contracts, agreements, and instruments.
(b) As of the date of this Agreement, there are no equity
securities, partnership interests or similar ownership interests of any class of
equity security of any Subsidiary of TPAI, or any security exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.8(b) of the Company Schedule,
there are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which TPAI or any of its
Subsidiaries is a party or by which it is bound obligating TPAI or any TPAI
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption
or acquisition of, any shares of capital stock, partnership interests or similar
ownership interests of TPAI or any TPAI Subsidiary or obligating TPAI or any
TPAI Subsidiary to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement. As of the date of this Agreement, except as contemplated by this
Agreement, there are no registration rights and there is no voting trust, proxy,
rights plan, anti-takeover plan or other agreement or understanding to which
TPAI or any of its Subsidiaries is a party or by which they are bound with
respect to any equity security of any class of TPAI or with respect to any
equity security, partnership interest or similar ownership interest of any class
of any of its Subsidiaries.
(c) Except as is set forth in Section 2.8(c) of the Company
Schedule, there are no outstanding contractual obligations of TPAI to
repurchase, redeem or otherwise acquire any shares of TPAI Common Stock or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person. The TPAI Shares constitute all
the issued and outstanding capital stock of TPAI and are owned of record and
beneficially solely by USIIS free and clear of all Encumbrances. Upon
consummation of the transactions contemplated by this Agreement and registration
of the TPAI Shares in the name of Purchaser in the stock records of TPAI,
Purchaser will own all the issued and outstanding capital stock of TPAI free and
clear of all Encumbrances. Upon consummation of the transactions contemplated by
this Agreement, the TPAI Shares will be fully paid and nonassessable. The stock
register of TPAI accurately records: (i) the name and address of each Person
owning
-13-
shares of capital stock of TPAI and (ii) the certificate number of each
certificate evidencing shares of capital stock issued by TPAI, the number of
shares evidenced by each such certificate, the date of issuance thereof and, in
the case of cancellation, the date of cancellation.
2.9 USIPBM Capitalization.
---------------------
(a) The authorized capital stock of USIPBM consists of 1,000
shares of USIPBM Common Stock (the "USIPBM Shares"). At the close of business on
the date of this Agreement (i) 100 shares of USIPBM Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
no shares of USIPBM Common Stock were held by USIPBM Subsidiaries; (iii) no
shares of USIPBM Common Stock were available or reserved for issuance pursuant
to any employee stock plan or upon conversion of any options or warrants; and
(iv) all 100 shares of issued and outstanding USIPBM Common Stock were held by
USIIS. All outstanding shares of USIPBM Common Stock have been issued and
granted in compliance with (i) all applicable federal and state securities laws
and other applicable Legal Requirements and (ii) all requirements set forth in
applicable contracts, agreements, and instruments.
(b) As of the date of this Agreement, there are no equity
securities, partnership interests or similar ownership interests of any class of
equity security of any Subsidiary of USIPBM, or any security exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.9(b) of the Company Schedule,
there are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which USIPBM or any of
its Subsidiaries is a party or by which it is bound obligating USIPBM or any
USIPBM Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of USIPBM or any USIPBM Subsidiary or obligating
USIPBM or any USIPBM Subsidiary to grant, extend, accelerate the vesting of or
enter into any such subscription, option, warrant, equity security, call, right,
commitment or agreement. As of the date of this Agreement, except as
contemplated by this Agreement, there are no registration rights and there is no
voting trust, proxy, rights plan, anti-takeover plan or other agreement or
understanding to which USIPBM or any of its Subsidiaries is a party or by which
they are bound with respect to any equity security of any class of USIPBM or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its Subsidiaries.
(c) Except as is set forth in Section 2.9(c) of the Company
Schedule, there are no outstanding contractual obligations of USIPBM to
repurchase, redeem or otherwise acquire any shares of USIPBM Common Stock or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person. The USIPBM Shares constitute
all the issued and outstanding capital stock of USIPBM and are owned of record
and beneficially solely by USIIS free and clear of all Encumbrances. Upon
consummation of the transactions contemplated by this Agreement and registration
of the USIPBM Shares in the name of Purchaser in the stock records of USIPBM,
Purchaser will own all the issued and outstanding capital stock of USIPBM free
and clear of all Encumbrances.
-14-
Upon consummation of the transactions contemplated by this Agreement, the USIPBM
Shares will be fully paid and nonassessable. The stock register of USIPBM
accurately records: (i) the name and address of each Person owning shares of
capital stock of USIPBM and (ii) the certificate number of each certificate
evidencing shares of capital stock issued by USIPBM, the number of shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation.
2.10 Authority Relative to this Agreement. Company has all necessary
------------------------------------
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Company and,
assuming the due authorization, execution and delivery by Purchaser, constitutes
a legal and binding obligation of Company, enforceable against Company in
accordance with its terms, except as may be limited by (x) applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the enforcement of creditors' rights generally and (y)
the effect of rules of law governing the availability of equitable remedies.
2.11 No Conflict; Required Filings and Consents.
------------------------------------------
(a) Except as set forth in Section 2.11(a) of the Company
Schedule, the execution and delivery of this Agreement by Company do not, and
the performance of this Agreement by Company shall not, (i) conflict with or
violate Company Charter Documents, (ii) subject to compliance with the
requirements set forth in Section 2.11 (b) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Company or any
Subsidiary or by which its or any of their respective properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
materially impair Company's or a Subsidiary's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Company
or any Subsidiary pursuant to, any Material Contract (as defined below).
(b) Except as set forth in Section 2.11(b) of the Company
Schedule, the execution and delivery of this Agreement by Company do not, and
the performance of this Agreement by Company shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
court, administrative agency, commission, governmental or regulatory authority,
domestic or foreign (a "Governmental Entity").
2.12 Compliance; Permits.
-------------------
(a) Except as set forth in Section 2.12(a) of the Company
Schedule, Company and its Subsidiaries are not in conflict with, or in default
or violation of, (i) any law, rule, regulation, order, settlement, judgment or
decree applicable to Company or any Subsidiary
-15-
or by which their respective properties are bound or affected (including, but
not limited to, those laws and regulations related to the Medicare and Medicaid
antifraud and abuse statutes), or (ii) any Material Contract (as defined below).
Except as set forth in Section 2.12(a) of the Company Schedule, no investigation
or review by any governmental or regulatory body or authority is pending or, to
the knowledge of Company, threatened against Company or any Subsidiary, nor has
any governmental or regulatory body or authority indicated to Company or any
Subsidiary an intention to conduct the same, other than, in each such case,
those the outcome of which could not, individually or in the aggregate,
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Company, any acquisition of material property by
Company or the conduct of business by Company.
(b) Except as set forth in Section 2.12(b) of the Company
Schedule, Company holds all permits, licenses, variances, exemptions, orders and
approvals from governmental authorities which are material to operation of the
business of Company taken as a whole as it is now being conducted (collectively,
the "Company Permits"). Except as set forth in Section 2.12(a) of the Company
Schedule, Company is in compliance in all material respects with the terms of
Company Permits.
(c) To the knowledge of Company, none of the Top Fifty Customers
(as defined in Section 2.16) are in violation of any law, rule or regulation
applicable to a Top Fifty Customer's business operations and conduct which
relate to the services provided by Company.
2.13 Financial Statements.
---------------------
(a) Company has provided to Purchaser unaudited consolidated
balance sheets and related consolidated profit and loss statements, of Company
as of and for the fiscal year ended December 31, 2001 and the two month period
ended February 28, 2002, copies of which are attached hereto in Section 2.13(a)
of the Company Schedule (collectively, the "Company Reports").
(b) The Company Reports were prepared by the Company in the
ordinary course of business in accordance with Section 1 of the Procedures
(except as described therein) and the past practices of Company applied on a
consistent basis throughout the periods indicated and each presented fairly, in
all material respects in accordance with the level of detail and practices used
to prepare the same, the financial position of Company as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein or in the disclosures made pursuant to this Agreement.
(c) Except as and to the extent set forth or reserved against on
the balance sheet of Company as reported in Company Reports, Company has no
liabilities or obligations of any nature (whether accrued, absolute, contingent,
off-balance sheet or otherwise) that would be required to be reflected on such
balance sheet prepared in accordance with the standard specified above, except
(i) liabilities provided for in Company's consolidated balance sheet as of
February 28, 2002, (ii) liabilities incurred since February 28, 2002 in the
ordinary course of business, or (iii) liabilities disclosed pursuant to this
Agreement.
-16-
(d) Except as disclosed in Section 2.13(d) of the Company
Schedule,there has been no:
(i) notice (whether oral or written) from a Governmental
Entity, Company employee or other person concerning deficiencies in financial
reporting practices or other matters that would have a material effect on the
Company Reports;
(ii) violation or possible violations of any laws, rules or
regulations (including but not limited to those related to the Medicare and
Medicaid antifraud and abuse statutes such as the Anti-Kickback Act, Limitations
on Physician Referrals and the False Claims Act) in any jurisdiction, the effect
of which would be considered for disclosure in the Company Reports or as a basis
for recording a loss contingency in the Company Reports; or
(iii) notice (whether written or oral) of (A) deficiencies
in internal controls that would have a material effect on the Company Reports,
(B) false statements by Company affecting the Company Reports or (C) false
statements by Company to its auditors.
2.14 Absence of Certain Changes or Events. Since February 28, 2002
------------------------------------
(the "Reference Balance Sheet Date"), except (i) as disclosed in Section 2.14 of
the Company Schedule, or (ii) provided for in or disclosed pursuant to
subsections (i) through (xxiv) below, the business of Company has been conducted
in the ordinary course and consistent with past practice. As amplification and
not limitation of the foregoing, except as disclosed in Section 2.14 of the
Company Schedule, since the Reference Balance Sheet Date, Company has not:
(i) transferred to any person or entity, including Seller,
any rights to its Intellectual Property (as defined in Section 2.26);
(ii) permitted or allowed any of the assets or properties
(whether tangible or intangible) of Company to be subjected to any security
interest, pledge, mortgage, lien (including, without limitation, environmental
and Tax (as defined in Section 8.1) liens), charge, encumbrance, adverse claim,
preferential arrangement or restriction of any kind, including, without
limitation, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership ("Encumbrance"), other than such
of the following as to which no enforcement, collection, execution, levy or
foreclosure proceeding shall have been commenced: (a) liens for Taxes,
assessments and governmental charges or levies not yet due and payable which are
not in excess of $50,000 in the aggregate; (b) Encumbrances imposed by law, such
as materialmen's, mechanics', carriers', workmen's and repairmen's liens and
other similar liens arising in the ordinary course of business securing
obligations that (i) are not overdue for a period of more than 30 days and (ii)
are not in excess of $5,000 in the case of a single property or $50,000 in the
aggregate at any time; (c) pledges or deposits to secure obligations under
workers' compensation laws or similar legislation or to secure public or
statutory obligations; and (d) minor survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property or assets
that (i) were not incurred in connection with any Indebtedness, (ii) do not
render title to the property encumbered thereby unmarketable, and (iii) do not,
individually or in the aggregate, materially adversely affect the
-17-
value or use of such property for its current and anticipated purposes
("Permitted Encumbrances") and Encumbrances that will be released at or prior to
the Closing;
(iii) except in the ordinary course of business consistent
with past practice, discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any liability, other than current
liabilities reflected on the Reference Balance Sheet and current liabilities
incurred in the ordinary course of business consistent with past practice since
the Reference Balance Sheet Date;
(iv) made any loan to, guaranteed any indebtedness for
borrowed money of or otherwise incurred any indebtedness for borrowed money on
behalf of any individual, corporation, partnership, limited partnership, limited
liability company, syndicate, person (including, without limitation, a "person"
as defined in Section 13(d)(3) of the Exchange Act), trust, association, entity
or government or political subdivision, agency or instrumentality of a
government ("Person") other than payroll, travel guaranties and other advances
made in the ordinary course of business;
(v) failed to pay any creditor any material amount owed to
such creditor when due except as may be in accordance with the ordinary course
of business consistent with past practice;
(vi) redeemed any of the capital stock or declared, made or
paid any dividends or distributions (whether in cash, securities or other
property) to the holders of capital stock of Company or otherwise;
(vii) made any material changes in the customary methods of
operations of Company;
(viii) merged with, entered into a consolidation with or
acquired an interest of 5% or more in any Person or acquired a substantial
portion of the assets or business of any Person or any division or line of
business thereof, or otherwise acquired any material assets other than in the
ordinary course of business consistent with past practice;
(ix) made any capital expenditure or commitment of any
capital expenditure in excess of $50,000 individually or $100,000 in the
aggregate;
(x) issued any sales orders or otherwise entered into an
agreement that requires Company to make any purchases involving payments by
Company in excess of $50,000 individually or $100,000 in the aggregate;
(xi) sold, transferred, leased, subleased, licensed or
otherwise disposed of any material properties or assets, real, personal or mixed
(including, without limitation, leasehold interests and intangible assets),
other than the sale of Inventories in the ordinary course of business consistent
with past practice;
(xii) issued or sold any capital stock, notes, bonds or
other securities, or any option, warrant or other right to acquire the same, of,
or any other interest in, Company;
-18-
(xiii) entered into any agreement, arrangement or
transaction with any of its directors, officers, employees or stockholders (or
with any relative, beneficiary, spouse or Affiliate (as defined below) of such
Person)("Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person);
(xiv) (A) granted any increase, or announced any increase,
in the wages, salaries, compensation, bonuses, incentives, pension or other
benefits payable (whether in cash, stock, equity securities, property or
otherwise) by Company to any of its employees, consultants or directors or (B)
established or increased or promised to increase any benefits under any Seller
or Company employee benefit or option plans, in either case except as required
by law or any collective bargaining agreement or involving ordinary increases in
the ordinary course of business consistent with the past practices of Company;
(xv) written down or written up the value of any Inventories
or receivables or revalued any assets of Company other than in the ordinary
course of business consistent with past practice, and in accordance with U.S.
