Exhibit 2.1
PURCHASE AGREEMENT
By and Among
Hilb, ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ Company
a Virginia corporation
▇▇▇▇▇ Group, LLC
a Delaware limited liability company
The Members of ▇▇▇▇▇ Group, LLC
Identified as Members on Schedule A Attached Hereto
and
The Shareholders of ▇▇▇▇▇ ▇▇▇ Corp.
Identified as Shareholders on Schedule B Attached Hereto
Dated as of May 10, 2002
TABLE OF CONTENTS
Page
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I. DEFINITIONS
1.1 Certain Matters of Construction .............................2
1.2. Cross Reference Table........................................3
1.3. Definitions..................................................5
II. THE ACQUISITION......................................................12
2.1. Acquisition of Company Membership Interests.................12
2.2. Acquisition of HIRAC Shares.................................13
2.3. Purchase Price..............................................13
2.4. Possible Earnout Payments Following the Closing.............17
2.5. Adjustments to Consideration................................20
2.6. Time and Place of Closing...................................22
2.7. Delivery....................................................23
III. REPRESENTATIONS AND WARRANTIES OF SELLING
MEMBERS AND THE COMPANY.....................................23
3.1. Corporate Matters...........................................23
3.2. Financial Statements........................................26
3.3. Change in Condition.........................................26
3.4. Liabilities.................................................28
3.5. Assets......................................................28
3.6. Intellectual Property.......................................29
3.7. Accounts Receivable.........................................31
3.8 Accounts....................................................31
3.9. Certain Contractual Obligations.............................31
3.10. Insurance...................................................33
3.11. Transactions with Affiliates................................33
3.12. Compliance with Laws........................................34
3.13. Tax Matters.................................................34
3.14. Employee Relations and Employee Benefit Plans...............35
3.15. Environmental Matters.......................................40
3.16. Litigation..................................................41
3.17. Clients.....................................................41
3.18. Agency Appointments.........................................41
3.19. Insurance Companies.........................................42
3.20. Insurance Accounts and Commissions..........................42
3.21. Brokers.....................................................42
IV. REPRESENTATIONS AND WARRANTIES RELATING TO HIRAC.....................42
4.1. Corporate Matters...........................................42
4.2. Financial Statements........................................44
4.3. Liabilities.................................................45
4.4. Assets......................................................45
4.5. Accounts....................................................45
4.6. Certain Contractual Obligations.............................45
4.7. Transactions with Affiliates................................45
4.8. Compliance with Laws........................................46
4.9. Tax Matters.................................................46
4.10. Litigation..................................................47
4.11. Brokers.....................................................47
V. REPRESENTATIONS AND WARRANTIES OF BUYER..............................47
5.1. Corporate Matters...........................................47
5.2. Financial Statements........................................49
5.3. Change in Condition.........................................49
5.4. Compliance with Laws........................................50
5.5. Litigation..................................................50
5.6. Financing...................................................50
5.7. Buyer SEC Documents.........................................50
5.8 Brokers.....................................................51
VI. CERTAIN COVENANTS OF THE PARTIES.....................................51
6.1. Access to Information of Buyer..............................51
6.2. Access to Premises and Information of the Company and HIRAC.51
6.3. Confidentiality Letter......................................51
6.4. Operation of Business Prior to the Closing Date.............52
6.5. Certain Notices.............................................52
6.6. Preparation for Closing.....................................52
6.7. Company Tax Matters.........................................52
6.8. HIRAC Tax Matters...........................................56
6.9. Expenses of Transaction; Accounts...........................59
6.10. Books and Records; Personnel................................59
6.11. Further Assurances..........................................60
6.12. Financial Statement Deliveries..............................60
6.13. No Solicitation or Employment...............................60
6.14. No Solicitation of Proposals or Offers......................61
6.15. Financing...................................................61
6.16. Operation of the Company Post-Closing.......................61
6.17. Events Relating to Buyer Common Stock.......................62
6.18. Stock Options...............................................62
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6.19. Errors and Omissions Insurance; Directors' and
Officers' Insurance...................................62
6.20. Reserved....................................................63
6.21. Collection of Accounts Receivable...........................63
6.22 Audit of Accounts Payable...................................64
6.23 Disclosure Documents........................................64
6.24 Execution of Purchase Agreement.............................64
6.25 Delivery of Disclosure Documents............................65
6.26 Cancellation of OFJ Options.................................66
6.27 Buyer Common Stock..........................................66
VII. CONDITIONS TO THE OBLIGATION OF BUYER TO CLOSE.......................66
7.1. Representations, Warranties and Covenants...................67
7.2. Employment Agreements.......................................67
7.3. Legality; Government Authorization; Litigation..............67
7.4. Affiliate Debt..............................................68
7.5. Financing...................................................68
7.6. Opinion of Counsel..........................................68
7.7. Update......................................................68
7.8. General.....................................................68
7.9. Corporate Minute Book.......................................68
7.10. ▇▇▇▇▇/OFJ Acquisition Corp..................................68
7.11. Execution of Purchase Agreement.............................68
7.12. Cancellation of OFJ Options.................................69
7.13. Limitation on Purchasers....................................69
7.14. Indebtedness and Expenses Amount............................69
VIII. CONDITIONS TO THE OBLIGATION OF SELLERS TO CLOSE.....................69
8.1. Representations, Warranties and Covenants...................69
8.2. Closing Agreements..........................................70
8.3. Legality; Government Authorization; Litigation..............70
8.4. Opinion of Counsel..........................................70
8.5. General.....................................................70
8.6. Update......................................................70
8.7. Listing of Shares of Buyer Common Stock on New York
Stock Exchange........................................70
8.8. Board of Directors..........................................70
8.9. Payment.....................................................71
8.10. Effective Registration Statement............................71
IX. POST-CLOSING EMPLOYEE BENEFITS.......................................71
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X. INDEMNIFICATION......................................................72
10.1. Indemnification by Sellers..................................72
10.2. Indemnification by Selling Shareholders.....................72
10.3. Indemnification of Buyer....................................73
10.4. Time Limitation on Indemnification..........................73
10.5. Monetary Limitations on Indemnification.....................74
10.6. Third Party Claims..........................................75
10.7. No Circular Recovery........................................75
10.8. Nature of Indemnification Payments..........................76
10.9. Sole Remedy.................................................76
10.10. Insurance and Related Matters...............................76
10.11. No Double Recovery..........................................76
XI. CONSENT TO JURISDICTION; GOVERNING LAW...............................76
11.1. Consent to Jurisdiction.....................................76
11.2. Governing Law...............................................77
XII. TERMINATION..........................................................77
12.1. Termination of Agreement....................................77
12.2. Effect of Termination.......................................78
XIII. SELLERS' REPRESENTATIVE..............................................78
13. Sellers' Representative.....................................78
XIV. MISCELLANEOUS........................................................80
14.1. Entire Agreement; Waivers...................................80
14.2. Amendment or Modification...................................80
14.3. Survival....................................................80
14.4. Independence of Representations and Warranties..............81
14.5. Severability................................................81
14.6. Successors and Assigns......................................81
14.7. Notices.....................................................81
14.8. Public Announcements........................................82
14.9. Headings....................................................82
14.10. Third Party Beneficiaries...................................82
14.11. Counterparts................................................83
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SCHEDULES:
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Schedule A - List of the Members of ▇▇▇▇▇ Group, LLC
Schedule B - List of the Shareholders of ▇▇▇▇▇ ▇▇▇ Corp.
EXHIBITS:
---------
Exhibit A - [Reserved]
Exhibit B - Allocations of Purchase Price Among Sellers
Exhibit C - [Reserved]
Exhibit ▇ - ▇▇▇▇▇ Employment Agreement
Exhibit E - List of Employees to Sign Acknowledgment and Amendment
Exhibit F - Acknowledgment and Amendment
Exhibit G - [Reserved]
Exhibit H - Opinion of Sellers' Counsel
Exhibit I - Opinion of Buyer's Counsel
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the 10th day of May, 2002 (the "Execution Date"), by and among HILB, ▇▇▇▇▇
AND ▇▇▇▇▇▇▇▇ COMPANY, a Virginia corporation (the "Buyer"), ▇▇▇▇▇ GROUP, LLC, a
Delaware limited liability company (the "Company"), the members of the Company
identified as members on Schedule A attached hereto (the "Executing Members"
and, together with those members of the Company who execute this Agreement after
the Execution Date, the "Selling Members"), and the shareholders of ▇▇▇▇▇ ▇▇▇
Corp., a Delaware corporation ("HIRAC") who execute this Agreement after the
Execution Date and who are identified as shareholders on Schedule B attached
hereto (collectively, the "Selling Shareholders"). Collectively, the Selling
Members and the Selling Shareholders shall be referred to herein as the
"Sellers." Schedule A and Schedule B shall be updated from time to time after
the Execution Date to reflect the addition of Selling Members or Selling
Shareholders, respectively.
WITNESSETH
WHEREAS, the Selling Members and HIRAC collectively own or will own at
the Closing all of the issued and outstanding membership interest units of the
Company;
WHEREAS, the Company and the Selling Shareholders collectively own all
of the issued and outstanding capital stock of HIRAC;
WHEREAS, subject to the terms and conditions hereof, Buyer desires to
acquire all of the issued and outstanding membership interest units of the
Company that are or will be owned by (i) purchasing all of the issued and
outstanding membership interest units of the Company that are or will be owned
by the Selling Members and (ii) purchasing all of the issued and outstanding
capital stock of HIRAC from the Selling Shareholders; and
WHEREAS, subject to the terms and conditions hereof, the Selling
Members desire to sell and transfer to Buyer all of the membership interest
units of the Company owned by them, and the Selling Shareholders desire to sell
and transfer to Buyer all of the issued and outstanding shares of capital stock
of HIRAC owned by them.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements and covenants set forth below, which are acknowledged by each party
to be fair and adequate consideration for its obligations and commitments
hereunder, the parties hereby agree as follows:
ARTICLE I
Certain Matters of Construction; Definitions
--------------------------------------------
Section 1.1. Certain Matters of Construction.
(a) 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 any reference to a
particular Section of this Agreement shall include all subsections thereof.
(b) The word "party" shall refer to Buyer, any Seller or the
Company, as the case may be, and the word "parties" shall refer to Buyer, the
Company and the Sellers, collectively.
(c) 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.
(d) Accounting terms used herein and not otherwise defined
herein are used herein as defined by GAAP.
(e) All references herein to Articles, Sections, Schedules
and Exhibits shall be deemed to be references to Articles and Sections of, and
Schedules and Exhibits to, this Agreement unless the context shall otherwise
require. All Schedules (including the Buyer's Disclosure Letter, the Company
Disclosure Letter and the HIRAC Disclosure Letter) and Exhibits attached hereto
or delivered pursuant to the provisions hereof shall be deemed incorporated
herein as if set forth in full herein and, unless otherwise defined therein, all
terms used in any Schedule or Exhibit shall have the meanings ascribed to such
terms in this Agreement.
(f) This Agreement shall be deemed to have been drafted by
each party hereto and this Agreement shall not be construed against any party as
a principal draftsperson.
(g) Unless otherwise expressly provided, wherever the consent
of any Person is required or permitted herein, such consent may be withheld in
such Person's sole discretion.
(h) All references herein to obligations of "Sellers,"
"Selling Members" or "Selling Shareholders" shall mean several and not joint
obligations of each of such Persons. Any reference to obligations or liabilities
of Sellers, Selling Shareholders, Selling Members or any combination thereof
(including without limitation any requirement that any such Person make a
payment) shall be deemed to mean several and not joint obligations or
liabilities. In addition to any other limitations contained in this Agreement
(including the provisions of Article X), subject to the last paragraph of
Section 10.5.1, Buyer or Buyer Indemnitees, as applicable, shall only be
entitled to recover from a Seller in respect of any such obligation or liability
an amount equal to the lesser of (i) the total consideration received by such
Seller under this Agreement and (ii) such
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Seller's pro rata share of such obligation or liability, which pro rata share
shall equal the proportion of the total consideration received by Seller under
this Agreement to the total consideration paid to all Sellers under this
Agreement.
Section 1.2. Cross Reference Table.
TERMS DEFINITIONS
----- -----------
"Adjusted Issued Price" Section 2.3.4(b)
"Aggregate Earnout Cap" Section 2.4.2
"Agreement" Preamble
"Annual Income Statement" Section 2.4.1
"Appraiser" Section 6.7.4
"Baseline Date" Section 2.4.5(b)
"Books and Records" Section 6.10
"Buyer" Preamble
"Buyer Financial Statements" Section 5.2.1(a)
"Buyer Indemnitee" Section 10.1
"Buyer Disclosure Letter" Article V
"Buyer Interim Balance Sheet" Section 5.2.1(b)
"Buyer Interim Financials" Section 5.2.1(b)
"Buyer Permits" Section 5.4
"Buyer SEC Documents" Section 5.7
"Buyer's Earnout Acceleration Right" Section 2.4.4
"Conning" Section 6.24
"Closing" Section 2.6
"Closing Cash Payment" Section 2.3.3
"Closing Date" Section 2.6
"Closing Date Accounts Receivable" Section 6.21
"Closing Stock Dollar Amount" Section 2.3.4(a)
"Commitment Letter" Section 5.6
"Company" Preamble
"Company Annual Financial Statements" Section 3.2.1(a)
"Company Assets" Section 3.5.1
"Company Benefit Arrangements" Section 3.14.2(a)
"Company Closing Date Balance Sheet" Section 2.5.1
"Company Disclosure Letter" Article III
"Company Final Tax Return" Section 6.7.3(i)
"Company Interim Balance Sheet" Section 3.2.1(b)
"Company Interim Financial Statements" Section 3.2.1(b)
"Company LLC Agreement" Section 6.24(a)
"Company Net Adjustment to Buyer" Section 2.5.1
"Company Net Adjustment to Selling Members" Section 2.5.1
"Company Plans" Section 3.14.2
"Company Shares" Section 2.1
"Company Tax Loss" Section 6.7.1
"Confidentiality Agreement" Section 6.3
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"Contracts" Section 3.9
"Copyright Properties" Section 3.6.1
"Deductible Amount" Section 10.5.1
"Executing Members" Preamble
"Execution Date Share Price" Section 2.3.4
"Expenses Account" Section 2.3.2
"General Survival Period" Section 10.4
"▇▇▇▇▇ Employment Agreement" Section 7.2.1
"HIRAC" Preamble
"HIRAC Amended Charter" Section 6.24(a)
"HIRAC Balance Sheet" Section 4.2.1
"HIRAC Closing Date Balance Sheet" Section 2.5.2
"HIRAC Contracts" Section 4.6
"HIRAC Disclosure Letter" Article IV
"HIRAC Financial Statements" Section 4.2.1
"HIRAC Net Adjustment to Buyer" Section 2.5.2
"HIRAC Net Adjustment to Selling Shareholders" Section 2.5.2
"HIRAC Permits" Section 4.8
"HIRAC Shares" Section 2.2
"HIRAC Tax Loss" Section 6.8.1
"HSR Act" Section 3.1.3
"Indemnitees" Section 10.3
"Indemnity Cap" Section 10.5.1
"Insurance Policies" Section 3.10
"Intellectual Property" Section 3.6.1
"Interim Balance Sheet Date" Section 3.2.1
"Lead Lender" Section 5.6
"Leases" Section 3.5.2
"Leases-Out" Section 3.5.2
"Net Closing Date Accounts Receivable" Section 6.21
"non-corporate Subsidiaries" Section 6.7.1
"OFJ" Section 6.7.1
"Patent Properties" Section 3.6.1
"Permits" Section 3.12
"Pre-Closing Tax Period" Section 6.7.1
"Post-Closing Tax Period" Section 6.7.1
"Seller Indemnitee" Section 10.3
"Sellers' Account" Section 2.3.3
"Sellers' Representative" Section 13.
"Selling Members" Preamble
"Selling Shareholders" Preamble
"Software Properties" Section 3.6.1
"Trademark Properties" Section 3.6.1
"Trade Secrets" Section 3.6.1
"Year One Nominal Amount" Section 2.3.5(a)
"Year Two Nominal Amount" Section 2.3.5(b)
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Section 1.3. Certain Definitions. As used in this Agreement, the
following terms shall have the respective meanings set forth below:
1.3.1. "Action" shall mean any claim, action, cause of action or suit
(in contract or tort or otherwise), arbitration, proceeding or investigation by
or before any Governmental Authority (and whether brought by any Governmental
Authority or any other Person).
1.3.2. "Affiliate" shall mean, as to any specified Person, each other
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with that specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, or by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
1.3.3. "Affiliate Debt" shall mean all Debt between the Company or any
Subsidiary of the Company, on the one hand, and any of the Sellers or any of
their Affiliates (other than the Company or any Subsidiary of the Company), on
the other hand, and all intercompany advances of funds between any of the
Sellers or any of their Affiliates (other than the Company or any Subsidiary of
the Company), on the one hand, and the Company or any Subsidiary of the Company,
on the other hand.
1.3.4. "Alternative Accountants" shall mean an accounting firm of
recognized national standing which is mutually acceptable to Buyer and Sellers'
Representative.
1.3.5. "Business Day" shall mean any day on which banking institutions
in New York, New York are customarily open for the purpose of transacting
business.
1.3.6. "Buyer Common Stock" shall mean the shares of Common Stock, no
par value, of the Buyer.
1.3.7. "Bylaws" shall mean, with respect to a corporation, the bylaws,
and with respect to a limited liability company, such limited liability
company's operating agreement, each as from time to time in effect.
1.3.8. "Charter" shall mean, with respect to a corporation, the
certificate or articles of incorporation or organization, and with respect to a
limited liability company, the Certificate of Formation or Articles or
Certificate of Organization, each as from time to time in effect.
1.3.9. "Closing Agreements" shall mean the agreements executed and
delivered by the parties hereto on the Closing Date, collectively.
1.3.10. "Closing Share Price" shall mean the average closing price of
the Buyer Common Stock on the New York Stock Exchange for the twenty (20)
trading days ending five (5) trading days prior to the Closing Date.
1.3.11. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
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1.3.12. "Company Business" shall mean, taken as a whole, the businesses
conducted by the Company and its Subsidiaries as such businesses are being
conducted by them as of the date of this Agreement.
1.3.13. "Compensation," as applied to any Person, shall mean all
salaries, compensation, deferred compensation (other than Existing Earnout and
Deferred Compensation Obligations), remuneration, commissions or bonuses of any
character, and medical, surgical, dental, hospital, disability, unemployment,
retirement, pension, vacation, insurance, executive benefits or fringe benefits
of any kind, or other payments or benefits of any kind whatsoever made or
provided directly or indirectly by or on behalf of the Company or its
Subsidiaries (or provided by Buyer to employees whose primary duties pertain to
the Company Business) to such Person or members of the immediate family of such
Person. The term Compensation shall not include any Distribution or any Equity
Security issued on or following the Closing.
1.3.14. "Contractual Obligation" shall mean, with respect to any
Person, any written contract, agreement, deed, mortgage, lease, sublease,
license, indenture, Guarantee, commitment, undertaking or arrangement, or other
consensual document or instrument, including, without limitation, any document
or instrument evidencing or otherwise relating to any indebtedness, but
excluding the Charter and Bylaws of such Person, to which or by which such
Person is a party or otherwise subject or bound.
1.3.15. "Debt" of any Person shall mean all obligations of such Person
(i) in respect of indebtedness for borrowed money, (ii) evidenced by notes,
bonds, debentures or similar instruments, (iii) under capital leases and (iv) in
the nature of Guarantees of obligations described in clauses (i) through (iii)
above of any other Person.
1.3.16. "Distribution" shall mean, with respect to the capital stock or
membership interests of, or other Equity Securities in, any Person, (i) the
declaration or payment of any dividend on or in respect of any shares of any
class of such capital stock or membership interests or in respect of any such
Equity Security; (ii) the purchase, redemption or other retirement of any shares
of any class of such capital stock or membership interests or of any such Equity
Security, directly, or indirectly through a Subsidiary of such Person, or
otherwise; and (iii) any other distribution on or in respect of any shares of
any class of such capital stock or membership interests or on or in respect of
any such Equity Security.
1.3.17. "EBITDA" shall mean for any period, as determined in accordance
with Buyer's GAAP, the net income of the Company and its Subsidiaries for such
period, after all expenses and other mutually agreed upon proper charges,
including, (i) in the event that Buyer and Sellers' Representative mutually
agree in writing or are required by their insurance carrier(s), at any time
prior to such date on which all payments due under Article II hereof have been
paid to Sellers, that Buyer will include the Company in its errors and omissions
coverage then, with respect to Year One (or prorated portion thereof) an
overhead charge in the amount as mutually agreed upon in writing by Sellers'
Representative and Buyer, but not to exceed the Company's annual cost for its
errors and omissions coverage as of the Execution Date, which is $926,000, and,
with respect to Year Two, an amount agreed upon in writing either prior to or
after the Closing by Buyer and Sellers' Representative, relating to Buyer's
provision of errors and omissions
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insurance for the benefit of the Company and its Subsidiaries, (ii) an overhead
charge relating to Buyer's provision of directors' and officers' insurance for
the benefit of the Company's directors and officers (excluding prior acts
coverage), in an amount agreed upon in writing by Buyer and Sellers'
Representative prior to or after the Closing, but not to exceed in each of Year
One or Year Two the Company's current annual cost for its directors' and
officers' insurance coverage as of the Execution Date, (iii) an overhead charge
relating to Buyer's costs and expenses associated with Buyer's preparation and
filing of Tax Returns for periods ending on or after the Closing Date, in an
amount agreed upon in writing by Buyer and Sellers' Representative prior to or
after the Closing, but not to exceed $25,000, (iv) any items of overhead expense
mutually agreed upon in writing by Buyer and Sellers' Representative either
prior to Closing or thereafter, it being agreed that no cost allocated and
agreed to in writing by the Company or any of its Subsidiaries shall exceed the
cost the Company or its Subsidiaries would incur if the Company purchased or
acquired substantially the same product, service or other item independently,
(v) all costs and expenses associated with annual year end audit work with
respect to the Company's and its Subsidiaries' continuing operations, including
only those costs for audit items listed in Section 1.3.17 of the Company
Disclosure Letter, (vi) all costs and expenses associated with the continuation
of the Company's errors and omissions coverage in the event that Company and its
Subsidiaries are not included in Buyer's errors and omissions coverage, and
(vii) Compensation expenses of Buyer, but only to the extent mutually agreed to
in writing by Buyer and Sellers' Representative either prior to Closing or
thereafter, associated with Buyer's employment of Persons (as opposed to Company
or any of its subsidiaries) whether employed by Buyer on the Closing Date or
thereafter (including all of Buyer's expenses relating to Compensation and
standard employee benefits and executive benefits provided by Buyer to such
Persons under Buyer's plans and policies, as amended from time to time), whose
primary duties relate substantially to the Company Business (it being agreed
that only the annual cash base salary and annual cash incentive bonus paid by
Buyer to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (and not any other Compensation expenses) shall be
deemed Compensation expenses of the Company hereunder), but excluding interest
expense, Income Taxes, depreciation and amortization, after the elimination of
(1) all earnings attributable to the minority interest in New World E&S, LLC,
(2) all income arising from the forgiveness, adjustment or negotiated settlement
of any indebtedness other than in the Ordinary Course of Business, (3) any
extraordinary or nonrecurring items of income or expense incurred other than in
the Ordinary Course of Business, including, without limitation, investment
income, (4) all gains and losses attributable to the sale or disposal of any
property or assets of the Company or its Subsidiaries during such period and (5)
excluding the effect of any payments made pursuant to Section 6.21 or Section
6.22 hereof. Notwithstanding the foregoing, income derived from profit sharing,
override or contingency agreements with insurance companies shall be included in
income and not excluded as nonrecurring income. For the purposes of this
Agreement in calculating EBITDA of the Company and its Subsidiaries with respect
to Year One and Year Two, respectively, and notwithstanding anything herein to
the contrary, (A) the accounting for any account shall be done in such a manner
as to prevent any commissions and fees which are earned in one year (as opposed
to over two years) from being counted in two years and in such a manner as to
prevent two years of commissions and fees from any such account as being earned
in any one year other than in the Ordinary Course of Business; provided that,
during each such period, any such changes in the timing of account payments
recognized by the Company and its Subsidiaries with respect to the accounts of
the Company and its Subsidiaries shall be at the client's request, and
7
(B) in the event that the Company and its Subsidiaries acquire or dispose of the
assets, accounts or Equity Securities of any Person following the Closing, the
EBITDA targets set forth in Sections 2.3.5 and 2.4 hereof shall be adjusted
appropriately as agreed upon in writing by Buyer and Sellers' Representative.
Notwithstanding the foregoing, "EBITDA" shall exclude (i) costs or expenses of
the Company and its Subsidiaries that have been included in the Indebtedness and
Expenses Amount, whether paid before, at or after Closing, (ii) all amounts paid
or accrued (regardless of when accrued) by the Company, its Subsidiaries and
Buyer in respect of the Existing Earnout and Deferred Compensation Obligations,
(iii) any costs related to or associated with the issuance of any equity
Compensation to the Company's and its Subsidiaries' employees, (iv) any amount
for which a claim is paid to Buyer under Article X and (v) any costs or expenses
of the Company and its Subsidiaries that are included in the calculation of
Tangible Net Worth of Company and its Subsidiaries and HIRAC pursuant to
Sections 2.5.1 and 2.5.2; provided that to the extent the severance, retention
and bonus obligations as set forth in Section 2.3.2 of the Company Disclosure
Letter are not paid at or prior to Closing, then any charge against Buyer's GAAP
earnings in excess of $1,000,000 as a result of making such payments following
the Closing will impact "EBITDA." Revenue generated through cross-sells
involving the Company and its Subsidiaries and the Buyer and its Subsidiaries
shall be included in "EBITDA" as mutually agreed upon in writing by the parties.
Notwithstanding anything herein to the contrary, for the purposes of calculating
EBITDA under Sections 2.3.5(a), 2.3.5(b), 2.4.2(a), 2.4.2(b), 2.4.3(a) and
2.4.3(b) only, EBITDA of Company and its Subsidiaries shall be increased by
$200,000, as an adjustment to reflect differences between the GAAP policies of
Buyer and the Company primarily with respect to the recognition of commissions
receivable on employee benefits operations.
1.3.18. "Enforceable" shall mean, with respect to any Contractual
Obligation, that such Contractual Obligation is the legal, valid and binding
obligation of the Person in question, enforceable against such Person in
accordance with its terms, subject to bankruptcy, reorganization, insolvency and
other similar laws affecting the enforcement of creditors' rights in general and
to general principles of equity (regardless of whether considered in a
proceeding in equity or an action at law).
1.3.19. "Environmental Laws" shall mean any Legal Requirement in effect
on or prior to the Closing Date relating to (i) releases or threatened releases
of Hazardous Substances, (ii) the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Substances or materials containing
Hazardous Substances, or (iii) otherwise relating to pollution of the
environment or the protection of human health or the environment.
1.3.20. "Equity Securities" shall mean, with respect to any Person that
is not a natural person, all shares of capital stock, membership interest units
or other equity or beneficial interests issued by or created in or by such
Person, all stock appreciation or similar rights or grants of, or any other
Contractual Obligation for, any right to share in the equity, income, revenues
or cash flow of such Person, and all securities or other rights, options,
warrants or other Enforceable Contractual Obligations to acquire any of the
foregoing, whether by conversion, exchange, exercise or otherwise.
8
1.3.21. "ERISA" shall mean the federal Employee Retirement Income
Security Act of 1974 or any successor statute, and the rules and regulations
thereunder, and in the case of any referenced Section of any such statute, rule
or regulation, any successor Section thereto, collectively and as from time to
time amended and in effect.
1.3.22. "Existing Earnout and Deferred Compensation Obligations" shall
mean the Contractual Obligations of the Company or its Subsidiaries, as the case
may be, incurred in connection with certain corporate acquisitions or
transactions consummated by the Company and its Subsidiaries prior to the date
hereof, and certain deferred compensation to which the Company or any Subsidiary
of the Company is bound, or will be bound, on the Closing Date. All of the
agreements giving rise to the Existing Earnout and Deferred Compensation
Obligations as of the date of Closing are listed in Section 1.3.22. of the
Company Disclosure Letter.
