EXHIBIT 2.1
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MERGER AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of the ____ of March, 2005
(the "Agreement"), by and among CSM, Inc., a Tennessee corporation ("Company"),
Xxxx Xxxxxxx ("Fortune"), Xxxx Daily ("Daily"), Harbinger Mezzanine Partners,
L.P. ("Harbinger"), Xxxx Xxxxxxxxx ("Xxxxxxxxx"), Xxxx Xxxxx ("Xxxxx"), Xxx
Boston ("Boston"), Xxx Xxxxx ("Xxxxx"), (Fortune, Daily, Harbinger, Altenbern,
Gould, Boston and Xxxxx collectively being the owners of all of the outstanding
common stock of the Company, __ par value (the "Common Stock") and hereinafter
referred to individually as a "Shareholder" and collectively as the
"Shareholders"), Fortune Diversified Industries, Inc., a Delaware corporation
("FDI"); CSM Merger Corporation, a Tennessee corporation and wholly-owned
subsidiary of FDI ("Merger Sub"); and Xxxxxx X. Xxxxxxx ("CMF").
W I T N E S S E T H:
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WHEREAS, the Boards of Directors of Company, FDI, and Merger Sub deem
advisable, consistent with their respective business strategies and in the best
interests of their respective shareholders the merger of Merger Sub with and
into Company (the "Merger") upon the terms and conditions set forth herein and
in accordance with the Tennessee Business Corporation Act (the "TBCA") (Company,
following the effectiveness of the Merger, being hereinafter sometimes referred
to as the "Surviving Corporation"); and
WHEREAS, the Boards of Directors of Company, FDI and Merger Sub have
approved the Merger pursuant to this Agreement, upon the terms and conditions
set forth herein; and
WHEREAS, each of the Shareholders has approved this Agreement and the
Merger on the terms and conditions set forth herein.
WHEREAS, Fortune, Daily and Harbinger (collectively the "Indemnifying
Shareholders") agree to make certain representations, warranties, covenants and
agreements for the benefit of FDI.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the method of carrying
the same into effect, the parties hereby agree as follows:
1. THE MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined), Merger
Sub will merge with and into the Company, with the Company being the Surviving
Corporation, with all of the effects as described in Section 00-00-000 of the
TBCA.
1.2 The Effective Time of the Merger. On such date as shall be mutually
acceptable to FDI and Company within five days after the date on which the last
of the conditions set forth in Sections 6 and 7 has been satisfied or waived by
the appropriate parties (or by such later date as may be agreed by the parties),
Company and Merger Sub shall execute articles of merger (the "Merger
Certificate") to effect the Merger in accordance with all appropriate legal
requirements
and deliver and file such Merger Articles as required by the TBCA. The Merger
shall become effective upon the filing of the Merger Certificate or at such
later time and date satisfactory to Company and FDI as may be specified in the
Merger Certificate (the time and date of such filing or such later time and date
being herein called the "Effective Time").
1.3 Charter and By-laws. The Charter and By-laws of the Company, as in
effect immediately prior to the Effective Time, shall be the Charter and By-laws
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
1.4 Officers and Directors. The officers and directors of Merger Sub
immediately prior to the Effective Time shall be the officers and directors of
the Surviving Corporation until their respective successors are duly elected and
qualified.
1.5 Merger Consideration. The Merger Consideration shall consist of the
Per Share Cash Merger Consideration and the Contingent Share Merger
Consideration, each of which shall be calculated and distributed as set forth
herein. For administrative purposes, the indebtedness referred to in Section 7.8
shall be considered consideration received by the Company in the Merger.
1.6 Effect on Capital Stock. The manner and basis of converting the
shares of the Common Stock and any options or warrants shall be as follows:
(a) Common Stock. At the Effective Time, each share of Common
Stock issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into, and represent the right to receive, the Merger Consideration.
(b) Options. At the Effective Time, any option outstanding
immediately prior to the Effective Time shall be: (i) cancelled; (ii) or
cancelled and converted into, and represent, the right to receive the Contingent
Share Merger Consideration, as calculated in Section 1.8.
(c) Warrants. At the Effective Time, any warrant outstanding
immediately prior to the Effective Time shall be: (i) cancelled; or (ii)
cancelled and converted into, and represent the right to receive the Merger
Consideration.
1.7 Conversion of Shares of Merger Sub. Upon the terms and subject to
the conditions of this Agreement, at the Effective Time, by virtue of the
Merger, each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of common stock of the Company.
Following the Effective Time, each certificate evidencing ownership of shares of
Merger Sub common stock shall evidence ownership of such shares of common stock
of the Company.
1.8 Contingent Shares.
(a) Within sixty (60) days after each Distribution Date set
forth below, FDI will cause to be delivered to those individuals or entities
("Contingent Share Recipients") in the respective percentages set forth on
Schedule 1.8 hereto. one share of FDI $.01 par value
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common stock (each a "Contingent Share" and, collectively, the "Contingent
Shares") for every $1.70 of EBITDA in excess of $850,000 during each twelve
month period (April 1 to March 31) of the Contingency Period (as defined below)
prior to the applicable Distribution Date. Such Contingent Shares shall be
issued to the Contingent Share Recipients pursuant to the percentages set forth
on Schedule 1.8 unless the Disbursing Agent (as defined in Section 1.12)
receives instructions to the contrary signed by each Contingent Share Recipient.
(b) The Distribution Dates shall be June 1, 2006, June 1, 2007
and June 1, 2008. The period from April 1, 2005 until March 31, 2008 shall be
referred to herein as the "Contingency Period."
(c) Notwithstanding the foregoing, subject to section
1.8(d)(ii) below: (i) not more than 500,000 Contingent Shares shall be earned
and distributed in regards to the first twelve month period; (ii) not more than
500,000 Contingent Shares shall be earned and distributed in regards to the
second twelve month period; and (iii) not more than 500,000 Contingent Shares
shall be earned and distributed in regards to the third twelve month period.
(d) Terms of Contingent Shares. The Contingent Shares, when
earned and distributed, shall entitle the holder to all of rights of a holder of
any other share of FDI's common stock, but shall be entitled and subject to the
following additional rights and obligations:
(i) "Put." Each holder of Contingent Shares may, in
his/her sole discretion, sell any or all of his/her earned Contingent Shares to
CMF and CMF shall purchase any of such Contingent Shares offered by any holder
thereof pursuant to the terms of this Section 1.8 (d)(i) (the "Put"). The
purchase price shall be $1.033 per share (the "Put Price"). Any holder of
Contingent Shares may only exercise his/her Put during the period June 1, 2008
to September 30, 2008 (the "Exercise Period"). In addition, any holder of
Contingent Shares may only exercise his/her Put if FDI's common stock is not
listed on the OTC Bulletin Board, the New York Stock Exchange, NASDAQ or another
nationally-recognized securities market or exchange during the thirty (30) day
period preceding the Exercise Period or if the average bid price per share
during the thirty (30) day period preceding the Exercise Period on any such
nationally recognized securities market or exchange is less than the Put Price.
Any closing on a Put of Contingent Shares to CMF shall occur within thirty (30)
days of CMF's receipt of written notice from any holder of Contingent Shares
exercising his/her Put.
(ii) Adjustments. The number of Contingent Shares
under this Section 1.8 shall be proportionately adjusted to reflect any stock
dividend, stock split or share combination of FDI's common stock or any
recapitalization of FDI occurring prior to a Distribution Date. Except as
provided in the preceding sentence, no adjustment shall be made as to any
dividends or other rights for which the record date occurred prior to a
Distribution Date.
(iii) Legends. Any certificates issued for Contingent
Shares shall contain restrictive legends evidencing, among other things, the
restrictions and provisions regarding mandatory purchases and sales contained in
this Section 1.8.
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1.9 No Further Ownership Rights in Common Stock. All Merger
Consideration issued upon the surrender for exchange of certificates evidencing
Common Stock or to be issued in the future as Contingent Shares in accordance
with the terms of this Section 1 shall be deemed to have been issued in full
satisfaction of all rights pertaining to the Common Stock and any options or
warrants. The Company shall not have any further obligations to any holder of
Common Stock, holder of any option or holder of any warrant. At the Effective
Time, holders of Common Stock, holders of any options and holders of any
warrants immediately prior to the Effective Time shall cease to be, and shall
have no rights as, shareholders, options holders or warrant holders of Company
other than the right to receive the Merger Consideration set forth in Section
1.5, and holders of certificates of Common Stock, holders of any options and
holders of any warrants shall not be treated as shareholders of the Company
thereafter for any purpose.
1.10 The Closing. The closing of the transactions contemplated by the
Agreement (the "Closing") shall take place at the offices of Xxxxxx Xxxxxxx
Vornehm, LLP, 0000 Xxxxxxxx Xxxxxxxx, Xxxxx 0000, Xxxxxxxxxxxx, Xxxxxxx 00000,
commencing at 9:00 a.m. local time on March 31, 2005 or such other date and/or
time as FDI and the Shareholders may mutually agree (the "Closing Date").
1.11 Deliveries at the Closing. At the closing, (i) the Shareholders
will deliver to FDI the various certificates, instruments and documents referred
to in Section 6 below, (ii) FDI will deliver to the Shareholders the various
certificates, instruments and documents referred to in Section 7 below, (iii)
each of the Shareholders will deliver to FDI stock certificates representing all
of such Shareholder's Common Stock, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) FDI and Merger Sub will deliver the Per
Share Cash Merger Consideration specified in Section 1.5 above as set forth in
Section 1.12 by wire transfer of immediately available funds.
1.12 Payment of Cash Merger Consideration.
(a) At Closing, FDI and Merger Sub shall deposit or cause to
be deposited in immediately available funds with Xxxxxx Xxxxxxx Vornehm, LLP
(the "Disbursing Agent") cash in an amount equal to the Aggregate Merger
Consideration.
(b) The Disbursing Agent shall immediately disburse
$200,550.25 from the Aggregate Merger Consideration to the Shareholders pursuant
to written instructions from the Shareholders as to the respective amounts and
account information.
(c) The Disbursing Agent shall hold the remaining $450,000 of
the Aggregate Merger Consideration (the "Escrow Funds") pursuant to an escrow
agreement in form and substance acceptable to the parties providing that the
Escrow Funds to be used, if necessary, to pay certain taxes interest and
penalties for which the Company might have a liability and, to the extent that
the Company does not have a liability for such taxes interest and penalties, for
such Escrow Funds to be distributed to the Shareholders.
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE INDEMNIFYING
SHAREHOLDERS. Each of the Shareholders represents and warrants to FDI and Merger
Sub that, with respect to himself or itself and each of the Indemnifying
Shareholders
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represents and warrants to FDI and Merger Sub that the statements contained in
this Section 2 are true, correct and complete as of the date of this Agreement.
2.1 Power and Authorization. The Company and each Shareholder have full
power and authority to execute and deliver this Agreement and to perform his or
its obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Company and each Shareholder, enforceable in
accordance with its terms except as the same may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting the enforcement of creditor's rights in general, and except that the
enforceability of this Agreement also is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law). The individuals executing this Agreement on behalf of and in the
name of the Company and Harbinger are duly authorized and empowered to so act.
Neither the Company nor any Shareholder need give any notice to, make any filing
with, or obtain any authorization, consent or approval of any government or
government agency in order to consummate the transactions contemplated by this
Agreement.
