EXHIBIT 10.68
STOCK PURCHASE AGREEMENT
among
THE S.T.A.R. HUMAN RESOURCE GROUP, INC.,
STAR ADMINISTRATIVE SERVICES, INC.,
THE SHAREHOLDERS LISTED ON
SCHEDULE I ATTACHED HERETO,
and
UICI
TABLE OF CONTENTS
PAGE
1. Purchase and Sale of the Shares.....................................................................2
1.01 Purchase of the Shares from the Shareholders...................................................2
1.02 Further Assurances.............................................................................2
1.03 Purchase Price for the Shares..................................................................2
1.04 Net Worth Adjustment and CNA Adjustment........................................................3
1.05 Earned Premium Adjustment......................................................................5
1.06 Payment of Earned Premium Adjustment...........................................................8
1.07 Shareholders' Representative...................................................................9
1.08 Closing.......................................................................................11
1.09 Allocation of Purchase Price..................................................................11
2. Representations of the Shareholders Regarding the Shares...........................................11
3. Representations of the Shareholders, SHRG and SAS..................................................12
3.01 Organization..................................................................................12
3.02 Capitalization of the Companies...............................................................12
3.03 Subsidiaries and Affiliates...................................................................13
3.04 Authorization.................................................................................13
3.05 Financial Statements..........................................................................13
3.06 Absence of Undisclosed Liabilities............................................................14
3.07 Litigation....................................................................................14
3.08 Insurance.....................................................................................14
3.09 Personal Property.............................................................................15
3.10 Intellectual Property.........................................................................16
3.11 Leases........................................................................................18
3.12 Real Estate...................................................................................19
3.13 Inventory.....................................................................................19
3.14 Accounts Receivable...........................................................................19
3.15 Tax Matters...................................................................................19
3.16 Books and Records.............................................................................20
3.17 Contracts and Commitments.....................................................................20
3.18 Compliance with Agreements and Laws...........................................................22
-i-
TABLE OF CONTENTS
(continued)
PAGE
3.19 Employee Relations............................................................................23
3.20 Employee Benefit Plans........................................................................24
3.21 Absence of Certain Changes or Events..........................................................27
3.22 Customers.....................................................................................29
3.23 Prepayments and Deposits......................................................................29
3.24 Indebtedness to and from Officers, Directors and Shareholders.................................29
3.25 Banking Facilities............................................................................29
3.26 Powers of Attorney and Suretyships............................................................30
3.27 Conflicts of Interest.........................................................................30
3.28 Regulatory Approvals..........................................................................30
3.29 Disclosure....................................................................................30
3.30 Knowledge.....................................................................................31
4. Representations of the Buyer.......................................................................31
4.01 Organization and Authority....................................................................31
4.02 Authorization.................................................................................31
4.03 Investment Representation.....................................................................31
5. Access to Information; Public Announcements........................................................31
5.01 Access to Management, Properties and Records..................................................31
5.02 Public Announcements..........................................................................32
6. Pre-Closing Loan...................................................................................32
7. Conditions to Obligations of the Buyer.............................................................32
7.01 Truth of Representations and Warranties; Compliance with Covenants and Obligations............32
7.02 Performance by the Shareholders, SHRG and SAS.................................................32
7.03 Governmental Approvals........................................................................32
7.04 Consent of Lenders, Lessors and Other Third Parties...........................................33
7.05 Adverse Proceedings...........................................................................33
7.06 Opinion of Counsel............................................................................33
7.07 Employment Contracts..........................................................................33
7.08 Office Lease..................................................................................33
-ii-
TABLE OF CONTENTS
(continued)
PAGE
7.09 Cross-Indemnification Agreement................................................................33
7.10 Closing Deliveries.............................................................................33
8. Conditions to Obligations of the Shareholders.......................................................34
8.01 Truth of Representations and Warranties of the Buyer; Compliance with Covenants and
Obligations....................................................................................34
8.02 Corporate Proceedings..........................................................................34
8.03 Governmental Approvals.........................................................................34
8.04 Adverse Proceedings............................................................................34
8.05 Cross-Indemnification Agreement................................................................34
8.06 Closing Deliveries.............................................................................35
9. Indemnification.....................................................................................35
9.01 By the Shareholders, SHRG and SAS..............................................................35
9.02 By the Buyer...................................................................................36
9.03 Claims for Indemnification.....................................................................36
9.04 Defense by the Indemnifying Party..............................................................36
9.05 Payment to the Buyer of Indemnification Obligation.............................................37
9.06 Payment to the Shareholders of Indemnification Obligation......................................37
9.07 Survival of Representations; Claims for Indemnification........................................37
9.08 Limits on Indemnification......................................................................38
10. Post-Closing Agreements of the Shareholders.........................................................38
10.01 Proprietary Information.......................................................................38
10.02 No Solicitation or Hiring of Former Employees.................................................38
10.03 Non-Competition Agreement.....................................................................39
10.04 Cooperation...................................................................................39
11. Post-Closing Agreements of the Buyer................................................................39
11.01 Monthly Report of Earned Premium..............................................................39
11.02 Advisory Board................................................................................40
12. Dispute Resolution..................................................................................40
12.01 General.......................................................................................40
12.02 Consent of the Parties........................................................................40
-iii-
TABLE OF CONTENTS
(continued)
PAGE
12.03 Arbitration...................................................................................40
13. Brokers.............................................................................................41
13.01 For the Shareholders, SHRG and SAS............................................................41
13.02 For the Buyer.................................................................................41
14. Notices.............................................................................................41
15. Successors and Assigns..............................................................................42
16. Entire Agreement; Amendments; Attachments...........................................................42
17. Severability........................................................................................43
18. Investigation of the Parties........................................................................43
19. Expenses............................................................................................43
20. Governing Law.......................................................................................43
21. Section Headings....................................................................................43
22. Counterparts........................................................................................44
-iv-
TABLE OF CONTENTS
(continued)
PAGE
Disclosure Schedule:
3.02 - Capitalization of the Companies
3.03 - Subsidiaries and Affiliates
3.04 - Authorization
3.06 - Absence of Undisclosed Liabilities
3.07 - Litigation
3.08 - Insurance
3.09 - Personal Property
3.10 - Intellectual Property
3.11 - Leases
3.14 - Accounts Receivable
3.15 - Tax Matters
3.17 - Contracts and Commitments
3.18 - Compliance with Agreements and Laws
3.19 - Employee Relations
3.20 - Employee Benefit Plans
3.21 - Absence of Certain Changes or Events
3.22 - Customers
3.23 - Prepayments and Deposits
3.24 - Indebtedness to and from Officers, Directors and Stockholders
3.25 - Banking Facilities
3.26 - Powers of Attorney and Suretyships
3.27 - Conflicts of Interest
3.28 - Regulatory Approvals
Exhibits:
A - Form of Convertible Subordinated Note
B - Form of Pledge Agreement
C - Pro Forma Closing Date Balance Sheets
D - Form of Registration Rights Agreement
E - Form of Opinion of Xxxxx & Xxxxxx L.L.P.
F - Form of Office Lease
G - Form of Cross-Indemnification Agreement
-v-
STOCK PURCHASE AGREEMENT
This agreement (the "Agreement") is made and entered into as of the
28th day of February, 2002 by and among
UICI, a Delaware corporation (the
"Buyer"), with its principal office at 0000 XxXxxx, Xxxxx 000, Xxxxxx, Xxxxx
00000, The S.T.A.R. Human Resource Group, Inc., an Arizona corporation ("SHRG"),
STAR Administrative Services, Inc., an Arizona corporation ("SAS"), with both
SHRG and SAS (sometimes referred to collectively herein as the "Companies")
having their principal offices at 0000 Xxxx Xxxxxxxxx Xxxx, Xxxxxxx, Xxxxxxx
00000, and the shareholders listed on Schedule I attached hereto (individually,
a "Shareholder" and collectively, the "Shareholders"), who own all of the issued
and outstanding capital stock of SHRG and SAS.
Preliminary Statement
1. SHRG currently operates the business of providing general agency
services in respect of the STAR Plans (as such term is defined in Subsection
1.05(b) hereof) and SAS currently operates the business of providing third party
administration services in respect of the STAR Plans (collectively, the "STAR
Business").
2. Each of the Shareholders owns the number of the issued and
outstanding shares (collectively, the "SHRG Shares") of the common stock, no par
value per share (the "SHRG Common Stock"), of SHRG set forth opposite his or her
name on Schedule I attached hereto, which SHRG Shares in the aggregate represent
all of the issued and outstanding shares of capital stock of SHRG.
3. Each of the Shareholders owns the number of the issued and
outstanding shares (collectively, the "SAS Shares") of the common stock, no par
value per share (the "SAS Common Stock"), of SAS set forth opposite his or her
name on Schedule I attached hereto, which SAS Shares in the aggregate represent
all of the issued and outstanding shares of capital stock of SAS.
4. The Buyer desires to purchase, and the Shareholders desire to sell,
all of the SHRG Shares and the SAS Shares (the SHRG Shares and the SAS Shares
are sometimes referred to collectively as the "Shares") for the consideration
set forth below, subject to the terms and conditions of this Agreement.
5. Immediately following consummation of the transactions contemplated
hereby, Buyer intends to cause the assets of SHRG and SAS to be contributed to
The MEGA Life and Health Insurance Company, an Oklahoma corporation and a wholly
owned subsidiary of the Buyer ("MEGA") (such transaction being referred to as
the "MEGA Contribution Transaction").
NOW, THEREFORE, in consideration of the representations, warranties and
mutual promises hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1
1. Purchase and Sale of the Shares
1.01 Purchase of the Shares from the Shareholders. Subject to and upon
the terms and conditions of this Agreement, at the closing of the transactions
contemplated by this Agreement (the "Closing"), each Shareholder shall sell,
transfer, convey, assign and deliver to the Buyer, and the Buyer shall purchase,
acquire and accept from each Shareholder, all the Shares owned by such
Shareholder, as set forth opposite such Shareholder's name on Schedule I
attached hereto. At the Closing each Shareholder shall deliver to the Buyer
certificates evidencing the Shares owned by such Shareholder duly endorsed in
blank or with stock powers duly executed by such Shareholder.
1.02 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, each of the
Shareholders shall promptly execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation, and take all such other
action as the Buyer may reasonably request, more effectively to transfer, convey
and assign to the Buyer, and to confirm the Buyer's title to, all of the Shares
owned by such Shareholder, to put the Buyer in actual possession and operating
control of the assets, properties and business of the Companies, to assist the
Buyer in exercising all rights with respect thereto and to carry out the purpose
and intent of this Agreement.
1.03 Purchase Price for the Shares.
(a) The purchase price to be paid by the Buyer for the Shares
shall be an amount not to exceed Forty Million Dollars ($40,000,000) (the
"Purchase Price"), subject to adjustment pursuant to Subsections 1.03(c), 1.04,
and 1.05 hereof. The Purchase Price shall be payable at Closing (i) in cash to
the extent of $25,000,000, less the amount of any adjustments pursuant to
Subsections 1.03(c), and 1.04 hereof, if any (the "Initial Payment"), which
shall be paid as specified in Subsection 1.03(b), and (ii) by delivery to the
Shareholders of convertible subordinated notes issued by the Buyer substantially
in the form attached hereto as Exhibit A (the "Notes") representing the
respective contingent interests of the Shareholders in the Earned Premium
Adjustment (as such term is defined in, and as such amount is calculated in
accordance with, Section 1.05 hereof); provided that all such Notes issued at
the Closing shall be held by the Buyer as pledgee pursuant to a pledge agreement
substantially in the form attached hereto as Exhibit B (the "Pledge Agreement")
until the Settlement Date (as such term is defined in Subsection 1.06 hereof).
(b) At the Closing, the Buyer shall deliver to each of the
Shareholders such Shareholder's pro rata share of the Initial Payment, in the
respective amount set out opposite each such Shareholder's name on Schedule I
hereto, by cashier's or certified check, by wire transfer of immediately
available funds to such account or accounts as previously designated by the
Shareholders' Representative (as defined in Section 1.07 hereof), or in such
other manner as the parties hereto agree.
(c) If the Buyer makes a Pre-Closing Loan (as defined in
Section 6 hereof), the amount of the Initial Payment shall be reduced by the
amount of the Pre-Closing Loan.
2
(d) On the Settlement Date, as provided in Section 1.06
hereof, if the Earned Premium Adjustment is $-0- , the Buyer shall destroy the
Notes issued at the Closing. On the Settlement Date, if the Earned Premium
Adjustment is a positive amount, the Buyer shall at its option either (x) pay an
amount in cash equal to the Earned Premium Adjustment (which shall then
represent the aggregate principal amount of the Notes) together with payment of
all accrued but unpaid interest on the Notes, and thereby fully satisfy and
discharge the Notes, or (y) deliver to each of the Shareholders such
Shareholder's Note, in accordance with Subsection 1.06 of the
Stock Purchase
Agreement and the terms of the Notes.
1.04 Net Worth Adjustment and CNA Adjustment. The Purchase Price set
forth in Subsection 1.03 hereof shall be subject to adjustment, whether on or
after the date of the Closing (the "Closing Date") as follows:
(a) The Shareholders have commissioned Gaintner Xxxxxxx Xxxx
PLC, independent public accountants for the Companies (the "Company Auditors"),
to conduct a full audit in accordance with generally accepted auditing standards
of the assets, liabilities, revenues, operations, books and records of each of
the Companies as at and for the year ended December 31, 2001. The Shareholders
have caused the Company Auditors to deliver to the Buyer financial statements
for each of the Companies consisting of a balance sheet as of December 31, 2001
(the "Audited Balance Sheet") and the related statements of income,
shareholders' equity and cash flows of each of the Companies for the fiscal year
then ended, together with the opinion of the Company Auditors to the effect that
such financial statements fairly present the financial condition of each of the
Companies as of the respective dates indicated therein and results of operations
of each of the Companies for the respective periods indicated therein, and that
such financial statements were prepared in accordance with U.S. Generally
Accepted Accounting Practices ("GAAP"), applied consistently with past practices
(the "Audited Financial Statements"). The Buyer and its designated firm of
independent certified accountants shall have the right to review the work papers
of the Company Auditors utilized in preparing the Audited Financial Statements,
and shall have full access to the books, records, properties and personnel of
the Companies subsequent to the Closing Date for purposes of verifying the
accuracy and fairness of the presentation of the Audited Financial Statements.
