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EXHIBIT 99.9
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of August ___,
1998, by and among GAINSCO, INC., a Texas corporation ("Buyer"), ▇▇▇▇▇ ▇▇▇▇▇▇▇
("▇. ▇▇▇▇▇▇▇" or "Seller"), and De La Torre Insurance Adjusters, Inc., a
Florida corporation ("DLT" or the "Company").
RECITALS
WHEREAS, ▇. ▇▇▇▇▇▇▇ is the record and beneficial owner of 28.571
shares of common stock, $1.00 par value per share ("DLT Common Stock"), of DLT;
and
WHEREAS, ▇. ▇▇▇▇▇▇▇ desires to sell, and Buyer desires to purchase,
all of the issued and outstanding shares of DLT Common Stock owned by ▇.
▇▇▇▇▇▇▇ (the "Shares"), for the consideration and on the terms set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements set forth and for other good and valuable consideration, the
adequacy, sufficiency and receipt of which are hereby acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"ACQUIRED COMPANY"--any of DLT or its Subsidiaries, and the term
"Acquired Companies" means DLT and its Subsidiaries, collectively.
"APPLICABLE CONTRACT"--any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"BEST EFFORTS"--the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
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inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including (a) the sale of the Shares by Seller to Buyer; (b)
the execution, delivery, and performance of the ▇. ▇▇▇▇▇▇▇ Employment Agreement
and the Seller's Release; (c) the performance by Buyer, Seller and the Company
of their respective covenants and obligations under this Agreement; and (d)
Buyer's acquisition and ownership of the Shares and exercise of control over
the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to
Buyer concurrently with the execution and delivery of this Agreement.
"EMPLOYEE BENEFIT PLAN"--any "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined
in Section 3(1) of ERISA), "Multi-employer Plan" (as defined in Section 3(37)
of ERISA), plan of deferred compensation, medical plan, life insurance plan,
long-term disability plan, dental plan or other plan providing for the welfare
of any of DLT's employees or former employees or beneficiaries thereof (as
applicable), personnel policy (including but not limited to vacation time,
holiday pay, bonus programs, moving expense reimbursement programs and sick
leave), excess benefit plan, bonus or incentive plan (including but not limited
to stock options, restricted stock, stock bonus and deferred bonus plans),
salary reduction agreement, change-of-control agreement, employment agreement,
consulting agreement or any other benefit, program or contract.
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENTAL LAW"--the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Water Pollution Control Act, the
Safe Drinking Water Act, the Federal Clean Water Act, the Federal Clean Air
Act, the Federal Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Federal Solid Waste Disposal Act, the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Occupational Safety and Health Act, each as amended,
and all other environmental statutes enacted by any Governmental Body, and any
executive order, ordinances, rules or regulations promulgated under any of the
foregoing.
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"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by any Acquired Company.
"GAAP"--United States generally accepted accounting principles,
applied on a basis consistent with the basis on which the DLT Balance Sheet and
the other financial statements referred to in Section 3.4 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY"--any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INSURANCE PERMIT"--any Governmental Authorization in any jurisdiction
to underwrite, place, sell or otherwise transact insurance or reinsurance, or
to engage in premium finance activities.
"INVESTMENT GUIDELINES"--a written statement of the current investment
programs, containing the investment policies and guidelines.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
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"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course
of conducting a reasonable investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such
Person (or by any Person or group of Persons exercising similar authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any
amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN AFFILIATE"--with respect to any Person, any other person or
entity with whom the Person constitutes all or part of a controlled group, or
which would be treated with the Person as under common control or whose
employees would be treated as employed by the Person, under Section 414 of the
IRC and any regulations, administrative rulings and case law interpreting the
foregoing.
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"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPRIETARY RIGHTS AGREEMENT"--any confidentiality, noncompetition,
or proprietary rights agreement.
"PURCHASE AGREEMENTS"--collectively, (a) that certain Stock Purchase
Agreement, dated the date hereof, by and among Buyer, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ("M.B.
▇▇▇▇▇▇▇▇"), National Specialty Lines, Inc., a Florida corporation ("NSL"), and
Lalande Financial Group, Inc., a Florida corporation ("Lalande"); (b) that
certain Stock Purchase Agreement, dated the date hereof, by and among Buyer,
▇▇▇▇▇▇ De la ▇▇▇▇▇ ("C. De la Torre"), ▇▇▇▇ De la ▇▇▇▇▇ ("R. De la Torre" and,
together with C. De la Torre, the "De ▇▇ ▇▇▇▇▇▇"), NSL, DLT, and Lalande; and
(c) that certain Stock Purchase Agreement, dated the date hereof, by and among
Buyer, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇. ▇▇▇▇▇▇▇▇") and NSL.
"RELATED PERSON"--with respect to a particular individual, (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and (d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting power of a
Person or equity securities or other equity interests representing at least ten
percent (10%) of the outstanding equity securities or equity interests in a
Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
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"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SUBSIDIARY"--with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct
the business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred) are held by the Owner or one or more of its
Subsidiaries.
"TAX"--any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
"YEAR 2000 COMPLIANT"--with respect to any item shall mean that such
item: (i) from now until January 1, 2000, must correctly operate, store,
process and produce data containing dates before January 1, 2000; (ii) from now
until January 1, 2000, must correctly operate, store, process and produce data
containing dates after December 31, 1999; (iii) from January 1, 2000, must
correctly operate, store, process and produce data containing dates before
January 1, 2000; (iv) from January 1, 2000, must correctly operate, store,
process and produce data containing dates after December 31, 1999; (v) must be
able to handle the date January 1, 2001 correctly; (vi) must recognize the year
2000 as a leap year (e.g., February 2000 is recognized as a valid date, Julian
date 00060 is recognized as February 29, 2000, Julian date 00366 is recognized
as December 31, 2000, arithmetic operations performed recognize that the year
2000 has 366 days and binary date 36584 is recognized as February 29, 2000);
(vii) must be able to correctly process
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data containing the date September 9, 1999; (viii) must provide date data
century recognition correctly; (ix) must correctly accommodate calculations
with same century and multi-century formulas; (x) must correctly provide date
values and date data interface values that reflect the century; (xi) must be
able to correctly manage and manipulate data involving dates, including single
century and multi-century formulas and must not cause an abnormally ending
scenario within the application or result in the generation of incorrect values
involving such dates; (xii) must ensure that date-related user interface
functions and data fields correctly include the indication of the century; and
(xiii) must ensure that all date-related functions correctly include an
indication of the century. For purposes of this definition, "correctly" shall
mean accurately and without delay, corruption, interruption or error relating
to the time at which or the date on which such items are operating.
ARTICLE II
SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Seller will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Seller.
2.2 Purchase Price. The purchase price (the "Purchase Price") for
the Shares shall be (i) $795,600 in cash (the "Initial Purchase Price") plus
(ii) the payments made pursuant to Section 2.3 hereof, if any.
2.3 Earnout Payments.
(a) The terms below shall have the following respective meanings
for the purposes of this Section 2.3:
"ACQUIRED COMPANIES" means, for purposes of this ▇▇▇▇▇▇▇ ▇.▇,
▇▇▇, ▇▇▇, ▇▇▇▇▇▇▇, and their respective Subsidiaries, collectively,
and any business or businesses conducted by Buyer, or by any
subsidiaries or affiliated corporations of Buyer, that represent a
succession to and a continuation of the business conducted by NSL,
DLT, Lalande, and their respective subsidiaries, collectively, as the
same may be expanded or contracted from and after Closing.
"CHANGE OF CONTROL" means any of the following:
(1) any consolidation or merger of the Buyer in
which the Buyer is not the continuing or surviving corporation
or pursuant to which shares of the Buyer's common stock would
be converted into cash, securities or other property, other
than a merger of the Buyer in which the holders of the Buyer's
common stock immediately prior to the merger have the same
percentage ownership of common stock of the surviving
corporation immediately after the merger;
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(2) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets or a majority of the
liabilities of the Buyer;
(3) any approval by the shareholders of the Buyer
of any plan or proposal for the liquidation or dissolution of
the Buyer;
(4) the cessation of control (by virtue of their
not constituting a majority of directors) of the Buyer's Board
of Directors by the individuals (the "Continuing Directors")
who (x) at the date of this Agreement were directors or (y)
become directors after the date of this Agreement and whose
election or nomination for election by the Buyer's
shareholders, was approved by a vote of at least two-thirds of
the directors then in office who were directors at the date of
this Agreement or whose election or nomination for election
was previously so approved;
(5) (A) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended ("Beneficial Ownership")) of
at least an aggregate of 20% of the voting power of the
Buyer's outstanding voting securities by any person or group
(as such term is used in Rule 13d-5 under such Act) who
Beneficially Owned less than 10% of the voting power of the
Buyer's outstanding voting securities on the date hereof, (B)
the acquisition of Beneficial Ownership of an additional 5% of
the voting power of the Buyer's outstanding voting securities
by any person or group who Beneficially Owned at least 10% of
the voting power of the Buyer's outstanding voting securities
on the date hereof, or (C) the execution by the Buyer and a
shareholder of a contract that by its terms grants such
shareholder (in its, hers or his capacity as a shareholder) or
such shareholder's Affiliate (as defined in Rule 405
promulgated under the Securities Act of 1933 (an "Affiliate"))
including, without limitation, such shareholder's nominee to
the Board of Directors (in its, hers or his capacity as an
Affiliate of such shareholder), the right to veto or block
decisions or actions of the Board of Directors; provided,
however, that notwithstanding the foregoing, the events
described in items (A), (B) or (C) above shall not constitute
a Change in Control hereunder if the shareholder is (aa) a
trustee or other fiduciary holding securities under an
employee benefit plan of the Buyer and acting in such
capacity, (bb) a corporation owned, directly or indirectly, by
the shareholders of the Buyer in substantially the same
proportions as their ownership of voting securities of the
Buyer or (cc) in the case of an acquisition described in items
(A) or (B) above, any other person whose acquisition of shares
of voting securities is approved in advance by a majority of
the Continuing Directors, unless such acquisition is greater
than 40% of the voting power of the Buyer's outstanding voting
securities; provided further, however that none of the
following shall constitute a Change in Control: (aa) the right
of the holders of any voting securities of the Buyer to vote
as a class on any matter or (bb) any vote required of
disinterested or unaffiliated directors or shareholders
including, without limitation, pursuant to Rule 16b-3
promulgated pursuant to the Securities Exchange Act of 1934;
or
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(6) subject to applicable law, in a Chapter 11
bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Buyer to a case under
Chapter 7.
"CHANGE OF CONTROL TRIGGER" means, after a Change in Control,
a material change in the management direction and prospects of the
Acquired Companies in place immediately prior to the Change of
Control, including (i) a termination of C. De la Torre or M.B.
▇▇▇▇▇▇▇▇ Without Cause or for Employer Breach, as defined in the
Employment Agreements of C. De la Torre and M.B. ▇▇▇▇▇▇▇▇,
respectively; or (ii) a material reduction or restriction in the
territory for expansion of the Acquired Companies; or (iii) a material
change in the operating strategy of the Acquired Companies.
"COMPUTATION STATEMENT" means a statement setting forth in
reasonable detail Buyer's calculation of the Pre-Tax Earnings of the
Acquired Companies during the applicable Earnout Period and the
calculation of the Earnout Amount for such Earnout Period.
"EARNED PREMIUMS" means earned premiums as defined by
generally accepted accounting principles, consistently applied.
"EARNOUT CONSIDERATION" means $1,800,000.
"EARNOUT PERIOD" means the following periods, as applicable:
(i) the first Earnout Period will commence on the Integration Date
and will terminate one day prior to the first anniversary of the
Integration Date; (ii) the second Earnout Period will commence on the
first anniversary of the Integration Date and will terminate one day
prior to the second anniversary of the Integration Date; and (iii) the
third Earnout Period will commence on the second anniversary of the
Integration Date and will terminate one day prior to the third
anniversary of the Integration Date.
