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EXHIBIT 2.2
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DELPHI FINANCIAL GROUP, INC.,
MATRIX ABSENCE MANAGEMENT, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
DATED
JUNE 11, 1998
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TABLE OF CONTENTS
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ARTICLE I MERGER........................................................................................... 2
1.1 Formation of Delphi Subsidiary.............................................................. 2
1.2 The Merger ................................................................................. 2
1.3 Filing ..................................................................................... 2
1.4 Effective Time of the Merger................................................................ 3
ARTICLE II CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS................................... 3
2.1 Certificate of Incorporation................................................................ 3
2.2 By-Laws .................................................................................... 3
2.3 Directors and Officers...................................................................... 3
ARTICLE III CONVERSION OF SHARES AND CONTINGENT CONSIDERATION.............................................. 3
3.1 Conversion into Merger Consideration........................................................ 3
3.2 Exchange of Certificates.................................................................... 5
(a) Exchange......................................................................... 5
(b) Certificates..................................................................... 5
(c) No Further Rights in Company Capital Stock....................................... 6
(e) No Liability..................................................................... 6
(g) Lost Certificates................................................................ 6
3.3 Stock Transfer Books........................................................................ 7
3.4 Contingent Consideration.................................................................... 7
ARTICLE IV CERTAIN EFFECTS OF THE MERGER................................................................... 9
4.1 Effect of the Merger........................................................................ 9
4.2 Further Assurances.......................................................................... 9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS............................................... 10
5.1 Title to Shares............................................................................. 10
5.2 Authority Relative to Agreement............................................................. 10
5.3 Waiver of Put and Call Rights............................................................... 11
5.4 Securities Matters.......................................................................... 11
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.............................. 13
6.1 Organization and Qualification.............................................................. 13
6.2 Capital Stock of Subsidiaries............................................................... 14
6.3 Capitalization.............................................................................. 15
6.4 Authority Relative to This Agreement........................................................ 15
6.5 No Violations, etc.......................................................................... 16
6.6 Financial Statements........................................................................ 17
6.7 Regulatory Reports.......................................................................... 18
6.8 Absence of Changes or Events................................................................ 18
6.9 Litigation ................................................................................. 20
6.10 Title to and Condition of Properties....................................................... 20
6.11 Leases .................................................................................... 20
6.12 Contracts; Bank Accounts; Indebtedness..................................................... 20
(a) Contracts and Commitments........................................................ 21
(b) Bank Accounts.................................................................... 22
(c) Indebtedness..................................................................... 22
6.13 Relationships.............................................................................. 22
6.14 Labor Matters.............................................................................. 23
6.15 Compliance with Law........................................................................ 23
6.16 Intellectual Property...................................................................... 24
6.17 Taxes ..................................................................................... 25
6.18 Employee Benefit Plans; ERISA.............................................................. 27
6.19 Environmental Matters...................................................................... 31
6.20 Absence of Undisclosed Liabilities......................................................... 35
6.21 Finders or Brokers......................................................................... 35
6.22 Regulatory Matters......................................................................... 35
6.23 Insurance.................................................................................. 35
6.24 Employment and Labor Contracts............................................................. 36
6.25 Balance Sheet Reserves..................................................................... 36
6.26 Year 2000 Compliance....................................................................... 36
6.27 Qualification of Merger as a Tax Free Reorganization....................................... 37
6.28 Affiliate Transactions..................................................................... 39
6.29 Corporate Records.......................................................................... 39
6.30 Full Disclosure............................................................................ 39
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF DELPHI....................................................... 40
7.1 Organization and Qualification.............................................................. 40
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7.2 Capitalization.............................................................................. 40
7.3 Authority Relative to This Agreement........................................................ 41
7.4 No Violations, etc.......................................................................... 41
7.5 SEC Filings; Financial Statements........................................................... 43
7.6 Absence of Changes or Events................................................................ 43
7.7 Stock and Note Consideration................................................................ 43
7.8 Litigation ................................................................................. 44
7.9 Finders or Brokers.......................................................................... 44
7.10 Qualification of Merger as a Tax Free Reorganization........................................ 45
7.11 Regulatory Matters......................................................................... 46
ARTICLE VIII CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER......................................... 46
8.1 Conduct of Business of the Company Pending the Merger....................................... 46
ARTICLE IX COVENANTS AND AGREEMENTS........................................................................ 50
9.1 Cooperation................................................................................. 50
9.2 Availability of Employees and Records....................................................... 51
9.3 Notification of Changes and Default......................................................... 52
9.4 Financial Statements, Etc................................................................... 52
9.5 Publicity .................................................................................. 53
9.6 No Solicitation............................................................................. 53
9.7 Confidentiality............................................................................. 54
9.8 Resignation of Directors.................................................................... 54
9.9 Fees and Expenses........................................................................... 54
9.10 Tax Treatment............................................................................... 54
9.11 Amendment of Tax Returns.................................................................... 55
9.12 Transfer Restrictions....................................................................... 55
9.13 Noncompetition.............................................................................. 56
(a) Prohibited Activities............................................................ 56
(b) Damages.......................................................................... 57
(c) Reasonable Restraint............................................................. 57
(d) Severability; Reformation........................................................ 57
(e) Independent Covenant............................................................. 58
(f) Materiality...................................................................... 58
9.14 Nondisclosure of Confidential Information................................................... 58
9.15 NYSE Listing................................................................................ 60
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ARTICLE X CONDITIONS TO CLOSING............................................................................ 60
10.1 Conditions to Each Party's Obligation to Effect the Merger................................. 60
(a) No Injunctions or Restraints..................................................... 60
(b) Consents and Approvals........................................................... 60
(c) Registration Rights Agreement.................................................... 60
(d) Side Letter...................................................................... 61
10.2 Conditions to Obligations of Delphi........................................................ 61
(a) Representations and Warranties................................................... 61
(b) Performance of Obligations of the Company........................................ 61
(c) Audit Opinion; SAS 71 Report; Recast EBITDA Review............................... 61
(d) Shareholders' Equity............................................................. 62
(e) Capital Contributions; Uses Thereof; Extraordinary Expenses...................... 62
(f) Repayment of Indebtedness for Money Borrowed..................................... 62
(g) Real Estate Holding Corporation.................................................. 62
(h) Employment Agreements............................................................ 63
(i) Tax Opinion...................................................................... 63
(j) Opinion of Company Counsel....................................................... 63
(k) Gunz Stock Purchase Agreement.................................................... 63
(l) Termination of Shareholders' Agreement........................................... 63
10.3 Conditions to Obligations of the Company and the Shareholders.............................. 64
(a) Representations and Warranties................................................... 64
(b) Performance of Obligations of Delphi and Delphi Subsidiary....................... 64
(c) Tax Opinion...................................................................... 64
(d) Opinion of Delphi Counsel........................................................ 65
ARTICLE XI TERMINATION..................................................................................... 65
11.1 Termination................................................................................ 65
11.2 Effect of Termination...................................................................... 66
ARTICLE XII INDEMNIFICATION................................................................................ 66
12.1 Delphi's Losses............................................................................ 66
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12.2 Shareholders' Losses....................................................................... 69
12.3 Notice of Loss............................................................................. 70
12.4 Right to Defend............................................................................ 70
12.5 Cooperation................................................................................ 71
12.6 Subrogation................................................................................ 72
ARTICLE XIII MISCELLANEOUS................................................................................. 72
13.1 Survival of Covenants, Agreements, Representations and Warranties.......................... 72
(a) Covenants and Agreements......................................................... 72
(b) Representations and Warranties................................................... 72
13.2 Closing and Waiver......................................................................... 73
13.3 Notices ................................................................................... 73
13.4 Counterparts............................................................................... 76
13.5 Interpretation............................................................................. 76
13.6 Amendment ................................................................................. 76
13.7 No Third Party Beneficiaries............................................................... 76
13.8 Governing Law.............................................................................. 77
13.9 Entire Agreement........................................................................... 77
13.10 No Recourse Against Others................................................................. 77
13.11 Validity .................................................................................. 77
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DISCLOSURE SCHEDULE
COMPANY DISCLOSURE SECTIONS
SECTION
6.1 Organization and Qualification
6.2 Capital Stock of Subsidiaries
6.3 Capitalization
6.5 No Violations, etc.
6.6 Financial Statements
6.8 Absence of Changes or Events
6.9 Litigation
6.10 Title to and Condition of Properties
6.11 Leases
6.12 (a) Contracts and Commitments
(b) Bank Accounts
(c) Indebtedness
6.13 Relationships
6.15 Compliance with Law
6.16 Intellectual Property
6.18 Employee Benefit Plans; ERISA
(r) Employee Termination
(s) Excess Parachute Payments
6.19 Environmental Matters
6.20 Absence of Undisclosed Liabilities
6.23 Insurance
6.24 Employment and Labor Contracts
6.28 Affiliate Transactions
EXHIBITS
EXHIBIT A - Subsidiaries of the Company
EXHIBIT B - Form of Promissory Note
EXHIBIT C - Merger Consideration Allocation
EXHIBIT D - Contingent Consideration Determination Procedures
EXHIBIT E - Registration Rights Agreement
EXHIBIT F - Employment Agreements
EXHIBIT G - Form of Opinion of Xxxxxx & Xxxxx
EXHIBIT H - Form of Opinion of Xxxxxx Xxxxxx & Xxxxxxx
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 11, 1998 (this
"Agreement"), by and among Delphi Financial Group, Inc., a Delaware corporation
("Delphi"), Matrix Absence Management, Inc., a California corporation (the
"Company"), and Xxxx X. Xxxxx, Xxxxx X. Xxxxx, Xxxxxx X. Xxxxxx and Xxxxxx X.
Xxxxxx (collectively, the "Shareholders" and, individually, each a
"Shareholder").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of each of Delphi and the
Company have approved the merger (the "Merger") of the Company with and into a
wholly owned subsidiary of Delphi to be formed for the purpose thereof ("Delphi
Subsidiary"), upon the terms and subject to the conditions set forth herein and
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and the General Corporation Law of California (the "CGCL"). The term
"Company" as used herein shall, unless the context otherwise requires, include
its subsidiaries, all of which are listed on Exhibit A hereto;
WHEREAS, each Shareholder has consented to and approved the
Merger upon the terms and subject to the conditions set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a tax free reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, a stock purchase agreement is intended to be entered
into by and among Delphi, Gunz & Associates, Inc. and the shareholders thereof
named therein (the "Gunz Stock Purchase Agreement");
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the parties hereto, intending
to be legally bound, agree as follows:
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ARTICLE I
MERGER
1.1 Formation of Delphi Subsidiary. Delphi shall form Delphi
Subsidiary under the DGCL. Delphi Subsidiary will be formed solely to facilitate
the Merger and the transactions contemplated thereby and, prior to the Merger,
will conduct no business or activity other than in connection with the Merger.
Delphi will cause Delphi Subsidiary to execute and deliver a joinder to this
Agreement pursuant to Section 251 of the DGCL and will execute a written consent
as the sole stockholder of Delphi Subsidiary, approving the execution, delivery
and performance of this Agreement by Delphi Subsidiary.
1.2 The Merger. At the Effective Time (as hereinafter
defined), the Company shall be merged with and into Delphi Subsidiary as
provided herein. Thereupon, the corporate existence of Delphi Subsidiary, with
all its purposes, powers and objects, shall continue unaffected and unimpaired
by the Merger, and the corporate identity and existence, with all the purposes,
powers and objects, of the Company shall be merged with and into Delphi
Subsidiary and Delphi Subsidiary as the corporation surviving the Merger
(hereinafter sometimes called the "Surviving Corporation") shall continue its
corporate existence under the laws of the State of Delaware. The name of the
Surviving Corporation shall be Matrix Absence Management, Inc.
1.3 Filing. As soon as practicable after fulfillment or waiver
of the conditions set forth in Sections 10.1, 10.2 and 10.3 or on such later
date as may be mutually agreed to between Delphi and the Company, the parties
hereto will (i) cause to be filed with the office of the Secretary of State of
the State of Delaware, a certificate of merger (the "Delaware Certificate of
Merger"), in such form as required by, and executed in accordance with, the
relevant provisions of the DGCL, and (ii) cause to be filed with the office of
the Secretary of State of California, a certificate of merger (the "California
Certificate of Merger"), in such form as required by, and executed in accordance
with, the relevant provision of the CGCL.
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1.4 Effective Time of the Merger. The Merger shall be
effective at the time that the filing of the Delaware Certificate of Merger, or
at such later time specified in such Certificate of Merger, which time is herein
sometimes referred to as the "Effective Time" and the date thereof is herein
sometimes referred to as the "Effective Date."
ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS;
DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of
Incorporation of Delphi Subsidiary shall be the Certificate of Incorporation of
the Surviving Corporation.
2.2 By-Laws. The By-Laws of Delphi Subsidiary shall be the
By-Laws of the Surviving Corporation until the same shall thereafter be altered,
amended or repealed in accordance with law, the Certificate of Incorporation of
the Surviving Corporation or said By-Laws.
2.3 Directors and Officers. The directors of Delphi Subsidiary
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the initial officers
of the Surviving Corporation shall be Xxxxx X. Xxxxx, Chief Executive Officer
and Treasurer, Xxxxxx X. Xxxxxx, President, and Xxxxxx X. Xxxxx, Xx., Secretary,
in each case until their respective successors are duly elected or appointed and
qualified.
ARTICLE III
CONVERSION OF SHARES AND CONTINGENT
CONSIDERATION
3.1 Conversion into Merger Consideration. At the Effective
Time, the issued shares of capital stock of the Com-
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pany shall, by virtue of the Merger and without any action on the part of the
holders thereof, become and be converted as follows: each Shareholder's
outstanding shares of common stock, without par value, of the Company (the
"Company Common Stock") and outstanding shares of Series A Preferred Stock,
without par value, of the Company (the "Series A Preferred Stock" and, together
with the Company Common Stock, the "Company Capital Stock"), if any, shall be
converted into and become the right to receive such Shareholder's Portion (as
defined below) of each component of the Merger Consideration (as defined below).
"Merger Consideration" means $35,074,500, consisting of a combination of (x)
shares of Class A Common Stock, par value $.01 per share (the "Delphi Common
Stock"), of Delphi (the "Stock Merger Consideration"), (y) notes of Delphi,
bearing interest at a rate of 8% per annum, payable semiannually, which will
mature not more than five years from the Closing Date (as defined herein) and
will have such other terms as are set forth on Exhibit B hereto (the "Note
Consideration") and (z) cash (the "Cash Merger Consideration" and, together with
the Note Consideration, the "Non-Stock Consideration"); provided, however, that,
in the event that the Closing Date shall occur after June 30, 1998, each
Shareholder's Portion of the Cash Merger Consideration shall be increased by an
amount equal to the interest on such Shareholder's Portion of the Merger
Consideration that has accrued daily from June 30, 1998 to and including the
Closing Date at a rate of 8% per annum. The allocation of each Shareholder's
Portion of Merger Consideration among Stock Merger Consideration, Note
Consideration and Cash Merger Consideration shall be as set forth on Exhibit C
hereto. "Shareholder's Portion" means, for each Shareholder, as to each
component of the Merger Consideration, the number of shares of Delphi Common
Stock under the "Stock Merger Consideration" column, the aggregate principal
amount of notes of Delphi under the "Note Consideration" column and the amount
of cash under the "Cash Merger Consideration" column, in each case as set forth
opposite such Shareholder's name on Exhibit C hereto.
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3.2 Exchange of Certificates.
(a) Exchange. In exchange for the outstanding shares of
Company Capital Stock, Delphi shall cause to be made available to each
Shareholder, for exchange in accordance with this Article III, (i) certificates
evidencing a sufficient number of shares of Delphi Common Stock to constitute
such Shareholder's Portion of the Stock Merger Consideration and (ii) an amount
in cash and notes of Delphi evidencing such Shareholder's Portion of the
Non-Stock Merger Consideration.
(b) Certificates. At the Effective Time, each Shareholder
shall deliver to Delphi the certificates (the "Certificates") representing
Company Capital Stock, accompanied by blank stock powers duly executed by such
Shareholder and with all necessary transfer tax and other revenue stamps,
acquired at such Shareholder's expense, affixed and canceled, and the
Certificate so surrendered shall forthwith be canceled. Each Shareholder shall
promptly cure any deficiencies with respect to the stock powers accompanying the
Certificates representing such Shareholder's shares of Company Capital Stock.
Until delivered as contemplated by this Section 3.2(b), each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive (i) a certificate representing that number of whole shares of Delphi
Common Stock, if any, constituting Stock Merger Consideration to which the
holder thereof is entitled pursuant to this Article III and (ii) without
interest, the amount of cash and notes of Delphi constituting Non-Stock Merger
Consideration to which such holder is entitled to pursuant to this Article III.
