EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LIBERTE INVESTORS INC.,
USAH MERGER SUB, INC.,
USAUTO HOLDINGS, INC.
AND
THE STOCKHOLDERS OF USAUTO HOLDINGS, INC.
DATED AS OF DECEMBER 15, 2003
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER 2
Section 1.1 THE MERGER 2
Section 1.2 EFFECTIVE TIME 2
Section 1.3 EFFECTS OF THE MERGER 2
Section 1.4 CERTIFICATE OF INCORPORATION 2
Section 1.5 BYLAWS 2
Section 1.6 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION 2
Section 1.7 EFFECT ON CAPITAL STOCK 2
Section 1.8 CERTAIN ADJUSTMENTS 3
Section 1.9 NO FRACTIONAL SHARES OF LBI COMMON STOCK 4
Section 1.10 EXCHANGE OF CERTIFICATES 4
Section 1.11 DISTRIBUTIONS IN RESPECT OF UNSURRENDERED CERTIFICATES 5
Section 1.12 LOST CERTIFICATES 6
Section 1.13 WITHHOLDING RIGHTS 6
Section 1.14 FURTHER ASSURANCES 6
Section 1.15 STOCK TRANSFER BOOKS 6
Section 1.16 TRANSACTION STRUCTURE 6
ARTICLE II THE CLOSING 7
Section 2.1 THE CLOSING 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF USAUTO 7
Section 3.1 ORGANIZATION AND CORPORATE POWER 7
Section 3.2 SUBSIDIARIES 8
Section 3.3 CAPITAL STOCK OF USAUTO AND RELATED MATTERS 8
Section 3.4 AUTHORIZATION; NO CONFLICTS 9
Section 3.5 FINANCIAL STATEMENTS 10
Section 3.6 ABSENCE OF CERTAIN DEVELOPMENTS 11
Section 3.7 TITLE TO PROPERTIES 11
Section 3.8 TAX MATTERS 12
Section 3.9 CERTAIN CONTRACTS AND COMMITMENTS 14
Section 3.10 INTELLECTUAL PROPERTY 15
Section 3.11 LITIGATION; COMPLIANCE WITH LAWS; AUTHORIZATIONS 16
Section 3.12 INSURANCE 16
Section 3.13 EMPLOYEE BENEFIT PLANS 16
Section 3.14 ENVIRONMENTAL COMPLIANCE AND CONDITIONS 18
Section 3.15 AFFILIATED TRANSACTIONS 18
Section 3.16 BROKERAGE 18
Section 3.17 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES. 18
Section 3.18 LABOR AND EMPLOYMENT MATTERS 19
Section 3.19 AUTHORIZATION AND COMPLIANCE OF THE INSURANCE SUBSIDIARIES 19
Section 3.20 INSURANCE POLICIES' COMPLIANCE WITH LAW 20
Section 3.21 RESERVES 20
Section 3.22 REINSURANCE AND RETROCESSIONS 20
Section 3.23 INVESTMENT ASSETS 20
Section 3.24 INSURANCE BROKERS 21
Section 3.25 REPRESENTATION COMPLETE; SUPPLIED INFORMATION 21
Section 3.26 INDEBTEDNESS 21
Section 3.27 NO OTHER REPRESENTATIONS OR WARRANTIES 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF USAUTO STOCKHOLDERS 22
Section 4.1 REPRESENTATIONS AND WARRANTIES OF USAUTO STOCKHOLDERS 22
Section 4.2 ADDITIONAL REPRESENTATION AND WARRANTY OF APPLICABLE
USAUTO STOCKHOLDERS 22
Section 4.3 NO OTHER REPRESENTATIONS OR WARRANTIES 22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF LBI 23
Section 5.1 ORGANIZATION AND CORPORATE POWER 23
Section 5.2 SUBSIDIARIES 24
Section 5.3 CAPITAL STOCK OF LBI AND RELATED MATTERS 24
Section 5.4 AUTHORIZATION; NO CONFLICTS 24
Section 5.5 FINANCIAL STATEMENTS 26
Section 5.6 ABSENCE OF CERTAIN DEVELOPMENTS 26
Section 5.7 TITLE TO PROPERTIES 27
Section 5.8 TAX MATTERS 28
Section 5.9 CERTAIN CONTRACTS AND COMMITMENTS 29
Section 5.10 INTELLECTUAL PROPERTY 31
Section 5.11 LITIGATION; COMPLIANCE WITH LAWS; AUTHORIZATIONS 31
Section 5.12 INSURANCE 31
Section 5.13 EMPLOYEE BENEFIT PLANS 32
Section 5.14 ENVIRONMENTAL COMPLIANCE AND CONDITIONS 33
Section 5.15 AFFILIATED TRANSACTIONS 33
Section 5.16 BROKERAGE 33
Section 5.17 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES 33
Section 5.18 LABOR AND EMPLOYMENT MATTERS 34
Section 5.19 SEC FILINGS 34
Section 5.20 REPRESENTATIONS COMPLETE; SUPPLIED INFORMATION 35
Section 5.21 NO OTHER REPRESENTATIONS OR WARRANTIES 35
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING MERGER SUB 36
Section 6.1 ORGANIZATION 36
Section 6.2 AUTHORIZATION; NO CONFLICTS 36
Section 6.3 BUSINESS ACTIVITIES; NO SUBSIDIARIES 36
Section 6.4 NO OTHER REPRESENTATIONS OR WARRANTIES 36
ARTICLE VII COVENANTS RELATING TO CONDUCT OF BUSINESS 37
Section 7.1 COVENANTS OF USAUTO 37
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Section 7.2 COVENANTS OF LBI 40
Section 7.3 GOVERNMENTAL FILINGS 43
Section 7.4 CONTROL OF BUSINESS OPERATIONS 44
Section 7.5 RESTRICTIONS ON DIVIDENDS AND TRANSFERS OF USAUTO STOCK 44
ARTICLE VIII ADDITIONAL AGREEMENTS 44
Section 8.1 PREPARATION OF FORM S-1; STOCKHOLDERS MEETING 44
Section 8.2 GOVERNANCE AND OPERATIONS OF THE SURVIVING CORPORATION 45
Section 8.3 ACCESS TO INFORMATION 46
Section 8.4 COMMERCIALLY REASONABLE EFFORTS 46
Section 8.5 EMPLOYEE BENEFITS MATTERS 47
Section 8.6 FEES AND EXPENSES 48
Section 8.7 PUBLIC ANNOUNCEMENTS 48
Section 8.8 ACCOUNTING MATTERS 49
Section 8.9 SECTION 16 MATTERS 49
Section 8.10 EXCLUSIVITY 49
Section 8.11 LISTING OF SHARES OF LBI COMMON STOCK 49
Section 8.12 USAUTO INDEBTEDNESS 50
ARTICLE IX CONDITIONS PRECEDENT 50
Section 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER 50
Section 9.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF USAUTO 51
Section 9.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF LBI 53
ARTICLE X TERMINATION AND AMENDMENT 54
Section 10.1 TERMINATION 54
Section 10.2 EFFECT OF TERMINATION 54
Section 10.3 AMENDMENT 55
Section 10.4 EXTENSION; WAIVER 55
ARTICLE XI GENERAL PROVISIONS 55
Section 11.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS 55
Section 11.2 INDEMNIFICATION FOR TAXES 55
Section 11.3 COVENANT NOT TO COMPETE 58
Section 11.4 NOTICES 58
Section 11.5 INTERPRETATION 59
Section 11.6 COUNTERPARTS 59
Section 11.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES 59
Section 11.8 GOVERNING LAW 59
Section 11.9 SEVERABILITY 59
Section 11.10 ASSIGNMENT 60
Section 11.11 TRANSFER TAXES AND FEES 60
Section 11.12 CONFIDENTIALITY 60
Section 11.13 SUBMISSION TO JURISDICTION; WAIVERS 60
Section 11.14 ENFORCEMENT 61
Section 11.15 CERTAIN DEFINED TERMS 61
Section 11.16 CROSS REFERENCE TO OTHER DEFINED TERMS 66
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LIST OF EXHIBITS
Exhibit 1.10(c) Form of Letters of Transmittal
Exhibit 8.2(c)(1) Form of Restated Certificate of Incorporation
Exhibit 8.2(c)(2) Form of Amended and Restated Bylaws
Exhibit 9.1(e) Form of Advisory Services Agreement
Exhibit 9.2(c) Form of Registration Rights Agreement
Exhibit 9.2(d)(1) and (d)(2) Form of Employment Agreement
Exhibit 9.2(e) Form of Nonqualified Stock Option Agreement
Exhibit 9.2(f) Form of Separation Agreement with Xxxxxx X. Xxxxxxx
Exhibit 9.2(g)(1) - (g)(4) Form of Severance Agreements
Exhibit 9.2(m) Form of Certificate of Chief Executive Officer of
Liberte
Investors Inc. and USAH Merger Sub, Inc.
Exhibit 9.2(n) Form of Legal Opinion of Morris, Nichols, Arsht & Xxxxxxx
Exhibit 9.3(h) Form of Affidavit of USAuto Holdings, Inc.
Exhibit 9.3(i) Form of Certificate of Chief Executive Officer of USAuto
Holdings, Inc.
iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
December 15, 2003, is made by and among
LIBERTE INVESTORS INC., a
Delaware
corporation ("LBI"), USAH MERGER SUB, INC., a
Delaware corporation and direct
wholly-owned subsidiary of LBI ("MERGER SUB"), USAUTO HOLDINGS, INC., a
Delaware
corporation ("USAUTO"), and the STOCKHOLDERS OF USAUTO set forth on the SCHEDULE
OF USAUTO STOCKHOLDERS attached hereto (each a "USAUTO STOCKHOLDER" and,
collectively, the "USAUTO STOCKHOLDERS"). All capitalized terms used and not
otherwise defined herein shall have the meanings ascribed to such terms in
SECTION 11.15 of this Agreement.
WHEREAS, the respective Boards of Directors of LBI and USAuto deem it
advisable and in the best interests of each such corporation and their
respective stockholders that LBI and USAuto engage in a business combination in
order to advance the long-term strategic business interests of LBI and USAuto;
WHEREAS, the combination of LBI and USAuto shall be effected by the
terms of this Agreement through a merger of USAuto with and into Merger Sub as
outlined below (the "MERGER");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
LBI, Merger Sub and USAuto have approved the Merger, upon the terms and subject
to the conditions set forth in this Agreement, pursuant to which all shares of
common stock, no par value per share, of USAuto ("USAUTO COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than shares of
USAuto Common Stock held in the treasury of USAuto, will be converted into the
right to receive in the aggregate $76,000,000 in cash and up to 14,000,000
shares of common stock, par value $0.01 per share, of LBI ("LBI COMMON STOCK")
as set forth in SECTION 1.7(a);
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "CODE"), and
the regulations promulgated thereunder by reason of Code Section 368(a)(2)(D);
and
WHEREAS, concurrent with the execution of this Agreement, certain
stockholders of LBI have executed and delivered (i) voting agreements, whereby
such stockholders have agreed, subject to the terms and conditions of such
agreements, to vote in favor of this Agreement and the transactions contemplated
herein and (ii) a backstop agreement pursuant to which such stockholders have
agreed, subject to the terms and conditions of such agreement, to guarantee full
subscription of the Rights Offering.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the
Delaware General Corporation
Law (the "DGCL"), USAuto shall be merged with and into Merger Sub at the
Effective Time. Following the Merger, the separate corporate existence of USAuto
shall cease, and Merger Sub shall continue as the surviving corporation (the
"SURVIVING CORPORATION").
Section 1.2 EFFECTIVE TIME. At the Closing, as soon as practicable
following the satisfaction of the conditions set forth in ARTICLE IX, the
parties shall (a) file a certificate of merger (the "CERTIFICATE OF MERGER") in
such form as is required by, and executed in accordance with, the relevant
provisions of the DGCL and (b) make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the
Delaware Secretary of State (or at
such subsequent time as LBI and USAuto mutually agree in writing), which time
shall be specified in the Certificate of Merger (the actual time and date the
Merger becomes effective is referred to herein as the "EFFECTIVE TIME").
Section 1.3 EFFECTS OF THE MERGER. At and after the Effective Time, the
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of USAuto and Merger Sub
shall become vested in the Surviving Corporation, and all debts, liabilities and
duties of USAuto and Merger Sub shall become the debts, liabilities and duties
of the Surviving Corporation.
Section 1.4 CERTIFICATE OF INCORPORATION. The certificate of incorporation
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the certificate of incorporation of the Surviving Corporation (except that such
certificate of incorporation shall be amended to reflect that the name of the
Surviving Corporation will be "USAuto Holdings, Inc." as of the Effective Time),
until thereafter changed or amended as provided therein or by applicable law.
Section 1.5 BYLAWS. The bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation,
until thereafter changed or amended as provided therein or by applicable law.
Section 1.6 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The officers
of USAuto, as of immediately prior to the Effective Time, shall become the
officers of the Surviving Corporation, until the earlier of their resignation or
removal (or otherwise ceasing to be an officer) or until their respective
successors are duly elected and qualified. The directors of Merger Sub, as of
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, which individuals will serve as directors of the Surviving
Corporation until the earlier of their resignation or removal (or otherwise
ceasing to be a director) or until their respective successors are duly elected
and qualified.
Section 1.7 EFFECT ON CAPITAL STOCK. As a result of the Merger and without
any action on the part of any holder thereof, at the Effective Time:
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(a) each share of USAuto Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of USAuto Common
Stock held in the treasury of USAuto, all of which shall be canceled as provided
in SECTION 1.7(b)) shall be converted into the right to receive the amount of
cash and the number of validly issued, fully paid and non-assessable shares of
LBI Common Stock, in each case set forth on the attached SCHEDULE OF
CONSIDERATION opposite the name of the holder of such share of USAuto Common
Stock as of the date hereof (all such cash consideration, LBI Common Stock and
cash paid pursuant to SECTION 1.9 in lieu of fractional shares of LBI Common
Stock, is referred to herein, collectively, as the "MERGER CONSIDERATION");
(b) each share of USAuto Common Stock held in the treasury of USAuto,
shall cease to be outstanding and shall be canceled and retired, and no cash,
LBI Common Stock or other consideration shall be delivered in exchange for any
such share of USAuto Common Stock;
(c) each certificate or certificates that immediately prior to the
Effective Time represented any USAuto Common Stock (collectively, the
"CERTIFICATES") (other than shares of USAuto Common Stock held in the treasury
of USAuto, all of which shall be canceled as provided in SECTION 1.7(b)) shall
represent, and shall be deemed to represent, from and after the Effective Time,
the portion of Merger Consideration determined in accordance with SECTION 1.7(a)
attributable to the USAuto Common Stock represented by the Certificate therefor;
and
(d) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and non-assessable share of common stock of the Surviving
Corporation.
Section 1.8 CERTAIN ADJUSTMENTS. In the event that, during the period
commencing on the date hereof and continuing until the Effective Time, the
outstanding USAuto Common Stock and/or the outstanding LBI Common Stock is
changed into a different number or class of shares by reason of any
reclassification, recapitalization, stock split, reverse stock split,
combination or exchange of shares, or a stock dividend or dividend payable in
any other securities is declared with a record date within such period, or any
similar event occurs, the attached SCHEDULE OF CONSIDERATION shall be
appropriately adjusted to provide the holders of USAuto Common Stock with the
same economic effect as was contemplated by this Agreement prior to such event.
Section 1.9 NO FRACTIONAL SHARES OF LBI COMMON STOCK.
(a) No fractional shares of LBI Common Stock (or certificates or scrip
representing fractional shares of LBI Common Stock) shall be issued, and no
book-entry credit in respect of fractional shares of LBI Common Stock shall be
made, in the Merger or upon the surrender of any Certificate, and no such
fractional interest shall entitle the owner thereof to vote or to have any
rights as a holder of LBI Common Stock or as a stockholder of LBI.
(b) Notwithstanding any implication to the contrary contained in this
Agreement, each holder of shares of USAuto Common Stock who would otherwise have
been entitled to receive a fraction of a share of LBI Common Stock as a result
of the conversion of
3
such USAuto Common Stock into LBI Common Stock in accordance with SECTION 1.7(a)
shall be paid, in lieu of such fractional share, cash (without interest) in an
amount equal to the product of (i) such fractional part of a share of LBI Common
Stock and (ii) the closing price for a share of LBI Common Stock on the New York
Stock Exchange on the date of the Effective Time or, if such date is not a
Business Day, the first Business Day immediately following the date of the
Effective Time.
Section 1.10 EXCHANGE OF CERTIFICATES.
(a) APPOINTMENT OF EXCHANGE AGENT. Prior to the Effective Time, LBI
shall appoint the transfer agent for LBI Common Stock as the exchange agent
hereunder for the purpose of exchanging Certificates representing the right to
receive Merger Consideration (the "EXCHANGE AGENT"). Subject to the provisions
of paragraph (c) of this SECTION 1.10, at or prior to the Effective Time, LBI
shall (i) deposit with the Exchange Agent, in trust for the benefit of holders
of Certificates, cash sufficient to pay the aggregate amount of cash to which
the holders of USAuto Common Stock become entitled as of the Effective Time
pursuant to SECTION 1.7(a) (the "AGGREGATE CASH CONSIDERATION") and (ii)
irrevocably authorize LBI's transfer agent to issue certificates representing
the number of whole shares of LBI Common Stock to which the holders of USAuto
Common Stock become entitled as of the Effective Time pursuant to
SECTION 1.7(a). In addition, LBI agrees to make available to the Exchange Agent
from time to time as needed, cash sufficient to pay cash in lieu of fractional
shares pursuant to SECTION 1.9 and any dividends and other distributions
pursuant to SECTION 1.11. All cash and certificates representing LBI Common
Stock deposited with the Exchange Agent are hereinafter referred to as the
"EXCHANGE FUND."
(b) EXCHANGE PROCEDURES. Subject to the provisions of the immediately
following paragraph (c), as soon as reasonably practicable after the Effective
Time, LBI shall cause the Exchange Agent to mail to each holder of a Certificate
(i) a letter of transmittal which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent, and which letter shall be in customary
form and have such other provisions as LBI may reasonably specify and (ii)
instructions for effecting the surrender of such Certificates in exchange for
the Merger Consideration. Upon surrender of a Certificate to the Exchange Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) a wire transfer of
immediately available funds in the amount equal to the portion of the Aggregate
Cash Consideration that such holder has the right to receive in respect of the
shares of USAuto Common Stock represented by such Certificate as determined in
accordance with SECTION 1.7, (B) certificates representing one or more shares of
LBI Common Stock (which shall be in uncertificated book-entry form unless a
physical certificate is requested) representing, in the aggregate, the whole
number of shares into which such holder's shares of USAuto Common Stock have
been converted pursuant to SECTION 1.7 (after taking into account all shares of
USAuto Common Stock then held by such holder) and (C) a check or wire transfer
of immediately available funds in the amount equal to the cash that such holder
has the right to receive pursuant to SECTIONS 1.9 and 1.11(b). No interest will
be paid or will accrue on any cash payable pursuant to SECTION 1.9 or 1.11(b).
In the event of a transfer of ownership of USAuto Common Stock which is not
registered in the transfer records of
4
USAuto, a check or wire transfer in an amount equal to the portion of the
Aggregate Cash Consideration payable in respect of such USAuto Common Stock, one
or more shares of LBI Common Stock evidencing, in the aggregate, the proper
number of shares of LBI Common Stock, a check in the proper amount of cash in
lieu of any fractional shares of LBI Common Stock pursuant to SECTION 1.9 and
any dividends or other distributions to which such holder is entitled pursuant
to SECTION 1.11, may be issued with respect to such USAuto Common Stock to such
a transferee if the Certificate which formerly represented such shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) CLOSING DATE EXCHANGE. Notwithstanding the provisions of the
immediately preceding paragraph (b), if on the Closing Date the USAuto
Stockholders surrender the Certificates and deliver duly executed and completed
letters of transmittal in substantially the form attached hereto as EXHIBIT
1.10(c), LBI shall deliver to the USAuto Stockholders the Merger Consideration
on the Closing Date.
Section 1.11 DISTRIBUTIONS IN RESPECT OF UNSURRENDERED CERTIFICATES.
(a) Subject to SECTION 1.11(b), until surrendered and exchanged in
accordance with SECTION 1.10(b), each Certificate shall, after the Effective
Time represent solely the right to receive the portion of Merger Consideration
determined in accordance with SECTION 1.7 attributable to such shares of USAuto
Common Stock evidenced by such Certificate, together with any dividends or other
distributions as provided in SECTION 1.11(b), and shall represent no other
rights. From and after the Effective Time, the Surviving Corporation shall be
entitled to treat such Certificates that have not yet been surrendered for
exchange as evidencing the ownership of the aggregate Merger Consideration into
which the shares of USAuto Common Stock represented by such Certificates may be
converted, notwithstanding any failure to surrender such Certificates. Three
hundred sixty days following the Effective Time, the Exchange Agent shall
deliver to the Surviving Corporation all shares of LBI Common Stock and cash
(including any interest earned with respect thereto) deposited by LBI that have
not been disbursed to holders of Certificates, and thereafter such holders shall
be entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) with respect to the Merger Consideration and
unpaid dividends and distributions thereon (as determined in accordance with
SECTION 1.11(b)) deliverable or payable upon due surrender of their
Certificates. Neither the Exchange Agent nor any party hereto shall be liable to
any holder of shares of USAuto Common Stock for any Merger Consideration (or
dividends, distributions or interest with respect thereto) delivered to a public
official after such 360-day period pursuant to any applicable abandoned
property, escheat, or similar law.
(b) Whenever a dividend or other distribution is declared by LBI on the LBI
Common Stock, the record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all shares
issuable pursuant to this Agreement (without interest thereon), provided that no
dividends or other distributions declared or made with respect to LBI Common
Stock shall be paid to the holder of any unsurrendered Certificate with respect
to the share(s) of USAuto Common Stock represented thereby unless and until the
holder of such Certificate shall surrender such Certificate in accordance with
SECTION 1.10(b).
5
Section 1.12 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to have been lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration into which the shares of USAuto Common
Stock represented by such Certificate were converted pursuant to SECTIONS 1.7
and 1.9, together with all unpaid dividends and other distributions owed
pursuant to SECTION 1.11(b).
Section 1.13 WITHHOLDING RIGHTS. LBI shall deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of USAuto Common Stock the amount LBI is required to deduct and withhold
with respect to the making of such payment under the Code and the rules and
regulations promulgated thereunder or any provision of state, local or foreign
tax law. To the extent any amount is so withheld by LBI, such withheld amount
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of USAuto Common Stock in respect of which such deduction
and withholding is being made by LBI.
Section 1.14 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of USAuto or Merger Sub, any
deeds, bills of sale, assignments or assurances, and to take and do, in the name
and on behalf of USAuto or Merger Sub, any other actions necessary or desirable
to vest, perfect and/or confirm of record or otherwise in the Surviving
Corporation any and all right, title and interest in, to and under any of the
rights, properties or assets acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
Section 1.15 STOCK TRANSFER BOOKS. The stock transfer books of USAuto shall
be closed immediately upon the Effective Time, and, except as contemplated by
SECTION 1.10 hereof, there shall be no further registration of transfers of
shares of USAuto Common Stock thereafter on the records of USAuto. From and
after the Effective Time, all Certificates presented to the Surviving
Corporation for any reason shall be surrendered and exchanged in accordance with
SECTION 1.10 or 1.11 hereof (as applicable).
Section 1.16 TRANSACTION STRUCTURE. At any time prior to the mailing of the
Form S-1 to the LBI Stockholders, LBI and USAuto may, with the approval of their
respective Boards of Directors, change the method of effecting the combination
between LBI and USAuto (including, without limitation, the provisions of this
ARTICLE I) to the extent LBI and USAuto agree in writing that such change is
necessary, appropriate or desirable.
