EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered into
as of this ______ day of May, 2003, by and among Paragon Benefits, Inc., a Texas
corporation ("Paragon Benefits"), The Paragon Group, Inc., a Texas corporation
("Paragon Group"), Paragon National, Inc., a Texas corporation ("Paragon
National") (collectively, Paragon Benefits, Paragon Group, and Paragon National
shall be referred to herein as the "Companies" or each individually as a
"Company"), Xxxxx X. Xxxx ("Xxxx") an individual residing in the state of Texas,
Xxxxx X. Xxxxxxxx ("Xxxxxxxx"), an individual residing in the state of Texas,
and Xxxxx Xxxxxx ("Xxxxxx"), an individual residing in the state of Texas,
(collectively Bell, Desselle, and Xxxxxx shall be referred to herein as the
"Sellers" or individually each a "Seller"), Financial Industries Corporation, a
Texas corporation ("FIC"), and FIC Financial Services, Inc., a Nevada
corporation ("FICFS" or "Purchaser").
WHEREAS, the Sellers are the owners of all of the issued and outstanding
shares of the capital stock of: (i) Paragon Benefits, which consists of 20,000
shares of common stock par value $0.10 per share, (ii) Paragon Group, which
consists of 30,000 shares of common stock par value $0.10 per share, and (iii)
Paragon National, which consists of 20,000 shares of common stock par value
$0.10 per share (collectively the issued and outstanding shares of capital stock
of Paragon Benefits, Paragon Group and Paragon National shall be referred to as
the "Company Stock");
WHEREAS, the Sellers desire to sell the Company Stock to the Purchaser, on
the terms and subject to the conditions set forth herein; and
WHEREAS, the Purchaser desires to purchase all of the Sellers' right, title
and interest to the Company Stock, on the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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Section 1. Purchase and Sale of the Company Stock.
1.1 Purchase and Sale; Closing. At the Closing (as defined below) the
Purchaser shall purchase, and the Sellers shall to sell to the Purchaser (the
"Purchase"), the Company Stock. The purchase price for the Company Stock (the
"Purchase Price") shall consist of an amount of cash equal to the sum of $
1,410,750, by payment at the Closing of cashier's check or wire transfer of
immediately available funds to the account of Sellers, and in the respective
allocations, as set forth on Schedule 1.1 attached hereto. Subject to
satisfaction of all conditions to close, the Closing shall occur at such place
and time as the parties may mutually agree. The date on which the Closing
actually occurs is referred to herein as the Closing Date
1.2 Contingent Purchase Price. The Purchaser shall pay to Sellers a
contingent purchase price for the sale of the Company Stock (the "Contingent
Purchase Price"), based upon the achievement of certain financial performance
goals for the Companies as set forth below. The Contingent Purchase Price shall
be an amount of 98,578 shares of FIC common stock, par value $0.20 per share
(the "FIC Stock"), and as may be adjusted by the provisions of this Section 1.2,
payable to Sellers in the respective allocations as set forth on Schedule 1.2.
The Seller's right to receive the Contingent Purchase Price is subject to
substantial restrictions, as expressed in this Section 1.2 and Section 4, and
serves a bona fide purpose of the Purchaser in insuring the commitment of
Sellers to the future success and operations of the Companies.
(a) Establishment of the Escrow Fund. The FIC Stock issued to Sellers
as part of the Contingent Purchase Price will be deposited with Purchaser
to be held in escrow (the "Escrow Fund"). The Escrow Fund will be governed
by the terms set forth in this Section 1.2.
(b) Escrow Period; Distribution of Escrow Fund upon Termination of
Escrow Period. Subject to the following requirements, the Escrow Fund shall
be in existence beginning on the Closing Date and shall terminate on March
31, 2008 (the "Termination Date"). The FIC Stock in the Escrow Fund shall
be distributed as follows:
(i) Purchaser shall distribute to Sellers, or their heirs or
successors, 20% of the FIC Stock held in the Escrow Fund each year
(the "Annual Distribution"), subject to the requirements set forth in
the following subsections of this Section 1.2(b). The first Annual
Distribution shall occur on March 31, 2004 and each Annual
Distribution thereafter shall be on March 31st of each subsequent
year, with the final Annual Distribution to occur on March 31, 2008
(each March 31st shall be referred to herein as a "Distribution
Date").
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(ii) Sellers agree that the pro forma financial statement ("Pro
Forma Financials") attached hereto as Schedule 1.2(b), is a fair and
reasonable estimate of the future net income of the Companies. The
estimated net income level for each year reflected in the Pro Forma
Financials shall be referred to as the "Target Annual Net Income".
Within seventy-five (75) days after the end of each calendar year,
starting with the year ending December 31, 2003 and ending with the
year ending December 31, 2007, the Company shall calculate the actual
net income of the Companies for such taxable calendar year (the
"Companies Net Income"). As long as the Companies Net Income for such
calendar year is equal to the Target Annual Net Income for such
calendar year, Purchaser shall release to Sellers the Annual
Distribution for such year by the Distribution Date. Such FIC Stock
released to Sellers shall be free and clear of all Encumbrances,
however, shall be subject to the restrictions set forth in Section 4.4
herein.
(iii) If the Companies Net Income is less than the Target Annual
Net Income for any given calendar year, then the Annual Distribution
for such year shall be decreased as follows: in any calendar year, for
each 2% that the Companies Net Income is below the Target Annual Net
Income, Purchaser shall withhold 1% of the Annual Distribution for
such year. For example, if the Companies Net Income in any calendar
year is only 90% of the Target Annual Net Income, Purchaser will
withhold 5% of the Annual Distribution for such year and distribute
the remaining Annual Distribution to Sellers by the Distribution Date
for such year. The decrease in the Annual Distribution for any year
may not exceed 30% of the Annual Distribution for such year.
(iv) If in any calendar year reflected in the Pro Forma
Financials, the Companies Net I ncome is not equal to the Target
Annual Net Income for such calendar year and the Sellers have not
received an Annual Distribution pursuant to subsection (iii) above,
then for every subsequent year reflected in the Pro Forma Financials,
Purchaser shall: (a) calculate the Companies Net Income for each year
which has been completed; and (b) add up the total of the Companies
Net Income for each completed year. The sum of the Companies Net
Income for each completed year shall be referred to as the "Cumulative
Companies Net Income" and the sum of the Target Annual Net Income for
each completed year shall be referred to as the "Cumulative Target Net
Income". If the Cumulative Companies Net Income equals or exceeds the
Cumulative Target Net Income, Puchaser shall distribute to Sellers the
amount of FIC Stock withheld pursuant to subsection (iii), above.
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(v) If the Companies Net Income is greater than the Target Annual
Net Income for any given calendar year, then the Annual Distribution
for such year shall be increased as follows: in any calendar year, for
each 2% that the Companies Net Income exceeds the Target Annual Net
Income, Purchaser shall issue to Sellers the Annual Distribution and
an additional one percent (1%) of the Annual Distribution (the
"Additional Annual Distribution") in shares of common stock of FIC.
For example, if the Companies Net Income in any calendar year is 110%
of the Target Annual Net Income for such year, FIC will issue 105% of
the Annual Distribution for such year by the Distribution Date for
such year. The maximum amount of the common stock of FIC which may be
issued to Sellers as an Additional Annual Distribution is 30% of the
Annual Distribution for such year. (vi) The Escrow Fund shall
terminate on the Termination Date. Any FIC Stock not distributed to
Sellers pursuant to this Section 1.2(b) shall revert to Puchaser and
Sellers shall have no further rights or interests in such FIC Stock.
(vii) For each Seller, if such Seller terminates his employment
agreement between such Seller and FICFS (the "Employment Agreement")
for "Good Reason", as such term is defined in section 1.21 of each
such Employment Agreement, prior to December 31, 2007, all unearned
portions of the Contingent Purchase Price still held in the Escrow
Fund which is allocated to such Seller shall be accelerated and
immediately due and issueable to that Seller from the Escrow Fund.
