EXHIBIT 10.17
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of August 25, 1999 by and among Paragon Reinsurance Risk Management
Services, Inc., a Delaware corporation ("Buyer"), X.X. Xxxxxx Holdings, Inc., a
Delaware corporation ("Holdings"), XX Xxxxxx, Incorporated, a Pennsylvania
corporation (the "Company"), Xxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxx and Xxxx X.
Xxxxxxxxxx (collectively, the "Shareholders").
WITNESSETH:
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock of the Company;
WHEREAS, the Shareholders desire to sell and convey to Buyer, and Buyer
desires to purchase from the Shareholders, all of the outstanding capital stock
of the Company; and
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained herein,
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and upon the terms and subject to the conditions
hereinafter set forth, the parties do hereby agree as follows:
1. PURCHASE AND SALE & PURCHASE PRICE
1.1 PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
set forth in this Agreement, the Shareholders each agree to sell, convey,
transfer, assign, and deliver to Buyer, and Buyer agrees to purchase from each
Shareholder on the Closing Date (as defined below), all of the issued and
outstanding shares of the capital stock, par value $.01 per share, of the
Company (the "Shares") free and clear of all Liens.
1.2 PURCHASE PRICE. As consideration for the transfer of the Shares to
Buyer, Buyer shall deliver at the Closing the following amounts (collectively,
the "Purchase Price"):
(a) To the Shareholders on a pro-rata basis in accordance with
their share ownership in the Company as set forth in Schedule 1.2(a), by wire
transfer of immediately available funds to the account(s) designated by the
Shareholder Representative (as defined below), an aggregate amount equal to
Twelve Million Two Hundred Seventy Seven Thousand Two Hundred Ninety Five
Dollars ($12,277,295); and
(b) To Norwest Bank Minnesota, N.A. ("Escrow Holder"), by wire
transfer in immediately available funds, an amount equal to Three Million Seven
Hundred Thirty Thousand Dollars ($3,730,000) to be held in an interest bearing
escrow account (the "Escrow Account"). The Escrow Holder shall retain, hold and
dispose of these funds in accordance with the terms of the Escrow Agreement
among Buyer, the Shareholders and Escrow Holder, which shall be in
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substantially the form of Exhibit A attached hereto (the "Escrow Agreement").
The Escrow Agreement shall provide that:
(i) Two Million Three Hundred Thirty One Thousand Two
Hundred Fifty Dollars ($2,331,250), together with the interest accrued thereon,
shall be released from the Escrow Account to the Shareholders, pro-rata, in the
event the Company enters into "clean-up" Deductible Recovery Agreements with
Division 82-Energy of AIG and Division 54-Construction of AIG on or before
December 31, 1999 (the "AIG Agreements"), such AIG Agreements to be negotiated
in good faith by the management of the Company with such attorneys and advisors
as management reasonably deems appropriate. In the event the Company does not
enter into the AIG Agreements on or before December 31, 1999, then $2,331,250,
together with the interest accrued thereon, shall be released by the Escrow
Holder to the Buyer on December 31, 1999; and
(ii) The balance of the funds held in the Escrow Account
shall be held for a period of one year following the Closing by the Escrow
Holder in order to serve as the non-exclusive remedy on the part of the Buyer
for the payment of any liability of the Shareholders to Buyer arising under
Sections 1.4 and 9.1 of this Agreement. Upon the completion of such one year
period, any unused funds, including interest income, shall be released pro-rata
to the Shareholders.
1.3 PURCHASE PRICE ADJUSTMENT. In the event the Company between the
Balance Sheet Date and the Closing Date makes any loans, declares, sets aside or
pays any dividend or other distribution (whether in cash, securities or property
or any combination thereof) to any of its Shareholders (a "Distribution"), then
the Purchase Price shall be reduced by the amount of such Distribution, such
amount to be reflected on the Closing Date Balance Sheet (as defined below).
1.4 POST-CLOSING ADJUSTMENT
(a) Within fifteen (15) days after the Closing (as defined
below), the Shareholder Representative shall prepare a balance sheet of the
Company at the close of business on the Closing Date (the "Closing Date Balance
Sheet"). The Closing Date Balance Sheet shall be prepared in accordance with
generally accepted accounting principles consistently applied in accordance with
the past practices of the Company ("GAAP"). Within such fifteen (15) day period,
the Shareholder Representative shall promptly deliver a copy of the Closing Date
Balance Sheet to Buyer.
(b) If Buyer does not object to the Closing Date Balance Sheet
within fifteen (15) days of receipt thereof, then in the event the Company has
made a Distribution as reflected on the Closing Date Balance Sheet, then the
Buyer shall so notify the Escrow Agent and the Escrow Holder shall pay to Buyer
an amount in cash equal to the Distribution (the "Purchase Price Reduction") as
set forth in the Escrow Agreement.
(c) If Buyer objects to the Closing Date Balance Sheet, it shall
notify the Shareholder Representative within fifteen (15) days following receipt
thereof, setting forth in specific detail the basis for its objection and its
proposal for any adjustments thereto. Buyer and the Shareholder Representative
shall use their best efforts to reach agreement as to any such proposed
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adjustment or that no such adjustment is necessary. If agreement is reached as
to any proposed adjustment, the parties shall make such adjustment and the
Purchase Price Reduction shall be based thereon. If Buyer and the Shareholder
Representative are unable to reach agreement within thirty (30) days, then Ernst
& Young LLP or such other accounting firm as agreed upon by Buyer and the
Shareholder Representative (the "Third Party Accounting Firm") shall be engaged
to review the proposed adjustment as to which agreement has not been reached and
shall make a determination as to the resolution of the proposed adjustment to
cause the Purchase Price Reduction to have been properly calculated in
accordance with the provisions of this Agreement. All resolutions shall
represent either agreement with the position taken by Buyer or the Shareholder
Representative or a compromise of such positions. The determination of the Third
Party Accounting Firm shall be final, conclusive and binding upon Buyer and the
Shareholders. Buyer and the Shareholders shall share equally the costs of the
Third Party Accounting Firm hereunder. Any amounts owed to Buyer as a result of
these adjustments (i.e., a Distribution) will be paid by the Escrow Holder after
the determination of the Third Party Accounting Firm as set forth in the Escrow
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders, jointly and severally, hereby
represent and warrant to Buyer that all of the following representations and
warranties are true as of the date of this Agreement and, subject to Section 4.8
hereof, shall be true at the time of Closing:
2.1 DUE ORGANIZATION. The Company is a corporation duly organized and
validly existing under the laws of the state of its incorporation, and it is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted in each jurisdiction
where the failure to be so authorized or qualified would have a Material Adverse
Effect. SCHEDULE 2.1 contains a list of all jurisdictions in which the Company
is authorized or qualified to do business. True, complete and correct copies of
the Articles of Incorporation (as of the date hereof, certified by the Secretary
or Assistant Secretary of the Company and, as of August 6, 1999, by the
Secretary of State or other appropriate authority of the state of incorporation
of the Company) and bylaws (certified by the Secretary or Assistant Secretary of
the Company) of the Company, are all attached hereto as SCHEDULE 2.1. The minute
books of the Company made available to Buyer are true, correct and complete in
all material respects, maintained in accordance with applicable Laws and reflect
accurately all actions taken by the shareholders and the board of directors of
the Company.
2.2 AUTHORIZATION. (i) The duly authorized officer of the Company
executing this Agreement has the authority to enter into and bind the Company to
the terms of this Agreement and (ii) the Company has the full legal right, power
and authority to enter into this Agreement. The execution and delivery of this
Agreement by each of the Shareholders and the Company, and the performance by
each of their obligations hereunder, have been or by the Closing will have been
duly authorized by all requisite corporate action on the part of each of the
Shareholders and the Board of Directors of the Company, and no other corporate
or shareholder authorization or approval on the part of the Shareholders or of
the Company is required for any of the Shareholders or the Company to enter into
this Agreement or to perform their obligations hereunder.
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2.3 CAPITAL SHARES OF THE COMPANY. The authorized capital stock of the
Company is as set forth on SCHEDULE 2.3 hereto. All of the issued and
outstanding shares of the capital stock of the Company (the "Shares") have been
duly authorized and validly issued, are fully paid and nonassessable, and no
holder thereof is entitled to any preemptive rights (except any statutory
preemptive rights, which the Shareholders hereby waive). All of the issued and
outstanding shares of the capital stock of the Company are owned by the
Shareholders and in the amounts set forth on SCHEDULE 2.3 hereto and further,
except as set forth on SCHEDULE 2.3, such shares were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of the Shares were
issued in violation of the preemptive rights of any past or present shareholder.
The Shareholders (i) own of record and beneficially and have good and marketable
title to all of the issued and outstanding Shares, free and clear of any and all
Liens, charges, adverse claims, options, rights or restrictions of any character
whatsoever other than standard state and federal securities law private offering
legends and restrictions, and (ii) have the right to vote the Shares on any
matters as to which any shares of the Company's Common Stock are entitled to be
voted under the laws of the state of incorporation of the Company and the
Company's Articles of Incorporation and By-laws, free of any right of any other
Person.
2.4 TRANSACTIONS IN CAPITAL SHARES. Except as set forth on SCHEDULE
2.4, no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock. Except as set forth on SCHEDULE 2.4, the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. The Company does not, directly or indirectly,
own, and has not agreed to purchase or otherwise acquire, the capital stock or
other equity interests of, or any interest convertible into or exchangeable or
exercisable for such capital stock or such equity interests of, any corporation,
partnership, joint venture or other entity. There is no agreement, arrangement,
contract or other commitment of any kind whatsoever (contingent or otherwise)
pursuant to which any Person is or may become entitled to receive any payment
from the Company based on the revenues or earnings, or calculated in accordance
therewith, of the Company. There is no voting trust, proxy or other agreement,
arrangement, contract or other commitment of any kind whatsoever to which the
Company is a party, or by which the Company, or any of its properties or assets,
is bound with respect to the voting of any share of capital stock or other
equity interest of the Company.
2.5 ENFORCEABILITY. This Agreement constitutes a valid and binding
obligation of each of the Shareholders and the Company enforceable in accordance
with its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, moratorium, reorganization, or similar laws affecting creditors'
rights and to general equitable principles.
2.6 SUBSIDIARIES. Except as set forth on SCHEDULE 2.6, the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity, nor has the Company made any
commitment to effect any of the foregoing.