ARTICLE II
THE CLOSING
Section 2.1 THE CLOSING. The closing of the Merger and the other
transactions contemplated by this Agreement (the "CLOSING") shall take place at
the offices of Xxxxxxxx & Xxxxx LLP located at 000 Xxxx Xxxxxxxx Xxxxx, Xxxxxxx,
Xxxxxxxx, on the first Business Day following full satisfaction or due waiver
(subject to applicable law) of all of the closing
6
conditions set forth in ARTICLE IX hereof (other than those to be satisfied at
the Closing) or on such other date and place as is agreed to in writing by
USAuto and LBI. The date and time of the Closing are herein referred to as the
"CLOSING DATE."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF USAUTO
USAuto represents and warrants to LBI that each statement contained in
this ARTICLE III is correct and complete, except as set forth in the schedules
attached to the USAuto Disclosure Letter accompanying this Agreement (each a
"USAUTO SCHEDULE" and, together with the USAuto Disclosure Letter, the "USAUTO
SCHEDULES"). The USAuto Disclosure Letter shall be signed on behalf of USAuto by
the Chief Executive Officer and the Chief Financial Officer of USAuto, each of
whom shall certify that the USAuto Schedules were prepared under his supervision
and are, to his knowledge, true and correct in all material respects. The USAuto
Schedules have been arranged, for purposes of convenience only, as separately
titled USAuto Schedules corresponding to the sections of this ARTICLE III;
however, each USAuto Schedule shall be deemed to incorporate by reference all
information disclosed in any other USAuto Schedule to the extent the relevance
of such other information to the representations and warranties corresponding to
such USAuto Schedule is reasonably apparent on its face. Capitalized terms used
in the USAuto Schedules and not otherwise defined therein shall have the
meanings ascribed to such terms in this Agreement.
Section 3.1 ORGANIZATION AND CORPORATE POWER. USAuto is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and USAuto has all requisite corporate power and authority and all
material authorizations, licenses and permits necessary to own and operate its
properties and to carry on its businesses as now conducted. USAuto is qualified
to do business in every jurisdiction in which its ownership of property or the
conduct of business as now conducted requires it to qualify, except where the
failure to be so qualified could not reasonably be expected to have a Material
Adverse Effect on USAuto. USAuto has delivered or made available to LBI accurate
and complete copies of: (a) the certificates or articles of incorporation and
bylaws as currently in effect, including all amendments thereto, of USAuto and
each of its Subsidiaries; (b) the stock records of USAuto and each of its
Subsidiaries; and (c) the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the stockholders of USAuto and each of its Subsidiaries, the Board
of Directors of USAuto and each of its Subsidiaries and all committees of the
Board of Directors of USAuto and each of its Subsidiaries. Except for such
omissions and other defects, if any, as are not material, (a) the minute books
of USAuto and its Subsidiaries are current and contain correct and complete
copies of all charter documents of such companies, including all amendments
thereto and restatements thereof, and of all minutes of meetings, resolutions
and other actions and proceedings of their respective stockholders and boards of
directors and all committees thereof, (b) the stock record book of each such
company is also current, correct and complete and reflects the issuance of all
of the capital stock of such company and by whom such capital stock is currently
held and (c) all such minute books, stock records and other corporate records
have been delivered or made available to LBI. Neither USAuto nor any of its
Subsidiaries is in violation of any of the provisions of its certificate or
articles of incorporation or bylaws.
7
Section 3.2 SUBSIDIARIES. Except as set forth on the USAUTO SUBSIDIARY
SCHEDULE, neither USAuto nor any of its Subsidiaries owns or holds the right to
acquire any stock, partnership interest or joint venture interest or other
equity ownership interest in any corporation, organization or other entity. Each
of the Subsidiaries of USAuto identified on the USAUTO SUBSIDIARY SCHEDULE is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority and all material authorizations, licenses and permits necessary to own
its properties and to carry on its businesses as now conducted and is qualified
to do business, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect on USAuto, in every jurisdiction
in which its ownership of property or the conduct of business as now conducted
requires it to qualify.
Section 3.3 CAPITAL STOCK OF USAUTO AND RELATED MATTERS. The authorized
number of shares of capital stock of USAuto is 100,000, consisting of 100,000
shares of common stock, no par value per share, of which 75,000 shares are
issued and outstanding. All outstanding shares of USAuto Common Stock are owned
of record by the stockholders and in the amounts set forth in the USAUTO CAPITAL
STOCK SCHEDULE. All of the outstanding shares of capital stock of USAuto have
been duly authorized and are validly issued, fully paid and nonassessable.
USAuto does not have any other capital stock, equity securities or securities
containing any equity features authorized, issued or outstanding. Except as set
forth on the USAUTO CAPITAL STOCK SCHEDULE, there are no outstanding rights,
subscriptions, warrants, options, conversion rights or agreements of any kind,
contingent or otherwise, that provide for the sale or issuance by USAuto of any
shares of capital stock or other equity securities (or other securities
containing any equity features) of any kind, and there are no outstanding bonds,
debentures, notes or other indebtedness providing the holder thereof with the
right to vote on any matters on which stockholders of USAuto may vote ("USAUTO
VOTING DEBT"). Except as disclosed in the USAUTO CAPITAL STOCK SCHEDULE or as
provided in this Agreement, neither USAuto nor any of its Subsidiaries is
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock. Except as disclosed in the USAUTO
CAPITAL STOCK SCHEDULE, there are no statutory or contractual stockholders'
preemptive rights or rights of refusal with respect to the issuance or transfer
of any class or series of USAuto capital stock. USAuto has not in any material
respect violated any applicable federal or state securities laws in connection
with the offer, sale or issuance of any class or series of USAuto capital stock.
Except as set forth on the USAUTO CAPITAL STOCK SCHEDULE, to USAuto's Knowledge
there are no agreements among any stockholders of USAuto with respect to the
voting or transfer of USAuto capital stock or with respect to any other aspect
of USAuto's affairs.
Section 3.4 AUTHORIZATION; NO CONFLICTS.
(a) USAuto has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by USAuto of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of USAuto. This Agreement has been
duly executed and delivered by USAuto and constitutes a valid and binding
agreement of USAuto, enforceable against it in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
8
moratorium and similar laws relating to or affecting creditors generally or by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(b) The Board of Directors of USAuto, by resolutions duly adopted by
unanimous vote at a meeting duly called and held and not subsequently rescinded
or modified in any way (the "USAUTO BOARD APPROVAL"), has duly (i) determined
that this Agreement and the Merger are advisable and fair to and in the best
interests of USAuto and its stockholders, (ii) approved this Agreement and the
Merger and (iii) recommended that the stockholders of USAuto approve this
Agreement and the Merger and directed that this Agreement and the Merger be
submitted for consideration by USAuto's stockholders. To the Knowledge of
USAuto, no state takeover statute is applicable to the Merger or the other
transactions contemplated hereby. The stockholders of USAuto, by resolutions
duly adopted by unanimous written consent or unanimous vote at a meeting duly
called and held and not subsequently rescinded or modified in any way, have
approved this Agreement and the Merger.
(c) Except as set forth on the USAUTO CONFLICTS SCHEDULE, the
execution, delivery and performance by USAuto of this Agreement does not and
will not, and the consummation by USAuto of the Merger and the other
transactions contemplated hereby will not, conflict with, or result in any
violation of, or constitute a default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, amendment, cancellation
or acceleration of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest, charge or other encumbrance
on any assets of USAuto or any of its Subsidiaries pursuant to: (i) any
provision of the certificate of incorporation or bylaws of USAuto or any of its
Subsidiaries or (ii) subject to obtaining or making the USAuto Necessary
Consents, any loan or credit agreement, note, mortgage, bond, indenture, lease,
benefit plan or similar arrangement or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to USAuto, any Subsidiary of USAuto or
their respective properties or assets.
(d) Except as set forth on the USAUTO CONFLICTS SCHEDULE, no material
consent, approval, order or authorization of, or registration, declaration or
filing with, any supranational, national, state, municipal, local or foreign
government, any instrumentality, subdivision, court, administrative agency or
commission or other authority thereof, or any quasi-governmental or private body
exercising any regulatory, taxing, importing or other governmental or
quasi-governmental authority (a "GOVERNMENTAL ENTITY") is required by or with
respect to USAuto or any Subsidiary of USAuto in connection with the execution
and delivery of this Agreement by USAuto or the consummation of the Merger and
the other transactions contemplated hereby, except for those required under or
in relation to (i) the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), (ii) state securities or "blue sky" laws (the "BLUE SKY
LAWS"), (iii) the Securities Act of 1933, as amended (the "SECURITIES ACT"),
(iv) the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
(v) the DGCL with respect to the filing of the Certificate of Merger. Consents,
approvals, orders, authorizations, registrations, declarations and filings
required under or in relation to any of the foregoing clauses (i) through (v)
are referred to herein as the "USAUTO NECESSARY CONSENTS."
Section 3.5 FINANCIAL STATEMENTS.
9
(a) The USAUTO FINANCIAL STATEMENTS SCHEDULE consists of: (i) an
unaudited consolidated balance sheet as of September 30, 2003 of USAuto (the
"LATEST USAUTO BALANCE SHEET"), and the related statements of income and cash
flows of USAuto for the nine-month period then ended, and (ii) USAuto's audited
consolidated balance sheets and statements of income and cash flows as of and
for the fiscal years ended December 31, 2001 and 2002 (the financial statements
referred to in clauses (i) and (ii) of this SECTION 3.5(a) are collectively
referred to herein as the "USAUTO FINANCIAL STATEMENTS"). Except as set forth on
the USAUTO ACCOUNTING SCHEDULE, the USAuto Financial Statements have been based
upon the information contained in USAuto's books and records, have been prepared
in accordance with GAAP, consistently applied throughout the periods indicated,
and present fairly in all material respects the consolidated financial condition
of USAuto's business and the consolidated results of operations and consolidated
cash flows of USAuto's business as of the times and for the periods referred to
therein, subject, in the case of the unaudited USAuto Financial Statements, to
the absence of footnote disclosures and other presentation items and changes
resulting from normal year-end adjustments that have not been and are not
expected to be material in amount. Except as required by GAAP, USAuto has not,
since the date of the Latest USAuto Balance Sheet, made any change in the
accounting practices or policies applied in the preparation of the USAuto
Financial Statements. The books and records of USAuto and its Subsidiaries have
been, and are being, maintained in all material respects in accordance with GAAP
and other applicable legal and accounting requirements. Except as set forth on
the USAUTO ACCOUNTING SCHEDULE, neither USAuto nor any of its Subsidiaries has
any liabilities that are of a nature that would be required to be disclosed on a
balance sheet of USAuto and its Subsidiaries (or the footnotes thereto) prepared
in accordance with GAAP, other than (x) liabilities reflected on the USAuto
Financial Statements and (y) current liabilities incurred in the ordinary course
of business consistent with past practice since the date of the Latest USAuto
Balance Sheet.
(b) USAuto has previously furnished LBI with copies of the audited
statutory financial statements of USAuto Insurance Company, Inc. as of December
31, 2001 and each of the Insurance Subsidiaries as of December 31, 2002,
together with all exhibits and schedules thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith, prepared in
conformity with accounting practices prescribed or permitted by the respective
state of domicile for each Insurance Subsidiary, applied on a consistent basis
(collectively, the "SAP FINANCIAL STATEMENTS"). Each of the balance sheets in
the SAP Financial Statements fairly presents in all material respects the
financial position of the applicable Insurance Subsidiary as of its date, and
each of the statements of operations included in the SAP Financial Statements
fairly presents in all material respects the results of operations of the
applicable Insurance Subsidiary for the period therein set forth, in each case,
in accordance with statutory accounting practices of the respective state of
domicile. The SAP Financial Statements have been audited by Deloitte & Touche
LLP.
Section 3.6 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the
USAUTO DEVELOPMENTS SCHEDULE, since December 31, 2002, there has not been any
Material Adverse Effect with respect to USAuto and its Subsidiaries taken as a
whole. Except as set forth on the USAUTO DEVELOPMENTS SCHEDULE and except as
expressly contemplated by this Agreement, since December 31, 2002, neither
USAuto nor any Subsidiary of USAuto has (a) borrowed any amount or incurred or
become subject to any material liabilities (except liabilities incurred in the
ordinary course of business, liabilities under contracts entered into in the
ordinary course of
10
business and borrowings from banks (or similar financial institutions) necessary
to meet ordinary course working capital requirements), (b) mortgaged, pledged or
subjected to any material Lien (except Permitted Liens) any material portion of
its assets, (c) sold, assigned or transferred any material portion of its
tangible assets, (d) sold, assigned or transferred any material Intellectual
Property or other intangible assets, (e) suffered any extraordinary loss(es) in
an amount exceeding $100,000 individually or in the aggregate or waived any
right(s) of material value, (f) issued, sold or transferred any of its capital
stock or other equity securities, securities convertible into its capital stock
or other equity securities or warrants, options or other rights to acquire its
capital stock or other equity securities, or any bonds or debt securities, (g)
made any capital expenditures in excess of $100,000 or commitments therefor, (h)
made any material change in its accounting methods, practices or policies, (i)
revalued any of its assets, including, without limitation, by writing down the
value of contracts or by writing off accounts receivable, except in the ordinary
course of business, (j) entered into any other material transaction, (k)
declared, set aside or paid any dividends or other distributions with respect to
its capital stock other than as specifically provided therefor under
SECTION 7.1(c) hereof or, directly or indirectly, redeemed, purchased or
acquired any of its capital stock, (l) amended or terminated any material
contract, (m) loaned to or invested in any other entity (other than a
wholly-owned Subsidiary of USAuto) an amount in excess of $100,000, (n) waived
or released any material right or claim or (o) entered into any agreement to do
any of the foregoing.
Section 3.7 TITLE TO PROPERTIES.
(a) USAuto and/or its Affiliates own good and marketable title to all
of the personal property shown on the Latest USAuto Balance Sheet, free and
clear of all Liens (except for Permitted Liens), except for dispositions of
personal property since the Latest USAuto Balance Sheet in the ordinary course
of business, which dispositions were not material in amount.
(b) The real property demised by the leases described on the USAUTO
LEASED REAL PROPERTY SCHEDULE constitutes all of the real property leased,
subleased, licensed or otherwise used or occupied by USAuto or any of its
Subsidiaries. Except as otherwise disclosed on the USAUTO LEASED REAL PROPERTY
SCHEDULE, the leases described on the USAUTO LEASED REAL PROPERTY SCHEDULE are
in full force and effect, and USAuto or an Affiliate of USAuto holds a valid and
existing leasehold interest under each such lease. LBI has been supplied with a
true and correct copy of each of the leases described on the USAUTO LEASED REAL
PROPERTY SCHEDULE, and none of such leases have been modified in any material
respect (except to the extent that such modifications are disclosed by the
copies of such leases delivered to USAuto). Neither USAuto nor any of its
Subsidiaries (nor, to USAuto's Knowledge, any other Person) is in default in any
material respect under any of such leases. Except as disclosed in the USAUTO
LEASED REAL PROPERTY SCHEDULE, neither USAuto nor any of its Subsidiaries has
(i) subleased, licensed or otherwise granted any other Person the right to use
or occupy any portion of the real property demised by such leases or (ii)
collaterally assigned or granted any other security interest in such leases.
(c) Except as set forth on the USAUTO OWNED REAL PROPERTY SCHEDULE,
neither USAuto nor any of its Subsidiaries owns any real property or possesses
any option to purchase any real property.
11
Section 3.8 TAX MATTERS.
(a) USAuto and each Subsidiary has timely filed all Tax Returns that
it was required to file, either separately or as a member of an Affiliated
Group, under applicable laws and regulations. All Tax Returns of USAuto and each
Subsidiary that have been filed are correct and complete in all respects and
have been prepared in compliance in all material respects with all applicable
laws and regulations. All Taxes due and owing by USAuto or any Subsidiary
(whether or not shown or required to be shown on any Tax Return) have been paid.
Neither USAuto nor any Subsidiary currently is the beneficiary of any extension
of time within which to file any Tax Return. No claim has been made by an
authority in a jurisdiction where USAuto or any Subsidiary does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no Liens for Taxes (other than Taxes not yet due and payable) upon any of the
assets of USAuto or any Subsidiary.
(b) USAuto and each Subsidiary has withheld and paid all Taxes
required to have been withheld and paid in connection with any amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party, and all Forms W-2 and 1099 required and due with respect thereto
have been properly completed and timely filed.
(c) Neither USAuto nor any of its Subsidiaries has reason to expect
any authority to assess any additional Taxes for any taxable period of USAuto or
any of its Subsidiaries ending on or prior to the Closing Date. No foreign,
federal, state or local tax audits or administrative or judicial Tax proceedings
are pending or being conducted with respect to USAuto or any Subsidiary. Neither
USAuto nor any Subsidiary has received from any foreign, federal, state, or
local taxing authority (including jurisdictions where neither USAuto nor any
Subsidiary has filed Tax Returns) any (i) written notice indicating an intent to
open an audit or other review, (ii) written request for information related to
Tax matters or (iii) written notice of deficiency or proposed adjustment for any
amount of Tax proposed, asserted, or assessed by any taxing authority against
USAuto or any Subsidiary. The USAUTO TAXES SCHEDULE attached hereto lists all
federal, state, local, and foreign income Tax Returns filed with respect to
USAuto or any Subsidiary for taxable periods ended on or after December 31,
1996, indicates those Tax Returns that have been audited and indicates those Tax
Returns that currently are the subject of audit. USAuto has made available to
LBI correct and complete copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by USAuto
or any Subsidiary filed or received since December 31, 1996.
(d) Neither USAuto nor any Subsidiary has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency. Neither USAuto nor any Subsidiary is a party
to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Code Section 280G (or any corresponding provision
of state, local or foreign Tax law). Neither USAuto nor any Subsidiary is a
party to or bound by any Tax allocation, sharing, or similar agreement. Neither
USAuto nor any Subsidiary (i) has been a member of an Affiliated Group filing a
combined, consolidated, or unitary Tax Return (other than a group the common
parent of which was USAuto) or (ii) has any liability for the Taxes of any
Person (other than USAuto or any Subsidiary) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
12
transferee or successor, by contract, or otherwise. Neither USAuto nor any
Subsidiary has ever been, nor will they be at the Closing, a United States Real
Property Holding Corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii).
(e) The unpaid Taxes of USAuto and its Subsidiaries (i) did not, as of
the date of the Latest USAuto Balance Sheet, exceed the amount reserved on the
"Tax Liability" line item (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Latest USAuto Balance Sheet (rather than in any notes
thereto) and (ii) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
USAuto and its Subsidiaries in filing their Tax Returns. Since the date of the
Latest USAuto Balance Sheet, neither USAuto nor any Subsidiary has incurred any
liability for Taxes outside the ordinary course of business.
(f) Neither USAuto nor any Subsidiary will be required to include any
item of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result of
any: (i) change in method of accounting for a taxable period ending on or prior
to the Closing Date; (ii) "closing agreement" as described in Code Section 7121
(or any corresponding or similar provision of state, local or foreign income Tax
law) executed on or prior to the Closing Date; (iii) installment sale or open
transaction disposition made on or prior to the Closing Date; or (iv) prepaid
amount received on or prior to the Closing Date. Neither USAuto nor any
Subsidiary uses the cash-method of accounting for purposes of computing its
federal or state income Taxes. Neither USAuto nor any Subsidiary thereof is a
member of a "consolidated group" (within the meaning of Treasury
Regulation 1.1502-1(h)).
(g) Neither USAuto nor any Subsidiary has distributed stock of another
Person, or has had its stock distributed by another Person, in a transaction
that was purported or intended to be governed in whole or in part by Code
Section 355 or 361.
(h) Neither USAuto nor any of its Subsidiaries has made, with respect
to itself or any property held by itself, any consent under Code Section 341. No
property of USAuto or any of its Subsidiaries is "tax exempt use property"
within the meaning of Code Section 168(h). Neither USAuto nor any of its
Subsidiaries is a party to any lease made pursuant to Section 168(f)(8) of the
Internal Revenue Code of 1954.
(i) USAuto (and each predecessor of such thereof) has been a validly
electing S corporation within the meaning of Code Sections 1361 and 1362 (and
any corresponding provision of state, local or foreign Tax law) at all times
during its existence and will be an S corporation up to and including the
termination of the separate corporate existence of USAuto in connection with the
Merger.
(j) The USAUTO TAXES SCHEDULE identifies each Subsidiary of USAuto
that is a "qualified subchapter S subsidiary" within the meaning of Code Section
1361(b)(3)(B), and each Subsidiary so identified has been a qualified subchapter
S subsidiary at all times since the date shown on such schedule and will be a
qualified subchapter S Subsidiary up to and including the termination of the
separate corporate existence of USAuto in connection with the Merger.
13
Section 3.9 CERTAIN CONTRACTS AND COMMITMENTS. Except as set forth on the
USAUTO CONTRACTS SCHEDULE, neither USAuto nor any of its Subsidiaries is party
to any oral or written (a) collective bargaining agreement or contract with any
labor union, (b) bonus, pension, profit sharing, retirement or other form of
deferred compensation plan (except as described in SECTION 3.13 or as set forth
on the USAUTO EMPLOYEE BENEFITS SCHEDULE), (c) stock purchase, stock option or
similar plan, (d) contract for the employment of, or payments upon the severance
of, any officer, individual employee or other Person, whether on a full-time or
consulting basis, providing annual compensation in excess of $100,000, (e)
agreement or indenture relating to the borrowing of money or to mortgaging,
pledging or otherwise placing a Lien on any material portion of the assets of
USAuto or any of its Subsidiaries, (f) guaranty of any obligation for borrowed
money or other material guaranty, (g) lease or agreement under which it is
lessee of, or holds or operates any personal property owned by any other party,
for which the annual rental exceeds $100,000, (h) lease or agreement under which
it is lessor of, or permits any third party to hold or operate any property,
real or personal, for which the annual rental exceeds $100,000, (i) contract or
group of related contracts with the same party for the purchase of products or
services, under which the undelivered balance of such products and services has
a selling price in excess of $100,000, (j) contract or group of related
contracts with the same party for the sale of products or services under which
the undelivered balance of such products or services has a sales price in excess
of $100,000, (k) contract which prohibits USAuto or any of its Subsidiaries from
freely engaging in business anywhere in the world, (l) contract for capital
expenditures or the acquisition, construction or modification of fixed assets,
in each case that requires aggregate future payments of $100,000 or more, (m)
contract relating to clean-up, abatement or other actions in connection with the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study, (n) contract not terminable at
will by USAuto and granting to any Person a right at such Person's option to
purchase or acquire any asset or property of USAuto's business (or any interest
therein) with a value in excess of $100,000 in the case of any one contract or
$100,000 in the aggregate for all contracts of such type, (o) material agreement
relating to the licensing of Intellectual Property by USAuto or its Subsidiaries
to a third party or by a third party to USAuto or its Subsidiaries, and all
other material agreements affecting USAuto's or its Subsidiaries' ability to use
or disclose any Intellectual Property, (p) contract with any material provider,
independent contractor or other agent having a remaining term in excess of six
months and which by its terms is not terminable without penalty on 60 calendar
days' or less notice, (q) contract with any material customer with respect to
discounts or allowances or extended payment terms, (r) joint venture or
partnership contract with any other Person, (s) contract with any material
customer having a remaining term in excess of six months and which by its terms
is not terminable without penalty on 90 calendar days' or less notice, (t)
contract pursuant to which USAuto or any of its Subsidiaries has advanced or
loaned to any other Person, or invested in any other Person, amounts in the
aggregate (for any one Person) exceeding $100,000 or contractually committed to
do so, (u) minority or set-aside contract, (v) grant of any right-of-first
refusal or similar right in favor of any third party with respect to any
material portion of the assets of USAuto or any of its Subsidiaries, or (w)
other contract which involves future payment or performance valued at $100,000
or more. LBI has been supplied with a true and correct copy of all written
contracts and written summaries of all oral contracts which are referred to on
the USAUTO CONTRACTS SCHEDULE, together with all material amendments, waivers or
other changes thereto. Neither USAuto nor any of its Subsidiaries (nor, to
USAuto's Knowledge, any other Person) is in default
14
under any contract listed on the USAUTO CONTRACTS SCHEDULE. The USAUTO CONTRACTS
SCHEDULE sets forth each plan or agreement pursuant to which any amounts may
become payable (whether currently or in the future) to current or former
employees, officers and directors of USAuto or any of its Subsidiaries as a
result of or in connection with the Merger.