However, if a specific Seller terminates his Employment Agreement for
Good Reason and the unearned portion of the Contingent Purchase Price
for such Seller is accelerated and payable, the unearned portion of
the Contingent Purchase Price for another Seller shall not be
accelerated and shall remain in the Escrow Fund.
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Section 2. Representations and Warranties of the Sellers. The Sellers
hereby represent and warrant, jointly and severally, to Purchaser and to FIC
that, as of the date of this Agreement:
2.1 Organization and Standing. Each Company is a corporation duly formed,
validly existing and in good standing under the laws of the State of Texas. Each
Company has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. Each
Company is duly qualified or registered as a foreign corporation to transact
business under the laws of, and in each jurisdiction where, the character of its
activities or the location of the properties owned or leased by each requires
such qualification or registration, except where the failure to be so duly
qualified or licensed and in good standing could not reasonably be expected to
have a material adverse effect on the business, properties, results of
operations or condition of each Company taken as a whole (a "Material Adverse
Effect"). The Purchaser has been furnished complete and correct copies of the
Companies' Articles of Incorporation and bylaws, each as currently in effect.
2.2 Authority.
(a) All corporate action on the part of the Companies necessary for
the authorization, execution, delivery and performance of this Agreement
and any other documents, instruments and transactions contemplated by this
Agreement (collectively, the "Documents"), and the performance of all the
obligations of Sellers hereunder have been taken or will be taken at or
prior to the Closing. The execution, delivery and performance of this
Agreement and the Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by
the Board of Directors of each Company (the "Boards"), do not require any
further corporate proceedings on the part of each Company, and do not and
will not violate or conflict with each Company's Articles of Incorporation
or Bylaws. This Agreement and the Documents have been and will be duly and
validly executed and delivered by the Companies and the Sellers, and
constitute valid and legally binding obligations of the Companies and the
Sellers, enforceable against the Companies and the Sellers in accordance
with their respective terms, except that enforcement thereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditors' rights and remedies
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
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(b) Each individual Seller has the capacity to execute and deliver
this Agreement, to carry out his or her obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered on behalf of each Seller and, assuming the due
authorization, execution and delivery by the Purchaser, constitutes a
legal, valid and binding obligation of each Seller enforceable in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, moratorium or other laws affecting creditors' rights generally
and general principles of equity.
2.3 Absence of Conflicting Agreements or Required Consents. The execution,
delivery and performance by the Sellers and the Companies of this Agreement do
not and will not violate, conflict with or result in the breach or default of
any provision of the Companies' Articles of Incorporation or bylaws. To the best
of Sellers' knowledge, except for such violations, conflicts, breaches,
defaults, consents, approvals, authorizations, orders, Actions, registrations,
filings, declarations, notifications and Encumbrances that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or materially impair or delay the consummation of the
transactions contemplated hereby, the execution, delivery and performance by the
Sellers and the Companies of this Agreement do not and will not (a) conflict
with or violate any law or Governmental Order applicable to the Sellers or the
Companies or any of their respective properties or assets, (b) require any
consent, approval, authorization or other order of, action by, registration or
filing with or declaration or notification to any Governmental Authority or any
other party, or (c) conflict with, result in any violation or breach of,
constitute a default (or event which with the giving of notice, or lapse of time
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Sellers' or the Companies' respective assets, or result in the
imposition or acceleration of any payment, time of payment, vesting or increase
in the amount of compensation or benefit payable, pursuant to, any note, bond,
mortgage or indenture, contract, agreement, lease, sublease, license or permit,
or franchise to which a Seller or a Company is a party or by which their
respective assets are bound.
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2.4 Ownership of the Company Stock.
(a) The authorized capital stock of Paragon Benefits is 1,000,000
shares of common stock, par value $0.10 per share, of which 20,000 shares
are issued and outstanding as of the date hereof; the authorized capital
stock of Paragon Group is 1,000,000 shares of common stock, par value $0.10
per share, of which 30,000 shares are issued and outstanding as of the date
hereof; and the authorized capital stock of Paragon National is 1,000,000
shares of common stock, par value $0.10 per share, of which 10,000 shares
are issued and outstanding as of the date hereof. The Sellers constitute
all shareholders of the Companies. Upon the consummation of the
transactions contemplated hereby, Purchaser will own, directly or
indirectly, 100% of the issued and outstanding shares in the Companies. No
person or entity has any preemptive right to purchase any shares or any
other securities of the Companies. There are no outstanding securities or
other instruments of the Companies which are convertible into or
exchangeable for any shares of the Companies and there are no commitments
to issue such securities or instruments or otherwise make a person or
entity a shareholder of a Company (except the Purchaser pursuant to this
Agreement). Except as set forth in Schedule 2.4, attached hereto, there is
no existing option, warrant, right, call, or commitment of any character
granted or issued by any Company governing the issuance of any shares of
such Company or any "phantom" securities giving the holder thereof any
economic attributes of ownership. All shares of each Company have been
offered, issued and sold in compliance with applicable law. The Company
Stock constitutes all of the outstanding shares of the Companies.
(b) The Sellers have good and marketable title to, and own, the Common
Stock, beneficially and of record. The Common Stock is fully paid and
non-assessable and, except for any right of the Purchaser under this
Agreement, are free and clear of all Encumbrances, demands, preemptive
rights and adverse claims of any nature. The Sellers have full voting power
over all Common Stock, subject to no proxy, shareholders' agreement, voting
trust or other agreement relating to the voting of any of the shares of any
Company. There is no agreement between the Sellers and any other person or
entity with respect to the disposition of the Common Stock. Upon the
consummation of the Closing the Sellers will have transferred to the
Purchaser good title to all Common Stock.
2.5 Litigation.
(a) there is no Action against the Sellers (with respect to the
Companies) or the Companies pending, or, to the knowledge of the Seller or
the Companies, threatened to be brought by or before any person, entity or
Governmental Authority, in each case with respect to the Companies, which
would, if adversely determined as to such Seller or the Companies, result
in a liability to any Company, (b) neither the Sellers nor the Companies
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are subject to any Governmental Order (nor, to the knowledge of the
Companies and the Sellers, are there any such Governmental Orders
threatened to be imposed by any Governmental Authority), in each case with
respect to any Company and (c) there is no Action pending, or, to the
knowledge of the Sellers or the Companies, threatened to be brought before
any Governmental Authority, that seeks to question, delay or prevent the
consummation of the transactions contemplated hereby.
2.6 Financial Statements
(a) The Purchaser has been furnished unaudited balance sheets and
profit and loss statements for the Companies as of December 31, 2001 and
December 31, 2002 (the "Company Financial Statements"). Except as otherwise
disclosed in Schedule 2.6, (i) the Company Financial Statements (including
any notes thereto) present fairly, in all material respects, the financial
position of the Companies as of the dates thereof and the results of its
operations for the periods then ended subject to year-end adjustments which
are, in the aggregate, not material and (ii) the balance sheets contained
in the Company Financial Statements present fairly the valuation of each
Company's assets.
(b) Except as set forth in Schedule 2.6, the Companies have no
material liability or obligation, secured or unsecured (whether absolute,
accrued, contingent or otherwise, and whether due or to become due), of a
nature to be reflected in a balance sheet or disclosed in the notes
thereto, except such liabilities and obligations that are adequately
accrued or reserved against in the Company Financial Statements or
disclosed in the notes thereto or that were incurred after the date of the
Company Financial Statements either in the ordinary course of business of
each Company consistent with past practice or in connection with the
transactions contemplated by this Agreement.