GAAP;
(xvi) amended, terminated, cancelled or compromised any
material claims of Company or waived any other rights of substantial value to
Company or settled any material litigation;
(xvii) made any change in any method of accounting or
accounting practice or policy used by Company, other than such changes required
by U.S. GAAP or disclosed in Section 2.8 of the Company Schedule;
(xviii) amended or modified in any material respect, or
consented to the termination of, any Material Contract or Company's rights
thereunder;
(xix) amended or restated Company Charter Documents;
(xx) knowingly disclosed any secret or confidential
Intellectual Property (except by way of issuance of a patent or a valid
confidentiality agreement); or knowingly permitted to lapse or go abandoned any
Intellectual Property (or any registration or grant thereof or any application
relating thereto) to which, or under which, Company has any right, title,
interest or license;
(xxi) made or changed any express or deemed election (other
than as set forth on Company's Returns (as defined in Section 8.2(a))), adopted
or changed any accounting method, settled or compromised any claim or
assessment, or extended or waived the period of limitations applicable to any
claim or assessment, in each case with respect to Taxes (as defined in Section
8.1) of Company;
(xxii) suffered any casualty loss or damage with respect to
any of the assets for which the aggregate repair or replacement cost is more
than $100,000, and which is not covered by insurance;
(xxiii) suffered any Material Adverse Effect; or
-19-
(xxiv) agreed, whether in writing or otherwise, to take any
of the actions specified in this Section 2.14 or granted any options to
purchase, rights of first refusal, rights of first offer or any other similar
rights or commitments with respect to any of the actions specified in this
Section 2.14, except as expressly contemplated by this Agreement.
For purposes of this Agreement, the term "Material Contracts" shall mean
the following contracts and agreements (including, without limitation, oral and
informal arrangements) of Company or any Subsidiary:
(i) each contract, agreement, invoice, purchase order and
other arrangement, for the purchase of inventory, equipment, other materials or
personal property with any supplier or for the furnishing of services to Company
or any Subsidiary or otherwise related to the business of Company or any
Subsidiary under the term of which Company or any Subsidiary (A) is likely to
pay or otherwise give consideration of more than $100,000 in the aggregate
during the calendar year ended December 31, 2002, (B) is likely to pay or
otherwise give consideration of more than $150,000 in the aggregate over the
remaining term of such contract, or (C) cannot be cancelled by Company or any
Subsidiary without penalty or further payment and without more than 90 days'
notice;
(ii) each contract, agreement, invoice, sales order and
other arrangement, for the sale of inventory or other personal property or for
the furnishing of services by Company or any Subsidiary which: (A) is likely to
involve consideration of more than $100,000 in the aggregate during the calendar
year ended December 31, 2002, (B) is likely to involve consideration of more
than $150,000 in the aggregate over the remaining term of the contract, or (C)
cannot be cancelled by Company or any Subsidiary without penalty or further
payment and without more than 90 days' notice;
(iii) each contract, agreement or other arrangement with
those parties listed in Section 2.10 of the Company Schedule;
(iv) each management contract, and contract, with an
independent contractor or consultant (or similar arrangement) to which Company
or any Subsidiary is a party involving payments in excess of $100,000 per annum
and which are not cancelable without penalty or further payment and without more
than 90 days' notice;
(v) each contract and agreement relating to indebtedness of
Company or any Subsidiary, excluding any lease or financing arrangement for
office equipment under which Company or any Subsidiary is likely to pay or
otherwise give consideration of less than $50,000 per annum;
(vi) each agreement relating to Intellectual Property,
including each license or sublicense thereof, under which the Company is likely
to pay or otherwise give consideration of more than $50,000 in the aggregate
during any one year but excluding shrink wrap and other commodity type licenses;
(vii) each contract or agreement with any Governmental
Entity to which Company or any Subsidiary is a party;
-20-
(viii) all contracts and agreements that limit or purport to
limit the ability of Company or any Subsidiary to compete in any line of
business or with any Person or in any geographic area or during any period of
time;
(ix) all contracts and agreements between or among Company
or any Subsidiary and Seller or any other affiliate of Company or any
Subsidiary, including any stockholder agreements, Tax sharing agreements and
licensing agreements;
(x) all contracts and agreements for providing benefits to
Company or any Subsidiary employees, consultants or directors under any Seller
Employee Plan;
(xi) all contracts and agreements of indemnification or any
guaranty (which shall not include any agreement entered into in the ordinary
course of business that includes an incidental indemnification clause) other
than an agreement of indemnification entered into in connection with the sale or
license of software products in the ordinary course of business;
(xii) all contracts, agreement and commitments currently in
force to license any third party to manufacture or reproduce any Company or any
Subsidiary product, service or technology or any contract, agreement and
commitment currently in force to sell or distribute any Company products,
service or technology except agreements with distributors or sales
representative in the normal course of business cancelable without penalty upon
notice of ninety (90) days or less and substantially in the form previously
provided to Purchaser; and
(xiii) all other contracts and agreements, including any
notes, bonds, mortgages, indentures, leases, licenses, permits, franchises or
other instruments or obligations, whether or not made in the ordinary course of
the business, which are material to Company or any Subsidiary or by which their
respective parties are bound or affected, taken as a whole, or the conduct of
the business, or the absence of which would have a Material Adverse Effect,
provided that this part (xiii) shall not be construed to include any contract or
agreement that is excluded by any materiality limitation set forth in parts (i)
through (xii) above.
2.15 Absence of Litigation and Claims.
--------------------------------
(a) Except as set forth in Section 2.15(a) of the Company
Schedule, there are no claims, actions, suits or proceedings pending or, to the
knowledge of Company, threatened (or, to the knowledge of Company, any
governmental or regulatory investigation pending or threatened) against Company
or any properties or rights of Company, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign.
(b) There is no basis for a claim, action, suit or proceeding
based on (i) a Medicare or Medicaid violation, (ii) an ERISA violation, (iii) a
claim by a Participant (as defined below) based on an alleged ERISA violation or
negligence, (iv) malpractice or (v) a claim by a Top Fifty Customer (as defined
in Section 2.16) for a breach of contract relating to a matter described in
parts (i) to (iv) of this sentence ("Unknown Claims"). "Participant" means an
individual enrolled as an employee or a dependent of an employee, or a retiree
(if applicable)
-21-
of a customer of Company under a Welfare Plan (as defined below), or an
individual continuing coverage under a Welfare Plan (as defined below) in
accordance with federal law. "Welfare Plan" means an employee welfare benefit
plan established, sponsored and/or contributed to by a customer of Company with
respect to which Company provides certain products and services.
2.16 Customers. Listed in Section 2.16 of the Company Schedule are the
---------
names and addresses of the top fifty (50) customers of Company based on budgeted
revenue as of December 31, 2001 (the "Top Fifty Customers") and the budgeted
amount for each such customer. Except as disclosed in Section 2.16 of the
Company Schedule, Company and Seller have not received any notice, written or
oral, that any of the Top Fifty Customers of Company has ceased, or intends to
cease, to use the products or services of Company, or has substantially reduced,
or intends to substantially reduce, the use of such products or services at any
time.
2.17 Product and Service Warranties. Set forth on Section 2.17 of the
------------------------------
Company Schedule are the standard written forms of product and service
warranties and guarantees utilized by Company as of the date of this Agreement.
Except as set forth on Section 2.17 of the Company Schedule, during a period of
one (1) year prior to the Closing Date, neither Company or any of their
Affiliates have made any other written material warranties (which remain in
effect) with regard to products and/or services supplied by Company.
2.18 Employee Benefit Plans.
----------------------
(a) Definitions. With the exception of the definition of
-----------
"Affiliate" set forth in Section 2.18(a)(i) below (which definition shall apply
only to this Section 2.18), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with Company within the meaning of Section 414(b),(c),(m) or
(o) of the Code and the regulations issued thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "Code" shall mean the Internal Revenue Code of 1986,
amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current or former or retired
employee, consultant or director of Company or any Affiliate whose employment is
in connection with the Company or an Affiliate that Purchaser will acquire upon
consummation of the transaction contemplated by this Agreement (an "Acquired
Entity");
(vi) "Employment Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between Seller,
Company or any Affiliate and any Employee, excluding any at-will employment
arrangements or arrangements otherwise disclosed pursuant to the definition of
Employee Plan (as defined below).
-22-
(vii) "Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written or unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by Seller, Company or any Affiliate for the
benefit of any Employee, or with respect to which Company or any Affiliate has
or may have any liability or obligation;
(viii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended;
(x) "International Employee Plan" shall mean each Employee
Plan that has been adopted or maintained by Seller, Company or any Affiliate,
whether informally or formally, or with respect to which Seller, Company or any
Affiliate will or may have any liability, for the benefit of Employees who
perform services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(xiii) "Pension Plan" shall mean each Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Section 2.8(b) of the Company Schedule contains an
--------
accurate and complete list of each Employee Plan. Neither Seller nor Company has
any plan or commitment (i) to establish any new Employee Plan, International
Employee Plan, or Employment Agreement (other than arrangements with Employees
permitted in accordance with Sections 2.14 and 5.1, which are previously
disclosed to and approved in writing by Purchaser), (ii) to modify any Employee
Plan or Employment Agreement (except to the extent required by law or to conform
any such Employee Plan or Employment Agreement to the requirements of any
applicable law, in each case as previously disclosed to Purchaser in writing, or
as required by this Agreement, and except as permitted in accordance with
Sections 2.8 and 5.1, which are previously disclosed to and approved in writing
by Purchaser or (iii) to adopt or enter into any Employee Plan, International
Employee Plan, or Employment Agreement (other than arrangements with Employees
permitted in accordance with Sections 2.14 and 5.1, which are previously
disclosed to and approved in writing by Purchaser), in each case that would have
an affect on an Employee.
(c) Documents. Seller or Company has made available to Purchaser
---------
(i) correct and complete copies of all documents embodying each Employee Plan
that is currently in effect or to which Company or any Acquired Entity has or
may have any liability or obligation
-23-
or that will benefit Employees including all amendments thereto; (ii) the most
recent annual actuarial valuations, if any, prepared for each Employee Plan;
(iii) the most recent annual report (Series 5500 and all schedules thereto); if
any, required under ERISA or the Code in connection with each Employee Plan;
(iv) the additional documents listed on Section 2.18(c) of the Company Schedule;
(v) the most recent summary plan description together with the most recent
summary of material modifications, if any, required under ERISA with respect to
each Employee Plan; (vi) the most recent IRS determination letters and any
rulings relating to Employee Plans and copies of all material correspondence to
or from the IRS or Department of Labor with respect to any Employee Plan; and
(vii) all material communications to any Employee or Employees relating to any
Employee Plan and any proposed Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any material liability to Company or any Acquired Entity.
(d) Employee Plan Compliance. Except as set forth on Section
------------------------
2.18(d) of the Company Schedule, (i) Seller and Company have performed in all
material respects all obligations required to be performed by it under, is not
in default or violation of, and has no knowledge of any default or violation by
any other party to each Employee Plan, and each Employee Plan has been
established and maintained in all material respects in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations including but not limited to ERISA or the Code; (ii) each Employee
Plan intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code has either received a
favorable determination, opinion, notification or advisory letter from the IRS
with respect to each such Employee Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has remaining a period of time under
applicable Regulations or IRS pronouncements in which to apply for such a letter
and make any amendments necessary to obtain a favorable determination as to the
qualified status of each such Employee Plan; (iii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA
(or any administrative class exemption issued thereunder), has occurred with
respect to any Employee Plan; (iv) there are no actions, suits or claims
pending, or, to the knowledge of Seller or Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Employee Plan
or against the assets of any Employee Plan; (v) each Employee Plan (other than
any stock option plan) can be amended, terminated or otherwise discontinued at
the Closing Date, without material liability to Purchaser, Company or any of its
Affiliates (other than ordinary administration expenses); (vi) there are no
audits, inquiries or proceedings pending or, to the knowledge of Seller or
Company or any Affiliates, threatened by the IRS or DOL with respect to any
Employee Plan; and (vii) Seller, Company or any Affiliate are not subject to any
penalty or Tax with respect to any Employee Plan under Section 502(i) of ERISA
or Sections 4975 through 4980 of the Code.
(e) Pension Plan. Seller, Company, or any Affiliate have never
------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
-24-
(f) Collectively Bargained, Multiemployer and Multiple Employer
-----------------------------------------------------------
Plans. At no time has Seller, Company or any Affiliate contributed to or been
-----
obligated to contribute to any Multiemployer Plan. Seller, Company or any
Affiliate have not at any time ever maintained, established, sponsored,
participated in, or contributed to any multiple employer plan, or to any plan
described in Section 413 of the Code.
(g) No Post-Employment Obligations. Except as set forth in
------------------------------
Section 2.18(g) of the Company Schedule, no Employee Plan provides, or reflects
or represents any liability to provide retiree health insurance or benefits to
any person for any reason, except as may be required by COBRA or other
applicable statute, and neither Seller nor Company have ever represented,
promised or contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) or any other person that such
Employee(s) or other person would be provided with retiree health insurance or
benefits, except to the extent required by statute.
(h) Health Care Compliance. Neither Company nor any Affiliate
----------------------
has, prior to the Closing and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Health Insurance Portability and Accountability Act of 1996,
the requirements of the Women's Health and Cancer Rights Act of 1998, the
requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any
amendment to each such act, or any similar provisions of state law applicable to
its Employees.
(i) Effect of Transaction.
---------------------
(i) Except as set forth on Section 2.18(i) of the Company
Schedule, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Employee
Plan, Employment Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Section 2.18(ii) of the Company
Schedule, no payment or benefit which will or may be made by Seller, Company or
its Affiliates with respect to any Employee will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the Code. There
is no contract, agreement, plan or arrangement to which Seller or Company is
party, including without limitation, the provisions of this Agreement, covering
any Employee, which individually or collectively, could give rise to the payment
of any amount that would not be deductible pursuant to Sections 280G, 404 or
162(m) of the Code.
