EARNOUT AGREEMENT among FPIC INSURANCE GROUP, INC., FIRST PROFESSIONALS INSURANCE COMPANY, INC. and Mark E. Adams and Timothy P. Reardon, as Stockholders Representative dated as of November 13, 2009
among
FPIC
INSURANCE GROUP, INC.,
FIRST
PROFESSIONALS INSURANCE COMPANY, INC.
and
▇▇▇▇
▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
as
Stockholders Representative
dated
as of
November
13, 2009
This
EARNOUT AGREEMENT (this "Agreement") is made as of the
13th day of November, 2009, by and among FPIC Insurance Group, Inc., a Florida
corporation (“FIG”), First Professionals Insurance Company, Inc., a
Florida stock insurance company and a wholly owned subsidiary of FIG
(“FPIC” and, collectively with FIG, “Buyer”) and ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as
Stockholders Representative (collectively, the “Stockholders
Representative”).
W
I T N E S S E T H:
WHEREAS,
Buyer entered into an Agreement and Plan of Merger
dated as of July 30, 2009 (the “Merger Agreement”) with FPIC Merger Corp., a Nevada corporation and
wholly owned subsidiary of FPIC (“Merger Co”), Advocate, MD Financial Group Inc., a Nevada
corporation (the “Company”), and the Stockholders Representative, pursuant to which
the Company will become a wholly owned subsidiary of FPIC (the “Merger”);
WHEREAS,
pursuant to Sections 2(b) and (k) of the Merger Agreement, the parties hereto
agreed to enter into this Agreement in connection with the consummation of
certain of the transactions contemplated by the Merger Agreement, as part of the
consideration to be provided by Buyer to the holders of the Company’s capital
stock and warrants (the “Shareholders”) in connection
with the acquisition by Buyer of the Company as contemplated by the Merger
Agreement;
WHEREAS,
pursuant to Section 2(l) of the Merger Agreement,
the Stockholders Representative was appointed as agent and attorney-in-fact for
the Shareholders to act on the Shareholders’ behalf with respect to, among other
things, this Agreement; and
WHEREAS,
while it is the intention of the parties hereto that FPIC, as the acquirer of
the Company from the Shareholders, make the payments, if any, contemplated by
this Agreement for the benefit of the Shareholders, FIG is a party to this
Agreement and jointly and severally obligated with FPIC in respect of Buyer’s
obligations under this Agreement in order to provide additional assurances that
such payments, if any, will be made and any other obligations of Buyer hereunder
will be performed.
NOW,
THEREFORE, in consideration of the premises and mutual promises contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. For purposes of
this Agreement:
1.1. Certain
Definitions. The
following terms shall have the following meanings:
“Additional Consideration
Amount” shall mean the amount indicated for a particular Chart Level in
the furthest right column of the Tier I Chart or the Tier II Chart, as the case
may be.
"Affiliate" shall have the
meaning set forth in Rule 12b-2 of the regulations promulgated under the
Securities Exchange Act of 1934, as amended.
“Allocable Portion” shall mean,
with respect to a Shareholder, the percentage specified for such Shareholder in
Annex IV hereto and, with respect to an Incentive Bonus Pool Participant, the
percentage specified for such Incentive Bonus Pool Participant in Annex V
hereto.
“Annualized Gross Premiums Written” shall mean, with respect to a Person, the gross premiums written
in respect of medical professional liability insurance by such Person during the
four successive calendar quarters immediately preceding the calendar quarter
during which the relevant transaction occurs.
“Applicable Percentage” shall mean the mathematical result obtained by dividing (a) the number of full calendar months
remaining in the Earnout Period following the month in which a Material
Transaction occurs, by (b) 24.
“Approved Commutation” shall mean a Commutation that has been designated by Buyer and
Stockholders Representative as an “Approved Commutation.”
“Approved Material Revisions” shall mean a Material Revision that has been designated by Buyer
and Stockholders Representative as an “Approved Revision.”
"Average Monthly Amount" shall mean, solely with respect to Direct Premiums Written and
Underwriting Profit, the average monthly amount of such Performance Measure from
the beginning of the Earnout Period through the last full calendar month
preceding a Material Transaction.
"Business Day" shall mean any
day on which banking institutions in Jacksonville, Florida, are open for the
purpose of transacting business.
“Buyer’s Earnout Calculations”
shall have the meaning set forth in Section 2.4.1 hereof.
“Buyer’s Final Earnout
Calculations” shall have the meaning set forth in Section 2.4.2
hereof.
“Chart Level” shall mean, for a
Measurement Period, with respect to each Performance Measure, the amount
indicated on the Tier I Chart or the Tier II Chart in the column relating to
such Performance Measure that is closest to the amount of such Performance
Measure for such Measurement Period.
“Combined Ratio” shall mean,
with respect to a Measurement Period, the mathematical sum of the Expense Ratio and
the Loss Ratio for such Measurement Period.
"Commutation" shall mean any
termination or commutation of all or any material part of the Reinsurance
Treaty.
“Company Actuary” shall mean
▇▇▇▇▇▇▇▇, Inc. or such other actuarial firm as may be acceptable to Buyer and
the Stockholders Representative.
“Competitive Person” shall mean
a Person that, at the time it becomes an Affiliate of Buyer or at the time Buyer
acquires a direct or indirect interest in the ownership, management, operation,
revenues or profits of such Person, is then engaged in the State of Texas or the
State of Mississippi in any direct or indirect administration, development,
provision, operation, marketing or sales of medical professional liability
insurance.
"controlled by" (including the
term "controlling")
shall mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities, contract or otherwise.
“Direct Premiums Written” shall
mean the amount of medical professional liability insurance premiums written by
the Company and its Subsidiaries on a direct basis during a Measurement Period,
as reflected in the Financial Statements in respect of such Measurement Period,
excluding, however, any premiums in respect of the Company’s Advocate IP product
or otherwise not comprising medical professional liability insurance, and shall
include any written premium for which the Company and its Subsidiaries are
credited pursuant to the provisions of Section 2.6.4 hereof.
“Earnout Amount” shall mean,
with respect to each Measurement Period, an amount equal to the Gross Earnout
Amount or Gross Alternate Earnout Amount, as the case may be, in respect of such
Measurement Period, reduced (to the extent not previously reduced) by any
Reduction Amount that becomes due and payable before all Earnout Payments have
been made; provided, however, in no event shall the Earnout Amount be less than
zero for any Measurement Period.
"Earnout Arbitrator" shall mean
Ernst & Young or such other nationally or regionally recognized independent
accounting firm as Buyer and Stockholders Representative may agree, or, failing
such agreement, by the American Arbitration Association in accordance with the
Commercial Arbitration Rules of such Association.
“Earnout Objection Notice”
shall have the meaning set forth in Section 2.4.1 hereof.
“Earnout Payment” shall mean,
with respect to each Measurement Period, an amount of cash equal to the Earnout
Amount for such Measurement Period less, in the
case
of the second Measurement Period, any Earnout Payment made in respect of the
first Measurement Period.
“Earnout Period” shall mean the
twenty-four calendar month period commencing with the first full calendar month
beginning after the date hereof.
“Excess Reduction Amount” shall
mean the portion, if any, of any Reduction Amount applied to an Earnout Payment
that exceeds the ultimate amount of the indemnity obligation arising under
Section 8(b)(i) and 8(d) of the Merger Agreement or the ultimate amount of the
monetary damages with respect to another claim or remedy Buyer is permitted to
pursue under Section 8(f) of the Merger Agreement.
“Excess Reduction Amount
Interest” shall mean an interest at the rate of 8% per annum with respect
to any Excess Reduction Amount, calculated for the period beginning ninety days
after the end of the relevant Measurement Period through the date of payment of
such Excess Reduction Amount.
“Expense Ratio” shall mean,
with respect to a Measurement Period, the ratio of Total Underwriting Expenses
to Net Premiums Earned during such Measurement Period.
“Financial Statements” shall
mean, unless Buyer and Stockholders Representative otherwise agree, the audited
financial statements of the Company and its Subsidiaries for, and as at the end
of, a Measurement Period, prepared from the books and records of the Company and
its Subsidiaries and fairly presenting in all material respects, on a
consolidated basis, the financial position, results of operation and the other
information contained therein, as at the dates and for the periods indicated
therein, in conformity with GAAP, and (a) if the Earnout Period begins on
January 1, include all adjustments required for a fair presentation, or (b) if
the Earnout Period begins on the first day of a month other than January,
subject to normal period end adjustments (other than those related to
Performance Measures, which such financial statements shall take into account)
and lack of footnotes and other presentation items.
“Fixed Alternate Earnout
Amount” shall mean (a) if a Material Transaction is consummated within
the first six months of the Earnout Period, $9 million, or (b) if a Material
Transaction is consummated after the first six months of the Earnout Period and
within the first 18 months of the Earnout Period, the Applicable Percentage of
the amount equal to the mathematical sum of the following (i) $3.6
million, provided the Average Monthly Amount of Direct Written Premiums
through the
last full calendar month preceding the relevant Material
Transaction is at least $2 million, plus
(ii) $4.8 million, provided the Average Monthly Amount of Underwriting Profit
through the last
full calendar month preceding the relevant Material Transaction is at
least $145,833, plus
(iii) $3.6 million, provided the Combined Ratio for the period from the beginning
of the Earnout Period through the last full calendar month preceding the
relevant Material Transaction is not more than 96%.
"GAAP" shall mean accounting
principles generally accepted in the United States as in effect from time to
time, consistently applied.
“Governmental Body” shall mean
the government of the United States, any other nation or any political
subdivision of any thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other Person exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
“Gross Alternate Earnout
Amount” shall mean, for any Measurement Period ending after the month
during which the consummation of a Material Transaction occurs, the Gross
Alternate Earnout Amount for the First Measurement Period with respect to the
first Measurement Period, and the Gross Alternate Earnout Amount for the Second
Measurement Period with respect to the second Measurement Period.