The Delphi Common Stock to be distributed as Stock Merger Consideration and the
notes of Delphi to be distributed as the Note Consideration will be stamped or
imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED,
HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION
STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES
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OR THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER
FROM THE COMMISSION INDICATING THAT SUCH DISTRIBUTION, SALE, TRANSFER,
ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
RESTRICTIONS ON RESALE CONTAINED IN THAT CERTAIN AGREEMENT AND PLAN OF
MERGER, DATED AS OF JUNE 11, 1998, A COPY OF WHICH IS AVAILABLE FROM
THE SECRETARY OF THE ISSUER."
(c) No Further Rights in Company Capital Stock. At the
Effective Time all outstanding shares of Company Capital Stock, by virtue of the
Merger and without any action on the part of the holders thereof, shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each Shareholder shall thereafter cease to have any rights with
respect to such shares of Company Capital Stock, except the right to receive
such Shareholder's Portion of the Merger Consideration for such shares of
Company Capital Stock. All Delphi Common Stock constituting Stock Merger
Consideration and cash and notes constituting Non-Stock Merger Consideration
issued or paid, as the case may be, upon conversion of the shares of Company
Capital Stock in accordance with the terms hereof shall be deemed to have been
issued or paid, as the case may be, in full satisfaction of all rights
pertaining to such shares of Company Capital Stock.
(d) No Liability. Neither Delphi nor the Surviving Corporation
shall be liable to any holder of Certificates for any shares of Delphi Common
Stock (or dividends or distributions with respect thereto), notes or cash
delivered to a public official pursuant to any abandoned property, escheat or
similar law.
(e) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit and indemnity
agreement of that fact, in form and sub-
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stance acceptable to Delphi, by the person claiming such Certificate to be lost,
stolen or destroyed, Delphi shall cause to be issued in exchange for such lost,
stolen or destroyed Certificate the applicable Merger Consideration.
3.3 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Capital Stock thereafter on the
records of the Company. At the Effective Time, any Certificates presented to
Delphi shall be converted into the applicable Merger Consideration as provided
herein.
3.4 Contingent Consideration.
(a) In addition to the Merger Consideration and as part of the
consideration for the Merger, upon the achievement of certain earnings targets
by the Surviving Corporation set forth below, up to $4,225,500 (the "Contingent
Consideration") will be payable by Delphi in cash to Xxxxxx X. Xxxxxx and Xxxxx
X. Xxxxx, jointly, in accordance with the following:
(i) $2,112,750 of the Contingent Consideration will
be payable within three months after the second Anniversary Date (as
defined below) if either (A) EBITDA (as defined below) for the twelve
calendar months preceding the second Anniversary Date (determined in
accordance with the procedures set forth in Exhibit D hereto)
("EBITDA2") is no less than $5.0 million or (B) the sum of EBITDA for
the twelve calendar months preceding the first Anniversary Date
(determined in accordance with the procedures set forth in Exhibit D
hereto) and EBITDA2 is no less than $9.0 million.
(ii) $4,225,500 of the Contingent Consideration (less
any amount previously paid pursuant to paragraph (i) above) will be
payable within three months after the third Anniversary Date if either
(A) EBITDA for the twelve calendar months preceding the third
Anniversary Date (determined in accordance with the procedures set
forth in Exhibit D hereto) ("EBITDA3") is no less than $6.25 million
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or (B) the sum of EBITDA2 and EBITDA3 is no less than $11.25 million.
(iii) $4,225,500 of the Contingent Consideration
(less any amount previously paid pursuant to paragraph (i) or (ii)
above) will be payable within three months after the fourth Anniversary
Date if EBITDA for the twelve calendar months preceding the fourth
Anniversary Date (determined in accordance with the procedures set
forth in Exhibit D hereto) is no less than $6.25 million.
(b) "EBITDA" means, for any period, earnings (excluding
contributions to the Employee Bonus Fund (as defined below)) before interest,
taxes, depreciation and amortization of the Company and its consolidated
subsidiaries during such period, calculated using generally accepted accounting
principles ("GAAP"). No adjustments to EBITDA shall be made for "purchase"
accounting under GAAP that may result from the Merger, and any changes in
operations of the Company that are determined or imposed by Delphi and which
affect EBITDA will be excluded from the calculation of EBITDA. Notwithstanding
any of the foregoing, in recognition of the difficulty in otherwise fully
ascertaining the direct benefits of the synergies expected to result from the
Merger, EBITDA shall include: (x) 5% of new first year annualized premiums sold
during the relevant period on behalf of any affiliates of Delphi if the
Company's services were utilized, either in the introduction to, or ongoing
servicing of, the account, and (y) 2.5% of annualized renewal premiums during
the relevant period on the accounts referred to in clause (x) above and any
other accounts that the Company has placed with any affiliates of Delphi as of
the Closing Date. "Anniversary Date" means each anniversary of the Closing Date.
"Employee Bonus Fund" means the bonus plan for the benefit of the employees of
the Surviving Corporation established pursuant to a side letter dated as of the
date hereof (the "Side Letter").
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ARTICLE IV
CERTAIN EFFECTS OF THE MERGER
4.1 Effect of the Merger. The effects and consequences of the
Merger shall be as set forth in Section 252 of the DGCL and Sections 1107 and
1108 of the CGCL. Without limiting the generality of the foregoing, on and after
the Effective Time and pursuant to the DGCL and the CGCL, the Surviving
Corporation shall possess all the rights, privileges, immunities, powers, and
purposes of each of Delphi Subsidiary and the Company; all the property, real
and personal, including subscriptions to shares, causes of action and every
other asset (including books and records) of Delphi Subsidiary and the Company
shall vest in the Surviving Corporation without further act or deed; and the
Surviving Corporation shall assume and be liable for all the liabilities,
obligations and penalties of Delphi Subsidiary and the Company; provided,
however, that this shall in no way impair or affect the indemnification
obligations of any party pursuant to the indemnification provisions of this
Agreement. No liability or obligation due or to become due and no claim or
demand for any cause existing against either Delphi Subsidiary or the Company,
or any stockholder or shareholder, officer or director thereof, shall be
released or impaired by the Merger, and no action or proceeding, whether civil
or criminal, then pending by or against Delphi Subsidiary or the Company, or any
stockholder or shareholder, officer or director thereof, shall xxxxx or be
discontinued by the Merger, but may be enforced, prosecuted, settled or
compromised as if the Merger had not occurred, and the Surviving Corporation may
be substituted in any such action or proceeding in place of Delphi Subsidiary or
the Company.
4.2 Further Assurances. If at any time after the Effective
Time, any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either of Delphi Subsidiary or the Company, the officers of such corporation are
fully authorized in the name of their cor-
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poration or otherwise to take, and shall take, all such further action.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants, severally and
not jointly, to Delphi as follows:
5.1 Title to Shares. Each of the Shareholders is the true and
lawful owner, of record and beneficially, of the shares of Company Capital Stock
set forth opposite the name of such Shareholder under the headings "Company
Common Stock" and "Series A Preferred Stock" on Exhibit C hereto. At the
Effective Time, each of the Shareholders will validly transfer the shares owned
by him free and clear of all liens, security interests, pledges, assessments,
charges, adverse claims, leases, licenses, restrictions and other encumbrances
(collectively, "Liens"). Other than the rights and obligations arising under
this Agreement, none of such shares are subject to any rights of any other
person to acquire the same. None of such shares are subject to any restrictions
on transfer thereof, except for such restrictions as may be imposed by
applicable federal and state securities laws.
5.2 Authority Relative to Agreement. Each of the Shareholders
has full power and authority to enter into this Agreement and the Registration
Rights Agreement and to perform his obligations hereunder and thereunder. This
Agreement has been, and when delivered by such Shareholder at the Effective Time
the Registration Rights Agreement will have been, duly executed and delivered by
each of the Shareholders and this Agreement constitutes, and the Registration
Rights Agreement when so delivered will constitute, assuming the due
authorization, execution and delivery hereof and thereof by Delphi, the legal,
valid and binding obligation of each of the Shareholders, enforceable against
each of them in accordance with its terms, except (i) as enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
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conveyance, or other similar laws affecting the enforcement of creditors' rights
generally, and (ii) as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding at law
or in equity). The execution and delivery of this Agreement and the Registration
Rights Agreement by each of the Shareholders and performance of his obligations
hereunder will not conflict with or result in a breach, default (or an event
which, with notice or lapse of time or both, would constitute a default) or
violation of any of the terms, provisions or conditions of any agreement,
document, or instrument, or any judgment, decree, court order, statute,
regulation, ordinance or law to which such Shareholder is subject. Except as
contemplated by Section 6.5(b) hereof, no permit, authorization, consent or
approval of, or filing with or notification to, any court or public body or
authority or expiration of any governmentally imposed waiting period, and no
authorization, consent, or approval of, or release by, any other third party, is
necessary for the execution and delivery of this Agreement and the Registration
Rights Agreement and the consummation by each of the Shareholders of the sale of
the shares as contemplated by this Agreement and the performance of their
respective obligations hereunder and thereunder.
5.3 Waiver of Put and Call Rights. The Shareholders which have
put and call rights pursuant to a shareholders' agreement by and among the
Shareholders and the Company dated as of June 1, 1992 shall have effectively
waived such rights.
5.4 Securities Matters.
(a) Each of the Shareholders (a) has such knowledge,
sophistication and experience in business and financial matters that he is
capable of evaluating the merits and risks of an investment in the shares of
Delphi Common Stock and notes of Delphi, (b) fully understands the nature, scope
and duration of the limitations on transfer contained herein and under
applicable law, and (c) can bear the economic risk of an investment in the
shares of Delphi Common Stock and notes of Delphi and can afford a complete loss
of such investment.
19
-12-
(b) Each of the Shareholders is acquiring the shares of Delphi
Common Stock comprising the Stock Merger Consideration and the notes of Delphi
comprising the Note Consideration for his own account and not with a present
view to or for distributing or reselling such shares or notes (or any portion of
either thereof). Each Shareholder has no contract, undertaking, agreement or
arrangement, written or oral, with any other person to sell, transfer or grant
participation in any shares of Delphi Common Stock or notes of Delphi to be
acquired by such Shareholder in the Merger.
(c) Each of the Shareholders acknowledges receipt of copies of
Delphi's Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
its proxy statement relating to its 1998 annual meeting of stockholders and its
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998,
each as filed by the Company with the Securities and Exchange Commission ("SEC")
(collectively, the "Delphi SEC Reports") and further acknowledges that he has
been afforded (i) the opportunity to ask such questions as he has deemed
necessary of, and to receive answers from, representatives of Delphi concerning
the terms and conditions of the payment of the Stock Merger Consideration and
the Note Consideration, and the merits and risks of investing in the Stock
Merger Consideration and the Note Consideration; (ii) access to information
about Delphi and Delphi's financial condition, results of operations, business,
properties, management and prospects sufficient to enable such Shareholder to
evaluate his investment; and (iii) the opportunity to obtain such additional
information which Delphi possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect
to the investment and to verify the accuracy and completeness of the information
contained in the Delphi SEC Reports.
(d) Each of the Shareholders understands and acknowledges that
(i) the shares of Delphi Common Stock comprising the Stock Merger Consideration
and the notes of Delphi comprising the Note Consideration, if any, are being
offered and sold to him without registration under the Securities Act in a
20
-13-
private placement that is exempt from registration provisions of the Securities
Act of 1933, as amended (the "Securities Act"), under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder and (ii) the availability
of such exemption depends in part on, and Delphi will rely upon, the accuracy
and truthfulness of the foregoing representations.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS
The Company and each of the Shareholders, jointly and
severally, represent and warrant to Delphi as follows:
6.1 Organization and Qualification. Each of the Company and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except for failures to be so qualified or in good standing which
would not, individually or in the aggregate, have a material adverse effect on
the business, operations, condition (financial or other), assets or prospects of
the Company and its subsidiaries, taken as a whole (a "Company Material Adverse
Effect"). Section 6.1 of the Disclosure Schedule lists all of the jurisdictions
in which the Company or any of its subsidiaries or any present employee thereof
holds active licenses and permits or authorizations to transact the Company's or
its subsidiaries' business (the "Licenses") and indicates the type of each
License and the name of each such employee. No such License is the subject of
any administrative proceeding for suspension or revocation or any similar
proceedings which would, if decided against the Company, materially and
adversely affect such License; there is no sustainable ba-
21
-14-
sis for such a suspension or revocation which would, individually or in the
aggregate, have a Company Material Adverse Effect; and no such suspension or
revocation has been threatened by any licensing authority. Section 6.1 of the
Disclosure Schedule sets forth, with respect to the Company and each of its
subsidiaries, the jurisdiction in which they are qualified or otherwise licensed
as a foreign corporation to do business. Neither the Company nor any of its
subsidiaries is in violation of any of the provisions of its certificate or
articles of incorporation or organization (or other applicable charter document)
or by-laws. The Company has delivered to Delphi accurate and complete copies of
the certificate or articles of incorporation or organization (or other
applicable charter document) and by-laws, as currently in effect, of each of the
Company and its subsidiaries.
6.2 Capital Stock of Subsidiaries. The only direct or indirect
subsidiaries of the Company are those listed in Section 6.2 of the Disclosure
Schedule. Except as set forth in Section 6.2 of the Disclosure Schedule, the
Company is directly or indirectly the record and beneficial owner of all of the
outstanding shares of capital stock of each of its subsidiaries. There are no
proxies with respect to such shares, and no equity securities of any of such
subsidiaries are or may be required to be issued by reason of any options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any such subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any such
subsidiary is bound to issue additional shares of its capital stock or
securities convertible into or exchangeable for such shares. All of such shares
so owned by the Company are validly issued, fully paid and nonassessable and are
owned by it free and clear of all Liens. Except as disclosed in Section 6.2 of
the Disclosure Schedule, the Company does not directly or indirectly own any
interest in any corporation, partnership, joint venture or other business
association or entity.
22
-15-
6.3 Capitalization. The authorized capital stock of the
Company consists of 10,000,000 shares of Company Common Stock, of which
2,005,050 are issued and outstanding, and 2,000,000 shares of Series A Preferred
Stock, of which 1,530,000 are issued and outstanding. All of such issued and
outstanding shares of Company Capital Stock are validly issued, fully paid and
nonassessable and free of preemptive rights. Except as set forth on Section 6.3
of the Disclosure Schedule, neither the Company nor any of its subsidiaries is a
party to any agreement or understanding, oral or written, which (a) grants an
option or other right to acquire any of the Company Capital Stock or any other
equitable interest in the Company, (b) grants a right of first refusal or other
such similar right upon the sale of any of the Company Capital Stock, or (c)
restricts or affects the voting rights of any of the Company Capital Stock.
6.4 Authority Relative to This Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the Merger and other transactions contemplated hereby and by the
Registration Rights Agreement. The execution and delivery of this Agreement and
the consummation of the Merger and other transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Company and
consented to and approved by each Shareholder, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Merger or other transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by Delphi,
constitutes the legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except (i) as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other similar laws affecting the enforcement of
creditors' rights generally, and (ii) as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
23
-16-
6.5 No Violations, etc.
(a) Assuming that all filings or waivers thereof have been
duly made or obtained as contemplated by Section 6.5(b) hereof, neither the
execution and delivery of this Agreement by the Company nor the consummation of
the Merger or other transactions contemplated hereby nor compliance by the
Company with any of the provisions hereof will (i) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or suspension of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its subsidiaries under, any of the terms, conditions or
provisions of (x) their respective charters or by-laws, (y) any note, bond,
mortgage, indenture or deed of trust, or (z) any license, lease, agreement or
other instrument or obligation to which the Company or any such subsidiary is a
party or to which they or any of their respective properties or assets may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its subsidiaries or any of their respective properties or assets.
(b) No filing or registration with, notification to and no
permit, authorization, consent or approval of any governmental entity
(including, without limitation, any federal, state or local regulatory authority
or agency) is required by the Company in connection with the execution and
delivery of this Agreement or the consummation by the Company of the Merger or
other transactions contemplated hereby, except (i) the filing of the Delaware
Certificate of Merger, (ii) the filing of the California Certificate of Merger
and (iii) filings with applicable state regulatory authorities identified in
Section 6.5 of the Disclosure Schedule.
(c) None of the Company or any of its subsidiaries is in
violation of or default under (x) any note, xxxx, xxxx-
24
-17-
gage, indenture or deed of trust, or (y) any license, lease, agreement or other
instrument or obligation to which the Company or any such subsidiary is a party
or to which they or any of their respective properties or assets may be subject,
except for such violations or defaults which would not, individually or in the
aggregate, either have a Company Material Adverse Effect or materially impair
the Company's ability to consummate the Merger or other transactions
contemplated hereby.
