Exhibit 10.2
FIRST ADDENDUM TO STOCK PURCHASE AGREEMENT
FIRST ADDENDUM TO STOCK PURCHASE AGREEMENT dated December 31, 1998 by
and between UNLIMITED HOLDINGS, INC. (hereinafter referred to as "Seller"),
XXXXXXXX CARIBBEAN CORPORATION (hereinafter referred to as "Buyer") and GUARDIAN
INSURANCE COMPANY, INC. (hereinafter referred to as the "Corporation") XXXXXX X.
XXXXXXXX, AS TRUSTEE OF THE XXXXXXXX XXXX TRUST, and ALBA E. DEL XXXXX, AS
TRUSTEE OF THE XXXXXXXX DEL XXXXX TRUST (hereinafter collectively referred to as
the "Shareholders").
C. The above parties entered into a Stock Purchase Agreement dated as of
July 31, 1998 (the "Stock Purchase Agreement") in which the Seller
agreed to sell and the Buyer agreed to purchase all the issued and
outstanding capital stock of the Corporation in return for shares of
Class A Common Stock of Buyer.
D. The Stock Purchase Agreement provides that in determining the
Acquisition Price, the aggregate stated capital and surplus appearing
on the Closing Financial Statements shall be reduced by certain
adjustments, including the Xxxxxxx Claims Adjustment, to be equal to
the Xxxxxxx Claims Reserve, which was to be established by agreement of
the parties to be reserved by Buyer to fund payment of pending disputed
insurance claims (including litigation costs and expenses) that arose
out of property losses that occurred during Hurricane Xxxxxxx.
E. Buyer and Seller have agreed on the amount of the Xxxxxxx Claims
Reserve, and the procedure for distributing the Xxxxxxx Claims Reserve.
F. The Stock Purchase Agreement provides for the assignment of two
lawsuits, the RMS Claim and the Eagle Star Claim. Defendants in the
Eagle Star Claim (as defined in the Stock Purchase Agreement) have
obtained a judgment for costs and expenses in the amount of
Li.206,897.28 against the Corporation, in a lawsuit from the High
Court of Justice, Queen's Bench Division, Commercial Court between HIB
Limited and Guardian Insurance Company, Inc., et al (1996 Folio No.
1703, April 21, 1997) (the "English Judgment"). In addition, an
"Interim Award" against Guardian was made in the course of an
Arbitration between Eagle Star Reinsurance Company and Guardian
Insurance Company, that reserved a possible award of costs of the
arbitration against the Corporation (the "English Arbitration").
G. In view of the existence of the English Judgment and the English
Arbitration, Buyer and Seller have agreed on amendments to the
provisions of the Stock Purchase Agreement governing the disposition
of the Eagle Star Claim and the RMS Claim, including indemnity
obligations on the part of Seller and the Shareholders.
H. Buyer and Seller have agreed to other amendments to the Stock Purchase
Agreement. Capitalized terms used and not otherwise defined herein have
the meanings ascribed to them in the Stock Purchase Agreement.
Now, therefore, in consideration of the premises and the mutual promises made
herein, the Stock Purchase Agreement is hereby amended as follows.
I. Section 3B of the Stock Purchase Agreement shall be designated as
Section 3 (B) (1), amended as follows, and the following new
subparagraphs Section 3 (B) (2) through (B)(8) shall be added:
B. Xxxxxxx Claims Adjustment
(1) In determining the Acquisition Price, the aggregate stated capital
and surplus appearing on the Closing Financial Statements shall be reduced
further (the "Xxxxxxx Claims Adjustment") by an amount equal to the reserve (the
"Xxxxxxx Claims Reserve") established by agreement of the parties to fund
payment of the pending disputed insurance claims (including litigation costs and
expenses incurred after the Closing Date) that arose out of property losses that
occurred during Hurricane Xxxxxxx. A list of said claims are attached hereto as
Exhibit "B"; any such claim is hereinafter/referred to as a "Xxxxxxx Claim".