2.2 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, does or
will, after the giving of notice, lapse of time or otherwise: (i) violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge or other restriction of any government, governmental agency, or court to
which any Shareholder is subject, (ii) conflict with, result in a breach of,
amend or modify, constitute a default under, result in the acceleration or
termination of, create in any party the right to accelerate, terminate, modify,
abandon, or cancel, or require any notice under, any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement, mortgage,
instrument of indebtedness or other arrangement to which any Shareholder is a
party or by which he or it is bound or to which any of his or its assets is
subject, or (iii) if applicable, conflict with, result in a breach of or
constitute a default under, the charter or bylaws or other governing instrument
applicable to any Shareholder.
2.3 Broker Fees. Except as set forth in Section 2.3 of the disclosure
schedule accompanying this Agreement (the "Disclosure Schedule"), neither the
Company nor any Shareholder has any liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement for which FDI or the Company could become liable
or obligated. Any fees or commissions due to any such broker, finder or agent
shall be paid by Shareholders and by the Company as set forth in Section 2.3 of
the Disclosure Schedule. In no event, however, shall the Company or any of its
subsidiaries have paid or be obligated to pay any amount in excess of one
hundred thousand dollars ($100,000.00).
2.4 Ownership of Common Stock. The Shareholders hold of record and own
beneficially the number and type of shares of Common Stock set forth next to his
or its name in Section 3.3 of the Disclosure Schedule, and each Shareholder has
the right and power to transfer and assign his or its Common Stock, free and
clear of any restrictions on transfer, claims, taxes, liens, security interests,
encumbrances, options or other demands or liabilities; Except for any options or
warrants that are cancelled at the Effective Time, neither the Company nor any
Shareholder is a party to any option, warrant, right, contract, call, put or
other agreement or commitment providing for the disposition or acquisition of
any capital stock of the Company
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(other than this Agreement). Each Shareholder has the exclusive right, power and
authority to vote the shares of Common Stock owned by that Shareholder and no
Shareholder is a party to any voting trust, proxy, or other agreement or
understanding with respect to voting of any capital stock of the Company. The
Shareholders are the only shareholders of Company, and will (except for
exercises of options or warrants prior to the Closing Date) remain and continue
to be the only shareholders through the Closing Date and will not sell, pledge
or otherwise transfer or assign any of their shares of Common Stock prior to the
Closing Date.
2.5 No Litigation. There are no judicial, administrative or other
governmental actions, proceedings or investigations pending or, to the knowledge
of any of Shareholders, threatened, that question any of the transactions
contemplated by, or the validity of, this Agreement or which, if adversely
determined, would have an adverse effect upon the ability of any of the
Shareholders to enter into or perform his/her/its obligations under this
Agreement. No Seller has received any request from any governmental agency or
instrumentality for information with respect to the transactions contemplated
hereby.
2.6 Securities Matters.
(a) Each Shareholder understands that the Contingent Shares,
when issued by FDI, will not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws on the grounds that
the issuance of the Contingent Shares is exempt from registration, and that the
reliance of FDI on such exemptions is predicated in part on each of
Shareholders' representations, warranties, covenants and acknowledgments set
forth in this Section 2.6.
(b) Each Shareholder represents and warrants that the
Contingent Shares to be acquired as contemplated herein will be acquired by
him/her/it for his/her/its own account, not as a nominee or agent, and without a
view to resale or other distribution within the meaning of the Securities Act
and the rules and regulations thereunder, and that he/she/it will not distribute
all or any portion of the Contingent Shares that may be received in violation of
the Securities Act.
(c) Each Shareholder acknowledges that the Contingent Shares,
when issued, will be "restricted securities" under the federal securities laws
inasmuch as they are being acquired in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold only if such shares are registered for sale under the Securities Act
or if such sale is exempt from registration.
(d) Each Shareholder represents and warrants that he/she/it,
either alone, or together with a business or other representative or advisor,
has such knowledge and experience in financial and business matters such that
he/she is capable of evaluating the merits and risks of his/her/its receipt of
the Contingent Shares.
(e) Each Shareholder is in a financial position to afford to
hold the Contingent Shares indefinitely, each Shareholder's financial condition
being such that he/she/it is not presently under necessity or constraint to
dispose of the Contingent Shares to satisfy any existing or contemplated debt or
undertaking. Each Shareholder recognizes that it may not be possible for
him/her/it to liquidate his/her/its investment in the Contingent Shares and,
accordingly,
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he/she/it may have to hold the Contingent Shares, and bear the economic risk of
this investment, indefinitely.
(f) Each Shareholders confirms that the Contingent Shares were
not offered to him/her/it by any means of general solicitation or general
advertising, and that he/she/it has received no representations, warranties or
written communications upon which he/she/it has relied with respect to the
Contingent Shares other than those contained or described in this Agreement.
(g) Each Shareholder acknowledges that he/she/it has been
provided or that FDI has made available to him/her/it copies of FDI's most
recent Form 10-KSB, Form 10-QSB and any Form 8-Ks filed since the most recent
Form 10-QSB was filed.
(h) Each Shareholder acknowledges that FDI has given
him/her/it a reasonable opportunity to ask questions and receive answers
concerning his/her/its receipt of Contingent Shares and to obtain any additional
information which FDI possesses or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy of information.
2.7 No Other Claims. Except for their claims to the Merger
Consideration, no Shareholder, option holder or warrant holder has any claim or
right of action against the Company or any of its subsidiaries.
2.8 Continuation of Existence. Harbinger shall: (i) continue its
existence and shall not terminate, liquidate or dissolve; and (ii) retain at
least five hundred thousand dollars ($500,000) of liquid assets until the later
of: (a) March 31, 2006; or (b) such date as any Claim filed against Harbinger
(pursuant to Section 9.1 of this Agreement) is finally resolved.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE INDEMNIFYING
SHAREHOLDERS CONCERNING THE COMPANY. Each of the Shareholders represents and
warrants to FDI and Merger Sub that, with respect to himself or itself and each
of the Indemnifying Shareholders represents and warrants to FDI and Merger Sub
that the statements contained in this Section 3 are true, correct and complete,
except as set forth in the Disclosure Schedule, and except for changes in the
business and properties of the Company expressly permitted by the terms hereof.
3.1 Organization, Qualification and Corporate Power. The Company and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the State of Tennessee. The Company and each
of its subsidiaries is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction in which the nature of its business
or the ownership or leasing of its properties requires such qualification. The
Company and each of its subsidiaries has all requisite power and authority to
carry on its business as now conducted and to own or lease and to operate its
properties as such properties are now owned, leased or operated. Section 3.1 of
the Disclosure Schedule lists the directors and officers of the Company and each
of its subsidiaries. The Company and each of its subsidiaries has delivered to
FDI true, correct and complete copies of the charter and by-laws of the Company
and each of its subsidiaries. The minute books containing the records of
meetings of the stockholders, the board of directors, the stock certificate
books, and the stock record books of the
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Company and each of its subsidiaries are correct and complete. The Company and
each of its subsidiaries is not in default under, or in violation of, any
provision of its charter or by-laws.
3.2 Non-Contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, does or
will, after the giving of notice, lapse of time or otherwise: (i) violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge or other restriction of any government, governmental agency, or court to
which the Company or any of its subsidiaries is subject, (ii) conflict with,
result in a breach of, amend or modify, constitute a default under, result in
the acceleration or termination of, create in any party the right to accelerate,
terminate, modify, abandon, or cancel, or require any notice under, any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement, mortgage, instrument of indebtedness or other arrangement to which
Company or any of its subsidiaries is a party or by which it is bound or to
which any of it assets is subject, or (iii) conflict with, result in a breach of
or constitute a default under, the charter or bylaws or other governing
instrument applicable to the Company or any of its subsidiaries.
3.3 Capitalization. The entire authorized capital stock of the Company
and each of its subsidiaries is set forth in Section 3.3 of the Disclosure
Schedule. There are no shares of capital stock held in the treasury of the
Company or any of its subsidiaries. All of the issued and outstanding Common
Stock and the common stock issued by each of Company's subsidiaries has been
duly authorized and is validly issued, fully paid and nonassessable. All of the
issued and outstanding Common Stock and the common stock issued by each of the
Company's subsidiaries is held of record by the persons or entities set forth in
Section 3.3 of the Disclosure Schedule in the amounts indicated therein. Except
for any options or warrants that are cancelled at the Effective Time, there are
no outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, or other agreements or commitments to
which the Company or any of its subsidiaries is a party or which are binding
upon the Company or any of its subsidiaries providing for the issuance,
disposition or acquisition of any of its capital stock. There are no outstanding
or authorized stock appreciation, phantom stock, or similar rights with respect
to the Company or any of its subsidiaries and there are no outstanding or
existing securities of any kind convertible into or exchangeable for shares of
stock in the Company or any of its subsidiaries. There are no voting trusts,
proxies or any other agreements or understandings with respect to the voting of
the capital stock of the Company or any of its subsidiaries. By executing this
Agreement, each Shareholder waives any right that he, she or it may have to
dissent from, and hereby consents to, the Merger. No former shareholder, option
holder or warrant holder of Company or any corporation heretofore merged with or
into Company has any claim or cause of action whatsoever against Company or any
of its subsidiaries arising or in any way connected with any occurrence or state
of facts in existence prior to the date hereof, and no such former shareholder,
option holder or warrant holder shall come to have any claim or cause of action
whatsoever against Company, any of its subsidiaries or FDI, or any officer,
director or shareholder of any such corporations, by virtue of, or in any way
connected with, the transactions contemplated by this Agreement. All of the
outstanding capital stock of Company and each of its subsidiaries has been
issued and sold in compliance with all federal and state securities laws. There
are no preemptive rights in respect of Company's or any of its subsidiaries'
capital stock.
3.4 Subsidiaries and Investments. Except as disclosed in Section 3.4 of
the Disclosure Schedule:
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(a) the Company has no subsidiaries and does not own or
control, directly or indirectly, any of the capital stock of any corporation;
(b) the Company and each of its subsidiaries does not own any
interest in any partnership or other entity;
(c) there are no outstanding contractual obligations of
Company or any of its subsidiaries to acquire any shares of capital stock or
other ownership interest of any corporation, partnership or other entity; and
(d) the Company and each of its subsidiaries does not have any
investment (either debt or equity), or commitments to make such an investment,
in any corporation, joint venture, general or limited partnership, business
enterprise or other person or entity.
3.5 Permits; Compliance with Laws
(a) The Company and each of its subsidiaries has and maintains
all licenses, permits and other authorizations from all such governmental
authorities as are necessary or desirable for the conduct of its business. The
validity of each such license, permit or other authorization will not be
affected by the consummation of the transactions contemplated hereby. All such
permits, licenses and authorizations are in full force and effect and no
suspension or cancellation of any of them is threatened. Company and each of its
subsidiaries has complied, in respect of its operations, real property,
equipment, all other property, practices and all other aspects of its business,
in all material respects, with all the requirements of all permits, licenses and
authorizations.
(b) The Company and each of its subsidiaries has complied in
all material respects with all laws (including rules and regulations thereunder)
of federal, state, local, and foreign governments (and all agencies thereof),
and no unresolved charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been received by the Company or any
of its subsidiaries, alleging any failure to comply with any such law or
regulation.