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2.7 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 2.7 is a listing of
all names of all predecessor entities of the Company, including the names of any
entities from whom the Company previously acquired material assets. The Company
has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
2.8 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE 2.8, there
has not been any sale or spin-off of material assets of the Company or any
Affiliate of the Company, other than in the ordinary course of business, within
the preceding two years.
2.9 FINANCIAL STATEMENTS. The Company has delivered to Buyer (as
SCHEDULE 2.9) true, complete and correct copies of the Company's (i) Balance
Sheet as of (x) June 30, 1999 (hereinafter referred to as the "Balance Sheet
Date"), and (y) as of March 31, 1999, and (ii) Statements of Income and Retained
Earnings and Cash Flows for the three month period and twelve month period
ending on such dates, respectively (collectively, the "Financial Statements").
Such Financial Statements have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated. The balance sheets included
in the Financial Statements present accurately the financial condition of the
Company as of the dates indicated thereon, and the Statements of Income and
Retained Earnings and Cash Flows included in the Financial Statements present
accurately the results of the Company's operations for the periods indicated
thereon. If required, the President or Chief Financial Officer of the Company
has executed, or will execute any documentation reasonably required by Buyer's
independent public accountants with respect to relevant accounting issues.
2.10 LIABILITIES AND OBLIGATIONS. The Company has delivered to Buyer an
accurate list (SCHEDULE 2.10) as of the Balance Sheet Date of (i) all
liabilities of the Company which are reflected on the Balance Sheet of the
Company as of the Balance Sheet Date and (ii) any liabilities (including
contingencies) of the Company which are not reflected in the balance sheet as of
the Balance Sheet Date. Except as set forth on SCHEDULE 2.10, since the Balance
Sheet Date, the Company has not incurred any liabilities of any kind, character
and description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The Company has also delivered to Buyer, in the case of those liabilities which
are not fixed, a reasonable estimate of the maximum amount which the Company
expects will be payable. For each such liability for which the amount is not
fixed or is contested, the Company has provided to Buyer the following
information:
(i) a summary description of the liability together with the
following:
(a) copies of all material relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
2.11 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to Buyer
an accurate list (SCHEDULE 2.11) of the accounts and notes receivable of the
Company as of the Balance Sheet
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Date, including any such amounts which are not reflected in the Balance Sheet as
of the Balance Sheet Date, and including receivables from and advances to
employees. The Company has also provided Buyer on SCHEDULE 2.11 with an accurate
list of all receivables obtained subsequent to the Balance Sheet Date. On or
prior to the Closing Date, the Company shall provide Buyer with an aging of all
accounts and notes receivable of the Company as of the most recent practicable
date showing amounts due in 30 day aging categories. Except to the extent
reflected on SCHEDULE 2.11 such accounts and notes are collectible in the amount
shown on SCHEDULE 2.11, net of reserves reflected in the balance sheet as of the
Balance Sheet Date.
2.12 PERMITS/COMPLIANCE WITH LAWS. The Company possesses all material
franchises, grants, authorizations, licenses, permits, use and development
rights, easements, access rights, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and
assets as now being owned, licensed and operated and to carry on its business as
it is now being conducted (collectively, the "Permits"), and there is no claim,
action, suit, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened regarding modification, suspension or
cancellation of any such Permits. SCHEDULE 2.12 sets forth a true, correct and
complete list of all such Permits. Except as set forth in SCHEDULE 2.12, the
Company (and each of its properties and assets) is, and has been in compliance
in all material respects with such Permits and with all Laws applicable to it or
by or to which any of its properties or assets is bound or subject. Except as
set forth in SCHEDULE 2.12, none of the Permits will lapse, be impaired,
terminate or expire as a result of the performance of this Agreement by the
Company or the Shareholders or the consummation of the transactions contemplated
hereby.
2.13 INTELLECTUAL PROPERTY.
(a) For purposes of this Agreement, "Intellectual Property" means
all of the following used by the Company in the operations of its business (i)
all inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (ii)
the name "XX Xxxxxx, Inc." and all other trademarks, service marks, trade dress,
logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (iii) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (iv) all mask
works and all applications, registrations, and renewals in connection therewith,
(v) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (vi) all computer software
(including data and related documentation), (vii) all other proprietary rights,
and (viii) all copies and tangible embodiments thereof (in whatever form or
medium).
(b) The Company owns all right, title and interest in, or has a
valid license to use, the Intellectual Property. Such licenses are not
terminable due to any breach or noncompliance by
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the Company and shall not be adversely affected by the transactions contemplated
herein. No other Person has any right, title or interest in, to or under any of
the Intellectual Property owned by the Company. SCHEDULE 2.13(B) sets forth a
list of all patents, patent applications, trademarks, trademark applications,
trademark registrations, copyright applications, copyright registrations,
applications to register industrial designs, registrations of industrial
designs, applications to register maskworks, registrations of maskworks, trade
names and trade dress included in the Intellectual Property. SCHEDULE 2.13(B)
indicates which Intellectual Property is owned by the Company and which
Intellectual Property is licensed to the Company.
(c) Each employee of the Company, and each independent
contractor, outside consultant and other agent who has participated in or is
participating in the conception, design or development of any software, other
product, service or Intellectual Property for, on behalf of or at the request of
the Company, has assigned all right, title and interest therein and thereto to
the Company.
(d) Except as set forth in SCHEDULE 2.13(D), the Intellectual
Property owned by the Company is not subject to any Lien in favor of any third
party. None of the Company's rights in or to any of the Intellectual Property
shall be materially and adversely affected by its execution or delivery of this
Agreement or by the performance of its obligations hereunder or by the
transactions contemplated herein. No claims with respect to any Intellectual
Property have been asserted or, to the best of the Company's knowledge,
threatened by any Person (i) against the Company, or (ii) to the best of the
Company's knowledge, against any other Person based on its use of any
Intellectual Property owned, licensed or used by the Company or based on any
product or service provided by the Company. To the best of the Company's
knowledge, none of the Company's past or present activities, including, but not
limited to, the manufacture, use, sale or distribution of any product and the
provision of any service, and no manufacture, use, sale or distribution of any
of the Company's products by any Person constitutes or has constituted an
infringement, misappropriation, unauthorized use or other violation of, and no
valid grounds exist for any bona fide claims against the Company or any such
Person with respect to, the Intellectual Property of any other Person. Without
limiting the generality of the foregoing, no Person ever employed or otherwise
engaged by the Company has asserted or, to the Company's knowledge, threatened
any claim against the Company relating to any Intellectual Property. To the best
of the Company's knowledge, there has not been, nor is there presently, any
unauthorized use, infringement, misappropriation or violation of any of the
Intellectual Property by any Person. Except as set forth in SCHEDULE 2.13(D),
the Company has the full right to make, have made, sell, possess, use, copy,
distribute, display, transfer and license all Intellectual Property.
(e) No Intellectual Property owned by the Company is subject to
any outstanding order, award, decision, injunction, judgment, decree,
stipulation or agreement in any manner restricting the transfer, use,
enforcement or licensing thereof by the Company. The Company has not entered
into any agreement to defend or indemnify any other Person against any charge of
infringement of any Intellectual Property. The Company has not entered into any
agreement granting any third party the right to bring infringement actions with
respect to, or otherwise to enforce rights with respect to, any Intellectual
Property. The Company has the exclusive right to file, prosecute and maintain
all applications, patents and registrations with respect to Intellectual
Property owned by the Company.
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(f) Except as set forth in SCHEDULE 2.13(F), the Company has
taken all reasonable and necessary steps to maintain, enforce and protect the
Intellectual Property owned by the Company and its rights thereunder, and no
such rights to Intellectual Property have been lost or are in jeopardy of being
lost. The Company has paid all fees, annuities and all other payments which have
heretofore become due to any Governmental Authority with respect to Intellectual
Property owned by the Company.
(g) The Company has not transferred its right, title or interest
in or to any copy of any computer program or other software owned or licensed by
the Company. No computer program or other software owned or licensed by the
Company has been supplied by the Company to any Person except pursuant to a
binding license prohibiting further distribution and disclosure. All source code
for all computer programs and other software owned by the Company is in the sole
possession of the Company and has been maintained strictly confidential. The
Company has no obligation to afford any Person access to any source code for any
computer program or other software.
(h) All computer programs and other software which are owned,
used or licensed by the Company have been upgraded as necessary so that they are
fully functional in every material respect, are operative for their current
business purposes and free of material defects and deficiencies. All computer
programs and other software transferred by the Company to its customers or to
any other transferees (i) fully conform with all specifications,
representations, warranties, and other descriptions established by the Company
or conveyed thereby, (ii) are operative for their intended purposes and free of
material defects and deficiencies, and (iii) have been fully maintained by the
Company on behalf of its customers and other transferees to their reasonable
satisfaction.
2.14 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 2.14, (i)
the Company has complied with and is in compliance with all applicable federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of "Regulated
Substances," which is defined as petroleum, solid waste, Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law), except to the extent that noncompliance with any Environmental Law, either
singly or in the aggregate, does not have a Material Adverse Effect; (ii) the
Company has obtained and adhered to all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Regulated
Substances and has reported, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Regulated
Substances have been treated, stored, disposed of or otherwise handled; (iii)
there have been no releases or threats of releases (as defined in Environmental
Laws) of Regulated Substances at, from, in or on any property owned, leased or
operated by the Company except as permitted by Environmental Laws; (iv) the
Company does not know of any on-site or off-site location to which the Company
has transported or disposed of Regulated Substances or arranged for the
transportation of Regulated Substances, which site is the subject of any
federal, state, local or foreign enforcement action or any other investigation
which could reasonably be expected to lead to any claim against the Company for
any clean-up cost, remedial work, damage to
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natural resources or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) to the best of the Company's knowledge, the Company
has no contingent liability in connection with any release of any Regulated
Substance into the environment.
2.15 PERSONAL PROPERTY. The Company has delivered to Buyer an accurate
list (SCHEDULE 2.15) of all personal property included (or that will be
included) in "fixed assets" on the balance sheet of the Company and all other
personal property of the Company with a value in excess of $25,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date, including in
each case true, complete and correct copies of leases for material equipment
used in the operation of the business of the Company. Except as shown on
SCHEDULE 2.15, all of the material machinery and equipment of the Company listed
on SCHEDULE 2.15 are in good working order and condition, ordinary wear and tear
excepted. All leases set forth on SCHEDULE 2.15 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms and, as to the best of the
Company's knowledge, there have been no defaults thereunder by any Person. All
material fixed assets used by the Company in the operation of its business are
either owned by the Company or leased under an agreement indicated on SCHEDULE
2.15. The Company has also indicated on SCHEDULE 2.15 a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations, obtaining of new management contracts, or the acquisition
of any real property or existing business, to which or for which management of
the Company has made any material expenditure since the date of formation of the
Company, which if pursued by the Company would require additional material
expenditures of capital.