(b) Attached to this Agreement as Exhibit C is an estimated
pro forma balance sheet of each of the Companies as of the Closing Date (the
"Pro Forma Closing Date Balance Sheets"), which represent the parties' best
estimate of the assets, liabilities and shareholders' equity of each of the
Companies as of the Closing Date. The Pro Forma Closing Date Balance Sheets
reflect a combined net worth of the Companies in the amount of $2,011,230
assuming for purposes of the calculation thereof that the amount of the
Pre-Closing Loan is classified as equity rather than indebtedness of SHRG.
(c) Promptly following the Closing (but in no event later than
20 business days thereafter), the Buyer shall prepare and deliver to the
Shareholders' Representative balance sheets of each of the Companies as of the
Closing Date (the "Actual Closing Date Balance Sheets") and the related
statement of income for each of the Companies for the portion of the year then
ended (the "Closing Period Income Statements"). Such Actual Closing Date Balance
Sheets and Closing Period Income Statements will fairly and accurately present
the financial
3
condition of each of the Companies as of the Closing Date and results of
operations of each of the Companies for the period then ended, and will be
prepared by the Buyer in accordance with GAAP, subject to normal and recurring
audit adjustments. The Shareholders' Representative and its designated firm of
independent certified accountants shall have the right to review the work papers
of the Buyer utilized in preparing the Actual Closing Date Balance Sheets and
the Closing Date Income Statements, and shall have full access to the books,
records, properties and personnel of the Companies after the Closing Date for
purposes of verifying the accuracy and fairness of the presentation of the
Actual Closing Date Balance Sheets and the Closing Period Income Statements. In
the event that the Shareholders' Representative disagrees with the Closing Date
Combined Net Worth (as defined in Subsection 1.04(d)), the Shareholders'
Representative shall, within 15 days after delivery of the Actual Closing Date
Balance Sheets and Closing Period Income Statements, deliver to the Buyer a
Dispute Notice in accordance with Subsection 1.05(d) hereof.
(d) If the combined net worth of the Companies as reflected in
the Actual Closing Date Balance Sheets plus the dollar amount of the Pre-Closing
Loan (the "Closing Date Combined Net Worth") is less than the combined net worth
of the Companies as reflected in the Pro Forma Closing Date Balance Sheets, the
Purchase Price shall be reduced by an amount, if any (the "Net Worth
Adjustment"), equal to the difference; provided, however, that no adjustment to
the Purchase Price shall be made if the amount of the difference is less than
$100,000. Any such Net Worth Adjustment shall first be paid in accordance with
Subsection 1.06(a) hereof and any additional shortfall shall be reimbursed by
the Shareholders Pro Rata to the Buyer within 10 days after the Buyer's written
demand. For purposes of this Agreement, the term "Pro Rata" shall mean with
respect to a Shareholder the respective percentage set forth opposite such
Shareholder's name under the column "% of SHRG Proceeds" on Schedule I hereto.
(e) The Shareholders have informed the Buyer that pursuant to
the termination effective March 1, 2002 of SHRG's and SAS's existing agreements
with CNA Financial Corporation or a subsidiary thereof ("CNA"), CNA will at some
time subsequent to the Closing Date conduct an audit of amounts due and owing as
between SHRG, SAS and CNA (the "CNA Audit"). The parties hereto agree that the
Closing Date Balance Sheet should accurately reflect such amounts as may be due
and owing to or from CNA, as the case may be. Accordingly, in the event that the
results of the CNA Audit would, if known prior to the date of delivery of the
Actual Closing Date Balance Sheets, have resulted in a change to the Actual
Closing Date Balance Sheets, the dollar amount of the positive or negative
effect on the combined Closing Date Net Worth of the Companies due to such
change will be applied either (i) to increase the Purchase Price (if the results
of the CNA Audit would have increased the combined Closing Date Net Worth of the
Companies) with such amount payable in cash by Buyer to each Shareholder for his
or her Pro Rata share of such increase or (ii) to decrease the Purchase Price
(if the results of the CNA Audit would have decreased the combined Closing Date
Net Worth of the Companies) with such decrease to be paid in accordance with
Section 1.06(a) hereof and any additional shortfall shall be reimbursed by the
Shareholders pro rata to the Buyer within 10 days after the Buyer's written
demand (it being agreed and understood that the adjustment to the Purchase Price
to be made hereunder, if any, shall not be subject to the
4
$100,000 limitation set forth in Section 1.04(d) or any limitation set forth in
Section 9.08 hereof).
1.05 Earned Premium Adjustment.
(a) In addition to the Initial Payment as described in
Subsection 1.03(b) and as adjusted in accordance with Subsection 1.04, the
Purchase Price shall consist of the Earned Premium Adjustment, if any, which
shall be in an amount ranging from $-0- to a maximum of $15,000,000, as
calculated in the manner hereinafter described. If prior to May 31, 2003
UICI or
MEGA shall sell, dispose or otherwise transfer to an unaffiliated third party
all or substantially all of the assets comprising the STAR Business (a "Sale
Transaction"), other than pursuant to a Merger Event (as such term is defined
below), then in such event, upon the consummation of the Sale Transaction, the
Earned Premium Adjustment shall be deemed to equal $15,000,000, and no
calculation of Annualized Premium shall be required. The Buyer will notify the
Shareholders' Representative promptly following the occurrence of a Sale
Transaction prior to May 31, 2003.
(b) Unless a Sale Transaction has occurred prior to May 31,
2003, the Earned Premium Adjustment will be calculated based on the amount of
the Annualized Earned Premium (as defined below) as shown on the books of MEGA
in respect of the STAR Plans (as defined below) plus the Third Party Earned
Premiums (as defined below), in each case for the applicable Measurement Period
(as defined below). For purposes of this Subsection 1.05, the following
capitalized terms shall have the respective meanings set forth below:
"Annualized Earned Premium" shall mean an amount equal to the
net earned premiums attributable to the STAR Plans plus the Third Party Earned
Premiums during the Measurement Period, all calculated in accordance with
Historical GAAP and annualized on the basis of a 12-month/365 day year.
"Downgrade Event" shall mean the assignment by A.M. Best & Co.
to MEGA on or prior to April 15, 2003 of a rating lower than "A- (Excellent),"
provided that such downgrading is not due in whole or in part to the negative
performance of the STAR Business.
"Historical GAAP" with respect to calculation of Annualized
Earned Premium shall mean GAAP as applied consistent with the past practices of
SHRG to the calculation of net earned premiums attributable to the STAR Plans,
as such GAAP is in effect on the Closing Date, regardless of any changes or
additions to GAAP that may occur after the Closing Date.
"Measurement Period" shall mean the three-month period
commencing March 1, 2003 to and inclusive of May 31, 2003; provided, however,
that if a Downgrade Event, a Merger Event, or a Termination Event occurs on or
before April 15, 2003, at the option of the Shareholders exercised by written
notice from the Shareholders' Representative to the Buyer within 30 days
following the first such event to occur, "Measurement Period" shall mean the two
full calendar months immediately preceding the month in which such Downgrade
Event, Merger Event or Termination Event occurs.
"Merger Event" shall mean the occurrence (on or prior to April
15, 2003) of (a) sale by
UICI of substantially all of its assets or (b) merger
or consolidation by
UICI with another
5
corporation, with such other corporation being the survivor in the merger or
consolidation, and in each case either (x) if the transferee of such assets or
the survivor in such merger or consolidation is not a regulated insurance
company, such transferee or survivor shall have been assigned a corporate debt
rating of less than "BBB" by Xxxxx'x or Standard & Poor's, or (y) if the
transferee of such assets or the survivor in such merger or consolidation is a
regulated insurance company, such transferee or survivor shall have been
assigned a rating lower than "A- (Excellent)" by A.M. Best & Co.
"STAR Plans" means certain programs and policies of sickness
and accident insurance known as (i) STARBRIDGE Sickness and Accident Plan, (ii)
Fundamental Care, (iii) Fundamental Care Plus, (iv) ProDrivers Choice, (v)
STARAssist, and (vi) HealthBasic Sickness and Accident Plan.
"Termination Event" shall mean either (i) termination by MEGA
on or prior to April 15, 2003 of the employment of Xxx Xxxx without cause, or
(ii) voluntary discontinuance by MEGA on or prior to April 15, 2003 of the STAR
Business other than due to a Sale Transaction.
"Third Party Earned Premiums" shall mean the net earned
premium written during the Measurement Period by Guarantee Trust Life Insurance
Company ("GTL") or by any other underwriter that writes policies in respect of
the STAR Plans during Measurement Period.
(c) If and to the extent the Annualized Earned Premium is
greater than $70,000,000, then in such event the Earned Premium Adjustment will
be an amount equal to 75% of the difference between (x) the Annualized Earned
Premium and (y) $70,000,000; provided however, that the Earned Premium
Adjustment shall not in any event exceed $15,000,000. If and to the extent that
the Annualized Earned Premium is equal to or less than $70,000,000, then in such
event the Earned Premium Adjustment shall be $-0-. For example, (i) if the
Annualized Earned Premium is $80,000,000, then the Earned Premium Adjustment
will be $7,500,000; (ii) if the Annualized Earned Premium is greater than
$90,000,000, then the Earned Premium Adjustment will in all cases be
$15,000,000; and (iii) if the Annualized Earned Premium is $70,000,000 or less,
the Earned Premium Adjustment in all cases will be $-0-.
(d) Unless a Sale Transaction has occurred prior to May 31,
2003, within 15 calendar days after October 1, 2003, the Buyer will send to the
Shareholders' Representative the Buyer's good faith calculation of the amount of
Annualized Earned Premium and Earned Premium Adjustment as calculated pursuant
to this Subsection 1.05. The amount of the Annualized Earned Premium and the
Earned Premium Adjustment, as determined by the Buyer in accordance with the
preceding paragraphs (a) and (c), shall be final and binding upon the
Shareholders and the Shareholders' Representative, unless the Shareholders'
Representative gives written notice within fifteen 15 calendar days after
receipt of the Buyer's calculation of the Annualized Earned Premium and the
Earned Premium Adjustment, which written notice shall specify in reasonable
detail the nature and extent of such disagreement (the "Dispute Notice"). In the
event of any dispute between the parties with respect to the Annualized Earned
Premium or the Earned Premium Adjustment, the parties shall first use their best
efforts to resolve such dispute among themselves. If the parties are unable to
resolve the dispute within thirty 30
6
calendar days after the date of the Dispute Notice, the dispute will be
submitted to arbitration in accordance with the following provisions of this
Subsection 1.05. The Buyer and the Shareholders may extend the Shareholders'
review period by mutual written agreement.
(i) The Shareholders' Representative will designate a
firm of independent certified accountants to represent all of the Shareholders
in the arbitration process, and all of the Shareholders shall be bound by and
comply with the decisions, actions and agreements made by such accountants. The
Shareholders' Representative and its designated firm of independent certified
accountants shall have the right to review the work papers of the Buyer utilized
in preparing the calculation of Annualized Earned Premium and the Earned Premium
Adjustment, and shall have reasonable access to the books and records of the
Companies following the date the Buyer submits the Annualized Earned Premium and
the Earned Premium Adjustment to the Shareholders for purposes of verifying the
accuracy of the calculation of the Annualized Earned Premium and the Earned
Premium Adjustment.
(ii) Within 10 calendar days after the end of the
30-day period following receipt of the Dispute Notice during which the parties
shall have attempted to resolve the dispute among themselves, the Buyer and the
Shareholders' Representative shall designate in writing one arbitrator who is
experienced in insurance, accounting and finance matters (the "arbitrator") to
resolve the dispute; provided, that if the parties hereto cannot agree on an
arbitrator within such 10-day period, the arbitrator shall be selected by the
American Arbitration Association in Dallas,
Texas. Failure by either the Buyer
or the Shareholders' Representative to notify the other party of its selection
and approval of the arbitrator and to consummate the selection process set forth
in this subparagraph (ii) within the allotted time periods shall foreclose such
failing party from the selection of the arbitrator. The arbitrator so designated
shall not be an employee, consultant, officer, director or shareholder of any
party hereto or any Affiliate of any party to this Agreement.
(iii) Within 15 days after the selection of the
arbitrator, the arbitrator, the Buyer and the Shareholders' Representative shall
meet, at which time the Buyer and the Shareholders' Representative shall be
required to set forth in writing their respective proposals and issues related
to the amount of Annualized Earned Premium and Earned Premium Adjustment, with
accompanying work papers and accounting support.
(iv) The arbitrator shall set a date for a hearing,
which shall be no later than 30 days after the submission of written proposals
pursuant to subparagraph (d)(iii) above, to discuss each of the issues
identified by the Buyer and the Shareholders' Representative. The arbitration
shall be governed by the rules of the American Arbitration Association;
provided, that the arbitrator shall have sole discretion with regard to the
admissibility of evidence.
(v) The arbitrator shall, within thirty (30) days
after receiving the positions of both the Shareholders' Representative and Buyer
and all supplementary supporting documentation requested by the arbitrator,
render its decision as to the calculation of the Annualized Earned Premium and
the Earned Premium Adjustment, which decision shall be (x) set forth in writing,
(y) limited to endorsing either Buyer's or the Shareholders' Representative's
position as most accurate in light of the facts presented, and (z) final and
7
binding on, and nonappealable by, the Shareholders and the Buyer. The arbitrator
may conduct an audit of any information or documentation if such audit will
facilitate a decision. The fees and expenses of the arbitrator and of any audit
requested by the arbitrator shall be paid entirely by the party whose position
was not endorsed.
(vi) The Shareholders shall be responsible for paying
all fees, costs and disbursements of both the Shareholders' Representative and
for any accountant selected by the Shareholders' Representative to assist them
in any discussions or in the arbitration.
(vii) Any arbitration pursuant to this Subsection
1.05 shall be conducted in Dallas,
Texas. Any arbitration award may be entered
in and enforced by any court having jurisdiction thereover and the parties
hereby consent and commit themselves to the jurisdiction of the courts of the
State of
Texas for purposes of the enforcement of any arbitration decision.
1.06 Payment of Earned Premium Adjustment.
(a) On the tenth business day following the final
determination of the Earned Premium Adjustment, if any (the "Settlement Date"),
the Buyer shall pay to the Shareholders such Earned Premium Adjustment, if any.