"EARNOUT RATIO" means, for each applicable Earnout Period, the
quotient of (i) the difference between (A) Pre-Tax Earnings for that
Earnout Period and (B) the Threshold Earnout Level for that Earnout
Period and (ii) the difference between (A) the Maximum Earnout Level
for that Earnout Period and (B) the Threshold Earnout Level for that
Earnout Period; provided, however, that in the event the Threshold
Earnout Level for such Earnout Period is equal to or exceeds the
Pre-Tax Earnings for the Earnout Period, the Earnout Ratio shall be
zero (0).
"INCURRED LOSSES AND LOSS ADJUSTMENT EXPENSES" means, for any
period, (A) case basis reserves plus losses incurred but not reported
("IBNR"), including development of losses for the applicable Earnout
Period, as of the end of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period,
plus (B) losses and Loss Adjustment Expenses paid during the period
and less (C) case basis reserves plus IBNR, including development of
losses for the applicable Earnout Period,
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as of the beginning of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period.
"INTEGRATION DATE" means the earlier of (i) the first day of
the calendar quarter immediately following the date on which ninety
percent (90%) or more of the policies written by or through the
Acquired Companies are policies in force of Subsidiaries of Buyer or
(ii) July 1, 2000, if Buyer has not provided the ability or means to
enable ninety percent (90%) or more of direct and/or assumed policies
written by or through the Acquired Companies to be policies in force
of Subsidiaries of Buyer.
"LOSS ADJUSTMENT EXPENSES" means, for any period, expenses
incurred in the course of investigating and settling claims,
including, without limitation, legal and adjusters' fees and the costs
of paying claims and related expenses.
"LOSS RATIO" means, for any period, the quotient of (i)
Incurred Losses and Loss Adjustment Expenses for the period and (ii)
Earned Premiums for the period.
"MAXIMUM EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $11,000,000; (ii) for the second Earnout Period,
$16,000,000; and (iii) for the third Earnout Period, $22,000,000.
"MAXIMUM EARNOUT PAYMENT" means the following payments,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, 25% of the Earnout Consideration; (ii) for the second
Earnout Period, 25% of the Earnout Consideration; and (iii) for the
third Earnout Period, 50% of the Earnout Consideration.
"PAYMENT DATE" means the date sixty (60) days after the
termination of each Earnout Period (or the next succeeding business
day if such date is not a business day).
"PRE-TAX EARNINGS" means, for each Earnout Period, (a) the net
earnings, before all income taxes and interest expense, of Buyer and
its Subsidiaries, attributable to the operation of the Acquired
Companies, less (b) the amount of the Support Functions Reimbursement,
plus (c) investment income on initial imputed capital of $15,000,000,
effective as of the Integration Date, for such Earnout Period, less
(d) an annual imputed cost of capital charge based on the
then-outstanding prime rate at the beginning of each year plus 1% for
any incremental growth capital investments attributable to the
Acquired Companies. Such incremental capital will be based on capital
purchases and a ratio of 2.5 to 1 of (x) net written premiums to (y)
net book value less deferred acquisition costs, in accordance with
generally accepted accounting principles, consistently applied.
Pre-Tax Earnings shall be calculated (i) on the accrual basis of
accounting in accordance with generally accepted accounting principles
consistently applied and (ii) as though the Acquired Companies were a
single corporation with all of its shares owned by persons who are
neither directly nor indirectly related to Buyer.
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"RATING REDUCTION" means the occurrence of a rating by A.M.
Best Company of Buyer's insurance companies, as a group, below A-
("Excellent").
"RELEASE DATE" means the date sixty (60) days after the
termination of each Release Period (or the next succeeding business
day if such date is not a business day).
"RELEASE PERIOD" means the following periods, as applicable:
(i) the first Release Period for the first Earnout Period will
commence one day after the termination date of the first Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the first Earnout Period will
commence one day after the first anniversary of the termination date
of the first Earnout Period and will terminate on the second
anniversary of such termination date; (ii) the first Release Period
for the second Earnout Period will commence one day after the
termination date of the second Earnout Period and will terminate on
the first anniversary of such termination date, and the second Release
Period for the second Earnout Period will commence one day after the
first anniversary of the termination date of the second Earnout Period
and will terminate on the second anniversary of such termination date;
and (iii) the first Release Period for the third Earnout Period will
commence one day after the termination date of the third Earnout
Period and will terminate on the first anniversary of such termination
date, and the second Release Period for the third Earnout Period will
commence one day after the first anniversary of the termination date
of the third Earnout Period and will terminate on the second
anniversary of such termination date.
"SELLERS' ADVISORY REPRESENTATIVE" means M.B. ▇▇▇▇▇▇▇▇, acting
on behalf of himself, ▇. ▇▇ ▇▇ ▇▇▇▇▇, ▇. ▇▇ ▇▇ ▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇ and
▇. ▇▇▇▇▇▇▇, collectively, or any successor thereto appointed by
unanimous agreement of such persons who are not the Sellers' Advisory
Representative.
"SUBSEQUENT EARNOUT PAYMENT" means (i) the Maximum Earnout
Payment for that Earnout Period multiplied by (ii) the Earnout Ratio
for that Earnout Period.
"SUPPORT FUNCTIONS REIMBURSEMENT" means a monthly fee charged
to the Acquired Companies to cover Buyer's expenses in connection with
providing direct support functions, such as information systems
support, actuarial support, human resources support and accounting
support. In the event the Acquired Companies require special
attention for any unusual circumstance in any month, the monthly fee
may be increased for that month to reflect an amount Buyer reasonably
determines is the true cost to Buyer of providing management and
support functions to the Acquired Companies. In such case Buyer shall
provide, as part of its Computation Statement, the basis for such
increased monthly fee.
"THRESHOLD EARNOUT LEVEL" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $6,000,000; (ii) for the second Earnout Period,
$8,000,000; and (iii) for the third Earnout Period, $10,000,000.
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12
(b) Integration Consideration. Except as provided in this
Agreement, Buyer will deliver to Seller additional consideration (the
"Integration Consideration") for the Shares equal to $88,400 within thirty (30)
days after the Integration Date.
(c) Subsequent Earnout Payments.
(i) On the Payment Date for the first Earnout Period,
Buyer will deliver to Seller additional consideration (the "First
Earnout Period Subsequent Earnout Payment") for the Shares, equal to
the Subsequent Earnout Payment for the first Earnout Period multiplied
by 50%; provided, however, that the amount paid pursuant to this
clause (i) shall not exceed 50% of the Maximum Earnout Payment for the
first Earnout Period.
(ii) On the Payment Date for the second Earnout Period,
Buyer will deliver to Seller additional consideration (the "Second
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the second Earnout Period;
provided, however, that the amount paid pursuant to this clause (ii)
shall not exceed 50% of the Maximum Earnout Payment for the second
Earnout Period.
(iii) On the Payment Date for the third Earnout Period,
Buyer will deliver to Seller additional consideration (the "Third
Earnout Period Subsequent Earnout Payment") for the Shares equal to
50% of the Subsequent Earnout Payment for the third Earnout Period;
provided, however, that the amount paid pursuant to this clause (iii)
shall not exceed 50% of the Maximum Earnout Payment for the third
Earnout Period.
(iv) Delivery of Computation Statements. At the
conclusion of each Earnout Period, Buyer shall prepare a Computation
Statement for the Earnout Amount earned during such Earnout Period and
shall provide such Computation Statement to the Sellers' Advisory
Representative for his review and comments within forty-five (45) days
after the termination of such Earnout Period, with a copy thereof to
Metis Financial LLC. If, within thirty (30) days after delivery of
the Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Computation Statement shall be conclusive and binding on Seller. In
the event the Sellers' Advisory Representative gives Buyer such notice
of dispute within such 30-day period, Buyer shall pay any amounts due
hereunder that are not in dispute, and the Sellers' Advisory
Representative and Buyer will use their best efforts to settle the
dispute within 30 days after the giving of such notice. Any dispute
unresolved after such 30-day period shall be submitted to a national
public accounting firm satisfactory to the Sellers' Advisory
Representative and Buyer, or, in the absence of agreement on such
firm, to a panel of three public accounting firms, one designated by
the Sellers' Advisory Representative, one designated by Buyer and one
jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Seller is entitled to an Earnout Amount which exceeds the Earnout
Amount set forth on the applicable Computation Statement by an
aggregate
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13
amount greater than ten percent (10%) of such Earnout Amount, Buyer
shall pay the cost of the arbitration. Otherwise, Seller shall pay
the cost of the arbitration. Buyer shall maintain books and records
for the Acquired Companies in a manner which will facilitate its
calculation of each Earnout Amount and the review by the Sellers'
Advisory Representative of each Computation Statement. Buyer shall
make available, at Buyer's offices during normal business hours, to
the Sellers' Advisory Representative and his attorneys, accountants
and other representatives for examination, such of its books of
account, contracts, licenses, leases, instruments, commitments, sale
orders, purchase orders, records, accountant's work papers and other
documents as are relevant to the preparation of the Computation
Statement.
(d) Retroactive Payments.
(i) First Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the first Earnout Period, Buyer will
deliver to Seller additional consideration (the
"First Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the first anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period x 75%) - First Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment and the
First Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the first Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the first Earnout Period and (ii) the
First Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the First Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the first Earnout Period, Buyer will deliver to Seller
additional consideration (the "First Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the second anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - Threshold Earnout Level for the first Earnout
Period) / (Maximum Earnout Level for the first Earnout Period - Threshold
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14
Earnout Level for the first Earnout Period)) x Maximum Earnout Payment for the
first Earnout Period) - First Earnout Period Subsequent Earnout Payment - First
Period Second Year Payment.
Provided, however, that if the sum of the First
Earnout Period Subsequent Earnout Payment, the First
Period Second Year Payment and the First Period Third
Year Payment exceeds the Maximum Earnout Payment for
the first Earnout Period, Buyer shall only pay Seller
an amount equal to the (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment, unless
such amount is less than zero, in which case Buyer
shall pay no amount to Seller; and further provided
that if the First Period Third Year Payment is less
than zero, Seller shall pay the integral amount of
the First Period Third Year Payment to Buyer, not to
exceed the sum of (x) the First Earnout Period
Subsequent Earnout Payment and (y) the First Period
Second Year Payment.
The Future Earnout Amount for the First Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the first Earnout Period less (ii) the
First Earnout Period Subsequent Earnout Payment less
(iii) the First Period Second Year Payment less (iv)
the First Period Third Year Payment, unless such
amount is less than zero, in which case the Future
Earnout Amount for the First Earnout Period shall be
equal to zero.
(ii) Second Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the second Earnout Period, Buyer
will deliver to Seller additional consideration (the
"Second Period Second Year Payment") for the Shares
equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the first anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period x 75%) - Second Earnout Period Subsequent
Earnout Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment and the
Second Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the second Earnout
Period, Buyer shall only pay Seller an amount equal
to the difference between (i) 75% of the Maximum
Earnout Payment for the second Earnout Period and
(ii) the Second Earnout Period Subsequent Earnout
Payment, unless such amount is less than zero, in
which case Buyer shall pay no
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15
amount to Seller; and further provided that if the
Second Period Second Year Payment is less than zero,
no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the second Earnout Period, Buyer will deliver to Seller
additional consideration (the "Second Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the second Earnout Period - Loss Ratio for the second
Earnout Period recomputed as of the second anniversary of the end of the second
Earnout Period) x Earned Premiums for the second Earnout Period) + Pre-Tax
Earnings for the second Earnout Period - Threshold Earnout Level for the second
Earnout Period) / (Maximum Earnout Level for the second Earnout Period -
Threshold Earnout Level for the second Earnout Period)) x Maximum Earnout
Payment for the second Earnout Period) - Second Earnout Period Subsequent
Earnout Payment - Second Period Second Year Payment.