2.16 TITLE TO REAL PROPERTY. The Company does not own any real
property.
2.17 LEASED PROPERTY. SCHEDULE 2.17 lists and describes briefly all
real property leased or subleased to the Company (the "Leased Property"). Except
as set forth in SCHEDULE 2.17, with respect to each lease and sublease listed in
SCHEDULE 2.17:
(A) no party to such lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification, or acceleration
thereunder;
(B) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(C) the Leased Property has received all approvals of
Governmental Authorities (including licenses and permits) required from the
Company in connection with the operation thereof and has been operated and
maintained by the Company in accordance with applicable laws, rules, and
regulations;
(D) utilities and other services necessary for the operation of
the Leased Property as presently operated are available at the Leased Property;
(E) as of the Closing Date there will be no past due amounts
under any lease or sublease;
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(F) assuming the due authorization and execution by the lessors
thereunder, the lease or sublease is legal, valid, binding, enforceable and in
full force and effect, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, moratorium, reorganization, or similar laws affecting
creditors' rights and to general equitable principles;
(G) subject to Buyer's compliance with all the terms and
conditions of the lease or sublease, the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby;
(H) the Company has not repudiated any provision of the lease or
sublease, and has not received written notice, or otherwise have knowledge, that
any other party to the lease or sublease has repudiated any provision thereof;
(I) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(J) to the best of the Company's knowledge, the owner of the
Leased Property has good and indefeasible title to the parcel of real property;
and
(K) to the best of the Company's knowledge, with respect to any
sublease, the representations and warranties set forth in subsections (A)
through (J) above are true and correct with respect to the underlying lease.
2.18 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Buyer an accurate list (SCHEDULE 2.18) of (i) all
customers and (ii) all material contracts, commitments and similar agreements to
which the Company is a party or by which the Company or any of its properties
are bound (including, but not limited to, contracts with significant customers,
joint venture or partnership agreements, contracts with any labor organizations,
loan agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements, covenants not to
compete and contracts which restrict or limit the ability of the Company to
compete in any business with any Person, and contracts providing for the payment
of any bonus or other payment upon the sale of the Company or any change of
control of the Company, and any management, service or consulting contracts) (a)
as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date,
and has delivered true, complete and correct copies of such agreements to Buyer.
Except to the extent set forth on SCHEDULE 2.18, (i) none of the Company's
significant customers have canceled or substantially reduced or, to the
knowledge of the Company, are currently attempting or threatening to cancel or
substantially reduce demand for the Company's services and (ii) the Company has
complied in all material respects with all material commitments and obligations
pertaining to it, and is not itself, nor is any Person in material default under
any such contracts and agreements and no notice of default has been received.
The Company is not bound by or subject to (and none of its assets or properties
is bound by or subject to) any arrangement with any labor union. No employees of
the Company are represented by any labor union or covered by any collective
bargaining agreement and no campaign to establish such representation is in
progress. There is no pending or to the best of
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the Company's knowledge threatened labor dispute involving the Company and any
group of its employees nor has the Company experienced any labor interruptions
over the past year and the Company's relationships with its employees is good.
2.19 INSURANCE. The Company has delivered to Buyer an accurate list
(SCHEDULE 2.19) as of the Balance Sheet Date of all insurance policies carried
by the Company and, except as set forth on SCHEDULE 2.19, has delivered to Buyer
an accurate list (attached to SCHEDULE 2.19) of all insurance loss runs or
workmen's compensation claims received since the formation of the Company. Also
attached to SCHEDULE 2.19 are true, complete and correct copies of certificates
of insurance with respect to all insurance policies currently in effect. Such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Closing Date.
2.20 COMPENSATION: EMPLOYMENT AGREEMENTS. The Company has delivered to
Buyer an accurate list (SCHEDULE 2.20) showing all officers, directors and
employees of the Company, listing all employment agreements with such officers,
directors and employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to Buyer true, complete and correct copies of any
employment agreements for persons listed on SCHEDULE 2.20.
2.21 EMPLOYEE BENEFIT PLANS.
(i) Set forth on SCHEDULE 2.21 hereto is a complete list of all
"employee pension benefit plans" as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including than
Multiemployer Plans) ("Pension Benefit Plans"), "welfare benefit plans" as
defined in Section 3(1) of ERISA ("Welfare Plans"), or stock bonus, stock
option, restricted stock, stock appreciation right, stock purchase, bonus,
incentive, deferred compensation, severance, or vacation plans, or any other
employee benefit plan, program, policy or arrangement maintained or contributed
to by the Company or any of its ERISA Affiliates or to which the Company or any
of its ERISA Affiliates, contributes or is obligated to make payments thereunder
or otherwise may have any liability (including Multiemployer Plans)
(collectively, the "Employee Benefit Plans"). For purposes of this Section, (a)
the term "ERISA Affiliates" means any person (as defined in ERISA Section 3(9))
that is or has been a member of any group of persons described in Code Sections
414(b), (c), (m) or (o), and (b) the term "Multiemployer Plan" means a
multiemployer plan as defined as such in ERISA Section 3(37) to which
contributions are or have been made by the Company or any of its ERISA
Affiliates, or as to which the Company or any of its ERISA Affiliates may have
liability and that is covered by Title IV of ERISA.
(ii) Each of the Employee Benefit Plans (and each related trust,
insurance contract or fund) complies in form and in operation in all material
respects with the applicable requirements of ERISA, the Code and other
applicable laws.
(iii) With respect to each of the Employee Benefit Plans, true,
correct and complete copies of the following documents have been delivered to
Buyer: (a) the plan document and any related trust agreement, including
amendments thereto, (b) any current summary plan
-11-
descriptions and other material communications to participants relating to the
Employee Benefit Plans, (c) the most recent Form 5500 Annual Report, if
applicable, and (d) any correspondence with the IRS, the Pension Benefit
Guaranty Corporation, the Department of Labor or any other Agency.
(iv) All contributions to, and payments from, the Employee
Benefit Plans which are required to have been made by the Company or any of its
ERISA Affiliates with respect to any period ending on or before the Closing
Date, in accordance with the Employee Benefit Plans, have been timely made.
(v) Neither the Company nor any of its ERISA Affiliates maintains
or contributes to, nor has it ever maintained or contributed to, any pension
plan subject to Title IV of ERISA, Code Section 412 or ERISA Section 302.
Neither the Company nor any of its ERISA Affiliate has incurred any liability
under Title IV of ERISA. Neither the Company nor any of its ERISA Affiliates has
any liability (including any contingent liability under ERISA Section 4204) with
respect to any Multiemployer Plan covering employees (or former employees)
employed in the United States. Neither the Company nor any of its ERISA
Affiliates has incurred any liability or taken any action that could reasonably
be expected to cause it to incur any liability (i) on account of a partial or
complete withdrawal (within the meaning of ERISA Sections 4205 and 4203,
respectively) with respect to any Multiemployer Plan or (ii) on account of
unpaid contributions to any such Multiemployer Plan.
(vi) Neither the Company nor any of its ERISA Affiliates
maintains or ever has maintained, or contributes or ever has contributed to, any
Welfare Plan providing for continuing benefits or coverage for any participant
or any beneficiary of a participant following termination of employment, except
as may be required under COBRA. Each of Company's Welfare Plans which are "group
health plans", as described in Code Section 5000(b)(1), have complied with the
notice and continuation requirements of Code Section 4980B or Part 6 of Subtitle
B of Title I of ERISA and the regulations thereunder.
(vii) The Pension Benefit Plans intended to qualify under Code
Section 401 have been determined by the IRS to be so qualified and no event has
occurred and no condition exists with respect to the form or operation of such
Pension Benefit Plans which would cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code.
(viii) Except as disclosed on SCHEDULE 2.21 hereof, the
consummation of the transactions contemplated by this Agreement will not result
in an increase in the amount of compensation or benefits or accelerate the
vesting or timing of payment of any benefits or compensation payable to or in
respect of any employee of the Company. The Company is not obligated to make any
payment or transfer, accelerate any payment or transfer, or otherwise provide
any benefit that would constitute an "excess parachute payment" under Code
Section 280G.
(ix) Neither the Company nor any employee of the foregoing, nor
any trustee, administrator, other fiduciary or any other "party in interest" or
"disqualified person" with respect
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to the Pension Benefit Plans or Welfare Plans, has engaged in a "prohibited
transaction" (as such term is defined in Section 4975 of the Code or Section 406
of ERISA) which could result in a tax or penalty on a Company under Section 4975
of the Code or Section 502(i) of ERISA ("Prohibited Transaction"), except any
such event which would not, individually or in the aggregate, either impair such
Company's ability to consummate the transactions contemplated hereby or have a
Material Adverse Effect.
2.22 EMPLOYEES. Except as disclosed on SCHEDULE 2.22 the Company has
not incurred any liability under, and has complied in all respects with, the
Worker Adjustment Retraining Notification Act and the regulations promulgated
thereunder, and any similar state laws (collectively, "WARN"), and does not
expect to incur any such liability as a result of actions taken or not taken
prior to the Closing. SCHEDULE 2.22 lists (i) all employees terminated or laid
off by the Company in connection with any layoff or reduction in workforce
during the 90 days prior to the date hereof and (ii) all employees who have
experienced a reduction in hours of work of more than 50% during any month
during the 90 days prior to the date hereof. The Company shall update SCHEDULE
2.22 from the date hereof through the Closing. The Company will neither take nor
fail to take any actions that would violate the provisions of WARN (including
the giving of notices as may be required to Governmental Authorities as well as
affected employees). The Company is not in violation nor has it received notice
of any claim not yet resolved with respect to a violation by it of any federal,
state or local fair employment or civil rights law, or any statutory or common
law relating to wrongful discharge, defamation, sexual harassment or otherwise
relating to employment.