If the amount of the Earned Premium Adjustment is $-0-, the Notes issued by the
Buyer at the Closing and held by the Buyer in accordance with Subsection 1.03(a)
of this Agreement and the Pledge Agreement shall be destroyed by the Buyer and
no amount shall be paid to any of the Shareholders in respect thereof. If the
amount of the Earned Premium Adjustment is a positive amount after all
adjustments pursuant to this Agreement, the Buyer shall at its option either (x)
pay an amount in cash equal to the Earned Premium Adjustment (which shall then
represent the aggregate principal amount of the Notes), together with payment of
all accrued but unpaid interest on the Notes, and thereby fully satisfy and
discharge the Notes, or (y) deliver to each of the Shareholders such
Shareholder's Note, in accordance with Subsection 1.06 of the
Stock Purchase
Agreement and the terms of the Notes. In either case the Shareholders shall be
required to surrender the Notes issued at the Closing for such cash payment or
Notes, as the case may be. Because such Notes will initially be held by the
Buyer as pledgee pursuant to the Pledge Agreement, each of the Shareholders
hereby irrevocably appoints the Buyer as its agent to surrender such Notes in
exchange for such cash payment or issuance of replacement Notes, and to deliver
such cash or replacement Notes, as applicable, to the Shareholders. The amount
of the Earned Premium Adjustment shall be subject to reduction in the event that
a Net Worth Adjustment is required pursuant to Subsection 1.04(d) or Subsection
9.05 hereof, by reducing the amount of cash otherwise payable pursuant to
Subsection 1.06(b) or by reducing the principal amount of the Notes otherwise
deliverable pursuant to Subsection 1.06(c), as applicable.
(b) If the Buyer elects to pay cash as provided above to
satisfy and discharge the Notes issued at Closing, then the amount of the Earned
Premium Adjustment to be paid to each Shareholder shall be such Shareholder's
Pro Rata share, as designated in Schedule I hereto, of the Earned Premium
Adjustment, and such amount shall be paid on the Settlement Date by cashier's or
certified check or by wire transfer of immediately available funds to such
account or accounts as previously designated by the Shareholders'
Representative. Any such cash payment of Earned Premium Adjustment, if any,
shall include interest on any such amount computed at
8
the rate of 6% per annum simple interest commencing on the Closing Date and
accruing to and including the Settlement Date, which shall represent payment of
interest on the Notes issued at the Closing.
(c) If the Buyer elects to deliver replacement Notes as
provided above, then the Buyer will issue on the Settlement Date to each
Shareholder a Note in replacement of the Note initially issued at the Closing
having a principal amount equal to such Shareholder's Pro Rata share, as
designated in Schedule I hereto, of the Earned Premium Adjustment. Any such
delivery of replacement Notes shall be accompanied by delivery of a cash payment
equal to interest on the Earned Premium Adjustment amount computed at the rate
of 6% per annum simple interest commencing on the Closing Date and accruing to
and including the Settlement Date, which shall represent payment of interest on
the Notes issued at the Closing.
(d) The Notes issued at the Closing shall have the terms set
out on Exhibit A hereto. In addition, at the Closing the Shareholders and
UICI
will enter into a Registration Rights Agreement substantially in the form of
Exhibit D hereto.
(e) Commencing two years after the Closing Date, any
Shareholder who holds a Note may request a replacement Note which shall have
identical terms and provisions except for the deletion of Section XII
(Successors and Assigns) and Section XIII (Right of Set-Off) thereof.
1.07 Shareholders' Representative.
(a) In order to efficiently administer matters pertaining to
this Agreement such matters are delegated by the Shareholders to the
Shareholders' Representative (as defined herein), including without limitation
(i) the determination of the Closing Date Combined Net Worth, (ii) the waiver of
any condition to the obligations of the Shareholders to consummate the
transactions contemplated hereby, (iii) the defense and/or settlement of any
claims for which the Shareholders may be required to indemnify the Buyer or the
Companies pursuant to Section 9 hereof, and (iv) the review, calculation and
arbitration, if requested, of the amount of the Annualized Earned Premium and
Earned Premium Adjustment, the Shareholders hereby designate Xxxxxxx X.
Xxxxxxxxx as their representative (the "Shareholders' Representative").
(b) The Shareholders hereby authorize the Shareholders'
Representative (i) to make all decisions relating to the determination of the
Closing Date Combined Net Worth, the Annualized Earned Premium and the Earned
Premium Adjustment, (ii) to take all action necessary in connection with the
waiver of any condition to the obligations of the Shareholders to consummate the
transactions contemplated hereby, or the defense and/or settlement of any claims
for which the Shareholders may be required to indemnify the Buyer or the
Companies pursuant to Section 9 hereof, (iii) to give and receive all notices
required to be given under this Agreement, and (iv) to take any and all
additional action as is contemplated to be taken by or on behalf of the
Shareholders by the terms of this Agreement.
(c) In the event that the Shareholders' Representative dies,
becomes unable to perform his responsibilities hereunder or resigns from such
position, Shareholders holding, prior
9
to the Closing, a majority of the SHRG Shares as set forth on Schedule I
attached hereto shall select another representative to fill such vacancy with
respect to both SHRG and SAS, and such substituted representative shall be
deemed to be the Shareholders' Representative for all purposes of this
Agreement.
(d) All decisions and actions by the Shareholders'
Representative, including, without limitation, any agreement between the
Shareholders' Representative and the Buyer relating to the determination of the
Closing Date Combined Net Worth, the Annualized Earned Premium and the Earned
Premium Adjustment, or the defense or settlement of any claims for which the
Shareholders may be required to indemnify the Buyer and/or the Companies
pursuant to Section 9 hereof, shall be binding upon all of the Shareholders, and
no Shareholders shall have the right to object, dissent, protest or otherwise
contest the same.
(e) By his or her execution of this Agreement, each
Shareholder agrees that:
(i) the Buyer shall be able to rely conclusively on
the instructions and decisions of the Shareholders' Representative as to the
determination of the Closing Date Combined Net Worth, the Annualized Earned
Premium and the Earned Premium Adjustment, or the settlement of any claims for
indemnification by the Buyer or the Companies pursuant to Section 9 hereof or
any other actions required or permitted to be taken by the Shareholders'
Representative hereunder, and no party hereunder shall have any cause of action
against the Buyer for any action taken by the Buyer in reliance upon the
instructions or decisions of the Shareholders' Representative;
(ii) all actions, decisions and instructions of the
Shareholders' Representative shall be conclusive and binding upon all of the
Shareholders and no Shareholder shall have any cause of action against the
Shareholders' Representative for any action taken, decision made or instruction
given by the Shareholders' Representative under this Agreement, except for fraud
or willful breach of this Agreement by the Shareholders' Representative;
(iii) the provisions of this Subsection 1.07 are
independent and severable, are irrevocable and coupled with an interest and
shall be enforceable notwithstanding any rights or remedies that any Shareholder
may have in connection with the transactions contemplated by this Agreement;
(iv) remedies available at law for any breach of the
provisions of this Subsection 1.07 are inadequate; therefore, the Buyer and the
Companies shall be entitled to temporary and permanent injunctive relief without
the necessity of proving damages if either the Buyer or either of the Companies
brings an action to enforce the provisions of this Subsection 1.07; and
(v) the provisions of this Subsection 1.07 shall be
binding upon the executors, heirs, legal representatives and successors of each
Shareholder, and any references in this Agreement to a Shareholder or the
Shareholders shall mean and include the successors to the Shareholders' rights
hereunder, whether pursuant to testamentary disposition, the laws of descent and
distribution or otherwise.
10
(f) All fees and expenses incurred by the Shareholders'
Representative shall be paid Pro Rata by the Shareholders.
1.08 Closing. The Closing shall take place at the offices of Xxxxx &
Xxxxxx L.L.P., Xxx Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxx 00000, at 9:00 a.m.,
Mountain Time, on February 28, 2002 or at such other place, time or date as may
be mutually agreed upon in writing by the parties.
1.09 Allocation of Purchase Price. Each of the parties agrees that the
total Purchase Price payable pursuant to this Agreement shall be allocated for
all purposes in the manner specified in this Subsection 1.09, and each of the
parties further agrees to report this transaction for federal tax and all other
purposes in accordance with the following purchase price allocation: (i)
$100,000 of the Initial Payment will be allocated to the Non-Competition
Agreements by the Shareholders in favor of the Buyer set forth in Subsection
10.03 of this Agreement, of which amount $80,000 will be allocated to Xxxxxxx X.
Xxxxxxxxx, $10,000 will be allocated to Xxxxxxx X. Xxxx, and $5,000 will be
allocated to each of Xxxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxxxxx, (ii) $1,500,000
shall be allocated to, and represents the fair value of, the SAS Shares, and
(iii) the balance of the Purchase Price, as finally determined, shall be
allocated to, and represents the fair value of, the SHRG Shares.
2. Representations of the Shareholders Regarding the Shares
Each Shareholder severally represents and warrants to the Buyer as
follows:
(a) Such Shareholder has good and marketable title to the
Shares which are to be transferred to the Buyer by such Shareholder pursuant
hereto, free and clear of any and all covenants, conditions, restrictions,
voting trust arrangements, liens, charges, encumbrances, options and adverse
claims or rights whatsoever. Schedule I attached hereto sets forth a true and
correct description of all Shares owned by such Shareholder.
(b) Such Shareholder has the full right, power and authority
to enter into this Agreement and to transfer, convey and sell to the Buyer at
the Closing the Shares to be sold by such Shareholder hereunder and, upon
consummation of the purchase contemplated hereby, the Buyer will acquire from
such Shareholder good and marketable title to such Shares, free and clear of all
covenants, conditions, restrictions, voting trust arrangements, liens, charges,
encumbrances, options and adverse claims or rights whatsoever.
(c) Such Shareholder is not a party to, subject to or bound by
any agreement or any judgment, order, writ, prohibition, injunction or decree of
any court or other governmental body which would prevent the execution or
delivery of this Agreement by such Shareholder or the transfer, conveyance and
sale of the Shares to be sold by such Shareholder to the Buyer pursuant to the
terms hereof.
(d) No broker or finder has acted for such Shareholder in
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fee or other
commissions in respect of such transactions based upon agreements, arrangements
or understandings made by or on behalf of such Shareholder.
11
3. Representations of the Shareholders, SHRG and SAS
Each of the Shareholders and the Companies, jointly and severally,
represent and warrant to the Buyer that:
3.01 Organization. Each of SHRG and SAS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona, and has all requisite power and authority (corporate and other) to own
its properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the transactions contemplated hereby and thereby. Except as set forth in Section
3.01 of the Disclosure Schedule attached hereto, each of SHRG and SAS is duly
qualified to do business and in good standing in all jurisdictions in which its
ownership of property or the character of its business requires such
qualification, except where such failure to be so qualified or in good standing
would not individually or in the aggregate have a material adverse effect on
SHRG or SAS. Certified copies of the Articles of Incorporation and Bylaws of
each of SHRG and SAS, as amended to the date of this Agreement, have been
previously delivered to the Buyer, are complete and correct, and no subsequent
amendments have been made thereto or have been authorized.
3.02 Capitalization of the Companies.
SHRG's authorized capital stock consists of 1,500 Class A shares of
Common Stock, no par value per share, and 500 Class B shares of Common Stock, no
par value per share, of which 1,500 shares of Class A Common Stock and 500
shares of Class B Common Stock are issued and outstanding on the date hereof and
held of record and beneficially by the Shareholders as set forth on Schedule I.
SAS's authorized capital stock consists of 9,500 Class A shares of Common Stock,
no par value per share, and 500 Class B shares of Common Stock, no par value per
share, of which 1,000 shares of Class A Common Stock and 500 shares of Class B
Common Stock are issued and outstanding on the date hereof and held of record
and beneficially by the Shareholders as set forth on Schedule I. All such issued
and outstanding shares of SHRG Common Stock and SAS Common Stock have been, and
on the Closing Date will be, duly and validly issued and are, or will be on such
date, fully paid and non-assessable. Except as set forth in Section 3.02 of the
Disclosure Schedule attached hereto, there are not outstanding (i) any options,
warrants or other rights to purchase from either SHRG or SAS any capital stock
of either of the Companies; (ii) any securities convertible into or exchangeable
for shares of such stock of SHRG or SAS; or (iii) any other commitments of any
kind for the issuance of additional shares of capital stock or options, warrants
or other securities of SHRG or SAS. No shares of the issued and outstanding
shares of SHRG Common Stock are held in the treasury of SHRG. No shares of the
issued and outstanding shares of SAS Common Stock are held in the treasury of
SAS. The Shareholders executing this Agreement comprise all persons or entities
with any actual or contingent equity interest (including without limitation
options, warrants or other contingent claims or interests) in either SHRG or
SAS.
12
3.03 Subsidiaries and Affiliates.
(a) Neither SHRG nor SAS owns directly or indirectly, an
equity interest representing 50% or more of the capital stock of, or other
equity interests in, any corporation, partnership, joint venture or other entity
(individually, a "Subsidiary" and, collectively, the "Subsidiaries").
(b) Section 3.03 of the Disclosure Schedule attached hereto
sets forth: (i) the name and percentage ownership by any Shareholder of each
corporation, partnership, joint venture or other entity in which such
Shareholder has, directly or indirectly, an equity interest representing 25% or
more of the capital stock thereof or other equity interests therein
(individually, an "Affiliated Entity" and collectively, the "Affiliated
Entities"), which has or at any time in the past three years has engaged in any
transaction with or had a relationship with either of the Companies; (ii) the
jurisdiction of incorporation, capitalization and ownership of each such
Affiliated Entity; (iii) the names of the officers and directors of each such
Affiliated Entity; and (iv) the amount and nature of the transactions between
either of the Companies and such Affiliated Entity during the past three years.