Provided, however, that if the sum of the Second
Earnout Period Subsequent Earnout Payment, the Second
Period Second Year Payment and the Second Period
Third Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the second Earnout Period and (y)
the Future Earnout Amount for the First Earnout
Period, Buyer shall only pay Seller an amount equal
to the (i) the Maximum Earnout Payment for the second
Earnout Period plus (ii) the Future Earnout Amount
for the First Earnout Period less (iii) the Second
Earnout Period Subsequent Earnout Payment less (iv)
the Second Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Second Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Second Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Second Earnout Period
Subsequent Earnout Payment and (y) the Second Period
Second Year Payment.
The Future Earnout Amount for the Second Earnout
Period shall be equal to (i) the Maximum Earnout
Payment for the second Earnout Period plus (ii) the
Future Earnout Amount for the First Earnout Period
less (iii) the Second Earnout Period Subsequent
Earnout Payment less (iv) the Second Period Second
Year Payment less (v) the Second Period Third Year
Payment, unless such amount is less than zero, in
which case the Future Earnout Amount for the Second
Earnout Period shall be equal to zero.
(iii) Third Earnout Period Retroactive Payments.
(A) On the first anniversary of the
Payment Date for the third Earnout Period, Buyer will
deliver to Seller additional consideration (the
"Third Period Second Year Payment") for the Shares
equal to the:
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16
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the first anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period x 75%) - Third Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment and the
Third Period Second Year Payment exceeds 75% of the
Maximum Earnout Payment for the third Earnout Period,
Buyer shall only pay Seller an amount equal to the
difference between (i) 75% of the Maximum Earnout
Payment for the third Earnout Period and (ii) the
Third Earnout Period Subsequent Earnout Payment,
unless such amount is less than zero, in which case
Buyer shall pay no amount to Seller; and further
provided that if the Third Period Second Year Payment
is less than zero, no amount shall be paid to Seller.
(B) On the second anniversary of the Payment Date
for the third Earnout Period, Buyer will deliver to Seller
additional consideration (the "Third Period Third Year
Payment") for the Shares equal to the:
(((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the second anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - Threshold Earnout Level for the third Earnout
Period) / (Maximum Earnout Level for the third Earnout Period - Threshold
Earnout Level for the third Earnout Period)) x Maximum Earnout Payment for the
third Earnout Period) - Third Earnout Period Subsequent Earnout Payment - Third
Period Second Year Payment.
Provided, however, that if the sum of the Third
Earnout Period Subsequent Earnout Payment, the Third
Period Second Year Payment and the Third Period Third
Year Payment exceeds the sum of (x) the Maximum
Earnout Payment for the third Earnout Period and (y)
the Future Earnout Amount for the Second Earnout
Period, Buyer shall only pay Seller an amount equal
to (i) the Maximum Earnout Payment for the third
Earnout Period plus (ii) the Future Earnout Amount
for the Second Earnout Period less (iii) the Third
Earnout Period Subsequent Earnout Payment less (iv)
the Third Period Second Year Payment, unless such
amount is less than zero, in which case Buyer shall
pay no amount to Seller; and further provided that if
the Third Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the
Third Period Third Year Payment to Buyer, not to
exceed the sum of (x) the Third Earnout Period
Subsequent Earnout Payment and (y) the Third Period
Second Year Payment.
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17
(iv) Delivery of Retroactive Computation Statements. At
the conclusion of each Release Period, Buyer shall prepare a
Retroactive Computation Statement for the Pre-Tax Earnings recomputed
for the applicable Earnout Period and shall provide such Retroactive
Computation Statement to the Sellers' Advisory Representative for his
review and comments within forty-five (45) days after the termination
of such Release Period, with a copy thereof to Metis Financial LLC.
If, within thirty (30) days after delivery of the Retroactive
Computation Statement to the Sellers' Advisory Representative, the
Sellers' Advisory Representative has not given written notice to Buyer
disputing such statement and indicating the basis of such dispute such
Retroactive Computation Statement shall be conclusive and binding on
Seller. In the event the Sellers' Advisory Representative gives Buyer
such notice of dispute within such 30-day period, Buyer shall pay any
amounts due hereunder that are not in dispute, and the Sellers'
Advisory Representative and Buyer will use their best efforts to
settle the dispute within 30 days after the giving of such notice.
Any dispute unresolved after such 30-day period shall be submitted to
a national public accounting firm satisfactory to the Sellers'
Advisory Representative and Buyer, or, in the absence of agreement on
such firm, to a panel of three public accounting firms, one designated
by the Sellers' Advisory Representative, one designated by Buyer and
one jointly designated by the other two firms. The decision of such
accounting firm or such panel of accounting firms, as the case may be,
with respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration, it is determined that
Seller is entitled to the such disputed amount, Buyer shall pay the
cost of the arbitration. Otherwise, Seller shall pay the cost of the
arbitration. Buyer shall maintain books and records for the Acquired
Companies in a manner which will facilitate its recomputation of the
Pre-Tax Earnings applicable for each Earnout Period and the review by
the Sellers' Advisory Representative of each Retroactive Computation
Statement. Buyer shall make available, at Buyer's offices during
normal business hours, to the Sellers' Advisory Representative and his
attorneys, accountants and other representatives for examination, such
of its books of account, contracts, licenses, leases, instruments,
commitments, sale orders, purchase orders, records, accountant's work
papers and other documents as are relevant to the preparation of the
Retroactive Computation Statement.
(e) Change of Control. Notwithstanding anything in this Section
2.3 to the contrary, after a Change in Control of Buyer and in the event of a
Change of Control Trigger, Buyer will deliver to Seller additional compensation
for the Shares, in lieu of any further payments that may be required under this
Section 2.3 on or after the date of such Change of Control Trigger, as follows:
(i) If the Change of Control Trigger occurs prior to or
during the first Earnout Period, an amount equal to $506,250 plus the
greater of:
(A) the Subsequent Earnout Payment for the first
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the first Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
first Earnout Period;
- 17 -
18
provided, however, that such amount shall not exceed the
Maximum Earnout Payment for the first Earnout Period; or
(B) $168,750.
(ii) If the Change of Control Trigger occurs during the
second Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) $337,500 plus the greater of:
(A) the Subsequent Earnout Payment for the second
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the second Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
second Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the second Earnout Period and (y) the Future Earnout
Amount for the First Earnout Period; or
(B) $168,750.
(iii) If the Change of Control Trigger occurs during the
third Earnout Period, an amount equal to the sum of (1) any amounts
still unpaid and as recalculated in accordance with Section 2.3(d), as
of the end of the last calendar quarter prior to the date of the
Change of Control Trigger and (2) the greater of:
(A) the Subsequent Earnout Payment for the third
Earnout Period, but substituting in the Earnout Ratio the
Pre-Tax Earnings for the period commencing on the beginning of
the third Earnout Period and terminating on the date of the
Change of Control Trigger for the Pre-Tax Earnings for the
third Earnout Period; provided, however, that such amount
shall not exceed the sum of (x) the Maximum Earnout Payment
for the third Earnout Period and (y) the Future Earnout Amount
for the Second Earnout Period;
(B) $337,500; or
(C) the sum of all amounts earned by Seller
pursuant to this Section 2.3 attributable to the first two
Earnout Periods as recalculated in accordance with Section
2.3(d) as of the end of the last calendar quarter prior to the
date of the Change of Control Trigger, multiplied by 75%.
(iv) Buyer shall deliver the amount owed to Seller
pursuant to this Section 2.3(e) within sixty (60) days of the date of
the Change of Control Trigger.
(v) Any dispute, controversy or claim arising out of or
in relation to or connection to this Section 2.3(e), including without
limitation any dispute as to whether
- 18 -
19
a Change of Control Trigger has occurred, shall be exclusively and
finally settled by arbitration, and Buyer or the Sellers' Advisory
Representative (each, for the purpose of this Section 2.3(e)(v), a
"Party" and collectively, the "Parties") may submit such dispute,
controversy or claim to arbitration.
(A) Arbitrators. The arbitration shall be heard
and determined by one arbitrator, who shall be impartial and
who shall be selected by mutual agreement of the Parties;
provided, however, that if the dispute and any dispute under
corresponding provisions of any of the respective Purchase
Agreements involve, in the aggregate, more than $3,750,000,
then the arbitration shall be heard and determined by three
(3) arbitrators. If three (3) arbitrators are necessary as
provided above, then (i) each Party shall appoint an
arbitrator of its choice within thirty (30) days of the
submission of a notice of arbitration and (ii) the
Party-appointed arbitrators shall in turn appoint a presiding
arbitrator of the tribunal within thirty (30) days following
the appointment of the last Party-appointed arbitrator. If
(x) the Parties cannot agree on the sole arbitrator, (y) one
Party refuses to appoint its Party-appointed arbitrator within
said thirty (30) day period or (z) the Party-appointed
arbitrators cannot reach agreement on a presiding arbitrator
of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United
States District Judge for the Northern District of Texas, who
shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. If
the Senior United States District Judge for the Northern
District of Texas refuses or fails to act as the appointing
authority within ninety (90) days after being requested to do
so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall
appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. All
decisions and awards by the arbitration tribunal shall be made
by majority vote.
(B) Proceedings. Unless otherwise expressly
agreed in writing by the Parties to the arbitration
proceedings:
(1) The arbitration proceedings shall be
held in Fort Worth, Texas, at a site chosen by mutual
agreement of the Parties, or if the Parties cannot
reach agreement on a location within thirty (30) days
of the appointment of the last arbitrator, then at a
site chosen by the arbitrators;
(2) The arbitrators shall be and remain
at all times wholly independent and impartial;
(3) The arbitration proceedings shall be
conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, as amended from time to time;
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20
(4) Any procedural issues not determined
under the arbitral rules selected pursuant to item
(3) above shall be determined by the law of the place
of arbitration, other than those laws which would
refer the matter to another jurisdiction;
(5) The costs of the arbitration
proceedings (including attorneys' fees and costs)
shall be borne in the manner determined by the
arbitrators;
(6) The decision of the arbitrators
shall be reduced to writing; final and binding
without the right of appeal; the sole and exclusive
remedy regarding any claims, counterclaims, issues or
accounting presented to the arbitrators; made and
promptly paid in United States dollars free of any
deduction or offset; and any costs or fees incident
to enforcing the award shall, to the maximum extent
permitted by law, be charged against the Person
resisting such enforcement;
(7) The award shall include interest
from the date of any breach or violation of this
Section 2.3(e), as determined by the arbitral award,
and from the date of the award until paid in full, at
5% per annum; and
(8) Judgment upon the award may be
entered in any court having jurisdiction over the
person or the assets of the Person owing the judgment
or application may be made to such court for a
judicial acceptance of the award and an order of
enforcement, as the case may be.
(f) After a Rating Reduction of Buyer, thirty (30) days after the
end of each quarter during each Earnout Period, Buyer shall place an amount
into an escrow account, such that the escrow account contains an amount equal
to the Subsequent Earnout Payment for such Earnout Period, as calculated
pursuant to Section 2.3(c) but based on the Pre-Tax Earnings of such quarter on
an annualized basis. The escrow agent shall then be responsible for all
payments under Sections 2.3(c) and (d). Buyer and Sellers shall, within 180
days after Closing, negotiate a form of an escrow agreement and use their Best
Efforts to identify a financial institution that would be willing to perform
the transactions contemplated by this Section 2.3(f). In the event that no
such financial institution is identified, Buyer and Sellers shall negotiate in
good faith to determine a mutually acceptable alternative.
(g) An example of the payments to be made pursuant to this Section
2.3 is attached hereto as Exhibit B. Such example is for illustrative purposes
only.
2.4 Closing. The purchase and sale (the "Closing") provided for
in this Agreement will take place at the offices of ▇▇▇▇▇▇ and ▇▇▇▇▇, LLP, at
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, Texas, at 10:00 a.m. (local time) on a
date that is no later than five (5) days after all conditions to Closing have
been satisfied, or at such other time and place as the parties may agree.
Subject to the provisions of Article IX, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.4 will not
- 20 -
21
result in the termination of this Agreement and will not relieve any party of
any obligation under this Agreement.