2.7 Absence of Certain Changes or Events. Since December 31, 2002 through
the date of this Agreement and the Closing, (a) other than in the ordinary
course of business consistent with past practice, the Companies have not sold,
transferred, leased, subleased, licensed or otherwise disposed of any material
assets (for the purposes of this clause (a), a "material asset" is an individual
asset that has a value in excess of $10,000 or assets that have an aggregate
value in excess of $25,000); (b) the Companies have not made any material change
in any method of accounting or accounting practice or policy used by a Company,
other than changes required by law; (c) the Companies have not suffered any
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material casualty loss or damage, whether or not covered by insurance; (d) there
has not been any direct or indirect redemption or other acquisition by a Company
of any Common Stock, or any declaration, setting aside or payment of any
distribution in respect of any Common Stock; (e) there has not been any Material
Adverse Effect; (f) each Company has been operated only in the ordinary and
usual course consistent with past practice; (g) no Company has created,
incurred, assumed or guaranteed any liabilities, obligations or Indebtedness for
borrowed money (other than from Purchaser); (h) no Company has compromised,
settled, granted any waiver or release relating to, or otherwise adjusted any
material Action, Indebtedness or any other claims or rights of such Company; (i)
no Company has paid or promised a bonus to any employee (unless such bonus is
reflected on or reserved against in the Company Financial Statements), (j) no
Company has entered into any employment or consulting agreement or arrangement
with any person and no prior employment agreements or consulting agreements or
arrangements have been modified, and (k) no Company has entered into any
agreement, contract, commitment or arrangement to do any of the foregoing,
except for the issuance of options to Xxxxx Xxxxxx to purchase 10,000 shares of
Paragon Group, which will be exercised simultaneously with the closing. 2.8
Material Contracts.
Schedule 2.8, attached hereto, sets forth all Material Contracts of each
Company as of the date hereof. Complete and accurate copies of all written
Material Contracts listed in Schedule 2.8 have been delivered or made available
to the Purchaser (except as otherwise noted therein). Except as set forth in
Schedule 2.8, (a) each Material Contract is legal, valid and binding on the
Company which is a party thereto and, to the knowledge of the Sellers and such
Company, the other parties thereto, and enforceable in accordance with the terms
thereof, (b) each Material Contract is in full force and effect, (c) neither the
Companies nor the Sellers are in default under any Material Contract, (d)
neither the Sellers nor the Companies have waived any of their respective rights
under any Material Contract and (e) to the knowledge of the Sellers and the
Companies, no other party to any Material Contract has breached or is in default
thereunder and there does not exist any event or condition that, with or without
the lapse of time or the giving of notice, would become such a breach or default
or would cause the acceleration of any obligation thereunder. Notwithstanding
anything to the contrary herein, Sellers agree to assume all responsibility for
automobile leases.
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2.9 Insurance. Except as set forth in Schedule 2.9, attached hereto, (i)
all insurance policies to which any Company is a party or under which such
Company is covered as an additional named insured or otherwise (or replacement
policies therefore) are in full force and effect, and the Sellers or the
Companies have paid all premiums due and are not in default, (ii) no notice of
cancellation or non-renewal with respect to, or disallowance of any claim under,
any such policy has been received by the Sellers or the Companies and (iii)
neither the Sellers nor the Companies have been refused insurance with respect
to the Companies, nor has coverage with respect to any such Company been
previously canceled or materially limited, by an insurer to which a Seller or a
Company has applied for such insurance, or with which a Sellers or a Company has
held insurance, within the last three years.
2.10 Permits and Licenses; Compliance with Law.
(a) (i) each Company currently holds all the permits, licenses,
authorizations, certificates, exemptions and approvals of Governmental
Authorities or other persons or entities necessary for the current
operation and conduct of each such Company in all material respects as it
is being conducted by such Company (collectively, "Permits"), and all
Permits are in full force and effect, (ii) no Company has received any
written notice from any Governmental Authority revoking, canceling,
rescinding, materially modifying or refusing to renew any Permit and (iii)
each Company is in compliance in all material respects with the
requirements of all Permits.
(b) (i) each Company is in compliance in all material respects with
all laws and Governmental Orders applicable to the conduct of each such
Company as it is being conducted and (ii) no Company has been charged by
any Governmental Authority with a violation of any law or any Governmental
Order relating to the conduct of such Company.
2.11 Employee Benefit Matters.
(a) Schedule 2.11, attached hereto, identifies each Employee Benefit
Plan. Purchaser has been furnished copies of the Employee Benefit Plans
(and, if applicable, related trust agreements) and all amendments thereto
and written interpretations thereof together with the three most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto) and
the most recent actuarial valuation report prepared in connection with any
Employee Benefit Plan. Neither the Companies nor any of their ERISA
Affiliates have now, or have maintained in the past, any Employee Benefit
Plan which is (i) a multiemployer plan, (ii) a Title IV Plan or (iii)
Employee Benefit Plan maintained in connection with any trust described in
Section 501(c)(9) of the Internal Revenue Code (the "Code").
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(b) No transaction prohibited by Section 406 of ERISA or Section 4975
of the Code has occurred with respect to any Employee Benefit Plan or
arrangement which is covered by Title I of ERISA which transaction has or
will cause the Companies to incur any material liability under ERISA, the
Code or otherwise, excluding transactions effected pursuant to and in
compliance with a statutory or administrative exemption.
(c) Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during
the period since its adoption; each trust created under any such Employee
Benefit Plan is exempt from tax under Section 501(a) of the Code and has
been so exempt since its creation. Purchaser has been provided with the
most recent determination letter of the Internal Revenue Service relating
to each such Employee Benefit Plan. Each Employee Benefit Plan has been
maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules
and regulations, including ERISA and the Code.
(d) The Companies do not have any current or projected liability in
respect of post-employment or post-retirement health or medical or life
insurance benefits for retired, former or current employees of the
Companies.
(e) Except as disclosed in Schedule 2.11, attached hereto, there is no
contract, plan or arrangement (written or otherwise) covering any employee
or former employee of the Companies that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code and no employee or former
employee of the Companies will become entitled to any bonus, retirement,
severance, job security or similar benefit or enhanced such benefit
(including acceleration of vesting or exercise of an incentive award) as a
result of the transactions contemplated hereby.
(f) There are no pending, or, to the knowledge of any Company, or the
Sellers, threatened or anticipated, claims under or with respect to any
Employee Benefit Plan, by any employee or beneficiary covered under any
such Employee Benefit Plan, or otherwise involving such Employee Benefit
Plan (other than routine claims for benefits).
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2.12 Intellectual Property. (a) the rights of the Companies in or to their
intellectual property do not conflict with or infringe on the rights of any
other person or entity, and the Companies have not received any claim from any
person or entity to such effect nor, to the Companies' or the Sellers'
knowledge, has any such claim been threatened, (b) the Companies own, license or
otherwise have the right to use, all their intellectual property and (c) to the
knowledge of the Companies and Sellers, no other person or entity is infringing
or diluting the rights of any Company with respect to its intellectual property.
2.13 Taxes. (i) all tax returns required to be filed by the Companies have
been timely filed, and such tax returns are true, complete and correct in all
material respects; (ii) all taxes shown on such tax returns have been timely
paid other than such taxes, if any, as are described in Schedule 2.13 and are
being contested in good faith and as to which adequate reserves have been
provided in the Company Financial Statements; (iii) no adjustment relating to
such tax returns has been proposed in writing by any tax authority and remains
unresolved; (iv) there are no tax liens on any of the Companies' assets (other
than liens for taxes that are not yet due and payable); and (v) all taxes that
the Companies are required to pay, withhold or collect have been duly paid,
withheld or collected and, to the extent required, have been paid to the proper
tax authority. Purchaser has been furnished with copies of the Companies 2001
federal tax returns.
2.14 No Brokers. There are no brokers, financial advisors or finders or
other persons or entities who have any valid claim against the Sellers or the
Companies, or any of their respective assets for a commission, finders' fee,
brokerage fee, advisory fee or other similar fee in connection with this
Agreement, or the transactions contemplated hereby, by virtue of any actions
taken by or on behalf of the Companies, the Sellers or the Companies' officers,
employees or agents.
