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STOCK PURCHASE AGREEMENT
by and between
LINCOLN MEMORIAL LIFE INSURANCE COMPANY
and
NRG ACQUISITION PARTNERS, L.P.
for the capital stock of
HARBOURTON REASSURANCE, INC.
Dated: January 26, 1998
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TABLE OF CONTENTS
ITEM PAGE
RECITALS 1
1. PURCHASE AND SALE OF SHARES 1
1.1 Agreement to Purchase and Sell 1
1.2 Closing 2
1.3 Purchase Price; Payment 3
1.4 Closing Statement and Final Purchase Price 5
2. REPRESENTATIONS AND WARRANTIES OF SELLER 8
2.1 Corporate Organization 8
2.2 Capitalization of Company 8
2.3 Inter-Affiliate Investments 9
2.4 Authority 9
2.5 No Violation 10
2.6 Consents and Approvals 11
2.7 Delaware Department of Insurance Statements 11
2.8 Basic Documents 12
2.9 Absence of Certain Changes or Events 12
2.10 Compliance with Laws 13
2.11 Tax Matters 14
2.12 Absence of Undisclosed Liabilities 16
2.13 Interests in Real Property 17
2.14 Personal Property 18
2.15 Accounts Receivable 18
2.16 Trademarks; Software; Patents; Copyrights; and Know-How 18
2.17 Licenses; Permits and Governmental Approvals 19
2.18 Title to Assets 20
2.19 Litigation 20
2.20 Contracts 21
2.21 Employees; Employee Plans 21
2.22 Insurance 22
2.23 Transactions with Related Parties 23
2.24 Books and Records 24
2.25 Accuracy of Information 24
2.26 Regulatory Filings 24
2.27 Agents 25
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER 25
3.1 Corporate Organization 25
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3.2 Corporate Authority 25
3.3 No Violation 26
3.4 Consents and Approvals 27
3.5 Accuracy of Information 27
3.6 Financial Resources 27
4. COVENANTS OF SELLER 28
4.1 Conduct of Business 28
4.2 Negative Covenants 28
4.3 Preparation of Statutory Insurance Statements 32
4.4 Access to Properties and Records 32
4.5 Consents and Approvals 32
4.6 Third Party Agreements 33
4.7 Further Assurances 33
4.8 Satisfaction of Conditions 34
5. COVENANTS OF PURCHASER 34
5.1 Conduct of Business 34
5.2 Consents and Approvals 34
5.3 Satisfaction of Conditions 35
5.4 Purchaser's Intent 35
5.5 Access to Records 35
6. CONDITIONS TO OBLIGATIONS OF PURCHASER 35
6.1 Representations and Warranties of Seller 35
6.2 Covenants of Seller 36
6.3 Consents and Approvals 36
6.4 No Violation of Orders 36
6.5 No Material Adverse Change 37
6.6 Inter-Affiliate or Related Party Debt, Agreement or Investments 37
6.7 Other Closing Documents 37
6.8 Legal Matters 37
6.9 Resignation of Directors and Officers 38
7. CONDITIONS TO OBLIGATIONS OF SELLER 38
7.1 Representations and Warranties of Purchaser 38
7.2 Performance of Purchaser's Obligations 38
7.3 No Violation of Orders 38
7.4 Other Closing Documents 39
7.5 Legal Matters 39
7.6 Consents and Approvals 39
7.7 Stock Redemption 40
7.8 Releases 40
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8. INDEMNIFICATION 40
8.1 Indemnification by Seller 40
8.2 Indemnification by Purchaser 41
8.3 Indemnified Claims 41
8.4 Basket and Cap; Exclusivity of Remedy; Claim Procedures 46
8.5 Seller Retention 48
8.6 ▇▇▇▇▇ Guaranty 49
9. TERMINATION AND ABANDONMENT 49
9.1 Methods of Termination 49
9.2 Extension by Purchaser 50
9.3 Extension by Seller 51
9.4 Effect of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇
▇▇. COVENANTS AND AGREEMENTS 52
10.1 Reserve Valuation 52
10.2 Schedule Updates 52
10.3 Delaware Approval 52
11. MISCELLANEOUS PROVISIONS 53
11.1 Survival 53
11.2 Publicity and ▇▇▇-▇▇▇▇▇▇▇▇▇▇ ▇▇
11.3 Successors and Assigns 54
11.4 Brokers and Finders 54
11.5 Expenses 55
11.6 Notices 55
11.7 Entire Agreement 56
11.8 Waivers, Amendments and Remedies 56
11.9 Section Headings 57
11.10 Counterparts 57
11.11 Litigation Assistance 57
11.12 Governing Law 57
11.13 Exhibits and Schedules 57
11.14 Miscellaneous Undertakings 58
12. TAX MATTERS 58
12.1 Certain Defined Terms 58
12.2 Existing Agreements and Other Matters 58
12.3 Transaction Taxes 58
12.4 Contests 59
12.5 Access to Records, Cooperation 60
12.6 Price Adjustment 60
12.7 Preparing and Filing of Return 60
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement"), is made and entered into by and
between LINCOLN MEMORIAL LIFE INSURANCE COMPANY, a Texas life insurance
company ("Purchaser"), and NRG ACQUISITION PARTNERS, L.P. ("Seller") whereby
Purchaser shall acquire all of the issued and outstanding stock of HARBOURTON
REASSURANCE, INC. ("Company"), a Delaware life insurance company.
RECITALS
Seller owns 36,000 shares (hereafter "Shares") of Class A and Class B common
stock, $100.00 par value, of Company, which Shares constitute all of the
issued and outstanding shares of capital stock of Company;
Seller desires to sell to Purchaser and Purchaser desires to purchase from
Seller the Shares remaining outstanding after the Stock Redemption (defined
below) (hereafter the "Remaining Shares") on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, the parties do hereby agree as follows:
1.
PURCHASE AND SALE OF SHARES
1.1 AGREEMENT TO PURCHASE AND SELL. At the Closing (as defined in Section
1.2) and upon the terms and subject to the conditions set forth in
this Agreement, Seller shall sell, assign, transfer, convey and
deliver the Remaining Shares to Purchaser, and Purchaser shall
purchase and accept the Remaining Shares from Seller.
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1.2 CLOSING. The closing of such sale and purchase ("Closing") shall take
place at the offices of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Finger, ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other location as
the parties hereto may agree upon, on April 7, 1998 or at such
other time and date as the parties hereto shall agree in writing
("Closing Date") after each of the conditions set forth in
Sections 6 and 7 has been fulfilled or waived; provided that if
all of such conditions have not been so satisfied by March 31,
1998 then if on or before the fifth calendar day after all of such
conditions have been so satisfied or waived, Purchaser and Seller
shall have failed to establish the Closing Date, the Closing Date
shall be at 10:00 a.m., Eastern time, on either (i) the first day
of the next calendar month or (ii) the tenth calendar day after
the last of such conditions has been satisfied or waived (provided
that if such day is a Saturday, Sunday or legal holiday, the
Closing shall occur on the next business day), whichever of (i) or
(ii) Seller shall select. Whether the Closing occurs on the first
day of a calendar month or on a date other than the first day of a
calendar month, the Purchase Price shall be computed as of the
last day of the immediately preceding calendar month (which last
day of the month shall be referred to as the "Computation Date").
At the Closing, Seller shall deliver to Purchaser stock
certificates representing the Remaining Shares duly endorsed in
blank for transfer or accompanied by appropriate stock powers duly
executed in blank, with all stock transfer taxes, direct or
indirect, attributable to the transfer of such Remaining Shares
paid or provided for by Purchaser. In full consideration and
exchange for the Remaining Shares, Purchaser shall pay to Seller
the Purchase Price as defined and in accordance with Section 1.3
and in accordance with Section 1.4. When the Closing is
completed, Purchaser shall thereupon take possession of Company,
all of its assets, books and records, and shall from that time
forward be responsible for the administration of Company.
1.3 PURCHASE PRICE; PAYMENT. The total purchase price for the Remaining
Shares (the "Purchase Price") shall be:
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(a) An amount which shall be specifically calculated in the following
manner, determined at the end of the Computation Date immediately
after the Stock Redemption (defined in Section 1.3(c) below) has
taken place or is deemed to have taken place:
(i) Company's statutory capital and surplus as of the
Computation Date, plus
(ii) Asset Valuation Reserve and Interest Maintenance Reserve,
as of the Computation Date, plus
(iii) Four percent (4%) of annuity reserves, as of the
Computation Date, minus
(iv) Any outstanding surplus relief, as of the Computation Date,
minus
(v) Unrealized capital losses, as of the Computation Date,
minus
(vi) One million dollars ($1,000,000.00), plus
(vii) Unrealized capital gains, as of the Computation Date.
(b) The components of the Purchase Price shall be the amounts shown
on the most recent financial reporting form filed by Company with
the Delaware Department of Insurance immediately preceding the
Closing, updated through the Computation Date pursuant to Section
1.4. Attached as Schedule 1.3 hereto is a pro forma computation of
the Purchase Price based on the September 30, 1997, Quarterly
Statement of the Company as filed with the Delaware Department of
Insurance.
(c) The parties have agreed to the Purchase Price hereunder on the
condition that part of the consideration to be received by Seller
shall be paid in part by (and Purchaser's and Seller's agreement
hereby evidenced is conditioned upon) securing the approval of the
Delaware Insurance Department for an extraordinary dividend in the
form of a partial stock redemption (hereafter "Stock Redemption) by
the Company of part of the shares of Seller in an amount not less
than the amount of the Company's capital and surplus, as of the date
of application for approval (or
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such other date which is the date of the most recent financial
report filed with the Delaware Department), less Ten Million
Dollars ($10,000,000.00). The Stock Redemption shall occur
immediately prior to the Closing on the Closing Date and shall
result in the redemption and cancellation of a pro rata number of
Class A and Class B shares of the Company. (If the Computation
Date is other than the Closing Date, the Stock Redemption shall be
deemed to have occurred at the end of the end of the Computation
Date for purposes of computing the Purchase Price.) Purchaser
agrees to pay to Seller the Preliminary Purchase Price (defined in
Section 1.4 below) after the payment of the dollar amount of the
Stock Redemption, in cash at Closing by wire transfer in
immediately available funds.
(d) As of Closing, all assets of Company will either be cash, cash
equivalents, NAIC class one bonds, Acceptable Receivables
(defined below), and accrued tax benefits (described below),
except that Purchaser, in its discretion, may accept existing
assets of the Company. An "Acceptable Receivable" shall mean an
account receivable or note receivable (each a "Receivable") of the
Company arising in the ordinary course of business, provided,
however, that (i) the Closing Statement (defined in Section 1.4
below) shall only include as an asset such a Receivable which is
no more than 90 days outstanding on the Computation Date but (ii)
to the extent that one or more Receivables outstanding more than
90 days on the Computation Date are collected within 90 days after
the Computation Date, to the extent such collections exceed
$50,000 such excess shall be paid to Seller as additional Purchase
Price at the time of such collection. The "accrued tax benefits"
shall be any tax benefits or refunds reportable on the statutory
balance sheet of the Company. For this purpose, Purchaser
acknowledges that the Company shall elect to carryback any net
operating loss deduction of the Company. Any assets not meeting
the standard described in this subsection (d)
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will either be replaced by assets meeting that standard or
distributed to its shareholder prior to Closing as part of the
Stock Redemption herein described. With respect to a
determination of the value to be ascribed to unrealized capital
gains and losses, if there is a failure among the parties to agree
as to the determination of value of any of such assets, Seller
agrees to sell or replace such asset with an asset meeting the
above-described standard or distribute such assets as part of the
Stock Redemption. Seller and Purchaser shall use their reasonable
best efforts to agree on the value of such assets and Purchaser
shall notify Seller of its acceptance of any existing assets not
later than fifteen (15) days prior to the Closing.
