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EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of November
17, 1999, by and among GAINSCO, INC., a Texas corporation ("Buyer"), Xxxxxxx X.
Xxxx ("Xxxx"), Xxxx X. Xxxxx ("Xxxxx" and together with Hill, the "Sellers") and
Tri-State, Ltd., a North Dakota corporation ("TSL").
RECITALS:
WHEREAS, Sellers are the record and beneficial owners of all of the
outstanding capital stock of TSL; and
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of
the issued and outstanding shares of the capital stock of TSL (the "Shares") for
the consideration and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements set forth and for other good and valuable consideration, the
adequacy, sufficiency and receipt of which are hereby acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquired Company" -- any of TSL or its Subsidiaries, and the term
"Acquired Companies" means TSL and its Subsidiaries, collectively.
"Applicable Contract" -- any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"Best Efforts" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Breach" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or
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comply with, such representation, warranty, covenant, obligation, or other
provision, or (b) any claim (by any Person) or other occurrence or circumstance
that is or was inconsistent with such representation, warranty, covenant,
obligation, or other provision, and the term "Breach" means any such inaccuracy,
breach, failure, claim, occurrence, or circumstance.
"Buyer's Disclosure Letter" -- the disclosure letter delivered by Buyer
to Sellers concurrently with the execution and delivery of this Agreement.
"Closing Date" -- the date and time as of which the Closing actually
takes place.
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by
this Agreement, including (a) the sale of the Shares by Sellers to Buyer; (b)
the execution, delivery, and performance of the Hill Employment Agreement, the
Xxxxx Employment Agreement and the Sellers' Release; (c) the performance by
Buyer, Sellers and TSL of their respective covenants and obligations under this
Agreement; and (d) Buyer's acquisition and ownership of the Shares and exercise
of control over the Acquired Companies.
"Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding, including any contract of insurance or reinsurance written by
or for the benefit of the specified Person
"December 31, 1999 Audit" -- the audit of the balance sheets and
related statements of income, changes in shareholders' equity, and cash flow for
the Acquired Companies as of and for the year ended December 31, 1999, performed
by Xxxx Bailly, LLP, independent certified public accountants.
"Employee Benefit Plan" -- any "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined
in Section 3(1) of ERISA), "Multi-employer Plan" (as defined in Section 3(37) of
ERISA), plan of deferred compensation, medical plan, life insurance plan,
long-term disability plan, dental plan or other plan providing for the welfare
of any of TSL's employees or former employees or beneficiaries thereof (as
applicable), personnel policy (including but not limited to vacation time,
holiday pay, bonus programs, moving expense reimbursement programs and sick
leave), excess benefit plan, bonus or incentive plan (including but not limited
to stock options, restricted stock, stock bonus and deferred bonus plans),
salary reduction agreement, change-of-control agreement, employment agreement,
consulting agreement or any other benefit, program or contract.
"Encumbrance" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind,
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including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"Environmental Law" -- the Federal Comprehensive Environmental
Response, Compensation and Liability Act, the Federal Water Pollution Control
Act, the Safe Drinking Water Act, the Federal Clean Water Act, the Federal Clean
Air Act, the Federal Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Federal Solid Waste Disposal Act, the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, and the Occupational Safety and Health Act, each as amended, and all other
environmental statutes enacted by any Governmental Body, and any executive
order, ordinances, rules or regulations promulgated under any of the foregoing.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Facilities" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles) currently
or formerly owned or operated by any Acquired Company.
"GAAP" -- United States generally accepted accounting principles,
applied on a basis consistent with the basis on which the TSL Balance Sheet and
the other financial statements referred to in Section 3.4 were prepared.
"Governmental Authorization" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" -- any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"Hazardous Materials" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Insurance Permit" -- any Governmental Authorization in any
jurisdiction to underwrite, place, sell or otherwise transact insurance or
reinsurance, or to engage in other insurance-related activities.
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"Investment Guidelines" -- a written statement of the current
investment programs, containing the investment policies and guidelines.
"IRC" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of such
fact or other matter; or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonable investigation concerning the existence of such fact or
other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any relevant time served, as a director or officer of
such Person has, or at any time had, knowledge of such fact or other matter and
the matter is within the scope of duties of that individual.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority); and (c)
such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
"Organizational Documents" -- the articles or certificate of
incorporation and the bylaws of a corporation and any amendment thereto.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
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"Plan Affiliate" -- with respect to any Person, any other person or
entity with whom the Person constitutes all or part of a controlled group, or
which would be treated with the Person as under common control or whose
employees would be treated as employed by the Person, under Section 414 of the
IRC and any regulations, administrative rulings and case law interpreting the
foregoing.
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Proprietary Rights Agreement" -- any confidentiality, noncompetition,
or proprietary rights agreement.
"Related Person" -- with respect to a particular individual, (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and (d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting power of a
Person or equity securities or other equity interests representing at least ten
percent (10%) of the outstanding equity securities or equity interests in a
Person.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
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"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" -- the Securities Act of 1933 or any successor law,
and regulations and rules issued pursuant to that Act or any successor law.
"Sellers' Disclosure Letter" -- the disclosure letter delivered by
Sellers to Buyer concurrently with the execution and delivery of this Agreement.
"Subsidiary" -- with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
"Tax" -- any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"Tax Return" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"Year 2000 Compliant" -- with respect to any item of software or
hardware shall mean that such item will operate after the year 2000 and will
correctly keep track of dates before and after the year 2000 and will interface
with other applications by correctly providing date output both before and after
the year 2000.
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ARTICLE II
SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 PURCHASE PRICE.
(a) The purchase price (the "Purchase Price") for the Shares shall be
(i) $6,000,000 in cash (the "Initial Purchase Price"), subject to adjustment
pursuant to Section 2.2(c) below, plus (ii) the payments made pursuant to
Section 2.3 hereof, if any.
(b) Within thirty (30) days following the receipt of audited
consolidated financial statements for the Acquired Companies as of December 31,
1999, Buyer shall deliver to the Sellers' Advisory Representative (defined
below) a written calculation of the Book Value Change (defined in Section 2.3(a)
below). If the Sellers' Advisory Representative does not deliver a written
objection with respect to the calculation of the Book Value Change to Buyer
within ten (10) days after the receipt by the Sellers' Advisory Representative
of the Buyer's calculation, such calculation shall be conclusive and binding
upon the parties to this Agreement. If the Sellers' Advisory Representative does
deliver a timely written objection with respect to the calculation of the Book
Value Change, the calculation of the Book Value Change shall be submitted to an
Independent CPA Firm (defined below), whose calculation of the Book Value Change
shall be completed within thirty (30) days after submission and shall be
conclusive and binding upon the parties to this Agreement.
(c) Upon the later of (i) thirty (30) days following the date that the
calculation of the Book Value Change is conclusive and binding upon the parties
or (ii) the Closing Date, if the Book Value Change is a positive number, Buyer
will pay to Seller an amount (the "Book Value Adjustment Amount") equal to the
Book Value Change plus interest on the amount of the Book Value Change, accruing
from the Closing Date at the Applicable Rate (defined below). If the Book Value
Change is a negative number, Buyer shall offset from the Integration
Consideration (defined below) otherwise payable to Sellers, an amount in the
aggregate equal to the Book Value Change, plus interest accruing from the
Closing Date on the amount of the Book Value Change at the Applicable Rate.
2.3 INTEGRATION CONSIDERATION AND EARNOUT PAYMENTS.
(a) The terms below shall have the following respective meanings for
the purposes of this Section 2.3:
"Acquired Companies" means, for purposes of this Section 2.3, TSL
and its Subsidiaries, collectively, and any business or businesses
conducted by Buyer, or by any Subsidiaries or affiliated corporations
of Buyer, that represent a succession to and a continuation of the
business conducted by TSL and its Subsidiaries, collectively, as the
same may be expanded or contracted from and after Closing.
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"Applicable Rate" means the annual rate on 13-week U.S. Government
Treasury Bills as of the most recent auction date for which results are
quoted in the "Money Rates" section of the "Wall Street Journal" on the
Closing Date.
"Book Value Change" means the change in the book value, computed in
accordance with GAAP, of TSL from December 31, 1998 to December 31,
1999. As used in this definition, "book value" means total assets less
total liabilities.
"Computation Statement" means a statement setting forth in
reasonable detail Buyer's calculation of the Pre-Tax Earnings of the
Acquired Companies during the applicable Earnout Period and the
calculation of the Earnout Amount for such Earnout Period.
"Earned Premiums" means earned premiums as determined in accordance
with GAAP.
"Earnout Commencement Date" means January 1, 2001, or such earlier
date that is mutually agreed upon by Buyer and Sellers and that is the
first day of a calendar quarter.
"Earnout Consideration" means the sum of $3,000,000.
"Earnout Period" means the following periods, as applicable: (i)
the first Earnout Period will commence on the Earnout Commencement Date
and will terminate one day prior to the first anniversary of the
Earnout Commencement Date; (ii) the second Earnout Period will commence
on the first anniversary of the Earnout Commencement Date and will
terminate one day prior to the second anniversary of the Earnout
Commencement Date; and (iii) the third Earnout Period will commence on
the second anniversary of the Earnout Commencement Date and will
terminate one day prior to the third anniversary of the Earnout
Commencement Date.
"Earnout Ratio" means, for each applicable Earnout Period, the
quotient of (i) the difference between (A) Pre-Tax Earnings for that
Earnout Period and (B) the Threshold Earnout Level for that Earnout
Period divided by (ii) $2,000,000; provided, however, that in the event
the Threshold Earnout Level for such Earnout Period is equal to or
exceeds the Pre-Tax Earnings for the Earnout Period, the Earnout Ratio
shall be zero (0).
"Incurred Losses and Loss Adjustment Expenses" means, for any
period, (A) case basis reserves plus losses incurred but not reported
("IBNR"), including development of losses for the applicable Earnout
Period, as of the end of the period, using the latest information
available at the conclusion of each Earnout Period or Release Period,
plus (B) losses and Loss Adjustment Expenses paid during the period and
less (C) case basis reserves plus IBNR, including development of losses
for the applicable Earnout Period, as of the beginning of the period,
using the latest information available at the conclusion of each
Earnout Period or Release Period.
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"Independent Actuarial Firm" means either Xxxxxxxxxxx-Xxxxxx Xxxxxx
or Xxxxxxxx & Xxxxxxxxx, Inc., whichever is mutually agreed upon by
Buyer and the Sellers' Advisory Representative.
"Independent CPA Firm" means a national public accounting firm
selected by Buyer and reasonably satisfactory to the Sellers' Advisory
Representative.
"Integration Date" means the latest to occur of (i) the date on
which ninety percent (90%) or more of the personal auto policies in
force as of the Closing Date written by or through the Acquired
Companies are policies in force of Subsidiaries of Buyer, (ii) the date
on which Buyer's Lalande Group electronic data processing systems and
work flow systems, or alternative systems designated by Buyer have been
installed on site and are functional or (iii) the Closing Date.
"Loss Adjustment Expenses" means, for any period, expenses incurred
in the course of investigating and settling claims, including, without
limitation, legal and adjusters' fees and the costs of paying claims
and related expenses.
"Loss Ratio" means, for any period, the quotient of (i) Incurred
Losses and Loss Adjustment Expenses for the period and (ii) Earned
Premiums for the period.
"Payment Date" means the date sixty (60) days after the termination
of each Earnout Period (or the next succeeding business day if such
date is not a business day).
"Pre-Tax Earnings" means, for each Earnout Period, the difference
between (i) the net earnings, before all income taxes and interest
expense, of Buyer and its Subsidiaries, attributable to the operation
of the Acquired Companies, minus (ii) the amount of the Support
Functions Reimbursement, calculated in accordance with GAAP. Pre-Tax
Earnings shall be calculated (x) on the accrual basis of accounting in
accordance with GAAP and (y) as though the Acquired Companies were a
single corporation with all of its shares owned by persons who are
neither directly nor indirectly related to Buyer.
"Release Date" means the date sixty (60) days after the termination
of each Release Period (or the next succeeding business day if such
date is not a business day).
"Release Period" means the following periods, as applicable: (i)
the first Release Period for the first Earnout Period will commence one
day after the termination date of the first Earnout Period and will
terminate on the first anniversary of such termination date, and the
second Release Period for the first Earnout Period will commence one
day after the first anniversary of the termination date of the first
Earnout Period and will terminate on the second anniversary of such
termination date; (ii) the first Release Period for the second Earnout
Period will commence one day after the termination date of the second
Earnout Period and will terminate on the first anniversary of such
termination date, and the second
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Release Period for the second Earnout Period will commence one day
after the first anniversary of the termination date of the second
Earnout Period and will terminate on the second anniversary of such
termination date; and (iii) the first Release Period for the third
Earnout Period will commence one day after the termination date of the
third Earnout Period and will terminate on the first anniversary of
such termination date, and the second Release Period for the third
Earnout Period will commence one day after the first anniversary of the
termination date of the third Earnout Period and will terminate on the
second anniversary of such termination date.
"Reserve Adjustment" means the amount of reserve adjustments for
increases (compared to the amounts therefor set forth on the audited
TSL balance sheet at December 31, 1999) in ultimate estimated
liabilities relating to 1999 and prior accident years. The Reserve
Adjustment shall be calculated by Buyer and delivered to the Sellers'
Advisory Representative at least sixty (60) days prior to the Payment
Date for the first Earnout Period. If the Sellers' Advisory
Representative does not deliver to Buyer a written objection with
respect to the calculation of the Reserve Adjustment within ten (10)
days following receipt, the calculation of the Reserve Adjustment shall
be conclusive and binding upon the parties to this Agreement. If the
Sellers' Advisory Representative does deliver a timely written
objection with respect to the calculation of the Reserve Adjustment,
the calculation of the Reserve Adjustment shall be submitted to an
Independent Actuarial Firm, whose calculation of the Reserve Adjustment
shall be conclusive and binding upon the parties to this Agreement. If
the Reserve Adjustment calculated in accordance with the foregoing is
determined to be negative due to net decreases in ultimate estimated
liabilities relating to 1999 and prior accident years, the Reserve
Adjustment will be zero (0).
"Sellers' Advisory Representative" means Hill, acting on behalf of
himself and Xxxxx, together.
"Subsequent Earnout Payment" means (i) the $1,000,000 for that
Earnout Period multiplied by (ii) the Earnout Ratio for that Earnout
Period.
"Support Functions Reimbursement" means a reasonable monthly fee
charged to the Acquired Companies to cover Buyer's expenses in
connection with providing direct support functions as are reasonably
necessary or desirable, such as information systems support, actuarial
support, human resources support and accounting support. In the event
the Acquired Companies require special attention for any unusual
circumstance in any month, the monthly fee may be increased for that
month to reflect a reasonable amount for the services provided. In such
case Buyer shall provide, as part of its Computation Statement, the
basis for such increased monthly fee.
"Threshold Earnout Level" means the following amounts,
corresponding to the applicable Earnout Period: (i) for the first
Earnout Period, $2,000,000; (ii) for the second Earnout Period,
$2,500,000; and (iii) for the third Earnout Period, $3,000,000.
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(b) INTEGRATION CONSIDERATION. Except as provided in this Agreement,
Buyer will deliver to Sellers additional consideration (the "Integration
Consideration") for the Shares equal to $1,500,000 within thirty (30) days after
the Integration Date. Additionally, in the event that electronic data processing
systems and work flow systems of Buyer's Lalande Group, or alternative systems
designated by Buyer, are not installed on site and functional on or prior to
ninety (90) days following the Closing Date, then Buyer shall deliver to Sellers
as part of the Integration Consideration interest accruing from the ninety-first
(91st) day following the Closing Date on the Integration Consideration at the
Applicable Rate. As provided in Section 2.2(c), if the Book Value Change is a
negative number, Buyer shall offset against the Integration Consideration an
amount in the aggregate equal to the Book Value Change plus interest accruing
from the Closing Date on the amount of the integral Book Value Change at the
Applicable Rate.
(c) SUBSEQUENT EARNOUT PAYMENTS
(i) On the Payment Date for the first Earnout Period, Buyer will
deliver to Sellers (A) additional consideration (the "First Earnout
Period Subsequent Earnout Payment") for the Shares, equal to the
Subsequent Earnout Payment for the first Earnout Period multiplied by
50%; provided, however, that the amount paid pursuant to this clause
(i) shall not exceed $500,000 for the first Earnout Period minus (B) an
amount equal to the Reserve Adjustment, unless such amount is less than
zero, in which case Buyer shall pay no amount to Seller, and further
provided that if such amount is less than zero, no amount shall be paid
by Sellers.
(ii) On the Payment Date for the second Earnout Period, Buyer will
deliver to Sellers additional consideration (the "Second Earnout Period
Subsequent Earnout Payment") for the Shares equal to 50% of the
Subsequent Earnout Payment for the second Earnout Period; provided,
however, that the amount paid pursuant to this clause (ii) shall not
exceed $500,000 for the second Earnout Period.
(iii) On the Payment Date for the third Earnout Period, Buyer will
deliver to Sellers additional consideration (the "Third Earnout Period
Subsequent Earnout Payment") for the Shares equal to 50% of the
Subsequent Earnout Payment for the third Earnout Period; provided,
however, that the amount paid pursuant to this clause (iii) shall not
exceed $500,000 for the third Earnout Period.
(iv) At the conclusion of each Earnout Period, Buyer shall prepare
a Computation Statement for the Earnout Amount earned during such
Earnout Period and shall provide such Computation Statement to the
Sellers' Advisory Representative for his review and comments within
forty-five (45) days after the termination of such Earnout Period. If,
within thirty (30) days after delivery of the Computation Statement to
the Sellers' Advisory Representative, the Sellers' Advisory
Representative has not given written notice to Buyer disputing such
statement and indicating the basis of such dispute such Computation
Statement shall be conclusive and binding on Sellers. In the event the
Sellers' Advisory Representative gives Buyer such notice of dispute
within such 30-day period, the Sellers' Advisory Representative
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and Buyer will use their Best Efforts to settle the dispute within 30
days after the giving of such notice. Any dispute unresolved after such
30-day period shall be submitted to an Independent CPA Firm. The
decision of such Independent CPA Firm with respect to such dispute
shall be final and binding on the parties hereto. If, as a result of
such arbitration, it is determined that Sellers are entitled to an
Earnout Amount which exceeds the Earnout Amount set forth on the
applicable Computation Statement by an aggregate amount greater than
ten percent (10%) of such Earnout Amount, Buyer shall pay the cost of
the arbitration. Otherwise, Sellers shall pay the cost of the
arbitration. Buyer shall maintain books and records for the Acquired
Companies in a manner which will facilitate its calculation of each
Earnout Amount and the review by the Sellers' Advisory Representative
of each Computation Statement. Buyer shall make available, at Buyer's
offices during normal business hours, to the Sellers' Advisory
Representative and his attorneys, accountants and other representatives
for examination, such of its books of account, contracts, licenses,
leases, instruments, commitments, sale orders, purchase orders,
records, accountant's work papers and other documents as are relevant
to the preparation of the Computation Statement.