3.04 Authorization. The execution and delivery by each of SHRG and SAS
of this Agreement and the agreements provided for herein, and the consummation
by each of them of all transactions contemplated hereunder and thereunder by
such Company, have been duly authorized by all requisite corporate action. This
Agreement has been duly executed by each of SHRG, SAS and the Shareholders. This
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby to which either SHRG or
SAS or any of the Shareholders is a party constitute the valid and legally
binding obligations of SHRG, SAS and the Shareholders, enforceable against them
in accordance with their respective terms. The execution, delivery and
performance by SHRG, SAS and the Shareholders of this Agreement and the
agreements provided for herein, and the consummation by SHRG, SAS and the
Shareholders of the transactions contemplated hereby and thereby, will not, with
or without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to SHRG, SAS or any of the
Shareholders; (b) violate the provisions of the Articles of Incorporation or
Bylaws of SHRG or SAS; (c) violate any judgment, decree, order or award of any
court, governmental body or arbitrator; or (d) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of SHRG or SAS pursuant to,
any indenture, mortgage, deed of trust or other instrument or agreement to which
it is a party or by which it or any of its respective properties is or may be
bound. Section 3.04 of the Disclosure Schedule attached hereto sets forth a
true, correct and complete list of all consents and approvals of third parties
that are required in connection with the consummation by either SHRG or SAS of
the transactions contemplated by this Agreement, all of which have been, or
prior to the Closing Date will be, received.
3.05 Financial Statements.
(a) The Shareholders have delivered the Audited Financial
Statements to the Buyer. The Shareholders have previously delivered to the Buyer
the unaudited balance sheet of
13
each of SHRG and SAS as of December 31, 2000 and December 31, 1999 and the
related statements of income, shareholders' equity, retained earnings and
changes in financial condition of each of SHRG and SAS for the years then ended
(collectively, the "Prior Financial Statements"). The Audited Financial
Statements prepared in accordance with GAAP applied consistently with past
practices and have been certified without qualification by the Company's
Accountants. The Prior Financial Statements (together with the Audited Financial
Statements, the "Financial Statements") have been certified by SHRG's and SAS's
chief financial officer as accurately reflecting the books and records of the
Companies in accordance with GAAP. The date of the Audited Balance Sheet is
hereinafter referred to as the "Balance Sheet Date."
(b) The Financial Statements fairly present, as of their
respective dates, the financial condition, retained earnings, assets and
liabilities of each of SHRG and SAS and the results of operations of each of
their respective business for the periods indicated. With respect to contracts
and commitments for the provision of services by SHRG and SAS, the Financial
Statements contain and reflect adequate reserves, which are consistent with
previous reserves taken, for all reasonably anticipated material losses and
costs and expenses. The amounts shown as accrued for current and deferred income
and other taxes in the Financial Statements are sufficient for the payment of
all accrued and unpaid federal, state and local income taxes, interest,
penalties, assessments or deficiencies applicable to SHRG and SAS, as
applicable, whether disputed or not, for the applicable period then ended and
periods prior thereto.
3.06 Absence of Undisclosed Liabilities. Except as and to the extent
(a) reflected and reserved against in the Audited Balance Sheets, (b) set forth
in Section 3.06 of the Disclosure Schedule attached hereto, or (c) incurred in
the ordinary course of business after the date of the Audited Balance Sheets and
not material in amount, either individually or in the aggregate, neither SHRG
nor SAS has any liability or obligation, secured or unsecured, whether accrued,
absolute, contingent, unasserted or otherwise, which is material to the
condition (financial or otherwise) of the assets, properties, business or
prospects of either SHRG or SAS, as applicable. For purposes of this Subsection
3.06, "material" means any amount in excess of $25,000.
3.07 Litigation. Except as set forth in Section 3.07 of the Disclosure
Schedule attached hereto (a) there is no action, suit or proceeding to which the
SHRG or SAS is a party (either as a plaintiff or defendant) pending or, to the
knowledge of the Shareholders, threatened before any court or governmental
agency, authority, body or arbitrator and, to the knowledge of the Shareholders,
there is no basis for any such action, suit or proceeding; (b) neither SHRG nor
SAS, nor, to the knowledge of the Shareholders, any officer, director or
employee of any of the foregoing, has been permanently or temporarily enjoined
by any order, judgment or decree of any court or any governmental agency,
authority or body from engaging in or continuing any conduct or practice in
connection with the business, assets, or properties of SHRG or SAS; and (c)
there is not in existence on the date hereof any order, judgment or decree of
any court, tribunal or agency enjoining or requiring SHRG or SAS to take any
action of any kind with respect to its business, assets or properties.
3.08 Insurance. Section 3.08 of the Disclosure Schedule attached hereto
sets forth a true, correct and complete list of all fire, theft, casualty,
general liability, workers compensation, business interruption, environmental
impairment, product liability, automobile and other
14
insurance policies maintained by SHRG or SAS and of all life insurance policies
maintained on the lives of any of their employees, specifying the type of
coverage, the amount of coverage, the premium, the insurer and the expiration
date of each such policy (collectively, the "Insurance Policies") and all claims
made under such Insurance Policies since January 1, 1998. True, correct and
complete copies of all Insurance Policies have been previously delivered by the
Shareholders or the Companies to the Buyer. The Insurance Policies are in full
force and effect and are in amounts of a nature which are adequate and customary
for SHRG's and SAS's respective businesses. All premiums due on the Insurance
Policies or renewals thereof have been paid, and there is no default under the
Insurance Policies. Except as set forth on Section 3.08 of the Disclosure
Schedule, neither SHRG or SAS has received any notice or other communication
from any issuer of the Insurance Policies since January 1, 2000 canceling or
materially amending any of the Insurance Policies, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder, and, to the knowledge of the Shareholders,
no such cancellation, amendment or increase of deductibles, retainages or
premiums is threatened. Except as set forth on Section 3.08 of the Disclosure
Schedule, neither SHRG or SAS has any outstanding claims or any dispute with any
insurance carrier regarding claims, settlements or premiums and neither SHRG nor
SAS has failed to give any notice or present any claim under any Insurance
Policy in due and timely fashion. There are no outstanding requirements or
recommendations by any issuer of the Insurance Policies or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
governmental authority exercising similar functions which requires or recommends
any changes in the conduct of the business of, or any repairs or other work to
be done on or with respect to any of the properties or assets of, SHRG or SAS.
3.09 Personal Property. Section 3.09 of the Disclosure Schedule
attached hereto sets forth (i) a true, correct and complete list of all items of
tangible personal property owned by SHRG or SAS as of the date hereof having
either a net book value per unit or an estimated fair market value per unit in
excess of $25; or not owned by SHRG or SAS but in the possession of or used in
the business of SHRG or SAS and having rental payments therefor in excess of $50
per month or $500 per year (collectively, the "Personal Property"); and (ii) a
description of the owner of, and any agreement relating to the use of, each item
of Personal Property not owned by SHRG or SAS and the circumstances under which
such Property is used. Except as disclosed in Section 3.09 of the Disclosure
Schedule:
(a) SHRG or SAS, as the case may be, has good and marketable
title to each item of Personal Property free and clear of all liens, leases,
encumbrances, claims under bailment and storage agreements, conditional sales
contracts, security interests, charges and restrictions, except for liens, if
any, for personal property taxes not due;
(b) no officer, director, shareholder or employee of either
SHRG or SAS, nor any spouse, child or other relative or affiliate thereof, owns
directly or indirectly, in whole or in part, any of the Personal Property
described in Section 3.09 of the Disclosure Schedule;
(c) each item of Personal Property not owned by SHRG or SAS is
in such condition that upon the return of such property to its owner in its
present condition at the end of the relevant lease term or as otherwise
contemplated by the applicable agreement between SHRG
15
or SAS, as the case may be, and the owner or lessor thereof, the obligations of
SHRG or SAS, as the case may be, to such owner or lessor will be discharged;
(d) the Personal Property is in good operating condition and
repair, normal wear and tear excepted, is currently used by either SHRG or SAS
in the ordinary course of its business and normal maintenance has been
consistently performed with respect to the Personal Property; and
(e) SHRG and SAS own, or otherwise have the right to use, all
of the Personal Property now used by them in the operation of their business or
the use of which is necessary for the performance of any material contract,
letter of intent or proposal to which any of them is a party.
3.10 Intellectual Property.
(a) Section 3.10(a) of the Disclosure Schedule attached hereto
sets forth a true and complete list, and where appropriate, a description, of
all trade names, trademarks, service marks, logos, registered copyrights,
patents (including registrations and applications to register or renew the
registration of any of the foregoing), computer software, customer lists, trade
secrets and all other items of intangible property owned by, or used in the
business of, SHRG or SAS, including without limitation all intellectual property
rights relating to the STAR Plans (the "Intellectual Property").
(b) Section 3.10(b) of the Disclosure Schedule attached hereto
sets forth a list of (i) all licenses and other agreements to which SHRG or SAS
is a party and pursuant to which SHRG or SAS has granted to any other person or
entity the right to use any Intellectual Property and (ii) all licenses and
other agreements to which SHRG or SAS is a party and pursuant to which SHRG or
SAS is authorized to use any Intellectual Property (collectively, the "License
Agreements").
(c) Except as otherwise disclosed in Section 3.10(c) of the
Disclosure Schedule:
(i) SHRG or SAS is the sole and exclusive owner of
all right, title and interest in and to the Intellectual Property, including
without limitation any and all property rights, intellectual and otherwise, in
and to the STAR Plans and the customer lists of SHRG and SAS, free and clear of
all liens, security interests, charges, encumbrances, and other adverse claims
and each of SHRG and SAS has made all filings and registrations and taken all
such other actions as necessary or appropriate to confirm and maintain all
rights in such Intellectual Property;
(ii) To the knowledge of the Shareholders, SHRG or
SAS has the valid right and authority to use the Intellectual Property in
connection with the conduct of its business in the manner presently conducted,
and such use does not conflict with, infringe upon or violate any rights of any
other person, corporation or entity;
16
(iii) neither SHRG, SAS nor any of the Shareholders
has received notice of, or has any knowledge of any basis for, a pleading or
threatened claim, interference action or other judicial or adversarial
proceeding against SHRG or SAS that any of their operations, activities,
products, services or publications infringes any patent, trademark, trade name,
copyright, trade secret or other property right of a third party, or that either
is illegally or otherwise using the trade secrets, formulae or property rights
of others;
(iv) there are no outstanding, nor to the knowledge
of the Shareholders, any threatened disputes or other disagreements with respect
to any of the License Agreements;
(v) there are no outstanding, nor to the knowledge of
the Shareholders, any threatened disputes or other disagreements with respect to
infringement or misrepresentation by a third party of any of the Intellectual
Property;
(vi) all registered trademarks and service marks,
registered copyrights, and patents included in the Intellectual Property and
listed in Section 3.10(a) of the Disclosure Schedule are valid and subsisting;
(vii) there are no actions that must be taken within
180 days following the Closing Date that, if not taken, will result in the loss
of rights of registration or applications to register any of the Intellectual
Property;
(viii) none of the rights and interests currently
possessed by SHRG or SAS in the Intellectual Property shall be terminated,
limited or compromised in any respect as a result of the Buyer's acquisition or
ownership of SHRG and SAS, or any of the transactions contemplated hereby;
(ix) SHRG and SAS are in compliance with their
respective policies concerning privacy or confidentiality of customer data, and
all such policies are in compliance with all applicable laws;
(x) any information contained in any customer list
that comprises part of the Intellectual Property used by SHRG or SAS in
connection with the issuance of SHRG or SAS was obtained and is maintained in
compliance with all applicable laws;
(xi) the Intellectual Property and any applicable
License Agreements are sufficient to conduct SHRG's or SAS's business as
presently conducted;
(xii) SHRG or SAS has taken all steps reasonably
necessary to protect its right, title and interest in and to the Intellectual
Property and the License Agreements; and
(xiii) no officer, director, shareholder or employee
of SHRG or SAS, nor any spouse, child or other relative or affiliate thereof,
owns or has any interest in, directly or indirectly, in whole or in part, any of
the Intellectual Property or the License Agreements.
17
3.11 Leases.
(a) Section 3.11 of the Disclosure Schedule attached hereto
sets forth a true, correct and complete list as of the date hereof of all leases
of real property, identifying separately each ground lease, to which SHRG nor
SAS is a party (collectively, the "Leases"). True, correct and complete copies
of all Leases and all amendments, modifications and supplemental agreements
thereto, have previously been delivered by the Shareholders, SHRG or SAS to the
Buyer.
(b) The Leases are in full force and effect, are binding and
enforceable against each of the parties thereto in accordance with their
respective terms and, except as set forth on Section 3.11 of the Disclosure
Schedule, have not been modified or amended since the date of delivery to the
Buyer. No party to any Lease has sent written notice to the other claiming that
such party is in default thereunder and that such default remains uncured.
Except as set forth on Section 3.11 of the Disclosure Schedule, there has not
occurred any event which would constitute a breach of or default in the
performance of any covenant, agreement or condition contained in any Lease, nor
has there occurred any event which with the passage of time or the giving of
notice or both would constitute such a breach or material default. Neither SHRG
or SAS is obligated to pay any leasing or brokerage commission relating to any
Lease and, except as set forth on Section 3.11 of the Disclosure Schedule, will
not have any obligation to pay any leasing or brokerage commission upon the
renewal of any Lease. Except as set forth on Section 3.11 of the Disclosure
Schedule, no construction, alteration or other leasehold improvement work with
respect to any of the Leases remains to be paid for or to be performed by SHRG
or SAS.
(c) Except as set forth on Section 3.11 of the Disclosure
Schedule, all utility systems serving the property under Lease, public or
private, are in good operating condition, all installation charges therefor have
been fully paid and all service charges therefor have been or will be paid by
SHRG or SAS up to and including the Closing Date. Since January 1, 2000, neither
SHRG or SAS has experienced any material interruption in the delivery of
adequate quantities of any utilities (including, without limitation,
electricity, natural gas, potable water, water for cooling or similar purposes
and fuel oil) or other public services (including, without limitation, sanitary
and industrial sewer service) required in the operation of its business during
such period.
(d) Except as set forth on Section 3.11 of the Disclosure
Schedule, the real property under Lease is not located in any special flood
hazard area designated by any federal, state, county or local governmental
agencies (collectively, the "Governmental Agencies") having jurisdiction over
such real property.
(e) To the knowledge of SHRG and SAS, the real property under
Lease complies with the requirements of all building, zoning, subdivision,
health, safety, environmental, pollution control, waste products, sewage control
and all other applicable statutes, laws, codes, ordinances, rules, orders,
regulations and decrees (collectively, the "Governmental Regulations") of any
and all Governmental Agencies. SHRG and SAS have obtained, and the Shareholders
or SHRG or SAS have previously provided the Buyer with copies
18
of, all consents, permits, licenses and approvals required by any Governmental
Regulations. Such consents, permits, licenses and approvals are in full force
and effect and have been properly and validly issued. There is no action pending
or, to the knowledge of the Shareholders, threatened by any Governmental
Agencies claiming that the real property under Lease violates any Governmental
Regulations or threatening to shut down the business of SHRG or SAS.