1.4 CLOSING STATEMENT AND FINAL PURCHASE PRICE.
(a) The Purchase Price paid at Closing (hereafter "Preliminary
Purchase Price") shall be based upon the most recent quarterly or
annual report filed by the Company with the Delaware Department
of Insurance immediately preceding the Closing and the provisions
of this Agreement, provided that if the Computation Date is one
month or more after such year or quarterly end, the parties shall
instead use a more recent pro forma monthly financial statement
prepared by Seller in accordance with the foregoing principles.
As soon as practical but in no event more than sixty (60) days
after the Closing Date, Seller shall deliver to the Purchaser a
statement of the Purchase Price calculated as of the Computation
Date (hereafter "Closing Statement") in the manner provided in
this Agreement. In preparing the Closing Statement and computing
the Purchase Price, the Tax liabilities of Company shall (i) be
those (A) accruable as of the Computation Date determined in a
manner consistent with Seller's past practices as if the
Computation Date were the last day of a separate tax year plus
(B) those accruable from the transfer of assets to Seller in
connection with the Stock Redemption and (ii) shall not include
any Tax
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liabilities other than those referred to in clause (i)(B) above
arising from the business of the Company after the Computation
Date or any actions (including elections) of the Company or
Purchaser on or after the Closing or other events after the
Computation Date. In no event shall the Closing Statement
include any liability for reinsurance claims or losses not known
by Company prior to the Closing, other than reserves or claims
liabilities established in accordance and consistent with past
practices. For purposes of this Agreement Purchaser has accepted
the Company's methodology of establishing reserves and claims
liabilities, and if reserves or claims liabilities of the Company
established in accordance with the Company's current reserving
practices are insufficient, Seller shall not have any liability
to Purchaser or the Company therefor.
(b) If Purchaser reasonably believes that the Closing Statement was
not computed in accordance with the provisions of this Agreement
and on a basis consistent with the Company's most recent
financial report filed with the Delaware Department of Insurance,
Purchaser shall so notify Seller within twenty (20) days after
its receipt of the Closing Statement, which notice shall specify
the items to which its objects and the basis for such objection
(hereafter "Objection Notice"). If no Objection Notice is
received by the Seller within the time period specified above,
the Purchase Price set forth in the Closing Statement shall be
final, conclusive and binding on all of the parties. If an
Objection Notice is received by Seller within the time period
specified above, Purchaser and Seller shall promptly attempt in
good faith to reconcile the differences between the Closing
Statement and the Objection Notice and any such reconciliation
shall be final, binding and conclusive. If Purchaser and Seller
are unable to reconcile the differences between the Closing
Statement and the Objection Notice within thirty (30) days after
receipt thereof by Seller, Purchaser and Seller shall jointly
select, engage and each pay one-half of the
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expense of an independent auditor experienced in auditing the
financial statements of insurance companies to resolve any
remaining differences and determine the Purchase Price as of the
Computation Date pursuant to such resolution and undisputed items
on the Closing Statement. If Seller and Purchaser cannot agree
on the selection of an independent auditor within forty-five (45)
days after receipt of the Objection Notice by Seller, Ernst &
Young, LLP, shall select the independent auditor not later than
sixty (60) days after Seller's receipt of the Objection Notice.
The independent auditor shall complete the resolution of the
differences within thirty (30) days after being retained and
appointed, and the resulting determination of the Purchase Price
shall be final, binding and conclusive. The preparation and
filing of the Objection Notice by Purchaser shall in no way be
construed to represent any objections of Purchaser except as to
the calculation of the Purchase Price, and the Objection Notice
shall not act to waive any other objection, right or claim for
indemnity that Purchaser may otherwise have. The purchase price
determined pursuant to this Section 1.4 shall constitute the
final "Purchase Price".
(c) If the Purchase Price exceeds the Preliminary Purchase Price,
Purchaser shall pay to Seller an amount equal to such excess,
together with simple interest thereon from the Closing Date to
the date of payment at the rate of seven and one-half percent
(7.5%) per annum. If the Preliminary Purchase Price exceeds the
Purchase Price, Seller shall pay to Purchaser an amount equal to
such excess, together with simple interest thereon from the
Closing Date to the date of payment at the rate of seven and
one-half percent (7.5%) per annum. Without limiting remedies,
if either party defaults in any payment to the other party due
under this Section 1.4(c), the other party may offset such
payment amount against amounts owed to the defaulting party.
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(d) Any amount payable pursuant to this Section 1.4 shall be paid by
certified check or checks payable to the order of Purchaser or
Seller, as the case may be, and delivered no more than five (5)
days following final determination of the Purchase Price.
(e) For the purpose of making a final calculation of the Purchase
Price and to fulfill its obligations under Section 4.3, Seller
shall be given reasonable access to Company's premises, systems,
books and records.
2.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents, warrants and agrees as follows:
2.1 CORPORATE ORGANIZATION. Company is duly organized, validly existing
and in good standing under the laws of Delaware and has all
requisite power and authority (corporate and other) to own its
properties and assets and to conduct its business as now
conducted. Company is duly qualified to do business in Arizona,
California, Delaware, District of Columbia, Florida, Georgia,
Illinois, Indiana, Iowa, Kansas, Louisiana, Minnesota, Missouri,
Mississippi, Nevada, New York, Ohio, Oklahoma, South Carolina,
Texas, and Washington and is in good standing therein except as
shown in Schedule 2.1.
2.2 CAPITALIZATION OF COMPANY. The authorized, issued and outstanding
capital stock of the Company is as set forth in Schedule 2.2. No
other class of capital stock or other security of Company is
authorized, issued or outstanding. All of the Shares of the
Company have been duly authorized and are validly issued, fully
paid and non-assessable. There are no outstanding options,
warrants, agreements, exchange rights, conversion rights,
preemptive rights or other rights to subscribe for, purchase or
otherwise acquire any of the Shares,
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any other outstanding, authorized but unissued, unauthorized or
treasury shares of capital stock of the Company, or any other
security of the Company. Neither Seller nor the Company is a
party to any voting trust or other voting agreement with respect
to any of the Shares, the shares of capital stock of the Company
or any other security of the Company, or to any agreement relating
to the issuance, sale, redemption, transfer or other disposition
of any shares of capital stock or any other security of the
Company. Seller has, and will have at the Closing, good and valid
title to all of the Shares, being all of the issued and
outstanding shares of capital stock of Company, free and clear of
any liens, claims, charges, security interests, mortgages, pledges
or other legal or equitable encumbrances, limitations or
restrictions except those hereby created. Upon the sale and
transfer of the Remaining Shares to Purchaser, Seller will have
sold and transferred to Purchaser good and valid title to all of
the then outstanding Shares, free and clear of any liens, claims,
charges, security interests, mortgages, pledges or other legal or
equitable encumbrances, limitations or restrictions.
2.3 INTER-AFFILIATE INVESTMENTS. The Company does not own, and is not
obligated in any way to acquire, any capital stock, equity
interest, other securities or other ownership or similar interest
in any "affiliate" of the Company, as that term is defined in
Article ▇▇.▇▇-▇, ▇▇▇▇▇▇▇ ▇(▇), ▇▇▇▇▇ Insurance Code.
2.4 AUTHORITY. Seller has the power to enter into this Agreement and,
subject to the requisite approvals referenced in Section 4.5, to
carry out its obligations hereunder; the execution and delivery of
this Agreement and the performance by Seller of its obligations
hereunder shall be evidenced at Closing by execution of their
Closing documents and transfer of the Shares, and, except for the
necessary approvals referenced in Section 4.5, no other
proceedings on the part of Seller are necessary to authorize such
execution, delivery and performance. This Agreement has been duly
executed by Seller and is the valid and
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binding obligation of Seller, enforceable against Seller in
accordance with the terms hereof, except as such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization or
similar laws relating to or affecting creditors' rights generally
or general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2.5 NO VIOLATION. The execution, delivery and performance by Seller of
this Agreement and the consummation of the transactions
contemplated hereby do not and will not
(a) (i) violate, conflict with or result in the breach of any of the
terms or provisions of, (ii) result in or give any contracting
party the right of modification, suspension, termination,
cancellation or acceleration of the performance required by, or
(iii) constitute (or with notice or lapse of time or both,
would constitute) a default or result in the loss of any
material benefit under any permit, instrument, contract,
mortgage, indenture, lease, deed of trust, license, note, loan
agreement or other agreement to which Seller or the Company is
a party, or by or to which any of them or any of their
respective assets or properties may be bound or subject;
(b) violate any order, writ, judgment, ruling, injunction, award or
decree applicable to or binding upon Seller or the Company or
upon the assets or properties of Seller or the Company;
(c) result in the creation or imposition of any lien, mortgage,
pledge, limitation, restriction, charge, claim, security
interest or encumbrance upon any of the properties or assets of
Seller or the Company; or
(d) violate or result in the modification, revocation, termination or
suspension of any of the Licenses (as defined in Section 2.17).
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2.6 CONSENTS AND APPROVALS. Except as contemplated in Section 4.5, no
consent, waiver, authorization or approval of, declaration or
notification to, or filing or registration with, any court,
administrative agency, or other governmental authority or
instrumentality, whether federal, state, local or foreign
("Governmental Entity") or any individual, corporation,
partnership, joint venture, trust, association or other entity
("Person"), is legally required on the part of Seller or the
Company in connection with the execution and delivery of this
Agreement by Seller, the performance by Seller of its obligations
hereunder or the compliance by Seller or the Company with the
provisions hereof.
2.7 DELAWARE DEPARTMENT OF INSURANCE STATEMENTS. Seller has furnished to
Purchaser complete and correct copies of the Annual Statements and
any Quarterly Statements of Company made to or filed with the
Commissioner of Insurance for the State of Delaware, for all
periods beginning on or after January 1, 1993, together with all
exhibits and schedules thereto. All Annual Statements and
Quarterly Statements and examinations, and annual audits required
by the Delaware Insurance Code, referred to in this Section 2.7
are hereinafter referred to as the "Statutory Insurance
Statements." Except as may be affected by (i) any adjustments
made under Section 10.1 hereof, (ii) reinsurance claims or losses
not known by the Company, or (iii) other matters disclosed on any
Schedule hereto, (a) the Quarterly Statement of the Company as at
September 30, 1997 and any financial statements hereafter filed
with the Delaware Department of Insurance accurately calculate and
report the Company's liabilities that are required to be shown or
reflected on such statement as of the applicable date by
applicable insurance accounting principles of the Delaware
Department of Insurance, and (b) all of the Statutory Insurance
Statements filed by the Company for periods ending on or after
March 1, 1994 complied in all material respects as of the
applicable date with the requirements of the Delaware Department
of Insurance concerning the submission and content of financial
statements and as of the
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applicable date could be reconciled with the financial statements
and the financial records maintained and the accounting methods
applied by the Company for financial accounting and federal income
tax purposes. For purposes of this Agreement, references to
"reinsurance claims or losses not known by the Company" or similar
language shall refer, in the case of the Company's knowledge, to
the actual knowledge of the current officers and directors of the
Company, and with respect to "reinsurance claims or losses" shall
refer to all claims, losses or liabilities arising out of any
reinsurance treaties or agreements to which the Company is or has
been a party or to which the Company has been subject or bound,
directly or indirectly.
2.8 BASIC DOCUMENTS. The Seller will deliver to Purchaser true and
complete copies of the Articles of Incorporation and By-Laws of
Company. Such Articles of Incorporation and By-Laws are in full
force and effect. Prior to the Closing, Seller will have
delivered to Purchaser a copy of the said Articles of
Incorporation certified by the Commissioner of Insurance of the
State of Delaware, and a copy of the said By-Laws certified by the
Secretary of Company.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as set forth in Schedule 2.9 or any other Schedule hereto,
since the last day of the period covered by the Company's most
recently filed Statutory Insurance Statements (i) there has
been no material adverse change in the assets, properties,
business, operations, or financial condition of the Company,
and (ii) the business of the Company has been operated only in
the ordinary course of business consistent with past practice
except for the transactions contemplated by this Agreement.