(j) Employment Matters. Seller and Company: (i) are in compliance
------------------
in all material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) have withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages,
-25-
salaries and other payments to Employees; (iii) are not liable for any arrears
of wages or any Taxes or any penalty for failure to comply with any of the
foregoing; and (iv) are not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). There are no
pending, threatened or reasonably anticipated claims or actions against Seller
or Company under any worker's compensation policy or long-term disability policy
relating to any Employee.
(k) International Employee Plan. Neither the Seller nor Company
---------------------------
currently has, nor have they ever had the obligation to, maintain, establish,
sponsor, participate in, or contribute to any International Employee Plan with
respect to Employees.
2.19 Labor Matters. No work stoppage or labor strike against Seller or
-------------
Company with respect to Employees is pending, threatened or reasonably
anticipated. Seller and Company do not know of any activities or proceedings of
any labor union to organize any Employees. Except as set forth in Section 2.19
of the Company Schedule, there are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of Seller or Company, threatened or
reasonably anticipated relating to any labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to Seller or
Company. Neither Company nor any of its Subsidiaries has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act. Except
as set forth in Section 2.19 of the Company Schedule neither Seller nor Company
are presently, nor have they been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by Seller or Company.
2.20 Key Employees.
-------------
(a) Section 2.20 of the Company Schedule lists (i) the name,
place of employment, the current annual salary rates and bonuses and other like
benefits paid or payable (in cash or otherwise) in 2001, (ii) the date of
employment and (iii) job title of each current salaried employee, officer,
director, consultant or agent of Company whose current salary exceeds $100,000.
(b) All officers, management employees, and technical and
professional employees of Company are under written obligation to Company to
maintain in confidence all information that is confidential or proprietary
acquired by them in the course of their employment and to assign to Company all
inventions made by them within the scope of their employment during such
employment.
2.21 Material Contracts.
------------------
(a) Except as disclosed in Section 2.21 of the Company Schedule,
each Material Contract: (i) is legal, valid and binding on the respective
parties thereto and is in full force and effect, except as may be limited by (x)
applicable bankruptcy, insolvency,
-26-
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (y) the effect of rules of law
governing the availability of equitable remedies, and (ii) upon consummation of
the transactions contemplated by this Agreement, except to the extent that any
consents set forth in Section 2.21(a) of the Company Schedule are not obtained,
shall continue in full force and effect without penalty or other adverse
consequence except in a situation where the failure to be in full force and
effect could not reasonably be expected to have a Material Adverse Effect.
Company is not in breach of, or default under, any Material Contract, except in
any such case for breaches or defaults that could not reasonably be expected to
have a Material Adverse Effect.
(b) Except as disclosed in Section 2.21(b) of the Company
Schedule, to the best knowledge of Company and Seller, no other party to any
Material Contract is in material breach thereof or default thereunder.
2.22 Guaranties, Intercompany Contracts.
----------------------------------
(a) Except as set forth in Section 2.22(a) of the Company
Schedule, Company is not a party to any guaranty, and no Person is a party to
any guaranty for the benefit of Company.
(b) Set forth in Section 2.22(b) of the Company Schedule is a
complete and accurate list of all contracts and agreements between Company or
any of its Subsidiaries on the one hand and Seller or an affiliate of Seller on
the other hand.
2.23 Restrictions on Business Activities. Except as set forth in
-----------------------------------
Section 2.23 of the Company Schedule, to the knowledge of Company, there is no
agreement, commitment, judgment, injunction, order or decree binding upon
Company or to which Company is a party which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any business practice
of Company, any acquisition of property by Company or the conduct of business by
Company as currently conducted or as currently proposed to be conducted, except
for any prohibition or impairment that could not reasonably be expected to have
a Material Adverse Effect.
2.24 Title to Property.
-----------------
(a) Company does not own any real property, has not owned any
real property during the time that it has been owned directly or indirectly by
Seller, and to its knowledge has never owned any real property, except as
otherwise disclosed on Schedule 2.24(a). Section 2.24(a) of the Company Schedule
sets forth a list of all real property currently leased or subleased by or from
Company or any Subsidiary or otherwise used or occupied by Company or any
Subsidiary for the operation of Company's business (the "Leased Real Property"),
the name of the lessor, master lessor and/or lessee, the date of the lease or
sublease and each amendment thereto and, with respect to any current lease, the
aggregate annual rental payable under any such lease.
(b) Company has provided Purchaser with true, correct and
complete copies of all leases, lease guaranties, subleases, agreements for the
leasing, use or occupancy of, or otherwise granting a right in or relating to
the Leased Real Property, including all
-27-
amendments, terminations and modifications thereof ("Lease Agreements"); and
there are no other Lease Agreements for real property affecting the real
property or to which Company or any Subsidiary is bound, other than those
identified in Section 2.24(a) of the Company Schedule. All such Lease Agreements
are in full force and effect, valid and enforceable in accordance with their
respective terms, and there is not, under any of such Lease Agreements, any
existing default or event of default, no rentals are past due, and no
circumstance exists, which, with notice, the passage of time or both, could
constitute a default by Company or any Subsidiary, or to the knowledge of
Seller, by any third party, under any such Lease Agreement. To the knowledge of
Company, neither the operations of Company on the Leased Real Property nor such
Leased Property, including the improvements thereon, violate in any manner any
applicable building code, zoning requirement, or classification or statute
relating to the particular property or such operations, and such non-violation
is not dependent, in any instance, on so-called nonconforming uses exceptions.
There are no other parties occupying, or with a right to occupy, the Leased Real
Property except as identified on in Section 2.24(a) of the Company Schedule.
Company has received no notice of a default, alleged failure to perform, or any
offset or counterclaim with respect to any such Lease Agreement, which has not
been fully remedied and withdrawn. The Closing will not affect the
enforceability against any person of any such Lease Agreement or the rights of
Company or the Surviving Corporation to the continued use and possession of the
real property for the conduct of business as presently conducted.
(c) To the knowledge of Company, the Leased Real Property is in
good operating condition and repair, free from structural, physical and
mechanical defects which materially impair the use of the Leased Real Property
in the Company's operation, is maintained in a manner consistent with standards
generally followed with respect to similar properties, and is structurally
sufficient and otherwise suitable for the conduct of the business as presently
conducted.
(d) Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, except (i) as reflected in Company's
current balance sheet or otherwise disclosed in Section 2.24(d) of the Company
Schedule, (ii) liens for Taxes not yet due and payable, which, if required to be
reflected, are reflected in Company's current balance sheet, and (iii) such
non-monetary imperfections of title and encumbrances, if any, which do not
detract from the value or interfere with the present use of the property subject
thereto or affected thereby.
(e) Company has sole and exclusive ownership, free and clear of
any liens, of all customer lists, customer contact information, customer
correspondence and customer licensing and purchasing histories relating to its
current and former customers (the "Customer Information"). No person other than
Company possesses any claims or rights with respect to use of the Customer
Information.
2.25 Environmental Matters.
---------------------
(a) To the knowledge of Company, no Hazardous Materials are
present on any Business Facility currently owned, operated, occupied, controlled
or leased by Company or were present on any other Business Facility at the time
it ceased to be owned,
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operated, occupied, controlled or leased by Company. To the knowledge of
Company, there are no underground storage tanks, asbestos which is friable or
likely to become friable or PCBs present on any Business Facility currently
owned, operated, occupied, controlled or leased by Company. To the knowledge of
Company, the Hazardous Materials Activities of Company prior to the Closing have
not resulted in the exposure of any person to a Hazardous Material in a manner
which has caused or could reasonably be expected to cause an adverse health
effect to any such person. Company has delivered to or made available for
inspection by Seller and its agents, representatives and employees all records
in Company's possession concerning the Hazardous Materials Activities of Company
and all environmental audits, investigations, and environmental assessments of
any Business Facility conducted at the request of, or otherwise in the
possession of Company.
(b) For purposes of this Agreement, the term: (i) "Hazardous
Material" means any chemical, material or substance that has been designated by
any governmental authority to be radioactive, toxic, a pollutant, nuisance,
hazardous or otherwise a danger to health, reproduction or the environment; (ii)
"Business Facility" means any property including the land, the improvements
thereon, the groundwater thereunder and the surface water thereon, that is or at
any time has been owned, operated, occupied, controlled or leased by Company;
(iii) "Environmental Laws" means all applicable laws, directives, guidance,
rules, regulations, orders, treaties, statutes, and codes promulgated by any
governmental authority which prohibit, regulate or control any Hazardous
Material or any Hazardous Material Activity, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Resource Recovery and Conservation Act of 1976, the Federal Water Pollution
Control Act, the Clean Air Act, the Hazardous Materials Transportation Act, the
Toxic Substances Control Act, the Occupational Safety and Health Act and the
Montreal Protocol, all as amended at any time; (iv) "Hazardous Materials
Activity" means the transportation, transfer, recycling, storage, use,
treatment, manufacture, removal, remediation, release, exposure of others to,
sale, or distribution of any Hazardous Material or any product or waste
containing a Hazardous Material, or product manufactured with Ozone depleting
substances.
2.26 Intellectual Property.
---------------------
(a) Company owns or otherwise possesses all legally enforceable
rights to fully use and exploit, or has valid licenses currently in effect for,
all patents (including without limitation additions, continuations,
continuations-in-part, divisionals, re-issues, or extensions based thereon),
trademarks, trade names, service marks, copyrights, any applications for the
foregoing, schematics, technology, know-how, trade secrets, works of authorship,
privacy rights, inventions, ideas, algorithms, processes, computer software
programs or applications (in source code and object code form, as applicable),
and all other tangible or intangible proprietary information or material
("Intellectual Property") that are used or currently proposed to be used in the
business of Company as currently conducted or as currently proposed to be
conducted by Company and that are required for the Company to operate its
business in the manner conducted prior to the Closing without any Material
Adverse Effect, excluding the USI Marks (collectively "Company Intellectual
Property").
(b) Section 2.26(b) of the Company Schedule is a complete and
accurate list of all patents and patent applications, all registered and, if
material, unregistered
-29-
trademarks, service marks, and trade names, all registered copyrights, and all
material unregistered copyrights in computer software that are included in
Company Intellectual Property, including the jurisdictions in which each such
right either exists or, for registrations and applications thereto, has been
registered or applied for.
(c) All patents, patent applications, registered trademarks and
service marks, and copyrights held by Company are valid and subsisting. As of
the date of signing, there are no actions that must be taken by Company within
sixty (60) days of the Closing Date that, if not taken, will result in the loss
of any Company Intellectual Property, the loss of which would have a Material
Adverse Effect, including the payment of any registration, maintenance or
renewal fees or the filing of any responses to Patent and Trademark Office (or
equivalent authority) actions, documents, applications or certificates for the
purposes of obtaining, maintaining, perfecting or preserving or renewing any
Company Intellectual Property.
(d) To Company's knowledge, there has been and is no unauthorized
use, disclosure, infringement or misappropriation of any material Company
Intellectual Property by any person or entity, including any employee or former
employee of Company. Company has not brought any action, suit or proceeding for
infringement of Company Intellectual Property or breach of any license or
agreement involving Company Intellectual Property against any third party and
does not currently have any plans to do so. Company has not entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
purchase orders or license or other agreements arising in the ordinary course of
business.
(e) Company has not been and is not, nor will it be as a result
of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any Material IP Contract.
(f) Except as disclosed on Section 2.26(f) of the Company
Schedule, Company has not been sued and has not been threatened to be sued with
respect to a claim of infringement, misappropriation, or violation of any
patents, trademarks, service marks, copyrights, trade secret or other
proprietary right of any person or entity. To Company's knowledge, the
manufacturing, marketing, licensing or sale of Company's products and services
have not, do not, and will not infringe or misappropriate any patent, trademark,
service ▇▇▇▇, copyright, trade secret or other proprietary right of any person
or entity, or constitute unfair competition under any applicable jurisdiction.
Further, Company has not received any communication alleging that Company has
infringed or misappropriated, or by conducting its business as presently
proposed, would violate, any patent, trademark, service ▇▇▇▇, copyright, trade
secret or other proprietary right of any third party.
(g) Except as disclosed on Section 2.26(g) of the Company
Schedule, Company has secured valid written assignments from all consultants,
contractors, agents, employees, and other parties who contributed to the
creation or development of Company Intellectual Property of the rights to such
contributions that Company does not already own by operation of law. To
Company's knowledge, none of Company's employees, officers, agents, or
consultants are in violation thereof.
-30-
(h) Company has taken reasonable steps to protect and preserve
the confidentiality of all material Company Intellectual Property not otherwise
protected by valid and subsisting patents, patent applications, or copyright
("Confidential Information"). To Company's knowledge, all use, disclosure or
appropriation of Confidential Information owned by Company by or to a third
party has been pursuant to the terms of a written agreement between Company and
such third party. All use, disclosure or appropriation of Confidential
Information not owned by Company by or to Company has been pursuant to the terms
of a written agreement between Company and the owner of such Confidential
Information, or is otherwise lawful.
2.27 Assets. Each of Company and its Subsidiaries owns or leases all
------
tangible assets necessary for the conduct of its business as presently conducted
and currently proposed to be conducted. Each such tangible asset is free from
material defects, has been maintained in accordance with normal industry
practice, is in good operating condition repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently used.
2.28 Insurance.
---------
(a) Section 2.28 of the Company Schedule sets forth (i) a
complete and accurate list of all insurance policies, fidelity bonds and surety
bonds which Company and its Subsidiaries maintain (or which are maintained by
Seller for the benefit of Company or any of the entities acquired by Purchaser)
and (ii) a list of all claims and settlements (and the amount of such claims and
settlements) made under Insurance Policy during the past three years. Company
has previously delivered to the Buyer true and complete copies of all Insurance
Policies.
(b) The Insurance Policies are in full force and effect and will
not lapse or be subject to suspension, modification, revocation, cancellation,
termination or nonrenewal by reason of the execution, delivery or performance of
this Agreement, or consummation of the transactions contemplated by this
Agreement. Company and its Subsidiaries or Seller are current in all premiums or
other payments due under each Insurance Policy and has otherwise performed in
all material respects all of their respective obligations thereunder. Company
and its Subsidiaries have given timely notice to the insurer under each
Insurance Policy of all material claims that may be insured thereby.
