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ACQUISITION AGREEMENT
DATED AS OF
AUGUST 8, 1997
BY AND AMONG
HCC INSURANCE HOLDINGS, INC.,
SOUTHERN AVIATION INSURANCE UNDERWRITERS, INC.,
AVIATION CLAIMS ADMINISTRATORS, INC.,
AND
XXXXXX X. XXXXXX, III,
XXXXXX X. XXXXXX,
XXXXXXXXX X. XXXX
AS THE SHAREHOLDERS OF
SOUTHERN AVIATION INSURANCE UNDERWRITERS, INC.
AND
AVIATION CLAIMS ADMINISTRATORS, INC.
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TABLE OF CONTENTS
PAGE
ARTICLE I TRANSFER OF THE SOUTHERN COMMON STOCK
AND THE ACA COMMON STOCK . . . . . . . . . . . . . . . . . 2
SECTION 1.1 TRANSFER OF SOUTHERN COMMON STOCK AND ACA COMMON STOCK. 2
SECTION 1.2 PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . 2
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF SOUTHERN, ACA AND SHAREHOLDERS . . . . . . . . . . . . . 3
SECTION 2.1 CORPORATE EXISTENCE AND POWER. . . . . . . . . . . . . 3
SECTION 2.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.3 GOVERNMENTAL AUTHORIZATION . . . . . . . . . . . . . . 4
SECTION 2.4 NON-CONTRAVENTION. . . . . . . . . . . . . . . . . . . 5
SECTION 2.5 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.6 SUBSIDIARIES AND JOINT VENTURES. . . . . . . . . . . . 6
SECTION 2.7 SOUTHERN FINANCIAL STATEMENTS. . . . . . . . . . . . . 6
SECTION 2.8 ABSENCE OF CERTAIN CHANGES . . . . . . . . . . . . . . 7
SECTION 2.9 NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . 8
SECTION 2.10 LITIGATION . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.11 ACCOUNTING MATTERS . . . . . . . . . . . . . . . . . . 9
SECTION 2.12 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.13 EMPLOYEE BENEFIT PLANS, ERISA. . . . . . . . . . . . . 10
SECTION 2.14 MATERIAL AGREEMENTS. . . . . . . . . . . . . . . . . . 11
SECTION 2.15 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.16 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . 12
SECTION 2.17 LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.18 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . 13
SECTION 2.19 TRADEMARKS, TRADENAMES, ETC. . . . . . . . . . . . . . 13
SECTION 2.20 SALE OF THE COMPANIES. . . . . . . . . . . . . . . . . 14
SECTION 2.21 BROKER'S FEES. . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.22 INVESTMENT REPRESENTATION. . . . . . . . . . . . . . . 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HCCH. . . . . . . . . . . 15
SECTION 3.1 CORPORATE EXISTENCE AND POWER. . . . . . . . . . . . . 15
SECTION 3.2 CORPORATE AUTHORIZATION. . . . . . . . . . . . . . . . 15
SECTION 3.3 GOVERNMENTAL AUTHORIZATION . . . . . . . . . . . . . . 15
SECTION 3.4 NON-CONTRAVENTION. . . . . . . . . . . . . . . . . . . 16
SECTION 3.5 CAPITALIZATION OF HCCH . . . . . . . . . . . . . . . . 16
SECTION 3.6 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.7 SEC FILINGS. . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.8 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 18
SECTION 3.9 ABSENCE OF CERTAIN CHANGES . . . . . . . . . . . . . . 19
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TABLE OF CONTENTS (CONT.)
PAGE
SECTION 3.10 NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . 19
SECTION 3.11 LITIGATION . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.12 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.13 EMPLOYEE BENEFIT PLANS; ERISA. . . . . . . . . . . . . 20
SECTION 3.14 MATERIAL AGREEMENTS. . . . . . . . . . . . . . . . . . 21
SECTION 3.15 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.16 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . 22
SECTION 3.17 LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.18 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . 23
SECTION 3.19 TRADEMARKS, TRADE NAMES, ETC.. . . . . . . . . . . . . 23
SECTION 3.20 BROKER'S FEES. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV COVENANTS OF SOUTHERN, ACA AND SHAREHOLDERS . . . . . . . . 23
SECTION 4.1 CONDUCT OF THE COMPANIES . . . . . . . . . . . . . . . 23
SECTION 4.2 ACCESS TO FINANCIAL AND OPERATIONAL INFORMATION. . . . 25
SECTION 4.3 OTHER OFFERS . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.4 MAINTENANCE OF BUSINESS. . . . . . . . . . . . . . . . 26
SECTION 4.5 COMPLIANCE WITH OBLIGATIONS. . . . . . . . . . . . . . 26
SECTION 4.6 NOTICES OF CERTAIN EVENTS. . . . . . . . . . . . . . . 26
SECTION 4.7 AFFILIATES AGREEMENT . . . . . . . . . . . . . . . . . 27
SECTION 4.8 NECESSARY CONSENTS . . . . . . . . . . . . . . . . . . 27
SECTION 4.9 REGULATORY APPROVAL. . . . . . . . . . . . . . . . . . 27
SECTION 4.10 SATISFACTION OF CONDITIONS PRECEDENT . . . . . . . . . 27
ARTICLE V COVENANTS OF HCCH . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.1 CONDUCT OF HCCH. . . . . . . . . . . . . . . . . . . . 27
SECTION 5.2 ACCESS TO FINANCIAL AND OPERATION INFORMATION. . . . . 28
SECTION 5.3 MAINTENANCE OF BUSINESS. . . . . . . . . . . . . . . . 28
SECTION 5.4 COMPLIANCE WITH OBLIGATIONS. . . . . . . . . . . . . . 28
SECTION 5.5 NOTICES OF CERTAIN EVENTS. . . . . . . . . . . . . . . 29
SECTION 5.6 NOTICE TO AFFILIATES . . . . . . . . . . . . . . . . . 29
ARTICLE VI COVENANTS OF HCCH, THE COMPANIES AND SHAREHOLDERS . . . . . 29
SECTION 6.1 ADVICE OF CHANGES. . . . . . . . . . . . . . . . . . . 29
SECTION 6.2 REGULATORY APPROVALS. . . . . . . . . . . . . . . . . 29
SECTION 6.3 ACTIONS CONTRARY TO STATED INTENT. . . . . . . . . . . 30
SECTION 6.4 CERTAIN FILINGS. . . . . . . . . . . . . . . . . . . . 30
SECTION 6.5 COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.6 SATISFACTION OF CONDITIONS PRECEDENT . . . . . . . . . 30
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TABLE OF CONTENTS (CONT.)
PAGE
SECTION 6.7 TAX COOPERATION. . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . 31
SECTION 7.1 CONDITIONS TO OBLIGATIONS OF HCCH. . . . . . . . . . . 31
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF THE COMPANIES AND
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. . . . . . . . 34
ARTICLE VIII TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . 34
SECTION 8.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . 34
SECTION 8.2 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . 35
ARTICLE IX CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 9.1 THE CLOSING. . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE X INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS. . . . . 36
SECTION 10.1 AGREEMENT TO INDEMNIFY . . . . . . . . . . . . . . . . 36
SECTION 10.2 INDEMNIFICATION WITH RESPECT TO TAXES AND ENVIRONMENT. 37
SECTION 10.3 HCCH AGREEMENT TO INDEMNIFY. . . . . . . . . . . . . . 37
SECTION 10.4 APPOINTMENT OF REPRESENTATIVE. . . . . . . . . . . . . 38
SECTION 10.5 SURVIVAL OF REPRESENTATIONS. . . . . . . . . . . . . . 39
SECTION 10.6 PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS. . . 39
ARTICLE XI POST-CLOSING COVENANTS OF HCCH. . . . . . . . . . . . . . . 40
SECTION 11.1 LISTING OF HCCH COMMON STOCK.. . . . . . . . . . . . . 40
SECTION 11.2 EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . 40
SECTION 11.3 PRESIDENCY OF SOUTHERN . . . . . . . . . . . . . . . . 40
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 12.1 FURTHER ASSURANCES.. . . . . . . . . . . . . . . . . . 40
SECTION 12.2 FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . 41
SECTION 12.3 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 12.4 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . 42
SECTION 12.5 BINDING UPON SUCCESSORS AND ASSIGNS, ASSIGNMENT. . . . 42
SECTION 12.6 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . 42
SECTION 12.7 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . 42
SECTION 12.8 AMENDMENT AND WAIVERS. . . . . . . . . . . . . . . . . 42
SECTION 12.9 NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 12.10 CONSTRUCTION OF AGREEMENT. . . . . . . . . . . . . . . 43
iii
TABLE OF CONTENTS (CONT.)
PAGE
SECTION 12.11 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . 43
SECTION 12.12 NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . 43
iv
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "Agreement") is entered into as of the
8th day of August, 1997 by and among HCC Insurance Holdings, Inc. ("HCCH"), a
Delaware corporation, Southern Aviation Insurance Underwriters, Inc.
("Southern"), an Alabama corporation, Aviation Claims Administrators, Inc.,
("ACA"), an Alabama corporation, and Xxxxxx X. Xxxxxx, III ("Xxxxxx"), a
resident of Alabama, Xxxxxx X. Xxxxxx, a resident of Alabama, and Xxxxxxxxx
X. Xxxx, a resident of Florida, together all of the shareholders of Southern
and ACA (individually a "Shareholder" and collectively the "Shareholders").
For purposes of this Agreement, Southern and ACA shall be referred to herein
collectively as the "Companies" and individually as a "Company".
RECITALS:
A. Shareholders own all of the outstanding stock of Southern, a company
engaged in the insurance business.
B. Shareholders also own all of the outstanding stock of ACA, a third
party administrator for insurance companies.
C. HCCH desires to acquire all of the outstanding stock of Southern and
ACA for shares of common stock of HCCH (the "HCCH Common Stock") and
Shareholders desire to acquire the HCCH Common Stock in exchange for all of
their shares in Southern (being all of the outstanding stock of Southern) and
ACA (being all of the outstanding stock of ACA) for the consideration and on
the terms set forth in this Agreement.
D. The parties intend for the transactions contemplated by this
Agreement to be accounted for as a "pooling-of-interests" for accounting
purposes and to qualify as a plan of reorganization in accordance with the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto do hereby agree as follows:
ARTICLE I
TRANSFER OF THE SOUTHERN COMMON STOCK
AND THE ACA COMMON STOCK
SECTION 1.1 TRANSFER OF SOUTHERN COMMON STOCK AND ACA COMMON STOCK.
(a) Subject to the terms and conditions of this Agreement, at the
Closing (hereinafter defined), Shareholders shall transfer and deliver to
HCCH, and HCCH shall acquire from Shareholders, all of the outstanding stock
of Southern (the "Southern Common Stock").
(b) Subject to the terms and conditions of this Agreement, at the
Closing, Shareholders shall transfer and deliver to HCCH, and HCCH shall
acquire from Shareholders, all of the outstanding stock of ACA (the "ACA
Common Stock").
SECTION 1.2 PURCHASE PRICE.
(a) At the Closing, HCCH shall deliver to Shareholders 225,000 shares of
HCCH Common Stock in accordance with the Schedule set forth in Exhibit "A" in
exchange for the Shareholders' respective shares in Southern and ACA (the
"Share Payment").
(b) No fractional shares of HCCH Common Stock shall be issued to
Shareholders hereunder.
SECTION 1.3 CLOSING DELIVERIES.
At the Closing:
(a) Shareholders shall deliver to HCCH
(i) certificates representing the Southern Common Stock, endorsed or
transferred to HCCH, which shall transfer to HCCH good and
indefeasible title to the Southern Common Stock, free and clear of
all encumbrances;
(ii) certificates representing the ACA Common Stock, endorsed or
transferred to HCCH, which shall transfer to HCCH good and
indefeasible title to the ACA Common Stock, free and clear of
all encumbrances; and
(iii) such other documents including officer's certificates and opinions
of counsel as may be required by this Agreement or reasonably
requested by HCCH.
(b) HCCH shall deliver to Shareholders
2
(i) certificates of HCCH Common Stock representing the amount of the
Share Payment to each of the Shareholders as set forth in
Exhibit "A". Shareholders agree and acknowledge that such shares
of HCCH Common Stock shall be unregistered and, therefore,
restricted as to transfer and the share certificates shall bear an
appropriate legend as set forth thereon with respect to same; and
(ii) such other documents including officer's certificates and
opinions of counsel, as may be required by this Agreement or
reasonably requested by Shareholders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SOUTHERN, ACA AND SHAREHOLDERS
Except as disclosed in a document referring specifically to this
Agreement (the "Southern/ ACA Disclosure Schedule") which has been delivered
to HCCH on or before the date hereof, each of Southern, ACA and each
Shareholder (jointly and severally) represents and warrants to HCCH as set
forth below (it being agreed that the disclosure on the Southern/ACA
Disclosure Schedule of the existence of any document or fact or circumstance
or situation relating to any representations, warranties, covenants or
agreements in any section of this Agreement shall be automatically deemed to
be disclosure of such document or fact or circumstance or situation for
purposes of all other representations, warranties, covenants, and agreements
in this Agreement).
SECTION 2.1 CORPORATE EXISTENCE AND POWER. Each of Southern and ACA is
a corporation duly organized, validly existing and in good standing under the
laws of Alabama, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals (collectively, "Governmental
Authorizations") required to carry on its business as now conducted, except
such Governmental Authorizations the failure of which to have obtained would
not have a Material Adverse Effect, as hereinafter defined, on the Companies.