Neither Seller nor the Company knows of any event, condition or
circumstance which it believes will have or threatens to have a
material adverse effect on the assets, properties, operations,
or financial condition of the Company.
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(b) Except as set forth in Schedule 2.9 or any other Schedule hereto,
between the last day of the period covered by the Company's
most recently filed Statutory Insurance Statements and the date
of this Agreement, neither Seller nor the Company has taken any
actions of a type referred to in Section 4.2 of this Agreement
that would have required the consent of Purchaser if such
action were to have been taken during the period between the
date hereof and the Closing Date.
2.10 COMPLIANCE WITH LAWS. Except as set forth in Schedule 2.10, to the
best of Seller's knowledge the business and operations of the
Company have been and are being conducted in accordance and
compliance with all laws, statutes, rules, regulations, judgments,
writs, decrees, injunctions, awards, orders and other legal
requirements of any Governmental Entity applicable thereto, except
for violations which heretofore have been duly cured and except
for violations which individually or in the aggregate would not
have a material adverse effect on the assets, properties,
operations, prospects, or financial condition of the Company taken
as a whole (hereafter, "Material Adverse Effect"). Except as set
forth in Schedule 2.10, to the best of Seller's knowledge neither
Seller nor the Company has received notice of the issuance of any
notice, violation or alleged violation of any such law, statute,
rule, regulation, judgment, writ, decree, injunction, award, order
or other legal requirement, except for violations which heretofore
have been duly cured, nor is it in default with respect to any
order, writ, judgment, award, injunction or decree of any
Governmental Entity applicable to Seller, the Company, or any of
their respective assets. Except as set forth on Schedule 2.10, to
the best of Seller's knowledge neither Seller nor the Company has
been notified by a Governmental Entity that an investigation or
review by such Governmental Entity, with respect to the violation
by
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Seller or the Company of any applicable law, statute, rule,
regulation, judgment, writ, decree, injunction, award or order, is
pending or has been threatened.
2.11 TAX MATTERS. To the best of Seller's knowledge and belief after
thorough review and investigation:
(a) Except as set forth on Schedule 2.11, the Company, has (i) filed
in a timely manner (taking into account extensions of due
dates) with the appropriate federal, state, local, foreign or
other governmental agencies all Tax returns, estimates and
reports and combined or unitary returns, required to be filed
with respect to Taxes due prior to the date hereof and, as of
the time of filing, all such Tax returns were accurately
prepared in all material respects and (ii) paid in full all
required Taxes, which at the Closing shall include all Taxes
attributable to Pre-acquisition Periods as defined in Section
12.1, or has established reserves that are adequate therefor,
and the Closing Statement shall properly reflect in the capital
and surplus of the Company as of the close of business on the
Computation Date any such reserves as of the close of business
on the Computation Date.
(b) Except as set forth on Schedule 2.11, (i) there are no Taxes
assessed or asserted in writing in respect of any Tax returns
filed by the Company, or claimed in writing to be due by any
taxing authority that are not adequately reserved for, (ii) no
Tax return of the Company is currently being audited by the IRS
or other taxing authority (whether foreign or domestic), (iii)
the Company has not been audited by the IRS or by any state
taxing authority in respect of any tax year for which the
statute of limitations has not currently expired, (iv) all
deficiencies asserted as a result of examinations for prior tax
years have been paid, fully settled or adequately provided for,
(v) the Company has not executed or filed with the IRS or any
other taxing authority (whether foreign or domestic) any
agreement or
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other document that is currently in effect extending, or having
the effect of extending, the period of assessment or collection
of any Taxes, (vi) the Company has not executed or entered into
a closing agreement or a compromise pursuant to Section 7121 of
the Internal Revenue Code of 1986, as amended ("Code"), or any
predecessor provision thereof or any similar provision of state,
local or foreign law which is binding on the Company for any
taxable period ending after the Closing Date, (vii) all final
adjustments made by the IRS with respect to any federal Tax
return of the Company have been reported to the relevant state,
local or foreign taxing authorities to the extent required by
law, and (viii) no requests for ruling or determination letters
are pending with any taxing authority.
(c) Except as disclosed in Schedule 2.11, the Company has timely
withheld from employee wages and paid over to the proper
governmental authorities all Taxes required to be so withheld
and paid over for all periods prior to Closing under all
applicable laws.
(d) Except as set forth in Schedule 2.11 (i) the Company is not a
party to any agreement that provides for the payment of any
amount that would constitute an "excess parachute payment"
within the meaning of Section 280G of the Code, and (ii) the
Company has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code by reason of
a change in accounting method initiated by the Company and the
Company has no knowledge that the IRS has proposed any such
adjustment or change in accounting method.
(e) Except as set forth in Schedule 2.11, the Company is not a party
to, bound by, or has any obligation under any tax sharing or
similar agreement.
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(f) The Company is not liable for the Taxes of any other Person under
Treasury Regulation Section 1.1502-6 or similar principles of
state, local, or foreign Tax laws, or other laws creating
successor or transferee liability for the Taxes of another
Person.
(g) The Company's Tax attributes (including, without limitation, net
operating losses) are not subject to any limitations under Code
Section 382 (excluding the effects of the transactions
contemplated by this Agreement).
For purposes of this Agreement, "Tax(es)" shall mean all taxes,
charges, fees, imposts, levies or other assessments, including, without
limitation, all net income, gross receipts, premium, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, and property taxes, customs duties, fees,
assessments and charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
taxing authority (domestic or foreign) upon the Company or any affiliated,
combined or unitary group for tax purposes of which any such corporation is
or was a member.
2.12 ABSENCE OF UNDISCLOSED LIABILITIES. At the close of business on the
last date of the period covered by the Company's most recently
filed Statutory Insurance Statement, and with the exception of
unknown reinsurance claims or losses or any matter disclosed on
any Schedule hereto, the Company had no indebtedness, obligation
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or liability, absolute, accrued or contingent, known or unknown
which is not shown or provided for on such statement or in the
notes thereto which is required to be shown or provided for on
such statement by applicable statutory accounting principles of
the Delaware Department of Insurance. Except as shown on
Schedules 2.12 or 2.23, any other Schedule hereto, or in the
Company's most recently filed Statutory Insurance Statement, or
for reinsurance claims or losses not known by the Company or for
Tax liabilities with the meaning of Section 2.11 not known by
Seller, the Company is not directly or indirectly liable upon or
with respect to (by discount, repurchase agreements or otherwise),
or obligated in any other way to provide funds in respect of, or
to guarantee or assume, any debt, obligation or dividend of any
Person (except endorsements in the ordinary course of business in
connection with the deposit of items for collection), and, since
January 1, 1997, has not declared, set-aside or paid any dividend
or made any distribution on or with respect to shares of its
capital stock. Except as set forth on Schedule 2.12, any other
Schedule hereto or as contemplated by this Agreement, since the
last date of the period covered by the Company's most recently
filed Statutory Insurance Statement, the Company has not incurred
any indebtedness, obligation or liability of any kind, whether
absolute, accrued, contingent, known or unknown, which is
individually or in the aggregate material to the Company other
than those incurred since such date in the ordinary course of
business consistent with past practice.
2.13 INTERESTS IN REAL PROPERTY. Except as set forth and described in
Schedule 2.13 hereto, the Company has no interest in any owned or
leased real properties and is not in violation of any covenant,
agreement, or other obligation with respect to any such interests
in real properties.
2.14 PERSONAL PROPERTY. Set forth in Schedule 2.14 hereto is a true and
complete list and brief description of each item of machinery,
equipment, furniture, fixtures and other tangible personal
property with a per item book value in excess of One Hundred
Dollars ($100.00) owned or leased by the Company ("Personal
Property"). The Company owns outright with an unrestricted right
to transfer, free and clear of all title defects and objections,
security interests, liens, claims, pledges, mortgages, charges or
encumbrances (other than
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the lien of current property taxes and assessments not in default, if
any), the Personal Property or holds valid and existing leaseholds in
the Personal Property.
2.15 ACCOUNTS RECEIVABLE. Except as set forth on Schedule 2.15, to the
knowledge of Seller and the Company, all notes and accounts
receivable payable to or for the benefit of the Company which will
be reflected on the Closing Statement as Acceptable Receivables
shall be in amounts not less than the aggregate amount thereof
(net of adequate reserves established in accordance with the
Company's ordinary accounting practices) carried on the books of
the Company, and the Company has not been notified or advised of
any defenses or set-offs to payment of such receivables. All such
notes and accounts receivable have arisen from bona fide
transactions in the ordinary course of business consistent with
past practice.
2.16 TRADEMARKS; SOFTWARE; PATENTS; COPYRIGHTS; AND KNOW-HOW. To the best
of Seller's and Company's knowledge, the Company possesses,
licenses or otherwise has the right to use all trademarks,
software, patents, copyrights, trade secrets (including
policyholder lists, customer lists and renewals) and proprietary
know-how ("Intangible Assets") necessary for the conduct of its
operations as conducted on the date hereof. Except as set forth
in Schedule 2.16, there is no restriction affecting the Company's
use of any of the Intangible Assets, each item of the Intangible
Assets is free and clear of all liens, security interests, claims,
mortgages, pledges, charges, encumbrances and equities and no
license has been granted with respect thereto. To the best
knowledge of Seller and Company, none of the Intangible Assets is
currently being challenged, is involved in any pending or
threatened administrative or judicial proceeding, or conflicts in
any respect material to Company with any rights of any other
Person. To the knowledge of Seller and the Company, none of the
Company's operations involves any infringement of any proprietary
right of any Person. Within the four (4) years preceding the date
of this Agreement,
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neither Seller nor the Company has received any notice from any
Person with respect to any infringement.
2.17 LICENSES; PERMITS AND GOVERNMENTAL APPROVALS. Set forth in Schedule
2.17 hereto is a true and complete list of all licenses, permits,
franchises, authorizations and approvals issued or granted to the
Company by any Governmental Entity and all pending applications
therefor. The Company holds all licenses, permits, franchises,
authorizations and approvals of Governmental Entities required to
permit the continued lawful conduct of the Company's business in
the manner now conducted including a valid Certificate of
Authority to write insurance issued by the Delaware Department of
Insurance, ("Licenses"), and the Company's operations are not
being conducted in a manner which violates any of the terms or
conditions under which that License was granted. Each License has
been duly obtained, is valid and in full force and effect, and is
not subject to any pending or, to the knowledge of Seller or the
Company, threatened administrative or judicial proceeding to
revoke, cancel or declare such License invalid in any respect.
The Company has not received any notice to the effect that there
is lacking any such License required in connection with the
current operations of its business. No default, violation or
event, which with notice or the lapse of time or both would become
a default or violation, has occurred with respect to any such
License which has not been cured.
2.18 TITLE TO ASSETS. Except as set forth on Schedule 2.18, the Company
holds, owns and has an unrestricted right to transfer title to any
of the assets used in its business, including without limitation
all of the assets reflected in the latest Statutory Insurance
Statement and acquired since the period covered by that filing,
described in Sections 2.13, 2.14, 2.15, 2.16 or 2.17 hereof or set
forth in Schedules 2.13, 2.14, 2.15, 2.16, and 2.17. In each
case, such assets are free and clear of any lien, charge, security
interest, claim, mortgage, pledge, or encumbrance other than (i)
those specifically described in the latest Statutory
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Insurance Statement or noted on any Schedule hereto; (ii) assets
leased by the Company as described in such Statutory Insurance
Statement or any Schedule hereto; (iii) assets disposed in the
ordinary course of business since the period covered by the latest
Statutory Insurance Statement; (iv) liens of current property
taxes and assessments not in default; or (v) liens or other
encumbrances of a character that do not interfere with or impair
the present and continued use thereof in the usual and normal
conduct of the business of the Company and which are disclosed on
the Schedules hereto.