“Gross Alternate Earnout Amount for
the First Measurement Period” shall mean, if a Material Transaction is
consummated during the first Measurement Period, the Gross Earnout Amount for
such Measurement Period calculated as if (a) the Direct Written Premiums and
Underwriting Profit for the month in which such transaction is consummated and
each subsequent month of such Measurement Period were the Average Monthly
Amounts for such Performance Measures and (b) the Combined Ratio for such
Measurement Period were the Combined Ratio for the period from the beginning
of the Earnout Period through the last full calendar month preceding such
Material Transaction.
“Gross Alternate Earnout Amount for
the Second Measurement Period” shall mean, if a Material Transaction is
consummated during the first Measurement Period or after the first Measurement
Period during the Earnout Period, either (a) the
Gross Earnout Amount for the second Measurement Period calculated as if (i) the
Direct Written Premiums and Underwriting Profit for the month in which such
transaction is consummated and each subsequent month of such Measurement Period
were the Average Monthly Amounts for such Performance Measures and (ii) the
Combined Ratio for such Measurement Period were the Combined Ratio for the
period from the beginning
of the Earnout Period through the last full calendar month preceding such
Material Transaction, or (b) the Fixed Alternate Earnout Amount,
whichever of (a) or (b) is higher.
“Gross Earnout Amount” shall
mean, with respect to each Measurement Period, the amount equal to the
mathematical sum of the
following mathematical products (a) three tenths,
expressed as a decimal, times the Additional
Consideration Amount indicated on the Tier I Chart for the Direct Written
Premiums Chart Level for such Measurement Period, plus (b) three tenths,
expressed as a decimal, times the Additional
Consideration Amount indicated on the Tier I Chart for the Combined Ratio Chart
Level for such Measurement Period, plus (c) four tenths,
expressed as a decimal, times the Additional
Consideration Amount indicated on the Tier I Chart for the Underwriting Chart
Level for such Measurement Period, plus (d) three tenths,
expressed as a decimal, times the Additional
Consideration Amount indicated on the Tier II Chart for the Direct Written
Premiums Chart Level for such Measurement Period, plus (e) three tenths,
expressed
as a decimal, times the
Additional Consideration Amount indicated on the Tier II Chart for the Combined
Ratio Chart Level for such Measurement Period, plus (f) four tenths,
expressed as a decimal, times the Additional
Consideration Amount indicated on the Tier II Chart for the Underwriting Chart
Level for such Measurement Period; calculated in a manner consistent with the
example calculations appearing in Annex III hereto. For the avoidance
of doubt, the three Performance Measures underlying the Gross Earnout Amount
calculation shall be adjusted so as to reflect any net gain recognized by
the Company or its Subsidiaries during the Earnout Period as a result of an
Approved Commutation or an Approved Material Revision.
"Incentive Bonus Pool
Participant" shall mean each Person listed in Annex V
hereto.
“Incurred Losses and Loss Adjustment
Expenses” shall mean an amount equal to 95% of the amount of estimated
ultimate incurred losses and loss adjustment expense indicated in the Reserve
Study for a Measurement Period, and including unallocated loss adjustment
expenses, net of related amounts ceded to reinsurers as part of external
reinsurance arrangements then in effect (calculated as if the Reinsurance Treaty
had remained in place, except for the effect of an Approved Commutation or an
Approved Material Revision) or, if greater, the amount of the insurance loss and
loss adjustment expenses incurred by the Company and its Subsidiaries during a
Measurement Period, net of related amounts ceded to reinsurers as part of
external reinsurance arrangements then in effect (calculated as if the
Reinsurance Treaty had remained in place, except for the effect of an Approved
Commutation or an Approved Material Revision), as reflected in the Financial
Statements in respect of such Measurement Period, calculated on a current
accident year basis and including unallocated loss adjustment expenses,
reduced
by the amount of its total carried reserves reflected in the Financial
Statements exceeding 103% of the total reserves indicated in such Reserve Study
or increased by the amount of such total carried reserves below 103% of the
total reserves indicated in such Reserve Study as of the end of such Measurement
Period and reduced by any such loss or expense that is taken into account as a
Reduction Amounts.
“Indemnity Obligations” shall
mean each indemnity obligation arising under Section 8(b)(i) and 8(d) of the
Merger Agreement and the amount of all monetary damages with respect to each
other claim or remedy Buyer is permitted to pursue under Section 8(f) of the
Merger Agreement, as determined by Buyer’s good faith estimate of the maximum
amount such indemnity obligation or other claim may reasonably be expected to
become.
“Loss Ratio” shall mean, with
respect to a Measurement Period, the ratio of (a) Incurred Losses and Loss
Adjustment Expenses for such Measurement Period, to (b) its Net Premiums
Earned.
"Material Revision" shall mean
any revision in the risk retention level, ceded commission rate, ceded premium
rate, profit sharing arrangement, or other material term or condition of the
Reinsurance Treaty.
“Material Transaction” shall
mean the sale, transfer or other disposition, directly or indirectly, to a
Person (other than a Person that is an Affiliate of Buyer as of the date of this
Agreement) of twenty-five percent (25%) or more of the capital stock of
Advocate, MD Insurance Company of the Southwest Inc. or any portion of the
business of Advocate, MD Insurance Company of the Southwest Inc. comprising
twenty-five percent (25%) or more of its Annualized Gross Premiums Written. By
way of example and without limitation, a sale, transfer or disposition may occur
by merger, combination, consolidation, reorganization, recapitalization,
restructuring, tender or exchange offer, negotiated purchase, leveraged buyout,
minority investment or partnership, collaborative venture, equity exchange or
any other extraordinary corporate or entity transaction.
“Material Transaction Notice”
shall have the meaning set forth in Section 2.2 hereof
“Measurement Period” shall mean
either (a) the twelve calendar month period commencing with the first full
calendar month beginning after the date hereof, or (b) the Earnout
Period.
“Net Premiums Earned” shall
mean the amount of direct premiums earned by the Company and its Subsidiaries
during a Measurement Period, as reflected in the Financial Statements in respect
of such Measurement Period, net of the related premiums ceded as part of
external reinsurance arrangements then in effect (calculated as if the
Reinsurance Treaty had remained in place, except for the effect of an Approved
Commutation or an Approved Material Revision).
"Ordinary Course of Business"
shall mean the ordinary course of business of the subject Person consistent with
past custom and practice (including with respect to quantity and
frequency).
“Performance Measure” shall
mean the Direct Premiums Written, the Combined Ratio, or the Underwriting
Profit, as the case may be.
"Person" shall mean an
individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, any other business entity or a Governmental Body.
“Reduction Amount” shall mean
(a) the amount of all Indemnity Obligations, plus (b) all
amounts paid by Buyer or the Company or any of their Subsidiaries on behalf of
Stockholders Representative (including reimbursements to the Stockholders
Representative, or either of the individuals comprising such Person, for amounts
initially paid by Stockholders Representative) pursuant to the provisions of
this Agreement or, to the extent not reflected as a “Transaction Expense” under
the Merger Agreement, pursuant to the provisions of the Merger Agreement,
including any professional expenses incurred in connection with Section 2.3
hereof, Section 2.4.1 hereof and Section 2.4.2 hereof (including the fees and
costs of the Earnout Arbitrator other than any such
amounts (including the
fees and costs of the Earnout Arbitrator) otherwise a “Reduction Amount” that
are paid pursuant to Section 2.4.2 hereof in connection with a dispute that is
resolved by the Earnout Arbitrator’s selection of the Shareholders’ Final
Earnout Calculations).
"Reinsurance Treaty" shall mean
that certain Reinsurance Treaty among Advocate, MD Insurance Company of the
Southwest Inc. and various listed reinsurance providers with a treaty period
from April 1, 2005 through October 1, 2010.
“Reserve Study” shall have the
meaning set forth in Section 2.6.1 hereof.
“Shareholders’ Earnout
Calculations” shall have the meaning set forth in Section 2.4.1
hereof.
“Shareholders’ Final Earnout
Calculations” shall have the meaning set forth in Section 2.4.2
hereof.
"Subsidiary" shall mean any
Person controlled by a specified Person, and, with respect to the Company, shall
include any Person that is a Subsidiary of the Company at any time on or after
the date hereof so long as such Person is controlled by FIG.
“Tier I Chart” shall mean the
table set forth on Annex I hereto.
“Tier II Chart” shall mean the
table set forth on Annex II hereto.
“Total Underwriting Expenses”
shall mean all operating expenses directly incurred by the Company and its
Subsidiaries, on a consolidated basis, in a Measurement Period, net of any
ceding commissions or profit sharing earned by the Company and its Subsidiaries
during such Measurement Period in respect of its external reinsurance
arrangements then in effect (calculated as if the Reinsurance Treaty
had remained in place, except for the effect of an Approved Commutation or an
Approved Material Revision) and excluding, however, (a) incurred losses and loss
adjustment expenses as reflected in the Financial Statements in respect of such
Measurement Period, calculated on a current accident year basis, (b) any
interest expense with respect to any indebtedness for borrowed money, (c) any
expenses of Earnout Payments including professional fees and expenses associated
with the calculation or dispute thereof, (d) the expense incurred under Section
3 of the Non-Competition Agreement, dated July 30, 2009, among FIG, the Company
and ▇▇▇▇ ▇. ▇▇▇▇▇, (e) any performance incentive payment accrued or paid by
reason of the provisions of Section 3.2(b), and any severance payment accrued or
paid by reason of Sections 5.2(b)(iii), 5.3(c) or 5.4(c)(iii) or 5.5 of the
Executive Employment Agreement, dated July 30, 2009, between the Company and
▇▇▇▇ ▇. ▇▇▇▇▇, (f) any performance incentive payment accrued or paid by reason
of the provisions of Section 2.2(b)(ii) of the Employment Agreement, dated the
date hereof, between the Company and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, (g) any performance
incentive payment accrued or paid by reason of the provisions of Section
2.2(b)(ii) of the Employment Agreement, dated the date hereof, between the
Company and ▇▇▇▇▇▇ ▇▇▇▇▇, (h) any professional expenses
incurred in connection with Section 2.3 hereof, (i) any such loss or expense that is taken into account as a Reduction Amount, and (j) other items as may be agreed from time to time between Buyer and Stockholders Representative.