2.23 QUALIFIED PLANS. The Company (i) does not maintain, and has never
maintained, any plans that qualify under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code") or that have been determined by the
Internal Revenue Service to be so qualified; (ii) has not engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA; and (iii) has not incurred any liability for excise tax or
penalty due to the Internal Revenue Service nor any liability to the Pension
Benefit Guaranty Corporation. The Company further represents that, except as set
forth on SCHEDULE 2.23:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan
intended to qualify under Section 401(a) of the Code without
notice to and approval by the Internal Revenue Service;
(ii) no such plan subject to the provisions of Title IV of ERISA
has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such
plan; and
(iv) the Company has not incurred liability under Section 4062 of
ERISA.
2.24 CONFORMITY WITH LAW. Except to the extent set forth on SCHEDULE
2.24, the Company is not in violation of any law or regulation or any order of
any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Company the violation of which would have a Material Adverse Effect; and
except to the extent set forth on SCHEDULE 2.24, there are no claims, actions,
suits or proceedings or investigations pending or, to the knowledge of the
Company, threatened, against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the
-13-
Company and no notice of any such claim, action, suit or proceeding or
investigation, whether pending or threatened, has been received by the Company
or any Shareholder.
2.25 TAXES. Except as set forth on SCHEDULE 2.25, (i) the Company has
timely filed or will timely file all requisite Tax returns, reports and forms
("Returns") for all periods ended on or before the Closing Date and all such
Returns are complete and correct in all material respects; (ii) the Company has
paid all Taxes owed with respect to periods ended on or before the Closing Date
(whether or not shown as due on Company Returns); (iii) there are no
examinations in progress or claims against the Company for Taxes and no notice
of any claim for Taxes, whether pending or threatened, has been received by the
Company or any Shareholders; (iv) the amounts included in accrued payables on
the Financial Statements as of the Balance Sheet Date delivered to Buyer as a
part of SCHEDULE 2.9 are sufficient for the payment of all Taxes for all fiscal
periods ended on or before that date; (v) the Company has a taxable year ended
March 31st of each year, and all Returns necessary to initially obtain and
continuously retain such taxable year end have been (or will be) timely filed;
(vi) the Company currently utilizes the accrual method of accounting for income
tax purposes and such method of accounting has not changed since its formation;
(vii) there is no agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any Taxes and no power of
attorney with respect to any Taxes has been executed or filed with any taxing
authority; and (viii) there are no liens for Taxes with respect to any assets or
properties of the Company except for statutory liens for Taxes not yet due; (ix)
the Company (and any predecessor of the Company) has been a validly electing
Subchapter S corporation at all relevant times during its existence for both
federal and state income tax purposes, and neither the Company nor its
Shareholders have taken or will take (or allow) any action that could (or would)
result in the termination of the Company's status as a validly electing
Subchapter S corporation up to and including the Closing Date; (x) the Company
will not be liable for any Tax under Section 1374 of the Internal Revenue Code
of 1986, as amended (the "Code"), in connection with the deemed sale of its
assets in the event an election under Code Section 338(h)(10) is made with
respect to the purchase and sale of the Shares; (xi) no claim has ever been made
by an authority in a jurisdiction where the Company does not file Returns that
the Company is or may be subject to a Tax liability in such jurisdiction; and
(xii) the Company has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
For purposes of this Agreement, the term "Tax" shall be understood to
include any tax or similar governmental charge, impost or levy (including,
without limitation, income taxes, franchise taxes, transfer taxes or fees, sales
taxes, use taxes, gross receipts taxes, value added taxes, employment taxes,
excise taxes, ad valorem taxes, property taxes, withholding taxes, payroll
taxes, minimum taxes, or windfall profit taxes) together with any related
penalties, fines, additions to tax or interest, imposed by the United States or
any state, county, local or foreign government or subdivision or agency thereof.
2.26 NO VIOLATIONS. A certified copy of the Articles of Incorporation
and a true, complete and correct copy of the Bylaws, both as amended to date, of
the Company (the "Charter Documents"), have been delivered to Buyer. The Company
is not (i) in violation of any Charter Document or (ii) in default in any
material respect under any material lease, instrument, agreement,
-14-
license, or permit to which it is a party or by which its properties are bound
(the "Company Material Documents"); and, except as set forth on the schedules
and documents attached to this Agreement, (a) the rights and benefits of the
Company under the Company Material Documents will not be materially and
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default (or an event which, with notice of
lapse of time or both, would constitute a default) under, any of the terms or
provisions of the Company Material Documents or the Charter Documents. Except as
set forth on SCHEDULE 2.26, none of the Company Material Documents requires
notice to, or the consent or approval of, any Governmental Authority or other
third party to any of the transactions contemplated hereby to remain in full
force and effect, and such transactions shall not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
pursuant to any Company Material Document.
2.27 GOVERNMENT CONTRACTS. Except as set forth on SCHEDULE 2.27, the
Company is not a party to any contracts with any Governmental Authority.
2.28 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on SCHEDULE 2.28 there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of the Company
(excluding profits and losses in the ordinary course of business);
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Company;
(iii) any change in the authorized capital of the Company or in
its securities outstanding or any change in their respective ownership interests
or any grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, shareholders, employees, consultants or agents, except for
ordinary and customary salary increases for employees in accordance with past
practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, which would result in a Material
Adverse Effect;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the Company to any person, including,
without limitation, shareholders and their affiliates;
-15-
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of any of its shareholders or any affiliate thereof,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(xi) any waiver of any rights or claims of the Company under any
Laws;
(xii) any material breach, amendment or termination of any
contract, agreement, license, permit or other right to which the Company is a
party;
(xiii) any transaction by the Company outside the ordinary course
of its business;
(xiv) any sale of any of the assets of the Company for less than
fair market value; or
(xv) any transactions between the Company and any of its
Affiliates.
2.29 DEPOSIT ACCOUNTS: POWERS OF ATTORNEY. The Company has delivered to
Buyer an accurate list (SCHEDULE 2.29) as of the date of the Agreement, of:
(i) the name of each financial institution in which Buyer has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
SCHEDULE 2.29 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
2.30 LITIGATION. Except as set forth in SCHEDULE 2.30, there is no
suit, action, arbitration, or legal, administrative, or other proceeding, or
governmental investigation of any kind whatsoever, at law or in equity
(including, without limitation, proceedings seeking injunctive relief) pending
or, to the best knowledge of any of the Shareholders or the Company, threatened,
against or affecting the Company. The Company is not a party to, or in default
under, any judgment, order or decree of any Governmental Authority. The matters
set forth in SCHEDULE 2.30 if decided adversely to the Company will not result
in a Material Adverse Effect. Upon request, the Company has furnished or made
available to Buyer copies of all relevant court papers and other documents
relating to the matters set forth in SCHEDULE 2.30. Except as set forth in
SCHEDULE 2.30, the Company
-16-
is not presently engaged in any legal action to recover moneys due to it or
damages sustained by it.
2.31 YEAR 2000. Except as set forth on SCHEDULE 2.31, to the best of
the Company's knowledge, each item of equipment and each software or other
computer program developed or used by the Company in the operation of its
business (a "Company System") (a) has been produced or amended in a manner which
ensures that a change of, reference to, or use after, December 31, 1999, of date
related data for dates before, on, or after December 31, 1999, in the operation
of that Company System, whether alone or in conjunction with each other Company
System, will not have a Material Adverse Effect on, or give rise to, a material
increased inconvenience in, the operation of that Company System; and (b) has
been tested in conjunction with each item of equipment and software or other
computer program under the control of a third party (a "Third Party System")
with which a Company System routinely exchanges date information in a manner
which substantially advances the result that the inclusion after December 31,
1999, of date-related data for dates before, on, or after December 31, 1999, in
the information exchanged with a Third Party System will not have a Material
Adverse Effect on, or give rise to, a material increased inconvenience in, the
exchange of date-related data or the subsequent use of that date-related data.
SCHEDULE 2.31 includes a description of what additionally must be completed by
the Company to ensure that the results contemplated by this Section 2.31 are
timely accomplished.
2.32 RELATED PARTY AGREEMENTS. Except as set forth in SCHEDULE 2.32, no
current or former director, executive officer or stockholder of the Company or
any Affiliate or associate of any of the foregoing is a party to any agreement,
arrangement, contract or other commitment to which the Company is a party or by
or to which any of its properties or assets is bound or subject, or has an
interest in any agreement, arrangement, contract or other commitment, property
or asset (real or personal), tangible or intangible, owned by, used in or
pertaining to the business of the Company.
2.33 XXXX-XXXXX-XXXXXX MATTERS. The consummation of the transactions
contemplated by this Agreement will require no filings pursuant to the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, or the rules
and regulations thereunder promulgated.
2.34 COMPANY ASSETS. Except as set forth on SCHEDULE 2.34, the Company
owns, free and clear of any and all Liens, all assets necessary to the conduct,
in the ordinary course, of the business of the Company.
2.35 DISCLOSURE. No representation or warranty of the Company or the
Shareholders contained in this Agreement contains or will contain any untrue
statement of material fact, or omits or will omit to state any material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which it was or will be made, not misleading. Subject to the
provisions of Section 4.8, at the sole option of Buyer, the truth and accuracy
of any and all warranties and representations of the Company, or on behalf of
the Company at the date of this Agreement and at the Closing, shall be a
precondition to the consummation of this transaction.
-17-
3. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and Holdings, jointly and severally, hereby represent and warrant
to the Shareholders as follows:
3.1 DUE ORGANIZATION. Buyer is a corporation duly organized and validly
existing under the laws of the state of its incorporation, and it is duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business in the
places and in the manner as now conducted except where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, financial condition, results of operations or prospects of Buyer taken
as a whole.
3.2 AUTHORIZATION. (i) The duly authorized representative of Buyer
executing this Agreement has the authority to enter into and bind Buyer to the
terms of this Agreement and (ii) Buyer has the full legal right, power and
authority to enter into this Agreement. The execution and delivery of this
Agreement by Buyer and Holdings and the performance by each of their respective
obligations hereunder, have been or by the Closing will have been duly
authorized by all requisite corporate action on the part of Buyer and Holdings,
and no other corporate or approval is required for Buyer and Holdings to enter
into this Agreement or to perform their respective obligations hereunder.
3.3 NO VIOLATIONS. The execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default ( or an event which, with notice of lapse of time or both, would
constitute a default) under the certificate of incorporation or bylaws of Buyer
or under any of the terms or provisions of any material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (the "Buyer Material Documents"). Except as set forth on SCHEDULE 3.3,
none of the Buyer Material Documents requires notice to, or the consent or
approval of, any Governmental Authority or other third party to any of the
transactions contemplated hereby to remain in full force and effect, and such
transactions shall not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit pursuant to the Buyer Material
Documents.