The Companies have each delivered to HCCH true and complete copies of their
Articles of Incorporation or Certificate of Incorporation, as the case may
be, and Bylaws as currently in effect. Each of Southern and ACA is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not have a Material Adverse Effect
on the Companies. For purposes of this Agreement, a "Material Adverse
Effect," with respect to any person or entity (including without limitation
Southern, ACA and HCCH), means a material adverse effect on the condition
(financial or otherwise), business, properties, assets, liabilities
(including contingent liabilities), results of operations or prospects of
such person or entity and its affiliated companies and subsidiaries and/or
parent corporation and/or corporations under the same stock ownership, taken
as a whole; and "Material Adverse Change" means a change or a development
involving a prospective change which would result in a Material Adverse
Effect.
3
SECTION 2.2 AUTHORIZATION.
(a) The execution, delivery and performance by the Companies of this
Agreement and the consummation by the Companies of the transactions
contemplated hereby and thereby, are within the corporate powers of the
Companies and have been duly authorized by all necessary corporate action.
This Agreement constitutes, or upon execution will constitute, valid and
binding agreements of the Companies, enforceable against the Companies in
accordance with their respective terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
(b) Each of the Shareholders, severally, represents and warrants that he
has full right, power and authority to enter into this Agreement, the
Affiliates Agreement (hereinafter defined) to be entered into by him, and
each other agreement to be entered into by him in connection with the
transactions contemplated hereby and that this Agreement, the Affiliates
Agreement, and such other agreements contemplated hereby constitute, or upon
execution will constitute, valid and binding agreements of such Shareholder,
enforceable against him in accordance with their respective terms, except as
such enforcement may be limited by bankruptcy, insolvency or other similar
laws effecting the enforcement of creditors' rights generally or by general
principles of equity.
SECTION 2.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Companies and each Shareholder of this Agreement, and the
consummation of the transactions contemplated hereunder require no action by
the Companies or any Shareholder or any filing by them with any governmental
body, agency, official or authority other than:
(a) compliance with any applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder;
(b) compliance with any applicable foreign or state securities or "blue
sky" laws;
(c) compliance with any requirements of any federal, state, foreign or
other insurance or reinsurance or intermediaries or managing general agent
laws, including licensing or other related laws;
(d) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not reasonably
be expected to have a Material Adverse Effect on the Companies, or (ii) would
not materially adversely affect the ability of the Companies, each
Shareholder or HCCH to consummate the transactions contemplated hereby and
operate their businesses as heretofore operated.
4
SECTION 2.4 NON-CONTRAVENTION. The execution, delivery and performance
by the Companies and Shareholders of this Agreement and the consummation by
the Companies and Shareholders of the transactions contemplated hereby and
thereby do not and will not:
(a) contravene or conflict with the Companies' charter or bylaws;
(b) assuming compliance with the matters referred to in Section 2.3,
contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Companies or any Shareholder;
(c) conflict with or result in a breach or violation of, or constitute a
default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate,
any material agreement, contract or other instrument binding upon the
Companies or any Shareholder or any material license, franchise, permit or
other similar authorization held by the Companies or any Shareholder; or
(d) result in the creation or imposition of any Lien (as hereinafter
defined) on any material asset of the Companies;
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on the Companies or any Shareholder.
For purposes of this Agreement, the term "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset.
(e) All of the outstanding capital stock of the Companies owned by the
Shareholders directly or indirectly is or will be owned directly or
indirectly by the Shareholders free and clear of any material Lien and free
of any other material limitation or restriction on its or their rights as
owner thereof (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests), other
than those imposed by applicable law or this Agreement or the Affiliates
Agreement. Each Shareholder represents and warrants only as to his or her
individual ownership of Southern Common Stock and ACA Common Stock,
respectively, for purposes of this Section.
SECTION 2.5 CAPITALIZATION.
(a) As of June 30, 1997, the authorized capital stock of Southern was
1,000 shares of common stock, par value $1.00 per share, and 1,000 shares of
common stock are issued and outstanding and held by the Shareholders in the
percentages as set forth on Exhibit "A". All outstanding shares set forth
above have been, or will be prior to the Closing Date, duly authorized and
validly issued and are fully paid and nonassessable and free from any
preemptive rights. Except as set forth in and as otherwise contemplated by
this Agreement, there are
5
outstanding, with respect to Southern, (i) no shares of capital stock or
other voting securities, (ii) no securities convertible into or exchangeable
for shares of its capital stock or voting securities), (iii) no options or
other rights to acquire, and no obligation to issue, any capital stock,
voting securities or securities convertible into or exchangeable for its
capital stock or other voting securities (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Southern Securities"), (iv) no
obligations to repurchase, redeem or otherwise acquire any of Southern
Securities and (v) no contractual rights of any person or entity to include
any such securities in any registration statement proposed to be filed under
the Securities Act.
(b) As of June 30, 1997, the authorized capital stock of ACA was 1,000
shares of common stock, par value $1.00 per share, and 1,000 shares of common
stock are issued and outstanding and held by the Shareholders in the
percentages set forth on Exhibit "A". All outstanding shares set forth above
have been, or will be prior to the Closing Date, duly authorized and validly
issued and are fully paid and nonassessable and free from any preemptive
rights. Except as set forth in and as otherwise contemplated by this
Agreement, there are outstanding, with respect to ACA, (i) no shares of
capital stock or other voting securities, (ii) no securities convertible into
or exchangeable for shares of its capital stock or voting securities), (iii)
no options or other rights to acquire, and no obligation to issue, any
capital stock, voting securities or securities convertible into or
exchangeable for its capital stock or other voting securities (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "ACA
Securities"), (iv) no obligations to repurchase, redeem or otherwise acquire
any of ACA Securities and (v) no contractual rights of any person or entity
to include any such securities in any registration statement proposed to be
filed under the Securities Act.
SECTION 2.6 SUBSIDIARIES AND JOINT VENTURES.
(a) For purposes of this Section 2.6, (i) "Subsidiary" means, with
respect to any entity, any corporation of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are directly or
indirectly owned by such entity, and (ii) "Joint Venture" means, with respect
to any entity, any corporation or organization (other than such entity and
any Subsidiary thereof) of which such entity or any Subsidiary thereof is,
directly or indirectly, the beneficial owner of 25% or more of any class of
equity securities or equivalent profit participation interest.
(b) Except as set forth in the Southern/ACA Disclosure Schedule, as of
the date hereof, the Companies do not have any Subsidiaries or Joint Ventures
which are material to the business of the Companies. The Companies do not
own, directly or indirectly, any outstanding capital stock or equity interest
in any corporation, partnership, Joint Venture or other entity.
SECTION 2.7 SOUTHERN FINANCIAL STATEMENTS. Southern has delivered to
HCCH Southern's audited balance sheets as of December 31, 1996 (the "Balance
Sheet Date") and Southern's unaudited income statements for the annual period
ended December 31, 1996, (collectively, the "Southern Financial Statements").
ACA has delivered to HCCH ACA's audited balance sheets as of April 30, 1997
and ACA's unaudited income statements for the annual period
6
ended April 30, 1996 (collectively, the "ACA Financial Statements"). The
Southern Financial Statements and ACA Financial Statements present fairly in
all material respects (except as indicated in the notes thereto), the
financial position of the Companies as of the dates thereof and results of
operations and cash flows for the periods therein indicated (subject to
normal year-end adjustments in the case of any interim financial statements
and the absence of certain footnotes in the case of unaudited financial
statements). The Companies have no material debt, liability or obligation of
any nature, whether accrued, absolute, contingent or otherwise, and whether
due or to become due, that is not reflected, reserved against or disclosed in
the Southern Financial Statements and the ACA Financial Statements, except
for (i) those that are not required to be reported in accordance with the
aforesaid accounting principles; (ii) normal or recurring liabilities
incurred since December 31, 1996 in the ordinary course of business or (iii)
as disclosed in the Southern/ACA Disclosure Schedule.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Southern/ACA Disclosure Schedule, since December 31, 1996, Southern and ACA
have in all material respects conducted their business in the ordinary course
and there has not been:
(a) any Material Adverse Change with respect thereto or any event,
occurrence or development of a state of circumstances or facts known to the
Companies which as of the date hereof could reasonably be expected to have a
Material Adverse Effect on the Companies;
(b) any declaration, setting aside or payment of any dividend or other
distribution in respect of any shares of capital stock of the Companies other
than the declaration, setting aside or payment of dividends in accordance
with their existing dividend policy or practice, which policy or practice is
not inconsistent with past policy or practice;
(c) any repurchase, redemption or other acquisition by the Companies of
any outstanding shares of capital stock or other securities of or other
ownership interests in the Companies;
(d) any amendment of any term of any outstanding securities of the
Companies;
(e) any damage, destruction or other property or casualty loss (whether
or not covered by insurance) affecting the business, assets, liabilities,
earnings or prospects of the Companies which, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect on the Companies;
(f) any increase in indebtedness for borrowed money or capitalized lease
obligations of the Companies, except in the ordinary course of business;
(g) any sale, assignment, transfer or other disposition of any tangible
or intangible asset material to the business of the Companies, except in the
ordinary course of business and for a fair and adequate consideration;
7
(h) any amendment, termination or waiver by the Companies of any right
of substantial value under any agreement, contract or other written
commitment to which it is a party or by which it is bound;
(i) any material reduction in the amounts of coverage provided by
existing casualty and liability insurance policies with respect to the
business or properties of the Companies;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of the Companies, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of the
Companies, (iii) any increase in benefits payable under any existing
severance or termination pay policies or employment agreements, or (iv) any
increase in compensation, bonus or other benefits payable to directors,
officers or employees of the Companies, in each case other than in the
ordinary course of business consistent with past practice;
(k) any new or amendment to or alteration of any existing bonus,
incentive, compensation, severance, stock option, stock appreciation right,
pension, matching gift, profit-sharing, employee stock ownership, retirement,
pension group insurance, death benefit, or other fringe benefit plan,
arrangement or trust agreement adopted or implemented by the Companies which
would result in a material increase in cost;
(l) any capital expenditures, capital additions or capital improvements
incurred or undertaken by the Companies, except in the ordinary course of
business; or
(m) the entering into of any agreement by the Companies or any person on
behalf of the Companies to take any of the foregoing actions.
SECTION 2.9 NO UNDISCLOSED LIABILITIES. There are no liabilities of
the Companies of any kind whatsoever that are, individually or in the
aggregate, material to the Companies, other than:
(a) liabilities disclosed or provided for in the respective unaudited
financial statements as of and for the fiscal year ended December 31, 1996
(including the notes thereto) of the Companies;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since December 31, 1996;
(c) liabilities under this Agreement or indicated in the Southern/ACA
Disclosure Schedule.
SECTION 2.10 LITIGATION. Except as set forth in the Southern/ACA
Disclosure Schedule and other than actions, suits, proceedings, claims or
investigation occurring in the ordinary course of business involving
respective amounts in controversy of less than $10,000 each and $100,000
8
in the aggregate, there is no action, suit, proceeding, claim or
investigation pending or threatened, against the Companies or any of their
assets or against or involving any of their officers, directors or employees
in connection with the business or affairs of the Companies, including,
without limitation, any such claims for indemnification arising under any
agreement to which the Companies are a party. The Companies are not subject,
or in default with respect, to any writ, order, judgment, injunction or
decree which could, individually or in the aggregate, have a Material Adverse
Effect on the Companies.
SECTION 2.11 ACCOUNTING MATTERS. Except for all actions disclosed to
and approved by HCCH, neither the Companies nor any of the Shareholders has
taken or agreed to take any action that (without giving effect to any action
taken or agreed to be taken by HCCH or any of its affiliates) would prevent
HCCH from accounting for the business combination to be effected by the
Agreement as a pooling-of-interests.
SECTION 2.12 TAXES.
(a) Each of the Companies (i) has filed when due (taking into account
extensions) with the appropriate federal, state, local, foreign and other
governmental agencies, all material tax returns, estimates and reports
required to be filed by it, (ii) has either paid when due and payable or has
established adequate reserves or otherwise accrued on the Southern Financial
Statements and the ACA Financial Statements all material federal, state,
local or foreign taxes, levies, imposts, duties, licenses and registration
fees and charges of any nature whatsoever, and unemployment and social
security taxes and income tax withholding, including interest and penalties
thereon ("Taxes" or "Tax", as the case may be) and there are no tax
deficiencies claimed in writing by any taxing authority and received by the
Companies or Shareholders that, in the aggregate, would result in any Tax
liability in excess of the amount of the reserves or accruals and (iii) has
or will establish in accordance with its normal accounting practices and
procedures accruals and reserves that, in the aggregate, are adequate for the
payment of all Taxes not yet due and payable and attributable to any period
preceding the Closing Date. The Southern/ACA Disclosure Schedule sets forth
those tax returns of the Companies (or any predecessor entities) for all
periods that currently are the subject of audit by any federal, state, local
or foreign taxing authority.
(b) There are no material taxes, interest, penalties, assessments or
deficiencies claimed in writing by any taxing authority and received by the
Companies or the Shareholders to be due in respect of any tax returns filed
by the Companies (or any predecessor corporations). Neither Company nor any
predecessor corporation has executed or filed with the Internal Revenue
Service ("IRS") or any other taxing authority any agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any Taxes.
(c) The Companies are not a party to or bound by (or will not prior to
the Closing Date become a party to or bound by) any Tax indemnity, Tax
sharing or Tax allocation agreement or other similar arrangement. The
Companies have not been a member of an affiliated group or filed or been
included in a combined, consolidated or unitary tax return.