2.5 Closing Obligations. At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed
(or accompanied by duly executed stock powers), for transfer to Buyer;
(ii) a release in the form of Exhibit 2.5(a)(ii) executed
by Seller ("Seller's Release");
(iii) an employment agreement in the form of Exhibit
2.5(a)(iii), executed by ▇. ▇▇▇▇▇▇▇ ("▇. ▇▇▇▇▇▇▇ Employment
Agreement");
(iv) a certificate executed by Seller and the Company,
representing and warranting to Buyer that each of Seller's and the
Company's representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Disclosure
Letter delivered by Seller and the Company to Buyer prior to the
Closing Date in accordance with Section 5.5); and
(v) an opinion of Packman, Neuwahl & ▇▇▇▇▇▇▇▇▇, P.A.,
dated the Closing Date, in the form agreed to by the parties.
(b) Buyer will deliver to Seller:
(i) $795,600 by wire transfer payable to the order of
Seller.
(ii) a certificate executed by Buyer, representing and
warranting to Seller that each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Buyer's Disclosure Letter prior to the Closing Date
in accordance with Section 6.4);
(iii) the ▇. ▇▇▇▇▇▇▇ Employment Agreement, executed by
Buyer;
(iv) an opinion of ▇▇▇▇▇▇ and ▇▇▇▇▇, LLP, dated the
Closing Date, in the form agreed to by the parties; and
(v) the Interest due pursuant to Section 2.6 hereof.
2.6 Interest on Purchase Price. In the event that the Closing
Date does not occur within ninety (90) days of the date of this Agreement, for
any reason solely the fault of Buyer, Buyer
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22
shall pay Seller interest on the Purchase Price, commencing on the 91st day
after the date of this Agreement and continuing to accrue until the Closing
Date, at an interest rate of five percent (5%) per annum (the "Interest"). The
Interest shall be payable at Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER AND DLT
Seller and DLT jointly and severally represent and warrant to Buyer as
follows:
3.1 Organization and Good Standing.
(a) Part 3.1 of the Disclosure Letter contains a complete and
accurate list, for DLT and each Subsidiary of DLT (DLT, together with each
Subsidiary of DLT, collectively referred to herein as the "DLT Acquired
Companies"), of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each shareholder and the number of shares held by
each). Each DLT Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each DLT Acquired Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification. No jurisdiction, other than those listed in Part 3.1 of the
Disclosure Letter, has claimed, in writing, that any DLT Acquired Company is
required to hold a Governmental Authorization, and none of the DLT Acquired
Companies files or is required to file any Tax Returns in any other
jurisdiction.
(b) Seller has delivered to Buyer copies of the Organizational
Documents of each DLT Acquired Company, as currently in effect.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of DLT and Seller, enforceable against DLT and Seller in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity. Upon the execution and
delivery by Seller of the ▇. ▇▇▇▇▇▇▇ Employment Agreement and the Seller's
Release (collectively, the "Seller's Closing Documents"), the Seller's Closing
Documents will constitute the legal, valid, and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Seller has all right, power, authority, and capacity to
execute and deliver this Agreement and the Seller's
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Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents. DLT has all corporate right, power and authority
to execute and deliver this Agreement and to perform its obligations under this
Agreement.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time) (i) conflict with, or
result in a violation of any provision of the Organizational Documents of any
of the DLT Acquired Companies; (ii) conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any DLT Acquired Company or
Seller, or any of the assets owned or used by any DLT Acquired Company, may be
subject; (iii) conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, suspend,
terminate, or modify, any Governmental Authorization that is held by any DLT
Acquired Company or that otherwise relates to the business of, or any of the
assets owned or used by, any DLT Acquired Company; (iv) conflict with, or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; or (v) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by any DLT Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, neither
Seller nor any DLT Acquired Company is or will be required to give any notice
to or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 Capitalization. The authorized equity securities of DLT
consist of 500 shares of common stock, $1.00 par value per share, of which
228.571 shares are issued and outstanding. The ownership of DLT is as set
forth on Exhibit A hereto. Seller is and will be on the Closing Date the
record and beneficial owner and holder of 28.571 shares of DLT Common Stock,
free and clear of all Encumbrances. DLT has no other class or series of
capital stock authorized, issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights or other contracts or commitments that could require any DLT Acquired
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the DLT
Acquired Companies. With the exception of the shares listed on Exhibit A
hereto, all of the outstanding equity securities and other securities of each
DLT Acquired Company are owned of record and beneficially by one or more of the
DLT Acquired Companies, free and clear of all Encumbrances.
Except as set forth in Part 3.3 of the Disclosure Letter, no legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any DLT Acquired Company. All of the
outstanding equity securities of each DLT Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no
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Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of any DLT Acquired Company. None of the outstanding equity
securities or other securities of any DLT Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. No DLT Acquired
Company owns, or has any Contract to acquire, any equity securities or other
securities of any Person (other than DLT Acquired Companies) or any direct or
indirect equity or ownership interest in any other business. Except as set
forth in Part 3.3 of the Disclosure Letter, there are no restrictions upon the
voting or transfer of, or the declaration or payment of any dividend or
distribution on, any shares of capital stock of any DLT Acquired Company.
3.4 Financial Statements. Seller has delivered to Buyer: (a)
unaudited balance sheets of the DLT Acquired Companies as of December 31 in
each of the years 1995 and 1996, and the related unaudited statements of
income for each of the fiscal years then ended and (b) an unaudited balance
sheet of the DLT Acquired Companies as of December 31, 1997 (including the
notes thereto, the "DLT Balance Sheet"), and the related unaudited statements
of income for the fiscal year then ended. Sellers shall deliver to Buyer at
least fifteen (15) days prior to Closing: (a) audited balance sheets of the DLT
Acquired Companies as of December 31 in each of the years 1996 and 1997, and
the related audited statements of income, changes in shareholders' equity and
cash flows for each of the fiscal years then ended and (b) a reviewed balance
sheet of the DLT Acquired Companies as of July 31, 1998 (the "DLT Interim
Balance Sheet") and the related reviewed statements of income, changes in
shareholders' equity and cash flows for the seven (7) months then ended,
including in each case the notes thereto. Such financial statements and notes
fairly present the financial condition and the results of operations of the DLT
Acquired Companies at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP, subject, in the case
of interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the DLT Balance Sheet); the financial
statements referred to in this Section 3.4 reflect the consistent application
of such accounting principles throughout the periods involved, except as
disclosed in the notes to such financial statements. No financial statements of
any Person other than the DLT Acquired Companies are required by GAAP to be
included in the financial statements of DLT.
3.5 Books and Records. The books of account, minute books, stock
record books, and other records of the DLT Acquired Companies, all of which
have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of the
DLT Acquired Companies contain accurate and complete records of all meetings
held of, and corporate action taken by, the shareholders, the Boards of
Directors, and committees of the Boards of Directors of the DLT Acquired
Companies, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the DLT Acquired Companies.
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3.6 Title to Properties; Encumbrances. Part 3.6 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by any DLT Acquired Company. Seller has
delivered or made available to Buyer copies of the deeds and other instruments
(as recorded) by which the DLT Acquired Companies acquired such real property
and interests, and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Seller or the DLT Acquired Companies and
relating to such property or interests. The Acquired Companies own (with good
and marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that they purport
to own located in the facilities owned or operated by the DLT Acquired
Companies or reflected as owned in the books and records of the DLT Acquired
Companies, including all of the properties and assets reflected in the DLT
Balance Sheet and the DLT Interim Balance Sheet (except for personal property
sold since the date of the DLT Balance Sheet and the DLT Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the DLT Acquired
Companies since the date of the DLT Balance Sheet (except for personal property
acquired and sold since the date of the DLT Balance Sheet in the Ordinary
Course of Business and consistent with past practice), which subsequently
purchased or acquired properties and assets (other than short-term investments)
are listed in Part 3.6 of the Disclosure Letter. All material properties and
assets reflected in the DLT Balance Sheet and the DLT Interim Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature.
3.7 Accounts Receivable. All accounts receivable of the DLT
Acquired Companies that are reflected on the DLT Balance Sheet or the DLT
Interim Balance Sheet or on the accounting records of the DLT Acquired
Companies as of the Closing Date (collectively, the "DLT Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the DLT Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on
the DLT Balance Sheet or the DLT Interim Balance Sheet or on the accounting
records of the DLT Acquired Companies as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the DLT Accounts Receivable as of the Closing Date than the reserve with
respect to the DLT Accounts Receivable as reflected in the DLT Interim Balance
Sheet and will not represent a material adverse change in the composition of
such DLT Accounts Receivable in terms of aging). Subject to such reserves, each
of the DLT Accounts Receivable either has been or, to the Knowledge of DLT and
Seller, will be collected in full, without any set-off, within ninety days
after the day on which it first becomes due and payable. There is no contest,
claim, or right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of a DLT Accounts Receivable
relating to the amount or validity of such DLT Accounts Receivable. Part 3.7 of
the Disclosure Letter contains a complete and accurate list of all DLT Accounts
Receivable as of the date of the DLT Interim Balance Sheet, which list sets
forth the aging of such DLT Accounts Receivable.
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3.8 No Undisclosed Liabilities. Except as set forth in Part 3.8
of the Disclosure Letter, the DLT Acquired Companies have no material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the DLT Balance Sheet or the DLT
Interim Balance Sheet and current liabilities incurred in the Ordinary Course
of Business since the respective dates thereof.
3.9 Taxes.
(a) The DLT Acquired Companies or Seller, as applicable, have
filed or caused to be filed (on a timely basis since 1995) all Tax Returns that
are or were required to be filed by or with respect to any of the DLT Acquired
Companies, pursuant to applicable Legal Requirements. Seller has delivered or
made available to Buyer copies of, and Part 3.9 of the Disclosure Letter
contains a complete and accurate list of, all such Tax Returns filed since
January 1, 1995. The DLT Acquired Companies or Seller, as applicable, have
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Seller or any DLT Acquired Company, except such Taxes,
if any, as are listed in Part 3.9 of the Disclosure Letter and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the DLT Balance Sheet and the DLT
Interim Balance Sheet.
(b) Part 3.9 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 3.9 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 3.9 of the Disclosure Letter
describes all adjustments to the United States federal income Tax Returns filed
by any DLT Acquired Company or Seller for all taxable years since 1995 with
respect to or that are directly or indirectly related to any DLT Acquired
Company, and the resulting deficiencies proposed by the IRS. Except as
described in Part 3.9 of the Disclosure Letter, neither Seller nor any DLT
Acquired Company has given or been requested to give waivers or extensions (or
is or would be subject to a waiver or extension given by any other Person) of
any statute of limitations relating to the payment of Taxes of, with respect
to, or that are directly or indirectly related to any DLT Acquired Company or
for which Seller or any DLT Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to, or that
are directly or indirectly related to, Taxes on the respective books of each
DLT Acquired Company are adequate (determined in accordance with GAAP) and are
at least equal to that DLT Acquired Company's liability for Taxes. There exists
no proposed tax assessment against any DLT Acquired Company or Seller with
respect to or that is directly or indirectly related to any DLT Acquired
Company except as disclosed in the DLT Balance Sheet or in Part 3.9 of the
Disclosure Letter. All Taxes with respect to or that are directly or indirectly
related to any DLT Acquired Company that any DLT Acquired Company or Seller is
or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
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(d) All Tax Returns filed by any DLT Acquired Company or by Seller
with respect to or that are directly or indirectly related to any DLT Acquired
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by any DLT Acquired Company after the date of this
Agreement. Each DLT Acquired Company is an "S" corporation (or a Qualified
Subchapter S Subsidiary, as the case may be), and DLT has had a valid "S"
corporation election in effect under Section 1362(a) of the IRC since January
1, 1996. During the consistency period (as defined in Section 338(h)(4) of the
IRC with respect to the sale of the Shares to Buyer), no DLT Acquired Company
or target affiliate (as defined in Section 338(h)(6) of the IRC with respect to
the sale of the Shares to Buyer) has sold or will sell any property or assets
to Buyer or to any member of the affiliated group (as defined in Section
338(h)(5) of the IRC) that includes Buyer. Part 3.9 of the Disclosure Letter
lists all such target affiliates.