Section 3.10 INTELLECTUAL PROPERTY. The USAUTO INTELLECTUAL PROPERTY
SCHEDULE sets forth all of the following that are owned by USAuto or its
Subsidiaries: (a) patents and patent applications; (b) registered trademarks or
service marks and applications to register trademarks or service marks or
Internet domain names; (c) registered copyrights; (d) material unregistered
trademarks, service marks, copyrights, trade names and corporate names; and (e)
proprietary computer software (collectively, the "USAUTO INTELLECTUAL
Property"). Except as set forth on the USAUTO INTELLECTUAL PROPERTY SCHEDULE,
(a) USAuto and/or its Subsidiaries own and possess all right, title and interest
in and to the USAuto Intellectual Property free and clear of all Liens (except
for Permitted Liens), (b) USAuto and/or its Subsidiaries own, or possess the
valid right to use pursuant to a valid and binding written license agreement
listed on the USAUTO CONTRACTS SCHEDULE, all other material Intellectual
Property used in the conduct of USAuto's or its Subsidiaries' respective
businesses, (c) neither USAuto nor any of its Subsidiaries has received any
written notices of infringement or misappropriation from any third party with
respect to any Intellectual Property, (d) to USAuto's Knowledge neither USAuto
nor any of its Subsidiaries has infringed, misappropriated or otherwise misused
any third party's Intellectual Property, (e) USAuto has no Knowledge of any
infringement or misappropriation by any third party of any USAuto Intellectual
Property and (f) to USAuto's Knowledge there are no royalties or other fees
payable by USAuto or any of its Subsidiaries with respect to the use of
Intellectual Property. The consummation of the transactions contemplated by this
Agreement will not result in the material loss or impairment of any rights of
USAuto or any of its Subsidiaries to own, use or license any Intellectual
Property.
Section 3.11 LITIGATION; COMPLIANCE WITH LAWS; AUTHORIZATIONS.
(a) Except as set forth on the USAUTO LITIGATION SCHEDULE, there are
no actions, suits or other proceedings or, to USAuto's Knowledge, investigations
pending or, to USAuto's Knowledge, threatened against USAuto or any of its
Subsidiaries, or to USAuto's Knowledge, any current or former officers of USAuto
or any Subsidiary, at law or in equity, or before or by any Governmental Entity,
and neither USAuto nor any of its Subsidiaries is subject to any outstanding
material judgment, order or decree of any Governmental Entity.
(b) USAuto and each of its Subsidiaries is in all material respects in
compliance with all applicable laws and regulations of any Governmental Entity
that is material to the operation of the businesses of USAuto and its
Subsidiaries as presently conducted. USAuto and its Subsidiaries have all
material licenses, permits, approvals and similar governmental authorizations
("GOVERNMENTAL AUTHORIZATIONS") necessary to enable USAuto and its Subsidiaries
to conduct their business in the manner in which their business is currently
being conducted. USAuto and its Subsidiaries are in compliance with the material
terms and requirements of such Governmental Authorizations. Neither USAuto nor
any of its Subsidiaries has received written notice from any Governmental Entity
regarding (i) any actual or possible violation of or failure to comply with any
term or requirement of any Governmental
15
Authorization or (ii) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
Section 3.12 INSURANCE. The USAUTO INSURANCE SCHEDULE lists each
insurance policy maintained by USAuto and its Subsidiaries. All such insurance
policies are in full force and effect, and neither USAuto nor any of its
Subsidiaries is in material default with respect to its obligations under any
such insurance policy. The USAUTO INSURANCE SCHEDULE sets forth a list of all
pending claims and the status as of the date of this Agreement of all
deductibles with respect to all such policies and the loss run for the year
ended December 31, 2002, with respect to such policies.
Section 3.13 EMPLOYEE BENEFIT PLANS. Except as listed on the USAUTO
EMPLOYEE BENEFITS SCHEDULE:
(a) There are no USAuto Employee Benefit Plans. Each USAuto Benefit
Plan that has been treated by USAuto or its Subsidiaries as satisfying the
requirements of Section 401(a) of the Code has received a favorable opinion
letter from the Internal Revenue Service that the form of such USAuto Benefit
Plan is acceptable under Section 401 of the Code, and, to USAuto's Knowledge, no
fact or circumstance exists that would jeopardize the qualification of such
USAuto Benefit Plan. Each USAuto Benefit Plan complies in form and in operation
in all material respects with the requirements of the Code, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all other
applicable laws, including, without limitation, applicable reporting and
disclosure requirements with respect to each USAuto Benefit Plan. Neither USAuto
nor any of its Subsidiaries has incurred any material liability for any tax or
civil penalty imposed by Section 4975 of the Code or Section 502 of ERISA.
(b) With respect to each USAuto Benefit Plan, (i) all required
contributions have been made or properly accrued, (ii) there are no actions,
suits or claims pending, other than routine and reasonable claims for benefits,
(iii) neither USAuto nor any of its Subsidiaries has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code and to USAuto's Knowledge no such "prohibited transaction" has occurred
that would result in a material liability to the Surviving Corporation or any of
its Subsidiaries under Section 406 of ERISA or Section 4975 of the Code and (iv)
LBI has been supplied with true and complete copies of the most recent
determination letter or opinion letter received from the Internal Revenue
Service regarding such USAuto Benefit Plan and the latest financial statements
and latest prepared actuarial reports for such USAuto Benefit Plan. To USAuto's
Knowledge, no audit or investigation by any domestic or foreign governmental or
other law enforcement agency is pending with respect to any USAuto Employee
Benefit Plan.
(c) Neither USAuto nor any of its Subsidiaries, nor, to USAuto's
Knowledge, any of their respective directors, officers, employees or any other
"fiduciary" (as such term is defined in Section 3 of ERISA), has committed any
breach of fiduciary responsibility imposed by ERISA or any other applicable law
with respect to the USAuto Employee Benefit Plans which would subject the
Surviving Corporation, its Subsidiaries or any of their respective directors,
officers or employees to any material liability under ERISA or any applicable
law.
16
(d) USAuto and its Subsidiaries have not incurred, and have no reason
to expect that they will incur, any liability to the Pension Benefit Guaranty
Corporation or otherwise under Title IV of ERISA (including any withdrawal
liability) with respect to any employee pension benefit plan that USAuto or a
Subsidiary of USAuto, or any other entity that together with USAuto or a
Subsidiary of USAuto is treated as a single employer under Section 414 of the
Code, maintains or ever has maintained, to which any of them contributes or ever
has been required to contribute or with respect to which any of them have any
liability. To USAuto's Knowledge, no reportable event as defined in Section 4043
of ERISA (that has not been waived by regulation) or accumulated funding
deficiency as defined in Section 412(a) of the Code has occurred, and no facts
exist that could reasonably, or reasonably be expected to, result in such a
reportable event or accumulated funding deficiency.
(e) No USAuto Employee Benefit Plan that is described in Section 3(1)
of ERISA provides any benefits after a termination of employment except to the
extent such benefits are required to satisfy the minimum requirements under Part
6 of Subtitle B of Title I of ERISA.
(f) USAuto or its Subsidiaries have the right pursuant to the terms of
each USAuto Benefit Plan and all agreements related to such plan unilaterally to
terminate such plan (or its participation in such plan) at any time without
causing a material liability to arise.
(g) The transactions contemplated by this Agreement will not result in
any additional payments to, or benefit accruals for, or any increase in the
vested interest of, any current or former employee or director of USAuto or any
of its Subsidiaries (or any dependent of any such Person) under any USAuto
Employee Benefit Plan.
Section 3.14 ENVIRONMENTAL COMPLIANCE AND CONDITIONS. USAuto and its
Subsidiaries have obtained and possess all material permits, licenses and other
authorizations required under federal, state and local laws and regulations
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including all such laws and regulations relating
to the emission, discharge, release or threatened release of any chemicals,
petroleum, pollutants, contaminants or hazardous or toxic materials, substances
or wastes into ambient air, surface water, groundwater or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any chemicals, petroleum, pollutants,
contaminants or hazardous or toxic materials, substances or waste (collectively,
"ENVIRONMENTAL AND SAFETY REQUIREMENTS"). Except as set forth on the USAUTO
ENVIRONMENTAL COMPLIANCE SCHEDULE, USAuto and its Subsidiaries are in all
material respects in compliance with all terms and conditions of such permits,
licenses and authorizations and are in all material respects also in compliance
with all other Environmental and Safety Requirements or any written notice or
demand letter issued, entered, promulgated or approved thereunder. Neither
USAuto nor any of its Subsidiaries has received written notice of violations or
liabilities arising under Environmental and Safety Requirements (including any
investigatory, remedial or corrective obligation) relating to USAuto, its
Subsidiaries or their respective facilities. To USAuto's Knowledge, no current
or prior owner of any property owned or leased, at any time, by USAuto or any of
its Subsidiaries has received written notice (whether from a Governmental
Entity, citizens group, employee or otherwise) that alleges that such current or
prior owner or USAuto or any of its Subsidiaries is not or was not in compliance
with any
17
applicable Environmental and Safety Requirements. Notwithstanding any
implication to the contrary contained herein, this SECTION 3.14 constitutes the
sole and exclusive representations and warranties of USAuto with respect to
Environmental and Safety Requirements and all other environmental matters.
Section 3.15 AFFILIATED TRANSACTIONS. Except as set forth on the USAUTO
AFFILIATED TRANSACTIONS SCHEDULE, no stockholder, officer or director of USAuto
or any individual in such stockholder's, officer's or director's immediate
family is a party to any agreement, contract, commitment or transaction with
USAuto or has any interest in any property used by USAuto.
Section 3.16 BROKERAGE. Except as set forth in the USAUTO BROKERAGE
SCHEDULE, no agent, broker, investment banker, financial advisor or other firm
or Person is or will be entitled to any broker's or finder's fee or any other
similar commission or fee in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
USAuto.
Section 3.17 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) All accounts receivable of USAuto and its Subsidiaries that are
reflected in the USAuto Financial Statements or in the accounting records of
USAuto as of the date hereof (collectively, the "USAUTO ACCOUNTS RECEIVABLE")
represent valid obligations arising from services actually performed in the
ordinary course of business. Except as described in the USAUTO ACCOUNTS
RECEIVABLE SCHEDULE, the USAuto Accounts Receivable are current and collectible
net of any respective reserves shown in the USAuto Financial Statements or on
the accounting records of USAuto as of the date hereof (which reserves are
calculated consistent with past practice and in management's reasonable
estimation believed to be adequate). There is no contest, claim or right of
set-off, other than in the ordinary course of business, relating to the amount
or validity of such USAuto Accounts Receivable.
(b) The USAUTO LOANS SCHEDULE contains an accurate and complete list
of all loans and advances made by USAuto or any of its Subsidiaries (and the
amounts outstanding thereunder as of the date of this Agreement) to any
employee, director, consultant or independent contractor of USAuto or any of its
Subsidiaries.
Section 3.18 LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth on the USAUTO LABOR MATTERS SCHEDULE, with
respect to the business of USAuto and its Subsidiaries: (i) to USAuto's
Knowledge, no employee of USAuto or any of its Subsidiaries (A) has any present
intention to terminate such employee's employment with USAuto or its
Subsidiaries or (B) is a party to any confidentiality, non-competition,
proprietary rights or other similar agreement between such employee and any
entity other than USAuto or any of its Subsidiaries; (ii) no labor organization
or group of employees has filed any representation petition or made any demand
for recognition; (iii) no union organizing or decertification efforts are
underway or, to USAuto's Knowledge, threatened and no other question concerning
representation exists; (iv) no labor strike, work stoppage, slowdown or other
material labor dispute has occurred, and none is underway or, to USAuto's
Knowledge, threatened; (v) there is no xxxxxxx'x compensation liability,
experience or matter
18
that would reasonably be expected to have a Material Adverse Effect on USAuto;
and (vi) there is no employment-related charge, complaint, grievance or, to
USAuto's Knowledge, investigation or inquiry of any kind, pending or, to
USAuto's Knowledge, threatened in any forum, relating to an alleged violation or
breach by USAuto or any of its Subsidiaries (or any of its or their officers or
directors) of any material law, regulation or contract.
(b) All notices required in connection with the transactions
contemplated by this Agreement under any collective bargaining agreement to
which USAuto or any of its Subsidiaries is a party have been given, and all
collective bargaining obligations of USAuto and its Subsidiaries with any
employee representative have been, or prior to the Closing will be, satisfied.
Within the past three years, neither USAuto nor any of its Subsidiaries has
implemented any mass layoff of employees for which proper notification was not
provided under the Worker Adjustment and Retraining Notification Act of 1988, as
amended, or any similar foreign, state or local law, regulation or ordinance
(collectively, the "WARN ACT"), and no such action will be implemented by USAuto
or any of its Subsidiaries prior to the Closing.
Section 3.19 AUTHORIZATION AND COMPLIANCE OF THE INSURANCE SUBSIDIARIES.
Each of the Insurance Subsidiaries (a) is an authorized insurer (on either an
admitted or a nonadmitted basis) duly licensed, in good standing and qualified
to transact an insurance business in each state in which it presently writes
insurance, for the classes and lines of property and casualty insurance
specified in its licenses for such state, including without limitation
non-standard auto insurance policies, and (b) meets in all material respects all
statutory and regulatory requirements of all Governmental Entities which have
jurisdiction over it to be an authorized insurer in such state on either an
admitted or a nonadmitted basis. Except as disclosed on the USAUTO INSURANCE
COMPLIANCE SCHEDULE, and except for routine complaints made by policyholders and
claimants that, in each case, relate solely to a policyholder's individual
insurance contract, there is no material proceeding with respect to USAuto or
any of the Subsidiaries of USAuto which has been commenced by any state
insurance regulatory authority and is currently pending. USAuto has previously
furnished LBI with true and complete copies of the reports (or the most recent
draft thereof to the extent any final report is not available) reflecting the
results of the most recent financial or market conduct examinations of any of
the Insurance Subsidiaries issued by any such Governmental Entity.
Section 3.20 INSURANCE POLICIES' COMPLIANCE WITH LAW. All insurance
policies issued by the Insurance Subsidiaries are, as now in force and to the
extent required under the applicable law or regulation of the applicable state
insurance regulatory authority, in a form acceptable to such authority or have
been filed and not objected to (or such objection has been withdrawn or
resolved) by such authority within the period provided for objection. Neither
USAuto nor any Subsidiary of USAuto which is not an Insurance Subsidiary has
issued any insurance policies or entered into any reinsurance agreements. All
material reports, statements, documents, registrations, filings and submissions
to any state insurance regulatory authority complied in all material respects
with applicable law in effect when filed, and no deficiencies have been asserted
by such authority with respect to any such report, statement, document,
registration, filing or submission that have not been satisfied. All premium
rates established by the Insurance Subsidiaries that are required to be filed
with or approved by any such authority have been so filed or approved, the
premiums charged conform to the premiums so filed or approved and comply (or
complied at the relevant time) with the insurance laws applicable thereto.
19
Section 3.21 RESERVES. All statutory reserves reflected in the SAP
Financial Statements for the year ended December 31, 2002 were determined in
accordance with statutory accounting principles and generally accepted actuarial
assumptions and meet the requirements of the insurance laws of each applicable
Governmental Entity.
Section 3.22 REINSURANCE AND RETROCESSIONS. The USAUTO REINSURANCE SCHEDULE
contains a true and complete list of all reinsurance and retrocession treaties
and agreements in force to which any Insurance Subsidiary is a party, including
(a) any terminated or expired treaty or agreement under which there remains any
outstanding liability with respect to paid or unpaid case reserves in excess of
$100,000, (b) the effective date of each such treaty or agreement and (c) the
termination date of any such treaty or agreement which has a definite
termination date. No Insurance Subsidiary is in default in any respect as to any
provision of any reinsurance or retrocession treaty or agreement or has failed
to meet the underwriting standards required for any business reinsured
thereunder.
Section 3.23 INVESTMENT ASSETS. USAuto has provided or has made available
to LBI a true, complete and correct list of the bonds, stocks, mortgage loans
and other investments that are carried on the books and records of USAuto and
the Insurance Subsidiaries as of December 31, 2002 (such bonds, stocks, mortgage
loans and other investments, together with all bonds, stocks, mortgage loans and
other investments acquired by USAuto and the Insurance Subsidiaries between
December 31, 2002 and the Closing are referred to herein as the "INVESTMENT
ASSETS"). Except for Investment Assets sold in the ordinary course of business
consistent with past practices, each of USAuto and the Insurance Subsidiaries,
as applicable, has good and marketable title to all of the Investment Assets it
purports to own, free and clear of all Liens, except as set forth in the USAUTO
INVESTMENT ASSETS SCHEDULE. None of the Investment Assets is in default in the
payment of principal or interest or dividends and, to USAuto's Knowledge, there
has occurred no event which (whether with notice or lapse of time or both) will
result in a default under any of the Investment Assets.
Section 3.24 INSURANCE BROKERS. To the Knowledge of USAuto and each of its
Subsidiaries, all Persons through whom the Insurance Subsidiaries have placed or
sold insurance and reinsurance were duly licensed (to the extent such licensing
is required) to sell or place insurance and reinsurance in the jurisdictions
where, and at the time when, they did so on behalf of the Insurance
Subsidiaries. Except as described on the USAUTO INSURANCE BROKERS SCHEDULE, (a)
no agent, broker, intermediary or producer has any underwriting or binding
authority on behalf of any Insurance Subsidiary, (b) none of USAuto or any of
its Subsidiaries is a party to any managing general agency contract or other
similar arrangement and (c) none of USAuto or any of its Subsidiaries is a party
to any fronting or similar agreement to place or sell insurance or reinsurance
for any other Person.
Section 3.25 REPRESENTATION COMPLETE; SUPPLIED INFORMATION.
(a) None of the representations or warranties made by USAuto, nor any
statement made in the USAUTO SCHEDULES or in any certificate furnished by USAuto
pursuant to this Agreement, contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to
20
make the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
(b) None of the information supplied or to be supplied by USAuto for
inclusion in the Form S-1 will, (i) at the time the Form S-1 becomes effective
under the Securities Act or at the time of any post-effective amendment thereto
or (ii) on the date it is mailed to the holders of shares of LBI Common Stock
(the "LBI STOCKHOLDERS") or at the time of the LBI Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, however, no representation or
warranty is made by USAuto with respect to statements made or incorporated by
reference in the Form S-1 based on information supplied by LBI for inclusion or
incorporation by reference therein.
Section 3.26 INDEBTEDNESS. The USAUTO INDEBTEDNESS SCHEDULE sets forth a
complete list of the outstanding principal amounts of all Indebtedness of USAuto
and its Subsidiaries as of the date hereof and the amounts that would be
required to be paid in order to payoff all such Indebtedness in full if such
Indebtedness were to be paid on the date hereof.
Section 3.27 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Agreement, in the USAuto
Disclosure Letter and/or in the certificates required to be delivered pursuant
to or in connection herewith, neither USAuto nor any other Person acting for
USAuto makes any representation or warranty, express or implied, and USAuto and
LBI hereby disclaim any such representation or warranty, whether by USAuto or
any of its officers, directors, employees, agents, representatives or any other
Person, with respect to the execution, delivery or performance by USAuto of this
Agreement or the agreements specified herein or with respect to the transactions
contemplated hereby or thereby, notwithstanding the delivery or disclosure to
LBI or any of its officers, directors, employees, agents or representatives or
any other Person of any documentation or other information by USAuto or any of
its officers, directors, employees, agents or representatives or any other
Person with respect to any one or more of the foregoing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF USAUTO STOCKHOLDERS
Section 4.1 REPRESENTATIONS AND WARRANTIES OF USAUTO STOCKHOLDERS. Each
USAuto Stockholder severally, and not jointly, represents and warrants to LBI
that each statement contained in this SECTION 4.1 is correct and complete.
(a) AUTHORITY AND CAPACITY. Such USAuto Stockholder has full legal
right and capacity to enter into this Agreement. This Agreement has been duly
executed and delivered by such USAuto Stockholder and constitutes a valid and
binding obligation of such USAuto Stockholder, enforceable against him in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors generally or by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
21
(b) DISCLOSURE. To the knowledge of each USAuto Stockholder, the
representations and warranties contained in ARTICLE III do not contain any
untrue statement of a fact or omit to state any fact necessary in order to make
the statements and information contained therein not misleading.
(c) STOCKHOLDER AGREEMENTS. Except as set forth on the USAUTO CAPITAL
STOCK SCHEDULE, to such USAuto Stockholder's knowledge there are no agreements
among any stockholders of USAuto with respect to the voting or transfer of
USAuto capital stock or with respect to any other aspect of USAuto's affairs.
Section 4.2 ADDITIONAL REPRESENTATION AND WARRANTY OF APPLICABLE USAUTO
STOCKHOLDERS. Each Applicable USAuto Stockholder severally, and not jointly,
represents and warrants to LBI that such Applicable USAuto Stockholder is an
"accredited investor" as such term is defined under the Securities Act and the
rules and regulations promulgated thereunder, the shares of LBI Common Stock
acquired by such Applicable USAuto Stockholder pursuant hereto are being
acquired for his own account with the present intention of holding such
securities for purposes of investment, and such Applicable USAuto Stockholder
has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws.
Section 4.3 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Agreement, in the Exhibits and
Schedules hereto, the agreements specified herein, and in the certificates
required to be delivered pursuant to or in connection herewith, each USAuto
Stockholder makes no representation or warranty, express or implied, and each
USAuto Stockholder and LBI hereby disclaim any such representation or warranty,
whether by such USAuto Stockholder with respect to the execution, delivery or
performance by such USAuto Stockholder of this Agreement or the agreements
specified herein or with respect to the transactions contemplated hereby or
thereby, notwithstanding the delivery or disclosure to LBI or any of its
officers, directors, employees, agents or representatives or any other Person of
any documentation or other information by any USAuto Stockholder, USAuto or any
of its officers, directors, employees, agents or representatives or any other
Person with respect to any one or more of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LBI
LBI represents and warrants to USAuto that each statement contained in
this ARTICLE V is correct and complete, except as set forth in the schedules
attached to the LBI Disclosure Letter accompanying this Agreement (each an "LBI
SCHEDULE" and, together with the LBI Disclosure Letter, the "LBI SCHEDULES").
The LBI Disclosure Letter shall be signed on behalf of LBI by the Chief
Executive Officer and the Chief Accounting Officer of LBI, each of whom shall
certify that the LBI Schedules were prepared under his or her supervision and
are, to his or her knowledge, true and correct in all material respects. The LBI
Schedules have been arranged, for purposes of convenience only, as separately
titled LBI Schedules corresponding to the sections of this ARTICLE V; however,
each LBI Schedule shall be deemed to incorporate by reference all information
disclosed in any other LBI Schedule to the extent the relevance of such other
information to the representations and warranties corresponding to such LBI
Schedule is
22
reasonably apparent on its face. Capitalized terms used in the LBI Schedules and
not otherwise defined therein shall have the meanings ascribed to such terms in
this Agreement.
Section 5.1 ORGANIZATION AND CORPORATE POWER. LBI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and LBI has all requisite corporate power and authority and all
material authorizations, licenses and permits necessary to own and operate its
properties and to carry on its businesses as now conducted. LBI is qualified to
do business in every jurisdiction in which its ownership of property or the
conduct of business as now conducted requires it to qualify, except where the
failure to be so qualified could not reasonably be expected to have a Material
Adverse Effect on LBI. LBI has delivered or made available to USAuto accurate
and complete copies of: (a) the certificates or articles of incorporation and
bylaws as currently in effect, including all amendments thereto, of LBI and each
of its Subsidiaries; (b) the stock records of LBI and each of its Subsidiaries;
and (c) the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or otherwise without a meeting)
of the stockholders of LBI and each of its Subsidiaries, the Board of Directors
of LBI and each of its Subsidiaries and all committees of the Board of Directors
of LBI and each of its Subsidiaries. Except for such omissions and other
defects, if any, as are not material, (a) the minute books of LBI and its
Subsidiaries are current and contain correct and complete copies of all charter
documents of such companies, including all amendments thereto and restatements
thereof and of all minutes of meetings, resolutions and other actions and
proceedings of their respective stockholders and boards of directors and all
committees thereof; (b) the stock record book of each such company is also
current, correct and complete and reflects the issuance of all of the capital
stock of such company and by whom such capital stock is currently held; and (c)
all such minute books, stock records and other corporate records have been made
available to USAuto. Neither LBI nor any of its Subsidiaries is in violation of
any of the provisions of its certificate or articles of incorporation or bylaws.