3.4 ENFORCEABILITY. This Agreement constitutes a valid and binding
obligation of Buyer and Holdings enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization, or similar laws affecting creditors' rights and to
general equitable principles.
4. COVENANTS OF THE PARTIES
4.1 ACCESS AND COOPERATION; DUE DILIGENCE. Between the date of this
Agreement and the Closing Date, the Company will afford to the officers and
authorized representatives of Buyer access to all of the Company's sites,
properties, books and records and will furnish Buyer with such additional
financial and operating data and other information as to the business and
properties of the Company as Buyer may from time to time reasonably request. The
Company will cooperate with Buyer, its representatives, auditors and counsel in
the preparation of any documents or other
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material which may be required in connection with any documents or materials
required by this Agreement.
4.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the Balance Sheet Date
and the Closing Date, the Company will, except as set forth on SCHEDULE 4.2:
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform all of its respective obligations under agreements
relating to or affecting its respective assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its
business organization intact, retain its respective present employees and
maintain its respective relationships with suppliers, customers and others
having business relations with the Company;
(vi) maintain compliance in all material respects with all
permits, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities;
(vii) maintain present material debt and lease instruments and
not enter into new or amended debt or lease instruments, without the knowledge
and consent of the Buyer; and
(viii) not increase present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and customary
salary increases for employees (other than key employees) in accordance with
past practice; provided, however that Xxx Xxxxxx' salary shall not exceed
$25,000 per month.
4.3 PROHIBITED ACTIVITIES. Except as disclosed on SCHEDULE 4.3, between
the Balance Sheet Date and the Closing Date, the Company has not and, without
the prior written consent of Buyer, will not:
(i) make any change in its Articles of Incorporation or bylaws or
comparable organizational documents;
(ii) issue, reissue, sell, deliver, transfer, repurchase, redeem,
acquire or pledge or authorize or propose the issuance, reissuance, sale,
delivery, transfer, repurchase, redemption, acquisition or pledge of shares of
capital stock of any class or series, or any securities convertible into capital
stock of any class or series or grant or enter into any rights, warrants,
options, agreements or commitments with respect to the issuance of such capital
stock or convertible
-19-
securities or amend any terms of any such right, warrant, option, agreement or
commitment;
(iii) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock;
(iv) adjust, split, combine, subdivide or reclassify any shares
of its capital stock, as the case may be, or any option, warrant or right
relating thereto;
(v) allow the Company's net worth to be negative;
(vi) create, incur, assume or guarantee any indebtedness, other
than in the ordinary course of business, consistent with past practice;
(vii) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an amount
not in excess of $25,000, including contracts to provide services to customers;
(viii) increase the compensation payable or to become payable to
any officer, director, shareholder, employee or agent (except for ordinary and
customary salary increases for employees in accordance with past practice),
adopt or amend any employee benefit plan, or make any bonus or management fee
payment to any such person;
(ix) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens incurred in
connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the business of the
Company, (2) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes adequate
reserves have been established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens arising in the
ordinary course of business (the liens set forth in clause (2) being referred to
herein as "Statutory Liens") or (3) Liens existing as of the date of this
Agreement as set forth on SCHEDULE 2.15 hereto;
(x) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(xi) negotiate for the acquisition of any business or the
start-up of any new business;
(xii) merge or consolidate or agree to merge or consolidate with
or into another Person;
(xiii) waive any rights or claims of the Company pursuant to any
contract or under any Laws, provided that the Company may negotiate and adjust
bills in the course of good faith
-20-
disputes with customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included in SCHEDULE
2.11 unless specifically listed thereon;
(xiv) commit a material breach or amend or terminate any
agreement, permit, license or other right of the Company;
(xv) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder;
(xvii) change any of the accounting or tax principles, practices
or methods used by the Company or fail to maintain the accounts, books and
records of the Company in the usual, regular and ordinary manner on a basis
consistently applied;
(xviii) enter into, adopt, amend or terminate any collective
bargaining agreement;
(xix) enter into any transaction, agreement or arrangement with,
any of its Affiliates, officers, directors, partners, employees, agents,
consultants, stockholders or their Affiliates, associates or family members;
(xx) settle or compromise any Tax liability or agree to any
adjustment of any Tax attribute or make any election with respect to its Taxes;
(xxi) fail to duly and timely file any Tax Return with the
appropriate Governmental Authorities required to be filed by it in a true,
correct and complete form or to timely pay all Taxes shown to be due thereon;
(xxii) revoke the Company's election to be taxed under the
provisions of Subchapter S of the Code, or take any action (or allow any action
to be taken) that would result in a termination of such election; or
(xxiii) enter into any agreement, commitment or transaction with
respect to taking any of the foregoing actions or any action that would make any
representation or warranty contained in this Agreement untrue or incorrect in
any material respect or which could reasonably be expected to prevent the
satisfaction of any condition to Closing set forth in Sections 5 or 6 hereof or
to otherwise prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
4.4 PUBLIC ANNOUNCEMENTS. Prior to the Closing, no party to this
Agreement shall effect any press release or public announcement with respect to
the transactions contemplated by this Agreement without the prior written
approval of all other parties hereto.
4.5 NO SHOP BY THE COMPANY. Neither the Company, any Shareholder nor
any agent, officer, director or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing or September 1, 1999 in accordance with its
terms, directly or indirectly:
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(i) solicit or initiate the submission of proposals or offers from
any Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than Buyer
relating to, any acquisition or purchase of all or a material
amount of the assets of, or any equity interest in, the
Company or a merger, consolidation or business combination of
the Company with any Person.
4.6 AUTHORIZED CAPITAL. The Company shall maintain its authorized
capital stock as set forth herein. Other than as set forth on SCHEDULE 2.4,
there have been no issuances of, or agreements regarding the issuance of, any
capital stock, warrants, options or other securities convertible into or
exchangeable for capital stock of the Company or rights to acquire the same.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Buyer of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which reasonably would be likely to cause any
representation or warranty of the Company or any of the Shareholders contained
herein to be untrue or inaccurate in any respect at or prior to the Closing and
(ii) any failure of the Company or any of the Shareholders to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such Person hereunder. The delivery of any notice pursuant to this Section 4.7
shall not be deemed to (i) modify the representations or warranties hereunder of
the Company or the Shareholders, which modification may only be made pursuant to
Section 4.8, (ii) modify the conditions set forth in Sections 5 and 6, or (iii)
limit or otherwise affect the remedies available hereunder to the Buyer.
4.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Schedules. No
amendment or supplement to a Schedule that constitutes a Material Adverse Effect
may be made unless Buyer consents in writing to such amendment or supplement. No
amendment or supplement to a Schedule that constitutes or reflects a material
adverse change to Buyer may be made unless the Company consents in writing to
such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 5 and 6 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 4.8.
4.9 REGULATORY APPROVAL. The parties hereto shall use all reasonable
efforts to obtain all authorizations, consents, orders and approvals of
Governmental Authorities and non-governmental third parties (the "Regulatory
Approvals") that may be or become necessary for performance of the transactions
contemplated pursuant to this Agreement, and shall cooperate fully with each
other in promptly seeking to obtain all such authorizations, consents orders and
approvals.
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4.10 PNC LOAN. The Company shall arrange with PNC Bank, National
Association for the payment by Buyer concurrently with the Closing of all
amounts outstanding under that certain Promissory Note dated January 14, 1999,
and for the release by PNC Bank of its security interest in all collateral
granted to PNC Bank by the Company under that certain Commercial Security
Agreement dated January 14, 1999.
4.12 REASONABLE EFFORTS. Upon the terms and subject to the conditions
of this Agreement, each of Buyer, the Company and Shareholders agree to, and the
Shareholders agree to cause the Company to use commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated by this Agreement as promptly as
practicable (including satisfaction, but not waiver, of the conditions to
Closing set forth in Sections 5 and 6 hereof).
5. CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to purchase the Shares, and to cause the other
transactions contemplated hereby to occur at the Closing, shall be subject to
the satisfaction of each of the following conditions at or prior to the Closing:
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of the Company and the Shareholders contained in
Section 2 shall be true and correct in all material respects as of the Closing
Date as though such representations and warranties had been made as of that time
(except for matters expressly disclosed in the certificate or a schedule
thereto); all of the terms, covenants and conditions of this Agreement to be
complied with and performed by the Company and the Shareholders on or before the
Closing Date shall have been duly complied with and performed in all material
respects; and a certificate to the foregoing effect dated the Closing Date and
signed by the President or any Vice President of the Company shall have been
delivered to Buyer.
5.2 NO MATERIAL ADVERSE CHANGE. No Material Adverse Effect shall have
occurred, and the Company shall not have suffered any loss or damage to any of
its properties or assets, whether or not covered by insurance, since the Balance
Sheet Date, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business as it is currently being
conducted; and Buyer shall have received a certificate signed by the President
or any Vice President of the Company dated the Closing Date to such effect.
5.3 GENERAL DUE DILIGENCE REVIEW. The general due diligence review of
the Company (including, without limitation, legal, financial and operational
matters and including, without limitation, satisfactory review of the historical
financial statements of the Company provided to Buyer and a review of the
compliance by the Company with all Laws issued by any Governmental Authority) to
be conducted by or on behalf of Buyer shall have been completed in a manner
satisfactory to Buyer and shall not reveal or produce adverse facts with respect
to the Company, its premises, business, operations, financial condition or
prospects which are not otherwise disclosed in this Agreement or any Schedule
attached hereto.
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5.4 SATISFACTION. All actions, proceedings, instruments and documents
required to consummate the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Buyer.
5.5 NO LITIGATION. No action or proceeding before a court or any
Governmental Authority shall have been instituted or threatened to restrain or
prohibit the transactions contemplated herein and no Governmental Authority
shall have taken any other action or made any request of Buyer as a result of
which the management of Buyer reasonably deems it inadvisable to proceed with
the transactions hereunder.
5.6 OPINION OF COUNSEL. Buyer shall have received an opinion from Xxxxx
& XxXxxxxx LLP, counsel for the Company ("Xxxxx & McConomy"), dated the Closing
Date, substantially in the form of Exhibit B attached hereto .
5.7 RESIGNATIONS AND RELEASES OF THE COMPANY'S DIRECTORS. Buyer shall
have received the resignations of and releases from each of the directors of the
Company, effective as of the Closing Date.