2.15 No Affiliates or Subsidiaries. Other than the Companies, no Company
has any Affiliate or Subsidiary. "Affiliate" means any individual, sole
proprietorship, partnership, joint venture, limited liability company, trust,
unincorporated organization, corporation, institution, public benefit
corporation, entity or government instrumentality, division, agency, body or
department that directly or indirectly controls, is controlled by, or is under
common control with a Company. For the purposes of this definition, the term
"control" means (a) the power to direct or cause the direction of management or
policies of such Affiliate, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, or (b) the power
substantially to influence the direction of strategic management policies of
such Affiliate. "Subsidiary" means any sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
corporation, institution, public benefit corporation, entity or government
instrumentality, division, agency, body or department which is under the control
of a Company.
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2.16 Assets. The Companies have good and valid title to all material asset
each Company owns, including those reflected in the Company Financial Statements
or thereafter acquired, except those sold or otherwise disposed of since the
date of the Company Financial Statements not in violation of this Agreement, in
each case free and clear of all Encumbrances.
2.17 Real Property. (a) Schedule 2.17, attached hereto, sets forth a
complete list of all real property and interests in real property owned in fee
by the Companies (the "Owned Properties") and a complete list of all real
property and interests in real property leased by the Companies (the "Leased
Properties"; an Owned Property or a Leased Property being sometimes referred to
herein, individually, as a "Subject Property" and collectively, as "Subject
Properties"). The Companies have good and marketable fee title to all Owned
Property free and clear of all Encumbrances except (i) as set forth on Schedule
2.17, (ii) easements, covenants, rights-of-way and other similar restrictions,
whether or not of record, (iii) any conditions that may be shown by a current,
accurate survey or physical inspection of any Subject Property made prior to the
Closing and (v) (A) zoning, building and other similar restrictions, and (B)
Encumbrances, easements, covenants, rights-of-way and other similar restrictions
that have been placed by a developer, landlord or other third party on any
Subject Property which is not owned in fee by the Companies and subordination or
similar agreements relating thereto. Except as set forth on Schedule 2.17, all
buildings and structures included within any Owned Property lie wholly within
the boundaries of the Owned Property and do not encroach upon the property of,
or otherwise conflict with the property rights of, any other party. Except as
set forth in Schedule 2.17, the Companies are the lessee of all the Leased
Property and is in possession of the premises purported to be leased thereunder,
and each such lease is a valid obligation of such lessee without any material
default thereunder by such lessee. The consummation of the transactions
contemplated by this Agreement will not result in a breach of, or a default
under, any lease with respect to any Leased Property.
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2.18 No Undisclosed Liabilities. Except as set forth on Schedule 2.18, and
except for such debts, obligations, guaranties or liabilities which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, the Companies do not have any liabilities or
obligations whatsoever, whether accrued, contingent or otherwise. The Sellers
know of no basis for any claim against the Companies or Sellers for any
liability or obligation, except (a) to the extent set forth or reflected in the
Company Financial Statements or disclosed on Schedule 2.8, (b) to the extent
expressly set forth on any Schedule attached hereto or otherwise as described in
this paragraph, (c) liabilities and obligations incurred in the normal and
ordinary course of business, consistent with past practices both as to amount
and frequency, since December 31, 2002, or (d) those which, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
2.19 Acknowledgements of the Sellers. In connection with the issuance of
the FIC Stock as part of the Purchase Price, the Sellers (a) understand that the
FIC Stock has not been registered under the Securities Act or the securities
laws of any state at the time the FIC Stock is delivered to the Sellers; and (b)
acknowledges that each certificate representing the FIC stock will be endorsed
with substantially the following legends: THE SECURITIES EVIDENCED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE APPLICABLE SECURITIES
UNDER THE ACT AND ANY STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION.
2.20 Employment Agreements of Xxxx and Xxxxxxxx. Xxxx and Xxxxxxxx
acknowledge that a material inducement for Purchaser's payment of the Purchase
Price hereunder is Xxxx and Xxxxxxxx entering into employment agreements with
Purchaser which contain non-competition and non-solicitation provisions.
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2.21 Investment Representations. Each Seller represents and warrants to FIC
and FICFS:
(a) that such Seller and such Seller's advisers (including a Seller
Representative, if any) has been furnished and has carefully read
information pertaining to FIC and its business profile;
(b) that such Seller and such Seller's advisers (including a Seller
Representative, if any) have been furnished all materials relating to FIC
and all matters related to FIC which have been requested, and have been
afforded the opportunity to obtain any additional information necessary to
verify the accuracy of any information set forth in FIC's business profile
and related materials;
(c) that such Seller and such Seller's advisers (including a Seller
Representative, if any) have had an opportunity to ask questions of or
receive answers from FIC or its representatives, and FIC and its
representatives have answered all inquiries which such Seller and his or
her advisers (including a Seller Representative, if any) has put to them
concerning FIC, the FIC Stock or any other matters relating to FIC;
(d) such Seller understands that the FIC Stock has not been registered
under the Securities Act or under the securities laws of any state, that
FIC has no intention to register the FIC Stock, that such Seller has no
right to require such registration, and that the FIC Stock cannot be sold
unless it is registered under applicable federal and state securities laws
or unless exemptions from registration are available;
(e) such Seller understands that an investment in FIC involves a high
degree of risk and other considerations relating to a purchase of FIC
Stock, that such Seller is acquiring such FIC Stock without being furnished
any offering literature or prospectus other than FIC's business profile,
and that this transaction and FIC's business profile most likely have not
been scrutinized by, nor meet the investment guidelines of, the securities
administrator in such Seller's state of residence as would be the case with
a full registration because of the FIC Stock made the subject of this
issuance;
(f) that such Seller alone has the requisite knowledge, sophistication
and experience in financial and business matters to enable such Seller to
assess the relative merits and risks of this investment, or together with
such Seller's Representative has the requisite knowledge, sophistication
and experience in financial and business matters to be capable of
evaluating the risks and merits of this investment, and has made such
investigations in connection herewith as have been deemed necessary or
desirable so as not to rely upon FIC or its representatives for legal, tax
or economic information related to this investment;
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(g) such Seller is not relying on FIC or its representatives or the
references to any legal opinions, if any, with respect to the legal, tax
and other economic considerations relating to this investment. To the
extent that such Seller has sought advice with regard to such
considerations, such Seller has relied on the advice of, or have consulted
with, his personal legal, tax, investment and/or other advisers;
(h) No oral or written representations have been made or oral or
written information furnished to a Seller or a Seller's adviser(s) in
connection with FIC or the FIC Stock which are in any way inconsistent with
the information provided to such Seller related to FIC;
(i) Seller acknowledges and understands that the actual results of
operations of FIC may vary materially from the financial forecast and
financial projections contained in any business profile or plans, and that
neither FIC, nor any of its officers, directors, shareholders, employees,
agents or professionals, including their accountants and attorneys, make
any representation or warranty as to such actual results of operations or
as to any benefits which a Seller may be allocated pursuant to this
investment;
(j) that each Seller has reached the age of majority in the
jurisdiction of such Seller's residence and is a qualified accredited
investor (whether by himself or together with a Seller Representative);
(k) that each such Seller has adequate means of providing for current
needs and personal contingencies, has no need for liquidating this
investment, is able to bear the economic risk of an investment in FIC, can
sustain the loss of the entire investment without economic hardship if a
total loss should occur, and such Seller's commitment to similar
investments is reasonable in relation to such Seller's net worth;
(l) The FIC Stock being acquired hereunder is being acquired for such
Seller's own account, or for one or more fiduciary accounts as to which
such Seller has sole investment discretion, for long-term investment and
not with a view to or for resale, fractionalization or division in
connection with any distribution thereof;
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(m) Seller is not acquiring the FIC Stock as a result of or subsequent
to any advertisement, article, notice or other communication published in
any newspaper, magazine or similar media or broadcast over television or
radio, or any seminar or meeting;
(n) each Seller verifies, under penalty of perjury, that the social
security or taxpayer identification number shown next to such Seller's
signature is true, correct and complete and that Seller is not subject to
backup withholding either (i) because Seller has not been notified that
Seller is subject to backup withholding as a result of a failure to report
all interest or dividends, or (ii) because the Internal Revenue Service has
notified Seller that Seller is no longer subject to backup withholding;
(o) Within five days after receipt of a request from FIC, each Seller
will provide such information and deliver such documents as may reasonably
be necessary to comply with any and all laws and ordinances to which FIC is
subject.