Section 5.2 SUBSIDIARIES. Except as set forth on the LBI SUBSIDIARY
SCHEDULE, neither LBI nor any of its Subsidiaries owns or holds the right to
acquire any stock, partnership interest or joint venture interest or other
equity ownership interest in any corporation, organization or other entity. Each
of the Subsidiaries of LBI identified on the LBI SUBSIDIARY SCHEDULE is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority and all material authorizations, licenses and permits necessary to own
its properties and to carry on its businesses as now conducted and is qualified
to do business, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect on LBI, in every jurisdiction in
which its ownership of property or the conduct of business as now conducted
requires it to qualify. Exhibit 21.1 to LBI's Annual Report on Form 10-K for the
year ended June 30, 2002 includes all Subsidiaries of LBI which as of the date
of this Agreement are Significant Subsidiaries (as defined in Item 1-02 of
Regulation S-X of the SEC).
Section 5.3 CAPITAL STOCK OF LBI AND RELATED MATTERS. The authorized number
of shares of capital stock of LBI is 60,000,000, consisting of 10,000,000 shares
of preferred stock and 50,000,000 shares of LBI Common Stock, $0.01 par value
per share. The issued and outstanding shares of capital stock of LBI as of
November 30, 2003 consisted of 20,589,430 shares of LBI Common Stock, and
6,000,000 were reserved for future issuance pursuant to
23
outstanding unexercised employee stock options granted or reserved for grant
under the
Liberte Investors Inc. 2002 Long Term Incentive Plan (the "LBI STOCK
OPTION PLAN"). All of the outstanding shares of capital stock of LBI have been
duly authorized and are validly issued, fully paid and nonassessable. Except for
the LBI Stock Options, LBI does not have any other capital stock, equity
securities or securities containing any equity features authorized, issued or
outstanding. Except as set forth on the LBI CAPITAL STOCK SCHEDULE, there are no
outstanding rights, subscriptions, warrants, options, conversion rights or
agreements of any kind, contingent or otherwise, that provide for the sale or
issuance by LBI of any shares of capital stock or other equity securities (or
other securities containing any equity features) of any kind, and there are no
outstanding bonds, debentures, notes or other indebtedness providing the holder
thereof with the right to vote on any matters on which stockholders of LBI may
vote ("LBI VOTING DEBT"). Except as disclosed in the LBI CAPITAL STOCK SCHEDULE
or as provided in this Agreement, neither LBI nor any of its Subsidiaries is
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock. There are no statutory or contractual
stockholders' preemptive rights or rights of refusal with respect to the
issuance or transfer of any class or series of LBI capital stock. LBI has not in
any material respect violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any class or series of LBI
capital stock. Except as disclosed on the LBI CAPITAL STOCK SCHEDULE, to LBI's
Knowledge there are no agreements among any stockholders of LBI with respect to
the voting or transfer of LBI capital stock or with respect to any other aspect
of LBI's affairs.
Section 5.4 AUTHORIZATION; NO CONFLICTS.
(a) LBI has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby, subject
to the authorization of each of (i) the issuance of LBI Common Stock to the
Applicable USAuto Stockholders as contemplated by SECTION 1.7 of this Agreement
and to the LBI Stockholders electing to participate in the Rights Offering, (ii)
the amendment and restatement of LBI's certificate of incorporation and (iii)
the amendment of the LBI Stock Option Plan, by the holders of a majority of the
outstanding shares of LBI Common Stock at the LBI Stockholders Meeting (the
"REQUIRED LBI VOTES"). The execution, delivery and performance by LBI of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of LBI. This
Agreement has been duly executed and delivered by LBI and constitutes a valid
and binding agreement of LBI, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors
generally or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The Required
LBI Votes are the only votes of the holders of any class or series of capital
stock of LBI necessary to adopt this Agreement and approve the transactions
contemplated hereby.
(b) The Board of Directors of LBI, by resolutions duly adopted at a
meeting duly called and held and not subsequently rescinded or modified in any
way (the "LBI BOARD APPROVAL"), has duly (i) determined that this Agreement and
the Merger are advisable and fair to and in the best interests of LBI and its
stockholders, (ii) approved this Agreement and the Merger, and (iii) recommended
that the stockholders of LBI approve this Agreement and the
24
Merger and directed that this Agreement and the Merger be submitted for
consideration by LBI's stockholders at the LBI Stockholders Meeting. The LBI
Board Approval constitutes approval of this Agreement and the Merger for
purposes of Section 203 of the DGCL. To the Knowledge of LBI, except for Section
203 of the DGCL, no state takeover statute is applicable to the Merger or the
other transactions contemplated hereby. The LBI Stockholders listed in the LBI
PRINCIPAL STOCKHOLDERS SCHEDULE have executed voting agreements with respect to
the LBI Common Stock owned by them beneficially or of record and have delivered
such executed voting agreements to USAuto. Such voting agreements have been duly
executed and delivered by the stockholders party thereto and constitute the
valid and binding agreements of such stockholders, enforceable against such
stockholders in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally or by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(c) Except as set forth on the LBI CONFLICTS SCHEDULE, the execution,
delivery and performance by LBI of this Agreement does not and will not, and the
consummation by LBI of the Merger and the other transactions contemplated hereby
will not, conflict with, or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, amendment, cancellation or acceleration of any obligation
or the loss of a material benefit under, or the creation of a lien, pledge,
security interest, charge or other encumbrance on any assets of LBI or any of
its Subsidiaries pursuant to: (i) any provision of the certificate of
incorporation or bylaws of LBI or any of its Subsidiaries or (ii) subject to
obtaining or making the LBI Necessary Consents any loan or credit agreement,
note, mortgage, bond, indenture, lease, benefit plan or similar arrangement or
other agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to LBI, any Subsidiary of LBI or their respective properties or assets.
(d) Except as set forth on the LBI CONFLICTS SCHEDULE, no material
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to LBI or
any Subsidiary of LBI in connection with the execution and delivery of this
Agreement by LBI or the consummation of the Merger and the other transactions
contemplated hereby, except for those required under or in relation to (i) the
HSR Act, (ii) the Blue Sky Laws, (iii) the Securities Act, (iv) the Exchange
Act, (v) the rules and regulations of the New York Stock Exchange and (vi) the
DGCL with respect to the filing of the Certificate of Merger. Consents,
approvals, orders, authorizations, registrations, declarations and filings
required under or in relation to any of the foregoing clauses (i) through (vi)
are referred to herein as the "LBI NECESSARY CONSENTS."
Section 5.5 FINANCIAL STATEMENTS. The LBI FINANCIAL STATEMENTS SCHEDULE
consists of: (a) LBI's unaudited consolidated balance sheet as of September 30,
2003 (the "LATEST LBI BALANCE SHEET"), and the related statements of income and
cash flows for the three-month period then ended, and (b) LBI's audited
consolidated balance sheet and statements of income and cash flows as of and for
the fiscal years ended June 30, 2003 and 2002 (the financial statements referred
to in clauses (a) and (b) of this SECTION 5.5 are collectively referred to
herein the "LBI FINANCIAL STATEMENTS"). Except as set forth on the LBI
ACCOUNTING SCHEDULE, the LBI Financial Statements have been based upon the
information contained in LBI's and its Subsidiaries' books
25
and records, have been prepared in accordance with GAAP, consistently applied
throughout the periods indicated, and present fairly in all material respects
the consolidated financial condition, consolidated results of operations and
consolidated cash flows of LBI and its Subsidiaries as of the times and for the
periods referred to therein, subject, in the case of the unaudited LBI Financial
Statements, to the absence of footnote disclosures and other presentation items
and changes resulting from normal year end adjustments that have not been and
are not expected to be material in amount. Except as required by GAAP, LBI has
not, since the date of the Latest LBI Balance Sheet, made any change in the
accounting practices or policies applied in the preparation of the LBI Financial
Statements. The books and records of LBI and its Subsidiaries have been, and are
being, maintained in all material respects in accordance with GAAP and other
applicable legal and accounting requirements. Except as set forth on the LBI
ACCOUNTING SCHEDULE, neither LBI nor any of its Subsidiaries has any liabilities
that are of a nature that would be required to be disclosed on a balance sheet
of LBI and its Subsidiaries (or the footnotes thereto) prepared in accordance
with GAAP, other than (i) liabilities reflected on the LBI Financial Statements
or (ii) current liabilities incurred in the ordinary course of business
consistent with past practice since the date of the Latest LBI Balance Sheet.
Section 5.6 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the LBI
DEVELOPMENTS SCHEDULE, since June 30, 2003, there has not been any Material
Adverse Effect with respect to LBI and its Subsidiaries, taken as a whole.
Except as set forth on the LBI DEVELOPMENTS SCHEDULE and except as expressly
contemplated by this Agreement, since June 30, 2003, neither LBI nor any
Subsidiary of LBI has (a) borrowed any amount or incurred or become subject to
any material liabilities (except liabilities incurred in the ordinary course of
business, liabilities under contracts entered into in the ordinary course of
business and borrowings from banks (or similar financial institutions) necessary
to meet ordinary course working capital requirements), (b) mortgaged, pledged or
subjected to any material Lien (except Permitted Liens) any material portion of
its assets, (c) sold, assigned or transferred any material portion of its
tangible assets, (d) sold, assigned or transferred any material Intellectual
Property or other intangible assets, (e) suffered any extraordinary loss(es) in
an amount exceeding $100,000 individually or in the aggregate or waived any
right(s) of material value, (f) issued, sold or transferred any of its capital
stock or other equity securities, securities convertible into its capital stock
or other equity securities or warrants, options or other rights to acquire its
capital stock or other equity securities, or any bonds or debt securities, (g)
made any material capital expenditures in excess of $100,000 or commitments
therefor, (h) made any material change in its accounting methods, practices or
policies, (i) revalued any of its assets, including, without limitation, by
writing down the value of contracts or by writing off accounts receivable,
except in the ordinary course of business, (j) entered into any other material
transaction, (k) declared, set aside or paid any dividends or other
distributions with respect to its capital stock or, directly or indirectly,
redeemed, purchased or acquired any of its capital stock, (l) amended or
terminated any material contract, (m) loaned to or invested in any other entity
(other than a wholly-owned Subsidiary of LBI) an amount in excess of $100,000,
(n) waived or released any material right or claim or (o) entered into any
agreement to do any of the foregoing.
Section 5.7 TITLE TO PROPERTIES.
(a) LBI owns good and marketable title to all of the personal property
shown on the Latest LBI Balance Sheet, free and clear of all Liens (except for
Permitted Liens), except
26
for dispositions of personal property since the Latest LBI Balance Sheet in the
ordinary course of business, which dispositions were not material in amount.
(b) The real property demised by the leases described on the LBI
LEASED REAL PROPERTY SCHEDULE constitutes all of the real property leased,
subleased, licensed or otherwise used or occupied by LBI or any of its
Subsidiaries. The leases described on the LBI LEASED REAL PROPERTY SCHEDULE are
in full force and effect, and LBI or a Subsidiary of LBI holds a valid and
existing leasehold interest under each such lease. USAuto either has been
supplied with a true and correct copy of each of the leases described on the LBI
LEASED REAL PROPERTY SCHEDULE, and none of such leases have been modified in any
material respect (except to the extent that such modifications are disclosed by
the copies of such leases delivered to USAuto). Neither LBI nor any of its
Subsidiaries (nor, to LBI's Knowledge, any other Person) is in default in any
material respect under any of such leases. Neither LBI nor any of its
Subsidiaries has (i) subleased, licensed or otherwise granted any other Person
the right to use or occupy any portion of the real property demised by such
leases or (ii) collaterally assigned or granted any other security interest in
such leases.
(c) Except as set forth on the LBI OWNED REAL PROPERTY SCHEDULE,
neither LBI nor any of its Subsidiaries owns any real property or possesses any
option or right to purchase any real property.
Section 5.8 TAX MATTERS.
(a) LBI and each of its Subsidiaries has timely filed all Tax Returns
that it was required to file, either separately or as a member of an Affiliated
Group, under applicable laws and regulations. All Tax Returns of LBI and each
Subsidiary that have been filed are correct and complete in all respects and
have been prepared in compliance in all material respects with all applicable
laws and regulations. All Taxes due and owing by LBI or any Subsidiary (whether
or not shown or required to be shown on any Tax Return) have been paid. Neither
LBI nor any Subsidiary currently is the beneficiary of any extension of time
within which to file any Tax Return. No claim has been made by an authority in a
jurisdiction where LBI or any Subsidiary does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. Except as disclosed on the LBI
TAXES SCHEDULE attached hereto, there are no Liens for Taxes (other than Taxes
not yet due and payable) upon any of the assets of LBI or any Subsidiary.
(b) LBI and each of its Subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with any amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party, and all Forms W-2 and 1099 required and due with respect thereto
have been properly completed and timely filed.
(c) Neither LBI nor any of its Subsidiaries has reason to expect any
authority to assess any additional Taxes for any taxable period ending on or
prior to the Closing Date. No foreign, federal, state, or local tax audits or
administrative or judicial Tax proceedings are pending or being conducted with
respect to LBI or any Subsidiary. Neither LBI nor any Subsidiary has received
from any foreign, federal, state, or local taxing authority (including
jurisdictions where neither LBI nor any Subsidiary has filed Tax Returns) any
(i) written notice
27
indicating an intent to open an audit or other review, (ii) written request for
information related to Tax matters, or (iii) written notice of deficiency or
proposed adjustment for any amount of Tax proposed, asserted, or assessed by any
taxing authority against LBI or any Subsidiary; the LBI TAXES SCHEDULE lists all
federal, state, local, and foreign income Tax Returns filed with respect to LBI
or any Subsidiary for taxable periods ended on or after December 31, 1996,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. LBI has made available to
USAuto correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by LBI or any of its Subsidiaries filed or received since December 31, 1996.
(d) Neither LBI nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency. Neither LBI nor any Subsidiary is a party to
any agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute payment"
within the meaning of Code Section 280G (or any corresponding provision of
state, local or foreign Tax law). Neither LBI nor any Subsidiary is a party to
or bound by any Tax allocation, sharing, or similar agreement. Neither LBI nor
any Subsidiary (i) has been a member of an Affiliated Group filing a combined,
consolidated, or unitary Tax Return (other than a group the common parent of
which was LBI) or (ii) has any liability for the Taxes of any Person (other than
LBI or any Subsidiary) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise. Neither LBI nor any Subsidiary has ever
been, nor will they be at the Closing, a United States Real Property Holding
Corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii).
(e) The unpaid Taxes of LBI and its Subsidiaries (i) did not, as of
the date of the Latest LBI Balance Sheet, exceed the amount reserved on the Tax
Liability line items (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face of
the Latest LBI Balance Sheet (rather than in any notes thereto) and (ii) do not
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of LBI and its Subsidiaries in
filing their Tax Returns. Since the date of the Latest LBI Balance Sheet,
neither LBI nor any Subsidiary has incurred any liability for Taxes outside the
ordinary course of business.
(f) Neither LBI nor any Subsidiary will be required to include any
item of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result of
any: (i) change in method of accounting for a taxable period ending on or prior
to the Closing Date; (ii) "closing agreement" as described in Code Section 7121
(or any corresponding or similar provision of state, local or foreign income Tax
law) executed on or prior to the Closing Date; (iii) intercompany transactions
occurring at or prior to the Closing or any excess loss account in existence at
Closing described in Treasury Regulations under Code Section 1502 (or any
corresponding or similar provision of state, local or foreign income Tax law);
(iv) installment sale or open transaction disposition made on or prior to the
Closing Date; or (v) prepaid amount received on or prior to the Closing Date.
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(g) Neither LBI nor any Subsidiary has distributed stock of another
Person, or has had its stock distributed by another Person, in a transaction
that was purported or intended to be governed in whole or in part by Code
Section 355 or 361.
(h) Neither LBI nor any of its Subsidiaries has made, with respect to
itself or any property held by itself, any consent under Code Section 341. No
property of LBI or any of its Subsidiaries is "tax exempt use property" within
the meaning of Code Section 168(h). Neither LBI nor any of its Subsidiaries is a
party to any lease made pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954.
(i) LBI has net operating loss carryforwards available for federal
income and alternative minimum tax purposes that are not limited by Section 382
of the Code in an amount equal to at least (x) $220,000,000, less (y) LBI's
taxable income (before any deduction for net operating losses) for its short
taxable year, if any, beginning July 1, 2003 and ending on or prior to the
Closing Date.
Section 5.9 CERTAIN CONTRACTS AND COMMITMENTS. Except as set forth on the
LBI CONTRACTS SCHEDULE, neither LBI nor any of its Subsidiaries is party to any
oral or written (a) collective bargaining agreement or contract with any labor
union, (b) bonus, pension, profit sharing, retirement or other form of deferred
compensation plan (except as described in SECTION 4.13 or as set forth on the
LBI EMPLOYEE BENEFITS SCHEDULE), (c) stock purchase, stock option or similar
plan, (d) contract for the employment of, or payments upon the severance of, any
officer, individual employee or other Person, whether on a full-time or
consulting basis, providing annual compensation in excess of $100,000, (e)
agreement or indenture relating to the borrowing of money or to mortgaging,
pledging or otherwise placing a Lien on any material portion of the assets of
LBI or any of its Subsidiaries, (f) guaranty of any obligation for borrowed
money or other material guaranty, (g) lease or agreement under which it is
lessee of, or holds or operates any personal property owned by any other party,
for which the annual rental exceeds $100,000, (h) lease or agreement under which
it is lessor of, or permits any third party to hold or operate any property,
real or personal, for which the annual rental exceeds $100,000, (i) contract or
group of related contracts with the same party for the purchase of products or
services, under which the undelivered balance of such products and services has
a selling price in excess of $100,000, (j) contract or group of related
contracts with the same party for the sale of products or services under which
the undelivered balance of such products or services has a sales price in excess
of $100,000, (k) contract which prohibits LBI or any of its Subsidiaries from
freely engaging in business anywhere in the world, (l) contract for capital
expenditures or the acquisition, construction or modification of fixed assets,
in each case that requires aggregate future payments of $100,000 or more, (m)
contract relating to clean-up, abatement or other actions in connection with the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study, (n) contract not terminable at
will by LBI and granting to any Person a right at such Person's option to
purchase or acquire any asset or property of LBI's business (or any interest
therein) with a value in excess of $100,000 in the case of any one contract or
$100,000 in the aggregate for all contracts of such type, (o) material agreement
relating to the licensing of Intellectual Property by LBI or its Subsidiaries to
a third party or by a third party to LBI or its Subsidiaries, and all other
material agreements affecting LBI's or its Subsidiaries' ability to use or
disclose any Intellectual Property, (p) contract with any material provider,
independent contractor or other agent having a remaining term in excess of six
29
months and which by its terms is not terminable without penalty on 60 calendar
days' or less notice, (q) contract with any material customer with respect to
discounts or allowances or extended payment terms, (r) joint venture or
partnership contract with any other Person, (s) contract with any material
customer having a remaining term in excess of six months and which by its terms
is not terminable without penalty on 90 calendar days' or less notice, (t)
contract pursuant to which LBI or its Subsidiaries has advanced or loaned to any
other Person, or invested in any other Person, amounts in the aggregate (for any
one Person) exceeding $100,000 or contractually committed to do so, (u) minority
or set-aside contract, (v) grant of any right-of-first refusal or similar right
in favor of any third party with respect to any material portion of the assets
of LBI or any of its Subsidiaries or (w) other contract which involves future
payment or performance valued at $100,000 or more. USAuto either has been
supplied with, or has been given access to, a true and correct copy of all
written contracts and written summaries of all oral contracts which are referred
to on the LBI CONTRACTS SCHEDULE, together with all material amendments, waivers
or other changes thereto. Neither LBI nor any of its Subsidiaries (nor, to LBI's
Knowledge, any other Person) is in default under any contract listed on the LBI
CONTRACTS SCHEDULE. The LBI CONTRACTS SCHEDULE sets forth each plan or agreement
pursuant to which any amounts may become payable (whether currently or in the
future) to current or former employees, officers and directors of LBI or any of
its Subsidiaries as a result of or in connection with the Merger.
Section 5.10 INTELLECTUAL PROPERTY. The LBI INTELLECTUAL PROPERTY SCHEDULE
attached hereto sets forth all of the following that are owned by LBI or its
Subsidiaries: (a) patents and patent applications; (b) registered trademarks or
service marks and applications to register trademarks or service marks or
Internet domain names; (c) registered copyrights; (d) material unregistered
trademarks, service marks, copyrights, trade names and corporate names; and (e)
proprietary computer software (collectively, the "LBI INTELLECTUAL PROPERTY").
Except as set forth on the LBI INTELLECTUAL PROPERTY SCHEDULE, (a) LBI and/or
its Subsidiaries own and possess all right, title and interest in and to the LBI
Intellectual Property free and clear of all Liens (except for Permitted Liens),
(b) LBI and/or its Subsidiaries own, or possess the valid right to use pursuant
to a valid and binding written license agreement set forth on the LBI CONTRACTS
SCHEDULE, all other Intellectual Property used in the conduct of LBI's or its
Subsidiaries' respective businesses, (c) neither LBI nor any of its Subsidiaries
has received any written notices of infringement or misappropriation from any
third party with respect to any Intellectual Property, (d) neither LBI nor any
of its Subsidiaries has infringed, misappropriated or otherwise misused any
third party's Intellectual Property, (e) LBI has no Knowledge of any
infringement or misappropriation by any third party of any LBI Intellectual
Property and (f) there are no royalties or other fees payable by LBI or any of
its Subsidiaries with respect to the use of Intellectual Property. The
consummation of the transactions contemplated by this Agreement will not result
in the material loss or impairment of any rights of LBI or any of its
Subsidiaries to own, use or license any Intellectual Property.
Section 5.11 LITIGATION; COMPLIANCE WITH LAWS; AUTHORIZATIONS.
(a) Except as set forth on the LBI LITIGATION SCHEDULE, there are no
actions, suits, investigations or other proceedings pending or, to LBI's
Knowledge, threatened against LBI or any of its Subsidiaries, or to LBI's
Knowledge, any current or former employees, at law
30
or in equity, or before or by any Governmental Entity, and neither LBI nor any
of its Subsidiaries is subject to any outstanding material judgment, order or
decree of any Governmental Entity.
(b) LBI and each of its Subsidiaries are in all material respects in
compliance with all applicable laws and regulations of any Governmental Entity
that is necessary for the operation of the businesses of LBI and its
Subsidiaries as presently conducted. LBI and its Subsidiaries have all
Governmental Authorizations necessary to enable LBI and its Subsidiaries to
conduct their business in the manner in which their business is currently being
conducted. LBI and its Subsidiaries are, and at all times have been, in
compliance with the material terms and requirements of such Governmental
Authorizations. Neither LBI nor any of its Subsidiaries has received written
notice from any Governmental Entity regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
Section 5.12 INSURANCE. The LBI INSURANCE SCHEDULE lists each insurance
policy maintained by LBI and its Subsidiaries. All such insurance policies are
in full force and effect, and neither LBI nor any of its Subsidiaries is in
material default with respect to its obligations under any such insurance
policy. The LBI INSURANCE SCHEDULE sets forth a list of all pending claims and
the status as of the date of this Agreement of all deductibles with respect to
all such policies, and the loss runs for the year ended June 30, 2003, with
respect to such policies.