1.3.23. "GAAP" shall mean generally accepted United States accounting
principles, as in effect on the date hereof. "Company's GAAP" shall mean the
GAAP policies of Company consistently applied as in effect on the Execution
Date. "Buyer's GAAP" shall mean Company's GAAP with the following adjustments:
(1) revenue from the Company's employee and executive benefits operations shall
be recorded on a cash basis; (2) revenue from the Company's property and
casualty operations that is direct billed shall be recorded on a basis
consistent with Buyer's current policy; and (3) an accrual for an anticipated
customer cancellation reserve shall be made on a monthly basis so that the
reserve equals .22% of the Company's consolidated total revenue for the twelve
preceding months.
1.3.24. "Government Fund Rate" shall mean a per annum rate equal to
the annualized 30 day net yield earned from the Evergreen Institutional U.S.
Government Money Market Fund.
1.3.25. "Governmental Authority" shall mean any United States federal,
state or local or any foreign government, governmental authority, regulatory or
administrative agency, governmental commission, court or tribunal (or any
department, bureau or division thereof) or any arbitral body.
1.3.26. "Governmental Order" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
1.3.27. "Guarantee," with respect to any Person, shall mean (i) any
guarantee of the payment or performance of, or any contingent obligation in
respect of, any Debt or other obligation of any other Person, (ii) any other
arrangement whereby credit is extended to any other Person on the basis of any
promise or undertaking of such Person (A) to pay the Debt of such other Person,
(B) to purchase or lease assets under circumstances that would enable such other
Person to discharge one or more of its obligations, or (C) to maintain the
capital, working capital, solvency or general financial condition of such other
Person, and (iii) any liability of such Person as a general partner of a
partnership or as a venturer in a joint venture in respect of Debt or other
obligations of such partnership or venture.
1.3.28. "Hazardous Substances" shall mean (i) substances which contain
substances defined in or regulated under the following federal statutes, as
amended, and their state
9
counterparts, as well as these statutes' implementing regulations as amended and
effective as of the Closing Date: the Hazardous Materials Transportation Act,
the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking
Water Act, the Asbestos Hazard Emergency Response Act, the Atomic Energy Act,
the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Clean Air Act; (ii) petroleum and petroleum products,
including crude oil and any fractions thereof; (iii) radon; (iv) PCBs; (v)
asbestos; and (vi) any other hazardous, noxious, radioactive or toxic materials
or substances.
1.3.29. "Income Tax" shall mean any Tax which is, in whole or in part,
based on or measured by income or gains.
1.3.30. "Knowledge of Company," "Company's knowledge" and all
variations thereof shall mean the actual (as opposed to imputed) knowledge of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, T. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, R. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and J. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
1.3.31. "Legal Requirement" shall mean any United States federal, state
or local or any foreign law statute, statute, ordinance, code, order, rule,
regulation, resolution or promulgation, or any Governmental Order, or any
license, franchise, consent, approval, permit or similar right granted under any
of the foregoing, or any similar provision or, in each case having the force and
effect of law.
1.3.32. "Liabilities" shall mean any and all liabilities and
obligations, whether accrued, fixed, absolute or contingent, matured or
unmatured or determined or determinable, or otherwise.
1.3.33. "Lien" shall mean any mortgage, pledge, lien, security
interest, charge, attachment, equity or other encumbrance, or restriction on the
creation of any of the foregoing, whether relating to any property or right or
the income or profits therefrom; provided, however, that the term "Lien" shall
not include statutory liens for Taxes to the extent that the payment thereof is
not in arrears or otherwise due.
1.3.34. "Losses" shall mean any and all losses, damages, obligations,
claims, awards (including, without limitation, to the extent claimed in a third
party claim, awards of punitive or treble damages or interest), assessments,
amounts paid in settlement, judgments, orders, decrees, fines and penalties,
costs and expenses (including, without limitation, reasonable legal costs and
expenses and costs and expenses of collection).
1.3.35. "Material Adverse Effect" shall mean any adverse change in or
effect on the business, condition (financial or otherwise), operations,
performance or properties of the Company or any of its Subsidiaries (or of
another specified Person) that is material to the Company and its Subsidiaries
(or to such other specified Person and its Subsidiaries), taken as a whole;
provided, however, that when such term is used in reference to Buyer, such term
shall not include any change or effect attributable solely to the acquisition of
HIRAC, the Company or any Subsidiary of the Company; provided further, however,
that such term when used in reference to
10
Buyer or its Subsidiaries, the Company or its Subsidiaries, or HIRAC, shall not
include changes in general economic conditions, changes in legal or regulatory
conditions that affect, in general, businesses in which Buyer or its
Subsidiaries, the Company or its Subsidiaries, or HIRAC, is engaged or the
insurance industry in general and not specifically relating solely to HIRAC or
the Company or its Subsidiaries.
1.3.36. "New York Stock Exchange" shall mean the New York Stock
Exchange or any exchange or market on which the Buyer Common Stock may from time
to time be listed or quoted. Whenever in this Agreement a calculation is to be
made using the closing price of the Buyer Common Stock on the New York Stock
Exchange, such calculation shall use, as applicable, the closing price of the
Buyer Common Stock on the exchange on which such stock is then listed, or the
closing bid price for the Buyer Common Stock on the market on which the Buyer
Common Stock is then quoted.
1.3.37. "OFJ Earnout" shall mean the Enforceable Contractual
Obligations of the Company or its Subsidiaries, as the case may be, incurred in
connection with the Company's acquisition of O'▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Insurance
Agency, Inc. prior to the date hereof.
1.3.38. "Ordinary Course of Business" shall mean the ordinary course of
the Company Business (or of another specified Person) consistent with past
practice.
1.3.39. "Person" shall mean any individual, legal representative,
custodian, partnership, corporation, limited liability company, association,
trust, business trust, joint venture, unincorporated organization or other
entity, and any Governmental Authority.
1.3.40. "Prospectus" shall mean Buyer's Prospectus, dated June 18,
2001, relating to the offer and issuance of up to 6,469,470 shares of Buyer
Common Stock from time to time in connection with acquisitions of independent
insurance agencies and other businesses or assets.
1.3.41. "Registration Statement" shall mean the Registration Statement
on Form S-4, File No. 333-50018, of which the Prospectus is a part.
1.3.42. "SEC" shall mean the Securities and Exchange Commission.
1.3.43. "Securities Act" means the Securities Act of 1933, as amended.
1.3.44. "Subsidiaries" shall mean, collectively, all Persons which are
subsidiaries of the Company or Buyer (or another specified Person), as the case
may be.
1.3.45. "Subsidiary" shall mean, as the case may be, any Person of
which Buyer or the Company (or other specified Person) shall own directly or
indirectly at least a majority of the outstanding capital stock, membership
interests or other Equity Securities entitled to vote generally in the election
of directors or in which Buyer or the Company (or other specified Person) is a
general partner or joint venturer without limited liability; and notwithstanding
the foregoing, shall include ▇▇▇▇▇ Group, Inc., a Texas corporation, and ▇▇▇▇▇
Group (Canada) Insurance Brokers, Ltd.
11
1.3.46. "Tangible Net Worth" shall mean, with respect to the Company
and its Subsidiaries, or HIRAC, as the case may be: total assets (excluding
prepaid expenses to the extent there is no future benefit to Buyer (except to
the extent such lack of future benefit is due solely to the Buyer's request or
requirement)), minus (i) intangible assets (including, without limitation,
goodwill, trademarks, trade names, copyrights, patents, licenses and rights with
respect to the foregoing), (ii) deferred tax assets for which there is no future
tax benefit to Buyer (however, total assets shall include deferred tax assets
for which there is a future tax benefit to Buyer, whether or not such deferred
tax assets are reflected on the Company Closing Date Balance Sheet), (iii) net
property and (iv) total liabilities incurred on or prior to the Closing Date
excluding Debt and excluding deferred tax liabilities for which there is no
future tax cost to Buyer, determined in accordance with the Company Closing Date
Balance Sheet of the Company and its Subsidiaries or the HIRAC Closing Date
Balance Sheet of HIRAC, as the case may be; all as determined in accordance with
Company's GAAP (and not Buyer's GAAP). Notwithstanding the foregoing, Tangible
Net Worth shall exclude (i) the costs or expenses of the Company and its
Subsidiaries that have been included in the Indebtedness and Expenses Amounts,
whether paid before, on, or after Closing, and (ii) all amounts paid or accrued
(regardless of when accrued) by the Company, its Subsidiaries and Buyer to
satisfy the Existing Earnout and Deferred Compensation Obligations.
1.3.47. "Taxes" shall mean all United States federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax, fee, levy, duty, impost or charge of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not; and the term
"Tax" means one of the foregoing Taxes. Taxes shall include any Taxes payable by
the Company or any of its Subsidiaries on behalf of a member or another Person.
1.3.48. "Tax Return" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof, required to
be filed with any tax authority, domestic or foreign.
1.3.49. "Year One" shall mean the period beginning on the Closing Date
and ending 365 days thereafter.
1.3.50. "Year Two" shall mean the period beginning on the day after the
last day of Year One and ending 365 days thereafter.
ARTICLE II
The Acquisition
---------------
Section 2.1. Acquisition of Company Membership Interests. Upon the
terms, subject to the conditions, and in reliance on the representations,
warranties and covenants set forth herein, the Selling Members hereby agree to
sell and transfer to Buyer, and Buyer hereby agrees
12
to purchase and accept from the Selling Members, on the Closing Date, all of the
issued and outstanding membership interest units (including, without limitation,
all Common Shares, Special Common Shares, Junior Common Shares and Preferred
Shares, whether Voting or Nonvoting) of the Company owned by the Selling Members
(collectively, the "Company Shares"), free and clear of all Liens.
Section 2.2. Acquisition of HIRAC Shares. Upon the terms, subject to
the conditions, and in reliance on the representations, warranties and covenants
set forth herein, (i) the Selling Shareholders hereby agree to sell and transfer
to Buyer, and Buyer hereby agrees to purchase and accept from the Selling
Shareholders, on the Closing Date, all of the issued and outstanding shares of
capital stock of HIRAC owned by the Selling Shareholders, free and clear of all
Liens, and (ii) the Company hereby agrees to sell and transfer to Buyer on the
Closing Date, for total consideration of $1.00 (without any additional
consideration hereunder whatsoever) to be paid by Buyer on the Closing Date, all
of the issued and outstanding shares of capital stock of HIRAC owned by the
Company (collectively, the shares of capital stock of HIRAC referred to in this
Section 2.2 shall be the "HIRAC Shares").
Section 2.3. Purchase Price. In consideration of the sale and transfer
to Buyer of the Company Shares and the HIRAC Shares by the Selling Members and
the Selling Shareholders, respectively, and the agreements by the Sellers to
perform their respective obligations and covenants hereunder, and subject to
adjustments, if any, made pursuant to Section 2.5 hereof and Buyer's right of
set-off to the extent provided in Article X hereof, Buyer shall pay the amounts,
and satisfy the obligations, set forth below in this Article II.
2.3.1. Satisfaction of the Company's Existing Earnout and Deferred
Compensation Obligations. Buyer agrees to cause the Company to pay and satisfy
the Company's Existing Earnout and Deferred Compensation Obligations, if any, in
accordance with the terms and conditions of the existing agreements governing
the Existing Earnout and Deferred Compensation Obligations at such time after
the Closing as such Existing Earnout and Deferred Compensation Obligations
become due and payable by the Company or its Subsidiaries, as the case may be,
in accordance with their terms. Buyer will not accelerate the Earnout and
Deferred Compensation Obligations until final payments of all amounts due under
Article II without the consent of Sellers' Representative.
2.3.2. Payment of Certain Indebtedness and Transaction Expenses.
Section 2.3.2 of the Company Disclosure Letter sets forth the Company's
estimates of the following as of the Closing Date: (i) the outstanding
third-party indebtedness for borrowed money of the Company and its Subsidiaries
(exclusive of any indebtedness relating to the Existing Earnout and Deferred
Compensation Obligations); (ii) the expenses of the Company and Sellers
associated with the consummation of the transactions contemplated by this
Agreement; and all severance and retention obligations of the Company and its
Subsidiaries arising as a result of the transactions contemplated hereby; and
(iii) Company's estimate of the future transaction-related expenses to be
incurred by Sellers and Sellers' Representative. Prior to the Closing, the
Company shall deliver payoff letters signed by the Company's third-party
lenders, in a form reasonably satisfactory to Buyer, with respect to the funds
required for the full payment and satisfaction of the Company's and its
Subsidiaries' third-party indebtedness for borrowed money, and
13
appropriate bills or other appropriate documentation relating to the Company's
expenses incurred in connection with the transactions contemplated hereby as of
such date. At the Closing, Company shall provide an updated Section 2.3.2 of the
Company Disclosure Letter, and Buyer shall pay by wire transfer or other
immediately available funds (i) to such third-party lenders, on the Company's or
any of its Subsidiary's behalf, as the case may be, an amount sufficient to
satisfy in full the Company's and its Subsidiaries' aggregate third-party
indebtedness for borrowed money, (ii) to those Persons designated by the Company
prior to Closing, on the Company's behalf, an amount sufficient to satisfy in
full the Company's and Sellers' expenses incurred in connection with the
transactions contemplated hereby (including, without limitation, Compensation
expenses relating to severance and retention arrangements) as of the Closing,
and (iii) to an account designated by Sellers' Representative (the "Expenses
Account"), an amount equal to Company's estimate of future transaction-related
expenses, including fees and expenses of attorneys, accountants, and investment
bankers, as set forth on the updated Section 2.3.2 of the Company Disclosure
Letter, such amount to be paid out from time to time in the discretion of
Sellers' Representative in payment of fees and expenses and severance and
retention obligations relating to the transactions contemplated hereby with any
remaining funds to Sellers in accordance with the allocations on Exhibit B
hereto. The aggregate amount of the payments made by Buyer at the Closing
pursuant to this Section 2.3.2 shall be referred to herein as the "Indebtedness
and Expenses Amount." At or after the Closing, the Sellers' Representative shall
use commercially reasonable efforts to cause the Company's third-party lenders
to release all collateral securing such indebtedness, including assets pledged
and mortgaged by the Company and its Subsidiaries and pledges of Equity
Securities, and the Company shall obtain originals of all instruments evidencing
such indebtedness marked "paid," including, without limitation, any Guarantees
previously delivered to such lenders in connection with such indebtedness for
borrowed money, and the Company shall use commercially reasonable efforts to
cause such lenders to execute and deliver to the Company at or after the Closing
appropriate UCC termination forms, in a form reasonably satisfactory to Buyer,
to terminate any such Liens in all applicable jurisdictions. The Indebtedness
and Expenses Amount shall not exceed Fifty Five Million Dollars ($55,000,000).
2.3.3. Cash Payments to the Sellers at Closing. At the Closing, Buyer
shall pay to an account designated by Sellers' Representative (the "Sellers'
Account") by wire transfer or other immediately available funds the sum of (A)
Sixty One Million Thirty One Thousand Seven Hundred Fifty Dollars ($61,031,750)
plus (B) fifty five percent (55%) of the positive difference, if any, of Fifty
Five Million Dollars ($55,000,000) less the Indebtedness and Expenses Amount
(the "Closing Cash Payment"). From the Sellers' Account, Sellers' Representative
shall, on the Closing Date, pay the Closing Cash Payment to the Sellers in
accordance with the allocations set forth on Exhibit B attached hereto.
2.3.4. Issuance of Buyer Common Stock at Closing.
(a) At the Closing, Buyer shall deliver to the Sellers
certificates representing an aggregate number of shares of Buyer Common Stock,
subject to adjustment pursuant to subparagraph (b) of this Section 2.3.4, having
an aggregate value based on the Execution Date Share Price (subject to
subparagraph (b) of this Section 2.3.4) equal to the sum of (A) Twenty Five
Million Eight Hundred Forty Three Thousand Two Hundred Fifty Dollars
($25,843,250) plus
14
(B) forty five percent (45%) of the positive difference, if any of Fifty Five
Million Dollars ($55,000,000) less the Indebtedness and Expenses Amount ((A) and
(B) collectively, the "Closing Stock Dollar Amount"). For the purpose of
determining the number of shares of Buyer Common Stock to be issued pursuant to
this Section 2.3.4, the Buyer Common Stock shall be valued at $36.276 per share
(the "Execution Date Share Price"), which represents the average closing price
of Buyer's Common Stock on the New York Stock Exchange for the period April 8,
2002 through May 3, 2002. The shares of Buyer Common Stock to be issued pursuant
to this Section 2.3.4 shall be allocated among, and delivered to, the Sellers at
the Closing as set forth on Exhibit B attached hereto.
(b) Notwithstanding the foregoing, (i) if the Closing
Share Price is less than $32.276 per share but greater than or equal to $25.276
per share, then the number of shares of Buyer Common Stock to be issued pursuant
to subparagraph (a) of this Section 2.3.4 shall be the quotient obtained by
dividing the product of the Closing Stock Dollar Amount and .89 ($32.276 divided
by $36.276) by the Closing Share Price, (ii) if the Closing Share Price is
greater than $40.276 per share but less than $47.276 per share, then the number
of shares of Buyer Common Stock to be issued pursuant to subparagraph (a) of
this Section 2.3.4 shall be the quotient obtained by dividing the product of the
Closing Stock Dollar Amount and 1.11 ($40.276 divided by $36.276) by the Closing
Share Price ("Adjusted Issued Price" shall equal the Closing Stock Dollar Amount
divided by the number of shares actually issued under this Section 2.3.4 as
adjusted by Section 2.3.4(b) , and (iii) if the Closing Share Price is less than
$25.276 per share or greater than $47.276 per share, then Buyer and Sellers'
Representative each shall have the right to terminate this Agreement pursuant to
Section 12.1(b) without any liability of any party to any other party, subject
to the terms of Section 12.2 below.
(c) The number of shares of Buyer Common Stock to be
issued pursuant to this Section 2.3.4 shall be adjusted appropriately if, during
the period commencing on the date hereof and ending on the Closing Date, Buyer
(i) effects any dividend payable in shares of Buyer Common Stock or any other
class of Equity Securities; (ii) splits or combines the outstanding shares of
Buyer Common Stock; (iii) effects any reorganization or reclassification of
Buyer Common Stock or any other class of Equity Securities; or (iv) fixes a
record date for the determination of shareholders entitled to any of the
foregoing. No fractional shares of Buyer Common Stock will be issued under this
Section 2.3.4 and any fractional shares will be rounded up or down to the
nearest whole number of shares to avoid the issuance of fractional shares (a
fractional share of 0.5 or more will be rounded up; less than 0.5 will be
rounded down). The issuance of shares of Buyer Common Stock to be issued
pursuant to this Section 2.3.4 hereof shall be duly registered under the
Securities Act, and subject to Rule 145 restrictions as promulgated under the
Securities Act.
(d) If on or after the Execution Date and before the date
Sellers become the record holder of the shares of Buyer Common Stock to be
delivered to Sellers pursuant to Section 2.3.4: (i) Buyer's board of directors
declares a record date for the payment of an extraordinary dividend on its
Common Stock (it being agreed that Buyer's quarterly cash dividend to its
shareholders shall not be deemed an extraordinary dividend) or (ii) Buyer pays
an extraordinary dividend on its Common Stock, then in either event Buyer shall
deliver to the Sellers (by wire transfer to the Sellers' Account) at the Closing
(or at such later date as an
15
extraordinary dividend is actually paid to shareholders), by wire transfer or
other immediately available funds, an aggregate amount equal to the
extraordinary dividends, if any, that would have been payable on the number of
shares actually delivered to, and received by, the Sellers under this Section
2.3.4, as if such shares of Buyer Common Stock had been issued to the Sellers on
the Execution Date, together with interest on such amount at the Government Fund
Rate per annum from the date any such extraordinary dividend had been paid to
other shareholders of the Buyer, to be allocated among the Sellers as set forth
in Exhibit B.
2.3.5. Installment Payments of Buyer Common Stock.
(a) Subject to Buyer's right of set-off pursuant to
Article X below, on the forty-fifth (45th) calendar day following the end of
Year One, Buyer shall deliver to the Sellers, to be allocated among Sellers in
accordance with Exhibit B hereto, certificates representing a number of shares
of Buyer Common Stock equal to Twelve Million Five Hundred Thousand Dollars
($12,500,000) (the "Year One Nominal Amount") divided by the Adjusted Issued
Price; provided, however, that if the Year One EBITDA of the Company and its
Subsidiaries (as calculated pursuant to Section 2.4) is less than Twenty Seven
Million Dollars ($27,000,000) then the Year One Nominal Amount shall be reduced
by the product of 5.0 multiplied by the amount by which the Year One EBITDA is
less than Twenty Seven Million Dollars ($27,000,000), but in no event below
zero. If on or after the Closing Date and before the date Sellers become the
record holder of the shares of Buyer Common Stock to be delivered to Sellers
pursuant to this Section 2.3.5(a): (i) Buyer's board of directors declares a
record date for the payment of a dividend on its Common Stock or (ii) Buyer pays
such a dividend on its Common Stock, then in either event Buyer shall deliver to
the Sellers (by wire transfer to the Sellers' Account) at the time shares are
delivered hereunder (or at such later date as a dividend is actually paid to
shareholders), by wire transfer or other immediately available funds, an
aggregate amount equal to the dividends, if any, that would have been payable on
the number of shares actually delivered to, and received by, the Sellers under
this Section 2.3.4(a), as if such shares of Buyer Common Stock had been issued
to the Sellers on the Closing Date, together with interest on such amount at the
Government Fund Rate from the date any such dividend had been paid to the other
shareholders of Buyer, to be allocated among the Sellers as set forth in Exhibit
B.
(b) Subject to Buyer's right of set-off pursuant to
Article X below, on the forty-fifth (45th) calendar day following the end of
Year Two, Buyer shall deliver to the Sellers, to be allocated among Sellers in
accordance with Exhibit B hereto, certificates representing a number of shares
of Buyer Common Stock equal to Twelve Million Five Hundred Thousand Dollars
($12,500,000) (the "Year Two Nominal Amount") divided by the Adjusted Issued
Price; provided, however, if the Year Two EBITDA of the Company and its
Subsidiaries (as calculated pursuant to Section 2.4) is less than Thirty Million
Dollars ($30,000,000), the Year Two Nominal Amount shall be reduced by the
product of 3.75 multiplied by the amount by which the Year Two EBITDA is less
than Thirty Million Dollars ($30,000,000), but not below zero. If on or after
the Closing Date and before the date Sellers become the record holder of the
shares of Buyer Common Stock to be issued and delivered to Sellers pursuant to
this Section 2.3.5(b): (i) Buyer's board of directors declares a record date for
the payment of a dividend on its Common Stock or (ii) Buyer pays a dividend on
its Common Stock, then in either event Buyer shall deliver to the Sellers (by
wire transfer to the Sellers' Account) at the time shares are issued and
delivered
16
hereunder (or at such later date as a dividend is actually paid to
shareholders), by wire transfer or other immediately available funds, an
aggregate amount equal to the dividends, if any, that would have been payable on
the number of shares actually delivered to, and received by, the Sellers under
this Section 2.3.4(b), as if such shares of Buyer Common Stock had been issued
to the Sellers on the Closing Date, together with interest on such amount at the
Government Fund Rate from the date any such dividend had been paid to other
shareholders of Buyer, to be allocated among the Sellers as set forth in Exhibit
B. Notwithstanding anything to the contrary, if (i) Buyer exercises the Buyer's
Earnout Acceleration Right under Section 2.4.4 hereof or (ii) the amount of the
earnout paid pursuant to Section 2.4.2 is equal to the Aggregate Earnout Cap,
the maximum number of shares of Buyer Common Stock that could have been issued
pursuant to this Section 2.3.5(b), together with all related dividends and
interest calculated as provided in this Section 2.3.5(b), shall be issued and
delivered to the Sellers on the forty-fifth (45th) calendar day following Year
One.
(c) The shares of Buyer Common Stock to be issued pursuant
to this Section 2.3.5 shall be adjusted appropriately if, during the period
commencing on the date hereof and ending on the date such shares are actually
delivered to Sellers, Buyer (i) effects any dividend payable in shares of Buyer
Common Stock or any other class of Equity Securities; (ii) splits or combines
the outstanding shares of Buyer Common Stock; (iii) effects any reorganization
or reclassification of Buyer Common Stock or any other class of Equity
Securities; or (iv) fixes a record date for the determination of shareholders
entitled to any of the foregoing. No fractional shares of Buyer Common Stock
will be issued under this Section 2.3.5 and any fractional shares will be
rounded up or down to the nearest whole number of shares to avoid the issuance
of fractional shares (a fractional share of 0.5 or more will be rounded up; less
than 0.5 will be rounded down). The issuance of shares of Buyer Common Stock to
be issued pursuant to Section 2.3.5 hereof shall be duly registered under the
Securities Act, and subject to Rule 145 restrictions as promulgated under the
Securities Act.
(d) In the event that, prior to the payment of any amount
payable under this Section 2.3.5, Buyer has delivered notice of a claim for
indemnification in accordance with Article X hereof that is not resolved as of
the date payment is due under this Section 2.3.5, then Buyer, subject to the
limitations contained in Article X, shall have the right to retain all or a
sufficient amount of such payment to satisfy the amount or amounts claimed. Upon
a final determination of such claim, Buyer shall promptly deliver to Sellers the
amount due under this Section 2.3.5 less any amounts applied as indemnification
for such claim in accordance with Article X hereof.
(e) The determination of Year One EBITDA and Year Two
EBITDA for the purposes of making the determinations under this Section 2.3
shall be made as provided in Section 2.4.1.
Section 2.4. Possible Earnout Payments Following the Closing.
2.4.1. Calculation of EBITDA. Sellers' Representative shall cause (and
Buyer shall not prohibit or prevent) the Company's and its Subsidiaries'
combined EBITDA to be determined and an EBITDA statement to be delivered to the
Buyer, with appropriate workpapers and backup
17
for the calculations made therein, on or before the fifteenth (15th) day after
the last day of Year One and Year Two, as the case may be (the "Annual Income
Statement").
If within thirty (30) days following receipt of the Annual Income
Statement, Buyer has not given Sellers' Representative written notice of
objection to such Annual Income Statement (such notice must contain a statement
in reasonable detail of the basis of such objections), then the Company's and
its Subsidiaries' combined EBITDA reflected in the Annual Income Statement will
be used in computing any payments due under this Section 2.4 or Section 2.3.5.
If Buyer gives such notice of objection, and the items in dispute cannot be
resolved by agreement between the Sellers' Representative and Buyer within
thirty (30) days following Sellers' Representative's receipt of the Buyer's
written objection, the issues in dispute will be submitted to the Alternative
Accountants for resolution, with instructions to the Alternative Accountants to
determine the Company's and its Subsidiaries' combined EBITDA in accordance with
the definitions and principles set forth in this Agreement. If issues in dispute
are submitted to the Alternative Accountants for resolution, (a) each of Buyer
and the Sellers' Representative will furnish to the Alternative Accountants such
work papers and other documents and information relating to the disputed issues
as the Alternative Accountants may request and are available to it and will be
afforded the opportunity to present to the Alternative Accountants any material
relating to the determination and to discuss the determination with the
Alternative Accountants; (b) the determination by the Alternative Accountants of
EBITDA, as set forth in a written notice delivered to Buyer and the Sellers'
Representative by the Alternative Accountants, will be binding and conclusive on
the parties; and (c) Buyer shall pay all of the fees and expenses of the
Alternative Accountants in connection with such determination; provided, that
Sellers' Representative on behalf of the Sellers shall pay such fees and
expenses if the Accountant's determination of EBITDA is less than 99% of EBITDA
as reflected in the Annual Income Statement.
2.4.2. Possible Year One Earnout Payment. Subject to Buyer's right
of set-off pursuant to Article X hereof, based on the amount of Year One EBITDA
of the Company and its Subsidiaries, Buyer shall pay to the Sellers as set forth
below:
(a) If Year One EBITDA is less than or equal to Twenty Seven
Million Dollars ($27,000,000), the Sellers shall not be entitled to be paid any
Year One earnout payment.
(b) If Year One EBITDA is greater than Twenty Seven Million
Dollars ($27,000,000), Buyer shall pay the Sellers an aggregate amount equal to
the product of 7.0 multiplied by the Year One EBITDA in excess of Twenty Seven
Million Dollars ($27,000,000); provided that, the maximum aggregate Year One
earnout payment payable to the Sellers shall be Seventy Six Million Eight
Hundred Seventy Five Thousand Dollars ($76,875,000) (the "Aggregate Earnout
Cap").