6.6 Financial Statements.
(a) Set forth in Section 6.6 of the Disclosure Schedule are
true and complete copies of the audited consolidated balance sheets of the
Company at December 31, 1997 and December 31, 1996 (the "December 31 Balance
Sheets") and the audited consolidated statements of income, shareholder's equity
and cash flow of the Company for each of the two years in the period ended
December 31, 1997 (collectively, the "December 31 Financials"), together with
the audit opinion thereon by Ernst & Young LLP, the Company's independent
accountants. The December 31 Financials fairly present, in all material
respects, the financial position of the Company at December 31, 1997 and the
other periods presented therein, and the results of operations of the Company
for the period then ended and the other periods presented therein, and have been
prepared in accordance with generally accepted accounting principles
consistently applied by the Company (except as may be indicated in the notes
thereto). The December 31 Balance Sheets reflect all liabilities of the Company,
whether absolute, accrued or contingent, as of the date thereof of the type
required to be reflected or disclosed on a balance sheet prepared in accordance
with generally accepted accounting principles. Ernst & Young LLP are independent
public accountants within the meaning of the Securities Act.
(b) Prior to the Closing Date, the Company shall provide to
Delphi true and complete copies of (i) the unaudited balance sheet of the
Company at March 31, 1998 (the "March 31 Balance Sheet") and the unaudited
statements of income, shareholder's equity and cash flow of the Company for the
three months then ended (collectively, the "March 31 Financials") and
25
-18-
(ii) the unaudited balance sheet of the Company at May 31, 1998 (together with
the March 31 Balance Sheet, the "Interim Balance Sheets") and the unaudited
statements of income, shareholder's equity and cash flow of the Company for the
two months ended May 31, 1998 (collectively with the March 31 Financials, the
"Interim Financials"), together with the report on a review of interim financial
information pursuant to Statement on Accounting Standards No. 71 by Ernst &
Young LLP. The Interim Financials will fairly present, in all material respects,
the financial position of the Company at the respective dates thereof (subject
to year-end adjustments and the absence of footnote disclosures), and the
results of operations of the Company for the respective periods then ended, and
have been prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto). The
Interim Balance Sheets will reflect all liabilities of the Company, whether
absolute, accrued or contingent, as of the respective dates thereof of the type
required to be reflected or disclosed on a balance sheet prepared in accordance
with generally accepted accounting principles.
6.7 Regulatory Reports. Section 6.7 of the Disclosure Schedule
contains a complete and accurate list of the most recent regulatory reports
relating to the Company submitted to each governmental entity with authority or
jurisdiction over the Company, its subsidiaries or their businesses, true and
complete copies of which have previously been provided to Delphi. Each such
report is true and accurate in all material respects, complies in all material
respects with the requirements thereof and was prepared in accordance with all
applicable rules, regulations and procedures.
6.8 Absence of Changes or Events. Except as set forth on
Section 6.8 of the Disclosure Schedule, since December 31, 1997:
(a) there has been no material adverse change, or any
development involving a prospective material adverse change, in the
business, operations, condition (financial or other), assets or
prospects of the Company and its subsidiaries, taken as a whole;
26
-19-
(b) there has not been any direct or indirect redemption,
purchase or other acquisition of any shares of capital stock of the
Company or any of its subsidiaries, or any declaration, setting aside
or payment of any dividend or other distribution by the Company or any
of its subsidiaries in respect of its capital stock;
(c) except in the ordinary course of its business and
consistent with past practice, neither the Company nor any of its
subsidiaries has incurred any indebtedness for borrowed money, or
assumed, guaranteed, endorsed or otherwise as an accommodation become
responsible for the obligations of any other individual, firm or
corporation, or made any loans or advances to any other individual,
firm or corporation;
(d) there has not been any change in the financial or tax
accounting methods, principles or practices of the Company or its
subsidiaries;
(e) there has not been any revaluation by the Company or any
of its subsidiaries of any of their respective assets, including,
without limitation, writing off notes or accounts receivable;
(f) without limiting the generality of the foregoing, there
has not been any action or inaction by the Company, its subsidiaries or
any Shareholder the result of which would constitute a violation of the
covenants contained in Section 8.1 hereof as if such covenants applied
beginning December 31, 1997; and
(g) there has not been any agreement by the Company or any of
its subsidiaries or the Shareholders to (i) do any of the things
described in the preceding clauses (a) through (f) other than as
expressly contemplated or provided for in this Agreement or (ii) take,
whether in writing or otherwise, any action which, if taken prior to
the date of this Agreement, would have made any representation or
warranty in this Article VI untrue or incorrect.
27
-20-
6.9 Litigation. Except as set forth in Section 6.9 of the
Disclosure Schedule, there is no (i) claim, action, suit or proceeding pending
or, to the knowledge of the Company or any of its subsidiaries, threatened
against or relating to the Company or any of its subsidiaries before any court
or governmental or regulatory authority or body or arbitration tribunal, or (ii)
outstanding judgment, order, writ, injunction or decree, or application, request
or motion therefor, of any court, governmental agency or arbitration tribunal in
a proceeding to which the Company, any subsidiary of the Company or any of their
respective assets was or is a party.
6.10 Title to and Condition of Properties. Section 6.10 of the
Disclosure Schedule contains a true and complete list of all real properties
owned by the Company and its subsidiaries. Each of the Company and its
subsidiaries has good title to all of the real property and owns outright all of
the personal property (except for leased property or assets) which is reflected
on the December 31 Balance Sheets except for property since sold or otherwise
disposed of in the ordinary course of business and consistent with past
practice. No such real or personal property is subject to claims, liens or
encumbrances, whether by mortgage, pledge, lien, conditional sale agreement,
charge or otherwise.
6.11 Leases. Section 6.11 of the Disclosure Schedule contains
a true and complete list of all leases pursuant to which real or personal
property is held under lease by either the Company or any of its subsidiaries
and the leases pursuant to which either the Company or any of its subsidiaries
leases real or personal property to others. All of the leases so listed are
valid and subsisting and in full force and effect and are subject to no default
with respect to either the Company or its subsidiaries, as the case may be, and,
to the Company's knowledge, are in full force and effect and subject to no
default with respect to any other party thereto, and the leased real property is
in good and satisfactory condition.
6.12 Contracts; Bank Accounts; Indebtedness.
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(a) Contracts and Commitments. Section 6.12(a) of the
Disclosure Schedule contains a complete and accurate list of all Material (as
defined below) existing outstanding contracts and commitments, whether written
or oral, of the Company and its subsidiaries (i) the terms of which provide for
the payment by the Company and its subsidiaries after the date hereof as the
recipient of goods or services or involve the receipt by the Company or any of
its subsidiaries as the provider of goods or services, (ii) whereby the Company
or any of its subsidiaries leases equipment or real property, (iii) whereby the
Company or any of its subsidiaries has a firm commitment to purchase capital
equipment (or lease in the nature of a conditional purchase of capital
equipment), (iv) which continue for a period of twelve months or more and are
not subject to a unilateral right of termination by the Company without
consideration, (v) which restrict or purport to restrict any business activities
or freedom of the Company or any of its subsidiaries (or, to the knowledge of
the Company, any of its officers or employees) to engage in any business or to
compete with any person, or (vi) which relate to employment, consulting and
agency agreements which provide for any severance or termination benefit, or any
other agreements, contracts and commitments material to the business of the
Company and its subsidiaries. For purposes of this Section 6.12(a), a "Material"
contract or commitment shall mean any contract or commitment that may give rise
to obligations or liabilities exceeding, during the current term thereof,
$100,000, or that may generate revenues or income exceeding, during the current
term thereof, $100,000 or that is otherwise material to the conduct of the
business of the Company or the Surviving Corporation or their respective
subsidiaries. None of the Company or any of its subsidiaries (A) is in default
(nor is there any event which with notice or lapse of time or both would
constitute a default) under any Material contract or commitment, or (B) has
received notice or any other indication that any such Material Contract or
commitment is about to be terminated or otherwise modified in any material
respect, regardless of any default thereunder. Section 6.12(a) of the Disclosure
Schedule identifies each existing contract or commitment containing an agreement
with respect to any change of control or any indemnifica-
29
-22-
tion or other contingent obligations that would be triggered by the Merger.
(b) Bank Accounts. Section 6.12(b) of the Disclosure Schedule
contains a complete and accurate list of the name of each bank in which the
Company or any of its subsidiaries has an account or safe deposit box (each, a
"Bank Account" and, collectively, the "Bank Accounts"), the account number
thereof and the names of all persons authorized to draw thereon or to have
access thereto.
(c) Indebtedness. Section 6.12(c) of the Disclosure Schedule
contains a complete and accurate list of all indebtedness for borrowed money of
the Company and its subsidiaries showing the aggregate amount by way of
principal and interest which was outstanding as of a date not more than seven
days prior to the date of this Agreement and, by the terms of agreements
governing such indebtedness, is expected to be outstanding immediately prior to
repayment on the Closing Date. Except as set forth in Section 6.12(c) of the
Disclosure Schedule, neither this Agreement nor the consummation of the Merger
or the other transactions contemplated hereby will result in any outstanding
loans or borrowings by the Company or any subsidiary of the Company becoming
due, going into default or giving the lenders or other holders of debt
instruments the right to require the Company or any of its subsidiaries to repay
all or a portion of such loans or borrowings.
6.13 Relationships. The relationships of the Company and its
subsidiaries with their respective customers, clients, suppliers, sales
representatives and others having business relationships with them are generally
satisfactory, and there is no indication of any intention by any party thereto
to terminate or modify the terms of any such relationship. Without limiting the
generality of the foregoing, except as set forth in Section 6.13 of the
Disclosure Schedule, no customer has notified or otherwise indicated to the
Company or any of its subsidiaries that it will stop, or decrease the rate of,
its purchases of services or products from the Company or such subsidiaries, and
no customer has, during fiscal 1997, ceased or materially decreased its
purchases of any such services or
30
-23-
products from the Company or any of its subsidiaries; and no supplier has
notified or otherwise indicated to the Company or any of its subsidiaries that
it will stop, or decrease the rate of, or, other than publicly announced
generally applicable price increases, materially increase the cost of, its
supply of materials, products or services used by the Company and its
subsidiaries, and no supplier has, during fiscal 1997, ceased, materially
decreased the rate of, or materially raised the cost of, any such materials,
products or services.
6.14 Labor Matters. Except to the extent that any of the
following, individually or in the aggregate, would have a Company Material
Adverse Effect, (a) neither the Company nor any of its subsidiaries fails to
comply with all applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and neither the Company
nor any of its subsidiaries is engaged in any "unfair labor practice," as that
term is understood pursuant to the National Labor Relations Act, as amended, (b)
there is no labor strike, slowdown, stoppage or other employee departure of any
nature pending or threatened) against or affecting the Company or any of its
subsidiaries and (c) no petition for certification has been filed and is pending
before the National Labor Relations Board with respect to any employees of the
Company or any of its subsidiaries who are not currently organized.
6.15 Compliance with Law. Except for matters set forth in
Section 6.15 of the Disclosure Schedule, (a) neither the Company nor any of its
subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule or order of any foreign, federal, state or local government or
any other governmental department or agency, or any judgment, decree or order of
any court, applicable to its business or operations; (b) neither the Company nor
any of its subsidiaries has received any written communication during the past
three years alleging a failure to comply with any statute, law, ordinance, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency, or any judgment, decree or order of any
court, applicable to its business or operations and (c) the conduct of the
business of
31
-24-
each of the Company and its subsidiaries is in conformity with all foreign,
federal, state and local governmental and regulatory requirements; except, in
the case of clauses (a) and (c), for such violations or failures which would
not, individually or in the aggregate, have a Company Material Adverse Effect.
The Company, its subsidiaries and their employees have all permits, licenses and
franchises from governmental agencies required to conduct their businesses as
now being conducted. The Company and its subsidiaries have duly and validly
filed or caused to be filed all reports, statements, documents, registrations,
filings, or submissions that were required by law to be filed with any person,
except where such failure to file would not, individually or in the aggregate,
have a Company Material Adverse Effect. All such filings complied with
applicable laws in all material respects when filed, and to the knowledge of the
Company, no material deficiencies have been asserted by any person with respect
to any such filings. The Company and its subsidiaries have previously delivered
to Delphi the reports reflecting the results of the most recent examinations of
the Company issued by any applicable governmental authority.
6.16 Intellectual Property. Section 6.16 of the Disclosure
Schedule sets forth a complete and accurate list of all of the trademarks
(whether or not registered) and trademark registrations and applications, patent
and patent applications, copyrights and copyright applications, service marks,
service xxxx registrations and applications, trade dress, trade and product
names (collectively, the "Intellectual Property") owned or licensed by the
Company and its subsidiaries. Except as set forth on Section 6.16 of the
Disclosure Schedule, (i) each of the Company and its subsidiaries has or owns,
directly or indirectly, all right, title and interest to such Intellectual
Property or has the perpetual right to use such Intellectual Property without
consideration; none of the rights of the Company and its subsidiaries in or use
of such Intellectual Property has been or is currently being or, to the
knowledge of the Company, is threatened to be infringed or challenged; (ii) all
of the patents, trademark registrations, service xxxx registrations, trade name
registrations and copyright registrations in-
32
-25-
cluded in such Intellectual Property have been duly issued and have not been
canceled, abandoned or otherwise terminated; and (iii) all of the patent
applications, trademark applications, service xxxx applications, trade name
applications and copyright applications included in such Intellectual Property
have been duly filed. To the knowledge of the Company, the Company and its
subsidiaries own or have adequate licenses or other rights to use all
Intellectual Property, know-how and technical information required for their
operation.
6.17 Taxes. Except as otherwise set forth in Section 6.17 of
the Disclosure Schedule, (i) the Company and each of its subsidiaries have
prepared and timely filed with the appropriate governmental agencies all Tax
Returns required to be filed on or prior to the date hereof, taking into account
any extension of time to file granted to or obtained on behalf of the Company
and/or its subsidiaries, and each such Tax Return is complete and correct in all
material respects; (ii) all Taxes of the Company and each of its subsidiaries
shown on such Tax Returns have been paid in full to the proper authorities;
(iii) the Company and its subsidiaries have made adequate provision for all
unpaid Taxes in respect of any period (or portion thereof) ending on or before
the Effective Time; (iv) all deficiencies asserted in writing by any taxing
authority against the Company or any of its subsidiaries have been paid or
finally settled, neither the Company nor any of its subsidiaries is presently
under examination or audit by any taxing authority, and neither the Company nor
any of its subsidiaries has received written notice of any pending examination
or audit of the Company or any of its subsidiaries by any taxing authority; (v)
no extension of the period for assessment or collection of any Tax is currently
in effect and no extension of time within which to file any Tax Return has been
requested, which Tax Return has not since been filed; (vi) neither the Company
nor any of its subsidiaries has made, or is required to make, any adjustment by
reason of a change in their accounting methods for any period (or portion
thereof) ending on or before the Closing Date that would result in an adjustment
pursuant to Section 481 of the Code (or any similar provision of state, local or
foreign law) for any period (or portion thereof) ending
33
-26-
after the Closing Date; (vii) neither the Company nor any of its subsidiaries is
a party to any tax sharing, tax matters or similar agreement or is the
indemnitor under any tax indemnification or similar agreement; (viii) since its
inception through June 30, 1997, the Company qualified as a "S corporation," as
defined in Section 1361 of the Code; (ix) neither the Company nor any of its
subsidiaries has made an election under Section 341(f) of the Code; (x) neither
the Company nor any of its subsidiaries is a party to any agreement or
arrangement that provides for the payment of any amount, or the provision of any
other benefit, that could constitute a "parachute payment" within the meaning of
Section 280G of the Code; (xi) neither the Company nor any of its subsidiaries
has ever been a member of any affiliated, consolidated, combined or unitary
group for any Tax purpose other than a group of which it is currently a member;
(xii) there are no "excess loss accounts" (as defined in Treas. Reg. Section
1.1502-19) with respect to any stock of any subsidiary; (xiii) neither the
Company nor any of its subsidiaries has any (a) deferred gain or loss (1)
arising from any deferred intercompany transactions (as described in Treas. Reg.
Sections 1.1502-13 and 1.1502-13T prior to amendment by Treasury Decision 8597
(issued July 12, 1995)), or (2) with respect to the stock or obligations of any
other member of any affiliated group (as described in Treas. Reg. Sections
1.1502-14 and 1.1502-14T prior to amendment by Treasury Decision 8597) or (b)
any gain subject to Treas. Reg. Section 1.1502-13, as amended by Treasury
Decision 8597; (xiv) neither the Company nor any of its subsidiaries has
requested a ruling from, or entered into a closing agreement with, the IRS or
any other taxing authority with respect to income, withholding, franchise or
sales and use taxes in its current taxable year or at any time during its last
three completed taxable years; and (xv) the Company has previously delivered to
Delphi true and complete copies of (a) all federal income Tax Returns filed by
the Company and/or any of its subsidiaries for the last three taxable years
ending prior to the date hereof (except for those federal income Tax Returns
that have not yet been filed) and (b) any audit reports issued within the last
three years by the IRS or any other taxing authority.