Section 5.13 EMPLOYEE BENEFIT PLANS. Except as listed on the LBI EMPLOYEE
BENEFITS SCHEDULE:
(a) There are no LBI Employee Benefit Plans. Each LBI Benefit Plan
that has been treated by LBI or its Subsidiaries as satisfying the requirements
of Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service that such LBI Benefit Plan is a "qualified plan"
under Section 401(a) of the Code and that the related trusts are exempt from tax
under Section 501(a) of the Code, and, to LBI's Knowledge, no fact or
circumstance exists that would jeopardize the qualification of such LBI Benefit
Plan. Each LBI Benefit Plan complies in form and in operation in all material
respects with the requirements of the Code, ERISA and all other applicable laws,
including, without limitation, applicable reporting and disclosure requirements
with respect to each LBI Benefit Plan. Neither LBI nor any of its Subsidiaries
has incurred any material liability for any tax or civil penalty imposed by
Section 4975 of the Code or Section 502 of ERISA.
(b) With respect to each LBI Benefit Plan, (i) all required
contributions have been made or properly accrued, (ii) there are no actions,
suits or claims pending, other than routine and reasonable claims for benefits,
(iii) neither LBI nor any of its Subsidiaries has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code and to LBI's Knowledge no such "prohibited transaction" has occurred that
would result in a material liability to LBI or any of its Subsidiaries under
Section 406 of ERISA or Section 4975 of the Code and (iv) USAuto either has been
supplied with, or has been given access to, true and complete copies of the most
recent determination letter or opinion letter received from the Internal Revenue
Service regarding such LBI Benefit Plan and the latest financial statements and
latest prepared actuarial reports for such LBI Benefit Plan. To LBI's
31
Knowledge, no audit or investigation by any domestic or foreign governmental or
other law enforcement agency is pending with respect to any LBI Employee Benefit
Plan.
(c) Neither LBI nor any of its Subsidiaries or, to LBI's Knowledge,
any of their respective directors, officers, employees or any other "fiduciary"
(as such term is defined in Section 3 of ERISA) has committed any breach of
fiduciary responsibility imposed by ERISA or any other applicable law with
respect to the LBI Employee Benefit Plans which would subject the Surviving
Corporation, its Subsidiaries or any of their respective directors, officers or
employees to any material liability under ERISA or any applicable law.
(d) LBI and its Subsidiaries have not incurred, and have no reason to
expect that they will incur, any liability to the Pension Benefit Guaranty
Corporation or otherwise under Title IV of ERISA (including any withdrawal
liability) with respect to any employee pension benefit plan that LBI or a
Subsidiary of LBI, or any other entity that together with LBI or a Subsidiary of
LBI is treated as a single employer under Section 414 of the Code, maintains or
ever has maintained, to which any of them contributes or ever has been required
to contribute or with respect to which any of them have any liability. To LBI's
Knowledge, no reportable event as defined in Section 4043 of ERISA (that has not
been waived by regulation) or accumulated funding deficiency as defined in
Section 412(a) of the Code has occurred, and no facts exist that could
reasonably, or reasonably be expected to, result in such a reportable event or
accumulated funding deficiency.
(e) No LBI Employee Benefit Plan that is described in Section 3(1) of
ERISA provides any benefits after a termination of employment except to the
extent such benefits are required to satisfy the minimum requirements under Part
6 of Subtitle B of Title I of ERISA.
(f) LBI, or its Subsidiaries, has the right pursuant to the terms of
each LBI Benefit Plan and all agreements related to such plan unilaterally to
terminate such plan (or its participation in such plan) at any time without
causing a material liability to arise.
(g) The transactions contemplated by this Agreement will not result in
any additional payments to, or benefit accruals for, or any increase in the
vested interest of, any current or former employee or director of LBI or any of
its Subsidiaries (or any dependent of any such Person) under any LBI Employee
Benefit Plan.
Section 5.14 ENVIRONMENTAL COMPLIANCE AND CONDITIONS. LBI and its
Subsidiaries have obtained and possess all material permits, licenses and other
authorizations required under any Environmental and Safety Requirements. Except
as set forth on the LBI ENVIRONMENTAL COMPLIANCE SCHEDULE, LBI and its
Subsidiaries are in all material respects in compliance with all terms and
conditions of such permits, licenses and authorizations and are in all material
respects also in compliance with all other Environmental and Safety Requirements
or any written notice or demand letter issued, entered, promulgated or approved
thereunder. Neither LBI nor any of its Subsidiaries has received written notice
of violations or liabilities arising under Environmental and Safety Requirements
(including any investigatory, remedial or corrective obligation) relating to
LBI, its Subsidiaries or their respective facilities. To LBI's Knowledge, no
current or prior owner of any property owned or leased, at any time, by LBI or
any of its Subsidiaries has received written notice (whether from a Governmental
Entity, citizens group,
32
employee or otherwise) that alleges that such current or prior owner or LBI or
any of its Subsidiaries is not or was not in compliance with any applicable
Environmental and Safety Requirements. Notwithstanding any implication to the
contrary contained herein, this SECTION 5.14 constitutes the sole and exclusive
representations and warranties of LBI with respect to Environmental and Safety
Requirements and all other environmental matters.
Section 5.15 AFFILIATED TRANSACTIONS. Except as set forth on the LBI
AFFILIATED TRANSACTIONS SCHEDULE, no officer, director, stockholder or Affiliate
of LBI or any individual in such officer's, director's, stockholder's or
Affiliate's immediate family is a party to any agreement, contract, commitment
or transaction with LBI or has any interest in any property used by LBI.
Section 5.16 BROKERAGE. Except as set forth in the LBI BROKERAGE SCHEDULE,
no agent, broker, investment banker, financial advisor or other firm or Person
is or will be entitled to any broker's or finder's fee or any other similar
commission or fee in connection with any of the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of LBI.
Section 5.17 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) All accounts receivable of LBI and its Subsidiaries that are
reflected in the LBI Financial Statements or in the accounting records of LBI as
of the date hereof (collectively, the "LBI ACCOUNTS RECEIVABLE") represent valid
obligations arising from services actually performed in the ordinary course of
business. Except as described on the LBI ACCOUNTS RECEIVABLE SCHEDULE, the LBI
Accounts Receivable are current and collectible net of any respective reserves
shown in the LBI Financial Statements or on the accounting records of LBI as of
the date hereof (which reserves are adequate and calculated consistent with past
practice). There is no contest, claim or right of set-off, other than in the
ordinary course of business, relating to the amount or validity of such LBI
Accounts Receivable.
(b) The LBI LOANS SCHEDULE contains an accurate and complete list of
all loans and advances made by LBI or any of its Subsidiaries (and the amounts
outstanding thereunder as of the date of this Agreement) to any employee,
director, consultant or independent contractor of LBI or any of its
Subsidiaries.
Section 5.18 LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth on the LBI LABOR MATTERS SCHEDULE, with
respect to the business of LBI and its Subsidiaries: (i) to LBI's Knowledge, no
employee of LBI or any of its Subsidiaries (A) has any present intention to
terminate such employee's employment with LBI or its Subsidiaries, or (B) is a
party to any confidentiality, non-competition, proprietary rights or other
similar agreement between such employee and any entity other than LBI or any of
its Subsidiaries; (ii) no labor organization or group of employees has filed any
representation petition or made any demand for recognition; (iii) no union
organizing or decertification efforts are underway or, to LBI's Knowledge,
threatened and no other question concerning representation exists; (iv) no labor
strike, work stoppage, slowdown or other material labor dispute has occurred,
and none is underway or, to LBI's Knowledge, threatened; (v) there is no
33
xxxxxxx'x compensation liability, experience or matter that would reasonably be
expected to have a Material Adverse Effect on LBI; and (vi) there is no
employment-related charge, complaint, grievance, investigation, inquiry or
obligation of any kind, pending or, to LBI's Knowledge, threatened in any forum,
relating to an alleged violation or breach by LBI or any of its Subsidiaries (or
any of its or their officers or directors) of any material law, regulation or
contract.
(b) All notices required in connection with the transactions
contemplated by this Agreement under any collective bargaining agreement to
which LBI or any of its Subsidiaries is a party have been given, and all
bargaining obligations of LBI and its Subsidiaries with any employee
representative have been, or prior to the Closing will be, satisfied. Within the
past three years, neither LBI nor any of its Subsidiaries has implemented any
mass layoff of employees that could implicate the WARN Act, and no such action
will be implemented by LBI or any of its Subsidiaries prior to the Closing.
Section 5.19 SEC FILINGS. LBI has filed all forms, reports and documents
required to be filed by it with the SEC from June 30, 2000, to the date of this
Agreement, including: (a) Annual Reports on Form 10-K, (b) Quarterly Reports on
Form 10-Q and (c) proxy statements relating to LBI's meetings of shareholders
(whether annual or special) (the forms, reports and other documents referred to
in clauses (a), (b) and (c) and all other forms, reports and other registration
statements filed by LBI with the SEC as of the date of this Agreement, including
all amendments and supplements thereto filed with the SEC as of the date of this
Agreement, are referred to herein, collectively, as the "LBI SEC REPORTS"). The
LBI SEC Reports, as well as all forms, reports and documents to be filed by LBI
with the SEC after the date hereof and prior to the Effective Time, (a) were or
will be prepared in accordance with the requirements of the Securities Act and
the Exchange Act, as the case may be, and the rules and regulations thereunder,
(b) subject to the representation and warranty by USAuto in SECTION 3.25 hereof,
did not at the time they were filed, or will not at the time they are filed,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading and (c) did not at the time they were filed, or will not at the time
they are filed, omit any documents required to be filed as exhibits thereto.
Section 5.20 REPRESENTATIONS COMPLETE; SUPPLIED INFORMATION.
(a) None of the representations or warranties made by LBI, nor any
statement made in the LBI SCHEDULES or in any certificate furnished by LBI
pursuant to this Agreement, contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
(b) None of the information supplied or to be supplied by LBI for
inclusion or incorporation by reference in the Form S-1 will, (i) at the time
the Form S-1 becomes effective under the Securities Act or at the time of any
post-effective amendment thereto or (ii) on the date it is mailed to the LBI
Stockholders or at the time of the LBI Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein
34
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, however, no representation or warranty is made by LBI with respect to
statements made or incorporated by reference in the Form S-1 based on
information supplied by USAuto for inclusion or incorporation by reference
therein. The Form S-1 will comply as to form in all material respects with the
requirements of the Exchange Act and the Securities Act and the rules and
regulations of the SEC thereunder.
Section 5.21 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Agreement, in the Exhibits and
Schedules hereto, the agreements specified herein, and/or in the certificates
required to be delivered pursuant to or in connection herewith, neither LBI nor
any other Person acting for LBI makes any representation or warranty, express or
implied, and USAuto and LBI hereby disclaim any such representation or warranty,
whether by LBI or any of its officers, directors, employees, agents,
representatives or any other Person, with respect to the execution, delivery or
performance by LBI of this Agreement or the agreements specified herein or with
respect to the transactions contemplated hereby or thereby, notwithstanding the
delivery or disclosure to USAuto or any of its stockholders, officers,
directors, employees, agents or representatives or any other Person of any
documentation or other information by LBI or any of its officers, directors,
employees, agents or representatives or any other Person with respect to any one
or more of the foregoing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING MERGER SUB
Each of LBI and Merger Sub represents and warrants to USAuto that each
statement contained in this ARTICLE VI is correct and complete.
Section 6.1 ORGANIZATION. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware.
Merger Sub is a direct wholly owned subsidiary of LBI.
Section 6.2 AUTHORIZATION; NO CONFLICTS.
(a) Merger Sub has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Merger Sub of this Agreement
and the consummation by Merger Sub of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Merger
Sub. This Agreement has been duly executed and delivered by Merger Sub and
constitutes a valid and binding agreement of Merger Sub, enforceable against it
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors generally, by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(b) The Board of Directors of Merger Sub, by resolutions duly adopted
by unanimous written consent which have not subsequently been rescinded or
modified in any way (the "MERGER SUB BOARD APPROVAL"), has duly (i) determined
that this Agreement and the Merger
35
are advisable and fair to and in the best interests of Merger Sub and its sole
stockholder, (ii) approved this Agreement and the Merger and (iii) recommended
that the sole stockholder of Merger Sub approve this Agreement and the Merger
and directed that this Agreement and the Merger be submitted for consideration
by Merger Sub's sole stockholder. The Merger Sub Board Approval constitutes
approval of this Agreement and the Merger for purposes of Section 203 of the
DGCL. To the Knowledge of Merger Sub, except for Section 203 of the DGCL, no
state takeover statute is applicable to the Merger or the other transactions
contemplated hereby. The sole stockholder of Merger Sub, by resolutions duly
adopted pursuant to written consent and not subsequently rescinded or modified
in any way, has approved this Agreement and the Merger.
(c) The execution, delivery and performance by Merger Sub of this
Agreement and the consummation by Merger Sub of the transactions contemplated
hereby do not and will not contravene or conflict with the certificate of
incorporation or bylaws of Merger Sub.
Section 6.3 BUSINESS ACTIVITIES; NO SUBSIDIARIES. Merger Sub has not
conducted any activities other than in connection with the organization of
Merger Sub, the negotiation and execution of this Agreement and the consummation
of the transactions contemplated hereby. Merger Sub has no Subsidiaries.
Section 6.4 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Agreement, in the Exhibits and
Schedules hereto, the agreements specified herein, and in the certificates
required to be delivered pursuant to or in connection herewith, neither Merger
Sub nor any other Person acting for Merger Sub makes any representation or
warranty, express or implied, and USAuto, LBI and Merger Sub hereby disclaim any
such representation or warranty, whether by Merger Sub or any of its officers,
directors, employees, agents, representatives or any other Person, with respect
to the execution, delivery or performance by Merger Sub of this Agreement or the
agreements specified herein or with respect to the transactions contemplated
hereby or thereby, notwithstanding the delivery or disclosure to USAuto or any
of its officers, directors, stockholders, employees, agents or representatives
or any other Person of any documentation or other information by LBI, Merger Sub
or any of their respective officers, directors, employees, agents or
representatives or any other Person with respect to any one or more of the
foregoing.
ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 7.1 COVENANTS OF USAUTO. During the period from the date of this
Agreement and continuing until the Effective Time, USAuto (on behalf of itself
and its Subsidiaries) agrees that (except as expressly contemplated or permitted
by this Agreement or the USAuto Schedules or as required by a Governmental
Entity of competent jurisdiction or to the extent that LBI shall otherwise
consent in writing):
(a) USAuto and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material respects,
in substantially the same manner as heretofore conducted, and shall use all
reasonable efforts to preserve intact their present lines of business, maintain
their rights and franchises and preserve their relationships with customers,
36
suppliers and others having business dealings with them to the end that their
ongoing businesses shall not be impaired in any material respect at the
Effective Time;
(b) USAuto shall not, and shall not permit any of its Subsidiaries to,
(i) enter into any new line of business or (ii) incur or commit to any capital
expenditures or any obligations or liabilities in connection with capital
expenditures, except for (A) capital expenditures and obligations or liabilities
in connection with capital expenditures incurred or committed to in the ordinary
course of business consistent with past practice and (B) other capital
expenditures and obligations or liabilities disclosed on the USAUTO PERMITTED
CAPITAL EXPENDITURES SCHEDULE;
(c) USAuto shall not, and shall not permit any of its Subsidiaries to,
and shall not propose to, (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock (except for (x) dividends
by wholly owned Subsidiaries of USAuto and (y) USAuto Permitted Dividends), (ii)
split, combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock (except for any such transaction
by a wholly owned Subsidiary of USAuto which remains a wholly owned Subsidiary
of USAuto after consummation of such transaction) or (iii) repurchase, redeem or
otherwise acquire any shares of its capital stock or any securities convertible
into or exercisable for any shares of its capital stock;
(d) USAuto shall not, and shall not permit any of its Subsidiaries to,
issue, deliver or sell, or authorize or propose the issuance, delivery or sale
of, any shares of its capital stock of any class, any USAuto Voting Debt or any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares of its capital stock or USAuto Voting Debt,
or enter into any agreement with respect to any of the foregoing, other than
issuances of capital stock by a wholly owned Subsidiary of USAuto to such
Subsidiary's parent or another wholly owned Subsidiary of USAuto;
(e) other than to the extent required to comply with its obligations
hereunder or required by law, neither USAuto nor any of its Subsidiaries shall
amend or propose to amend its certificate of incorporation, bylaws or other
governing documents;
(f) USAuto shall not, and shall not permit any of its Subsidiaries to,
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or agree to
acquire or in-license any assets or rights (other than the acquisition or
in-license of assets used in the operations of the business of USAuto and its
Subsidiaries in the ordinary course consistent with past practice); PROVIDED,
HOWEVER, that the foregoing shall not prohibit internal reorganizations or
consolidations involving existing direct or indirect wholly owned Subsidiaries
of USAuto that remain direct or indirect wholly owned Subsidiaries of USAuto;
(g) other than (i) internal reorganizations or consolidations
involving existing direct or indirect wholly owned Subsidiaries of USAuto that
remain direct or indirect wholly owned Subsidiaries of USAuto or (ii) as may be
required by or in conformance with law or
37
regulation in order to permit or facilitate the consummation of the transactions
contemplated hereby or the transactions disclosed in the USAuto Schedules,
USAuto shall not, and shall not permit any of its Subsidiaries to, sell, lease,
out-license, encumber or otherwise dispose of, or agree to sell, lease,
out-license, encumber or otherwise dispose of, any of its assets other than in
the ordinary course of business consistent with past practice;
(h) USAuto shall not, and shall not permit any of its Subsidiaries to,
(i) make any loans, advances or capital contributions to, or investments in, any
other Person, other than (A) by USAuto or a direct or indirect wholly owned
Subsidiary of USAuto to or in USAuto or any direct or indirect wholly owned
Subsidiary of USAuto, (B) pursuant to any contract or other legal obligation of
USAuto or any of its Subsidiaries as in effect at the date of this Agreement and
set forth on the USAUTO CONTRACTS SCHEDULE, (C) in the ordinary course of
business consistent with past practice in an aggregate amount not in excess of
the aggregate amount specified on the USAUTO PERMITTED INVESTMENTS SCHEDULE or
(D) investments in Cash Equivalents or Investment Grade Securities or (ii)
create, incur, assume or suffer to exist any indebtedness, issuances of debt
securities, guarantees, loans or advances not in existence as of the date of
this Agreement except pursuant to the credit facilities, indentures (but not in
excess of amounts authorized for issuance thereunder as of the date of this
Agreement) and other arrangements in existence on the date of this Agreement and
set forth on the USAUTO CONTRACTS SCHEDULE or trade debt and commercial finance
in the ordinary course of business consistent with past practice, in each case
as such credit facilities, indentures and other arrangements and other existing
indebtedness may be amended, extended, modified, refunded, renewed or refinanced
after the date of this Agreement in a manner which does not increase the
aggregate principal amount or amount of the facility, as the case may be, or
subject to any Lien (other than Permitted Liens) any assets or properties of
USAuto or its Subsidiaries that are not, as of the date of this Agreement,
subject to any Lien;
(i) USAuto shall use reasonable efforts not to, and shall use
reasonable efforts not to permit any of its Subsidiaries to, take any action
(including any action otherwise permitted by this SECTION 7.1) that would
prevent or impede the Merger from qualifying as a reorganization under Code
Section 368(a)(1)(A) by reason of Code Section 368(a)(2)(D);
(j) other than as disclosed on the USAUTO PERMITTED COMPENSATION
SCHEDULE and other than in the ordinary course of business consistent with past
practice or as required by an existing contract or agreement as in effect on the
date hereof and set forth on the USAUTO CONTRACTS SCHEDULE, USAuto shall not (i)
increase the amount of compensation or severance pay of any director, executive
officer or other employee, (ii) make any material increase in, or commitment to
increase materially, any employee benefits or (iii) adopt, amend or make any
commitment to adopt any new employee benefit plan or make any material
contribution, other than regularly scheduled contributions, to any USAuto
Benefit Plan;
(k) USAuto shall not (i) change its fiscal year or (ii) except as
required by changes in GAAP as concurred with by USAuto's independent auditors
or as required by a Governmental Entity, change its methods of accounting in
effect at December 31, 2002;
(l) USAuto and its Subsidiaries will not make or change any election,
change an annual accounting period, adopt or change any Tax, reinsurance,
reserving, financing or
38
accounting practice, policy or method, make any material change in any
underwriting, marketing, pricing, claim processing or payment practice or
policy, file any amended Tax Return, enter into any Tax closing agreement,
settle any Tax claim or assessment, surrender any right to claim a refund of
Taxes, consent to any extension or waiver of the limitation period applicable to
any Tax claim or assessment, or take any other similar action, or omit to take
any action relating to the filing of any Tax Return or the payment of any Tax,
if such election, adoption, change, amendment, agreement, settlement, surrender,
consent or other action or omission would have the effect of materially
increasing the present or future Tax liability or materially decreasing any
present or future Tax asset of USAuto and its Subsidiaries or LBI;
(m) except as disclosed on the USAUTO CONTRACTS SCHEDULE, USAuto shall
not, and shall not permit any of its Subsidiaries to, enter into any agreement
or arrangement that (i) prohibits USAuto or any of its Subsidiaries from freely
engaging in business anywhere in the world or (ii) would reasonably be expected
to have a Material Adverse Effect on USAuto (or the Surviving Corporation after
giving effect to the Merger);
(n) USAuto shall not make any contributions to any grantor trust or
other funding arrangement for any nonqualified deferred compensation that is
considered "unfunded" for purposes of ERISA;
(o) except as disclosed on the USAUTO INSURANCE SCHEDULE, USAuto shall
keep in full force all insurance policies in effect as of the date of this
Agreement, shall not amend, modify or terminate any reinsurance or retrocession
agreement currently in force, and shall not forfeit, abandon, modify, waive,
terminate or otherwise change any of its insurance licenses;
(p) USAuto shall not form any Subsidiary or, except as contemplated
under SECTION 7.1(h), acquire any equity interest or other interest in any other
Person;
(q) other than in connection with any action expressly permitted by
any other subsection of this SECTION 7.1, USAuto shall not (i) enter into or
become bound by, or permit any of the assets owned or used by it to become bound
by, any contract of the type required to be disclosed pursuant to SECTION 3.9 of
this Agreement or (ii) amend or prematurely terminate, or waive any material
right or remedy under, any such contract;
(r) USAuto shall not commence or settle any material action, suit,
investigation or other proceeding;
(s) USAuto shall not enter into any material transaction or take any
other material action other than in the ordinary course of business consistent
with its past practices;
(t) USAuto shall not (i) revoke its election to be taxed as an S
corporation (or any Subsidiary's election to be treated as a qualified
subchapter S subsidiary) within the meaning of Code Sections 1361 and 1362 (or
any similar provision of state, local or foreign law) or (ii) take or allow any
action that would result in the termination of USAuto's status as a validly
electing S corporation (or any Subsidiary's status as a qualified subchapter S
subsidiary) within the meaning of Code Sections 1361 and 1362 (or any similar
provision of state, local or foreign law);
39
(u) USAuto shall not, and shall cause its Subsidiaries to not, take
any action or omit to take any action that would result in the breach of any
representation or warranty set forth in ARTICLE III; and
(v) USAuto shall not agree or commit to take any of the actions
described in clauses "(b)" through "(u)" of this Section.