2.4.3. Possible Year Two Earnout Payment. Subject to Buyer's right
of set-off pursuant to Article X hereof, based on the amount of Year Two EBITDA
of the Company and its Subsidiaries, Buyer shall pay to the Sellers as set forth
below:
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(a) If Year Two EBITDA is less than or equal to Thirty Million
Dollars ($30,000,000), the Sellers shall not be entitled to be paid any Year Two
earnout payment.
(b) If Year Two EBITDA is greater than Thirty Million Dollars
($30,000,000), Buyer shall pay the Sellers an aggregate amount, up to the
Aggregate Earnout Cap, equal to the product of 5.0 multiplied by the Year Two
EBITDA in excess of Thirty Million Dollars ($30,000,000); provided, that the
maximum Year Two earnout payment payable to the Sellers shall be Forty Two
Million Five Hundred Thousand Dollars ($42,500,000).
2.4.4. Aggregate Year One and Year Two Earnout Cap. Notwithstanding
anything in this Agreement to the contrary, the maximum aggregate earnout
payments to the Sellers under this Section 2.4 with respect to Year One and Year
Two shall not exceed the Aggregate Earnout Cap. To the extent that the Aggregate
Earnout Cap is earned and paid with respect to Year One, no earnout
consideration shall be paid with respect to Year Two under Section 2.4.3 hereof,
regardless of the Year Two EBITDA. In addition, in the event that, based on the
Year One EBITDA, Sellers would be due an amount less than the Aggregate Earnout
Cap pursuant to Section 2.4.2 hereof, Buyer shall have the right, in its sole
and absolute discretion, to pay the Aggregate Earnout Cap to the Sellers, in
lieu of the amount otherwise to be payable pursuant to Section 2.4.2 hereof and
in full satisfaction of Buyer's obligations under Sections 2.4.2 and 2.4.3
hereof ("Buyer's Earnout Acceleration Right").
2.4.5. Form of Payment; Payment Date.
(a) Any amount payable pursuant to Section 2.4.2 or
Section 2.4.3 hereof shall be paid, (A) if Buyer does not object to the Annual
Income Statement pursuant to Section 2.4.1, within forty-five (45) calendar days
following the last day of Year One or Year Two, as applicable, (B) if the
Sellers' Representative has not performed his obligations under Section 2.4.1
with respect to the timely delivery of the Annual Income Statement, then on or
before the thirtieth (30th) calendar day following Buyer's receipt of the Annual
Income Statement, unless Buyer objects to the Annual Income Statement pursuant
to Section 2.4.1, and (C) if Buyer objects to the Annual Income Statement
pursuant to Section 2.4.1 hereof, then three (3) Business Days after the
Alternative Accountants' determination. Any amount due under Section 2.4.2 or
2.4.3 shall be paid (i) thirty-five percent (35%) in cash by wire transfer or
other immediately available funds to Sellers' Account, to be allocated among
Sellers as set forth on Exhibit B attached hereto, and (ii) sixty-five percent
(65%) in shares of Buyer Common Stock (such numbers of shares to be calculated
as provided below) to be allocated as set forth on Exhibit B. For the purpose of
determining the number of shares of Buyer Common Stock to be delivered pursuant
to this Section 2.4.5, the Buyer Common Stock shall be valued based on the
average closing price of Buyer Common Stock on the New York Stock Exchange for
the twenty (20) trading day period ending on the last NYSE trading day of Year
One or Year Two, as the case may be. Notwithstanding the foregoing, Buyer shall
have the right, in its sole discretion, to pay cash by wire transfer of
immediately available funds in lieu of any or all of the shares of Buyer Common
Stock required to be delivered under Section 2.4 hereof.
(b) The shares of Buyer Common Stock to be issued
pursuant to this Section 2.4.5 shall be adjusted appropriately if, during the
period commencing on the date that is
19
twenty trading days before the end of Year One or Year Two (the date each such
period commences, as applicable, the "Baseline Date") and ending on the date
such shares are actually issued and delivered to Sellers, Buyer (i) effects any
dividend payable in shares of Buyer Common Stock or any other class of Equity
Securities; (ii) splits or combines the outstanding shares of Buyer Common
Stock; (iii) effects any reorganization or reclassification of Buyer Common
Stock or any other class of Equity Securities; or (iv) fixes a record date for
the determination of shareholders entitled to any of the foregoing. No
fractional shares of Buyer Common Stock will be issued under this Section 2.4.5
and any fractional shares will be rounded up or down to the nearest whole number
of shares to avoid the issuance of fractional shares (a fractional share of 0.5
or more will be rounded up; less than 0.5 will be rounded down). The issuance of
shares of Buyer Common Stock to be issued pursuant to Section 2.4.5 hereof shall
be duly registered under the Securities Act, and subject to Rule 145
restrictions as promulgated under the Securities Act.
(c) If on or after the applicable Baseline Date and before
the date shares of Buyer Common Stock are actually issued and delivered to
Sellers pursuant to Section 2.4.5(a): (i) Buyer's board of directors declares a
record date for the payment of a dividend on its Common Stock or (ii) Buyer pays
such a dividend on its Common Stock, then in either event Buyer shall deliver to
the Sellers (by wire transfer to Sellers' Account) at the time such shares of
Buyer Common Stock are issued and delivered (or at such later date as a dividend
is actually paid to shareholders), by wire transfer or other immediately
available funds, an aggregate amount equal to the dividends, if any, that would
have been payable on the number of shares actually delivered to, and received
by, the Sellers under this Section 2.4.5, as if such shares of Buyer Common
Stock had been issued to the Sellers on the applicable Baseline Date, together
with interest on such amount at a per annum rate equal to the Government Fund
Rate from the date any such extraordinary dividend had been paid to other
shareholders of Buyer, to be allocated among the Sellers as set forth in Exhibit
B.
(d) Subject to the terms of Article X, in the event that,
prior to the payment of any amount payable under Section 2.4, Buyer has
delivered notice of a claim for indemnification hereunder that is not resolved
as of the date payment is due under this Section 2.4, then Buyer shall have the
right to retain all or a sufficient amount of such payment to satisfy the amount
or amounts claimed. Upon a final determination of such claim, Buyer shall
promptly deliver to Sellers the amount due under this Section 2.4 less any
amounts applied as indemnification for such claim in accordance with Article X
hereof.
Section 2.5. Adjustments to Consideration.
2.5.1. Company Tangible Net Worth Adjustment. After the Closing, the
purchase consideration shall be decreased dollar for dollar by the amount, if
any, by which the Tangible Net Worth of Company and its Subsidiaries, taken as a
whole, as of the Closing Date but before giving effect to the transactions
contemplated by this Agreement, is less than zero (in such case, the "Company
Net Adjustment to Buyer"), and increased dollar for dollar by the amount, if
any, by which the Tangible Net Worth of Company and its Subsidiaries, taken as a
whole, as of the Closing Date but before giving effect to the transactions
contemplated by this Agreement, is greater than zero (in such case, the "Company
Net Adjustment to Selling Members"). Such
20
adjustment shall be determined on the basis of a Closing Date balance sheet of
Company and its Subsidiaries prepared by or on behalf of the Selling Members by
the Sellers' Representative in accordance with Company's GAAP (the "Company
Closing Date Balance Sheet"). Notwithstanding anything herein to the contrary,
the Company Closing Date Balance Sheet shall include an accrual for a customer
cancellation reserve equal to .22% of the Company's consolidated total revenue
for the twelve months preceding the Closing Date. The Company Closing Date
Balance Sheet shall be delivered to Buyer within forty-five (45) days following
Closing. Buyer and its representatives, at Buyer's expense, shall be permitted
to review and, in Buyer's discretion, audit, the Company Closing Date Balance
Sheet and the work papers related to the preparation and review of the Company
Closing Date Balance Sheet for a period of 30 days following Buyer's receipt
thereof, and, in the event of any dispute concerning the correctness of such
Company Closing Date Balance Sheet, Buyer shall notify Sellers' Representative
of such dispute and if not resolved within 35 days following Buyer's receipt of
the Company Closing Date Balance Sheet, such dispute shall be submitted to the
Alternative Accountants for resolution, with instructions to the Alternative
Accountants to determine the Company's and its Subsidiaries' Tangible Net Worth
in accordance with the definitions and principles set forth in this Agreement.
If issues in dispute are submitted to such accounting firm for resolution, (i)
Buyer and Sellers' Representative will furnish to such accounting firm such work
papers and other documents and information relating to the disputed issues as
such accounting firm may request and are available to Buyer and Sellers'
Representative, and will be afforded an opportunity to present to such
accounting firm any material relating to the determination and to discuss the
determination with such accounting firm, (ii) a determination by such accounting
firm of Tangible Net Worth, as set forth in a notice delivered to both parties
by such accounting firm, will be binding and conclusive on the parties, and
(iii) Buyer shall pay all of the fees and expenses of the Alternative
Accountants in connection with such determination; provided, that Sellers'
Representative on behalf of the Sellers shall pay such fees and expenses if the
Accountant's determination of Tangible Net Worth is less than 98% of Tangible
Net Worth as reflected in the Closing Date Balance Sheet. Buyer or Selling
Members, severally but not jointly, whichever is the case, shall pay the Company
Net Adjustment to Selling Members or the Company Net Adjustment to Buyer,
whichever is the case, to Sellers' Account or Buyer, as the case may be, by wire
transfer or delivery of other immediately available funds within three (3)
Business Days after the date on which Tangible Net Worth is finally determined
by the Alternative Accountants, or if Buyer does not notify Sellers'
Representative of a dispute, as provided above, then within 35 days after
Buyer's receipt of the Company Closing Date Balance Sheet. Any Company Net
Adjustment to Selling Members payable to, or any Company Net Adjustment to Buyer
payable by, Selling Members, as the case may be, shall be paid or received, as
the case may be, as set forth in Exhibit B attached hereto.
2.5.2. HIRAC Tangible Net Worth Adjustment. After the Closing, the
purchase consideration shall be decreased dollar for dollar by the amount, if
any, by which the Tangible Net Worth of HIRAC as of the Closing Date but before
giving effect to the transactions contemplated by this Agreement, is less than
zero (in such case, the "HIRAC Net Adjustment to Buyer"), and increased dollar
for dollar by the amount, if any, by which the Tangible Net Worth of HIRAC as of
the Closing Date but before giving effect to the transactions contemplated by
this Agreement, is greater than zero (in such case, the "HIRAC Net Adjustment to
Selling Shareholders"). Such adjustment shall be determined on the basis of a
Closing Date balance
21
sheet of HIRAC prepared by or on behalf of the Selling Shareholders by Sellers'
Representative in accordance with Company's GAAP (the "HIRAC Closing Date
Balance Sheet"). The HIRAC Closing Date Balance Sheet shall not reflect HIRAC's
ownership of membership interests in the Company as an asset of HIRAC. The HIRAC
Closing Date Balance Sheet shall be delivered to Buyer within forty-five (45)
days following Closing. Buyer and its representatives, at Buyer's expense, shall
be permitted to review, and in Buyer's discretion, audit, the HIRAC Closing Date
Balance Sheet and the work papers related to the preparation and review of the
HIRAC Closing Date Balance Sheet for a period of 30 days following Buyer's
receipt thereof, and, in the event of any dispute concerning the correctness of
such HIRAC Closing Date Balance Sheet, Buyer shall notify Sellers'
Representative of such dispute and if not resolved within 35 days following
Buyer's receipt of the HIRAC Closing Date Balance Sheet, such dispute shall be
submitted to the Alternative Accountants for resolution, with instructions to
the Alternative Accountants to determine the Tangible Net Worth of HIRAC in
accordance with the definitions and principles set forth in this Agreement. If
issues in dispute are submitted to such accounting firm for resolution, (i)
Buyer and Sellers' Representative will furnish to such accounting firm such work
papers and other documents and information relating to the disputed issues as
such accounting firm may request and are available to Buyer and Sellers'
Representative, and will be afforded an opportunity to present to such
accounting firm any material relating to the determination and to discuss the
determination with such accounting firm, (ii) a determination by such accounting
firm of the Tangible Net Worth of HIRAC, as set forth in a notice delivered to
both parties by such accounting firm, will be binding and conclusive on the
parties, and (iii) Buyer shall pay all of the fees and expenses of the
Alternative Accountants in connection with such determination; provided, that
Sellers' Representative on behalf of the Sellers shall pay such fees and
expenses if the Accountant's determination of Tangible Net Worth is less than
98% of Tangible Net Worth as reflected in the Closing Date Balance Sheet. Buyer
or Selling Shareholders, severally not jointly, whichever is the case, shall pay
the HIRAC Net Adjustment to Selling Shareholders or the HIRAC Net Adjustment to
Buyer, whichever is the case, to Selling Shareholders or Buyer, as the case may
be, by wire transfer or delivery of other immediately available funds within
three (3) Business Days after the date on which the HIRAC Tangible Net Worth is
finally determined by the Alternative Accountants, or if Buyer does not notify
Sellers' Representative of a dispute as provided above, then 35 days after
Buyer's receipt of the HIRAC Closing Date Balance Sheet. Any HIRAC Net
Adjustment to Selling Shareholders payable to, or any HIRAC Net Adjustment to
Buyer payable by, Selling Shareholders, as the case may be, shall be payable in
accordance with the allocations as set forth in Exhibit B attached hereto.
Section 2.6. Time and Place of Closing. The closing of the purchase and
sale of the Company Shares, the HIRAC Shares and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Buyer, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. on
July 1, 2002, or as soon thereafter as all conditions set forth in Articles VII
and VIII have been satisfied or waived or at such other time and place as Buyer
and the Sellers' Representative may mutually agree; provided that the Closing
Date shall in no event be later than July 31, 2002, except in the event of a
second request for information under the HSR Act, in which case such date will
be extended thirty days from the date of the parties' response to such request.
The time and date of the Closing is herein called the "Closing Date." The
purchase of the Company Shares and the HIRAC Shares and the other transactions
contemplated hereby shall be effective as of 12:01 a.m. on the Closing Date.
22
Section 2.7. Delivery. At the Closing, Sellers will convey, transfer
and assign the Company Shares and the HIRAC Shares to Buyer free and clear of
any Liens, and will deliver to Buyer certificates evidencing all of the Company
Shares and the HIRAC Shares duly endorsed or accompanied by separate stock
power(s) duly endorsed, with all required transfer Tax stamps affixed and in
form proper for transfer, against delivery by Buyer of the consideration to be
delivered at the Closing pursuant to Article II hereof.
ARTICLE III
Representations and Warranties of the Company
---------------------------------------------
Except as disclosed, or as qualified by information set forth in the
Company disclosure letter dated of even date herewith and delivered to Buyer
concurrently herewith (the "Company Disclosure Letter"), the Company represents
and warrants to Buyer and to Buyer's successors and assigns as follows:
Section 3.1. Corporate Matters.
3.1.1. Organization and Standing; Power and Authority. The Company is
a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and each of the Closing
Agreements to which it is intended to be a party as reflected on the signature
page thereof, to carry out and perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. Each of the
Subsidiaries of the Company is a corporation or limited liability company, as
the case may be, duly organized, validly existing and in good standing (to the
extent its jurisdiction of incorporation or organization recognizes such
concept) under the jurisdiction of its incorporation or organization. The
Company and its Subsidiaries have all requisite corporate power and authority to
carry on the Company Business as currently conducted, and to consummate the
transactions contemplated hereby. Each of the Company and its Subsidiaries is
duly qualified or licensed to do business as a foreign corporation or limited
liability company, as applicable, and is in good standing as such (to the extent
such jurisdiction recognizes such concept), in each jurisdiction where the
nature of the Company's or such Subsidiary's activities or its ownership or
leasing of property requires such qualification or license; except to the extent
that the failure to be so qualified or licensed would not have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole.
3.1.2. Authorization and Enforceability. As of the Execution Date,
this Agreement has been duly authorized, executed and delivered by the Company
and the Executing Members and is Enforceable against the Company and the
Executing Members. Upon execution on or before the Closing Date, this Agreement
will have been duly authorized, executed and delivered by the Company and the
Sellers. Each of the Closing Agreements to which the Company or any Seller is a
party as reflected on the signature page thereof has been, or before the Closing
Date will be, duly authorized, duly executed and delivered by the Company or the
applicable Sellers and will be Enforceable against Company or such Sellers, as
the case may be.
23
3.1.3. Non-Contravention. No approval, consent, waiver, authorization
or other order of, and no filing, notice, registration, qualification or
recording with, any Governmental Authority or any other Person is required to be
obtained or made by or on behalf of the Company, the Selling Members or any of
their Subsidiaries or Affiliates, in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby, except for (i) satisfaction of the requirements of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (ii) the items listed in Section 3.1.3 of the Company Disclosure
Letter, each of which shall have been obtained or made and shall be in full
force and effect at the Closing. Except as set forth in Section 3.1.3 of Company
Disclosure Letter, neither the execution, delivery and performance of this
Agreement nor the consummation of any of the transactions contemplated hereby
(including, without limitation, the execution, delivery and performance of the
Closing Agreements) does or will constitute, result in or give rise to (i) a
breach or violation or default under any material Legal Requirement applicable
to the Company or any of its Subsidiaries (assuming the accuracy of the
representations and warranties of Buyer), (ii) a breach of or a default under
any Charter or Bylaws provision of the Company or any of its Subsidiaries, (iii)
the acceleration of the time for performance of any obligation under any
material Enforceable Contractual Obligation of the Company or any of its
Subsidiaries, (iv) the imposition of any Lien upon or the forfeiture of any
material Company Asset, (v) a breach of or a default under any material
Enforceable Contractual Obligation of the Company or any of its Subsidiaries, or
(vi) the right to any severance payments (including, without limitation, if such
payments become due only if employment is terminated following the Closing).
3.1.4. Capitalization of the Company. Section 3.1.4 of the Company
Disclosure Letter lists each of the holders of any membership interest unit or
other Equity Security in the Company, the number of units held and the class of
unit held. The only issued and outstanding membership interest units of the
Company are the Company Shares, all of which are duly authorized, validly
issued, fully paid and non-assessable. Except as set forth in the Charter of
Bylaws of the Company or any of its Subsidiaries or in Section 3.1.4 of the
Company Disclosure Letter, there is no Enforceable Contractual Obligation that
obligates the Company or any of its Subsidiaries to issue, purchase or redeem,
or make any payment in respect of, any Equity Security. None of the Company's
membership interest units has been issued in violation of any federal or state
law.
3.1.5. Title to Company Shares.
(a) Each of the Selling Members is the beneficial and record
holder of, and has good and marketable title to, the class and number of
membership interest units or other Equity Security of the Company set forth
beside such Selling Member's name in Section 3.1.4 of the Company Disclosure
Letter free and clear of any Liens. The Selling Members and HIRAC, collectively,
own all of the Company Shares.
(b) Except for this Agreement, to the Company's knowledge,
there is no Contractual Obligation pursuant to which the Selling Members have,
directly or indirectly, granted any Equity Security in the Company or any
Subsidiary of the Company to any Person or any right to acquire any of, or any
interest in, any Company Asset. Upon delivery of certificates
24
representing the Company Shares, and delivery of the consideration therefor as
herein contemplated, Buyer will receive good and marketable title to all of the
Company Shares, free and clear of any Liens (including, without limitation,
restrictions on transfer or voting except those arising pursuant to Legal
Requirements or Charter documents) and subject to no rescission rights or
similar rights of any kind, except arising pursuant to Legal Requirements.
(c) Effective upon the consummation of the transactions
contemplated by this Agreement, all of the Equity Securities of the Company will
have been validly transferred to Buyer, free and clear of any Liens, and subject
to no rescission rights or similar rights of any kind as a result of any actions
on the part of the Company and its Subsidiaries, Sellers and their Affiliates,
and assuming the issuance of Buyer's Common Stock is in compliance with all
applicable Legal Requirements.
3.1.6. Subsidiaries. Section 3.1.6 of the Company Disclosure Letter
lists all of the Company's Subsidiaries, which sets forth the name and
jurisdiction of incorporation or organization, the date of incorporation or
organization, the issued and outstanding shares of Equity Securities and the
federal or foreign taxpayer identification number of each such Subsidiary.
Except as set forth in Section 3.1.6 of the Company Disclosure Letter, the
Company is the direct record and beneficial owner of all of the issued and
outstanding shares of Equity Securities of each of its Subsidiaries, such shares
of Equity Securities have been duly authorized and validly issued and are fully
paid and nonassessable, and the Company has good and marketable title to such
shares free and clear of any Liens (including, without limitation, restrictions
on transfer or voting). Except as set forth in Section 3.1.6 of the Company
Disclosure Letter, there is no outstanding Equity Security of any Subsidiary of
the Company other than its issued and outstanding shares of capital stock.
Except as set forth in Section 3.1.6. of the Company Disclosure Letter, the
Company has no equity investment in any Person other than its Subsidiaries, and
any such equity investment in any Person is owned by the Company or its
Subsidiaries, as the case may be, free and clear of all Liens.
3.1.7. Charter and Bylaws. The Company has heretofore delivered to
Buyer true and complete copies of the Charter and Bylaws of the Company and each
of its Subsidiaries and in any Person in whom the Company or any of its
Subsidiaries has an equity interest, in each case in the form currently in
effect.
3.1.8. Corporate Acquisitions. All mergers with, or acquisitions of
stock or assets of, other Persons by the Company or any of its Subsidiaries have
been duly authorized and consummated pursuant to written agreements Enforceable
against the parties thereto. All mergers with, or acquisitions of stock or
assets of, other Persons by the Company or any of its Subsidiaries since
December 31, 1997, are listed in Section 3.1.8 of the Company Disclosure Letter,
and true and correct copies of all material agreements relating to such
corporate transactions have been delivered to Buyer.
3.1.9. Corporate Records. The minute books, stock or membership
interest record books and other corporate records of the Company and its
Subsidiaries, all of which have been made available to Buyer, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices. The minute books of the Company and
25
its Subsidiaries contain a complete and accurate record in all material respects
of all meetings and other corporate actions of the members or shareholders, as
the case may be, in the Company and its Subsidiaries.
Section 3.2. Financial Statements.
---------------------
3.2.1. Financial Information. Attached to Section 3.2.1 of the Company
Disclosure Letter are true and complete copies of each of the following:
(a) The audited combined balance sheets of the Company and its
Subsidiaries as of December 31, 2001, 2000 and 1999 and the related audited
combined statements of operations, changes in shareholders' equity (deficit) and
cash flows of such entities for such fiscal years ended December 31, 2001, 2000
and 1999 (collectively, the "Company Annual Financial Statements").
(b) The unaudited combined balance sheet (the "Company Interim
Balance Sheet") of the Company and its Subsidiaries as of March 31, 2002 (the
"Interim Balance Sheet Date") and the related unaudited combined statements of
operations, changes in shareholders' equity (deficit) and cash flows for the
three months ended March 31, 2002 (collectively, the "Company Interim Financial
Statements").
3.2.2. Character of Financial Information. The Company Annual Financial
Statements, including the notes thereto, and the Company Interim Financial
Statements are true and correct in all material respects as of their respective
dates and were prepared in accordance with Company's GAAP consistently applied
throughout the periods specified therein, (except where noted therein) and
present fairly, in all material respects, the combined financial position and
results of operations of the Company and its Subsidiaries at the respective
dates and for the periods specified therein, subject, in the case of the Company
Interim Financial Statements, to an absence of footnotes and subject to normal
year-end audit adjustments which will not be material in the aggregate.
Section 3.3. Change in Condition.
Except for the matters set forth in Section 3.3 of the Company
Disclosure Letter, since March 31, 2002:
(a) The Company Business has been conducted only in the
Ordinary Course of Business (except as may be otherwise permitted or required by
the terms of this Agreement), and without limiting the generality of the
foregoing, the Company and its Subsidiaries have made capital expenditures only
in the Ordinary Course of Business;
(b) Other than in the Ordinary Course of Business, neither the
Company nor any of its Subsidiaries has:
26
(i) incurred or otherwise become liable in respect
of any Debt or become liable in respect of any Guarantee, other than Debt or any
Guarantee between the Company and its respective wholly-owned Subsidiaries;
(ii) mortgaged or pledged a Company Asset or
subjected any Company Asset to any Lien;
(iii) made any change in its authorized or issued
capital stock or membership interests or granted or issued any option, purchase
right, convertible stock, other sort of Equity Security or registration right,
or purchased, redeemed or retired any shares or other Equity Securities, or
declared or made any Distribution, the effect of which would be to reduce the
Company's and its Subsidiaries' Tangible Net Worth below zero;
(iv) sold, leased to others or otherwise disposed of
any material Company Asset;
(v) purchased any Equity Security of any Person
other than of a direct or indirect wholly-owned Subsidiary of the Company, or
any assets material in amount, or been party to any merger, consolidation or
other business combination or entered into any Enforceable Contractual
Obligation relating to any such purchase, merger, consolidation or business
combination;
(vi) made any loan, advance or capital contribution
to or investment in any Person other than loans, advances or capital
contributions to or investments in or to the Company or any of the Company's
respective wholly-owned Subsidiaries and other than loans or advances which are
not material either singly or in the aggregate;
(vii) canceled or compromised any Debt;
(viii) sold, transferred, licensed or otherwise
disposed of any Intellectual Property;
(ix) made or agreed to make any change in its
customary methods of accounting or accounting practices;
(x) engaged in or become obligated in respect of any
transaction with any Seller or any Affiliate of any Seller;
(xi) waived or released or permitted to lapse any
right of material value or suffered any material damage to or material
destruction or loss of any material asset or property, whether or not covered by
insurance;
(xii) instituted, settled or agreed to settle any
material Action;
(xiii) amended its Charter or Bylaws; or
27
(xiv) consented or agreed to do any of the foregoing.
(c) Except in the Ordinary Course of Business, neither the
Company nor any of its Subsidiaries has (i) had any material change in its
relationships with its employees, producers, agents, independent contractors,
insurance carriers, customers, referral sources or suppliers, or (ii) made any
changes in the rate of Compensation payable (or paid or agreed in writing or
orally promised to pay, conditionally or otherwise, any extra Compensation) to
any director, officer, manager, employee, producer, consultant or agent;
(d) There has been no amendment of any material provision of
any Equity Security of the Company or any of its Subsidiaries;
(e) Neither the Company nor any of its Subsidiaries has
entered into any Enforceable Contractual Obligation (and Sellers and their
Affiliates have not entered into any Enforceable Contractual Obligation
obligating the Company or any of its Subsidiaries) to do any of the things
referred to in clauses (a) through (d) above with respect to the Company, any of
the Subsidiaries of the Company or the Company Business; and
(f) No Material Adverse Effect has occurred with respect to the
Company and its Subsidiaries.
Section 3.4. Liabilities. Neither the Company nor any of its
Subsidiaries has any Liabilities that would be required to be disclosed on a
balance sheet prepared in accordance with GAAP, other than:
(a) as set forth on the Company Annual Financial Statements;
(b) as set forth on the Company Interim Balance Sheet;
(c) those incurred since the date of the Company Interim
Balance Sheet in the Ordinary Course of Business; or
(d) as disclosed in Section 3.4 of the Company Disclosure
Letter.
Section 3.5. Assets.
3.5.1. Title to Assets. The Company and its Subsidiaries have good and
marketable title to, or, in the case of property held under lease or other
Enforceable Contractual Obligation, a valid and enforceable right to use all of
their properties, rights and assets, whether real or personal property
(collectively, the "Company Assets"), including, without limitation, all
properties, rights and assets reflected in the Company Interim Balance Sheet or
acquired after the date of the Company Interim Balance Sheet (except as sold or
otherwise disposed of since the date of the Company Interim Balance Sheet in the
Ordinary Course of Business). Neither the Company nor any of its Subsidiaries
owns any buildings or real property. No Company Asset is subject to any Lien
except as described in Section 3.5.1 of the Company Disclosure Letter. The
Company Assets (including, without limitation, the Intellectual Property, the
Leases and the
28
Contracts), constitute all properties, rights and assets held for or used in, or
necessary for the continued conduct of, the Company Business as currently
conducted.
3.5.2. Real Property Leases. Section 3.5.2 of the Company Disclosure
Letter sets forth a true, correct and complete list of each lease or sublease
under which the Company or Subsidiary leases any building, location or parcel
(all of the leases, or subleases pursuant to which such facilities, locations or
parcels are held or are to be held being referred to herein collectively as the
"Leases"). Section 3.5.2 of the Company Disclosure Letter also sets forth a
true, correct and complete list of each lease, or sublease (collectively, the
"Leases-Out") under which the Company or any of its Subsidiaries is a lessor or
sublessor of any building, location or parcel. True, correct and complete copies
of the Leases and the Leases-Out, and all material amendments, modifications and
supplemental agreements thereto, have been previously delivered to the Buyer.