(c) Except as set forth on Section 2.28 of the Company Schedule,
neither Company nor any Subsidiary has received during the past three years from
any insurance carrier with which it has carried any insurance any refusal of
coverage or notice of material limitation of coverage or any notice that a
defense will be afforded with reservation of rights.
2.29 Financial Condition. As of the Closing Date, (i) the Working
-------------------
Capital Shortfall for Company shall not exceed $2,000,000 and (ii) Company will
have no Debt other than Debt associated with any capital leases.
2.30 Regulatory Status. Company and its Subsidiaries are not (and have
-----------------
never been) engaged in the insurance company or health maintenance organization
business and, except if and to the extent applicable to the insurance services
business conducted by Company and its Subsidiaries, not subject to any federal
or state laws requiring licensing or certification as an insurance company or as
a health maintenance organization.
-31-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF USIH, USIIS AND SELLER
For purposes of the following Article II, each representation and warrant
of Seller shall be deemed to be a representation and warrant of each of USIH and
USIIS. As of the date hereof and as of the Closing Date, USIH and USIIS, each
individually and collectively as Seller, represents and warrants to Purchaser as
follows:
3.1 Organization and Qualification. USIH is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of Delaware, the
jurisdiction of its incorporation, and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. USIH is qualified or licensed to do
business as a foreign corporation, and is in good standing, in each jurisdiction
where the nature of its business makes such qualification or licensing necessary
and where the failure to so qualify would have a Material Adverse Effect. USIIS
is a corporation duly organized, validly existing and in good standing under the
laws of Delaware, the jurisdiction of its incorporation, and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. USIIS is
qualified or licensed to do business as a foreign corporation, and is in good
standing, in each jurisdiction where the nature of its business makes such
qualification or licensing necessary and where the failure to so qualify would
have a Material Adverse Effect.
3.2 Authority Relative to this Agreement. Seller has all necessary
------------------------------------
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Seller and
the consummation by Seller of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Seller and no other corporate proceedings on the part of Seller are necessary to
authorize this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Seller and,
assuming the due authorization, execution and delivery by Purchaser, constitutes
legal and binding obligations of Seller, enforceable against Seller in
accordance with their respective terms, except (i) as may be limited by (x)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (y) the effect of rules of law governing the availability of
equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
3.3 No Conflict; Required Filings and Consents.
------------------------------------------
(a) Except as set forth in Section 3.3(a) of the Company
Schedule, the execution and delivery of this Agreement by Seller do not, and the
performance of this Agreement by Seller shall not, (i) conflict with or violate
the Seller organizational documents, (ii) subject to compliance with the
requirements set forth in Section 3.3(b) below, to the knowledge of Seller,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Seller or by which it or any of its properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would
-32-
become a default) under, or materially impair Seller's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Seller
pursuant to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Seller is a party or by which Seller or its properties are bound or affected,
except in any case for such conflicts, violations, breaches, defaults or other
occurrences that could not reasonably be expected to have a Material Adverse
Effect on Company.
(b) The execution and delivery of this Agreement by Seller do
not, and the performance of this Agreement by Seller shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity.
3.4 Brokers. No broker, finder or investment banker (other than ▇▇▇▇▇
-------
& Company) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Seller.
3.5 Stock Ownership of Company. All shares of issued and outstanding
--------------------------
USIIS stock are held by USIH. All shares of issued and outstanding USICM stock
are held by USIIS. All shares of issued and outstanding TPAI stock are held by
USIIS. All shares of issued and outstanding USIPBM are held by USIIS.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As of the date hereof and as of the Closing Date, Purchaser represents and
warrants to Company and Seller as follows:
4.1 Organization and Qualification; Subsidiaries. Each of Purchaser
--------------------------------------------
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Purchaser. Each of Purchaser and its subsidiaries is
in possession of all Approvals necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted, except where the failure to have such Approvals would
not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser. Each of Purchaser and its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect on Purchaser.
-33-
4.2 Certificate of Incorporation and Bylaws. Purchaser has previously
---------------------------------------
furnished to Company and Seller complete and correct copies of its Certificate
of Incorporation and Bylaws, as amended to date (together the "Purchaser Charter
Documents"). Such Purchaser Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Purchaser is
not in violation of any of the provisions of the Purchaser Charter Documents,
and no subsidiary of Purchaser is in violation of any of its equivalent
organizational documents.
4.3 Authority Relative to this Agreement. Purchaser has all necessary
------------------------------------
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of Purchaser, and no other corporate
proceedings on the part of Purchaser are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by Purchaser and, assuming the due
authorization, execution and delivery by Company, constitute legal and binding
obligations of Purchaser, enforceable against Purchaser in accordance with their
respective terms.
4.4 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by Purchaser do
not, and the performance of this Agreement by Purchaser shall not, (i) conflict
with or violate the Certificate of Incorporation, Bylaws or equivalent
organizational documents of Purchaser or any of its subsidiaries, (ii) subject
to compliance with the requirements set forth in Section 4.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Purchaser or any of its subsidiaries or by which it or their respective
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair Purchaser's or any such subsidiary's rights or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Purchaser or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Purchaser or any of its subsidiaries is
a party or by which Purchaser or any of its subsidiaries or its or any of their
respective properties are bound or affected, except to the extent such conflict,
violation, breach, default, impairment or other effect could not in the case of
clauses (ii) or (iii) individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on Purchaser.
(b) The execution and delivery of this Agreement by Purchaser do
not, and the performance of this Agreement by Purchaser shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity.
-34-
ARTICLE V
CONDUCT PRIOR TO THE CLOSING
5.1 Conduct of Business by Company and Seller. During the period from
-----------------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement pursuant to its terms or the Closing, Company shall (and
Seller shall cause Company to), except to the extent that Purchaser shall
otherwise consent in writing, and except as provided in Section 5.1 of the
Company Schedule carry on its business in the usual, regular and ordinary
course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and Taxes
when due subject to good faith disputes over such debts or Taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings.
In addition, except as permitted by the terms of this Agreement, and the
transactions contemplated hereby, and except as provided in Section 5.1 of the
Company Schedule, without the prior written consent of Purchaser, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Closing, Company
shall not, and Seller shall not permit Company to, do any of the following:
(a) Grant any severance or termination pay (whether cash, equity
or otherwise) to any officer or employee except pursuant to written agreements
outstanding, or policies existing, on the date hereof and as previously
disclosed in writing or made available to Purchaser, or adopt any new severance
plan, or amend or modify or alter in any manner any severance plan, agreement or
arrangement existing on the date hereof or grant any equity based compensation
of Company;
(b) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to Company Intellectual Property, or enter
into grants to transfer or license to any person future patent rights, other
than in the ordinary course of business consistent with past practices, provided
that in no event shall Company license on an exclusive basis or sell any Company
Intellectual Property;
(c) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(d) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Company;
(e) Issue, deliver, sell, authorize, pledge or otherwise encumber
or propose any of the foregoing with respect to any shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares;
-35-
(f) Cause, permit or propose any amendments to Company Charter
Documents;
(g) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
enter into any joint ventures, strategic partnerships or alliances;
(h) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice;
(i) Incur any Debt;
(j) Adopt or amend any employee benefit plan, policy or
arrangement, or employee stock purchase or stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer letters
and letter agreements entered into, in the ordinary course of business and
consistent with past practice, with newly hired employees who are terminable "at
will" and who are not officers of the Company), pay any special bonus or special
remuneration (cash, equity or otherwise) to any director or employee, or
increase the salaries or wage rates or fringe benefits (cash, equity or
otherwise) (including rights to severance or indemnification) of its directors,
officers, employees or consultants.
(k) (i) pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of this
Agreement) other than the payment, discharge, settlement or satisfaction, in the
ordinary course of business consistent with past practice, or liabilities
recognized or disclosed in the most recent consolidated financial statements (or
the notes thereto) of Company as provided to Purchaser, or (ii) waive the
benefits of, agree to modify in any manner, terminate, release any person from
or knowingly fail to enforce any confidentiality or similar agreement to which
Company or any of its subsidiaries is a party or of which Company or any of its
subsidiaries is a beneficiary;
(l) Make any individual or series of related payments in excess
of $100,000;
(m) Except in the ordinary course of business consistent with
past practice, modify, amend or terminate any Material Contract or agreement to
which Company is a party or waive, delay the exercise of, release or assign any
material rights or claims thereunder;
(n) Except as required by GAAP, revalue any of its assets or make
any change in accounting methods, principles or practices;
(o) Incur or enter into any agreement, contract or commitment
requiring Company to pay in excess of $100,000;
(p) Settle any material litigation;
-36-
(q) Make or change an express or deemed election, adopt or change
any accounting method, settle or compromise any claim or assessment, or extend
or waive the period of limitations applicable to any claim or assessment, in
each case with respect to Taxes (as defined in Section 8.1) of Company;
(r) Agree in writing or otherwise to take any of the actions
described in Section 5.1 (a) through (q) above.
5.2 Exclusivity.
-----------
(a) Seller and Company shall not and shall not authorize or
permit their respective officers, directors, stockholders, employees,
representatives and agents ("Seller Representatives") to, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate any discussion
with, or proposal or offer from, any third party concerning any merger,
reorganization, consolidation, recapitalization, business combination,
liquidation, dissolution, share exchange, sale of stock, sale of material assets
or similar business transaction involving Company or any Subsidiary (an
"Acquisition"). Seller and Company shall cease immediately any existing
activities, discussions or negotiations with any third party with respect to the
foregoing. Any breach of the foregoing by a Seller Representative shall be
deemed a breach by Seller and Company.
(b) Seller and Company as promptly as practicable, and in any
event within 24 hours, shall advise Purchaser orally and in writing of any
proposal or offer from any third party concerning an Acquisition (an
"Acquisition Proposal") or any request for information or inquiry which would
reasonably lead to an Acquisition Proposal, the material terms and conditions of
such Acquisition Proposal, request or inquiry, and the identity of the person or
group making any such Acquisition Proposal, request or inquiry. Seller and
Company will keep Purchaser informed in all respects of the status and details
(including material amendments or proposed amendments) of any such Acquisition
Proposal, request or inquiry. In no event shall Seller or Company enter into any
agreement or contract with a third party concerning an Acquisition.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information. Company and Seller will afford Purchaser
---------------------
and its accountants, counsel and other representatives, and Purchaser will
afford Company and Seller and their accountants, counsel and other
representatives, reasonable access during normal business hours, upon reasonable
notice, to the properties, books, records and personnel of Company and
Purchaser, respectively, during the period prior to the Closing to obtain all
information concerning the business of Company and Purchaser, respectively,
including the status of product development efforts, properties, results of
operations and personnel of Company and Purchaser, as Purchaser and Company may
reasonably request. No information or knowledge obtained by Purchaser or Company
in any investigation pursuant to this Section 6.1 will affect or be deemed to
modify any representation or warranty contained herein or the
-37-
conditions to the obligations of the parties to consummate the transactions
contemplated by this Agreement.
6.2 Public Disclosure. Purchaser, Seller and Company will consult with
-----------------
each other, and to the extent practicable, agree, before issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement or this Agreement and will not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law.
6.3 Reasonable Efforts; Notification.
--------------------------------
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable and the transactions contemplated by this Agreement,
including using reasonable efforts to accomplish the following: (i) the taking
of all reasonable acts necessary to cause the conditions precedent set forth in
Article VII to be satisfied, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all consents, approvals or waivers
from third parties required as a result of the transactions contemplated in this
Agreement, (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution or delivery of any
additional instruments reasonably necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
(b) Seller and Company shall give prompt notice to Purchaser upon
becoming aware that any representation or warranty made by Seller or Company
contained in this Agreement has become untrue or inaccurate, or of any failure
of Company or Seller to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, in each case, such that the conditions set forth in Section
7.3(a) or 7.3(b) would not be satisfied; provided, however, that no such
-------- -------
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(c) Purchaser shall give prompt notice to Company upon becoming
aware that any representation or warranty made by Purchaser contained in this
Agreement has become untrue or inaccurate, or of any failure of Purchaser to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 7.2(a) or 7.2(b) would not
be satisfied; provided, however, that no such notification shall affect the
-------- -------
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representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
6.4 Employee Benefits.
-----------------
(a) Neither Purchaser, Company nor any Acquired Entity will
maintain, sponsor, participate in, or be obligated to contribute to any Employee
Plan in which Company or Acquired Entity participated prior to the Closing Date.
Seller shall satisfy any and all of Company's and obligations of any of the
entities acquired by Purchaser and liabilities relating to, arising out of or
resulting from its participation in the Employee Plans. Effective no later than
the Closing Date, Company and any Acquired Entity shall cease to participate in
those Employee Plans in which such entities participated prior to the Closing
Date. From and after the Closing Date the Seller shall be solely responsible for
all Benefits Liabilities (as defined below) arising under, resulting from or
relating to the Employee Plans in which Company and the entities acquired by
Purchaser participated prior to the Closing Date whether incurred before, on or
after the Closing Date. From and after the Closing Date, Seller shall be solely
responsible for any claim, suit or Benefit Liability arising from the
termination of employment with the Company or any Acquired Entity of employees
effected at or before the Closing Date in contemplation of or in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent that any such liability is not
satisfied from the assets of an Employee Plan. "Benefits Liabilities" shall
mean, with respect to any Employee Plan, any and all claims, debts, liabilities,
commitments and obligations, whether fixed, contingent or absolute, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued (except with respect
to any obligations of Purchaser specifically described in this Agreement), and
including those debts, liabilities and obligations arising under law, rule,
regulation, permits, action or proceeding before any court or regulatory agency
or administrative agency, order or consent decree or any award of any arbitrator
of any kind, and those arising under contract, commitment or undertaking.