2.19 LITIGATION. Except as set forth in Schedule 2.19, there are no claims,
actions, suits, proceedings, complaints, charges, labor disputes
or investigations pending or, to the knowledge of Seller or
Company, threatened before any Governmental Entity or before any
arbitrator of any nature, brought by or against Seller, or the
Company or, to the knowledge of Seller, any of their respective
officers, directors, employees, agents or affiliates involving,
affecting or relating to the Company. Except as set forth in
Schedule 2.19, neither Seller nor the Company nor any of their
respective assets or properties is subject to or, to the knowledge
of Seller or Company, overtly threatened by any order, writ,
judgment, award, injunction or decree of any Governmental Entity
or arbitrator, which affects or might affect their respective
assets, properties, operations, or financial condition or which
would or might interfere with the transactions contemplated by
this Agreement, except for claims made in the ordinary course of
insurance business other than those based upon allegations of lack
of good faith and fair dealing.
2.20 CONTRACTS. Set forth in Schedule 2.20 hereto is a true and complete
list and summary description of all material contracts, agreements
and other instruments of whatsoever nature to which the Company is a
party or otherwise relating to or affecting any of its respective
assets, properties, agents or operations (other than contracts,
agreements and instruments listed in other Schedules to this
Agreement and other than contracts which
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shall not survive the Closing). The Company has performed in all
material respects all the obligations required to be performed by
it under all such contracts, instruments or agreements. The
Company is not in default under any of such contracts,
instruments or agreement, nor does any condition exist which, with
notice or lapse of time or both, would constitute a default by the
Company thereunder, or, to the knowledge of Seller or the Company,
by and other party thereto. True and complete originals or copies
of all documents listed or required to be listed in Schedule 2.20
or in any other Schedule have been made available, or will be made
available at Purchaser's request prior to Closing, by Seller to
Purchaser or its representatives. Each of such contracts,
instruments or agreements is valid and enforceable against the
Company and, to the knowledge of Seller and the Company, against
the other party or parties thereto, in accordance with its terms.
No previous or current party to any such contract, instrument or
agreement has given notice of or made a claim with respect to any
breach or default currently existing thereunder. With respect to
any of such contracts, instruments or agreements which were
assigned or subleased to the Company by a third party, all
necessary consents to assignments or subleases have been obtained.
2.21 EMPLOYEES; EMPLOYEE PLANS. Company employs the individuals listed on
Schedule 2.21 hereto (hereafter "Employees"). Any "employee
benefit plans" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or
any other benefit arrangement provided by Company with respect to
Employees ("Employee Benefit Plans"), are maintained by an
affiliate of Company. Company will withdraw from and terminate
any future liability to the Company for all such Employee Benefit
Plans with respect to the Employees effective as of the Closing.
Except as set forth on Schedule 2.21, since January 1, 1997 there
have not been, nor are there now, any claims, actions, suits,
proceedings, complaints, charges, labor disputes or investigations
pending, or, to the knowledge of Seller or Company, threatened by
any employee, past or present, with
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26
respect to any manuals, brochures or publications or similar
documents regarding office administration, personnel matters and
hiring, evaluation, supervision, training, termination and
promotion of employees of the Company, including but not limited
to an affirmative action plan, or any written communications
disseminated to employees concerning such matters (collectively
"Employee Policies and Procedures"), or with respect to any
employee arising under the Consolidated Omnibus Benefit
Reconciliation Act of 1985 ("COBRA"), or the Americans With
Disabilities Act of 1990 ("ADA") or any other similar state or
federal law or regulation pertaining to the rights of employees.
2.22 INSURANCE. Set forth in Schedule 2.22 hereto is a true and complete
list (specifying the insurer and describing any pending claims
thereunder of more than $5,000) of all insurance policies or
fidelity bonds in force on the date hereof with respect to and
insuring the directors, officers, employees, assets, properties or
operations of the Company, together with a summary description
including the premiums currently paid thereon, type of policy,
name of insured, the insurer, expiration date, the hazards insured
against and the dollar amount of coverage per occurrence and in
the aggregate and deductibles. All such policies and fidelity
bonds are in full force and effect, provided that from and after
the Closing the Company will no longer be an insured under such
policies other than the Financial Institutions Bond policy issued
by National Union listed thereon and it shall be Purchaser's
responsibility to obtain insurance from and after the Closing.
True and complete copies of all such insurance policies and
fidelity bonds have been made available for review, or will be
made available for review upon Purchaser's request prior to
Closing, to Purchaser by Seller. Except for claims set forth in
Schedule 2.22, there are no outstanding unpaid claims under any of
such policies or bonds, and the Company has received no notice of
cancellation or non-renewal thereof.
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2.23 TRANSACTIONS WITH RELATED PARTIES. Except as set forth in Schedule
2.23 or any other Schedule hereto, since January 1, 1995 there
have not been, nor are there now, any transactions between the
Company and (i) Seller, (ii) any general partner of Seller, any
director, officer or stockholder of the general partner of
Seller, or any officer, director or affiliate (as defined in Rule
405 promulgated under the Securities Act of 1933, as amended [the
"Securities Act"] and as defined by the holding company statutes
of the Delaware Insurance Code) of Seller or the Company, or
(iii) any relative or spouse (or relative of such spouse) of any
such director, officer or stockholder of the general partner of
Seller or any officer, director or affiliate of Seller or the
Company (such persons in clauses (i), (ii), and (iii) referred to
herein as a "Related Party" or collectively as the "Related
Parties"). Except as set forth in Schedule 2.23 or any other
Schedule hereto, no Related Party owns, directly or indirectly,
in whole or in part, any tangible or intangible property material
to the condition of the Company, or that the Company uses in the
conduct of its business. Except as set forth in Schedule 2.23 or
in any other Schedule hereto, no Related Party owes any money or
other amounts to, nor is any Related Party owed any money or
other amounts by, the Company. All indebtedness of the Company
to any Related Party, and all indebtedness of any Related Party
to the Company is set forth on Schedule 2.23, and all
indebtedness of the Company to any Related Party will be paid,
forgiven or otherwise satisfied on or prior to the Closing Date.
2.24 BOOKS AND RECORDS. The books and records of the Company, with the
exception of reinsurance claims or losses for which Company has
received no notice, contain in all material respects true, correct
and complete entries of all of its business transactions and have
been maintained in accordance with good business practice and
applicable statutory insurance accounting principles.
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2.25 ACCURACY OF INFORMATION. To the best knowledge and belief of Seller
and except as disclosed in any Schedule hereto, all documents,
agreements, and other papers and materials delivered by or on
behalf of Seller or the Company in connection with this Agreement
and the transactions contemplated hereby are true and correct in
all material respects. To the best knowledge and belief of Seller
and except as disclosed in any Schedule hereto, none of the
representations, warranties or statements of Seller or the
Company, as the case may be, contained in this Agreement, in the
Schedules or Exhibits hereto, or in any other agreement,
instrument or document executed or delivered in connection with
transactions contemplated by this Agreement contains or will
contain any untrue statement of a material fact or omits or will
omit to state any material fact necessary to make the
representations, warranties or statements contained herein or
therein not misleading in light of the circumstances under which
they were made.
2.26 REGULATORY FILINGS. The Seller has furnished Purchaser with true and
correct copies of the two latest reports of Delaware Department of
Insurance examinations and all independent audits of the Company.
The Seller will allow Purchaser access to complete and correct
copies of all registrations, filings, or submissions made by the
Company with any Governmental Entity and any reports of
examinations issued by any such Governmental Entity that relate to
the Company. Except as disclosed in any Schedule hereto, to the
best knowledge and belief of Seller and Company after thorough
review and investigation, Company has filed all reports,
statements, documents, registrations, filings or submissions it is
required to file with any Governmental Entity.
2.27 AGENTS. Except as provided in Schedule 2.27, no reinsurance
intermediary or broker has a contract with Company, and the
compensation arrangements with all of such intermediaries or
brokers may be changed by the Company at any time.
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3.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents, warrants and agrees as follows:
3.1 CORPORATE ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Texas, and has all requisite power and authority (corporate and
other) to own its properties and assets and to conduct its business
as now conducted.
3.2 CORPORATE AUTHORITY. Purchaser has the corporate power to enter into
this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement, and the performance of
Purchaser's obligations hereunder have been duly authorized prior
to Closing by the shareholders and the Board of Directors of
Purchaser and no other corporate proceedings on the part of
Purchaser are necessary to authorize such execution, delivery and
performance. This Agreement has been duly executed by Purchaser as
the valid and binding obligation of Purchaser, enforceable against
Purchaser in accordance with the terms hereof, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors'
rights generally or general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity
or at law).
3.3 NO VIOLATION. The execution, delivery and performance by Purchaser of
this Agreement and the consummation of the transactions
contemplated hereby do not and will not
(a) violate, conflict with or result in the breach of any provision
of the charter documents or by-laws of Purchaser;
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(b) violate, conflict with or result in the breach of any of the
terms or provisions of, result in a modification, suspension,
termination or cancellation of, or acceleration of the
performance required by, or otherwise give any other
contracting party the right to modify, suspend, terminate or
cancel or accelerate the performance required by, or
constitute (or with notice or lapse of time or both would
constitute) a default or result in the loss of any material
benefit under any permit, instrument, contract, mortgage,
indenture, lease, deed of trust, license, note, loan agreement
or other agreement to which Purchaser is a party, or by or to
which it or its assets or properties may be bound or subject;
(c) violate any order, writ, judgment, ruling, injunction, award or
decree applicable to or binding upon Purchaser or upon the
assets or properties of Purchaser;
(d) violate any statute, law, rule or regulation of any Governmental
Entity applicable to Purchaser or any of its assets or
properties;
(e) result in the creation or imposition of any lien, mortgage,
pledge, limitation, restriction, charge, claim, security
interest or encumbrance upon any of the properties or assets
of Purchaser; or
(f) violate or result in the modification, revocation, termination or
suspension of any material license, permit, franchise,
authorization or approval of any Governmental Entity required
to permit the continued lawful conduct of Purchaser's business
in the manner now conducted.
3.4 CONSENTS AND APPROVALS. Except as contemplated in Section 5.2, no
consent, waiver, authorization or approval of, declaration or
notification to, or filing or registration with,
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31
any Governmental Entity or Person is legally (by law, regulation,
contract or otherwise) required on the part of Purchaser in
connection with the execution and delivery of this Agreement by
Purchaser or the performance by Purchaser of its obligations
hereunder or compliance by Purchaser with the provisions hereof.
3.5 ACCURACY OF INFORMATION. To the best knowledge and belief of
Purchaser, all documents, agreements and other papers and materials
delivered by or on behalf of Purchaser in connection with this
Agreement and the transactions contemplated hereby are true and
correct in all material respects. None of the representations,
warranties or statements of Purchaser contained in this Agreement,
or in any other agreement, instrument or document executed or
delivered by or on behalf of Purchaser in connection with the
transactions contemplated by this Agreement contains or will
contain any untrue statement of a material fact or omits or will
omit to state any material fact necessary to make the
representations, warranties or statements contained herein or
therein, in light of the circumstances under which they were made,
not misleading.
3.6 FINANCIAL RESOURCES. Purchaser has the cash or credit facilities
available to pay the Purchase Price.
4.
COVENANTS OF SELLER
Seller hereby covenants and agrees with Purchaser as follows:
4.1 CONDUCT OF BUSINESS. From the date hereof through the Closing Date,
Seller shall cause the Company not to enter, perform or agree to
enter or perform any transaction or act that would result in any of
the representations and warranties contained in Section 2 to be
untrue or incorrect in any material respect as of the Closing Date,
that would be likely to cause any condition set forth in this
Agreement to be unsatisfied or that would otherwise
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jeopardize the transactions contemplated hereby. Except as to
Company's investments and as otherwise contemplated by this
Agreement, Seller shall cause the Company to conduct its business
only in the ordinary course of business consistent with past
practice. Seller shall further use its best efforts from the date
hereof through the Closing Date to preserve the business of the
Company and to preserve its present business relationships and the
good will of those having business relationships with the Company
except as otherwise contemplated by this Agreement.