3.6 Litigation. Section 3.6 of the Disclosure Schedule sets forth each
instance in which the Company or any of its subsidiaries (i) is subject to any
unsatisfied or currently effective judgment, order, decree, stipulation,
injunction, or charge or (ii) is a party or, to the knowledge of any of the
Shareholders, is threatened to be made a party to, any charge, complaint,
action, suit, proceeding, hearing, or investigation of, or in any court or
quasi-judicial or administrative agency of, any federal, state, local, or
foreign jurisdiction or before any arbitrator. None of the charges, complaints,
actions, suits, proceedings, hearings, and investigations that are required to
be set forth in Section 3.6 of the Disclosure Schedule could result in any
material adverse change in the assets, liabilities, business, financial
condition, operations, results of operations, or future prospects of the
Company, or any of its subsidiaries, taken as a whole (a "Material Adverse
Change").
3.7 Financial Statements.
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(a) Section 3.7(a) of the Disclosure Schedule includes the
unaudited consolidated balance sheet of Company and each of its subsidiaries as
of December 31, 2004 (including the notes thereto, if any, the "Company December
Balance Sheet"), and the related consolidated statement of income for the
calendar year then ended (collectively the "Company Financial Statements"). The
Company Financial Statements accurately and fairly present the financial
condition of the Company and each of its subsidiaries as of the date thereof and
the results of its consolidated operations for the year then ended, all in
accordance with GAAP consistently applied.
(b) Section 3.7(b) of the Disclosure Schedule includes the
unaudited consolidated balance sheet of Company and each of its subsidiaries as
of January 31, 2005, which contains certain agreed-upon adjustments that are
described in Section 3.7(b) of the Disclosure Schedule (the "Company Interim
Balance Sheet") and the related consolidated statement of income for the one
month then ended (collectively the "Company Interim Financial Statements"). The
Company Interim Financial Statements accurately and fairly present the financial
condition of the Company and each of its subsidiaries as of the date thereof and
the results of its operations for that portion of the fiscal year then elapsed,
all in accordance with GAAP consistently applied.
(c) Except as described in Section 3.7(c) of the Disclosure
Schedule, the Company Interim Balance Sheet reflects all liabilities of Company
and each of its subsidiaries whether absolute, accrued or contingent, as of the
date hereof. As of the date of Closing, Company and each of its subsidiaries
will not have any liability or obligation of any nature that is not reflected on
the Company Interim Balance Sheet other than current liabilities (within the
meaning of GAAP) incurred since the date thereof arising in the ordinary course
of business consistent with past practice.
(d) The line item "Cash and Cash Equivalents" on the Company
Interim Balance Sheet accurately reflects the cash on hand as of its date.
(e) On the Company Interim Balance Sheet, Company has
established certain medical reserves and workers compensation reserves under the
line items "Accrued Workers Compensation Claims" and "Accrued Benefit Plan
Claims". The medical reserves and workers compensation reserves established on
the Company Interim Balance Sheet accurately reflect the Company's and each of
its subsidiaries' estimated liability exposure to such claims.
(f) The Company's and each of its subsidiaries' liability for
unpaid insurance premium tax (including penalties and interest, if any) for all
services provided or income received prior to the Closing Date does not exceed
four hundred thousand dollars ($400,000.00). The Company's and each of its
subsidiaries' liability for unpaid employment taxes due to the State of North
Carolina and or any governmental bodies related to the State of North Carolina
(including penalties and interest, if any) for any such amounts accruing prior
to the Closing Date does not exceed seventy-five thousand dollars ($75,000.00).
The Company or any of its subsidiaries has not paid any insurance premium tax
prior to Closing. If the unpaid insurance premium tax exceeds four hundred
thousand dollars ($400,000.00), or if there are insufficient Escrow Funds to pay
the amount of the unpaid insurance premium tax then any amount of the insurance
premium tax in excess of four hundred thousand dollars ($400,000.00) or in
excess of
10
the remaining Escrow Funds shall then be paid by the Indemnifying Shareholders
according to the provisions of this Agreement. . If the unpaid employment taxes
referred to in this Subsection exceed seventy-five thousand dollars
($75,000.00), or if there are insufficient Escrow Funds to pay the amount of the
unpaid employment taxes then the amount of any such remaining unpaid employment
taxes shall then be paid out of the one hundred fifty thousand dollars
($150,000.00) in accrued legal expenses stated on the Company Interim Balance
Sheet to the extent that such accrued expenses have not already been depleted,
the Indemnifying Shareholders shall then pay any remaining amount of the unpaid
employment taxes according to the terms of this Agreement. Amounts deducted from
the Escrow Funds for payment of either the insurance premium tax or the
employment tax (including penalties and interest, if any) shall be withdrawn
from Escrow Funds at the time of final settlement of either matter.
3.8 Accounts Receivable. Section 3.8 of the Disclosure Schedule
includes a correct and complete accounts receivable aging of Company and each of
its subsidiaries as of January 31, 2005 reflecting the aggregate dollar amount
of all accounts receivable of Company and each of its subsidiaries which have
been outstanding for: 30 days or less; more than 30 but less than 61 days; more
than 60 but less than 91 days; and more than 90 days. Company and each of its
subsidiaries have established what they consider to be reasonable reserves for
losses on their accounts receivable based on historic loss experience and
current economic conditions and such accounts receivable (net of reserves) are
collectible by Company and each of its subsidiaries in the ordinary course of
business within ninety (90) days of the date of this Agreement. Such reserve(s)
are included on the Company Interim Balance Sheet.
3.9 Client List. Company has provided to FDI a schedule listing the
twenty largest clients of the Company and each of its subsidiaries on a
consolidated basis for the calendar year 2004 and has set forth opposite the
name of each such client the percentage of gross revenues attributable to such
client ("Client List"). For purposes of confidentiality, the Client List shall
not be listed on the Disclosure Schedule to this Agreement, but shall be treated
as between parties as if it were Section 3.9 of the Disclosure Schedule to this
Agreement. No customer on the Client List has notified the Company that it
intends to discontinue or reduce significantly its business with the Company,
whether as a result of this Agreement or otherwise. Except as disclosed in
Section 3.9 of the Disclosure Schedule, the Company is not engaged in any
dispute with any such customer.
3.10 Real Property.
(a) Neither Company nor any of its subsidiaries own any real
property.
(b) The leases listed in Section 3.10(b) of the Disclosure
Schedule (the "Real Property Leases") constitute all leases, subleases, licenses
and other agreements under which the Company or any of its subsidiaries uses or
occupies or has any right to use or occupy, now or in the future, any real
property (the "Leased Real Property"). The Shareholders have heretofore
delivered to FDI true, correct and complete copies of all Real Property Leases
(including all modifications thereof and all amendments and supplements
thereto). Each of the Real Property Leases is valid, binding (assuming its
binding effect on the landlord thereunder) and in full force and effect, all
rent and other sums and charges payable by the Company or any of its
subsidiaries as a tenant thereunder is current, no notice of default or
termination under any Real Property
11
Leases is outstanding, no termination event or condition or uncured default on
the part of the Company or any of its subsidiaries or, to the knowledge of the
Shareholders, the landlord, exists under any Real Property Lease, and no event
has occurred and no condition exists which, with the giving of notice or the
lapse of time or otherwise, would constitute such a default or termination event
or condition. The Company or one of its subsidiaries holds the Leased Real
Property free and clear of all liens, security interests or other encumbrances
except Permitted Encumbrances (as defined below). None of the Shareholders has
any ownership, financial or other interest in the landlord under any Real
Property Lease. The occupancy, operation or use of the Leased Real Property
(including the buildings, improvements, fixtures and equipment located thereon)
complies in all material respects with all applicable laws, statutes,
ordinances, rules, regulations, orders, decrees and determinations of any
governmental authority (whether or not permitted because of prior nonconforming
use), or any covenant in the associated Real Property Lease. The Leased Real
Property is adequate and suitable for the purposes for which it is currently
being used.
3.11 Title to Properties. The Company or one of its subsidiaries is the
lawful owner of, and has good and valid record and marketable title to, all of
the assets which it purports to own (including, without limitation, all real and
personal property reflected on the Balance Sheet), without any restrictions of
any kind whatsoever, and entirely free and clear of any liens, security
interests or other encumbrances, except as described in Section 3.11 of the
Disclosure Schedule ("Permitted Encumbrances").
3.12 List of Properties, etc. Section 3.12 of the Disclosure Schedule
lists or adequately describes the following:
(a) the Company's and each of its subsidiaries' fixed asset
depreciation schedule, which schedule accurately represents the fixed assets
owned by Company and each of its subsidiaries.
(b) a list of all assets leased by Company and each of its
subsidiaries that accurately represents the assets leased by Company and each of
its subsidiaries.
(c) the name and address of each bank in which the Company or
any of its subsidiaries has an account or safe deposit box, the number of any
such account or any such box and the names of all persons authorized to draw
thereon or to have access thereto.
3.13 Material Contracts. Except as set forth in Section 3.13 of the
Disclosure Schedule, neither the Company nor any of its subsidiaries has nor is
bound by, whether in writing or otherwise:
(a) any agreement, contract or commitment relating to the
employment of any person (including any contract or commitment to any labor
union), or any bonus, deferred compensation, pension, severance, profit sharing,
stock option, stock warrant, employee stock purchase, retirement or other
employee benefit plan,
(b) any agreement, indenture or other instrument under or
pursuant to which the Company or any of its subsidiaries has borrowed money or
guaranteed indebtedness for borrowed money,
12
(c) any agreement, contract or commitment relating to present
or future capital expenditures (including equipment),
(d) any loan or advance to, or investment in, any other person
or entity or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment (excluding advances to employees for ordinary and
necessary business expenses made in the ordinary course of business),
(e) any guarantee or other contingent liability or
subordination in respect of any indebtedness or obligation of any other person
or entity (other than the endorsement of negotiable instruments for collection
in the ordinary course of business),
(f) any management service, consulting or any other similar
type contract,
(g) any supply, manufacturing or similar type contract,
(h) any license agreement or power of attorney,
(i) any agreement, contract or commitment limiting the freedom
of the Company, or any of its subsidiaries to engage in any line of business or
to compete with any other person or entity or to use any particular information,
(j) any agreement, contract or commitment relating to the
lease of real or personal property (including capitalized leases),
(k) any service or maintenance agreements or any similar type
contract,
(l) any sales representative, manufacturer's representative or
distribution agreements or any similar type contract,
(m) any partnership agreement, joint venture agreement, or
other agreement involving the sharing of revenues or profits;
(n) any agreement, contract or commitment not entered into in
the ordinary course of business which involves amounts of $10,000 or more and is
not unilaterally cancelable by the Company or any of its subsidiaries without
penalty upon notice of not longer than 30 days; or
(o) outstanding offer or bid from the Company or any of its
subsidiaries that, if accepted by a third party, would result in (i) a contract
required to be disclosed pursuant to this Section 3.13, or (ii) any other
material contract or commitment.
Section 3.13 of the Disclosure Schedule describes the material terms of all oral
contracts required to be disclosed in Section 3.13 of the Disclosure Schedule.