After Closing, during the pendency of the Xxxxxxx Claims Reserve, to the extent
that the Corporation shall be able to off-set future net revenues against the
net loss carryforwards as defined herein in Section I.B.(5), the Xxxxxxx Claims
Reserve shall be reduced by an amount equal to the net income tax benefit of
each such offset and the Seller shall receive additional Acquisition Shares (as
hereafter defined) determined as provided in Section 3 on the basis of the value
of each such off-set. The balance of the aggregate stated capital and surplus
appearing on the Closing Financial Statements remaining after the Eagle Star
Adjustment (as defined at Subsection 3A), the Xxxxxxx Claims Adjustment and any
further adjustment under Section 3(C) hereof is referred to herein as the "Net
Aggregate Stated Capital and Surplus."
(2) A dollar amount representing an estimate of the cost (including
litigation costs and expenses to be incurred after the Closing Date) to resolve
each Xxxxxxx Claim has been designated on Exhibit B. (For each Xxxxxxx Claim,
the dollar figure assigned to it is hereinafter referred to as a "Claim
Reserve".) Buyer and Seller agree that solely for purposes of designating the
amount of the Xxxxxxx Claims Reserve, the sum of all the Claim Reserves shall
equal the amount of the Xxxxxxx Claims Reserve. Accordingly, the Xxxxxxx Claims
Reserve is established as $1,226,618. The amount of each Claim Reserve has been
determined by a third party, and does not necessarily represent the amount that
either the Buyer or the Seller believes to be the actual cost to resolve any
specific Xxxxxxx Claim.
(3) The Corporation shall be responsible for negotiating the terms of
any settlement of a Xxxxxxx Claim which shall be funded by the Corporation
and/or the Buyer to the extent necessary to effect settlement. The Corporation's
President, Xxxxxxx X. Xxxxxxxx, will have the final say with respect to the
resolution of each Xxxxxxx claim, based upon its merits, and in accordance with
his fiduciary duty as an officer and director of the Corporation.
(4) If and when the Corporation resolves any Xxxxxxx Claim for an
amount less than the Claim Reserve assigned to said claim, the Seller shall be
entitled to receive upon notification from
Corporation to Buyer, on a case-by-case basis, such number of shares of the
Buyer's Class A Common Stock as shall equal 1.5 times the difference between the
Claim Reserve and the actual cost of resolution of the Xxxxxxx Claim (including
the associated expenses of litigation incurred after the Closing Date). For
purpose of this Agreement, the value of each share of Buyer's Class A Common
Stock shall at all times be deemed to be $6.50 per share. If a Xxxxxxx Claim is
resolved for an amount equal or more than the Claim Reserve assigned to said
claim, Seller shall not be entitled to any such stock.
(5) The Corporation has a net operating loss carryforward to 1998 of
$1,560,071 and a capital loss carryforward to 1998 of $546,196. To the extent
that the Corporation realizes net operating income or capital gains during the
pendency of the Xxxxxxx Claims Reserve, the Corporation's independent
accountants shall determine the net income tax benefit that the Corporation
realizes as a result of the aforementioned carryforwards and the Buyer shall
upon notification deliver to Seller such number of shares of its Class A Common
Stock as shall equal 1.5 times the amount of said income tax benefit
attributable to the Corporation's use of such carryforwards, provided, however,
that at no time shall Seller be entitled to be credited for or receive Class A
Common Stock under this Section 3 that exceeds the value of $1,839,927, whether
derived from settlements of Xxxxxxx Claims or from net operating loss and
capital loss carryforwards or any combination thereof.
(6) Any Class A Common Stock received as a consequence of the Xxxxxxx
Claims Adjustment or the income tax benefit resulting from the use of the net
operating loss or capital loss carry forward provided under Subsections 3(B)(4)
and (5) above shall be redeemable in accordance with Section 4 of the Stock
Purchase Agreement, and any dividends declared on such stock after being
credited to Seller shall be paid to Seller.
(7) Termination. The provisions of Section 3(B)(4) and (5) shall
terminate when all of the Xxxxxxx Claims have been resolved.