“Underwriting Profit” shall
mean, with respect to a Measurement Period, Net Premiums Earned reduced by Total
Underwriting Expenses and Incurred Losses and Loss Adjustment Expense for such
Measurement Period.
1.2. Certain
Matters of Construction and Usage. In addition to the
definitions referred to or set forth in Section 1.1 hereof:
1.2.1.
The words "hereof",
"herein", "hereunder" and words of
similar import shall refer to this Agreement as a whole and not to any
particular Section or provision of this Agreement, and reference to a particular
Section of this Agreement shall include all subsections thereof and all
appendices hereof.
1.2.2.
The words "party" and
"parties" shall refer
to the Stockholders Representative and Buyer.
1.2.3.
Definitions shall be equally applicable to both the singular and plural forms of
the terms defined, and references to the masculine, feminine, or neuter gender
shall include each other gender.
1.2.4.
Accounting terms used herein and not otherwise defined herein are used herein as
defined by GAAP.
1.2.5.
The word "including"
shall mean including without limitation.
1.2.6.
If the last day of any specified period of days for notices or payment falls on
a day other than a Business Day, such period shall be deemed to be extended
through the next occurring Business Day.
2. Earnout Payments.
2.1. Earnout
Payment Obligation. Buyer will pay to the Shareholders and the Incentive
Bonus Pool Participants the Earnout Payment, if any, in respect of each
Measurement Period to the extent and in the manner provided in this Agreement;
provided, however, with respect to the first Measurement Period, in no event
shall any portion of the Earnout Payment derived from (a) the Direct Premiums
Written Performance Measure exceed $1.44 million, (b) the Combined Ratio
Performance Measure exceed $1.44 million, or (c) the Underwriting Profit
Performance Measure exceed $1.92 million and in no event shall the aggregate
amount of all Earnout Payments in respect of the entire Earnout Period exceed
$12 million.
2.2. Material
Transaction Notice. Buyer shall give the Stockholders Representative
notice of consummation of any Material Transaction, describing such Material
Transaction in reasonable detail, within ten (10) Business Days following such
consummation.
2.3. Alternate
Earnout Election. In the event of that a Material Transaction
Notice is delivered by Buyer, the Stockholders Representative may elect by
written notice to Buyer within sixty (60) days of receipt of the Material
Transaction Notice that any subsequent Earnout Payments be based on the Gross
Alternate Earnout Amount rather than the Gross Earnout Amount. In the
event that a Material Transaction Notice is delivered to the Stockholders
Representative, the Stockholders Representative may retain professional advisers
as it deems reasonably necessary to assist it in deciding whether or not to
elect to receive the Gross Alternate Earnout Amount, and reasonable fees and
costs of such advisers shall be paid by the Company.
2.4. Review and
Dispute Procedures.
2.4.1.
As to Earnout
Payments. Buyer shall use commercially reasonable and good faith efforts
to submit to the Stockholders Representative in writing within sixty (60) days
of the end of each Measurement Period (or, if not completed within
such sixty (60) day period notwithstanding such efforts, as soon thereafter as
reasonably practicable) Buyer’s calculation of the Earnout Payment for such
Measurement Period (“Buyer’s
Earnout Calculations”), together with all supporting documentation
reasonably necessary for a review of Buyer’s Earnout Calculations. If
during the first thirty (30) days of the end of a Measurement Period, neither
▇▇▇▇ ▇. ▇▇▇▇▇ nor ▇▇▇▇▇▇ ▇▇▇▇▇ is an officer and employee of the Company, Buyer
shall pay to the Shareholders as an additional Earnout Payment $1,000 per day
for each day that it takes Buyer to deliver Buyer's Earnout Calculation to the
Stockholders Representative beyond sixty (60) days of the end of each
Measurement Period, unless Buyer is prevented from doing so for reasons beyond
the reasonable control of Buyer. Stockholders Representative may at
its option and at Company's expense (subject to the application of Section
2.4.2. hereof) retain an accounting firm, actuaries, attorneys, and other
consultants or professional advisers as it deems reasonably necessary to
evaluate and formulate a response to the Buyer's Earnout Calculations; provided,
however, that neither the Stockholders Representative nor the individuals
comprising such Person shall be compensated for their time expended in such
role. Stockholders Representative and its retained advisers shall
further be given full access to the Financial Statements, Reserve Study,
underlying books and records of the Company relating thereto and supporting
computations and workpapers used in connection with the preparation of the
Financial Statements and the Reserve Study and the computation of the Earnout
Amount, and such other information relating to the foregoing as is reasonably
requested by Stockholders Representative or its retained advisers. If
Stockholders Representative objects to Buyer’s Earnout Calculations within
thirty (30) days (the “Objection Period”) of
delivery thereof, it will deliver to Buyer a notice of objection (an "Earnout Objection Notice")
with respect to Buyer’s Earnout Calculations setting forth the Stockholders
Representative’s proposed figures for such Earnout Payment (“Shareholders’ Earnout
Calculations”), together with a reasonable description of the basis for
the objection. If no Earnout Objection Notice is delivered to Buyer within such
thirty (30) day period or if the Stockholders Representative delivers (whether
within or after such thirty (30) day period) to Buyer a notice of acceptance of
Buyer’s Earnout Calculations (an "Earnout Acceptance"), Buyer’s
Earnout Calculations for such Measurement Period shall be final and binding on
Buyer, the Stockholders
Representative and the
Shareholders, and the applicable Earnout Payment shall be paid to the
Shareholders by Buyer within ten (10) days after the end of the Objection Period
or, if sooner ten (10) days of delivery of an Earnout Acceptance.
2.4.2.
Following an Objection
Notice. If an Objection Notice is given, Buyer and the
Stockholders Representative shall attempt in good faith to resolve the
objection. If Buyer and the Stockholders Representative are unable to reach
agreement within thirty (30) days after an Objection Notice has been given,
Buyer shall submit its final Buyer’s Earnout Calculations (“Buyer’s Final Earnout
Calculations”), and the Stockholders Representative shall submit its
final Shareholder Earnout Calculations (“Shareholders’ Final Earnout
Calculations”), with respect to the items in dispute to the Earnout
Arbitrator as soon as practical following the end of such thirty (30) day
period, but in any event within forty-five (45) days after the applicable
Objection Notice has been received by Buyer. The Earnout Arbitrator will be
directed to review Buyer’s Final Earnout
Calculations and Shareholders’ Final Earnout Calculations and make a selection
as to which, in its totality, is a more accurate reflection of the applicable
requirements of this Agreement with respect thereto and to provide a written
report that sets forth the Earnout Arbitrator's determination with respect
thereto. The Earnout Arbitrator may consider the affect, if any, of income taxes
with respect to any Adverse Consequences (as defined in the Merger Agreement)
reflected in a Reduction Amount. Each of Buyer and Stockholders
Representative shall cooperate with the Earnout Arbitrator and provide to the
Earnout Arbitrator such additional information as the Earnout Arbitrator may
reasonably request with respect to its deliberations. The resolution
of the dispute by the Earnout Arbitrator will be final and binding on Buyer, the
Stockholders Representative and the Shareholders. Unless otherwise agreed by
Buyer and Stockholders Representative, the fees and expenses of the Earnout
Arbitrator and of any professionals retained by Stockholders Representative in
connection with evaluation of Buyer's Earnout Calculation or the preparation or
resolution of an Objection Notice shall be paid by Company and such fees shall
not be factored into the calculation of the Performance Measures (including fees
for professionals retained by Stockholders Representative to review the Buyer's
Earnout Calculation where no Earnout Objection is filed, or the Stockholders
Representative elects to withdraw its Objection Notice prior to resolution of
such dispute). Within ten (10) days after the final determination by the Earnout
Arbitrator with respect to a dispute regarding Buyer’s Earnout Calculation,
Buyer shall pay, in accordance with Section 2.5 hereof, to the Shareholders the
Earnout Payment that is payable as a result of such resolution of the
dispute.
2.5. Payment of
Earnout Payments and Excess Reduction Amounts. At such time as any
Earnout Payment shall be due and payable, Buyer shall pay, by wire transfer of
cash to such account of such Incentive Bonus Pool Participant or Shareholder, as
the case may be, as is specified by Stockholders Representative or,
if no such account is so specified, by mailing a check to such address of such
Incentive Bonus Pool Participant or Shareholder, as the case may be, as is
specified by Stockholders Representative, or as otherwise agreed between Buyer
and Stockholders Representative, the Earnout Payment reduced, but in any event
not below zero, by the amount of any indemnity obligations of such Shareholder
that arise under Section 8(b)(ii) of the Merger Agreement before such payment as
follows: (a) five percent (5%) of the Earnout
Payment to the Incentive
Bonus Pool Participants, with each Incentive Bonus Pool Participant receiving
his or her Allocable Portion of the Earnout Payment and (b) ninety-five percent
(95%) of the Earnout Payment to the Shareholders, with each Shareholder
receiving his, her or its Allocable Portion of the Earnout
Payment. Buyer shall pay each Incentive Bonus Pool Participant and
Shareholder, in the manner provided in this Section 2.5, any Excess Reduction
Amounts promptly after it becomes reasonable to expect, acting in good faith,
that there is an Excess Reduction Amount, together with the applicable Excess
Reduction Amount Interest.
2.6.
Operating and Accounting Procedures of the Company and its
Subsidiaries.
2.6.1.
Generally. The
parties agree that the guidelines and rules set forth in this Section 2.6 shall
be used in calculating the Earnout Payments; provided, however, that nothing
contained in this Agreement shall be construed to restrict in any way Buyer's
management from directing the operating of Buyer's business (including the
business of the Company and its Subsidiaries) in the manner that Buyer's
management and board of directors deem most beneficial for Buyer and for FIG's
shareholders. The parties also agree that the Company will cause the Company
Actuary to perform a reserve study as of the end of each Measurement Period
providing the information contemplated by the definition of “Incurred Losses and
Loss Adjustment Expense” to be obtained from such study, which, unless otherwise
agreed by Buyer and Stockholders Representative, will be prepared in a manner
consistent with the Closing Reserve Study (as defined in the Merger Agreement),
using a consistent methodology, approach, and weightings of actuarial factors as
used in such Closing Reserve Study and assuming that the Company's current
Reinsurance Treaty (notwithstanding any intervening Commutation, Material
Revision or expiration) remains in effect as of the date of such to-be-performed
reserve study with such levels of risk retention by Company and other terms and
conditions as are in effect as of the date of this Agreement (the “Reserve
Study”).