3.10 No Material Adverse Change. Since the date of the DLT Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any DLT Acquired
Company, and no event has occurred or circumstance exists that may result in
such a material adverse change.
3.11 Employee Benefit Plans. Except as set forth in Part 3.11 of
the Disclosure Letter, neither DLT nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any Employee Benefit Plan, whether or not written, which could give rise to
or result in DLT or such Plan Affiliate having any material debt, liability,
claim or obligation of any kind or nature, whether accrued, absolute,
contingent, direct, indirect, known or unknown, perfected or inchoate or
otherwise and whether or not due or to become due. Correct and complete copies
of all Employee Benefit Plans of DLT previously have been furnished to Buyer.
The Employee Benefit Plans of DLT are in compliance in all material respects
with governing documents and agreements and with applicable laws. There has
not been any act or omission by DLT under ERISA or the terms of the Employee
Benefit Plans of DLT, or any other applicable law or agreement which could give
rise to any liability of DLT, whether under ERISA, the IRC or other laws or
agreements. Neither DLT nor any Plan Affiliate maintains or contributes to, or
has maintained or contributed to, any Employee Benefit Plan subject to Title IV
of ERISA.
3.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 3.12 of the Disclosure Letter,
each DLT Acquired Company is, and at all times since January 1, 1995 has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any
of its assets.
(b) Part 3.12 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any DLT
Acquired Company or that otherwise relates to the business of, or to any of the
assets owned or used by, any DLT Acquired Company. Each Governmental
Authorization listed or required to be listed in Part 3.12 of the Disclosure
Letter is valid and in full force and effect. Each DLT Acquired Company owns or
possesses all right, title and interest in and to all of the Governmental
Authorizations that are necessary to enable it
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to carry on the business of such DLT Acquired Company as presently conducted.
Each DLT Acquired Company has taken all necessary action to maintain such
Governmental Authorizations. No loss or expiration of any such Governmental
Authorization is threatened, pending or, to the Knowledge of DLT and Seller,
reasonably foreseeable. The consummation of the transactions contemplated
hereby will not result in the suspension, modification, cancellation,
revocation or nonrenewal of any such Governmental Authorization. Except for
compliance with periodic renewal procedures, no approvals or authorizations are
required to permit the DLT Acquired Companies to continue their business as
presently conducted, following the Closing.
(c) Except as set forth in Part 3.12 of the Disclosure Letter,
each of the DLT Acquired Companies has filed all material reports, statements,
registrations, applications, filings or other documents and submissions
required to be filed with, or provided to any Governmental Body. Except as set
forth in Part 3.12 of the Disclosure Letter, all such reports, statements,
registrations, applications, filings, documents and submissions were in
compliance in all material respects with all applicable Legal Requirements when
filed, and no material deficiencies have been asserted by any Governmental Body
with respect thereto.
3.13 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.13 of the Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
DLT Acquired Company or that otherwise relates to or may affect the business
of, or any of the assets owned or used by, any DLT Acquired Company; or (ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
To the Knowledge of Seller and DLT, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding not in
the Ordinary Course of Business of the DLT Acquired Companies. Seller has
delivered to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.13 of the Disclosure Letter. The
Proceedings listed in Part 3.13 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of any DLT Acquired Company.
(b) Except as set forth in Part 3.13 of the Disclosure Letter: (i)
there is no Order to which any of the DLT Acquired Companies, or any of the
assets owned or used by any DLT Acquired Company, is subject; and (ii) each DLT
Acquired Company is, and at all times since January 1, 1995 has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject.
3.14 Absence of Certain Changes and Events. Except as set forth in
Part 3.14 of the Disclosure Letter, since the date of the DLT Balance Sheet,
the DLT Acquired Companies have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in any DLT Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any DLT Acquired Company;
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issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
any DLT Acquired Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Organizational Documents of any DLT Acquired
Company;
(c) payment or increase by any DLT Acquired Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any DLT
Acquired Company;
(e) damage to or destruction or loss of any asset or property of
any DLT Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the DLT Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to any DLT Acquired Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or
property of any DLT Acquired Company or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of any DLT Acquired
Company, including the sale, lease, or other disposition of any of the DLT
Intellectual Property Assets (as defined in Section 3.20)
(h) cancellation or waiver of any claims or rights with a value to
any DLT Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any DLT
Acquired Company;
(j) agreement, whether oral or written, by any DLT Acquired
Company to do any of the foregoing; or
(k) change in its business or claims adjustment policies and
practices or any change in any activity that (i) has had the effect of
accelerating the recording and billing of accounts receivable or delaying the
payment of expenses in connection with the business or any material accounts of
any of the DLT Acquired Companies or (ii) has had the effect of materially
altering, modifying or changing the historic financial or accounting practices
or policies of any of the DLT Acquired Companies, including accruals of and
reserves for Taxes.
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3.15 Contracts; No Defaults.
(a) Part 3.15(a) of the Disclosure Letter contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies, of
all the material Contracts of each DLT Acquired Company. Part 3.15(a) of the
Disclosure Letter sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining
commitment of the DLT Acquired Companies under the Contracts, and the DLT
Acquired Companies' office where details relating to the Contracts are located.
(b) Except as set forth in Part 3.15(b) of the Disclosure Letter,
each Contract identified or required to be identified in Part 3.15(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(c) Except as set forth in Part 3.15(c) of the Disclosure Letter:
(i) each DLT Acquired Company is, and at all times since
January 1, 1995 has been, in full compliance with all applicable terms
and requirements of each Contract under which such DLT Acquired
Company has or had any obligation or liability or by which such DLT
Acquired Company or any of the assets owned or used by such DLT
Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an DLT Acquired Company has
or had any rights is, and at all times since January 1, 1995 has been,
in full compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may conflict with, or result
in a violation or breach of, or give any DLT Acquired Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
(iv) no DLT Acquired Company has given to or received from
any other Person, at any time since January 1, 1995, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
(d) The Contracts relating to the sale or provision of services by
the DLT Acquired Companies have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
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3.16 Insurance.
(a) Seller has delivered to Buyer true and complete copies of all
policies of insurance to which any DLT Acquired Company is a party or under
which any DLT Acquired Company, or any director of any DLT Acquired Company, is
or has been covered at any time within the three (3) years preceding the date
of this Agreement;
(b) Part 3.16(b) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy in the possession of Seller or
any of the DLT Acquired Companies. DLT and Sellers have no Knowledge of any
loss experience that would affect future potential insurability with respect to
such policies.
(c) Except as set forth in Part 3.16(c) of the Disclosure Letter:
(i) All policies to which any DLT Acquired Company is a
party or that provide coverage to any DLT Acquired Company or any
director or officer of an DLT Acquired Company (A) are valid,
outstanding, and enforceable; (B) taken together, provide adequate
insurance coverage as is customary for similar entities in similar
businesses for the assets and the operations of the DLT Acquired
Companies for all risks to which the DLT Acquired Companies are
normally exposed; (C) are sufficient for compliance with all Legal
Requirements and Contracts to which any DLT Acquired Company is a
party or by which any of them is bound; and (D) will continue in full
force and effect following the consummation of the Contemplated
Transactions.
(ii) No DLT Acquired Company has received (A) any refusal
of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The DLT Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective obligations,
under each policy to which any DLT Acquired Company is a party or that
provides coverage to any DLT Acquired Company or director thereof.
(iv) The DLT Acquired Companies have given notice to the
insurer of all claims that may be insured thereby.
3.17 Environmental Matters. Except as set forth in Part 3.17 of
the Disclosure Letter, to the Knowledge of Seller and DLT, each of the DLT
Acquired Companies is in compliance with all Environmental Laws, the failure to
comply with which could have a Material Adverse Effect. Neither Seller nor any
of the DLT Acquired Companies has received notice of any material violation by
any of the DLT Acquired Companies of, or material default by the same under,
any Environmental Law, and neither Seller nor DLT has any Knowledge of any
existing facts or
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circumstances that are likely to result in any such violation or default.
There is no action, suit, claim, proceeding or investigation pending or, to the
Knowledge of Seller and DLT, threatened against any of the DLT Acquired
Companies that alleges or would allege any violation of any Environmental Law.
3.18 Employees.
(a) Part 3.18 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
DLT Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and,
with respect to any employee paid $50,000 or more annually, any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any DLT Acquired
Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other Employee Benefit Plan or
any Director Plan.
(b) No employee or director of any DLT Acquired Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
Proprietary Rights Agreement, between such employee or director and any other
Person that in any way adversely affects or will affect (i) the performance of
his duties as an employee or director of the DLT Acquired Companies, or (ii)
the ability of any DLT Acquired Company to conduct its business, including any
Proprietary Rights Agreement with Seller or the DLT Acquired Companies by any
such employee or director. To Seller's and DLT's Knowledge, no director,
officer, or other key employee of any DLT Acquired Company intends to terminate
his employment with such DLT Acquired Company.
(c) Part 3.18 of the Disclosure Letter also contains a complete
and accurate list of the following information for each retired employee or
director of the DLT Acquired Companies, or their dependents, receiving benefits
or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
3.19 Labor Relations; Compliance. Except as set forth on Part 3.19
of the Disclosure Letter, since January 1, 1995, no DLT Acquired Company has
been or is a party to any collective bargaining or other labor Contract. Since
January 1, 1995, there has not been, there is not presently pending or
existing, and, to the Knowledge of DLT and Seller, there is not Threatened, (a)
any strike, slowdown, picketing, work stoppage, lockout or employee grievance
process, (b) any Proceeding against or affecting any DLT Acquired Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters or (c) any application for certification of a
collective bargaining agent. Each DLT Acquired Company has complied in all
respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining and occupational safety and health. No DLT Acquired Company is
liable for the payment of any
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compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.20 Intellectual Property.
(a) Each DLT Acquired Company (i) owns or has ordered all the
licenses, trademarks, tradenames, copyrights, marks, patents and applications
for patents listed and attributed to it on Part 3.20(a) of the Disclosure
Letter (the "DLT Intellectual Property Assets"), (ii) neither owns nor uses any
such items which are not listed in the Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and
lawful right to bring actions for the infringement thereof. Each DLT Acquired
Company owns, or possesses adequate and enforceable rights to use without
payment of royalties, all licenses, trademarks, tradenames, copyrights,
patents, trade secrets and processes necessary for the conduct of, or use in,
its business as the same is presently being conducted, the absence of which
would have a material adverse effect or the potential for a material adverse
effect on such DLT Acquired Company.
(b) Except as set forth in Part 3.20(b) of the Disclosure Letter,
DLT has no Knowledge nor has received any notice to the effect that any service
it or any other DLT Acquired Company provides or sells, or any process or
method it employs in its business for the use by it or another of any such
service, may infringe, or is in conflict with, any asserted right of another.
There is no pending or Threatened claim or litigation action against any DLT
Acquired Company contesting its right to use or the validity of any of the DLT
Intellectual Property Assets or asserting its misuse of any of the foregoing,
which would deprive it of the right to assert its rights thereunder or which
would prevent the sale of any service provided or sold by it.
(c) Each DLT Acquired Company has established a strategic plan and
provided Buyer with an accurate and complete copy of such plan and a schedule
of the amount of capital and resources reasonably believed to be necessary to
institute software systems such that each DLT Acquired Company will be Year
2000 Compliant upon the completion of such plan.
3.21 Certain Payments. Since January 1, 1995, no DLT Acquired
Company or director, officer, agent, or employee of any DLT Acquired Company,
or any other Person associated with or acting for or on behalf of any DLT
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any DLT Acquired Company or any affiliate of an DLT Acquired Company, or (iv)
in violation of any Legal Requirement or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the DLT
Acquired Companies.
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3.22 Disclosure.