Except as set forth in Section 3.5.2 of the Company Disclosure
Letter, and as to subparagraphs (a), (c), (d) and (f), to the best of the
Company's knowledge:
(a) each Lease and each Lease-Out is an Enforceable agreement
of the Company or a Subsidiary of the Company which is party thereto, and each
Lease or Lease-Out is an Enforceable agreement of the other parties thereto;
(b) the Company or a Subsidiary of the Company, which is a
party thereto, has fulfilled all material obligations required pursuant to the
Leases and the Leases-Out to have been performed by the Company or a Subsidiary
of the Company party thereto on its part;
(c) neither the Company nor any Subsidiary of the Company is in
breach of or default under any Lease or Lease-Out;
(d) (i) there is no existing material breach or default by any
other party to any Lease or Lease-Out;
(e) neither the Company nor any Subsidiary of the Company is
obligated to pay any material leasing or lease brokerage commission under any
Lease or Lease-Out as a result of the transactions contemplated hereby; and
(f) there is no pending or threatened eminent domain taking
affecting any of the properties which are the subject of the Leases or the
Leases-Out.
Section 3.6. Intellectual Property.
3.6.1. Definition of Intellectual Property. "Intellectual Property"
shall mean, collectively, all (i) United States or foreign patents, patent
applications, patent disclosures, and all renewals, reissues, divisions,
continuations, extensions or continuations-in-part thereof, and all discoveries
which may be patentable (collectively, "Patent Properties"), (ii) trademarks,
service marks, logos, trade dress, trade names and corporate names and
registrations and applications for registration thereof (collectively,
"Trademark Properties"), (iii) copyrights
29
(registered or unregistered), registrations and applications for registration
thereof, including all renewals, derivative works, enhancements, modifications,
updates, new releases or other revisions thereof, and all works of authorship
(collectively, "Copyright Properties"), (iv) computer software (including source
code and object code), data, databases, code segments, algorithms, objects,
routines, templates and documentation (collectively, "Software Properties"), (v)
trade secrets and other confidential information, including, but not limited to,
ideas, processes, business methods, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, research and
development information, specifications, designs, plans, proposals, technical
data, copyrightable works, financial and marketing plans, customer lists and
expiration information ("Trade Secrets"), (vi) other intellectual property
rights, (vii) rights to third party warranties relating to the foregoing, (viii)
copies and tangible embodiments of all of the foregoing (in whatever form or
medium), (ix) all internet domain names owned or used by the Company and any of
its Subsidiaries and Affiliates, and (x) all licenses and rights to royalties,
damages and payments under and the right to ▇▇▇ for infringement with respect to
all of the foregoing, and the goodwill symbolized by all of the foregoing and
connected therewith throughout the world.
The Company and its Subsidiaries own and have good and marketable title
to all Intellectual Property as is presently used by each in the conduct of the
Company Business free and clear of all Liens, or have the right to use pursuant
to valid license all such Intellectual Property, and all license arrangements
relating in any manner to any of such Intellectual Property (whether or not in
writing) are set forth in Section 3.6.2 of the Company Disclosure Letter
(listing the licensor, licensee, date and term of the license).
3.6.3. Compliance with License Agreements. Except as disclosed in
Section 3.6.3 of the Company Disclosure Letter, the Company and its Subsidiaries
are in full compliance with and are not in default under any license agreements
listed in Section 3.6.2 of the Company Disclosure Letter, and to the knowledge
of the Company, all other parties to any of such license agreements are in full
compliance with and are not in default under any of such license agreements.
3.6.4. Registrations. Section 3.6.4 of the Company Disclosure Letter
sets forth a complete list of all Patent Properties, Trademark Properties and
Copyright Properties used by the Company and its Subsidiaries in the conduct of
the Company Business that are currently registered in any jurisdiction, and
identifies the jurisdiction, owner, whether the property is a Patent Property,
Trademark Property or Copyright Property, registration number, and date of
registration.
3.6.5 Software Properties. The Company and its Subsidiaries own or
are authorized by license to use all Software Properties developed or currently
used by each which are material to the conduct of the Company Business, and each
has the right to use such Software Properties without infringing upon the
intellectual property rights of a third party.
3.6.6 Noninfringement. Except as disclosed in Section 3.6.6 of the
Company Disclosure Letter, the Company and its Subsidiaries have not infringed,
misappropriated, or otherwise used in an unauthorized manner the proprietary
rights (including, but not limited to,
30
the patent, trade secret, trademark, service ▇▇▇▇, trade dress, or copyright
rights) of any third party.
3.6.7. Rights Granted to Others. The Company and its Subsidiaries have
not granted or committed to grant any rights in their material Intellectual
Property of any nature whatsoever to any third party.
3.6.8. No Claims. Except as disclosed in Section 3.6.8 of the Company
Disclosure Letter, no claim has been asserted or to the knowledge of the Company
and the Selling Members, threatened, by any Person (i) to the effect that any
action by the Company or any of its Subsidiaries, infringes on the intellectual
property rights of any other Person; or (ii) that challenges or questions the
right of the Company or any of its Subsidiaries to use any of the Intellectual
Property being used by it; or (iii) which asserts the right of any third party
to use such Intellectual Property.
3.6.9. Unauthorized Use. To the knowledge of the Company, there has
been no unauthorized use, infringement or misappropriation of any of the
Intellectual Property of the Company or its Subsidiaries by any third party,
including, but not limited to, any employee, former employee, producer, agent or
independent contractor of the Company or its Subsidiaries.
Section 3.7. Accounts Receivable. All accounts receivable of Company
and its Subsidiaries that are reflected on the Company Financial Statements
represent or will represent valid obligations arising from services actually
performed in the Ordinary Course of Business. The reserve for bad debts, if any,
set forth in the Company Interim Balance Sheet was calculated in accordance with
Company's GAAP on a consistent basis.
Section 3.8. Accounts. Except as set forth in Section 3.8 of the
Company Disclosure Letter, each bank account or similar account for the deposit
of cash or securities maintained by or on behalf of, or utilized by, the Company
or any Subsidiary of the Company (i) is wholly owned by the Company or one of
its Subsidiaries and (ii) is reconciled to its bank statements on a regular and
timely basis.
Section 3.9. Certain Contractual Obligations. Set forth in Section 3.9
of the Company Disclosure Letter is a true and complete list of all of the
material Contractual Obligations of the Company and its Subsidiaries (except for
or with respect to the Company Plans and the Company Benefit Arrangements),
including, without limitation, each of the following, to the extent material to
the Company Business:
(a) All collective bargaining agreements and other labor
agreements; all material employment, producer or consulting agreements; and all
other plans, agreements, arrangements or practices which constitute Compensation
or benefits to any of the directors, members, officers or employees of the
Company or any of its Subsidiaries;
(b) All Enforceable Contractual Obligations under which the
Company or any of its Subsidiaries is or may become obligated to pay any legal,
accounting or similar fees or expenses in connection with, or incur any
severance pay or special Compensation obligations
31
which would become payable by reason of, this Agreement or the consummation of
the transactions contemplated hereby;
(c) All Enforceable Contractual Obligations under which the
Company or any of its Subsidiaries is or will after the Closing be restricted
from carrying on any business or other activities anywhere in the world;
(d) All Enforceable Contractual Obligations (including, without
limitation, options) to: (i) sell or otherwise dispose of any Company Assets
except in the Ordinary Course of Business or (ii) purchase or otherwise acquire
any material property or properties or other assets;
(e) All Enforceable Contractual Obligations under which the
Company or any of its Subsidiaries has any liability for Debt or obligation for
Debt or constituting or giving rise to a Guarantee of any liability or
obligation of any Person under which any default could arise or penalty or
payment could be required in the event of any action or inaction of the Selling
Members or Company or any of their Affiliates;
(f) Any lease or other Enforceable Contractual Obligation
under which any tangible personal property is held or used by the Company or any
of its Subsidiaries;
(g) Any Enforceable Contractual Obligation under which the
Company or any of its Subsidiaries may become obligated to pay any
indemnification obligation or purchase price adjustment in connection with any
(i) acquisition or disposition of assets, Equity Securities or real property,
(ii) other acquisition or disposition of assets other than in the Ordinary
Course of Business, (iii) assumption of liabilities or warranty other than in
the Ordinary Course of Business, (iv) merger, consolidation or other business
combination, or (v) series or group of related transactions or events of a type
specified in subclauses (i) through (iv);
(h) All Enforceable Contractual Obligations with agents or
independent contractors, which are the exclusive representative of Company or
any of its Subsidiaries in a specified market, relating to the Company Business;
(i) All written agreements containing covenants limiting
competition in any kind of business or in any jurisdiction or limiting the
ability to retain the services of any Person or classes of Persons or to sell
any product; and
(j) Any other Enforceable Contractual Obligation of a type not
specifically covered in clauses (a) through (j) above entered into other than in
the Ordinary Course of Business.
The Company has heretofore delivered to Buyer a true and complete copy
(or, in the case of oral contracts or arrangements, a full and accurate written
summary) of each of the Enforceable Contractual Obligations listed in Section
3.9 of the Company Disclosure Letter, each as in effect on the date hereof,
including, without limitation, all amendments (such Enforceable Contractual
Obligations required to be listed in Section 3.9 of the Company Disclosure
Letter, together with all material licenses to use the Intellectual Property of
Company and its
32
Subsidiaries, and Insurance Policies, but excluding the Company Plans and
Company Benefit Arrangements, being referred to herein collectively as the
"Contracts"). To the Company's knowledge, each material Contract is Enforceable
by the Company or any Subsidiary of Company which is party thereto, against each
Person (other than Company or any Subsidiary of Company) party thereto. No
material breach or default by Company or any of its Subsidiaries under any of
the material Contracts has occurred and is continuing, and to the Company's
knowledge, no event has occurred or circumstance exists which with notice or
lapse of time would constitute such a breach or default or permit termination,
modification or acceleration by any other Person under any of the material
Contracts or would result in a loss of rights or creation of any Lien thereunder
or pursuant thereto except as would arise from execution, delivery and
performance of this Agreement and the Closing Agreements. To the knowledge of
the Company, no material breach or default by any other Person under any of the
material Contracts has occurred and is continuing, and no event has occurred or
circumstance exists that with notice or lapse of time would constitute such a
breach or default or permit termination, modification or acceleration by Company
or any of its Subsidiaries under any of the material Contracts or would result
in a loss of rights or creation of any Lien thereunder or pursuant thereto
except as would arise from the execution, delivery and performance of this
Agreement and the Closing Agreements.
Section 3.10. Insurance. Section 3.10 of the Company Disclosure Letter
sets forth a true and correct summary of the insurance policies held by, or for
the benefit of, the Company and its Subsidiaries and the amount of coverage
therein (the "Insurance Policies"). True, correct and complete copies of all
Insurance Policies have been previously delivered or made available by the
Company to the Buyer. All premiums due and payable on any of the Insurance
Policies or renewals thereof have been paid or will be paid timely through the
Closing Date, and there is no default (including with respect to the payment of
premiums or the giving of notices) by Company or any its Subsidiaries under the
Insurance Policies nor any default by any other party to the Insurance Policies
that is known by the Company, and to the Company's knowledge, no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default or permit termination, modification or acceleration, under any
Insurance Policy except as would arise from the execution, delivery and
performance of this Agreement and the Closing Agreements. Neither the Company
nor any of the Subsidiaries of the Company have received any notice from the
insurer denying coverage or reserving rights with respect to a particular claim
currently pending under any Insurance Policy or with respect to any Insurance
Policy in general. Since December 31, 2001, neither Company nor any Subsidiary
of Company has incurred any material loss, damage, expense or liability and that
was or would be covered by any Insurance Policy for which it has not properly
asserted a claim under any Insurance Policy.
Section 3.11. Transactions with Affiliates. Except for the matters
specified in Section 3.11 of the Company Disclosure Letter, none of the Selling
Members or any of their Affiliates is a material distributor, supplier or vendor
of, Company or any Subsidiary of Company, and after the Closing neither Company
nor any Subsidiary of Company will have any liability or obligation outside the
Ordinary Course of Business to or for the benefit of the Selling Members or any
of their Affiliates other than from their status as directors, officers,
employees of the Company and its subsidiaries. Except for the matters specified
in Section 3.11 of the Company Disclosure Letter, there are no material Company
Assets (including, without limitation,
33
Intellectual Property) that Selling Members or any of their Affiliates (other
than the Company or a Subsidiary of the Company) own or are licensed or
otherwise have the right to use which are used in or necessary to the conduct of
the Company Business nor are there any services or staffing being provided to
the Company Business by Selling Members or any of their Affiliates other than
pursuant to written Enforceable Contractual Obligations set forth in Section
3.11 of the Company Disclosure Letter.
Section 3.12. Compliance with Laws. Except as set forth in the Section
3.12 of the Company Disclosure Letter (without regard to environmental matters
which are covered in Section 3.15 of this Agreement) (i) the Company and its
Subsidiaries are in compliance with all Legal Requirements, except where the
failure to comply would not have a material adverse effect on Company or any of
its Subsidiaries (ii) Company and its Subsidiaries have timely filed all
material reports and returns required by Legal Requirements or any regulatory
authority and all such returns and reports are true and correct in all material
respects, and there are no material deficiencies with respect to such filings or
submissions, and (iii) Company and the Subsidiaries of Company have been duly
granted and continue to hold, and at the Closing will hold, all material
licenses, permits, qualifications, consents, approvals, franchises and other
authorizations under any Legal Requirement or trade practice necessary for the
conduct of the Company Business as currently conducted (collectively, the
"Permits"). All of the Permits are now and after giving effect to the Closing
will be in full force and effect, except such as will not have a Material
Adverse Effect. Section 3.12 of the Company Disclosure Letter sets forth all
Permits and applications therefor that are material to the Company Business.
Neither the Company or any Subsidiary of Company has received any notice that
any Governmental Authority or other licensing authority or association will
revoke, cancel, rescind, materially modify or refuse to renew in the ordinary
course any of the material Permits.
Section 3.13. Tax Matters.
(a) Except as set forth in Schedule 3.13(a) of the Company
Disclosure Letter, the following is correct with respect to the Company and its
Subsidiaries (i) all Tax Returns required to be filed on or before the Closing
Date by, or with respect to the Company or any of its Subsidiaries have been or
will be timely filed (taking into account permitted extensions) with the
appropriate taxing authorities; (ii) the Company and its Subsidiaries have
timely paid, withheld, or made provision in the Company Annual Financial
Statements and the Company Interim Financial Statements for all Taxes of the
Company and its Subsidiaries, whether or not shown on any Tax Return; (iii) no
Liens for Taxes upon the assets of the Company or any of its Subsidiaries exist;
(iv) neither the Company nor any of its Subsidiaries currently is the
beneficiary of any extension of time within which to file any Tax Return; and
(v) no written claim has ever been made by an authority in a jurisdiction where
the Company or its Subsidiaries does not file Tax Returns that any of them is or
may be required to file a Tax Return or otherwise subject to taxation by that
jurisdiction.
(b) Except as set forth in Section 3.13(b) of the Company
Disclosure Letter, none of the Subsidiaries of the Company has since October 4,
1997 been a member of an affiliated group filing a consolidated federal Income
Tax Return.
34
(c) Except as provided in the Company Annual Financial
Statements and Company Interim Financial Statements, each of the Company and its
Subsidiaries has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, producer,
independent contractor, creditor, member, stockholder, foreign Person, or other
third party.
(d) There is no material dispute or claim concerning any
material Tax Liability of any of the Company and its Subsidiaries. Section 3.13.
of the Company Disclosure Letter lists all Income and Partnership Tax Returns
filed with respect to the Company or any of its Subsidiaries (with respect to
each Subsidiary only since its acquisition or creation by the Company) for
taxable periods ended on or after December 31, 1997, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Company has delivered to Buyer correct and complete copies
of all portions of federal Income and Partnership Tax Returns and examination
reports and statements of deficiencies assessed against or agreed to by the
Company or any of its Subsidiaries since December 31, 1997. Any representation
with respect to Subsidiaries under this Section 3.13(d) shall relate to a
Subsidiary only for periods following its acquisition or creation by the
Company.
(e) Neither the Company nor any of its Subsidiaries has waived
any statute of limitations in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.
(f) Except as provided in Section 3.13(f) of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries has (i) made
any payments, (ii) is obligated to make any payments, or (iii) is a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G.
(g) There are no tax sharing, allocation, indemnification or
similar agreements or arrangements in effect between the Company or any of its
Subsidiaries, or any predecessor or affiliate thereof, and any other party under
which the Company or any of its Subsidiaries could be liable for any Taxes or
other claims of any Person.
(h) Except as set forth in Section 3.13(h) of the Company
Disclosure Letter neither the Company nor any of its Subsidiaries has applied
for, been granted, or agreed to any accounting method change for which it will
be required to take into account any adjustment under Section 481 of the Code or
any similar provision of the Code or the corresponding tax laws of any nation,
state or locality.
(i) No indebtedness of the Company or any of its Subsidiaries
consists of "corporate acquisition indebtedness" within the meaning of Section
279 of the Code.
Section 3.14. Employee Relations and Employee Benefit Plans.
3.14.1. Employee Relations. Except as set forth in Section 3.14 of the
Company Disclosure Letter:
35
(a) Company and each of its Subsidiaries are in material
compliance with all federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, terms and conditions of
employment and wages and hours of employment, except where failure would have a
Material Adverse Effect;
(b) no legal claim in respect of application for employment,
employment or termination of employment of any Person has been asserted or, to
the knowledge of Company threatened, against Company or any of its Subsidiaries;
(c) Company and each of its Subsidiaries have not, and are
not, engaged in any unfair labor practice;
(d) no unfair labor practice complaint against the Company or
any of its Subsidiaries is pending before the National Labor Relations Board;
(e) no labor strike, dispute, slowdown or stoppage is actually
pending or, to the knowledge of Company threatened against or involving Company
or any of its Subsidiaries;
(f) neither Company nor any of its Subsidiaries is a party to
any collective bargaining agreement and no collective bargaining agreement is
currently being negotiated by any of them;
(g) none of the employees of Company or any of its Subsidiaries
is represented by a labor union;
(h) no petition has been filed or proceedings instituted by
any employee or group of employees of Company or any of its Subsidiaries with
any labor relations board seeking recognition of a bargaining representative;
(i) to the knowledge of the Company, there is no organizational
effort currently being made or threatened by or on behalf of any labor union to
organize any employees of Company or any of its Subsidiaries;
(j) there are no other controversies or disputes pending
between Company or any of its Subsidiaries on the one hand, and any of their
respective employees on the other hand, except for such other controversies and
disputes with individual employees arising in the Ordinary Course of Business
that have not had and may not reasonably be expected to have a Material Adverse
Effect; and
(k) Company and the Subsidiaries of Company have taken any and
all actions necessary to comply with the Worker Adjustment and Retraining
Notification Act (WARN), with respect to any event or occurrence since the
effective date of such Act.
36
3.14.2. Employee Benefit Plans and Programs.
(a) List of Plans. Section 3.14.2 (a) of the Company
Disclosure Letter sets forth an accurate and complete list, by name and benefit
type, of all plans and benefit arrangements in which employees of Company or any
Subsidiary of Company participate (the "Company Plans" and "Company Benefit
Arrangements"), which list further specifies which of said plans and
arrangements are sponsored by any Person other than Company or a Subsidiary of
Company.
(b) Status of Plans. Except as set forth in Section 3.14.2 (b)
of the Company Disclosure Letter:
(i) each Company Plan and Company Benefit Arrangement
has, at all times, been maintained and operated in compliance, in all material
respects, with its terms and the requirements of all applicable laws, including,
without limitation, ERISA and the Code;
(ii) no complete or partial termination of any Company
Plan or Company Benefit Arrangement has occurred or is expected to occur as a
result of this Agreement and the consummation of the transactions contemplated
hereby;
(iii) neither Company nor any of its Subsidiaries has
any current commitment or understanding to create, modify or terminate any
Company Plan or Company Benefit Arrangement;
(iv) except as required by applicable law, and subject
to this Agreement, no condition or circumstance exists that would prevent the
subsequent unrestricted amendment or termination of any Company Plan or Company
Benefit Arrangement; and
(v) apart from the transactions contemplated by this
Agreement, no event has occurred and no condition or circumstance has existed
that will, or could, result in a material increase in the benefits under, or the
expense of maintaining, any Company Plan or Company Benefit Arrangement from the
level of benefits or expense incurred for the most recently concluded fiscal
year thereof.
(c) Liabilities. Except as set forth in Section 3.14.2(c)
of the Company Disclosure Letter:
(i) neither Company nor any of its Subsidiaries
maintains a Company Plan subject to Section 412 or 418B of the Code, or Section
302 of ERISA or which otherwise is a "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA);
(ii) neither Company nor any of its Subsidiaries
maintains any Company Plan or Company Benefit Arrangement which is a "group
health plan" (as such term is defined in Section 5000(b)(1) of the Code) that
has not been administered and operated, in all material respects, in compliance
with the applicable requirements of Sections 601, 701 and 702 of ERISA and
Sections 4980B(f), 9801 and 9802 of the Code; and, neither Company nor any of
37
its Subsidiaries is subject to any liability, including, without limitation,
additional contributions, fines, penalties or loss of tax deduction as a result
of such administration and operation;
(iii) neither Company nor any of its Subsidiaries
maintains any Company Plan or Company Benefit Arrangement (whether qualified or
nonqualified within the meaning of Section 401(a) of the Code) providing for
retiree health and/or life benefits or having unfunded liabilities;
(iv) neither Company nor any of its Subsidiaries
maintains any Company Plan which is an "employee welfare benefit plan" (as such
term is defined in Section 3(1) of ERISA) that has provided any "disqualified
benefit" (as such term is defined in Section 4976(b) of the Code) with respect
to which any excise tax could be imposed;
(v) no person is entitled to, with respect to
employment with Company or any of its Subsidiaries, any benefit to be paid after
termination of employment (other than pursuant to a Company Plan that is
tax-qualified under Section 401(a) of the Code);
(vi) neither Company nor any of its Subsidiaries has
incurred any liability for any Tax arising under Section 4971, 4975, 4977, 4978,
4978B, 4979, 4980, 4980B or 4980D of the Code; and, no event has occurred and no
condition or circumstance has existed that could give rise to any such
liability;
(vii) no Actions are pending, or, to the knowledge of
the Company, threatened, anticipated or expected to be asserted against any
Company Plan or Company Benefit Arrangement or the assets of any such Company
Plan or Company Benefit Arrangement (other than routine claims for benefits and
appeals of denied routine claims);
(viii) no civil or criminal action brought pursuant to
the provisions of Title I, Subtitle B, Part 5 of ERISA is pending, or, to the
knowledge of the Company, threatened, anticipated or expected to be asserted
against Company or any of its Subsidiaries or any fiduciary of any Company Plan
or Company Benefit Arrangement, with respect to any Company Plan or Company
Benefit Arrangement; and
(ix) on or after January 1, 1998, no Company Plan or
Company Benefit Arrangement or, with respect to any Company Plan or Company
Benefit Arrangement, any fiduciary thereof, is or has been the direct or
indirect subject of an audit, investigation or examination by any governmental
or quasi-governmental agency; or, has entered into a settlement with such
agency.
(d) Contributions. Except as set forth in Section 3.14.2(d)
of the Company Disclosure Letter:
(i) full payment has been made, or by the Closing Date
will have been made, of all material amounts which Company or any of its
Subsidiaries is required, under applicable law, under any Company Plan or
Company Benefit Arrangement or under any agreement relating to any Company Plan
or Company Benefit Arrangement to which Company
38
or any of its Subsidiaries is a party, to have paid as contributions thereto as
of the last day of the most recent fiscal year of such Company Plan or Company
Benefit Arrangement ended prior to Closing;
(ii) all contributions by Company or any of its
Subsidiaries to a Company Plan or a Company Benefit Arrangement have been
deducted, or can be deducted, in the taxable year for which such contributions
are made; and, no such contribution deduction has been challenged or disallowed;
(iii) Company has made adequate provision for reserves
to make Company Plan or Company Benefit Arrangement contributions that have
accrued or will have accrued through Closing, but that have not been made
because they are not yet due under the terms of any Company Plan or Company
Benefit Arrangement or related agreements; and
(iv) benefits under all Company Plans or Company
Benefit Arrangements are materially as represented in this Agreement and have
not been increased subsequent to the date as of which plan documents were
provided or made available to Buyer.
(e) Tax Qualification. Except as set forth in Section 3.14.2(e)
of the Company Disclosure Letter:
(i) each Company Plan intended to be qualified under
Section 401(a) of the Code has been determined to be so qualified, as to design,
by the Internal Revenue Service. Each Company Plan intended to be tax-qualified
is qualified under Section 401(a) of the Code (and with respect to the Company's
401(k) plan, Section 401(k) of the Code);
(ii) each trust established in connection with any
Company Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code continues to be exempt; and
(iii) since the date of each most recent determination
referred to in this paragraph (e), to the knowledge of the Company, no event has
occurred and no condition or circumstance has existed that resulted or is likely
to result in the revocation of any such determination or that could adversely
affect the qualified status of any Company Plan or the exempt status of any such
related trust.
(f) Transactions. Except as set forth in Section 3.14.2(f) of
the Company Disclosure Letter, neither Company nor any of its Subsidiaries nor,
to the knowledge of Company, any of their respective directors, officers,
members, employees or other Persons who participate in the operation of any
Company Plan or Company Benefit Arrangement or related trust or funding vehicle,
has engaged in any transaction with respect to any Company Plan or Company
Benefit Arrangement or breached any applicable fiduciary responsibilities or
obligations under Title I of ERISA with respect to any Company Plan or Company
Benefit Arrangement that would subject any of them to a tax, penalty or
liability for prohibited transactions under ERISA or the Code or would result in
any claim being made under, by or on
39
behalf of any such Company Plan or Company Benefit Arrangement, by any party
with standing to make such claim for which Company or its Subsidiaries would
have a liability.
(g) Triggering Events. Except as set forth in Section 3.14.2(g)
of the Company Disclosure Letter:
(i) the execution of this Agreement and the
consummation of the transactions contemplated hereby, do not constitute a
triggering event under any Company Plan or Company Benefit Arrangement, policy,
arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits to any employee or
former employee or director of Company or any of its Subsidiaries; and
(ii) no Company Plan or Company Benefit Arrangement
provides for the payment of severance benefits upon the termination of
employment of an employee of Company or any of its Subsidiaries.
(h) Documents. The Company has delivered or made available to
be delivered to Buyer or its counsel true and complete copies of all material
documents in connection with each Company Plan and Company Benefit Arrangement
as requested by Buyer.
3.14.3. Employees. Section 3.14.3 of the Company Disclosure Letter
contains a correct and complete list of the following information for each
employee, agent or director of the Company and its Subsidiaries, including each
employee on leave of absence or layoff status: employer; name; current
compensation (including, without limitation, salary, commission and bonus) paid
or payable and any change in compensation since December 31, 2001 other than in
the ordinary course; date of hire; and service credited for purposes of vesting
and eligibility to participate under the Company Plans and Company Benefit
Arrangements. To the Company's knowledge, no employee of the Company or its
Subsidiaries is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition or proprietary rights
agreement, between such employee and any other Person, that in any way adversely
affects or will affect (i) the performance of his duties as an employee of the
Company or any Subsidiary of the Company, or (ii) the ability of the Company to
conduct Business, both in such a way that would cause a Material Adverse Effect
on the Company Business. Section 3.14.3 of the Sellers' Disclosure Letter also
contains a complete and accurate list of the following information for each
retired employee of the Company and its Subsidiaries, 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.
Section 3.15. Environmental Matters.
(a) Company and each of its Subsidiaries is in compliance in
all material respects with all Environmental Laws including, without limitation,
Legal Requirements relating to the handling, storage, use, transportation or
disposal of any Hazardous Substance. Neither Company nor the Subsidiaries of
Company has received written notice of any Action pending
40
against it or such Subsidiaries nor, to the knowledge of the Company is there
any Action threatened, in each case in respect of (i) noncompliance by Company
or any Subsidiary of Company with any Environmental Laws, or (ii) the presence
or release into the environment of any Hazardous Substance either generated by
Company, or any Subsidiary of Company or located at or emanating from a site
currently leased or otherwise used by Company or any Subsidiary of Company.