34
-27-
For all purposes of this Agreement, "Tax" or "Taxes" means (i)
all federal, state, local or foreign taxes, charges, fees, imposts, levies or
other assessments, including, without limitation, all net income, alternative
minimum, gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or
other additional amounts imposed by any taxing authority in connection with any
item described in clause (i) and (iii) all transferee, successor, joint and
several or contractual liability (including, without limitation, liability
pursuant to Treas. Reg. Section 1.1502-6 (or any similar state, local or foreign
provision)) in respect of any items described in clause (i) or (ii).
For all purposes of this Agreement, "Tax Return" means all
returns, declarations, reports, estimates, information returns and statements
required to be filed in respect of any Taxes.
6.18 Employee Benefit Plans; ERISA. Except as set forth in
Section 6.18 of the Disclosure Schedule:
(a) Section 6.18 of the Disclosure Schedule is a true and
complete schedule of all "employee pension benefit plans" as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), maintained or contributed to by the Company, any of
its subsidiaries or any other ERISA Affiliates, or with respect to
which the Company or any of its subsidiaries contributes or is
obligated to make payments thereunder or otherwise may have any
liability ("Pension Benefit Plans"), all "welfare benefit plans" (as
defined in Section 3(1) of ERISA), maintained or contributed to by the
Company or any of its subsidiaries or with respect to which the Company
or any of its subsidiaries otherwise may have any liability ("Welfare
Plans"), all multiemployer plans as defined in Section 3(37) of ERISA
covering em-
35
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ployees employed in the United States to which such Company or any of
its subsidiaries is required to make contributions or otherwise may
have any liability, all stock bonus, stock option, restricted stock,
stock appreciation right, stock purchase, bonus, incentive, deferred
compensation, severance and vacation or other employee benefit plans,
programs or arrangements that are not Pension Benefit Plans or Welfare
Plans maintained or contributed to by the Company or a subsidiary or
with respect to which the Company or any subsidiary otherwise may have
any liability ("Other Plans"). For purposes of this Agreement, "ERISA
Affiliate" shall mean any person (as defined in Section 3(9) of ERISA)
that is or has been a member of any group of persons described in
Section 414(b), (c), (m) or (o) of the Code including the Company or
any of its subsidiaries.
(b) The Company and each of its subsidiaries, and each of the
Pension Benefit Plans, Welfare Plans and Other Plans (collectively, the
"Plans"), are in compliance with the applicable provisions of ERISA,
the Code and other applicable laws except where the failure to comply
would not, individually or in the aggregate, have a Company Material
Adverse Effect.
(c) None of the Company, its subsidiaries or any of their
ERISA Affiliates maintain or contribute to, nor have they ever
maintained or contributed to a Pension Benefit Plan subject to Title IV
of ERISA or Section 412 of the Code or 302 of ERISA. None of the
Company or any subsidiary of the Company or any ERISA Affiliate has
incurred, or is reasonably likely to incur, any material liability
under Title IV of ERISA.
(d) Each of the Pension Benefit Plans intended to qualify
under Section 401 of the Code satisfies in form the requirements of
such Section except to the extent amendments are not required by law to
be made until a date after the Closing Date, has received a favorable
determination letter from the Internal Revenue Service ("IRS")
regarding such qualified status, has not, since receipt of
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-29-
the most recent favorable determination letter, been amended, and has
not been operated in a way that would cause the loss of such
qualification or exemption or the imposition of any material liability,
penalty or tax under ERISA or the Code.
(e) Each Welfare Plan that is intended to qualify for
exclusion of benefits thereunder from the income of participants or for
any other tax-favored treatment under any provisions of the Code
(including, without limitation, Sections 79, 105, 106, 125 or 129 of
the Code) is and has been maintained in compliance in all material
respects with all pertinent provisions of the Code and Treasury
Regulations thereunder.
(f) There are (i) no investigations, audits or examinations
pending, or to the best knowledge of the Company, threatened by any
governmental entity involving any of the Plans, (ii) no termination
proceedings involving the Plans and (iii) no pending or, to the best
knowledge of the Company, threatened claims (other than routine claims
for benefits), suits or proceedings against any Plan, against the
assets of any of the trusts under any Plan or against any fiduciary of
any Plan with respect to the operation of such plan or asserting any
rights or claims to benefits under any Plan or against the assets of
any trust under such plan, which would, in the case of clause (i), (ii)
or (iii) of this paragraph (f), give rise to any liability which would,
individually or in the aggregate, have a Company Material Adverse
Effect.
(g) None of the Company, any of its subsidiaries or any
employee of the foregoing has engaged in a "prohibited transaction"
(within the meaning of Section 4975 of the Code or Section 406 of
ERISA) or breach of fiduciary duty under Title I of ERISA, which could
result in any tax or penalty on the Company or any of its subsidiaries
under the Code or ERISA which would, individually or in the aggregate,
have a Company Material Adverse Effect.
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(h) With respect to each of the Plans, true, correct and
complete copies of the following documents have been made available to
Delphi: (i) the current plans and related trust documents, including
amendments thereto, (ii) any current summary plan descriptions and
other material communications to participants relating to the Plans,
(iii) the most recent Forms 5500 (if any) filed with respect to each
such Plan, (iv) the most recent financial statements and actuarial
reports, if applicable, (v) the most recent IRS determination letter,
if applicable; and (vi) if any application for an IRS determination
letter is pending, copies of all such applications for determination
including attachments, exhibits and schedules thereto.
(i) None of the Welfare Plans maintained by the Company or any
of its subsidiaries are retiree life or retiree health insurance plans
which provide for continuing benefits or coverage for any participant
or any beneficiary of a participant following termination of
employment, except as may be required under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), or except
where the full expense of such coverage or benefits is paid by the
participant or the participant's beneficiary. The Company and each of
its subsidiaries which maintain a "group health plan" within the
meaning of Section 5000(b)(1) of the Code have complied with the notice
and continuation requirements of Section 4980B of the Code, COBRA, Part
6 of Subtitle B of Title I of ERISA and the regulations thereunder
except where the failure to comply would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(j) No liability under any Plan has been funded nor has any
such obligation been satisfied with the purchase of a contract from an
insurance company as to which the Company or any of its subsidiaries
has received notice that such insurance company is in rehabilitation.
(k) Except as set forth in Section 6.18(k) of the Disclosure
Schedule, the consummation of the transactions contemplated by this
Agreement will not either alone or in
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connection with an employee's termination of employment or other event
result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any benefits or
compensation payable to or in respect of any employee of the Company or
any of its subsidiaries.
(l) Except as set forth in Section 6.18(l) of the Disclosure
Schedule, the consummation of the transactions contemplated by this
Agreement will not result in or satisfy a condition to the payment of
compensation that would, in combination with any other payment, result
in an "excess parachute payment" within the meaning of Section 280G(b)
of the Code.
(m) With respect to any Foreign Plan (as hereinafter defined),
the Company and each of its subsidiaries and each of the Foreign Plans
are in compliance with applicable laws and all required contributions
have been made to the Foreign Plans, except where the failure to comply
or make contributions would not, individually or in the aggregate, have
a Company Material Adverse Effect. Each of the Foreign Plans that is a
funded defined benefit plan has a fair market value of plan assets that
is greater than the plan's liabilities, as determined in accordance
with applicable laws. For purposes hereof, the term "Foreign Plan"
shall mean any plan, program, policy, arrangement or agreement
maintained or contributed to by, or entered into with, the Company or
any subsidiary with respect to employees (or former employees) employed
outside the United States.
6.19 Environmental Matters.
(a) Except as set forth in Section 6.19 of the Disclosure
Schedule and except for such matters as would not reasonably be expected to have
a Company Material Adverse Effect, individually or in the aggregate:
(i) Each of the Company and its subsidiaries (A) has
obtained (or is capable of obtaining without incurring any
39
-32-
material incremental expense) all Environmental Permits, (B) has no
reason to believe any of them will be revoked prior to their expiration
or modified or will not be renewed (in each case, without incurring any
material incremental expense), and (C) has made all registrations and
given all notifications that are required under any applicable
Environmental Law.
(ii) There is no Environmental Claim pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries under any Environmental Law.
(iii) Each of the Company and its subsidiaries is in
compliance with, and has no liability under, any applicable
Environmental Laws including, without limitation, all of its
Environmental Permits.
(iv) Neither the Company nor any of its subsidiaries has
assumed, by contract or otherwise, any liabilities or obligations
arising under any Environmental Laws.
(v) There are no past or present actions, activities,
conditions, occurrences or events, including, without limitation, the
Release or threatened Release of any Hazardous Materials, including,
without limitation, asbestos, which could reasonably be expected to
prevent compliance by the Company or any of its subsidiaries with any
Environmental Law, or to result in any liability of the Company or any
of its subsidiaries under any Environmental Law.
(vi) No underground or aboveground storage tank or related
piping, or any disposal site containing any Hazardous Material is
located at, under or on any property owned, operated or leased by the
Company or any of its subsidiaries or any, to the knowledge of the
Company, of their respective predecessors in interest, nor, to the
knowledge of the Company, has any of them been removed or
decommissioned from or at any such property.
40
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(b) Except as set forth in Section 6.19 of the Disclosure
Schedule:
(i) No lien has been recorded under any Environmental Law with
respect to any property, facility or asset currently owned or operated
by the Company or any of its subsidiaries.
(ii) No property now or previously owned, operated or leased
by the Company or any of its subsidiaries or, to the knowledge of the
Company, any of their respective predecessors in interest is (i) listed
or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA"), or (ii) listed in the Comprehensive
Environmental Response, Compensation, and Liability Information System
List promulgated pursuant to CERCLA, or on any comparable list
established under any Environmental law, including, without limitation,
such lists relating to petroleum, including crude oil or any fraction
thereof.
(iii) The execution and delivery of this Agreement and the
consummation by the Company of the Merger and other transactions
contemplated hereby and the exercise by Delphi of rights to own and
operate the businesses of each of the Company and its subsidiaries
substantially as presently conducted will not affect the validity or
require the transfer of any Environmental Permits held by the Company
or any of its subsidiaries and will not require any notification,
disclosure, registration, reporting, filing, investigation or
remediation under any Environmental Law.
(iv) The Company has delivered or otherwise made available for
inspection to Delphi copies of any investigations, studies, reports,
assessments, evaluations and audits in its possession, custody or
control of Hazardous Materials at, in, beneath, emanating from or
adjacent to any properties or facilities now or formerly owned, leased,
operated or used by it or any of its subsidiaries or any of their
respective predecessors in interest, or of
41
-34-
compliance by any of them with, or liability of any of them under,
applicable Environmental Laws.
For purposes of this Section 6.19:
(i) "Environment" means any surface water, ground water,
drinking water supply, land surface or subsurface strata, ambient air,
indoor air and any indoor location and all natural resources such as
flora, fauna and wetlands;
(ii) "Environmental Claim" means any notice, claim, demand,
complaint, suit or other communication by any person alleging potential
liability (including, without limitation, potential liability for
response or corrective action or damages to any person, property or
natural resources, and any fines or penalties) arising out of or
relating to (1) the Release or threatened Release of any Hazardous
Materials or (2) any violation, or alleged violation, of any applicable
Environmental Law;
(iii) "Environmental Laws" means all federal, state, and local
laws, statutes, codes, rules, ordinances, regulations, judgments,
orders, decrees and the common law as now or previously in effect
relating to pollution or protection of human health or the Environment,
including, without limitation, those relating to the Release or
threatened Release of Hazardous Materials;
(iv) "Hazardous Materials" means pollutants, contaminants,
hazardous or toxic substances, constituents, materials or wastes, and
any other waste, substance, material, chemical or constituent subject
to regulation under Environmental Laws;
(v) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the Environment; and
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(vi) "Environmental Permit" means a permit, identification
number, license, approval, consent or other written authorization
issued pursuant to any applicable Environmental Law.
6.20 Absence of Undisclosed Liabilities. Except as set forth
in Section 6.20 of the Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature, whether absolute,
accrued, unmatured, contingent or otherwise, or any unsatisfied judgments or any
leases of personalty or realty or unusual or extraordinary commitments, except
the liabilities recorded on the December 31 Balance Sheets and the notes
thereto.
6.21 Finders or Brokers. None of the Company, the subsidiaries
of the Company, the Board of Directors of the Company or any member of the Board
of Directors of the Company has employed any investment banker, broker, finder
or intermediary in connection with the transactions contemplated hereby who
might be entitled to a fee or any commission in connection with the Merger.
6.22 Regulatory Matters. The Company has not taken or agreed
to take any action, and to the best knowledge of the Company there is no fact or
circumstance, that would materially impede or delay receipt of any approval
referred to in Section 10.1(b) or the consummation of the transactions
contemplated by this Agreement.
6.23 Insurance. Section 6.23 of the Disclosure Schedule
contains a complete and correct listing of all insurance policies which are in
force and maintained by or on behalf of each of the Company and its
subsidiaries. Each of the Company and its subsidiaries is, and has been
continuously since January 1, 1995, insured in such amounts and against such
risks and losses as are customary for companies conducting the respective
businesses conducted by the Company and its subsidiaries during such time
period. Neither the Company nor any of its subsidiaries has received any notice
of cancellation or termination with respect to any material insurance policy
43
-36-
thereof. All insurance policies of the Company and its subsidiaries are valid
and enforceable policies.
6.24 Employment and Labor Contracts. Neither the Company nor
any of its subsidiaries is a party to any employment, management services,
consultation or other similar contract with any past or present officer,
director, employee or other person or, to the best knowledge of the Company, any
entity affiliated with any past or present officer, director or employee or
other person other than those set forth in Section 6.24 of the Disclosure
Schedule and other than the agreements executed by employees generally, the
forms of which have been delivered to Delphi.
6.25 Balance Sheet Reserves. The reserves reflected in the
December 31 Financials have been, and the reserves reflected in the Interim
Financials will be, established in accordance with generally accepted accounting
principles and such reserves, taken as a whole, are adequate to cover any losses
relating to the subject matter thereof.
6.26 Year 2000 Compliance. None of (a) the computer software,
computer firmware, computer hardware (whether general or special purpose) or
other similar or related items of automated, computerized or software systems
used or relied on by the Company or any of its subsidiaries in the conduct of
their respective businesses or (b) the products and services sold, licensed,
rendered or otherwise provided by the Company or any of its subsidiaries in the
conduct of their respective businesses will malfunction, cease to function,
generate incorrect data or produce incorrect results when processing, providing
or receiving (i) date-related data from, into and between the twentieth and
twenty-first centuries or (ii) date-related data in connection with any valid
date in the twentieth and twenty-first centuries, and neither the Company nor
any of its subsidiaries is or will be subject to any claim, demand, action,
suit, liability, damage, loss or expense arising from or related to
circumstances where such products or services malfunction, cease to function,
generate incorrect data, or produce incorrect results when processing, providing
or receiving such data. Notwithstanding the foregoing, neither the Company nor
44
-37-
any of its subsidiaries make any representation with respect to the ability of
mass-produced software products or the various governmental and financial
institutions with which the Company and its subsidiaries do business to function
correctly.
6.27 Qualification of Merger as a Tax Free Reorganization.
(a) Neither the Company nor any person related to the Company
within the meaning of Treas. Reg. Sections 1.368-1(e)(3), (e)(4) and (e)(5) has
purchased, redeemed, or otherwise acquired, or made any extraordinary
distributions (as defined in Treas. Reg. Section 1.368-1T(e)(1)(ii)(A)) with
respect to, any shares of Company Capital Stock prior to or in contemplation of
the Merger, or otherwise as part of a plan of which the Merger is a part.
(b) Other than the Company Capital Stock, the Company does not
currently have outstanding and at no point during the past twelve months had
outstanding any indebtedness, options, warrants, or other debt or equity
securities that have been or will be treated as stock for U.S. federal income
tax purposes.
(c) Following the Merger, the Surviving Corporation will hold
at least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets of the Company immediately
prior to the Merger. For purposes of this representation, amounts paid by
Company to dissenters, amounts paid by the Company to Shareholders who receive
cash or other property in the Merger, amounts used by the Company to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by the Company will be included as assets of
Company immediately prior to the Merger.
(d) The Company and the Shareholders have paid and will pay
their respective expenses, if any, incurred in connection with the Merger. In
connection with the Merger, the Company has not paid or assumed and will not pay
or assume any expense or other liability, whether fixed or contingent, of any
45
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Shareholder. In connection with the Merger, neither Delphi nor any of its
affiliates has paid or assumed or will pay or assume any expense of any
Shareholder or, except as provided in Section 9.9 of this Agreement, any expense
of the Company. No shares of Company Capital Stock acquired in the Merger will
be subject to any liabilities.
(e) There is no indebtedness between the Company and Delphi.