4.2 NEGATIVE COVENANTS. During the period commencing on the date of this
Agreement and ending on the Closing Date, Seller shall not cause,
permit or suffer the Company to take any action to:
(a) Amend its charter documents or by-laws;
(b) With the exception of the extra-ordinary dividend/partial stock
redemption hereby contemplated, declare, set aside or pay any
dividend or make any distribution on or with respect to shares
of its capital stock (including the Shares);
(c) Transfer, issue, sell or otherwise dispose of any shares of
capital stock or other security of the Company or grant or
enter into any options, warrants, agreements, conversion
rights, exchange rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire, or issue
securities convertible into or exchangeable for or pledge or
encumber any shares of capital stock or other security of the
Company;
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33
(d) Except for the purpose of complying with Section 1.3(d), acquire
any assets or properties, other than in the ordinary course of
business and consistent with past practice;
(e) Except for the purpose of complying with Section 1.3(d), sell,
lease, transfer, dispose of, any assets or properties, other
than for fair consideration in the ordinary course of business
and consistent with past practice;
(f) Enter into or effect any merger, consolidation, reclassification,
recapitalization or other business combination or
reorganization;
(g) Assume, guarantee, endorse or otherwise become liable or
responsible (whether direct, contingent or otherwise) for the
obligations of any other Person, except endorsements in the
ordinary course of business and consistent with past practice
in connection with the deposit of items for collection;
(h) Except for the purpose of complying with Section 1.3(d), make any
loans, advances or capital contributions to or investments in
any Person (other than investments which are consistent with
the asset makeup contemplated by this Agreement);
(i) Cause or permit any of its current property and casualty
insurance policies to be cancelled or terminated or any of the
coverage thereunder to lapse or to be decreased, unless
simultaneously with such termination, cancellation or lapse,
the Company obtains replacement policies from the same or
comparable insurers providing coverage which is the same as or
comparable to that provided under the cancelled, terminated or
lapsed policies;
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34
(j) Sell, transfer, license or otherwise dispose of or encumber any
item of Intangible Assets other than the renewal or lapse of
software licenses not material to Company's business
operations;
(k) Cancel or compromise any debt or claim or waive, release, grant
or transfer any rights of value or modify or change in any
material respect any existing license, lease, contract or
other document, other than in the ordinary course of business
and consistent with past practice and other than a settlement
of an Indemnified Claim in a manner consistent with Section
8.3 hereof;
(l) Hire any employees or adopt any Employee Benefit Plans or
Employee Policies and Procedures;
(m) Grant any stock options, restricted stock grants or stock
appreciation rights;
(n) Enter into any contract, lease, commitment or other agreement of
any type whatsoever, unless terminable without liability to
Company on notice of thirty (30) days or less;
(o) Create, incur or assume any indebtedness except for normal trade
payables incurred in the ordinary course of business;
(p) Cause or permit its assets and properties to not be maintained in
their current condition, ordinary wear and tear excepted;
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35
(q) (i) not maintain its books, accounts and records in the ordinary
course of business consistent with past practices, (ii) not
continue to collect accounts receivable and pay accounts
payable utilizing normal procedures and (iii) not comply in
all material respects with all contractual and other
obligations applicable to its operations;
(r) Except for commitments pursuant to the contracts and agreements
listed on Schedule 2.20, enter into any commitment for
expenditures of the Company in excess of $1,000 for any
individual commitment and $5,000 for all commitments in the
aggregate which shall survive the Closing;
(s) Except for any settlement of an Indemnified Claim in a manner
consistent with Section 8.3 herein, for transactions required
by Section 1.3, and for transactions contemplated by any other
provision of this Agreement, enter into any transaction or
make or enter into any contract, agreement or instrument which
by reason of its size or otherwise is not in the ordinary
course of business consistent with past practice;
(t) Write any insurance policy or enter into any reinsurance
agreement, except in the ordinary course of business;
(u) Take any action or fail to take any action which would cause the
Company's Licenses to lapse; or
(v) Make any material change in the underwriting, actuarial,
financial or accounting practices customarily followed by the
Company.
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4.3 PREPARATION OF STATUTORY INSURANCE STATEMENTS. For any statutory
accounting period which ends prior to the Closing, Seller shall
prepare (or have prepared) and file, at its expense, any Statutory
Insurance Statements due after Closing, and Purchaser shall
cooperate fully with Seller in the preparation of such Statements.
4.4 ACCESS TO PROPERTIES AND RECORDS. To permit Purchaser to make such
business, accounting and legal review and examination of the
Company as Purchaser shall reasonably desire, Seller shall afford,
and shall cause the Company to afford, to Purchaser and Purchaser's
actuaries, accountants, counsel and other representatives, access
throughout the period prior to the Closing Date to the business,
operations, properties, books, contracts, commitments and records
of the Company as Purchaser or its representatives shall reasonably
request. Seller shall cause the Company to cooperate with
Purchaser and its representatives in their investigation and
examination of the assets and properties of the Company.
4.5 CONSENTS AND APPROVALS. Seller (i) shall use its best efforts to
promptly obtain all necessary consents, waivers, authorizations and
approvals of all Governmental Entities and Persons required of
Seller in connection with the execution, delivery and performance
by it in this Agreement and the transactions contemplated hereby,
including without limitation the approval of the Stock Redemption
herein contemplated, and (ii) shall reasonably assist and cooperate
with Purchaser in preparing and filing all documents required to be
submitted by Purchaser to any Governmental Entity in connection
with such transactions (which assistance and cooperation shall
include, without limitation, timely furnishing to Purchaser all
information concerning Seller or the Company which, in the
reasonable opinion of counsel to Purchaser, is required to be
included in such documents), and in obtaining any governmental, or
other third party consents, waivers, authorizations or approvals
which may be required to be obtained by Purchaser in connection
with such
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transactions, including, without limitation, the approvals
contemplated in Section 5.2 and, specifically, the filing of the
Report (defined in Section 5.2) required to be filed by Seller
under the HSR Act (defined in Section 5.2) and cooperating with and
assisting Purchaser in its filings and the early termination to be
sought under the HSR Act. With respect to the approval by the
Delaware Department of Insurance of the Stock Redemption, Seller
agrees to comply with the provisions of Section 10.3 hereof.
4.6 THIRD PARTY AGREEMENTS. Seller shall cooperate with Purchaser and use
its best efforts to assist Purchaser in obtaining any consents, or
similar assurances from third parties required under or reasonably
requested by Purchaser in connection with agreements, licenses,
permits and other documents or instruments of the Company.
4.7 FURTHER ASSURANCES. Upon the reasonable request of Purchaser at any
time on or after the Closing Date, Seller will, at its expense,
forthwith execute and deliver such further instruments of
assignment, transfer, conveyance, endorsement, direction or
authorization and other documents as Purchaser or its counsel may
reasonably request in order to perfect title of Purchaser and its
successors and assigns in and to the Shares or otherwise to effect
the purposes of this Agreement.
4.8 SATISFACTION OF CONDITIONS. Seller agrees to use its reasonable best
efforts to cause the conditions to obligations of Purchaser which
are dependent on the actions of Seller or Company and which are set
forth in Section 6 to be fulfilled.
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5.
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Seller as follows:
5.1 CONDUCT OF BUSINESS. From the date hereof through the Closing Date,
Purchaser shall not enter, perform or agree to enter or perform any
transaction or act which would result in any of the representations
and warranties contained in Section 3 to be untrue or incorrect in
any material respect as of the Closing Date, that would be likely
to cause any condition set forth in this Agreement to be
unsatisfied or that would otherwise jeopardize the transactions
contemplated hereby.
5.2 CONSENTS AND APPROVALS. Purchaser (i) shall use its best efforts to
promptly obtain all necessary consents, waivers, authorizations and
approvals of appropriate Governmental Entities or other Persons
required in connection with the execution, delivery and performance
by Purchaser of this Agreement, including without limitation
preparation, filing and seeking approval of a Form A Acquisition
Statement, and the preparation and filing with the Antitrust
Division of the Department of Justice (the "Antitrust Division")
and the Federal Trade Commission (the "FTC") of any notification
and report form (the "Report") required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvement Act of 1976, as amended (the "HSR Act"), and
requesting early termination of the waiting period thereunder, and
(ii) shall diligently assist and cooperate with Seller in preparing
and filing all documents required to be submitted by or on behalf
of Seller to any Governmental Entity in connection with such
transactions and in obtaining any governmental or third party
consents, waivers, authorizations or approvals which may be
required to be obtained by Seller in connection with such
transactions. With respect to the approval by the Delaware
Department of Insurance of the Stock Redemption, Seller agrees to
comply with the provisions of Section 10.3 hereof.
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5.3 SATISFACTION OF CONDITIONS. Purchaser agrees to use its reasonable
best efforts to cause the conditions to obligations of Seller which
are dependent upon actions of Purchaser or its affiliates and which
are set forth in Section 7 to be fulfilled.
5.4 PURCHASER'S INTENT. Purchaser is purchasing the Remaining Shares for
its own account, for investment, and not with a view to the
distribution thereof. Purchaser acknowledges that the Remaining
Shares to be purchased under this Agreement have not been and will
not be registered under the Securities Act of 1933 or any
applicable state securities laws and therefore may not be resold
without compliance with such Act and such laws.
5.5 ACCESS TO RECORDS. After Closing, Purchaser will afford Seller and its
employees, agents, counselors and advisors reasonable access to
Company's books and records for the purpose of preparing any
Statutory Insurance Statements due for periods prior to the
Closing.
6.
CONDITIONS TO OBLIGATIONS OF PURCHASER
All obligations of Purchaser under this Agreement are subject to the
fulfillment, at or prior to the Closing Date, of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES OF SELLER. All representations and
warranties made by Seller in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as
if again made by Seller on and as of such date (or on the date when
made in the case of any representation or warranty which
specifically relates to an earlier date), and Purchaser shall have
received a certification of that fact dated the Closing Date and
signed by the Seller.
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6.2 COVENANTS OF SELLER. Seller shall have performed and complied in all
material respects with all covenants and obligations required under
this Agreement to be performed by it and with which it must comply
on or prior to the Closing Date, and Purchaser shall have received
a certificate to such effect dated the Closing Date and signed by
the Seller.
6.3 CONSENTS AND APPROVALS. All consents, waivers, authorizations and
approvals of any Governmental Entity, arbitrator or Person,
required in connection with the execution, delivery and performance
of this Agreement, including, without limitation, (i) the approvals
contemplated in Sections 4.5 and 5.2, and (ii) any and all consents
required from third parties under any contracts, agreements,
licenses, leases and other instruments, relating to the business of
the Company, shall have been duly obtained and shall be in full
force and effect on the Closing Date and in form and substance
satisfactory to Purchaser.
6.4 NO VIOLATION OF ORDERS. There shall not be in effect on the Closing
Date any statute, rule, regulation, decree, writ, order,
preliminary or permanent injunction or other order issued,
promulgated or enacted by any Governmental Entity which declares
this Agreement invalid in any material respect or prevents the
consummation of the transactions contemplated hereby; and no action
or proceeding shall have been instituted or threatened by any
Governmental Entity which seeks to prevent or delay the
consummation of the transactions contemplated by this Agreement or
which challenges the validity or enforceability of this Agreement
or any material term or provision hereof or seeks damages as a
result of the transactions contemplated by this Agreement.
6.5 NO MATERIAL ADVERSE CHANGE. During the period from the date of this
Agreement to the Closing Date, there shall have been no material
adverse change in or any event or occurrence which would result in
a material adverse change in, or any litigation, which in the
reasonable opinion of Purchaser, is likely to result in a material
adverse change in the
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assets (including insurance in force), liabilities, properties,
operations, or financial condition of the Company.