Section 3. Representations of Purchaser. Purchaser represents and warrants
to the Companies and the Sellers that:
3.1 Authority. Purchaser (a) is duly formed, validly existing and in good
standing under the laws of the State of Nevada, (b) has full organizational
power and authority to execute, deliver and perform this Agreement and any other
Documents to which it is a party. This Agreement and the Documents have been and
will be duly and validly executed and delivered by Purchaser, and, assuming this
Agreement and the Documents constitute the valid and legally binding obligations
of the Companies and the Sellers, this Agreement and the Documents constitute
valid and binding agreements of Purchaser, enforceable against Purchaser in
accordance with their terms, except that enforcement thereof may be limited by
(a) bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and (b)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
3.2 Consents and Approvals. No consent from or filing with any person
(including, without limitation, any governmental authority) on the part of
Purchaser is required in connection with the execution or delivery by Purchaser
of this Agreement or the consummation by Purchaser of the transactions
contemplated hereby.
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3.3 Offering. Subject to the truth and accuracy of the Companies' and the
Sellers' representations and warranties set forth in Section 2 of this
Agreement, the offer and issuance of the FIC Stock as contemplated by this
Agreement is exempt from the registration requirements of any applicable state
and federal securities laws (other than notice filings required under applicable
law), and neither the Purchaser nor any authorized agent acting on its behalf
will take any action that would cause the loss of such exemption.
3.4 Litigation. Except as set forth in Schedule 3.4 attached hereto, there
is no action, suit, proceeding or investigation pending or, to Purchaser's
knowledge, threatened against Purchaser that questions the validity of this
Agreement or the right of Purchaser to enter into this Agreement and to
consummate the
transactions contemplated hereby.
3.5 Ownership of Shares. The FIC Stock delivered by Purchaser hereunder as
consideration for a portion of the Purchase Price for the Company Stock, when
delivered in accordance with the terms of this Agreement for the consideration
set forth herein, will be duly and validly issued, fully paid, and
nonassessable, free and clear of any Encumbrances (other than encumbrances
created by the Companies or the Sellers) and any restrictions on transfer other
than pursuant to this Agreement or under applicable state and federal securities
laws and will convey to the Sellers good and marketable title to such FIC Stock.
Section 4. Covenants and Agreements.
4.1 Conduct of the Business Prior to Closing; Access. The Companies and the
Sellers covenant as follows:
(a) Between the date hereof and the Closing Date, except as expressly
contemplated by this Agreement, or except with the written consent of the
Purchaser (which consent shall not be unreasonably withheld), the Sellers
and the Companies will use all reasonable efforts to preserve the business
of each Company intact, to preserve the good will of customers, employees
and others having business relations with the Companies, to retain their
key employees, and to maintain insurance in full force and effect, will
operate their business in the ordinary course of business consistent with
past practice and will not: (i) subject any of their assets to any
Encumbrance that will not be released at or prior to the Closing Date; (ii)
make any material changes in the operations of any Company; (iii) other
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than, in each case, in the ordinary course of business consistent with past
practice, sell, transfer, lease, sublease, license or otherwise dispose of
any material assets (for the purposes of this clause (iii), a "material
asset" is an individual asset that has a value in excess of $10,000 or
assets that have an aggregate value in excess of $25,000); (iv) (A) grant
any increase, or announce any increase, in the wages, salaries,
compensation, bonuses, incentives, pension, severance or termination pay or
other benefits payable by any Company to any of the officers or employees
of the Companies, including any increase or change pursuant to any Employee
Benefit Plan, (B) establish or increase (or promise to increase) or
accelerate the payment or vesting of any benefits under any Employee
Benefit Plan with respect to officers or employees of the Companies or (C)
enter into any employment, consulting or severance agreements with any
officers or employees or consultants to the Companies or change the terms
thereof, in the case of clauses (A), (B) and (C), (v) make any material
change in any method of accounting or accounting practice or policy used by
the Companies, other than changes required by Law or under GAAP; (vi)
terminate or amend in any material respect any Material Contract; (vii)
merge or consolidate with, or acquire securities or any interest in, any
person or entity, or enter into any joint venture, partnership or similar
arrangement; (viii) fail to pay any creditor any amount owed to such
creditor when due (after the expiration of any applicable grace periods),
except if any such amount is being disputed in good faith in the ordinary
course of business consistent with past practice; (ix) terminate,
discontinue, close or dispose of any business operation or otherwise
materially change the character or conduct of its business; (x) declare,
set aside or pay any dividend or other distribution in respect of any the
Company Stock; (xi) make any commitments by the Companies for any
individual capital expenditure in excess of $20,000; (xii) amend the
Companies' Articles of Incorporation or bylaws; (xiii) amend any material
term of any outstanding Indebtedness, issue or sell any new debt
securities, create, incur, assume or guarantee any Indebtedness or enter
into any new credit facility (other than roll-overs under existing
facilities), (xiv) compromise, settle, grant any waiver or release relating
to, or otherwise adjust, any material Action, Indebtedness or any other
claims or rights of the Companies; (xv) enter into any new agreement,
contract, commitment or arrangement that will continue in effect after the
Closing Date and not be terminable by the Company which is a party thereto
on not more than 60 days' written notice without payment of premium or
penalty; (xvi) make any change in the ownership of the Companies or grant
or assign any Company Stock, options, rights or phantom shares in the
Companies; or (xvii) enter into any agreement, contract, commitment or
arrangement to do any of the foregoing.
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(b) Pending the Closing Date, the Companies shall: (i) Give to the
Purchaser and its representatives reasonable access during normal business
hours to all of the employees, properties, books and records of the
Companies and furnish the Purchaser and its representatives with such
information concerning the Companies as the Purchaser may reasonably
require, including such access and cooperation as may be necessary to allow
the Purchaser and its representatives to interview the employees, to
examine the books and records of the Companies, and to inspect the real
property and equipment; (ii) Furnish the Purchaser within 20 days after the
end of each month ending between the date of this Agreement and the Closing
Date a statement of income and a balance sheet for each Company for the
month just ended; and (iii) From time to time, furnish to the Purchaser
such additional information (financial or otherwise) concerning the
Companies as the Purchaser may reasonably request (which right to request
information shall not be exercised in any way which would unreasonably
interfere with the normal operations, business or activities of the Sellers
or the Companies).
(c) Notwithstanding anything to the contrary herein, the Sellers and
Purchaser agree that Sellers may receive their customary distributions from
the Companies respective operating accounts prior to Closing, including an
out of the ordinary distribution as a carry-over from 2002, which are to be
treated as taxable income to the Sellers.
4.2 Cooperation. Following the execution of this Agreement, the Purchaser,
the Sellers and the Companies agree as follows:
(a) The parties shall each use their reasonable best efforts, and
shall cooperate fully with each other in preparing, filing, prosecuting,
and taking any other actions with respect to, any filings, applications,
requests, or actions which are or may be necessary, to obtain the consents,
approvals, authorizations or other orders of any Governmental Authority or
other person which are or may be necessary in connection with the
transactions contemplated by this Agreement.
(b) Without limiting the foregoing, the Sellers shall cooperate with
the Purchaser at the Purchaser's request and in so doing use their best
efforts from and after the Closing Date to obtain consents to the Material
Contracts set forth in Schedule 2.8, as required in accordance with the
terms of such Material Contracts;
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(c) If the Purchaser or a Company receives an administrative or other
order or notification relating to any violation or claimed violation of the
rules and regulations of any Governmental Authority that could affect the
Purchase's, the Sellers' or the Companies' ability to consummate the
transactions contemplated hereby, the Purchaser, the Sellers or the
Companies shall promptly notify the other party or parties thereof and
shall use its reasonable best efforts to take such steps as may be
necessary to remove any such impediment to the transactions contemplated by
this Agreement; and no such notification shall affect the representations
or warranties of the parties or the conditions to their respective
obligations hereunder; and
(d) Subject to the terms and conditions of this Agreement, each of the
parties agrees to use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated hereby as soon as practicable but in no event later than the
Closing.