(f) None of the Merger Consideration to be received in the
Merger by any Shareholder has been or will be separate consideration for, or
allocable to, past or future services or any employment agreement. None of the
compensation paid, or to be paid under any agreement or arrangement in effect on
the date hereof, by the Company or any subsidiary thereof to any Shareholder
will be separate consideration for, or allocable to, such Shareholder's shares
of Company Capital Stock, and such compensation has been or will be for services
actually rendered in the ordinary course of his or her employment and has been
or will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(g) The Company is not an investment company, as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(h) The liabilities of the Company assumed by the Surviving
Corporation and any liabilities to which the assets of the Company are subject
were incurred by the Company in the ordinary course of its business.
(i) Neither the Company nor, to the Company's knowledge, any
of its affiliates has taken, agreed to take, or will take any action that would
prevent the Merger from constituting a transaction qualifying under Section
368(a) of the Code or that would prevent an exchange of Company Capital Stock
for Delphi Common Stock pursuant to the Merger from qualifying as an exchange
described in Section 354 of the Code. Neither the Company nor, to the Company's
knowledge, any of its affiliates or agents is aware of any agreement, plan or
other circumstance that would prevent the Merger from qualifying under Section
46
-39-
368(a) of the Code or that would prevent an exchange of Company Capital Stock
for Delphi Common Stock pursuant to the Merger from qualifying as an exchange
described in Section 354 of the Code and to the Company's knowledge, the Merger
and each such exchange will so qualify.
6.28 Affiliate Transactions. Except as disclosed in Schedule
6.28 hereto, the Company is not a party to any agreement or transaction with any
of the Shareholders or other Affiliates (as defined in Rule 501(b) under the
Securities Act) of the Company or any of its subsidiaries.
6.29 Corporate Records. Each of the corporate minute books and
stock record books of the Company and each of its subsidiaries is current and
complete and contains, respectively, a true and correct record of all of the
corporate actions and stock records of the Company or such subsidiary, as the
case may be.
6.30 Full Disclosure. As of the Closing Date, all statements
contained in any document, schedule, exhibit, certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement, and any
such document, schedule, exhibit, certificate or instrument to be delivered on
or prior to the Closing Date, will be accurate and complete in all material
respects, authentic and incorporated herein by reference and constitute or will
constitute the representations and warranties of the Company. As of the Closing
Date, no statement contained in any such document, schedule, exhibit,
certificate or other instrument and no representation or warranty of the Company
contained in this Agreement will contain any untrue statement or omit to state a
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading in any material
respect.
47
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF
DELPHI
Delphi represents and warrants to the Company that:
7.1 Organization and Qualification. Each of Delphi and
Delphi's subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Each of Delphi
and Delphi's subsidiaries is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing which would not, individually or in the aggregate, have a material
adverse effect on the general affairs, management, business, operations or
condition (financial or otherwise) of Delphi and its subsidiaries taken as a
whole (a "Delphi Material Adverse Effect"). Neither Delphi nor any of Delphi's
subsidiaries is in violation of any of the provisions of its certificate or
articles of incorporation or organization (or other applicable charter document)
or by-laws. Delphi has delivered to the Company accurate and complete copies of
the certificate or articles of incorporation or organization (or other
applicable charter document) and by-laws, as currently in effect, of Delphi.
7.2 Capitalization. The authorized capital stock of Delphi
consists of 40,000,000 shares of Delphi Common Stock, and 20,000,000 shares of
Delphi Class B Common Stock, par value $.01 per share. As of March 31, 1998,
12,884,188 shares of Delphi Common Stock and 6,156,787 shares of Class B Delphi
Common Stock are outstanding, and no shares of preferred stock are issued and
outstanding. All of such issued and outstanding shares are, and any shares of
Delphi Common Stock to be issued in connection with this Agreement, the Merger
and the transactions contemplated hereby will be, validly issued, fully paid
48
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and nonassessable and free of preemptive rights granted by statute or by Delphi.
7.3 Authority Relative to This Agreement. Delphi has full
corporate power and authority to execute and deliver this Agreement and to
consummate the Merger and other transactions contemplated hereby and by the
Registration Rights Agreement. The execution and delivery of this Agreement and
the Registration Rights Agreement and the consummation of the Merger and other
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of Delphi and no other corporate
proceedings on the part of Delphi are necessary to authorize this Agreement or
to consummate the Merger or other transactions contemplated hereby. This
Agreement has been and, as of the Closing Date, the Registration Rights
Agreement will be duly and validly executed and delivered by Delphi and,
assuming the due authorization, execution and delivery hereof by the Company and
the Shareholders, constitutes or will constitute the legal, valid and binding
agreement of Delphi, enforceable against Delphi in accordance with its terms,
except (i) as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, or other similar laws
affecting the enforcement of creditors' rights generally, (ii) as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in equity) and (iii) as
enforcement thereof, as it pertains to indemnification for securities laws
violations, may be limited by public policy.
7.4 No Violations, etc.
(a) Assuming that all filings or waivers thereof have been
duly made or obtained as contemplated by Section 6.5(b) hereof and assuming the
accuracy of the representations set forth in Article V, neither the execution
and delivery of this Agreement and the Registration Rights Agreement by Delphi
nor the consummation of the Merger or other transactions contemplated hereby or
thereby nor compliance by Delphi with any of the provisions hereof or thereof
will (i) violate, conflict with, or result in a breach of any provision of, or
con-
49
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stitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or suspension
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien, upon
any of the properties or assets of Delphi or any of Delphi's subsidiaries under,
any of the terms, conditions or provisions of (x) their respective charters or
by-laws, (y) any note, bond, mortgage, indenture or deed of trust, or (z) any
license, lease, agreement or other instrument or obligation to which Delphi or
any such subsidiary is a party or to which they or any of their respective
properties or assets may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Delphi or any of Delphi's subsidiaries or any of their respective
properties or assets, except, in the case of clauses (i)(y), (i)(z) and (ii)
above, for such violations, conflicts, breaches, defaults, terminations,
suspensions, accelerations, rights of termination or acceleration or creations
of liens, security interests, charges or encumbrances which would not,
individually or in the aggregate, either have a Delphi Material Adverse Effect
or materially impair the consummation of the Merger or other transactions
contemplated hereby.
(b) No filing or registration with, notification to and no
permit, authorization, consent or approval of any governmental entity is
required by Delphi, Delphi Subsidiary or any of Delphi's subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
by Delphi of the Merger or other transactions contemplated hereby, except (i)
the filing of the Delaware Certificate of Merger and the California Certificate
of Merger, (ii) filings with the New York Stock Exchange, Inc. ("NYSE"), (iii)
filings with the SEC and state securities administrators, and (iv) such other
filings, registrations, notifications, permits, authorizations, consents or
approvals the failure of which to be obtained, made or given would not,
individually or in the aggregate, either have an Delphi Material Adverse Effect
or materially impair the
50
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consummation of the Merger or other transactions contemplated hereby.
7.5 SEC Filings; Financial Statements. Delphi has filed the
Delphi SEC Reports with the SEC, all of which complied when filed in all
material respects with all applicable requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Delphi and
its subsidiaries included or incorporated by reference in such Delphi SEC
Reports were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and present fairly, in all material
respects, the financial position and results of operations and cash flows of
Delphi and its subsidiaries on a consolidated basis at the respective dates and
for the respective periods indicated (except in the case of all such financial
statements that are interim financial statements for year-end adjustments and
the absence of footnote disclosures). Except to the extent that information
contained in any Delphi SEC Report was revised or superseded by a later filed
Delphi SEC Report, when filed, none of the Delphi SEC Reports contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
7.6 Absence of Changes or Events. Except as set forth in the
Delphi SEC Reports as filed with the SEC, since March 31, 1998 there has been no
material adverse change in the business, operations or condition (financial or
otherwise) of Delphi and its subsidiaries taken as a whole.
7.7. Stock and Note Consideration.
(a) The shares initially issuable upon payment of the Stock
Merger Consideration have been duly authorized and reserved for issuance out of
Delphi's authorized and unissued shares of Delphi Common Stock and, when issued
and delivered in accordance with the provisions of this Agreement, will be
val-
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idly issued, fully paid and non-assessable and will conform to the description
of the Delphi Common Stock contained in Delphi's most recent registration
statement on Form S-3 (Registration 33-77028).
(b) The Note Consideration has been duly authorized and, when
issued and delivered pursuant to this Agreement, will have been duly executed,
issued and delivered and will constitute valid and legally binding obligations
of Delphi; and the Registration Rights Agreement has been duly authorized and,
when executed and delivered by the parties thereto, will constitute a valid and
legally binding obligation of Delphi, in each case enforceable in accordance
with their respective terms, except (i) as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other similar laws affecting the enforcement of creditors' rights generally, and
(ii) as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).
7.8 Litigation. Except as set forth in the Delphi SEC Reports,
there is no (i) claim, action, suit or proceeding pending or, to the knowledge
of Delphi or any of its subsidiaries, threatened against or relating to Delphi
or any of its subsidiaries before any court or governmental or regulatory
authority or body or arbitration tribunal, or (ii) outstanding judgment, order,
writ, injunction or decree, or application, request or motion therefor, of any
court, governmental agency or arbitration tribunal in a proceeding to which
Delphi, any subsidiary of Delphi or any of their respective assets was or is a
party except, in the case of clauses (i) and (ii) above, such as would not,
individually or in the aggregate, either have a Delphi Material Adverse Effect
or materially impair Delphi's ability to consummate the Merger or the other
transactions contemplated hereby.
7.9 Finders or Brokers. None of Delphi, the subsidiaries of
Delphi, the Board of Directors of Delphi or any member of the Board of Directors
of Delphi has employed any investment banker, broker, finder or intermediary in
connection
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with the transactions contemplated hereby who might be entitled to a fee or any
commission in connection with the Merger.
7.10 Qualification of Merger as a Tax Free Reorganization.
(a) Delphi has no plan or intention to reacquire or cause or
permit any person related (as defined in Treas. Reg. Section 1.368-1(e)(3)) to
Delphi to acquire any of the Delphi Common Stock issued to the holders of
Company Capital Stock pursuant to the Merger.
(b) Prior to the transaction, Delphi will be in control of
Delphi Subsidiary within the meaning of section 368(c) of the Code.
(c) Following the Merger, Delphi has no plan or intention to
cause or permit Delphi Subsidiary to issue additional shares of its stock that
would result in Delphi's losing control of Delphi Subsidiary within the meaning
of Section 368(c) of the Code.
(d) There is no indebtedness between the Company and Delphi.
(e) None of the Merger Consideration to be paid in the Merger
by Delphi will be separate consideration for, or allocable to, past or future
services or any employment agreement.
(f) Neither Delphi nor Delphi Subsidiary is an investment
company, as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(g) Delphi has no plan or intention to liquidate Delphi
Subsidiary, to merge Delphi Subsidiary with or into another corporation, to sell
or otherwise dispose of the stock of Delphi Subsidiary, or to cause Delphi
Subsidiary to sell or otherwise dispose of any of the assets of the Company
acquired in the Merger, except for dispositions of such assets made in the
ordinary course of business or transfers of such assets to
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a corporation controlled (within the meaning of Section 368(c) of the Code) by
Delphi Subsidiary or, in the case of a successive transfer, the transferor
corporation.
(h) None of Delphi, Delphi Subsidiary or any affiliate of
Delphi has taken, agreed to take, or will take any action that would prevent the
Merger from constituting a transaction qualifying under Section 368(a) of the
Code or that would prevent an exchange of Company Capital Stock for Delphi
Common Stock pursuant to the Merger from qualifying as an exchange described in
Section 354 of the Code. None of Delphi, Delphi Subsidiary or any affiliate of
Delphi is aware of any agreement, plan or other circumstance that would prevent
the Merger from qualifying under Section 368(a) of the Code or that would
prevent an exchange of Company Capital Stock for Delphi Common Stock pursuant to
the Merger from qualifying as an exchange described in Section 354 of the Code
and to the knowledge of Delphi, the Merger and each such exchange will so
qualify.
7.11 Regulatory Matters. Neither Delphi nor any of its
subsidiaries has taken or agreed to take any action that would materially impede
or delay receipt of any approval referred to in Section 10.1(b) or the
consummation of the transactions contemplated by this Agreement.
ARTICLE VIII
CONDUCT OF BUSINESS OF THE COMPANY
PENDING THE MERGER
8.1 Conduct of Business of the Company Pending the Merger. The
Company and each Shareholder, jointly and severally, hereby covenant and agree
with Delphi as follows:
(a) Except as contemplated by this Agreement or as expressly
agreed to in writing by Delphi, during the period from the date of this
Agreement to the Effective Time, each of the Company and its subsidiaries will
conduct their respective operations according to its ordinary course of business
consistent with past practice, and will use its best efforts to pre-
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serve intact its business organization, to keep available the services of its
current officers and key employees and to maintain satisfactory relationships
with customers, clients and suppliers and others having business relationships
with it and will take no action which would adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement.
(b) Without limiting the generality of the foregoing, and
except as otherwise expressly provided in this Agreement (including, without
limitation, as forth in Section 10.2(e) hereof), prior to the Effective Time,
the Company will not nor will it permit any of its subsidiaries to, without the
prior written consent of Delphi:
(i) amend its certificate or articles of incorporation or
organization or by-laws;
(ii) authorize for issuance, issue, sell, deliver, grant any
options for, or otherwise agree or commit to issue, sell or deliver any
shares of any class of its capital stock or any securities convertible
into shares of any class of its capital stock, including the filing or
processing of a registration statement under the Securities Act in
connection with an initial public offering;
(iii) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock or purchase, redeem or otherwise acquire
any shares of its own capital stock or of any of its subsidiaries,
except as otherwise expressly provided in this Agreement;
(iv) (A) create, incur, assume, maintain or permit to exist
any debt for borrowed money other than under existing promissory notes
and lines of credit in the ordinary course of business consistent with
past practice in an amount not to exceed $100,000 in the aggregate; (B)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or other-
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wise) for the obligations of any other person except for its wholly
owned subsidiaries in the ordinary course of business and consistent
with past practice and subclause (A) above; or (C) make any loans,
advances or capital contributions to, or investments in, any other
person, other than advances to employees for ordinary business expenses
in accordance with the Company's standard policies and consistent with
past practice;
(v) pay, directly or indirectly, any of its liabilities before
the same becomes due in accordance with its terms or otherwise other
than in the ordinary course of business consistent with past practice;
(vi) (A) increase in any manner the compensation of (x) any
employee except in the ordinary course of business consistent with past
practice or (y) any of its directors or officers; (B) pay or agree to
pay any pension, retirement allowance or other employee benefit not
required, or enter into or agree to enter into any agreement or
arrangement with such director or officer or employee, whether past or
present, relating to any such pension, retirement allowance or other
employee benefit, except as required under currently existing
agreements, plans or arrangements; (C) grant any severance or
termination pay to, or enter into any employment or severance agreement
with, (x) any employee except in the ordinary course of business
consistent with past practice or (y) any of its directors or officers;
or (D) except as may be required to comply with applicable law, become
obligated (other than pursuant to any new or renewed collective
bargaining agreement) under any new pension plan, welfare plan,
multiemployer plan, employee benefit plan, benefit arrangement, or
similar plan or arrangement, which was not in existence on the date
hereof, including any bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance,
severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the
benefit of
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any person, or amend any of such plans or any of such agreements in
existence on the date hereof;
(vii) make any loan or advance (A) to its shareholders or to
any of its directors, officers, consultants, agents or other
representatives or (B) in excess of $10,000;
(viii) except as otherwise expressly contemplated by this
Agreement, enter into any other agreements, commitments or contracts,
except agreements, commitments or contracts for the purchase, sale or
lease of goods or services in the ordinary course of business
consistent with past practice;
(ix) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in
principle or agreement with respect to, any plan of liquidation or
dissolution, any acquisition of assets or securities, any sale,
transfer, lease, license, pledge, mortgage, or other disposition or
encumbrance of assets or securities or any change in its
capitalization;
(x) make any capital expenditures or commitments therefor in
excess of $100,000 individually or in excess of $200,000 in the
aggregate, other than investment transactions in the ordinary course of
business;
(xi) make any change in the accounting methods or accounting
practices followed by the Company;
(xii) settle or compromise any material federal, state, local
or foreign Tax liability, make any new material Tax election, revoke or
modify any existing Tax election, or make, request or consent to a
change in any method of Tax accounting;
(xiii) intentionally take any action that would impede or
delay the consummation of the transactions contemplated by this
Agreement or the ability of the Company or Delphi to obtain any
approval required for the transactions con-
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templated by this Agreement or to perform their covenants and
agreements under this Agreement;
(xiv) take, cause or permit to be taken any action, whether
before or after the Effective Date, that could reasonably be expected
to prevent the Merger from constituting a "reorganization" within the
meaning of Section 368(a) of the Code; or
(xv) agree to do any of the foregoing.