(d) RETROACTIVE PAYMENTS
(i) First Earnout Period Retroactive Payments.
(A) On the first anniversary of the Payment Date for the
first Earnout Period, Buyer will deliver to Sellers additional
consideration (the "First Period Second Year Payment") for the
Shares equal to the:
((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the first anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - $2,000,000) x 0.50 x 75%) - the Reserve Adjustment -
First Earnout Period Subsequent Earnout Payment.
Provided, however, that if the sum of the First Earnout
Period Subsequent Earnout Payment and the First Period
Second Year Payment exceeds $750,000 for the first Earnout
Period, Buyer shall only pay Sellers an amount equal to the
difference between (i) $750,000 for the first Earnout
Period minus the Reserve Adjustment and (ii) the First
Earnout Period Subsequent Earnout Payment. If the First
Period Second Year Payment is less than zero, Buyer shall
pay no amount to Sellers; and further provided that if the
First Period Second Year Payment is less than zero, no
amount shall be paid by Sellers.
(B) On the second anniversary of the Payment Date for the
first Earnout Period, Buyer will deliver to Sellers additional
consideration (the "First Period Third Year Payment") for the
Shares equal to the:
STOCK PURCHASE AGREEMENT 12
13
((((Loss Ratio for the first Earnout Period - Loss Ratio for the first Earnout
Period recomputed as of the second anniversary of the end of the first Earnout
Period) x Earned Premiums for the first Earnout Period) + Pre-Tax Earnings for
the first Earnout Period - $2,000,000) x 0.50) - the Reserve Adjustment- First
Earnout Period Subsequent Earnout Payment - First Period Second Year Payment.
Provided, however, that if the sum of the First Earnout
Period Subsequent Earnout Payment, the First Period Second
Year Payment and the First Period Third Year Payment
exceeds $1,000,000 for the first Earnout Period, Buyer
shall only pay Sellers an amount equal to (i) $1,000,000
for the first Earnout Period minus the Reserve Adjustment,
minus (ii) the First Earnout Period Subsequent Earnout
Payment minus (iii) the First Period Second Year Payment.
If the First Period Third Year Payment is less than zero,
Buyer shall pay no amount to Sellers; and further provided
that if the First Period Third Year Payment is less than
zero, Sellers shall pay the integral amount of the First
Period Third Year Payment to Buyer, not to exceed the sum
of (x) the First Earnout Period Subsequent Earnout Payment
plus (y) the First Period Second Year Payment plus (z) the
Reserve Adjustment.
The Future Earnout Amount for the First Earnout Period
shall be equal to (i) $1,000,000 for the first Earnout
Period minus the Reserve Adjustment, minus (ii) the First
Earnout Period Subsequent Earnout Payment minus (iii) the
First Period Second Year Payment minus (iv) the First
Period Third Year Payment, unless such amount is less than
zero, in which case the Future Earnout Amount for the
First Earnout Period shall be equal to zero.
(ii) Second Earnout Period Retroactive Payments.
(A) On the first anniversary of the Payment Date for the
second Earnout Period, Buyer will deliver to Seller additional
consideration (the "Second Period Second Year Payment") for
the Shares equal to the:
((((Loss Ratio for the second Earnout Period - Loss Ratio for the second Earnout
Period recomputed as of the first anniversary of the end of the second Earnout
Period) x Earned Premiums for the second Earnout Period) + Pre-Tax Earnings for
the second Earnout Period - $2,500,000) x 0.50 x 75%) - Second Earnout Period
Subsequent Earnout Payment.
Provided, however, that if the sum of the Second Earnout
Period Subsequent Earnout Payment and the Second Period
Second Year Payment exceeds $750,000 for the second Earnout
Period, Buyer shall only pay Seller an amount equal to the
difference between
STOCK PURCHASE AGREEMENT 13
14
(i) $750,000 for the second Earnout Period, minus (ii) the
Second Earnout Period Subsequent Earnout Payment. If the
Second Period Second Year Payment is less than zero, Buyer
shall pay no amount to Seller; and further provided that if
the Second Period Second Year Payment is less than zero, no
amount shall be paid by Seller.
(B) On the second anniversary of the Payment Date for the
second Earnout Period, Buyer will deliver to Seller additional
consideration (the "Second Period Third Year Payment") for the
Shares equal to the:
((((Loss Ratio for the second Earnout Period - Loss Ratio for the second Earnout
Period recomputed as of the second anniversary of the end of the second Earnout
Period) x Earned Premiums for the second Earnout Period) + Pre-Tax Earnings for
the second Earnout Period - $2,500,000) x 0.50) - Second Earnout Period
Subsequent Earnout Payment - Second Period Second Year Payment.
Provided, however, that if the sum of the Second Earnout
Period Subsequent Earnout Payment, the Second Period Second
Year Payment and the Second Period Third Year Payment
exceeds the sum of (x) $1,000,000 for the second Earnout
Period and (y) the Future Earnout Amount for the First
Earnout Period, Buyer shall only pay Seller an amount equal
to (i) $1,000,000 for the second Earnout Period, plus (ii)
the Future Earnout Amount for the First Earnout Period
minus (iii) the Second Earnout Period Subsequent Earnout
Payment minus (iv) the Second Period Second Year Payment.
If the Third Year Payment is less than zero, Buyer shall
pay no amount to Seller; and further provided that if the
Second Period Third Year Payment is less than zero, Seller
shall pay the integral amount of the Second Period Third
Year Payment to Buyer, not to exceed the sum of (x) the
Second Earnout Period Subsequent Earnout Payment and (y)
the Second Period Second Year Payment. The Future Earnout
Amount for the Second Earnout Period shall be equal to (i)
$1,000,000 for the second Earnout Period plus (ii) the
Future Earnout Amount for the First Earnout Period minus
(iii) the Second Earnout Period Subsequent Earnout Payment
minus (iv) the Second Period Second Year Payment minus (v)
the Second Period Third Year Payment, unless such amount is
less than zero, in which case the Future Earnout Amount for
the Second Earnout Period shall be equal to zero.
(iii) Third Earnout Period Retroactive Payments.
STOCK PURCHASE AGREEMENT 14
15
(A) On the first anniversary of the Payment Date for the
third Earnout Period, Buyer will deliver to Seller additional
consideration (the "Third Period Second Year Payment") for the
Shares equal to the:
((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the first anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - $3,000,000) x 0.50 x 75%) - Third Earnout Period
Subsequent Earnout Payment.
Provided, however, that if the sum of the Third Earnout
Period Subsequent Earnout Payment and the Third Period
Second Year Payment exceeds $750,000 for the third Earnout
Period, Buyer shall only pay Seller an amount equal to the
difference between (i) $750,000 for the third Earnout
Period and (ii) the Third Earnout Period Subsequent Earnout
Payment. If the Third Period Second Year Payment is less
than zero, Buyer shall pay no amount to Seller; and further
provided that if the Third Period Second Year Payment is
less than zero, no amount shall be paid by Seller.
(B) On the second anniversary of the Payment Date for the
third Earnout Period, Buyer will deliver to Seller additional
consideration (the "Third Period Third Year Payment") for the
Shares equal to the:
((((Loss Ratio for the third Earnout Period - Loss Ratio for the third Earnout
Period recomputed as of the second anniversary of the end of the third Earnout
Period) x Earned Premiums for the third Earnout Period) + Pre-Tax Earnings for
the third Earnout Period - $3,000,000) x 0.50) - Third Earnout Period Subsequent
Earnout Payment - Third Period Second Year Payment.
Provided, however, that if the sum of the Third Earnout
Period Subsequent Earnout Payment, the Third Period Second
Year Payment and the Third Period Third Year Payment
exceeds the sum of (x) $1,000,000 for the third Earnout
Period and (y) the Future Earnout Amount for the Second
Earnout Period, Buyer shall only pay Seller an amount equal
to (i) $1,000,000 for the third Earnout Period, plus (ii)
the Future Earnout Amount for the Second Earnout Period
minus (iii) the Third Earnout Period Subsequent Earnout
Payment minus (iv) the Third Period Second Year Payment. If
the Third Period Second Year Payment is less than zero,
Buyer shall pay no amount to Seller; and further provided
that if the Third Period Third Year Payment is less than
zero, Seller shall pay the integral amount of the Third
Period Third Year Payment to Buyer, not to exceed the sum
of (x) the Third Earnout Period Subsequent Earnout Payment
and (y) the Third Period Second Year Payment.
STOCK PURCHASE AGREEMENT 15
16
(iv) At the conclusion of each Release Period, Buyer shall prepare
a Retroactive Computation Statement for the Pre-Tax Earnings
recomputed for the applicable Earnout Period and shall provide such
Retroactive Computation Statement to the Sellers' Advisory
Representative for his review and comments within forty-five (45) days
after the termination of such Release Period. If, within thirty (30)
days after delivery of the Retroactive Computation Statement to the
Sellers' Advisory Representative, the Sellers' Advisory Representative
has not given written notice to Buyer disputing such statement and
indicating the basis of such dispute such Retroactive Computation
Statement shall be conclusive and binding on Sellers. In the event the
Sellers' Advisory Representative gives Buyer such notice of dispute
within such 30-day period, the Sellers' Advisory Representative and
Buyer will use their Best Efforts to settle the dispute within 30 days
after the giving of such notice. Except as set forth in Section
2.3(d)(v), any dispute unresolved after such 30-day period shall be
submitted to an Independent CPA Firm. The decision of such Independent
CPA Firm with respect to such dispute shall be final and binding on
the parties hereto. If, as a result of such arbitration(s), it is
determined that Sellers are entitled to such disputed amount, Buyer
shall pay the cost of the arbitration(s). Otherwise, Sellers shall pay
the cost of the arbitration(s). Buyer shall maintain books and records
for the Acquired Companies in a manner which will facilitate its
recomputation of the Pre-Tax Earnings applicable for each Earnout
Period and the review by the Sellers' Advisory Representative of each
Retroactive Computation Statement. Buyer shall make available, at
Buyer's offices during normal business hours, to the Sellers' Advisory
Representative and his attorneys, accountants and other
representatives for examination, such of its books of account,
contracts, licenses, leases, instruments, commitments, sale orders,
purchase orders, records, accountant's work papers and other documents
as are relevant to the preparation of the Retroactive Computation
Statement.
(v) After the conclusion of the final Release Period with respect
to each Earnout Period, in the event that the Sellers' Advisory
Representative gives Buyer notice (in accordance with Section
2.3(d)(iv)) that the Sellers' Advisory Representative disputes the
calculation of the Retroactive Computation Statement based upon (in
whole or in part) the determination of Incurred Loss and Loss
Adjustment Expense, then the Sellers' Advisory Representative and
Buyer will use their Best Efforts to settle the dispute within 30 days
after the giving of notice of dispute. Any dispute relating to the
determination of Incurred Loss and Loss Adjustment Expense unresolved
after such 30 day period shall be submitted to an Independent
Actuarial Firm. The decision of such Independent Actuarial Firm with
respect to such dispute shall be final and binding on the parties
hereto. If, as a result of such arbitration(s), it is determined that
Sellers are entitled to such disputed amount, Buyer shall pay the cost
of the arbitration(s). Otherwise, Sellers shall pay the cost of the
arbitration(s).
(e) An example of the payments to be made pursuant to this Section 2.3
is attached hereto as Exhibit 2.3(e). Such example is for illustrative purposes
only.
STOCK PURCHASE AGREEMENT 16
17
2.4 CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Xxxxxxx Xxxxxx LLP, at 000 Xxxxxxxx
Xxxxxx, Xxxxx 0000, Xxxx Xxxxx, Xxxxx, at 10:00 a.m. (local time) on a date that
is no later than five (5) days after all conditions to Closing have been
satisfied, or at such other time and place as the parties may agree. Subject to
the provisions of Article IX, failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this Section 2.4 will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.
2.5 CLOSING OBLIGATIONS. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), for transfer to Buyer;
(ii) a release in the form of Exhibit 2.5(a)(ii) executed by both
Sellers ("Sellers' Release");
(iii) an employment agreement in the form of Exhibit 2.5(a)(iii),
executed by Hill (the "Hill Employment Agreement");
(iv) an employment agreement in the form of Exhibit 2.5(a)(iv),
executed by Xxxxx (the "Xxxxx Employment Agreement");
(v) a certificate executed by Sellers and TSL, representing and
warranting to Buyer that each of Sellers' and the TSL's representations
and warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Sellers' Disclosure Letter delivered by Sellers and
TSL to Buyer prior to the Closing Date in accordance with Section 6.4);
(vi) an opinion of Xxxxxx & Xxxxxx P.L.L.P., dated the Closing
Date, in the form of Exhibit 2.5(a)(vi); and
(vii) A Lease in the form of Exhibit 2.5(a)(vii), executed by Hill
(the "Real Property Lease").
(b) Buyer will deliver to Sellers:
(i) $6,000,000 by wire transfer payable to the orders of Hill and
Xxxxx pro rata in accordance with their respective ownership interests
in TSL;
STOCK PURCHASE AGREEMENT 17
18
(ii) a certificate executed by Buyer, representing and warranting
to Sellers that each of Buyer's representations and warranties in this
Agreement was accurate in all respects as of the date of this Agreement
and is accurate in all respects as of the Closing Date as if made on
the Closing Date (giving full effect to any supplements to the Buyer's
Disclosure Letter prior to the Closing Date in accordance with Section
6.4);
(iii) the Hill Employment Agreement and the Xxxxx Employment
Agreement, each executed by Buyer;
(iv) an opinion of Xxxxxxx Xxxxxx LLP, dated the Closing Date, in
the form of Exhibit 2.5(b)(iv); and
(v) the Real Property Lease, executed on behalf of TSL.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY
Sellers and TSL jointly and severally represent and warrant to Buyer as
follows:
3.1 ORGANIZATION AND GOOD STANDING.
(a) Part 3.1 of the Sellers' Disclosure Letter contains a complete and
accurate list, for each Acquired Company, of its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do business, and
its capitalization (including the identity of each shareholder and the number of
shares held by each). Each Acquired Company is a corporation duly organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each Acquired Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification. No jurisdiction, other than those listed in Part 3.1 of the
Sellers' Disclosure Letter, has claimed, in writing, that any Acquired Company
is required to hold a Governmental Authorization, and none of the Acquired
Companies files or is required to file any Tax Returns in any other
jurisdiction.
(b) Sellers have delivered to Buyer true and correct copies of the
Organizational Documents of each Acquired Company, as currently in effect.
STOCK PURCHASE AGREEMENT 18
19
3.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation
of TSL and Sellers, enforceable against TSL and Sellers in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. Upon the execution and delivery by Sellers
of the Hill Employment Agreement, the Xxxxx Employment Agreement and the
Sellers' Release (collectively, the "Sellers' Closing Documents"), the Sellers'
Closing Documents will constitute the legal, valid, and binding obligations of
Sellers, enforceable against Sellers in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. Each Seller has all right, power,
authority, and capacity to execute and deliver this Agreement and the Sellers'
Closing Documents and to perform his obligations under this Agreement and the
Sellers' Closing Documents. TSL has all corporate right, power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement.
(b) Except as set forth in Part 3.2 of the Sellers' Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time) (i) conflict with, or result in a
violation of any provision of the Organizational Documents of any of the
Acquired Companies; (ii) conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which any Acquired Company or Sellers, or any of the
assets owned or used by any Acquired Company, may be subject; (iii) conflict
with, or result in a violation of any of the terms or requirements of, or give
any Governmental Body the right to revoke, suspend, terminate, or modify, any
Insurance Permit or other Governmental Authorization that is held by any
Acquired Company or that otherwise relates to the business of, or any of the
assets owned or used by, any Acquired Company; (iv) conflict with, or result in
a violation or breach of any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Encumbrance upon or with respect
to any of the assets owned or used by any Acquired Company.
Except as set forth in Part 3.2 of the Sellers' Disclosure Letter,
neither Sellers nor any Acquired Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 CAPITALIZATION. The authorized equity securities of TSL consist of
50,000 shares of common stock, $1.00 par value per share, of which 10,060 shares
are issued and outstanding. The ownership of TSL is as set forth in Part 3.3 of
the Sellers' Disclosure Letter. Sellers are and will be on the Closing Date the
record and beneficial owners and holders of all of the outstanding shares of
TSL's capital stock, free and clear of all Encumbrances. TSL has no other class
or series of capital
STOCK PURCHASE AGREEMENT 19
20
stock authorized, issued and outstanding. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights or
other contracts or commitments that could require any Acquired Company to issue,
sell or otherwise cause to become outstanding any of its capital stock. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights with respect to the Acquired Companies. With the
exception of the shares listed in Part 3.3 of the Sellers' Disclosure Letter,
all of the outstanding equity securities and other securities of each Acquired
Company are owned of record and beneficially by one or more of the Acquired
Companies, free and clear of all Encumbrances.
Except as set forth in Part 3.3 of the Sellers' Disclosure Letter, no
legend or other reference to any purported Encumbrance appears upon any
certificate representing equity securities of any Acquired Company. All of the
outstanding equity securities of each Acquired Company have been duly authorized
and validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of any Acquired Company. None of the outstanding equity securities or
other securities of any Acquired Company was issued in violation of the
Securities Act or any other Legal Requirement. No Acquired Company owns, or has
any Contract to acquire, any equity securities or other securities of any Person
(other than Acquired Companies) or any direct or indirect equity or ownership
interest in any other business. Except as set forth in Part 3.3 of the Sellers'
Disclosure Letter, there are no restrictions upon the voting or transfer of, or
the declaration or payment of any dividend or distribution on, any shares of
capital stock of any Acquired Company.
3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer the audited
balance sheets of the Acquired Companies as of December 31 for the year 1998,
the unaudited balance sheets of the Acquired Companies as of December 31 for the
years 1996 and 1997 and the related audited (or unaudited, as the case may be)
statements of income, changes in shareholders' equity, and cash flow for each of
the fiscal years then ended, together with the report thereon, if applicable, of
the independent certified public accountants responsible for such audited
statements (including the notes thereto, the "TSL Balance Sheet"). Sellers shall
deliver to Buyer at least fifteen (15) days prior to Closing a reviewed balance
sheet of the Acquired Companies as of the most recently practicable date, but no
earlier than September 30, 1999 (the "TSL Interim Balance Sheet") and the
related reviewed statements of income, changes in shareholders' equity, and cash
flow for the interim period then ended, including in each case the notes
thereto. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in shareholders' equity, and
cash flow of the Acquired Companies at the respective dates of and for the
periods referred to in such financial statements, all in accordance with GAAP,
subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that, if presented,
would not differ materially from those included in the TSL Balance Sheet); the
financial statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements; and the reserves
carried in such financial statements for the payment of estimated claims and
claim adjustment expenses for both reported and unreported claims are adequate
in all material respects to cover the incurred claims
STOCK PURCHASE AGREEMENT 20
21
on all policies of insurance written by any wholly owned insurance company
subsidiaries of TSL. No financial statements of any Person other than the
Acquired Companies are required by GAAP to be included in the financial
statements of TSL.