Each contract or agreement described in Section 3.13 of the Disclosure Schedule
(or required to be set forth in Section 3.13 of the Disclosure Schedule) is in
full force and effect, and there exists no default or event of default or event,
occurrence, condition or act which, with the giving of notice or the lapse of
time, or otherwise, would become a default or event of default thereunder. The
Company has
13
not violated any of the terms or conditions of any contract or agreement set
forth in Section 3.13 of the Disclosure Schedule (or required to be set forth in
Section 3.13 of the Disclosure Schedule) in any material respect, and all of the
covenants to be performed by any other party thereto have been fully performed
in all material respects. The Company is not bound by any agreements, contracts
or commitments (excluding those agreements, contracts or commitments set forth
in Section 3.13 of the Disclosure Schedule) which, in the aggregate, call for
payments in excess of $25,000.
3.14 Intellectual Property. Company does not currently utilize and has
never utilized any fictitious or assumed business name other than "Century II".
Company has no registered trademarks, copyrights or other intellectual property
rights. Company utilizes no proprietary or licensed software other than
commercially available word processing, accounting, database and similar
software programs, and Company has the right to use all such software programs
in the manner used on the date of this Agreement. To each of Shareholders'
knowledge, Company is the sole owner of all Company Intellectual Property (as
hereinafter defined), free and clear of any lien, security interest,
restriction, encumbrance or other adverse claim other than Permitted
Encumbrances. The Company has not granted or licensed to any person any right
with respect to any Company Intellectual Property. The rights of Company in and
to any of the Company Intellectual Property will not be limited or otherwise
affected by reason of any of the transactions contemplated hereby. As used in
this Agreement, "Company Intellectual Property" means all unregistered
trademarks and service marks, unregistered copyrights, trade names, customer
lists, trade secrets and proprietary trade practices owned by Company as of the
date of this Agreement.
3.15 Taxes.
(a) All federal, state, and local returns and reports relating
to Taxes (as defined herein), or extensions relating thereto, required to be
filed by or with respect to Company or any of its subsidiaries on or before
Closing have been timely and properly filed, and all such returns and reports
are materially correct and complete as to the period then ending.
(b) All federal, state, local and foreign income, profits,
franchise, sales, use, payroll, premium, occupancy, property, severance, excise,
withholding, customs, unemployment, transfer and other taxes, including
interest, additions to tax and penalties (collectively "Taxes") due or properly
shown to be due on any return referred to in Section 3.15(a) by Company or any
of its subsidiaries with respect to taxable periods ending on or prior to, and
the portion of any interim period up to, the date hereof have been fully and
timely paid or, in the case of Taxes not yet due, provided for on the Company
Interim Balance Sheet, or in the case of Taxes accruing after the date of the
Company Interim Balance Sheet date as reflected in Section 3.15(b) of the
Disclosure Schedule; and there are no levies, liens, or other encumbrances
relating to Taxes existing, threatened or pending with respect to any asset of
Company or any of its subsidiaries.
(c) During the previous two (2) years, no audit letters have
been received (nor are any audits currently pending) from the Internal Revenue
Service ("IRS") or any other taxing authority in connection with any of the
returns and reports referred to in subsection (a) above and no waivers of
statutes of limitations have been given or requested with respect to any such
returns and reports or with respect to any Taxes.
14
3.16 Employee Benefits.
(a) Section 3.16(a) of the Disclosure Schedule contains a
complete and correct list of all benefit plans, arrangements, commitments and
payroll practices, (whether or not employee benefit plans ("Employee Benefit
Plans") as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), including, without limitation, sick leave,
vacation pay, severance pay, salary continuation for disability, consulting or
other compensation arrangements, retirement, deferred compensation, bonus,
incentive compensation, stock purchase, stock option, stock warrant, health
including hospitalization, medical and dental, vision, short-term disability,
long-term disability, flex plans, life insurance, xxxxxxx'x compensation
insurance and scholarship programs maintained for the benefit of any present or
former employees of Company or any of its subsidiaries (including but not
limited to the employees of each of Company's or any of its subsidiaries'
clients or customers) or to which Company or any of its subsidiaries has
contributed or is or was within the last three years obligated to make payments.
(b) With respect to each Employee Benefit Plan required to be
listed in Section 3.16(a) of the Disclosure Schedule:
(i) each Employee Benefit Plan has been administered
in compliance with its terms, and is in compliance in all material respects with
the applicable provisions of ERISA, the Code and all other applicable laws
(including, without limitation, funding, filing, termination, reporting and
disclosure and continuation coverage obligations pursuant to Title V of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"));
(ii) Company and each of its subsidiaries have made
or provided for all contributions required under the terms of such Plans;
(iii) there have been no "prohibited transactions"
(as described in Section 4975 of the Code or in Part 4 of Subtitle B of Title I
of ERISA) with respect to any Employee Benefit Plan;
(iv) there are not, as of the Effective Time and
during the past three years been any inquiries, proceedings, claims or suits
pending or, to each of Shareholders' knowledge, threatened by any governmental
agency or authority or by any participant or beneficiary against any of the
Employee Benefit Plans, the assets of any of the trusts under such Plans or the
Plan sponsor or the Plan administrator, or against any fiduciary of any of such
Employee Benefit Plans with respect to the design or operation of the Employee
Benefit Plans;
(v) any plans intended to be "qualified" within the meaning of Section 401(a) of
the Code have from their inception been so qualified,
and any trust created
pursuant to such plans are exempt from federal income tax under Section 501(a)
of the Code and the Internal Revenue Service has issued such plans a favorable
determination letter, which is currently applicable; and
(vi) there is not any circumstance or event which
would reasonably be expected to jeopardize the tax-qualified status of the plans
or the tax-exempt status of any related
15
trust, or which would cause the imposition of any liability, penalty or tax
under ERISA or the Code with respect to any Employee Benefit Plan.
(c) Company and each of its subsidiaries do not maintain and
has not ever maintained or been obligated to contribute to a "Multi-employer
Plan" (as such term is defined by Section 4001(a)(3) of ERISA) or a money
purchase plan or a defined benefit plan which is subject to the minimum funding
requirements of Part 3 of subtitle B of Title I of ERISA or subject to Section
412 of the Code.
(d) With respect to each Employee Benefit Plan maintained by
Company or any of its subsidiaries, no unsatisfied liabilities to participants,
the IRS, the United States Department of Labor ("DOL"), the PBGC or to any other
person or entity have been incurred as a result of the termination of any
Employee Benefit Plan.
(e) All reports and information required to be filed with the
DOL, IRS and PBGC or with plan participants and their beneficiaries with respect
to each Employee Benefit Plan required to be listed in Section 3.16(a) of the
Disclosure Schedule have been filed.
(f) All employee benefit plans required to be listed in
Section 3.16(a) of the Disclosure Schedule may, without liability, be amended,
terminated or otherwise discontinued except as specifically prohibited by
federal law.
(g) Any bonding required under ERISA with respect to any
Employee Benefit Plan required to be listed in Section 3.16(a) of the Disclosure
Schedule has been obtained and is in full force and effect and no funds held by
or under the control of Shareholders are plan assets.
(h) Company and each of its subsidiaries do not maintain any
retired life and/or retired health insurance plans which provide for continuing
benefits or coverage for any employee or any beneficiary of an employee after
such employee's termination of employment.
(i) The consummation of the transactions contemplated by this
Agreement will not, alone or together with any other event, (i) entitle any
person to severance pay, unemployment compensation or any other payment; (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee; or (iii) result in any liability under
Title IV of ERISA or otherwise.
(j) Company and each of its subsidiaries have not improperly
classified any employees as leased employees or independent contractors under
federal or state law.
(k) Company and each of its subsidiaries have complied in all
material respects with the privacy provisions of the Health Insurance
Portability and Accountability Act of 1996.
(l) With respect to each Employee Benefit Plan, Company and
each of its subsidiaries have made available for inspection by FDI true,
complete and correct copies of (to the extent applicable):
16
(i) all documents pursuant to which the Plan is
maintained, funded and administered,
(ii) the most recent annual report (Form 5500 series)
filed with the IRS (with applicable attachments),
(iii) the most recent financial statements,
(iv) the most recent actuarial valuation of benefit
obligations,
(v) the most recent summary plan description provided
to participants, and
(vi) the most recent determination letter received
from the IRS.
3.17 Directors, Officers and Employees. Section 3.17 of the Disclosure
Schedule sets forth the following information for each director and officer of
Company and each of its subsidiaries: name and title. All agreements with its
directors and officers are terminable at will by Company or any of its
subsidiaries. There are no contracts, arrangements or agreements in place which
would require the payment of any severance or change of control payment.
3.18 Affiliate Agreements. Except as described in Section 3.18 of the
Disclosure Schedule, there are no agreements, arrangements or understandings
between Company or any of its subsidiaries and any of Shareholders or any
present or former director, shareholder or officer of Company or any of its
subsidiaries or any member of the immediate family of or any person or entity
controlling or controlled by any of such persons (a "Related Party"). All
agreements and arrangements between Company or any of its subsidiaries and all
Related Parties are terminable by Company or any of its subsidiaries, upon
written notice, without payment of penalty or premium of any kind.
3.19 Absence of Certain Changes. Since September 30, 2004, the Company
and each of its subsidiaries has carried on its business only in the ordinary
course consistent with past practice and there has been no:
(a) declaration or payment of any dividend or other
distribution or payment in respect of the shares of capital stock of Company or
any repurchase or redemption of any such shares of capital stock or other
securities;
(b) other than in the ordinary course, payment by Company or
any of its subsidiaries of any bonus or increase of any compensation payable to
any shareholder, director, officer or employee or entry into (or amendment of)
any written employment, severance or similar agreement with any shareholder,
director, officer or employee;
(c) adoption of or change in any Employee Benefit Plan;
(d) damage, destruction or loss to any material asset or
property of Company or any of its subsidiaries, whether or not covered by
insurance;
17
(e) other than in the ordinary course of business, the sale,
assignment, conveyance, lease, or other disposition of any asset or property of
Company or any of its subsidiaries or mortgage, pledge, or imposition of any
lien or other encumbrance on any asset or property of Company or any of its
subsidiaries;
(f) incurrence or repayment of any material liability or
material obligation (whether absolute or contingent) to any officer, director or
Shareholder of Company or, other than current liabilities incurred and
obligations under agreements entered into in the ordinary course of business
consistent with past practice, to any other person or any discharge or
satisfaction of any material lien, claim or encumbrance, other than in the
ordinary course of business consistent with past practice;
(g) write-down or write-off of the value of any asset except
for write-downs and write-offs in the ordinary course of business consistent
with past practice, or any cancellation or waiver of any other material claims
or rights;
(h) any material change in the business or operations of
Company or any of its subsidiaries or in the manner of conducting the same or
entry by Company or any of its subsidiaries into any material transaction, other
than in the ordinary course of business;
(i) any change in the accounting methods, principles or
practices followed by Company or any of its subsidiaries, except as required by
GAAP, or any change in any of the assumptions underlying, or methods of
calculating, any bad debt, contingency or other reserves or expenditures); or
(j) agreement, whether or not in writing, to do any of the
foregoing by Company or any of its subsidiaries.
3.20 Corporate Books.
(a) The copies of the charter of Company and each of its
subsidiaries, as certified by the Secretary of State of its jurisdiction of
incorporation, and of its Bylaws (or of its other comparable organizational
documents), as certified by its secretary, which have been delivered to FDI, are
true, complete and correct and are in full force and effect as of the date
hereof.