ARTICLE IX
COVENANTS AND AGREEMENTS
9.1 Cooperation.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, and to cooperate
with each other in connection with the foregoing, including using commercially
reasonable efforts (i) to obtain all necessary waivers, consents and approvals
from other parties to loan agreements, leases and other contracts, (ii) to
obtain all necessary consents, approvals and authorizations as are required to
be obtained under any federal, state or foreign law or regulations, (iii) to
defend all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, (v)
to effect all necessary registrations and filings, and submissions of
information requested by governmental authorities, and (vi) to fulfill all
conditions to this Agreement.
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(b) The Company will supply Delphi with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between the Company or its representatives, on the one hand,
and the state regulatory authorities referred to in Section 6.5(b) hereof, on
the other hand, with respect to this Agreement, the Merger and the other
transactions contemplated hereby. Each of the parties hereto agrees to furnish
to the other party hereto such necessary information and reasonable assistance
as such other party may request in connection with its preparation of necessary
filings or submissions to any regulatory or governmental agency or authority,
including, without limitation, any filing necessary under the provisions of any
applicable Federal or state statute.
(c) Delphi and Delphi Subsidiary will supply the Company with
copies of all correspondence, filings or communications (or memoranda setting
forth the substance thereof) between Delphi, Delphi Subsidiary or their
representatives, on the one hand, and the state regulatory authorities referred
to in Section 6.5(b) hereof, on the other hand, with respect to this Agreement,
the Merger and the other transactions contemplated hereby.
9.2 Availability of Employees and Records. The Company and the
Shareholders covenant and agree that, between the date of execution of this
Agreement and the Closing Date, the Company will use its best efforts to cause
the advisors and service providers of the Company to make available to Delphi
and its authorized agents, actuaries, attorneys, accountants, and other
representatives, at all reasonable times and under reasonable circumstances, for
inspection, examination, copying or verification, all of the books, operating
records, financial records, investment records, returns, and reports of every
kind, and all working papers pertaining thereto, of the Company, its
subsidiaries and their respective advisors and service providers, and to permit
access to and examination of all contracts and records pertaining to agreements
between the Company or any subsidiary and any person and of all properties and
assets owned by the Company or any subsidiary, or in which the
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Company or any subsidiary has any interest, all for the purpose of making such
verification of the warranties, representations, statements, and other
information made or provided by the Company (collectively, the "Diligence
Update"). The Company and the Shareholders will cause the officers and employees
of the Company having material knowledge concerning the operation of its
business and the business of the Company and its subsidiaries to cooperate in
connection with any such Diligence Update at reasonable times and upon
reasonable notice. The representations, warranties, covenants and agreements of
the Company, its subsidiaries and the Shareholders set forth in this Agreement
shall be effective regardless of any investigation that Delphi have undertaken
or failed to undertake.
9.3 Notification of Changes and Default. The Company and the
Shareholders covenant and agree that between the date of execution of this
Agreement and the Closing Date, inclusive, the Company will promptly give notice
to Delphi of any of the following when known, or when it reasonably should be
known, to the Company or the Shareholders: (i) the occurrence of any event or
circumstance or the discovery of any inaccuracy, omission, or mistake, which, in
any way, would cause the representations and warranties made by the Company or
the Shareholders or any of the information or documents theretofore delivered by
the Company or the Shareholder to Delphi pursuant to this Agreement, to be
untrue or inaccurate in any material respect, whether as of the date of
execution of this Agreement or at any time subsequent thereto and prior to the
Closing Date; or (ii) the occurrence of any events or circumstances that would
result in a violation or breach of any of the terms and provisions of this
Agreement obligatory upon the Company or the Shareholders.
9.4 Financial Statements, Etc.
(a) The Company and the Shareholders covenant and agree to
deliver to Delphi, promptly upon the same becoming available to the Company,
copies of any financial statements or reports, filings, orders, and other
communications delivered to or received from governmental authorities with
respect to the licensure of the Company or any of its subsidiaries or any
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other material matter from the date hereof through the Closing Date.
(b) The Company and the Shareholders covenant and agree to
deliver to Delphi, promptly upon the same becoming available to the Company,
copies of regularly prepared monthly quarterly and annual financial statements
with respect to the Company or any of its subsidiaries from the date hereof
until the Closing Date.
(c) Delphi covenants and agrees to provide to the Company and
the Shareholders copies of any filings with the SEC made after the date hereof
and prior to the Closing Date.
9.5 Publicity. The Company and Delphi agree to consult with
each other in issuing any press release and with respect to the general content
of other public statements with respect to the transactions contemplated hereby,
and shall not issue any such press release prior to such consultation; provided,
however, that nothing herein will prohibit any party from issuing or causing
publication of any such press release or public announcement to the extent that
such party determines such action to be required by law or the rules of the
NYSE, in which event the party making such determination will, if practicable in
the circumstances, use all commercially reasonable efforts to allow the other
party reasonable time to comment on such release or announcement in advance of
its issuance.
9.6 No Solicitation. The Company agrees that it shall not, and
shall not authorize or permit any of its subsidiaries or any of its or its
subsidiaries' directors, officers, employees, agents or representatives to,
directly or indirectly, solicit, initiate, facilitate or encourage (including by
way of furnishing or disclosing non-public information) any inquiries or the
making of any proposal with respect to any merger, consolidation or other
business combination involving the Company or its subsidiaries or acquisition of
any kind of all or substantially all of the assets or capital stock of the
Company and its subsidiaries taken as a whole (an "Acquisition Transaction") or
negotiate, explore or otherwise communicate in any way with any third party
(other than Delphi) with respect
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to any Acquisition Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated by this Agreement. The Company
shall immediately advise Delphi in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals relating
to an Acquisition Transaction (including the material terms thereof).
9.7 Confidentiality. All documents and information furnished
to Delphi or the Company pursuant to this Agreement shall be subject to the
terms and conditions set forth in the Confidentiality Agreement dated as of
April 16, 1998 between Delphi and the Company (the "Confidentiality Agreement"),
the terms of which are incorporated by reference herein and shall apply, for
purposes of this Agreement, to Delphi, the Company and the Shareholders as if
each had executed such agreement.
9.8 Resignation of Directors. At or prior to the Effective
Time, the Company shall deliver to Delphi the resignations of the directors of
the Company and its subsidiaries, effective at the Effective Time.
9.9 Fees and Expenses. Whether or not the Merger is
consummated, the Company, the Shareholders and Delphi shall bear their
respective expenses incurred in connection with the Merger, including, without
limitation, the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, and all fees and expenses of agents,
representatives, counsel and accountants, except that Delphi shall bear and pay
the costs and expenses incurred in connection with the filing, printing and
mailing of the registration statement on Form S-3 required by the Registration
Rights Agreement as, and to the extent, set forth therein.
9.10 Tax Treatment. Each of Delphi and the Company shall treat
the Merger as a tax free reorganization under the provisions of Section 368 of
the Code on its Tax Returns, unless otherwise required by law.
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9.11 Amendment of Tax Returns. The Shareholders shall not
amend (or cause or permit to be amended) any Tax Returns relating to a taxable
period (or portion thereof) ending on or prior to the Effective Time, of the
Company or any subsidiary without Delphi's prior written consent.
9.12 Transfer Restrictions.
(a) Each Shareholder agrees that it will not sell, offer to
sell, pledge, hypothecate, transfer or otherwise dispose of ("transfer") any of
its shares of Company Capital Stock except (i) to Delphi or Delphi Subsidiary in
accordance with this Agreement or (ii) for estate planning purposes and for no
consideration, to a spouse, child or other lineal descendant of such Shareholder
or a trust, so long as the Shareholder or one or more of the foregoing
individuals retain substantially all of the controlling or beneficial interest
thereunder (a "Permitted Transfer"), in which event such individual or trust
shall be deemed an additional party to this Agreement, without releasing the
original Shareholder from its obligations hereunder.
(b) Each Shareholder receiving shares of Delphi Common Stock
comprising the Stock Merger Consideration agrees that it will not transfer such
shares except (a) pursuant to an effective registration statement under the
Securities Act covering such transfer of such shares, (b) pursuant to Rules 144
and 145, as applicable, under the Securities Act or (c) with the prior written
consent of Delphi or pursuant to a Permitted Transfer, pursuant to another
available exemption from the registration requirements of the Securities Act. In
connection with any transfer of such shares other than pursuant to an effective
registration statement or a Permitted Transfer or to Delphi or an Affiliate of
Delphi, Delphi may, in its discretion, require the transferor thereof to provide
to Delphi a written opinion of counsel reasonably acceptable to Delphi, the form
and substance of which opinion shall be reasonably satisfactory to Delphi, to
the effect that such transfer does not require registration under the Securities
Act.
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(c) Each Shareholder receiving notes of Delphi comprising the
Note Consideration agrees that it will not transfer such notes without the prior
written consent of Delphi.
9.13 Noncompetition.
(a) Prohibited Activities. Each of the Shareholders agrees
that, for a period of four years following the Effective Time, he shall not:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with the Surviving Corporation or any future
subsidiary, division or other business of Delphi engaged in business as
a third party administrator for absence management, worker's
compensation or disability insurance (a "Delphi TPA") within the United
States of America (the "Territory");
(ii) call upon or hire any person who is, at that time, or who
was at any time within one year prior to that time, an employee of
Delphi or the Company (including its subsidiaries) in a managerial
capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of Delphi or the Surviving Corporation
(including its subsidiaries);
(iii) call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a customer of
Delphi or the Company (including their respective subsidiaries) within
the Territory for the purpose of soliciting or selling products or
services within the Territory that are competitive with those of the
Surviving Corporation or any other Delphi TPA;
(iv) call upon any prospective acquisition candidate, on the
Shareholder's own behalf or on behalf of any competitor, which
candidate was called upon by the Company
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within one year prior to the Closing Date (including its subsidiaries)
or was the subject of an acquisition analysis conducted by the Company
(including its subsidiaries); or
(v) disclose customers, whether in existence or proposed, of
the Company to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit any Shareholder from (i) acquiring as an investment not more
than one percent of the capital stock of any business enterprise whether or not
engaged in competition with the Company or Delphi (including their respective
subsidiaries) to the extent that such securities are actively traded on a
national securities exchange or in the over-the-counter market in the United
States or on any foreign exchange or (ii) engaging in any activity to which
Delphi shall have provided its prior written consent.
(b) Damages. Because of the difficulty of measuring economic
losses to Delphi and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to Delphi and the Surviving Corporation for which they would
have no other adequate remedy, each Shareholder agrees that, in the event of a
breach by him of the foregoing covenant, the covenant may be enforced by Delphi
or the Surviving Corporation by, without limitation, injunctions and restraining
orders.
(c) Reasonable Restraint. It is agreed by the parties that the
foregoing covenants in this Section 9.13 impose a reasonable restraint on each
Shareholder in light of the activities and business of Delphi on the date of the
execution of this Agreement and the current and future plans of Delphi and the
Surviving Corporation (as successors to the businesses of the Company).
(d) Severability; Reformation. The covenants in this Section
9.13 are severable and separate, and the unen-
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forceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(e) Independent Covenant. All of the covenants in this Section
9.13 shall be construed as an agreement independent of any other provision of
this Agreement, and the existence of any claim or cause of action of the
Shareholders against the Company, the Surviving Corporation or Delphi, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of four
years stated above shall be computed by excluding from such computation any time
during which the Shareholders are found by a court of competent jurisdiction to
have been in violation of any provision of this Section 9.13 and any time during
which there is pending in any court of competent jurisdiction any action
(including any appeal from any judgment) brought by any person, whether or not a
party to this Agreement, in which action Delphi or the Surviving Corporation
seeks to enforce the agreements and covenants of the Shareholders or in which
any person contests the validity of such agreements and covenants or their
enforceability or seeks to avoid their performance or enforcement; provided,
however, that if the Shareholders are found not to be in violation of the
agreements or covenants in any such activity the period during which the action
was pending shall not be excluded from such computation.
(f) Materiality. The Company and the Shareholders hereby agree
that the covenants set forth in this Section 9.13 are a material and substantial
part of the transactions contemplated by this Agreement, supported by adequate
consideration.
9.14 Nondisclosure of Confidential Information.
(a) Shareholders. Each of the Shareholders recognizes and
acknowledges that he has had in the past, currently
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has, and in the future may possibly have, access to certain confidential
information of the Company, such as lists of customers, operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the Company and the Company's business. Each of the Shareholders agrees that he
will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except to authorized representatives of Delphi, the Company and the Surviving
Corporation, or any of their subsidiaries and affiliates, unless (i) the
Shareholders can show that such information has become known to the public
generally through no fault of the Shareholders, (ii) disclosure is required by
law or the order of any governmental authority, or (iii) the disclosing party
reasonably believes, based on the advice of counsel, that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, provided that, prior to disclosing any information pursuant to clause
(i), (ii) or (iii) above, the Shareholder shall give prior written notice
thereof to Delphi and provide Delphi with the opportunity to contest such
disclosure and shall cooperate with efforts to prevent such disclosure. In the
event of a breach or threatened breach by the Shareholders of the provisions of
this Section 9.14, Delphi and the Surviving Corporation shall be entitled to an
injunction restraining the Shareholders from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
Delphi and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
(b) Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, Delphi, the Surviving Corporation and the Shareholders
agree that, in the event of a breach by any of them of the foregoing covenant,
the covenant may be enforced against them by injunctions and restraining orders.
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9.15 NYSE Listing. Delphi shall promptly after the Closing
Date prepare and submit to the NYSE a listing application covering the shares of
Delphi Common Stock to be issued in the Merger and shall use its commercially
reasonable efforts to obtain, prior to the effectiveness of the registration
statement to be filed pursuant to the Registration Rights Agreement, approval
for the listing of such Delphi Common Stock, subject to official notice of
issuance.
ARTICLE X
CONDITIONS TO CLOSING
10.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) No Injunctions or Restraints. No material judgment, order,
decree, statute, law, ordinance, rule or regulation entered, enacted,
promulgated, enforced or issued by any court or other governmental
entity of competent jurisdiction or other legal restraint or
prohibition (collectively, "Restraints") shall be in effect preventing
the consummation of the Merger.
(b) Consents and Approvals. All necessary consents and
approvals of any United States or any other governmental authority or
any other third party and the expiration or termination of any
applicable regulatory waiting periods required for the consummation of
the transactions contemplated by this Agreement shall have been
obtained, including, without limitation, those set forth in Section 6.5
of the Disclosure Schedules.
(c) Registration Rights Agreement. The Shareholders and Delphi
shall have entered into the Registration Rights Agreement substantially
in the form attached hereto as Exhibit E.
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(d) Side Letter. The Side Letter creating the Employee Bonus
Fund and establishing the funding criteria thereof shall have been
entered into by the parties thereto.
10.2 Conditions to Obligations of Delphi. The obligation of
Delphi to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations,
warranties and covenants of the Company and the Shareholders set forth
herein, to the extent qualified with respect to materiality, shall be
true and correct in all respects, and to the extent not so qualified
shall be true and correct in all material respects, in each case as of
the date of this Agreement and at and as of the Effective Time as if
made at and as of such time (except to the extent expressly made as of
earlier date, in which case as of such date). The Company shall have
delivered to Delphi an officer's certificate and the Shareholders shall
have delivered a certificate, each in form and substance and determined
on a basis satisfactory to Delphi and its counsel, to the effect of the
matters stated in this Section 10.2(a) and Section 10.2(b).
(b) Performance of Obligations of the Company and the
Shareholders. The Company and the Shareholders shall have performed in
all material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date.
(c) Audit Opinion; SAS 71 Report; Recast EBITDA Review. Ernst
& Young LLP, the Company's independent accountants, shall have
delivered an audit opinion covering the December 31 Financials and a
SAS 71 Report referred to in Section 6.6(b) hereof covering the Interim
Financials, each in form and substance acceptable to Delphi. In
addition, Ernst & Young LLP shall have reviewed the EBITDA of the
Company for the twelve calendar months ended May 31, 1998 and made
adjustments for expenses that will not recur
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after the Closing Date, and such recast EBITDA will be at least $3.1
million.
(d) Shareholders' Equity. The shareholders' equity of the
Company shall be calculated by the Company and Delphi, to the
satisfaction of such parties, to be at least $1.5 million (after giving
effect to (i) a distribution (in an amount not to exceed $450,000) to
be made not later than July 31, 1998 to the Shareholders of previously
undistributed profits accumulated by the Company while it was a S
Corporation and (ii) the payment of legal and accounting expenses
related to the Merger). The Company shall have delivered to Delphi a
certificate of its principal financial officer, in form and substance
and determined on a basis satisfactory to Delphi, to the effect of the
matters stated in this Section 10.2(d) and Sections 10.2(e) and (f),
together with evidence of the repayment of such indebtedness.