3.5 BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of the Acquired Companies, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls. The minute books of the Acquired Companies
contain accurate and complete records of all meetings held of, and corporate
action taken by, the shareholders, the Boards of Directors, and committees of
the Boards of Directors of the Acquired Companies, and no meeting of any such
shareholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of the
Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.6 of the Sellers'
Disclosure Letter contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by any Acquired Company. Sellers
have delivered or made available to Buyer copies of the deeds and other
instruments (as recorded) by which the Acquired Companies acquired such real
property and interests, and copies of all title insurance policies, opinions,
abstracts, and surveys in the possession of Sellers or the Acquired Companies
and relating to such property or interests. The Acquired Companies own (with
good and marketable title in the case of real property, subject only to the
matters permitted by the following sentence) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own located in the facilities owned or operated by the Acquired
Companies or reflected as owned in the books and records of the Acquired
Companies, including all of the properties and assets reflected in the TSL
Balance Sheet and the TSL Interim Balance Sheet (except for personal property
sold since the date of the TSL Balance Sheet and the TSL Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the Acquired Companies
since the date of the TSL Balance Sheet (except for personal property acquired
and sold since the date of the TSL Balance Sheet in the Ordinary Course of
Business and consistent with past practice), which subsequently purchased or
acquired properties and assets (other than short-term investments) are listed in
Part 3.6 of the Sellers' Disclosure Letter. All material properties and assets
reflected in the TSL Balance Sheet and the TSL Interim Balance Sheet are free
and clear of all Encumbrances and are not, in the case of real property, subject
to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature.
3.7 ACCOUNTS RECEIVABLE. All accounts receivable of the Acquired
Companies that are reflected on the TSL Balance Sheet or the TSL Interim Balance
Sheet or on the accounting records of the Acquired Companies as of the Closing
Date (collectively, the "TSL Accounts Receivable") represent or will represent
valid obligations arising from sales actually made or services actually
performed in the Ordinary Course of Business. Unless paid prior to the Closing
Date, the TSL Accounts Receivable are or will be as of the Closing Date current
and collectible net of the
STOCK PURCHASE AGREEMENT 21
22
respective reserves shown on the TSL Balance Sheet or the TSL Interim Balance
Sheet or on the accounting records of the Acquired Companies as of the Closing
Date (which reserves are adequate and calculated consistent with past practice
and, in the case of the reserve as of the Closing Date, will not represent a
greater percentage of the TSL Accounts Receivable as of the Closing Date than
the reserve with respect to the TSL Accounts Receivable as reflected in the TSL
Interim Balance Sheet and will not represent a material adverse change in the
composition of such TSL Accounts Receivable in terms of aging). Subject to such
reserves, each of the TSL Accounts Receivable either has been or, to the
Knowledge of TSL and Sellers, will be collected in full, without any set-off,
within ninety days after the day on which it first becomes due and payable.
There is no contest, claim, or right of set-off, other than returns in the
Ordinary Course of Business, under any Contract with any obligor of an TSL
Accounts Receivable relating to the amount or validity of such TSL Accounts
Receivable. Part 3.7 of the Sellers' Disclosure Letter contains a complete and
accurate list of all TSL Accounts Receivable as of the date of the TSL Interim
Balance Sheet, which list sets forth the aging of such TSL Accounts Receivable.
3.8 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.8 of the
Sellers' Disclosure Letter, the Acquired Companies have no material liabilities
or obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the TSL Balance Sheet or the TSL Interim
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof.
3.9 TAXES.
(a) The Acquired Companies or Sellers, as applicable, have filed or
caused to be filed on a timely basis all Tax Returns that are or were required
to be filed by or with respect to any of the Acquired Companies, pursuant to
applicable Legal Requirements. Sellers have delivered or made available to Buyer
copies of, and Part 3.9 of the Sellers' Disclosure Letter contains a complete
and accurate list of, all such Tax Returns filed since January 1, 1996. The
Acquired Companies or Sellers, as applicable, have paid, or made provision for
the payment of, all Taxes that have or may have become due pursuant to those Tax
Returns or otherwise, or pursuant to any assessment received by Sellers or any
Acquired Company, except such Taxes, if any, as are listed in Part 3.9 of the
Sellers' Disclosure Letter and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in the
TSL Balance Sheet and the TSL Interim Balance Sheet.
(b) Part 3.9 of the Sellers' Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Part 3.9 of the Sellers' Disclosure Letter, are being
contested in good faith by appropriate proceedings. Part 3.9 of the Sellers'
Disclosure Letter describes all adjustments to the United States federal income
Tax Returns filed by any Acquired Company or Sellers for all taxable years since
1995 with respect to or that are directly or indirectly related to any Acquired
STOCK PURCHASE AGREEMENT 22
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Company, and the resulting deficiencies proposed by the IRS. Except as described
in Part 3.9 of the Sellers' Disclosure Letter, neither Sellers nor any Acquired
Company has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of, with respect to, or
that are directly or indirectly related to any Acquired Company or for which
Sellers or any Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to, or that are
directly or indirectly related to, Taxes on the respective books of each
Acquired Company are adequate (determined in accordance with GAAP) and are at
least equal to that Acquired Company's liability for Taxes. There exists no
proposed tax assessment against any Acquired Company or Sellers with respect to
or that is directly or indirectly related to any Acquired Company except as
disclosed in the TSL Balance Sheet or in Part 3.9 of the Sellers' Disclosure
Letter. All Taxes with respect to or that are directly or indirectly related to
any Acquired Company that any Acquired Company or either Seller is or was
required by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(d) All Tax Returns filed by any Acquired Company or by Sellers with
respect to or that are directly or indirectly related to any Acquired Company
are true, correct, and complete. There is no tax sharing agreement that will
require any payment by any Acquired Company after the date of this Agreement.
During the consistency period (as defined in Section 338(h)(4) of the IRC with
respect to the sale of the Shares to Buyer), no Acquired Company or target
affiliate (as defined in Section 338(h)(6) of the IRC with respect to the sale
of the Shares to Buyer) has sold or will sell any property or assets to Buyer or
to any member of the affiliated group (as defined in Section 338(h)(5) of the
IRC) that includes Buyer. Part 3.9 of the Sellers' Disclosure Letter lists all
such target affiliates.
3.10 NO MATERIAL ADVERSE CHANGE. Since the date of the TSL Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any Acquired Company,
and no event has occurred or circumstance exists that may result in such a
material adverse change.
3.11 EMPLOYEE BENEFIT PLANS. Except as set forth in Part 3.11 of the
Sellers' Disclosure Letter, neither TSL nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect to
any Employee Benefit Plan, whether or not written, which could give rise to or
result in TSL or such Plan Affiliate having any material debt, liability, claim
or obligation of any kind or nature, whether accrued, absolute, contingent,
direct, indirect, known or unknown, perfected or inchoate or otherwise and
whether or not due or to become due. Correct and complete copies of all Employee
Benefit Plans of TSL previously have been furnished to Buyer. The Employee
Benefit Plans of TSL are in compliance in all material respects with governing
documents and agreements and with applicable laws. There has not been any act or
omission by TSL under ERISA or the terms of the Employee Benefit Plans of TSL,
or any other applicable law or agreement which could give
STOCK PURCHASE AGREEMENT 23
24
rise to any liability of TSL, whether under ERISA, the IRC or other laws or
agreements. Neither TSL nor any Plan Affiliate maintains or contributes to, or
has maintained or contributed to, any Employee Benefit Plan subject to Title IV
of ERISA.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) Except as set forth in Part 3.12 of the Sellers' Disclosure Letter,
each Acquired Company is, and at all times since January 1, 1996 has been, in
full compliance with each Legal Requirement that is or was applicable to it or
to the conduct or operation of its business or the ownership or use of any of
its assets.
(b) Part 3.12 of the Sellers' Disclosure Letter contains a complete and
accurate list of each Governmental Authorization, including each Governmental
Authorization to conduct insurance, insurance agency or brokerage and premium
finance business and each Insurance Permit, that is held by any Acquired Company
or that otherwise relates to the business of, or to any of the assets owned or
used by, any Acquired Company. Each Governmental Authorization listed or
required to be listed in Part 3.12 of the Sellers' Disclosure Letter is valid
and in full force and effect. Each Acquired Company owns or possesses all right,
title and interest in and to all of the Governmental Authorizations and
Insurance Permits that are necessary to enable it to carry on the business of
such Acquired Company as presently conducted. Each Acquired Company has taken
all necessary action to maintain such Governmental Authorizations. No loss or
expiration of any such Governmental Authorization is threatened, pending or, to
the Knowledge of TSL and Sellers, reasonably foreseeable. The consummation of
the transactions contemplated hereby will not result in the suspension,
modification, cancellation, revocation or nonrenewal of any such Governmental
Authorization. Except for compliance with periodic renewal procedures, no
approvals or authorizations are required to permit the Acquired Companies to
continue their business as presently conducted, following the Closing.
(c) None of the Acquired Companies or, to the Knowledge of Sellers and
TSL, any of its agents or brokers are engaged in any insurance underwriting,
insurance agency or brokerage or premium finance business in any jurisdiction in
which it is not duly authorized or qualified to transact such business.
(d) Except as set forth in Part 3.12 of the Sellers' Disclosure Letter,
each of the Acquired Companies has filed all material reports, statements,
registrations, applications, filings or other documents and submissions required
to be filed with, or provided to any Governmental Body. Except as set forth in
Part 3.12 of the Sellers' Disclosure Letter, all such reports, statements,
registrations, applications, filings, documents and submissions were in
compliance in all material respects with all applicable Legal Requirements when
filed, and no material deficiencies have been asserted by any Governmental Body
with respect thereto.
(e) Sellers have furnished to Buyer true and complete copies of all
annual and quarterly statements filed with or submitted to any state insurance
regulatory authority and all reports of
STOCK PURCHASE AGREEMENT 24
25
examinations (whether financial, market conduct or other) issued by any state
insurance regulatory authorities in respect of any of the Acquired Companies
covering, in whole or in part, any period on or after January 1, 1993, together
with true and complete copies of all written responses submitted by or on behalf
of any of Sellers, the Acquired Companies or their Affiliates in respect of any
such report of examination. In addition, Sellers have made, or has caused the
Acquired Companies to make, available to Buyer all files of Sellers and the
Acquired Companies relating to correspondence with insurance regulatory
authorities and other Governmental Bodies.
3.13 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 3.13 of the Sellers' Disclosure Letter,
there is no pending Proceeding (i) that has been commenced by or against any
Acquired Company or that otherwise relates to or may affect the business of, or
any of the assets owned or used by, any Acquired Company; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated Transactions.
To the Knowledge of Sellers and TSL, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding not in
the Ordinary Course of Business of the Acquired Companies. Sellers have
delivered to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.13 of the Sellers' Disclosure
Letter. The Proceedings listed in Part 3.13 of the Sellers' Disclosure Letter
will not have a material adverse effect on the business, operations, assets,
condition, or prospects of any Acquired Company.
(b) Except as set forth in Part 3.13 of the Sellers' Disclosure Letter:
(i) there is no Order to which any of the Acquired Companies, or any of the
assets owned or used by any Acquired Company, is subject; and (ii) each Acquired
Company is, and at all times since January 1, 1995 has been, in full compliance
with all of the terms and requirements of each Order to which it, or any of the
assets owned or used by it, is or has been subject.
(c) Except as set forth in Part 3.13 of the Sellers' Disclosure Letter,
no claim is pending nor, to the Knowledge of Sellers or TSL, threatened against
any of the Acquired Companies by any state insurance Governmental Body.
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part
3.14 of the Sellers' Disclosure Letter, since the date of the TSL Balance Sheet,
the Acquired Companies have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
any Acquired Company; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption, retirement, or
other acquisition by any Acquired Company of any shares of any such capital
stock; or declaration or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
STOCK PURCHASE AGREEMENT 25
26
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any bonuses,
salaries, or other compensation to any shareholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to any Acquired Company of at least $10,000;
(g) sale, lease, or other disposition of any material asset or property
of any Acquired Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of any Acquired Company, including
the sale, lease, or other disposition of any of the TSL Intellectual Property
Assets (as defined in Section 3.20);
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any Acquired
Company;
(j) agreement, whether oral or written, by any Acquired Company to do
any of the foregoing; or
(k) change in its business, underwriting, billing, reserving,
reinsurance, investment or claims adjustment policies and practices or any
change in any activity that (i) has had the effect of accelerating the recording
and billing of premiums or accounts receivable or delaying the payment of
expenses or the establishment of loss and loss adjustment expense and other
reserves in connection with the business or any material accounts of any of the
Acquired Companies or (ii) has had the effect of materially altering, modifying
or changing the historic financial or accounting practices or policies of any of
the Acquired Companies, including accruals of and reserves for Taxes.
STOCK PURCHASE AGREEMENT 26
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3.15 CONTRACTS; NO DEFAULTS.
(a) Part 3.15(a) of the Sellers' Disclosure Letter contains a complete
and accurate list, and Sellers have delivered to Buyer true and complete copies,
of all the material Contracts of each Acquired Company. Part 3.15(a) of the
Sellers' Disclosure Letter sets forth reasonably complete details concerning
such Contracts, including the parties to the Contracts, the amount of the
remaining commitment of the Acquired Companies under the Contracts, and the
Acquired Companies' office where details relating to the Contracts are located.
(b) Except as set forth in Part 3.15(b) of the Sellers' Disclosure
Letter, each Contract identified or required to be identified in Part 3.15(a) of
the Sellers' Disclosure Letter is in full force and effect and is valid and
enforceable in accordance with its terms.
(c) Except as set forth in Part 3.15(c) of the Sellers' Disclosure
Letter:
(i) each Acquired Company is, and at all times since January 1,
1996 has been, in full compliance with all applicable terms and
requirements of each Contract under which such Acquired Company has or
had any obligation or liability or by which such Acquired Company or
any of the assets owned or used by such Acquired Company is or was
bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which an Acquired Company has or had any
rights is, and at all times since January 1, 1996 has been, in full
compliance with all applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may conflict with, or result in a
violation or breach of, or give any Acquired Company or other Person
the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; and
(iv) no Acquired Company has given to or received from any other
Person, at any time since January 1, 1996, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any
Contract.
(d) The Contracts relating to the sale or provision of services by the
Acquired Companies have been entered into in the Ordinary Course of Business and
have been entered into without the commission of any act alone or in concert
with any other Person, or any consideration having been paid or promised, that
is or would be in violation of any Legal Requirement.
STOCK PURCHASE AGREEMENT 27
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3.16 INSURANCE.
(a) Sellers have delivered to Buyer true and complete copies of all
policies of insurance to which any Acquired Company is an insured or a
beneficiary or under which any Acquired Company, or any director of any Acquired
Company, is or has been covered at any time within the three (3) years preceding
the date of this Agreement;
(b) Part 3.16(b) of the Sellers' Disclosure Letter sets forth, by year,
for the current policy year and each of the three (3) preceding policy years, a
summary of the loss experience under each policy described in Section 3.16(a).
TSL and Sellers have no Knowledge of any loss experience that would affect
future potential insurability with respect to such policies.
(c) Except as set forth in Part 3.16(c) of the Sellers' Disclosure
Letter:
(i) All policies to which any Acquired Company is an insured or a
beneficiary or that provide coverage to any Acquired Company or any
director or officer of an Acquired Company (A) are valid, outstanding,
and enforceable; (B) taken together, provide adequate insurance
coverage as is customary for similar entities in similar businesses for
the assets and the operations of the Acquired Companies for all risks
to which the Acquired Companies are normally exposed; (C) are
sufficient for compliance with all Legal Requirements and Contracts to
which any Acquired Company is a party or by which any of them is bound;
and (D) will continue in full force and effect following the
consummation of the Contemplated Transactions.
(ii) No Acquired Company has received (A) any refusal of coverage
or any notice that a defense will be afforded with reservation of
rights, or (B) any notice of cancellation or any other indication that
any insurance policy is no longer in full force or effect or will not
be renewed or that the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) The Acquired Companies have paid all premiums due, and have
otherwise performed all of their respective obligations, under each
policy to which any Acquired Company is an insured or a beneficiary or
that provides coverage to any Acquired Company or director thereof.
(iv) The Acquired Companies have given notice to the insurer of all
claims that may be insured thereby.
3.17 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.17 of the
Sellers' Disclosure Letter, to the Knowledge of Sellers and TSL, each of the
Acquired Companies is in compliance with all Environmental Laws, the failure to
comply with which could have a Material Adverse Effect. Neither (i) either
Seller nor (ii) any of the Acquired Companies has received notice of any
material violation by any of the Acquired Companies of, or material default by
the same under, any
STOCK PURCHASE AGREEMENT 28
29
Environmental Law, and neither (i) either Seller nor (ii) TSL has any Knowledge
of any existing facts or circumstances that are likely to result in any such
violation or default. There is no action, suit, claim, proceeding or
investigation pending or, to the Knowledge of Sellers and TSL, threatened
against any of the Acquired Companies that alleges or would allege any violation
of any Environmental Law.
3.18 EMPLOYEES.
(a) Part 3.18 of the Sellers' Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and any
change in compensation since January 1, 1996; paid time off accrued; and service
credited for purposes of vesting and eligibility to participate under any
Acquired Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other Employee Benefit Plan or any
Director Plan.
(b) No employee or director of any Acquired Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any Proprietary
Rights Agreement, between such employee or director and any other Person that in
any way adversely affects or will affect (i) the performance of his duties as an
employee or director of the Acquired Companies, or (ii) the ability of any
Acquired Company to conduct its business, including any Proprietary Rights
Agreement with Sellers or the Acquired Companies by any such employee or
director. To each Seller's and TSL's Knowledge, no director or officer of any
Acquired Company intends to terminate his employment with such Acquired Company.
(c) Part 3.18 of the Sellers' Disclosure Letter also contains a
complete and accurate list of the following information for each retired
employee or director of the Acquired Companies, or their dependents, receiving
benefits or scheduled to receive benefits in the future: name, pension benefit,
pension option election, retiree medical insurance coverage, retiree life
insurance coverage, and other benefits.