(f) All of the buildings, fixtures and other improvements
located on the property under Lease are in good operating condition and repair,
and, to the knowledge of the Shareholders, the operation thereof as presently
conducted is not in violation of any applicable building code, zoning ordinance
or other law or regulation.
3.12 Real Estate. Neither SHRG nor SAS owns any real property (the
"Real Estate").
3.13 Inventory. Neither SHRG nor SAS maintains any items of inventory
for sale to customers in the ordinary course business.
3.14 Accounts Receivable. Section 3.14 of the Disclosure Schedule
attached hereto sets forth a true, correct and complete list of the accounts and
notes receivable of SHRG and SAS (the "Accounts Receivable"), including the
aging thereof as of the date hereof. All Accounts Receivable arose out of the
sales of services in the ordinary course of business and are collectible in the
face value thereof within 90 days after the date of invoice, using normal
collection procedures, net of the reserve for doubtful accounts set forth
thereon, which reserve is adequate and was calculated in accordance with GAAP.
3.15 Tax Matters.
(a) Except as set forth on Section 3.15 of the Disclosure
Schedule attached hereto:
(i) Within the times and in the manner prescribed by
law, each of SHRG and SAS has timely filed all federal, state and local tax
returns and all tax returns for foreign countries, provinces and other
governing' bodies having jurisdiction to levy taxes upon them which are required
to be filed;
(ii) Each of SHRG and SAS has timely paid all taxes,
interest, penalties, assessments and deficiencies which have become due or which
have been claimed to be due, including without limitation income, franchise,
real estate, sales and withholding taxes and other employee benefits, taxes and
imports;
(iii) To the knowledge of the Shareholders, all tax
returns filed by SHRG and SAS for the taxable years ending 1995 through 2000
constitute complete and accurate representations of the respective tax
liabilities of SHRG and SAS for such years and accurately set forth all items
(to the extent required to be included or reflected in such returns) relevant to
their future tax liabilities, including the tax bases of their properties and
assets;
(iv) Neither SHRG nor SAS has waived or extended any
applicable statute of limitations relating to the assessment of federal, state,
local or foreign taxes;
19
(v) No examinations of the federal, state, local or
foreign tax returns of SHRG or SAS is currently in progress nor, to the
knowledge of the Shareholders, threatened and no deficiencies have been asserted
or assessed against either SHRG or SAS as a result of any audit by the Internal
Revenue Service or any state or local taxing authority and no such deficiency
has been proposed or threatened; and
(vi) Neither SHRG or SAS has filed a consent pursuant
to Section 341(f) of the Internal Revenue Code of 1954, as amended (the "Code")
relating to collapsible corporations nor has any such corporation agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code).
(b) Section 3.15 of the Disclosure Schedule attached hereto
sets forth those taxable years for which the tax returns of SHRG and SAS have
been reviewed or audited by applicable federal, state, and local taxing
authorities and those tax years for which said tax returns have received
clearances or other indications of approval from applicable federal, state, and
local taxing authorities. To the knowledge of the Shareholders, no issue or
issues have been raised in connection with any prior or pending review or audit
of said federal, state, or local tax returns which the Shareholders reasonably
believe may be expected to be raised in the future by such taxing authorities in
connection with the audit or review of the tax returns of SHRG or SAS.
3.16 Books and Records. The general ledgers and books of account of
each of SHRG and SAS, all federal, state and local income, franchise, property
and other tax returns filed by SHRG and SAS are in all material respects
complete and correct and have been maintained in accordance with good business
practice and in accordance with all applicable procedures required by laws and
regulations.
3.17 Contracts and Commitments.
(a) Section 3.17 of the Disclosure Schedule attached hereto
contains a true, complete and correct list and description of the following
contracts and agreements, whether written or oral (collectively, the
"Contracts"):
(i) all loan agreements, indentures, mortgages and
guaranties to which SHRG or SAS is a party or by which SHRG or SAS or any of
their property is bound;
(ii) all pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, personal property leases
and lease purchase agreements to which SHRG or SAS is a party or by which SHRG
or SAS or any of their property is bound;
(iii) all contracts, agreements, commitments,
purchase orders or other understandings or arrangements to which SHRG or SAS is
a party or by which SHRG or SAS or any of their property is bound which (A)
involve payments or receipts by SHRG or SAS of more than $10,000 in the case of
any single contract, agreement, commitment, understanding or arrangement under
which full performance (including payment) has not been rendered by all parties
thereto or (B) which may materially adversely affect the condition (financial or
otherwise) or the properties, assets, business or prospects of SHRG or SAS;
20
(iv) all collective bargaining agreements, employment
and consulting agreements, executive compensation plans, bonus plans, deferred
compensation agreements, pension plans, retirement plans, employee stock option
or stock purchase plans and group life, health and accident insurance and other
employee benefit plans, agreements, arrangements or commitments to which SHRG or
SAS is a party or by which SHRG or SAS or any of their property is bound;
(v) all agency, distributor, sales representative,
franchise or similar agreements to which SHRG or SAS is a party or by which SHRG
or SAS or any of their property is bound;
(vi) all contracts, agreements or other
understandings or arrangements between either SHRG or SAS and any Affiliated
Entities or affiliates;
(vii) all leases, whether operating, capital or
otherwise, under which SHRG or SAS is lessor or lessee;
(viii) all contracts, agreements or other
arrangements imposing a non-competition or non-solicitation obligation on SHRG
or SAS;
(ix) all contracts, agreements or other
understandings or arrangements between SHRG or SAS and either (A) CNA or any
subsidiary thereof or (B) GTL or any subsidiary thereof; and
(x) any other material agreements or contracts
entered into by SHRG or SAS, including without limitation all agreements and
contracts with clients, customers, insurance carriers and reinsurers.
(b) Except as set forth on Section 3.17 of the Disclosure
Schedule:
(i) assuming each Contract is a valid and binding
obligation of each of the other parties thereto, each Contract is a valid and
binding obligation of SHRG or SAS, as applicable, enforceable against SHRG or
SAS, as applicable, in accordance with its terms, and SHRG or SAS does not have
any knowledge that any Contract is not a valid and binding obligation of each of
the other parties thereto;
(ii) SHRG or SAS has fulfilled all material
obligations required pursuant to the Contracts to have been performed by it, as
the case may be, on its part prior to the date hereof, and SHRG or SAS, as the
case may be, has no reason to believe that it will not be able to fulfill, when
due, all of its obligations under the Contracts which remain to be performed
after the date hereof;
(iii) neither SHRG nor SAS is in breach of or default
under any Contract, and no event has occurred, which with the passage of time or
giving of notice or both would constitute such a default, result in a loss of
rights or result in the creation of any lien, charge or encumbrance, thereunder
or pursuant thereto;
21
(iv) to the knowledge of the Shareholders, there is
no existing breach or default by any other party to any Contract, and no event
has occurred, which with the passage of time or giving of notice or both would
constitute a default by such other party, result in a loss of rights or result
in the creation of any lien, charge or encumbrance thereunder or pursuant
thereto;
(v) there are not and, since January 1, 2000, have
not been, any claims of a non-routine nature relating to SHRG or SAS by
customers of SHRG or SAS under any warranties, whether express or implied;
(vi) neither SHRG nor SAS has entered into any
Contract that expressly restricts its ability to continue or expand the STAR
Business in any market;
(vii) neither SHRG or SAS has any written or oral
contracts to perform services which are expected to be performed at, or to
result in, a loss;
(c) True, correct and complete copies of all Contracts have
previously been delivered by SHRG or SAS, as applicable, or the Shareholders to
the Buyer.
3.18 Compliance with Agreements and Laws.
(a) SHRG and SAS each have all requisite licenses, permits and
certificates, including environmental, health and safety permits, from
Governmental Agencies necessary to conduct their respective business and own and
operate their respective assets (collectively, the "Permits").
(b) Section 3.18 of the Disclosure Schedule attached hereto
sets forth a true, correct and complete list of all such Permits, copies of
which have previously been delivered by SHRG or SAS or the Shareholders to the
Buyer.
(c) To the knowledge of the Shareholders, neither SHRG nor SAS
is in violation of any Governmental Regulation (including, without limitation,
any Governmental Regulation relating to building, zoning, environmental,
disposal of hazardous substances, land use or similar matters) relating to its
properties.
(d) The business of SHRG and SAS as conducted since January 1,
2000 has not violated, and on the date hereof does not violate, in any material
respect, any Governmental Regulation (including, but not limited to, any of the
foregoing relating to employment discrimination, occupational safety,
environmental protection, hazardous waste, conservation, insurance regulation or
corrupt practices), the enforcement of which would have a material adverse
effect on the results of operations, condition (financial or otherwise), assets,
properties business or prospects of SHRG or SAS. Except as set forth on Section
3.18 of the Disclosure Schedule, neither SHRG or SAS has had notice or
communication from any Governmental Agency or otherwise since January 1, 2000 of
any such violation or noncompliance.
(e) Neither SHRG nor SAS is in violation of any Governmental
Regulation, permit, or other environmental or hazardous waste requirement
applicable to SHRG or SAS, or any of the properties occupied under Lease, or any
part thereof, relating to health, safety,
22
pollution, hazardous waste, environmental or other similar matters, which has
not been entirely corrected and which has or will have a material adverse impact
on the transactions contemplated herein. Neither SHRG nor SAS has received
notice from any Governmental Agency alleging any such violation.
3.19 Employee Relations.
(a) Each of SHRG and SAS is in compliance in all material
respects with all applicable Governmental Regulations respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
and is not engaged in any unfair labor practice, and there are no arrears in the
payment of wages or social security taxes.
(b) Except as set forth in Section 3.19 of the Disclosure
Schedule attached hereto:
(i) none of the employees of SHRG or SAS is
represented by any labor union;
(ii) there is no unfair labor practice complaint
against SHRG or SAS pending or, to the knowledge of the Shareholders, threatened
before the National Labor Relations Board or any state or local agency;
(iii) there is no pending or, to the knowledge of the
Shareholders, threatened labor strike or other material labor trouble affecting
SHRG or SAS (including, without limitation, any organizational drive);
(iv) there is no material labor grievance pending or,
to the knowledge of the Shareholders, threatened against SHRG or SAS;
(v) there is no pending or, to the knowledge of the
Shareholders, threatened representation question respecting the employees of
SHRG or SAS; and
(vi) neither SHRG nor SAS has any continuing
obligation for health, life, medical insurance or other similar fringe benefits
to any former employee of SHRG or SAS.
(c) Section 3.19 of the Disclosure Schedule sets forth a true,
correct and complete list of the current payroll of SHRG and SAS, including the
job descriptions and salary or wage rates of each of their employees, showing
separately for each such person who received an annual salary in excess of
$25,000 the amounts paid or payable as salary and bonus payments for the fiscal
year ended December 31, 2001.
(d) For purposes of this Subsection 3.19, the term "employee"
shall be construed to include sales agents and other independent contractors who
spend a majority of their working time on the business of SHRG or SAS.
23
3.20 Employee Benefit Plans.
(a) Employee Plans. Section 3.20 of the Disclosure Schedule
attached hereto contains a true, correct and complete list of all pension,
benefit, profit sharing, retirement, deferred compensation, welfare, insurance,
disability, bonus, vacation pay, severance pay and other similar plans, programs
and agreements, whether reduced to writing or not, relating to the employees of
SHRG and SAS, or maintained at any time since January 1, 2000 by SHRG or SAS or
by any member of any controlled group of corporations, group of trades or
businesses under common control, or affiliated service group (as defined for
purposes of Section 414(b), (c) and (m), respectively, of the Code) (the
"Employee Plans") of which SHRG or SAS is or has been a member (as "ERISA
Affiliate"). Except as set forth in Section 3.20 of the Disclosure Schedule,
neither SHRG nor SAS has obligations, contingent or otherwise, past or present,
under applicable law or the terms of any Employee Plan. None of SHRG, SAS or any
ERISA Affiliate has made any express or implied commitment, whether legally
enforceable or not, to create, incur liability with respect to or cause to
existing employee benefit plan, program, arrangement, contract or scheme.
Neither SHRG nor SAS has contributed to, or has any past or present obligation
to contribute to, any stock option or stock purchase plan or other plan designed
to hold the stock of SHRG or SAS or any of their affiliates. None of the
Employee Plans provides for the payment of separation, severance, termination or
similar-type benefits to any person, or provides for or promises retiree medical
or life insurance benefits to any current or former employee, officer or
director of SHRG or SAS, except to the extent required by law.
(b) Prohibited Transactions. None of the Shareholders, SHRG,
SAS or their respective directors, officers, employees or agents, or any "party
in interest" or "disqualified person," as such terms are defined in Section 3 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Section 4975 of the Code has, with respect to any Employee Plan, engaged in or
been a party to any nonexempt "prohibited transaction," as such term is defined
in Section 4975 of the Code or Section 406 of ERISA, in connection with which,
directly or indirectly, the Buyer or any of its affiliates, directors or
employees or any Employee Plan or any related funding medium could be subject to
either a penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed
by Section 4975 of the Code.
(c) Compliance. With respect to all Employee Plans, SHRG and
SAS are in compliance with the requirements prescribed by any and all statutes,
orders or governmental rules or regulations currently in effect, including, but
not limited to, ERISA and the Code, applicable to such Employee Plans. SHRG and
SAS have in all respects performed all obligations required to be performed by
them under, and are not in violation in any respect of, and there has been no
default or violation by any other party with respect to, any of the Employee
Plans. Except as set forth in Section 3.20 of the Disclosure Schedule, none of
the Employee Plans which are subject to Title IV of ERISA has been or will be
terminated in whole or in part within the meaning of ERISA or the Code; no
liability has been incurred to, nor has any event or circumstance occurred, nor
will any event or circumstance occur prior to the Closing Date, which could
result in such a liability being asserted by, the Pension Benefit Guaranty
Corporation with respect to any Employee Plan (other than the payment of annual
premiums under Section 4007 of ERISA); nor has any Employee Plan that is subject
to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code, or both,
incurred any "accumulated
24
funding deficiency" (as defined in ERISA), whether or not waived; nor has SHRG
or SAS failed to pay any amounts due and owing as required by the terms of any
Employee Plan; nor has there been any "reportable event" within the meaning of
Sections 4043(b)(1)-(9) of ERISA, or any event described in Section 4063(a) of
ERISA, with respect to any Employee Plan, other than as disclosed herein or on
accompanying schedules.