(e) Capital Contributions; Uses Thereof; Extraordinary
Expenses. The Shareholders shall have contributed an aggregate of $3.8
million to the Company, $3.65 million of which shall have been applied
to repay in full all obligations under the promissory notes held by
Xxxxxx X. Xxxxxx, Xx. ("Xxxxxx") and Xxxxxxx X. Xxxxxx ("Xxxxxx"). In
addition, the Shareholders shall have repaid in full their personal
debts to Xxxxxx and Xxxxxx in an aggregate amount of $201,000.
(f) Repayment of Indebtedness for Money Borrowed. The Company
shall have repaid in full all outstanding indebtedness for money
borrowed by the Company using newly contributed funds from the
Shareholders.
(g) Real Estate Holding Corporation. The Company shall have
(i) delivered an affidavit stating, under penalty of perjury, that (A)
the Company is not and has not been at any time during the five-year
period prior to the Effective Time a "United States real property
holding corporation," as defined for purposes of section 897(c)(2) of
the Code and (B) as of the Effective Time, interests in
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the Company are not United States real property holding company
interests by reasons of Section 897(c)(1)(B) of the Code and (ii)
complied with the requirements of Treas. Reg. Section 1.897-2(h) and
provided evidence (reasonably satisfactory to Delphi) of such
compliance.
(h) Employment Agreements. Each of Xxxxxx X. Xxxxxx and Xxxxx
X. Xxxxx shall have entered into an employment agreement with the
Surviving Corporation in the respective forms set forth as Exhibit F
hereto.
(i) Tax Opinion. Delphi shall have received an opinion of
Xxxxxx Xxxxxx & Xxxxxxx, special tax counsel to Delphi, dated on or
about the Closing Date, based upon such representations and assumptions
as counsel may reasonably deem relevant, to the effect that the Merger
will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code; that each of Delphi, Delphi Subsidiary and
the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code; that gain, if any, realized by a
Shareholder on the exchange of Company Capital Stock for the Merger
Consideration will be recognized only to the extent of the Non-Stock
Merger Consideration received by such Shareholder; and that no loss
will be recognized by a Shareholder on the exchange of Company Capital
Stock for the Merger Consideration pursuant to the Merger.
(j) Opinion of Company Counsel. Delphi shall have received an
opinion from Xxxxxx & Xxxxx LLP, counsel to the Company, dated the
Closing Date, substantially to the effect set forth in Exhibit G
hereto.
(k) Gunz Stock Purchase Agreement. All the conditions to
closing under the Gunz Stock Purchase Agreement shall have been
satisfied or waived.
(l) Termination of Shareholders' Agreement. The shareholders'
agreement by and among the Shareholders and
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the Company dated as of June 1, 1992 shall have been terminated by the
parties thereto.
10.3 Conditions to Obligations of the Company and the
Shareholders. The obligation of the Company and the Shareholders to effect the
Merger is further subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Delphi set forth herein, to the extent qualified with
respect to materiality, shall be true and correct in all respects, and
to the extent not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and at
and as of the Effective Time as if made at and as of such time (except
to the extent expressly made as of an earlier date, in which case as of
such date). Delphi shall have delivered to the Company and the
Shareholders a certificate of an officer of Delphi, in form and
substance and determined on a basis satisfactory to the Company and its
counsel, to the foregoing effect.
(b) Performance of Obligations of Delphi and Delphi
Subsidiary. Delphi and Delphi Subsidiary shall have performed in all
material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date.
(c) Tax Opinion. The Company shall have received an opinion of
Xxxxxx & Xxxxx LLP, counsel to the Company, dated on or about the
Closing Date, based upon such representations and assumptions as
counsel may reasonably deem relevant, to the effect that the Merger
will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Sections 368(a)(1)(A) and
368(A)(2)(D) of the Code; that each of Delphi, Delphi Subsidiary and
the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code; that gain, if any, realized by a
Shareholder on the exchange of Company Capital Stock for the Merger
Consideration will be recognized only to the extent of the Non
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Stock Merger Consideration received by such Shareholder; and that no
loss will be recognized by a Shareholder on the exchange of Company
Capital Stock for the Merger Consideration pursuant to the Merger.
(d) Opinion of Delphi Counsel. The Company shall have received
an opinion from Xxxxxx Xxxxxx & Xxxxxxx, special counsel to Delphi,
substantially to the effect set forth in Exhibit H hereto.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of the Company and Delphi;
(b) by either the Company and the Shareholders as a group, on
the one hand, or Delphi, on the other hand:
(i) if the Merger shall not have been consummated by
July 31 1998; provided, however, that the right to terminate
this Agreement pursuant to this Section 11.1(b)(i) shall not
be available to any party (with the Company and the
Shareholders deemed to be a single party for this purpose)
whose failure to perform any of its obligations under this
Agreement results in the failure of the Merger to be
consummated by such time; or
(ii) if any Restraint having any of the effects set
forth in Section 10.1(a) shall be in effect and shall have
become final and nonappealable;
(c) by Delphi, if the Company or any Shareholder shall have
breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in
this Agreement (which
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breach is not cured within 15 business days after receipt by the
Company or such Shareholders, as the case may be, of a written notice
of such breach from Delphi specifying the breach and requesting that it
be cured); or
(d) by the Company and the Shareholders as a group, if Delphi
shall have breached or failed to perform in any material respect any of
its representations, warranties, covenants or other agreements
contained in this Agreement (which breach is not cured within 15
business days after receipt by Delphi of a written notice of such
breach from the Company and the Shareholders specifying the breach and
requesting that it be cured).
11.2 Effect of Termination. The termination of this Agreement
shall become effective upon delivery to the other party of written notice
thereof. In the event of the termination of this Agreement pursuant to the
foregoing provisions of this Article XI, this Agreement shall become void and
have no effect, with no liability on the part of any party or its shareholders
or stockholders or directors or officers in respect thereof except for (i)
agreements which survive the termination of this Agreement, (ii) any liability
that Delphi, the Company or any Shareholder might have arising from a breach of
this Agreement and (iii) in the event of termination pursuant to Section 11.1(c)
or (d), then notwithstanding Section 9.9, the breaching party (with the Company
and the Shareholders deemed to be a single party for this purpose) shall be
liable to the other party for any expenses incurred in connection with this
Agreement and the transactions contemplated hereby, as well as any damages in
accordance with applicable law.
ARTICLE XII
INDEMNIFICATION
12.1 Delphi's Losses.
(a) For purposes of this Section 12.1 only, the term
"Shareholders" shall include Xxxxxx Xxxxx, a shareholder of
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Gunz & Associates, Inc. and a party to the Gunz Stock Purchase Agreement.
Subject to the other provisions of this Article XII, the Shareholders agree,
severally and not jointly, to indemnify and hold harmless Delphi, Delphi
Subsidiary and the Surviving Corporation and their respective officers,
directors, employees, stockholders, assigns, successors and affiliates
(collectively, the "Delphi Indemnified Parties" and, each, a "Delphi Indemnified
Party") from, against and in respect of any and all Delphi's Losses (as defined
below) suffered, sustained, incurred or required to be paid by any Delphi
Indemnified Party by reason of (i) any representation or warranty made by any of
the Shareholders (to the extent a party hereto) in Article V of this Agreement,
in the Disclosure Schedule or in any certificate or other document or instrument
delivered by or on behalf of any Shareholder in connection herewith (all of
which, for purposes of this Article XII, shall be read as if they contained no
qualifications for material adverse effect or material adverse change and no
other qualifications, exceptions or provisos relating to materiality) being
untrue or incorrect in any material (as defined below) respect; (ii) any
representation or warranty made by any of the Shareholders in Article II of the
Gunz Stock Purchase Agreement, in the Disclosure Schedule to such agreement or
in any certificate or other document or instrument delivered by or on behalf of
any Shareholder in connection therewith (all of which, for purposes of this
Article XII, shall be read as if they contained no qualifications for material
adverse effect or material adverse change and no other qualifications,
exceptions or provisos relating to materiality) being untrue or incorrect in any
material (as defined below) respect; or (iii) any failure by any of the
Shareholders to observe or perform any of their respective covenants and
agreements set forth in this Agreement and the Gunz Stock Purchase Agreement in
any material respect.
(b) Subject to the other provisions of this Article XII, the
Shareholders agree, severally and not jointly, to indemnify and hold harmless
the Delphi Indemnified Parties from, against and in respect of any and all
Delphi's Losses suffered, sustained, incurred or required to be paid by Delphi
by reason of (i) any representation or warranty made by the
75
-68-
Company and the Shareholders (to the extent a party hereto) in Article VI of
this Agreement, in the Disclosure Schedule or in any certificate or other
document or instrument delivered by or on behalf of the Company in connection
herewith (all of which, for purposes of this Article XII, shall be read as if
they contained no qualifications for material adverse effect or material adverse
change and no other qualifications, exceptions or provisos relating to
materiality) being untrue or incorrect in any material (as defined below)
respect; (ii) any representation or warranty made by the Company and the
Shareholders in Article III of the Gunz Stock Purchase Agreement, in the
Disclosure Schedule to such agreement or in any certificate or other document or
instrument delivered by or on behalf of the Company in connection therewith (all
of which, for purposes of this Article XII, shall be read as if they contained
no qualifications for material adverse effect or material adverse change and no
other qualifications, exceptions or provisos relating to materiality) being
untrue or incorrect in any material (as defined below) respect; (iii) any
failure by the Company or the Shareholders to observe or perform any of its
covenants and agreements set forth in this Agreement and the Gunz Stock Purchase
Agreement in any material respect; or (iv) the business, operations or assets of
the Company and each of its subsidiaries and predecessors prior to the Closing
Date or the actions or omissions of the directors, officers, shareholders,
employees or agents thereof prior to the Closing Date, other than Delphi's
Losses directly arising from matters expressly disclosed in this Agreement, the
Gunz Stock Purchase Agreement or the Disclosure Schedules hereto and thereto.
(c) "Delphi's Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with the Shareholders' consent,
not to be unreasonably withheld), losses, liabilities, claims, costs and
expenses (including, without limitation, reasonable fees of attorneys,
consultants and technical representatives). For purposes of indemnification
pursuant to this Section 12.1 and for purposes of the representations and
warranties and covenants herein and in the Gunz Stock Purchase Agreement insofar
as they form a basis for such indemnification, "material" shall mean that the
amount of
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Delphi's Losses suffered, sustained, incurred or required to be paid by reason
of a representation or warranty being untrue or incorrect or a failure to
observe or perform shall, taken together with all other Delphi's Losses
suffered, sustained, incurred or required to be paid by reason of any other such
breach or failure, have exceeded $500,000, in which event the Shareholders'
indemnification shall be effective with respect to all such Delphi's Losses in
excess of such amount. The aggregate amount of any Shareholder's liability under
this Article XII shall not exceed such Shareholder's Portion of the Merger
Consideration plus such Shareholder's Portion (as defined in the Gunz Stock
Purchase Agreement) of the Consideration (as defined in the Gunz Stock Purchase
Agreement).
12.2 Shareholders' Losses.
(a) Subject to the other provisions of this Article XII,
Delphi agrees to indemnify and hold harmless the Shareholders and any recipient
of Company Common Stock, Delphi Common Stock or notes received in a Permitted
Transfer or transfer otherwise made in accordance with Section 9.12 hereof and
their respective successors (collectively, the "Shareholder Indemnified Parties"
and each, a "Shareholder Indemnified Party") from, against, for and in respect
of any and all Shareholders' Losses (as defined below) suffered, sustained,
incurred or required to be paid by any Shareholder Indemnified Party by reason
of (i) any representation or warranty made by Delphi in Article VII of this
Agreement, in the Disclosure Schedule or in any certificate or other document or
instrument delivered by or on behalf of Delphi in connection herewith being
untrue or incorrect in any material respect; or (ii) any failure by Delphi to
observe or perform its covenants and agreements set forth in this Agreement in
any material respect.
(b) "Shareholders' Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with Delphi's consent, not to be
unreasonably withheld), losses, liabilities, claims, costs and expenses
(including, without limitation, reasonable fees of attorneys, consultants and
technical representatives).
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12.3 Notice of Loss. Except to the extent set forth in the
next sentence, Delphi and the Shareholders will not have any liability under the
indemnity provisions of this Article XII with respect to a particular matter
unless a notice setting forth in reasonable detail the breach or other matter
which is asserted has been given to the Indemnifying Party (as defined below)
and, in addition, if such matter arises out of a suit, action, investigation,
proceeding or claim, such notice is given promptly, but in any event within
thirty (30) days after the Indemnified Party (as defined below) is given written
notice of the claim or the commencement of the suit, action, investigation or
proceeding. Notwithstanding the preceding sentence, failure of the Indemnified
Party to give notice hereunder shall not release the Indemnifying Party from its
obligations under this Article XII, except to the extent the Indemnifying Party
is actually prejudiced by such failure to give notice. With respect to Delphi's
Losses pertaining to matters set forth in Section 12.l(a) and Section 12.1(b),
the Shareholders shall be the Indemnifying Party and the Delphi Indemnified
Party or Parties suffering such Delphi's Losses shall be the Indemnified Party.
With respect to the Shareholders' Losses, Delphi shall be the Indemnifying Party
and the Shareholder Indemnified Party or Parties suffering such Shareholders'
Losses shall be the Indemnified Party.
12.4 Right to Defend. Upon receipt of notice of any suit,
action, investigation, proceeding or claim for which indemnification might be
claimed by an Indemnified Party, the Indemnifying Party shall be entitled to
assume control of the defense of any such suit, action, investigation,
proceeding or claim at its own cost and expense, and to settle or compromise
such suit, action, investigation, proceeding or claim in its discretion, subject
to the consent of the Indemnified Party, which consent will not be unreasonably
withheld or delayed. The Indemnified Party shall have the right, but not the
obligation, to participate at its own expense in defense thereof by counsel of
its own choosing, but the Indemnifying Party shall be entitled to control the
defense unless the Indemnified Party has relieved the Indemnifying Party from
liability with respect to the particular matter or the Indemnifying Party fails
to as-
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sume defense of the matter. In the event the Indemnifying Party shall fail to
defend, contest or otherwise protect in a timely manner against any such suit,
action, investigation, proceeding or claim, the Indemnified Party shall have the
right, but not the obligation, thereafter to defend, contest or otherwise
protect against the same and make any compromise or settlement thereof and
recover the entire cost thereof from the Indemnifying Party, including, without
limitation, reasonable fees of attorneys, consultants and technical
representatives, disbursements and all amounts paid as a result of such suit,
action, investigation, proceeding or claim or the compromise or settlement
thereof; provided, however, that the Indemnified Party must send a written
notice to the Indemnifying Party of any such proposed settlement or compromise,
which settlement or compromise the Indemnifying Party may reject, in its
reasonable judgment, within thirty (30) days of receipt of such notice. The
Indemnified Party shall have the right to effect a settlement or compromise over
the objection of the Indemnifying Party; provided, that if (i) the Indemnifying
Party is contesting such claim in good faith or (ii) the Indemnifying Party has
assumed the defense from the Indemnified Party, the Indemnified Party waives any
right to indemnity therefor. If the Indemnifying Party undertakes the defense of
such matters, the Indemnified Party shall not, so long as the Indemnifying Party
does not abandon the defense thereof, be entitled to recover from the
Indemnifying Party any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof.
12.5 Cooperation. The Delphi Indemnified Parties, the
Shareholder Indemnified Parties and each of their affiliates, successors and
assigns shall cooperate with each other in the defense of any suit, action,
investigation, proceeding or claim by a third party and, during normal business
hours, shall afford each other access to their books and records and employees
relating to such suit, action, investigation, proceeding or claim and shall
furnish each other all such further information that they have the right and
power to furnish as may reasonably be necessary to defend such suit, action,
investigation, proceeding or claim.
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12.6 Subrogation. In the event the Indemnifying Party shall be
obligated to indemnify the Indemnified Party pursuant to this Article XII, the
Indemnifying Party shall, upon payment of such indemnity in full, be subrogated
to all rights of the Indemnified Party with respect to the claims to which such
indemnification relates; provided, however, that the Indemnifying Party shall
only be subrogated to the extent of any amounts paid by it pursuant to this
Article XII in connection therewith.
ARTICLE XIII
MISCELLANEOUS
13.1 Survival of Covenants, Agreements, Representations and
Warranties.
(a) Covenants and Agreements. All covenants and agreements
made hereunder or pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Effective Time and shall continue in full
force and effect thereafter according to their terms without limit as to
duration.
(b) Representations and Warranties. All representations and
warranties contained herein shall survive the Effective Time and shall continue
in full force and effect thereafter for the period from the Effective Time until
the date that is two years after the Effective Time, except that (i) the
representations and warranties in Section 6.17 and Section 6.27 shall survive
until ten (10) days after all potential claims thereon shall be barred by the
applicable statute of limitations, (ii) the representations and warranties made
in Section 6.15 (insofar as the representations and warranties therein relate to
environmental matters) and Section 6.19 shall survive for a period of four years
after the Effective Time and (iii) the representations and warranties made in
Article V shall survive indefinitely; provided that, in the event any claim for
a breach of any representation or warranty has been asserted prior to the last
day such representation or warranty would otherwise survive pursuant to this
Section 13.1, such represen-
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tation and warranty shall survive until final disposition of such claim.