9
SECTION 2.13 EMPLOYEE BENEFIT PLANS, ERISA.
(a) The Companies are not a party to any oral or written (i) employment,
severance, collective bargaining or consulting agreement not terminable on 60
days' or less notice, (ii) agreement with any executive officer or other key
employee of the Companies (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Companies of the nature of any of the transactions contemplated
by this Agreement, (B) providing any term of employment or compensation
guarantee extending for a period longer than one year, or (C) providing
severance benefits or other benefits after the termination of employment of
such executive officer or key employee regardless of the reason for such
termination of employment, (iii) agreement, plan or arrangement under which
any person may receive payments subject to the tax imposed by Section 4999 of
the Code, or (iv) agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, the benefits of which would be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(b) Neither the Companies nor any corporation or other entity which
under Section 4001(b) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), is under common control with the Companies (a "Company
ERISA Affiliate") maintains or within the past five years has maintained,
contributed to, or been obligated to contribute to, any "Employee Pension
Benefit Plan" ("Pension Plan") or any "Employee Welfare Benefit Plan"
("Welfare Plan") as such terms are defined in Sections 3(2) and 3(1)
respectively of ERISA, which is subject to ERISA. Each Pension Plan and
Welfare Plan disclosed in the Southern/ACA Disclosure Schedule (which Plans
have been heretofore delivered to HCCH) and maintained by the Companies have
been maintained in all material respects in compliance with their terms and
all provisions of ERISA and the Code (including rules and regulations
thereunder) applicable thereto.
(c) No Pension Plan or Welfare Plan is currently subject to an audit or
other investigation by the IRS, the Department of Labor (the "DOL"), the
Pension Benefit Guaranty Corporation or any other governmental agency or
office nor are any such Plans subject to any lawsuits or legal proceedings of
any kind or to any material pending disputed claims by employees or
beneficiaries covered under any such Plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to the Companies or any
Company ERISA Affiliate has occurred with respect to any Pension Plan or
Welfare Plan. Neither the Companies nor any Shareholder has any knowledge of
any breach of fiduciary responsibility under Part 4 of Title I of ERISA which
has resulted in liability of the Companies and the Company ERISA Affiliate,
any trustee, administrator or fiduciary of any Pension Plan or Welfare Plan.
10
(e) Neither the Companies nor any Company ERISA Affiliate, since January
1, 1986, has maintained or contributed to, or been obligated or required to
contribute to, a "Multiemployer Plan," as such term is defined in Section
4001(a)(3) of ERISA. Neither the Companies nor any Company ERISA Affiliate
has either withdrawn, partially or completely, or instituted steps to
withdraw, partially or completely, from any Multiemployer Plan nor has any
event occurred which would enable a Multiemployer Plan to give notice of and
demand payment of any withdrawal liability with respect to the Companies or
any Company ERISA Affiliate.
(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Companies or any Company ERISA Affiliate
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to the terms of Sections
162(a)(I) or 280G of the Code.
(g) With respect to the Companies and each Company ERISA Affiliate, the
Southern/ACA Disclosure Schedule correctly identifies each material
agreement, policy, plan or other arrangement, whether written or oral,
express or implied, fixed or contingent, to which the Companies are a party
or by which the Companies or any property or asset of the Companies are
bound, which is or relates to a pension, option, bonus, deferred
compensation, retirement, stock purchase, profit-sharing, severance pay,
health, welfare, incentive, vacation, sick leave, medical disability,
hospitalization, life or other insurance or fringe benefit plan, policy or
arrangement.
(h) Neither the Companies nor any Company ERISA Affiliate maintains or
has maintained or contributed to any Pension Plan that is or was subject to
Section 302 of Title IV of ERISA or Section 412 of the Code. The Companies
have made available to HCCH, for each Pension Plan which is intended to be
"qualified" within the meaning of Section 401(a) of the Code, a copy of the
most recent determination letter issued by the IRS to the effect that each
such Plan is so qualified and that each trust created thereunder is tax
exempt under Section 501 of the Code, and the Companies are unaware of any
fact or circumstances that would jeopardize the qualified status of each such
Pension Plan or the tax exempt status of each trust created thereunder.
SECTION 2.14 MATERIAL AGREEMENTS.
(a) The Southern/ACA Disclosure Schedule includes a complete and
accurate list of all contracts, agreements, leases (other than Company
Property Leases, as hereinafter defined), and instruments to which the
Companies are a party or by which it or its properties or assets are bound
which individually involve net payments or receipts in excess of $25,000 per
annum, inclusive of contracts entered into with customers and suppliers in
the ordinary course of business, or that pertain to employment or severance
benefits for any officer, director or employee of the Companies, whether
written or oral, but exclusive of contracts, agreements, leases and
instruments terminable without penalty upon 60 days' or less prior written
notice to the other party or parties thereto (the "Material Company
Agreements").
11
(b) Neither the Companies nor, to the knowledge of the Companies or any
Shareholder, any other party is in default under any Material Company
Agreement and no event has occurred which (after notice or lapse of time or
both) would become a breach or default under, or would permit modification,
cancellation, acceleration or termination of any Material Company Agreement
or result in the creation of any security interest upon, or any person
obtaining any right to acquire, any properties, assets or rights of the
Companies, which, in any such case, has had or would reasonably be expected
to have a Material Adverse Effect.
(c) Each such Material Company Agreement is in full force and effect and
is valid and legally binding and there are no material unresolved disputes
involving or with respect to any Material Company Agreement. No party to a
Material Company Agreement has advised the Company or any Shareholder that it
intends either to terminate a Material Company Agreement or to refuse to
renew a Material Company Agreement upon the expiration of the term thereof.
(d) No representation or warranty is made that all benefits contemplated
in the Material Company Agreements will be received.
(e) The Companies are not in violation of, or in default with respect
to, any term of their Articles or Certificate of Incorporation, as the case
may be, or Bylaws.
SECTION 2.15 PROPERTIES. The Companies own no real estate, and all
leases of real property to which the Companies are a party or by which they
are bound ("the Company Property Leases") are in full force and effect.
There exists no default under such Company Property Leases, nor any event
which with notice or lapse of time or both would constitute a default
thereunder, which default would have a Material Adverse Effect. All of the
properties and assets which are owned by the Companies are owned by the
Companies free and clear of any Lien, except for Liens which do not have a
Material Adverse Effect. The Companies have good and indefeasible title with
respect to such owned properties and assets subject to no Liens, other than
those permitted under this Section 2.15, to all of the properties and assets
necessary for the conduct of their business other than to the extent that the
failure to have such title would not have a Material Adverse Effect.
SECTION 2.16 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws (including case law), regulations, ordinances,
rules, judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances
(as hereinafter defined) or wastes into the environment or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of
12
pollutants, contaminants, Hazardous Substances or wastes or the clean-up or
other remediation thereof.
"Environmental Liabilities" shall mean all liabilities, whether vested
or unvested, contingent or fixed, actual or potential, which (i) arise
under or relate to Environmental Laws and (ii) relate to actions occurring
or conditions existing on or prior to the Closing.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Substances.
(b) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received, no complaint has been filed,
no penalty has been assessed and, to the knowledge of the Companies and the
Shareholders, no investigation or review is pending, or has been threatened
by any governmental entity or other party with respect to any (i) alleged
violation of any Environmental Law, (ii) alleged failure to have any
environmental permit, certificate, license, approval, registration or
authorization required in connection with the conduct of its business or
(iii) Regulated Activity.
(c) The Companies have no material Environmental Liabilities and there
has been no release of Hazardous Substances into the environment by the
Companies or with respect to any of their properties which has had, or would
reasonably be expected to have, a Material Adverse Effect.
SECTION 2.17 LABOR MATTERS. The Companies are not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Companies, and the Companies do not know of any
activities or proceedings of any labor union to organize any such employees.
SECTION 2.18 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, the Companies are not in violation of,
and have not violated, any applicable provisions of any laws, statutes,
ordinances or regulations or any term of any judgment, decree, injunction or
order binding against it.
SECTION 2.19 TRADEMARKS, TRADENAMES, ETC. The Companies own or possess,
or hold a valid right or license to use, all intellectual property, patents,
trademarks, trade names, service marks, copyrights and licenses (collectively
"Intellectual Property"), and all rights with respect to the foregoing,
necessary for the conduct of their business as now conducted, without any
13
known conflict with the rights of others. The Southern/ACA Disclosure
Schedule lists all Intellectual Property owned, possessed or held by the
Companies.
SECTION 2.20 SALE OF THE COMPANIES. Except as contemplated by this
Agreement, there are currently no discussions to which the Companies or
Shareholders are a party relating to (a) the sale of any material portion of
its assets, (b) any merger, consolidation, liquidation, dissolution or
similar transaction involving the Companies whereby the Companies will issue
any securities or for which the Companies are required to obtain the approval
of their shareholders, or (c) the sale of the Southern Common Stock or ACA
Common Stock.
SECTION 2.21 BROKER'S FEES. Neither the Companies, any Shareholder nor
anyone acting on the behalf or at the request thereof has any liability to
any broker, finder, investment banker or agent, or has agreed to pay any
brokerage fees, finder's fees or commissions, or to reimburse any expenses of
any broker, finder, investment banker or agent in connection with this
Agreement.
SECTION 2.22 INVESTMENT REPRESENTATION. The shares of HCCH Common Stock
to be acquired by the Shareholders pursuant to this Agreement will be
acquired solely for the account of such Shareholders, for investment purposes
only and not with a view to the distribution thereof. The Shareholders are
not participating, directly or indirectly, in any distribution or transfer of
such HCCH Common Stock, nor are they participating, directly or indirectly,
in underwriting any such distribution of HCCH Common Stock within the meaning
of the Securities Act. Each Shareholder has such knowledge and experience in
business matters that he is capable of evaluating the merits and risks of an
investment in HCCH and the acquisition of the shares of HCCH Common Stock,
and he is making an informed investment decision with respect thereto. The
Shareholders have been informed by HCCH that the shares of HCCH Common Stock
to be issued pursuant to this Agreement and the documents to be executed in
connection herewith will not be registered under the Securities Act at the
time of their issuance and may not be transferred, assigned or otherwise
disposed of absent registration under the Securities Act or availability of
an appropriate exemption therefrom. The Shareholders have further been
informed that HCCH will be under no obligation to register the shares of HCCH
Common Stock under the Securities Act or to take any steps to assist the
Shareholders to comply with any applicable exemption under the Securities Act
with respect to the shares of HCCH Common Stock.
Provided, however, the foregoing provisions of Article II are limited in
the following respect: the representations and warranties made hereunder by
the Shareholders are made based on each such Shareholder's current, actual
knowledge after having conducted an investigation.
14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HCCH
Except as disclosed in a document referring specifically to this
Agreement or in a document, exhibit, or appendix filed with the Securities
and Exchange Commission ("SEC") which has been filed on or before the date
hereof, (collectively referred to herein as the "HCCH Disclosure Schedule")
which have been made available to the Companies or any of the Shareholders on
or before the date hereof, HCCH represents and warrants to the Companies and
Shareholders as set forth below (it being agreed that the disclosure on the
HCCH Disclosure Schedule of the existence of any document or fact or
circumstance or situation relating to any representations, warranties,
covenants or agreements in any section of this Agreement shall be
automatically deemed to be disclosure of such document or fact or
circumstance or situation for purposes of all other representations,
warranties, covenants and agreements in this Agreement):
SECTION 3.1 CORPORATE EXISTENCE AND POWER. HCCH is a corporation duly
incorporated, validly existing and in good standing under the laws of the
state of its incorporation. HCCH has all corporate powers and all material
Governmental Authorizations required to carry on its business as now
conducted, except such Governmental Authorizations the failure of which to
have obtained would not have a Material Adverse Effect on HCCH. HCCH is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not have a Material Adverse Effect
on HCCH. HCCH has delivered to the Companies true and complete copies of
HCCH's Certificate of Incorporation and Bylaws as currently in effect.
SECTION 3.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by HCCH of this Agreement and the consummation by HCCH of the
transactions contemplated hereby are within the corporate powers of HCCH and
have been duly authorized by all necessary corporate action. This Agreement
constitutes or upon execution will constitute, a valid and binding agreement
of HCCH enforceable against HCCH in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity.
SECTION 3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by HCCH of this Agreement requires no action by or in respect of,
or filing with, any governmental body, agency, official or authority other
than:
(a) compliance with any applicable requirements of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder;
(b) compliance with any applicable requirements of the Securities Act
and the rules and regulations promulgated thereunder;
15
(c) compliance with any applicable foreign or state securities or "blue
sky" laws and the rules and regulations of the NYSE;
(d) compliance with any applicable requirements of any insurance
regulatory agency having authority over HCCH; and
(e) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not reasonably
be expected to have a Material Adverse Effect on HCCH or (ii) would not
materially adversely affect the ability of the Companies or HCCH to
consummate the transactions contemplated hereby and operate their businesses
as heretofore operated.
SECTION 3.4 NON-CONTRAVENTION. The execution, delivery and performance
by HCCH of this Agreement and the consummation by HCCH of the transactions
contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the Certificate of Incorporation or
Bylaws of HCCH;
(b) assuming compliance with the matters referred to in Section 3.3,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to HCCH;
(c) conflict with or result in a breach or violation of, or constitute a
default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate,
any material agreement, contract or other instrument binding upon HCCH or any
material license, franchise, permit or other similar authorization held by
HCCH; or
(d) result in the creation or imposition of any Lien on any material
asset of HCCH,
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on HCCH.
SECTION 3.5 CAPITALIZATION OF HCCH.