Section 7.2 COVENANTS OF LBI. During the period from the date of this
Agreement and continuing until the Effective Time, LBI agrees as to itself and
its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or the LBI Schedules (including, without limitation, consummation of
the Rights Offering and any actions taken in furtherance thereof) or as required
by a Governmental Entity of competent jurisdiction or to the extent that USAuto
shall otherwise consent in writing, which consent shall not be unreasonably
withheld or delayed):
(a) LBI and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material respects,
in substantially the same manner as heretofore conducted, and shall use all
reasonable efforts to preserve intact their present lines of business, maintain
their rights and franchises and preserve their relationships with customers,
suppliers and others having business dealings with them to the end that their
ongoing businesses shall not be impaired in any material respect at the
Effective Time;
(b) LBI shall not, and shall not permit any of its Subsidiaries to,
(i) enter into any new line of business or (ii) incur or commit to any capital
expenditures or any obligations or liabilities in connection with capital
expenditures, except for (A) capital expenditures and obligations or liabilities
in connection with capital expenditures incurred or committed to in the ordinary
course of business consistent with past practice and (B) other capital
expenditures and obligations or liabilities disclosed on the LBI PERMITTED
CAPITAL EXPENDITURES SCHEDULE;
(c) LBI shall not, and shall not permit any of its Subsidiaries to,
and shall not propose to, (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock (except for dividends by
wholly owned Subsidiaries of LBI), (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock (except for any such transaction by a wholly owned Subsidiary of
LBI which remains a wholly owned Subsidiary of LBI after consummation of such
transaction) or (iii) repurchase, redeem or otherwise acquire any shares of its
capital stock or any securities convertible into or exercisable for any shares
of its capital stock;
(d) LBI shall not, and shall not permit any of its Subsidiaries to,
issue, deliver or sell, or authorize or propose the issuance, delivery or sale
of, any shares of its capital stock of any class, any LBI Voting Debt or any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares or LBI Voting Debt, or enter into any
agreement with respect to any of the foregoing, other than (i) the granting of
the LBI Stock Options set forth on the PERMITTED LBI STOCK OPTIONS SCHEDULE and
additional LBI Stock Options to purchase up to 50,000 shares of LBI Common
Stock, (ii) upon the exercise of LBI Stock Options and (iii) issuances of
capital stock by a wholly owned Subsidiary of LBI to such
40
Subsidiary's parent or another wholly owned Subsidiary of LBI; PROVIDED,
HOWEVER, that in no event shall LBI knowingly take such action or permit any of
its Subsidiaries to take such action that would result in an "ownership change"
within the meaning of Code Section 382(g);
(e) other than to the extent required to comply with its obligations
hereunder, required by law or required by the rules and regulations of the New
York Stock Exchange, LBI shall not amend or propose to amend its certificate of
incorporation, bylaws or other governing documents;
(f) LBI shall not, and shall not permit any of its Subsidiaries to,
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or agree to
acquire or in-license any assets or rights (other than the acquisition or
in-license of assets used in the operations of the business of LBI and its
Subsidiaries in the ordinary course consistent with past practice);
(g) other than (i) internal reorganizations or consolidations
involving existing direct or indirect wholly owned Subsidiaries of LBI that
remain direct or indirect wholly owned Subsidiaries of LBI or (ii) as may be
required by or in conformance with law or regulation in order to permit or
facilitate the consummation of the transactions contemplated hereby or the
transactions disclosed in the LBI Schedules, LBI shall not, and shall not permit
any of its Subsidiaries to, sell, lease, out-license, encumber or otherwise
dispose of, or agree to sell, lease, out-license, encumber or otherwise dispose
of, any of its assets, other than in the ordinary course of business consistent
with past practice;
(h) LBI shall not, and shall not permit any of its Subsidiaries to (i)
make any loans, advances or capital contributions to, or investments in, any
other Person, other than (A) by LBI or a direct or indirect wholly owned
Subsidiary of LBI to or in LBI or any direct or indirect wholly owned Subsidiary
of LBI, (B) pursuant to any contract or other legal obligation of LBI or any of
its Subsidiaries as in effect at the date of this Agreement and set forth on the
LBI CONTRACTS SCHEDULE, (C) investments in Cash Equivalents or Investment Grade
Securities or (D) investments in publicly traded securities (other than
Investment Grade Securities) in the ordinary course of business consistent with
past practice in an aggregate amount not in excess of the aggregate amount
specified on the LBI PERMITTED INVESTMENTS SCHEDULE or (ii) create, incur,
assume or suffer to exist any indebtedness, issuances of debt securities,
guarantees, loans or advances not in existence as of the date of this Agreement
except pursuant to the credit facilities, indentures (but not in excess of
amounts authorized for issuance thereunder as of the date of this Agreement) and
other arrangements in existence on the date of this Agreement and set forth on
the LBI CONTRACTS SCHEDULE or trade debt and commercial finance in the ordinary
course of business consistent with past practice, in each case as such credit
facilities, indentures and other arrangements and other existing indebtedness
may be amended, extended, modified, refunded, renewed or refinanced after the
date of this Agreement in a manner which does not increase the aggregate
principal amount or amount of the facility, as the case may be, or subject to
any Lien (other than Permitted Liens) any assets or properties of LBI or its
Subsidiaries that are not, as of the date of this Agreement, subject to any
Lien;
41
(i) LBI shall use reasonable efforts not to, and shall use reasonable
efforts not to permit any of its Subsidiaries to, take any action (including any
action otherwise permitted by this SECTION 7.2) that would prevent or impede the
Merger from qualifying as a reorganization under Code Section 368(a)(1)(A) by
reason of Code Section 368(a)(2)(D);
(j) other than as contemplated by SECTION 7.2(d) or disclosed on the
LBI PERMITTED COMPENSATION SCHEDULE and other than in the ordinary course of
business consistent with past practice or as required by an existing contract or
agreement as in effect on the date hereof and set forth on the LBI CONTRACTS
SCHEDULE, LBI shall not (i) increase the amount of compensation or severance pay
of any director, executive officer or other employee, (ii) make any material
increase in, or commitment to increase materially, any employee benefits or
(iii) adopt, amend or make any commitment to adopt any new employee benefit plan
or make any material contribution, other than regularly scheduled contributions,
to any LBI Benefit Plan; (k) LBI shall not (i) change its fiscal year or (ii)
except as required by changes in GAAP as concurred with by LBI's independent
auditors or as required by a Governmental Entity, change its methods of
accounting in effect at June 30, 2003;
(l) LBI and its Subsidiaries will not make or change any election,
change an annual accounting period, adopt or change any accounting method, file
any amended Tax Return, enter into any Tax closing agreement, settle any Tax
claim or assessment, surrender any right to claim a refund of Taxes, consent to
any extension or waiver of the limitation period applicable to any Tax claim or
assessment, or take any other similar action, or omit to take any action
relating to the filing of any Tax Return or the payment of any Tax, if such
election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action or omission would have the effect of increasing the present or
future Tax liability or decreasing any present or future Tax asset of LBI and
its Subsidiaries;
(m) except as disclosed on the LBI CONTRACTS SCHEDULE, LBI shall not,
and shall not permit any of its Subsidiaries to, enter into any agreement or
arrangement that (i) prohibits LBI or any of its Subsidiaries from freely
engaging in business anywhere in the world or (ii) would reasonably be expected
to have a Material Adverse Effect on LBI or, from and after the Effective Time,
the Surviving Corporation and its Affiliates;
(n) LBI shall not make any contributions to any grantor trust or other
funding arrangement for any nonqualified deferred compensation that is
considered "unfunded" for purposes of ERISA;
(o) LBI shall keep in full force all insurance policies in effect as
of the date of this Agreement;
(p) LBI shall not form any Subsidiary or, except as contemplated under
SECTION 7.2(h), acquire any equity interest or other interest in any other
Person;
(q) other than in connection with any action expressly permitted by
any other subsection of this SECTION 7.2, LBI shall not (i) enter into or become
bound by, or permit any of the assets owned or used by it to become bound by,
any contract of the type required to be
42
disclosed pursuant to SECTION 5.9 of this Agreement or (ii) amend or prematurely
terminate, or waive any material right or remedy under, any such contract;
(r) LBI shall not commence or settle any material action, suit,
investigation or other proceeding;
(s) LBI shall not enter into any material transaction or take any
other material action other than in the ordinary course of business consistent
with its past practices;
(t) LBI shall not, and shall cause its Subsidiaries to not, take any
action or omit to take any action that would result in the breach of any
representation or warranty set forth in ARTICLE V;
(u) LBI shall not amend, terminate, or waive any obligation of
Xxxxxx'x Xxxx/Ford, Ltd. under, the Backstop Agreement, dated as of the date
hereof, by and between LBI and Xxxxxx'x Xxxx/Ford, Ltd. (the "BACKSTOP
AGREEMENT"); and
(v) LBI shall not agree or commit to take any of the actions described
in clauses "(b)" through "(u)" of this Section.
Section 7.3 GOVERNMENTAL FILINGS. Each party shall (a) confer on a regular
and frequent basis with the other and (b) report (to the extent permitted by law
or regulation or any applicable confidentiality agreement) to the other on
operational matters. LBI and USAuto shall file all reports required to be filed
by each of them with all Governmental Entities between the date of this
Agreement and the Effective Time and shall (to the extent permitted by law or
regulation or any applicable confidentiality agreement) deliver to the other
party copies of all such reports, announcements and publications promptly after
the same are filed. LBI and USAuto acknowledge and agree that the preceding
sentence does not relate to reports or other materials required to be filed
pursuant to the HSR Act, which filings are addressed in SECTION 8.4 of this
Agreement.
Section 7.4 CONTROL OF BUSINESS OPERATIONS. Notwithstanding any implication
to the contrary contained herein, (a) nothing contained in this Agreement shall
give LBI, directly or indirectly, the right to control or direct USAuto's
operations prior to the Effective Time and (b) nothing contained in this
Agreement shall give USAuto, directly or indirectly, the right to control or
direct LBI's operations prior to the Effective Time. Prior to the Effective
Time, each of LBI and USAuto shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
Section 7.5 RESTRICTIONS ON DIVIDENDS AND TRANSFERS OF USAUTO STOCK. Each
of the USAuto Stockholders agrees that from and after the date hereof through
the earlier of the Effective Time or the termination of this Agreement: (a) such
USAuto Stockholder will not (i) permit USAuto or any of its Subsidiaries to
declare or pay any dividends on or make other distributions in respect of any of
its capital stock (except for (x) dividends by wholly owned Subsidiaries of
USAuto and (y) USAuto Permitted Dividends) or (ii) accept payment of any such
dividends or distributions (except USAuto Permitted Dividends); and (b) such
USAuto Stockholder will not sell, transfer, assign, pledge or otherwise dispose
of any interest in his USAuto Common Stock.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 PREPARATION OF FORM S-1; STOCKHOLDERS MEETING.
(a) As promptly as reasonably practicable following the date hereof,
LBI and USAuto shall prepare, and LBI shall file with the SEC, a joint proxy
statement and registration statement on Form S-1 with respect to obtaining the
Required LBI Votes and the issuance of LBI Common Stock in the Rights Offering
(the "FORM S-1"). LBI shall use commercially reasonable efforts to have the Form
S-1 declared effective by the SEC as promptly as reasonably practicable after
filing with the SEC, to keep the Form S-1 effective as long as is necessary to
consummate the Rights Offering and to cause the Form S-1 to be mailed to LBI's
stockholders as promptly as practicable after the SEC has provided its final
approval thereof. LBI shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or to file a
general consent to service of process) required to be taken under any applicable
Blue Sky Law in connection with the Merger, and USAuto shall furnish all
information concerning USAuto and the holders of USAuto Common Stock as may be
reasonably requested in connection with any such action. If at any time prior to
the Effective Time USAuto or LBI discovers any information relating to USAuto or
LBI, or any of their respective Affiliates, officers or directors, that should
be set forth in an amendment or supplement to the Form S-1 so that such document
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and, to
the extent required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and
disseminated to the stockholders of LBI.
(b) Subject to SECTION 8.4, LBI shall, as promptly as reasonably
practicable following the execution of this Agreement: (i) duly take all lawful
action to call, give notice of, convene and hold a meeting of its stockholders
(the "LBI STOCKHOLDERS MEETING") for the purpose of obtaining the Required LBI
Votes with respect to (A) issuing LBI Common Stock to the Applicable USAuto
Stockholders as part of the Merger Consideration hereunder, (B) issuing LBI
Common Stock to Xxxxxx'x Xxxx/Ford, Ltd. in connection with the Rights Offering,
(C) amending and restating LBI's certificate of incorporation to be
substantially in the form attached hereto as EXHIBIT 8.2(c)(1), (D) amending and
restating LBI's bylaws to be substantially in the form attached hereto as
EXHIBIT 8.2(c)(2) and (E) amending the LBI Stock Option Plan in order to
increase the number of shares of LBI Common Stock reserved for grant thereunder
to 8,500,000 (collectively, the "REQUIRED VOTING MATTERS"); and (ii) take all
lawful action for the purpose of soliciting the Required LBI Votes with respect
to the Required Voting Matters. In addition, subject to SECTION 8.4, the Board
of Directors of LBI (A) shall, subject to its fiduciary duties under applicable
law, continue to recommend adoption of this Agreement and approval of the Merger
by the stockholders of LBI to the effect set forth in SECTION 5.4(b) and (B)
shall not, subject to its fiduciary duties under applicable law, withdraw,
modify or qualify in any manner adverse to USAuto such recommendation or take
any action or make any statement in connection with the LBI Stockholders Meeting
inconsistent with such recommendation.
Section 8.2 GOVERNANCE AND OPERATIONS OF THE SURVIVING CORPORATION.
44
(a) At or prior to the Closing, LBI shall take all actions necessary
to cause as of the Effective Time the Board of Directors of LBI to: (i) be
comprised of nine directors; (ii) consist of the following persons: Xxxx X.
Xxxxxx, Xxxxxx X. Xxxx, Xxxxxx X. Xxxxxxx, Xxxxxx X. Xxxx, Xxxxxxx X. Xxxxxxxx,
Xxxxxx X. Xxxxxxxx, Xx., Xxxxxx X. Xxxx, III and two additional members, both of
whom shall be "independent" (as defined in Section 301 of the Xxxxxxxx-Xxxxx Act
of 2002) and shall be proposed by Xxxxxxx X. Xxxxxxxx and Xxxxxx X. Xxxxxxxx,
Xx. and approved by a majority of the other members of the Board of Directors of
LBI, which approval shall not be unreasonably withheld; (iii) establish an
Executive Committee of the Board of Directors of LBI consisting of Xxxxxx X.
Xxxxxxx, Xxxxxx X. Xxxx, Xxxxxxx X. Xxxxxxxx and Xxxxxx X. Xxxxxxxx, Xx.; and
(iv) establish a Nominating Committee of the Board of Directors of LBI in
accordance with the rules and regulations of the New York Stock Exchange.
(b) At or prior to the Closing, LBI shall take all actions necessary
to cause as of the Effective Time the following individuals to be elected as
officers of LBI and to hold the offices set forth opposite their names below
pursuant to the bylaws of LBI:
Xxxxxxx X. Xxxxxxxx - Chief Executive Officer and President
Xxxxxx X. Xxxxxxxx, Xx. - Executive Vice President
(c) Subject to the Required LBI Votes, LBI shall take all actions
necessary to amend and restate the certificate of incorporation and bylaws of
LBI to be in substantially the forms attached hereto as EXHIBIT 8.2(c)(1) and
EXHIBIT 8.2(c)(2), respectively.
Section 8.3 ACCESS TO INFORMATION.
(a) Upon reasonable notice, each party shall (and shall cause its
Subsidiaries to) afford to the officers, employees, accountants, counsel,
financial advisors and other representatives of the other party reasonable
access during normal business hours, during the period prior to the Effective
Time, to all its properties, books, contracts, commitments, records, officers,
employees, accountants, counsel, financial advisors and other representatives
and, during such period, such party shall (and shall cause its Subsidiaries to)
furnish promptly to the other party (i) a copy of each report, schedule,
registration statement and other document filed, published, announced or
received by it during such period pursuant to the requirements of federal or
state securities laws, as applicable (other than documents which such party is
not permitted to disclose under applicable law), and (ii) consistent with its
legal obligations, all other information concerning it and its business,
properties and personnel as such other party may reasonably request; PROVIDED,
HOWEVER, that either party may restrict the foregoing access to the extent that
any law, treaty, rule or regulation of any Governmental Entity applicable to
such party requires such party or its Subsidiaries to restrict access to any
properties or information. The parties will hold any such information which is
non-public in confidence to the extent required by, and in accordance with, the
provisions of the nondisclosure agreement dated October 13, 2003 between LBI and
USAuto (as amended, supplemented and/or otherwise modified from time to time,
the "CONFIDENTIALITY AGREEMENT"). Each party shall use commercially reasonable
efforts to cause its officers, employees, accountants, financial advisors and
other representatives to cooperate with the other party and such other party's
officers, employees, accountants, financial advisors and other representatives.
Notwithstanding the
45
foregoing, however, no investigation by USAuto or LBI, or any of their
respective agents or representatives, shall affect the representations and
warranties of LBI or USAuto, as the case may be.
(b) During the period commencing with the execution of this Agreement
and continuing until the Effective Time, LBI and USAuto shall provide each other
with such documentation and information regarding the LBI Employee Benefit Plans
and the USAuto Employee Benefit Plans, respectively, as the other party shall
reasonably request, as promptly as is reasonably practicable.
Section 8.4 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each party will use commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Merger and the other transactions contemplated by
this Agreement as soon as practicable after the date hereof, including (a)
preparing and filing as promptly as practicable all documentation to effect all
necessary applications, notices, petitions, filings, Form A and any other
insurance regulatory authority filings and other documents and to obtain as
promptly as practicable all consents, waivers, licenses, orders, registrations,
approvals, permits and authorizations necessary or advisable to be obtained from
any third party and/or any Governmental Entity in order to consummate the Merger
or any of the other transactions contemplated by this Agreement and (b) taking
all reasonable steps as may be necessary to obtain all such consents, waivers,
licenses, registrations, permits, authorizations, orders and approvals. In
furtherance, and not in limitation, of the foregoing, each party hereto agrees
to make an appropriate filing of a Notification and Report Form pursuant to the
HSR Act and pursuant to any other Regulatory Law with respect to the
transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act or any other
Regulatory Law and to take all other actions necessary to cause the expiration
or termination of the applicable waiting periods under the HSR Act as soon as
practicable.
Section 8.5 EMPLOYEE BENEFITS MATTERS.
(a) CONTINUATION AND COMPARABILITY OF BENEFITS. At the Effective Time,
LBI and the Surviving Corporation shall honor all USAuto Employee Benefit Plans
then in effect, and the related funding arrangements of each, in accordance with
their respective terms; PROVIDED that, except as provided in Section 8.5(d),
nothing herein shall require LBI and the Surviving Corporation to continue any
particular USAuto Employee Benefit Plan for any period of time or prevent the
amendment or termination thereof in accordance with its terms.
(b) PRE-EXISTING LIMITATIONS; DEDUCTIBLES; SERVICE CREDIT. With
respect to any employee benefit plans in which any employees of the Surviving
Corporation first become eligible to participate, on or after the Effective
Time, and in which the employees of the Surviving Corporation did not
participate prior to the Effective Time (the "NEW SURVIVING CORPORATION PLANS"),
LBI and the Surviving Corporation shall: (i) waive all pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the employees of the Surviving Corporation, except to
the extent such
46
pre-existing conditions, exclusions or waiting periods would apply under the
analogous USAuto Employee Benefit Plan, as the case may be, that previously
applied to the employees of the Surviving Corporation; (ii) provide each
employee of the Surviving Corporation with credit for any co-payments and
deductibles paid prior to participation in the New Surviving Corporation Plan
(to the same extent such credit was given for the year under the analogous
employee benefit plan prior to participation in the New Surviving Corporation
Plan) in satisfying any applicable deductible or out-of-pocket requirements
under any New Surviving Corporation Plan; and (iii) recognize all continuous
service of the Surviving Corporation's employees with USAuto, or any of its
Subsidiaries, as applicable, for eligibility and vesting purposes in any New
Surviving Corporation Plan in which such employees may be eligible to
participate after the Effective Time, to the extent such service is taken into
account under the applicable New Surviving Corporation Plan; PROVIDED that the
foregoing shall not apply to the extent it would result in a duplication of
benefits. Without limiting the generality of the foregoing, LBI shall credit
each employee of the Surviving Corporation and any of its Subsidiaries with all
vacation, personal and sick days accrued under USAuto's plans, policies,
programs and arrangements set forth on the USAUTO EMPLOYEE BENEFITS SCHEDULE and
in effect immediately prior to the Effective Time (the "TRANSFERRED LEAVE"). LBI
shall ensure that such Transferred Leave is not subject to forfeiture.
(c) GRANTOR TRUSTS. LBI and USAuto shall each take all steps (if any)
that are necessary or appropriate to amend any grantor trusts to which LBI or
any of its Subsidiaries, or USAuto or any of its Subsidiaries, as applicable, is
a party so that no contributions to such trusts are required to be made as a
result of or in connection with the consummation of the transactions
contemplated hereby.
(d) HEALTH FLEXIBLE SPENDING PLAN. Notwithstanding anything in Section
8.5(a) to the contrary, LBI and the Surviving Corporation shall ensure that any
salary deferrals made during the plan year in which the Effective Time falls
under any health flexible spending plan maintained by USAuto immediately prior
to the Effective Time shall be available to provide reimbursement for all claims
incurred through the earlier of (i) the end of such plan year or (ii) the date
that a respective participant ceases participating under such plan.
Section 8.6 FEES AND EXPENSES. All Expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such Expenses, whether or not the Merger or any other
transaction is consummated; PROVIDED that USAuto and LBI each shall pay one-half
of all filing fees under the HSR Act or any other Regulatory Law; PROVIDED,
FURTHER, if the Merger is consummated: (i) each of LBI, on the one hand, and the
USAuto Stockholders, on the other hand, shall pay one-half of all Expenses owed
to Xxxxxx Xxxxxx & Co. under that certain Engagement Letter dated as of December
1, 2003, as in effect on the date hereof; (ii) all Expenses of LBI owed to its
legal counsel, investment bankers and/or brokers (other than the Expenses
described in clause (i) above) shall be paid by LBI; (iii) all Expenses of
USAuto owed to its investment bankers and/or brokers (other than the Expenses
described in clause (i) above) shall be paid by the USAuto Stockholders; (iv)
all Expenses of USAuto owed to its legal counsel for services rendered on or
after October 1, 2003 (other than counsel retained by USAuto for the purposes of
obtaining the required approval for the Merger by the applicable state insurance
regulatory authorities) shall be paid by the USAuto Stockholders; and (v) all
Expenses of USAuto and LBI owed to their respective accountants and
47
the fees and expenses of USAuto's insurance regulatory counsel shall be paid by
LBI. As used in this Agreement, the term "EXPENSES" includes all out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its Affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Form S-1, the
solicitation of stockholder approvals, the filing of any required notices under
the HSR Act or any other Regulatory Law and all other matters related to the
closing of the Merger and the other transactions contemplated hereby.
Section 8.7 PUBLIC ANNOUNCEMENTS. USAuto and LBI shall use commercially
reasonable efforts to develop a joint communications plan and each party shall
use commercially reasonable efforts (a) to ensure that all press releases and
other public statements with respect to the transactions contemplated hereby
shall be consistent with such joint communications plan, and (b) unless
otherwise required by applicable law or by obligations pursuant to any listing
agreement with or rules of any securities exchange, to consult with each other
before issuing any press release or, to the extent practical, otherwise making
any public statement with respect to this Agreement or the transactions
contemplated hereby. In addition to the foregoing, except to the extent
disclosed in the Form S-1, neither party shall issue any press release or
otherwise make any public statement or disclosure concerning the other party or
the other party's business, financial condition or results of operations without
the consent of the other party, which consent shall not be unreasonably withheld
or delayed.
Section 8.8 ACCOUNTING MATTERS. As promptly as reasonably practicable
following the date hereof, USAuto shall provide to LBI (a) the audited
consolidated balance sheets of USAuto and its Subsidiaries as of December 31,
2002 and 2001, and the related statements of income and cash flows for the years
ended December 31, 2002, 2001 and 2000, and (b) the consent of USAuto's
independent public accountants to include such financial statements in the Form
S-1. If LBI is required to make any subsequent filings with the SEC, USAuto
shall, upon LBI's request, use commercially reasonable efforts to cause its
independent public accountants to consent to the inclusion of USAuto's audited
financial statements in such subsequent filing. In addition, USAuto shall use
commercially reasonable efforts to cause to be delivered to LBI two letters from
nationally recognized independent public accountants relating to their review of
the financial statements of USAuto contained in the Form S-1, one dated
approximately the date on which the Form S-1 shall become effective and one
dated within two Business Days prior to the Closing Date, each addressed to
USAuto and LBI, in form and substance reasonably satisfactory to LBI and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-1.