(b) No Hazardous Substances have been released as a result of
activities of Company or any Subsidiary of Company, except as in compliance with
Environmental Laws, within any site currently leased or otherwise used by
Company or any Subsidiary of Company, nor have any Hazardous Substances been
transported by the Company or any Subsidiary of Company from any site currently
leased or otherwise used by Company or any Subsidiary of Company to any site or
facility now listed or proposed for listing on the National Priorities List, at
40 C.F.R. Part 300, or any list with a similar scope or purpose published by any
state authority.
Section 3.16. Litigation. Except as set forth in Section 3.16 of the
Company Disclosure Letter, and without regard to environmental matters which are
covered in Section 3.15 of this Agreement, there is no Action against Company or
any Subsidiary of Company, pending or, to the knowledge of Company, threatened,
which Company or any of its Subsidiaries are or would reasonably be expected to
be parties. There is no Action pending or, to the knowledge of Company,
threatened, that seeks rescission of, seeks to enjoin the consummation of, or
otherwise relates to, this Agreement or any of the transactions contemplated
hereby. No Governmental Order specifically directed at Company or any of its
Subsidiaries has been issued which has had or could reasonably be expected to
have a Material Adverse Effect.
Section 3.17. Clients. Section 3.17 of the Company Disclosure Letter
sets forth the client accounts of the Company producing commissions or other
revenues for the Company in excess of $100,000 during the fiscal year ended
December 31, 2001, showing the name of each such client and the total
commissions or other revenues received from each such client 2001. Since January
1, 2001, no client of the Company representing 3% or more of the Company's
business has canceled, materially modified, or otherwise terminated its
relationship with the Company or its Subsidiaries, or decreased materially the
amount of business it places with the Company, nor does any client have, to the
knowledge of the Company, any plan or intention to do any of the foregoing.
Section 3.18. Agency Appointments. The Company or its Subsidiaries, as
the case may be, has an appointment to act as an agent for each insurance
company from which it needs such an appointment to conduct its business, except
where the failure to have such appointment would not have a material adverse
effect on the Company or its Subsidiaries, each such appointment is valid and
binding in accordance with its terms on the parties thereto, and there has been
no indication that any such appointment will be, nor do any grounds exist, to
the best knowledge of the Company, which may result in any such appointment
being, revoked, rescinded or terminated. Neither the Company nor any of its
Subsidiaries is a party to any written agreement which prevents it from doing
business with any insurance company, agent, or broker. Neither the Company nor
any of its Subsidiaries has bound, or committed to bind, any insurance coverage
for any liability, risk, cost, or expense, or in any amount of liability, risk,
cost or expense, or upon
41
any terms or conditions, which exceeds its binding authority in any respect.
Neither the Company nor any of its Subsidiaries is in default under any material
obligations to any insurance company, agent or broker through which it places
insurance, nor does any insurance company, agent or broker claim that any such
default exists.
Section 3.19. Insurance Companies. Section 3.19 of the Company
Disclosure Letter sets forth a true and complete list of (a) each insurance
company, agent and broker through which the Company placed total gross premiums
in excess of $20,000,000 insurance during the fiscal years ended December 31,
2001 and 2000 setting forth the name of each such individual or entity and the
total gross premiums written by each such individual or entity during the
applicable period; and (b) each insurance company that paid contingent
commissions to the Company in either of such periods, setting forth the names of
each such insurance company and the amount of the contingent commissions paid to
the Company. To the Company's knowledge, no insurance companies, agents, or
brokers will cancel or modify in any material respect the agency appointment or
agreement of the Company with such insurance company, agent or broker or cease
doing business with the Company or change the nature, scope or terms under which
each has been doing business with the Company because of the execution of this
Agreement or the consummation of the transactions contemplated hereby.
Section 3.20. Insurance Accounts and Commissions. The insurance
accounts of the Company and its Subsidiaries represent genuine insurance placed
through the Company and its Subsidiaries for the commissions and fees set forth
on the Company's books and records. There are no material agreements,
commitments or understandings with any client or any other Person whereby any of
the insurance commissions and fees received by the Company and its Subsidiaries
are being returned directly or indirectly to any client or any other Person.
Section 3.21. Brokers. Except for Banc of America Securities and ▇▇▇▇▇
& Co., LLC, no broker, finder, investment bank or banker or similar agent is
entitled to any brokerage, finder's or other fee, Compensation or reimbursement
of expenses in connection with the transactions contemplated by this Agreement
based upon agreements or arrangements made by or on behalf of the Selling
Members, Company, any Subsidiary of Company or any of their respective
Affiliates.
ARTICLE IV
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Representations and Warranties Relating to HIRAC
Except as disclosed, or as qualified by information set forth in the
HIRAC disclosure letter dated of even date herewith and delivered to Buyer
concurrently herewith (the "HIRAC Disclosure Letter"), Company represents and
warrants to Buyer and to Buyer's successors and assigns as follows:
Section 4.1. Corporate Matters.
4.1.1. Organization and Standing; Power and Authority. HIRAC is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
42
HIRAC is duly qualified or licensed to do business as a foreign corporation and
is in good standing as such (to the extent such jurisdiction recognizes such
concept), in each jurisdiction where the nature of its activities requires such
qualification or license.
4.1.2. Authorization and Enforceability. Upon execution by the Selling
Shareholders, this Agreement will have been duly authorized, executed and
delivered by the Selling Shareholders and will be Enforceable against the
Selling Shareholders. Each of the Closing Agreements to which any Selling
Shareholder is a party as reflected on the signature page thereof has been duly
authorized, and, on or before the Closing Date, will be duly executed and
delivered by such Selling Shareholder and will be Enforceable against such
Selling Shareholder, as the case may be.
4.1.3. Non-Contravention. No approval, consent, waiver, authorization
or other order of, and no filing, notice, registration, qualification or
recording with, any Governmental Authority or any other Person is required to be
obtained or made by or on behalf of HIRAC, or any Selling Shareholders or any of
their Subsidiaries or Affiliates, in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby, except for the items listed in Section 4.1.3 of the HIRAC
Disclosure Letter, each of which shall have been obtained or made and shall be
in full force and effect at the Closing. Except as set forth in Section 4.1.3 of
the HIRAC Disclosure Letter, neither the execution, delivery and performance of
this Agreement nor the consummation of any of the transactions contemplated
hereby (including, without limitation, the execution, delivery and performance
of the Closing Agreements) does or will constitute, result in or give rise to
(i) a breach or violation or default under any material Legal Requirement
applicable to HIRAC (assuming the accuracy of the representations and warranties
of Buyer), (ii) a breach of or a default under any Charter or Bylaws provision
of HIRAC or the Selling Shareholders, (iii) the acceleration of the time for
performance of any obligation under any material Contractual Obligation of
HIRAC, (iv) the imposition of any Lien upon or the forfeiture of any assets of
HIRAC, or (v) a breach of or a default under any material Enforceable
Contractual Obligation of HIRAC.
4.1.4. Capitalization. HIRAC is authorized to issue 500,000 shares of
nonvoting common stock and 10 shares of voting common stock. Section 4.1.5 of
the HIRAC Disclosure Letter lists each of the holders of any share of issued and
outstanding capital stock of HIRAC, the number of shares held and the class of
shares held. The only issued and outstanding shares of capital stock or Equity
Securities of HIRAC are the HIRAC Shares, all of which are duly authorized,
validly issued, fully paid and non-assessable. Except as set forth in HIRAC's
Charter or Bylaws or Section 4.1.5 of the HIRAC Disclosure Letter, there is no
Enforceable Contractual Obligation that obligates HIRAC to issue, purchase or
redeem, or make any payment in respect of, any Equity Security. None of HIRAC's
capital stock has been issued in violation of any federal or state law.
4.1.5. Title to HIRAC Shares.
(a) Each Selling Shareholder is the record holder of, and has
good and marketable title to, the class and number of shares of HIRAC set forth
beside such Selling
43
Shareholder's name in Section 4.1.4 of the HIRAC Disclosure Letter, free and
clear of any Liens (including, without limitation, restrictions on transfer or
voting except those arising pursuant to Legal Requirements or Charter
documents.). Selling Shareholders, collectively, own all of the HIRAC Shares.
(b) Except for this Agreement, to the Company's knowledge,
there is no Contractual Obligation pursuant to which Selling Shareholders have,
directly or indirectly, granted any Equity Security in HIRAC to any Person. Upon
delivery of certificates representing the HIRAC Shares, and delivery of the
consideration therefor as herein contemplated, Buyer will receive good and
marketable title to all of the HIRAC Shares, free and clear of any Liens
(including, without limitation, restrictions on transfer or voting) and subject
to no rescission rights or similar rights of any kind except those arising
pursuant to Legal Requirements or Charter documents.
(c) Effective upon the consummation of the transactions
contemplated by this Agreement, all of the Equity Securities of HIRAC will have
been validly transferred to Buyer, free and clear of any Liens, and subject to
no rescission rights or similar rights of any kind as a result of any actions on
the part of HIRAC, Selling Shareholders and their Affiliates, and assuming the
issuance of Buyer's Common Stock is in compliance with all applicable Legal
Requirements.
4.1.6. Subsidiaries. HIRAC has no Subsidiaries, and has no equity
investment in any Person, other than the Company.
4.1.7. Charter and Bylaws. Company has heretofore delivered to Buyer
true and complete copies of the Charter and Bylaws of HIRAC, in each case in the
form currently in effect.
4.1.8. Corporate Records. The minute books, stock or record books and
other corporate records of HIRAC, all of which have been made available to
Buyer, are complete and correct in all material respects and have been
maintained in accordance with sound business practices. The minute books of
HIRAC contain a complete and accurate record in all material respects of all
meetings and other corporate actions of the shareholders of HIRAC.
Section 4.2. Financial Statements.
4.2.1. Financial Information. Attached to Section 4.2.1 of the HIRAC
Disclosure Letter are true and complete copies of each HIRAC unaudited balance
sheet (the "HIRAC Balance Sheet") of HIRAC and any Subsidiaries as of March 31,
2002 and the related unaudited statements of operations, changes in
shareholders' equity (deficit) and cash flows for the three months ended March
31, 2002 (collectively, the "HIRAC Financial Statements"). Since March 31, 2002,
no Material Adverse Effect has occurred with respect to HIRAC.
4.2.2. Character of Financial Information. Except as set forth in
Section 4.2.2 of the HIRAC Disclosure Letter, the HIRAC Financial Statements,
are true and correct in all material respects as of their respective dates and
were prepared in accordance with Company's GAAP
44
consistently applied throughout the periods specified therein and present
fairly, in all material respects, the financial position and results of
operations of HIRAC at the respective dates and for the periods specified
therein, subject to an absence of footnotes and normal year end adjustments.
Section 4.3. Liabilities. HIRAC has no Liabilities, other than as set
forth on the HIRAC Balance Sheet or disclosed in Section 4.3 of the HIRAC
Disclosure Letter.
Section 4.4. Assets. HIRAC owns all of the assets listed on the HIRAC
Balance Sheet free and clear of any Liens.
Section 4.5. Accounts. Except as set forth in Section 4.5 of the HIRAC
Disclosure Letter, each bank account or similar account for the deposit of cash
or securities maintained by or on behalf of, or utilized by, HIRAC is (i) wholly
owned by HIRAC and (ii) reconciled to its bank statements on a regular and
timely basis.
Section 4.6. Certain Contractual Obligations. Set forth in Section 4.6
of the HIRAC Disclosure Letter is a true and complete list of all of the
Enforceable Contractual Obligations of HIRAC.
Company has heretofore delivered to Buyer a true and complete copy (or,
in the case of oral contracts or arrangements, a full and accurate written
summary) of each of the Contractual Obligations listed in Section 4.6 of the
HIRAC Disclosure Letter, each as in effect on the date hereof, including,
without limitation, all amendments (such Contractual Obligations required to be
listed in Section 4.6 of the HIRAC Disclosure Letter being referred to herein
collectively as the "HIRAC Contracts"). Each HIRAC Contract is Enforceable by
HIRAC which is party thereto, against each Person (other than HIRAC) party
thereto. No material breach or default by HIRAC under any of the HIRAC Contracts
has occurred and is continuing, and no event has occurred or circumstance exists
which with notice or lapse of time would constitute such a breach or default or
permit termination, modification or acceleration by any other Person under any
of the HIRAC Contracts or would result in a loss of rights or creation of any
Lien thereunder or pursuant thereto except as would arise from execution,
delivery and performance of this Agreement and the Closing Agreements. To the
knowledge of the Company, no material breach or default by any other Person
under any of the HIRAC Contracts has occurred and is continuing, and no event
has occurred or circumstance exists that with notice or lapse of time would
constitute such a breach or default or permit termination, modification or
acceleration by HIRAC under any of the HIRAC Contracts or would result in a loss
of rights or creation of any Lien thereunder or pursuant thereto except as would
arise from the execution, delivery and performance of this Agreement and the
Closing Agreements.
Section 4.7. Transactions with Affiliates. Except for the matters
specified in the Section 4.7 of the HIRAC Disclosure Letter, none of the Selling
Shareholders or any of their Affiliates is an employee, consultant, distributor,
supplier or vendor of, or is party to any Contractual Obligation with HIRAC, and
after the Closing HIRAC will not have any liability or obligation to or for the
benefit of the Selling Shareholders or any of their Affiliates other than
arising out of their status as officers or directors of HIRAC.
45
Section 4.8. Compliance with Laws. Except as set forth in Section 4.8
of the HIRAC Disclosure Letter, (i) HIRAC is in compliance with all Legal
Requirements except where the failure to comply would not have a material
adverse effect on HIRAC, (ii) HIRAC has timely filed all material reports and
returns required by Legal Requirements or any regulatory authority and all such
returns and reports are true and correct in all material respects, and there are
no material deficiencies with respect to such filings or submissions, and (iii)
HIRAC has been duly granted and continues to hold, and at the Closing will hold,
all licenses, permits, qualifications, consents, approvals, franchises and other
authorizations under any Legal Requirement material for the conduct of its
business as currently conducted (collectively, the "HIRAC Permits"). All of the
HIRAC Permits are now and after giving effect to the Closing will be in full
force and effect. Section 4.8 of the HIRAC Disclosure Letter sets forth all
Permits and applications held by HIRAC. Neither the Sellers, the Company or
HIRAC has received any notice that any Governmental Authority or other licensing
authority or association will revoke, cancel, rescind, materially modify or
refuse to renew in the ordinary course any of the HIRAC Permits.
Section 4.9. Tax Matters.
(a) Except as set forth in Section 4.9 of the HIRAC Disclosure
Letter, the following is true and correct with respect to HIRAC: (i) all Tax
Returns required to be filed on or before the Closing Date by, or with respect
to HIRAC have been or will be timely filed (taking into account permitted
extensions) with the appropriate taxing authorities; (ii) HIRAC has timely paid,
withheld, or made provision in the HIRAC Financial Statements for all material
Taxes, whether or not shown on any Tax Return; (iii) no Liens for Taxes upon the
assets of HIRAC exist; (iv) HIRAC is not currently the beneficiary of any
extension of time within which to file any Tax Return; and (v) no written claim
has ever been made by an authority in a jurisdiction where any of HIRAC does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
(b) Except as provided in the HIRAC Financial Statements,
HIRAC has withheld and paid all material Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, producer,
independent contractor, creditor, stockholder, foreign Person, or other third
party.
(c) There is no dispute or claim concerning any material Tax
Liability of HIRAC. Section 4.9 of the HIRAC Disclosure Letter lists all Income
Tax Returns filed with respect to HIRAC for taxable periods ended on or after
December 31, 1997, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. HIRAC has
delivered to Buyer correct and complete copies of all portions of federal Income
Tax Returns and examination reports and statements of deficiencies assessed
against or agreed to by HIRAC since December 31, 1997.
(d) HIRAC has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
46
(e) There are no tax sharing, allocation, indemnification or
similar agreements or arrangements in effect between HIRAC and any other party
under which HIRAC could be liable for any Taxes or other claims of any Person.
(f) HIRAC has not applied for, been granted, or agreed to any
accounting method change for which it will be required to take into account any
adjustment under Section 481 of the Code or any similar provision of the Code or
the corresponding tax laws of any nation, state or locality.
(g) HIRAC has not incurred any liability for any Tax arising
under Sections 4971, 4975, 4977, 4978, 4978B, 4979, 4980, 4980B, or 4980D of the
Code, and no event has occurred and no circumstance exists that would give rise
to any such liability.
Section 4.10. Litigation. There is no Action against HIRAC, pending
or, to the knowledge of Company, threatened, which HIRAC is or would reasonably
be expected to be a party. There is no Action pending or, to the knowledge of
Company, threatened, that seeks rescission of, seeks to enjoin the consummation
of, or otherwise relates to, this Agreement or any of the transactions
contemplated hereby.
Section 4.11. Brokers. Except for Banc of America Securities and ▇▇▇▇▇
& Co., LLC, no broker, finder, investment bank or banker or similar agent is
entitled to any brokerage, finder's or other fee, Compensation or reimbursement
of expenses in connection with the transactions contemplated by this Agreement
based upon agreements or arrangements made by or on behalf of HIRAC or the
Selling Shareholders or any of their respective Affiliates.
ARTICLE V
Representations and Warranties of Buyer
Except as disclosed, or as qualified by information set forth in the
Buyer's disclosure letter dated of even date herewith and delivered to the
Company and the Sellers' Representative concurrently herewith (the "Buyer
Disclosure Letter"), Buyer represents and warrants to Sellers as follows:
Section 5.1. Corporate Matters.
5.1.1. Incorporation and Authority of Buyer. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has all requisite corporate power and authority, to
enter into this Agreement and each of the Closing Agreements to which it is
intended to be a party as reflected on the signature page thereof, to carry out
and perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
5.1.2. Organization, Power and Standing. Each of the Subsidiaries of
Buyer is a corporation or limited liability company duly incorporated or
organized, validly existing and in
47
good standing under the jurisdiction of its incorporation or organization (to
the extent recognized in such jurisdiction of incorporation or organization).
Each of Buyer and its Subsidiaries has all requisite corporate power and
authority, to carry on its business as currently conducted, and to consummate
the transactions contemplated hereby. Each of Buyer and its Subsidiaries is duly
qualified or licensed to do business as a foreign corporation or otherwise, and
is in good standing as such (to the extent such concept is recognized in such
jurisdiction), in each jurisdiction where the nature of Buyer's or such
Subsidiaries' activities or their ownership or leasing of property requires such
qualification or license, except to the extent that the failure to be so
qualified or licensed would not have a Material Adverse Effect on Buyer.
5.1.3. Authorization and Enforceability. This Agreement has been duly
authorized, executed and delivered by Buyer, and is Enforceable against Buyer.
Each of the Closing Agreements to which Buyer or its applicable Subsidiary is a
party as reflected on the signature page thereof has been duly authorized, and,
on or before the Closing Date, will be duly executed and delivered by Buyer or
its applicable Subsidiary and will be Enforceable against Buyer or such
Subsidiary, as the case may be.
5.1.4. Non-Contravention. No approval, consent, waiver, authorization
or other order of, and no filing, notice, registration, qualification or
recording with, any Governmental Authority or any other Person is required to be
obtained or made by or on behalf of Buyer or its Subsidiaries in connection with
the execution, delivery or performance of this Agreement and the consummation of
the transactions contemplated hereby, except for (i) satisfaction of the
requirements of the HSR Act and (ii) the items listed in Section 5.1.4 of the
Buyer Disclosure Letter, each of which shall have been obtained or made and
shall be in full force and effect at the Closing. Except as set forth in Section
5.1.4 of the Buyer Disclosure Letter, neither the execution, delivery and
performance of this Agreement nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the execution, delivery and
performance of the Closing Agreements) does or will constitute, result in or
give rise to (i) a breach or violation or default under any material Legal
Requirement applicable to Buyer or any of Buyer's Subsidiaries (assuming the
accuracy of the representations and warranties of Company Articles III and IV
hereof, respectively), (ii) a breach of or a default under any Charter or Bylaws
provision of Buyer or any of Buyer's Subsidiaries, (iii) the acceleration of the
time for performance of any material obligation under any Enforceable
Contractual Obligation of Buyer or any of Buyer's Subsidiaries, (iv) the
imposition of any material Lien upon or the forfeiture of any asset of Buyer or
any assets of any of Buyer's Subsidiaries, or (v) a breach of or a default under
any material Enforceable Contractual Obligation of Buyer or any of Buyer's
Subsidiaries.
5.1.5. Charter and Bylaws. Buyer has heretofore delivered to the
Company and Sellers' Representative true and complete copies of the Charter and
Bylaws of Buyer, in the form currently in effect.
5.1.6. Capitalization; Ownership of Buyer Common Stock. The authorized
capitalization of Buyer as of May 1, 2002, was 50,000,000 shares of Buyer Common
Stock, of which 28,552,883 shares were issued and outstanding, and 32,257,728
were issued and outstanding on a fully-diluted basis as of March 31, 2002. All
of the outstanding shares of Buyer Common Stock are duly authorized, validly
issued, fully paid and nonassessable. When issued
48
pursuant to Article II, the shares of Buyer Common Stock issued to the Sellers
will be duly authorized, validly issued, fully paid and nonassessable.
5.1.7. Shelf Registration Statement; Private Placement. The
Registration Statement and the information incorporated by reference therein did
not on the date it was declared effective by the U.S. Securities and Exchange
Commission and will not on the date it was first delivered to the Sellers
contain any untrue statement of a material fact or omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements therein not false or misleading. The Registration
Statement and the information incorporated by reference therein will not as of
the Closing Date contain any untrue statement of material fact or omit to state
any material fact necessary, in light of the circumstances under which it was
made, in order to make the statements therein not false or misleading. Buyer
represents and warrants that the issuance of all Shares of Buyer Common Stock to
be issued pursuant to Article II will have been registered at or prior to the
Closing under the Securities Act pursuant to an effective Registration
Statement.
Section 5.2. Financial Statements.
5.2.1. Financial Information. Attached to Section 5.2 of the Buyer
Disclosure Letter are true and complete copies of each of the following:
(a) The audited consolidated balance sheet of Buyer as of
December 31, 2001 and the related audited consolidated statements of income,
stockholders' equity and cash flows of Buyer for such fiscal year ended December
31, 2001 (the "Buyer Financial Statements"); and
(b) The unaudited consolidated balance sheet ("Buyer Interim
Balance Sheet") of Buyer and its Subsidiaries as of the Interim Balance Sheet
Date and related unaudited consolidated statements of income, stockholders'
equity and cash flows for the three months ended March 31, 2002 (the "Buyer
Interim Financials").
5.2.2. Character of Financial Information. The Buyer Financial
Statements and the Buyer Interim Financials, including in each case the notes
thereto, are true and correct in all material respects and were prepared in
accordance with Buyer's GAAP consistently applied throughout the periods
specified therein (except where otherwise noted therein) and present fairly, in
all material respects, the consolidated financial position and results of
operations of the Buyer and its Subsidiaries at the respective dates and for the
periods specified therein, subject, in the case of the Buyer Interim Financials,
to an absence of footnotes and subject to normal year-end audit adjustments
which will not be material in the aggregate.
Section 5.3. Change in Condition.
Since March 31, 2002:
(a) The business of the Buyer has been conducted only in the
Ordinary Course of Business (except as may be otherwise required by the terms of
this Agreement);
49
(b) No Material Adverse Effect has occurred with respect to
Buyer and its Subsidiaries.
Section 5.4. Compliance with Laws. Except as set forth in Section 5.4
of the Buyer Disclosure Letter, (i) Buyer and its Subsidiaries are in compliance
with all Legal Requirements except where the failure to comply would not have a
material adverse effect on Buyer or any of its Subsidiaries, (ii) Buyer and its
Subsidiaries have timely filed all reports and returns required by Legal
Requirements or any regulatory authority and all such returns and reports are
true and correct in all material respects, and there are no material
deficiencies with respect to such filings or submissions, and (iii) Buyer and
the Subsidiaries of Buyer have been duly granted and continue to hold, and at
the Closing will hold, all licenses, permits, qualifications, consents,
approvals, franchises and other authorizations under any material Legal
Requirement or trade practice necessary for the conduct of the their respective
businesses as currently conducted (collectively, the "Buyer Permits"), except
such as have not had and will not have individually or in the aggregate a
Material Adverse Effect. All of the Buyer Permits are now and after giving
effect to the Closing will be in full force and effect, except such as will not
have a Material Adverse Effect. Neither Buyer nor any Subsidiary of Buyer has
received any notice that any Governmental Authority or other licensing authority
or association will revoke, cancel, rescind, materially modify or refuse to
renew in the ordinary course any material Buyer Permits.
Section 5.5. Litigation. Except as set forth in Section 5.5 of the
Buyer Disclosure Letter, there is no Action against Buyer or any Subsidiary of
Buyer, pending or, to the knowledge of Buyer, threatened, which Buyer or any of
its Subsidiaries are or would reasonably be expected to be parties. There is no
Action pending or, to the knowledge of Buyer, threatened, that seeks rescission
of, seeks to enjoin the consummation of, or otherwise relates to, this Agreement
or any of the transactions contemplated hereby. No Governmental Order
specifically directed at Buyer or any of its Subsidiaries has been issued which
has had or could reasonably be expected to have a Material Adverse Effect.
Section 5.6. Financing. Buyer has received and delivered to the Company
a commitment letter with respect to fully underwritten debt financing from
Wachovia Bank, National Association ("Lead Lender") dated as of May 3, 2002 (the
"Commitment Letter"), which is in an amount sufficient to enable Buyer to pay
the cash consideration payable by Buyer at the Closing. The terms of such letter
have not been altered or amended by Buyer or Lead Lender, and such letter
remains in full force and effect (unless superseded by definitive credit
documentation that would not have a material adverse effect upon Buyer's ability
to perform its obligations under this Agreement). As of the Execution Date,
Buyer has no knowledge that the conditions of the funding contemplated by the
Commitment Letter will not be satisfied, and Buyer believes in good faith that
the conditions to funding will be satisfied.
Section 5.7. Buyer SEC Documents. Buyer has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission since January 1, 2001 (collectively together with any
voluntary filings, the "Buyer SEC Documents"). As of their respective dates, the
Buyer SEC Documents complied as to form, in all material respects, with the
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder applicable to the
Buyer ▇▇▇
▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ of the Buyer SEC Documents, as of their respective filing
dates, contained any untrue statements of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 5.8. Brokers. Except for ▇▇▇▇▇▇▇▇▇ & Company, LLC and Wachovia
Securities, no broker, finder, investment bank or similar agent is entitled to
any brokerage, finder's or other fee, Compensation or reimbursement of expenses
in connection with the transactions contemplated by this Agreement. Buyer shall
be solely responsible for the payment of all fees and expenses of ▇▇▇▇▇▇▇▇▇ &
Company, LLC and Wachovia Securities.
ARTICLE VI
Certain Covenants of the Parties
--------------------------------
Section 6.1. Access to Information of Buyer. Prior to the Closing,
Buyer shall cause its management to be available to Sellers' Representative, the
Company and their representatives and advisors at such times, and from time to
time, as they may reasonably request in connection with the transactions
contemplated hereby.
Section 6.2. Access to Premises and Information of the Company and
HIRAC. Prior to the Closing, the Company and HIRAC will permit Buyer and its
prospective lenders, and their respective representatives and advisors, to have
reasonable access to their premises and documents, books and records and to make
copies during normal business hours of such financial and operating data and
other information with respect to Company and its Subsidiaries, and HIRAC, as
Buyer, such lenders, or any of their representatives and advisors shall
reasonably request. In addition, the Company and HIRAC will cause the management
of Company and its Subsidiaries and HIRAC to be available to Buyer and its
prospective lenders at such times, and from time to time, as Buyer and its
prospective lenders may reasonably request in connection with the transactions
contemplated hereby and their review of the Company Business and of the business
of HIRAC. The Company and HIRAC will deliver as soon as is practicable such
additional information and copies of documents, books and records relating to
Company and its Subsidiaries or the Company Business and HIRAC as may be
reasonably requested by Buyer, such lenders, or any of their representatives and
advisors
Section 6.3. Confidentiality Letter. The provisions of that certain
letter agreement between Buyer and Banc of America Securities, on behalf of the
Company and HIRAC and their Affiliates dated February 12, 2002 (the
"Confidentiality Agreement") are hereby confirmed and remain in effect and apply
to all documents and materials disclosed hereunder or in the due diligence
review of any party in connection with the transactions contemplated hereunder;
provided, however, that the Confidentiality Agreement is hereby amended so that
(i) it shall terminate with respect to the obligations of Buyer and Sellers
thereunder upon the consummation of the Closing, and (ii) it shall not prohibit
any retention of records or disclosure made in connection with the enforcement
of any right or remedy relating to this Agreement or the transactions
contemplated hereby.