(a) The authorized capital stock of HCCH consists of 100,000,000 shares
of HCCH Common Stock. As of March 31, 1997, there were 36,168,185 shares of
HCCH Common Stock issued and outstanding. All outstanding shares of HCCH
Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable and free from any preemptive rights. Except as set forth
in this Section and as otherwise contemplated by this Agreement and except as
disclosed in public filings made by HCCH with the SEC prior to the Closing
Date or pursuant to publicly disseminated policy releases, or on the HCCH
Disclosure Schedule and except for changes since March 31, 1997 resulting
from the exercise of employee and director
16
stock options, or resulting from other mergers, acquisitions or purchases,
there are outstanding (i) no shares of capital stock or other voting
securities of HCCH, (ii) no securities of HCCH convertible into or
exchangeable for shares of capital stock or voting securities of HCCH and
(iii) no options or other rights to acquire from HCCH, and no obligation of
HCCH to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or other voting securities of HCCH
(the items in clauses (i), (ii) and (iii) being referred to collectively as
the "HCCH Securities"). There are no outstanding obligations of HCCH or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any HCCH
Securities.
(b) All shares of HCCH Common Stock issued to Shareholders shall, upon
issuance, be fully paid, validly issued and nonassessable.
SECTION 3.6 SUBSIDIARIES.
(a) Each HCCH Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all material Governmental
Authorizations required to carry on its business as now conducted, except
such Governmental Authorizations the failure of which to have obtained would
not have a Material Adverse Effect on HCCH, and is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by HCCH, or
the nature of its activities make such qualification necessary, except for
those jurisdictions where failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on HCCH. All
Subsidiaries and Joint Ventures material to the business of HCCH ("Material
HCCH Subsidiaries") and their respective jurisdictions of incorporation or
organization and HCCH's ownership interest therein are identified in the HCCH
Disclosure Schedule. Other than its investments in its Subsidiaries and
Joint Ventures, and shares of stock in publicly held companies aggregating
less than 10% of such public company's outstanding stock, HCCH does not own,
directly or indirectly, any outstanding capital stock or equity interest in
any corporation, partnership, Joint Venture or other entity.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Material HCCH Subsidiary that is owned by HCCH, is owned
by HCCH, directly or indirectly, free and clear of any material Lien and free
of any other material limitation or restriction on its rights as owner
thereof (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests), other than those
imposed by applicable law. There are no existing options, calls or
commitments of any character relating to the issued or unissued capital stock
or other securities or equity interests (collectively, "HCCH Subsidiary
Securities") of any HCCH Subsidiary.
17
SECTION 3.7 SEC FILINGS.
(a) HCCH has since October 28, 1992 filed all forms, proxy statements,
schedules, reports and other documents required to be filed by it with the
SEC pursuant to the Exchange Act.
(b) HCCH has made available, and will promptly make available in the
case of any of the following filed with the SEC on or after the date hereof
and prior to the Closing Date, to the Shareholders:
(i) its annual reports on Form 10-K for its fiscal years ended
December 31, 1996, 1995 and 1994;
(ii) any current reports on Form 8-K since January 1, 1997 and its
proxy or information statements relating to meetings of, or actions taken
without a meeting by, the shareholders of HCCH held since January 1, 1997;
and
(iii) all of its other reports, including reports on Form 10-Q,
statements, schedules and registration statements filed with the SEC since
December 31, 1996. None of HCCH's Subsidiaries is required to file any
forms, reports or other documents with the SEC.
(c) As of its filing date, no such report or statement filed pursuant to
the Exchange Act contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) No registration statement filed pursuant to the Securities Act, if
declared effective by the SEC, as of the date such statement or amendment
became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading.
SECTION 3.8 FINANCIAL STATEMENTS. The audited consolidated financial
statements of HCCH included in its annual reports on Form 10-K and the
unaudited financial statements of HCCH included in its quarterly reports on
Form 10-Q referred to in Section 3.7 present fairly, in conformity with
generally accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of HCCH and its consolidated subsidiaries as of the dates thereof
and their consolidated results of operations and cash flows for the periods
then ended (subject to normal year-end adjustments in the case of any interim
financial statements). For purposes of this Agreement, "HCCH Balance Sheet"
means the consolidated balance sheet of HCCH as of December 31, 1996, and the
notes thereto, contained in HCCH's annual report on Form 10-K filed with the
SEC, and "HCCH Balance Sheet Date" means December 31, 1996.
18
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the HCCH
Disclosure Schedule, since the HCCH Balance Sheet Date, HCCH and each of its
Subsidiaries have in all material respects conducted their business in the
ordinary course and there has not been:
(a) any Material Adverse Change with respect to HCCH or any event,
occurrence or development of a state of circumstances or facts known to HCCH,
which as of the date hereof could reasonably be expected to have a Material
Adverse Effect on HCCH;
(b) any amendment of any material term of any outstanding HCCH
Securities;
(c) any action by HCCH or, to HCCH's knowledge, any affiliate of HCCH
which would preclude the ability of HCCH to account for the business
combination to be effected hereunder as a pooling-of-interests under
generally accepted accounting principles; or
(d) the entering into of any agreement by HCCH or any person on behalf
of HCCH to take any of the foregoing actions.
SECTION 3.10 NO UNDISCLOSED LIABILITIES. There are no liabilities of
HCCH or any of its Subsidiaries of any kind whatsoever that are, individually
or in the aggregate, material to HCCH and its Subsidiaries, taken as a whole,
other than:
(a) liabilities disclosed or provided for in the HCCH Balance Sheet
(including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the HCCH Balance Sheet Date; and
(c) liabilities under this Agreement or as indicated in the HCCH
Disclosure Schedule.
SECTION 3.11 LITIGATION. Other than actions, suits, proceedings, claims
or investigations occurring in the ordinary course of business or such
actions, suits, proceedings, claims or investigations involving respective
amounts in controversy of less than $1,000,000 each, there is no action,
suit, proceeding, claim or investigation pending or, to the knowledge of
HCCH, overtly threatened, against HCCH or any of its Subsidiaries or any of
their assets or against or involving any of its officers, directors or
employees in connection with the business or affairs of HCCH, including,
without limitation, any such claims for indemnification arising under any
agreement to which HCCH or any of its Subsidiaries is a party, which could,
individually or in the aggregate, have a Material Adverse Effect on HCCH.
HCCH and each of its Subsidiaries are not subject to or in default with
respect to any writ, order, judgment, injunction or decree which could,
individually or in the aggregate, have a Material Adverse Effect on HCCH.
19
SECTION 3.12 TAXES.
(a) HCCH and each of its Subsidiaries (i) has filed when due (taking
into account extensions) with the appropriate federal, state, local, foreign
and other governmental agencies, all material tax returns, estimates and
reports required to be filed by it, (ii) either paid when due and payable or
established adequate reserves or otherwise accrued on the HCCH Balance Sheet
all material Taxes, and there are no tax deficiencies claimed in writing by
any taxing authority and received by HCCH that, in the aggregate, would
result in any Tax liability in excess of the amount of the reserves or
accruals, and (iii) has or will establish in accordance with its normal
accounting practices and procedures accruals and reserves that, in the
aggregate, are adequate for the payment of all Taxes not yet due and payable
and attributable to any period preceding the Closing. The HCCH Disclosure
Schedule sets forth those tax returns of HCCH (or any predecessor entities)
for all periods that currently are the subject of audit by any federal,
state, local or foreign taxing authority.
(b) There are no material taxes, interest, penalties, assessments or
deficiencies claimed in writing by any taxing authority and received by HCCH
or any of its Subsidiaries to be due in respect of any tax returns filed by
HCCH (or any predecessor corporations) or any of its Subsidiaries. Neither
HCCH nor any predecessor corporation, nor any of their respective
Subsidiaries, has executed or filed with the IRS or any other taxing
authority any agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any Taxes.
(c) HCCH is not a party to or bound by (or will prior to the Closing
Date become a party to or bound by) any Tax indemnity, Tax sharing or Tax
allocation agreement or other similar arrangement which includes a party
other than HCCH and its Subsidiaries. Neither HCCH nor any of its
Subsidiaries has been a member of an affiliated group other than one of which
HCCH was the common parent, or filed or been included in a combined,
consolidated or unitary tax return other than one filed by HCCH (or a return
for a group consisting solely of its Subsidiaries and predecessors).
SECTION 3.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Neither HCCH nor any corporation or other entity which under Section
4001(b) of ERISA is under common control with HCCH (an "HCCH ERISA
Affiliate") maintains or within the past five years has maintained,
contributed to, or been obligated to contribute to, any Pension Plan or any
Welfare Plan which is subject to ERISA. Each Pension Plan and Welfare Plan
disclosed in the HCCH Disclosure Schedule (which Plans have been heretofore
delivered to the Companies) and maintained by HCCH has been maintained in all
material respects in compliance with their terms and all provisions of ERISA
and the Code (including rules and regulations thereunder) applicable thereto.
(b) Neither HCCH nor any HCCH ERISA Affiliate maintains or has
maintained or contributed to any Pension Plan that is or was subject to
Section 302 or Title IV of ERISA or
20
Section 412 of the Code. HCCH has made available to the Companies for each
Pension Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code, a copy of the most recent determination letter
issued by the IRS to the effect that each such Plan is so qualified and that
each trust created thereunder is tax exempt under Section 501 of the Code,
and HCCH is unaware of any fact or circumstances that would jeopardize the
qualified status of each such Pension Plan or the tax exempt status of each
trust created thereunder.
(c) To the knowledge of HCCH, no Pension Plan or Welfare Plan is
currently subject to an audit or other investigation by the IRS, the
Department of Labor, the Pension Benefit Guaranty Corporation or any other
governmental agency or office nor are any such Plans subject to any lawsuits
or legal proceedings of any kind or to any material pending disputed claims
by employees or beneficiaries covered under any such Plan or by any other
parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to HCCH or any HCCH ERISA
Affiliate has occurred with respect to any Pension Plan or Welfare Plan.
HCCH has no knowledge of any breach of fiduciary responsibility under Part 4
of Title I of ERISA which has resulted in liability of HCCH, any HCCH ERISA
Affiliate, any trustee, administrator or fiduciary of any Pension Plan or
Welfare Plan.
(e) Neither HCCH nor any HCCH ERISA Affiliate, since January 1, 1986,
has maintained or contributed to, or been obligated or required to contribute
to, a "Multiemployer Plan," as such term is defined in Section 4001(a)(3) of
ERISA. Neither HCCH nor any HCCH ERISA Affiliate has either withdrawn,
partially or completely, or instituted steps to withdraw, partially or
completely, from any Multiemployer Plan nor has any event occurred which
would enable a Multiemployer Plan to give notice of and demand payment of any
withdrawal liability with respect to HCCH or any HCCH ERISA Affiliate.
(f) With respect to HCCH and each HCCH ERISA Affiliate, the HCCH
Disclosure Schedule correctly identifies each material agreement, policy,
plan or other arrangement, whether written or oral, express or implied, fixed
or contingent, to which HCCH is a party or by which HCCH or any property or
asset of HCCH is bound, which is or relates to a pension, option, bonus,
deferred compensation, retirement, stock purchase, profit-sharing, severance
pay, health, welfare, incentive, vacation, sick leave, medical disability,
hospitalization, life or other insurance or fringe benefit plan, policy or
arrangement.
SECTION 3.14 MATERIAL AGREEMENTS.
(a) The HCCH Disclosure Schedule or its filings with the SEC includes a
complete and accurate list of all contracts, agreements, leases (other than
HCCH Property Leases, as hereinafter defined) and instruments to which HCCH
or any of its Subsidiaries is a party or by which it or its properties or
assets are bound which individually involve net payments or receipts in
excess of $10,000,000 per annum, inclusive of contracts that pertain to
employment or severance benefits for any officer, director or employee of
HCCH, whether written or oral, but
21
exclusive of contracts entered into with customers and suppliers in the
ordinary course of business or contracts, agreements, leases and instruments
terminable without penalty by HCCH upon 60 days or less prior written notice
to the other party or parties thereto (the "Material HCCH Agreements").
(b) Neither HCCH, any HCCH Subsidiary, nor, to the knowledge of HCCH,
any other party is in default under any Material HCCH Agreement and no event
has occurred which (after notice or lapse of time or both) would become a
breach or default under, or would permit modification, cancellation,
acceleration or termination of any Material HCCH Agreement or result in the
creation of any security interest upon, or any person obtaining any right to
acquire, any properties, assets or rights of HCCH which, in any such case,
has had or would reasonably be expected to have a Material Adverse Effect on
HCCH.
(c) Each such Material HCCH Agreement is in full force and effect and is
valid and legally binding and there are no material unresolved disputes
involving or with respect to any Material HCCH Agreement. No party to a
Material HCCH Agreement has advised HCCH or any of its Subsidiaries that it
intends either to terminate a Material HCCH Agreement or to refuse to renew a
Material HCCH Agreement upon the expiration of the term thereof.
(d) Each of HCCH and each HCCH Subsidiary is not in violation of, or in
default with respect to, any term of its Certificate of Incorporation or
Bylaws.
SECTION 3.15 PROPERTIES. To the knowledge of HCCH, all leases of real
property to which HCCH or any of its Subsidiaries is a party or by which it
or any of its Subsidiaries is bound ("HCCH Property Leases") which are
material to the business of HCCH and its Subsidiaries taken as a whole are in
full force and effect. To the knowledge of HCCH, there exists no default
under such HCCH Property Leases, nor any event which with notice or lapse of
time or both would constitute a default thereunder by HCCH or any of its
Subsidiaries, which default would have a Material Adverse Effect on HCCH.