5.8 CONSENTS AND APPROVALS. Except as provided in Section 10.16, all
necessary consents of and filings with any Governmental Authority, including,
but not limited to the Regulatory Approvals, relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the consummation of the transactions contemplated herein and no Governmental
Authority shall have taken any other action or made any request of Buyer as a
result of which Buyer reasonably deems it inadvisable to proceed with the
transactions hereunder.
5.9 RESOLUTIONS. Buyer shall have received from the Company certified
copies of the resolutions duly adopted by the Board of Directors of the Company,
authorizing the transactions hereunder, in form and substance satisfactory to
counsel to Buyer.
5.10 CERTIFICATE. The Company shall have delivered to Buyer a
certificate, dated as of the Closing Date, signed by the President of the
Company certifying as to the fulfillment of the Company's conditions specified
in Sections 4.2, 4.3, 5.1, 5.2, 5.5, 5.8, 5.16, 5.17, 5.18, 5.20, 5.22 and 5.23
of this Agreement.
5.11 BOARD APPROVAL. The Boards of Directors of Buyer and of Holdings,
respectively, shall have authorized the transactions hereunder.
5.12 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Buyer a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate Governmental Authority in the
Company's state of formation and in each state in which it is authorized to do
business, showing that the Company is in good standing and authorized to do
business and that all state franchise and/or income Tax Returns and Taxes for
the Company for all periods prior to the Closing have been filed and paid.
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5.13 EMPLOYMENT CONTRACTS. Xxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxxx, Xxxx
X. Xxxxxxxxxx, Xxxxxx X. Xxxxxxxxxx and XX Xxxxx shall have entered into
Employment Contracts with Buyer, substantially in the form of Exhibit C attached
hereto (the "Employment Contracts").
5.14 CONSULTING AGREEMENT. The Company and Xxxxxx Associates, Inc.
shall have entered into an Amended and Restated Consulting Agreement,
substantially in the form of Exhibit D attached hereto (the "Consulting
Agreement").
5.15 CONTINUITY OF EMPLOYEES. Buyer shall have made arrangements
suitable to it for the employment by Buyer of sufficient of the Company's
employees to continue the operation of the business of the Company without
disruption thereto, and the Shareholders shall use their reasonable best efforts
to assist the Buyer in this effort, and such employees shall have executed a
Non-Disclosure and Non-Competition Agreement, substantially in the form of
Exhibit E attached hereto.
5.16 INTELLECTUAL PROPERTY RIGHT ASSIGNMENT. Each employee of the
Company, and each independent contractor, outside consultant and other agent of
the Company who has participated in the conception, design or development of any
software, other product, service or Intellectual Property for, on behalf of or
at the request of the Company, shall have assigned all right, title and interest
therein and thereto to the Company.
5.17 CARNEGIE OFFICE PARK LEASE. The Company shall have obtained the
written consent from Carnegie Office Park, Incorporated as required pursuant to
Section 14 of that certain Lease dated April 14, 1997.
5.18 INDEBTEDNESS. The amount of all indebtedness of the Company as of
the Closing, including without limitation, all amounts owed to PNC Bank,
National Association, shall not exceed $175,000 in the aggregate; excluding the
loan made by the Buyer to the Company immediately prior to the Closing as set
forth in Section 5.19.
5.19 BUYER LOAN. The Buyer shall have loaned to the Company immediately
prior to the Closing an amount equal to $1,278,559.40 and the Company shall have
executed and delivered to the Buyer a Promissory Note, substantially in the form
of Exhibit F attached hereto.
5.20 RE-PURCHASE OF OPTIONS. Immediately prior to the Closing, the
Company shall have paid to each holder of an option to acquire stock in the
Company (an "Option Holder") the amount specified for each Option Holder as set
forth on Schedule 5.20 attached hereto (i.e., the amount each Option Holder
would have otherwise received if such option holder had exercised their option
and sold their stock in the Company to the Buyer hereunder) and each such Option
Holder shall have executed the Stock Option Re-Purchase Agreement stipulating
that they are merely cashing out the options and not exercising them, such
agreement to be substantially in the form attached hereto as Exhibit G.
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5.21 ESCROW AGREEMENT. Buyer, Holdings, the Company, the Shareholder
Representative and the Escrow Holder shall have entered into the Escrow
Agreement.
5.22 WANDER RELEASE. Xxxxx Xxxxxx shall have released any and all right
or claim to receive any equity in the Company, whether in the form of stock or
options), such release to be in form satisfactory to Buyer's counsel.
5.23 XXXXX & MCCONOMY PAYMENT LETTER. The Company shall have paid to
Xxxxx & XxXxxxxx $42,890 and Xxxxx & McConomy shall have delivered to the
Company a letter stating that the law firm has been paid in full for the
services that the firm has rendered in connection with the transactions
contemplated in this Agreement.
6. CONDITIONS TO OBLIGATIONS OF SELLERS
The obligation of the Shareholders to sell the Shares and to cause the
other transactions contemplated hereby to occur at the Closing, shall be subject
to the satisfaction of each of the following conditions at or prior to the
Closing:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Buyer and Holdings contained in Section 3
shall be true and correct in all material respects as of the Closing Date as
though such representations and warranties had been made as of that time (except
for matters expressly disclosed in the certificate or a schedule thereto); all
of the terms, covenants and conditions of this Agreement to be complied with and
performed by Buyer on or before the Closing Date shall have been duly complied
with and performed in all material respects; and a certificate to the foregoing
effect dated the Closing Date and signed by a duly authorized officer of Buyer
shall have been delivered to the Shareholders.
6.2 NO LITIGATION. No action or proceeding before a court or any other
Governmental Authority shall have been instituted or threatened to restrain or
prohibit the transactions contemplated herein and no Governmental Authority
shall have taken any other action or made any request of the Company or the
Shareholders as a result of which the Shareholders reasonably deem it
inadvisable to proceed with the transactions hereunder.
6.3 CONSENTS AND APPROVALS. Except as provided by Section 10.16, all
necessary consents of and filings with any Governmental Authority, including,
but not limited to the Regulatory Approvals, relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the consummation of the transactions contemplated herein.
6.4 CERTIFICATE. Buyer shall have delivered to the Shareholders a
certificate, dated as of the Closing Date, signed by a duly authorized officer
of the Buyer certifying as to the fulfillment of the conditions specified in
this Section 6.1, 6.2 and 6.3.
6.5 BOARD APPROVAL. The Board of Directors of the Company shall have
authorized the transactions hereunder.
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6.6 SATISFACTION. All actions, proceedings, instruments and documents
required to consummate the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to the Company and the Shareholders.
7. CLOSING
7.1 CLOSING. Unless this Agreement is first terminated as provided in
Section 8, and subject to the satisfaction or waiver of all the conditions set
forth in Sections 5 and 6, the closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Buyer in Dallas, Texas, or
such other place as is agreed to by Buyer and the Shareholders, on September 1,
1999, or such other date as the parties may agree upon in writing (the "Closing
Date").
7.2 DELIVERY OF THE SHARES. At the Closing, the Shareholders shall
deliver or cause to be delivered to Buyer the original stock certificate(s)
evidencing all of the Shares, duly endorsed or accompanied by duly executed
stock powers assigning the Shares to Buyer, free and clear of all Liens,
together with any and all other instruments necessary to transfer to the Buyer
title to the Shares.
7.3 CASH PAYMENT TO THE SHAREHOLDERS. At the Closing, Buyer shall
deliver, by wire transfer of immediately available funds (i) to the Shareholders
on a pro-rata basis in accordance with their share ownership in the Company as
set forth in Schedule 1.2(a) to the account(s) designated by the Shareholder
Representative, an aggregate amount equal to Twelve Million Two Hundred Seventy
Seven Thousand Two Hundred Ninety Five Dollars ($12,277,295), and (ii) to the
Escrow Holder, an amount equal to Three Million Seven Hundred Thirty Thousand
Dollars ($3,730,000).
8. TERMINATION PRIOR TO CLOSING
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual written agreement of Buyer and the Shareholders; or
(ii) by either the Buyer, on the one hand, or the Company and the
Shareholders, on the other hand, in the event of a material breach of
this Agreement by any party which remains uncured for a period of 30
days after delivery of notice thereof.
(iii) by either the Buyer, on the one hand, or the Company and the
Shareholders, on the other hand, by written notice if the Closing has
not occurred on or before October 1, 1999.
8.2 LIABILITIES IN EVENT OF TERMINATION. Except as otherwise provided
herein, the termination of this Agreement pursuant to Sections 8.1(ii) or
8.1(ii) hereof will in no way limit any obligation or liability of any party
based on or arising from a breach or default by such party with respect to any
of its representations, warranties, covenants or agreements contained in this
Agreement including, but not limited to, legal and audit costs and out of pocket
expenses.
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9. OBLIGATIONS AFTER THE CLOSING DATE
9.1 INDEMNIFICATION BY THE SHAREHOLDERS.
(a) Each Shareholder hereby agrees to indemnify, defend and hold
harmless the Company, the Buyer, Holdings and each of their respective officers,
directors, employees, Affiliates or subsidiaries (collectively, the "Buyer
Group") against such Shareholder's Proportionate Share (as hereinafter defined)
of any and all losses, liabilities, damages, claims, demands, costs,
obligations, deficiencies and expenses (including, without limitation, interest,
penalties, court costs, reasonable expert witness fees and expenses, reasonable
consultants' fees and expenses and reasonable attorneys' fees and expenses)
(collectively, "Losses") actually and reasonably incurred by any member of the
Buyer Group arising from or in connection with: (i) the Shareholders ownership
of the Shares, (ii) the conduct of the business of the Company prior to the
Closing Date, whether or not such Losses occur prior to or subsequent to the
Closing Date, (iii) any breach by the Shareholders or the Company of any of
their representations and warranties, (iv) any breach by the Shareholders of any
of their covenants or agreements contained herein, which breach continues for
thirty days after written notice thereof, (v) any breach by the Company prior to
Closing of any of its covenants or agreements contained herein, which breach
continues for thirty days after written notice thereof, (vi) any intentional
misrepresentation made by any of the Shareholders in connection with the
transactions contemplated by this Agreement; (vii) any violation by the Company
or the Shareholders of any Environmental Laws occurring prior to the Closing;
(viii) any and all liabilities of the Company or the Shareholders for Taxes
arising out of the ownership of the Shares or the operation of the Company prior
to the Closing Date; (ix) any violation by the Company of ERISA or other Laws
regarding employee benefit matters occurring prior to the Closing; and (x) any
action taken by the Company or the Shareholders resulting in the termination of
the Company's status as a validly electing Subchapter S corporation up to and
including the Closing Date.