(b) The stock records of Company and each of its subsidiaries
fairly and accurately reflect the record ownership of all of its outstanding
shares of capital stock. The minute books of Company and each of its
subsidiaries contain materially complete and accurate records of all meetings
held of, and corporate action taken by, the shareholders, the board of directors
and each committee of the board of directors of Company and each of its
subsidiaries. Complete and accurate copies, as of the date hereof, of all such
minute books and stock records have been made available to FDI.
3.21 Insurance. Section 3.21 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, comprehensive general liability, and workers'
compensation coverage and bond and
18
surety arrangements) to which the Company or any of its subsidiaries is a party,
a named insured, or otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage; and
(d) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount of coverage.
With respect to each such insurance policy, except as set forth on Section 3.21
of the Disclosure Schedule: (i) the policy is legal, valid, binding, and
enforceable and in full force and effect; (ii) neither the Company nor any of
its subsidiaries nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time or otherwise,
would constitute such a breach or default or permit termination or modification,
under the policy; (iii) no party to the policy has repudiated any provision
thereof; (iv) there are no deductibles, retrospective premium adjustments or any
other loss sharing arrangements under the policy; (v) there are no pending
claims under any policy as to which any insurer is defending under reservation
of rights or has denied liability; and (vi) there exists no claim under any
policy that has not been properly filed by Company or any of its subsidiaries.
Company has notified each insurer concerning the transaction described herein
and each insurer has agreed that it will not terminate any existing policies due
to the closing of the transaction described herein.
3.22 Workplace Employees. With respect to any client of Company or any
of its subsidiaries, and with respect to any employee physically located at a
client of Company or any of its subsidiaries ("Worksite Employees"), to
Shareholders' knowledge there is not:
(a) any applicable collective bargaining agreement or
relationship with any labor organization;
(b) any labor organization or group of employees who has filed
any representation petition against or made any written or oral demand of
Company or any of its subsidiaries or any of its clients for recognition;
(c) any pending or threatened union organizing efforts that
might impose collective bargaining obligations on Company or any of its
subsidiaries or its clients;
(d) any labor strike, work stoppage, slowdown, or other
material labor dispute has occurred;
(e) any employment-based charge, complaint, grievance,
investigation, inquiry or obligation of any kind, served against Company or any
of its subsidiaries or threatened, relating to an alleged violation or breach by
Company or any of its subsidiaries of any law, regulation or contract; and
19
(f) any employee of Company or any of its subsidiaries or of
any client having committed any act or omission giving rise to liability against
Company or any of its subsidiaries.
(g) any plant closing or layoff of Worksite Employees that
could implicate the Worker Adjustment and Retraining Notification Act of 1988,
as amended, or any similar foreign, state or local law, regulation or ordinance
and no such action will be implemented without advance notification to FDI.
(h) any oral or written notice, report or information
regarding any liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise) or any corrective, investigatory or remedial obligations arising
under environmental or safety requirements for Worksite Employees.
(i) any underground storage tanks or surface impoundments;
(j) any asbestos-containing materials in any form or
condition;
(k) any materials or equipment containing polychlorinated
biphenyls; or
(l) any hazardous substance located at any client site or to
which any Worksite Employee is or has been exposed.
4. REPRESENTATION AND WARRANTIES OF FDI. FDI represents and warrants to each
Shareholder that the statements contained in this Section 4 are true, correct
and complete except as set forth in the Disclosure Schedule, and except for
changes in the business and properties of FDI expressly permitted by the terms
hereof.
4.1 Organization and Standing of FDI and Merger Sub. Each of FDI and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of FDI
and Merger Sub has all requisite power, authority and capacity to execute and
deliver this Agreement and all other agreements, documents and instruments
contemplated hereby and to carry out all actions required of it pursuant to the
terms of this Agreement.
4.2 Corporate Approval; Binding Effect. Each of FDI and Merger Sub has
obtained all necessary authorizations and approvals from its board of directors
and stockholders required for the execution and delivery of this Agreement. This
Agreement has been duly executed and delivered by each of FDI and Merger Sub and
constitutes the legal, valid and binding obligation of each of FDI and Merger
Sub, enforceable against each of FDI and Merger Sub in accordance with its terms
except as the same may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting the enforcement of
creditor's rights in general, and except that the enforceability of the
Agreement is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or law).
4.3 Non-Contravention. Neither the execution and delivery of this
Agreement by either of FDI or Merger Sub nor the consummation by either of FDI
or Merger Sub of the transactions contemplated hereby will constitute a
violation of, or be in conflict with, constitute
20
or create a default under, or result in the creation or imposition of any lien,
security interest or other encumbrance upon any property of either of FDI or
Merger Sub pursuant to (a) the charter documents or by-laws of either of FDI or
Merger Sub, each as amended to date; (b) any agreement or commitment to which
either of FDI or Merger Sub is a party or by which either of FDI or Merger Sub
or any of their respective properties is bound or to which either of FDI or
Merger Sub or any of their respective properties is subject; or (c) any statute
or any judgment, decree, order, regulation or rule of any court or governmental
authority.
4.4 Accuracy of Filings. All periodic reports made by FDI with the
Securities and Exchange Commission since September 1, 2000 are true and complete
in all material respects, do not contain any untrue statement of material fact
and do not omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Since the date of the most recent of such filing, there
has been no Material Adverse Change with regard to FDI and its subsidiaries,
taken as a whole.
4.5 Capitalization. FDI's authorized, issued and outstanding capital
stock and its other securities are fully and accurately described in Section 4.5
of the Disclosure Schedule. The Contingent Shares, if and when issued and
distributed to security holders of the Company, will be validly issued, fully
paid and non-assessable, and will be validly issued in reliance upon an
exemption from registration under, and in material compliance with, applicable
federal and state securities laws, including without limitation the Securities
Act of 1933, as amended, and the Securities and Exchange Act of 1934, as
amended.
4.6 Securities Matters.
(a) FDI represents and warrants that the Common Stock to be
acquired as contemplated herein will be acquired by it for its own account, not
as a nominee or agent, and without a view to resale or other distribution within
the meaning of the Securities Act and the rules and regulations thereunder, and
that it will not distribute all or any portion of the Common Stock that may be
received in violation of the Securities Act.
(b) FDI represents and warrants that it is an "accredited
investor" as that term is defined in Rule 502 of Regulation D and that it,
either alone, or together with a business or other representative or advisor,
has such knowledge and experience in financial and business matters such that it
is capable of evaluating the merits and risks of its receipt of the Common
Stock.
(c) FDI confirms that the Common Stock was not offered to it
by any means of general solicitation or general advertising, and that it has
received no representations, warranties or written communications upon which it
has relied with respect to the Common Stock other than those contained or
described in this Agreement, the Disclosure Schedule and all other documents to
be delivered by Shareholders or Company at Closing.
(d) FDI acknowledges that it has had a reasonable opportunity
to ask questions and receive answers concerning its receipt of Common Stock and
to obtain any additional information which the Shareholders or the Company
possess or can acquire without unreasonable effort or expense that is necessary
to verify the accuracy of information.
21
5. CONDUCT OF BUSINESS BY COMPANY PENDING CLOSING. The Shareholders covenant and
agree that, with respect to himself or itself and the Indemnifying Shareholders
covenant and agree that, from and after the date of this Agreement and until the
Closing, except as otherwise specifically consented to or approved by FDI in
writing:
5.1 Full Access. The Shareholders shall cause the Company to afford to
FDI and its authorized representatives full access during normal business hours
to all properties, books, records, contracts and documents of the Company and,
subject to the Company's prior consent in each case, a full opportunity to
communicate with the Company's customers, suppliers, vendors and employees, and
to make such investigations as FDI shall desire to make of the Company. The
Shareholders shall cause the Company to furnish or cause to be furnished to FDI
and its authorized representatives all such information with respect to the
affairs and businesses of the Company as FDI may reasonably request.
5.2 Carry on in Regular Course. The Shareholders shall cause the
Company to maintain its owned and leased properties in good operating condition
and repair, and make all necessary renewals, additions and replacements thereto,
and shall cause the Company to carry on its business diligently and
substantially in the same manner as heretofore and shall not permit the Company
to make or institute any of the actions described in Section 3.19 hereof.
5.3 Preservation of Organization and Relationships with Customers and
Vendors. The Shareholders shall, and shall cause the Company to use their or its
best efforts to preserve the Company's business organization intact, to keep
available to FDI the present employees of the Company and to preserve for FDI
the present relationships of the Company with its suppliers and customers and
others having business relations with it.
5.4 Consents of Third Parties. The Shareholders will, and will cause
the Company to, employ their or its best efforts to secure before the Closing
Date the consent, in form and substance satisfactory to FDI and FDI's counsel,
to the consummation of the transactions contemplated by this Agreement, of and
by each party whose consent is required for the transactions contemplated by
this Agreement.
5.5 Advice of Change. The Shareholders will promptly advise FDI in
writing of any material adverse change in the condition of the Company's
business or prospects or any of the Company's properties or assets. Disclosure
by the Shareholders pursuant to this Section 5.5 shall not be deemed to amend
the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant hereunder.
5.6 Exclusive Dealing. The Shareholders shall not, and shall not permit
the Company or any of its subsidiaries, directly or indirectly, encourage,
initiate or engage in discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group,
other than FDI and its representatives, concerning and purchase of the Company,
any of its subsidiaries or their respective businesses, properties or assets.
6. CONDITIONS PRECEDENT TO FDI'S AND MERGER SUB'S OBLIGATIONS. The obligation of
FDI and Merger Sub to consummate the Closing shall be subject to the
satisfaction
22
at or prior to the Closing of each of the following conditions (to the extent
noncompliance is not waived in writing by FDI):
6.1 Representations and Warranties True at Closing. The representations
and warranties made by the Shareholders in this Agreement shall be true and
correct in all material respects at and as of the Closing Date.
6.2 Compliance With Agreement. The Shareholders shall have performed
and complied in all material respects with all of their obligations under this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
6.3 No Material Change. Neither the Company, any of its subsidiaries
nor any of their respective businesses, prospects or properties shall have been,
or shall be threatened to be, materially adversely affected in any way,
including, but not limited to, as a result of any legislative or regulatory
change, or any revocation of any license or right to do business, or any fire,
explosion, casualty, flood, drought, storm, earthquake, disaster or accident
(regardless of insurance coverage), or any labor trouble or dispute, or any
change in business organization, or any action by the United States or any other
governmental authority, or any change in technology or obsolescence of product,
or any embargo, riot, civil disturbance, uprising, activity of armed forces or
act of God or public enemy or otherwise.
6.4 Consent of Third Parties. The Shareholders shall have received and
delivered to FDI, and FDI shall be satisfied with, all requisite consents and
approvals of all lenders, creditors, lienholders and other third parties whose
consent is required to consummate the transactions contemplated by this
Agreement (including, without limitation, the DOC Consent).
6.5 No Litigation. No action, suit or proceeding shall be pending or
threatened before any court or administrative body in which it will be or is
sought to restrain or prohibit or obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated hereby.
6.6 Closing Certificate. The Shareholders shall have delivered to FDI
in writing, at and as of the Closing, a certificate in form and substance
satisfactory to FDI and FDI's counsel (and without qualification as to knowledge
or materiality or otherwise), certifying that the conditions in each of Sections
6.1, 6.2, 6.3, 6.4 and 6.5 have been satisfied.