(d) Multiemployer Plans. None of SHRG nor SAS or any ERISA
Affiliate has ever been obligated to contribute to any "multiemployer plan," as
such term is defined in Section 3(37) of ERISA.
(e) Copies of Employee Plans and Related Documents. The
Shareholders or SHRG or SAS have previously delivered to the Buyer true, correct
and complete copies of all Employee Plans which have been reduced to writing and
written descriptions of all Employee Plans which have not been reduced to
writing, and all agreements, including trust agreements and insurance contracts,
related to such Employee Plans, and the Summary Plan Description and all
modifications thereto for each Employee Plan communicated to employees. With
respect to each Employee Plan that is an "employee benefit plan," as such term
is defined in Section 3(3) of ERISA (the "ERISA Plans"), true, correct and
complete copies of (i) the annual actuarial valuation reports for the last five
years, (ii) the Form 5500 and Schedules filed for the last five years and (iii)
any filings made with the Pension Benefit Guaranty Corporation, Internal Revenue
Service or Department of Labor, or any correspondence with or from such
agencies, regarding the termination of any such ERISA Plan, have been delivered
to the Buyer.
(f) Qualification. Each Employee Plan and all amendments
thereto intended to qualify under Section 401(a) of the Code have been
determined by the Internal Revenue Service to so qualify, and the trusts created
thereunder have been determined to be exempt from tax under the provisions of
Section 501(a) of the Code, and copies of all determination letters with respect
to each such Employee Plan have been previously delivered by the Shareholders or
SHRG or SAS to the Buyer, and nothing has since occurred which might cause the
loss of such qualification or exemption, no such Employee Plan has been operated
in a manner which would cause it to be disqualified in operation, and all such
Employee Plans have been administered in all material respects in compliance
with and consistent with all applicable requirements of the Code and ERISA,
including, without limitation, all reporting and disclosure requirements.
(g) Funding Status.
(i) With respect to each Employee Plan which is a
defined benefit plan, as such term is defined in Section 3(35) of ERISA (a
"Defined Benefit Plan"), and that is subject to Section 412 of the Code, the
present value of the actuarial accrued liability, determined on a plan
termination basis, does not exceed the fair market value of the assets held
under each such Plan and allocable to the benefits represented by such
liability, and there is no unpaid contribution due with respect to the plan year
of any such Defined Benefit Plan ended prior to the Closing Date, as required
under the minimum funding requirements of Section 412 of ERISA. For the purpose
of the preceding sentence, the present value of actuarial accrued liability
shall be determined in accordance with the provisions of such Defined Benefit
Plan as
25
are adopted or negotiated on or before the Closing Date and such laws as are
applicable to such Defined Benefit Plan, and the assumptions used shall be
reasonable in the opinion of the Buyer.
(ii) All material contributions, premiums or payments
required to be made with respect to any Employee Plan have been made on or
before their due dates. All such contributions have been fully deducted for
income tax purposes and no such deduction has been challenged or disallowed,
and, to the knowledge of SHRG, SAS and the Shareholders, no fact or event exists
which could give rise to any such challenge or disallowance.
(iii) All premiums or other payments required by the
terms of any group or individual insurance policies and programs maintained by
SHRG or SAS and covering any present or former employees of SHRG or SAS with
respect to all periods up to and including the Closing Date have been fully paid
for the length of the obligation.
(h) Claims and Litigation. There are no pending or to the
knowledge of the Shareholders, threatened claims, suits or other proceedings by
present or former employees of SHRG or SAS or their affiliates, plan
participants, beneficiaries or spouses of any of the above, including claims
against the assets of any trust, involving any Employee Plan, or any rights or
benefits thereunder, other than ordinary and usual claims for benefits by
participants or beneficiaries, and to the knowledge of SHRG, SAS and the
Shareholders, no fact or event exists that could give rise to any such action,
suit or claim.
(i) No Implied Rights. Nothing expressed or implied herein
shall confer upon any past or present employee of SHRG or SAS, their respective
representatives, beneficiaries, successors and assigns, nor upon any collective
bargaining agent, any rights or remedies of any nature, including, without
limitation, any rights to employment or continued employment with the Buyer,
SHRG, SAS, or any successor or affiliate; nor shall the Buyer, SHRG, SAS, or
their affiliates be precluded or prevented from terminating or amending any
Employee Plan.
(j) Transfer. SHRG and SAS, as applicable, shall take any
actions as may be necessary or appropriate in the reasonable opinion of the
Buyer and the Buyer's counsel under all applicable laws and the terms of the
Employee Plans to establish the Buyer, or an affiliate of the Buyer, as having
all rights and obligations with respect to the Employee Plans assumed pursuant
to this Agreement, including, without limitation, rights with respect to all
annuity or insurance contracts which form a part of any of such Employee Plans,
together with all other Employee Plan assets. The Shareholders shall obtain as
of the Closing Date any and all consents from trustees required to effect any
transfer of any trust(s) related to such assumed Employee Plans to such
Trustee(s) as may be appointed by the Buyer.
(k) Except as set forth in Section 3.20 of the Disclosure
Schedule, there has been no amendment to, written interpretation of or
announcement (whether or not written) by SHRG, SAS or any ERISA Affiliate
relating to, or change in employee participation or coverage under, any Employee
Plan that would increase materially the expense of maintaining such Employee
Plan above the level of the expense incurred in respect thereto for the most
recent fiscal year ended prior to the date hereof.
26
(l) Except as provided in the Employee Plans, no employee or
former employee of SHRG, SAS or any ERISA Affiliate will become entitled to any
bonus, retirement, severance, job security or similar benefit or enhanced such
benefit (including acceleration of vesting or exercise of an incentive award) as
a result of the transactions contemplated hereby.
(m) Prior to the Closing, the Shareholders, SHRG and SAS shall
take the actions set forth in Section 3.20(m) of the Disclosure Schedule with
respect to the Employee Plans.
3.21 Absence of Certain Changes or Events.
(a) Except as set forth in Section 3.21 of the Disclosure
Schedule attached hereto, since the Balance Sheet Date, neither SHRG nor SAS has
entered into any transaction which is not in the usual and ordinary course of
business consistent with past practice, and, without limiting the generality of
the foregoing, neither SHRG nor SAS has:
(i) incurred any material obligation or liability for
borrowed money;
(ii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability other than current liabilities reflected in
the Audited Balance Sheet;
(iii) mortgaged, pledged or subjected to lien, charge
or other encumbrance any of their respective properties or assets;
(iv) sold or purchased, assigned or transferred any
of its tangible assets or cancelled any debts or claims, except for inventory
sold and raw materials purchased in the ordinary course of business;
(v) made any material amendment to or termination of
any Contract or done any act or omitted to do any act which would cause the
breach of any Contract;
(vi) suffered any losses of personal or real
property, whether insured or uninsured, and whether or not in the control of
SHRG or SAS, as the case may be, in excess of $10,000 in the aggregate, or
waived any rights of any value;
(vii) authorized any declaration or payment of
dividends or other distributions by SHRG or SAS, or paid any such dividends, or
authorized any transfer of assets of any kind whatsoever by SHRG or SAS to any
of their respective shareholders with respect to any shares of their capital
stock;
(viii) received notice of any litigation;
(ix) made any material change in the terms, status or
funding condition of any Employee Plan;
(x) engaged any new employee for a salary in excess
of $40,000 per annum;
27
(xi) made, or committed to make, any changes in the
compensation payable to any officer, director, employee or agent of SHRG or SAS,
or any bonus payment or similar arrangements made to or with any of such
officers, directors, employees or agents;
(xii) incurred any capital expenditure in excess of
$5,000 in any instance or $25,000 in the aggregate;
(xiii) made any material alteration in the manner of
keeping the books, accounts or records of SHRG or SAS, or in the accounting
practices therein reflected;
(xiv) suffered any material adverse change in the
combined results of operations, condition (financial or otherwise), assets,
liabilities (whether absolute, accrued, contingent or otherwise), business or
prospects of SHRG or SAS;
(xv) issued any stock, bonds or other corporate
securities or granted any option or issue any warrant to purchase or subscribe
for any of such securities or issued any securities convertible into such
securities;
(xvi) made, accrued or become liable for any bonus,
profit sharing or incentive payment, except for accruals under existing plans,
if any, or increased the rate of compensation payable or to become payable by it
to any of its officers, directors or employees, other than increases in the
ordinary course of business consistent with past practice;
(xvii) made any election or given any consent under
the Code or the tax statutes of any state or other jurisdiction or made any
termination, revocation or cancellation of any such election or any consent or
compromised or settled any claim for past or present tax due;
(xviii) waived any rights of material value;
(xix) taken or permitted any act or omission
constituting a breach or default under any contract by which it or its
properties are bound;
(xx) failed to (i) preserve the possession and
control of its assets and business, (ii) keep in faithful service its present
officers and key employees, (iii) preserve the goodwill of its consumers,
suppliers, agents, brokers and others having business relations with it, and
(iv) keep and preserve its business existing on the date hereof until the
Closing Date;
(xxi) failed to operate its business and maintain its
books, accounts and records in the customary manner and in the ordinary and
regular course of business and maintain in good repair its business premises,
fixtures, machinery, furniture and equipment;
(xxii) entered into any lease, contract, agreement or
understanding, other than those entered into in the ordinary course of business
calling for payments which in the aggregate do not exceed $20,000 for each such
lease, contract, agreement or understanding; or
(xxiii) committed or agreed to do any of the
foregoing in the future.
28
(b) Except as set forth in Section 3.21 of the Disclosure
Schedule attached hereto, since the Balance Sheet Date, (i) SHRG and SAS have
carried on their business diligently and substantially in the same manner as
heretofore and have not made or instituted any unusual or new methods of
purchase, sale, shipment or delivery, lease, management, accounting or
operation, except as agreed to in writing by the Buyer, and (ii) all of the
property of SHRG and SAS have been used, operated, repaired and maintained in a
normal business manner consistent with past practice.
(c) Neither SHRG, SAS nor the Shareholders have knowledge of
any existing or threatened occurrence, event or development which, as far as can
be reasonably foreseen, could have a material adverse effect on the business,
properties, assets, condition (financial or otherwise) or prospects of SHRG and
SAS taken as a whole.
3.22 Customers. Section 3.22 of the Disclosure Schedule attached hereto
sets forth a true, correct and complete list of (a) the names and addresses of
each customer of SHRG and SAS which accounted for more than 5% of the aggregate
earned premium income of SHRG in the fiscal year ended December 31, 2001. Except
as set forth in Section 3.22 of the Disclosure Schedule attached hereto, each of
SHRG and SAS has good customer relations and none of the customers of either
SHRG or SAS has notified it that it intends to discontinue its relationship with
SHRG or SAS as the case may be.
3.23 Prepayments and Deposits. Section 3.23 of the Disclosure Schedule
attached hereto sets forth all prepayments and deposits, which have been
received by SHRG or SAS as of the date hereof, from customers for services to be
performed, after the Closing Date.
3.24 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth in Section 3.24 of the Disclosure Schedule attached hereto,
neither SHRG nor SAS is indebted, directly or indirectly, to any person who is
an officer, director or shareholder of any of the foregoing entities or any
affiliate of any such person in any amount whatsoever other than for salaries
for services rendered or reimbursable business expenses, all of which have been
reflected on the Audited Financial Statements, and no such officer, director,
shareholder or affiliate is indebted to SHRG or SAS except for advances made to
employees of SHRG or SAS in the ordinary course of business to meet reimbursable
business expenses anticipated to be incurred by such obligor.
3.25 Banking Facilities. Section 3.25 of the Disclosure Schedule
attached hereto sets forth a true, correct and complete list of:
(a) each bank, savings and loan or similar financial
institution in which SHRG or SAS has an account or safety deposit box and the
numbers of the accounts or safety deposit boxes maintained by SHRG or SAS
thereat; and
(b) the names of all persons authorized to draw on each such
account or to have access to any such safety deposit box facility, together with
a description of the authority (and conditions thereof, if any) of each such
person with respect thereto.
29
3.26 Powers of Attorney and Suretyships. Except as set forth in Section
3.26 of the Disclosure Schedule attached hereto, neither SHRG nor SAS has any
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or has any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity, except as
endorser or maker of checks or letters of credit, respectively, endorsed or made
in the ordinary course of business.
3.27 Conflicts of Interest. Except as set forth in Section 3.27 of the
Disclosure Schedule attached hereto, no officer, director or Shareholder of SHRG
or SAS nor, to the knowledge of the Shareholders, any affiliate of any such
person, now has or within three (3) years of the date hereof had, either
directly or indirectly:
(a) an equity or debt interest in any corporation,
partnership, joint venture, association, organization or other person or entity
which furnishes or sells or during such period furnished or sold services or
products to SHRG or SAS, or purchases or during such period purchased from SHRG
or SAS any goods or services, or otherwise does nor during such period did
business with SHRG or SAS; or
(b) a beneficial interest in any contract, commitment or
agreement to which SHRG or SAS is or was a party or under which any of them is
or was obligated or bound or to which any of their respective properties may be
or may have been subject, other than stock options and other contracts,
commitments or agreements between SHRG or SAS and such persons in their
capacities as employees, officers or directors of SHRG or SAS. At the option of
the Buyer, all such transactions and relationships disclosed or required to be
disclosed in Section 3.27 of the Disclosure Schedule will be terminated on or
before the Closing Date without any liability to SHRG, SAS or the Buyer.
3.28 Regulatory Approvals. All consents, approvals, authorizations or
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by SHRG or SAS and which are necessary for the execution
and delivery by the Shareholders, SHRG and SAS of this Agreement or any
documents to be executed and delivered by the Shareholders, SHRG or SAS in
connection herewith are set forth in Section 3.28 of the Disclosure Schedule
attached hereto and have been, or prior to the Closing Date will be, obtained
and satisfied at the sole cost of SHRG or SAS.