(a) No representation or warranty of Seller or DLT in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Seller or DLT that has specific
application to Seller or any DLT Acquired Company (other than general economic
or industry conditions) and that materially adversely affects or, as far as
Seller or DLT can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the DLT
Acquired Companies (on a consolidated basis) that has not been set forth in
this Agreement or the Disclosure Letter.
3.23 Relationships with Related Persons. Except as set forth in
Part 3.23 of the Disclosure Letter, neither Seller nor any Related Person of
Seller or of any DLT Acquired Company has, or since January 1, 1996 has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to the DLT Acquired Companies'
businesses. Except as set forth in Part 3.23 of the Disclosure Letter, neither
Seller nor any Related Person of Seller or of any DLT Acquired Company is, or
since January 1, 1996, has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i)
had business dealings or a material financial interest in any transaction with
any DLT Acquired Company, or (ii) engaged in competition with any DLT Acquired
Company with respect to any line of the products or services of such DLT
Acquired Company ("DLT Competing Business") in any market presently served by
such DLT Acquired Company. Except as set forth in Part 3.23 of the Disclosure
Letter, neither Seller nor any Related Person of Seller or of any DLT Acquired
Company is a party to any Contract with, or has any claim or right against, any
DLT Acquired Company.
3.24 Investments. Part 4.24 of the Disclosure Letter contains a
true and complete list of all securities and other investments owned by each of
the DLT Acquired Companies as of the end of the most recent calendar month,
including the date of purchase, book value or amortized cost, market value and
carrying value thereof on the books and records of account of such Persons as
of such date. Except as set forth in Part 4.24 of the Disclosure Letter, none
of the securities and other investments owned by such Persons is in default in
the payment of principal or interest or dividends.
3.25 Bank Accounts. Part 3.25 of the Disclosure Letter contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which any of
the DLT Acquired Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.
3.26 Brokers or Finders. Except for those certain obligations to
Metis Financial LLC, Seller, each DLT Acquired Company and their agents have
incurred no obligation or liability,
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contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Texas.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. Upon the execution and delivery by Buyer
of the ▇. ▇▇▇▇▇▇▇ Employment Agreement, the ▇. ▇▇▇▇▇▇▇ Employment Agreement
will constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Buyer has all corporate right, power, and authority to
execute and deliver this Agreement and the ▇. ▇▇▇▇▇▇▇ Employment Agreement and
to perform its obligations under this Agreement and the ▇. ▇▇▇▇▇▇▇ Employment
Agreement.
(b) Except as set forth in Part 4.2 of the Buyer's Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time) (i) conflict
with, or result in a violation of any provision of the Organizational Documents
of Buyer; (ii) conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Buyer, or any of the assets owned
or used by Buyer, may be subject; (iii) conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, suspend, terminate, or modify, any Insurance Permit or other
Governmental Authorization that is held by Buyer or that otherwise relates to
the business of, or any of the assets owned or used by, Buyer; (iv) conflict
with, or result in a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or (v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Buyer.
Except as set forth in Part 4.2 of the Buyer's Disclosure Letter,
Buyer is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the
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execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
4.3 Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.4 Certain Proceedings. There is no pending Proceeding that has
been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
4.5 Brokers or Finders. Except as set forth in Part 4.5 of the
Buyer's Disclosure Letter, Buyer and its officers and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
4.6 Loss Reserves. The Loss Reserves (as defined below) of the
wholly-owned subsidiaries of GAINSCO that are insurance companies (the "GAINSCO
Insurance Subsidiaries"), as set forth in the most recent unaudited
consolidated balance sheet of GAINSCO (the "GAINSCO Balance Sheet"), net of
reinsurance recoverables (other than intercompany reinsurance), are fairly
stated in the GAINSCO Balance Sheet in accordance with generally accepted
actuarial standards and principles. For the purpose of this Section 4.6, "Loss
Reserves" means all reserves for all losses and loss adjustment expenses,
including, without limitation, case reserves, reserves for loss adjustment
expenses, both allocated and unallocated, reserves for incurred but not
reported losses and loss adjustment expenses, and otherwise determined in
accordance with those generally accepted actuarial standards and principles
applied in determining such Loss Reserves reflected in the GAINSCO Balance
Sheet.
4.7 Disclosure.
(a) No representation or warranty of Buyer in this Agreement and
no statement in the Buyer's Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Buyer that has specific application
to Buyer (other than general economic or industry conditions) and that
materially adversely affects or, as far as Buyer can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of Buyer (on a consolidated basis) that has not been set
forth in this Agreement or the Buyer's Disclosure Letter.
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ARTICLE V
COVENANTS OF SELLER AND THE COMPANY AT OR PRIOR TO CLOSING DATE
5.1 Access and Investigation. Subject to the terms of that certain
Non-Disclosure Agreement, dated June 15, 1998, from M.B. ▇▇▇▇▇▇▇▇, the De ▇▇
▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ to Buyer (the "Non-Disclosure Agreement"),
between the date of this Agreement and the Closing Date, Seller and the Company
will, and will cause each DLT Acquired Company and its Representatives to, (a)
afford Buyer and its Representatives (collectively, "Buyer's Advisors") full
and free access to each DLT Acquired Company, its personnel, properties,
contracts, books and records, and all other documents and data, (b) furnish
Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
5.2 Operation of the Businesses of the DLT Acquired Companies.
Between the date of this Agreement and the Closing Date, Seller and the Company
will, and will cause each DLT Acquired Company to:
(a) conduct the business of such DLT Acquired Company only in the
Ordinary Course of Business and in accordance with all valid regulations, laws
and orders of all Governmental Bodies;
(b) use their Best Efforts to preserve intact the current business
organization of such DLT Acquired Company, keep available the services of the
current officers, employees, and agents of such DLT Acquired Company, and
maintain the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with
such DLT Acquired Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report from time to time to Buyer concerning the
status of the business, operations, and finances of such DLT Acquired Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement or disclosed in the Disclosure Letter, between the date of this
Agreement and the Closing Date, Seller and the Company will not, and will cause
each DLT Acquired Company not to, without the prior consent of Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.14 is likely to occur.
5.4 Required Approvals. As promptly as practicable after the date
of this Agreement, Seller will, and will cause each DLT Acquired Company to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing Date, Seller will, and
will cause each DLT Acquired Company to, (a) cooperate with Buyer with respect
to all filings that Buyer elects to make or is required by Legal Requirements
to make in connection with the Contemplated Transactions and (b) cooperate with
Buyer in obtaining all consents identified in Part 4.2 of the Buyer's
Disclosure Letter (including taking all actions requested by Buyer to cause
early termination of any applicable waiting period under the HSR Act).
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5.5 Notification. Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller or any DLT
Acquired Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller's or the Company's representations and
warranties as of the date of this Agreement, or if Seller or any DLT Acquired
Company becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Disclosure Letter if the Disclosure Letter were dated the
date of the occurrence or discovery of any such fact or condition, Seller will
promptly deliver to Buyer a supplement to the Disclosure Letter specifying such
change. During the same period, Seller will promptly notify Buyer of the
occurrence of any Breach of any covenant of Seller or the Company in this
Article V or of the occurrence of any event that may make the satisfaction of
the conditions in Article VII impossible or unlikely. No notice given pursuant
to this Section 5.5 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein or in this Agreement, in
light of the circumstances in which they were made, not misleading.
5.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, Seller will cause all indebtedness owed
to an DLT Acquired Company by Seller or any Related Person of any Seller to be
paid in full contemporaneous with Closing.
5.7 Best Efforts. Between the date of this Agreement and the
Closing Date, Seller will use their Best Efforts to cause the conditions in
Articles VII and VIII to be satisfied.
5.8 Certain Indebtedness.
(a) Contemporaneous with Closing, each DLT Acquired Company shall
pay, and Seller shall cause each DLT Acquired Company to pay, any indebtedness
owed by any DLT Acquired Company to Agents Financial Services, Inc., a Florida
corporation ("AFS"), in full.
(b) Contemporaneous with Closing, all indebtedness owed by AFS to
any DLT Acquired Company shall be paid in full.
5.9 Audited Financial Statements of DLT. At least 15 days prior
to Closing, Seller shall provide Buyer with audited consolidated balance sheets
of the DLT Acquired Companies as of December 31, 1996 and 1997, and the related
consolidated statements of income. Such financial statements and notes will
fairly present the financial condition and the results of operations, changes
in shareholders' equity, and cash flow of the DLT Acquired Companies at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP and will reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements.
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7.10 Reviewed Financial Statements of the Acquired Companies.
Seller shall deliver the financial statements as required by Section 3.4.
7.11 M&C Inspection Services, Inc.. At or prior to Closing, C. De
la Torre and R. De la Torre shall execute all documents necessary to dissolve
or liquidate M&C Inspection Services, Inc.
ARTICLE VI
COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 Approvals of Governmental Bodies. As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions (including all filings under the HSR Act). Between the date of
this Agreement and the Closing Date, Buyer will (a) cooperate with Seller with
respect to all filings that Seller elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions and (b)
cooperate with Seller in obtaining all consents identified in Part 4.2 of the
Buyer's Disclosure Letter; provided that this Agreement will not require Buyer
to dispose of or make any change in any portion of its business or to incur any
other burden to obtain a Governmental Authorization.
6.2 Best Efforts. Except as set forth in the proviso to Section
6.1, between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Articles VII and VIII to be
satisfied.
6.3 Access. Between the date of this Agreement and the Closing
Date, Buyer shall provide to Seller responses to the Seller's reasonable due
diligence requests.
6.4 Notification. Between the date of this Agreement and the
Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Buyer's representations and warranties as of the date of this Agreement, or if
Buyer becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Buyer's Disclosure Letter if the Buyer's Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, Buyer will promptly deliver to Seller a supplement to the Buyer's
Disclosure Letter specifying such change. During the same period, Buyer will
promptly notify Seller of the occurrence of any Breach of any covenant of Buyer
in this Article VI or of the occurrence of any event that may make the
satisfaction of the conditions in Article VIII impossible or unlikely. No
notice given pursuant to this Section 6.4 will contain any untrue statement or
omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading.
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ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
7.1 Accuracy of Representations. Each of Seller's and the
Company's representations and warranties in this Agreement must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter.
7.2 Seller's Performance. Each of the covenants and obligations
that Seller and the Company are required to perform or to comply with pursuant
to this Agreement at or prior to the Closing must have been duly performed and
complied with in all material respects.
7.3 Consents. Each of the Consents identified in Part 3.2 of the
Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must have been
obtained and must be in full force and effect.
7.4 Additional Documents. Each of the following documents must
have been delivered to Buyer:
(a) an opinion of Packman, Neuwahl & ▇▇▇▇▇▇▇▇▇, P.A., dated the
Closing Date, in the form agreed to by the parties;
(b) estoppel certificates executed on behalf of all landlords,
lenders and lessors of the Acquired Companies, dated as of a date not more than
five (5) days prior to the Closing Date;
(c) executed stock purchase agreements, pursuant to which Buyer
shall obtain all of the outstanding shares of capital stock of NSL and Lalande.
(d) if applicable, wire transfer instructions concerning the
amount to be transferred to Seller pursuant to Section 2.5(b)(i); and
(e) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any of Seller's and DLT's
representations and warranties, (iii) evidencing the performance by Seller and
DLT of, or the compliance by Seller and DLT with, any covenant or obligation
required to be performed or complied with by Seller and DLT, (iv) evidencing
the satisfaction of any condition referred to in this Article VII or (v)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
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7.5 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies or (b)
is entitled to all or any portion of the Purchase Price payable for the Shares.
7.6 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable
Legal Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental
Body. Neither the consummation nor the performance of the Contemplated
Transactions will directly or indirectly violate an Order.
7.7 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
7.8 Disposition of AFS Shares. Contemporaneous with Closing, NSL
shall sell all shares of capital stock of AFS owned by NSL to M.B. ▇▇▇▇▇▇▇▇ and
C. De la Torre, at the book value as of the most recent month preceding the
Closing.