2.6.2.
Intercompany
Charges. Throughout the Earnout Period, intercompany charges for services
or products provided by or through Buyer or any of its other Subsidiaries to the
Company and its Subsidiaries will not exceed the lesser of (i) amount
historically incurred by Company and its Subsidiaries for such items, or (ii)
then-current market rates for arms-length transactions with third parties for
such services and products. Such charges to the Company and its Subsidiaries
will not include a general corporate overhead allocation but, subject to
application of the last sentence of this Section 2.6.2, will include the
allocable share of the Company and its Subsidiaries of costs for insurance
covering FIG and/or its Subsidiaries including the Company and its Subsidiaries
and their allocable portion of fees for services relating to audits and
taxes. In no event will costs, fees and expenses allocated to the
Company and its Subsidiaries by FIG or any of its Subsidiaries other
than the Company and its Subsidiaries include allocations of items that
primarily result from Buyer's status as a publicly-traded company, such as costs
of public company accounting and reporting, ▇▇▇▇▇▇▇▇-▇▇▇▇▇ compliance, investor
relations, and other similar items.
2.6.3.
Management of the
Company and its Subsidiaries. The Company and its Subsidiaries shall be
managed at and subject to the direction of the Board of Directors of
the Company who shall be
appointed at the discretion of Buyer. The Company and its
Subsidiaries will be subject to all reasonable policies, procedures, and
requirements applicable generally to FIG's Subsidiaries and operating units, as
communicated to the Company and its Subsidiaries by Buyer from time to time.
Such policies, procedures and requirements will include a system of internal
accounting controls consistent with the system of internal accounting controls
applicable to FIG and its Subsidiaries from time to time.
2.6.4.
Certain Actions and
Credits. Except as otherwise agreed between Buyer and the Stockholders
Representative, such agreement if requested by Buyer not to be unreasonably
withheld or delayed by Stockholders Representative, Buyer will use
commercially reasonable efforts to avoid taking actions that have a material
negative impact on the amount of any Earnout Payment that would otherwise be
payable; Buyer will not cause the Company or any of its Subsidiaries to engage
in any practice, take any action, or enter into any transaction outside the
Ordinary Course of Business that have a material negative impact on the amount
of any Earnout Payment that would otherwise be payable, it being understood,
however, that business written by the Company and its Subsidiaries will be
required to be consistent with FPIC’s underwriting and pricing practices in
effect from time to time, as reasonably applied by FPIC to the Texas and
Mississippi markets. If, during the Earnout Period, Buyer or an
Affiliate thereof sells medical professional liability insurance policies in
Texas or Mississippi other than through the Company and its Subsidiaries, the
Company and its Subsidiaries will be given credit for the written premium from
such sales for purposes of computing Direct Premiums Written, unless such sales
are to anesthesiologists or to Persons that are FPIC insureds on the date
hereof. If, during the Earnout Period, Buyer sells medical
professional liability insurance policies in Texas or Mississippi to Persons
introduced by, or as a result of, in whole or in part, from the efforts of the
Company or any of its Subsidiaries or any of their officers or employees, the
Company and its Subsidiaries will be given credit for the written premium from
such sales for purposes of computing Direct Premiums Written. In
addition, if, during the Earnout Period, Buyer acquires a direct or indirect
interest in the ownership, management, operation, revenues or profits of any
Competitive Person, the Company and its Subsidiaries will be given credit for
the Competitive Person’s written premium for medical professional liability
insurance sold in Texas and Mississippi after such acquisition by Buyer for
purposes of computing Direct Premiums Written.
2.6.5
Commutation. If
a decision is made to effect a Commutation, and such Commutation has an adverse
impact on the Earnout Amount, whether by reason of a Material Revision or
otherwise, the parties agree to work on a good faith basis to modify or
otherwise refine the provisions of this Agreement to neutralize any adverse
impact of the Commutation on the Earnout Amount. Buyer agrees that
Shareholders will receive any net benefit in the calculation of the Earnout
Amount that results from the Commutation.
3.
Miscellaneous.
3.1. Entire
Agreement; Waivers. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes all
prior (but not contemporaneous) agreements (other than the Merger Agreement),
understandings, negotiations and discussions, whether oral or written, of the
parties with respect to such subject matter. No waiver of any provision of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), shall constitute a continuing waiver unless
otherwise expressly provided nor shall be effective unless in writing and
executed by the party or parties against which it is sought to be
enforced.
3.2. Amendment or
Modification. The parties hereto may amend or modify this Agreement only
by a written instrument executed by Buyer and the Stockholders
Representative.
3.3. Action by
Stockholders Representative. Any action taken by Stockholders
Representative, including agreements, waivers, amendments and notices, will not
be validly taken unless expressed in a writing signed by both individuals
comprising Stockholders Representative. Buyer is entitled to rely
fully on any such action of the Stockholders Representative and each such action
shall be binding on the Shareholders.
3.4.
Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect, such provision shall
(to the extent permitted under applicable law) be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law. The provisions hereof are severable,
and in the event any provision hereof should be held invalid or unenforceable in
any respect, it shall not invalidate, render unenforceable or otherwise affect
any other provision hereof.
3.5. Successors
and Assigns. All of the terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of Buyer, the Stockholders
Representative and, to the extent provided herein, the Shareholders, and their
respective successors, personal representatives and permitted transferees and
assigns; provided, however, that (a) no transfer or assignment by either Buyer
or Stockholders Representative shall be permitted without the prior consent of
the other, and no transfer by a Shareholder shall be effective unless
Stockholders Representative shall have given Buyer notice of such transfer or
assignment, and any such attempted transfer or assignment without consent or
notice shall be null and void and (b) no transfer or assignment by any party
shall relieve such party of any of its obligations hereunder.
3.6.
Notices.
|
If
to Stockholders Representative:
|
Copy to: |
|
|||
| Advocate, MD Financial Group | ▇▇▇▇▇▇▇ Law Firm | ||||
|
Selling
Stockholders
|
▇▇▇▇
▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
|
||||
|
c/o
▇▇▇▇ ▇. ▇▇▇▇▇
|
Austin, Texas 78731 |
|
|||
|
Stockholders
Representative
|
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ |
|
|||
|
6001
Cervinus Run
|
Facsimile:
▇▇▇-▇▇▇-▇▇▇▇
|
||||
|
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
Email:
▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
|
||||
|
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
|
|
||||
|
Email: ▇▇▇▇.▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇.▇▇▇
|
|||||
and
Advocate,
MD Financial Group
Selling
Stockholders
c/o
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Stockholders
Representative
c/o
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Van Deuren s.c.
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Facsimile: 414-298-8097
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
|
If
to Buyer:
|
Copy to: |
|
|||
|
FPIC
Insurance Group, Inc.
|
▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇, P.A.
|
||||
|
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
|
50 North ▇▇▇▇▇ Street |
|
|||
|
Suite
1400
|
Suite 2900 |
|
|||
|
▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
|
▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
|
||||
|
Attn:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ III
|
Attn:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
|
||||
|
Facsimile:
▇▇▇-▇▇▇-▇▇▇▇
|
Facsimile:
904-346-3299
|
||||
|
Email: ▇▇▇▇▇.▇▇▇▇▇▇@▇▇▇▇.▇▇▇
|
Email: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇ | ||||
Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
3.7.
Headings. Section and subsection headings are not to be considered part
of this Agreement, are included solely for convenience, are not intended to be
full or accurate descriptions of the content thereof and shall not affect the
construction hereof.
3.8.
Counterparts. This Agreement and any claims related to the subject matter
hereof may be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same instrument.
3.9. Governing
Law. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Texas, without reference to the choice
of law provisions thereof.
3.10. Judicial
Proceedings. Any judicial proceeding
arising out of or relating to this Agreement shall be brought in Dallas, Texas
in the Federal Courts having jurisdiction in such city, and, by execution and
delivery of this Agreement, each of the Parties accepts the exclusive
jurisdiction of such courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. Each of the
Parties further agrees that a summons and complaint commencing an action or
proceeding in any of such courts shall be properly served
and shall
confer personal jurisdiction if served to it at the address and in the manner
set forth in Section 113.6 hereof or as otherwise provided under the rules of
the Federal Courts in Dallas, Texas having jurisdiction. This
provision may be filed with any court as written evidence of the knowing and
voluntary irrevocable agreement among the Parties to waive any objections to
jurisdiction, to venue or to convenience of forum. The foregoing
consents to jurisdiction and appointments of agents to receive service of
process shall not constitute general consents to service of process in the State
of Texas for any purpose except as provided above and shall not be deemed to
confer rights on any Person other than the Parties to this Agreement. If any
such proceeding is brought, the prevailing party shall be entitled to recover
its reasonable fees and costs of its counsel in connection with such
proceeding.
[SIGNATURE
PAGES FOLLOW.]
| FPIC INSURANCE GROUP, INC. | |||
|
|
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
III
|
||
| Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, III | |||
| Title: Chief Financial Officer | |||
|
FIRST PROFESSIONAL
INSURANCE
COMPANY,
INC.
|
|||
|
|
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
III
|
||
| Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, III | |||
| Title: Vice President | |||
| STOCKHOLDERS REPRESENTATIVE | |||
|
|
By: /s/ ▇▇▇▇ ▇.