6.6 INTER-AFFILIATE OR RELATED PARTY DEBT, AGREEMENT OR INVESTMENTS.
Purchaser shall have received such agreements and assurances as it
shall require evidencing the satisfaction, forgiveness and release
of all inter-affiliate or other obligations owed by the Company to
Seller or any of their respective affiliates or Related Parties,
the cancellation, satisfaction and forgiveness of any obligation
under any inter-affiliate or Related Party contracts, agreements,
arrangements or understandings of any nature; and the elimination
of any inter-affiliate or Related Party investment owned by the
Company.
6.7 OTHER CLOSING DOCUMENTS. Purchaser shall have received such other
certificates, instruments and documents in confirmation of the
representations, warranties or covenants of Seller contained in
this Agreement or in furtherance of the transactions contemplated
by this Agreement, as Purchaser or its counsel may reasonably
request.
6.8 LEGAL MATTERS. All certificates, instruments, opinions and other
documents required to be executed or delivered by or on behalf of
Seller under the provisions of this Agreement, and all other
actions and proceedings required to be taken by or on behalf of
Seller in furtherance of the transactions contemplated hereby,
shall be reasonably satisfactory in form and substance to counsel
for Purchaser.
6.9 RESIGNATION OF DIRECTORS AND OFFICERS. The individuals constituting
all of the directors and officers of the Company shall have
delivered to Purchaser their written resignations from all
positions elected to and/or held in such entity.
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7.
CONDITIONS TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are subject to the
fulfillment, at or prior to the Closing Date, of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. All representations and
warranties made by Purchaser in this Agreement shall be true and
correct in all material respects as of the Closing Date as if again
made by Purchaser on and as of such date (or on the date when made
in the case of any representation or warranty which specifically
relates to an earlier date), and Seller shall have received a
certificate to such effect from Purchaser, dated the Closing Date
and signed by the Chairman of the Board, the President or any Vice
President of Purchaser.
7.2 PERFORMANCE OF PURCHASER'S OBLIGATIONS. Purchaser shall have performed
and complied in all material respects with all obligations required
under this Agreement to be performed by it on or prior to the
Closing Date, and Seller shall have received a certificate from
Purchaser to such effect dated the Closing Date and signed by the
Chairman of the Board, the President or any Vice President of
Purchaser.
7.3 NO VIOLATION OF ORDERS. There shall not be in effect on the Closing
Date any statute, rule, regulation, decree, writ, executive order,
preliminary or permanent injunction or other order issued by any
Governmental Entity which declares this Agreement invalid or
unenforceable in any material respect or which prevents the
consummation of the transactions contemplated hereby; and no action
or proceeding shall have been instituted or threatened by any
Governmental Entity which seeks to prevent or delay the
consummation of the transactions contemplated by this Agreement or
which challenges the
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validity or enforceability of this Agreement or any material
term or provision hereof or seeks damages as a result of the
transactions contemplated by this Agreement.
7.4 OTHER CLOSING DOCUMENTS. Seller shall have received such other
certificates, instruments and documents in confirmation of the
representations, warranties and covenants of Purchaser contained in
this Agreement or in furtherance of the transactions contemplated
by this Agreement as Seller or its counsel may reasonably request.
7.5 LEGAL MATTERS. All certificates, instruments, opinions and other
documents required to be executed or delivered by or on behalf of
Purchaser under the provisions of this Agreement, and all other
actions and proceedings required to be taken by or on behalf of
Purchaser in furtherance of the transactions contemplated hereby,
shall be reasonably satisfactory in form and substance to counsel
for Seller.
7.6 CONSENTS AND APPROVALS. All consents, waivers, authorizations and
approvals of any Governmental Entity, arbitrator or Person,
required in connection with the execution, delivery and performance
of this Agreement, including, without limitation, (i) the approvals
contemplated in Section 4.5 and 5.2, and (ii) any and all consents
required from third parties under any material contracts,
agreements, licenses, leases and other instruments, relating to the
business of the Company, shall have been duly obtained and shall be
in full force and effect on the Closing Date and in form and
substance satisfactory to Seller.
7.7 STOCK REDEMPTION. The Stock Redemption shall have been completed
immediately prior to the Closing.
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7.8 RELEASES. The Company shall have delivered a general release to each
of its current officers and directors in the form of Exhibit 7.8
hereto. Such releases shall in no way impair Purchaser's rights of
indemnity against Seller hereunder.
8.
INDEMNIFICATION
8.1 INDEMNIFICATION BY SELLER. Subject to the provisions of Section 8.4
and during the Survival Period (as defined in Section 11.1), Seller
shall indemnify, defend and hold harmless Purchaser and its
directors, officers, employees, agents and subsidiaries from and
against any and all losses, costs, liabilities, damages and
expenses, including, without limitation, legal fees and other
expenses incurred in the investigation and defense of claims and
actions (collectively hereafter "Damages") resulting from or
arising out of (a) any inaccuracy in or breach of any
representation, warranty, covenant or agreement of Seller contained
in this Agreement or in any Schedule, Exhibit, instrument or other
document delivered by Seller pursuant to or in connection with this
Agreement, (b) any repurchase or indemnification claim asserted by
Enterprises National Bank of Palm Beach or its successor or
assignees ("Enterprises") pursuant to a Loan Purchase Agreement
between Enterprise and the Company dated as of November 28, 1997,
and (c) any repurchase or indemnification claim asserted by
Transouth Financial Corporation or its successors or assigns
("Transouth") pursuant to a Purchase Agreement dated May 30, 1997
between Transouth and the Company. The indemnification by Seller
with respect to any claim by Enterprises is conditioned upon Seller
being, and Purchaser and the Company hereby agrees that Seller
shall be, fully subrogated to the Company with respect to the
Company's rights under the indemnification letter agreement dated
December 4, 1997 from ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ with respect
to certain of the Company's obligations to Enterprise and that
Seller shall be entitled to pursue such rights in the name of the
Company for the Seller's benefit.
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8.2 INDEMNIFICATION BY PURCHASER. Subject to the provisions of Section 8.4
and during the Survival Period (as defined in Section 11.1),
Purchaser shall indemnify, defend and hold harmless Seller and its
directors, officers, employees, agents and subsidiaries from and
against any and all Damages resulting from or arising out of any
inaccuracy in or breach of any representation, warranty, covenant
or agreement of Purchaser contained in this Agreement, or in any
Schedule, Exhibit, instrument or other document delivered by
Purchaser pursuant to or in connection with this Agreement.
8.3 INDEMNIFIED CLAIMS.
(a) Seller agrees to indemnify Purchaser as to any and all
liabilities of whatsoever nature relating to or represented by
the Reinsurance Company of Hanover block of business, the
Aviation of America reinsurance claim, and the Arizona (AMS)
claim (herein collectively "Indemnified Claims"). Such
indemnification shall be for all of such liability of
whatsoever nature without any reservation or qualification,
but Seller shall receive credit against any amounts due under
such indemnity for the applicable reserve set up in Company as
of Closing, to which shall be added interest at the rate of
seven and one-half percent (7.5%) per annum, compounded
annually, from the Closing Date to the date of any claim
payment made by Company. Purchaser shall give prompt written
notice to Seller of any claim for indemnification of an
Indemnified Claim, specifying the amount and the source from
which Purchaser will draw to satisfy the indemnity (i.e.,
Company reserves, Letter of Credit, or both), provided that
satisfaction of the indemnity shall be made by first drawing
upon reserves plus accrued interest thereon and then, to the
extent there is an indemnity amount unsatisfied, by drawing
upon the Letter of Credit.
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(b) Said indemnity shall be secured by an irrevocable letter of
credit ("Letter of Credit"), without conditions and with
protest waived, issued by a national banking association in
good standing which is acceptable to Purchaser in its
reasonable discretion and which is not affiliated in any
manner with Seller or its stockholders; the letter shall be in
the principal amount of Ten Million Dollars ($10,000,000.00),
as such amount may be reduced pursuant to this Section 8.3.
The terms of such letter of credit shall be as follows:
(i) It shall be solely in favor or Purchaser;
(ii) Purchaser shall have the unilateral, unfettered right to
draw down any portion of the principal proceeds upon
delivery of notice to the issuing bank which either (1)
certifies a claim payment of at least equal amounts to the
draw down, or (2) certifies that Company is required by
regulators to augment the posted reserves for an
Indemnified Claim by the amount of draw down, in either
case, said notice shall contain a certification that it has
been contemporaneously delivered to Seller;
(iii) The term of the initial Letter of Credit shall be one (1)
year. Thereafter, the Letter of Credit shall be at least
one (1) year, and Seller shall annually (or at any
applicable longer intervals) renew or replace the Letter of
Credit with a Letter of Credit in the principal amount of
the final balance of the immediately preceding Letter of
Credit (or such lower amount permitted under this Section
8.3) until the earlier of fifteen (15) years from Closing
or the release of the Letter of Credit as provided in this
Section 8.3. Notwithstanding the foregoing, if a two-year
term for such Letter of Credit is at any applicable time
readily available to Seller, then the Letter of Credit
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may be two years. If Seller has not delivered the
replacement Letter of Credit or satisfactory evidence of
such replacement to Purchaser at least fifteen (15) days
prior to the expiration of the Letter of Credit then in
effect, then Purchaser may draw down the entire principal
balance thereof. The proceeds of such draw down shall be
added to the reserves held by the Company for the
Indemnified Claims and thereafter earn interest at the same
rate as such reserves; and
(iv) It shall be irrevocable.
Purchaser agrees that, with respect to Section 8.3(b)(ii)(1),
it will only draw against such Letter of Credit the amount of
claims payments that exceed the amount of Company's posted
reserve for each such claim, the amount of such reserve to
include all interest accrued thereon as provided in (a)
above.
(c) If no claims payments have been made for an Indemnified Claim on
or before the eighth (8th) anniversary of Closing, Purchaser
agrees to pay Seller within ninety (90) days thereafter as an
addition to the Purchase Price an amount equal to ninety
percent (90%) of the claims reserves for such Indemnified
Claim posted as of Closing, plus any amount subsequently added
thereto under Subsection 8.3(b)(ii)(2), plus interest earnings
accrued thereon since Closing. Notwithstanding this requisite
for payment, the Letter of Credit will not be released sooner
than ten (10) years after Closing, such release then at the
reasonable discretion of Purchaser. If, at the end of that
ten (10) year period, no claims payments have been made with
respect to an Indemnified Claim, Purchaser agrees to pay
Seller the remaining ten percent (10%) of the claims reserve
posted as of Closing, as it may have been increased under
Subsection 8(b)(ii)(2), plus accrued interest.
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(d) If and when a loss or claims payment is made which is a final and
complete release of all liability for that particular block of
business or matter in dispute or such liability is otherwise
finally and fully released, Seller shall be entitled to reduce
the principal amount of the Letter of Credit by the following
amounts:
(i) for the Reinsurance Company of Hanover block,
$2,000,000.00;
(ii) for the Aviation of America claim, $4,700,000.00;
(iii) for the Arizona (AMS) claim, $3,300,000.00.
(e) Purchaser shall have the ultimate decision-making authority as to
the adjustment and payment of such Indemnified Claims.
However, ▇▇▇▇▇ ▇▇▇▇▇, Attorney at Law, or his successors shall
be retained as a consultant by Company for the purpose of
administering and adjusting any payments or losses due and
supervising the defense of claims made pursuant to the
Engagement Letter attached as Exhibit 8.3 hereto and Seller's
indemnification obligations under this Section 8.3 and under
Sections 8.1(b) and (c) are conditioned upon Purchaser's
compliance with the provisions of the Engagement Letter.
Purchaser shall execute and deliver the Engagement Letter at
the Closing and Seller shall cause ▇▇▇▇▇ to execute and
deliver the Engagement Letter at the Closing. Company will
delegate loss and claims settlement authority to ▇▇▇▇▇ for the
potential losses and claims covered by Seller's indemnity as
to the Indemnified Claims under Section 8.3 up to the limit
represented by the loss and claims reserves held by Company
(including interest accrued thereon) plus the remaining
principal balance of the Letter of Credit and, following the
exhaustion of the reserves and Letter of Credit, any
additional
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amount which Seller pays or is paid on Seller's behalf.