(b) Seller agrees and acknowledges that the selling group (as
defined in Treasury Regulation Section 54.4980B-9, Q&A-3(a)) of which it is a
part (the "Selling Group") will continue to offer a group health plan to
employees after the Closing Date and, accordingly, that Seller and the Selling
Group shall be solely responsible for providing continuation coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") to
those individuals who are M&A qualified beneficiaries (as defined in Treasury
Regulation Section 54.4980B-9, Q&A-4(a)) with respect to the transactions
contemplated by this Agreement (collectively, the "M&A Qualified
Beneficiaries"). Seller shall indemnify, defend and hold harmless Purchaser for,
from and against any and all claims, liabilities, losses, costs and expenses
(including attorney's fees) relating to, arising out of, or resulting from any
and all COBRA obligations, liabilities and claims related to M&A Qualified
Beneficiaries and all other qualified beneficiaries (as defined in Code Section
4980B(g)(1)) with respect to Seller's group health plans. Seller further agrees
and acknowledges that in the event that the Selling Group ceases to provide any
group health plan to any employee prior to the expiration of the continuation
coverage period for all M&A Qualified Beneficiaries (pursuant to Treasury
Regulation Section 54.4980B-9, Q&A-8(c)), then Seller shall provide Purchaser
with (i) written notice of such cessation as far in advance of such cessation as
is reasonably practicable (and, in any event, at least thirty (30) days prior to
such cessation), and (ii) all
-39-
information necessary or appropriate for Purchaser to offer continuation
coverage to such M&A Qualified Beneficiaries.
(c) Purchaser and Seller agree that all employees of Seller who
accept employment by Purchaser and/or Company shall be transferred to Company
effective as of the Closing Date. In addition, Seller shall assume all
liabilities relating to, arising out of or resulting from the transfer of such
individuals from Seller to Company.
(d) 401(k) Plan. Effective as of the Closing Date, the Company
-----------
will adopt, for the benefit of its employees, a 401 (k) plan (the "New Company
Plan") for the benefit of its employees. Following the Closing the parties, and
the Trustees of the Old Company Plan and the New Company Plan, will cooperate to
transfer, from the Old Company Plan to the New Company Plan, the Plan accounts
and assets of those persons who were employees of the Company before the Closing
and continue to be employees of the Company after the Closing, in a transfer
which complies with Section 414(1)(1) of the Internal Revenue Code of 1986. Such
cooperation by Seller shall include, but not be limited to, providing or causing
other to provide information on the USI Insurance Services Corporation 401(k)
Plan and Company (or any Acquired Entity) participants' account balances,
vesting, outstanding loan balances and any additional information requested by
Purchaser to effect such transfer of assets as soon as administratively feasible
following the Closing.
6.5 Third Party Consents. As soon as practicable following the date
--------------------
hereof, Purchaser, Seller and Company will each use its commercially reasonable
efforts to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
6.6 Non-Competition; Non-Solicitation.
---------------------------------
(a) Seller agrees that for a period of two (2) years after the
Closing, Seller and each entity that Seller directly (or indirectly through a
controlled Affiliate) controls, including any entity acquired subsequent to the
date hereof (Seller and each such entity a "Restricted Entity") shall not engage
in Restricted Activity (as defined below), except as follows: (i) with regard to
any Person that becomes an Affiliate of Seller by reason of an acquisition made
by Seller after the date of this Agreement (excluding any acquisition in which
Seller is the target), the Affiliate may have up revenues from Restricted
Activity that constitute up to ten percent of such Affiliate's annual revenues,
or if the Affiliate's revenues exceed such level, Seller will, within one year
following the acquisition, by dispositions or otherwise, cause the revenues of
the Affiliate to be reduced below such level; and (ii) Restricted Entities may
engage in Restricted Activities, so long the aggregate annual revenue of all
Restricted Entities from Restricted Activities in any year does not exceed three
percent of Seller's total aggregate annual revenues for the year. "Restricted
Activity" shall mean provision of the following services: employee self insured
claims administration; coordination of and access to managed care networks and
services; utilization review and case management; fully integrated pharmacy
benefit manager; health and life carrier outsourcing services; compliance and
privacy administration under COBRA and HIPAA; and as a medical services
organization, providing back office administration for individual physician
associations.
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(b) Seller agrees that for a period of 2 years after the Closing,
Seller and each of its Restricted Entities shall not solicit for employment,
attempt to hire or hire any employee listed in Section 2.20 of the Company
Schedule; provided that the foregoing shall not prohibit Seller from hiring
pursuant to a general solicitation of employment.
6.7 Transitional Services Agreement. Seller agrees at the Closing to
-------------------------------
enter into a Transitional Services Agreement with Purchaser in substantially the
form attached hereto as Exhibit D.
6.8 Intercompany Arrangements.
-------------------------
(a) Immediately prior to the Closing, without any further act
required by any of the parties hereto, Seller shall cancel and terminate those
payables and other Debt owed by Company to Seller as set forth in Section 6.8(a)
of the Company Schedule and Company shall cancel and terminate those payables
and other Debt owed by Seller to Company as set forth in Section 6.8(a) of the
Company Schedule.
(b) Other than agreements expressly provided for in this
Agreement, Seller, on behalf of itself and its affiliates, and Purchaser, on
behalf of itself and its affiliates, hereby acknowledge and agree that after the
Closing Date, all agreements listed in Section 2.22(b) of the Company Schedule
and any other agreements, contracts or arrangements (excluding payables and
other Debt) between Seller on the one hand the Company or the Subsidiaries on
the other hand shall terminate automatically as of the Closing Date, without any
penalty or liability to Seller or Company. To the extent a terminated agreement
contains any provision regarding penalties or liabilities upon a termination,
the non-terminating party shall waive in full such penalties or liabilities in
favor of the terminating party. Notwithstanding the foregoing, any arrangements
between Seller on the one hand and Purchaser or Company on the other hand
pursuant to the Transition Services Agreement shall not be subject to the
provisions of this Section 6.8 and shall remain in full force and effect
pursuant to the applicable terms set forth in the Transitional Services
Agreement.
(c) Prior to Closing, Seller shall payoff all outstanding payment
obligations of Company and Subsidiaries as it relates to acquisitions made by
Seller, Company or Subsidiaries prior to the date hereof ("Previous
Acquisitions") and shall cause such obligations to be discharged and shall use
diligence and good faith efforts to obtain from the appropriate third parties
full releases in connection with any security agreements, guaranties or
indemnities made by Company or Subsidiaries in favor of Seller, including but
not limited to such security agreements, guaranties and indemnities in
connection with Previous Acquisitions.
6.9 Audit Assistance. After the Closing Date, Seller shall provide
----------------
reasonable assistance to Company, as Company or Purchaser may reasonably
request, in preparing audited financial statements for Company for the fiscal
years ended December 31, 1999, 2000, 2001 and 2002. Such assistance shall
include and not be limited to access during Seller's normal business hours to
the personnel, auditors and information, books and records of Seller of which
are reasonably necessary to complete the audit of Company. Seller shall
cooperate with Company and Purchaser in requesting that Seller's auditors
provide the services to Company that are
-41-
required by Company to prepare the audits described in this section, at the
expense of Company and Purchaser.
6.10 Insurance Coverage.
------------------
(a) From the Closing Date until the second anniversary of the
Closing Date, Seller shall maintain in effect at its expense, for the benefit of
Purchaser as additional insured, with respect to the acts and omissions of
Company's directors, officers, employees and agents occurring prior to the
Closing Date, the existing policy(s) of coverage by Seller or Company as of the
date of this Agreement (the "Existing Policies"); provided, however, that (i)
-------- -------
Seller may substitute for the Existing Policy a policy or policies of comparable
coverage, and (ii) in lieu thereof Seller may purchase "tail" coverage in like
amount and scope. Seller hereby acknowledges that (i) the Existing Policy (or
any substitute policies) shall be available to Purchaser to satisfy Losses (as
defined in Section 10.2) arising from Unknown Claims. Seller shall use
reasonable and good faith efforts to have Purchaser and the Company named as
additional insureds under Seller's primary errors and omissions policy, which
provides coverage of up to $10 million, solely with regard to the acts or
omissions specified above, provided Seller shall not be required to pay any
additional premium or material fee.
6.11 Reports. On the final day of each full calendar month end
-------
occurring after the closing, Purchaser will deliver to Seller a summary revenue
report setting forth Company's consolidated revenue for the immediately
preceding calendar month (e.g. on July 1, Purchaser will delver to Seller
Company's revenues for the month ending May 31st), and indicating changes
thereto with regard to revenue sources from the prior calendar month.
6.12 Purchaser to Use Seller Services. Purchaser shall, for a period
--------------------------------
of two years following the Closing, obtain through or from Seller and its
Affiliates property insurance, casualty insurance, workers compensation
insurance, bond and surety insurance, non-qualified executive benefit plans
services, life and disability insurance, 401k plan administration, risk
management consulting services, and voluntary worksite marketing insurance
products for Purchaser and its Affiliates; provided, however, that the terms
upon which such products and services are made available to Purchaser and its
Affiliates are not materially less favorable than the terms of other similar
products and services available to them. Seller and Purchaser shall work
together in good faith to structure and agree upon a commercial insurance
program for Company, and the Transitional Agreement may include detailed
provisions regarding the development and implementation of such program.
6.13 Seller to Use Purchaser Services. Seller shall, for a period of
--------------------------------
two years following the Closing, obtain employee self insured claims
administration services from Purchaser or such Affiliate of Purchaser as
Purchaser may designate, so long as Seller shall, during such period, be
maintaining a self-insured program. During such period, Company shall provide
such services in accordance with the pricing and other business terms, and at
substantially similar service level standards and with the same performance
measurements, as in effect for the services provided to Seller prior to Closing.
6.14 Certain Employment Arrangements.
-------------------------------
-42-
(a) Purchaser, Company and Seller shall cooperate to have the
Employment Agreement, pursuant to which ▇▇▇▇▇▇ ▇▇▇▇▇▇ provides services to
Company, assigned and transferred to Seller or such of Seller's affiliates as
Seller may designate, or terminated in such manner as Seller may reasonably
request. Seller, and not Purchaser or Company, shall be responsible following
the Closing Date to pay and perform any and all obligations of Company pursuant
to such agreement.
(b) Attached as Schedule 2 are (i) a list of certain employees of
----------
Company, each of whom are entitled to severance payments pursuant to written
agreements in the event his or her employment is terminated (the "Listed
Employees") and (ii) the amount of severance potentially payable to each Listed
Employee. In the event that a Listed Employee is terminated after the Closing
and such termination results in severance payments to be paid by Purchaser,
Company or Subsidiaries to such Listed Employee pursuant to an express
provision for payment of severance in such Listed Employee's written employment
agreement as in effect as of the Closing Date (the "Severance Payments"), the
amount of the Severance Payments shall be taken into account in determining the
Severance Adjustment Amount as provided in Section 1.8.
(c) Prior to Closing, Seller shall assign to Company all rights,
interests and obligations of Seller as set forth in that certain Employment
Agreement dated January 1, 2000 between USIIS and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ (the
"▇▇▇▇▇▇▇▇▇▇ Agreement") and, if necessary, Seller shall obtain the consent of
▇▇. ▇▇▇▇▇▇▇▇▇▇ for such assignment. Seller agrees that (i) the severance
payments, (ii) change of control payments and (iii) any other payments triggered
as a result of the transactions contemplated by the Agreement pursuant to an
express provision set forth in the ▇▇▇▇▇▇▇▇▇▇ Agreement shall, in the event
Purchaser or Company is obligated to pay any such payments to ▇▇. ▇▇▇▇▇▇▇▇▇▇
after the Closing Date, constitute Severance Payments to be taken into account
in determining the Severance Adjustment Amount as provided in Section 1.8.
6.15 Release of Seller. After the Closing, Purchaser shall use
-----------------
diligent and good faith efforts to cause Seller and its affiliates to be
released by third parties from any obligations in respect of capital leases or
any other obligations of Company that are guaranteed by Seller or its
affiliates, including offering to substitute Purchaser's guaranty for that of
Seller.
6.16 Litigation Cooperation. Purchaser agrees to use all reasonable
----------------------
efforts to cause Company and its employees to cooperate fully with Seller
following the Closing Date with respect to all litigation and other matters for
which Seller is responsible pursuant to this Agreement, provided that Company
and its employees shall be reimbursed by Seller for all out-of-pocket expenses
incurred by Company and its employees as a result of such cooperation.
6.17 ▇▇▇▇▇▇ P&C Business. Following Closing, Company shall continue to
-------------------
place the property and casualty insurance business (the "P&C Business") produced
by ▇▇▇▇▇ ▇▇▇▇▇▇ through USI Northeast, Inc., and USI shall continue to make
payments to Company in respect thereof in amounts commensurate with past
practice, subject to proportionate reduction for lost P&C Business. If Purchaser
or any of its Affiliates places any account included in such P&C Business other
than through a subsidiary of USI, either directly or indirectly, Purchaser shall
pay to USI in respect the account an amount equal to one times commission
revenue on the
-43-
account for the prior year, payable quarterly in arrears over a two year period,
provided that Purchaser shall not pay such amount to USI if the customer or
client underlying such account moves its P&C Business to another insurance
broker not affiliated with Purchaser and from which no commission or other
amount is received by Purchaser or its affiliates. The parties may, at the
Closing, execute and deliver an agreement specifying in more detail the manner
in which the foregoing arrangements will be handled.
6.18 USI Payable. Company shall pay and Purchaser shall cause Company
-----------
to pay to USI any USI Payable (as defined in Section 6 of Schedule 1) on the day
----------
which is thirteen (13) months following the Closing Date.