(b) Notwithstanding the provisions of Section 9.1(a), no Shareholder
shall have any liability to any member of the Buyer Group pursuant to the terms
of this Section 9.1 until the amount for which all Shareholders would otherwise
be liable but for the provisions of this Section 9.1, exceeds $200,000 in the
aggregate, at which point each Shareholder shall be liable for such
Shareholder's Proportionate Share of all claims in respect of such Losses, up to
a maximum of such Shareholder's Proportionate Share of that portion of the
Purchase Price actually paid over to the Shareholders under Section 1.2.
(c) As used in this Section 9.1, the "Proportionate Share" of any
Shareholder shall mean the percentage obtained by dividing the number of Shares
owned by such Shareholder immediately prior to the Closing by the number of
Shares owned by all Shareholders immediately prior to the Closing, as set forth
on Schedule 1.2(a) attached hereto.
9.2 INDEMNIFICATION BY BUYER. Buyer and Holdings, jointly and
severally, hereby agrees to indemnify and hold harmless the Shareholders against
any and all Losses arising from or in connection with (i) Buyer's ownership of
the Shares or the conduct of the business of the Company subsequent to the
Closing Date, or (ii) any breach by Buyer of any of its representations
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or warranties, covenants or agreements contained herein; provided, however, that
the Shareholders shall not make any claim against Buyer for indemnification
under this Section unless and until the aggregate amount of such claims exceeds
$200,000 in the aggregate, at which point Buyer shall be liable for all claims
in respect of such Losses up to a maximum of that portion of the Purchase Price
actually paid over to the Shareholders under Section 1.2.
9.3 INDEMNIFICATION CONDITIONS. The obligations and liabilities of the
indemnifying party with respect to claims made by third parties shall be subject
to the following conditions:
(i) The indemnified party shall give the indemnifying party
prompt written notice of any such claim, and the indemnifying party shall have
the right to undertake the defense thereof, at the indemnifying party's expense,
by representatives chosen by it and reasonably acceptable for the indemnified
party;
(ii) If the indemnifying party undertakes the defense of any such
claim, the indemnified party shall, to the best of its ability, assist the
indemnifying party, at the indemnifying party's expense, in the defense of such
claim, and shall promptly send to the indemnifying party, at the indemnifying
party's expense, copies of any documents received by the indemnified party which
relate to such claim;
(iii) If the indemnifying party, within a reasonable time after
notice of any such claim, fails to defend the indemnified party against which
such claim has been asserted, the indemnified party shall (upon reasonable prior
written notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party, at the indemnifying party's expense, subject
to the right of the indemnifying party to assume the defense of such claim at
any time prior to settlement, compromise or final determination thereof;
(iv) If, in the reasonable opinion of the indemnified party's
legal counsel, a conflict of interest with respect to any claim exists between
the indemnified party against which a claim has been asserted and the
indemnifying party, then such indemnified party shall have the right to retain
its own counsel with respect to such claim; provided that the reasonable fees
and expenses of such counsel shall be at the expense of the indemnified party;
and
(v) Anything in this Section 9 to the contrary notwithstanding,
(a) if there is a reasonable probability that a claim will materially and
adversely affect the indemnified party other than as a result of money damages
or other money payments, the indemnified party shall have the right, at its own
cost and expense, to defend, compromise or settle such claim; provided, however,
that if such claim is settled without the indemnifying party's prior written
consent, the indemnified party shall be deemed to have waived all rights against
the indemnifying party for money damages arising out of such claim; and (b) the
indemnifying party shall not, without the prior written consent of the
indemnified party, settle or compromise any claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the indemnified party a release from all
liability with respect to such claim.
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(vi) No claim for indemnification made by any member of the Buyer
Group under clause (ii) through clause (v) of Section 9.1(a) shall be valid
unless notice thereof is duly given to the Shareholders within two years after
the Closing Date; provided, however, that the foregoing shall not apply to a
breach by the Shareholders or the Company of the representations and warranties
provided in Sections 2.3, 2.4 and 2.5.
9.4 COOPERATION. Each of Buyer, the Shareholders and the Company, and
each of their successors and assigns, shall cooperate with each other in the
defense of any suit, action, investigation, proceeding or claim by a third party
and, during normal business hours, shall afford each other reasonable access to
their books and records and employees relating to such suit, action,
investigation, proceeding or claim and shall furnish each other all such further
information that they have the right and power to furnish as may reasonably be
necessary to defend such suit, action, investigation, proceeding or claim.
9.5 NON-SOLICITATION OF EMPLOYEES. None of the Shareholders shall prior
to the third anniversary of the Closing Date, (i) solicit, or assist anyone else
in the solicitation of, any employees of the Company or its Affiliates to
terminate their employment with the Company or its Affiliates or (ii) hire any
former employees of the Company or its Affiliates to become employed by any
business enterprise with which the Shareholder may then be associated,
affiliated, or connected.
9.6 COVENANTS NOT TO COMPETE. In consideration of this Agreement and
the transactions contemplated hereby, the Shareholders (collectively, the
"Covenantors" and individually a "Covenantor") each covenant and agree with
Buyer that for a period of three (3) years following the Closing Date (the
"Non-Compete Period"), they will not, directly or indirectly: (i) engage in, be
engaged by (including engagement for consulting or advising), or have any
interest in, any other Person (other than Buyer) which conducts any Competing
Business with the business of Buyer or the Company; provided however, that
nothing contained herein shall restrict any Covenantor from owning 5% or less of
the securities of any competitor of Buyer which securities are listed on any
national securities exchange or traded actively in the national over-the-counter
market, if such Covenantor has no other connection or relationship with the
issuer of such securities, (ii) otherwise solicit any person or entity who is,
or at any time during the Non-Compete Period was, a customer of the Company for
the purpose of requesting or inducing such person or entity to obtain services
from the Covenantor or any person or entity associated in any way with the
Covenantor, or (iii) interfere with or attempt to disrupt the relationship,
contractual or otherwise, between the Company and any of its franchisees,
employees, agents affiliates, customers, suppliers or referral sources. The term
"Competing Business" shall mean (a) selling or attempting to sell any products
or services which are the same as or similar to any products or services sold by
the Company at any time during the Non-Compete Period, and /or (b) soliciting,
trading with, advising, calling upon or otherwise doing or attempting to do
business with any clients, customers or accounts that have done business with
the Company at any time during the Non-Compete Period.
Each Covenantor acknowledges that the covenants contained in this
Section shall be construed as a series of separate covenants. Each separate
covenant shall be deemed identical in terms to the covenant set forth in the
first sentence of this Section. If in any judicial proceeding, a court shall
refuse to enforce any of the separate covenants deemed included in this Section,
then
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such unenforceable covenant shall be deemed eliminated from the provisions
hereof for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants to be enforced.
Each Covenantor recognizes the broad scope of the foregoing covenants,
but expressly agrees that they are reasonable in light of the scope of the
business as heretofore conducted by Shareholders and to be conducted by Buyer.
If any court or tribunal of competent jurisdiction shall refuse to enforce the
foregoing covenants because the time limit applicable thereto is deemed
unreasonable, it is expressly understood and agreed that such covenants shall
not be void, but that for the purpose of such proceedings and in such
jurisdictions such time limitation shall be deemed to be reduced to the extent
necessary to permit enforcement of the covenants. If any court or tribunal of
competent jurisdiction shall refuse to enforce any or all of the foregoing
covenants because they are more extensive (whether as to scope of business or
otherwise) than is deemed reasonable, it is expressly understood and agreed
between the parties hereto that such covenants shall not be void, but that for
the purpose of such proceedings and in such jurisdictions, the restrictions
contained herein (whether as to scope of business or otherwise) shall be deemed
to be reduced to the extent necessary to permit enforcement of the covenants.
Each Covenantor further acknowledges and agrees that monetary damages
resulting from any breach of the foregoing covenants may be difficult to
ascertain in whole or in part and that Buyer shall be entitled to seek specific
enforcement, injunctive relief and all other equitable remedies permitted under
applicable Laws.
9.7 SECTION 338(h)(10) ELECTION.
(a) Should Buyer wish to make an election under Section 338(h)(10) of
the Code (and any corresponding provisions of state, local or foreign law)
(collectively, a "Section 338(h)(10) Election") with respect to the purchase and
sale of the Shares, the Shareholders shall join Buyer in making such election.
If a Section 338(h)(10) Election is made, Buyer shall be responsible for
preparing and Buyer and the Company shall be responsible for timely filing any
forms necessary or helpful in making a Section 338(h)(10) Election. An
authorized Shareholder, on behalf of the Company, shall sign at the Closing all
federal and state forms used to make a Section 338(h)(10) Election requiring its
signature, which forms shall be filed by Buyer and the Company as described in
the preceding sentence. The Company shall include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
its Tax Returns to the extent permitted by applicable law and shall pay any Tax
imposed on the Company attributable to the making of such election including,
but not limited to, (i) any Tax imposed under Code Section 1374, (ii) any Tax
imposed under Treasury Regulation Section 1.338(h)(10)-1(e)(5), and (iii) any
state, local or foreign Tax imposed on the Company's gain.
(b) Promptly after the Closing Date, Shareholders shall provide to
Buyer any information reasonably requested by Buyer in connection with its
filing of a Section 338(h)(10) Election.
(c) If a Section 338(h)(10) Election is made, the Purchase Price and
other relevant items shall be allocated among the assets of the Company as
determined by Buyer in accordance
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with the Treasury Regulations promulgated under Section 338 of the Code. Buyer
shall deliver a schedule setting forth the fair market value of the assets and
such allocation within ninety (90) days after the Closing Date, and such
allocation shall become final upon Shareholders' written approval thereof;
provided, that if Buyer and Shareholders are unable to agree on such allocation
Buyer and Shareholders thereafter shall negotiate in good faith to resolve any
such disagreements. If Buyer and Shareholders are unable to resolve any such
disagreements within thirty (30) days after Buyer submits such allocation to
Shareholders, Buyer and Shareholders shall submit any dispute regarding the
amount of the Purchase Price allocated to the tangible assets of the Company to
an appraisal firm jointly selected by Buyer and Shareholders (the "Appraiser")
for resolution. If Buyer and Shareholders are unable to agree upon an Appraiser,
the Appraiser shall be selected by lot from a list of four (4) firms (of which
two (2) firms shall be selected by each of Buyer and Shareholders). The
resolution of such disagreements and the allocation by the Appraiser shall be
final and binding on Buyer and Shareholders. Buyer and the Shareholders shall
share equally the costs and expenses of the Appraiser. Buyer and Shareholders
shall file any tax returns and any other governmental filing on a basis
consistent with such allocation of fair market value.