4.3 Taxes.
(a) Taxes for the year 2003 for all of the Companies shall be
allocated (i) to the Sellers for the period from January 1, 2003 to the
Closing Date, and (ii) to the Purchaser for the period from the Closing
Date to December 31, 2003. The Purchaser shall be responsible for filing or
causing to be filed all tax returns required to be filed by or on behalf of
the Companies after the Closing Date. With respect to any such tax return
required to be filed by the Purchaser for a taxable period of a Company
beginning on or before the Closing Date, the Purchaser shall deliver, at
least twenty days prior to the due date for filing of such tax return
(including extensions), to Sellers a statement setting forth the amount of
tax for which Sellers are responsible pursuant to this section (the
"Statement"), and copies of such tax return.
(b) The Purchaser and each of the Sellers will make an election under
Section 338(h)(10) of the Code (and any comparable election under state,
local, or foreign tax law) with respect to the acquisition of the Companies
by the Purchaser. The Purchaser and each of the Sellers will cooperate
fully with one another in the making of such election. In particular, and
not by way of limitation, in order to effect such election, on or prior to
the Closing Date, Purchaser and each of the Sellers will jointly execute
necessary copies of Internal Revenue Service Form 8023 and all attachments
required to be filed therewith pursuant to applicable Treasury regulations.
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4.4 Registration Rights.
(a) Registration of Shares. For purposes of this Agreement, "Holder"
means Sellers and "Registrable Shares" means any shares of FIC Stock held
by a Holder, or any other shares of the common stock of FIC issued to a
Holder pursuant to Section 1.2 hereof, which are included in the definition
of FIC Stock for purposes of this Section 4.4, and any and all shares of
FIC Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of,
shares of FIC Stock held by a Holder until the date on which (i) such share
of FIC Stock has been effectively registered under the Securities Act and
disposed of in accordance with the a Shelf Registration Statement (as
defined below), (ii) such share of FIC Stock is distributed to the public
pursuant to Rule 144 under the Securities Act, or (iii) such share of FIC
Stock may be sold or transferred pursuant to Rule 144(k) under the
Securities Act (or any similar provision then in effect). During the time
which a Holder holds Registrable Shares, if FIC files with the SEC a shelf
registration statement pursuant to Rule 415 under the Securities Act (a
"Shelf Registration Statement") on Form S-1 or Form S-3, if the use of such
form is then available as determined by FIC, FIC agrees to include the
Registrable Shares held by the Holders as part of such Shelf Registration
Statement. FIC has no obligation pursuant to this section 4.4 or this
Agreement to file a Shelf Registration Statement.
(b) Suspension of Registration. Notwithstanding anything to the
contrary in this Section 4.4, FIC may prohibit offers and sales of
Registrable Shares pursuant to a Shelf Registration Statement at any time
if (A)(i) it is in possession of material non-public information, (ii) the
Board of Directors of FIC believes in good faith that such prohibition is
necessary in order to avoid a legal requirement to disclose such material
non-public information and (iii) the Board of Directors of FIC believes in
good faith that disclosure of such material non-public information would
not be in the best interests of FIC and its shareholders or (B)(i) FIC has
made a public announcement relating to an acquisition or business
combination transaction including FIC and/or one or more of its
- 22 -
subsidiaries that is material to FIC and its subsidiaries taken as a whole
and (ii) the Board of Directors of FIC believes in good faith that it would
be impracticable at the time to obtain any financial statements relating to
such acquisition or business combination transaction that would be required
to be set forth in the Shelf Registration Statement , or (C) such Shelf
Registration Statement contains financial information that no longer meets
the requirements of any applicable rule of Regulation S-X (the period
during which any such prohibition of offers and sales of Registrable Shares
pursuant to a Shelf Registration Statement is in effect pursuant to clause
(A) or (B) of this subsection (c) is referred to herein as a "Suspension
Period"). A Suspension Period shall commence on and include the date on
which a Holder of Registrable Shares covered by a Shelf Registration
Statement receives written notice from FIC that offers and sales of
Registrable Shares cannot be made thereunder in accordance with this
subsection (b) and shall, with respect to each Holder, end on the date on
which that Holder either is advised in writing by FIC that offers and sales
of Registrable Shares pursuant to the Shelf Registration Statement and use
of the prospectus contained therein may be resumed (a "Resumption Notice")
or receives a copy of a prospectus supplement. FIC agrees that it must
promptly deliver a Resumption Notice to each Holder when none of the
requisite conditions for the Suspension Period continue to exist or a
prospectus supplement as soon as reasonably practicable.
(c) Damages. Neither FIC nor Purchaser shall be liable to any Holder
for damages pursuant to this Section 4.4.
(d) No Further Obligations of FIC. Neither FIC nor Purchaser shall
have any further obligations to a Holder pursuant to this Section 4.4.
(e) Further Obligations of the Holders. In the event that FIC files a
Shelf Registration Statement in connection with the registration of
Registrable Shares pursuant to this Section 4.4, each Holder agrees to
timely provide to FIC, at its request, such information and materials as it
may reasonably request in order to effect the registration of such
Registrable Shares.
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(f) Expenses. In the event that FIC files a Shelf Registration
Statement pursuant to this section 4.4, FIC or Purchaser shall bear, on
behalf of the Holders, all reasonable costs and expenses of such
registration required under this Section 4.4, including, but not limited
to, the Company's printing, legal and accounting fees and expenses, and SEC
filing fees. Holders shall be responsible for any fees and disbursements of
Holders' counsel. Further, neither FIC nor Purchaser shall have no
obligation to pay or otherwise bear the commissions or discounts
attributable to the Registrable Shares being offered and sold by a Holder.
(g) Indemnification of FIC and Purchaser.
(i) Right to Indemnification. In the event that FIC registers any
of the Registrable Shares under the Securities Act, each Holder of the
Registrable Shares so registered will indemnify and hold harmless FIC
and Purchaser, each of their directors, each of their officers who
have signed or otherwise participated in the preparation of the
registration statement, and each underwriter of the Registrable Shares
so registered (including any broker or dealer through whom such of the
shares may be sold) from and against any and all losses, claims,
damages, expenses or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, applicable
state securities laws or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse FIC or
Purchaser and each such director, officer, underwriter or controlling
person for any legal or other expenses reasonably incurred by them or
any of them in connection with investigating or defending any actions
whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final
prospectus (or in the registration statement or prospectus as from
time to time amended or supplemented) or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, but only insofar as any such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to FIC in connection therewith by
such Holder expressly for use therein; provided, however, that such
Holder's obligations hereunder shall be limited to an amount equal to
the proceeds received by such Holder from Registrable Shares sold in
such registration.
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(ii) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which FIC or
Purchaser seeks indemnification under this subsection (g) but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding that this subsection
(g) provides for indemnification, in such case, then FIC (or
Purchaser) and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion as is appropriate to
reflect the relative fault of FIC (or Purchaser) on the one hand and
of such Holder on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The relative fault of FIC (or Purchaser) on the one hand and of the
Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates
to information supplied by FIC (or Purchaser) on the one hand or by
the Holder on the other, and each party's relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (i)
no such Holder will be required to contribute any amount in excess of
the public offering price of all such Registrable Shares offered by it
pursuant to such registration statement; and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Except as
otherwise provided in this clause (ii), the provisions of Section 5.4
shall govern the notice and other procedural aspects of any
indemnification claim brought pursuant to this subsection (g).