3.29 Disclosure. The information concerning SHRG and SAS set forth in
this Agreement, the Exhibits and Schedules attached hereto and any document,
statement or certificate furnished or to be furnished to the Buyer pursuant
hereto, does not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein, in light
of the circumstances in which they are made, not false and misleading. The
Shareholders, SHRG and SAS have disclosed to the Buyer all material facts
pertaining to the transactions contemplated by this Agreement and the Exhibits
hereto. Copies of all documents
30
heretofore or hereafter delivered or made available to the Buyer pursuant to
this Agreement were or will be complete and accurate copies of such documents.
3.30 Knowledge. For purposes of the representations in this Section 3,
"knowledge" of the Shareholders, SHRG or SAS shall mean the actual knowledge of
any Key Employee (as defined below), which such Key Employee is aware of or
could be expected to discover or otherwise become aware of in the course of
conducting a reasonably comprehensive investigation for purposes of complying
with this Agreement. "Key Employee" means any of Xxxxxxx X. Xxxxxxxxx, Xxxxxxx
X. Xxxx, Xxxx Xxxxxxx-XxXxx, Xxxxx Xxxxx and Xxxxx Xxxxx.
4. Representations of the Buyer.
The Buyer represents and warrants to each Shareholder as follows:
4.01 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the transactions contemplated hereby and thereby.
4.02 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the Buyer
of the transactions contemplated hereby and thereby, have been duly authorized
by all requisite corporate action. This Agreement constitutes the valid and
legally binding obligations of the Buyer, enforceable against the Buyer in
accordance with its terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the Buyer's Certificate of Incorporation or Bylaws; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Buyer pursuant to, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Buyer is a party or by which
the Buyer is or may be bound.
4.03 Investment Representation. The Buyer is acquiring the Shares from
each Shareholder for its own account for investment and not with a view to, or
for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling the same; and, except as contemplated by
this Agreement and the agreements contemplated herein, the Buyer has no present
or contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof.
5. Access to Information; Public Announcements.
5.01 Access to Management, Properties and Records. The Shareholders
shall authorize the release to the Buyer of all files pertaining to the business
or operations of SHRG and SAS held by any Governmental Agencies. The
Shareholders' authorization shall specifically waive
31
all previous claims of privilege or other restrictions, and in any case where a
release by a present or former employee of SHRG or SAS is necessary, the
Shareholders shall exercise their best efforts to obtain such a release.
5.02 Public Announcements. The parties agree that any and all general
public announcements or other general public communications concerning this
Agreement and the purchase of the Shares by the Buyer, and the timing, manner
and content of such disclosures, shall be subject to the mutual agreement of the
Shareholders' Representative and the Buyer.
6. Pre-Closing Loan
The Buyer has loaned to SHRG $2,580,000 (the "Pre-Closing Loan"),
pursuant to a Term Loan Agreement dated February 26, 2002 between
UICI and SHRG,
and SHRG has applied the proceeds of the Pre-Closing Loan as specified in such
agreement. Each of the Shareholders acknowledges that the Buyer shall reduce the
Initial Payment portion of the Purchase Price described in Subsection 1.03
hereof by an amount equal to the principal amount of the Pre-Closing Loan, to be
allocated as set forth on Schedule I hereto.
7. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:
7.01 Truth of Representations and Warranties; Compliance with Covenants
and Obligations. The representations and warranties of the Shareholders, SHRG
and SAS shall be true on and as of the Closing Date. The Shareholders, SHRG and
SAS shall have performed and complied with all terms, conditions, covenants,
obligations, agreements and restrictions required by this Agreement to be
performed or complied with by each of them prior to or at the Closing Date.
7.02 Performance by the Shareholders, SHRG and SAS. At the Closing, the
Shareholders, SHRG and SAS shall have delivered to the Buyer a certificate
signed by each such Shareholder or the President and Vice President of Finance
of SHRG or SAS, as the case may be, certifying that the conditions set forth in
Subsection 7.01 have been satisfied.
7.03 Governmental Approvals. All governmental agencies, department,
bureaus, commissions and similar bodies, including any insurance regulatory
approvals, the consent, authorization or approval of which is necessary or
material under any applicable law, rule, order or regulation for the
consummation by the Buyer, the Shareholders, SHRG or SAS of the transactions
contemplated by this Agreement and the operation of the business of SHRG and SAS
by the Buyer, shall have consented to, authorized, permitted or approved such
transactions. Without limiting the generality of the foregoing, the obligations
of the Buyer hereunder shall be conditioned upon the ability of MEGA to obtain
licensing prior to the Closing Date to underwrite the STAR Plans (or implement
reinsurance arrangements satisfactory to the Buyer) in all such jurisdictions as
the Buyer considers to be necessary or appropriate for the Buyer's ownership and
operation of SHRG and SAS.
32
7.04 Consent of Lenders, Lessors and Other Third Parties. The
Shareholders, SHRG and SAS shall have received all requisite consents and
approvals of all lenders, lessors and other third parties whose consent or
approval is required in order for the Shareholders, SHRG and SAS to consummate
the transactions contemplated by this Agreement, including without limitation,
those set forth in Section 3.04 of the Disclosure Schedule attached hereto.
7.05 Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Buyer to own the Shares or to own or operate the business of
SHRG and SAS after the Closing.
7.06 Opinion of Counsel. The Buyer shall have received an opinion of
Xxxxx & Xxxxxx L.L.P., counsel to the Shareholders, SHRG and SAS, dated as of
the Closing Date, in substantially the form attached hereto as Exhibit E, and as
to such other matters as may be reasonably requested by the Buyer or its
counsel.
7.07 Employment Contracts. On or prior to the Closing Date, (i) SHRG
and/or SAS, as applicable, and Xxxxxxx X. Xxxx shall have entered into an
employment and non-competition agreement under which Xx. Xxxx will agree to
serve as SHRG's President and which will have other terms and provisions
satisfactory to the Buyer; (ii) SHRG and/or SAS, as applicable, shall have
entered into employment and non-competition agreements with Xxxxx Xxxxx on terms
satisfactory to the Buyer; and (iii) Xxxxxxx X. Xxxxxxxxx shall have entered
into a non-competition, non-solicitation and cooperation agreement in favor of
the Buyer, SHRG and SAS on terms satisfactory to the Buyer, pursuant to which
Xxxxxxx X. Xxxxxxxxx and Xxxxxxx X. Xxxxxxxxx will continue to be covered on the
same terms as now in effect under SHRG's existing health insurance plan until
January 1, 2005.
7.08 Office Lease. On or prior to the Closing Date, SHRG and STAR
Equity LLC shall have entered into a lease for the office premises known as
STARBridge Plaza substantially in the form attached hereto as Exhibit F.
7.09 Cross-Indemnification Agreement. On or prior to the Closing Date,
the Buyer and Xxxxxxx X. Xxxxxxxxx will have entered into a
Cross-Indemnification Agreement substantially in the form attached hereto as
Exhibit G (the "Cross-Indemnification Agreement").
7.10 Closing Deliveries. The Buyer shall have received at or prior to
the Closing such documents, instruments or certificates as the Buyer may
reasonably request including, without limitation:
(a) the stock certificates representing the Shares duly
endorsed in accordance with Subsection 1.01 of this Agreement;
(b) such certificates of SHRG's and SAS's officers and of the
Shareholders and such other documents evidencing satisfaction of the conditions
specified in this Section 8 as the Buyer shall reasonably request;
33
(c) certificates of the Secretary of State of the State of
Arizona as to the legal existence and good standing (including tax) of each of
SHRG and SAS;
(d) certificates of the Secretary of each of SHRS and SAS
attesting to the incumbency of such Company's officers, the authenticity of the
resolutions authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered pursuant
to Subsection 3.01;
(e) where required by the applicable Lease, estoppel
certificates from each lessor from whom SHRG or SAS leases real or personal
property consenting to the acquisition of the Shares by the Buyer and the other
transactions contemplated hereby, and representing that there are no outstanding
claims against SHRG and SAS; and
(f) a cross receipt executed by the Buyer and the
Shareholders.
8. Conditions to Obligations of the Shareholders
The obligations of the Shareholders under this Agreement are subject to
the fulfillment, at the Closing Date, of the following conditions precedent,
each of which may be waived in writing in the sole discretion of the
Shareholders' Representative, who shall have the power and authority to bind all
of the Shareholders:
8.01 Truth of Representations and Warranties of the Buyer; Compliance
with Covenants and Obligations. The representations and warranties of the Buyer
in this Agreement shall be true on and as of the Closing Date. The Buyer shall
have performed and complied with all terms, conditions, covenants, obligations,
agreements and restrictions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date.
8.02 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of the Buyer to authorize or carry out this
Agreement shall have been taken.
8.03 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
8.04 Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Shareholders to transfer the Shares.
8.05 Cross-Indemnification Agreement. On or prior to the Closing Date,
the Buyer and Xxxxxxx X. Xxxxxxxxx will have entered into the
Cross-Indemnification Agreement.
34
8.06 Closing Deliveries. The Shareholders shall have received at or
prior to the Closing such documents, instruments or certificates as they may
reasonably request including, without limitation:
(a) such certificates of the Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 8
as the Shareholders' Representative shall reasonably request;
(b) a certificate of the Secretary of the Buyer attesting to
the incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement;
(c) payment of the Initial Payment;
(d) a cross receipt executed by the Buyer and the
Shareholders; and
(e) the Notes.
9. Indemnification
9.01 By the Shareholders, SHRG and SAS. The Shareholders, jointly and
severally, hereby indemnify and hold the Buyer, SHRG and SAS harmless from and
against all claims, damages, losses, liabilities, costs and expenses (including,
without limitation, settlement costs and any legal, accounting or other expenses
for investigating or defending any actions or threatened actions) (collectively,
the "Losses") in connection with each and all of the following:
(a) any misrepresentation or breach of any representation or
warranty made by the Shareholders, SHRG or SAS in this Agreement;
(b) any breach of any covenant, agreement or obligation of the
Shareholders, SHRG or SAS contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement;
(c) any misrepresentation contained in any statement,
certificate or schedule furnished by the Shareholders, SHRG or SAS pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement;
(d) any violation by SHRG or SAS of, or any failure by SHRG or
SAS to comply with, any law, ruling, order or decree, including any costs
incurred by the Buyer in connection with the transfer of the Shares;
(e) any tax liabilities or obligations of SHRG or SAS for all
periods on or prior to the Closing Date, except to the extent reserved for on
the Actual Closing Date Balance Sheets;
(f) any cost or liability arising out of either of the
Companies' failure to be qualified to do business or be in good standing in any
jurisdiction in which its ownership of
35
property or the character of its business requires such qualification (including
any and all costs to obtain such qualification); and
(g) any claims against, or liabilities or obligations of, SHRG
or SAS with respect to obligations under Employee Plans not specifically assumed
by the Buyer pursuant to this Agreement.
9.02 By the Buyer. The Buyer hereby indemnifies and holds the
Shareholders harmless from and against all Losses in connection with each of the
following:
(a) any misrepresentation or breach of any representation or
warranty made by the Buyer in this Agreement; and
(b) any breach of any covenant, agreement or obligation of the
Buyer contained in this Agreement or any other agreement, instrument or document
contemplated by this Agreement.
9.03 Claims for Indemnification. Whenever any claim shall arise for
indemnification under this Section 9, the party seeking indemnification (the
"Indemnified Party"), shall promptly notify the party against whom
indemnification is sought (the "Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim. In the event of any such
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent, which shall not be unreasonably withheld or delayed, of the
Indemnifying Party, who, in the case of the Shareholders' Representative, shall
have the power and authority to bind all of the Shareholders; provided, however,
that if suit shall have been instituted against the Indemnified Party and the
Indemnifying Party shall not have taken control of such suit after notification
thereof as provided in Subsection 9.04 of this Agreement, the Indemnified Party
shall have the right to settle or compromise such claim upon giving notice to
the Indemnifying Party as provided in Subsection 9.04. Failure of the
Shareholders' Representative to give notice to any Shareholder shall not relieve
such Shareholder from its obligations hereunder.
9.04 Defense by the Indemnifying Party. In connection with any claim
which may give rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at the sole cost and expense of the Indemnifying Party, may,
upon written notice to the Indemnified Party, assume the defense of any such
claim or legal proceeding if the Indemnifying Party acknowledges to the
Indemnified Party in writing the obligation of the Indemnifying Party to
indemnify the Indemnified Party with respect to all elements of such claim. If
the Indemnifying Party assumes the defense of any such claim or legal
proceeding, the Indemnifying Party shall select counsel reasonably acceptable to
the Indemnified Party to conduct the defense of such claims or legal proceedings
and at the sole cost and expense of the Indemnifying Party shall take all steps
necessary in the defense or settlement thereof. The Indemnifying Party shall not
consent to a settlement of, or the entry of any judgment arising from, any such
claim or legal proceeding,
36
without the prior written consent of the Indemnified Party (which consent shall
not be unreasonably withheld or delayed). The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its own counsel and at its own expense. If the Indemnifying Party does not
assume the defense of any such claim or litigation resulting therefrom within 30
days after the date such claim is made: (a) the Indemnified Party may defend
against such claim or litigation in such manner as it may deem appropriate,
including, but not limited to, settling such claim or litigation, after giving
notice of the same to the Indemnifying Party, on such terms as the Indemnified
Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense. If the Indemnifying Party thereafter seeks to question
the manner in which the Indemnified Party defended such third party claim or the
amount or nature of any such settlement, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such third party claim in a reasonably prudent manner.
9.05 Payment to the Buyer of Indemnification Obligation. Each of the
Shareholders hereby agrees that any claim for indemnification by the Buyer, SHRG
or SAS under this Section 9 or under any other provision of this Agreement, may,
at the option of the Buyer or SHRG or SAS, as the case may be, be offset against
the principal amount of the Note to be delivered pursuant to Subsection 1.06(c)
or the cash amount payable pursuant to Subsection 1.06(b), as applicable. All
indemnification by the Shareholders hereunder (to the extent not satisfied in
the manner specified in the preceding sentence), shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability. Notwithstanding the joint and several nature of the
representations, warranties and agreements of the Shareholders hereunder, (i)
the indemnification obligations of Xxxxxxx X. Xxxxxxxxx and Xxxxxxx X. Xxxxxxxxx
hereunder shall be limited to the full amount of the Purchase Price, and (ii)
the indemnification obligations of each of the other Shareholders shall be
limited to the respective amounts of the Purchase Price received by them.