13.2 Closing and Waiver.
(a) Unless this Agreement shall have been terminated in
accordance with the provisions of Section 11.1 hereof, a closing (the "Closing"
and the date and time thereof being the "Closing Date") will be held on June 30,
1998 or such other date as the parties may agree after the conditions set forth
in Sections 10.1, 10.2 and 10.3 shall have been satisfied or waived. The Closing
will be held at the offices of Xxxxxx Xxxxxx & Xxxxxxx, 00 Xxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx or at such other places as the parties may agree. Simultaneously
therewith, the Delaware Certificate of Merger will be filed and promptly
thereafter, the California Certificate of Merger will be filed.
(b) At any time prior to the Effective Date, any party hereto
may (i) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
duly authorized by and signed on behalf of such party.
13.3 Notices.
(a) Any notice or communication to any party hereto shall be
duly given if in writing and delivered in person or mailed by first class mail
(registered or certified, return receipt requested), facsimile or overnight air
courier guaranteeing next day delivery, to such other party's address.
81
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If to Delphi or Delphi Subsidiary:
Delphi Financial Group, Inc.
0000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000
X.X. Xxx 0000
Xxxxxxxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: President
with copies to:
Delphi Capital Management, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: President
Xxxxxx Xxxxxx & Xxxxxxx
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxxxx, Esq.
If to the Company:
Matrix Absence Management, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx Xxxxx
X.X. Xxx 00000
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxx
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with a copy to:
Xxxxxx & Xxxxx LLP
000 Xxxxxx Xxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxx X. Xxxxxxxx, Esq.
If to the Shareholders:
Xxxx X. Xxxxx
P.O. Box 8895
00000 Xxx Xxxx Xxxx
Xxxxxx Xxxxx Xx, XX 00000
Xxxxx X. Xxxxx
0000 Xxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Xxxxxx X. Xxxxxx
00000 Xxxxxxxx Xxxx, #00
Xxx Xxxxx, XX 00000
Xxxxxx X. Xxxxxx
0000 Xxxxxx Xxxxxx, Xxxxx 0
Xxx Xxxxxxxxx, XX 00000
with a copy to:
Xxxxxx & Xxxxx LLP
000 Xxxxxx Xxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxx X. Xxxxxxxx, Esq.
(b) All notices and communications will be deemed to have been
duly given: at the time delivered by hand, if personally delivered; three
business days after being deposited in the mail, if mailed; when sent, if sent
by facsimile (with receipt confirmed); and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery.
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13.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.5 Interpretation. The headings of articles and sections
herein are for convenience of reference, do not constitute a part of this
Agreement, and shall not be deemed to limit or affect any of the provisions
hereof. As used in this Agreement, "person" means any individual, corporation,
limited or general partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof; "subsidiary" of any person means (i) a corporation more
than 50% of the outstanding voting stock of which is owned, directly or
indirectly, by such person or by one or more other subsidiaries of such person
or by such person and one or more subsidiaries thereof or (ii) any other person
(other than a corporation) in which such person, or one or more other
subsidiaries of such person or such person and one or more other subsidiaries
thereof, directly or indirectly, have at least a majority ownership and voting
power relating to the policies, management and affairs thereof; and "voting
stock" of any person means capital stock of such person which ordinarily has
voting power for the election of directors (or persons performing similar
functions) of such person, whether at all times or only so long as no senior
class of securities has such voting power by reason of any contingency.
13.6 Amendment. This Agreement may be amended by the parties
at any time before or after any required approval of matters presented in
connection with the Merger by the shareholders of the Company; provided,
however, that after any such approval, there shall not be made any amendment
that by law requires further approval by such shareholders without the further
approval of such shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
13.7 No Third Party Beneficiaries. Nothing in this Agreement
shall confer any rights upon any person or entity
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which is not a party or permitted assignee of a party to this Agreement, except
for rights of Delphi Indemnified Parties and Shareholder Indemnified Parties as
set forth in Article XII (Indemnification).
13.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
13.9 Entire Agreement. This Agreement, the Gunz Stock Purchase
Agreement, the Registration Rights Agreement, the Side Letter and the
Confidentiality Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and thereof and supersede all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and thereof.
13.10 No Recourse Against Others. No director, officer or
employee, as such, of Delphi, Delphi Subsidiary or the Company or any of their
respective subsidiaries shall have any liability for any obligations of Delphi,
Delphi Subsidiary or the Company, respectively, under this Agreement for any
claim based on, in respect of or by reasons of such obligations or their
creation.
13.11 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement to be executed by their duly authorized officers all as of the day and
year first above written.
DELPHI FINANCIAL GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx, Xx.
------------------------------
Name: Xxxxxx X. Xxxxx, Xx.
Title: Vice President
MATRIX ABSENCE MANAGEMENT, INC.
By: /s/ Xxxxx X. Xxxxx
-----------------------------
Name: Xxxxx X. Xxxxx
Title: Chief Executive Officer
SHAREHOLDERS:
/s/ Xxxx X. Xxxxx
----------------------------------
Xxxx X. Xxxxx
/s/ Xxxxx X. Xxxxx
----------------------------------
Xxxxx X. Xxxxx
/s/ Xxxxxx X. Xxxxxx
----------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxx
----------------------------------
Xxxxxx X. Xxxxxx
86
EXHIBIT A
SUBSIDIARIES OF THE COMPANY
Matrix Payroll Services, Inc.
Gunz & Associates, Inc.
87
EXHIBIT B
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS
THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING
SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER
FROM THE COMMISSION INDICATING THAT SUCH DISTRIBUTION, SALE, TRANSFER,
ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO RESTRICTIONS ON
RESALE CONTAINED IN THAT CERTAIN AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE
11, 1998, A COPY OF WHICH IS AVAILABLE FROM THE SECRETARY OF THE ISSUER.
No. US $
DELPHI FINANCIAL GROUP, INC.
SUBORDINATED PROMISSORY NOTE DUE 2003
FOR VALUE RECEIVED, DELPHI FINANCIAL GROUP, INC. (the
"Company") promises to pay to ___________________, the registered holder hereof
(the "Holder"), the principal sum of _________________ United States Dollars
(US $ ) on _________, 2003 (the "Maturity Date").
The undersigned hereby further agrees to pay accrued interest,
in like money, at a rate per annum equal to eight percent (8%), payable
semi-annually on January 1 and July 1 of each year, the first such payment to
commence January 1, 1999. Interest shall be calculated on the basis of a 360-day
year for the actual days elapsed.
The principal of and interest on this Promissory Note is
payable in cash in such coin or currency of the Xxxxxx
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Xxxxxx xx Xxxxxxx as at the time of payment is legal tender for payment of
public and private debts. The Company shall make any payments of principal or
interest hereunder, less any amounts required by law to be deducted as set forth
in Section 1 below, by check payable to the order of the registered holder of
this Promissory Note as of the tenth day prior to the interest payment date or
the Maturity Date, as the case may be, addressed to such holder at the address
last appearing on the records of the Company as designated in writing by the
Holder from time to time. The forwarding of such check shall constitute a
payment of principal or interest, as applicable, hereunder and shall satisfy and
discharge the liability for principal or interest, as applicable, of this
Promissory Note to the extent of the sum represented by such check plus any
amounts so deducted.
This Promissory Note is subject to the following additional
provisions:
Withholding. The Company shall be entitled to withhold from
all payments of principal or interest of this Promissory Note any amounts
required to be withheld under the applicable provisions of the United States
income tax laws or other applicable laws at the time of such payments, and the
Holder shall execute and deliver all required documentation in connection
therewith.
Registered Holder. Unless the Company receives transfer
documentation relating to a transfer permitted by Section 4 hereof and this
Promissory Note has been presented together with such documentation, the Company
and any agent of the Company may treat the person in whose name this Promissory
Note is duly registered on the Company's records as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Promissory Note be overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.
No Recourse to Others. No recourse shall be had for the
payment of the principal of or interest on this Promissory Note, or for any
claim based hereon, or otherwise in respect
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hereof, against any incorporator, shareholder, officer or director, as such,
past, present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
Transfer Restrictions. The Holder, by acceptance hereof,
agrees that this Promissory Note is being acquired for investment and that such
Holder will not offer, sell, resell, pledge, assign or otherwise transfer or
dispose of this Promissory Note, except in accordance with Section 9.12(c) of
the Agreement and Plan of Merger dated as of June 11, 1998 and under
circumstances which will not result in a violation of the Securities Act of 1933
or any applicable state Blue Sky laws or similar laws relating to the sale of
securities.
Default. The following shall constitute an "Event of Default":
The Company shall default in the payment of principal on this
Promissory Note when due and such default shall continue for a period
of 10 days; or
The Company shall default in the payment of interest on this Promissory
Note when due and such default shall continue for a period of 30 days;
or
Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company
and, if instituted against the Company, shall not be dismissed within
sixty (60) days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any such
proceedings or admit the material allegations of, or default in
answering a petition filed in any such proceeding.
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Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may, upon written
notice to the Company, consider this Promissory Note immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and the Holder may
immediately, and without expiration of any further period of grace, enforce any
and all of the Holder's rights and remedies provided herein or any other rights
or remedies afforded by law.
Subordination. (a) The Company and the Holder covenant and
agree that the payment of the principal of and interest on this Promissory Note
shall be subordinated in right of payment to the prior payment in full in cash
of all of the Company's indebtedness or obligations of any kind whatsoever
outstanding from time to time that is not expressly designated as subordinated
indebtedness (the "Senior Debt"). In the event of any insolvency, bankruptcy or
similar proceedings relative to the Company or to its property, then:
the holders of Senior Debt shall be entitled to receive
payment in full in cash of all amounts due on or in respect of all
Senior Debt before the Holder is entitled to receive any payment or
distribution of any kind or character on account of this Promissory
Note;
any payment or distribution by the Company of any kind or
character to which the Holder would be entitled but for the provisions
of this Section 6 shall be paid, ratably, directly to the holders of
Senior Debt or their representative or representatives; and
in the event that, notwithstanding the foregoing, the Holder
shall have received any payment or distribution by the Company of any
kind or character, from and after the date of any such event set forth
above before all Senior
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Debt is paid in full in cash, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the Senior
Debt or other person or entity making payment or distribution of assets
of the Company for application to the payment of all Senior Debt
remaining unpaid.
(b) In case any payment or distribution shall be paid or
delivered to any Holder in violation or contravention of the terms of this
Section 6, such payment or distribution shall, upon such Holder's receipt of
notice of such violation or contravention, be held in trust for and paid and
delivered ratably to the holders of Senior Debt (or their duly authorized
representatives), until all Senior Debt shall have been paid in full.
General Provisions.
(a) GOVERNING LAW. THIS PROMISSORY NOTE SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(b) Amendment. No amendment or modification of the terms of
this Promissory Note shall be binding on either the Holder or the Company unless
reduced to writing and signed by an authorized officer of the party to be bound.
(c) Binding Effect. This Promissory Note shall be binding upon
and inure to the benefit of the Holder and the Company and their respective
successors and permitted assigns.
(d) Obligations of Note Holder. By accepting this Promissory
Note, the Holder agrees to all of its obligations contained herein.
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IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized.
Dated: ________________, 1998
DELPHI FINANCIAL GROUP, INC.
By: _______________________________
Name:
Title:
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Exhibit C to
Merger Agreement
----------------
Company Series A Total
Common Preferred Stock Merger Note Cash Merger Shareholder's
Shareholder Stock Stock Consideration Consideration Consideration Portion(1)
----------- ----- ----- ------------- ------------- ------------- --------
Xxxxxx 866,087 -0- 53,215 shares $2,000,000 $2,357,255 $7,357,255
Xxxxx 866,087 -0- 75,388 1,650,000 1,457,255 7,357,255
Xxxxx 163,727 918,000 186,253 -0- 1,715,994 12,215,994
Sitter 109,149 612,000 70,954 2,000,000 2,143,996 8,143,996
--------- --------- -------------- ---------- ---------- -----------
Total 2,005,050 1,530,000 385,810 shares $5,650,000 $7,674,500 $35,074,500
(1) Including the approximate value of Stock Merger Consideration based on
a price of $56.375 per share of Delphi Common Stock
C-1
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EXHIBIT D
Contingent Consideration Determination Procedures
OBJECTIVE:
The following procedures are intended to be a measurement tool for the
Contingent Consideration to be paid pursuant to Section 3.4 of the Merger
Agreement (to which these procedures are attached as Exhibit D) based upon the
GAAP EBITDA of the Surviving Corporation (as the successor to Matrix Absence
Management, Inc. ("Matrix" or the "Company")). Capitalized terms used and not
defined herein shall have the meanings set forth in the Merger Agreement.
It is intended that the Surviving Corporation's EBITDA be adjusted (positively
or negatively) for any items or transactions determined or imposed by Delphi or
its affiliates that were not contemplated in the stand-alone projections of
Matrix, including, but not limited to, the following: additional expenses
imposed by Delphi, additional investments made by Delphi, asset transfers,
effects of "purchase" accounting adjustments under GAAP, and affiliated
transactions. The calculation of EBITDA will be made within 90 days after each
Anniversary Date.
CALCULATION:
The parties shall have agreed on the amount of Base EBITDA on or before the
Closing Date.
Delphi shall provide Messrs. Xxxxx and Xxxxxx (the "Shareholders") with a
detailed written calculation of its determination of whether the applicable
EBITDA goal has been achieved and whether a contingency payment is due and owing
under the Merger Agreement(each such determination, a "Delphi Determination")
within 90 days after each Anniversary Date.
ARBITRATION:
If the Shareholders shall disagree with any Delphi Determination, the
Shareholders shall give written notice of such disagreement to Delphi within 10
business days after receipt of the applicable Delphi Determination. If, within
20 business days after Delphi's receipt of such notice of disagreement, Delphi
and the Shareholders are unable to agree with regard to any Delphi
Determination, the disagreement may be submitted to arbitration by either Delphi
or the Shareholders, which arbi-
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tration election shall be final and binding on the parties. The party
instituting the arbitration procedures shall give written notice to the other
party of its election to arbitrate, and such notice shall specify the name and
address of the person designated to act as an arbitrator on its behalf. Within
10 business days after the service of such notice, the second party shall notify
the first party of the appointment of the person designated to act as arbitrator
on the second party's behalf. If the second party fails to notify the first
party of the appointment of its arbitrator within the period specified above,
then the second arbitrator shall be appointed by the American Arbitration
Association ("AAA"), or any organization successor thereto, in accordance with
its then prevailing rules. The two arbitrators so chosen shall meet within 10
business days after the second arbitrator is appointed and shall select the
third arbitrator by mutual agreement. If the two arbitrators shall fail to
appoint a third arbitrator within 10 business days after the second arbitrator
is appointed, then the third arbitrator shall be appointed by AAA, or any
organization successor thereto, in accordance with its then prevailing rules.
Each arbitrator chosen or appointed pursuant to this Exhibit D shall be an
active or retired officer of an insurance or reinsurance company and shall be a
disinterested person.
The arbitrators shall review the relevant provisions of the Merger Agreement and
any documents or materials supplied by either party supporting such party's
position. The arbitrators shall render their decision with regard to the
disputed Delphi Determination upon the concurrence of at least two of their
number not later than 30 business days after the appointment of the third
arbitrator. The decision of the arbitrators shall be in writing, and counterpart
copies shall be delivered to each of Delphi and the Shareholders. In rendering
their decision, the arbitrators shall have no power to modify any of the
provisions of the Merger Agreement. The decision of the arbitrators shall be
final and binding. All arbitration proceedings shall occur in New York, New York
and, absent express written agreement by the parties to the contrary, shall be
governed by the then prevailing rules of AAA, or any organization successor
thereto. Judgment may be entered on the award of the arbitrators and may be
enforced in accordance with the laws of the State of New York.
Immediately upon a party hereto giving written notice of its election to
arbitrate hereunder, Delphi agrees upon reasonable advance request to cause the
Surviving Corporation to provide the Shareholders with access to the books and
records of the
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Surviving Corporation which reasonably relate to the Delphi Determination in
dispute at reasonable times during the normal business hours of the Surviving
Corporation.
Each party shall pay the fees and expenses of the original arbitrator that it
appointed (or, in the case of the second party, the arbitrator appointed on its
behalf if it should fail to appoint its own arbitrator). The fees and expenses
of the third arbitrator and all other expenses of the arbitrators shall be borne
by the parties equally. Each party shall bear the expense of its own counsel and
the preparation and presentation of proof, or supportive documentation.