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4.5 Release of Personal Guaranties/Obligations. Purchaser and Companies
agree to use their commercially reasonable best efforts to remove each Seller
from any and all personal guaranty and/or obligations related to the Companies,
as set forth on Schedule 4.5 attached hereto, within a reasonable time after the
Closing. In the event the Purchaser and Companies are unsuccessful in removing
Sellers from all personal guaranties and/or obligations listed on Schedule 4.5,
the Purchasers shall indemnify and hold Sellers harmless for any obligations,
costs and expenses incurred by a Seller arising after the Closing related to any
personal guaranties and/or obligations listed on Schedule 4.5 for the benefit of
the Companies, pursuant to Section 5 herein.
Section 5. Indemnification.
5.1 Survival. The representations, warranties covenants and other
agreements of the parties contained herein or in any Document shall survive the
Closing for a period of two (2) years following the Closing Date (the "Survival
Period").
5.2 Indemnification by the Companies and the Sellers. The Companies and the
Sellers, jointly and severally, shall indemnify Purchaser and FIC and their
affiliates, partners, principals, officers, directors, managers, members,
employees, independent contractors, agents, representatives, and other similarly
situated parties, and the successors, heirs and personal representatives of any
of them (collectively, "Purchaser Indemnified Parties"), against and hold them
harmless from any and all damage, claim, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and attorneys' fees and
expenses) (collectively, "Damages") incurred or suffered by any Purchaser
Indemnified Party arising out of or relating to any breach of any
representation, warranty, covenant or other agreement of the Company or Sellers
contained herein or in any Document, that is asserted in writing to the Company
or Sellers prior to the expiration of the Survival Period. Notwithstanding the
provisions of this Section 5.2, the maximum liability of the Companies and the
Sellers under this Agreement shall be the aggregate amount of consideration paid
by Purchaser hereunder, including the value of the FIC Stock issued as part of
the Purchase Price, as of the date of its issuance.
- 26 -
5.3 Indemnification by Purchaser. Purchaser shall indemnify the Sellers and
their respective successors, heirs and personal representatives (collectively,
the "Sellers Indemnified Parties"), against and hold them harmless from any and
all Damages incurred or suffered by any Sellers Indemnified Party arising out of
or relating to any breach of any representation, warranty, covenant or other
agreement of Purchaser contained herein or in any Document, or the application
of the indemnification covenant of Section 4.5 herein, that is asserted in
writing to Purchaser prior to the expiration of the Survival Period.
Notwithstanding the provisions of this Section 5.3, the maximum liability of
Purchaser under this Agreement shall be the aggregate amount of consideration
paid by Purchaser hereunder.
5.4 Indemnification; Notice and Settlements. A party seeking
indemnification pursuant to Sections 5.2 or 5.3 (an "Indemnified Party") with
respect to a claim, action or proceeding initiated by a person who is not a
Purchaser Indemnified Party or a Sellers Indemnified Party shall give prompt
written notice to the party from whom such indemnification is sought (the
"Indemnifying Party") of the assertion of any claim, or the commencement of any
action or proceeding, in respect of which indemnity may be sought hereunder;
provided that the failure to give such notice shall not affect the Indemnified
Party's rights to indemnification hereunder, unless such failure shall prejudice
in any material respect the Indemnifying Party's ability to defend such claim,
action or proceeding. The Indemnifying Party shall have the right to assume the
defense of any such action or proceeding at its expense. If the Indemnifying
Party shall elect not to assume the defense of any such action or proceeding, or
fails to make such an election within 20 days after it receives such notice
pursuant to the first sentence of this Section 5.4, the Indemnified Party may
assume such defense at the expense of the Indemnifying Party. The Indemnified
Party shall have the right to participate in (but not control) the defense of an
action or proceeding defended by the Indemnifying Party hereunder and to retain
its own counsel in connection with such action or proceeding, but the fees and
expenses of such counsel shall be at the Indemnified Party's expense unless (i)
the Indemnifying Party and the Indemnified Party have mutually agreed in writing
to the retention of such counsel or (ii) the named parties in any such action or
proceeding (including impleaded parties) include the Indemnifying Party and the
Indemnified Party, and representation of the Indemnifying Party and the
Indemnified Party by the same counsel would create a conflict (in which case the
Indemnifying Party shall not be permitted to assume the defense of such claim,
action or proceeding); provided that, unless otherwise agreed by the
Indemnifying Party, if the Indemnifying Party is obligated to pay the fees and
expenses of such counsel, the Indemnifying Party shall be obligated to pay only
the fees and expenses associated with one attorney or law firm (plus local
counsel as required), as applicable, for the Indemnified Party. An Indemnifying
Party shall not be liable under Section 5.2 or 5.3 for any settlement effected
without its written consent, of any claim, action or proceeding in respect of
which indemnity may be sought hereunder.
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Section 6. Conditions to Closing.
6.1 Conditions to Purchaser's Obligations. The obligation of Purchaser or
FIC to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) Any necessary approvals.
(b) No court or governmental entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any order or other
law (whether temporary, preliminary or permanent) that is in effect and
enjoins or otherwise prohibits consummation of the transactions
contemplated by this Agreement.
(c) The representations and warranties of the Companies and the
Sellers contained herein (or in any certificate delivered pursuant hereto)
that are qualified by reference to a Material Adverse Effect shall be true
and correct as of the Closing as if made as of the Closing and all other
representations and warranties of the Companies shall be true and correct
as of the Closing as if made as of the Closing, except for such
inaccuracies as have not had a Material Adverse Effect, and Purchaser shall
have received a certificate to such effect dated the Closing Date and
executed by a duly authorized officer of each Company.
(d) The covenants and agreements of the Companies and the Sellers to
be performed on or prior to the Closing shall have been duly performed in
all material respects, and Purchaser shall have received a certificate to
such effect dated the Closing Date and executed by a duly authorized
officer of the Company.
(e) The Sellers shall have delivered certificates representing the
Company Stock in the name of Purchaser.
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(f) Xxxx and Xxxxxxxx shall have entered into employment contracts
with FICFS.
6.2 Conditions to the Companies' and the Sellers' Obligations. The
obligation of the Companies and the Sellers to consummate the transactions to be
performed by them in connection with the Closing is subject to satisfaction of
the following conditions:
(a) Any necessary approvals.
(b) No court or governmental entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any order or other
law (whether temporary, preliminary or permanent) that is in effect and
enjoins or otherwise prohibits consummation of the transactions
contemplated by this Agreement.
(c) The representations and warranties of Purchaser contained herein
(or in any certificate delivered pursuant hereto) that are qualified by
reference to a material adverse effect shall be true and correct as of the
Closing as if made as of the Closing and all other representations and
warranties of Purchaser shall be true and correct as of the Closing as if
made as of the Closing, except for such inaccuracies as would not
materially impair the transactions contemplated by this Agreement, and the
Company shall have received a certificate to such effect dated the Closing
Date and executed by Purchaser.
(d) The covenants and agreements of Purchaser or FIC to be performed
on or prior to the Closing shall have been duly performed in all material
respects, and the Companies shall have received a certificate to such
effect dated the Closing Date and executed by Purchaser.
(e) Purchaser shall have delivered the Purchase Price.
(f) FICFS shall have entered into employment contracts with Xxxx and
Xxxxxxxx.
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Section 7. Termination.
7.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of the Sellers and Purchaser; or
(b) by either the Sellers or Purchaser by giving written notice of
such termination to the other party, if such other party shall breach any
of its material covenants or agreements under this Agreement which would
result in a failure of the condition set forth in Section 6.1(c), in the
case of a termination by Purchaser, and the condition set forth in Section
6.2(c), in the case of a termination by the Sellers, and such breach, if
reasonable possibility of cure therefore exists, has not been cured within
twenty (20) days following the giving of written notice of such breach by
the non-breaching party to the breaching party; or
(c) by either Purchaser or the Sellers by giving written notice of
such termination to the other party, if any order permanently enjoining or
otherwise prohibiting consummation of the transactions contemplated hereby
shall become final and non-appealable; or
(d) by Purchaser or the Sellers by giving written notice of such
termination to the other, if any condition to such party's obligations
hereunder has not been satisfied or waived and the Closing shall not have
occurred on or prior to May 30, 2003; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(f) shall not be
available to any party who is then in material breach of this Agreement; or
(e) by Purchaser or by the Sellers if FICFS and Xxxx and Xxxxxxxx have
not entered into employment agreements.