All of the properties and assets which are owned by HCCH and each of its
Subsidiaries are owned by each of them, respectively, free and clear of any
Lien, except for Liens which do not have a Material Adverse Effect on HCCH.
HCCH and each of its Subsidiaries have good and indefeasible title with
respect to such owned properties and assets subject to no Liens, other than
those permitted under this Section 3.15, to all of the properties and assets
necessary for the conduct of their business other than to the extent that the
failure to have such title would not have a Material Adverse Effect on HCCH.
SECTION 3.16 ENVIRONMENTAL MATTERS.
(a) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received, no complaint has been filed,
no penalty has been assessed and, to the knowledge of HCCH, no investigation
or review is pending, or to HCCH's knowledge, has been threatened by any
governmental entity or other party with respect to any (i) alleged violation
by HCCH or any of its Subsidiaries of any Environmental Law, (ii) alleged
failure by HCCH or any such Subsidiary to have any environmental permit,
certificate, license, approval,
22
registration or authorization required in connection with the conduct of its
business or (iii) Regulated Activity.
(b) Neither HCCH nor any of its Subsidiaries has any material
Environmental Liabilities and there has been no release of Hazardous
Substances into the environment by HCCH or any such Subsidiary or with
respect to any of their respective properties which has had, or would be
reasonably expected to have, a Material Adverse Effect on HCCH.
SECTION 3.17 LABOR MATTERS. HCCH is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by HCCH, nor do the executive officers of HCCH know of any
activities or proceedings of any labor union to organize any such employees.
SECTION 3.18 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on HCCH, neither HCCH nor any of its
Subsidiaries is in violation of, or has violated, any applicable provisions
of any laws, statutes, ordinances or regulations or any term of any judgment,
decree, injunction or order binding against it.
SECTION 3.19 TRADEMARKS, TRADE NAMES, ETC. HCCH owns or possesses, or
holds a valid right or license to use, all intellectual property, patents,
trademarks, trade names, service marks, copyrights and licenses, and all
rights with respect to the foregoing, necessary for the conduct of its
business as now conducted, without any known conflict with the rights of
others.
SECTION 3.20 BROKER'S FEES. Neither HCCH nor anyone acting on the
behalf or at the request thereof has any liability to any broker, finder,
investment banker or agent, or has agreed to pay any brokerage fees, finder's
fees or commissions, or to reimburse any expenses of any broker, finder,
investment banker or agent in connection with this Agreement.
ARTICLE IV
COVENANTS OF SOUTHERN, ACA AND SHAREHOLDERS
From the date hereof until the occurrence of the earlier of (i) the
Closing or (ii) termination of this Agreement pursuant to Section 8.1 hereof,
(a) the Companies and each Shareholder agrees, except as otherwise permitted
with the written consent of HCCH, that:
SECTION 4.1 CONDUCT OF THE COMPANIES. The Companies shall in all
material respects conduct their business in the ordinary course. Without
limiting the generality of the foregoing, from the date hereof until the
Closing, except as contemplated by this Agreement:
(a) The Companies will not adopt or propose any change in their Articles
or Certificate of Incorporation or Bylaws;
23
(b) The Companies will not enter into or amend any employment agreements
(oral or written) or increase the compensation payable or to become payable
by them to any of their officers, directors, or consultants over the amount
payable as of December 31, 1996, or increase the compensation payable to any
other employees (other than (i) increases in the ordinary course of business
which are not in the aggregate material to the Companies, or (ii) pursuant to
plans disclosed in the Southern/ACA Disclosure Schedule), or adopt or amend
any employee benefit plan or arrangement (oral or written);
(c) Southern will not issue any Southern Securities and ACA will not
issue any ACA Securities;
(d) The Companies will keep in full force and effect any existing
directors' and officers' liability insurance and will not modify or reduce
the coverage thereunder;
(e) The Companies will not pay any dividends or make any other
distributions to holders of its capital stock nor redeem or otherwise acquire
any Southern Securities or ACA Securities;
(f) The Companies will not, directly or indirectly, dispose of or
acquire any material properties or assets except in the ordinary course of
business;
(g) The Companies will not incur any additional indebtedness for
borrowed money except pursuant to existing arrangements which have been
disclosed to HCCH prior to the date hereof;
(h) The Companies will not amend or change the period of exercisability
or accelerate the exercisability of any outstanding options or warrants to
acquire shares of capital stock, or accelerate, amend or change the vesting
period of any outstanding restricted stock;
(i) The Companies and each Shareholder will not knowingly take any
action, other than those which have been disclosed to and approved by HCCH,
that would prevent the accounting for the business combination to be effected
hereunder as a pooling-of-interests;
(j) The Companies and each of the Shareholders will not, directly or
indirectly, agree or commit to do any of the foregoing; and
(k) The Companies will not (i) change accounting methods except as
necessitated by changes which the Companies are required to make in order to
prepare their federal, state and local tax returns; (ii) amend or terminate
any contract, agreement or license to which they are a party (except pursuant
to arrangements previously disclosed in writing to HCCH or disclosed in the
Southern/ACA Disclosure Schedule) except those amended or terminated in the
ordinary course of business, consistent with past practices, or involving
changes which are not materially adverse in amount or effect to the
Companies; (iii) lend any amount to any person or entity, other than advances
for travel and expenses which are incurred in the ordinary course of business
24
consistent with past practices, and which are not material in amount to the
Companies, which travel and expenses shall be documented by receipts for the
claimed amounts; (iv) enter into any guarantee or suretyship for any
obligation except for the endorsements of checks and other negotiable
instruments in ordinary course of business, consistent with past practice;
(v) waive or release any material right or claim except in the ordinary
course of business, consistent with past practice; (vi) issue or sell any
shares of its capital stock of any class or any other of its securities, or
issue or create any warrants, obligations, subscriptions, options,
convertible securities, stock appreciation rights or other commitments to
issue shares of capital stock, or take any action other than this transaction
to accelerate the vesting of any outstanding option or other security (except
pursuant to existing arrangements disclosed in writing to HCCH before the
date of this Agreement); (vii) merge, consolidate or reorganize with or
acquire any entity; (viii) agree to any audit assessment by any tax authority
or file any federal or state income or franchise tax return unless copies of
such returns have been delivered to HCCH for its review prior to such
agreement or filing; and (ix) terminate the employment of any key executive
employee.
SECTION 4.2 ACCESS TO FINANCIAL AND OPERATIONAL INFORMATION. The
Companies and the Shareholders will give HCCH, its counsel, financial
advisors, auditors and other authorized representatives reasonable access
during normal business hours to their offices, properties, books and records,
will furnish to HCCH, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data as such persons
may reasonably request and will instruct their employees, counsel and
financial advisors to cooperate with HCCH in its investigation of the
business of the Companies and in the planning for the combination of the
businesses of the Companies and HCCH following the consummation of the
transactions contemplated in this Agreement; PROVIDED that no investigation
pursuant to this Section shall affect any representation or warranty given
hereunder. In addition, following the public announcement of this Agreement
or the transactions contemplated hereby, the Companies will cooperate in
arranging joint meetings among representatives of the Companies and HCCH and
persons with whom they maintain business relationships. All requests for
information made pursuant to this Section shall be directed to Xxxxxx or such
person as may be designated by him in writing. All information conveyed
pursuant to this Section 5.3 shall be governed by the Confidentiality
Agreement between HCCH and Southern (the "Confidentiality Agreement").
SECTION 4.3 OTHER OFFERS.
(a) The Companies and each of the Shareholders will not, and will use
their best efforts to cause, where applicable, their respective officers,
directors, employees or other agents and affiliates not to, directly or
indirectly, (i) take any action to solicit, initiate or discuss any
Acquisition Proposal (as hereinafter defined), or (ii) engage in negotiations
with, or disclose any nonpublic information relating to, the Companies or
afford access to the properties, books or records of the Companies to, any
person or entity that may be considering making, or has made, an Acquisition
Proposal. To the extent that the Companies or any of their respective
officers, directors, employees or other agents, or Xxxxxx is currently
involved in any discussions with respect to any Acquisition Proposal or
contemplated or proposed Acquisition Proposal, the Companies and Xxxxxx shall
terminate, and shall use their best efforts to cause, where
25
applicable, their respective officers, directors, employees or other agents
to terminate, such discussions immediately. The term "Acquisition Proposal"
as used herein means any offer or proposal for, or any indication of interest
in, a merger or other business combination involving the Companies or the
acquisition of any equity interest in, or a substantial portion of the assets
of, the Companies other than the transactions contemplated by this Agreement.
(b) Subject to their fiduciary duties, the Board of Directors of the
Companies and each Shareholder shall not (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to HCCH, the approval or
recommendation by such Board of Directors or Shareholder, of this Agreement
or the other documents or transactions contemplated hereby, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal
(other than an Acquisition Proposal made by HCCH or an affiliate of HCCH) or
(iii) approve or authorize the entering into any agreement with respect to
any Acquisition Proposal.
SECTION 4.4 MAINTENANCE OF BUSINESS. The Companies will use their
reasonable best efforts to carry on their respective business, keep available
the services of its respective officers and employees and preserve their
relationships with those of their customers, agents, suppliers, licensors and
others having business relationships with them that are material to their
business in substantially the same manner as they have prior to the date
hereof. If the Companies become aware of a material deterioration or facts
which are likely to result in a material deterioration in the relationship
with any customers, supplier, licensor or others having business
relationships with them, they will promptly in writing bring such information
to the attention of the HCCH in writing.
SECTION 4.5 COMPLIANCE WITH OBLIGATIONS. The Companies shall use their
reasonable best efforts to comply in all material respects with (i) all
applicable federal, state, local and foreign laws, rules and regulations,
(ii) all material agreements and obligations, including their respective
charter and bylaws, by which they, their properties or their assets may be
bound, and (iii) all decrees, orders, writs, injunctions, judgments,
statutes, rules and regulations applicable to the Companies and their
properties or assets.
SECTION 4.6 NOTICES OF CERTAIN EVENTS. The Companies shall, upon
obtaining knowledge of any of the following, promptly notify HCCH of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with this
Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with this Agreement; and
(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against the Companies which, if pending
on the date of this Agreement, would have been required to have been
disclosed pursuant hereto or which relate to the consummation of the
transactions contemplated by this Agreement.
26
SECTION 4.7 AFFILIATES AGREEMENT. To facilitate the treatment of the
transactions hereunder for accounting purposes as a pooling-of-interests,
each Shareholder shall deliver to HCCH simultaneously with the execution of
this Agreement, a written agreement (the "Affiliates Agreement") from each
Shareholder and from each "affiliate" (as that term is used in Rule 144 or
145 under the Securities Act) in form and substance reasonably satisfactory
to HCCH relating to their intent to hold any HCCH Common Stock acquired
pursuant to this Agreement for investment purposes.
SECTION 4.8 NECESSARY CONSENTS. The Companies and each Shareholder
shall use their reasonable best efforts to obtain such written consent and
take such other actions as may be necessary or appropriate for the Companies
to facilitate and allow the consummation of the transactions provided for
herein and to facilitate and allow HCCH to carry on the acquired business
after the Closing Date (as defined in Section 9.1 hereof).
SECTION 4.9 REGULATORY APPROVAL. The Companies and, where required
pursuant to the rules or regulations of any regulatory agency, all
Shareholders will execute and file, or join in the execution and filing, with
any application or other document that may be necessary in order to obtain
the authorization, approval or consent of any governmental body, federal,
state, local or foreign which may be reasonably required, or which HCCH may
reasonably request, in connection with the consummation of the transaction
provided for in this Agreement. The Companies and Shareholders will use
reasonable best efforts to obtain or assist HCCH in obtaining all such
authorizations, approvals and consents.
SECTION 4.10 SATISFACTION OF CONDITIONS PRECEDENT. The Companies and
each Shareholder shall use their reasonable best efforts to cause the
transactions provided for in this Agreement to be consummated, and, without
limiting the generality of the foregoing to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions provided for herein.
ARTICLE V
COVENANTS OF HCCH
From the date hereof until the occurrence of the earlier of (i) the
Closing or (ii) the termination of this Agreement pursuant to Section 8.1
hereof, HCCH agrees that, except as otherwise permitted with the written
consent of Shareholders, which consent shall not be unreasonably withheld:
SECTION 5.1 CONDUCT OF HCCH. HCCH and its Subsidiaries shall in all
material respects conduct their business in the ordinary course PROVIDED,
HOWEVER, THAT nothing in this Agreement shall be construed to prohibit or
otherwise restrain HCCH in any manner from acquiring other businesses or
substantially all of the assets thereof. Without limiting the
27
generality of the foregoing, from the date hereof until the Closing, except
as contemplated hereby or previously disclosed by HCCH to Shareholders in
writing:
(a) HCCH will not adopt or propose any change in its Certificate of
Incorporation or Bylaws;
(b) HCCH will not take any action that would result in a failure to
maintain the trading of HCCH Common Stock on the NYSE; and
(c) HCCH will not, and will not permit any of its Subsidiaries to, agree
or commit to do any of the foregoing.