3.19 LABOR RELATIONS; COMPLIANCE. Except as set forth on Part 3.19 of
the Sellers' Disclosure Letter, since January 1, 1996, no Acquired Company has
been or is a party to any collective bargaining or other labor Contract. Since
January 1, 1996, there has not been, there is not presently pending or existing,
and, to the Knowledge of TSL and Sellers, there is not Threatened, (a) any
strike, slowdown, picketing, work stoppage, lockout or employee grievance
process, (b) any Proceeding against or affecting any Acquired Company relating
to the alleged violation of any Legal Requirement pertaining to labor relations
or employment matters or (c) any application for certification of a collective
bargaining agent. Each Acquired Company has complied in all respects with all
Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining
and occupational
STOCK PURCHASE AGREEMENT 29
30
safety and health. No Acquired Company is liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.20 INTELLECTUAL PROPERTY.
(a) Each Acquired Company (i) owns or has ordered all the licenses,
trademarks, tradenames, copyrights, marks, patents and applications for patents
listed and attributed to it on Part 3.20(a) of the Sellers' Disclosure Letter
(the "TSL Intellectual Property Assets"), (ii) neither owns nor uses any such
items which are not listed in the Sellers' Disclosure Letter, (iii) pays no
royalties to anyone with respect to any such items, and (iv) has full and lawful
right to bring actions for the infringement thereof. Each Acquired Company owns,
or possesses adequate and enforceable rights to use without payment of
royalties, all licenses, trademarks, tradenames, copyrights, patents, trade
secrets and processes necessary for the conduct of, or use in, its business as
the same is presently being conducted, the absence of which would have a
material adverse effect or the potential for a material adverse effect on such
Acquired Company.
(b) Except as set forth in Part 3.20(b) of the Sellers' Disclosure
Letter, TSL has no Knowledge nor has received any notice to the effect that any
service it or any other Acquired Company provides or sells, or any process or
method it employs in its business for the use by it or another of any such
service, may infringe, or is in conflict with, any asserted right of another.
There is no pending or Threatened claim or litigation action against any
Acquired Company contesting its right to use or the validity of any of the TSL
Intellectual Property Assets or asserting its misuse of any of the foregoing,
which would deprive it of the right to assert its rights thereunder or which
would prevent the sale of any service provided or sold by it.
(c) The software systems of each Acquired Company are Year 2000
Compliant.
3.21 CERTAIN PAYMENTS. Since January 1, 1996, no Acquired Company or
director, officer, agent, or employee of any Acquired Company, or any other
Person associated with or acting for or on behalf of any Acquired Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of any Acquired Company or any
affiliate of an Acquired Company, or (iv) in violation of any Legal Requirement
or (b) established or maintained any fund or asset that has not been recorded in
the books and records of the Acquired Companies.
STOCK PURCHASE AGREEMENT 30
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3.22 DISCLOSURE.
(a) No representation or warranty of Sellers or TSL in this Agreement
and no statement in the Sellers' Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Sellers or TSL that has specific
application to Sellers or any Acquired Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as Sellers
or TSL can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Acquired
Companies (on a consolidated basis) that has not been set forth in this
Agreement or the Sellers' Disclosure Letter.
3.23 RELATIONSHIPS WITH RELATED PERSONS. Except as set forth in Part
3.23 of the Sellers' Disclosure Letter, neither either Seller nor any Related
Person of either Seller or of any Acquired Company has, or since January 1, 1996
has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to the Acquired
Companies' businesses. Except as set forth in Part 3.23 of the Sellers'
Disclosure Letter, neither either Seller nor any Related Person of either Seller
or of any Acquired Company is, or since January 1, 1996, has owned (of record or
as a beneficial owner) an equity interest or any other financial or profit
interest in, a Person that has (i) had business dealings or a material financial
interest in any transaction with any Acquired Company, or (ii) engaged in
competition with any Acquired Company with respect to any line of the products
or services of such Acquired Company ("TSL Competing Business") in any market
presently served by such Acquired Company. Except as set forth in Part 3.23 of
the Sellers' Disclosure Letter, neither Seller nor any Related Person of either
Seller or of any Acquired Company is a party to any Contract with, or has any
claim or right against, any Acquired Company.
3.24 AGENTS AND PRODUCERS. Part 3.24 of the Sellers' Disclosure Letter
lists all agents, brokers, producers, underwriting managers and other Persons of
each of the Acquired Companies who were paid, directly or indirectly, either (i)
at least $25,000 in commissions by or through any of the Acquired Companies,
during the year ended December 31, 1998, including the total amount of
commissions paid to such Persons in such year, or (ii) at least $18,750 in
commissions by or through any of the Acquired Companies, during the nine months
ended September 30, 1999, including the total amount of commissions paid to such
Persons in such period. To the Knowledge of TSL and Sellers, each of the
Acquired Companies generally enjoys good relations with the Persons listed on
Part 3.24 of the Sellers' Disclosure Letter as a whole, and also generally
enjoys good relations with its other insurance agents, brokers and producers as
a whole. To the Knowledge of Sellers and TSL, all Persons listed on Part 3.24 of
the Sellers' Disclosure Letter are duly licensed to act as agents, brokers or
producers in the jurisdictions where they engage in such activities.
3.25 THREATS OF CANCELLATION. Except as set forth in Part 3.25 of the
Sellers' Disclosure Letter hereto, since January 1, 1996, no policyholder or
group of policyholders under a group policy, or agent, broker, producer or other
Person writing, selling or producing insurance, reinsurance or retrocessional
coverage, which, individually or in the aggregate together with other related
policyholders, agents, brokers and producers, accounted for one percent (1%) or
more of the aggregate gross premiums written by or through the Acquired
Companies in any year ended since
STOCK PURCHASE AGREEMENT 31
32
December 31, 1996, has terminated or given written notice of termination of its
relationship with any of the Acquired Companies. The Acquired Companies have
received no notice that any such policyholder, group of policyholders, agent,
broker, producer or other such Person will or is reasonably likely to terminate
such relationship as a result of the transactions contemplated by this
Agreement. 3.26 INVESTMENTS. Part 3.26 of the Sellers' Disclosure Letter
contains (a) a true and complete list of all securities and other investments
owned by each of the Acquired Companies as of the end of the most recent
calendar month, including the date of purchase, book value or amortized cost,
market value and carrying value thereof on the books and records of account of
such Acquired Company as of such date and (b) the Investment Guidelines of each
such Acquired Company. Except as set forth in Part 3.26 of the Sellers'
Disclosure Letter, none of the securities and other investments owned by such
Persons is in default in the payment of principal or interest or dividends. All
such securities and other investments substantially comply with the Investment
Guidelines and all insurance laws and regulations of each of the jurisdictions
to which the Acquired Companies are subject with respect thereto.
3.27 BANK ACCOUNTS. Part 3.27 of the Sellers' Disclosure Letter
contains a true and complete list of (a) the names and locations of all banks,
trust companies, securities brokers and other financial institutions at which
any of the Acquired Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and (c)
the name of every Person authorized to draw thereon or having access thereto.
3.28 BROKERS OR FINDERS. Except for those certain obligations to Xxxxx
Xxxxx & Co., Inc., Sellers, each Acquired Company and their agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
3.29 CLAIMS AGAINST BUYER. Each Seller hereby represents that, both as
of the date of this Agreement and as of the Closing, such Seller has no
Knowledge of the basis of any claims, demands, or causes of action capable of
being raised by either Seller against Buyer or any director, officer or employee
of Buyer whatsoever arising contemporaneously with or prior to the Closing Date
or on account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the Closing Date, whether or not relating to
claims pending on, or asserted after, the Closing Date other than any
obligations of Buyer arising under the Agreement.
STOCK PURCHASE AGREEMENT 32
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas.
4.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity. Upon the execution and delivery by Buyer of the Hill
Employment Agreement and the Xxxxx Employment Agreement, the Hill Employment
Agreement and the Xxxxx Employment Agreement will constitute the legal, valid,
and binding obligations of Buyer, enforceable against Buyer in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity. Buyer has all corporate
right, power, and authority to execute and deliver this Agreement, the Hill
Employment Agreement and the Xxxxx Employment Agreement and to perform its
obligations under this Agreement, the Hill Employment Agreement and the Xxxxx
Employment Agreement.
(b) Except as set forth in Part 4.2 of the Buyer's Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time) (i) conflict with, or result in a
violation of any provision of the Organizational Documents of Buyer; (ii)
conflict with, or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement or any
Order to which Buyer, or any of the assets owned or used by Buyer, may be
subject; (iii) conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, suspend,
terminate, or modify, any Insurance Permit or other Governmental Authorization
that is held by Buyer or that otherwise relates to the business of, or any of
the assets owned or used by, Buyer; (iv) conflict with, or result in a violation
or breach of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract; or (v) result in
the imposition or creation of any Encumbrance upon or with respect to any of the
assets owned or used by Buyer.
Except as set forth in Part 4.2 of the Buyer's Disclosure Letter, Buyer
is not and will not be required to give any notice to or obtain any Consent from
any Person in connection with the
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execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
4.5 BROKERS OR FINDERS. Buyer and its officers and agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
4.6 DISCLOSURE.
(a) No representation or warranty of Buyer in this Agreement and no
statement in the Buyer's Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Buyer that has specific application to
Buyer (other than general economic or industry conditions) and that materially
adversely affects or, as far as Buyer can reasonably foresee, materially
threatens, the assets, business, prospects, financial condition, or results of
operations of Buyer (on a consolidated basis) that has not been set forth in
this Agreement or the Buyer's Disclosure Letter.
ARTICLE V
COVENANTS OF SELLERS AND TSL
5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and
the Closing Date, Sellers and TSL will, and will cause each Acquired Company and
its Representatives to, (a) afford Buyer and its Representatives (collectively,
"Buyer's Advisors") full and free access to each Acquired Company, its
personnel, properties, contracts, books and records, and all other documents and
data, (b) furnish Buyer and Buyer's Advisors with copies of all such contracts,
books and records, and other existing documents and data as Buyer may reasonably
request, and (c) furnish Buyer and Buyer's Advisors with such additional
financial, operating, and other data and information as Buyer may reasonably
request.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES. Between the
date of this Agreement and the Closing Date, Sellers and TSL will, and will
cause each Acquired Company to:
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(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business and in accordance with all valid regulations, laws and orders
of all Governmental Bodies;
(b) preserve intact the current business organization of such Acquired
Company, keep available the services of the current officers, employees, and
agents of such Acquired Company, and maintain the relations and good will with
suppliers, customers, landlords, creditors, employees, agents, and others having
business relationships with such Acquired Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report from time to time to Buyer concerning the status
of the business, operations, and finances of such Acquired Company.
5.3 NEGATIVE COVENANT. Except as otherwise expressly permitted by this
Agreement or disclosed in the Sellers' Disclosure Letter, between the date of
this Agreement and the Closing Date, Sellers and TSL will not, and will cause
each Acquired Company not to, without the prior consent of Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.14 is likely to occur.
5.4 REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, Sellers will, and will cause each Acquired Company to, make all
filings required by Legal Requirements to be made by them in order to consummate
the Contemplated Transactions. Between the date of this Agreement and the
Closing Date, Sellers will, and will cause each Acquired Company to, (a)
cooperate with Buyer with respect to all filings that Buyer elects to make or is
required by Legal Requirements to make in connection with the Contemplated
Transactions and (b) cooperate with Buyer in obtaining all consents identified
in Part 4.2 of the Buyer's Disclosure Letter.
5.5 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Sellers will promptly notify Buyer in writing if Sellers or any Acquired
Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of Sellers' or the Company's representations and warranties as of
the date of this Agreement, or if either Seller or the Company becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the Sellers'
Disclosure Letter if the Sellers' Disclosure Letter were dated the date of the
occurrence or discovery of any such fact or condition, Sellers will promptly
deliver to Buyer a supplement to the Sellers' Disclosure Letter specifying such
change. During the same period, Sellers will promptly notify Buyer of the
occurrence of any Breach of any covenant of Sellers or the Company in this
Article V or of the occurrence of any event that may make the satisfaction of
the conditions in Article VII impossible or unlikely. No notice given pursuant
to this Section 5.5 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein or in this Agreement, in
light of the circumstances in which they were made, not misleading.
STOCK PURCHASE AGREEMENT 35
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5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS. Except as expressly
provided in this Agreement, Sellers will cause all indebtedness owed to an
Acquired Company by either Seller or any Related Person of any Seller to be paid
in full contemporaneous with Closing.
5.7 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Sellers will use their Best Efforts to cause the conditions in Articles
VII and VIII to be satisfied.
5.8 REVIEWED FINANCIAL STATEMENTS OF THE ACQUIRED COMPANIES. Sellers
and TSL shall deliver the financial statements as required by Section 3.4.
5.9 NO SOLICITATION.
(a) Until the earlier to occur of (i) the Closing or (ii) the
termination of this Agreement, TSL agrees that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its reasonable efforts to cause its and
its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
knowingly facilitate (including by way of furnishing information) any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase
(including, without limitation, by way of tender offer) or sale of any of the
assets of any of the Acquired Companies (other than in the Ordinary Course of
Business) or shares of the common stock of any of the Acquired Companies (any
such proposal or offer (other than a proposal or offer made by Buyer) being
hereinafter referred to as an "Acquisition Proposal").
(b) TSL further agrees that neither it nor any of its Subsidiaries nor
any of the officers and directors of it or its Subsidiaries shall, and that it
shall direct and use its Best Efforts to cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, have any discussion with or provide any confidential information or
data to any Person relating to an Acquisition Proposal, or engage in any
negotiations concerning an Acquisition Proposal or accept an Acquisition
Proposal.
(c) TSL agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal.
5.10 ANNUAL STATEMENT. Sellers will use their Best Efforts to cause an
appropriate officer of each Acquired Company that was employed by such Acquired
Company during the 1999 calendar year to execute the Annual Statement and all
other insurance regulatory and filings relating to the 1999 calendar year
required (as applicable) to be filed with respect to such Acquired Company.
STOCK PURCHASE AGREEMENT 36
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5.11 AUDIT COSTS. The Acquired Companies shall take all action
necessary to ensure that all costs of the December 31, 1999 Audit are accrued
and reflected on the balance sheets for the Acquired Companies as of December
31, 1999.
5.12 PERSONAL GUARANTIES. Sellers shall use their commercially
reasonable efforts to cause the personal guaranties of the indebtedness
described in Part 6.5 of Sellers' Disclosure Letter to be extinguished or
released within 15 days following the Closing Date.
5.13 NON-COMPETITION AGREEMENT.
(a) Buyer and Sellers hereby agree and acknowledge that a portion of
the Initial Purchase Price, constituting at least $100,000.00, represents the
value of the good will established by Sellers in TSL and transferred to Buyer by
this Agreement.
(b) Each Seller, on his own behalf, acknowledges that: (i) the services
to be performed by him under the attached Hill Employment Agreement and Xxxxx
Employment Agreement, respectively, are of a special, unique, unusual,
extraordinary, and intellectual character; (ii ) Buyer's business is currently
national in scope and its services and products are marketed throughout the
United States and the scope of TSL's business and the market for its products
currently extends through the states of North Dakota, South Dakota and Minnesota
and is contemplated to be expanded following the Closing; (iii) TSL competes
with other businesses that are or could be located in any part of the United
States; (iv) Buyer has required that each Seller make the covenants set forth in
this section as a condition to Buyer's purchase of the shares of capital stock
of TSL owned by each Seller pursuant to this Agreement; and (v) the provisions
of this section are reasonable and necessary to protect the TSL's business.
(c) In consideration of the acknowledgments by each Seller, and in
consideration of the amounts paid or to be paid by Buyer to each Seller under
this Agreement, each Seller covenants on his own behalf that he will not,
directly or indirectly:
(i) during the Employment Term (as defined below), except in the
course of his employment by TSL, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or in any manner
connected with, lend Seller's name or any similar name to, lend Seller's credit
to or render services or advice to, any business whose products, services or
activities compete in whole or in part with the products, services or activities
of TSL, Buyer or any affiliate thereof anywhere in the world; provided, however,
that each Seller may purchase or otherwise acquire up to (but not more than)
five percent (5%) of any class of securities of any enterprise involved in the
Business (defined below) (but without otherwise participating in the activities
of such enterprise), other than Buyer, if such securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934; and further provided that
Executive may purchase securities of Buyer in those purchase windows authorized
for Buyer's officers by the Chief Executive Officer of Buyer;
STOCK PURCHASE AGREEMENT 37
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(ii) during the Post-Employment Period (as defined below), engage
or invest in, own, manage, operate, finance, control, or participate in the
ownership, management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services or advice to,
any business whose products, services or activities are involved in, directly or
indirectly or in whole or in part, the Business in Burleigh County, North
Dakota, or any geographical areas outside of North Dakota in which TSL conducts
operations as of the Closing Date; provided, however, that each Seller may
purchase or otherwise acquire, directly or indirectly, up to (but not more than)
five percent of any class of securities of any enterprise involved in the
Business (but without otherwise participating in the activities of such
enterprise), if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934; provided, further, that in the event that,
during the Post-Agreement Period, TSL, Buyer and all affiliates thereof cease to
engage in any given segment of the Business in the States of North Dakota, South
Dakota and Minnesota, then the provisions of this Section 5.13(c)(ii) will not
apply to either Seller with respect to that particular segment of Business in
the States of North Dakota, South Dakota and Minnesota only but will remain in
effect and applicable to each Seller for all other purposes.
(iii) whether for Seller's own account or for the account of any
other Person, at any time during the Employment Term and the Post-Employment
Period, solicit business of the same or similar type being carried on by TSL,
from any Person known by Seller to be a customer of TSL, whether or not Seller
had personal contact with such Person during and by reason of Seller's
employment with TSL;
(iv) whether for Seller's own account or the account of any other
Person (A) at any time during the Employment Term and the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any Person who is or was an employee of TSL at any
time during the Employment Term or in any manner induce or attempt to induce any
employee of TSL to terminate his employment with TSL; or (B) at any time during
the Employment Term and the Post-Employment Period, interfere with TSL's
relationship with any Person, including any Person who at any time during the
Employment Term was an employee, agent, insurer, or customer of TSL; or
(v) at any time during or after the Employment Term, disparage TSL
or any of its shareholders, directors, officers, employees, or agents.
(d) For purposes of this sections the term "Employment Term" shall have
an identical meaning to Term as defined in the Hill Employment Agreement or the
Xxxxx Employment Agreement, respectively; "Post-Employment Period" means the
period beginning on the date of termination of Seller's employment with TSL,
plus the remainder of the Term, if any, not fulfilled by Seller for any reason
plus three years. For purposes of this section, the term "Business" means the
business of writing, underwriting, selling, claims adjusting, acting as an agent
with respect to
STOCK PURCHASE AGREEMENT 38
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nonstandard private passenger automotive or commercial automotive insurance or
other related insurance activities.
(e) If any covenant in this section is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against each Seller.