7.10 Regulatory Approval. Buyer or a Subsidiary of Buyer shall have
obtained the necessary regulatory approval to write nonstandard private
passenger automotive insurance in the State of Florida or have contracted with
another entity to enable it to write business that would be wholly or partially
reinsured with a Subsidiary or Subsidiaries of Buyer.
7.11 NSL Stockholders' Agreement. That certain Stockholders'
Agreement, dated December 14, 1993, by and among M.B. ▇▇▇▇▇▇▇▇, C. De la Torre,
▇. ▇▇▇▇▇▇▇▇ and NSL shall have been terminated by all of the shareholders of
NSL.
7.12 M&C Inspection Services, Inc. M&C Inspection Services, Inc.
shall have been liquidated or dissolved.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Seller, in whole or in part):
8.1 Accuracy of Representations. Each of Buyer's representations
and warranties in this Agreement must have been accurate in all material
respects as of the date of this Agreement,
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and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date, without giving effect to any supplement to the Buyer's
Disclosure Letter.
8.2 Buyer's Performance. Each of the covenants and obligations
that Buyer is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing must have been performed and complied with in all
material respects.
8.3 Consents. Each of the Consents identified in Part 3.2 of the
Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must have been
obtained and must be in full force and effect.
8.4 Additional Documents. Buyer must have caused the following
documents to be delivered to Seller:
(a) an opinion of ▇▇▇▇▇▇ and ▇▇▇▇▇, LLP, dated the Closing Date,
in the form agreed to by the parties; and
(b) such other documents as Seller may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 7.4(a), (ii) evidencing the accuracy of any representation or warranty
of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with by Buyer, (ii) evidencing the satisfaction of any condition referred to in
this Article VIII or (v) otherwise facilitating the consummation of any of the
Contemplated Transactions.
8.5 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Seller or any Person affiliated
with Seller to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
Governmental Body. Neither the consummation nor the performance of the
Contemplated Transactions will directly or indirectly violate an Order.
8.6 HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
ARTICLE IX
TERMINATION
9.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
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(a) by either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived or such Breach has not been remedied within thirty
(30) days after written notice is given specifying the Breach and demanding it
to be remedied;
(b) (i) by Buyer if any of the conditions in Article VII has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition
on or before the Closing Date; or (ii) by Seller, if any of the conditions in
Article VIII has not been satisfied as of the Closing Date or if satisfaction
of such a condition is or becomes impossible (other than through the failure of
Seller to comply with their obligations under this Agreement) and Seller has
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1998, or such later date as the parties may agree upon; or
(e) (i) by Buyer if a material Breach of any provision of any of
the Purchase Agreements has been committed by any party other than Buyer
thereto and such Breach has not been waived or such Breach has not been
remedied within thirty (30) days after written notice is given specifying the
Breach and demanding it to be remedied, or (ii) by Buyer if any of the
conditions precedent to Buyer's obligation to close any of the Purchase
Agreements has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer has not
waived such condition on or before the Closing Date.
9.2 Effect of Termination. Each party's right of termination
under Section 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 11.1 and 11.3 will survive;
provided, however, that if this Agreement is terminated by a party because of
the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
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ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification Not Affected by Knowledge.
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter, the
certificates delivered pursuant to Section 2.5(a)(iv), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification and Payment of Damages by Seller. Seller will
indemnify and hold harmless Buyer, the Acquired Companies, and their respective
Representatives, shareholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements (without giving
effect to any supplement to the Disclosure Letter), the Disclosure Letter, any
Disclosure Letter delivered pursuant to the respective Purchase Agreements, the
supplements to the Disclosure Letter, the supplements to any Disclosure Letter
delivered pursuant to the respective Purchase Agreements, or any other
certificate or document delivered by Seller, NSL, DLT, Lalande or any of the
Sellers under this Agreement or under the respective Purchase Agreements;
(b) any Breach of any representation or warranty made by Seller,
each Seller under the respective Purchase Agreements, NSL, DLT or Lalande in
this Agreement or any of the respective Purchase Agreements as if such
representation or warranty were made on and as of the Closing Date without
giving effect to any supplement to the Disclosure Letter or any Disclosure
Letter delivered pursuant to the respective Purchase Agreements, other than any
such Breach that is disclosed in a supplement to the Disclosure Letter or a
supplement to any Disclosure Letter delivered pursuant to the respective
Purchase Agreements and is expressly identified in the certificate delivered
pursuant to Section 2.5(a)(iv) or the corresponding section in each Purchase
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Agreement as having caused the condition specified in Section 7.1 or the
corresponding section in each respective Purchase Agreement not to be
satisfied;
(c) any Breach by Seller, each Seller under the respective
Purchase Agreements, NSL, DLT or Lalande of any covenant or obligation of
Seller, each Seller under the respective Purchase Agreements, NSL, DLT or
Lalande in this Agreement;
(d) any claim by any Person, other than Metis Financial LLC, for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with
Seller, NSL, any other NSL Acquired Company (as defined in the respective
Purchase Agreements), DLT, any other DLT Acquired Company, Lalande or any other
Lalande Acquired Company (as defined in the respective Purchase Agreements) (or
any Person acting on their behalf) in connection with any of the Contemplated
Transactions; or
(e) any claim by any Person with respect to AFS;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 10.2
and 10.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 10.2 and 10.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller shall have no
obligation to make any payment, in the aggregate, to Indemnified Persons under
Sections 10.2 and 10.3 in excess of the Seller's proportional share of the
aggregate Purchase Price received by Seller and each Seller under the
respective Purchase Agreements pursuant to Article II of this Agreement and the
respective Purchase Agreements.
The remedies provided in this Section 10.2 will not be exclusive of or limit
any other remedies that may be available to Buyer or the other Indemnified
Persons.
10.3 Indemnification and Payment of Damages by Seller --
Environmental Matters. In addition to the provisions of Section 10.2, Seller
will indemnify and hold harmless Buyer, the Acquired Companies, and the other
Indemnified Persons for, and will pay to Buyer, the Acquired Companies, and the
other Indemnified Persons the amount of, any Damages (including costs of
cleanup, containment, or other remediation) arising, directly or indirectly,
from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out
of or relating to: (i) (A) the ownership, operation, or condition at any time
on or prior to the Closing Date of the Facilities or any other properties and
assets (whether real, personal, or mixed and whether tangible or intangible) in
which Seller, each Seller under the respective Purchase Agreements,
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46
any DLT Acquired Company, any NSL Acquired Company (as defined in the
respective Purchase Agreements) or any Lalande Acquired Company (as defined in
the respective Purchase Agreements) has or had an interest, or (B) any
Hazardous Materials or other contaminants that were present on the Facilities
or such other properties and assets at any time on or prior to the Closing
Date; or (ii) (A) any Hazardous Materials or other contaminants, wherever
located, that were, or were allegedly, generated, transported, stored, treated,
Released, or otherwise handled by Seller, each Seller under the respective
Purchase Agreements, any NSL Acquired Company, (as defined in the respective
Purchase Agreements), any DLT Acquired Company or any Lalande Acquired Company
(as defined in the respective Purchase Agreements) or by any other Person for
whose conduct they are or may be held responsible at any time on or prior to
the Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Seller, each Seller under the respective Purchase Agreements, any
DLT Acquired Company, any NSL Acquired Company (as defined in the respective
Purchase Agreements) or any Lalande Acquired Company (as defined in the
respective Purchase Agreements) or by any other Person for whose conduct they
are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death,
and regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of
Seller, each Seller under the respective Purchase Agreements, any DLT Acquired
Company, any NSL Acquired Company (as defined in the respective Purchase
Agreements), any Lalande Acquired Company (as defined in the respective
Purchase Agreements) or any other Person for whose conduct they are or may be
held responsible, in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Acquired Companies or any Acquired Company
under the respective Purchase Agreements prior to the Closing Date, or from
Hazardous Material that was (i) present or suspected to be present on or before
the Closing Date on or at the Facilities (or present or suspected to be present
on any other property, if such Hazardous Material emanated or allegedly
emanated from any of the Facilities and was present or suspected to be present
on any of the Facilities on or prior to the Closing Date) or (ii) Released or
allegedly Released by Seller, each Seller under the respective Purchase
Agreements, any DLT Acquired Company, any NSL Acquired Company (as defined in
the respective Purchase Agreements), any Lalande Acquired Company (as defined
in the respective Purchase Agreements) or any other Person for whose conduct
they are or may be held responsible, at any time on or prior to the Closing
Date;
provided, however, that Seller shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 and under corresponding sections of the Purchase
Agreements exceeds the sum of (i) $50,000 in the aggregate under Sections 10.2
and 10.3 and under the corresponding sections of the Purchase Agreements and
(ii) any amounts collected under the Acquired Companies' errors and omissions
policies, it being understood that only after such sum is exceeded, shall the
aggregate of all claims under Sections 10.2 and 10.3 and under corresponding
sections of the Purchase Agreements, subject to the following clause, be
payable by Seller on demand; and further provided that Seller
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shall have no obligation to make any payment, in the aggregate, to Indemnified
Persons under Sections 10.2 and 10.3 in excess of the Seller's proportional
share of the aggregate Purchase Price received by Seller and each Seller under
the respective Purchase Agreements pursuant to Article II of this Agreement and
the respective Purchase Agreements.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.7 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Seller, and will pay to Seller the amount of any
Damages arising, directly or indirectly, from or in connection with
(a) any Breach of any representation or warranty made by Buyer in
this Agreement (without giving effect to any supplement to the Buyer's
Disclosure Letter), the Buyer's Disclosure Letter, the supplements to the
Buyer's Disclosure Letter, or any other certificate or document delivered by
Buyer pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Buyer in
this Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Buyer's Disclosure
Letter, other than any such Breach that is disclosed in a supplement to the
Buyer's Disclosure Letter and is expressly identified in the certificate
delivered pursuant to Section 2.5(b)(ii) as having caused the condition
specified in Section 9.1 not to be satisfied;
(c) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement;
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on
its behalf) in connection with any of the Contemplated Transactions; or
(e) payments owed to Seller pursuant to Section 2.3 hereof that
are not paid when due;
provided, however, that Buyer shall have no obligation to make any payment to
Seller under this Section 10.4 unless the aggregate amount to which Seller is
entitled by reason of all claims under this Section 10.4 and to any other
Seller (as defined in the respective Purchase Agreements) under the respective
Purchase Agreements exceeds $50,000 in the aggregate of all amounts collectible
under the Acquired Companies' errors and omissions policies, it being
understood that once such amount is exceeded, the aggregate of all claims under
this Section 10.4 and under corresponding sections of the Purchase Agreements
shall be payable by Buyer on demand.
The remedies provided in this Section 10.4 will not be exclusive of or limit
any other remedies that may be available to Seller.
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10.5 Time Limitations. If the Closing occurs, Seller will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.9, 3.11 and 3.17,
unless on or before the earlier of (i) the second anniversary of the Date for
the third Earnout Period or (ii) July 1, 2003, Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Section 3.3, 3.9, 3.11 and 3.17,
or a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time. If the
Closing occurs, Buyer will have no liability (for indemnification or otherwise)
with respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, unless on or before July
1, 2003, Seller notifies Buyer of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Seller.
10.6 Right of Set-Off. Upon notice to Seller specifying in
reasonable detail the basis for such set-off, Buyer may set off any amount to
which it may be entitled under this Article XI against amounts otherwise
payable to Seller under this Agreement or to any other Seller (as defined in
the respective Purchase Agreements) under the respective Purchase Agreements.
The exercise of such right of set-off by Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute a Breach of this
Agreement. Neither the exercise of nor the failure to exercise such right of
set-off shall constitute an election of remedies or limit Buyer in any manner
in the enforcement of any other remedies that may be available to it. Any
amount set-off pursuant to this Section 10.6 shall be considered a reduction in
the Purchase Price of that amount.