6.7 Resignations of Board Members and Officers. FDI shall have received
the resignations, effective as of the Closing Date, of each director and officer
of the Company and each of its subsidiaries, other than those specified in
writing by FDI.
6.8 Employment Agreements. The Company shall have executed employment
agreements, in form and substance suitable to FDI, with Xxxx Xxxxxxx, Xxxx
Xxxxxxxx, Xxx Xxxxx, Xxxxx Xxxx and Xxxxxxxx Xxxx.
6.9 Escrow Agreement. The Shareholders and the Disbursing Agent shall
have executed and delivered to FDI an escrow agreement, in form and substance
suitable to FDI providing for disbursement of the Escrow Funds.
23
6.10 Certificate of Merger. FDI shall have received a duly executed
Certificate of Merger, in form acceptable for filing with the Secretary of State
of Tennessee.
6.11 Termination of Agreements. Any agreement with any Shareholder or
affiliate of any Shareholder that would otherwise extend beyond the Closing date
shall be terminated as of the Closing Date.
6.12 Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to FDI in connection with the transactions
contemplated by this Agreement shall be satisfactory in all respects to FDI and
FDI's counsel, and FDI shall have received the originals or certified or other
copies of all such records and documents as FDI may reasonably request
(including, without limitation certificates regarding the incumbency of the
persons executing instruments on behalf of the Company or Harbinger and
certificates regarding resolutions of governing bodies of certain of the
parties).
6.13 Dissenter's Rights. No holder of any of the outstanding shares of
Common Stock shall have dissented or be entitled to dissent from the Merger or
to demand payment for his, her or its Common Stock if the Agreement is
effectuated.
6.14 Board Approval. This Agreement shall have received the approval of
FDI's Board of Directors (which shall be obtained on or before ten (10) business
days following the execution of this Agreement).
6.15 Company Filing. Company shall have filed a group license to
operate in the State of Tennessee showing a change in controlling parties prior
to the date of Closing. In addition, FDI shall have received reasonable
assurances from the State of Tennessee Department of Commence and Insurance that
the Company will be allowed to continue to operate in the state until the
conditional items are resolved.
7. CONDITIONS PRECEDENT TO COMPANY'S AND SHAREHOLDERS' OBLIGATIONS. The
obligation of the Company and the Shareholders to consummate the Closing shall
be subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (to the extent noncompliance is not waived in writing by
the Company and each Shareholder):
7.1 Representations and Warranties True at Closing. The representations
and warranties made by FDI in this Agreement shall be true and correct in all
material respects at the Closing.
7.2 Compliance with Agreement. FDI shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it at or prior to the Closing.
7.3 No Litigation. No action, suit or proceeding shall be pending or
threatened before any court or administrative body in which it will be or is
sought to restrain or prohibit or obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated hereby.
24
7.4 Closing Certificate. FDI shall have delivered to the Shareholders
in writing, at and as of the Closing, a certificate duly executed by a duly
authorized officer of FDI, in form and substance satisfactory to the
Shareholders and the Shareholders' counsel (and without qualification as to
knowledge or materiality or otherwise), certifying that the conditions in each
of Sections 7.1, 7.2 and 7.3 have been satisfied.
7.5 Registration Rights Agreement. FDI shall have executed and
delivered to the Shareholders a registration rights agreement, in form and
substance suitable to the Shareholders providing for the registration under the
Securities Act of the Contingent Shares.
7.6 Intentionally Omitted.
7.7 Escrow Agreements.
(a) FDI and Xxxxxx Xxxxxxx Vornehm, LLP ("Escrow Agent") shall have
executed and delivered to the Contingent Share Recipients: an escrow agreement,
in form and substance suitable to the Contingent Share Recipients providing for
deposit of 1,500,000 shares of FDI common stock that can be issued as Contingent
Shares.
(b) FDI and the Disbursing Agent shall have executed and delivered to
the Shareholders: an escrow agreement, in form and substance suitable to the
Shareholders providing for providing for disbursement of the Escrow Funds.
7.8 Debt Payment. FDI shall have made payment of approximately
$1,900,000.00 to payoff the Company's outstanding indebtedness to Harbinger. In
addition, FDI shall have made payment of approximately $101,450.00 to payoff the
Company's outstanding indebtedness to Xxxx Xxxxxx.
7.9 Release of Guaranties. The guaranties of the Shareholders with
respect to that certain Letter of Credit issued by Pinnacle Financial Partners
in the approximate amount of $2.0 million securing certain workers' compensation
obligations of the Company shall have been released.
7.10 Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to the Shareholders in connection with the
transactions contemplated by this Agreement shall be satisfactory in all
respects to the Shareholders and the Shareholders' counsel, and the Shareholders
shall have received the originals or certified or other copies of all such
records and documents as the Shareholders may reasonably request.
8. OTHER COVENANTS AND AGREEMENTS.
8.1 Confidential Information. Any and all non-public information
disclosed by FDI to the Shareholders or by the Shareholders or the Company to
FDI as a result of the negotiations leading to the execution of this Agreement,
or in furtherance thereof, shall remain confidential, except to the extent that
FDI or any Shareholder in its or their reasonable judgment must disclose any
such information to its advisors and consultants. If the Closing does not take
place for any reason, each of the Shareholders and FDI agrees not to (and the
Shareholders agree to cause the
25
Company not to) further divulge or disclose or use for its benefit or purposes
any such information provided by the other party at any time in the future
unless it has otherwise become public. If the Closing does take place, each of
the Shareholders agrees not to further divulge or disclose or use for his/its
benefit or purposes any such information relating to the Company or any of its
subsidiaries unless such information has otherwise become public. The
information intended to be protected hereby shall include, but not be limited
to, financial information, customers, suppliers, sales representatives, and
anything else having an economic or pecuniary benefit to FDI, the Shareholders,
the Company or any of the Company's subsidiaries.
8.2 Expenses. FDI and Shareholders shall pay the expenses of their
respective attorneys, accountants and consultants in connection with the
preparation, execution and consummation of this Agreement and of the
transactions contemplated hereby. Shareholders may cause the Company to pay such
expenses provided such expenses: (i) are paid in cash or accrued at or prior to
Closing; and (ii) represent services that were provided prior to the Closing
Date. FDI and the Shareholders shall each pay the costs which it or they has or
have incurred in retaining any broker, finder or investment banker in connection
with this transaction except that Shareholders may cause the Company to pay such
expenses (either pre-closing or post-closing)in an amount not to exceed one
hundred thousand dollars ($100,000). Shareholders shall pay any lobbying
expenses (including, but not limited to legal fees) for services provided after
the date of Closing. The Company shall not be liable for such lobbying expenses.
8.3 Further Assurances. The Shareholders and FDI shall execute and
deliver to the appropriate other party such other instruments as may be
reasonably required in connection with the performance this Agreement and each
shall take all such further actions as may be reasonably required to carry out
the transactions contemplated by this Agreement.
8.4 Satisfaction of Conditions Precedent. The Shareholders and FDI will
each use their best reasonable commercial efforts to cause the satisfaction of
the conditions precedent contained in this Agreement; provided, however, that
nothing contained in this Section 8.4 shall obligate any party hereto to waive
any right or condition under this Agreement.
8.5 Specific Performance. FDI and the Shareholders acknowledge that FDI
will have no adequate remedy at law if the Company or the Shareholders fail to
perform any of their respective obligations hereunder. Accordingly, in addition
to any other remedy that FDI may have at law or in equity, FDI shall have the
right to obtain specific performance and/or injunctive relief.
8.6 Non-Competition.
(a) For a period commencing on the Closing Date and ending on
the fifth (5th) anniversary of the Closing Date, without the prior written
consent of FDI (which consent may be withheld in FDI's sole and absolute
discretion) each of Shareholders (except Harbinger) shall not, directly or
indirectly, for itself/himself/herself or for any other person, proprietorship,
partnership, corporation or trust, or any other entity, as an individual or as
an owner, employee, agent, officer, director, trustee, or in any other capacity:
26
(i) solicit, participate or aid in the solicitation
of orders for Restricted Services, or sell any Restricted Services to any of
Company's or any of its subsidiaries' customers who were serviced by any of
Shareholders, solicited by any of Shareholders or who became customers of
Company or any of its subsidiaries as a result of any actions taken by any of
Shareholders;
(ii) solicit, participate or aid in the solicitation
of orders for Restricted Services, or sell any Restricted Services to any of
Company's or any of its subsidiaries' customers who were customers, or had an
ongoing business relationship with Company or any of its subsidiaries, at any
time during the three (3) year period preceding the Closing Date;
(iii) contact, or aid or participate in the contact,
including allowing the use of any of Shareholders' names in connection with the
contact of, any of Company's or any of its subsidiaries' customers who were
customers, or had an ongoing business relationship with Company or any of its
Subsidiaries, at any time during the three (3) year period preceding the Closing
Date, for the purpose of diverting their purchases of Restricted Services from
Company or any of its subsidiaries;
(iv) perform any Restricted Services for any of
Company's or any of its subsidiaries' customers who were customers, or had an
ongoing business relationship with Company or any of its subsidiaries, at any
time during the three (3) year period preceding the Closing Date.
(v) solicit or contact or aid or participate in the
contact, including allowing the use any of Shareholders' names in connection
with the contact of, Company's or any of its subsidiaries' employees, for the
purpose of inducing them to terminate their employment with Company or any of
its subsidiaries;
(vi) engage in, conduct, promote, or participate in
either as an owner, investor, employee, officer, director, trustee, or agent, or
in any other capacity whatsoever, a business in competition with Company or any
of its subsidiaries in the sale and offering of Restricted Services either
directly or indirectly. The prohibitions and covenants enumerated in this
Section 8.6(a)(vi) shall bind each of Shareholders in the following geographic
area: the States of Tennessee, North Carolina, California and Virginia.
(b) Restricted Services shall be defined as personnel
management services (including but not limited to benefits administration,
payroll administration, health and workmen's compensation insurance management,
personnel records management, employee liability management, testing and
assessment services for management or employees, performance management,
training and development services and human resource consulting services).
(c) Nothing in the foregoing provisions of this Section 8.6
shall prohibit any of Shareholders from purchasing for investment purposes only
any stock or corporate security traded or quoted on a national securities
exchange or national market system.