(f) The period of time applicable to any covenant in this section will
be extended by the duration of any violation by each Seller, respectively, of
such covenant.
(g) Each Seller will, while the covenant under this section is in
effect, give notice to TSL, within ten days after accepting any other
employment, of the identity of Seller's employer. Buyer or TSL may notify such
employer that Seller is bound by this Agreement and, at TSL's election, furnish
such employer with a copy of this Agreement or relevant portions thereof.
(h) Each Seller acknowledges on his own behalf that the injury that
would be suffered by TSL as a result of a breach of the provisions of this
section would be irreparable and that an award of monetary damages to TSL for
such a breach would be an inadequate remedy. Consequently, TSL will have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
any provision of this section, and TSL will not be obligated to post bond or
other security in seeking such relief.
(i) The covenants by each Seller in this section are essential elements
of this Agreement, and without each Seller's agreement to comply with such
covenants, Buyer would not have purchased the capital stock of TSL owned by
Sellers under this Agreement and TSL would not have agreed to employ or continue
the employment of each Seller pursuant to the attached Hill Employment Agreement
and Xxxxx Employment Agreement, respectively. TSL and each Seller have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by TSL.
(j) Each Seller's covenants in this section are independent covenants
and the existence of any claim by either Seller against TSL under this Agreement
or otherwise, or against Buyer, will not excuse either Seller's breach of any
covenant in this section.
(k) Notwithstanding the provisions of Section 10.5 or any other
provision of this Agreement to the contrary, the provisions of this Section 5.13
will continue in full force and effect after Closing as is necessary or
appropriate to enforce the covenants and agreements of each Seller in this
section.
STOCK PURCHASE AGREEMENT 39
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ARTICLE VI
COVENANTS OF BUYER
6.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after
the date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Buyer
will (a) cooperate with Sellers with respect to all filings that Sellers elect
to make or is required by Legal Requirements to make in connection with the
Contemplated Transactions and (b) cooperate with Sellers in obtaining all
consents identified in Part 3.2 of the Sellers' Disclosure Letter; provided that
this Agreement will not require Buyer to dispose of or make any change in any
portion of its business or to incur any other burden to obtain a Governmental
Authorization.
6.2 BEST EFFORTS. Except as set forth in the proviso to Section 6.1,
between the date of this Agreement and the Closing Date, Buyer will use its Best
Efforts to cause the conditions in Articles VII and VIII to be satisfied.
6.3 ACCESS. Between the date of this Agreement and the Closing Date,
Buyer shall provide to Sellers responses to the Sellers' reasonable due
diligence requests.
6.4 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Buyer will promptly notify Sellers in writing if Buyer becomes aware of
any fact or condition that causes or constitutes a Breach of any of Buyer's
representations and warranties as of the date of this Agreement, or if Buyer
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Buyer's Disclosure Letter if the Buyer's Disclosure Letter were dated the
date of the occurrence or discovery of any such fact or condition, Buyer will
promptly deliver to Sellers a supplement to the Buyer's Disclosure Letter
specifying such change. During the same period, Buyer will promptly notify
Sellers of the occurrence of any Breach of any covenant of Buyer in this Article
VI or of the occurrence of any event that may make the satisfaction of the
conditions in Article VIII impossible or unlikely. No notice given pursuant to
this Section 6.4 will contain any untrue statement or omit to state a material
fact necessary to make the statements therein or in this Agreement, in light of
the circumstances in which they were made, not misleading.
6.5 PERSONAL GUARANTIES. To the extent that Sellers' efforts to cause
the personal guaranties of the indebtedness described in Part 6.5 of the
Sellers' Disclosure Letter to be extinguished or released within 15 days after
the Closing Date are unsuccessful, Buyer shall take all action necessary
(including without limitation causing the underlying indebtedness to be
extinguished) to cause such personal guaranties to be extinguished or released
within 45 days after the Closing Date.
STOCK PURCHASE AGREEMENT 40
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ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS. Each of Sellers' and the Company's
representations and warranties in this Agreement must have been accurate in all
material respects (other than those contained in Section 3.29, which must have
been accurate without regard to materiality) as of the date of this Agreement,
and must be accurate in all material respects (other than those contained in
Section 3.29, which must be accurate without regard to materiality) as of the
Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Sellers' Disclosure Letter.
7.2 SELLERS' PERFORMANCE. Each of the covenants and obligations that
Sellers and the Company are required to perform or to comply with pursuant to
this Agreement at or prior to the Closing must have been duly performed and
complied with in all material respects.
7.3 CONSENTS. Each of the Consents identified in Part 3.2 of the
Sellers' Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must
have been obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS. Each of the following documents must have
been delivered to Buyer:
(a) estoppel certificates executed on behalf of all landlords, lenders
and lessors of the Acquired Companies, dated as of a date not more than five (5)
days prior to the Closing Date;
(b) such other documents as Buyer may reasonably request for the
purpose of (i) evidencing the accuracy of any of Sellers' and the Company's
representations and warranties, (ii) evidencing the performance by Sellers and
the Company of, or the compliance by Sellers and the Company with, any covenant
or obligation required to be performed or complied with by Sellers and the
Company, (iii) evidencing the satisfaction of any condition referred to in this
Article VII or (iv) otherwise facilitating the consummation or performance of
any of the Contemplated Transactions.
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must not
have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, any of the Acquired Companies or (b) is entitled to all
or any portion of the Purchase Price payable for the Shares.
STOCK PURCHASE AGREEMENT 41
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7.6 NO PROHIBITION. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause Buyer or any Person affiliated with Buyer to
suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
Neither the consummation nor the performance of the Contemplated Transactions
will directly or indirectly violate an Order.
7.7 REGULATORY APPROVAL. Buyer or a Subsidiary of Buyer shall have
obtained the necessary regulatory approvals in the states in which any of the
Acquired Companies operate to consummate the Contemplated Transactions.
7.8 TRANSFER OF CERTAIN ASSETS. Hill shall have purchased the company
airplane and real property described in Part 7.8 of the Sellers' Disclosure
Letter on the terms described therein and assumed all associated liabilities,
obligations and indebtedness, including but not limited to future and accrued
but unpaid maintenance costs and taxes.
7.9 CLOSING DELIVERIES. All items contemplated in Section 2.5(a) shall
have been delivered to Buyer.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS. Each of Buyer's representations and
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Buyer's Disclosure Letter.
8.2 BUYER'S PERFORMANCE. Each of the covenants and obligations that
Buyer is required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been performed and complied with in all material
respects.
8.3 CONSENTS. Each of the Consents identified in Part 3.2 of the
Sellers' Disclosure Letter and Part 4.2 of the Buyer's Disclosure Letter must
have been obtained and must be in full force and effect.
STOCK PURCHASE AGREEMENT 42
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8.4 ADDITIONAL DOCUMENTS. Buyer must have caused such other documents
as Sellers may reasonably request for the purpose of (i) evidencing the accuracy
of any representation or warranty of Buyer, (ii) evidencing the performance by
Buyer of, or the compliance by Buyer with, any covenant or obligation required
to be performed or complied with by Buyer, (iii) evidencing the satisfaction of
any condition referred to in this Article VIII or (iv) otherwise facilitating
the consummation of any of the Contemplated Transactions.
8.5 NO PROHIBITION. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause Sellers or any Person affiliated with either
Seller to suffer any material adverse consequence under, (a) any applicable
Legal Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
Neither the consummation nor the performance of the Contemplated Transactions
will directly or indirectly violate an Order.
8.6 CLOSING DELIVERIES. All items contemplated in Section 2.5(b) shall
have been delivered to Sellers.
ARTICLE IX
TERMINATION
9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or
at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived or such Breach has not been remedied within thirty (30) days after
written notice is given specifying the Breach and demanding it to be remedied;
(b) (i) by Buyer if any of the conditions in Article VII has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Article
VIII has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers;
STOCK PURCHASE AGREEMENT 43
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(d) by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before June 30,
2000, or such later date as the parties may agree upon; or
(e) by Buyer if Buyer is not completely satisfied on or before November
19, 1999 in its sole discretion with the results of the review of the Acquired
Companies' operations and books and records by Buyer and Buyer's Advisors.
9.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 11.1 and 11.3 will survive; provided, however,
that if this Agreement is terminated by a party because of the Breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. All
representations, warranties, covenants, and obligations in this Agreement, the
Sellers' Disclosure Letter, the supplements to the Sellers' Disclosure Letter,
the certificates delivered pursuant to Section 2.5(a)(iv), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. Sellers will
indemnify and hold harmless Buyer, the Acquired Companies, and their respective
Representatives, shareholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable
STOCK PURCHASE AGREEMENT 44
45
attorneys' fees) or diminution of value, whether or not involving a third-party
claim (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty made by Sellers or TSL
in this Agreement (without giving effect to any supplement to the Sellers'
Disclosure Letter), the Sellers' Disclosure Letter, the supplements to the
Sellers' Disclosure Letter, or any other certificate or document delivered by
either or both Sellers or TSL under this Agreement;
(b) any Breach of any representation or warranty made by Sellers or TSL
in this Agreement as if such representation or warranty were made on and as of
the Closing Date without giving effect to any supplement to the Sellers'
Disclosure Letter, other than any such Breach that is disclosed in a supplement
to the Sellers' Disclosure Letter and is expressly identified in the
certificates delivered pursuant to Section 2.5(a)(v) as having caused the
condition specified in Section 7.1 not to be satisfied;
(c) any Breach by either Seller or TSL of any covenant or obligation of
Sellers or TSL; or
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either Seller, TSL, any other
Acquired Company (or any Person acting on their behalf) in connection with any
of the Contemplated Transactions;
provided, however, that Sellers shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 exceeds the sum of $50,000 in the aggregate under
Sections 10.2 and 10.3, it being understood that only after such sum is
exceeded, shall the aggregate of all claims under Sections 10.2 and 10.3 be
payable by Sellers on demand.
The remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS -- ENVIRONMENTAL
MATTERS. In addition to the provisions of Section 10.2, Sellers will indemnify
and hold harmless Buyer, the Acquired Companies, and the other Indemnified
Persons for, and will pay to Buyer, the Acquired Companies, and the other
Indemnified Persons the amount of, any Damages (including costs of cleanup,
containment, or other remediation) arising, directly or indirectly, from or in
connection with:
(a) any Environmental, Health, and Safety Liabilities arising out of or
relating to: (i) (A) the ownership, operation, or condition at any time on or
prior to the Closing Date of the Facilities or any other properties and assets
(whether real, personal, or mixed and whether tangible or intangible) in which
Sellers, each Seller, any Acquired Company has or had an interest, or (B) any
STOCK PURCHASE AGREEMENT 45
46
Hazardous Materials or other contaminants that were present on the Facilities or
such other properties and assets at any time on or prior to the Closing Date; or
(ii) (A) any Hazardous Materials or other contaminants, wherever located, that
were, or were allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Sellers, any Acquired Company, or by any other Person for
whose conduct they are or may be held responsible at any time on or prior to the
Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Sellers, any Acquired Company or by any other Person for whose
conduct they are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or manifested
itself), personal injury, property damage (including trespass, nuisance,
wrongful eviction, and deprivation of the use of real property), or other damage
of or to any Person, including any employee or former employee of either Seller,
any Acquired Company, or any other Person for whose conduct they are or may be
held responsible, in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Acquired Companies prior to the Closing Date,
or from Hazardous Material that was (i) present or suspected to be present on or
before the Closing Date on or at the Facilities (or present or suspected to be
present on any other property, if such Hazardous Material emanated or allegedly
emanated from any of the Facilities and was present or suspected to be present
on any of the Facilities on or prior to the Closing Date) or (ii) Released or
allegedly Released by either Seller, any Acquired Company, or any other Person
for whose conduct they are or may be held responsible, at any time on or prior
to the Closing Date;
provided, however, that Sellers shall have no obligation to make any payment to
Indemnified Persons under Sections 10.2 and 10.3 unless the aggregate amount to
which the Indemnified Persons are entitled by reason of all claims under
Sections 10.2 and 10.3 exceeds the sum of$50,000 in the aggregate under Sections
10.2 and 10.3, it being understood that only after such sum is exceeded, shall
the aggregate of all claims under Sections 10.2 and 10.3 be payable by Sellers
on demand.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.7 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer in this Agreement
(without giving effect to any supplement to the Buyer's Disclosure Letter), the
Buyer's Disclosure Letter, the supplements to the Buyer's Disclosure Letter, or
any other certificate or document delivered by Buyer pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Buyer in this
Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Buyer's Disclosure
Letter, other than any such Breach that is disclosed in a
STOCK PURCHASE AGREEMENT 46
47
supplement to the Buyer's Disclosure Letter and is expressly identified in the
certificate delivered pursuant to Section 2.5(b)(ii) as having caused the
condition specified in Section 8.1 not to be satisfied;
(c) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement; or
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions (other than
Xxxxx Xxxxx & Co., Inc.);
provided, however, that Buyer shall have no obligation to make any payment to
Sellers under this Section 10.4 unless the aggregate amount to which Sellers are
entitled by reason of all claims under this Section 10.4 exceeds $50,000 in the
aggregate of all amounts collectible under the Acquired Companies' errors and
omissions policies, it being understood that once such amount is exceeded, the
aggregate of all claims under this Section 10.4 shall be payable by Buyer on
demand.
The remedies provided in this Section 10.4 will not be exclusive of or limit any
other remedies that may be available to Sellers.
10.5 TIME LIMITATIONS. If the Closing occurs, Sellers will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.9, 3.11, 3.17, unless
on or before the earlier of (i) the second anniversary of the Date for the third
Earnout Period or (ii) July 1, 2003, Buyer notifies Sellers of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Section 3.3, 3.9, 3.11, 3.17, or a
claim for indemnification or reimbursement not based upon any representation or
warranty or any covenant or obligation to be performed and complied with prior
to the Closing Date, may be made at any time. If the Closing occurs, Buyer will
have no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before July 1, 2003,
Sellers notify Buyer of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Sellers.
10.6 RIGHT OF SET-OFF. Upon notice to Sellers specifying in reasonable
detail the basis for such set-off, Buyer may set off any amount to which it may
be entitled under this Article X against amounts otherwise payable to Sellers
under this Agreement. The exercise of such right of set-off by Buyer in good
faith, whether or not ultimately determined to be justified, will not constitute
a Breach of this Agreement. Neither the exercise of nor the failure to exercise
such right of set-off shall constitute an election of remedies or limit Buyer in
any manner in the enforcement of any other remedies that may be available to it.
Any amount set-off pursuant to this Section 10.6 shall be considered a reduction
in the Purchase Price of that amount. In the event that it is finally determined
that any set-off pursuant to this Section 10.6 was wrongful, the amount
determined to have been
STOCK PURCHASE AGREEMENT 47
48
wrongfully set-off shall be paid to Sellers pro rata in accordance with their
ownership interests in TSL (immediately prior to the Closing) together with
interest accruing at the Applicable Rate from the date such amount originally
was to be paid to Sellers.
10.7 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section 10.2
or 10.4, or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except and only to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes not related to the Acquired Companies, be entitled to participate
in such Proceeding with respect to the Acquired Companies and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Article X for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding,
subsequently incurred by the indemnified party in connection with the defense of
such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
STOCK PURCHASE AGREEMENT 48
49
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
10.8 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
ARTICLE XI
GENERAL PROVISIONS
11.1 EXPENSES. Except as otherwise expressly provided in this
Agreement, the Sellers shall be responsible for the obligations of the Acquired
Companies and Sellers with regard to both (i) Xxxxx Xxxxx & Co., Inc. and (ii)
expenses incurred by either Seller or any Acquired Company in connection with
the negotiation, preparation and execution of this Agreement and the
Contemplated Transactions, including all fees and expenses of Sellers' or any of
the Acquired Companies' agents, representatives, counsel, and accountants
(including, without limitation, all costs and expenses related to the December
31, 1999 Audit pursuant to Section 5.11 of this Agreement). Buyer shall be
responsible for the obligations of Buyer with regard to expenses incurred by
Buyer in connection with the negotiation, preparation and execution of this
Agreement and the Contemplated Transactions, including all fees and expenses of
Buyer's agents, representatives, counsel, and accountants. In the event of
termination of this Agreement, the obligation of Buyer to pay such expenses will
be subject to any rights of Buyer arising from a breach of this Agreement by
another party.
11.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer determines. Buyer will use
its commercially reasonable efforts to provide copies of public announcements to
Sellers for Sellers' review prior to release. Unless consented to by Buyer in
advance or required by Legal Requirements, prior to the Closing Sellers shall,
and shall cause the Acquired Companies to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person
other than any professional advisors of Sellers. Sellers and Buyer will consult
with each other concerning the means by which the Acquired Companies' employees,
customers, and suppliers and others having dealings with the Acquired Companies
will be informed of the Contemplated Transactions, and Buyer will have the right
to be present for any such communication.
STOCK PURCHASE AGREEMENT 49
50
11.3 CONFIDENTIALITY. Between the date of this Agreement and the
Closing Date, Buyer and Sellers will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained in
confidence from another party or an Acquired Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any filing
or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Sellers waive, and
will upon Buyer's request cause the Acquired Companies to waive, any cause of
action, right, or claim arising out of the access of Buyer or its
representatives to any trade secrets or other confidential information of the
Acquired Companies except for the competitive misuse by Buyer of such trade
secrets or confidential information.
11.4 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
If to either Seller or TSL:
0000 X. Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxx 00000
Facsimile No.: (000) 000-0000
(Notices to TSL should be to the attention of Xxxxxxx X. Xxxx)
with a copy of all notices to Sellers and TSL to:
Xxxxxx & Xxxxxx P.L.L.P.
X.X. Xxx 000
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
STOCK PURCHASE AGREEMENT 50
51
If to Buyer:
GAINSCO, INC.
000 Xxxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxx 00000-0000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxx L.L.P.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxx
Fax: (000) 000-0000
11.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Texas, County of Dallas, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Texas, Dallas
Division, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world.
11.6 FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.7 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. The rights of Buyer and Sellers hereunder
are in addition to all other rights provided by law. Neither the failure nor any
delay by any party in exercising any right, power, or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the parties hereto.
STOCK PURCHASE AGREEMENT 51
52
11.9 SELLERS' DISCLOSURE LETTER.
(a) The disclosures in the Sellers' Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Sellers' Disclosure Letter (other than
an exception expressly set forth as such in the Sellers' Disclosure Letter with
respect to a specifically identified representation or warranty), the statements
in the body of this Agreement will control.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, except that Buyer may assign any of its rights under this
Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns. In the event Buyer assigns any of its rights under this Agreement
to any Subsidiary of Buyer and such Subsidiary does not fulfill its obligations
under this Agreement, Buyer shall assume and fulfill such Subsidiary's
obligations under this Agreement.