▇▇▇▇▇
|
||
| Name: ▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| STOCKHOLDERS REPRESENTATIVE | |||
|
|
By: /s/ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇
|
||
| Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||
ANNEX I
|
Threshold
Average 2-Year Performance Level ($ in
thousands)
|
Potential
Tier I
Additional
Consideration
|
||||||||||||||||
|
Payout
Schedule
|
Direct
Premiums Written
|
Combined
Ratio
|
Underwriting
Profit
|
Up
to $6,000
|
|||||||||||||
|
Weighting
|
30% | 30% | 40% | 100% | |||||||||||||
|
Threshold
Level
|
$ | 0 | 96.0 | % | $ | 1,750 | $ | 3,000 | |||||||||
| 50.0 | % | $ | 25,500 | 91.0 | % | $ | 2,250 | $ | 3,000 | ||||||||
| 51.0 | % | $ | 25,530 | 90.9 | % | $ | 2,260 | $ | 3,060 | ||||||||
| 52.0 | % | $ | 25,560 | 90.8 | % | $ | 2,270 | $ | 3,120 | ||||||||
| 53.0 | % | $ | 25,590 | 90.7 | % | $ | 2,280 | $ | 3,180 | ||||||||
| 54.0 | % | $ | 25,620 | 90.6 | % | $ | 2,290 | $ | 3,240 | ||||||||
| 55.0 | % | $ | 25,650 | 90.5 | % | $ | 2,300 | $ | 3,300 | ||||||||
| 56.0 | % | $ | 25,680 | 90.4 | % | $ | 2,310 | $ | 3,360 | ||||||||
| 57.0 | % | $ | 25,710 | 90.3 | % | $ | 2,320 | $ | 3,420 | ||||||||
| 58.0 | % | $ | 25,740 | 90.2 | % | $ | 2,330 | $ | 3,480 | ||||||||
| 59.0 | % | $ | 25,770 | 90.1 | % | $ | 2,340 | $ | 3,540 | ||||||||
| 60.0 | % | $ | 25,800 | 90.0 | % | $ | 2,350 | $ | 3,600 | ||||||||
| 61.0 | % | $ | 25,830 | 89.9 | % | $ | 2,360 | $ | 3,660 | ||||||||
| 62.0 | % | $ | 25,860 | 89.8 | % | $ | 2,370 | $ | 3,720 | ||||||||
| 63.0 | % | $ | 25,890 | 89.7 | % | $ | 2,380 | $ | 3,780 | ||||||||
| 64.0 | % | $ | 25,920 | 89.6 | % | $ | 2,390 | $ | 3,840 | ||||||||
| 65.0 | % | $ | 25,950 | 89.5 | % | $ | 2,400 | $ | 3,900 | ||||||||
| 66.0 | % | $ | 25,980 | 89.4 | % | $ | 2,410 | $ | 3,960 | ||||||||
| 67.0 | % | $ | 26,010 | 89.3 | % | $ | 2,420 | $ | 4,020 | ||||||||
| 68.0 | % | $ | 26,040 | 89.2 | % | $ | 2,430 | $ | 4,080 | ||||||||
| 69.0 | % | $ | 26,070 | 89.1 | % | $ | 2,440 | $ | 4,140 | ||||||||
| 70.0 | % | $ | 26,100 | 89.0 | % | $ | 2,450 | $ | 4,200 | ||||||||
| 71.0 | % | $ | 26,130 | 88.9 | % | $ | 2,460 | $ | 4,260 | ||||||||
| 72.0 | % | $ | 26,160 | 88.8 | % | $ | 2,470 | $ | 4,320 | ||||||||
| 73.0 | % | $ | 26,190 | 88.7 | % | $ | 2,480 | $ | 4,380 | ||||||||
| 74.0 | % | $ | 26,220 | 88.6 | % | $ | 2,490 | $ | 4,440 | ||||||||
| 75.0 | % | $ | 26,250 | 88.5 | % | $ | 2,500 | $ | 4,500 | ||||||||
| 76.0 | % | $ | 26,280 | 88.4 | % | $ | 2,510 | $ | 4,560 | ||||||||
| 77.0 | % | $ | 26,310 | 88.3 | % | $ | 2,520 | $ | 4,620 | ||||||||
| 78.0 | % | $ | 26,340 | 88.2 | % | $ | 2,530 | $ | 4,680 | ||||||||
| 79.0 | % | $ | 26,370 | 88.1 | % | $ | 2,540 | $ | 4,740 | ||||||||
| 80.0 | % | $ | 26,400 | 88.0 | % | $ | 2,550 | $ | 4,800 | ||||||||
| 81.0 | % | $ | 26,430 | 87.9 | % | $ | 2,560 | $ | 4,860 | ||||||||
| 82.0 | % | $ | 26,460 | 87.8 | % | $ | 2,570 | $ | 4,920 | ||||||||
| 83.0 | % | $ | 26,490 | 87.7 | % | $ | 2,580 | $ | 4,980 | ||||||||
| 84.0 | % | $ | 26,520 | 87.6 | % | $ | 2,590 | $ | 5,040 | ||||||||
| 85.0 | % | $ | 26,550 | 87.5 | % | $ | 2,600 | $ | 5,100 | ||||||||
|
Threshold
Average 2-Year Performance Level ($ in
thousands)
|
Potential
Tier I
Additional
Consideration
|
||||||||||||||||
|
Payout
Schedule
|
Direct
Premiums Written
|
Combined
Ratio
|
Underwriting
Profit
|
Up
to $6,000
|
|||||||||||||
|
Weighting
|
30% | 30% | 40% | 100% | |||||||||||||
| 86.0 | % | $ | 26,580 | 87.4 | % | $ | 2,610 | $ | 5,160 | ||||||||
| 87.0 | % | $ | 26,610 | 87.3 | % | $ | 2,620 | $ | 5,220 | ||||||||
| 88.0 | % | $ | 26,640 | 87.2 | % | $ | 2,630 | $ | 5,280 | ||||||||
| 89.0 | % | $ | 26,670 | 87.1 | % | $ | 2,640 | $ | 5,340 | ||||||||
| 90.0 | % | $ | 26,700 | 87.0 | % | $ | 2,650 | $ | 5,400 | ||||||||
| 91.0 | % | $ | 26,730 | 86.9 | % | $ | 2,660 | $ | 5,460 | ||||||||
| 92.0 | % | $ | 26,760 | 86.8 | % | $ | 2,670 | $ | 5,520 | ||||||||
| 93.0 | % | $ | 26,790 | 86.7 | % | $ | 2,680 | $ | 5,580 | ||||||||
| 94.0 | % | $ | 26,820 | 86.6 | % | $ | 2,690 | $ | 5,640 | ||||||||
| 95.0 | % | $ | 26,850 | 86.5 | % | $ | 2,700 | $ | 5,700 | ||||||||
| 96.0 | % | $ | 26,880 | 86.4 | % | $ | 2,710 | $ | 5,760 | ||||||||
| 97.0 | % | $ | 26,910 | 86.3 | % | $ | 2,720 | $ | 5,820 | ||||||||
| 98.0 | % | $ | 26,940 | 86.2 | % | $ | 2,730 | $ | 5,880 | ||||||||
| 99.0 | % | $ | 26,970 | 86.1 | % | $ | 2,740 | $ | 5,940 | ||||||||
| 100.0 | % | $ | 27,000 | 86.0 | % | $ | 2,750 | $ | 6,000 |
ANNEX II
|
Threshold
Average 2-Year Performance Level ($
in thousands)
|
Potential
Tier II Additional Consideration
|
||||||||||||||||
|
Payout
Schedule
|
Direct
Premiums Written
|
Combined
Ratio
|
Underwriting
Profit
|
Up
to $6,000
|
|||||||||||||
|
Weighting
|
30% | 30% | 40% | 100% | |||||||||||||
|
Threshold
Level
|
$27,000 | 86.0 | % | $ | 2,750 | $ | 1,500 | ||||||||||
| 25.0 | % | $ | 29,000 | 84.0 | % | $ | 3,750 | $ | 1,500 | ||||||||
| 26.0 | % | $ | 29,100 | 83.9 | % | $ | 3,800 | $ | 1,560 | ||||||||
| 27.0 | % | $ | 29,200 | 83.8 | % | $ | 3,850 | $ | 1,620 | ||||||||
| 28.0 | % | $ | 29,300 | 83.7 | % | $ | 3,900 | $ | 1,680 | ||||||||
| 29.0 | % | $ | 29,400 | 83.6 | % | $ | 3,950 | $ | 1,740 | ||||||||
| 30.0 | % | $ | 29,500 | 83.5 | % | $ | 4,000 | $ | 1,800 | ||||||||
| 31.0 | % | $ | 29,600 | 83.4 | % | $ | 4,050 | $ | 1,860 | ||||||||
| 32.0 | % | $ | 29,700 | 83.3 | % | $ | 4,100 | $ | 1,920 | ||||||||
| 33.0 | % | $ | 29,800 | 83.2 | % | $ | 4,150 | $ | 1,980 | ||||||||
| 34.0 | % | $ | 29,900 | 83.1 | % | $ | 4,200 | $ | 2,040 | ||||||||
| 35.0 | % | $ | 30,000 | 83.0 | % | $ | 4,250 | $ | 2,100 | ||||||||
| 36.0 | % | $ | 30,100 | 82.9 | % | $ | 4,300 | $ | 2,160 | ||||||||
| 37.0 | % | $ | 30,200 | 82.8 | % | $ | 4,350 | $ | 2,220 | ||||||||
| 38.0 | % | $ | 30,300 | 82.7 | % | $ | 4,400 | $ | 2,280 | ||||||||
| 39.0 | % | $ | 30,400 | 82.6 | % | $ | 4,450 | $ | 2,340 | ||||||||
| 40.0 | % | $ | 30,500 | 82.5 | % | $ | 4,500 | $ | 2,400 | ||||||||
| 41.0 | % | $ | 30,600 | 82.4 | % | $ | 4,550 | $ | 2,460 | ||||||||
| 42.0 | % | $ | 30,700 | 82.3 | % | $ | 4,600 | $ | 2,520 | ||||||||
| 43.0 | % | $ | 30,800 | 82.2 | % | $ | 4,650 | $ | 2,580 | ||||||||
| 44.0 | % | $ | 30,900 | 82.1 | % | $ | 4,700 | $ | 2,640 | ||||||||
| 45.0 | % | $ | 31,000 | 82.0 | % | $ | 4,750 | $ | 2,700 | ||||||||
| 46.0 | % | $ | 31,100 | 81.9 | % | $ | 4,800 | $ | 2,760 | ||||||||
| 47.0 | % | $ | 31,200 | 81.8 | % | $ | 4,850 | $ | 2,820 | ||||||||
| 48.0 | % | $ | 31,300 | 81.7 | % | $ | 4,900 | $ | 2,880 | ||||||||
| 49.0 | % | $ | 31,400 | 81.6 | % | $ | 4,950 | $ | 2,940 | ||||||||
| 50.0 | % | $ | 31,500 | 81.5 | % | $ | 5,000 | $ | 3,000 | ||||||||
| 51.0 | % | $ | 31,600 | 81.4 | % | $ | 5,050 | $ | 3,060 | ||||||||
| 52.0 | % | $ | 31,700 | 81.3 | % | $ | 5,100 | $ | 3,120 | ||||||||
| 53.0 | % | $ | 31,800 | 81.2 | % | $ | 5,150 | $ | 3,180 | ||||||||
| 54.0 | % | $ | 31,900 | 81.1 | % | $ | 5,200 | $ | 3,240 | ||||||||
| 55.0 | % | $ | 32,000 | 81.0 | % | $ | 5,250 | $ | 3,300 | ||||||||
| 56.0 | % | $ | 32,100 | 80.9 | % | $ | 5,300 | $ | 3,360 | ||||||||
| 57.0 | % | $ | 32,200 | 80.8 | % | $ | 5,350 | $ | 3,420 | ||||||||
| 58.0 | % | $ | 32,300 | 80.7 | % | $ | 5,400 | $ | 3,480 | ||||||||