(d) FDI and each of Shareholders agree that in the event of a
breach of any of the covenants and prohibitions contained in Sections 8.1 or 8.6
by any of Shareholders, FDI shall
27
suffer immediate, immeasurable and irreparable harm and damage, and accordingly,
the parties agree as follows:
(i) These covenants shall be construed as agreements
independent of any other provision of this Agreement, and the existence of any
claim or cause of action by any of Shareholders against FDI, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of these covenants by FDI;
(ii) In the event of a violation of any of these
covenants the terms of all covenants shall be automatically extended for a
period equal to the violation;
(iii) FDI shall be entitled to recover reasonable
attorney's fees incurred in the enforcement of these covenants;
(iv) Each covenant is separate and distinct from
every other covenant, and in the event of the invalidity of any one covenant,
the remaining covenants shall be deemed independent and enforceable. Further,
although the parties agree that the scope, duration and territorial restrictions
herein are reasonable and necessary for the protection of FDI, the parties agree
that the obligations with respect to each state and the duration thereof are a
separate covenant, and in the event a Court should consider the territorial
restrictions or duration too extensive, the Court shall consider the
reasonableness and enforceability of the covenants with respect to each
individual state and the duration thereof and shall modify the provisions so as
to be valid and fully enforceable for the maximum scope, duration and geographic
areas (but never for a larger scope, longer period or greater area than set
forth above) as the Court shall find to be reasonable, necessary valid and
legally enforceable;
(v) These covenants are reasonable and necessary for
the protection of FDI's business interests; that irreparable injury will result
to FDI if any of Shareholders breaches any of these covenants; and that in the
event of actual or threatened breach of any of these covenants, FDI will have no
adequate remedy at law. Each of Shareholders accordingly agree that in the event
of any actual or threatened breach by any of Shareholders of any of these
covenants, FDI shall be entitled to immediate temporary injunctive and other
equitable relief, without bond and without the necessity of showing actual
monetary damages, subject to hearing as soon thereafter as possible. Nothing
contained herein shall be construed as prohibiting FDI from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of any damages which it is able to prove; and
(vi) Each of Shareholders agrees that due to the
nature of Company's and each of its subsidiaries' businesses and its scope of
operations, and due to the nature of each of Shareholders' position within
Company or one of its subsidiaries and his/her access to and knowledge of
Confidential Information of Company or one of its subsidiaries, and in further
consideration of FDI's, Company's and each of its subsidiaries' legitimate
protectible interests in a highly competitive business environment, the
covenants and restrictions, including but not limited to, the geographic areas
set forth above and other restrictions placed on each of Shareholders' ability
to engage in any activity competitive with Company or any of its subsidiaries,
are required to be broad in scope and the parties acknowledge that such breadth
is reasonable. Each of Shareholders further acknowledge and agree that the
breadth of such
28
restrictions is reasonable because he/she has become acquainted with the affairs
of Company or any of its subsidiaries, its officers and employees, its services,
products, business practices, business relationships, and the needs and
requirements of its customers and prospective customers, trade secrets,
intellectual property, Confidential Information, and other information
proprietary to Company or any of its subsidiaries. Each of Shareholders
acknowledge and agree that FDI, Company and each of its subsidiaries have a need
to protect, through the above restrictions, each of the foregoing interests and
Company's and each of its subsidiaries' goodwill, and to prevent unfair
competition and the inevitable use or disclosure of Confidential Information or
trade secrets.
(e) FDI would not have entered into this Agreement but for
each of Shareholders' (except Harbinger) agreement to be bound by and comply
with the terms and conditions of this Agreement, including, without limitation,
Sections 8.1 and 8.6 hereof, and for each of Shareholders' agreement that the
scope, duration and territorial restrictions of these covenants are reasonable.
8.7 Lobbying Expenses. Shareholders have incurred and may continue to
incur certain lobbying expenses (including, but not limited to, legal fees,
consulting fees and related expenses) relating to proposed legislation in the
State of Tennessee. The Company shall pay (or accrue and assume the
responsibility for) all such expenses incurred for services prior to the
Closing.
8.8 Health Plan. Subsequent to the Closing, if not done prior thereto,
FDI shall cause the Company to cease operation of its partially, self-funded
health plan and shall cause the Company to adopt a fully-funded health plan.
Prior to the Closing, the Company shall have signed a contract with
Healthspring, a fully-insured carrier, in a form satisfactory to the Company and
FDI.
8.9 FDI Agreements. In order to induce the Department to provide the
DOC Consent:
(a) FDI agrees to be responsible for any premium taxes
determined to be owing by the Company to the extent that the Company is unable
to satisfy that obligation (subject to FDI's right to recover such amounts from
the Escrow Funds or the Shareholders).
(b) FDI agrees to be responsible for the run-off expenses of
the Company's health plan.
9. INDEMNIFICATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1 Indemnification of FDI.
(a) Each of the Shareholders, subject to the conditions and
limitations hereafter set forth, hereby agrees to defend, indemnify, and hold
harmless FDI, the Company, each of the Company's subsidiaries and each of their
respective officers, directors, stockholders, employees, representatives,
agents, successors and assigns (individually, and collectively, the "FDI
Indemnitees") against and in respect of any and all losses, liabilities,
damages, actions, suits, proceedings, claims, demands, orders, assessments,
amounts paid in settlement if approved
29
by the Shareholders as provided below, fines, costs or deficiencies, including,
without limitation, interest, penalties and reasonable attorneys' fees and
costs, including the cost of seeking to enforce this indemnity to the extent
such enforcement is successful ("Losses"), caused by or resulting or arising
from, or otherwise with respect to any inaccuracy in, any breach of, or any
failure to perform or comply with, any of the Shareholders' representations,
warranties or covenants contained in this Agreement or in any other agreement,
instrument or other document made pursuant hereto, or otherwise contemplated
herein or arising in connection herewith (individually, and collectively, a
"Breach").
(b) Claims respecting a Breach against any of the Shareholders
under the provisions hereof (each, a "Claim") shall be asserted exclusively as
provided in this Section 9, and in no event shall the Shareholders be liable for
the payment of any Claims by FDI Indemnitees or any of them hereunder other than
as provided herein, and Shareholders shall in no event be liable for amounts in
excess of $2,000,000 (in the aggregate for all Shareholders) (the "Indemnity
Cap") with respect to any and all Claims other than Claims for a breach of any
of the representations and warranties set forth in Sections 2.1, 2.4, 3.2 and
3.3. There shall be no limitation upon Shareholders' liability hereunder for any
breach of the representations and warranties set forth in Sections 2.1, 2.4, 3.2
and 3.3. Notwithstanding the prior two sentences, Harbinger's liability for a
breach of any of the representations and warranties set forth in Sections 2.1,
2.4, 3.2 and 3.3 (except those representations and warranties made by Harbinger
with respect to itself) shall be limited to $400,000.00 (its applicable
percentage of the Indemnity Cap).
(c) Claims for indemnification shall be made pursuant to the
following terms and conditions:
(i) In the event any FDI Indemnitee proposes to make
any Claim, it shall deliver to the Shareholders, within the time period set
forth in Section 9.4 a certificate signed by an officer of such FDI Indemnitee
("Officer's Certificate"), which Officer's Certificate shall (A) state that an
FDI Indemnitee has grounds for asserting a Claim hereunder respecting an
identified Breach; and (B) specify such grounds in reasonable detail including
an itemization of each such Breach and the amount sought by such FDI Indemnitee
with respect thereto (each, an "Itemized Amount").
(ii) Shareholders shall have a period of 30 days
after the delivery of any Officer's Certificate within which they may notify FDI
that they object to any Itemized Amount. Any Shareholder who fails to object to
an Itemized Amount within such 30-day period shall be deemed to have agreed to
such Itemized Amount.
(iii) In the event that any Shareholder objects in
writing, within the foregoing 30-day period, to the reimbursement of an FDI
Indemnitee in respect of any Claim or Claims made in any Officer's Certificate,
the Shareholders and FDI shall, within the 30-day period beginning as of the
date of the receipt by FDI of such written objection, attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
Claims. If the Shareholders and FDI should so agree, a memorandum setting forth
such agreement shall be prepared and signed by FDI and Shareholders. The amount
equal to the agreed Itemized Amount shall be payable by the Shareholders,
subject to any applicable limitations in this Agreement.
30
(iv) If no agreement can be reached after good faith
negotiation within the 30-day period specified in Section 9.1(c)(iii) hereof, or
any extension thereof agreed to by FDI and Shareholders, the Claim or Claims set
forth in the Officer's Certificate shall be settled exclusively by arbitration
as promptly as feasible in Indianapolis, Indiana in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. To the
extent that the decision of the arbitrator results in a finding in favor of any
FDI Indemnitee with respect to any Itemized Amount asserted in the Claim in
dispute, that amount shall be payable by the Shareholders, subject to any
applicable limitations in this Agreement.
9.2 Indemnification of Shareholders. FDI, subject to the conditions and
limitations hereafter set forth, hereby agrees to defend, indemnify, and hold
harmless each of the Shareholders, and each of their respective representatives,
partners, agents, successors and assigns (individually, and collectively, the
"Shareholder Indemnitees") against and in respect of any and all losses,
liabilities, damages, actions, suits, proceedings, claims, demands, orders,
assessments, amounts paid in settlement if approved by FDI as provided below,
fines, costs or deficiencies, including, without limitation, interest, penalties
and reasonable attorneys' fees and costs, including the cost of seeking to
enforce this indemnity to the extent such enforcement is successful, caused by
or resulting or arising from, or otherwise with respect to, any inaccuracy in,
any breach of, or any failure to perform or comply with, any of FDI's
representations, warranties or covenants contained in this Agreement or in any
other agreement, instrument or other document made pursuant hereto, or otherwise
contemplated herein or arising in connection herewith, (individually, and
collectively, an "FDI Breach").
9.3 Claim Threshold. Notwithstanding anything to the contrary contained
herein: (i) FDI shall be liable to Shareholder Indemnitees and the Shareholders
shall be liable to FDI Indemnitees with respect to a claim for indemnification
under this Agreement only at such time as, and to the extent that, the aggregate
of all amounts otherwise indemnifiable hereunder by FDI or the Shareholders,
respectively, exceeds $25,000 in which event the indemnifying party shall be
liable for all damages suffered.
9.4 Claims for Indemnification. Whenever any Claim shall arise for
indemnification hereunder, the indemnified party shall promptly notify the
indemnifying party of the claim and, when known, the facts constituting the
basis for such claim, provided however, that no delay on the part of the
indemnified party shall release the indemnifying party of any liability or
obligation hereunder unless (and then solely to the extent) the indemnifying
party thereby is damaged. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third-party, the notice to the indemnifying party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. The
indemnified party shall not settle or compromise any claim by a third party for
which he or it is entitled to indemnification hereunder without the prior
written consent of the indemnifying party, which shall not be unreasonably
withheld, unless suit shall have been instituted against it and the indemnifying
party shall not have taken control of such suit after notification thereof.
9.5 Defense of Indemnifying Party. In connection with any claim to
indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the indemnifying
party, at its sole cost and expense may, upon written notice to
31
the indemnified party, assume the defense of any such claim or legal proceeding
if he or it acknowledges to the indemnified party in writing his or its
obligations to indemnify the indemnified party with respect to all elements of
such claim. In any such claim or proceeding, the indemnifying party will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement, which does not include a provision whereby the plaintiff or
claimant in the matter releases the indemnified party from all liability with
respect thereto. The indemnified party shall be entitled to participate in (but
not control) the defense of any such action, with his or its counsel and at his
or its own expense. If the indemnifying party does not assume the defense of any
such claim or litigation resulting therefrom within 15 days after the date such
claim is made, (a) the indemnified party may defend against such claim or
litigation, in such manner as he or it may deem appropriate, including, but not
limited to, settling such claim or litigation, after giving notice of the same
to the indemnifying party, on such terms as the indemnified party may deem
appropriate, and (b) the indemnifying party shall be entitled to participate in
(but not control) the defense of such action, with his or its counsel and at his
or its own expense. If the indemnifying party thereafter seeks to question the
manner in which the indemnified party defended such third party claim or the
amount or nature of any such settlement, the indemnifying party shall have the
burden to prove by a preponderance of the evidence that the indemnified party
did not defend or settle such third party claim in a reasonably prudent manner.