SECTION 5.2 ACCESS TO FINANCIAL AND OPERATION INFORMATION. HCCH will
give the Companies, their counsel, financial advisors, auditors and other
authorized representatives reasonable access during normal business hours to
the offices, properties, books and records of HCCH and its Subsidiaries, will
furnish to the Companies, their counsel, financial advisors, auditors and
other authorized representatives such financial and operating data such as
persons may reasonably request and will instruct HCCH's employees, counsel
and financial advisors to cooperate with the Companies in their investigation
of the business of HCCH and its Subsidiaries and in the planning for the
combination of the businesses of the Companies and HCCH following the
consummation of the transaction hereunder and will furnish promptly to the
Companies copies of all reports, schedules, registration statements,
correspondence and other documents filed with or delivered to the SEC,
PROVIDED that no investigation pursuant to this Section shall affect any
representation or warranty given by HCCH to the Companies or the Shareholders
hereunder. In addition, if requested by the Companies following the public
announcement of this Agreement, HCCH will cooperate in arranging joint
meetings among representatives of HCCH and the Companies and persons with
whom HCCH maintains business relationships. All requests for information
made pursuant to this Section shall be directed to the President of HCCH or
such person as may be designated by him in writing.
SECTION 5.3 MAINTENANCE OF BUSINESS. HCCH will use its reasonable
efforts to carry on its business, keep available the services of its officers
and employees and preserve its relationships with those of its customers,
suppliers, licensors and others having business relationships with it that
are material to its business in substantially the same manner as it has prior
to the date hereof. If HCCH becomes aware of a material deterioration or
facts which are likely to result in a material deterioration in the
relationship with any material customer, supplier, licensor or others having
business relationships with it, it will promptly bring such information to
the attention of the Companies in writing.
SECTION 5.4 COMPLIANCE WITH OBLIGATIONS. HCCH and its Subsidiaries
shall each use its reasonable best efforts to comply in all material respects
with (i) all applicable federal, state, local and foreign laws, rules and
regulations, (ii) all material agreements and obligations, including its
respective charter and bylaws, by which it, its properties or its assets may
be bound, and (iii) all decrees, orders, writs, injunctions, judgments,
statutes, rules and regulations
28
applicable to HCCH and its Subsidiaries and their respective properties or
assets; except to the extent that the failure to comply with matters in
clauses (i), (ii) and (iii) would not have a Material Adverse Effect on HCCH.
SECTION 5.5 NOTICES OF CERTAIN EVENTS. HCCH shall, upon obtaining
knowledge of any of the following, promptly notify the Companies of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with this
Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with this Agreement; and
(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against HCCH or any of its Subsidiaries
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.11 or which relate to the consummation
of the transactions contemplated in this Agreement.
SECTION 5.6 NOTICE TO AFFILIATES. HCCH shall, at least 30 days prior
to the Closing Date, cause to be delivered to each person HCCH believes to be
an "affiliate," as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act, of HCCH a notice informing such persons of
restrictions on transfer resulting from the transactions hereunder being
accounted for as a pooling-of-interests in accordance with generally accepted
principles and all published rules, regulations and policies of the SEC.
ARTICLE VI
COVENANTS OF HCCH, THE COMPANIES AND SHAREHOLDERS
From the date hereof until the occurrence of the earlier of (i) the
Closing or (ii) termination of this Agreement pursuant to Section 8.1 hereof,
each of the Shareholders, where applicable, the Companies and HCCH agree that:
SECTION 6.1 ADVICE OF CHANGES. It will promptly advise the others in
writing (i) of any event known to any of its executive officers or the
Shareholders occurring subsequent to the date of this Agreement that in its
reasonable judgment renders any representation or warranty of such party
contained in this Agreement, if made on or as of the date of such event or
the Closing Date, untrue, inaccurate or misleading in any material respect
and (ii) of any Material Adverse Change in the business condition of the
party.
SECTION 6.2 REGULATORY APPROVALS. It shall execute and file, or
join in the execution and filing of, any application or other document
that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or
29
foreign, which may be requested in connection with the consummation of the
transactions hereunder. Each party shall use its reasonable best efforts to
obtain all such authorizations, approvals and consents.
SECTION 6.3 ACTIONS CONTRARY TO STATED INTENT. It shall not, from or
after the date hereof and either before or after the Closing, take any action
that would prevent the transactions hereunder from qualifying as a
reorganization under Section 368(a) of the Code or prevent the business
combination to be effected by the transactions hereunder from being accounted
for as a pooling-of-interests under generally accepted accounting principles.
Each of HCCH and the Companies and the Shareholders shall use its reasonable
best efforts to cause its affiliates not to take any action that would
preclude the ability of HCCH to account for the business combination to be
effected by the transactions hereunder as a pooling-of-interests.
SECTION 6.4 CERTAIN FILINGS. Each of the Shareholders, the Companies
and HCCH shall cooperate with one another:
(a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency or official, or authority is required, or
any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement; and
(b) in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection
therewith and seeking timely to obtain any such actions, consents, approvals
or waivers.
SECTION 6.5 COMMUNICATIONS. Neither the Companies, any Shareholder nor
HCCH will furnish any communication outside of their respective companies, if
the subject matter thereof relates to the transactions contemplated by this
Agreement and is not in the ordinary course of business, without the prior
approval of the other of them as to the content thereof, which approval shall
not be unreasonably withheld; PROVIDED that the foregoing shall not be deemed
to prohibit any disclosure required by any applicable law or rule of the NYSE.
SECTION 6.6 SATISFACTION OF CONDITIONS PRECEDENT. HCCH, the Companies
and each Shareholder will use its reasonable best efforts to satisfy or cause
to be satisfied all the conditions precedent that are applicable to each of
them, and to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all material consents and authorizations of third parties and to make filings
with, and give all notices to, third parties that may be necessary or
reasonably required on its part in order to effect the transactions
contemplated hereby.
SECTION 6.7 TAX COOPERATION. HCCH, the Companies and the Shareholders
shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees, and any similar taxes or
fees
30
which become payable in connection with the transactions contemplated by this
Agreement that are required or permitted to be filed on or before the Closing.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1 CONDITIONS TO OBLIGATIONS OF HCCH. The obligations of HCCH
hereunder are subject to the fulfillment or satisfaction, on and as of the
Closing Date, of each of the following conditions (any one or more of which
may be waived by HCCH, but only in a writing signed by HCCH):
(a) The representations and warranties of the Companies and each
Shareholder contained in Article II shall be true and accurate in all material
respects on and as of the Closing Date with the same force and effect as if
they had been made on the Closing Date (except to the extent a representation
or warranty speaks specifically as of an earlier date and except for changes
contemplated by this Agreement) and the Companies and each Shareholder shall
have provided HCCH with a certificate executed by the President and the
Secretary of the Companies or individually, as the case may be, dated as of
the Closing Date, to such effect.
(b) The Companies and each Shareholder shall have performed and complied
in all material respects with all of the covenants contained herein on or
before the Closing Date, and HCCH shall receive a certificate to such effect
signed by the President and Chief Financial Officer or individually, as the
case may be.
(c) Except as set forth in the Southern/ACA Disclosure Schedule and
acceptable to HCCH, there shall have been no Material Adverse Change in the
Companies since December 31, 1996.
(d) HCCH shall have received from (i) each person or entity who may be
deemed to be an affiliate of the Companies a duly executed Affiliates
Agreement and (ii) each Shareholder, the written agreement contemplated to be
entered into by such person pursuant to this Agreement and such agreements
shall remain in full force and effect.
(e) All written consents, assignments, waivers or authorizations, other
than Governmental Authorizations, that are required for the continuation in
full force and effect of any material contracts or leases of the Companies
shall have been obtained.
(f) HCCH shall have received a written opinion from its counsel to the
effect that the transactions hereunder will qualify as a tax-free
reorganization within the meaning of Section 368 of the Code. In preparing
such opinion, counsel may rely on (and to the extent reasonably required, the
parties and their shareholders shall make) reasonable representations related
thereto.
31
(g) HCCH shall have received the opinion of counsel to the Companies and
the Shareholders in form and substance satisfactory to HCCH.
(h) All underwriting agreements of the Companies in force on the date
hereof shall be in force on the Closing Date, except for such agreements
which have been replaced with agreements of similar like and kind.
(i) Xxxxxx shall be alive and not, in any way, Disabled. For purposes
of this Agreement, Xxxxxx shall be deemed to be "Disabled" if he is unable to
engage in any substantial portion of his regular duties for the Companies by
reason of any medically determinable physical or mental impairment which can
be expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months.
(j) At HCCH's election, HCCH shall have received a report addressed to
it from Coopers & Xxxxxxx L.L.P. confirming that the Companies qualify as an
entity that may be party to a business combination for which the
pooling-of-interest method of accounting is available and that the
transactions contemplated hereby will qualify for pooling-of-interests
treatment under generally accepted accounting principles and all published
rules, regulations, and policies of the SEC.
(k) The Companies shall have delivered to HCCH their unaudited balance
sheet and their unaudited income statement for each of the most recent fiscal
year end.
(l) The Companies shall have earned no less than $318,000 after taxes
for the fiscal year ended December 31, 1996 and on a pro-forma combined
basis, as reasonably determined by HCCH, be expected to earn at least
$476,000 after taxes for the year ended December 31, 1997.
(m) Shareholders shall have transferred all the Southern Common Stock
and ACA Common Stock to HCCH, free and clear of all Liens and encumbrances,
with transfer taxes, if any, paid by Shareholders. No claim shall have been
filed, made or threatened by any person or entity asserting that he, she, or
it is entitled to any part of the Share Payment for the Southern Common Stock
or ACA Common Stock.
(n) On or prior to the Closing Date, the Companies and Shareholders
shall have furnished HCCH with evidence of such consents as the Companies or
Shareholders shall know, or HCCH shall determine, to be required to enable
HCCH to continue to enjoy the benefit of any lease, license, permit, contract
or other agreement or instrument to or of which the Companies are a party or
beneficiary and which can, by its terms (with consent) and consistent with
applicable law, be so enjoyed after the transfer of the Southern Common Stock
and ACA Common Stock to HCCH. If there is in existence any lease,
governmental license, permit or contract that by its terms or applicable law,
expires, terminates, or is otherwise rendered invalid upon the transfer of
the Southern Common Stock or ACA Common Stock to HCCH, and such lease,
license, permit, or contract is required in order for the business of the
Companies to
32
continue to be conducted following the transfer of each Company's Common
Stock in the same manner as conducted previously, HCCH shall have obtained,
or been furnished by Shareholders an equivalent of, that lease, license,
permit, or contract effective as of and after the Closing Date.
(o) HCCH shall have received resignations of all persons who are
officers or directors of the Companies immediately prior to the Closing.
(p) HCCH shall have received general releases in favor of the Companies
and HCCH executed by each Shareholder and any such other officers or
directors of the Companies as HCCH may designate. Those releases will not
relate to rights or obligations arising under this Agreement.
(q) HCCH shall have received possession on the premises of each of the
Companies of all corporate, accounting, business and tax records of each such
Company.
(r) The form and substance of all actions, proceedings, instruments and
documents required to consummate the transactions contemplated by this
Agreement shall have been satisfactory in all reasonable respects to HCCH and
HCCH's counsel.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF THE COMPANIES AND SHAREHOLDERS.
The Companies' and each Shareholder's obligations hereunder are subject to
the fulfillment or satisfaction, on and as of the Closing Date, of each of
the following conditions (any one or more of which may be waived, but only in
a writing signed by such party):
(a) The representations and warranties of HCCH set forth herein shall be
true and accurate in all material respects on and as of the Closing Date with
the same force and effect as if they had been made on the Closing Date
(except to the extent a representation or warranty speaks specifically as of
an earlier date and except for changes contemplated by this Agreement) and
HCCH shall have provided the Companies with a certificate executed by the
President and the Chief Financial Officer of HCCH, dated as of the Closing
Date, to such effect. For the purposes of determining the accuracy of the
representations and warranties of HCCH, any change or effect in the business
of HCCH that results in substantial part as a consequence of the public
announcement or pendency of the intended acquisition of the Companies by HCCH
shall not be deemed a Material Adverse Change or Material Adverse Effect or
other breach of representation or warranty with respect to HCCH.
(b) HCCH shall have performed and complied with all of its covenants
contained herein in all material respects on or before the Closing Date, and
the Companies shall receive a certificate to such effect signed by HCCH's
President and Chief Financial Officer.
(c) Except as set forth in the HCCH Disclosure Schedule, there shall
have been no Material Adverse Change in HCCH since the HCCH Balance Sheet
Date.
33
(d) The Companies shall have received from Xxxxxxxx Xxxxxxxx & Xxxxxx
P.C., counsel to HCCH, an opinion in form and substance satisfactory to the
Shareholders.
(e) Xxxxxx shall have received a letter from HCCH specifying the terms
of his continued employment with the Companies including provision for a
salary of $150,000 per year. Such letter of employment shall also include
provisions for reimbursement of reasonable business related travel and
entertainment expenses, consistent with that provided to other HCCH officers.
(f) Each of the Shareholders shall agree to a three year non-compete
provision beginning for those who are officers or directors of the Companies
upon their ceasing to be employed by HCCH or the Companies and, for all
others, from the Closing Date.
(g) The form and substance of all actions, proceedings, instruments and
documents required to consummate the transactions contemplated by this
Agreement shall have been satisfactory in all reasonable respects to
Shareholders and their counsel.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of the parties hereunder are subject to the fulfillment, on and
as of the Closing Date, of each of the following conditions (any one or more
of which may be waived by such parties, but only in a writing signed by such
parties):
(a) No statute, rule, regulation, executive order, decree, injunction or
restraining order shall have been enacted, promulgated or enforced (and not
repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the transactions
hereunder (each party agreeing to use its reasonable best efforts to have any
such order, decree or injunction lifted).
(b) There shall have been obtained any and all Governmental
Authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the
transaction contemplated by this Agreement will be in compliance with
applicable laws, the failure to comply with which would have a Material
Adverse Effect on HCCH, the Companies, or would be reasonably likely to
subject any of HCCH, the Companies or any of their respective directors or
officers to penalties or criminal liability.