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Section 6.4. Operation of Business Prior to the Closing Date. On and
prior to the Closing Date, except as otherwise required by this Agreement, the
Company and HIRAC will conduct their business only in the Ordinary Course of
Business.
Section 6.5. Certain Notices. On and prior to the Closing Date, (i)
Company will promptly upon becoming aware thereof give Buyer written notice of
any material development affecting the Company Business, or the financial
condition of Company or any of its Subsidiaries or HIRAC and any material breach
of or inaccuracy in any representation or warranty of Company contained in this
Agreement and (ii) Buyer will promptly upon becoming aware thereof give Sellers'
Representative written notice of any material development affecting the
financial condition of Buyer and any material breach of or inaccuracy in any
representation or warranty of Buyer contained in this Agreement.
Section 6.6. Preparation for Closing. Each party will use its best
efforts to bring about the timely fulfillment of each of the conditions
precedent to the obligations of the other parties hereto set forth in this
Agreement. Without limiting the generality of the foregoing, promptly upon
execution and delivery of this Agreement, each of the Company and Buyer will
prepare and file, or cause to be prepared and filed, with the appropriate
Governmental Authorities, a notification with respect to the transactions
contemplated by this Agreement pursuant to the HSR Act. Each of the Company and
Buyer will promptly provide all additional information requested, and take all
other actions necessary or appropriate, to comply with notification requirements
under the HSR Act and to cause the expiration of all waiting periods under the
HSR Act. The Company and Buyer will each bear fifty percent (50%) of the filing
fee associated with the required filings under the HSR Act.
Section 6.7. Company Tax Matters.
6.7.1. Tax Indemnification.
(i) Sellers, severally but not jointly, shall be liable for
and shall pay (and shall indemnify and hold Buyer harmless from and against) (x)
all Taxes with respect to the Company and its Subsidiaries for any Pre-Closing
Tax Period but only to the extent the amount payable exceeds the amount accrued
therefor in the Company Closing Date Balance Sheet (a "Company Tax Loss"), and
(y) for any breaches of the representations and warranties found in Section
3.13(f), (h) and (i). The indemnity contained in this Section 6.7 shall be the
sole and exclusive remedy for all breaches of Section 3.13 or any other Tax
matters relating to the Company and its Subsidiaries, and shall not be subject
to the Deductible Amount. For purposes of this Section 6.7, (A) the term
"Pre-Closing Tax Period" shall mean all taxable periods ending on or before the
Closing Date and the portion ending on the Closing Date of any taxable period
that includes (but does not end on) the Closing Date, and (B) the term
"Post-Closing Tax Period" shall mean all taxable periods that begin on or after
the day following the Closing Date and the portion beginning after the Closing
Date of any taxable period that includes (but does not end on) the Closing Date.
Buyer shall be liable (and shall indemnify and hold the Sellers harmless from
and against) any Taxes with respect to the Company attributable to any
Post-Closing Tax Period. The parties agree that the Company and its
Subsidiaries, other than those Subsidiaries classified as U.S. corporations for
federal income tax purposes ("non-corporate Subsidiaries"), shall
52
terminate for Income Tax purposes pursuant to Section 708(b)(1)(B) of the Code
and the Treasury Regulations thereunder at the time of the Closing. For purposes
of the foregoing, the Pre-Closing Tax Period shall include the taxable period
which ends upon the termination of the Company and its non-corporate
Subsidiaries and the Post-Closing Tax Period shall begin upon the termination of
the Company and its non-corporate Subsidiaries.
(ii) For purposes of this Section 6.7.1, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Tax period
that includes (but does not end on) the Closing Date, the portion of such Tax
related to the portion of such Tax period ending on the Closing Date shall (x)
in the case of any Taxes other than Taxes based upon or related to income,
sales, gross receipts, wages, capital expenditures or expenses, be deemed to be
the amount of such Tax for the entire Tax period multiplied by a fraction, the
numerator of which is the number of days in the Tax period ending on the Closing
Date and the denominator of which is the number of days in the entire Tax
period, and (y) in the case of any Tax based upon or related to income, sales,
gross receipts, wages, capital expenditures or expenses, be deemed equal to the
amount which would be payable if the relevant Tax period ended on the Closing
Date. Any overpayment of Tax by the Company or any Subsidiary for the
Pre-Closing Tax Period, as determined under this Section 6.7.1., shall be taken
into account in the calculation of Tangible Net Worth of Company and its
Subsidiaries. In this regard, with respect to the compensation expense related
to the repurchase of any options issued by ▇▇▇▇▇/OFJ Acquisition Corp. ("OFJ"),
options, OFJ will be entitled to claim such deductions prior to the Closing date
and such deduction will be included in the calculation of Tangible Net Worth of
the Company and its Subsidiaries pursuant to Section 2.5.1. No Subsidiaries
shall make an election to forego a carry back of a loss under Section 172(b)(3)
of the Code for any Pre-Closing Tax Period.
(iii) Except as reserved for in the Closing Date Balance
Sheet, any payment pursuant to this Section 6.7.1 shall be made (x) if reflected
on a Tax Return, contemporaneously with the filing of such Tax Return and (y) in
all other cases, not later than thirty (30) days after receipt by Sellers'
Representative of written notice from Buyer stating that any Company Tax Loss
has been paid by Buyer or any of its Affiliates or, effective upon the Closing,
the Company or any Subsidiary of the Company, and the amount thereof and of the
indemnity payment requested; provided, however, no payment shall be made until
the procedures set forth in Section 6.7.3 have been complied with.
(iv) If any claim or demand for Taxes in respect of which
indemnity may be sought pursuant to this Section 6.7.1 is asserted in writing
against Buyer, any of its Affiliates or, effective upon the Closing, the Company
or any Subsidiary of the Company, Buyer shall promptly notify the Sellers'
Representative of such claim or demand within sufficient time that would allow
the Sellers' Representative to timely respond to such claim or demand, and shall
give the Sellers' Representative such information with respect thereto as he may
reasonably request. Sellers' Representative, on behalf of the Sellers, may
discharge, at any time, Sellers' indemnification obligations under this Section
6.7.2 by paying to Buyer the amount of the applicable Company Tax Loss,
calculated on the date of such payment. The Sellers' Representative may, at
Sellers' expense, participate in and, upon notice to Buyer, assume and direct
the defense of any such Action (including any Tax audit). If the Sellers'
Representative assume such defense and if the relevant Action relates to a
taxable period that includes (but does
53
not end on) the Closing Date, Buyer shall have the right (but not the duty) to
participate in the defense thereof to the extent it relates to Taxes for which
Buyer is not entitled to indemnification hereunder and to employ counsel, at its
own expense, separate from the counsel employed by the Sellers' Representative.
Whether or not the Sellers' Representative chooses to defend or prosecute any
Action, all of the parties hereto shall cooperate in the defense or prosecution
thereof.
(v) Notwithstanding the foregoing, claims related to this
Section 6.7 hereof shall not have a time limitation with respect to such claims
or any suit instituted with respect thereto, except for any applicable statute
of limitations.
6.7.2. Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be borne equally by
Sellers and Buyer. No such Taxes or fees shall be included in the calculation of
EBITDA for any purposes hereunder.
6.7.3. Return Filings, Refunds and Credits.
(i) Sellers and Buyer agree that the Company and its
noncorporate Subsidiaries will terminate for Income Tax purposes on the Closing
Date pursuant to Section 708(b)(1)(B) of the Code and the Treasury Regulations
thereunder. Sellers' Representative shall prepare or cause to be prepared and
file or cause to be filed, all Tax Returns (including amended Tax Returns) of
the Company and its Subsidiaries for all Tax periods ending on or before the
Closing Date including the Company and Subsidiaries' final Tax Returns for the
taxable period ending on or before the Closing Date (collectively, the "Company
Final Tax Returns"), and shall be responsible for remitting all Taxes reflected
on such Tax Returns, net of any reserves provided for in the Closing Date
Balance Sheet. To the extent amounts are due on such Tax Returns and reserved
for in the Closing Date Balance Sheet, the Buyer will advance to the Sellers'
Account the amount owed. Sellers shall pay the cost of preparing all such Tax
Returns. Copies of all such Tax Returns (for or including a Pre-Closing Tax
Period) shall be furnished to the Buyer.
(ii) Buyer shall prepare or cause to be prepared and file
or cause to be filed on a timely basis all Tax Returns with respect to the
Company and its Subsidiaries for taxable periods including (but not ending on)
the Closing Date (taking into account extensions) and shall be responsible for
remitting all Taxes reflected on such Tax Returns. If requested by Sellers'
Representative, Buyer shall furnish copies of all such Tax Returns for the
reasonable review and reasonable approval of Sellers' Representative.
(iii) Sellers and Buyer shall reasonably cooperate, and
shall cause their respective Affiliates, agents, auditors, representatives,
officers and employees reasonably to cooperate, in preparing and filing all Tax
Returns (including amended returns and claims for refund), including maintaining
and making available to each other all records reasonably required in connection
with Taxes and in resolving all disputes and audits with respect to all taxable
periods relating to Taxes. Buyer and Sellers agree to retain or cause to be
retained all books and records pertinent to the Company and its Subsidiaries
until the applicable period for assessment under applicable law (giving effect
to any and all extensions or waivers) has expired, and to
54
abide by or cause the abidance with all record retention agreements entered into
with any taxing authority. Buyer and Sellers shall cooperate with each other in
the conduct of any audit or other proceedings involving the Company or any
Subsidiary of the Company for any Tax purposes and each shall execute and
deliver such powers of attorney and other documents as are necessary to carry
out the intent of this subsection. Any Tax Return prepared by Sellers'
Representative pursuant to Section 6.7.3.(i) shall be prepared in a manner
consistent with past practice and without a change of any election or any
accounting method and shall be submitted to the Buyer, if requested, in
sufficient time to permit a reasonable review prior to the due date (including
extensions) of such Tax Return. Buyer will not prepare any Tax Return, which
includes a Pre-Closing Tax Period, in a manner inconsistent with the past
practices of the Company and its Subsidiaries which would adversely affect the
Sellers. Buyer or Sellers' Representative, as the case may be, shall have the
right to review all work papers and procedures used to prepare any Tax Return.
If Buyer or Sellers' Representative, within twenty (20) Business Days after
delivery of any such Tax Return, notifies the other party in writing that it
objects to any items in such Tax Return, the parties shall proceed in good faith
to resolve the disputed items and, if they are unable to do so within ten (10)
Business Days, the disputed items shall be resolved (within a reasonable time,
taking into account the deadline for filing such Tax Return) with respect to (i)
items for which Sellers or Buyer is solely liable, by reference to such party's
treatment and (ii) all other items, by the Alternative Accountants. Upon
resolution of all disputed items, the relevant Tax Return shall be adjusted to
reflect such resolution and shall be binding upon the parties without further
adjustment. The costs, fees and expense of such Alternative Accountants shall be
borne equally by the Sellers and Buyer.
(iv) With respect to Tax refunds pertaining to the
Company or its Subsidiaries for any tax period or portion thereof ending on or
before the Closing Date: (a) if and to the extent such refund is less than or
equal to the corresponding asset reflected on the Company Closing Date Balance
Sheet, Buyer shall be entitled to retain the entire amount; and (b) if and to
the extent such refund exceeds the asset so reflected, the Sellers shall be
entitled to such excess amount.
(v) If and to the extent any Liability reflected on the
Company Closing Date Balance Sheet for Taxes proves to have been overstated,
Buyer shall pay to the Sellers' Account for the benefit of the Sellers cash in
the aggregate amount of such overstatement.
6.7.4 Allocation of Consideration. The Buyer and the Sellers shall
cooperate as provided herein in determining the allocation of the consideration
paid by Buyer for the Company Shares among the assets of the Company. Buyer
shall initially determine such allocation and shall notify the Sellers'
Representative in writing of the allocation so determined within sixty (60) days
after the Closing Date. Sellers shall be deemed to have accepted such
determination unless Sellers' Representative notifies Buyer in writing of the
Sellers' Representative's proposed allocation within sixty (60) days after
receipt of Buyer's proposed allocation. If the Sellers' Representative provides
such notice to Buyer, the parties shall proceed in good faith to determine
mutually the matters in dispute. If they are unable to do so within sixty (60)
days, the matter shall be referred to an appraisal firm chosen by and mutually
acceptable to both Buyer and Sellers' Representative (the "Appraiser"). The
decision of the Appraiser shall be binding on both parties. The Appraiser's fees
shall be shared equally by
55
Buyer and the Sellers. Neither Buyer nor the Sellers shall take any position for
tax purposes that is inconsistent with the final allocation determined hereunder
unless such position would be inconsistent with a final non-appealable (except
to the United States Supreme Court) judgment which has been rendered in any
judicial processing governing such position.
6.7.5. Section 754 Election. On or at any time after the Closing
Date, Buyer may, in its sole discretion and with no consent of the parties
hereto required, make an election under Code Section 754 for the Company.
6.7.6. Installment Sale Reporting. The Selling Members and the Buyer
agree for Tax purposes to treat the sale and purchase of the Company Shares as
an installment sale under Section 453 of the Code and amounts paid under
Sections 2.3.5 and 2.4 as contingent payments subject to the application of
Section 483 of the Code.
6.7.7. Certain Costs. The following expenses associated with the
transactions contemplated by this Agreement shall be deducted or otherwise taken
into account in the preparation of the Company Final Tax Returns: those expenses
described in Sections 2.3.1, 2.3.2, 6.7.1.(ii) and the compensation expense
related to the transfer by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to ▇▇▇▇▇ ▇▇▇▇▇▇ of a portion of the
consideration received or receivable by ▇▇. ▇▇▇▇▇▇▇▇ under this Agreement.
Further, for Income Tax purposes, to the extent appropriate as reasonably
determined by the Sellers' Representative, the amounts described in Sections
2.3.1 and 2.3.2 shall be treated as paid by the Buyer to the Sellers and then
contributed to the Company by the Sellers (or in the case of Selling
Shareholders, to HIRAC, and then to the Company).
Section 6.8. HIRAC Tax Matters.
6.8.1. Tax Indemnification.
(i) Selling Shareholders, severally but not jointly, shall
be liable for and shall pay (and shall indemnify and hold Buyer harmless from
and against) (x) all Taxes with respect to HIRAC for any Pre-Closing Tax Period
but only to the extent the amount payable exceeds the amount accrued therefor in
the HIRAC Closing Date Balance Sheet (a "HIRAC Tax Loss") and (y) for any
breaches of the representations and warranties found in Section 4.9(f) and (g).
The indemnity contained in this Section 6.8 shall be the sole and exclusive
remedy for all breaches of Section 4.9 or any other Tax matters relating to
HIRAC, and shall not be subject to the Deductible Amounts. For purposes of this
Section 6.8, (A) the term "Pre-Closing Tax Period" shall mean all taxable
periods ending on or before the Closing Date and the portion ending on the
Closing Date of any taxable period that includes (but does not end on) the
Closing Date, and (B) the term "Post-Closing Tax Period" shall mean all taxable
periods that begin on or after the day following the Closing Date and the
portion beginning after the Closing Date of any taxable period that includes
(but does not end on) the Closing Date. Buyer shall be liable (and shall
indemnify and hold Selling Shareholders harmless from and against) any Taxes
with respect to HIRAC attributable to any Post-Closing Tax Period.
(ii) For purposes of this Section 6.8.1, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Tax period
that includes (but does not end on)
56
the Closing Date, the portion of such Tax related to the portion of such Tax
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income, sales, gross receipts, wages, capital
expenditures or expenses, be deemed to be the amount of such Tax for the entire
Tax period multiplied by a fraction, the numerator of which is the number of
days in the Tax period ending on the Closing Date and the denominator of which
is the number of days in the entire Tax period, and (y) in the case of any Tax
based upon or related to income, sales, gross receipts, wages, capital
expenditures or expenses, be deemed equal to the amount which would be payable
if the relevant Tax period ended on the Closing Date. Any overpayment of Tax by
HIRAC for the Pre-Closing Tax period, as determined under this Section 6.8.1.,
shall be taken into account in the calculation of Tangible Net Worth of HIRAC.
(iii) Except as reserved for in the Closing Date Balance
Sheet, any payment pursuant to this Section 6.8.1 shall be made (x) if reflected
on a Tax Return, contemporaneously with the filing of such Tax Return and (y) in
all other cases, not later than thirty (30) days after receipt by Sellers'
Representative of written notice from Buyer stating that any HIRAC Tax Loss has
been paid by Buyer or, any of its Affiliates or, effective upon the Closing,
HIRAC and the amount thereof and of the indemnity payment requested; provided,
however, no payment shall be made until the procedures set forth in Section
6.8.2 have been complied with.
(iv) If any claim or demand for Taxes in respect of which
indemnity may be sought pursuant to this Section 6.8.2 is asserted in writing
against Buyer, any of its Affiliates or, effective upon the Closing, HIRAC,
Buyer shall promptly notify Sellers' Representative of such claim or demand
within sufficient time that would allow Sellers' Representative to timely
respond to such claim or demand, and shall give Sellers' Representative such
information with respect thereto as they may reasonably request. Sellers'
Representative may discharge, at any time, Selling Shareholders' indemnification
obligations under this Section 6.8.1 by paying to Buyer the amount of the
applicable HIRAC Tax Loss, calculated on the date of such payment. Sellers'
Representative may, at Selling Shareholders' own expense, participate in and,
upon notice to Buyer, assume and direct the defense of any such Action
(including any Tax audit). If Sellers' Representative assumes such defense and
if the relevant Action relates to a taxable period that includes (but does not
end on) the Closing Date, Buyer shall have the right (but not the duty) to
participate in the defense thereof to the extent it relates to Taxes for which
Buyer is not entitled to indemnification hereunder and to employ counsel, at its
own expense, separate from the counsel employed by Sellers' Representative.
Whether or not Sellers' Representative chooses to defend or prosecute any
Action, all of the parties hereto shall cooperate in the defense or prosecution
thereof.
(v) Notwithstanding the foregoing, claims related to this
Section 6.8 hereof shall not have a time limitation with respect to such claims
or any suit instituted with respect thereto, except for any applicable statute
of limitations.
6.8.2. Return Filings, Refunds and Credits.
(i) Selling Shareholders and Buyer agree that the taxable
year of HIRAC will end upon the Closing Date and a new taxable year will begin
the day after the Closing Date. Sellers' Representatives shall prepare or cause
to be prepared and file or cause to be filed all Tax
57
Returns of HIRAC (including amended Tax Returns) for Taxable periods ending on
or before the Closing Date and shall be responsible for remitting all Taxes
reflected on such Tax Returns, net of any reserves provided for in the HIRAC
Closing Date Balance Sheet. To the extent amounts are due on such Tax Returns
and reserved for in the HIRAC Closing Date Balance Sheet, the Buyer will advance
the Sellers' Representative the amount owed. Selling Shareholders shall pay the
cost of preparing all such Tax Returns. Copies of all such Tax Returns (for or
including a Pre-Closing Tax Period) shall be furnished to Buyer.
(ii) Buyer shall prepare or cause to be prepared and file
or cause to be filed on a timely basis all Tax Returns with respect to HIRAC for
taxable periods including (but not ending on) the Closing Date (taking into
account extensions) and shall be responsible for remitting all Taxes reflected
on such Tax Returns. If requested by Sellers' Representative, Buyer shall
furnish copies of all such Tax Returns for the reasonable review and reasonable
approval of Sellers' Representative.
(iii) Selling Shareholders and Buyer shall reasonably
cooperate, and shall cause their respective Affiliates, agents, auditors,
representatives, officers and employees reasonably to cooperate, in preparing
and filing all Tax Returns (including amended returns and claims for refund),
including maintaining and making available to each other all records reasonably
required in connection with Taxes and in resolving all disputes and audits with
respect to all taxable periods relating to Taxes. Buyer and Selling Shareholders
agree to retain or cause to be retained all books and records pertinent to HIRAC
until the applicable period for assessment under applicable law (giving effect
to any and all extensions or waivers) has expired, and to abide by or cause the
abidance with all record retention agreements entered into with any taxing
authority. Buyer and Selling Shareholders shall cooperate with each other in the
conduct of any audit or other proceedings involving HIRAC for any Tax purposes
and each shall execute and deliver such powers of attorney and other documents
as are necessary to carry out the intent of this subsection. Any Tax Return
prepared by, or at the direction of, Sellers' Representative pursuant to Section
6.8.2(i) shall be prepared in a manner consistent with past practice and without
a change of any election or any accounting method and shall be submitted to
Buyer, if requested, in sufficient time to permit a reasonable review prior to
the due date (including extensions) of such Tax Return. Buyer will not prepare
any Tax Return, which includes a Pre-Closing Tax Period, in a manner
inconsistent with the past practices of HIRAC which would adversely affect the
Selling Shareholders. Buyer or Sellers' Representative, as the case may be,
shall have the right to review all work papers and procedures used to prepare
any Tax Return. If Buyer or Sellers' Representative, within twenty (20) Business
Days after delivery of any such Tax Return, notifies the other party in writing
that it objects to any items in such Tax Return, the parties shall proceed in
good faith to resolve the disputed items and, if they are unable to do so within
ten (10) Business Days, the disputed items shall be resolved (within a
reasonable time, taking into account the deadline for filing such Tax Return)
with respect to (i) items for which Selling Shareholders or Buyer is solely
liable by reference to such party's treatment and (ii) all other items by the
Alternative Accountants. Upon resolution of all disputed items, the relevant Tax
Return shall be adjusted to reflect such resolution and shall be binding upon
the parties without further adjustment. The costs, fees and expense of such
Alternative Accountants shall be borne equally by Selling Shareholders and
Buyer.
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(iv) With respect to Tax refunds pertaining to HIRAC for
any tax period or portion thereof ending on or before the Closing Date: (a) if
and to the extent such refund is less than or equal to the corresponding asset
reflected on the HIRAC Closing Date Balance Sheet, HIRAC shall be entitled to
retain the entire amount; and (b) if and to the extent such refund exceeds the
asset so reflected, Selling Shareholders shall be entitled to such excess
amount.
(v) If and to the extent any Liability reflected on the
HIRAC Closing Date Balance Sheet for Taxes proves to have been overstated, Buyer
shall pay to the Sellers' Account for the benefit of the Selling Shareholders
cash in the amount of such overstatement.
6.8.3. Installment Sale Reporting. The Selling Shareholders and the
Buyer agree for income tax purposes to treat the sale and purchase of the HIRAC
Shares as an installment sale under Section 453 of the Code and amounts paid
under Sections 2.3.5 and 2.4 as contingent payments subject to the application
of Section 483 of the Code.
6.8.4. HIRAC shall not make an election to forgo a carryback loss under
Section 172(b)(3) of the Code for any Pre-Closing Tax Period.
Section 6.9. Expenses of Transaction; Accounts.
6.9.1. Transaction Costs of Sellers, Company and Subsidiaries. Except
to the extent specifically otherwise provided herein, the Company shall be
responsible for all financial advisory, legal, accounting and other fees and
expenses incurred by Sellers, Company, HIRAC or any of their Affiliates in
connection with the transactions contemplated by this Agreement (which amounts
shall be paid by Company prior to the Closing), or paid for by the Sellers'
Representative out of the Sellers' Account or paid by Buyer at the Closing
pursuant to Section 2.3.2.
6.9.2. Transaction Costs of Buyer. Except to the extent specifically
otherwise provided herein, Buyer shall bear all financial advisory, legal,
accounting and other fees and expenses incurred by Buyer in connection with the
transactions contemplated by this Agreement and all such fees and expenses
incurred by Company or its Subsidiaries from and after the Closing Date.
Section 6.10. Books and Records; Personnel.
(a) Sellers acknowledge and agree that from and after the
Closing Date, Company will be entitled to own and possess, subject to the next
succeeding sentence, all documents, books, records, agreements and financial
data of any sort relating to HIRAC, the Company, the Company's Subsidiaries or
the Company Business. Sellers agree to deliver and cause their Affiliates to
deliver, prior to the Closing, all such books and records in their possession to
Company, as appropriate, or, to the extent such books and records are not
readily separable from the books and records of Sellers or any of their
Affiliates relating to their businesses other than the Company Business, true
and complete copies of such books and records.
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(b) From and after the Closing Date and until such time as
all payments due under Article II shall have been made to Sellers, Buyer shall,
and shall cause Company to, allow Sellers' Representative and his
representatives reasonable access to all books and records of HIRAC or the
Company or its Subsidiaries or relating to the Company Business (the "Books and
Records") during normal working hours at Buyer's principal place of business or
at any location where the Books and Records are stored, and Sellers'
Representative shall have the right, at Sellers' expense, to make copies of any
Books and Records; provided, however, that any such access or copying shall be
had or done (A) in such a manner so as not to interfere with the normal conduct
of Buyer's business or the Company Business and (B) for a legitimate business
purpose (such as tax preparation) that does not involve direct or indirect
competition with the Company Business.
Section 6.11. Further Assurances. Each party, upon the request from
time to time of any other party hereto after the Closing, and without further
consideration, will do each and every act and thing as may be reasonably
requested to consummate the transactions contemplated hereby in an orderly
fashion.
Section 6.12. Financial Statement Deliveries.
6.12.1. Financial Statements of the Company and HIRAC. As soon as is
reasonably practicable following the date hereof and in any event not later than
three (3) Business Days after their preparation in final form, the Company
shall, at its cost and expense, cause to be delivered to Buyer any unaudited
quarterly financial statements of the Company and its Subsidiaries or HIRAC, as
applicable, as are prepared in the ordinary course of business prior to the
Closing Date. Such unaudited quarterly financial statements shall be prepared in
accordance with Company's GAAP consistently applied throughout the periods
specified therein, and shall present fairly in all material respects the
combined financial position and results of operations of Company and its
Subsidiaries or HIRAC, as applicable, for the periods specified therein, subject
to an absence of footnotes and to normal year-end audit adjustments which will
not in the aggregate be material.
6.12.2. Financial Statements of Buyer. As soon as is reasonably
practicable following the date hereof and in any event not later than three (3)
Business Days after their preparation in final form, Buyer shall cause to be
delivered to the Company, at the cost and expense of Buyer, such audited or
unaudited financial statements of the Buyer as are prepared prior to the Closing
Date. Buyer shall cause all financial statements (including the notes thereto)
referred to in this Section 6.12.2 to be prepared in accordance with Buyer's
GAAP consistently applied throughout the periods specified therein, and to
present fairly in all material respects, the consolidated financial position and
results of operations of Buyer for the periods specified therein, subject in the
case of financial statements for interim periods to an absence of footnotes and
to normal year-end audit adjustments which will not in the aggregate be
material.
Section 6.13. No Solicitation or Employment. Except as provided by law,
for a period beginning on the date hereof and ending on the second anniversary
of the Closing Date, none of the Buyer, Sellers nor any of their Affiliates
(other than Conning & Company and Affiliates of Conning & Company) shall solicit
to employ or employ any individual who is an employee of
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Company or any of its Subsidiaries on the date hereof, or at any time following
the date hereof, unless at least six (6) months shall have elapsed following the
Closing and following the cessation of such individual's employment with Buyer,
Company or any of their Affiliates.
Section 6.14. No Solicitation of Proposals or Offers. The parties
hereto shall not, after the date hereof and before the Closing Date, directly or
indirectly, through any officer, director, employee, agent or otherwise,
solicit, initiate or encourage submission of proposals or offers from any Person
relating to any acquisition or purchase of all or a substantial portion of the
assets of, or any equity interest in, Buyer, on the one hand, or Company or any
of its Subsidiaries or HIRAC, on the other hand, or any business combination
involving any of them or, except to the extent required by fiduciary obligations
under Legal Requirements as advised by counsel, participate in any negotiations
regarding, or furnish to any other Person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing. The parties shall, to the extent permitted by the terms of each such
party's confidentiality agreements with other Persons existing on the date
hereof, promptly advise one another if any such proposal or offer, or any
inquiry or contact with any Person with respect thereto, is made, shall promptly
inform one another of all the terms and conditions thereof, and shall furnish to
one another copies of any such written proposal or offer and the contents of any
communications in response thereto.