7.2 Effect of Termination. In the event of the termination of this
Agreement in accordance with Section 7.1 hereof, this Agreement shall thereafter
become void and have no effect, and no party hereto or its respective affiliates
or their directors, officers, employees, shareholders or agents shall have any
liability to the other parties hereto or their respective affiliates, directors,
officers, employees, shareholders or agents except for the obligations of the
parties hereto; provided, that nothing herein will relieve any party from
liability for a breach of this Agreement prior to such termination.
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Section 8 Definitions.
Unless otherwise stated in this Agreement, the following capitalized terms
have the following meanings:
"Action" means any action, suit, claim, arbitration, grievance, complaint,
charge, proceeding or investigation (of which either the Sellers or the
Companies have knowledge) commenced by or pending before any Governmental
Authority.
"Employee Benefit Plans" means all "employee benefit plans" within the
meaning of Section 3(3) of ERISA (whether or not subject to ERISA), all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other employee benefit plans, programs, policies or
arrangements, and all employment, retention, change of control or compensation
agreements, in each case for the benefit of, or relating to, any current
employee or former employee of the Companies.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including tax liens), charge, encumbrance, easement, adverse claim, adverse
preferential arrangement, restriction or defect in title.
"Governmental Authority" means any United States federal, state or local
government or any foreign government, any governmental, regulatory, legislative,
executive or administrative authority, agency or commission or any court,
tribunal, or judicial body.
"Governmental Order" means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority. Governmental Orders shall not include Permits.
"Indebtedness" means obligations with regard to borrowed money and shall
expressly not include either accounts payable or accrued liabilities that are
incurred in the ordinary course of business or obligations under capital,
financing or operating leases regardless of how such leases maybe classified or
accounted for on financial statements.
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"Material Contracts" means the written agreements, contracts, policies,
plans, mortgages, understandings, arrangements or commitments to which the
Sellers or any Company is a party as described below:
(i) any agreement or contract providing for payments to any person or
entity in excess of $20,000 per year, excluding leases of equipment or real
property or licenses with respect to Intellectual Property, which are
subject to paragraph (iv) below;
(ii) any employment agreement, consulting agreement or similar
contract;
(iii) any retention or severance agreement or similar contract with
respect to any individual who is to be employed by the Companies following
the Closing Date;
(iv) any lease of equipment or real property or license with respect
to Intellectual Property (other than licenses granted in connection with
the purchase of equipment or other assets) by a Company from another person
or entity providing for payments to another person or entity in excess of
$25,000 per year;
(v) any joint venture, partnership or similar agreement or contract of
any Company;
(vi) any agreement or contract under which a Company has borrowed or
loaned any money in excess of $25,000 or issued or received any note, bond,
indenture or other evidence of Indebtedness in excess of $25,000 or
directly or indirectly guaranteed Indebtedness, liabilities or obligations
of others in an amount in excess of $25,000; or
(vii) any agreement or contract with any officer, manager, Seller or
employee of the Companies or any of their family members (other than
employment agreements covered in clause (i) or agreements or contracts
containing terms substantially similar to terms available to employees
generally).
Section 9. Miscellaneous.
9.1 Successors and Assigns. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the permitted respective successors,
assigns, heirs, executors and administrators of the parties hereto.
9.2 Entire Agreement. This Agreement, including all schedules and exhibits
hereto, embody the entire agreement and understanding between the parties hereto
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings relating to such subject matters.
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9.3 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Signatures delivered by telecopy shall
be considered for all purposes to be the same as original signatures.
9.4 Severability. If any provision of this Agreement is held by final
judgment of a court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalid, illegal or unenforceable provision shall be severed
from the remainder of this Agreement, and the remainder of this Agreement shall
be enforced. In addition, the invalid, illegal or unenforceable provision shall
be deemed to be automatically modified, and, as so modified, to be included in
this Agreement, such modification being made to the minimum extent necessary to
render the provision valid, legal and enforceable.
9.5 Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, IRRESPECTIVE OF ANY
CONFLICT-OF-LAWS RULE OR PRINCIPLE OF ANY JURISDICTION THAT MIGHT REFER THE
GOVERNANCE OR CONSTRUCTION OF THIS AGREEMENT TO THE LAWS OF ANY OTHER
JURISDICTION. THIS AGREEMENT CAN BE PERFORMED IN WHOLE OR IN PART IN XXXXXX
COUNTY, TEXAS, AND VENUE FOR ANY ACTION RELATING TO THIS AGREEMENT SHALL BE
PROPER ONLY IN FEDERAL OR STATE COURTS LOCATED WITHIN XXXXXX COUNTY, TEXAS. EACH
PARTY AGREES THAT IT MUST BRING ANY ACTION RELATED TO THIS AGREEMENT OR ANY
OTHER DOCUMENT ONLY IN THE FEDERAL OR STATE COURTS LOCATED WITHIN XXXXXX COUNTY,
TEXAS.
9.6 Notices. Any notices or demands required or permitted to be given
hereunder shall be deemed sufficiently given if in writing and delivered,
transmitted or mailed (with all postage and charges prepaid), addressed to the
recipient at the address provided below, or at such other address as any party
may from time to time designate by written notice to the other parties given in
accordance with this Section 9.6. Any such notice, if personally delivered or
transmitted by facsimile, shall be deemed to have been given on the date so
delivered or transmitted or, if mailed, be deemed to have been given on the day
after such notice is placed in the United States mail in accordance with this
Section 9.6.
- 33 -
Purchaser: FIC Financial Services, Inc.
0000 Xxxxx Xxxxx Xxxx., Xxxxxxxx Xxx
Xxxxxx, Xxxxx 00000
Attn: Xxx Xxxxxx
FIC: Financial Industries Corporation
0000 Xxxxx Xxxxx Xxxx., Xxxxxxxx Xxx
Xxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxx and Xxx Xxxxxx
Companies: Paragon Benefits, Inc.
Paragon Group, Inc.
Paragon National, Inc.
0000 Xxx Xxxx Xxxx, X-000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxx
Each of the Sellers: At the address set forth opposite
their respective names on their
respective signature pages included
on and made a part of Schedule 1.1,
attached hereto.
9.7 Further Assurances. Each party of this Agreement hereby covenants and
agrees, without the necessity of any further consideration, to execute and
deliver any and all such further documents and take any and all such other
actions as may be reasonably necessary to appropriately carry out the intent and
purposes of this Agreement and the other Documents and to consummate the
transactions contemplated. Each party will use its good faith efforts to carry
out and comply with the provisions of this Agreement.
9.8 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties hereto and their
respective successors and permitted assigns.
9.9 Adjustments in Shares Issued Pursuant to Section 1.2. The number of
shares of FIC Stock to be issued pursuant to Section 1.2 of this Agreement shall
be adjusted in the event the Closing does not take place on May 19, 2003; and in
such event, the parties agree that the price per share, based on formula defined
in such section, shall be recalculated, and adjustments may be made in the
number of shares of FIC Stock issuable, without the necessity of any further
signature or other requirements on the part of the Sellers, the Purchaser, the
Company, or any other party.
[Signature page follows]
- 34 -
SIGNATURE PAGE
TO
STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
PURCHASER: FIC FINANCIAL SERVICES, INC.
By:____________________________________
Name:__________________________________
Title: ________________________________
FIC: FINANCIAL INDUSTRIES CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
COMPANY: PARAGON BENEFITS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
- 35 -
PARAGON GROUP, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
PARAGON NATIONAL, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
- 36 -