11.11 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.12 ARTICLE AND SECTION HEADINGS, CONSTRUCTION AND USAGE. The
headings of Articles and Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Article" or "Articles" refer to the corresponding Article or Articles of this
Agreement, and all references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms, and "or" is used in the inclusive sense of
"and/or". Where the Agreement provides that a payment will be made by Buyer to
the Sellers collectively, such payment shall be made to the Sellers pro rata in
accordance with their ownership interest in TSL immediately prior to the
Closing.
11.13 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
STOCK PURCHASE AGREEMENT 52
53
11.14 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
11.15 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Intentionally left blank.]
STOCK PURCHASE AGREEMENT 53
54
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SELLERS
/s/ Xxxxxxx X. Xxxx
-------------------------------------------
Xxxxxxx X. Xxxx
/s/ Xxxx X. Xxxxx
-------------------------------------------
Xxxx X. Xxxxx
TRI-STATE, LTD.
By: /s/ Xxxxxxx X. Xxxx
---------------------------------------
Name: Xxxxxxx X. Xxxx
Title: President
GAINSCO, INC.
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President and Chief Executive
Officer
STOCK PURCHASE AGREEMENT 54
55
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") is made as of the 7th day of January,
2000, by GAINSCO, INC., a Texas corporation (hereinafter called "Pledgor",
whether one or more), in favor of BANK ONE, NA ("Bank"). Pledgor hereby agrees
with Bank as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings indicated below:
(a) The term "Borrower" shall mean GAINSCO, Inc., a Texas corporation,
and GAINSCO Service Corp., a Texas corporation, or either of them.
(b) The term "Code" shall mean the Uniform Commercial Code as in
effect in the State of Texas on the date of this Agreement or as it may
hereafter be amended from time to time.
(c) The term "Collateral" shall mean all property specifically
described on Schedule A attached hereto and made a part hereof. The term
Collateral, as used herein, shall also include (i) all certificates,
instruments and/or other documents evidencing the foregoing, (ii) all
renewals, replacements and substitutions of all of the foregoing, (iii) all
Additional Property (as hereinafter defined), and (iv) all PRODUCTS and
PROCEEDS of all of the foregoing. The designation of proceeds does not
authorize Pledgor to sell, transfer or otherwise convey any of the
foregoing property. The delivery at any time by Pledgor to Secured Party of
any property as a pledge to secure payment or performance of any
indebtedness or obligation whatsoever shall also constitute a pledge of
such property as Collateral hereunder.
(d) The term "Indebtedness" shall mean all indebtedness, obligations
and liabilities of Borrower to Secured Party of any kind or character, now
existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or
joint and several, including without limitation all indebtedness,
obligations and liabilities of Borrower to Secured Party now existing or
hereafter arising by note, draft, acceptance, guaranty, endorsement, letter
of credit, assignment, purchase, overdraft, discount, indemnity agreement
or otherwise, (ii) all accrued but unpaid interest on any of the
indebtedness described in (i) above, (iii) all obligations of Borrower to
Secured Party under any documents evidencing, securing, governing and/or
pertaining to all or any part of the indebtedness described in (i) and (ii)
above, (iv) all costs and expenses incurred by Secured Party in connection
with the collection and administration of all or any part of the
indebtedness and obligations described in (i), (ii) and (iii) above or the
protection or preservation of, or realization upon, the collateral securing
all or any part of such indebtedness and obligations, including without
limitation all reasonable attorneys' fees, and (v) all renewals,
extensions, modifications and rearrangements of the indebtedness and
obligations described in (i), (ii), (iii) and (iv) above.
(e) The term "Loan Documents" shall mean all instruments and documents
evidencing, securing, governing, guaranteeing and/or pertaining to the
Indebtedness, including without limitation the Revolving Credit Agreement
dated as of November 13, 1998 (as the same may be amended from time to
time, the "Credit Agreement") among GAINSCO, Inc., GAINSCO Service Corp.
and Bank.
(f) The term "Obligated Party" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all
or any portion of the Indebtedness.
(g) The term "Secured Party" shall mean Bank, its successors and
assigns, including without limitation, any party to whom Bank, or its
successors or assigns, may assign its rights and interests under this
Agreement.
All words and phrases used herein which are expressly defined in Section 1.201,
Chapter 8 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the meaning
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1.201, Chapter 8 or Chapter 9 of the Code.
Pledge Agreement-Page 1
GAINSCO, Inc.
56
2. SECURITY INTEREST. As security for the Indebtedness, Pledgor, for value
received, hereby grants to Secured Party a continuing security interest in the
Collateral.
3. ADDITIONAL PROPERTY. Collateral shall also includes the following
property (collectively, the "Additional Property") which Pledgor becomes
entitled to receive or shall receive in connection with any other Collateral:
(a) any stock certificate, including without limitation, any certificate
representing a stock dividend or any certificate in connection with any
recapitalization, reclassification, merger, consolidation, conversion, sale of
assets, combination of shares, stock split or spin-off; (b) any option, warrant,
subscription or right, whether as an addition to or in substitution of any other
Collateral; (c) any dividends or distributions of any kind whatsoever, whether
distributable in cash, stock or other property; (d) any interest, premium or
principal payments; and (e) any conversion or redemption proceeds; provided,
however, that until the occurrence of an Event of Default (as hereinafter
defined), Pledgor shall be entitled to all cash dividends and all interest paid
on the Collateral (except interest paid on any certificate of deposit pledged
hereunder) free of the security interest created under this Agreement. All
Additional Property received by Pledgor (except for dividends permitted to be
retained by Pledgor pursuant to the immediately preceding sentence) shall be
received in trust for the benefit of Secured Party. All Additional Property and
all certificates or other written instruments or documents evidencing and/or
representing the Additional Property that is received by Pledgor, together with
such instruments of transfer as Secured Party may request, shall immediately be
delivered to or deposited with Secured Party and held by Secured Party as
Collateral under the terms of this Agreement. If the Additional Property
received by Pledgor shall be shares of stock or other securities, such shares of
stock or other securities shall be duly endorsed in blank or accompanied by
proper instruments of transfer and assignment duly executed in blank with, if
requested by Secured Party, signatures guaranteed by a bank or member firm of
the New York Stock Exchange, all in form and substance satisfactory to Secured
Party. Secured Party shall be deemed to have possession of any Collateral in
transit to Secured Party or its agent.
4. VOTING RIGHTS. As long as no Event of Default shall have occurred
hereunder, any voting rights incident to any stock or other securities pledged
as Collateral may be exercised by Pledgor; provided, however, that Pledgor will
not exercise, or cause to be exercised, any such voting rights, without the
prior written consent of Secured Party, if the direct or indirect effect of such
vote will result in an Event of Default hereunder.
5. MAINTENANCE OF COLLATERAL. Other than the exercise of reasonable care to
assure the safe custody of any Collateral in Secured Party's possession from
time to time, Secured Party does not have any obligation, duty or responsibility
with respect to the Collateral. Without limiting the generality of the
foregoing, Secured Party shall not have any obligation, duty or responsibility
to do any of the following: (a) ascertain any maturities, calls, conversions,
exchanges, offers, tenders or similar matters relating to the Collateral or
informing Pledgor with respect to any such matters; (b) fix, preserve or
exercise any right, privilege or option (whether conversion, redemption or
otherwise) with respect to the Collateral unless (i) Pledgor makes written
demand to Secured Party to do so, (ii) such written demand is received by
Secured Party in sufficient time to permit Secured Party to take the action
demanded in the ordinary course of its business, and (iii) Pledgor provides
additional collateral, acceptable to Secured Party in its sole discretion; (c)
collect any amounts payable in respect of the Collateral (Secured Party being
liable to account to Pledgor only for what Secured Party may actually receive or
collect thereon); (d) sell all or any portion of the Collateral to avoid market
loss; (e) sell all or any portion of the Collateral unless and until (i) Pledgor
makes written demand upon Secured Party to sell the Collateral, and (ii) Pledgor
provides additional collateral, acceptable to Secured Party in its sole
discretion; or (f) hold the Collateral for or on behalf of any party other than
Pledgor.
6. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants
the following to Secured Party:
(a) Due Authorization. The execution, delivery and performance of this
Agreement and all of the other Loan Documents by Pledgor have been duly
authorized by all necessary corporate action of Pledgor, to the extent
Pledgor is a corporation, or by all necessary partnership action, to the
extent Pledgor is a partnership.
(b) Enforceability. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Pledgor, enforceable in
accordance with their respective terms, except as limited by
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bankruptcy, insolvency or similar laws of general application relating to
the enforcement of creditors' rights and except to the extent specific
remedies may generally be limited by equitable principles.
(c) Ownership and Liens. Pledgor has good and indefeasible title to
the Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by
this Agreement. No dispute, right of setoff, counterclaim or defense exists
with respect to all or any part of the Collateral. Pledgor has not executed
any other security agreement currently affecting the Collateral and no
financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office except as may
have been executed or filed in favor of Secured Party.
(d) No Conflicts or Consents. Neither the ownership, the intended use
of the Collateral by Pledgor, the grant of the security interest by Pledgor
to Secured Party herein nor (except for restrictions imposed by any
applicable Insurance Holding Company Laws (as hereinafter defined) the
exercise by Secured Party of its rights or remedies hereunder, will (i)
conflict with any provision of (A) any domestic or foreign law, statute,
rule or regulation, (B) the articles or certificate of incorporation,
charter, bylaws or partnership agreement, as the case may be, of Pledgor,
or (C) any agreement, judgment, license, order or permit applicable to or
binding upon Pledgor or otherwise affecting the Collateral, or (ii) result
in or require the creation of any lien, charge or encumbrance upon any
assets or properties of Pledgor or of any person except as may be expressly
contemplated in the Loan Documents. Except as expressly contemplated in the
Loan Documents, no consent, approval, authorization or order of, and no
notice to or filing with, any court, governmental authority or third party
is required in connection with the grant by Pledgor of the security
interest herein or the exercise by Secured Party of its rights and remedies
hereunder.
(e) Security Interest. Pledgor has and will have at all times full
right, power and authority to grant a security interest in the Collateral
to Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral.
(f) Location. Pledgor's residence or chief executive office, as the
case may be, and the office where the records concerning the Collateral are
kept is located at its address set forth on the signature page hereof.
(g) Solvency of Pledgor. As of the date hereof, and after giving
effect to this Agreement and the completion of all other transactions
contemplated by Pledgor at the time of the execution of this Agreement, (i)
Pledgor is and will be solvent, (ii) the fair saleable value of Pledgor's
assets exceeds and will continue to exceed Pledgor's liabilities (both
fixed and contingent), (iii) Pledgor is and will continue to be able to pay
its debts as they mature, and (iv) if Pledgor is not an individual, Pledgor
has and will have sufficient capital to carry on Pledgor's businesses and
all businesses in which Pledgor is about to engage.
(h) Nature of Ownership. Pledgor is the registered owner of the
securities pledged as Collateral and a certificate has been issued in
Pledgor's name to evidence Pledgor's ownership in such securities.
(i) Securities/100% Ownership. Any certificates evidencing securities
pledged as Collateral are valid and genuine and have not been altered. All
securities pledged as Collateral have been duly authorized and validly
issued, are fully paid and non-assessable, and were not issued in violation
of the preemptive rights of any party or of any agreement by which Pledgor
or the issuer thereof is bound. No restrictions or conditions exist with
respect to the transfer or voting of any securities pledged as Collateral,
except as has been disclosed to Secured Party in writing. To the best of
Pledgor's knowledge, no issuer of such securities (other than securities of
a class which are publicly traded) has any outstanding stock rights, rights
to subscribe, options, warrants or convertible securities outstanding or
any other rights outstanding entitling any party to have issued to such
party capital stock of such issuer, except as has been disclosed to Secured
Party in writing. Pledgor owns 100% of the issued and outstanding shares of
capital stock of each issuer listed on Schedule A attached hereto.
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(j) Chattel Paper, Documents and Instruments. The security interest in
chattel paper, documents and instruments of Pledgor granted hereunder is
valid and genuine, and all such chattel paper, documents and instruments
have only one original counterpart. No party other than Pledgor or Secured
Party is in actual or constructive possession of any such chattel paper,
documents or instruments.
7. AFFIRMATIVE COVENANTS. Pledgor will comply with the covenants contained
in this Section at all times during the period of time this Agreement is
effective unless Secured Party shall otherwise consent in writing.
(a) Ownership and Liens. Pledgor will maintain good and indefeasible
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by
this Agreement and the security interests and other encumbrances expressly
permitted by the other Loan Documents. Pledgor will not permit any dispute,
right of setoff, counterclaim or defense to exist with respect to all or
any part of the Collateral. Pledgor will cause any financing statement or
other security instrument with respect to the Collateral to be terminated,
except as may exist or as may have been filed in favor of Secured Party.
Pledgor will defend at its expense Secured Party's right, title and
security interest in and to the Collateral against the claims of any third
party.
(b) Inspection of Books and Records. Pledgor will keep adequate
records concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect Pledgor's
books and records of or relating to the Collateral at any time during
normal business hours, to make and take away photocopies, photographs and
printouts thereof and to write down and record any such information.
(c) Adverse Claim. Pledgor covenants and agrees to promptly notify
Secured Party of any claim, action or proceeding affecting title to the
Collateral, or any part thereof, or the security interest created hereunder
and, at Pledgor's expense, defend Secured Party's security interest in the
Collateral against the claims of any third party. Pledgor also covenants
and agrees to promptly deliver to Secured Party a copy of all written
notices received by Pledgor with respect to the Collateral, including
without limitation, notices received from the issuer of any securities
pledged hereunder as Collateral.
(d) Delivery of Instruments and/or Certificates. Contemporaneously
herewith, Pledgor covenants and agrees to deliver to Secured Party any
certificates, documents or instruments representing or evidencing the
Collateral, together with Pledgor's endorsement thereon and/or accompanied
by proper instruments of transfer and assignment duly executed in blank
with, if requested by Secured Party, signatures guaranteed by a bank or
member firm of the New York Stock Exchange, all in form and substance
satisfactory to Secured Party. If required by Secured Party, Pledgor also
covenants and agrees to cooperate with Secured Party in registering the
pledge of the securities pledged as Collateral with the issuer of such
securities.
(e) Further Assurances. Pledgor will from time to time at its expense
promptly execute and deliver all further instruments and documents and take
all further action necessary or appropriate or that Secured Party may
request in order (i) to perfect and protect the security interest created
or purported to be created hereby and the first priority of such security
interest, (ii) to enable Secured Party to exercise and enforce its rights
and remedies hereunder in respect of the Collateral, and (iii) to otherwise
effect the purposes of this Agreement, including without limitation,
executing and filing such financing or continuation statements, or any
amendments thereto.
(f) Chattel Paper, Documents and Instruments. Pledgor will take such
action as may be requested by Secured Party in order to cause any chattel
paper, documents or instruments to be valid and enforceable and will cause
all chattel paper to have only one original counterpart. Upon request by
Secured Party, Pledgor will deliver to Secured Party all originals of
chattel paper, documents or instruments and will xxxx all chattel paper
with a legend indicating that such chattel paper is subject to the security
interest granted hereunder.
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8. NEGATIVE COVENANTS. Pledgor will comply with the covenants contained in
this Section at all times during the period of time this Agreement is effective,
unless Secured Party shall otherwise consent in writing.
(a) Transfer or Encumbrance. Pledgor will not (i) sell, assign (by
operation of law or otherwise) or transfer Pledgor's rights in any of the
Collateral, (ii) xxxxx x xxxx or security interest in or execute, file or
record any financing statement or other security instrument with respect to
the Collateral to any party other than Secured Party, or (iii) deliver
actual or constructive possession of any certificate, instrument or
document evidencing and/or representing any of the Collateral to any party
other than Secured Party.
(b) Impairment of Security Interest. Pledgor will not take or fail to
take any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
(c) Dilution of Ownership. As to any securities pledged as Collateral
(other than securities of a class which are publicly traded), Pledgor will
not consent to or approve of the issuance of (i) any additional shares of
any class of securities of such issuer (unless immediately upon issuance
additional securities are pledged and delivered to Secured Party pursuant
to the terms hereof to the extent necessary to give Secured Party a
security interest after such issuance in at least the same percentage of
such issuer's outstanding securities as Secured Party had before such
issuance), (ii) any instrument convertible voluntarily by the holder
thereof or automatically upon the occurrence or non-occurrence of any event
or condition into, or exchangeable for, any such securities, or (iii) any
warrants, options, contracts or other commitments entitling any third party
to purchase or otherwise acquire any such securities.
(d) Restrictions on Securities. Pledgor will not enter into any
agreement creating, or otherwise permit to exist, any restriction or
condition upon the transfer, voting or control of any securities pledged as
Collateral, except as consented to in writing by Secured Party.
9. RIGHTS OF SECURED PARTY. Secured Party shall have the rights contained
in this Section at all times during the period of time this Agreement is
effective.
(a) Power of Attorney. Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact, such power of attorney being coupled
with an interest, with full authority in the place and stead of Pledgor and
in the name of Pledgor or otherwise, to take any action and to execute any
instrument which Secured Party may from time to time in Secured Party's
discretion deem necessary or appropriate to accomplish the purposes of this
Agreement, including without limitation, the following action: (i) subject
to any applicable Insurance Holding Company Laws, transfer any securities,
instruments, documents or certificates pledged as Collateral in the name of
Secured Party or its nominee; (ii) use any interest, premium or principal
payments, conversion or redemption proceeds or other cash proceeds received
in connection with any Collateral to reduce any of the Indebtedness; (iii)
exchange any of the securities pledged as Collateral for any other property
upon any merger, consolidation, reorganization, recapitalization or other
readjustment of the issuer thereof, and, in connection therewith, to
deposit and deliver any and all of such securities with any committee,
depository, transfer agent, registrar or other designated agent upon such
terms and conditions as Secured Party may deem necessary or appropriate;
(iv) exercise or comply with any conversion, exchange, redemption,
subscription or any other right, privilege or option pertaining to any
securities pledged as Collateral; provided, however, except as provided
herein, Secured Party shall not have a duty to exercise or comply with any
such right, privilege or option (whether conversion, redemption or
otherwise) and shall not be responsible for any delay or failure to do so;
and (v) file any claims or take any action or institute any proceedings
which Secured Party may deem necessary or appropriate for the collection
and/or preservation of the Collateral or otherwise to enforce the rights of
Secured Party with respect to the Collateral.
(b) Performance by Secured Party. If Pledgor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of
Secured Party incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Pledgor on demand.