6.19 AGE Receivables. Seller shall purchase from Company upon Closing,
---------------
upon the terms and conditions set forth below, those receivables from insurance
carriers which relate to premium overpayments and which are, as of the Effective
Time, more than twelve (12) months overdue, which receivables were previously
transferred to Company by Association Growth Enterprises, Inc. (the "AGE
Receivables"). Upon the Closing, Company shall deliver to Seller a ▇▇▇▇ of sale
for such receivables, without guaranty of collectibility, covering the AGE
Receivables, and Seller shall pay to Company $1,250,000 in respect of the AGE
Receivables.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party. The respective
---------------------------------------
obligations of each party to this Agreement to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing Date of the conditions that no Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
illegal the transactions contemplated by this Agreement or otherwise prohibiting
consummation of the transactions contemplated by this Agreement.
7.2 Additional Conditions to Obligations of Company and Seller. The
----------------------------------------------------------
obligation of Company and Seller to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Company:
(a) Representations and Warranties. Each representation and
------------------------------
warranty of Purchaser contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on the
Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Purchaser, (B) for changes contemplated
by this Agreement and (C) for those representations and warranties which address
matters only as of a particular date (which representations shall have been true
and correct (subject to the qualifications as set forth in the preceding clause
(A) as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties,
-44-
all "Material Adverse Effect" qualifications and other qualifications based on
the word "material" or similar phrases contained in such representations and
warranties shall be disregarded and, instead, the materiality standard set forth
in part (A) above shall be given effect). In the event that Purchaser shall have
made any update of or modification to the Purchaser Schedule after the date of
this Agreement, (i) Company and Seller may, if such update or modification
causes any representation or warranty not to meet the standard set above forth
in this Section, deem the condition provided in this Section not to be satisfied
and decline to close the transactions contemplated by this Agreement, or (ii) if
company and Seller elect to close, the updated or modified schedule shall be
deemed substituted for the schedule attached to this Agreement. Company and
Seller shall have received a certificate with respect to the foregoing signed on
behalf of Purchaser by an authorized officer of Purchaser.
(b) Agreements and Covenants. Purchaser shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and Company shall have received a certificate to such effect
signed on behalf of Purchaser by an authorized officer of Purchaser.
(c) No Material Adverse Effect. No Material Adverse Effect with
--------------------------
respect to Purchaser shall have occurred since the date of this Agreement.
(d) Consents. Company shall have obtained all consents, waivers
--------
and approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Schedule 7.2(d).
(e) Transitional Services Agreement. Purchaser shall have entered
-------------------------------
into the Transitional Services Agreement in substantially the form attached
hereto as Exhibit D.
---------
(f) Legal Opinion. Seller shall have received a legal opinion
-------------
from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, legal counsel
to Purchaser, in substantially the form attached hereto as Exhibit E.
---------
7.3 Additional Conditions to the Obligations of Purchaser. The
-----------------------------------------------------
obligations of Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing Date
of each of the following conditions, any of which may be waived, in writing,
exclusively by Purchaser:
(a) Each representation and warranty of Company and Seller
contained in this Agreement (i) shall have been true and correct as of the date
of this Agreement and (ii) shall be true and correct on and as of the Closing
Date with the same force and effect as if made on and as of the Closing Date
except (A) in each case, or in the aggregate, as does not constitute a Material
Adverse Effect on Company, (B) for changes contemplated by this Agreement and
(C) for those representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct (subject
to the qualifications as set forth in the preceding clause (A) as of such
particular date) (it being understood that, for purposes of determining the
accuracy of such representations and warranties, (i) all "Material Adverse
Effect" qualifications and other qualifications based on the word
-45-
"material" or similar phrases contained in such representations and warranties
shall be disregarded and, instead, the materiality standard set forth in part
(A) above shall be given effect). In the event that Company or Seller shall have
made any update of or modification to the Company Schedule after the date of
this Agreement, (i) Purchaser may, if such update or modification causes any
representation or warranty not to meet the standard set above forth in this
Section, deem the condition provided in this Section not to be satisfied and
decline to close the transactions contemplated by this Agreement, or (ii) if
Purchaser elects to close, the updated or modified schedule shall be deemed
substituted for the schedule attached to this Agreement. Purchaser shall have
received a certificate with respect to the foregoing signed on behalf of Company
by its Chief Executive Officer and on behalf of Seller by an authorized officer.
(b) Agreements and Covenants. Company, USICM, TPAI and USIPBM and
------------------------
Seller shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it at or prior to the Closing Date, and Purchaser shall have received a
certificate to such effect signed on behalf of each of USICM, TPAI and USIPBM by
its Chief Executive Officer and on behalf of Seller by an authorized officer.
(c) No Material Adverse Effect. No Material Adverse Effect with
--------------------------
respect to Company or its Subsidiaries shall have occurred since the date of
this Agreement.
(d) Consents. Company shall have obtained all consents, waivers
--------
and approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Schedule 7.3(d).
(e) Transitional Services Agreement. Seller and Company shall
-------------------------------
have entered into the Transitional Services Agreement in substantially the form
attached hereto as Exhibit D.
---------
(f) Legal Opinion. Purchaser shall have received a legal opinion
-------------
from ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP, legal counsel to Seller, in substantially the
form attached hereto as Exhibit F.
---------
(g) Financials. At least 2 days prior to Closing Date, Purchaser
----------
shall have received a copy of the consolidated audited financial statements for
Seller for the year ended December 31, 2001.
ARTICLE VIII
TAX MATTERS
8.1 Definition of Taxes. For the purposes of this Agreement, "Tax" or
-------------------
"Taxes" refers to (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts,
-46-
(ii) any liability for the payment of any amounts of the type described in
clause (i) of this Section 8.1 as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period, and (iii) any liability
for the payment of any amounts of the type described in clauses (i) or (ii) of
this Section 8.1 as a result of any express or implied obligation to indemnify
any other Person or as a result of any obligations under any agreements or
arrangements with any other Person with respect to such amounts and including
any liability for taxes of a predecessor entity. For purposes of this Article
VIII, unless otherwise indicated, each reference to Company shall be deemed to
be a reference to each of USICM, TPAI and USIPBM and to each Subsidiary, and
each representation and warranty or covenant of or with respect to Company shall
be deemed to be a representation and warranty or covenant of or with respect to
each of USICM, TPAI and USIPBM and to each Subsidiary.
8.2 Tax Representations. Seller and Company represent and warrant to
-------------------
Purchaser as set forth below:
(a) Company (or Seller on behalf of Company) has (i) timely filed
within the time period for filing or any extension granted with respect thereto
all applicable federal, state, local, foreign and other returns, declarations,
reports, claims for refund, or information statements relating to Taxes
including any schedule attached thereto and any amendment thereto ("Returns")
required to be filed relating to or pertaining to any and all Taxes attributable
to, levied or imposed upon, or incurred in connection with Company and such
Returns are true and correct and have been completed in accordance with
applicable law, and (ii) timely paid all such Taxes due and payable prior to the
Closing Date.
(b) With respect to Company, (i) there are not pending or
threatened in writing any audits, investigations, examinations, assessments,
adjustments, asserted deficiencies or claims for Taxes and (ii) there are (and
immediately after the Closing there will be) no Encumbrances for Taxes upon any
assets of Company other than for Taxes not yet due and payable.
(c) Company is not delinquent in the payment of its Taxes.
(d) Seller has not requested any extension of time within which
to file any Returns related to Company in respect of any taxable period which
have not since been filed and no request for waivers of the time to assess any
Taxes are pending or outstanding.
(e) Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any foreign Laws)
and has, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all
employment, FICA, FUTA and other Taxes and similar amounts required to be so
withheld and paid over under all applicable laws.
(f) No power of attorney for Taxes has been granted with respect
to Company.
8.3 Section 338(h)(10) Elections.
----------------------------
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(a) In connection with the purchase from Seller of each of the
USICM Common Stock, the TPAI Common Stock and the USPBM Common Stock for the
consideration pursuant to the terms of this Agreement (such purchases and, for
purposes of this Section 8.3, the resulting purchases of the Subsidiaries,
collectively, the "Acquisition") (i) if requested by Purchaser, with respect to
the Acquisition, Seller shall join with Purchaser in making timely elections
under Section 338(h)(10) of the Code and any corresponding elections under state
and local Tax laws (collectively, the "Election"), (ii) Seller and Purchaser
shall, as promptly as practicable following the Closing Date, cooperate with
each other to take all actions necessary and appropriate (including filing such
forms, Returns, elections, schedules and other documents as may be required) to
effect and preserve a timely Election in accordance with Section 338 of the Code
or any successor provisions (and all corresponding state and local Tax laws) for
the Acquisition if Purchaser has determined to make the Election and (iii)
Seller and Purchaser shall report the Acquisition pursuant to this Agreement
consistent with such Election. For the elimination of doubt, Purchaser must make
the Election either: (a) as to all of USICM, TPAI and USIPBM, USI Benefit Group,
Inc., USI Administrators, Inc., Select Providers, Inc. (and not any other
subsidiary or affiliate of Company or Seller); or (b) as to none of such
corporations. Purchaser agrees to notify Seller within six (6) months following
the Closing Date as to whether or not Purchaser intends to make the Election.
(b) In connection with such Election, as soon as practicable
after Closing Purchaser shall provide to Seller a schedule which sets forth the
proposed allocation of the Purchase Price among the assets of Company. Such
proposed allocation shall be made in accordance with Section 338(h)(10) of the
Code and any applicable Treasury regulations. Seller and Purchaser shall
cooperate in good faith to agree promptly to such proposed allocation, and will
file all relevant Tax Returns in accordance with such allocation if finally
agreed upon.
(c) Any adjustment to the Purchase Price pursuant to Section 1.7
(Post Closing Revenue Adjustment) or adjustment to the Purchase Price or payment
in respect of an indemnity claim by Purchaser pursuant to Sections 8.6 (Tax
Indemnity) or 10.2 (Indemnification by Seller) shall be treated for all Tax
purposes as an adjustment to the purchase price. With regard to the beneficial
ownership interest of TPAI in USI Brokerage Services, Inc. described in Section
2.2(b) of the Company Schedule, the parties agree that such interest has no
equity value, that such interest shall be transferred pursuant to the
transaction contemplated by this Agreement for no consideration and that no
portion of the Purchase Price will be allocated to such interest.
8.4 FIRPTA Certificate. At or prior to the Closing, Seller shall
------------------
provide Purchaser with a certificate described in Treasury regulations Section
1.1445-2(b)(2) to the effect that, as contemplated by such certificate, Seller
is not a foreign corporation, foreign partnership, foreign trust or foreign
estate (as those terms are defined in the Code and Treasury regulations).
8.5 Tax Returns.
-----------
(a) Subject to each Parties' obligation to make payment pursuant
to Section 8.6 of this Agreement, Seller shall prepare and file (or cause to be
prepared and filed) on a timely basis all Returns with respect to Company for
all taxable periods ending on or before the Closing Date. Such Returns shall be
prepared in a manner consistent with past practice.
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(b) Subject to each Parties' obligation to make payment pursuant
to Section 8.6 of this Agreement, Purchaser shall prepare and file (or cause to
be prepared and filed) on a timely basis all Returns with respect to Company for
periods ending after the Closing Date. Seller shall have the right to review and
comment on all Returns filed by Purchaser for any Pre-Closing Period included in
a Straddle Period (as defined in Section 8.6(a)), which Returns shall be
prepared in a manner consistent with past practice. Purchaser shall provide
Seller such Returns at least ten (10) business days before each such Return is
due to be filed.
8.6 Tax Indemnity.
-------------
(a) Seller shall indemnify, defend and hold harmless Purchaser
from and against and in respect of and shall be responsible for and shall timely
pay or cause to be paid (i) any and all Taxes whensoever arising with respect to
or relating to Company that are attributable to any taxable period ending on or
prior to the Closing Date (including but not limited to all Taxes resulting from
any Election) and, in the case of a taxable period that includes, but does not
end on the Closing Date (a "Straddle Period"), the portion of such taxable
period that ends on the Closing Date (such taxable periods or portions thereof
the "Pre-Closing Period"), (ii) any and all Taxes of Seller or any subsidiaries
or Affiliates thereof other than Company, whensoever arising, regardless of the
period to which such Taxes relate, imposed on Company arising out of Treasury
Regulation Section 1.1502-6 or any comparable provision of foreign, state, local
or subnational law or Taxes of such entities for which Company is otherwise
liable, (iii) any and all Taxes arising out of or constituting a breach of any
representation, warranty, or covenant of the Seller or Company contained in this
Article VIII; provided that no indemnity shall be provided by Seller for Taxes
resulting from any transaction of Company, not including the Acquisition or
Election, occurring on the Closing Date after the Closing. The foregoing items
(i) through (iii) shall collectively be referred to herein as "Seller's Taxes".
For purposes of any Straddle Period, the portion of any Tax that is attributable
to the Pre-Closing Period shall be (i) in the case of a Tax that is not based on
net income, gross income, sales, premiums or gross receipts, the total amount of
such Tax for the period in question multiplied by a fraction, the numerator of
which is the number of days in the Pre-Closing Period, and the denominator of
which is the total number of days in such Straddle Period, and (ii) in the case
of a Tax that is based on any of net income, gross income, sales, premiums or
gross receipts, the Tax that would be due with respect to the Pre-Closing Period
if such Pre-Closing Period were a separate taxable period, except that
exemptions, allowances, deductions or credits, exclusive of the amount by which
they are increased or decreased as a result of the transactions contemplated
hereby, and which are calculated on an annual basis (such as the deduction for
depreciation or capital allowances) shall be apportioned on a per diem basis. If
there is an indemnification obligation under this Section and there is a
correlative adjustment which makes allowable to Purchaser, any of its Affiliates
or, following the Closing, Company, any deduction, amortization, exclusion from
income or other allowance which produces an actual Tax savings or actual
reduction in such Person's Tax liability after taking into account such
indemnity payments which would not, but for such adjustment, be allowable, then
this indemnification obligation shall be reduced by the net present value of
such amount.
(b) Purchaser shall indemnify, defend and hold harmless Seller
and its affiliates from and against and in respect of and shall be responsible
for and shall timely pay or cause to be paid (i) any and all Taxes with respect
to Company, that are attributable to any
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taxable period commencing after the Closing and, in the case of a Straddle
Period, the portion of such taxable period that begins on the day after the
Closing Date and all other Taxes imposed on Company which are not Seller's Taxes
("Purchaser's Taxes") and (ii) any losses incurred by Seller attributable to a
breach of any covenant of Purchaser contained in this Article VIII.