Section 6.15. Financing. Buyer shall notify Sellers promptly in the
event that Buyer ceases to believe that any of the conditions to the funding
contemplated by the Commitment Letter will be satisfied, if Buyer becomes aware
of the existence of any fact or event that would cause such conditions to
funding not to be satisfied or if there has been, or if Buyer reasonably
believes that there may be, any material change to the status or terms of such
contemplated funding. In addition, upon the request of Sellers' Representative,
Buyer shall promptly deliver to Sellers' Representative in a reasonable amount
of detail any information relating to the funding contemplated by the Commitment
Letter, including without limitation copies of any amendments or supplements
thereto, which Sellers' Representative shall keep confidential in accordance
with Section 6.3.
Section 6.16. Operation of the Company Post-Closing. From and after the
Closing Date until final payment of all amounts due pursuant to Article II of
this Agreement, the parties agree that the Company and its Subsidiaries will
continue to operate in a manner consistent with past practices and their
operations prior to the Closing Date under the direction of the current officers
of the Company and its Subsidiaries (and any successor officers chosen by the
Board of Directors of Company after consultation with such officers). Buyer, its
Affiliates, directors, officers and employees shall not take any action
inconsistent with the foregoing or make any decision affecting the operations,
officers, structure or results of the Company's operations (including any sale
of assets or Equity Securities of the Company or any of its Subsidiaries)
without the written approval of the Sellers' Representative. Nothing in this
Section 6.16 shall be interpreted to prevent Buyer from exercising control over
the operations of Company and its Subsidiaries after such time as all amounts
due under Article II shall have been paid by Buyer. Notwithstanding the
foregoing, Buyer shall be permitted, at its sole cost and expense, to implement
its cash management policies (including, but not limited to, causing the Company
to make annual dividends) and take any other actions it may reasonably deem
necessary to comply with its reporting requirements as a public
61
company or Legal Requirements. Buyer shall pay the Company interest on the
Company's and its Subsidiaries' funds paid over to Buyer in connection with
Buyer's cash management policies at the Government Funds Rate. Notwithstanding
anything herein to the contrary, provided that, to the extent that Buyer pays to
the Sellers under Section 2.5, then, promptly thereafter, Company shall pay a
cash amount to Buyer in the same amount paid to Sellers, and to the extent Buyer
is paid funds under Section 2.5, then promptly thereafter, Buyer shall pay to
the Company the same amount paid to Buyer. To the extent Company funds are not
available, an intercompany loan bearing interest equal to the Government Fund
Rate will be provided. In the event that Buyer is required to exercise control
over the Company's operations pursuant to Legal Requirements, prior to
implementing such control, Buyer will discuss such Legal Requirements with
Sellers' Representative and shall endeavor to exert such control in a manner
minimally intrusive to Company's operations, subject to such Legal Requirements.
Section 6.17. Events Relating to Buyer Common Stock. Buyer will advise
Seller's Representative promptly (i) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the shares of Buyer Common Stock to be issued to
the Sellers pursuant to Article II for offering or sale in any jurisdiction, or
the initiation or contemplation of any proceeding for such purposes and (ii) by
the Closing Date, of the happening of any event that makes any statement made in
the Registration Statement or the Prospectus untrue in any material respect or
that requires the making of any addition to or change in the Registration
Statement or the Prospectus to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or of the
necessity to amend or supplement the Prospectus to comply with the Securities
Act or any other law. If at any time the SEC shall issue any stop order
suspending the effectiveness of the Registration Statement, Buyer will make
every reasonable effort to obtain the withdrawal of such order at the earliest
possible time. Buyer shall not be required to maintain the effectiveness of the
Registration Statement under the Securities Act for the purposes of resale of
the shares of Buyer Common Stock to be issued to the Sellers pursuant to Article
II by such persons, provided that the initial issuance of all such shares was
duly registered under the Securities Act.
Section 6.18. Stock Options. On the Closing Date, Buyer shall grant to
the employees of the Company listed in Section 6.18 of the Company Disclosure
Letter, pursuant to Buyer's 2000 Stock Incentive Plan, 500,000 nonqualified
stock options in the aggregate, each with an exercise price equal to the closing
price of the Buyer Common Stock on the New York Stock Exchange on the Closing
Date. Buyer shall take all actions necessary to ensure that the shares issuable
upon exercise of such options are registered under the Securities Act and listed
on the New York Stock Exchange as of the Closing Date.
Section 6.19. Errors and Omissions Insurance; Directors' and Officers'
Insurance.
Section 6.19.1. Errors and Omissions Insurance. After the Closing, the
Company will continue its existing errors and omissions coverage with the
Company's current limits and deductibles, for all periods arising on or after
the Closing, and premiums for such coverage shall be included as expenses in
calculating EBITDA of the Company and its Subsidiaries as provided pursuant to
Section 1.3.17. Notwithstanding the foregoing, if following the Closing the
Company is not permitted by the carrier to continue such existing errors and
omissions coverage,
62
then the Company and its Subsidiaries and Affiliates shall be covered under
Buyer's errors and omissions coverage, and expenses associated with such errors
and omissions coverages shall be treated as provided in Section 1.3.17.
Section 6.20. Reserved.
Section 6.21. Collection of Accounts Receivable. Following the Closing
Date, Company shall, consistent with its customary business practices and in the
Ordinary Course of Business, use its reasonable commercial efforts to collect
the accounts receivable of the Company and its Subsidiaries that are outstanding
as of the Closing Date (collectively, the "Closing Date Accounts Receivable").
On a quarterly basis for a period of one year from the Closing Date, Sellers'
Representative shall deliver to Buyer a computer generated accounts receivable
aging report with respect to the Closing Date Accounts Receivable, which shall
include the identity of delinquent accounts by agency office. One year from the
Closing Date, Buyer shall notify Sellers' Representative of any uncollected
Closing Date Accounts Receivable and shall provide Sellers' Representative with
reasonable evidence of such determination. Within fifteen (15) days from Buyer's
notification of the uncollected Closing Date Accounts Receivable, if any, or as
set forth in the Alternative Accountants' determination as provided below, if
applicable, Selling Members, severally and not jointly, shall pay to Buyer, on a
dollar-for-dollar basis, or Buyer may apply its set-off rights pursuant to
Article X the amount by which the uncollected Closing Date Accounts Receivable
less any corresponding accounts payable (unless such accounts payable are
legally or contractually due even if the corresponding accounts receivable are
not collected) ("Net Closing Date Accounts Receivable") exceed the sum of the
accounts receivable reserve set forth on the Company Closing Date Balance Sheet,
or Buyer shall pay to Selling Members, on a dollar-for-dollar basis, the amount
by which the sum of such accounts receivable reserve exceeds the uncollected Net
Closing Date Accounts Receivable. Sellers' Representative may, by written notice
to Buyer, dispute such determination. If written 15 days after Buyer receives
Sellers' Representative's notice of dispute, the parties are unable to reach
agreement as to the uncollected Net Closing Date Accounts Receivable, the
dispute shall be submitted to the Alternative Accountants for resolution with
instructions to determine the uncollected Net Closing Date Accounts Receivable
in accordance with the principles and definitions set forth in this Agreement.
In such case, (i) Sellers' Representative and Buyer will furnish to such
accounting firm such work papers and other documents and information relating to
the disputed issues as such accounting firm may request and are available to
Sellers' Representative and Buyer, and will be afforded an opportunity to
present to such accounting firm any material relating to the determination and
to discuss the determination with such accounting firm, (ii) a determination by
such accounting firm of the uncollected Net Closing Date Accounts Receivable, as
set forth in a notice delivered to both parties by such accounting firm no later
than thirty (30) days after the issues in dispute are submitted to such
accounting firm, will be binding and conclusive on the parties, and (iii) Buyer,
on the one hand, and Selling Members, on the other, will each bear fifty percent
(50%) of the fees of such accounting firm for such determination. If Selling
Members make a payment hereunder, Buyer shall cause Company to assign to
Sellers' Representative, on behalf of the Selling Members, all rights to the
uncollected Net Closing Date Accounts Receivable.
63
Section 6.22. Audit of Accounts Payable. Buyer shall, as of one hundred
twenty (120) days following the Closing Date, audit the accuracy and
completeness of the accounts payable of the Company and its Subsidiaries as
reflected on the Company Closing Date Balance Sheet and shall notify Sellers'
Representative of any errors, positive or negative, in the statement of accounts
payable in the Company Closing Date Balance Sheet. If the actual accounts
payable as of the date of the Company Closing Date Balance Sheet were less than
the amount reflected on the Company Closing Date Balance Sheet, then Buyer shall
reimburse Sellers' Representative on behalf of Selling Members in the aggregate
amount of such overstatement. If the actual accounts payable exceeded the amount
reflected on the Company Closing Date Balance Sheet, then Selling Members,
severally and not jointly, shall reimburse Buyer in the amount of such
understatement. Any amount due hereunder, whether due from Selling Members or
Buyer, shall be paid within thirty (30) days from Buyer's notification to
Sellers' Representative of the results of such audit, unless Sellers'
Representative disputes such results. Any dispute regarding the audit of
accounts payable shall be submitted to the Alternative Accountants for
resolution, with instructions to determine the accounts payable in accordance
with the principles and definitions set forth in this Agreement. In such case,
(i) Sellers' Representative and Buyer will furnish to such accounting firm such
work papers and other documents and information relating to the disputed issues
as such accounting firm may request and are available to Buyer or Sellers'
Representative, and will be afforded an opportunity to present to such
accounting firm any material relating to the determination and to discuss the
determination with such accounting firm, (ii) a determination by such accounting
firm of accounts payable, as set forth in a notice delivered to both parties by
such accounting firm no later than thirty (30) days after the issues in dispute
are submitted to such accounting firm, will be binding and conclusive on the
parties, and (iii) Buyer, on the one hand, and Selling Members, on the other,
will each bear fifty percent (50%) of the fees of such accounting firm for such
determination.
Section 6.23. Disclosure Documents. Promptly after the Execution Date,
the Company and Buyer will use commercially reasonable efforts to ensure that
the following disclosure documents relating to the transactions contemplated
hereby are delivered to the Sellers at least 30 days before the Closing: (i) a
copy of this Agreement, (ii) any notice required under applicable law or the
Charter or Bylaws of the Company or HIRAC, as applicable, (iii) the Prospectus
and copies of the documents that the Prospectus incorporates by reference, (iv)
an investor questionnaire in form satisfactory to Buyer and (v) such other
documentation and disclosures as mutually agreed upon by Buyer and Sellers'
Representative.
Section 6.24. Execution of Purchase Agreement.
(a) Prior to the Closing, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and, solely with respect to Section 6.24(a)(iii),
Conning Insurance Capital Limited Partnership V ("Conning") will take, and will
use their best efforts to cause the Company, HIRAC and their respective Boards
of Directors to take, the following actions to effect the complete execution of
this Agreement by all of the Selling Members of the Company and by all of the
Selling Shareholders of HIRAC identified on Schedules A and B, respectively,
attached hereto and as hereafter supplemented on or before the Closing Date:
64
(i) prepare and deliver by no later than May 31, 2002 any
and all written notices that may be required in connection with the exercise of
take-along rights as provided in Section 12.06 of the Company LLC Agreement
("Company LLC Agreement") and Section 6 of the HIRAC Amended Charter ("HIRAC
Amended Charter"), including, without limitation, delivery of a copy of this
Agreement to all parties who are required to receive such written notice;
(ii) obtain the written signatures executing this
Agreement from all of the Selling Members of the Company and from all of the
Selling Shareholders of HIRAC identified on Schedules A and B, respectively,
attached hereto and as hereafter supplemented on or before the Closing Date, and
deliver the same to Buyer;
(iii) in the event that all of the written signatures
required by subparagraph (iii) above shall not be obtained prior to the Closing
Date, and cause the Board of Directors of Company and the Board of Directors of
HIRAC to execute this Agreement on behalf of each nonsigning Selling Member of
the Company and each nonsigning Selling Shareholder of HIRAC identified on
Schedules A and B, respectively, attached hereto and as hereafter supplemented
on or before the Closing Date, pursuant to the take along rights as provided in
Section 12.06 of the Company LLC Agreement and Section 6 of the HIRAC Amended
Charter; provided, that in the case of HIRAC, rather than execute this Agreement
on behalf of nonsigning Selling Shareholders, the Board of Directors of HIRAC
may elect (with the consent of Buyer, which shall not be unreasonably withheld)
to restructure the acquisition by Buyer of the HIRAC Shares as a merger of HIRAC
into a newly-formed subsidiary of Buyer, with HIRAC surviving such merger. In
connection with such restructuring, the parties to this Agreement would enter
into appropriate merger agreements, indemnity agreements and other agreements to
effect such merger; and
(iv) take any and all other actions that may be necessary
to complete the execution of this Agreement on or before July 1, 2002.
(b) The parties agree that damages will not be a sufficient remedy for
breach of Section (a) and that the Buyer shall be entitled to specific
performance of the covenants and agreements contained herein. The Company, HIRAC
and Messrs. Golub, McGrath, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ each consent to the entry of an
order enforcing this Section 6.24, without objection as to jurisdiction and
venue, and acknowledge that Buyer is relying upon the covenants and agreements
contained herein in executing this Agreement. Notwithstanding the foregoing, the
Buyer's right to specific performance hereunder shall not be construed as a
limitation on any other remedies to which the Buyer may be entitled under this
Agreement or applicable law.
Section 6.25. Delivery of Disclosure Documents and Execution of
Questionnaires.
(a) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ will take, and will use their best efforts to cause the Company, HIRAC
and their respective Board of Directors to take, the following actions:
65
(i) at the same time as the delivery of the documents required
by Section 6.25(a)(ii), to deliver the following documents relating to
the transactions contemplated hereby to each Seller: (A) any notice
required under any Legal Requirement or the Charter or Bylaws of the
Company or HIRAC, (B) an investor questionnaire in form satisfactory to
Buyer and (C) such other documentation and disclosures as mutually
agreed upon by Buyer and Sellers' Representative; and
(ii) prior to the Closing Date, obtain a completed investor
questionnaire from each Seller or cooperate with Buyer to establish the
necessary accredited investor status under Rule 506 of Regulation D
under applicable securities laws.
(b) At the same time or before the delivery of the documents in
paragraph (a)(i), Buyer will use its best efforts to deliver the Prospectus and
copies of the documents that the Prospectus incorporates by reference to each
Seller.
Section 6.26 Cancellation of OFJ Options. Prior to the Closing, the
Company shall effect the termination, cancellation or retirement of all
outstanding options, vested and unvested, that have been granted under the ▇▇▇▇▇
OFJ Acquisition Corp. 1998 Stock Option Plan or otherwise and any and all other
rights (including, without limitation, rights pertaining to convertible
securities) to acquire Equity Securities of OFJ. If an option or other right is
exercised prior to its termination, cancellation or retirement hereunder, the
Company shall prior to the Closing Date (i) effect the cash redemption of all
Equity Securities of OFJ that are issued as a result of such exercise or (ii)
cause each holder of such option or right to exchange the Equity Securities of
OFJ acquired upon exercise for nonvoting Common Shares in the Company and
thereafter cause such holder to become one of the Selling Members, having been
admitted as a "New Member" (as defined in the Company LLC Agreement) of the
Company in accordance with the terms and conditions of the Company LLC
Agreement. Immediately prior to the Closing, the Company shall have taken such
actions as may be necessary for it to own all of the issued and outstanding
Equity Securities of OFJ and no options or other rights to acquire OFJ Equity
Securities shall be outstanding.
Section 6.27. Buyer Common Stock. Sellers understand and acknowledge
that the shares of Buyer Common Stock to be received pursuant to this Agreement
are subject to Rule 145 of the Securities Act; and any sale or other disposition
of such stock shall be made pursuant to the regulations promulgated under Rule
145 and in compliance with all applicable Legal Requirements.
ARTICLE VII
Conditions to the Obligation of Buyer to Close
----------------------------------------------
The obligations of Buyer at the Closing to purchase the Company Shares
and the HIRAC Shares, to issue shares of Buyer Common Stock, to pay the cash
consideration due hereunder and to execute and deliver the Closing Agreements to
which it is party are subject to the satisfaction, at or prior to the Closing,
of each of the following conditions, compliance with which, or the
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occurrence of which, may be waived prior to the Closing in writing by Buyer in
its sole discretion:
Section 7.1. Representations, Warranties and Covenants.
7.1.1. Continued Accuracy of Representations and Warranties. The
representations and warranties contained in Sections 3.1.5 and 4.1.5 shall be
true and correct as of the Closing. All other representations and warranties of
the Company contained in this Agreement shall be true and correct as of the
Closing Date as though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date, in which
case as of such earlier date, and except further to the extent that the facts or
matters as to which such representations and warranties are not so true and
correct as of such dates (without giving effect to any qualifications or
limitations as to materiality set forth therein), individually or in the
aggregate, have not had and are not reasonably likely to have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole.
7.1.2. Performance of Agreements. The Company and the Sellers shall
have performed and satisfied in all material respects all covenants and
agreements required by this Agreement to be performed or satisfied by them at or
prior to the Closing, and the Sellers shall have delivered the Company Shares,
the HIRAC Shares and all required instruments of transfer.
7.1.3. Closing Certificate. At the Closing, the Company shall furnish
to Buyer an unqualified certificate, signed by the President of Company, dated
the Closing Date, to the effect that the conditions specified in Sections 7.1.1
and 7.1.2 hereof have been satisfied by Company and the Sellers.
Section 7.2. Employment Agreements.
7.2.1. ▇▇▇▇▇ Employment Agreement. Attached hereto as Exhibit D is a
copy of the employment agreement executed and delivered on the date hereof by
and between Buyer and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "▇▇▇▇▇ Employment Agreement"). The
▇▇▇▇▇ Employment Agreement shall not have been rescinded as of the Closing Date
and shall become effective on the Closing Date.
7.2.2. Company Employees. The employees of the Company who are listed
on Exhibit E, as may be modified prior to the Closing Date, shall have executed
and delivered the Acknowledgment and Amendment in substantially the form
attached hereto as Exhibit F.
Section 7.3. Legality; Governmental Authorization; Litigation. Buyer's
purchase of and payment for the Company Shares and the HIRAC Shares, and the
consummation of the other transactions contemplated hereby, shall not be
prohibited by any Legal Requirement. All necessary filings, including HSR Act
and state insurance department filings, if any, shall have been made and all
requisite approvals obtained and waiting periods thereunder expired or
terminated. No Action shall have been instituted at or prior to the Closing by
any Governmental Authority that seeks to delay, enjoin or otherwise make illegal
the consummation of the transactions contemplated hereby; provided that if such
Action shall have been instituted by a
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non-federal Governmental Authority, there must be a reasonable likelihood that
the result of such Action could be to delay, enjoin or otherwise make illegal
Buyer's purchase of the Company Shares, the HIRAC Shares or the consummation of
any other transaction contemplated hereby.
Section 7.4. Affiliate Debt. There shall not be any outstanding
Affiliate Debt other than Debt scheduled to be paid off at Closing except as set
forth on Section 7.4 of the Company Disclosure Letter. In addition, there shall
not be outstanding any Debt or other advances owed to Company or any Subsidiary
of Company by Sellers or any of their Affiliates other than Debt scheduled to be
paid off at Closing except as set forth in Section 7.4 of the Company Disclosure
Letter.
Section 7.5. Financing. Buyer shall have obtained the funds to be
provided pursuant to the Commitment Letter, provided that this Section 7.5 shall
only be a condition to Buyer's obligation in the event that Buyer shall have
used commercially reasonable efforts to obtain such funds and shall not have
otherwise breached its obligations relating to obtaining such financing as
provided elsewhere in this Agreement.
Section 7.6. Opinion of Counsel. Sellers shall have furnished Buyer
with the favorable opinion of ▇▇▇▇▇▇▇ Procter LLP and/or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Arsht &
▇▇▇▇▇▇▇, dated the Closing Date, in substantially the form of Exhibit H hereto.
Section 7.7. Update. Buyer shall have been provided with a written
update of all of the information provided in, and consistent with the form of,
all parts of the Company Disclosure Letter as of a date which is no more than
five (5) Business Days prior to the Closing Date. None of the information
provided in such update shall reflect a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole. Once delivered, such update shall amend
and/or replace the Company Disclosure Letter for all purposes of this Agreement,
subject to Buyer's right to terminate this Agreement under Section 12.1(c).
Section 7.8. General. Buyer shall have been furnished by the Company
with such officers' certificates, good standing certificates, incumbency
certificates and other customary closing documents as it may reasonably request
in connection with the transactions contemplated hereby.
Section 7.9. Corporate Minute Books. Prior to the Closing, the Board of
Directors or Management Committee of each of the Company and each of the
Subsidiaries of the Company shall have ratified the Company's or such
Subsidiary's actions for the period beginning October 4, 1997 and ending on the
date of such resolutions.
Section 7.10. ▇▇▇▇▇/OFJ Acquisition Corp. The Company shall own 100% of
the Equity Securities of ▇▇▇▇▇/OFJ Acquisition Corp, and the Company shall have
no liabilities with respect to the OFJ Earnout.
Section 7.11. Execution of Purchase Agreement. All of the Selling
Members of the Company and all of the Selling Shareholders of HIRAC identified
on Schedules A and B,
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respectively, attached hereto and as hereafter supplemented on or before the
Closing Date, shall have executed this Agreement either individually or as a
result of Section 6.24(a)(iii).
Section 7.12 Cancellation of OFJ Options. The Company shall have
fully complied with the covenants and agreements set forth in Section 6.26 of
this Agreement.
Section 7.13 Limitation on Purchasers. There shall be no more than
35 purchasers of Buyer Common Stock in connection with the transactions
contemplated by the Purchase Agreement. For purposes of the preceding sentence,
the number of purchasers shall be determined in accordance with Rule 501(e) of
Regulation D promulgated by the SEC. In addition, each purchaser who is not an
"accredited investor" within the meaning of Rule 501(a) of Regulation D, either
alone or with his purchaser representative, shall have such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the investment.
Section 7.14. Indebtedness and Expenses Amount. The Indebtedness and
Expenses Amount shall not exceed Fifty Five Million Dollars ($55,000,000).
ARTICLE VIII
Conditions to the Obligation of Sellers to Close
------------------------------------------------
The obligations of Sellers at the Closing to sell and transfer the
Company Shares and the HIRAC Shares and to execute and deliver the Closing
Agreements to which they are a party are subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, compliance with
which, or the occurrence of which, may be waived prior to the Closing in writing
by Sellers' Representative in its sole discretion.
Section 8.1. Representations, Warranties and Covenants.
8.1.1. Continued Accuracy of Representations and Warranties. All
representations and warranties of Buyer contained in this Agreement that are
qualified as to materiality shall be true and correct, and the representations
and warranties of Buyer contained in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the
Closing Date as though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date, in which
case as of such earlier date, and except further to the extent that the facts or
matters as to which such representations and warranties are not so true and
correct as of such dates (without giving effect to any qualifications or
limitations as to materiality set forth therein), individually or in the
aggregate, have not had and are not likely to have a Material Adverse Effect on
Buyer.
8.1.2. Performance of Agreements. Buyer shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed or satisfied by Buyer at or prior to the Closing and
shall have delivered all payments, documents and instruments of transfer
required by Article II.
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8.1.3. Closing Certificate. At the Closing, Buyer shall furnish to
Sellers' Representative an unqualified certificate signed by a duly authorized
officer of Buyer dated the Closing Date, to the effect that the conditions
specified in Sections 8.1.1 and 8.1.2 hereof have been satisfied.
Section 8.2. Closing Agreements. At or prior to the Closing, Buyer
shall have entered into each of the Closing Agreements to which it is party,
such agreements being in the form attached hereto without change other than such
changes as may be satisfactory to Sellers' Representative.
Section 8.3. Legality; Government Authorization; Litigation. Sellers'
sale of the Company Shares and the HIRAC Shares, and the consummation of the
other transactions contemplated hereby, shall not be prohibited by any Legal
Requirement. All necessary filings, if any, pursuant to the HSR Act and state
insurance department filings shall have been made and all applicable waiting
periods thereunder shall have expired or been terminated. No Action shall have
been instituted at or prior to the Closing by any Governmental Authority that
seeks to delay, enjoin or otherwise make illegal the consummation of the
transactions contemplated hereby; provided that if such Action shall have been
instituted by a non-federal Governmental Authority there must be a reasonable
likelihood that the result of such Action could be to delay, enjoin or otherwise
make illegal Sellers' sale of the Company Shares or the HIRAC Shares or the
consummation of any other transaction contemplated hereby.
Section 8.4. Opinion of Counsel. Buyer shall have furnished Sellers
with the favorable opinion of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, dated the Closing Date, in
substantially the form of Exhibit I hereto.
Section 8.5. General. The Company and Sellers' Representative shall
have received copies of such officers' certificates, good standing certificates,
incumbency certificates and other customary closing documents as it may
reasonably request in connection with the transactions contemplated hereby.
Section 8.6. Update. Buyer shall have provided the Sellers'
Representative and the Company with a written update of all of the information
provided in, and consistent with the form of, all parts of the Buyer Disclosure
Letter as of a date which is no more than five (5) Business Days prior to the
Closing Date. None of the information provided in such updates shall reflect a
Material Adverse Effect on Buyer. Once delivered, such update shall amend and/or
replace the Buyer Disclosure Letter for all purposes of this Agreement subject
to Sellers' Representative's right to terminate this Agreement under Section
12.1(d).
Section 8.7. Listing of Shares of Buyer Common Stock on New York Stock
Exchange. On or prior to the Closing Date, the shares of Buyer Common Stock to
be issued pursuant to Article II shall be approved for listing, subject to
official notice of issuance, on the New York Stock Exchange.
Section 8.8. Board of Directors. On or prior to the Closing Date, the
Board of Directors of Buyer shall have been increased from thirteen (13) to
fourteen (14) directors and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall have been elected to the Board
of Directors of Buyer. Prior to the
70
Closing, and/or if necessary in the opinion of Buyer's counsel after Closing,
Buyer's management will propose and submit to Buyer's Board of Directors, for
its consideration and adoption, if it so elects subject to its independent and
fiduciary judgment, resolutions of the Board necessary to cause the issuance of
Buyer Common Stock under this Agreement to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ to be exempt from
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
Section 8.9. Payment. Buyer shall have delivered to Sellers or to other
Persons on behalf of the Sellers the payments due on the Closing Date provided
for in Article II hereof and all other payments required to be made by Buyer on
the Closing Date pursuant to the terms hereof, and shall have issued to Sellers
the shares of Buyer Common Stock to be issued on the Closing Date pursuant to
the terms hereof.
Section 8.10. Effective Registration Statement. The Registration
Statement registering all of the Buyer Common Stock to be issued under this
Agreement shall be effective under the Securities Act, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness of the Registration Statement shall have been initiated. In
addition, the Prospectus and copies of the documents that the Prospectus
incorporates by reference shall have been delivered to the Sellers.
ARTICLE IX
Post-Closing Employee Benefits
------------------------------
From and after the Closing Date, and except as mutually agreed prior to
on or after the Closing by Sellers' Representative and Buyer, the parties agree
that the Company Plans and Company Benefit Arrangements will be maintained in
accordance with their current terms with respect to the continuing eligible
employees of the Company and its Subsidiaries previously covered by such plans
and arrangements as of Closing (except as to a participant's change in
eligibility) until such time as any payment required under Article II shall have
been paid by Buyers, except to the extent changed after approval of Sellers
Representative in the Ordinary Course of Business or except to the extent that
Company and Buyer must amend any Company Plan or Company Benefit Arrangement so
that such Plan or Benefit Arrangement or another Plan or Benefit Arrangement of
Buyer or the Company will meet the applicable minimum coverage, benefit,
non-discrimination or other qualification requirements under the Code or other
applicable Legal Requirements. Nothing in this Article IX shall be interpreted
to prevent Buyer from amending, modifying, freezing or terminating any Company
Plan or Benefit Arrangement after such time as all payments required under
Article II shall have been paid by Buyer. From and after the time Company's
employees participate in Buyer employee benefit plans, Buyer shall treat all
service by such employees with the Company and its Subsidiaries and their
respective predecessors prior to the Closing Date as if it were service with
Buyer for purposes of the eligibility and vesting requirements of Buyer employee
benefit plans.