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(c) Notification of Account Debtors and Other Rights. With respect to
chattel paper or instruments which are Collateral, Secured Party, without
notice to Pledgor, shall have the right at any time and from time to time
after the occurrence and during the continuation of an Event of Default to
notify and direct the account debtor or obligor thereon to thereafter make
all payments on such Collateral directly to Secured Party, regardless of
whether Pledgor was previously making collections thereon. Each account
debtor and obligor making payment to Secured Party hereunder shall be fully
protected in relying on the written statement of Secured Party that it then
holds a security interest which entitles it to receive such payment, and
the receipt of Secured Party for such payment shall be full acquittance
therefor to the party making such payment. Payments received by Secured
Party shall be held or disposed of by it in accordance with the terms of
this Agreement. Secured Party shall, however, never be obligated to
collect, or use any effort to collect, any such payments, its sole
liability to the Pledgor being to account for payments, if any, actually
received.
Notwithstanding any other provision herein to the contrary, Secured Party does
not have any duty to exercise or continue to exercise any of the foregoing
rights and shall not be responsible for any failure to do so or for any delay in
doing so.
10. EVENTS OF DEFAULT. Each of the following constitutes an "Event of
Default" under this Agreement:
(a) Non-Performance of Covenants. The failure of Pledgor or any
Obligated Party to timely and properly observe, keep or perform (i) any
covenant, agreement, warranty or condition contained in Sections 7(a), 7(e)
or 8 or (ii) any other covenant, agreement, warranty or condition required
herein and, in the case of (ii), such failure shall continue for fifteen
(15) days; or
(b) Default Under other Credit Agreement. The occurrence of an Event
of Default under Article 8 of the Credit Agreement; or
(c) False Representation. Any representation contained herein or in
any of the other Loan Documents made by Borrower or any Obligated Party is
false or misleading in any material respect; or
(d) Execution on Collateral. The Collateral or any portion thereof is
taken on execution or other process of law in any action against Pledgor;
or
(e) Abandonment. Pledgor abandons the Collateral or any portion
thereof; or
(f) Action by Other Lienholder. The holder of any lien or security
interest on any of the Collateral (without hereby implying the consent of
Secured Party to the existence or creation of any such lien or security
interest on the Collateral), declares a default thereunder or institutes
foreclosure or other proceedings for the enforcement of its remedies
thereunder; or
(g) Dilution of Ownership. The issuer of any securities (other than
securities of a class which are publicly traded) constituting Collateral
hereafter issues any shares of any class of capital stock (unless
immediately upon issuance, additional securities are pledged and delivered
to Secured Party pursuant to the terms hereof to the extent necessary to
give Secured Party a security interest after such issuance in at least the
same percentage of such issuer's outstanding securities as Secured Party
had before such issuance) or any options, warrants or other rights to
purchase any such capital stock.
11. REMEDIES AND RELATED RIGHTS. If an Event of Default shall have
occurred, and without limiting any other rights and remedies provided herein,
under any of the other Loan Documents or otherwise available to Secured Party,
Secured Party may exercise one or more of the rights and remedies provided in
this Section.
(a) Remedies. Secured Party may from time to time at its discretion,
subject to compliance with any applicable Insurance Holding Company Laws,
without limitation and without notice except as expressly provided in any
of the Loan Documents:
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(i) exercise in respect of the Collateral all the rights and
remedies of a secured party under the Code (whether or not
the Code applies to the affected Collateral);
(ii) reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest granted
hereunder by any available judicial procedure;
(iii) sell or otherwise dispose of, at its office, on the
premises of Pledgor or elsewhere, the Collateral, as a unit
or in parcels, by public or private proceedings, and by way
of one or more contracts (it being agreed that the sale or
other disposition of any part of the Collateral shall not
exhaust Secured Party's power of sale, but sales or other
dispositions may be made from time to time until all of the
Collateral has been sold or disposed of or until the
Indebtedness has been paid and performed in full), and at
any such sale or other disposition it shall not be
necessary to exhibit any of the Collateral;
(iv) buy the Collateral, or any portion thereof, at any public
sale;
(v) buy the Collateral, or any portion thereof, at any private
sale if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of
widely distributed standard price quotations;
(vi) apply for the appointment of a receiver for the Collateral,
and Pledgor hereby consents to any such appointment; and
(vii) at its option, retain the Collateral in satisfaction of the
Indebtedness whenever the circumstances are such that
Secured Party is entitled to do so under the Code or
otherwise.
Pledgor agrees that in the event Pledgor is entitled to receive any notice
under the Uniform Commercial Code, as it exists in the state governing any
such notice, of the sale or other disposition of any Collateral, reasonable
notice shall be deemed given five (5) days after such notice is deposited
in a depository receptacle under the care and custody of the United States
Postal Service, postage prepaid, at Pledgor's address set forth on the
signature page hereof, ten (10) days prior to the date of any public sale,
or after which a private sale, of any of such Collateral is to be held.
Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Secured Party may adjourn
any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Pledgor further
acknowledges and agrees that the redemption by Secured Party of any
certificate of deposit pledged as Collateral shall be deemed to be a
commercially reasonable disposition under Section 9.504(c) of the Code.
(b) Private Sale of Securities. Pledgor recognizes that Secured Party
may be unable to effect a public sale of all or any part of the securities
pledged as Collateral because of restrictions in applicable federal and
state securities laws and that Secured Party may, therefore, determine to
make one or more private sales of any such securities to a restricted group
of purchasers who will be obligated to agree, among other things, to
acquire such securities for their own account, for investment and not with
a view to the distribution or resale thereof. Pledgor acknowledges that
each any such private sale may be at prices and other terms less favorable
then what might have been obtained at a public sale and, notwithstanding
the foregoing, agrees that each such private sale shall be deemed to have
been made in a commercially reasonable manner and that Secured Party shall
have no obligation to delay the sale of any such securities for the period
of time necessary to permit the issuer to register such securities for
public sale under any federal or state securities laws. Pledgor further
acknowledges and agrees that any offer to sell such securities which has
been made privately in the manner described above to not less than five (5)
bona fide offerees shall be deemed to involve a "public sale" for the
purposes of Section 9.504(c) of the Code, notwithstanding that such sale
may not constitute a "public offering"
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under any federal or state securities laws and that Secured Party may, in
such event, bid for the purchase of such securities.
(c) Application of Proceeds. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held by
Secured Party as Collateral, and any cash proceeds received by Secured
Party in respect of any sale or other disposition of, collection from, or
other realization upon, all or any part of the Collateral as follows in
such order and manner as Secured Party may elect:
(i) to the repayment or reimbursement of the reasonable costs
and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by Secured Party in
connection with (A) the administration of the Loan
Documents, (B) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization
upon, the Collateral, and (C) the exercise or enforcement
of any of the rights and remedies of Secured Party
hereunder;
(ii) to the payment or other satisfaction of any liens and other
encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable
law (including without limitation, Section 9.504(a)(3) of
the Code or any other applicable statutory provision); and
(vi) by delivery to Pledgor or any other party lawfully entitled
to receive such cash or proceeds whether by direction of a
court of competent jurisdiction or otherwise.
(d) Deficiency. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Borrower and any party who guaranteed or
is otherwise obligated to pay all or any portion of the Indebtedness shall
be liable for the deficiency, together with interest thereon as provided in
the Loan Documents.
(e) Non-Judicial Remedies. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or judicial
hearing, Pledgor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its
rights by judicial process. Pledgor recognizes and concedes that
non-judicial remedies are consistent with the usage of trade, are
responsive to commercial necessity and are the result of a bargain at arm's
length. Nothing herein is intended to prevent Secured Party or Pledgor from
resorting to judicial process at either party's option.
(f) Other Recourse. Pledgor waives any right to require Secured Party
to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Pledgor in any suit arising out of the Indebtedness or any of the Loan
Documents, or pursue any other remedy available to Secured Party. Pledgor
further waives any and all notice of acceptance of this Agreement and of
the creation, modification, rearrangement, renewal or extension of the
Indebtedness. Pledgor further waives any defense arising by reason of any
disability or other defense of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party.
Until all of the Indebtedness shall have been paid in full, Pledgor shall
have no right of subrogation and Pledgor waives the right to enforce any
remedy which Secured Party has or may hereafter have against any third
party, and waives any benefit of and any right to participate in any other
security whatsoever now or hereafter held by Secured Party. Pledgor
authorizes Secured Party, and without notice or demand and without any
reservation of rights against Pledgor and without affecting Pledgor's
liability hereunder or on the Indebtedness, to (i) take or hold any other
property of any type
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from any third party as security for the Indebtedness, and exchange,
enforce, waive and release any or all of such other property, (ii) apply
such other property and direct the order or manner of sale thereof as
Secured Party may in its discretion determine, (iii) renew, extend,
accelerate, modify, compromise, settle or release any of the Indebtedness
or other security for the Indebtedness, (iv) waive, enforce or modify any
of the provisions of any of the Loan Documents executed by any third party,
and (v) release or substitute any third party.
(g) Voting Rights. Upon the occurrence of an Event of Default, Pledgor
will not exercise any voting rights with respect to securities pledged as
Collateral. Pledgor hereby irrevocably appoints Secured Party as Pledgor's
attorney-in-fact (such power of attorney being coupled with an interest)
and proxy to exercise, subject to compliance with any applicable Insurance
Holding Company Laws, any voting rights with respect to Pledgor's
securities pledged as Collateral upon the occurrence of an Event of
Default.
(h) Dividend Rights and Interest Payments. Upon the occurrence of an
Event of Default:
(i) all rights of Pledgor to receive and retain the dividends
and interest payments which it would otherwise be authorized
to receive and retain pursuant to Section 3 shall
automatically cease, and all such rights shall thereupon
become vested with Secured Party which shall thereafter have
the sole right to receive, hold and apply as Collateral such
dividends and interest payments; and
(ii) all dividend and interest payments which are received by
Pledgor contrary to the provisions of clause (i) of this
Subsection shall be received in trust for the benefit of
Secured Party, shall be segregated from other funds of
Pledgor, and shall be forthwith paid over to Secured Party
in the exact form received (properly endorsed or assigned if
requested by Secured Party), to be held by Secured Party as
Collateral.
(i) Insurance Holding Company Laws. Because of laws and regulations
governing change of control of insurance companies that may be applicable
(collectively, the "Insurance Holding Company Laws"), certain purchasers of
the Collateral at foreclosure may be required to obtain regulatory approval
prior to a final and binding acquisition of the Collateral. The Pledgor
acknowledges that such laws and regulations may adversely affect the
purchase price to be paid by a purchaser of the Collateral, or any part
thereof, at a private or public foreclosure sale, and that the Bank may
(and is hereby authorized by the Pledgor to) modify the notices,
advertisements, terms and procedures of any foreclosure sale of the
Collateral in order to comply with Insurance Holding Company Laws. Without
limiting the foregoing, the Pledgor acknowledges that the Bank may accept
bids at foreclosure sale on a provisional basis, pending receipt by the
successful bidder of necessary regulatory approvals under the Insurance
Holding Company Laws. In addition, the Pledgor acknowledges that the Bank
may (but shall not be required to) limit bidding at foreclosure sales to
those parties which have demonstrated an ability to comply with
requirements of the Insurance Holding Company Laws. Moreover, the Pledgor
acknowledges that the Bank may require the successful bidder at a
foreclosure sale to execute a purchase agreement, deposit a portion of the
purchase price, and take other actions reflecting the requirements of the
Insurance Holding Company Laws and the resulting delay in consummating a
foreclosure sale.
12. INDEMNITY. Pledgor hereby indemnifies and agrees to hold harmless
Secured Party, and its officers, directors, employees, agents and
representatives (each an "Indemnified Person") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by, or asserted
against, any Indemnified Person (whether or not caused by any Indemnified
Person's sole, concurrent or contributory negligence) arising in connection with
the Loan Documents, the Indebtedness or the Collateral (including without
limitation, the enforcement of the Loan Documents and the defense of any
Indemnified Person's actions and/or inactions in connection with the Loan
Documents), except to the limited extent the Claims against an Indemnified
Person are proximately caused by such Indemnified Person's gross negligence or
willful misconduct. If Pledgor or any third party ever alleges such gross
negligence or willful misconduct by any Indemnified Person, the indemnification
provided for in this Section shall nonetheless be paid upon demand, subject to
later adjustment or reimbursement, until such time as a court of competent
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GAINSCO, Inc.
64
jurisdiction enters a final judgment as to the extent and effect of the alleged
gross negligence or willful misconduct. The indemnification provided for in this
Section shall survive the termination of this Agreement and shall extend and
continue to benefit each individual or entity who is or has at any time been an
Indemnified Person hereunder.
13. MISCELLANEOUS.
(a) Entire Agreement. This Agreement contains the entire agreement of
Secured Party and Pledgor with respect to the Collateral. If the parties
hereto are parties to any prior agreement, either written or oral, relating
to the Collateral, the terms of this Agreement shall amend and supersede
the terms of such prior agreements as to transactions on or after the
effective date of this Agreement, but all security agreements, financing
statements, guaranties, other contracts and notices for the benefit of
Secured Party shall continue in full force and effect to secure the
Indebtedness unless Secured Party specifically releases its rights
thereunder by separate release.
(b) Amendment. No modification, consent or amendment of any provision
of this Agreement or any of the other Loan Documents shall be valid or
effective unless the same is in writing and signed by the party against
whom it is sought to be enforced.
(c) Actions by Secured Party. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i) any
renewal, extension, increase or modification with respect to the
Indebtedness, (ii) any surrender, compromise, release, renewal, extension,
exchange or substitution which Secured Party may grant with respect to the
Collateral, or (iii) any release or indulgence granted to any endorser,
guarantor or surety of the Indebtedness. The taking of additional security
by Secured Party shall not release or impair the lien, security interest or
other security rights of Secured Party hereunder or affect the obligations
of Pledgor hereunder.
(d) Waiver by Secured Party. Secured Party may waive any Event of
Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay
by Secured Party in exercising, any right or remedy upon any Event of
Default shall be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right or remedy at a later date.
No single or partial exercise by Secured Party of any right or remedy
hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right or remedy hereunder may be exercised
at any time. No waiver of any provision hereof or consent to any departure
by Pledgor therefrom shall be effective unless the same shall be in writing
and signed by Secured Party and then such waiver or consent shall be
effective only in the specific instances, for the purpose for which given
and to the extent therein specified. No notice to or demand on Pledgor in
any case shall of itself entitle Pledgor to any other or further notice or
demand in similar or other circumstances.
(e) Costs and Expenses. Pledgor will upon demand pay to Secured Party
the amount of any and all costs and expenses (including without limitation,
attorneys' fees and expenses), which Secured Party may incur in connection
with (i) the transactions which give rise to the Loan Documents, (ii) the
preparation of this Agreement and the perfection and preservation of the
security interests granted under the Loan Documents, (iii) the
administration of the Loan Documents, (iv) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization
upon, the Collateral, (v) the exercise or enforcement of any of the rights
of Secured Party under the Loan Documents, or (vi) the failure by Pledgor
to perform or observe any of the provisions hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL
LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF
ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF TEXAS.
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GAINSCO, Inc.
65
(g) Venue. This Agreement has been entered into in the county in Texas
where Bank's address for notice purposes is located, and it shall be
performable for all purposes in such county. Courts within the State of
Texas shall have jurisdiction over any and all disputes arising under or
pertaining to this Agreement and venue for any such disputes shall be in
the county or judicial district where this Agreement has been executed and
delivered.
(h) Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) No Obligation. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) Notices. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and given by (i) personal delivery, (ii) expedited delivery service
with proof of delivery, or (iii) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the
intended addressee at the address set forth on the signature page hereof or
to such different address as the addressee shall have designated by written
notice sent pursuant to the terms hereof and shall be deemed to have been
received either, in the case of personal delivery, at the time of personal
delivery, in the case of expedited delivery service, as of the date of
first attempted delivery at the address and in the manner provided herein,
or in the case of mail, five (5) days after deposit in a depository
receptacle under the care and custody of the United States Postal Service.
Either party shall have the right to change its address for notice
hereunder to any other location within the continental United States by
notice to the other party of such new address at least thirty (30) days
prior to the effective date of such new address.
(k) Binding Effect and Assignment. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on
Pledgor and the heirs, executors, administrators, personal representatives,
successors and assigns of Pledgor, and (iii) shall inure to the benefit of
Secured Party and its successors and assigns. Without limiting the
generality of the foregoing, Secured Party may pledge, assign or otherwise
transfer the Indebtedness and its rights under this Agreement and any of
the other Loan Documents to any other party, subject to any rights of
Pledgor hereunder. Pledgor's rights and obligations hereunder may not be
assigned or otherwise transferred without the prior written consent of
Secured Party.
(l) Termination. It is contemplated by the parties hereto that from
time to time there may be no outstanding Indebtedness, but notwithstanding
such occurrences, this Agreement shall remain valid and shall be in full
force and effect as to subsequent outstanding Indebtedness. Upon (i) the
satisfaction in full of the Indebtedness, (ii) the termination or
expiration of any commitment of Secured Party to extend credit to Borrower,
(iii) written request for the termination hereof delivered by Pledgor to
Secured Party, and (iv) written release delivered by Secured Party to
Pledgor, this Agreement and the security interests created hereby shall
terminate. Upon termination of this Agreement and Pledgor's written
request, Secured Party will, at Pledgor's sole cost and expense, return to
Pledgor such of the Collateral as shall not have been sold or otherwise
disposed of or applied pursuant to the terms hereof and execute and deliver
to Pledgor such documents as Pledgor shall reasonably request to evidence
such termination.
(m) JURY TRIAL WAIVER. PLEDGOR AND BANK EACH HEREBY WAIVE ANY RIGHT TO
A JURY TRIAL WITH RESPECT TO ANY MATTER ARISING OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
(n) Cumulative Rights. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any of
the other Loan Documents, and the exercise of one or more of such rights or
remedies shall not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
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GAINSCO, Inc.
66
(o) Gender and Number. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and words
in the plural number shall be held and construed to include the singular,
unless in each instance the context requires otherwise.
(p) Descriptive Headings. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
[SIGNATURE PAGE FOLLOWS]
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GAINSCO, Inc.
67
EXECUTED as of the date first written above.
Pledgor's Address: PLEDGOR:
-------
000 Xxxxxxxx Xxxxxx GAINSCO, INC.
Xxxx Xxxxx, Xxxxx 00000
By:
--------------------------------------------
Its:
--------------------------------------------
Secured Party's Address:
Bank One, NA
1 Bank Xxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Pledge Agreement-Page 13
GAINSCO, Inc.
68
SCHEDULE A TO
PLEDGE AGREEMENT
BY GAINSCO, INC.
The following property is a part of the Collateral as defined in Subsection
1(c):
(a) All shares of capital stock of Tri-State, Ltd., a North Dakota corporation,
owned by Pledgor, including without limitation 10,060 shares of common
stock evidenced by share certificate no. 9 issued in the name of Pledgor.