9.6 Survival of Representations and Warranties. Subject to the
following subsection, the respective obligations with respect to the
representations and warranties of the parties set forth in Sections 2, 3 and 4
of this Agreement shall remain in full force and effect until twelve (12) months
following the Closing Date and, thereafter shall expire and be of no further
force or effect; provided, however, that notwithstanding the foregoing, the
obligations with respect to the representations and warranties set forth in
Sections 2.1, 2.4, 3.2 and 3.3 shall be actionable by FDI at any time there is a
breach thereof following the Closing Date.
9.7 Exclusion of Punitive Damages. No party to this Agreement shall
have indemnification liability for punitive damages.
9.8 Liability of Shareholders. Except as described in the last sentence
of Section 9.1(b), the liability of the Indemnifying Shareholders for
indemnification hereunder shall be on a several basis and each Indemnifying
Shareholder shall be liable hereunder for the following percentages of the
aggregate amount of all Claims:
Fortune 40%,
Daily 40%,
Harbinger 20%
The liability of each Indemnifying Shareholder for its/his applicable percentage
of any Claims shall be absolute and unconditional, regardless of the recovery
against or liability of any other Indemnifying Shareholder of that Indemnifying
Shareholder's percentage and each Indemnifying Shareholder irrevocably waives
any defense such Indemnifying Shareholder would be entitled to assert to
liability for damages with respect to any recovery against or liability of any
other Indemnifying Shareholder for such Indemnifying Shareholder's percentage of
such damages. In addition, the liability of each non-Indemnifying Shareholder
for indemnification hereunder shall
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be limited to any claims resulting from a Breach by him/it. Each
non-Indemnifying Shareholder shall not be liable for a Breach by any other
Shareholder. Except as described in the last sentence of Section 9.1(b), each
Indemnifying Shareholder shall be liable for a Breach by any other Shareholder.
10. CERTAIN DEFINITIONS.
10.1 Definitions. In addition to those terms that are defined elsewhere
in the Agreement, the following terms shall have the indicated meanings for
purposes of this Agreement:
(a) "Aggregate Cash Merger Consideration" means six hundred
fifty thousand five hundred fifty dollars and twenty-five cents ($650,550.25) of
which four hundred fifty thousand dollars ($450,000) shall be deposited into
escrow with Escrow Agent.
(b) "Aggregate Contingent Share Merger Consideration" means
value (determined as of the Distribution Date on which they became
distributable) of the total number of Contingent Shares that have become
distributable pursuant to Section 1.8 on or prior to the Distribution Date in
question.
(c) "Distribution Date" means one of the dates on which
Contingent Shares are to be issued as specified in Section 1.8.
(d) "DOC Consent" means a consent to the Merger by the
Department of Commerce and Insurance of the State of Tennessee (the
"Department"), pursuant to that certain Agreed Order of Administrative
Supervision (No. 04-110) dated as of November 2, 2004 (the "Order of
Supervision"), in which the Department also, based upon certain provisions of
this Agreement, including FDI's undertakings in Section 8.9, terminates the
Order of Supervision, or limits its application to oversight of the termination
of the Company's existing health plan "run out."
(e) "EBITDA" shall be defined as Company's and each of its
Subsidiaries' accrued earnings before interest, income taxes, depreciation and
amortization. Any corporate overhead or similar expenses allocated to Company by
FDI shall not be considered an expense in the calculation of EBITDA except if
the allocated expenses replace expenses that would have otherwise been incurred
by Company. FDI shall cause its outside accountant to calculate EBITDA during
the Test Period, and shall provide a written explanation of such calculation to
Shareholders on or before June 1, 2006, June 1, 2007 and June 1, 2008. FDI's
calculation of EBITDA shall be final and binding upon the Parties unless
Shareholders object to such calculation within fifteen (15) days of the receipt
thereof, in which case FDI and Shareholders shall exercise their respective best
efforts to resolve such dispute within fifteen (15) days of Shareholders'
objection. If FDI and Shareholders are unable to agree on a final calculation of
EBITDA within these fifteen (15) day periods, then the parties shall mutually
select a neutral accounting firm ("Arbitrating Accounting Firm") to make a final
determination. In such case, each of FDI and Shareholders shall inform the
Arbitrating Accounting Firm of their respective calculations of EBITDA, and each
shall be granted the opportunity to provide to the Arbitrating Accounting Firm
verbal and written explanations of their respective calculations. The
33
Arbitrating Accounting Firm shall be instructed to complete its calculations
within thirty (30) days of its engagement. The determination of the Arbitrating
Accounting Firm shall be final and binding upon the Parties. The fees of the
Arbitrating Accounting Firm shall be paid by the non-prevailing Party in any
such dispute, as determined by the Arbitrating Accounting Firm. Any deposit
required by the Arbitrating Accounting Firm shall be paid initially by FDI, but
if FDI prevails in such dispute, Shareholders shall reimburse FDI for the
deposit.
(f) "Per Share Cash Merger Consideration" means the Aggregate
Cash Merger Consideration divided by the number of shares of Common Stock owned
by the Shareholders.
(g) "Per Share Contingent Share Merger Consideration" means
the number of Contingent Shares that have become distributable on the
Distribution Date in question divided by the sum of: (i) the number of shares of
Common Stock owned by the Shareholders; and (ii) the number of shares described
in a letter from the Shareholders to the Escrow Agent.
11. GENERAL.
11.1 Notices. All notices, demands and other communications hereunder
shall be in writing and shall be made by hand delivery, telecopier, or overnight
air courier guaranteeing next day delivery addressed as follows:
(a) if to the Company or the Shareholders, to their respective addresses listed
in Section 11.1 of the Disclosure Schedules:
with a copy (which shall not constitute notice) sent contemporaneously to:
Baker, Donelson, Bearman, Xxxxxxxx & Xxxxxxxxx, PC
Commerce Center, Suite 1000
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxx, Esq.
Telephone No.: 615/000-0000
Facsimile No.: 615/744-5656
(b) if to FDI:
Fortune Diversified Industries, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Carter Fortune
Telephone No.: 317/000-0000
Facsimile No.: 317/532-1376
with a copy (which shall not constitute notice) sent contemporaneously to:
Xxxxxx Xxxxxxx Vornehm, LLP
0000 Xxxxxxxx Xxxxxxxx, Xxxxx 0000
00
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone No.: 317/000-0000
Facsimile No.: 317/580-4855
(c) to such other address as the party receiving such notice
shall have properly designated to the other party hereto in writing.
Each such notice shall be deemed given at the time delivered by hand, if
personally delivered; when receipt acknowledged, if telecopied; and the next
business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
11.2 Assignment and Benefit.
(a) FDI may assign this Agreement in whole or in part to any
subsidiary or to any person which becomes a successor in interest (by purchase
of assets or membership interests, or by merger, or otherwise) to FDI; provided,
however, that, notwithstanding any such assignment, FDI shall remain liable for
its obligations hereunder. Shareholders shall not assign this Agreement or any
rights hereunder, or delegate any obligations hereunder, without prior written
consent of FDI. Subject to the foregoing, this Agreement and the rights and
obligations set forth herein shall inure to the benefit of, and be binding upon,
the parties hereto, and each of their respective successors, heirs and assigns.
(b) This Agreement shall not be construed as giving any
person, other than the parties hereto and their permitted successors, heirs and
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any of the provisions herein contained, this Agreement and all
provisions and conditions hereof being intended to be, and being, for the sole
and exclusive benefit of such parties, and permitted successors, heirs and
assigns and for the benefit of no other person or entity.
11.3 Amendment, Modification and Waiver. The parties may amend or
modify this Agreement in any respect. Any such amendment, modification,
extension or waiver shall be in writing and signed by all parties hereto. The
waiver by a party of any breach of any provision of this Agreement shall not
constitute or operate as a waiver of any other breach of such provision or of
any other provision hereof, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
11.4 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the laws of the State of Indiana (and
United States federal law, to the extent applicable), irrespective of the
principal place of business, residence or domicile of the parties hereto, and
without giving effect to otherwise applicable principles of conflicts of law.
Nothing contained herein or in any Transaction Document shall prevent or delay
any party from seeking, in any court of competent jurisdiction, specific
performance or other equitable remedies in the event of any breach or intended
breach by any other party of any of its obligations hereunder.
35
11.5 Section Headings and Defined Terms. The section headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement. The terms defined herein and in
any agreement executed in connection herewith include the plural as well as the
singular and the singular as well as the plural, and the use of masculine
pronouns shall include the feminine and neuter. Except as otherwise indicated,
all agreements defined herein refer to the same as from time to time amended or
supplemented or the terms thereof waived or modified in accordance herewith and
therewith.
11.6 Severability. The invalidity or unenforceability of any particular
provision, or part of any provision, of this Agreement shall not affect the
other provisions or parts hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions or parts were omitted.
11.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original; and any person may
become a party hereto by executing a counterpart hereof, but all of such
counterparts together shall be deemed to be one and the same instrument.
11.8 Entire Agreement. This Agreement, together with the agreements,
exhibits, schedules and certificates referred to herein or delivered pursuant
hereto, constitute the entire agreement between the parties hereto with respect
to the transaction described herein and supersede all prior agreements and
understandings. The submission of a draft of this Agreement or portions or
summaries thereof does not constitute an offer to complete the transaction
described herein, it being understood and agreed that neither FDI or
Shareholders shall be legally obligated with respect to such transaction or to
any other terms or conditions set forth in such draft or portion or summary
unless and until this Agreement has been duly executed and delivered by all
parties.
11.9 Termination and its Effects.
(a) The parties may terminate this Agreement as provided
below:
(i) The parties may terminate this Agreement by mutual written consent at any
time prior to the Closing; or
(ii) FDI and Merger Sub may terminate this Agreement by giving written notice to
the Shareholders and the Company at any time prior to the Closing in the event
the Shareholders or the Company are in breach, and the Shareholders and the
Company may terminate this Agreement by giving written notice to FDI at any time
prior to the Closing in the event FDI or Merger Sub is in breach, of any
representation, warranty, or covenant contained in this Agreement.
(b) If a party terminates this Agreement pursuant to Section
11.9(a) hereof, all obligations of the parties hereto (other than covenants
herein relating to confidentiality and payment of expenses) shall terminate
without any liability of any party to any other party (except for any liability
of any party then in breach).
[Remainder of page intentionally left blank]
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[Signatures on following page]
37
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed and delivered as
of the date and year first above written.
FORTUNE DIVERSIFIED INDUSTRIES, INC.
By: ______________________________________
Title: ___________________________________
__________________________________________
Xxxxxx X. Xxxxxxx
CSM MERGER CORPORATION
By: ______________________________________
Title: ___________________________________
CSM, INC
By: ______________________________________
Title: ___________________________________
SHAREHOLDERS:
__________________________________________
Xxxx Xxxxxxx
__________________________________________
Xxxx Daily
HARBINGER MEZZANINE PARTNERS, L.P., a Delaware limited
partnership
By: Harbinger Mezzanine Partners GP, LLC, its General
Partner
By: Harbinger Mezzanine Manager, Inc., its
Manager
By: ________________________________
Xxxx X. Xxxxxxxx, Vice President
38
__________________________________________
Xxxx Xxxxxxxxx
__________________________________________
Xxxx Xxxxx
__________________________________________
Xxx Boston
__________________________________________
Xxx Xxxxx
39