(c) If Purchaser or any Affiliate files any Return which includes
payment of Seller's Taxes, Seller shall reimburse Purchaser for such Seller's
Taxes within ten (10) days following written notice that payment of such amounts
to the appropriate Tax authority is due, provided that payment shall not be
required earlier than two (2) days before it is due to the appropriate Tax
authority. If Seller files any Return which includes payments of Purchaser's
Taxes, Purchaser shall reimburse Seller for such Purchaser's Taxes within ten
(10) days following written notice that payment of such amounts to the
appropriate Tax authority is due, provided that payment shall not be required
earlier than two (2) days before it is due to the appropriate Tax authority.
Seller shall timely provide to Purchaser all information and documents within
the possession of Seller (or their auditors, advisors or Affiliates) and
signatures and consents necessary for Purchaser to properly prepare and file the
Returns described in the second preceding sentence or in connection with the
determination of any Tax liability or any Tax Proceeding (as defined in Section
8.9(a)). Purchaser shall timely provide to Seller all information and documents
within its possession or the possession of its auditors, advisors or affiliates
and signatures and consents necessary for Seller properly to prepare and file
the Returns described in the second preceding sentence or in connection with the
determination of any Tax liability or any Tax Proceeding. Each party hereto
shall reasonably cooperate (at their own expense) with the other party to obtain
other information or documents necessary or appropriate to prepare and file
Returns or elections or necessary or appropriate in connection with the
determination of any Tax liability or any Tax Proceeding.
(d) Notwithstanding any other provision of this Agreement,
indemnity obligations for Taxes, Tax Proceedings (as defined in Section 8.9(a))
and other Tax matters shall be handled as provided in this Article VIII.
8.7 Refunds and Credits. All refunds or credits of Seller's Taxes
-------------------
(other than refunds or credits of Taxes shown on the Effective Date Balance
Sheet) shall be for the account of Seller. All refunds or credits of Purchaser's
Taxes and Taxes shown on the Effective Date Balance Sheet shall be for the
account of Purchaser. Following the Closing, Purchaser shall cause any such
refunds or credits due Seller pursuant to this section to be promptly forwarded
to Seller after receipt or realization thereof by Purchaser, and Seller shall
promptly forward (or cause to be forwarded) to Purchaser any refunds or credits
due to Purchaser pursuant to this section after receipt or realization thereof
by Seller. Purchaser shall, if Seller so requests, cause Company to file for and
use its commercially reasonable efforts to obtain the receipt of any refund to
which Seller is entitled.
8.8 Termination of Tax Sharing Agreements. Seller hereby agrees and
-------------------------------------
covenants that there are and will be no obligations relating to Company pursuant
to any Tax sharing agreement or any similar arrangement in effect at any time
before or on the Closing Date, and any further obligations that might otherwise
have existed thereunder shall be extinguished as of the Closing Date.
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8.9 Conduct of Audits and Other Procedural Matters.
----------------------------------------------
(a) Seller shall, at its own expense, control any audit,
investigation or examination by any Taxing authority, and have the right to
initiate any claim for refund, and to contest, resolve and defend against any
assessment, notice of deficiency or other adjustment or proposed adjustment of
Taxes ("Tax Proceedings") for any taxable period of Company ending on or before
the Closing Date. Purchaser shall, at its own expense, control any audit or
examination by any Taxing authority, and have the right to initiate any claim
for refund or amended return, any contest, resolve and defend against any Tax
Proceeding for any taxable period beginning after the Closing Date.
(b) In the case of any Tax Proceedings relating to any Straddle
Period, Purchaser and Seller shall jointly control such Tax Proceedings and
shall consult in good faith with each other as to the conduct of such Tax
Proceedings. Each party shall pay its own costs, including legal costs, of
conducting such Tax Proceedings; provided, however, that either party may
-------- -------
instead elect to pay or cause to be paid to the other the allocable amount of
the applicable Taxes that constitute its Taxes (which amount shall not be less
than the portion allocable to it hereunder of the Tax as asserted by the
applicable Taxing authority) including any interest, penalties, or additions
thereto asserted in such Tax Proceeding. Each party shall, at the expense of
the requesting party, execute or cause to be executed any powers of attorney or
other documents reasonably requested by such requesting party to enable it to
take any and all actions such party reasonably requests with respect to any Tax
Proceedings which the requesting party controls.
(c) Each party shall promptly forward to the other all written
notifications and other written communications from any Taxing authority
received by such party or its affiliates relating to any liability for Taxes for
any taxable period for which such other party or any of its affiliates is
charged with payment or indemnification responsibility under this Agreement and
each indemnifying party shall promptly notify, and consult with, each
indemnified party as to any action it proposes to take with respect to any
liability for Taxes for which it is required to indemnify another party or which
may affect the Taxes of another party and shall not enter into any closing
agreement or final settlement with any Taxing authority with respect to any such
liability without the written consent of the indemnified or affected parties,
which consent shall not be unreasonably withheld.
(d) The failure by a party to provide timely notice under this
subsection shall not relieve the other party from its obligations under this
Section 8.9 with respect to the subject matter of any notification not timely
forwarded, unless and to the extent that the other party can demonstrate that
the other party has suffered an economic detriment because of such failure to
provide notification in a timely fashion.
8.10 Assistance and Cooperation. Each of Seller and Purchaser (and
--------------------------
their respective Affiliates) shall at their own expense:
(a) assist the other party in preparing any Returns which such
other party is responsible for preparing and filing in accordance with this
Article VIII;
-51-
(b) cooperate fully in preparing for any audits of, or disputes
with Taxing authorities regarding, any Returns relating to Company;
(c) make available to the other and to any Taxing authority as
reasonably requested all information, records, and documents relating to Taxes
concerning Company;
(d) make available to the other and to any Taxing authority as
reasonably requested employees and independent auditors to provide explanations
and additional information relating to Taxes concerning Company;
(e) provide timely notice to the other in writing of any pending
or threatened Tax audits, assessments or Tax Proceedings with respect to Company
for taxable periods for which the other may have a liability under this Article
VIII;
(f) furnish the other with copies of all correspondence received
from any Taxing authority in connection with any Tax audit or Tax Proceedings
with respect to any taxable period for which the other may have a liability
under this Article VIII; and
(g) retain any books and records that could reasonably be
expected to be necessary or useful in connection with Purchaser's or Seller's
preparation, as the case may be, of any Return, or for any Tax Proceeding. Such
books and records shall be retained until the expiration of the applicable
statute of limitations (including extensions thereof to the extent the party has
been notified thereof); provided, however, that in the event a Tax Proceeding
has been instituted prior to the expiration of the applicable statute of
limitations (or in the event of any claim under this Agreement), the books and
records shall be retained until there is a final determination thereof (and the
time for any appeal has expired).
8.11 Survival. Notwithstanding anything in this Agreement to the
--------
contrary, the provisions of this Article VIII shall survive for the full period
of all applicable statutes of limitations (giving effect to any waiver,
mitigation or extension thereof).
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) by mutual written consent duly authorized by the Boards of
Directors of Purchaser and Seller;
(b) by either Seller or Purchaser if the Closing shall not have
been consummated by April 16, 2002 for any reason;
(c) by either Seller or Purchaser if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of
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permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, which order, decree, ruling or other action is
final and nonappealable;
(d) by Seller, upon a breach of any representation, warranty,
covenant or agreement on the part of Purchaser set forth in this Agreement, or
if any representation or warranty of Purchaser shall have become untrue, in
either case such that the conditions set forth in Section 7.2(a) or Section
7.2(b) would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue; or
(e) by Purchaser, upon a breach of any representation, warranty,
covenant or agreement on the part of Company or Seller set forth in this
Agreement, or if any representation or warranty of Company or Seller shall have
become untrue, in either case such that the conditions set forth in Section
7.3(a) or Section 7.3(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue.
9.2 Notice of Termination; Effect of Termination.
--------------------------------------------
(a) Any termination of this Agreement under Section 9.1 above
will be effective immediately upon the delivery of written notice of either
Purchaser or Seller, as terminating party, to the other. In the event of the
termination of this Agreement as provided in Section 9.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 9.2,
Section 9.3 and Article X (General Provisions), each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any breach of this Agreement. .
(b) In the event the Agreement is terminated (i) by either
Purchaser or Seller pursuant to Section 9.1 (b) or 9.1 (c) or (ii) by Seller
pursuant to Section 9.1(d), Seller shall retain the Signing Payment as
liquidated damages (and not a penalty) and Seller and Company shall have no
further claims for indemnification, damages, losses or otherwise against
Purchaser in connection with this Agreement or the transactions contemplated
hereby. Notwithstanding the foregoing, Seller shall promptly return the Signing
Payment to Purchaser, and Purchaser shall retain all rights, remedies and
privileges related to breach of contract against Seller, including claims for
damages and injunctive relief in the event (i) Purchaser certifies in writing to
Seller that Purchaser has, and Purchaser has in fact, satisfied its conditions
to Closing and is prepared to purchase the Shares from the Seller and Seller
refuses to sell the Shares to Purchaser or (ii) Purchaser declines to close the
transaction contemplated by this Agreement pursuant to Section 7.3(a) as it
relates to modifications or updates of the Company Schedule.
9.3 Fees and Expenses. All fees and expenses (including all legal
-----------------
fees, finder fees and advisory fees) incurred in connection with this Agreement
and the transactions contemplated hereby by Purchaser shall be paid by Purchaser
whether or not the sale of the Shares to Purchaser is consummated and all fees
and expenses (including all legal fees, finder fees and advisory fees) incurred
in connection with this Agreement and the transactions contemplated hereby by
the Seller and Company shall be paid by the Seller whether or not the sale of
the Shares to Purchaser is consummated.
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9.4 Amendment. Subject to applicable law, this Agreement may be
---------
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Purchaser, Seller and Company.
9.5 Extension; Waiver. At any time prior to the Closing Date, any
-----------------
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties.
------------------------------------------
(a) The representations and warranties of Seller and Company
contained in this Agreement, and all statements contained in this Agreement, the
Company Schedule and any certificate delivered pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement (collectively,
the "Acquisition Documents"), shall survive the Closing for a period of twelve
months; provided, however, that the representations and warranties contained in
Section 2.15(b) shall survive the Closing for a period of twenty-four months and
that the representations and warranties contained in Sections 2.18 and 2.25
shall survive in accordance with the applicable statue of limitations, that the
representations and warranties contained in Section 2.7, Section 2.8 and Section
2.9 shall survive indefinitely and that the obligations under Article VIII shall
survive as provided therein.
(b) The representations and warranties of Purchaser contained in
this Agreement, Purchaser Schedule and any certificate delivered pursuant to the
Acquisition Documents shall survive the Closing for a period of twelve months.
If written notice of a claim has been given prior to the expiration of the
applicable representations and warranties, then the relevant representations and
warranties shall survive as to such claim, until such claims has been finally
resolved.
10.2 Indemnification by Seller.
-------------------------
(a) From and after the Closing, Purchaser and its affiliates,
officers, directors, employees, agents, successors and assigns (each a
"Purchaser") shall be indemnified and held harmless, jointly and severally, by
Seller for any and all liabilities, losses, damages, claims, costs (including
business interruption costs) and expenses, interest, awards, judgments and
penalties (including, without limitation, attorneys' and consultants' fees and
expenses) actually suffered or incurred by them (including, without limitation,
any action brought or otherwise initiated by any of them) (hereinafter a "Loss"
and in the aggregate the "Losses"),
-54-
arising out of or resulting from: (i) the breach of any representation or
warranty made by Company or Seller contained in the Acquisition Documents, (ii)
any nonfulfillment in any material respect of any covenant, agreement or other
obligation of Company or Seller set forth in the Acquisition Documents, (iii)
any Losses related to claims or proceedings by Governmental Entities and
quasi-Government Entities involving a violation of law by Company or any of its
affiliates, including Seller, prior to the Closing, (iv) any Losses arising out
of or related to Unknown Claims occurring during the period that the warranty
given pursuant to Section 2.15 survives, as specified in Section 10.1, (v) any
Losses related to Benefits liabilities of Seller or any of Seller's ERISA
Affiliates ("ERISA Liabilities") and (vi) those items disclosed on Section 2.15
of the Company Schedule. For the purposes of determining whether there has been
a breach of any representation or warranty made by Company or Seller, all
"Material Adverse Effect" qualifications and other qualifications based on the
word material or similar phrases shall be disregarded.