Section 8.9 SECTION 16 MATTERS. Prior to the Effective Time, USAuto and LBI
shall take all such steps as may be required to cause any dispositions of USAuto
Common Stock (including derivative securities with respect to USAuto Common
Stock) or acquisitions of LBI Common Stock (including derivative securities with
respect to LBI Common Stock) resulting from the transactions contemplated by
ARTICLE I or ARTICLE II of this Agreement by each individual who is subject to
the reporting requirements of Section 16(a) of the Exchange Act with respect to
USAuto or LBI, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
48
Section 8.10 EXCLUSIVITY. Neither USAuto nor any of the USAuto Stockholders
will (a) solicit, initiate, or encourage the submission of any proposal or offer
from any Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of USAuto or any of its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange) or (b) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. USAuto and the USAuto Stockholders shall notify LBI
immediately if any Person makes any proposal, offer, inquiry or contact with
respect to any of the foregoing. None of the USAuto Stockholders will vote their
shares of common stock of USAuto in favor of any such acquisition. USAuto will
notify LBI immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
Section 8.11 LISTING OF SHARES OF LBI COMMON STOCK. LBI shall use its
reasonable best efforts to cause the shares of LBI Common Stock issued to the
USAuto Stockholders as part of the Merger Consideration to be approved for
listing on the New York Stock Exchange, subject to official notice of issuance,
prior to the Closing Date.
Section 8.12 USAUTO INDEBTEDNESS.
(a) USAuto shall use its commercially reasonable efforts to obtain
from its lenders, on terms no less favorable to the Surviving Corporation, an
amendment to each of (i) the Credit Agreement, dated as of March 21, 2003,
between USAuto and The CIT Group/Equipment Financing, Inc. (the "USAUTO CREDIT
AGREEMENT") as in effect on the date hereof, (ii) the Promissory Note, dated
November 27, 2000, in the original principal amount of $900,000 executed by
USAuto in favor of Bank of America, N.A. (the "NOVEMBER 2000 NOTE"), (iii) the
Promissory Note, dated June 27, 2001, in the original principal amount of
$3,000,000 executed by USAuto in favor of Bank of America, N.A. (the "JUNE 2001
NOTE") and (iv) the Promissory Note, dated August 1, 2001, in the original
principal amount of $3,581,290.49 executed by USAuto in favor of Bank of
America, N.A. (the "AUGUST 2001 NOTE"), in each case effective as of the Closing
consenting to and otherwise permitting the Merger and the other transactions
contemplated by this Agreement (including, without limitation, allowing the
Surviving Corporation to assume all of the rights and obligations of USAuto
thereunder).
(b) In the event that USAuto is unable to obtain any of the amendments
referenced in clauses (i), (ii), (iii) or (iv) of SECTION 8.12(a), on the
Closing Date LBI shall pay in full any and all amounts outstanding, including
all accrued and unpaid interest, under the note or credit facility governing the
Indebtedness with respect to which such amendment has not been obtained.
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
49
(a) LBI shall have obtained the Required LBI Votes in connection with
the adoption of this Agreement (including, without limitation, the matters set
forth in SECTION 8 and the obligations set forth in SECTION 8.2 hereof) and the
approval of the Merger by the stockholders of LBI;
(b) no Law shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order (excluding
any order or request for information pursuant to the HSR Act) issued by a court
or other Governmental Entity of competent jurisdiction shall be in effect, (i)
having the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger or (ii) which otherwise would reasonably be expected
to have a Material Adverse Effect on LBI and its Subsidiaries, taken together
after giving effect to the Merger; PROVIDED, HOWEVER, that the provisions of
this SECTION 9.1(b) shall not be available to any party whose failure to fulfill
its obligations pursuant to SECTION 8.4 shall have been the cause of, or shall
have resulted in, such order or injunction by a Governmental Entity to obtain
the same;
(c) the waiting period (and any extension thereof) applicable to the
Merger, if any, under the HSR Act shall have been terminated or shall have
expired;
(d) other than the filings provided for under SECTION 1.2 and filings
pursuant to the HSR Act (which are addressed in SECTION 9.1(c)), all USAuto
Necessary Consents and LBI Necessary Consents, in each case, the failure of
which to be obtained or taken would reasonably be expected to have a Material
Adverse Effect on LBI and its Subsidiaries, taken together after giving effect
to the Merger, shall have been obtained; PROVIDED, HOWEVER, that the provisions
of this SECTION 9.1(d) shall not be available to any party whose failure to
fulfill its obligations pursuant to SECTION 8.4 shall have been the cause of, or
shall have resulted in, the failure to obtain such consent or approval;
(e) LBI and Xxxxxx X. Xxxxxxx shall have entered into an Advisory
Services Agreement in substantially the form attached as EXHIBIT 9.1(e) hereto;
(f) LBI's name shall have been changed to First Acceptance
Corporation; and
(g) the Form S-1 shall have been declared effective by the SEC under
the Securities Act, no stop order suspending the effectiveness of the Form S-1
shall have been issued by the SEC and no proceedings for that purpose shall have
been initiated or threatened by the SEC.
Section 9.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF USAUTO. The obligations
of USAuto to effect the Merger are subject to the satisfaction, or waiver by
USAuto, on or prior to the Closing Date of the following additional conditions:
(a) each of the representations and warranties made by LBI or Merger
Sub in this Agreement shall be true and correct in all material respects (if not
qualified by materiality or by Material Adverse Effect) and in all respects (if
qualified by materiality or by Material Adverse Effect) at and as of the Closing
as though such representation or warranty was made at and as of the Closing (and
any representation or warranty made as of a specified date earlier than the
Closing Date shall also have been true and correct in all material respects on
and as of such
50
earlier date), in each case without giving effect to any Knowledge
qualifications contained therein or any disclosures made by LBI or Merger Sub
after the parties execute this Agreement. USAuto shall have received a
certificate with respect to the foregoing signed on behalf of LBI by the chief
executive officer and the treasurer of LBI;
(b) LBI and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required to be performed by
them under this Agreement on or prior to the Closing Date, and USAuto shall have
received a certificate of LBI executed by the chief executive officer and the
treasurer of LBI to such effect;
(c) a registration rights agreement, substantially in the form
attached as EXHIBIT 9.2(c) hereto, shall have been duly executed and delivered
by LBI;
(d) LBI shall have entered into an employment agreement with each of
Xxxxxxx X. Xxxxxxxx and Xxxxxx X. Xxxxxxxx, Xx. in substantially the forms
attached as EXHIBITS 9.2(d)(1) and 9.2(d)(2) hereto, respectively;
(e) LBI shall have entered into a Nonqualified Stock Option Agreement
with each of Xxxxxxx X. Xxxxxxxx and Xxxxxx X. Xxxxxxxx, Xx. in substantially
the form attached as EXHIBIT 9.2(e) hereto, granting to each pursuant to the LBI
Stock Option Plan an option to purchase 100,000 shares of LBI Common Stock;
(f) LBI and Xxxxxx X. Xxxxxxx shall have entered into a Separation
Agreement in substantially the form attached as EXHIBIT 9.2(f) hereto;
(g) LBI shall have entered into a severance agreement with each of
Xxxxxxx X. Xxxxx, Xxxxxx X. Xxxx, Xxxxx Xxxxxx and Xxxxx X. Xxxxxxxx in
substantially the forms attached as EXHIBITS 9.2(g)(1), 9.2(g)(2), 9.2(g)(3) and
9.2(g)(4) hereto, respectively, setting forth the terms of each person's
termination of employment with LBI;
(h) that certain NonQualified Stock Option Agreement Liberte Investors
2002 Long Term Incentive Plan, dated July 9, 2002, by and between LBI and Xxxxxx
X. Xxxxxxx, shall have been amended, terminating Section 12 and deleting it
therefrom in its entirety from and after the Effective Time, provided that, such
amendment shall not in any manner affect the issuance of additional options to
Xxxxxx X. Xxxxxxx pursuant to Section 12 of such NonQualified Stock Option
Agreement in connection with the Rights Offering;
(i) the obligations of Xxxxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxxx, Xx.,
Xxxxx X. Xxxxx and Xxxxxx X. Xxxxxxx as guarantors of the November 2000 Note,
the June 2001 Note and the August 2001 Note shall have been terminated;
(j) all of the shares of LBI Common Stock issued to the USAuto
Stockholders in the Merger shall have been authorized for listing on the New
York Stock Exchange, subject to official notice of issuance;
(k) the Certificate of Deposit Pledge Agreement, dated as of March 21,
2003, by and between CIT Group/Equipment Financing, Inc. and Xxxxx & Xxx
Xxxxxxxx Properties
51
shall have been terminated, and Xxxxx & Xxx Xxxxxxxx Properties shall have been
released from all obligations thereunder;
(l) the average Quoted Price of LBI Common Stock for the 10 trading
days immediately preceding the Closing Date shall have been greater than or
equal to [$3.62] per share;
(m) LBI and Merger Sub shall have delivered to USAuto and the USAuto
Stockholders a certificate signed by the Chief Executive Officers of LBI and
Merger Sub, respectively, substantially in the form attached as EXHIBIT 9.2(m)
hereto;
(n) LBI shall have received the legal opinion of Morris, Nichols,
Arsht & Xxxxxxx in substantially the form attached as EXHIBIT 9.2(n) hereto;
(o) LBI shall have assigned or terminated without further liability
the lease with Crescent Real Estate Funding I, LP for office space in Dallas,
Texas (the "DALLAS LEASE"); and
(p) LBI shall have consummated the Rights Offering.
Section 9.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF LBI. The obligations of
LBI and Merger Sub to effect the Merger are subject to the satisfaction, or
waiver by LBI, on or prior to the Closing Date of the following additional
conditions:
(a) each of the representations and warranties made by USAuto or any
USAuto Stockholder in this Agreement shall be true and correct in all material
respects (if not qualified by materiality or by Material Adverse Effect) and in
all respects (if qualified by materiality or by Material Adverse Effect) at and
as of the Closing as though such representation or warranty was made at and as
of the Closing (and any representation or warranty made as of a specified date
earlier than the Closing Date shall also have been true and correct in all
material respects on and as of such earlier date), in each case without giving
effect to any Knowledge qualifications contained therein or any disclosures made
by USAuto or any USAuto Stockholder after the parties execute this Agreement.
LBI shall have received a certificate with respect to the foregoing signed on
behalf of USAuto by the Chief Executive Officer and Chief Financial Officer of
USAuto;
(b) USAuto and each USAuto Stockholder shall have performed or
complied in all material respects with all agreements and covenants required to
be performed by it under this Agreement on or prior to the Closing Date, and LBI
shall have received a certificate of USAuto executed by the Chief Executive
Officer and Chief Financial Officer of USAuto to such effect;
(c) no event(s) shall have occurred that has had, or would reasonably
be likely to have, individually or in the aggregate, a Material Adverse Effect
with respect to USAuto and its Subsidiaries, taken as a whole;
52
(d) each of Xxxxxxx X. Xxxxxxxx and Xxxxxx X. Xxxxxxxx, Xx. shall have
each entered into an employment agreement with LBI in form and substance
attached as EXHIBIT 9.2(d) hereto;
(e) USAuto and its Subsidiaries shall have obtained all of the
consents and approvals (whether of third parties or Governmental Entities) with
respect to each of the items listed on the USAUTO CONFLICTS SCHEDULE;
(f) a registration rights agreement, substantially in the form
attached as EXHIBIT 9.2(c) hereto, shall have been duly executed and delivered
by USAuto;
(g) USAuto and the USAuto Stockholders shall have terminated all
existing agreements among the USAuto Stockholders and USAuto or among the USAuto
Stockholders, including, without limitation, the Shareholders Agreement, dated
as of December 31, 1998, among USAuto and each of the USAuto Stockholders;
(h) USAuto shall have delivered to LBI an affidavit stating that
USAuto is not and has not been a United States real property holding
corporation, dated as of the Closing Date and in the form attached as EXHIBIT
9.3(h) hereto;
(i) USAuto shall have delivered to LBI and Merger Sub a certificate
signed by the Chief Executive Officer of USAuto substantially in the form
attached as EXHIBIT 9.3(i) hereto;
(j) LBI and Xxxxxx X. Xxxxxxx shall have entered into a Separation
Agreement in substantially the form attached as EXHIBIT 9.2(f) hereto; and
(k) LBI shall have consummated the Rights Offering; provided, however,
that this SECTION 9.3(k) shall not be a condition to LBI's obligation to effect
the Merger if the Rights Offering is not consummated as a result of a failure by
Xxxxxx'x Xxxx/Ford, Ltd. to perform its obligations under the Backstop
Agreement.
ARTICLE X
TERMINATION AND AMENDMENT
Section 10.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (and, except as provided below, whether before or
after the approval by the stockholders of LBI of the matters presented in
connection with the Merger), by action taken or authorized by the Board of
Directors of the terminating party or parties, as follows:
(a) by mutual written consent of USAuto and LBI;
(b) by either LBI or USAuto if the Effective Time shall not have
occurred on or before May 28, 2004 (the "TERMINATION DATE"); PROVIDED, HOWEVER,
that the right to terminate this Agreement under this SECTION 10.1(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement (including without limitation such party's obligations set forth in
SECTION 8.4) has materially contributed to the failure of the Effective Time to
occur on or before the Termination Date;
53
(c) by either LBI or USAuto if any Governmental Entity shall institute
any suit or action challenging the validity or legality of, or seeking to
restrain the consummation of, the transactions contemplated by this Agreement;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this SECTION
10.1(c) shall not be available to any party whose failure to comply with SECTION
8.4 has materially contributed to such suit or action;
(d) by either LBI or USAuto if the approval by the stockholders of LBI
required for the adoption of this Agreement and the consummation of the Merger
shall not have been obtained by reason of the failure to obtain the Required LBI
Votes upon the taking of such vote at a duly held meeting of stockholders of LBI
or at any adjournment thereof;
(e) by USAuto if any of the conditions specified in SECTION 9.1 or 9.2
have not been met, or waived by USAuto, at such time as such condition can no
longer be satisfied; PROVIDED, HOWEVER, that the right to terminate this
Agreement under this SECTION 10.1(e) shall not be available to USAuto if its
failure (or the failure of any USAuto Stockholder) to fulfill any obligation
under this Agreement has materially contributed to the failure of any such
condition specified in SECTION 9.1 or 9.2; or
(f) by LBI if any of the conditions specified in SECTION 9.1 or 9.3
have not been met, or waived by LBI, at such time as such condition can no
longer be satisfied; PROVIDED, HOWEVER, that the right to terminate this
Agreement under this SECTION 10.1(f) shall not be available to LBI if its
failure to fulfill any obligation under this Agreement has materially
contributed to the failure of any such condition specified in SECTION 9.3.
Section 10.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated by either LBI or USAuto as provided in SECTION 10.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of USAuto or LBI or their respective officers or directors except with
respect to SECTION 8.6, this SECTION 10.2 and ARTICLE XI, which provisions shall
survive such termination, and except that, notwithstanding anything to the
contrary contained in this Agreement, neither USAuto nor LBI shall be relieved
or released from any liabilities or damages arising out of its material breach
of any provision of this Agreement.
Section 10.3 AMENDMENT. This Agreement may be amended by LBI and USAuto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of LBI, but, after any such approval, no amendment shall be
made which by law or in accordance with the rules of any relevant stock exchange
requires further approval by such stockholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of LBI and USAuto.
Section 10.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
LBI or USAuto, by action taken or authorized by its Board of Directors, may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto and/or (c) waive
compliance with any of the agreements or conditions of the other parties hereto
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid
54
against such party only if set forth in a written instrument signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
None of the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for (a)
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time
(including, without limitation, SECTIONS 8.6, 11.2 and 11.3), (b) each of the
agreements which are exhibits hereto, (c) those covenants and agreements
contained in SECTION 7.5, (d) this ARTICLE XI and (e) any claims based on fraud
or intentional or reckless misrepresentations arising out of a breach of any
representation, warranty, covenant or other agreements contained in herein and
therein.
Section 11.2 INDEMNIFICATION FOR TAXES.
(a) The USAuto Stockholders shall jointly and severally indemnify,
defend and hold harmless LBI and its Affiliates (including, without limitation,
USAuto and its Subsidiaries following the Closing) and each of its and their
respective directors, officers, stockholders, employees, agents, representatives
and successors and assigns (each an "INDEMNIFIED PARTY") against and in respect
of any and all Losses, that are incurred, suffered or sustained as a result of,
in connection with, related to, incidental to or by virtue of (i) all Taxes (or
the non-payment thereof) of USAuto and its Subsidiaries (but only to the extent
that such Losses exceed the Final Tax Reserve for all Taxable periods ending on
or before the Closing Date and the portion through the end of the Closing Date
for any Taxable period that includes (but does not end on) the Closing Date (the
"PRE-CLOSING TAX PERIOD"), (ii) all Taxes of any member of an Affiliated Group
of which USAuto or any Subsidiary (or any predecessor of the foregoing) is or
was a member on or prior to the Closing Date, including pursuant to Treasury
Regulation Section 1.1502-6 (or any analogous or similar state, local, or
foreign law or regulation), and (iii) any and all Taxes of any Person imposed on
USAuto or any Subsidiary as a transferee or successor, by contract or pursuant
to any law, rule, or regulation, which Taxes relate to an event or transaction
occurring before the Closing. The USAuto Stockholders shall reimburse LBI for
any Taxes of USAuto or any Subsidiary which are the responsibility of the USAuto
Stockholders pursuant to this SECTION 11.2 at least five days prior to payment
of such Taxes by LBI or USAuto.
(b) In the case of any Taxable period that includes (but does not end
on) the Closing Date (a "STRADDLE PERIOD"), the amount of any Taxes based on or
measured by income or receipts for the Pre-Closing Tax Period shall be
determined based on an interim closing of the books as of the close of business
on the Closing Date (and for such purpose, the Taxable period of any partnership
or other pass-through entity in which USAuto or any Subsidiary holds a
beneficial interest shall be deemed to terminate at such time) and the amount of
other Taxes for a Straddle Period which relates to the Pre-Closing Tax Period
shall be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the
55
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in such Straddle Period.
(c) LBI shall prepare and file, or cause to be prepared and filed,
with the appropriate Governmental Entity all Tax Returns required to be filed
with respect to USAuto and its Subsidiaries for all Pre-Closing Tax Periods that
are required to be filed after the Closing Date (a "POST-CLOSING TAX RETURN")
and shall pay all Taxes due with respect to such Post-Closing Tax Returns;
PROVIDED that, the USAuto Stockholders shall reimburse LBI for any amount that
is the responsibility of the USAuto Stockholders pursuant to SECTION 11.2(a)
with respect to the taxable periods covered by such Tax Returns at least 5 days
prior to payment of such Taxes by LBI.
(d) LBI shall, at least 30 days prior to the due date for any
Post-Closing Tax Return, provide to a representative designated by the USAuto
Stockholders (the "REPRESENTATIVE") a draft of such Post-Closing Tax Return. If
the Representative objects to the treatment of any item on any such Post-Closing
Tax Return, it shall within 10 days after delivery of such Post-Closing Tax
Return notify LBI in writing that it so objects, specifying with particularity
any such item and stating the specific factual or legal basis for any such
objection. If such a notice of objection shall be duly delivered, LBI and the
Representative shall negotiate in good faith to resolve their disagreement. If
LBI and the Representative have not resolved their disagreement within 5
business days after receipt by LBI of such notice, they shall refer the matter
for resolution to a mutually acceptable nationally recognized accounting firm
(the "THIRD PARTY ACCOUNTANT"), the decision of which shall be binding on LBI,
the Representative, and the USAuto Stockholders; PROVIDED that, if the Third
Party Accountant cannot resolve such disagreement with respect to such Tax
Return at least 5 business days prior to the due date of such Tax Return, such
Tax Return shall be filed as prepared by LBI, and thereafter, to the extent the
Third Party Accountant resolves such dispute in a manner which would require the
amendment of such Tax Return, such Tax Return shall be amended and filed by LBI
in a manner consistent with such resolution. In such case, promptly upon
resolution by the Third Party Accountant and the filing of an amended Tax
Return, the liability of the USAuto Stockholders and LBI for Taxes with respect
to such Tax Return shall be redetermined, and any payments made between such
parties prior to the filing of such amended Tax Return shall be appropriately
adjusted to reflect such redetermination. The costs, fees and expenses of the
Third Party Accountant shall be borne (i) by LBI if the net resolution of the
disputed items substantially agrees with the position of the USAuto
Stockholders, (ii) by the USAuto Stockholders if the net resolution of the
disputed items substantially agrees with the position of LBI and (iii) otherwise
equally by LBI, on the one hand, and the USAuto Stockholders on the other.
(e) Except with respect to refunds or credits of Taxes set forth on
the Latest USAuto Balance Sheet or resulting from a carryback of a net operating
loss, net capital loss, deduction, Tax credit or similar item sustained or
arising in any period (or portion thereof) beginning after the Closing Date
(which refunds and/or credits shall be for the account of LBI), any refunds or
credits of Taxes of USAuto for any taxable period ending on or before the
Closing Date shall be for the account of the USAuto Stockholders. Any refunds or
credits of Taxes of the Surviving Corporation for any taxable period beginning
after the Closing Date shall be for the account of LBI. Any refunds or credits
of Taxes of either USAuto or the Surviving Corporation for any Straddle Period
shall be equitably apportioned between the USAuto Stockholders and LBI.
56
(f) If a claim shall be made by any Tax authority that, if successful,
might result in (i) an indemnity payment to LBI pursuant to SECTION 11.2(a) or
(ii) an increase in the Tax liabilities of the USAuto Stockholders for a Tax
period ending on or before the Closing Date or a portion of the Straddle Period
ending on the Closing Date, LBI shall promptly notify the Representative in
writing of such claim (a "TAX CLAIM"). With respect to any Tax Claim (other than
a Tax Claim relating solely to Taxes for a Straddle Period), the Representative
shall be entitled at the expense of the USAuto Stockholders to control all
proceedings taken in connection with such Tax Claim (including selection of
counsel) and, without limiting the foregoing, may in its sole discretion pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with any Tax authority with respect thereto, and may, in its sole
discretion, either pay the Tax claimed and xxx for a refund where applicable law
permits such refund suits or contest the Tax Claim in any permissible manner;
PROVIDED that the Representative shall obtain the prior written consent of LBI
(which consent shall not be unreasonably withheld or delayed) before entering
into any settlement of a Tax Claim if the resolution or settlement of such claim
could have the effect of increasing the Tax liability or reducing any Tax Asset
of LBI, the Surviving Corporation or any of their Subsidiaries; PROVIDED FURTHER
that LBI shall have the right to participate in any such proceedings at its own
expense; PROVIDED FURTHER that if the Representative shall decline to control
the proceedings, LBI shall assume control of the proceedings at its expense and
shall be entitled to resolve and settle all issues without obtaining the consent
of the Representative. Notwithstanding the above, LBI shall control all
proceedings taken in connection with any Tax Claim relating solely to Taxes for
a Straddle Period and, to the extent the settlement of such Tax Claim would
result in an indemnification obligation under SECTION 11.2(a) or a Tax liability
of USAuto or the USAuto Stockholders under SECTION 11.2(b) or created by
operation of law, shall not settle a Tax Claim relating solely to Taxes for a
Straddle Period without the Representative's prior written consent, which
consent shall not be unreasonably withheld or delayed; PROVIDED that the
Representative shall have the right to participate in any such proceedings at
the expense of the USAuto Stockholders.