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ARTICLE X
Indemnification
---------------
Section 10.1. Indemnification by Sellers. In addition to their Tax
indemnification obligations under Section 6.7 hereof, Sellers, severally and not
jointly, hereby agree to indemnify Buyer and its Affiliates (including, without
limitation, Company and each Subsidiary of Company from and after the Closing)
(each in its capacity as indemnified party for the purpose of this Section 10.1,
a "Buyer Indemnitee"), and hold each Buyer Indemnitee harmless, from, against
and in respect of any and all Losses arising from any of the following:
(i) any breach of any representation or warranty made by
the Company in Article III of this Agreement (including, without
limitation, the Company Disclosure Letter but excluding Section 3.13
and any other matters relating to Taxes, as to which Buyer's sole and
exclusive remedy is provided in Section 6.7 and Section 6.8), provided,
however, as to the representations in each of Section 3.1.2, the first
sentence of Section 3.1.3 and Section 3.1.5, each Seller shall only
provide indemnification hereunder to the extent that such
representations as they relate to such Seller have been breached; or
(ii) any breach, non-fulfillment or violation of any
covenant or agreement made by the Company or Sellers in this Agreement.
Notwithstanding the fact that the representations and warranties set
forth in Article III hereof are made by the Company and not by the Sellers, and
subject to the terms of Article X, each of the Sellers hereby agrees to and
accepts:
(i) liability for the indemnification obligations set forth in
Section 10.1 above;
(ii) no limitation on the amount that Buyer is able to recover
from a Selling Member with respect to an indemnification obligation
solely on account of the fact that (1) the representations and
warranties set forth in Article III hereof are made by the Company and
not by the Selling Members, or (2) the indemnification obligation is
subject to limitation or mitigation under the Company's Charter or
applicable law, because the obligation arises from or relates to a
Selling Member's actions as an officer or director of the Company; and
(iii) this indemnification obligation is one of payment and
not of collection, and Buyer shall have no duty, obligation or
requirement to exhaust any other remedy available to it from any other
Person prior to seeking satisfaction from any of the Selling Members of
the required indemnification obligation, except as expressly set forth
herein with respect to any requirement for Buyer to use its set-off
rights under Article X.
Section 10.2. Indemnification by Selling Shareholders.
(a) In addition to their Tax indemnification obligations under Section
6.8 hereof, Selling Shareholders hereby agree to indemnify and hold each Buyer
Indemnitee harmless, from, against and in respect of any and all Losses arising
from or related to any of the following:
72
(i) any breach of any representation or warranty made by the
Company in Article IV of this Agreement (including, without limitation,
the HIRAC Disclosure Letter but excluding Section 4.9; and any other
matters relating to Taxes, as to which Buyer's sole and exclusive
remedy is provided in Section 6.7 and Section 6.8) provided, however,
as to the representations in each of Section 4.1.2, the first sentence
of Section 4.1.3, and Section 4.5, each Selling Shareholder shall only
provide indemnification hereunder to the extent that such
representations as they relate to such Selling Shareholder have been
breached;
(b) Notwithstanding the fact that the representations and warranties
set forth in Article IV hereof are made by the Company and not by the Selling
Shareholders, and except as otherwise provided in this Article X, each of the
Selling Shareholders hereby agrees to and accepts:
(i) liability for the indemnification obligations set forth in
Section 10.2 above;
(ii) no limitation on the amount that Buyer is able to recover
from a Selling Shareholder with respect to an indemnification
obligation solely on account of the fact that (1) the representations
and warranties set forth in Article III hereof are made by the Company
and not by the Selling Shareholders, or (2) the indemnification
obligation is subject to limitation or mitigation under the Company's
Charter or applicable law, because the obligation arises from or
relates to a Selling Shareholder's actions as an officer or director of
the Company; and
(iii) this indemnification obligation is one of payment and
not of collection, and Buyer shall have no duty, obligation or
requirement to exhaust any other remedy available to it from any other
Person prior to seeking satisfaction from any of the Selling
Shareholders of the required indemnification obligation, except as
expressly set forth herein with respect to any requirement for Buyer to
use its set-off rights under Article X.
Section 10.3 Indemnification by Buyer. Buyer hereby agrees to
indemnify Sellers and their Affiliates (other than, after the Closing, Company
or any of its Subsidiaries) (each in its capacity as indemnified party, an
"Seller Indemnitee," and, collectively with the Buyer Indemnitees, the
"Indemnitees"), and hold Sellers and their Affiliates harmless from, against and
in respect of any and all Losses arising from or related to any of the
following:
(i) any breach of any representation or warranty made by or
Buyer in this Agreement; or
(ii) any breach, non-fulfillment or violation of any covenant
or agreement made by Buyer in this Agreement.
Section 10.4 Time Limitation on Indemnification. Notwithstanding
the foregoing, no claim may be made or suit instituted under any provision of
this Article X more than two (2) years following the Closing Date (the "General
Survival Period") except for Reserved Claims. The term "Reserved Claims" shall
mean (a) all claims as to which any Indemnitee has given any indemnifying party
written notice on or prior to the end of the General Survival Period, (b) all
73
claims by any Indemnitee based upon a breach of the representations or
warranties contained in (with respect to the Selling Members): Sections 3.1.4
(Capitalization), 3.1.5 (Title to Company Shares) and 3.14.2(c)(vi) (Employee
Relations and Employee Benefit Plans) and (with respect to Selling
Shareholders): Sections 4.1.4 (Capitalization) and 4.1.5 (Title to HIRAC Shares)
and (c) all claims based upon fraud. As to the Reserved Claims, there shall be
no time limitation with respect to any such claims or any suit instituted with
respect thereto, other than any applicable statute of limitations.
Section 10.5 Monetary Limitations on Indemnification.
10.5.1. Monetary Limitations on Sellers' Indemnification Obligations.
Except with respect to claims referred to in clauses (b) or (c) of the
definition of Reserved Claims:
(a) Neither Sellers nor Selling Shareholders shall have
any obligation to indemnify Buyer Indemnitees under Section 10.1 or Section
10.2, respectively, unless the aggregate cumulative total of all indemnifiable
Losses (other than Losses arising out of claims referred to in clauses (b) or
(c) of the definition of Reserved Claims) incurred by Buyer and/or any of its
Affiliates exceed $375,000, whereupon Buyer Indemnitees shall be entitled to
indemnification only for the amount of such Losses in excess of $375,000 (the
"Deductible Amount"). With respect to claims referred to in clauses (b) or (c)
of the definition of Reserved Claims, no such limitations shall apply.
(b) Notwithstanding anything contained herein to the
contrary, but subject to Section 10.5.1(c), the sole source of recovery for all
claims made by Buyer Indemnitees pursuant to this Article X shall be the amount,
if any, payable pursuant to Section 2.3.5 and 60% of the amount, if any, payable
pursuant to Section 2.4 hereof "the "Indemnity Cap"), and (subject to Section
10.5.1(c)) Buyer Indemnitees' sole and exclusive remedy with respect to Losses
actually determined to be subject to indemnification hereunder, shall be a right
of set-off against those amounts, if any, so payable under Section 2.3.5 and
Section 2.4.
(c) Notwithstanding any other provision of this Agreement
to the contrary, Buyer shall be entitled to recover from each Seller, solely
pursuant to a claim referred to in clauses (b) or (c) of the definition of
Reserved Claims, an amount up to a limit with respect to such Seller equal to
the amount of consideration actually received by such Seller under this
Agreement. Any such recovery shall first be made by way of set-off in accordance
with Section 10.5.1(b).
Furthermore, except with respect to a breach of Section 3.1.5 with
respect to Conning, no recovery shall be made under this Agreement (whether
pursuant to this Article X or otherwise) against any amounts paid to Conning at
the Closing (the "Conning Preferred Return") unless and until recovery has been
reasonably attempted to be made against all other amounts paid to Sellers other
than the Conning Preferred Return. Each Seller other than Conning agrees that
Conning may seek contribution against such Seller to the extent such Seller has
not paid to Buyer all of the consideration received by such Seller hereunder.
The foregoing provision is only intended to offset the allocation of liabilities
among the Sellers and shall not reduce the aggregate amount recoverable by Buyer
hereunder.
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10.5.2. Other Limitations on Sellers' Indemnification Obligations.
Notwithstanding any other provision of this Agreement, Sellers shall in no event
be obligated to pay to Buyer or its Affiliates any special, consequential,
punitive or lost profits damage or diminution in value suffered by Buyer or its
Affiliates.
10.5.3. Monetary Limitations on Buyer's Indemnification Obligations.
Except with respect to claims based on fraud, Buyer shall not have any
obligation to indemnify Sellers or any of their Affiliates under Section 10.3 in
respect of any Loss incurred by Sellers and/or any of their Affiliates unless
the aggregate cumulative total of all Losses (other than Losses arising out of
claims based on fraud) incurred by Sellers and/or any of their Affiliates
exceeds the Deductible Amount, whereupon Sellers and each of their Affiliates
shall be entitled to indemnification for the amount of such Losses in excess of
the Deductible Amount. With respect to claims based on fraud, no such deductible
shall apply. Notwithstanding anything herein to the contrary, the maximum amount
of the aggregate liability of Buyer and its Affiliates for any indemnification
obligations hereunder shall be an amount equal to the Indemnity Cap.
Section 10.6 Third Party Claims. Promptly after the receipt by any
Indemnitee of notice of the commencement of any Action against such Indemnitee
by a third party (other than any Action relating to Taxes or any Tax Return,
which shall be governed by Sections 6.7 and 6.8) such Indemnitee shall, if a
claim with respect thereto is or may be made against any indemnifying party
pursuant to this Article X, give such indemnifying party written notice thereof.
The failure to give such notice shall not relieve any indemnifying party from
any obligation thereunder except where, and then solely to the extent that, the
omission results in a failure of actual notice to the indemnifying party and the
indemnifying party is materially harmed as a result of such failure to give
notice. Such indemnifying party shall have the right to defend such Action, at
such indemnifying party's expense and with counsel of its choice reasonably
satisfactory to the Indemnitee, provided that the indemnifying party so notifies
the Indemnitee that it will defend such Action. If the indemnifying party fails
to defend or, after undertaking such defense, fails to prosecute or withdraws
from such defense, the Indemnitee shall have the right to undertake the defense
and settlement thereof; provided, that the indemnifying party shall be entitled
to notice of and to participate in any settlement discussions with respect to
any such Action. If the indemnifying party is defending such Action, the
Indemnitee may retain separate counsel at its sole cost and expense and may
participate in defense of such Action. An indemnifying party may only settle an
Action with the consent of the Indemnitee, which consent shall not be
unreasonably withheld or delayed; provided, that no such consent shall be
required where such compromise or settlement provides for (i) payment of
monetary damages, which monetary damages are paid in fully by the indemnifying
party, and (ii) a full release of the indemnifying party from all claims
comprising such Action.
Section 10.7 No Circular Recovery. Solely with respect to any
Action brought by Buyer or any of its Affiliates against Sellers pursuant to
this Agreement, Sellers hereby agree that they will not make any claim for
indemnification against Buyer, Company or any of its Subsidiaries (except in
connection with valid insurance claims under Section 10.10) by reason of the
fact that any of the Sellers was a controlling person, director, officer,
employee, agent or
75
other representative of Company or any of its Subsidiaries or was serving as
such for another Person at the request of Company or any Subsidiary of Company.
Section 10.8. Nature of Indemnification Payments. Any and all
indemnification payments pursuant to this Article X shall be deemed for all
purposes to be adjustments to the purchase consideration paid pursuant to
Article II.
Section 10.9 Sole Remedy. The rights to indemnification provided for in
Article VI and this Article X shall constitute the sole remedy of Buyer and its
Affiliates with respect to any matter in any way relating to this Agreement or
arising in connection herewith, whether under any laws (including, without
limitation, any right or remedy under the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response Compensation and Liability Act and
any other Environmental Law), at common law or otherwise.
Section 10.10 Insurance and Related Matters. Payments by Sellers
pursuant to Section 6.7 and Section 10.1 and by Selling Shareholders pursuant to
Section 6.8 and Section 10.2 shall be limited to the amount of any Losses that
remain after deducting therefrom any insurance proceeds and any indemnity,
contribution or other similar payment actually recovered by indemnified parties
from any third party with respect thereto. The indemnified parties shall exhaust
all remedies reasonably available against applicable insurers prior to seeking
indemnification hereunder. The amount of Losses otherwise recoverable under
Section 6.7, Section 10.1, Section 6.8 or Section 10.2 shall be reduced to the
extent any Federal, state, local or foreign tax liabilities of the indemnified
parties (or any of their respective Affiliates) is decreased by reason of any
Loss in respect of which such indemnified party shall be entitled to
indemnification under Article VI or this Article X.
Section 10.11. No Double Recovery. Any Loss for which Buyer received
indemnification under this Agreement shall be disregarded and not included as an
expense or otherwise for purposes of calculating the Company's EBITDA for any
purposes under this Agreement, and any cost or expense included in the
calculation of the Company's EBITDA or the Company's or HIRAC's Closing Date
Tangible Net Worth pursuant to this Agreement shall not be subject to
indemnification claims under this Agreement. In addition, there shall be no
recovery in respect of any breach of Section 3.3(b)(iii) to the extent Buyer has
collected amounts in accordance with Section 2.5.1.
ARTICLE XI
Consent to Jurisdiction; Governing Law
--------------------------------------
Section 11.1. Consent to Jurisdiction. Each party to this Agreement, by
its execution hereof, (i) hereby irrevocably submits, and agrees to cause each
of its Affiliates to submit, to the exclusive jurisdiction of the federal courts
located in the City of Wilmington, Delaware and in the event that such federal
courts shall not have subject matter jurisdiction over the relevant proceeding,
then of the state courts located in the City of Wilmington, Delaware, for the
purpose of any Action arising out of or based upon this Agreement or any Closing
Agreement or relating to the subject matter hereof or thereof or the
transactions contemplated hereby or thereby,
76
(ii) hereby waives, to the extent not prohibited by applicable law, and agrees
not to assert, and agrees not to allow any of its Affiliates to assert, by way
of motion, as a defense or otherwise, in any such Action, any claim that it is
not subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that any such
proceeding brought in one of the above-named courts is improper, or that this
Agreement or any other Closing Agreement, or the subject matter hereof or
thereof, may not be enforced in or by such court and (iii) hereby agrees not to
commence any Action arising out of or based upon this Agreement or any Closing
Agreement or relating to the subject matter hereof or thereof other than before
one of the above-named courts nor to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such Action to any
court other than one of the above-named courts whether on the grounds of
inconvenient forum or otherwise. Each party hereby consents to service of
process in any such proceeding in any manner permitted by Delaware law, and
agrees that service of process by registered or certified mail, return receipt
requested, at its address specified pursuant to Section 14.7 hereof is
reasonably calculated to give actual notice.
Section 11.2. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive law of the State of
Delaware, without giving effect to any choice or conflict of law provision or
rule that would cause the application of the law of any other jurisdiction.
ARTICLE XII
Termination
-----------
Section 12.1. Termination of Agreement. This Agreement may be
terminated by the parties only as provided below:
(a) Buyer and Sellers' Representative may terminate this
Agreement by mutual written consent at any time prior to the Closing.
(b) Either Buyer or Sellers' Representative may terminate this
Agreement by written notice to the other in the event the Closing Share Price is
less than $25.276 or greater than $47.276.
(c) Buyer may terminate this Agreement by giving written
notice to Sellers' Representative at any time prior to the Closing (i) in the
event the Company shall have breached any of its representations, warranties or
covenants set forth in this Agreement, which breach or failure to perform (A)
would give rise to a failure of a condition set forth in Section 7.1 and (B) is
incapable of being cured by the Company within 30 calendar days following
receipt of written notice of such breach or failure to perform from Buyer, (ii)
in the event that the information provided in the update delivered pursuant to
Section 7.7 reflects a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole, or (iii) if the Closing shall not have occurred
on or before July 31, 2002 by reason of the failure of any condition set forth
in Article VII hereof to be satisfied (unless the failure resulted primarily
from Buyer's action or failure to act).
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(d) Sellers' Representative, on behalf of Sellers and the
Company, may terminate this Agreement by giving written notice to Buyer at any
time prior to the Closing (i) in the event Buyer shall have breached any of its
representations, warranties or covenants set forth in this Agreement, which
breach or failure to perform (A) would give rise to a failure of a condition set
forth in Section 8.1 and (B) is incapable of being cured by Buyer within 30
calendar days following receipt of written notice of such breach or failure to
perform from Sellers' Representative, (ii) if Buyer has sent any notice required
by Section 6.15 or if Buyer is required to send a notice by the terms of Section
6.15 and fails to do so, or (iii) if the Closing shall not have occurred on or
before July 31, 2002 by reason of the failure of any condition set forth in
Article VIII hereof to be satisfied (unless the failure resulted primarily from
the Company's or any Seller's action or failure to act).
Section 12.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 12.1, all obligations of the parties
hereunder (other than the obligations under Sections 6.9 (Expenses of
Transaction; Accounts), 11.1 (Consent to Jurisdiction), 11.2 (Governing Law),
12.1 (Termination of Agreement), 12.2 (Effect of Termination), Article XIII
(Sellers' Representative) 14.1 (Entire Agreement), 14.6 (Successors and
Assigns), 14.7 (Notices), 14.8 (Public Announcements) and 14.10 (Third Party
Beneficiaries), each of which shall survive termination) shall terminate without
any liability of any party to any other party; provided, however, that no
termination shall relieve any party from any liability arising from or relating
to breach prior to termination.
ARTICLE XIII
Sellers' Representative
-----------------------
Section 13. Sellers' Representative.
(a) By the execution and delivery of this Agreement, each
Seller hereby irrevocably constitutes and appoints ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ (with their substitutes hereunder the "Individual
Representatives" and acting collectively, the "Sellers' Representative"), as
his, her or its true and lawful agent and attorney-in-fact to act in such
Seller's name, place and stead with respect to all transactions contemplated by
and all terms and provisions of this Agreement, and to act on such Sellers'
behalf in any dispute, litigation or arbitration involving this Agreement, and
to do or refrain from doing all such further acts and things, and execute all
such documents as the Sellers' Representative shall deem necessary or
appropriate in connection with the transactions contemplated by this Agreement,
including, without limitation, the power:
(i) to waive any condition to the obligations of such
Seller to consummate the transactions contemplated by this Agreement;
(ii) to execute and deliver all ancillary agreements,
certificates and documents, and to make representations and warranties therein,
on behalf of such Seller which
78
the Sellers' Representative deems necessary or appropriate in connection with
the consummation of the transactions contemplated by this Agreement;
(iii) to receive on behalf of, and to distribute all
amounts payable to such Seller under the terms of this Agreement, and to
administer the Sellers' Account and the Expense Account in accordance with the
terms of this Agreement, including without limitation to accept and make
payments from such accounts as the Sellers' Representative deems appropriate in
its sole discretion, subject to this Agreement; and
(iv) to do or refrain from doing any further act or
deed on behalf of such Seller which the Sellers' Representative deems necessary
or appropriate in its sole discretion relating to the subject matter of this
Agreement, as fully and completely as such Seller could do if personally
present, including without limitation making and defending claims under this
Agreement.
(b) The appointment of the Sellers' Representative shall
be deemed coupled with an interest and shall be irrevocable, and Buyer, its
affiliates and any other Person may conclusively and absolutely rely, without
inquiry, upon any action of the Sellers' Representative on behalf of the Sellers
in all matters referred to herein. All notices delivered by Buyer or the Company
(following the Closing) to the Sellers' Representative (whether pursuant hereto
or otherwise) for the benefit of the Sellers shall constitute notice to the
Sellers. The Sellers' Representative shall act for the Sellers on all of the
matters set forth in this Agreement in the manner the Sellers' Representative
believes to be in the best interest of the Sellers and consistent with its
obligations under this Agreement, but the Sellers' Representative shall not be
responsible to the Sellers for any loss or damages it or they may suffer by
reason of the performance by the Sellers' Representative of its duties under
this Agreement, other than loss or damage arising from willful violation of the
law.
(c) Each Seller agrees to indemnify and hold harmless the
Sellers' Representative from any loss, damage or expense arising from the
performance of its duties as the Sellers' Representative hereunder, including,
without limitation, the cost of legal counsel retained by the Sellers'
Representative on behalf of the Seller, but excluding any loss or damage arising
from willful violation of the law.
(d) ▇▇. ▇▇▇▇▇ shall have full power of substitution with
respect to himself and ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ for all purposes of this Article XIII.
▇▇. ▇▇▇▇▇ or his substitute shall have full power to remove and replace ▇▇.
▇▇▇▇▇▇▇▇▇▇▇ or his substitute. Conning shall have full power to remove and
replace ▇▇. ▇▇▇▇▇▇▇ or his substitute. All actions of Sellers' Representative to
be taken hereunder must be authorized by at least two of the Individual
Representatives. Prior to any material determination by Sellers' Representative,
each Individual Representative shall receive 10 days notice, appropriate
information and an opportunity to be heard by the other Individual
Representatives.
(e) All actions, decisions and instructions of the Sellers'
Representative taken, made or given pursuant to the authority granted to the
Sellers' Representative pursuant to this Article XIII shall be conclusive and
binding upon each Seller, and no Seller shall have the right to object, dissent,
protest or otherwise contest the same.
79
(f) The provisions of this Article XIII are independent and
severable, shall constitute an irrevocable power of attorney, coupled with an
interest and surviving death or dissolutions, granted by the Seller to the
Sellers' Representative and shall be binding upon the executors, heirs, legal
representatives, successors and assigns of each such Seller.
ARTICLE XIV
Miscellaneous
-------------
Section 14.1. Entire Agreement; Waivers. This Agreement, the Closing
Agreements and the Confidentiality Agreement constitute the entire agreement
among the parties hereto pertaining to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements, 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 or shall be effective unless in writing and executed (i) in the case of
a waiver by Buyer, by Buyer and (ii) in the case of a waiver by Sellers, by
Sellers' Representative.
Section 14.2. Amendment or Modification. The parties hereto may not
amend or modify this Agreement except in such manner as may be agreed upon by a
written instrument executed and delivered by Buyer and Sellers' Representative;
provided, that no amendment or modification to this Agreement may be made that
would adversely affect (i) the limitation of liability of a Seller for
indemnification hereunder or (ii) the consideration to be received by a Seller
in a manner that is disproportionate relative to the adverse effect of such
amendment or modification on other Sellers, without such Seller's consent.
Section 14.3. Survival. All representations, warranties, covenants and
agreements made by or on behalf of any party hereto in this Agreement
(including, without limitation, in all of the Disclosure Letters), or pursuant
to any document, certificate or other instrument referred to herein or delivered
in connection with the transactions contemplated hereby, shall be deemed to have
been material and relied upon by the parties hereto, notwithstanding any
investigation made by or on behalf of any of the parties hereto or any
opportunity therefor (including without limitation the availability for review
of any document), and, subject to the provisions of Article X, shall survive the
execution and delivery of this Agreement and the Closing. Neither the period of
survival nor the liability of any party with respect to such party's
representations, warranties covenants and agreements shall be reduced by any
investigation made at any time by or on behalf of any party. If written notice
of a claim has been given prior to the expiration of any time period set forth
herein for any such notice by a party in whose favor such representations,
warranties, covenants or agreements have been made to any party that made such
representations, warranties, covenants or agreements, then the relevant
representations, warranties, covenants or agreements shall survive as to such
claim until such claims have been finally resolved.
80
Section 14.4. Independence of Representations and Warranties. The
parties hereto intend that each representation, warranty, covenant and agreement
contained herein shall have independent significance. If any party has breached
any representation, warranty, covenant or agreement contained herein in any
respect, the fact that there exists any other representation, warranty, covenant
or agreement relating to the same subject matter (regardless of the relative
levels of specificity) that the party has not breached shall not detract from or
mitigate the fact that such party is in breach of the first representation,
warranty, covenant or agreement.
Section 14.5. 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.
Section 14.6. Successors and Assigns. All of the terms and provisions
of this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective transferees, successors and permitted
assigns (each of which such transferees, successors and permitted assigns shall
be deemed to be a party hereto for all purposes hereof); provided, however, that
neither Sellers nor Buyer may assign or transfer (by operation of law or
otherwise) any of their respective rights or obligations hereunder.
Section 14.7. Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing (including
telecopy or similar teletransmission), addressed as follows:
If to Sellers, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
to the Sellers' ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esquire
Representative, at: c/▇ ▇▇▇▇▇ Group, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copies to: ▇▇▇▇ ▇▇▇▇▇▇▇
Conning & Company
▇▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ Procter LLP
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: H. ▇▇▇▇▇ ▇▇▇▇▇▇, P.C.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
81
▇▇▇▇▇▇, ▇▇▇▇▇ & Bockius LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier (▇▇▇) ▇▇▇-▇▇▇▇
If to Buyer, to it at: Hilb, ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ Company
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to A. ▇▇▇▇▇ ▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) in the case of any notice or communication sent
other than by mail, on the date actually delivered to such address (evidenced,
in the case of delivery by overnight courier, by confirmation of delivery from
the overnight courier service making such delivery, and in the case of a
telecopy, by receipt of a transmission confirmation form or the addressee's
confirmation of receipt), or (b) in the case of any notice or communication sent
by mail, three (3) Business Days after being sent, if sent by registered or
certified mail, with first-class postage prepaid. Each of the parties hereto
shall be entitled to specify a different address by giving notice as aforesaid
to each of the other parties hereto.
Section 14.8. Public Announcements. At all times on or before the
Closing Date, no party hereto will issue or make any reports, statements or
releases to the public with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the other party hereto.
If any party hereto is unable to obtain, after reasonable effort, the approval
of its public report, statement or release from the other parties hereto and
such report, statement or release is, in the opinion of legal counsel to such
party, required by law in order to discharge such party's disclosure
obligations, then such party may make or issue the legally required report,
statement or release and promptly furnish the other parties with a copy thereof.
Each party hereto will also obtain the prior approval by the other parties
hereto of any press release to be issued immediately following the Closing
announcing the consummation of the transactions contemplated by this Agreement.
Section 14.9. 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.
Section 14.10. Third Party Beneficiaries. Except as otherwise provided
in Article X, nothing in this Agreement is intended or shall be construed to
entitle any Person other than
82
the parties or their respective transferees, successors and assigns permitted
hereby to any claim, cause of action, remedy or right of any kind.
Section 14.11. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties on separate counterparts
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument. The parties hereto acknowledge and
agree that original signatures delivered by facsimile transmission shall be
accepted as original to evidence execution of this Agreement and the other
agreements, documents and instruments contemplated herein.
[ SIGNATURES ON FOLLOWING PAGES ]
83
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed, or have caused to be executed by their respective
officers thereunto duly authorized, this Purchase Agreement as of the date first
above written.
COMPANY: ▇▇▇▇▇ GROUP, LLC
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and CEO
BUYER: HILB, ▇▇▇▇▇ AND ▇▇▇▇▇▇▇▇ COMPANY
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman and CEO
SELLING
MEMBERS: CONNING INSURANCE CAPITAL LIMITED
PARTNERSHIP V
By: /s/▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Managing Partner
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
84
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
85
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇
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The ▇▇▇▇▇▇▇▇ Family Trust
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W. ▇▇▇▇▇ ▇▇▇▇▇▇ Living Trust
▇▇▇▇▇ CAPITAL ADVISORS, LLC
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
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R. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇
SELLING SHAREHOLDERS:
/s/▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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J. ▇▇▇▇▇▇▇ ▇'▇▇▇▇▇
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90
/s/J. ▇▇▇▇▇▇ ▇▇▇▇▇▇
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J. ▇▇▇▇▇▇ ▇▇▇▇▇▇
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91
SCHEDULES AND EXHIBITS
Schedule A - List of the Members of ▇▇▇▇▇ Group, LLC [omitted]
Schedule B - List of the Shareholders of ▇▇▇▇▇ ▇▇▇ Corp. [omitted]
Exhibit A - [Reserved]
Exhibit B - Allocations of Purchase Price Among Sellers [omitted]
Exhibit C - [Reserved]
Exhibit ▇ - ▇▇▇▇▇ Employment Agreement [omitted]
Exhibit E - List of Employees to Sign Acknowledgment and Amendment [omitted]
Exhibit F - Acknowledgment and Amendment [omitted]
Exhibit G - [Reserved]
Exhibit H - Opinion of Sellers' Counsel [omitted]
Exhibit I - Opinion of Buyer's Counsel [omitted]
The Company will provide the omitted schedules and exhibits to the Commission
upon request.