(b) A Purchaser Indemnified Party shall give Seller notice of any
matter which an Indemnified Party has determined has given or could give rise to
a right of indemnification under this Agreement, within 60 days of such
determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligation and liabilities of Seller under this Section 10.2 with
respect to Losses arising from claims of any third party ("Third Party Claims")
which are subject to the indemnification provided for in this Section 10.2 shall
be governed by and contingent upon the following additional terms and
conditions: if a Purchaser Indemnified Party shall receive notice of any Third
Party Claim, the Purchaser Indemnified Party shall give Seller notice of such
Third Party Claim within 30 days of the receipt by the Indemnified Party of such
notice; provided, however, that the failure to provide such notice shall not
-------- -------
release Seller from any of its obligations under this Section 10.2 except to the
extent Seller is materially prejudiced by such failure and shall not relieve
Seller from any other obligation or liability that it may have to any Purchaser
Indemnified Party otherwise than under this Section 10.2. If Seller
acknowledges in writing its obligation to indemnify the Purchaser Indemnified
Party hereunder against any Losses that may result from such Third Party Claim,
then Seller shall be entitled to assume and control the defense of such Third
Party Claim at its expense and through counsel of its choice if it gives notice
of its intention to do so to the Purchaser Indemnified Party within ten (10)
days of the receipt of such notice from the Purchaser Indemnified Party;
provided, however, that if there exists or is reasonably likely to exist a
-------- -------
conflict of interest that would make it inappropriate in the judgment of the
Purchaser Indemnified Party, in its reasonable and good faith determination,
for the same counsel to represent both the Purchaser Indemnified Party and
Seller, then the Purchaser Indemnified Party shall be entitled to retain its own
counsel, in each jurisdiction for which the Purchaser Indemnified Party
determines counsel is required, at the expense of Seller. If Seller exercises
the right to undertake any such defense against any such Third Party Claim as
provided above, the Purchaser Indemnified Party shall cooperate with Seller in
such defense and make available to Seller, at Seller's expense, all witnesses,
pertinent records, materials and information in the Purchaser Indemnified
Party's possession or under the Purchaser Indemnified Party's control relating
thereto as is reasonably required by Seller. Similarly, in the event the
Purchaser Indemnified Party is, directly or indirectly, conducting the defense
against any such Third Party Claim, Seller shall cooperate with the Purchaser
Indemnified Party in such defense and make available to the Purchaser
Indemnified Party, at Seller's expense, all such witnesses,
-55-
records, materials and information in Seller's possession or under Seller's
control relating thereto as is reasonably required by the Purchaser Indemnified
Party. No such Third Party Claim pursuant to which any Purchaser Indemnified
Party is required to bear any amount paid in settlement or admit liability may
be settled by Seller without the prior written consent of the Purchaser
Indemnified Party, which shall not be unreasonable withheld.
(c) Seller shall not have any obligation to indemnify the
Purchaser Indemnified Parties pursuant to Sections 10.2(a) and (b) unless the
aggregate amount of all Losses arising under Section 10.2 (excluding claims
based on fraud, willful misconduct, intentional misrepresentation, breaches of
the representations and warranties in Section 2.7, 2.8 and 2.9, breaches of the
covenants in Section 6.14, Unknown Claims and ERISA Liabilities) exceeds
$250,000, in which case the Purchaser Indemnified Parties shall be entitled to
indemnification pursuant to Section 10.2 only to the extent to which such Losses
exceed $250,000. The total maximum aggregate indemnification liability of Seller
for any Losses arising under Sections 10.2(a) and (b) (excluding claims based on
fraud, willful misconduct, intentional misrepresentation, breaches of the
representations and warranties in Section 2.7, 2.8 and 2.9, breaches of the
covenants in Section 6.14 and ERISA Liabilities, and subject to the proviso
below, Unknown Claims) shall not exceed the Deferred Payment Amount plus any
recoveries under Insurance Policies (the "General Indemnification Cap");
provided, however, that if and to the extent that the total maximum aggregate
indemnification liability of Seller for any Losses arising under Sections
10.2(a) and (b) exceeds the General Indemnification Cap by reason of any Losses
attributable to Unknown Claims, Seller's indemnification liability shall extend
to Losses from Unknown Claims above the General Indemnification Cap in an
additional amount not greater that the excess of (i) $13,000,000 plus any
recoveries under Insurance Policies over (ii) the General Indemnification Cap.
There shall be no limit on Seller's indemnity obligations to Purchaser with
respect to any Losses associated with claims based on fraud, willful misconduct,
intentional misrepresentation, breaches of representations and warranties in
Sections 2.7, 2.8 and 2.9 and ERISA Liabilities, and as provided in Article
VIII. Notwithstanding anything to the contrary herein, Seller's indemnity
obligation shall exclude the effect of any breach of a warranty or covenant if
the loss attributable to such breach was taken into account in the Effective
Date Balance Sheet.
(d) From and after the Closing, in the absence of fraud, willful
misconduct or intentional misrepresentation ("Excepted Claims"), the sole and
exclusive remedy of Purchaser and its affiliates, officers, directors,
employees, agents, successors and assigns against Seller or any of its
affiliates, officers, directors, employees, agents, successors and assigns with
respect to any and all claims relating to the Acquisition Documents shall be
pursuant to the indemnification provisions set forth in this Section 10.2. All
Losses subject to indemnification claims pursuant to this Section 10.2 may, at
the sole discretion of Purchaser, be satisfied by (i) a direct claim against
Seller or (ii) a deduction of the Deferred Payment Amount by offsetting an
amount equal to such Losses from the principal and accrued interest on the
Promissory Note, provided that Losses associated with Unknown Claims shall first
be satisfied by seeking recovery under the Insurance Policies, and to the extent
such Insurance Policies are no longer available to satisfy the full amount of
such Losses or coverage is denied wholly or partially, by a direct claim against
Seller for indemnification hereunder or by offsetting an amount equal to such
Losses from the principal and accrued interest on the Promissory Note.
-56-
10.3 Indemnification by Purchaser.
----------------------------
(a) From and after the Closing, Seller and its affiliates,
officers, directors, employees, agents, successors and assigns (each a "Seller
Indemnified Party") shall be indemnified and held harmless, jointly and
severally, by Purchaser for any and Losses arising out of or resulting from: (i)
the breach of any representation or warranty made by Purchaser contained in the
Acquisition Documents, (ii) any nonfulfillment in any material respect of any
covenant, agreement or other obligation of Purchaser set forth in the
Acquisition Documents and (iii) any Losses related to claims or proceedings
arising from actions taken by Company or Subsidiary or the operation of their
business after the Closing Date (excluding any Loss for which Seller is required
to indemnify Purchaser pursuant to Sections 10.2(a) or 10.2(b)). All losses
subject to indemnification claims pursuant to this Section 10.3 shall be
satisfied by a direct claim against Purchaser.
(b) A Seller Indemnified Party shall give Purchaser notice of any
matter which an Indemnified Party has determined has given or could give rise to
a right of indemnification under this Agreement, within 60 days of such
determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligation and liabilities of Purchaser under this Section 10.3 with
respect to Losses arising from Third Party Claims subject to the indemnification
provided for in this Section 10.3 shall be governed by and contingent upon the
following additional terms and conditions: if a Seller Indemnified Party shall
receive notice of any Third Party Claim, the Seller Indemnified Party shall give
Purchaser notice of such Third Party Claim within 30 days of the receipt by the
Indemnified Party of such notice; provided, however, that the failure to provide
-------- -------
such notice shall not release Purchaser from any of its obligations under this
Section 10.3 except to the extent Purchaser is materially prejudiced by such
failure and shall not relieve Purchaser from any other obligation or liability
that it may have to any Seller Indemnified Party otherwise than under this
Section 10.3. If Purchaser acknowledges in writing its obligation to indemnify
the Seller Indemnified Party hereunder against any Losses that may result from
such Third Party Claim, then Purchaser shall be entitled to assume and control
the defense of such Third Party Claim at its expense and through counsel of its
choice if it gives notice of its intention to do so to the Seller Indemnified
Party within ten (10) days of the receipt of such notice from the Seller
Indemnified Party; provided, however, that if there exists or is reasonably
-------- -------
likely to exist a conflict of interest that would make it inappropriate in the
judgment of the Seller Indemnified Party, in its reasonable and good faith
determination, for the same counsel to represent both the Seller Indemnified
Party and Purchaser, then the Seller Indemnified Party shall be entitled to
retain its own counsel, in each jurisdiction for which the Seller Indemnified
Party determines counsel is required, at the expense of Purchaser. If Purchaser
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Seller Indemnified Party shall cooperate with
Purchaser in such defense and make available to Purchaser, at Purchaser's
expense, all witnesses, pertinent records, materials and information in the
Seller Indemnified Party's possession or under the Seller Indemnified Party's
control relating thereto as is reasonably required by Purchaser. Similarly, in
the event the Seller Indemnified Party is, directly or indirectly, conducting
the defense against any such Third Party Claim, Purchaser shall cooperate with
the Seller Indemnified Party in such defense and make available to the Seller
Indemnified Party, at Purchaser's expense, all such witnesses, records,
materials and information
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in Purchaser's possession or under Purchaser's control relating thereto as is
reasonably required by the Seller Indemnified Party. No such Third Party Claim
pursuant to which any Seller Indemnified Party is required to bear any amount
paid in settlement or admit liability may be settled by Purchaser without the
prior written consent of the Seller Indemnified Party, which shall not be
unreasonably withheld.
10.4 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Purchaser, to:
CBCA Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇)▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Seller or Company, to:
U.S.I. Holdings Corporation
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
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10.5 Interpretation.
--------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), capitalization, financial condition or results of operations of such
entity and its subsidiaries taken as a whole.
(c) For purposes of this Agreement, the term "Person" shall mean
any individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
10.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.7 Entire Agreement; Third Party Beneficiaries. This Agreement and
-------------------------------------------
the documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including Company Disclosure Schedule and
the Purchaser Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
10.8 Severability. In the event that any provision of this Agreement,
------------
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will
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achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
10.9 Other Remedies; Specific Performance. Except as otherwise
------------------------------------
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party of any
one remedy will not preclude the exercise of any other remedy. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.10 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
10.11 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
10.12 Assignment. No party may assign either this Agreement or any of
----------
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
10.13 WAIVER OF JURY TRIAL. EACH OF SELLER, COMPANY, AND PURCHASER
--------------------
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF SELLER, COMPANY, OR PURCHASER IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
CBCA INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Title: Chairman & CEO
--------------------------------
U.S.I. HOLDINGS CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Title: Chairman, President & CEO
--------------------------------
U.S.I. INSURANCE SERVICES CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Title: Chairman, President & CEO
--------------------------------
U.S.I. CARE MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇▇ Newborn II
-----------------------------------
Name: ▇▇▇▇▇▇ Newborn
---------------------------------
Title: Secretary
--------------------------------
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE]
TEXAS PROFESSIONAL
ADMINISTRATORS, INC.
By: /s/ ▇▇▇▇▇▇ Newborn II
-----------------------------------
Name: ▇▇▇▇▇▇ Newborn II
---------------------------------
Title: Secretary
--------------------------------
U.S.I. PRESCRIPTION BENEFITS
MANAGEMENT CO.
By: /s/ ▇▇▇▇▇▇ Newborn II
-----------------------------------
Name: ▇▇▇▇▇▇ Newborn II
---------------------------------
Title: Secretary
--------------------------------
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE]
Schedule 1
----------
PROCEDURES
1. Company Revenue Recognition
Group/Life
----------
The Group/Life fees are recorded on a cash basis in all regions except
Northeast. The Northeast records all Stop Loss, Life and LTD commissions in the
month they are earned based upon monthly due date within the respective policy.
TPAI Fees
---------
The fees related to TPAI revenue are recorded on an accrual basis. They are
recorded in the month the services are provided.
Interest Income
---------------
Interest income is recorded on an accrual basis in the month it is earned based
upon bank statement credit.
Other Income
------------
Other income consist of Rx Rebates, Broker Fees, Outside PPO Fees and other
miscellaneous sources of revenue. Rx Rebates are accrued into income based upon
an estimate of the monthly level of rebate recoverable or prescriptions filled
(i.e. sold) to the customers during the applicable month. Brokerage fees which
are principally related to GA and MGA type services out of the Fort Worth office
are earned into income as commissions are collected. Outside PPO fees are
accrued on a monthly basis, based upon contractual fee schedules and the monthly
level of client usage of the networks. The Rx Rebates, Broker Fees and Outside
PPO Fees are recorded on an accrual basis in the month they are earned. The
other miscellaneous sources of revenue are recorded on a cash basis.
AGE TPAI Fees
-------------
The AGE TPAI Fees and Commissions are recorded into revenue as commissions are
received from the carriers. In addition, the Company also records an average 90
day revenue accrual on the books as most of the commission is deemed earned from
the insurance sale at the effective date of coverage for voluntary or
supplemental product sales. The majority of the commission received
(approximately 80% where Company provides TPAI services and 100% on products
where the Company does not) require minimal customer service after the coverage
is placed. The Company reduces its revenue accrual by an attrition allowance for
cancellations using an approach similar to brokerage operations for this type of
product. Historically, the annualized premium for these policies was applied
against a persistency rate of 75.0% to 88.5% supported by renewal statistics to
come up with an annualized revenue amount. The Company has recently adopted a
much more conservative practice of setting up an average 90 day accrual on the
books which represents a 33.3% persistency rate due to the difficult task of
matching individual policy
receipts to the month that the revenue was accrued and to give allowance to the
fact that some of the revenue on certain products (ex. Champus) is for TPAI
services to be provided during the policy period. The annual revenue received is
divided by 12 to come up with a monthly revenue amount. The monthly revenue is
multiplied by three, representing approximately 90 days of income which the
Company feels is a very conservative estimate of the income earned for this
block of business. As the size of the block fluctuates up or down so does the
receivable that is recorded.
2. Revenue
"Revenue" means net commissions and fees plus other revenues computed
consistent with GAAP and past practice of Company. The Company's past practices
include the appropriate recognition of revenue consistent with GAAP and the
recognition of revenue on a gross or net basis as may be required by GAAP.
3. Adjustments to Effective Date Balance Sheet
For the purpose of calculating the Working Capital Shortfall only, the Effective
Date Balance Sheet will exclude from Current Liabilities those liabilities
associated with accrued vacation and sick time for the period from January 1,
2002 through March 31, 2002 and shall include as a Current Liability accruals
and liabilities for vacation, sick time, sabbatical or similar liabilities for
any other period (i.e. carryover vacation time or sick time from prior or other
periods).
4. Absence of Material Liabilities on the Closing Balance Sheet
For the purposes of this Schedule, except for the absence of vacation and sick
accruals noted above, the Closing Balance Sheet will include provisions for all
material (greater than $25,000 individually) liabilities, accruals and loss
contracts in amounts which conform to GAAP.
5. Recoverability of Assets
For the purposes of this Schedule, the Closing Balance Sheet will include assets
which are recoverable in the normal course of operations with balances recorded
at their net realizable value which is consistent with GAAP.
6. Payable
The Effective Date Balance Sheet will include a payable from Company to Seller
in the amount, if any, by which the Working Capital Excess exceeds the liability
included on the Effective Date Balance Sheet for capital leases (the "USI
Payable").
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