(g) Promptly following the Closing Date, LBI shall prepare, or cause
to be prepared, (1) an unaudited consolidated balance sheet of USAuto as of the
Closing Date (the "CLOSING USAUTO BALANCE SHEET"), which shall be prepared in
accordance with the principles used in preparing the Latest USAuto Balance Sheet
and (2) a calculation of the Closing Tax Reserve, which shall be (i) calculated
by reference to the Latest USAuto Balance Sheet rather than the "Final USAuto
Balance Sheet," as adjusted for operations from the date of the Latest Balance
Sheet through the Closing Date in accordance with the past custom and practice
of USAuto in filing its Tax Returns and for Taxes paid during such period and
(ii) calculated in a manner consistent with the principles used in preparing the
Latest USAuto Balance Sheet. Within 10 business days after the delivery of the
Closing USAuto Balance Sheet to the Representative (the "REVIEW PERIOD"), the
Representative shall notify LBI in writing whether or not he disagrees with the
Closing USAuto Balance Sheet and the calculation of the Closing Tax Reserve, and
if the Representative does so disagree, he shall specify in such notice his
suggested adjustments to the Closing USAuto Balance Sheet and the calculation of
the Closing Tax Reserve. If such a notice of disagreement shall be duly
delivered, LBI and the Representative shall negotiate in good faith to resolve
their disagreement. If the Representative and LBI fail to resolve such
disagreement within 20 business days after the expiration of the Review Period,
they shall refer the matter for resolution to the Third Party Accountant, the
decision of which shall be binding on LBI, the Representative and the USAuto
Stockholders. The costs, fees and
57
expenses of the Third Party Accountant shall be borne equally by LBI and the
USAuto Stockholders. The term "FINAL USAUTO BALANCE SHEET" and "FINAL TAX
RESERVE" shall mean the following: (i) if LBI and the Representative agree upon
the Closing USAuto Balance Sheet and the calculation of the Closing Tax Reserve
or if the Representative fails to notify LBI prior to the expiration of the
Review Period that the Representative disagrees with the Closing USAuto Balance
Sheet or calculation of the Closing Tax Reserve, it shall mean the Closing
USAuto Balance Sheet or the Closing Tax Reserve as prepared by LBI; (ii) if LBI
and the Representative agree upon adjustments to the Closing USAuto Balance
Sheet and/or calculation of the Closing Tax Reserve, it shall mean the Closing
USAuto Balance Sheet and/or calculation of the Closing Tax Reserve as adjusted
by agreement of LBI and USAuto; or (iii) if LBI and the Representative fail to
agree on adjustments to the Closing USAuto Balance Sheet and/or calculation of
the Closing Tax Reserve, it shall mean the Closing USAuto Balance Sheet and/or
calculation of the Closing Tax Reserve as adjusted by the Third Party
Accountant.
Section 11.3 COVENANT NOT TO COMPETE. Each of the USAuto Stockholders,
severally and not jointly, hereby covenant and agree that for a period of two
years from and after the Closing Date, such USAuto Stockholder will not, within
the United States, directly or indirectly, own any interest in, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business that is involved in the development, marketing, retail sale,
administration or underwriting of non-standard automobile insurance programs
anywhere in the United States; PROVIDED that nothing herein shall prohibit such
USAuto Stockholder from being a passive owner of not more than 5% of the
outstanding equity interests of any class of a corporation, partnership, limited
liability company, or other entity, so long as such USAuto Stockholder has no
active participation in the business of such entity. If, at the time of
enforcement of this SECTION 11.3, a court of competent jurisdiction shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances then existing, the parties agree that the maximum duration,
scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law.
Section 11.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or upon confirmation of receipt if delivered by telecopy
or facsimile (but only if a copy of such telecopy or facsimile is delivered to
the recipient by a recognized next-day courier service), (b) on the first
Business Day following the date of dispatch if delivered by a recognized
next-day courier service or (c) on the fifth Business Day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as have been previously designated in
writing to the party sending such notice by the party to receive such notice:
(a) if to LBI or Merger Sub, then to:
Liberte Investors Inc.
000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
58
Attention: Xxxxxx X. Xxxxxxx
with a copy to
Xxxxxxxx & Xxxxx LLP
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Perl
(b) if to USAuto or any USAuto Stockholder, then to:
USAuto Holdings, Inc.
0000 Xxxxx Xxxxx Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
with a copy to
Xxxxxxxxx & Xxxxxxx
0000 Xxxxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx
Section 11.5 INTERPRETATION. When a reference is made in this Agreement to
any Section, Exhibit or Schedule, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, any one of which need not contain the signature of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument and shall become effective when one or more counterparts have
been signed by each of the parties hereto and delivered to USAuto and LBI.
Section 11.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement and the other agreements referred to herein
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof.
(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall
59
confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
Section 11.8 GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by and construed
in accordance with the domestic laws of the State of
Delaware, without giving
effect to any choice of law or conflict of law provision (whether of the State
of
Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
Section 11.9 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
Section 11.10 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of USAuto (in the case of an assignment by LBI) or LBI
(in the case of an assignment by USAuto or any USAuto Stockholder), and any
attempt to make any such assignment without such consent shall be null and void.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
Section 11.11 TRANSFER TAXES AND FEES. All transfer, documentary, sales,
use, stamp, registration and other such Taxes, and all conveyance fees,
recording charges and other fees and charges (including any penalties and
interest) incurred in connection with consummation of the transactions
contemplated by this Agreement shall be paid by the Surviving Corporation when
due, and the Surviving Corporation will, at its own expense, file all necessary
Tax Returns and other documentation with respect to all such Taxes, fees and
charges, and, if required by applicable law, the Surviving Corporation will, and
will cause its Subsidiaries to, join in the execution of any such Tax Returns
and other documentation. The parties agree to reasonably cooperate with each
other to lawfully minimize any such Taxes.
Section 11.12 CONFIDENTIALITY. Notwithstanding anything in this Agreement
or elsewhere to the contrary, LBI, Merger Sub, USAuto and each of the USAuto
Stockholders (and each employee representative, or other agent of such parties)
may disclose to any and all Persons, without limitation of any kind, the tax
treatment and tax structure of any of the transactions contemplated by this
Agreement and all materials of any kind (including opinions or other tax
analyses) that are provided to LBI, Merger Sub, USAuto or the USAuto
Stockholders relating to such tax treatment and tax structure except to the
extent necessary to comply with any applicable federal or state securities laws;
PROVIDED, HOWEVER, that such disclosure may not be made until the earlier of
date of the public announcement of discussions relating to the transaction, the
date of the public announcement of the transaction, or the date of the execution
60
of an agreement to enter into the transaction. This authorization is not
intended to permit disclosure of any other information including (without
limitation) (a) any portion of any materials to the extent not related to the
Tax treatment or Tax structure of the transaction, (b) the identities of
participants or potential participants in the transaction, (c) the existence or
status of any negotiations, (d) any pricing or financial information (except to
the extent such pricing or financial information is related to the Tax treatment
or Tax structure of the transaction) or (e) any other information not relevant
to the Tax treatment or the Tax structure of the transaction. Nothing in this
Agreement or elsewhere shall be construed to limit a party's ability to consult
with any tax adviser regarding the tax treatment or tax structure of the
transactions contemplated by this Agreement.
Section 11.13 SUBMISSION TO JURISDICTION; WAIVERS. Each of the parties to
this Agreement hereby irrevocably agrees that any legal action or proceeding
with respect to this Agreement or for recognition and enforcement of any
judgment in respect hereof brought by any other party hereto or its successors
or assigns may be brought and determined in the Chancery or other Courts of the
State of Delaware, and each of the parties to this Agreement hereby irrevocably
submits with regard to any such action or proceeding for itself and in respect
to its property, generally and unconditionally, to the nonexclusive jurisdiction
of the aforesaid courts. Each of the parties to this Agreement hereby
irrevocably waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this
Agreement, (a) any claim that it is not personally subject to the jurisdiction
of the above-named courts for any reason other than the failure to lawfully
serve process, (b) that it or its property is exempt or immune from jurisdiction
of any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise) and (c) to the
fullest extent permitted by applicable law that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the venue
of such suit, action or proceeding is improper and/or (iii) this Agreement, or
the subject matter hereof, may not be enforced in or by such courts.
Section 11.14 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
Section 11.15 CERTAIN DEFINED TERMS. As used in this Agreement:
(a) "AFFILIATE" means (except as otherwise specifically defined), as
to any Person, any other Person which, directly or indirectly, controls, or is
controlled by, or is under common control with, such Person. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of management or policies of a
Person, whether through the ownership of securities or partnership or other
ownership interests, by contract or otherwise.
61
(b) "AFFILIATED GROUP" means an affiliated group as defined in Code
Section 1504 (or any analogous combined, consolidated or unitary group defined
under state, local or foreign income Tax law).
(c) "APPLICABLE USAUTO STOCKHOLDERS" means Xxxxxxx X. Xxxxxxxx and
Xxxxxx X. Xxxxxxxx, Xx.
(d) "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the
meaning given to each such term under Section 13(d) of the Exchange Act and the
rules and regulations thereunder.
(e) "BOARD OF DIRECTORS" means the Board of Directors of any specified
Person and any committees thereof.
(f) "BUSINESS DAY" means any day on which banks are not required or
authorized to close in Chicago, Illinois or Nashville, Tennessee.
(g) "CASH EQUIVALENTS" means any and all of the following: (i)
securities issued or directly and fully guaranteed or insured by the United
States, or any agency or instrumentality of any of the foregoing, in each case,
having maturities of not more than six months from the date of acquisition; (ii)
certificates of deposit with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
bank deposits and deposit accounts, in each case with any lender or with any
commercial bank or trust company having capital and surplus in excess of
$500,000,000; (iii) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (i) and (ii)
entered into with any financial institution meeting the qualifications specified
in clause (ii) above; (iv) commercial paper having the highest rating obtainable
from S&P or Xxxxx'x and in each case maturing within one year after date of
acquisition; (v) investment funds investing 95% or more of their assets in
securities of the type described in clauses (i) through (iv) above; (vi) readily
marketable direct obligations issued by any state of the United States or any
political subdivision thereof having one of the two highest rating categories
obtainable from either S&P or Xxxxx'x; and (vii) indebtedness with a rating of
"A" or higher from S&P or "A2" or higher from Xxxxx'x.
(h) "CLOSING TAX RESERVE" means the reserves set forth in the "Federal
Income Taxes Payable-Current," "State Income Taxes Payable" and "Premium Taxes
Payable" line items of the Final USAuto Balance Sheet to the extent such
reserves represent Taxes not yet due and payable MINUS the amount of such Taxes
that have been paid through estimated payments or otherwise prior to the Closing
Date; PROVIDED THAT the "Federal Income Taxes Payable-Current" and "Premium
Taxes Payable" line items shall include only U.S. federal income taxes and
premium taxes payable by USAuto Insurance Co., Inc., USAuto Services, Inc. and
Village Auto Insurance, Inc., and the "State Income Taxes Payable" line item
shall include only state income taxes imposed on S corporations or their
shareholders or C corporations in the states of Tennessee, Alabama, Georgia,
Mississippi, Missouri and Ohio with respect to USAuto and its Subsidiaries.
62
(i) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(j) "INDEBTEDNESS" means (i) any indebtedness for borrowed money or
issued in substitution for or exchange of indebtedness for borrowed money, (ii)
any indebtedness evidenced by any note, bond, debenture or other debt security,
(iii) any indebtedness for the deferred purchase price of property or services
with respect to which a Person is liable, contingently or otherwise, as obligor
or otherwise (other than trade payables and other current liabilities incurred
in the ordinary course of business which are not more than thirty days past
due), (iv) any commitment by which a Person assures a creditor against loss
(including contingent reimbursement obligations with respect to letters of
credit), (v) any indebtedness guaranteed in any manner by a Person (including
guarantees in the form of an agreement to repurchase or reimburse), (vi) any
obligations under capitalized leases with respect to which a Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or with respect
to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets, and (viii) accrued interest
to and including the date hereof in respect of any of the obligations described
in the foregoing clauses (i) through (vii) of this definition and all premiums,
penalties, charges, fees, expenses and other amounts due in connection with the
payment and satisfaction in full of such obligations.
(k) "INSURANCE SUBSIDIARIES" means USAuto Insurance Company, Inc., a
Tennessee-domiciled property and casualty insurer and a wholly owned Subsidiary
of USAuto, and Village Auto Insurance Company, Inc., a Georgia-domiciled
property and casualty insurer and a wholly owned Subsidiary of USAuto Insurance
Company, Inc.
(l) "INTELLECTUAL PROPERTY" means all of the following in any
jurisdiction throughout the world: (i) patents, patent applications and patent
disclosures; (ii) trademarks, service marks, trade dress, trade names, corporate
names, logos and slogans (and all translations, adaptations, derivations and
combinations of the foregoing) and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations and applications for any of the
foregoing; (v) trade secrets, confidential information, know-how and inventions;
(vi) computer software (including, but not limited to, source code, executable
code, data, databases and documentation; and (vi) all other intellectual
property.
(m) "INVESTMENT GRADE SECURITIES" means any and all of the following:
(i) securities issued or directly and fully guaranteed or insured by the
government of the United States, or any agency or instrumentality of any of the
foregoing (other than Cash Equivalents); (ii) debt securities or debt
instruments with a rating of BBB- or higher by S&P or Baa3 or higher by Xxxxx'x
or the equivalent of such rating by such rating organization, or if no rating of
S&P or Xxxxx'x then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the borrower and
its Affiliates; and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
63
(n) "KNOWLEDGE" or "KNOWN" means, when referring to USAuto with
respect to any matter in question, if any of the USAuto Specified Officers and,
when referring to LBI with respect to any matter in question, if any of the LBI
Specified Officers (i) has actual knowledge of such matter or (ii) has
sufficient information to put such Person on notice of the matter.
(o) "LBI BENEFIT PLAN" means any LBI Employee Benefit Plan other than
a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA.
(p) "LBI EMPLOYEE BENEFIT PLAN" means any employee benefit plan,
program, policy, practices, or other arrangement providing benefits to any
current or former employee, officer or director of LBI or any of its
Subsidiaries or any beneficiary or dependent thereof that is sponsored or
maintained by LBI or any of its Subsidiaries or to which LBI or any of its
Subsidiaries contributes or is obligated to contribute, whether or not written,
including without limitation any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, any employee pension benefit plan within the
meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA)
and any bonus, incentive, deferred compensation, vacation, stock purchase, stock
option, severance, employment, change of control or material fringe benefit
plan, program or agreement.
(q) "LBI SPECIFIED OFFICER" means any of Xxxxx X. Xxxxxxxx, Xxxxxx X.
Xxxxxxx, Xxxxxx X. Xxxx or Xxxxxxx X. Xxxxx.
(r) "LBI STOCK OPTIONS" means any right, subscription, warrant,
option, conversion rights or agreements of any kind, contingent or otherwise,
that provide for the sale or issuance by LBI of any shares of its capital stock.
(s) "LIENS" means liens, security interests, charges and/or
encumbrances of any nature or kind.
(t) "LOSS" means any loss, liability, action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, injunction, judgment,
order, decree, ruling, penalty, fine, cost, obligation, Tax, Lien, fee, damage
or expense, including court costs and reasonable attorneys' fees and expenses.
(u) "MATERIAL ADVERSE EFFECT" means, with respect to any entity, any
event, change, circumstance or effect that is or is reasonably likely to be
materially adverse to (i) the business, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole or (ii) the
ability of such party to consummate the transactions contemplated by this
Agreement; OTHER THAN any event, change, circumstance or effect to the extent
resulting from (A) changes in general economic conditions or securities markets
in general or (B) this Agreement or the transactions contemplated hereby or the
announcement thereof; PROVIDED, HOWEVER, that a decline in the price of a share
of LBI Common Stock shall not in and of itself constitute a Material Adverse
Effect with respect to LBI.
(v) "PERMITTED LIENS" means (i) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained in
accordance with GAAP, (ii) mechanic's, materialmen's, and
64
similar Liens, (iii) purchase money Liens and Liens securing rental payments
under capital lease arrangements, (iv) Liens that, individually and in the
aggregate, do not and would not materially detract from the value of the
property and assets of a party hereto or materially interfere with the use
thereof as currently used, (v) Liens securing indebtedness that will be repaid,
replaced or refinanced upon the Closing and/or (vi) any other Liens which are
disclosed in the USAUTO PERMITTED LIENS SCHEDULE or the LBI PERMITTED LIENS
SCHEDULE, as the case may be.
(w) "PERSON" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(x) "QUOTED PRICE" means, for any given day, the last reported per
share sales price (or, if no sales price is reported, the average of the bid and
ask or, if more than one in either case, the average of the average bid and
average ask prices, on such day) of the LBI Common Stock on the New York Stock
Exchange.
(y) "REGULATORY LAW" means the Xxxxxxx Act (as amended), the Xxxxxxx
Act (as amended), the HSR Act, the Federal Trade Commission Act (as amended) and
all other federal, state and foreign, if any, statutes, rules, regulations,
orders, decrees, administrative and judicial doctrines and other laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade or lessening of
competition (specifically including any state statutes, rules, laws or
regulations which require the consent of such state to the Merger or the other
transactions contemplated hereby).
(z) "RIGHTS OFFERING" means the grant by LBI to its stockholders of
the right to acquire up to 12,500,000 shares of LBI Common Stock, at an offering
price per share that will result in LBI realizing at least $50,000,000 in gross
proceeds from such offering and the issuance of such LBI Common Stock pursuant
thereto (including, for the purposes hereof, giving effect to the Backstop
Agreement) in order to finance a portion of the Aggregate Cash Consideration and
any transactions or other actions taken in furtherance or a result thereof.
(aa) "SEC" means the Securities and Exchange Commission.
(bb) "SUBSIDIARY" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interests in such partnership) or (ii) at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(cc) "TAX ASSET" shall mean any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or other credit
or tax attribute that could reduce Taxes or increase a Tax refund or credit
(including, without limitation, deductions and credits related to the
alternative minimum tax).
65
(dd) "TAX RETURNS" means any return, report, information return or
other document (including schedules or any related or supporting information and
any amended returns) filed or required to be filed with any Governmental Entity
or other authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
(ee) "TAX" or "TAXES" means any (i) federal, state, local or foreign
income, gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital stock,
social security, unemployment, disability, payroll, license, employee or other
withholding, or other tax, of any kind whatsoever, whether computed on a
separate or consolidated, unitary or combined basis or in any other manner,
including any interest, penalties or additions to tax or additional amounts in
respect of the foregoing; (ii) liability for the payment of any amounts of the
type described in clause (i) arising as a result of being (or ceasing to be) a
member of any Affiliated Group (or being included (or required to be included)
in any Tax Return relating thereto); and (iii) liability for the payment of any
amounts of the type described in clause (i) as a result of any express or
implied obligation to indemnify or otherwise assume or succeed to the liability
of any other Person.
(ff) "USAUTO BENEFIT PLAN" means any USAuto Employee Benefit Plan
other than a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA.
(gg) "USAUTO EMPLOYEE BENEFIT PLAN" means any employee benefit plan,
program, policy, practices, or other arrangement providing benefits to any
current or former employee, officer or director of USAuto or any of its
Subsidiaries or any beneficiary or dependent thereof that is sponsored or
maintained by USAuto or any of its Subsidiaries or to which USAuto or any of its
Subsidiaries contributes, is obligated to contribute or with respect to which
USAuto or any of its Subsidiaries has any liability, whether or not written,
including without limitation any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, any employee pension benefit plan within the
meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA)
and any bonus, incentive, deferred compensation, vacation, stock purchase, stock
option, severance, employment, change of control or material fringe benefit
plan, program or agreement.
(hh) "USAUTO PERMITTED DIVIDENDS" means (i) a monthly dividend by
USAuto of $750,000 for each calendar month end occurring between the date hereof
and the Closing (without pro ration for any partial month in which the Closing
occurs), in each case payable within the first 15 calendar days of the following
calendar month, and (ii) a one-time special dividend by USAuto of $3,000,000
payable immediately prior to the Closing, but in each case under clause (i) and
(ii) above only to the extent the USAuto Shareholders Equity as of immediately
prior to the Closing (after giving effect to all such dividends) is greater than
or equal to $18,700,000.
(ii) "USAUTO SHAREHOLDERS EQUITY" means USAuto's consolidated
shareholders' equity as determined in accordance with GAAP.
66
(jj) "USAUTO SPECIFIED OFFICER" means any of Xxxxxxx X. Xxxxxxx,
Xxxxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxxx, Xx., Xxxxxxx Xxxxxxxxx, Xxxx Xxxxxxx
and Xxxxx Xxxx.
Section 11.16 CROSS REFERENCE TO OTHER DEFINED TERMS. Each term listed
below is defined in the Section of this Agreement listed opposite such term:
TERM SECTION
---- -------
Aggregate Cash Consideration 1.10(a)
Agreement Preface
August 2001 Note 8.12(a)
Backstop Agreement 7.2(u)
Blue Sky Laws 3.4(d)
Certificate of Merger 1.2
Certificates 1.7(c)
Closing Date 2.1
Closing USAuto Balance Sheet 11.2(g)
Closing 2.1
Code Recitals
Confidentiality Agreement 8.3(a)
Dallas Lease 9.2(o)
DGCL 1.1
Effective Time 1.2
Environmental and Safety Requirements 3.14
ERISA 3.13(a)
Exchange Act 3.4(d)
Exchange Agent 1.10(a)
Exchange Fund 1.10(a)
Expenses 8.6
Final Tax Reserve 11.2(g)
Final USAuto Balance Sheet 11.2(g)
Form S-1 8.1(a)
Governmental Authorizations 3.11(b)
Governmental Entity 3.4(d)
HSR Act 3.4(d)
Indemnified Party 11.2(a)
Investment Assets 3.23
June 2001 Note 8.12(a)
Latest LBI Balance Sheet 5.5
Latest USAuto Balance Sheet 3.5(a)
LBI Accounts Receivable 5.17(a)
LBI Board Approval 5.4(b)
LBI Common Stock Recitals
LBI Disclosure Letter Article V
LBI Financial Statements 5.5
LBI Intellectual Property 5.10
LBI Necessary Consents 5.4(d)
LBI Schedules Article V
67
LBI SEC Reports 5.19
LBI Stockholders 3.25(b)
LBI Stockholders Meeting 8.1(b)
LBI Stock Option Plan 5.3
LBI Voting Debt 5.3
LBI Preface
Merger Consideration 1.7(a)
Merger Sub Preface
Merger Sub Board Approval 6.2(b)
Merger Recitals
New Surviving Corporation Plans 8.5(b)
November 2000 Note 8.12(a)
Post-Closing Tax Return 11.2(c)
Pre-Closing Tax Period 11.2(a)
Representative 11.2(d)
Required LBI Votes 5.4(a)
Required Voting Matters 8.1(b)
Review Period 11.2(g)
SAP Financial Statements 3.5(b)
Securities Act 3.4(d)
Straddle Period 11.2(b)
Surviving Corporation 1.1
Tax Claim 11.2(f)
Termination Date 10.1(b)
Third Party Accountant 11.2(d)
Transferred Leave 8.5(b)
USAuto Accounts Receivable 3.17(a)
USAuto Board Approval 3.4(b)
USAuto Common Stock Recitals
USAuto Credit Agreement 8.12(a)
USAuto Disclosure Letter Article III
USAuto Financial Statements 3.5(a)
USAuto Intellectual Property 3.10
USAuto Necessary Consents 3.4(d)
USAuto Schedules Article III
USAuto Stockholders Preface
USAuto Voting Debt 3.3
USAuto Preface
WARN Act 3.18(b)
* * * * *
68
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
LIBERTE INVESTORS INC.
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer
USAH MERGER SUB, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer
USAUTO HOLDINGS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
/s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxxxx
/s/ Xxxxxx X. Xxxxxxxx, Xx.
-------------------------------------
Xxxxxx X. Xxxxxxxx, Xx.
/s/ Xxxxx X. Xxxxx
-------------------------------------
Xxxxx X. Xxxxx
/s/ Xxx Xxxxx
-------------------------------------
Xxx Xxxxx
/s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Xxxxxx X. Xxxxxxx
/s/ Xxxx X. Xxxx
-------------------------------------
Xxxx X. Xxxx
/s/ R. Xxxxxxxxxx Xxxxxx, Xx.
-------------------------------------
R. Xxxxxxxxxx Xxxxxx, Xx.
/s/ E. Xxxx Xxxx
-------------------------------------
E. Xxxx Xxxx
/s/ X.X. Xxxxxx
-------------------------------------
X.X. Xxxxxx
[CONTINUATION OF SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