Seller agrees that the amount of any settlement as to the
Indemnified Claims negotiated by ▇▇▇▇▇ plus all consultant
fees, loss adjustment and legal expenses incurred in
connection therewith will not exceed that claims settlement
authority. Any such claims settlements or loss payments shall
be subject to the final review and approval of Company, which
approval shall not be unreasonably withheld. If ▇▇▇▇▇ is able
to negotiate or otherwise obtain settlements of such an
Indemnified Claim such that, in the aggregate, there is a
balance remaining on Company's books in the reserves
established for such an Indemnified Claim (including interest
thereon), Purchaser agrees to pay Seller, as additional
purchase price, an amount equal to that remaining balance.
Such payment shall only become due upon such an Indemnified
Claim being finally and fully released, with evidence thereof
being submitted to Company. Purchaser shall have ninety (90)
days after submission of such evidence in which to make said
payment to Seller.
(f) In lieu of the indemnification provided by Seller herein and if
Seller so requests, Purchaser agrees that it will cause
Company to reinsure the Indemnified Claims or block of
business so long as the reinsurer and the reinsurance treaty
are acceptable to Purchaser in its reasonable discretion.
(g) Purchaser agrees to give Seller notice of any requirement to post
additional reserves for an Indemnified Claim, or any written
communication requesting the same from a Governmental Entity,
when Company is notified of such requirement or written
communication.
(h) This Section 8.3 shall survive the Closing indefinitely.
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(i) The amount of the Letter of Credit shall be reduced to the extent
that the reserve for an Indemnified Claim is increased by the
Company from the amount included in the Company's Statutory
Insurance Statement dated September 30, 1997, and the amount
of the Letter of Credit attributable to the Indemnified Claim
set forth in Section 8.3(d) shall be reduced to the same
extent.
8.4 BASKET AND CAP; EXCLUSIVITY OF REMEDY; CLAIMS PROCEDURES.
(a) Notwithstanding anything to the contrary in this Agreement, the
Seller shall not be liable under Section 8.1(a) unless the
aggregate of all Damages (excluding the Indemnified Claims set
forth in Section 8.3) incurred by the Purchaser and the other
Persons indemnified under such subsection exceeds Fifty
Thousand Dollars ($50,000.00) and then only to the extent of
such excess. Notwithstanding anything to the contrary herein,
Seller shall not be liable under Section 8.1 or any other
provision of this Agreement or otherwise with respect to any
Damages arising or resulting from claims or losses incurred
but not reported to Company under any reinsurance treaty or
reinsurance obligation of Company, except in any instance
involving fraud or willful misconduct on the part of Seller or
any current director or officer of Company.
(b) Except for claims relating to the Indemnified Claims, the
aggregate maximum liability of Seller for all claims of
indemnification under Section 8.1(a) and of Purchaser for all
claims of indemnification under Section 8.2 shall be one
hundred five percent (105%) of the Purchase Price paid to
Seller by Purchaser pursuant to Sections 1.3 and 1.4.
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(c) Except as to fraud or willful misconduct, the provisions of
Sections 8.1(a) and 8.4 as to Purchaser and Sections 8.2 as to
Seller shall be the sole and exclusive remedy for Damages
arising out of, resulting from or incurred in connection with
any inaccuracy, failure or breach of the respective party's
representations, warranties, covenants or agreements contained
herein or in any Schedule, Exhibit, instrument or document
delivered pursuant to or in connection with this Agreement.
(d) In the case of any claim for indemnification under Sections 8.1
or 8.2 arising from a claim of a third party (other than any
of the Indemnified Claims set forth in Section 8.3) (hereafter
"Third Party Claim"), an indemnified party shall give prompt
written notice to the indemnifying party of any claim or
demand of which such indemnified party has knowledge and as to
which it may request indemnification hereunder. The
indemnifying party shall have the right to defend and direct
the defense against any such Third Party Claim, in its name or
in the name of the indemnified party, as the case may be, at
the expense of the indemnifying party, and with counsel
selected by the indemnifying party, subject to the consent of
the indemnified party which shall not be unreasonably
withheld. Notwithstanding anything in this Agreement to the
contrary, the indemnified party shall, at the expense of the
indemnifying party, cooperate with the indemnifying party and
keep the indemnifying party fully informed in the defense of
such Third Party Claim. The indemnified party shall have the
right to participate in the defense of any Third Party Claim
with counsel employed at its own expense. If the indemnifying
party does exercise its right to assume the defense of a Third
Party Claim, then the indemnifying party shall have no
indemnification obligations with respect to any Third Party
Claim which shall be settled by the indemnified party without
the prior written consent of the indemnifying party, which
consent shall not be unreasonably withheld.
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(e) In the event that an indemnified party determines that it has a
claim for Damages against an indemnifying party under Section
8.1 or 8.2 (other than as a result of a Third Party Claim),
the indemnified party shall give prompt written notice thereof
to the indemnifying party, specifying the amount of such claim
and any relevant facts and circumstances relating thereto.
The indemnified party shall provide the indemnifying party
with reasonable access to its and its affiliates' books and
records for the purpose of allowing the indemnifying party a
reasonable opportunity to verify any such claim for Damages.
The indemnified party and the indemnifying party shall
negotiate in good faith regarding the resolution of any
disputed claims for Damages.
8.5 SELLER RETENTION. In order to provide comfort to Purchaser that Seller
will have assets available if Purchaser were to be entitled to
indemnification under Section 8.1 or with respect to the Aviation
of America claim ("AOA Claim"), Seller agrees to retain eight
million dollars ($8,000,000) of the Purchase Price or Stock
Redemption proceeds to be held pursuant to this Section 8.5 until
the later of the end of the Survival Period or the date on which
the AOA Claim is finally and completely settled or satisfied.
Seller shall be free to distribute to its partners all of its other
assets at any time and from time to time on or after the Closing
Date. Seller shall be entitled to invest the retained sum (and the
proceed thereof) in such manner as it determines in its sole
discretion The $8,000,000 amount shall be replenished to the
extent it is reduced by net investment losses or expenses and costs
associated with the continued existence of the Seller after the
Closing or Seller's defense of any claims or the exercise of its
rights hereunder. No replenishment shall be required in the case
of payments made therefrom to satisfy indemnification claims or
other claims of Purchaser or the Company. Subject to the
replenishment requirements set forth above, Seller shall be free to
distribute any net investment income or gain earned or accrued
after the Closing to any or all of its partners as it determines in
its sole
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discretion. Seller's partners shall not be obligated to return any
amount distributed to them in conformance with the provisions of
this Section 8.5.
8.6 ▇▇▇▇▇ GUARANTY. Seller shall cause ▇▇▇▇▇ to execute and
deliver at the Closing a Guaranty in the form of Exhibit 8.6
hereto.
9.
TERMINATION AND ABANDONMENT
9.1 METHODS OF TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time
prior to the Closing:
(a) by the mutual written consent of Seller and Purchaser;
(b) by Purchaser, if all of the conditions set forth in Section 6 of
this Agreement shall not have been satisfied or waived on or
prior to April 30, 1998, unless extended by Seller pursuant to
Section 9.3;
(c) by Seller, if all of the conditions set forth in Section 7 of
this Agreement shall not have been satisfied or waived on or
prior to April 30, 1998, unless extended by Purchaser pursuant
to Section 9.2 hereof;
(d) in accordance with Section 11.2 hereof;
(e) by Purchaser, if any of Seller's representations, warranties or
covenants herein are materially untrue, inaccurate, not
performed, breached or failed to be performed and such breach,
failure or misrepresentation is not cured in all material
respects within five (5) days after Seller receives notice
thereof from Purchaser;
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(f) by Seller, if any of Purchaser's representations, warranties or
covenants herein are materially untrue, inaccurate, not
performed, breached or failed to be performed, and such
breach, failure or misrepresentation is not cured in all
material respects within five (5) days after Purchaser
receives notice thereof from Seller; or
(g) by Seller or Purchaser, if the Delaware Department of Insurance
does not approve the Stock Redemption as contemplated under
Section 1.3(c) and referenced in Section 4.5;
provided, that no party shall have the right to terminate this
Agreement unilaterally pursuant to Section 9.1(b), or 9.1(c),
9.1(e) or 9.1(f) if the failure to consummate the transactions
contemplated hereby shall be primarily attributable to the party
seeking such unilateral termination or to any affiliate of such
party.
9.2 EXTENSION BY PURCHASER. Purchaser shall have the unilateral right to
extend this Agreement for an additional period of time, not to
exceed thirty (30) days, if Seller exercises its right to terminate
under Section 9.1(c) hereof, on the following conditions:
(a) In the event the Closing has not occurred due to lack of approval
of this transaction by any Governmental Entity which is not
the result of any act or omission on the part of Purchaser; or
(b) In the event the Closing has not occurred due to the necessity to
complete essentially clerical, administrative, legal or other
similar functions related to the Closing which are not based
upon substantive matters pertaining to the rights of the
parties hereto and such extension shall not extend beyond the
time needed to complete such functions; but
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(c) Such extension shall not go beyond May 15, 1998.
9.3 EXTENSION BY SELLER. Seller shall have the unilateral right to extend
this Agreement for an additional period of time, not to exceed
thirty (30) days, if Purchaser exercises its right to terminate
under Section 9.1(a), on the following conditions:
(a) In the event the Closing has not occurred due to lack of approval
of this transaction by any Governmental Entity which is not
the result of any act or omission on the part of Seller; or
(b) In the event the Closing has not occurred due to the necessity to
complete essentially clerical, administrative, legal or other
similar functions related to the Closing which are not based
on substantive matters pertaining to the rights of the parties
hereto, and such an extension shall not extend beyond the time
needed to complete such functions; but
(c) Such extension shall not go beyond May 15, 1998.
9.4 EFFECT OF TERMINATION. In the event of termination and abandonment of
this Agreement pursuant to Section 9.1 hereof, written notice
thereof shall forthwith be given to the other party, and this
Agreement shall terminate and the transactions contemplated hereby
shall be abandoned without further action by Seller or Purchaser.
In the event of termination of this Agreement as provided in
Section 9.1, this Agreement shall become void and there shall be no
liability or obligation on the part of Seller or Purchaser, except
as set forth in Sections 11.1, 11.2, 11.4 and 11.5 and except to
the extent that such termination results from the willful breach or
violation by a party hereto of any of its representations,
warranties, covenants or agreements set forth herein.
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10.
COVENANTS AND AGREEMENTS
10.1 PRICE ADJUSTMENT. For purposes of computing the Purchase Price, Seller
and Purchaser hereby agree to the adjustment with respect to the
disability reserves set forth on Schedule 1.3 hereto.
10.2 SCHEDULE UPDATES. At any time prior to five (5) business days
preceding the Closing, Seller shall have the right to update or
supplement the Schedules to this Agreement without the consent or
approval of Purchaser; provided that, if the disclosure in the
updated or supplemented Schedules represents a material change from
the matters previously disclosed in such Schedules (after giving
effect to any previous updates or supplements) or represents
previously undisclosed matters that, in Purchaser's reasonable
discretion, are material to the value herein assigned to the
Company, Purchaser shall have the right to terminate this Agreement
by sending written notice to Seller of its election to terminate
within five (5) business days following receipt by Purchaser of
such updated or supplemented Schedules. If Purchaser fails to
exercise this termination right, Purchaser shall be deemed to have
waived its right to terminate as provided in this Section 10.2 or
to object to such updated or supplemented Schedules, which
thereafter shall be deemed to have cured any misrepresentation or
breach of warranty that otherwise might have existed hereunder
except for the disclosure of any development or change in such
updated or supplemented Schedules.