9.8 TAXES.
(i) The Company shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company for all tax periods ending on
or prior to the Closing Date which are filed after the Closing Date. The Company
shall permit Buyer to review and comment on each such Tax Return prior to filing
and shall make such revisions to such Tax Returns as are reasonably requested by
Buyer. To the extent permitted by applicable law, the Shareholders shall include
any income, gain, loss, deduction or other tax items for such periods on their
Tax Returns in a manner consistent with the Schedule K-1's prepared by the
Company for such periods.
(ii) The Company, Shareholders and Buyer shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
the filing of any Tax Returns described in subparagraph (i) immediately above
and in connection with any audit, litigation or other proceeding with respect to
Taxes related to tax periods described in subparagraph (i) immediately above.
Such cooperation shall include the retention and (upon the other party's
reasonable request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding.
9.9 EMPLOYEE BENEFIT PLANS. As of January 1, 2000, as a wholly owned
subsidiary of Buyer, the Company's employees shall be eligible to participate in
Buyer's employee benefit plans, subject to the terms and conditions of such
plans. For 1999, the Company's employees shall be eligible to participate in the
bonus plan attached hereto as Exhibit H (the "1999 Bonus Plan"). The allocation
of any bonus payments under the 1999 Bonus Plan shall at the discretion of Buyer
and shall be made on or before March 15, 2000.
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9.10 RECORDS PERTAINING TO THE COMPANY.
(i) Turnover of Records. At the Closing, the Shareholders will
deliver or cause to be delivered to Buyer and the Company any records (a) in the
possession of the Shareholders, (b) applicable primarily to the Company and (c)
of which the Company does not already have copies.
(ii) Retention of Records. The Shareholders shall, for a period
of seven (7) years after the Closing Date, neither dispose of nor destroy any of
the accounting, tax, business or other records or files of the Shareholders
which pertain in part to the Company without first offering to turn over
possession of copies thereof to Buyer and the Company, at the Company's expense,
by written notice to Buyer and the Company, at least thirty (30) days prior to
the proposed date of such disposition or destruction.
(iii) Access to Records. Upon the reasonable request of Buyer
and/or the Company, the Shareholders shall allow Buyer and the Company and their
representatives access to all business records and files of the Shareholders
which pertain in part to the Company, during customary working hours at the
principal place of business of the Shareholders, or at any location where such
records are stored, and Buyer and the Company shall have the right, at the
Company's expense, to make copies of any such records and files.
(iv) Assistance with Records. For a seven year period after the
Closing Date, the Shareholders shall make available to Buyer and the Company at
the Company's expense, upon written request, (a) personnel of the Shareholders
to assist Buyer and the Company in locating and obtaining records and files
maintained by the Shareholders and (b) any of the personnel of the Shareholders
whose assistance or participation is reasonably required by Buyer and the
Company in anticipation of, or preparation for, any existing or future third
party actions, Tax or other matters in which the Company or any of its past,
present or future Affiliates is involved and which relate to the business of the
Company.
9.11 CONFIDENTIALITY. Prior to the Closing, each of the Company on the
one hand, and Buyer, on the other hand, will hold and will cause their
representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of its counsel, by other
requirements of law, all documents and information concerning the Company
furnished to Buyer (in the case of Buyer) and all documents and information
concerning Buyer furnished to the Company (in the case of the Company) in
connection with the transactions contemplated by this Agreement. Prior to the
Closing, neither the Company nor Buyer shall publicly disclose the existence of
negotiations, discussions, agreements or other information or documentation
concerning the proposed transaction. Except as required by law or stock exchange
regulation, any public announcements regarding the transactions contemplated
herein shall be made only with the mutual consent of the Company and Buyer;
provided, however, that Buyer may disclose the approximate aggregate amount of
consideration it paid for the Shares.
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10. MISCELLANEOUS
10.1 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement and supersedes all prior and
contemporaneous agreements and understandings, both written and oral, between or
among the parties hereto with respect to the subject matter hereof, and no party
shall be liable or bound to the other in any manner by any representations,
warranties, covenants or agreements not set forth herein.
10.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights, interests, or obligations hereunder may be assigned by any party hereto
without the prior written consent of all other parties hereto, and any purported
assignment in violation of this Section shall be null and void.
10.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by the different parties hereto on different counterparts, each
of which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument.
10.4 HEADINGS. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
10.5 CONSTRUCTION. As used in this Agreement, the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular article, section, paragraph or
other subdivision.
10.6 MODIFICATION AND WAIVER. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by all of the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
10.7 SCHEDULES, ETC. All exhibits and schedules annexed hereto are
expressly made a part of this Agreement as though fully set forth herein.
10.8 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by (a) depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt request, (b) delivering the same in
person to an officer or agent of such party, (c) telecopying the same with
electronic confirmation of receipt. All such notices duly given shall be
effective upon receipt by the parties to whom addressed.
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(i) If to Buyer, addressed to it at:
Paragon Reinsurance Risk Management Services, Inc.
000 Xxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxx Xxxxxxxxx
with a copy to Holdings at:
X.X. Xxxxxx Holdings, Inc.
000 Xxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
(ii) If to the Shareholders, addressed thereto at:
Xxx Xxxxxx
0 Xxx Xxxx Xx.
Xxxxxxx Xxxxx, XX 00000
with a copy to:
Xxxxx & XxXxxxxx
Four Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx, Esq.
(iii) If to the Company, addressed to:
XX Xxxxxx, Incorporated
Xxxxxxxx 0, Xxxxx 000
000 Xxxxx Xxxx Xxx.
Xxxxxxxx, XX 00000
with a copy to:
Xxxxx & XxXxxxxx
Four Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section from time to time.
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10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CHOICE OF LAW OR
CONFLICTS OF LAWS PROVISIONS THEREOF.
10.10 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES. All representations, warranties, covenants and agreements made
hereunder or pursuant hereto or in connection with the transactions contemplated
hereby shall survive the Closing as set forth herein and shall continue in full
force and effect thereafter according to their terms.
10.12 EXPENSES. The Shareholders, on the one hand, and Buyer, on the
other hand, shall be solely responsible for their respective costs and expenses
(including, without limitation, attorneys fees and other legal costs) incurred
in connection with the transactions contemplated hereby.
10.13 THIRD PARTY BENEFICIARIES. No individual or firm, corporation,
partnership or other entity shall be a third-party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
10.14 NUMBER AND GENDER OF WORDS. Whenever the singular number is used,
the same shall include the plural where appropriate, and words of any gender
shall include each other gender where appropriate.
10.15 FURTHER ASSURANCES. From time to time after the Closing, at the
request of any other party but at the expense of the requesting party, Buyer,
the Company or the Shareholders, as the case may be, will execute and deliver
any such other instruments of conveyance, assignment and transfer, and take such
other action as the other party may reasonably request in order to consummate or
evidence the transactions contemplated hereby.
10.16 BROKERS AND AGENTS. Except as disclosed on SCHEDULE 10.16, each
party represents and warrants that it has employed no broker or agent in
connection with this transaction and agrees to indemnify and hold harmless the
other parties against all loss, cost, damages or expense arising out of claims
for fees or commissions of brokers employed or alleged to have been employed by
such indemnifying party.
10.17 APPOINTMENT AND ACCEPTANCE OF SHAREHOLDER REPRESENTATIVES.
(a) In order to facilitate the consummation of the transactions
contemplated by this Agreement and the resolution of matters after the Closing
between Buyer, the Company and the Shareholders, the Shareholders hereby
expressly appoint Xxx Xxxxxx (the "Shareholder Representative") to serve as the
attorney-in-fact and agent for each of the Shareholders in his/her name, place
and xxxxx in connection with the transactions contemplated by this Agreement in
accordance with the terms of this Agreement and to execute the Escrow Agreement,
such appointment being coupled with an interest and irrevocable. By executing
and delivering this Agreement, the Shareholder Representative hereby accepts his
authorization and appointment as the Shareholder Representative and as
attorney-in-fact and agent on behalf of the Shareholders in accordance with the
terms of this Agreement.
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(b) Each Shareholder hereby expressly acknowledges and agrees
that (i) the Shareholder Representative is authorized to act on his/her behalf
notwithstanding any dispute or disagreement between or among the Shareholders
and (ii) Buyer and any other person shall be entitled to rely on any and all
actions taken by the Shareholder Representative under or pursuant to this
Agreement without liability to, or obligation to inquire of, any Shareholder.
(c) The authority of the Shareholder Representative hereunder
shall continue and be effective until all of the rights and obligations of the
Shareholders hereunder, or any dispute arising hereunder, shall terminate.
10.18 CERTAIN DEFINITIONS.
(i) "Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the authority of the Securities Exchange Act of
1934, as amended.
(ii) "Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including any government authority, agency, department, board,
commission or instrumentality of the United States, any State of the United
States or any political subdivision thereof), any tribunal or arbitrator(s) of
competent jurisdiction, or any self-regulatory organization.
(iii) "Laws" shall mean any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, order, judgment or decree,
administrative order or decree, administrative or judicial decision, and any
other executive or legislative proclamation.
(iv) "Lien" means any lien, security interest, mortgage, pledge,
charge or similar encumbrance.
(v) "Material Adverse Effect" means any event which would result
in a material adverse effect on the business, financial condition, results of
operations or prospects of the Company, taken as a whole.
(vi) "Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, a Governmental Authority (or any department, agency
or political subdivision thereof) or any other entity.
(v) "Shareholder Representative" means Xxx Xxxxxx.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
Paragon Reinsurance Risk
Management Services, Inc
By:
------------------------------
Title:
---------------------------
X.X. Xxxxxx Holdings, Inc.
By:
------------------------------
Title:
---------------------------
XX Xxxxxx, Incorporated
By:
------------------------------
Title:
---------------------------
---------------------------------
Xxxxxx X. Xxxxxx
---------------------------------
Xxxxxxx X. Xxxxx
---------------------------------
Xxxx X. Xxxxxxxxxx
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