| 59.0 | % | $ | 32,400 | 80.6 | % | $ | 5,450 | $ | 3,540 | ||||||||
| 60.0 | % | $ | 32,500 | 80.5 | % | $ | 5,500 | $ | 3,600 | ||||||||
| 61.0 | % | $ | 32,600 | 80.4 | % | $ | 5,550 | $ | 3,660 | ||||||||
| 62.0 | % | $ | 32,700 | 80.3 | % | $ | 5,600 | $ | 3,720 | ||||||||
| 63.0 | % | $ | 32,800 | 80.2 | % | $ | 5,650 | $ | 3,780 |
|
TIER II PERFORMANCE TARGETS
(continued)
|
|||||||||||||||||
|
Threshold
Average 2-Year Performance Level ($
in thousands)
|
Potential
Tier II
Additional
Consideration
|
||||||||||||||||
|
Payout
Schedule
|
Direct
Premiums Written
|
Combined
Ratio
|
Underwriting
Profit
|
Up
to $6,000
|
|||||||||||||
|
Weighting
|
30% | 30% | 40% | 100% | |||||||||||||
|
Threshold
Level
|
$27,000 | 86.0 | % | $ | 2,750 | $ | 1,500 | ||||||||||
| 64.0 | % | $ | 32,900 | 80.1 | % | $ | 5,700 | $ | 3,840 | ||||||||
| 65.0 | % | $ | 33,000 | 80.0 | % | $ | 5,750 | $ | 3,900 | ||||||||
| 66.0 | % | $ | 33,100 | 79.9 | % | $ | 5,800 | $ | 3,960 | ||||||||
| 67.0 | % | $ | 33,200 | 79.8 | % | $ | 5,850 | $ | 4,020 | ||||||||
| 68.0 | % | $ | 33,300 | 79.7 | % | $ | 5,900 | $ | 4,080 | ||||||||
| 69.0 | % | $ | 33,400 | 79.6 | % | $ | 5,950 | $ | 4,140 | ||||||||
| 70.0 | % | $ | 33,500 | 79.5 | % | $ | 6,000 | $ | 4,200 | ||||||||
| 71.0 | % | $ | 33,600 | 79.4 | % | $ | 6,050 | $ | 4,260 | ||||||||
| 72.0 | % | $ | 33,700 | 79.3 | % | $ | 6,100 | $ | 4,320 | ||||||||
| 73.0 | % | $ | 33,800 | 79.2 | % | $ | 6,150 | $ | 4,380 | ||||||||
| 74.0 | % | $ | 33,900 | 79.1 | % | $ | 6,200 | $ | 4,440 | ||||||||
| 75.0 | % | $ | 34,000 | 79.0 | % | $ | 6,250 | $ | 4,500 | ||||||||
| 76.0 | % | $ | 34,100 | 78.9 | % | $ | 6,300 | $ | 4,560 | ||||||||
| 77.0 | % | $ | 34,200 | 78.8 | % | $ | 6,350 | $ | 4,620 | ||||||||
| 78.0 | % | $ | 34,300 | 78.7 | % | $ | 6,400 | $ | 4,680 | ||||||||
| 79.0 | % | $ | 34,400 | 78.6 | % | $ | 6,450 | $ | 4,740 | ||||||||
| 80.0 | % | $ | 34,500 | 78.5 | % | $ | 6,500 | $ | 4,800 | ||||||||
| 81.0 | % | $ | 34,600 | 78.4 | % | $ | 6,550 | $ | 4,860 | ||||||||
| 82.0 | % | $ | 34,700 | 78.3 | % | $ | 6,600 | $ | 4,920 | ||||||||
| 83.0 | % | $ | 34,800 | 78.2 | % | $ | 6,650 | $ | 4,980 | ||||||||
| 84.0 | % | $ | 34,900 | 78.1 | % | $ | 6,700 | $ | 5,040 | ||||||||
| 85.0 | % | $ | 35,000 | 78.0 | % | $ | 6,750 | $ | 5,100 | ||||||||
| 86.0 | % | $ | 35,100 | 77.9 | % | $ | 6,800 | $ | 5,160 | ||||||||
| 87.0 | % | $ | 35,200 | 77.8 | % | $ | 6,850 | $ | 5,220 | ||||||||
| 88.0 | % | $ | 35,300 | 77.7 | % | $ | 6,900 | $ | 5,280 | ||||||||
| 89.0 | % | $ | 35,400 | 77.6 | % | $ | 6,950 | $ | 5,340 | ||||||||
| 90.0 | % | $ | 35,500 | 77.5 | % | $ | 7,000 | $ | 5,400 | ||||||||
| 91.0 | % | $ | 35,600 | 77.4 | % | $ | 7,050 | $ | 5,460 | ||||||||
| 92.0 | % | $ | 35,700 | 77.3 | % | $ | 7,100 | $ | 5,520 | ||||||||
| 93.0 | % | $ | 35,800 | 77.2 | % | $ | 7,150 | $ | 5,580 | ||||||||
| 94.0 | % | $ | 35,900 | 77.1 | % | $ | 7,200 | $ | 5,640 | ||||||||
| 95.0 | % | $ | 36,000 | 77.0 | % | $ | 7,250 | $ | 5,700 | ||||||||
| 96.0 | % | $ | 36,100 | 76.9 | % | $ | 7,300 | $ | 5,760 | ||||||||
| 97.0 | % | $ | 36,200 | 76.8 | % | $ | 7,350 | $ | 5,820 | ||||||||
| 98.0 | % | $ | 36,300 | 76.7 | % | $ | 7,400 | $ | 5,880 | ||||||||
| 99.0 | % | $ | 36,400 | 76.6 | % | $ | 7,450 | $ | 5,940 | ||||||||
| 100.0 | % | $ | 36,500 | 76.5 | % | $ | 7,500 | $ | 6,000 |
ANNEX
III
|
Example
I
|
||||||||||||||||
|
DWP
|
Combined
Ratio
|
Underwriting
Profit
|
Total
|
|||||||||||||
|
Weighting
|
30 | % | 30 | % | 40 | % | 100 | % | ||||||||
|
Year
1 Performance
|
$ | 29,000 | 80.50 | % | $ | 5,750 | ||||||||||
|
Earnout Calculation
|
||||||||||||||||
|
Tier
I
|
$ | 1,800 | 1800 | $ | 2,400 | $ | 6,000 | |||||||||
|
Tier
II
|
$ | 450 | 1080 | $ | 1,560 | $ | 3,090 | |||||||||
|
Total
Earnout Payable
|
$ | 2,250 | 2880 | $ | 3,960 | $ | 9,090 | |||||||||
|
Year
1 Limit
|
40 | % | 40 | % | 40 | % | 40 | % | ||||||||
|
Year
1 Earnout Payable
|
$ | 900 | $ | 1,152 | $ | 1,584 | $ | 3,636 | ||||||||
|
Year
2 Performance
|
$ | 32,000 | 81.50 | % | $ | 6,250 | ||||||||||
|
Average
of year 1 & 2 Performance
|
$ | 30,500 | 81.00 | % | $ | 6,000 | ||||||||||
|
Earnout Calculation
|
||||||||||||||||
|
Tier
I
|
$ | 1,800 | 1800 | $ | 2,400 | $ | 6,000 | |||||||||
|
Tier
II
|
$ | 720 | 990 | $ | 1,680 | $ | 3,390 | |||||||||
|
Total
Earnout Payable
|
$ | 2,520 | 2790 | $ | 4,080 | $ | 9,390 | |||||||||
|
Year
2 Limit
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
|
Year
2 Earnout Payable
|
$ | 2,520 | $ | 2,790 | $ | 4,080 | $ | 9,390 | ||||||||
|
Less: Year
1 Payment
|
$ | 900 | $ | 1,152 | $ | 1,584 | $ | 3,636 | ||||||||
|
Year
2 Earnout Payable
|
$ | 1,620 | $ | 1,638 | $ | 2,496 | $ | 5,754 | ||||||||
|
Total
Cumulative Earnout Payment
|
$ | 2,520 | $ | 2,790 | $ | 4,080 | $ | 9,390 | ||||||||
|
Example
2
|
||||||||||||||||
|
DWP
|
Combined
Ratio
|
Underwriting
Profit
|
Total
|
|||||||||||||
|
Weighting
|
30 | % | 30 | % | 40 | % | 100 | % | ||||||||
|
Year
1 Performance
|
$ | 25,000 | 83.00 | % | $ | 7,500 | ||||||||||
|
Earnout Calculation
|
||||||||||||||||
|
Tier
I
|
$ | 900 | 1800 | $ | 2,400 | $ | 5,100 | |||||||||
|
Tier
II
|
$ | - | 630 | $ | 2,400 | $ | 3,030 | |||||||||
|
Total
Earnout Payable
|
$ | 900 | 2430 | $ | 4,800 | $ | 8,130 | |||||||||
|
Year
1 Limit
|
40 | % | 40 | % | 40 | % | 40 | % | ||||||||
|
Year
1 Earnout Payable
|
$ | 360 | $ | 972 | $ | 1,920 | $ | 3,252 | ||||||||
|
Year
2 Performance
|
$ | 33,000 | 79.50 | % | $ | 6,000 | ||||||||||
|
Average
of year 1 & 2 Performance
|
$ | 29,000 | 81.25 | % | $ | 6,750 | ||||||||||
|
Earnout Calculation
|
||||||||||||||||
|
Tier
I
|
$ | 1,800 | 1800 | $ | 2,400 | $ | 6,000 | |||||||||
|
Tier
II
|
$ | 450 | 936 | $ | 2,040 | $ | 3,426 | |||||||||
|
Total
Earnout Payable
|
$ | 2,250 | 2736 | $ | 4,440 | $ | 9,426 | |||||||||
|
Year
2 Limit
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
|
Year
2 Earnout Payable
|
$ | 2,250 | $ | 2,736 | $ | 4,440 | $ | 9,426 | ||||||||
|
Less: Year
1 Payment
|
$ | 360 | $ | 972 | $ | 1,920 | $ | 3,252 | ||||||||
|
Year
2 Earnout Payable
|
$ | 1,890 | $ | 1,764 | $ | 2,520 | $ | 6,174 | ||||||||
|
Total
Cumulative Earnout Payment
|
$ | 2,250 | $ | 2,736 | $ | 4,440 | $ | 9,426 | ||||||||
ANNEX IV
ALLOCABLE PORTION OF EACH
SHAREHOLDER
|
Total
Fully
|
||||||||||
|
Diluted
|
Fully
Diluted
|
|||||||||
|
Share
|
Ownership
|
Earnout
|
||||||||
|
Shareholder
|
Shares
|
Warrants
|
Ownership
|
Percentage
|
Percentage
|
|||||
|
(Note:
includes Advocate warrant holders for which warrants will be exercised via
cashless exercise in connection with closing)
|
||||||||||
|
▇▇▇▇
▇▇▇▇▇
|
2,486,145
|
2,486,145
|
20.08993073%
|
19.08543420%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇
|
80,500
|
80,500
|
0.65050085%
|
0.61797580%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
103,000
|
103,000
|
0.83231785%
|
0.79070196%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
|
509,333
|
509,333
|
4.11579562%
|
3.91000583%
|
||||||
|
▇▇▇
▇▇▇▇▇▇▇
|
65,188
|
65,188
|
0.52676831%
|
0.50042990%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
445,500
|
445,500
|
3.59997673%
|
3.41997789%
|
||||||
|
▇▇▇
▇▇▇▇▇▇▇
|
316,000
|
316,000
|
2.55351885%
|
2.42584290%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇
|
85,000
|
10,000
|
95,000
|
0.76767180%
|
0.72928821%
|
|||||
|
▇▇▇▇
▇ ▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
T.
▇▇▇▇▇▇ ▇▇▇▇▇
|
50,000
|
19,705
|
69,705
|
0.56326909%
|
0.53510563%
|
|||||
|
Trustees
for Tejas Securities Group, Inc. 401K Plan & Trust FBO ▇▇▇▇▇▇▇
▇▇▇▇▇▇
|
20,000
|
20,000
|
0.16161512%
|
0.15353436%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
7,500
|
7,500
|
0.06060567%
|
0.05757539%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
26,000
|
26,000
|
0.21009965%
|
0.19959467%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
56,875
|
56,875
|
0.45959299%
|
0.43661334%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
4,000
|
4,000
|
0.03232302%
|
0.03070687%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
18,000
|
18,000
|
0.14545361%
|
0.13818092%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
27,000
|
27,000
|
0.21818041%
|
0.20727139%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
27,000
|
27,000
|
0.21818041%
|
0.20727139%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
3,333
|
3,333
|
0.02693316%
|
0.02558650%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
15,000
|
15,000
|
0.12121134%
|
0.11515077%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
19,375
|
19,375
|
0.15656464%
|
0.14873641%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
23,500
|
23,500
|
0.18989776%
|
0.18040287%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, M.D.
|
70,000
|
70,000
|
0.56565291%
|
0.53737026%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
3,000
|
3,000
|
0.02424227%
|
0.02303015%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇
|
4,000
|
4,000
|
0.03232302%
|
0.03070687%
|
||||||
|
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
1,000
|
1,000
|
0.00808076%
|
0.00767672%
|
Page
1
Allocable Portion of earnout to be Paid to Each
Shareholder Annex IV
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇
|
1,000
|
1,000
|
0.00808076%
|
0.00767672%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
300
|
300
|
0.00242423%
|
0.00230302%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇
|
200
|
200
|
0.00161615%
|
0.00153534%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
1,500
|
1,500
|
0.01212113%
|
0.01151508%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
350
|
350
|
0.00282826%
|
0.00268685%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
23,500
|
23,500
|
0.18989776%
|
0.18040287%
|
||||||
|
▇▇▇▇▇▇▇▇
▇▇▇▇▇
|
24,800
|
24,800
|
0.20040274%
|
0.19038261%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
24,800
|
24,800
|
0.20040274%
|
0.19038261%
|
||||||
|
▇▇▇▇
▇▇▇▇▇
|
100
|
100
|
0.00080808%
|
0.00076767%
|
||||||
|
▇▇▇
▇▇▇▇▇
|
33,000
|
33,000
|
0.26666494%
|
0.25333170%
|
||||||
|
Source
Capital Group
|
833
|
833
|
0.00673127%
|
0.00639471%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇
& ▇▇▇▇▇▇ ▇▇▇▇▇▇
|
250,000
|
250,000
|
2.02018896%
|
1.91917951%
|
||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, As Community Property
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
83,333
|
83,333
|
0.67339363%
|
0.63972395%
|
||||||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇, M.D.
|
133,333
|
5,000
|
138,333
|
1.11783520%
|
1.06194344%
|
|||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
50,000
|
20,000
|
70,000
|
0.56565291%
|
0.53737026%
|
|||||
|
▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇
▇. ▇▇▇▇, ▇▇.
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇
& ▇▇▇▇▇ ▇▇▇▇▇▇
|
283,333
|
283,333
|
2.28954479%
|
2.17506756%
|
||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, Trustee, or Successor Trustee, of the ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Revocable Trust Agreement
|
83,333
|
83,333
|
0.67339363%
|
0.63972395%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Trustee or Successor Trustee, of the ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Trust
|
100,000
|
100,000
|
0.80807558%
|
0.76767180%
|
||||||
|
▇▇▇▇▇▇
▇ ▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇
▇ ▇▇▇▇▇▇ and WCR Management, LLC as Tenants
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇
Castenfelt and ▇▇▇▇▇▇▇ ▇▇▇▇▇, TIC
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇
▇. ▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
233,333
|
233,333
|
1.88550700%
|
1.79123165%
|
||||||
|
▇▇▇▇▇▇▇-▇▇▇▇▇▇▇
LLC
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
Page
2
Allocable Portion of earnout to be Paid to Each
Shareholder Annex IV
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, TIC
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
100,000
|
100,000
|
0.80807558%
|
0.76767180%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
Equity
Trust Company Custodian FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇, Trustee, ▇▇▇▇▇▇ Issue Trust
|
100,000
|
100,000
|
0.80807558%
|
0.76767180%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇, Trustee
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
Sterling
Trust Company, Custodian FBO ▇▇▇ ▇. ▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
83,333
|
83,333
|
0.67339363%
|
0.63972395%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
100,000
|
100,000
|
0.80807558%
|
0.76767180%
|
||||||
|
M.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
|
100,000
|
100,000
|
0.80807558%
|
0.76767180%
|
||||||
|
▇▇▇
▇▇▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
|
25,000
|
25,000
|
0.20201890%
|
0.19191795%
|
||||||
|
▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇▇,
Ltd.
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
30,000
|
30,000
|
0.24242268%
|
0.23030154%
|
||||||
|
Equity
Trust Company Custodian FBO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
15,000
|
15,000
|
0.12121134%
|
0.11515077%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
|
25,000
|
25,000
|
0.20201890%
|
0.19191795%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇
|
25,000
|
25,000
|
0.20201890%
|
0.19191795%
|
||||||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
|
245,665
|
245,665
|
1.98515888%
|
1.88590094%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
|
166,666
|
166,666
|
1.34678725%
|
1.27944789%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
233,333
|
233,333
|
1.88550700%
|
1.79123165%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
|
2,500
|
2,500
|
0.02020189%
|
0.01919180%
|
||||||
|
▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
12,500
|
12,500
|
0.10100945%
|
0.09595898%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
|
5,000
|
5,000
|
0.04040378%
|
0.03838359%
|
||||||
|
▇▇▇▇▇
Trust
|
5,000
|
5,000
|
0.04040378%
|
0.03838359%
|
||||||
|
▇▇▇▇▇▇▇▇▇▇▇
and/or ▇▇▇ ▇▇▇▇▇▇▇▇
|
10,000
|
10,000
|
0.08080756%
|
0.07676718%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
25,000
|
12,500
|
37,500
|
0.30302834%
|
0.28787693%
|
|||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
Page
3
Allocable Portion of earnout to be Paid to Each
Shareholder Annex IV
|
North
America Life Insurance Co. of Texas
|
320,000
|
320,000
|
2.58584187%
|
2.45654978%
|
||||||
|
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
33,333
|
5,000
|
38,333
|
0.30975961%
|
0.29427163%
|
|||||
|
▇▇▇▇▇
▇. ▇▇▇▇, M.D.