(8) Subject to the terms of this Agreement, the right of Seller to
receive additional Class A Common Stock constitutes a contractual right that is
not assignable and will not be evidenced by any negotiable certificate of any
kind.
II. A new Section 3(D) of the Stock Purchase Agreement shall be added as
follows:
D. Guaranty.
Repayment of the reinsurance recovery in the amount of $247,915 owed by
Heritage Holdings, Inc. to the Corporation pursuant to certain Auto Share and
Excess of Loss policies for claims with a date of occurrence prior to June 30,
1994, shall be unconditionally guaranteed by the Shareholders from and after the
Closing, and the Shareholders shall execute an instrument of Guaranty to that
effect.
III. Subsection 32 is hereby deleted and a new Subsection 32 is
inserted in its place as follows:
The Corporation currently is the plaintiff in two separate, pending
lawsuits, the "RMS Claim" (Guardian Insurance Company v. Risk Management
Solutions, Inc. a/k/a RMS) (1997-0073, D.V.I.) and the "Eagle Star Claim"
(Guardian Insurance Company x. Xxxx Xxxx International Limited and Eagle
Star Reinsurance Company Limited) (Civ. No. 1996/180F, D.V.I.). The Buyer
agrees to cause the Corporation to continue to pursue these lawsuits
following Closing, under the terms and conditions hereinafter set forth.
A. In the event that the Corporation still is pursuing the RMS Claim as
of the Closing Date, Buyer agrees to cause the Corporation to continue to pursue
the RMS Claim, subject to the conditions set forth herein. The Corporation shall
pay the current xxxx for expenses incurred in pursuing the RMS Claim in the
amount of $9,733.26. Thereafter, the Seller shall pay any fees, costs and
expenses incurred on or after the Closing Date, except those payable on a
contingency basis. All costs, fees, and expenses of the lawsuit that are not
payable on a contingency basis will be paid by Seller on a current basis, and
the Corporation shall have no liability whatsoever for such fees, costs and
expenses. However, if, at any time, the lawsuit causes a materially adverse
financial effect on the conduct of the Corporation's business, the Corporation
may discontinue pursuing the claim with consent of the Seller. The proceeds of
any judgment obtained in favor of the Corporation on the RMS Claim shall be paid
to Seller, after deduction for contingent attorney's fees, any expenses incurred
by the Corporation in pursuing the RMS Claim after the Closing Date and after
allowance for a reserve for any taxes associated with the recovery incurred by
the Corporation.
B. In the event that the Corporation still is pursuing the Eagle Star
Claim as of the Closing Date, Buyer agrees to cause the Corporation to continue
to pursue the Eagle Star Claim, subject to the conditions set forth herein.
Seller shall present, at Closing, a paid receipt from the law firm of Xxxxx &
Francois, indicating that all attorney's fees, costs and expenses incurred by
the Corporation in the pursuit of the Eagle Star Claim have been paid in full,
through the month immediately preceding the Closing Date. Following Closing, the
Corporation shall continue to pursue the Eagle Star Claim. However, if, at any
time, the lawsuit causes a materially adverse effect on the conduct of the
Corporation's business, the Corporation may discontinue pursuing the Eagle Star
Claim upon delivery by the Buyer to Seller of such number of additional shares
of the corporate stock of Buyer as shall equal One Million Three Hundred Fifty
Thousand Dollars ($1,350,000.00) at the time of delivery. Subject to
reimbursement pursuant to this Subsection 32(B), or Subsection 32 (D), until
payment in full of the note of even date herewith to be delivered by Buyer to
the Shareholders (the "Note"), the Corporation shall pay, on a current basis,
the full cost of the legal fees and other costs incurred pursuing the Eagle Star
Claim from the date of Closing. Following payment in full of the Note, fifty
percent (50%) of such fees and costs, thereafter incurred shall be reimbursed by
the Seller on a current basis upon presentation of evidence of the expenses
incurred. Should the Seller exercise its right to have the Buyer redeem the
Acquisition shares as provided in Section 4 hereof, from and after the date of
said redemption all legal fees and other costs of the litigation shall be borne
by the Seller on a current basis. In the event that the Eagle Star Claim is
settled, or a judgment in favor of the Corporation is rendered, the "net
proceeds" (as hereinafter defined), paid to the Corporation shall be paid to
Seller. The "net proceeds" shall be the funds recovered on the case, reduced by
(a) all costs and expenses, including, but not limited to, attorney's fees, paid
by the Corporation and not reimbursed by Seller from and after the Closing Date;
(b) interest, at the prime rate as published in the Wall Street Journal on the
Closing Date, on said costs and expenses, from the date the costs and expenses
were paid, until the date of payment of the proceeds to the Corporation; (c) any
taxes associated with the receipt or disbursement of the funds recovered; and
(d) any amounts deducted pursuant to Subsection 32(D) hereof. In the event that
the funds recovered are payable in installments over time, the full amount of
the expenses,
attorney's fees, interest, and taxes shall be reimbursed to the Corporation
before any payment is made to the Seller.