ARTICLE VIII
TERMINATION OF AGREEMENT
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
34
(a) By the mutual consent of the Boards of Directors of HCCH and the
Shareholders of Southern and Aviation holding two-thirds of the outstanding
shares.
(b) By either the Board of Directors of HCCH or the Shareholders of
Southern and Aviation holding two-thirds of the outstanding shares if there
has been a material breach by the other of any representation or warranty
contained in this Agreement, which in either case cannot be, or has not been,
cured within 15 days after written notice of such breach is given to the
party committing such breach, provided that the right to effect such cure
shall not extend beyond the date set forth in subparagraph (c) below.
(c) By either the Board of Directors of HCCH or the Shareholders of
Southern and Aviation holding two-thirds of the outstanding shares if all
conditions of Closing required by Article VII hereof have not been met or
waived by September 30, 1997; provided, however, that neither HCCH nor the
Shareholders, shall be entitled to terminate this Agreement pursuant to this
subparagraph (c) if such party is in willful and material violation of any of
its representations, warranties or covenants in this Agreement.
(d) If any governmental authority shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions hereunder and such order, decree,
ruling or other action shall have become final and nonappealable.
(e) By the Board of Directors of HCCH, if Xxxxxx shall have become
Disabled or shall have died.
SECTION 8.2 EFFECT OF TERMINATION. Upon termination of this Agreement
pursuant to this Article VIII, this Agreement shall be void and of no effect and
shall result in no obligation of or liability to any party or their
respective directors, officers, employees, agents or shareholders, other than
the obligations pursuant to the Confidentiality Agreement previously entered
into by the parties hereto, unless such termination was the result of an
intentional breach of any representation, warranty or covenant in this
Agreement, in which case the party who breached the representation, warranty
or covenant shall be liable to the other party for damages, and all costs and
expenses incurred in connection with the preparation, negotiation, execution
and performance of this Agreement.
ARTICLE IX
CLOSING MATTERS
SECTION 9.1 THE CLOSING. Subject to termination of this Agreement as
provided in Article VIII above, the closing of the transactions provided for
herein (the "Closing") will take place at the offices of Xxxxxxxx Xxxxxxxx &
Xxxxxx P.C., 000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000 at 10:00
a.m., Houston Time on August 5, 1997, or, if all conditions to Closing
35
have not been satisfied or waived by such date, such other place, time and
date as the Shareholders and HCCH may mutually select (the "Closing Date").
ARTICLE X
INDEMNIFICATION AND
REMEDIES, CONTINUING COVENANTS
SECTION 10.1 AGREEMENT TO INDEMNIFY. Subject to the limitations set
forth in this Article X and except as set forth in Section 10.2, each
Shareholder, severally and Pro Rata (as hereinafter defined), will indemnify
and hold harmless HCCH and its respective officers, directors, agents and
employees, and each person, if any, who controls or may control HCCH within
the meaning of the Securities Act (hereinafter in this Section 10.1 and in
Section 10.2 below referred to individually as a "Southern/ACA Indemnified
Person" and collectively as the "Southern/ACA Indemnified Persons") from and
against any and all claims, demands, actions, causes of action, losses,
costs, damages, liabilities and expenses including, without limitation,
reasonable legal fees, net of any recoveries under insurance policies,
recoveries from third parties, and tax savings known to the Southern/ACA
Indemnified Persons at the time of making of claims hereunder (hereafter in
this Section 10.1 referred to as "HCCH Damages"), arising out of any
misrepresentation or breach of or default under any of the representations,
warranties, covenants or agreements given or made in this Agreement or any
certificate or exhibit delivered by or on behalf of the Companies or any of
the Shareholders pursuant hereto. "Pro Rata" for purposes of this Article X
with respect to each Shareholder shall mean the proportion that such
Shareholder's holdings of the Companies Common Stock as of immediately prior
to the Closing bears to the total shares of the Companies Common Stock held
by all Shareholders as of immediately prior to the Closing. The
indemnification provided for in this Section 10.1 will not apply unless and
until the aggregate HCCH Damages for which one or more Southern/ACA
Indemnified Persons seeks indemnification exceeds $50,000 in the aggregate,
in which event the indemnification provided for will include all HCCH Damages
(a franchise deductible) up to the Maximum Shareholder Liability (as
hereinafter defined). The Southern/ACA Indemnified Persons are only entitled
to be reimbursed for the actual indemnified expenditures or damages incurred
by them for the above described losses. Such Southern/ACA Indemnified
Persons are not entitled to consequential, special, or other speculative or
punitive categories of damages. In seeking indemnification for HCCH Damages
under this Section 10.1 following the Closing, the Southern/ACA Indemnified
Persons' remedy will be limited to receiving up to that number of shares of
HCCH Common Stock determined by dividing (a) the amount of the HCCH Damages
by (b) the closing sale price of HCCH's Common Stock on the New York Stock
Exchange on the Closing Date (the "Closing Date Price"), provided, however,
that irrespective as to the number of claims asserted by the Southern/ACA
Indemnified Persons and the amount of the HCCH Damages for which
indemnification is sought, any such Shareholder, in the aggregate, shall
under no circumstances be required to make indemnification payments beyond
the Closing Date Price multiplied by the number of shares of HCCH Common
Stock received by such Shareholder at the time of Closing (the "Maximum
Shareholder Liability"). Notwithstanding
36
anything to the contrary set forth herein, in the event that at the time of
the resolution of any such indemnification claim, such Shareholder does not
hold the number of shares of HCCH Common Stock (including any shares
otherwise acquired at any time before or after the Closing or at any time
after any claim is made for indemnification) necessary to settle any
indemnification claim, then such Shareholder shall pay in cash or other
immediately available funds the cash equivalent of the remainder of his
in-stock indemnification obligations under this Section 10.1 up to his Maximum
Shareholder Liability. In lieu of HCCH Common Stock, any Shareholder shall
have the option to pay in cash or other immediately available funds the cash
equivalent of all or any part of his in-stock Maximum Shareholder Liability.
SECTION 10.2 INDEMNIFICATION WITH RESPECT TO TAXES AND ENVIRONMENT.
In addition to the indemnification provided in Section 10.1 above, each
Shareholder, severally and Pro Rata hereby specifically agrees individually
to indemnify and hold harmless the Indemnified Persons from and against all
HCCH Damages, whenever incurred, arising out of (a) any Taxes arising out of
or relating to the business of the Companies, and (b) any liability,
including any Environmental Liabilities, arising out of the violation of any
Environmental Laws or the use of any Hazardous Substances incurred on any
Company Property Leases or resulting from the ownership of any real estate by
any Shareholder or the Companies which results in liability to any of the
Companies or HCCH.
SECTION 10.3 HCCH AGREEMENT TO INDEMNIFY. Subject to the limitations
set forth in this Article X, from and after the Closing, HCCH will indemnify
and hold harmless the Shareholders (hereinafter in this Section 10.3 referred to
individually as an "HCCH Indemnified Person" and collectively as "HCCH
Indemnified Persons") from and against any and all claims, demands, actions,
causes of action, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable legal fees, net of any recoveries under
insurance policies, recoveries from third parties and tax savings known to
HCCH Indemnified Persons at the time of making a claim hereunder (hereafter
in this Section 10.3 referred to as the "Shareholders' Damages") arising out of
any misrepresentation or breach of or default under any of the
representations, warranties, covenants and agreements given or made by HCCH
in this Agreement or any certificate or exhibit delivered by or on behalf of
HCCH pursuant hereto. In seeking indemnification for the Shareholders'
Damages under this Section 10.3 following the Closing, the HCCH Indemnified
Person's remedy will be limited to receiving up to that number of shares of
HCCH Common Stock determined by dividing (a) the amount of the Shareholders'
Damages by (b) the Closing Date Price; provided, however, that irrespective
of the number of claims asserted by HCCH Indemnified Persons hereunder in the
amount of the Shareholders' Damages for which indemnification is sought,
HCCH, in the aggregate, shall under no circumstances be obligated to make an
indemnification payment hereunder beyond that number of shares of HCCH Common
Stock equal to the total number of shares of HCCH Common Stock provided to
the Shareholders on the Closing Date (the "Maximum HCCH Liability"). The
indemnification provided for in this Section 10.3 will not apply unless and
until the aggregate Shareholders' Damages for which one or more HCCH
Indemnified Person seeks indemnification exceeds $50,000 in the aggregate, in
which event the indemnification provided for will include all Shareholders'
Damages (a franchise deductible) up to the Maximum HCCH Liability. The HCCH
Indemnified Persons are only
37
entitled to be reimbursed for the actual indemnified expenditures or damages
incurred by them for the above described losses. Such HCCH Indemnified
Persons are not entitled to consequential, special, or other speculative or
punitive categories of damages.
SECTION 10.4 APPOINTMENT OF REPRESENTATIVE. Subject to the
successorship provisions of this Section 10.4, Xxxxxx (the "Representative") is
hereby irrevocably appointed as the attorney-in-fact and representative of
the interests of the Shareholders for all purposes of this Agreement, and
notice is hereby given thereof to HCCH and, without independent verification,
HCCH may rely upon Representative's undertakings in such capacity. The
Representative shall have full and irrevocable authority on behalf of the
Shareholders, and shall promptly and completely exercise such authority in a
timely fashion to:
(a) participate in, represent and bind the Shareholders in all respects
with respect to any arbitration or legal proceeding relating to this
Agreement, including, without limitation, the defense and settlement of any
matter, and the calculation thereof for every purpose thereunder, consent to
jurisdiction, enter into any settlement, and consent to entry of judgment,
each with respect to any or all of the Shareholders;
(b) receive, accept and give notices and other communications relating
to this Agreement;
(c) take any action that the Representative deems necessary or desirable
in order to fully effectuate the transactions contemplated by this Agreement;
(d) execute and deliver any instrument or document that the
Representative deems necessary or desirable in the exercise of his authority
under this Section 10.4; and
(e) waive the fulfillment of any condition or conditions to the Closing.
Those Shareholders who, as of the Closing Date, hold a majority of the
Companies Common Stock may, at any time and by written action delivered to
HCCH, remove the Representative or any successor thereto, but such removal
shall be effective only upon the replacement of such Representative or
successor by a new Representative designated, by written notice delivered to
HCCH, by those Shareholders who, as of the date hereof hold a majority of the
Companies Common Stock, PROVIDED, however, that any such notice shall be
effective upon actual receipt by HCCH. Any such written notice shall be
delivered to HCCH in accordance with the notice provisions set forth in
Section 12.3 hereof. If any Representative shall have died, become
incapacitated or unable to serve, those Shareholders who, as of the date
hereof, hold a majority of the Companies' Common Stock shall promptly
designate by written notice delivered to HCCH, a replacement Representative.
Any costs and expenses incurred by the Representative in connection with
actions taken pursuant to or permitted by this Section 10.4 will be borne by the
Shareholders and paid or reimbursed to the Representative.
38
The foregoing authorization is granted and conferred in consideration for
the various agreements and covenants of HCCH contained herein. In
consideration of the foregoing, and subject to the successorship provisions
of this Section 10.4, this authorization granted to the Representative shall be
irrevocable and shall not be terminated by any act of any of the Shareholders
or by operation of law, whether by death or incompetence of any Shareholder
or by the occurrence of any other event except the termination of this
Agreement pursuant to Section 8.1 hereof. If after the execution hereof any
such Shareholder shall die or become incompetent, the Representative is
nevertheless authorized and directed to exercise the authority granted in
this Section 10.4 as if such death or incompetence had not occurred and
regardless of notice thereof. The Representative shall have no liability to
any Shareholder for any act or omission or obligation hereunder, provided
that such action or omission is taken by the Representative in good faith and
without willful misconduct.
SECTION 10.5 SURVIVAL OF REPRESENTATIONS. Unless the right to enforce
the breach of any representation, warranty, covenant or agreement is required
to terminate at an earlier time in order to maintain the appropriate
pooling-of-interest accounting treatment, the right to enforce the breach of
each representation, warranty, covenant and agreement set forth in this
Agreement will remain operative and in full force and effect until the filing
by HCCH pursuant to the rules and regulations of the Exchange Act of the
first Form 10-K following the Closing (the last date of such applicable
period of not more than one year being herein called the "Final Date"),
regardless of any investigation made by or on behalf of the parties to this
Agreement, upon which Final Date such representations, warranties, covenants
and agreements shall expire and be of no further force and effect. The
indemnification referred to and set forth in Section 10.2 shall survive until a
final resolution of such claim is effective. Any litigation or other action
of any kind arising out of or attributable to a breach of any representation,
warranty, covenant or agreement contained in this Agreement, except as set
forth in Section 10.2, must be commenced prior to the Final Date. If not so
commenced prior to the Final Date, any claims or indemnifications brought
under this Article X will thereafter conclusively be deemed to be waived
regardless of when such claim is or should have been discovered. Any such
claim for indemnification brought under this Article X, brought before the
Final Date, shall survive until a final resolution of such claim is
effective. As set forth herein, no investigation by any party hereto into
the business, operations and conditions of the other party shall diminish in
any way the effect of any representation or warranty made by any such party
in this Agreement or shall relieve any party of any of its obligations under
this Agreement.