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
Quest
Capital Alliance II, LLC
|
383,333
|
383,333
|
3.09762038%
|
2.94273936%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇
|
41,666
|
41,666
|
0.33669277%
|
0.31985813%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
41,666
|
41,666
|
0.33669277%
|
0.31985813%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇ Living Trust
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
85,000
|
85,000
|
0.68686425%
|
0.65252103%
|
||||||
|
▇▇▇
▇▇▇▇▇▇
|
56,000
|
56,000
|
0.45252233%
|
0.42989621%
|
||||||
|
Capital
Consortium, Inc.
|
25,000
|
25,000
|
0.20201890%
|
0.19191795%
|
||||||
|
▇▇▇
▇▇▇▇▇▇
|
5,000
|
5,000
|
0.04040378%
|
0.03838359%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
6,000
|
6,000
|
0.04848454%
|
0.04606031%
|
||||||
|
C.
▇▇▇ ▇▇▇▇▇
|
15,000
|
15,000
|
0.12121134%
|
0.11515077%
|
||||||
|
▇▇▇
▇▇▇▇▇
|
5,000
|
5,000
|
0.04040378%
|
0.03838359%
|
||||||
|
▇.▇.
▇▇▇▇▇▇▇▇▇
|
5,000
|
5,000
|
0.04040378%
|
0.03838359%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
|
14,250
|
14,250
|
0.11515077%
|
0.10939323%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇
|
33,333
|
2,850
|
36,183
|
0.29238599%
|
0.27776669%
|
|||||
|
▇▇▇▇▇
▇▇▇▇▇ Investment Company, Ltd.
|
166,666
|
166,666
|
1.34678725%
|
1.27944789%
|
||||||
|
▇▇▇
▇. ▇▇▇ III & ▇▇▇▇ ▇▇▇ ▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
TRTK
Investment, LLC
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
General
Surgery Consultants, P.A. Profit Sharing Plan and Trust
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
G.T.
and S.T. Ltd.
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇, P.T.
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, D.P.M.
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇
|
100,000
|
100,000
|
0.80807558%
|
0.76767180%
|
||||||
|
RRTL
Partnership
|
20,000
|
20,000
|
0.16161512%
|
0.15353436%
|
||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇ & Co. Custodian FBO ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
|
23,333
|
23,333
|
0.18854828%
|
0.17912086%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
|
33,666
|
33,666
|
0.27204673%
|
0.25844439%
|
||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇ & Assoc. Inc. Custodian FBO ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇
▇. ▇▇▇▇▇, M.D.
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇
▇▇▇▇▇
|
20,000
|
20,000
|
0.16161512%
|
0.15353436%
|
||||||
|
A.
▇▇▇▇ ▇▇▇
|
17,333
|
17,333
|
0.14006374%
|
0.13306055%
|
Page
4
Allocable Portion of earnout to be Paid to Each
Shareholder Annex IV
|
Sterling
Trust Company, Custodian FBO: ▇▇▇▇ ▇▇▇▇ ▇▇▇
|
16,000
|
16,000
|
0.12929209%
|
0.12282749%
|
||||||
|
▇▇▇▇▇
Fargo Bank SEP ▇▇▇ C/F J ▇▇▇▇▇▇ ▇▇▇▇▇▇ (8617-8390)
|
50,000
|
50,000
|
0.40403779%
|
0.38383590%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
|
23,333
|
23,333
|
0.18854828%
|
0.17912086%
|
||||||
|
Sterling
Trust Co., Custodian FBO: ▇▇▇▇▇ ▇▇▇▇▇ A/C 82714
|
20,000
|
20,000
|
0.16161512%
|
0.15353436%
|
||||||
|
▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
CGM
▇▇▇ for ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇
Girl FLP
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
▇▇▇▇
▇. ▇▇▇▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, M.D.
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ E*Trade as Custodian
|
13,334
|
13,334
|
0.10774880%
|
0.10236136%
|
||||||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇ E*Trade as Custodian
|
20,000
|
20,000
|
0.16161512%
|
0.15353436%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
|
13,333
|
13,333
|
0.10774072%
|
0.10235368%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
16,666
|
16,666
|
0.13467388%
|
0.12794018%
|
||||||
|
Seade
Family LLC
|
116,666
|
116,666
|
0.94274946%
|
0.89561199%
|
||||||
|
Seade
Family Revocable Trust
|
216,666
|
216,666
|
1.75082505%
|
1.66328379%
|
||||||
|
T2L
Investments, Ltd.
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
I.G.
Holdings, Inc.
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
8,333
|
8,333
|
0.06733694%
|
0.06397009%
|
||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
33,333
|
33,333
|
0.26935583%
|
0.25588804%
|
||||||
|
The
▇▇▇-▇▇▇▇▇▇▇▇ Family Ltd. Partnership LLP
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
▇▇▇
▇▇▇▇▇▇▇▇▇▇
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
40,000
|
40,000
|
0.32323023%
|
0.30706872%
|
||||||
|
▇▇▇▇▇▇▇
▇. Little
|
166,666
|
166,666
|
1.34678725%
|
1.27944789%
|
||||||
|
Mohamed
▇▇▇▇▇▇ ▇▇▇▇▇▇
|
20,000
|
20,000
|
0.16161512%
|
0.15353436%
|
||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
66,667
|
66,667
|
0.53871975%
|
0.51178376%
|
||||||
|
▇▇▇▇▇
Manaagement Enterprises, L.P.
|
60,000
|
60,000
|
0.48484535%
|
0.46060308%
|
Page
5
Allocable Portion of earnout to be Paid to Each
Shareholder Annex IV
|
National
Financial Services LLC FBO: ▇▇▇▇▇ ▇. ▇▇▇▇▇/Rollover
▇▇▇
|
66,666
|
66,666
|
0.53871167%
|
0.51177609%
|
||||||
|
▇▇▇▇▇▇
▇▇▇▇▇
|
16,666
|
16,666
|
0.13467388%
|
0.12794018%
|
||||||
|
Bear
▇▇▇▇▇▇▇ FBO: ▇▇▇▇▇▇ ▇▇▇▇▇
|
17,000
|
17,000
|
0.13737285%
|
0.13050421%
|
||||||
|
LL&B
Bridge Note Warrant
|
312,500
|
312,500
|
2.52523620%
|
2.39897439%
|
||||||
|
TOTALS
|
11,699,942
|
675,138
|
12,375,080
|
100.00000000%
|
95.00000000%
|
|||||
Page
6
ANNEX V
Allocable Portion of Incentive Bonus Pool
Participant Earnout Payment
|
Additional
|
||||||||||||||||||||||||
|
Min.
Formula
|
Max.
Formula
|
Max.
Formula
|
Maximum
|
|||||||||||||||||||||
|
Incentive
Bonus
|
Bonus
Pool
|
Allocable
Portion of
|
Based
Earnout
|
Based
Earnout
|
Based
Earnout
|
Manager
|
||||||||||||||||||
|
Pool Participant
|
Allocation (%)
|
Earnout Payment (%)
|
Potential
|
Potential
|
Potential
|
Bonus
|
||||||||||||||||||
|
▇▇▇▇
▇. ▇▇▇▇▇
|
66.6666667 | 3.333333335 | $ | 30,000 | $ | 400,000 | ||||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
|
5.952381 | 0.29761905 | $ | 2,679 | $ | 35,714 | ||||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
1.4880952 | 0.07440476 | $ | 670 | $ | 8,929 | ||||||||||||||||||
|
▇▇▇
▇▇▇▇▇▇▇
|
1.4880952 | 0.07440476 | $ | 670 | $ | 8,929 | ||||||||||||||||||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
13.3928571 | 0.669642855 | $ | 6,027 | $ | 80,357 | ||||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
5.709876563 | 0.285493828 | $ | 2,569 | $ | 34,259 | $ | 35,741 | $ | 70,000 | ||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇
|
3.262786607 | 0.16313933 | $ | 1,468 | $ | 19,577 | $ | 20,424 | $ | 40,000 | ||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
2.03924163 | 0.101962081 | $ | 918 | $ | 12,235 | $ | 12,765 | $ | 25,000 | ||||||||||||||
|
Total
|
100.0000000 | 5.0000000 | $ | 45,000 | $ | 600,000 | $ | 68,930 | $ | 135,000 | ||||||||||||||
|
Notes
|
||||||||||||||||||||||||
|
1.
At closing, there is $1,680,000 available to pay out from the 5%
bonus pool ($33,600,000 x 5%).
|
||||||||||||||||||||||||
|
2.
Only $1,595,000 was paid out of the 5% bonus pool at closing, reserving
$85,000 to pay out through the earnout program, including
to
|
||||||||||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (collectively, the "Managers")
on the basis directed by the Stockholders Representative
|
||||||||||||||||||||||||
|
to
incentivize the Managers' long-term performance and
retention.
|
||||||||||||||||||||||||
|
3.
The additional Earnout Amount that the Stockholders Representative has
elected to make available to the Managers is calculated by
|
||||||||||||||||||||||||
|
multiplying
the Earnout Amount by his/her Allocable Portion and then further
multiplying such amount by 1.043258706%, subject to the
following:
|
||||||||||||||||||||||||
|
a) Unless
otherwise decided by the Stockholders Representative at the time, each
Manager must be employed by the Company at the end
|
||||||||||||||||||||||||
|
of
the Measurement Period in question to receive any remaining portion of
his/her Earnout Payment.
|
||||||||||||||||||||||||
|
b) Any
amount of the Earnout Payment that is forfeited as a result of a Manager's
termination of employment for any reason will be
|
||||||||||||||||||||||||
|
reallocated
among Messrs. ▇▇▇▇▇, Constantine, Murphy, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ in
proportion to their respective Allocable Portions.
|
||||||||||||||||||||||||
|
c) The
Earnout Amount due each Incentive Bonus Pool Participant will be paid as
directed by the Stockholders Representative.
|
||||||||||||||||||||||||
|
d) The
Stockholders Representative shall have the sole authority and discretion
in directing the payment of the Earnout Amount due each
|
||||||||||||||||||||||||
|
Incentive
Bonus Pool Participant and its decisions in this respect shall be final
and binding.
|
||||||||||||||||||||||||