69
UNLIMITED GUARANTY
THIS UNLIMITED GUARANTY ("Guaranty") is made as of the 7th day of
January, 2000, by Guarantor (as hereinafter defined) for the benefit of Bank (as
hereinafter defined).
1. Definitions. As used in this Guaranty, the following terms shall
have the meanings indicated below:
(a) The term "Bank" shall mean BANK ONE, NA, whose address for
notice purposes is the following:
1 Bank Xxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxxx
(b) The term "Borrower" (whether one or more) shall mean the
following: GAINSCO, INC. and GAINSCO SERVICE CORP., or either of them.
(c) The term "Guaranteed Indebtedness" shall mean (i) all
indebtedness, obligations and liabilities of Borrower to Bank of any
kind or character, now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, and regardless of
whether such indebtedness, obligations and liabilities may, prior to
their acquisitions by Bank, be or have been payable to or in favor of a
third party and subsequently acquired by Bank (it being contemplated
that Bank may make such acquisitions from third parties), including
without limitation all indebtedness, obligations and liabilities of
Borrower to Bank now existing or hereafter arising by note, draft,
acceptance, guaranty, endorsement, letter of credit, assignment,
purchase, overdraft, discount, indemnity agreement or otherwise, (ii)
all accrued but unpaid interest on any of the indebtedness described in
(i) above, (iii) all obligations of Borrower to Bank under any
documents evidencing, securing, governing and/or pertaining to all or
any part of the indebtedness described in (i) and (ii) above
(collectively, the "Loan Documents"), (iv) all costs and expenses
incurred by Bank in connection with the collection and administration
of all or any part of the indebtedness and obligations described in
(i), (ii) and (iii) above or the protection or preservation of, or
realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all
reasonable attorneys' fees, and (v) all renewals, extensions,
modifications and rearrangements of the indebtedness and obligations
described in (i), (ii), (iii) and (iv) above.
(d) The term "Guarantor" shall mean TRI-STATE, LTD., a North
Dakota corporation, whose address for notice purposes is the following:
000 Xxxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxx 00000.
2. Obligations. As an inducement to Bank to extend or continue to
extend credit and other financial accommodations to Borrower, Guarantor, for
value received, does hereby unconditionally and absolutely guarantee the prompt
and full payment and performance of the Guaranteed Indebtedness when due or
declared to be due and at all times thereafter.
3. Character of Obligations. This is an absolute, continuing and
unconditional guaranty of payment and not of collection and if at any time or
from time to time there is no outstanding Guaranteed Indebtedness, the
obligations of Guarantor with respect to any and all Guaranteed Indebtedness
incurred thereafter shall not be affected. All Guaranteed Indebtedness
heretofore, concurrently herewith or hereafter made by Bank to Borrower shall be
conclusively presumed to have been made or acquired in acceptance hereof.
Guarantor shall be liable, jointly and severally, with Borrower and any other
guarantor of all or any part of the Guaranteed Indebtedness.
UNLIMITED GUARANTY - PAGE 1
70
4. Right of Revocation. Guarantor understands and agrees that Guarantor
may revoke its future obligations under this Guaranty at any time by giving Bank
written notice that Guarantor will not be liable hereunder for any indebtedness
or obligations of Borrower incurred on or after the effective date of such
revocation. Such revocation shall be deemed to be effective on the day following
the day Bank receives such notice delivered either by: (a) personal delivery to
the address and designated department of Bank identified in subparagraph 1(a)
above, or (b) United States mail, registered or certified, return receipt
requested, postage prepaid, addressed to Bank at the address shown in
subparagraph 1(a) above. Notwithstanding such revocation, Guarantor shall remain
liable on its obligations hereunder until payment in full to Bank of (x) all of
the Guaranteed Indebtedness that is outstanding on the effective date of such
revocation, and any renewals and extensions thereof, and (y) all loans, advances
and other extensions of credit made to or for the account of Borrower on or
after the effective date of such revocation pursuant to the obligation of Bank
under a commitment or agreement made to or with Borrower prior to the effective
date of such revocation. The terms and conditions of this Guaranty, including
without limitation the consents and waivers set forth in paragraph 7 hereof,
shall remain in effect with respect to the Guaranteed Indebtedness described in
the preceding sentence in the same manner as if such revocation had not been
made by Guarantor.
5. Representations and Warranties. Guarantor hereby represents and
warrants the following to Bank:
(a) This Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor, and (i) if Guarantor is a
corporation, the Board of Directors of Guarantor has determined that
this Guaranty may reasonably be expected to benefit, directly or
indirectly, Guarantor, or (ii) if Guarantor is a partnership, the
requisite number of its partners have determined that this Guaranty may
reasonably be expected to benefit, directly or indirectly, Guarantor;
and
(b) Guarantor is familiar with, and has independently reviewed
the books and records regarding, the financial condition of Borrower
and is familiar with the value of any and all collateral intended to be
security for the payment of all or any part of the Guaranteed
Indebtedness; provided, however, Guarantor is not relying on such
financial condition or collateral as an inducement to enter into this
Guaranty; and
(c) Guarantor has adequate means to obtain from Borrower on a
continuing basis information concerning the financial condition of
Borrower and Guarantor is not relying on Bank to provide such
information to Guarantor either now or in the future; and
(d) Guarantor has the power and authority to execute, deliver
and perform this Guaranty and any other agreements executed by
Guarantor contemporaneously herewith, and the execution, delivery and
performance of this Guaranty and any other agreements executed by
Guarantor contemporaneously herewith do not and will not violate (i)
any agreement or instrument to which Guarantor is a party, (ii) any
law, rule, regulation or order of any governmental authority to which
Guarantor is subject, or (iii) its articles or certificate of
incorporation or bylaws, if Guarantor is a corporation, or its
partnership agreement, if Guarantor is a partnership; and
(e) Neither Bank nor any other party has made any
representation, warranty or statement to Guarantor in order to induce
Guarantor to execute this Guaranty; and
(f) As of the date hereof, and after giving effect to this
Guaranty and the obligations evidenced hereby, (i) Guarantor is and
will be solvent, (ii) the fair saleable value of Guarantor's assets
exceeds and will continue to exceed its liabilities (both fixed and
contingent), (iii) Guarantor is and will continue to be able to pay its
debts as they mature, and (iv) if Guarantor is not an individual,
Guarantor has and will continue to have sufficient capital to carry on
its business and all businesses in which it is about to engage.
6. Covenants. Guarantor hereby covenants and agrees with Bank as
follows:
(a) Guarantor shall not, so long as its obligations under this
Guaranty continue, transfer or pledge any material portion of its
assets for less than full and adequate consideration; and
UNLIMITED GUARANTY - PAGE 2
71
(b) Guarantor shall promptly furnish to Bank at any time and
from time to time such financial statements and other financial
information of Guarantor as are required under the Loan Documents; and
(c) Guarantor shall comply with all terms and provisions of
the Loan Documents that apply to Guarantor.
7. Consent and Waiver.
(a) Guarantor waives (i) promptness, diligence and notice of
acceptance of this Guaranty and notice of the incurring of any
obligation, indebtedness or liability to which this Guaranty applies or
may apply and waives presentment for payment, notice of nonpayment,
protest, demand, notice of protest, notice of intent to accelerate,
notice of acceleration, notice of dishonor, diligence in enforcement
and indulgences of every kind, and (ii) the taking of any other action
by Bank, including without limitation, giving any notice of default or
any other notice to, or making any demand on, Borrower, any other
guarantor of all or any part of the Guaranteed Indebtedness or any
other party.
(b) Guarantor waives any rights Guarantor has under, or any
requirements imposed by, Chapter 34 of the Texas Business and Commerce
Code, as in effect on the date of this Guaranty or as it may be amended
from time to time.
(c) Bank may at any time, without the consent of or notice to
Guarantor, without incurring responsibility to Guarantor and without
impairing, releasing, reducing or affecting the obligations of
Guarantor hereunder: (i) change the manner, place or terms of payment
of all or any part of the Guaranteed Indebtedness, or renew, extend,
modify, rearrange or alter all or any part of the Guaranteed
Indebtedness; (ii) change the interest rate accruing on any of the
Guaranteed Indebtedness (including, without limitation, any periodic
change in such interest rate that occurs because such Guaranteed
Indebtedness accrues interest at a variable rate which may fluctuate
from time to time); (iii) sell, exchange, release, surrender,
subordinate, realize upon or otherwise deal with in any manner and in
any order any collateral for all or any part of the Guaranteed
Indebtedness or this Guaranty or setoff against all or any part of the
Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to
take or prosecute any action for the collection of all or any part of
the Guaranteed Indebtedness or this Guaranty or to take or prosecute
any action in connection with any of the Loan Documents; (v) exercise
or refrain from exercising any rights against Borrower or others, or
otherwise act or refrain from acting; (vi) settle or compromise all or
any part of the Guaranteed Indebtedness and subordinate the payment of
all or any part of the Guaranteed Indebtedness to the payment of any
obligations, indebtedness or liabilities which may be due or become due
to Bank or others; (vii) apply any deposit balance, fund, payment,
collections through process of law or otherwise or other collateral of
Borrower to the satisfaction and liquidation of the indebtedness or
obligations of Borrower to Bank, if any, not guaranteed under this
Guaranty pursuant to paragraph 4 or 11 herein; and (viii) apply any
sums paid to Bank by Guarantor, Borrower or others to the Guaranteed
Indebtedness in such order and manner as Bank, in its sole discretion,
may determine.
(d) Should Bank seek to enforce the obligations of Guarantor
hereunder by action in any court or otherwise, Guarantor waives any
requirement, substantive or procedural, that (i) Bank first enforce any
rights or remedies against Borrower or any other person or entity
liable to Bank for all or any part of the Guaranteed Indebtedness,
including without limitation that a judgment first be rendered against
Borrower or any other person or entity, or that Borrower or any other
person or entity should be joined in such cause, or (ii) Bank shall
first enforce rights against any collateral which shall ever have been
given to secure all or any part of the Guaranteed Indebtedness or this
Guaranty. Such waiver shall be without prejudice to Bank's right, at
its option, to proceed against Borrower or any other person or entity,
whether by separate action or by joinder.
(e) In addition to any other waivers, agreements and covenants
of Guarantor set forth herein, Guarantor hereby further waives and
releases all claims, causes of action, defenses and offsets for any act
or omission of Bank, its directors, officers, employees,
representatives or agents in connection with Bank's administration of
the Guaranteed Indebtedness, except for Bank's willful misconduct and
gross negligence.
UNLIMITED GUARANTY - PAGE 3
72
8. Obligations Not Impaired.
(a) Guarantor agrees that its obligations hereunder shall not
be released, diminished, impaired, reduced or affected by the
occurrence of any one or more of the following events: (i) the death,
disability or lack of corporate power of Borrower, Guarantor (except as
provided in paragraph 11 herein) or any other guarantor of all or any
part of the Guaranteed Indebtedness, (ii) any receivership, insolvency,
bankruptcy or other proceedings affecting Borrower, Guarantor or any
other guarantor of all or any part of the Guaranteed Indebtedness, or
any of their respective property; (iii) the partial or total release or
discharge of Borrower or any other guarantor of all or any part of the
Guaranteed Indebtedness, or any other person or entity from the
performance of any obligation contained in any instrument or agreement
evidencing, governing or securing all or any part of the Guaranteed
Indebtedness, whether occurring by reason of law or otherwise; (iv) the
taking or accepting of any collateral for all or any part of the
Guaranteed Indebtedness or this Guaranty; (v) the taking or accepting
of any other guaranty for all or any part of the Guaranteed
Indebtedness; (vi) any failure by Bank to acquire, perfect or continue
any lien or security interest on collateral securing all or any part of
the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of
any collateral securing all or any part of the Guaranteed Indebtedness
or this Guaranty; (viii) any failure by Bank to sell any collateral
securing all or any part of the Guaranteed Indebtedness or this
Guaranty in a commercially reasonable manner or as otherwise required
by law; (ix) any invalidity or unenforceability of or defect or
deficiency in any of the Loan Documents; or (x) any other circumstance
which might otherwise constitute a defense available to, or discharge
of, Borrower or any other guarantor of all or any part of the
Guaranteed Indebtedness.
(b) This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of all or
any part of the Guaranteed Indebtedness is rescinded or must otherwise
be returned by Bank upon the insolvency, bankruptcy or reorganization
of Borrower, Guarantor, any other guarantor of all or any part of the
Guaranteed Indebtedness, or otherwise, all as though such payment had
not been made.
(c) In the event Borrower is a corporation, joint stock
association or partnership, or is hereafter incorporated, none of the
following shall affect Guarantor's liability hereunder: (i) the
unenforceability of all or any part of the Guaranteed Indebtedness
against Borrower by reason of the fact that the Guaranteed Indebtedness
exceeds the amount permitted by law; (ii) the act of creating all or
any part of the Guaranteed Indebtedness is ultra xxxxx; or (iii) the
officers or partners creating all or any part of the Guaranteed
Indebtedness acted in excess of their authority. Guarantor hereby
acknowledges that withdrawal from, or termination of, any ownership
interest in Borrower now or hereafter owned or held by Guarantor shall
not alter, affect or in any way limit the obligations of Guarantor
hereunder.
9. Actions against Guarantor. In the event of a default in the payment
or performance of all or any part of the Guaranteed Indebtedness when such
Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or
otherwise, Guarantor shall, without notice or demand, promptly pay the amount
due thereon to Bank, in lawful money of the United States, at Bank's address set
forth in subparagraph 1(a) above. One or more successive or concurrent actions
may be brought against Guarantor, either in the same action in which Borrower is
sued or in separate actions, as often as Bank deems advisable. The exercise by
Bank of any right or remedy under this Guaranty or under any other agreement or
instrument, at law, in equity or otherwise, shall not preclude concurrent or
subsequent exercise of any other right or remedy. The books and records of Bank
shall be admissible in evidence in any action or proceeding involving this
Guaranty and shall be prima facie evidence of the payments made on, and the
outstanding balance of, the Guaranteed Indebtedness.
10. Payment by Guarantor. Whenever Guarantor pays any sum which is or
may become due under this Guaranty, written notice must be delivered to Bank
contemporaneously with such payment. Such notice shall be effective for purposes
of this paragraph when contemporaneously with such payment Bank receives such
notice either by: (a) personal delivery to the address and designated department
of Bank identified in subparagraph 1(a) above, or (b) United States mail,
certified or registered, return receipt requested, postage prepaid, addressed to
Bank at the address shown in subparagraph 1(a) above. In the absence of such
notice to Bank by Guarantor in compliance
UNLIMITED GUARANTY - PAGE 4
73
with the provisions hereof, any sum received by Bank on account of the
Guaranteed Indebtedness shall be conclusively deemed paid by Borrower.
11. [intentionally omitted.]
12. Notice of Sale. In the event that Guarantor is entitled to receive
any notice under the Uniform Commercial Code, as it exists in the state
governing any such notice, of the sale or other disposition of any collateral
securing all or any part of the Guaranteed Indebtedness or this Guaranty,
reasonable notice shall be deemed given when such notice is deposited in the
United States mail, postage prepaid, at the address for Guarantor set forth in
subparagraph 1(d) above, five (5) days prior to the date any public sale, or
after which any private sale, of any such collateral is to be held; provided,
however, that notice given in any other reasonable manner or at any other
reasonable time shall be sufficient.
13. Waiver by Bank. No delay on the part of Bank in exercising any
right hereunder or failure to exercise the same shall operate as a waiver of
such right. In no event shall any waiver of the provisions of this Guaranty be
effective unless the same be in writing and signed by an officer of Bank, and
then only in the specific instance and for the purpose given.
14. Successors and Assigns. This Guaranty is for the benefit of Bank,
its successors and assigns. This Guaranty is binding upon Guarantor and
Guarantor's heirs, executors, administrators, personal representatives and
successors, including without limitation any person or entity obligated by
operation of law upon the reorganization, merger, consolidation or other change
in the organizational structure of Guarantor.
15. Costs and Expenses. Guarantor shall pay on demand by Bank all costs
and expenses, including without limitation, all reasonable attorneys' fees
incurred by Bank in connection with the preparation, administration, enforcement
and/or collection of this Guaranty. This covenant shall survive the payment of
the Guaranteed Indebtedness.
16. Severability. If any provision of this Guaranty is held by a court
of competent jurisdiction to be illegal, invalid or unenforceable under present
or future laws, such provision shall be fully severable, shall not impair or
invalidate the remainder of this Guaranty and the effect thereof shall be
confined to the provision held to be illegal, invalid or unenforceable.
17. No Obligation. Nothing contained herein shall be construed as an
obligation on the part of Bank to extend or continue to extend credit to
Borrower.
18. Amendment. No modification or amendment of any provision of this
Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by an officer of Bank
and of Guarantor, and then shall be effective only in the specific instance and
for the purpose for which given.
19. Cumulative Rights. All rights and remedies of Bank hereunder are
cumulative of each other and of every other right or remedy which Bank may
otherwise have at law or in equity or under any instrument or agreement, and the
exercise of one or more of such rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of any other rights or remedies.
20. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
21. Venue. This Guaranty has been entered into in the county in Texas
where Bank's address for notice purposes is located, and it shall be performable
for all purposes in such county. Courts within the State of Texas shall have
jurisdiction over any and all disputes arising under or pertaining to this
Guaranty and venue for any such disputes shall be in the county or judicial
district where the Bank's address for notice purposes is located.
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74
22. Compliance with Applicable Usury Laws. Notwithstanding any other
provision of this Guaranty or of any instrument or agreement evidencing,
governing or securing all or any part of the Guaranteed Indebtedness, Guarantor
and Bank by its acceptance hereof agree that Guarantor shall never be required
or obligated to pay interest in excess of the maximum nonusurious interest rate
as may be authorized by applicable law for the written contracts which
constitute the Guaranteed Indebtedness. It is the intention of Guarantor and
Bank to conform strictly to the applicable laws which limit interest rates, and
any of the aforesaid contracts for interest, if and to the extent payable by
Guarantor, shall be held to be subject to reduction to the maximum nonusurious
interest rate allowed under said law.
23. Descriptive Headings. The headings in this Guaranty are for
convenience only and shall not define or limit the provisions hereof.
24. Gender. Within this Guaranty, words of any gender shall be held and
construed to include the other gender.
25. Entire Agreement. This Guaranty contains the entire agreement
between Guarantor and Bank regarding the subject matter hereof and supersedes
all prior written and oral agreements and understandings, if any, regarding
same; provided, however, this Guaranty is in addition to and does not replace,
cancel, modify or affect any other guaranty of Guarantor now or hereafter held
by Bank that relates to Borrower or any other person or entity.
(SIGNATURE PAGE FOLLOWS)
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75
EXECUTED as of the date first above written.
GUARANTOR:
TRI-STATE, LTD.
By:
-------------------------------
Its:
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UNLIMITED GUARANTY - PAGE 7