10.3 DELAWARE APPROVAL. With respect to the approval of the Stock
Redemption by the Delaware Department of Insurance ("Delaware
Department"), Purchaser shall prepare or cause to be prepared at
its expense the application, including the actuarial reports and
analysis contemplated to be included therewith, and any supplements
or additions thereto which may be requested by the Department,
subject to the Seller's consent to all
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submissions, which consent shall not be unreasonably withheld.
Purchaser shall make every best effort to have such application
ready for submission by February 10, 1998 and in any event shall
have such application ready by February 17, 1998. Seller and
Purchaser shall jointly contact and interact with the Department
concerning the prosecution of the application for approval of the
Stock Redemption. Seller and Purchaser will keep each other
advised of all material developments in the prosecution of such
application and each shall cause its employees, agents,
consultants, accountants, attorneys, and advisers to reasonably
assist and cooperate in securing such approval.
11.
MISCELLANEOUS PROVISIONS
11.1 SURVIVAL. The respective representations, warranties, covenants,
agreements and indemnification obligations of each of the parties
to this Agreement shall survive the Closing Date and the
consummation of the transactions contemplated by this Agreement for
a period of three (3) years from and after the Closing Date herein
the Survival Period), except for the provisions of Section 8.3
which continue after Closing as provided therein and except for
Seller's obligations for Taxes arising under Sections 2.11, 8.1 and
8.4, which obligations shall survive Closing for a period through
and including one (1) year following the expiration of the relevant
period of limitations applicable to the related Tax. In the event
of a breach of any of such representations, warranties, covenants
or agreements, the party to whom such representations, warranties,
covenants or agreements have been made shall have all rights and
remedies for such breach available to it under the provisions of
this Agreement or otherwise, whether at law or in equity,
regardless of any investigation made by or on behalf of such party
on or before the Closing Date.
11.2 PUBLICITY AND NON-DISCLOSURE. Prior to the Closing, neither party
shall issue any press release or other announcement or otherwise
solicit publicity with respect to this
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Agreement or the transactions contemplated hereby without the
consent of the other party hereto. In the event of the violation
of this Section 11.2 by a party hereto, the other party shall have
the right to immediately terminate the Agreement.
11.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective
successors, heirs, representatives and assigns, as the case may be;
provided, however, that no party shall assign or delegate this
Agreement or any of the rights or obligations created hereunder
without the prior written consent of the other party, except that
at any time prior to the filing of the application with the
Delaware Department of Insurance, Purchaser may assign all of its
rights and obligations hereunder to Memorial Service Life Insurance
Company, an insurer affiliate, without the necessity of obtaining
Seller's approval provided that the assignee agrees to comply with
and be bound by all of the terms and conditions of this Agreement
and assume all of Purchaser's obligations and liabilities hereunder
pursuant to an agreement satisfactory to Seller. Except as set
forth in this Section 11.3, nothing in this Agreement shall confer
upon any Person not a party to this Agreement, or the legal
representatives of such Person any rights or remedies of any nature
or kind whatsoever under or by reason of this Agreement.
11.4 BROKERS AND FINDERS. Seller represents and warrants that it has not
engaged any broker or finder in connection with the transactions
contemplated by this Agreement. Purchaser represents and warrants
that Purchaser has engaged a broker or finder in connection with
the transactions contemplated by this Agreement and will pay a fee
thereto arising out of this transaction. Purchaser agrees to
indemnify and hold Seller harmless from any liability for the
payment of such fee.
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11.5 EXPENSES. Except as otherwise expressly provided in this Agreement,
the parties hereto shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this
Agreement and the transactions contemplated hereby, including,
without limitation, all fees and expenses of agents,
representatives, counsel and accountants.
11.6 NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been given
or made, if delivered personally or transmitted by telex, telecopy
or telegram, on the date so delivered or transmitted, if sent by
Federal Express or other reputable national overnight carrier, on
the next business day after the date so sent, or if mailed by
registered or certified mail (postage prepaid, return receipt
requested), on the fifth business day after the date so mailed, to
the parties at the following addresses:
(a) if to Purchaser, to: Lincoln Memorial Life Insurance Company
▇.▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Roan & ▇▇▇▇▇▇, P.C.
710 First State Bank Building
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Seller, to: NRG Acquisition Partners, L.P.
c/o ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to: ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, P.C.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other persons or at such other addresses as shall be
furnished by any party by like notice to the other, and such
notice or communication shall be deemed to have been given or
made as of the date so delivered or transmitted, on the next
business day after the date so sent by overnight courier or on
the fifth business day after the date so mailed.
11.7 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits attached hereto, represents the entire agreement and
understanding of the parties hereto with reference to the
transactions set forth herein, and no representations, warranties
or covenants have been made in connection with this Agreement,
either express or implied, other than those expressly set forth
herein, in the Schedules or in the certificates, agreements and
other documents delivered in connection with the transactions
contemplated hereby. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications,
understandings and agreements between the parties relating to the
subject matter of this Agreement and all prior drafts of this
Agreement, all of which are merged into this Agreement.
11.8 WAIVERS, AMENDMENTS AND REMEDIES. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms hereof
may be waived, only by a written instrument signed by Seller and
Purchaser or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of
any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or
privilege.
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11.9 SECTION HEADINGS. The Section headings contained in this Agreement are
solely for convenience of reference and shall not affect the
meaning or interpretation of this Agreement or of any term or
provision hereof.
11.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of
which together shall be considered one and the same agreement.
11.11 LITIGATION ASSISTANCE. Seller agrees from and after the Closing Date
to cooperate with Purchaser and the Company, at Company's expense
except for Indemnified Claims, with respect to any action, suit,
proceeding or investigation pending or threatened against the
Company arising out of events occurring prior to the Closing Date
and to the extent Seller has any material information concerning
such matter which is not otherwise reasonably available to the
Company or Purchaser.
11.12 GOVERNING LAW. This Agreement is made in and shall be governed by and
construed in accordance with the laws of the State of Texas without
giving effect to the principles of conflicts of law thereof.
11.13 EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached hereto are
a part of this Agreement as if fully set forth herein. All
references herein to Sections, clauses, Exhibits and Schedules
shall be deemed references to such parts of this Agreement, unless
the context shall otherwise require. Any description or disclosure
set forth in any Schedule hereto shall be deemed incorporated in
all other Schedules hereto to the extent applicable.
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11.14 MISCELLANEOUS UNDERTAKINGS. From the date of this Agreement until the
earlier of (i) the Closing or (ii) the termination of this
Agreement, the Seller agrees that it will not, directly or through
any representative, solicit, engage in any discussions relating to,
or accept any other offers for the acquisition or other disposition
of Company.
12.
TAX MATTERS
12.1 CERTAIN DEFINED TERMS. For purposes of this Agreement: (a)
"Pre-acquisition Periods" means all periods (whether or not they
conclude with the end of a taxable year or taxable period) ending
on or before the Computation Date, (b) "Post-acquisition Periods"
means all periods (whether or not they commence with the beginning
of a taxable year or taxable period) beginning the day after the
Computation Date, (c) "Period" means both a pre-acquisition period
and post-acquisition period, and (d) the "Affiliated Group" of any
corporation is the "affiliated group" of corporations (as defined
in Section 1504(a) of the Code) that includes that corporation.
12.2 EXISTING AGREEMENTS AND OTHER MATTERS. At the Closing Date, any Tax
sharing agreement to which the Company is a party (if any) shall be
terminated, and the Company shall have no further obligations under
any Tax sharing agreement.
12.3 TRANSACTION TAXES. All sales, use, transfer, real property gains,
stamp, conveyance, and value added Taxes, duties, excises or
government charges with respect to the transactions contemplated by
this Agreement shall be borne by Purchaser. Seller and Purchaser
shall cooperate with each other in order to minimize the payments
of Taxes contemplated by this Section.
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12.4 CONTESTS. For purposes of this Agreement, a "Contest" is any audit,
court proceeding or other dispute with respect to any Tax matter
that affects the Company. Unless the Purchaser has previously
received written notice from the Seller of the existence of such
Contest, the Purchaser shall give written notice to the Seller of
the existence of any Contest relating to a tax matter that is the
Seller's responsibility under Sections 8.1 and 8.4 within ten days
from the receipt by the Purchaser of any written notice of such
Contest. Unless the Seller has previously received written notice
from the Purchaser of the existence of such Contest, the Seller
shall give written notice to the Purchaser of the existence of any
Contest relating to a tax matter for which the Purchaser has
responsibility within ten days from the receipt by the Seller of
any written notice of such Contest. The Purchaser, on the one
hand, and the Seller, on the other, agree, in each case at no cost
to the other party, to cooperate with the other and the other's
representatives in a prompt and timely manner in connection with
any Contest. Such cooperation shall include, but not be limited
to, making available to the other party, during normal business
hours, all books, records, returns, documents, files, other
information (including without limitation working papers and
schedules), officers or employees (without substantial interruption
of employment) or other relevant information necessary or useful in
connection with any Contest requiring any such books, records and
files. The Seller shall, at its election, have the right to
represent the Company's interests in any Contest relating to a tax
matter arising in a taxable period ending on or before the Closing
Date for which it is responsible under Sections 8.1 and 8.4, to
employ counsel of its choice at its expense, which counsel shall be
reasonably acceptable to the Purchaser, and to control the conduct
of such Contest, including settlement or other disposition thereof;
provided, however, that the Purchaser shall have the right to
consult with the Seller regarding any such Contest that may affect
the Company for any post-acquisition periods ("Purchaser-Involved
Contest") at the Purchaser's own expense, provided further that any
settlement or other disposition of any such Purchaser-Involved
Contest may only be with the consent of Purchaser, which
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consent shall not be unreasonably withheld. With regard to
Contests relating solely to taxable periods ending on or before the
Closing Date and which could have no effect on any Taxes that are
the Purchaser's responsibility under Sections 8.2 and 8.4, the
Seller shall have the exclusive right to decide whether any consent
or waivers to extend applicable statutes of limitations shall be
granted. The Purchaser shall have the right to control the conduct
of any Contest with respect to any tax matter relating to or
arising in a taxable period ending after the Closing Date unless
Purchaser shall claim indemnification under Section 8.1 with regard
to Taxes at issue in such contest, in which event such claim shall
be subject to Section 8.4.
12.5 ACCESS TO RECORDS, COOPERATION. Seller and Purchaser hereby agree to
afford the other party access to its books and records to the
extent necessary to achieve the objectives of this Section 12. The
Seller, the Purchaser, and the Company will cooperate fully with
each other in connection with (a) the allocation of any item of
income, deduction, gain, loss or credit for the taxable year in
which the Closing occurs and (b) the preparation of any Tax return
or report for the taxable period in which the Closing occurs.
12.6 PRICE ADJUSTMENT. All amounts paid pursuant to this Section 12 by one
party to another party (other than interest payments) shall be
treated by such parties as an adjustment to the Purchase Price of
the Shares of the Company, to the extent permitted by law.
12.7 PREPARING AND FILING OF RETURNS. The Company, consistent with past
practices, shall prepare at its expense all Tax returns of the
Company for taxable periods ending on or prior to and remaining
unfiled as of the Closing Date. Company shall deliver to the
Seller for review a draft copy of such Tax returns thirty (30) days
before the due date, including extensions of such returns to the
extent such returns have not been filed as of the execution date of
this Agreement. To the extent related to matters subject to its
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indemnification under Section 8.1, Seller shall be entitled to
comment upon and request reasonable revisions to such delivered Tax
returns, so long as such comments or requests are submitted to
Company by Seller not later than ten (10) days after receipt by
Seller of the delivered Tax Returns. The Company shall prepare and
bear the expense of preparation of all other Tax returns of the
Company.
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IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be
duly executed as of the 28th day of January, 1998.
SELLER: PURCHASER:
NRG ACQUISITION PARTNERS,
▇.▇. ▇▇▇▇▇▇▇ MEMORIAL LIFE INSURANCE CO.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------- -------------------------------
Its: General Partner Its: President
------------------------ -------------------------------
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