C. The payment obligations of the Corporation arising pursuant to the
foregoing subsections shall be unconditionally guaranteed by the Buyer from and
after the Closing.
D. The Seller hereby agrees to indemnify and to hold the Corporation
and its successors and assigns harmless in respect of any and all liabilities
and expenses (including, without limitation, settlement costs and legal,
accounting, and other expenses in connection therewith incurred after the
Closing Date) incurred by the Corporation in connection with any judgment
rendered against the Corporation, or order taxing the costs of the parties
against the Corporation, or settlement or other final disposition of claims,
with as a result of the Eagle Star Claim, the RMS Claim, the English Judgment,
the English Arbitration or any other proceeding involving the claims asserted in
said proceedings. Notwithstanding anything in this Section 32 to the contrary,
in the event a judgment is rendered against the Corporation in the course of the
Eagle Star Claim, any expense incurred therein (whether or not attributable to
the defense of a claim against the Corporation), including, but not limited to,
any judgment, award, cost or attorney's fee, shall be deducted from the proceeds
of any simultaneously rendered judgment in favor of the Corporation, after
deduction for the other items set forth in Subsection 32(B); in the event such
an expense cannot be deducted in full from the proceeds of a simultaneously
rendered judgment in favor of the Corporation, all such undeducted expenses
incurred by the Corporation through the earlier of the date the judgment is
satisfied or the date upon which the Seller satisfies its indemnity obligations
hereunder, shall be paid to the Corporation pursuant to this Subsection 32(D).
The indemnity obligations of the Seller arising pursuant to this subsection
32(D) with respect to the English Judgment and the English Arbitration only,
shall be conditionally guaranteed by the Shareholders from and after the
Closing, and the Shareholders shall execute an instrument of Guaranty to that
effect. The indemnity obligations of the Seller arising pursuant to this
subsection 32(D) shall be secured by a pledge of all of the Xxxxxxxx Caribbean
Corporation stock being transferred to Seller pursuant to this Stock Purchase
Agreement, and the Seller shall execute a pledge agreement and irrevocable
assignment of stock powers to that effect.
E. The Corporation shall have the right, with the consent of the Seller
which shall not be unreasonably withheld, to pay the English Judgment, or an
award in the English Arbitration against the Corporation, at any time, and to be
reimbursed therefore pursuant to the provisions of Subsection 32D above, if, in
the judgment of the Corporation, failure to do so causes a materially adverse
effect on the conduct of the Corporation's business. The Corporation shall, upon
request of the Seller, settle the English Judgment, the English Abritration, the
Eagle Star Claim or the RMS Claim, upon such terms and conditions as Seller
requests, subject to Seller's reimbursement and indemnity obligations set forth
in this Section 32. The provisions of this Section 32 shall survive the Closing
until the RMS Claim, the Eagle Star Claim, the English Judgment, the English
Arbitration and any cross claims, counter claims or other claims asserted in
those or related proceedings have been finally determined by an unappealable
order of a court or settled, and the Seller has satisfied all its obligations to
the Corporation pursuant to the Stock Purchase Agreement to indemnify it with
respect to the judgment(s) or settlement(s) reached, and the fees, costs and
expenses incurred in pursuing and defending such claims.