10.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section
10.2 or 10.4, or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement
of such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except and only to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes not related to the Acquired Companies, be entitled to
participate in such Proceeding with respect to the Acquired Companies and, to
the extent that it wishes (unless (i) the indemnifying party is also a party to
such Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its
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election to assume the defense of such Proceeding, the indemnifying party will
not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Article X for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, subsequently
incurred by the indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If the indemnifying
party assumes the defense of a Proceeding, (i) it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that
are paid in full by the indemnifying party; and (iii) the indemnified party
will have no liability with respect to any compromise or settlement of such
claims effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does
not, within ten days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made in
such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding,
but the indemnifying party will not be bound by any determination of a
Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
10.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
10.9 Reduction for Insurance, etc. The amount that Seller shall be
liable to pay to, for, or on behalf of an Indemnified Person pursuant to this
Article X or the amount that Buyer shall be liable to pay to, for or on behalf
of Seller pursuant to this Article X (either, an "Indemnifiable Loss") shall be
reduced (including without limitation, retroactively) by any insurance proceeds
actually recovered by or on behalf of such Indemnified Person or Seller, as
applicable (an "Indemnitee"), related to the Indemnifiable Loss. If an
Indemnitee shall have received or shall have had paid on its behalf an
indemnity payment in respect of an Indemnifiable Loss and shall subsequently
receive directly or indirectly insurance proceeds in respect of such
Indemnifiable Loss, then such Indemnitee shall pay to such indemnifying party
(the "Indemnifying Party") the net amount of such insurance proceeds or, if
less, the amount of such indemnity payment. An Indemnitee promptly shall, at
the sole expense of the Indemnifying Party, use all reasonable efforts to
recover insurance proceeds which may be due such Indemnitee. Any reduction to
an Indemnifiable Loss by reason of any insurance proceeds actually recovered
shall not reduce the maximum amount of liability for which the Indemnifying
Party shall be obligated pursuant to this Article X.
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ARTICLE XI
GENERAL PROVISIONS
11.1 Expenses. Except as otherwise expressly provided in this
Agreement, the Acquired Companies shall be responsible for the obligations of
the Acquired Companies and Seller with regard to Metis Financial LLC and
expenses incurred in connection with the preparation and execution of this
Agreement and the Contemplated Transactions, including all fees, expenses of
agents, representatives, counsel, and accountants and the HSR Act filing fee.
Buyer shall be responsible for any obligations disclosed on Part 4.5 of the
Buyer's Disclosure Letter. In the event of termination of this Agreement, the
obligation of Buyer to pay such expenses will be subject to any rights of Buyer
arising from a breach of this Agreement by another party.
11.2 Public Announcements. Except as provided in the
Non-Disclosure Agreement, any public announcement or similar publicity with
respect to this Agreement or the Contemplated Transactions will be issued, if
at all, at such time and in such manner as Buyer determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing
Seller shall, and shall cause the Acquired Companies to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person, other than any professional advisors of Seller. Seller and Buyer will
consult with each other concerning the means by which the Acquired Companies'
employees, customers, and suppliers and others having dealings with the
Acquired Companies will be informed of the Contemplated Transactions, and Buyer
will have the right to be present for any such communication.
11.3 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained
in confidence from another party or an Acquired Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of
the Contemplated Transactions, or (c) the furnishing or use of such information
is required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waives, and
will upon Buyer's request cause the Acquired Companies to waive, any cause of
action, right, or claim arising out of the access of Buyer or its
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representatives to any trade secrets or other confidential information of the
Acquired Companies except for the competitive misuse by Buyer of such trade
secrets or confidential information.
The terms of the Non-Disclosure Agreement shall continue to remain in
effect, and the parties thereto shall continue to be governed by its terms.
11.4 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
Seller:
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇. Stamen
Packman, Neuwahl & ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Buyer:
GAINSCO, INC.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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DLT:
De La Torre Insurance Adjusters, Inc.:
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ De la ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
11.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Texas, County of Tarrant, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Texas, Fort Worth
Division, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in
the world.
11.6 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
11.7 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. The rights of Buyer and Seller
hereunder are in addition to all other rights provided by law. Neither the
failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
11.8 Entire Agreement and Modification. Except for the terms of
the Non-Disclosure Agreement, this Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the parties hereto.
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11.9 Disclosure Letter.
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
11.10 Assignments, Successors, and No Third-party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give
any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns. In the event Buyer assigns any of
its rights under this Agreement to any Subsidiary of Buyer and such Subsidiary
does not fulfill its obligations under this Agreement, Buyer shall assume and
fulfill such Subsidiary's obligations under this Agreement.
11.11 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
11.12 Article and Section Headings, Construction. The headings of
Articles and Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Article"
or "Articles" refer to the corresponding Article or Articles of this Agreement,
and all references to "Section" or "Sections" refer to the corresponding
Section or Sections of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word "including" does not limit the
preceding words or terms.
11.13 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
11.14 Governing Law. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.
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54
11.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11.16 Errors and Omissions Policies. Buyer shall use its Best
Efforts to cause the Acquired Companies to maintain the errors and omissions
policies of the Acquired Companies in effect as the date of this Agreement, or,
in the event that any of such errors and omissions policies are cancelled,
Buyer shall cause the Acquired Companies to purchase tail coverage per the
terms of such policies.
* * * * *
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55
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
--------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-----------------------------------------
Name: ▇▇▇▇▇▇ De la ▇▇▇▇▇
Title: President
GAINSCO, INC.
By:
-----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
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56
EXHIBIT A
CAPITALIZATION OF COMPANY
DE LA TORRE INSURANCE ADJUSTERS, INC.
Seller Number of Shares
------ ----------------
De ▇▇ ▇▇▇▇▇▇ 200.000
▇. ▇▇▇▇▇▇▇ 28.571
----------------
Total 228.571
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EXHIBIT B
EXAMPLE OF EARNOUT PAYMENTS
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58
FORM OF DISCLOSURE LETTER
GAINSCO, INC.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Ladies and Gentlemen:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), ▇▇▇▇▇
▇▇▇▇▇▇▇ ("Seller"), and De La Torre Insurance Adjusters, Inc., a Florida
corporation ("DLT"), pursuant to which Seller is to sell and Buyer is to
purchase the Shares (as defined in the Agreement), as provided in the
Agreement.
This letter constitutes the Disclosure Letter referred to in the
Agreement. The representations and warranties of Seller and DLT in the
Agreement are made and given subject to the disclosures in this Disclosure
Letter. The disclosures in this Disclosure Letter are to be taken as relating
to the representations and warranties in the section of the Agreement to which
they expressly relate and to no other representation or warranty in the
Agreement.
Terms defined in the Agreement are used with the same meaning in this
Disclosure Letter. References to Appendices are to the Appendices to this
Disclosure Letter.
By reference to the Agreement (using the numbering in such
Agreement), the following matters are disclosed:
* * * * *
Very truly yours,
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
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59
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-----------------------------------------
Name: ▇▇▇▇▇▇ De la ▇▇▇▇▇
Title: President
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60
Buyer acknowledges receipt of the Disclosure Letter of which this is a
duplicate (including the Appendices referred to therein).
Dated:
--------------------------------------
GAINSCO, INC.
By:
-----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
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61
FORM OF BUYER'S DISCLOSURE LETTER
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇▇▇:
We refer to the Stock Purchase Agreement (the "Agreement") to be
entered into today among GAINSCO, INC., a Texas corporation ("Buyer"), ▇▇▇▇▇
▇▇▇▇▇▇▇ ("Seller"), and De La Torre Insurance Adjusters, Inc., a Florida
corporation ("DLT"), pursuant to which Seller is to sell and Buyer is to
purchase the Shares (as defined in the Agreement), as provided in the
Agreement.
This letter constitutes the Buyer's Disclosure Letter referred to in
Article IV of the Agreement. The representations and warranties of the Buyer in
Article IV of the Agreement are made and given subject to the disclosures in
this Buyer's Disclosure Letter. The disclosures in this Buyer's Disclosure
Letter are to be taken as relating to the representations and warranties in the
section of the Agreement to which they expressly relate and to no other
representation or warranty in the Agreement.
Terms defined in the Agreement are used with the same meaning in this
Buyer's Disclosure Letter. References to Appendices are to the Appendices to
this Buyer's Disclosure Letter.
By reference to Article IV of the Agreement (using the numbering in
such Article), the following matters are disclosed:
* * * * *
Very truly yours,
GAINSCO, INC.
By:
-----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
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62
Seller acknowledges receipt of the Buyer's Disclosure Letter of which
this is a duplicate (including the Appendices referred to therein).
Dated:
--------------------------------------
--------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
-----------------------------------------
Name: ▇▇▇▇▇▇ De la ▇▇▇▇▇
Title: President
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63
EXHIBIT 2.5(a)(ii)
SELLER'S RELEASE
This Release is being executed and delivered in accordance with
Section 2.5(a)(ii) of the Stock Purchase Agreement dated _________, 1998 (the
"Agreement") among GAINSCO, INC., a Texas corporation ("Buyer"), ▇▇▇▇▇ ▇▇▇▇▇▇▇
("Seller"), and De La Torre Insurance Adjusters, Inc., a Florida corporation
("DLT"). Capitalized terms used in this Release without definition have the
respective meanings given to them in the Agreement.
Seller acknowledges that execution and delivery of this Release is a
condition to Buyer's obligation to purchase the outstanding capital stock of
DLT pursuant to the Agreement and that Buyer is relying on this Release in
consummating such purchase.
Seller, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged and intending to be legally bound,
in order to induce Buyer to purchase the outstanding capital stock of DLT
pursuant to the Agreement, hereby agrees as follows:
Seller, on behalf of himself and each of his Related Persons, hereby
releases and forever discharges the Buyer, the Company, each of the other
Acquired Companies, and each of their respective individual, joint or mutual,
past, present and future Representatives, affiliates, shareholders, controlling
persons, Subsidiaries, successors and assigns (individually, a "Releasee" and
collectively, "Releasees") from any and all claims, demands, Proceedings,
causes of action, Orders, obligations, contracts, agreements, debts and
liabilities whatsoever, whether known or unknown, suspected or unsuspected,
both at law and in equity, which Seller or any of his respective Related
Persons now has, have ever had or may hereafter have against the respective
Releasees arising contemporaneously with or prior to the Closing Date or on
account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the Closing Date, including, but not limited
to, any rights to indemnification or reimbursement from any Acquired Company,
whether pursuant to their respective Organizational Documents, contract or
otherwise and whether or not relating to claims pending on, or asserted after,
the Closing Date; provided, however, that nothing contained herein shall
operate to release any obligations of Buyer arising under the Agreement.
Seller hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or
causing to be commenced, any proceeding of any kind against any Releasee, based
upon any matter purported to be released hereby.
Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, Seller, jointly and severally, shall indemnify and
hold harmless each Releasee from and against all loss, liability, claim, damage
(including incidental and consequential damages) or expense (including costs of
investigation and defense and reasonable attorney's fees) whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of Seller or any of his
Related Persons of any claim or other matter purported to be released pursuant
to this Release and (ii) the assertion by any third party of any
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64
claim or demand against any Releasee which claim or demand arises directly or
indirectly from, or in connection with, any assertion by or on behalf of Seller
or any of his Related Persons against such third party of any claims or other
matters purported to be released pursuant to this Release.
If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This Release shall
be governed by and construed under the laws of the State of Texas without
regard to principles of conflicts of law.
All words used in this Release will be construed to be of such gender
or number as the circumstances require.
IN WITNESS WHEREOF, each of the undersigned have executed and
delivered this Release as of this ___ day of _____________, 1998.
-------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
DE LA TORRE INSURANCE ADJUSTERS, INC.
By:
----------------------------------------
Name: ▇▇▇▇▇▇ De la ▇▇▇▇▇
Title: President
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65
EXHIBIT 2.5(a)(iii)
▇. ▇▇▇▇▇▇▇ EMPLOYMENT AGREEMENT
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