SECTION 10.6 PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under this Article X
of notice of a claim against it for indemnification brought under this
Article X (a "Claim"), the indemnified party will, if a claim is to be made
against an indemnifying party, give prompt written notice to the indemnified
party of the Claim, but the failure to promptly notify the indemnified party
will not relieve the indemnified party of any liability that it may have to
any indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudice by the indemnifying
party's failure to give such prompt notice. Such notice shall
39
contain a description in reasonable detail of facts upon which such Claim is
based and, to the extent known, the amount thereof.
(b) If any Claim referred to in this Article X is made by a third party
against an indemnified party and such indemnified party gives written notice
to the indemnifying party of the Claim, the indemnifying party will be
entitled to participate in the defense of Claim and, to the extent that it
wishes to assume the defense of the Claim and, after written notice from the
indemnifying party to the indemnified party of its election to assume the
defense of the Claim, the indemnifying party shall assume such defense and
will not be liable to the indemnified party under this Article X for any fees
of other counsel or any other expenses with respect to the defense of the
Claim in each case subsequently incurred by the indemnified party in
connection with the defense of the Claim.
ARTICLE XI
POST-CLOSING COVENANTS OF HCCH
SECTION 11.1 LISTING OF HCCH COMMON STOCK. HCCH shall cause the shares
of HCCH Common Stock to be issued hereunder to be approved for listing on the
NYSE within sixty (60) days of the Closing.
SECTION 11.2 EMPLOYEE MATTERS. HCCH agrees that all employees of the
Companies that remain employed after the Closing shall, within reasonable
time following the Closing, be entitled to receive the same benefits to which
other employees of HCCH are entitled to receive and shall be entitled to
participate in HCCH's Employee Benefit Plan provided such employees have
satisfied the plan's eligibility requirements.
SECTION 11.3 PRESIDENCY OF SOUTHERN. As soon as practicable after the
Closing, HCCH shall elect Xxxxxx as President of Southern.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further instruments,
documents and agreements and to give such further written assurances as
may be reasonably requested by any other party to better evidence and
reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
40
SECTION 12.2 FEES AND EXPENSES. Until otherwise agreed by the parties,
each party shall bear its own fees and expenses, including counsel fees and
fees of brokers and investment bankers contracted by such party, in
connection with the transaction contemplated hereby.
SECTION 12.3 NOTICES. Whenever any party hereto desires or is required
to give any notice, demand, or request with respect to this Agreement, each
such communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States registered or
certified mail, postage prepaid, or sent by prepaid overnight courier or
confirmed telecopier, addressed as follows:
HCCH:
HCC Insurance Holdings, Inc.
00000 Xxxxxxxxx Xxxxxxx
Xxxxxxx, Xxxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx, President
With copies (which shall not constitute notice) to:
Xxxxxxxx Xxxxxxxx & Xxxxxx P.C.
910 Xxxxxx, Suite 1700 (until August 23, 1997 - then Xxxxx 0000)
Xxxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000 (until August 23, 1997 - then (000) 000-0000)
Attention: Xxxxxx X. Xxxxxx, Esq.
the Companies and all Shareholders:
Xxxxxx X. Xxxxxx, III
c/o Southern Aviation Insurance Underwriters, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
With copies (which shall not constitute notice) to:
Xxxx & Xxxxxx, L.L.P.
000 Xxxxx 00xx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxx Xxxxxxx
Such communications shall be effective when they are received by the
addressee thereof. Any party may change its address for such communications
by giving notice thereof
41
to other parties in conformity with this Section. In the event Xxxxxx is no
longer the Representative, such successor Representative's address shall be
the address for the Shareholders.
SECTION 12.4 GOVERNING LAW. The internal laws of the State of Texas
(irrespective of its choice of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto. Any dispute,
claim, or cause of action arising hereunder shall lie exclusively in the
state courts of Xxxxxx County, Texas or, if federal jurisdiction can be
acquired, in the United States District Court for the Southern District of
Texas, sitting in Xxxxxx County, Texas.
SECTION 12.5 BINDING UPON SUCCESSORS AND ASSIGNS, ASSIGNMENT. This
Agreement and the provisions hereof shall be binding upon each of the
parties, their permitted successors and assigns. This Agreement may not be
assigned by any party without the prior consent of the others.
SECTION 12.6 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances shall continue in full force and
effect and in no way be affected, impaired or invalidated.
SECTION 12.7 ENTIRE AGREEMENT. This Agreement and the other agreements
and instruments referenced herein constitute the entire understanding and
agreement of the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between
parties with respect hereto.
SECTION 12.8 AMENDMENT AND WAIVERS. Any amendment or waiver affecting
the Shareholders shall be valid if consented to in writing by Shareholders
holding a majority of the shares of each Company's Common Stock (i) if given
or made prior to the Closing, such majority as determined as of the date of
such amendment or waiver, and (ii) if given or made at or after the Closing,
such majority as determined immediately prior to the Closing. Any term or
provision of this Agreement may be amended, and the observance of any term of
this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only by a writing signed by those
persons as provided in this Section 12.8. The waiver by a party of any breach
hereof or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default, unless
such waiver so expressly states. At any time before the Closing, this
Agreement may be amended or supplemented by the Companies, the Shareholders
or HCCH with respect to any of the terms contained in this Agreement.
SECTION 12.9 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
42
SECTION 12.10 CONSTRUCTION OF AGREEMENT. A reference to an Article,
Section or an Exhibit shall mean an Article of, a Section in, or Exhibit to,
this Agreement unless otherwise explicitly set forth. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a
whole. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
SECTION 12.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party
whose signature appears thereon and all of which together shall constitute
one and the same instrument. This Agreement shall become binding when one or
more counterparts hereof, individually or taken together, shall bear the
signatures of all the parties reflected hereon as signatories.
SECTION 12.12 NO THIRD PARTY BENEFICIARIES. Any agreement to perform any
obligation herein contained, express or implied, shall be only for the
benefit of HCCH, the Companies, the Shareholders and their permitted
successors and assigns, and such agreements shall not inure to the benefit of
an obligee, whomever, it being the intention of the undersigned parties that
no one shall be or be deemed to be a third party beneficiary under this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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"HCC INSURANCE HOLDINGS, INC."
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
SIGNATURE PAGE OF ACQUISITION AGREEMENT
"SOUTHERN AVIATION INSURANCE
UNDERWRITERS, INC."
By: /s/ Xxxxxx X. Xxxxxx, III
----------------------------------------------
Name: Xxxxxx X. Xxxxxx, III
Title: President
"AVIATION CLAIMS ADMINISTRATORS, INC."
By: /s/ Xxxx X. Xxxxx
----------------------------------------------
Name: Xxxx X. Xxxxx
Title: President
"SHAREHOLDERS"
/s/ Xxxxxx X. Xxxxxx, III
----------------------------------------------
Xxxxxx X. Xxxxxx, III
/s/ Xxxxxx X. Xxxxxx
----------------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxxxxx X. Xxxx
----------------------------------------------
Xxxxxxxxx X. Xxxx
SIGNATURE PAGE OF ACQUISITION AGREEMENT
EXHIBIT "A"
I. For the shares of Southern - 168,750 shares of HCCH Common Stock to be
distributed as follows:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
% OF SOUTHERN HCCH STOCK
NAME STOCK OWNED TO BE RECEIVED
---- ----------- --------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Xxxxxx X. Xxxxxx, III 71.2% 120,150 Shares
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Xxxxxxxxx X. Xxxx 25.0% 42,187 Shares
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Xxxxxx X. Xxxxxx 3.8% 6,413 Shares
-----------------------------------------------------------------------
-----------------------------------------------------------------------
II. For the shares of ACA - 56,250 shares of HCCH Common Stock to be
distributed as follows:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
% OF ACA HCCH STOCK
NAME STOCK OWNED TO BE RECEIVED
---- ----------- --------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Xxxxxx X. Xxxxxx, III 70.0% 39,375 Shares
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Xxxxxxxxx X. Xxxx 25.0% 14,062 Shares
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Xxxxxx X. Xxxxxx 5.0% 2,813 Shares
-----------------------------------------------------------------------
-----------------------------------------------------------------------
SOUTHERN/ACA DISCLOSURE
SCHEDULE
SECTION 2.6-SUBSIDIARIES AND JOINT VENTURES:
Southern Aviation Insurance Underwriting Services, Inc., an Alabama
corporation, is a wholly owned subsidiary of Southern.
SECTION 2.7-SOUTHERN FINANCIAL STATEMENTS:
None.
SECTION 2.8-ABSENCE OF CERTAIN CHANGES:
None.
SECTION 2.9-NO UNDISCLOSED LIABILITIES:
None.
SECTION 2.10-LITIGATION:
None.
SECTION 2.12-TAXES:
None.
SECTION 2.13-EMPLOYEE BENEFIT PLANS, ERISA:
1. Split Dollar Insurance Agreement between Southern Aviation Insurance
Underwriters, Inc. and Xxxxxx X. Xxxxxx, III covering Insurance
Policy No. 932812478 issued by Metropolitan Life Insurance Company
on Xxxxxx X. Xxxxxx, III.
2. Split Dollar Assignment Metropolitan Life Insurance Company between
Xxxxxx X. Xxxxxx, III and Southern Aviation Insurance Underwriters,
Inc.
3. Life Insurance Policy issued by Protective Life Insurance Company,
Policy No. PLO566575, insuring life of Xxxxxx X. Xxxxxx, III, owner-
Xxxxxx X. Xxxxxx, III.
4. American Pioneer Life Insurance Company, Group Policy No. 3360000,
$10,000 Life Insurance Policy for certain employees.
5. Liberty Mutual Worker's Compensation Policy No. WCI-355-2575611-016
(Southern).
6. Blue Cross and Blue Shield of Alabama, Group Health Benefit Plan,
Group No. 21592 (Southern).
7. Blue Cross and Blue Shield of Alabama, Group Dental Plan, Group No.
21592 (Southern).
SECTION 2.14-MATERIAL AGREEMENTS:
1. Split Dollar Insurance Agreement between Southern Aviation Insurance
Underwriters, Inc. and Xxxxxx X. Xxxxxx, III covering Insurance
Policy No. 932812478 issued by Metropolitan Life Insurance Company
on Xxxxxx X. Xxxxxx, III.
2. Split Dollar Assignment Metropolitan Life Insurance Company between
Xxxxxx X. Xxxxxx, III and Southern Aviation Insurance Underwriters,
Inc.
3. The Cincinnati Insurance Company, Policy No. CPP045 42 91 Commercial
Property Coverage, Commercial Inland Marine, Commercial Crime,
Building and Commercial Property, Builder's Risk, Condominium
Association, Condominium Commercial Unit - Owner's Standard Policy.
4. Liberty Mutual Worker's Compensation Policy No. WCI-35S-257564-016.
5. Aviation Claims Administrators, Inc. Gulf Insurance Company Insurance
Services Professionals Errors and Omissions Liability Insurance
Policy, Policy No. IG6503095.
6. Commercial Lease, dated January 1, 1996 between T & O Racing, Inc.,
as Lessor and Southern Aviation Insurance Underwriters, Inc., as
Lessee for 8200 square feet of office space located at 0000 Xxxxxxxx
Xxxxxx, Xxxxxxxxxx, Xxxxxxx 00000.
7. Claim Service Contract dated June 20, 1994 between Aviation Claims
Administrators, Inc. and Northern American Speciality Insurance
Company.
8. Commercial lease, dated January 1, 1996 between T & O Racing, Inc.,
as Lessor and Aviation Claims Administrators, Inc. as Lessee for
1800 square feet of office space located at 0000 Xxxxxxxx Xxxxxx,
Xxxxxxxxxx, Xxxxxxx 00000.
2
9. Note between Southern and First Commercial Bank dated October 8,
1993 for the principal sum of $24,575.00:
a. Collateral - 1993 Ford Explorer.
10. Note between Southern and First Commercial Bank dated November 18,
1994 for the principal sum of $43,640.75:
a. Security Agreement (Chattel Mortgage) dated September 17,
1992 for $43,640.75;
b. Collateral-Security Agreement (Chattel Mortgage) dated
November 18, 1994; Continuing Guaranty Agreement dated
September 17, 1992 executed by Xxxxxx X. Xxxxxx, III.
11. Note between Southern and First Commercial Bank dated September 17,
1992 for the Principal Sum of $125,035.00:
a. Aircraft Chattel Mortgage dated September 17, 1996 for
$125,035.00.
12. Note between Southern and First Commercial Bank dated November 8,
1996 for the principal sum of $162,880.71:
a. Security Agreement dated November 8, 1996 for $162,880.71.
13. Note between Southern and First Commercial Bank dated December 17,
1996 for the principal sum of $185,035.00:
a. Security Agreement (Accounts) dated March 22, 1994;
b. Continuing Guaranty Agreement dated September 17, 1992
executed by Xxxxxx X. Xxxxxx, III.
14. Unlimited Continuing Guaranty between Southern and First Commercial
Bank (executed by Xxxxxx X. Xxxxxx, III as Guarantor) dated May 29,
1997 for the principal sum of $200,075.00.
15. Note between ACA and First Commercial Bank dated June 27, 1996
for the principal sum of $125,035.00:
a. Aircraft Chattel Mortgage dated June 27, 1995;
b. Collateral - Continuing Guaranty Agreement dated June 27,
1995 executed by Xxxxxx X. Xxxxxx, III.
3
16. Hangar Lease, dated February 24, 1995, between Airsouth, L.L.C. and
Southern Aviation Insurance Underwriters, Inc.
17. Oral Hangar Lease between Airsouth, L.L.C. and Aviation Claims
Administrators, Inc. for hangar space at St. Clair County Airport,
St. Claim County, Alabama.
SECTION 2.19-TRADEMARKS, TRADENAMES, ETC.:
None.
4