9.06 Payment to the Shareholders of Indemnification Obligation. Any
indemnification to be paid by the Buyer pursuant to this Section 9 shall be made
by wire transfer of immediately available funds to an account designated by the
Shareholders' Representative in the amount of the indemnification liability as
soon as reasonably practicable after (i) such account is so designated or (ii)
the date on which the amount of the indemnification liability is agreed to by
the Buyer and the Shareholders' Representative. The indemnification obligations
to the Buyer shall be limited to the full amount of the Purchase Price.
9.07 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the Shareholders, SHRG and SAS in this
Agreement, or in any instrument or document furnished in connection with this
Agreement or the transactions contemplated hereby, shall survive the Closing and
any investigation at any time made by or on behalf of the Indemnified Party for
a period of two years, except for claims, if any, (a) asserted in writing prior
to such date identified as a claim for indemnification pursuant to this Section
9, or (b) which are based upon tax matters relating to SHRG, SAS or any of the
Shareholders, which shall survive until finally resolved and satisfied in full.
37
9.08 Limits on Indemnification. For purposes of indemnification
pursuant to Sections 9.01 and 9.02, the parties agree that no party may seek
indemnification under this Section 9 unless the aggregate of claims against the
other party or parties exceed $100,000, other than as to matters constituting
fraud or intentional misrepresentation or omission, as to which no "basket"
shall apply. In the event that any party's aggregate claims under this Section 9
exceed $100,000, such party shall be entitled to seek indemnification for all
such claims on a "first dollar" basis, rather than indemnification only for the
amount in excess of $100,000.
10. Post-Closing Agreements of the Shareholders
The Shareholders agree that from and after the Closing Date:
10.01 Proprietary Information.
(a) Each of the Shareholders and each of their affiliates (as
such term is defined in the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder) (individually, an "Affiliate" and
collectively "Affiliates") shall hold in confidence and shall use their best
efforts to have all officers, directors and personnel who continue after the
Closing to be employed by any such Shareholder or any Affiliate thereof to hold
in confidence all knowledge and information of a secret or confidential nature
with respect to the business of SHRG and SAS and not to disclose, publish or
make use of the same without the consent of the Buyer, except to the extent that
such information shall have become public knowledge other than by breach of this
Agreement by the Shareholders.
(b) If (i) the employment of an officer, director or other
employee of a Shareholder or any Affiliate thereof, to whom secret or
confidential knowledge or information concerning the business of SHRG or SAS has
been disclosed, is terminated and (ii) such individual is subject to an
obligation to maintain such knowledge or information in confidence after such
termination, the Shareholders shall, upon request by the Buyer, take all
reasonable steps at their expense to enforce such confidentiality obligation in
the event of an actual or threatened breach thereof. Any legal counsel retained
by any such Shareholder in connection with any such enforcement or attempted
enforcement shall be selected by such Shareholder, but shall be subject to the
approval of the Buyer, which approval shall not be unreasonably withheld.
(c) Each Shareholder agrees that the remedy at law for any
breach of this Subsection 10.01 would be inadequate and that the Buyer shall be
entitled to injunctive relief in addition to any other remedy it may have upon
breach of any provision of this Subsection 10.01.
10.02 No Solicitation or Hiring of Former Employees. Except as provided
by law, until January 1, 2005, no Shareholder nor any Affiliate thereof shall
(a) solicit any person who was an employee of either SHRG or SAS on the date
hereof or the Closing Date to terminate his or her employment with the Buyer (or
SHRG or SAS, as the case may be) or to become an employee of such Shareholder or
Affiliate, or (b) hire any person who was such an employee on the date hereof or
on the Closing Date.
38
10.03 Non-Competition Agreement.
(a) Until January 1, 2005, no Shareholder nor any Affiliate
thereof shall, except as an officer or employee of SHRG or SAS: (i) develop,
manufacture, market or sell any product or service which competes with any
existing or proposed product manufactured or service provided by either SHRG or
SAS on or prior to the Closing Date, or (ii) engage in any business competitive
with the business of SHRG or SAS as conducted on the date hereof or on the
Closing Date, in the United States or any other country in which SHRG or SAS
conducted its business during the two years prior to the Closing Date.
(b) The parties hereto agree that the duration and geographic
scope of the non-competition provision set forth in this Subsection 10.03 are
reasonable. In the event that any court of competent jurisdiction determines
that the duration or the geographic scope, or both, are unreasonable and that
such provision is to that extent unenforceable, the parties hereto agree that
the provision shall remain in full force and effect for the greatest time period
and in the greatest area that would not render it unenforceable. The parties
intend that this non-competition provision shall be deemed to be a series of
separate covenants, one for each and every county of each and every state of the
United States of America and each and every political subdivision of each and
every country outside the United States of America where this provision is
intended to be effective. The Shareholders agree that damages are an inadequate
remedy for any breach of this provision and that the Buyer shall, whether or not
it is pursuing any potential remedies at law, be entitled to equitable relief in
the form of preliminary and permanent injunctions without bond or other security
upon any actual or threatened breach of this non-competition provision.
10.04 Cooperation.
(a) The Shareholders agree that they shall cooperate in all
reasonable respects with the Buyer in connection with the consummation of the
MEGA Contribution Transaction, including executing and delivering as requested
any and all shareholder and director consents and other documents necessary and
appropriate to consummate such MEGA Contribution Transaction.
(b) In the event a claim is asserted after the Closing against
SHRG, SAS,
UICI or MEGA with respect to events or conditions occurring or
existing in connection with, or arising out of, (i) the operation of the STAR
Business prior to the Closing, (ii) the ownership, possession, use or sale of
any assets of the STAR Business prior to the Closing, or (iii) the incurrence or
existence of liabilities of the STAR Business prior to the Closing (including
without limitation with respect to tax matters), the Shareholders will cooperate
with the Buyer in the defense of any such claim.
11. Post-Closing Agreements of the Buyer
The Buyer agrees that from and after the Closing Date:
11.01 Monthly Report of Earned Premium. Beginning with the month of
March, 2002, the Buyer shall send, or shall cause MEGA to send, a monthly report
showing (i) the calculation of Earned Premium in the manner specified in this
Agreement and (ii) the amount of collected
39
premium with respect to previously reported Earned Premium amounts to the
Shareholders' Representative each month until the occurrence of the Settlement
Date. Each such monthly report shall be sent no later than the 15th day of the
following month.
11.02 Advisory Board. The Buyer shall not be obligated to create an
Advisory Board with respect to the STAR Business. However, in the event that the
Buyer or MEGA establishes an Advisory Board with respect to the STAR Business,
Xxxxxxx X. Xxxxxxxxx shall be invited to serve as a member of such Advisory
Board on the same terms as the other members thereof who are not executive
employees of
UICI or MEGA. This obligation shall terminate on January 1, 2005.
12. Dispute Resolution.
12.01 General. In the event that any dispute should arise between the
parties hereto with respect to calculation or determination of the Annualized
Earned Premium Adjustment, such dispute shall be resolved in accordance with the
procedure specified in Subsection 1.05 hereof. In the event of a dispute
regarding any other matter covered by this Agreement, the parties hereto shall
resolve such dispute in accordance with the procedures set forth in this Section
12.
12.02 Consent of the Parties. In the event of any such dispute between
the parties, the parties shall first use their best efforts to resolve such
dispute among themselves. If the parties are unable to resolve the dispute
within 30 calendar days after the commencement of efforts to resolve the
dispute, the dispute will be submitted to arbitration in accordance with
Subsection 12.03 hereof.
12.03 Arbitration.
(a) Either the Buyer or the Stockholders' Representative may
submit any matter referred to in Subsection 12.03 hereof to arbitration by
notifying the other party hereto, in writing, of such dispute. Within 10 days
after receipt of such notice, the Buyer and the Stockholders' Representative
shall designate in writing one arbitrator to resolve the dispute; provided, that
if the parties hereto cannot agree on an arbitrator within such 10-day period,
the arbitrator shall be selected by the American Arbitration Association. The
arbitrator so designated shall not be an employee, consultant, officer, director
or stockholder of any party hereto or any Affiliate of any party to this
Agreement.
(b) Within 15 days after the designation of the arbitrator,
the arbitrator, the Buyer and the Stockholders' Representative shall meet, at
which time the Buyer and the Stockholders' Representative shall be required to
set forth in writing all disputed issues and a proposed ruling on each such
issue.
(c) The arbitrator shall set a date for a hearing, which shall
be no later than 30 days after the submission of written proposals pursuant to
paragraph (b) above, to discuss each of the issues identified by the Buyer and
the Stockholders' Representative. Each such party shall have the right to be
represented by counsel. The arbitration shall be governed by the rules
40
of the American Arbitration Association; provided, that the arbitrator shall
have sole discretion with regard to the admissibility of evidence.
(d) The arbitrator shall use his or her best efforts to rule
on each disputed issue within 30 days after the completion of the hearings
described in paragraph (c) above. The determination of the arbitrator as to the
resolution of any dispute shall be binding and conclusive upon all parties
hereto. All rulings of the arbitrator shall be in writing and shall be delivered
to the parties hereto.
(e) The prevailing party in any arbitration shall be entitled
to an award of reasonable attorneys' fees incurred in connection with the
arbitration. The non-prevailing party shall pay such fees, together with the
fees of the arbitrator and the costs and expenses of the arbitration.
(f) Any arbitration pursuant to this Subsection 12.03 shall be
conducted in Dallas,
Texas. Any arbitration award may be entered in and enforced
by any court having jurisdiction thereover and the parties hereby consent and
commit themselves to the jurisdiction of the courts of the State of
Texas for
purposes of the enforcement of any arbitration award.
13. Brokers
13.01 For the Shareholders, SHRG and SAS. Each of the Shareholders,
SHRG and SAS represent and warrant that, no person, firm or corporation has
acted in the capacity of broker or finder on its behalf to bring about the
negotiation of this Agreement. The Shareholders jointly and severally agree to
indemnify and hold harmless the Buyer against any claims or liabilities asserted
against it by any person acting or claiming to act as a broker or finder on
behalf of the Shareholders, SHRG or SAS.
13.02 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on its behalf to bring about the negotiation of
this Agreement. The Buyer agrees to indemnify and hold harmless the Shareholders
against any claims or liabilities asserted against it by any person acting or
claiming to act as a broker or finder on behalf of the Buyer.
14. Notices
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by telex, federal
express, registered or certified mail, postage prepaid, addressed as follows or
to such other address of which the parties may have given notice:
To the Buyer:
UICI
Attention: Executive Vice President and General Counsel
0000 XxXxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
(Facsimile) (000) 000-0000
41
With a copy to: W.A. Xxxxxxx, Esq.
Xxxxx, Day, Xxxxxx & Xxxxx
0000 Xxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000
(Facsimile) (000) 000-0000
To SHRG, SAS and the Shareholders:
c/o Xxxxxxx X. Xxxxxxxxx
00000 X. 000xx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
With a copy to: Xxxxx Xxxxxxxx, Esq.
Xxxxx & Xxxxxx L.L.P.
One Arizona Center
000 X. Xxx Xxxxx Xx.
Xxxxxxx, Xxxxxxx 00000-0000
(Facsimile) (000) 000-0000
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally, (b) three
business days after being sent, if sent by registered or certified mail, or (c)
on the date delivered, if delivered by facsimile with confirmation of receipt.
15. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer, on the one hand, and the Shareholders, SHRG and SAS, on the other hand,
may not assign their respective obligations hereunder without the prior written
consent of the other party; provided, however, that the Buyer may assign this
Agreement, and its rights and obligations hereunder, to a subsidiary or
Affiliate of the Buyer. Any assignment in contravention of this provision shall
be void. No assignment shall release the Buyer, the Shareholders, SHRG or SAS or
the Subsidiaries from any obligation or liability under this Agreement.
16. Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties. The Buyer and the Shareholders holding a majority of the
Shares (who shall have the authority to bind all of the Shareholders) may amend
or modify this Agreement, in such manner as may be agreed upon, by a written
instrument executed by the Buyer and such majority of the Shareholders.
42
(b) If the provisions of any Schedule or Exhibit to this
Agreement are inconsistent with the provisions of this Agreement, the provisions
of the Agreement shall prevail. The Exhibits and Schedules attached hereto or to
be attached hereafter are hereby incorporated as integral parts of this
Agreement.
17. Severability
Any provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
18. Investigation of the Parties
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof.
19. Expenses
Except as otherwise expressly provided herein, the Buyer, on the one
hand, and the Shareholders, jointly and severally, on the other hand, will pay
all fees and expenses (including, without limitation, legal and accounting fees
and expenses) incurred by them in connection with the transactions contemplated
hereby. In no event will any of the fees or expenses incurred in connection with
this transaction by the Shareholders or the Shareholders' Representative,
including, without limitation, the fees and expenses of counsel to the
Shareholders, be billed to or paid by SHRG or SAS. Each Shareholder shall be
responsible for payment of all sales or transfer taxes arising out of the
conveyance of the Shares owned by such Shareholder.
20. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of
Texas. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against any of the parties in the courts of the State of
Texas, County
of Dallas, or, if it has or can acquire jurisdiction, in the United States
District Court for the Northern District of
Texas, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
21. Section Headings
The section headings are for the convenience of the parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
43
22. Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
44
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of and on the date first above written.
BUYER:
UICI
By: /s/ XXXXX X. XXXX
--------------------------------------------
Xxxxx X. Xxxx
Executive Vice President and General Counsel
SHRG:
THE S.T.A.R. HUMAN RESOURCE GROUP, INC.
By: /s/ XXXXXXX X. XXXXXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
------------------------------------------
Title: President
-----------------------------------------
SAS:
STAR ADMINISTRATIVE SERVICES, INC.
By: /s/ XXXXXXX X. XXXXXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
------------------------------------------
Title: President
-----------------------------------------
SHAREHOLDERS:
/s/ XXXXXXX X. XXXXXXXXX
------------------------------------------------
Xxxxxxx X. Xxxxxxxxx
/s/ XXXXXXX X. XXXXXXXXX
------------------------------------------------
Xxxxxxx X. Xxxxxxxxx
/s/ XXXXXX X. XXXXXX
------------------------------------------------
Xxxxxx X. Xxxxxx
/s/ XXXXXXX X. XXXXXXXXX
------------------------------------------------
Xxxxxxx X. Xxxxxxxxx
/s/ XXXXXXX X. XXXX
------------------------------------------------
Xxxxxxx X. Xxxx
45