V. Section 4 of the Stock Purchase Agreement is designated Section 4(A)
and a new Section 4(B) is added as follows:
4(B) Recission of Transactions.
As provided in Section 8G hereof, Seller's obligation to close is
conditioned upon Buyer having simultaneously closed the transaction pursuant to
which it acquires the shares of stock (the "Heritage Stock") of Heritage
Insurance Company (Caribbean), Ltd. ("Heritage"). The stock purchase agreement
for the acquisition of the Heritage Stock (the "Heritage Stock Purchase
Agreement") has been amended to provided for the deferred payment of the
purchase price of the Heritage Stock. As a result thereof, the parties herein
will execute an escrow agreement as of the Closing Date with Xxxx Xxxxxxx, P.C.
acting as escrow agent, whereby the Corporation's Stock and the Heritage Stock
are delivered to the escrow agent until payment of the deferred purchase price
of the Heritage Stock. The deferred purchase price of the Heritage Stock is
evidenced by a promissory note (the "Note").
The parties herein agree as follows:
(a) Upon payment of the Note by Buyer, Seller shall provide notice of
such fact immediately to the escrow agent and the escrow agent shall immediately
transfer the Corporation's stock and the Heritage Stock to Buyer;
(b) If Buyer defaults under the Note, Seller shall give written notice
of the default to the escrow agent and to Buyer. Buyer shall have thirty (30)
days to provide the escrow agent with notice that it disputes the existence of
the default, or that the default has been remedied. If Buyer fails to provide
such notice, then: (i) the transactions contemplated pursuant to this Stock
Purchase Agreement and the Heritage Stock Purchase Agreement shall be deemed
rescinded; (ii) the escrow agent will transfer the ownership of the
Corporation's Stock to Seller and of the Heritage Stock to the Shareholders;
(iii) the pledge agreement concerning Xxxxxxxx Caribbean Corporations Stock
referred to in Section 32D shall be terminated and the pledged Xxxxxxxx
Caribbean Corporation's Stock shall be delivered to Buyer; (iv) the Shareholders
will retain the $125,000 payment received at closing of the Heritage Stock
Purchase Agreement; and (v) the parties herein shall be released of any further
liability or obligation of any nature to each other under this Stock Purchase
Agreement and/or under the Heritage Stock Purchase Agreement.
VI. Except as herein amended, all other terms and conditions of the
Stock Purchase Agreement remain in full force and effect according to their
terms.
IN WITNESS WHEREOF, the parties hereto have executed this First Addendum to
Stock Purchase Agreement on the date set forth above.
CORPORATION:
WITNESSES: GUARDIAN INSURANCE COMPANY, INC.
_________________________ By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxxxx, President
_________________________ [Seal]
Attest: /s/ Xxxxxxx Xxxxxxx
-----------------------------------
Xxxxxxx Xxxxxxx , Secretary
SELLER:
UNLIMITED HOLDINGS, INC.
_________________________ By: /s/ Xxx Xxxxxx
-----------------------------------
Xxx Xxxxxx, President
_________________________ [Seal]
Attest: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxxxx, Secretary
BUYER:
XXXXXXXX CARIBBEAN CORPORATION
/s/ Xxxxxxx XxXxxxxxx By: /s/ Xxxx X. deJoghn, Jr.
------------------------- -----------------------------------
Xxxx X. de Jongh, Jr., President
[Seal]
/s/ Xxxxxx X. X'Xxxxx Attest: /s/ Xxxxxxxxx X' Xxxxx
------------------------- -----------------------------------
Xxxxxxxxx X'Xxxxx, Secretary
SHAREHOLDERS:
THE XXXXXXXX DEL XXXXX TRUST
_________________________ By: /s/ Alba E. Del Xxxxx
------------------------------------
Alba E. Del Xxxxx, Trustee
[Seal]
THE XXXXXXXX XXXX TRUST
_________________________ By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------------
Xxxxxx X. Xxxxxxxx, Trustee
