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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FMG ACQUISITION CORP.,
UNITED SUBSIDIARY CORP.
AND
UNITED INSURANCE HOLDINGS LC
Dated as of April 2, 2008
INDEX
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AGREEMENT AND PLAN OF MERGER
This
Agreement and Plan of Merger (this “
Agreement ”)
is made and entered into as of April 2, 2008 by and among United
Insurance Holdings LC, a Florida limited liability company (the
“
Company ”),
FMG Acquisition Corp., a Delaware corporation (“
Parent ”),
and United Subsidiary Corp., a Florida corporation and wholly owned
subsidiary of Parent (“
Merger Sub ”). Parent,
Merger Sub and the Company are sometimes referred to herein as a
“
Party ”
and collectively as the “
Parties .”
WITNESSETH:
A. Parent,
Company, and Merger Sub intend to effect the merger of Merger
Sub with and into the Company (the “
Merger ”),
with the Company continuing as the surviving entity in the Merger,
as a result of which the entire issued and outstanding membership
interest of the Company (the “
Membership Interest ”)
will automatically be exchanged into the right to receive the
Merger Consideration (as defined herein), without interest, upon
the terms and subject to the conditions set forth in this Agreement
and in accordance with the Florida Business Corporation Act (the
“
FBCA ”)
and the Florida Limited Liability Company Act (the “
Florida Act ”),
each as amended.
B. The
individuals constituting the board of managers or directors of
the Company (each a “
Director ”
and collectively the “
Board ”)
and the members of the Board of Directors of each of Parent and
Merger Sub have unanimously approved this Agreement and the Merger
and each of them have determined that this Agreement, the Merger
and the other transactions contemplated hereby are advisable and in
the respective best interests of the Company, Parent and Merger
Sub.
C.
The
Board has resolved to recommend that its members adopt this
Agreement, and the Board of Directors of Parent has resolved
to recommend that its stockholders adopt this
Agreement.
NOW,
THEREFORE, in consideration of the premises set forth above,
which are incorporated in this Agreement as if fully set forth
below, and the representations, warranties, covenants and
agreements contained in this Agreement, and intending to be
legally bound hereby, the Parties hereto agree as
follows:
ARTICLE I
TERMS OF THE MERGER
1.1
The Merger .
Upon
the terms and subject to the conditions of this Agreement and
in accordance with the Florida Act and the FBCA, at the
Effective Time, Merger Sub shall be merged with and into the
Company. Upon consummation of the Merger, the separate
existence of Merger Sub shall thereupon cease, and the
Company, as the surviving company in the Merger (the
“
Surviving Company ”),
shall continue its limited liability company existence under the
laws of the State of Florida as a wholly owned subsidiary of
Parent. It is not intended that the Merger shall be a
tax free purchase and sale of the Membership Interest for federal,
state and local Tax purposes.
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1.2
The Closing; Effective Time; Effect .
(a)
Unless
this Agreement shall have been terminated and the transactions
contemplated hereby shall have been abandoned pursuant to
Section 7.1_and subject to the satisfaction or waiver of the
conditions set forth in Article VI hereof, the closing of the
Merger (the “
Closing ”)
shall take place by the exchange of original or facsimile or
electronic copies of the respective Closing documents at 10:00 a.m.
local time no later than the third Business Day after the date that
all of the closing conditions set forth in Article VI have been
satisfied or waived, unless another time, date or place is agreed
upon in writing by the Parties hereto. The date on which
the Closing occurs is herein referred to as the “
Closing Date .”
(b)
Subject
to the terms and conditions hereof, concurrently with the
Closing, the Parties shall file with the Secretary of State of
the State of Florida (the “
Secretary of State ”)
articles of merger in accordance with the Florida Act and the FBCA
(referred to collectively herein as the “
Articles of Merger ”)
executed in accordance with the relevant provisions of the Florida
Act and the FBCA and shall make all other filings or recordings
required under the Florida Act, the FBCA and the General
Corporation Law of the State of Delaware, as amended (the
“
DGCL ”),
in order to effect the Merger. The Merger shall become
effective upon the filing of the Articles of Merger or at such
other time as is agreed by the Parties hereto and specified in the
Articles of Merger. The time when the Merger shall
become effective is herein referred to as the “
Effective Time .”
(c)
From
and after the Effective Time, except as otherwise expressly
set forth herein, the Surviving Company shall possess all
properties, rights, privileges, powers and franchises of the
Company and Merger Sub, and all of the claims, obligations,
liabilities, debts and duties of the Company and Merger Sub
shall become the claims, obligations, liabilities, debts and
duties of the Surviving Company.
1.3
Exchange of Securities .
At
the Effective Time, by virtue of the Merger and without any
action on the part of the Company, Merger Sub or the holders
of any securities of Merger Sub or the Company:
(a)
All
of the Membership Interest issued and outstanding immediately
prior to the Effective Time (other than Dissenting Membership
Interest) shall automatically be converted into the right to
receive an aggregate of:
(i)
Twenty
Five Million Dollars ($25,000,000) in cash (the “
Cash Consideration ”)
payable, without interest, to the holders of Membership Interest of
the Company (individually, a “
Member ”
and collectively, the “
Members ”)
in accordance with the allocation set forth in Exhibit
A;
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(ii)
In
addition to Section 1.3(a)(i), Eight Million Seven Hundred
Fifty Thousand (8,750,000) shares of Parent common stock, par
value $0.0001 per share (the “
Common Stock ”),
issuable to the Members in accordance with the allocation set forth
in Exhibit A (the “
Stock Consideration ”) (the
Cash Consideration and Stock Consideration, collectively, the
“
Initial Consideration ”);
and
(iii)
In
addition to Sections 1.3(a)(i)-(ii) and subject to Section
1.4, up to Five Million Dollars ($5,000,000) in cash (the
“
Additional Consideration ”)
payable, without interest, to the Members in accordance with the
allocation set forth in Exhibit A.
The
Initial Consideration and Additional Consideration,
collectively, the “
Merger Consideration ”.
(b)
Each
issued and outstanding share of common stock, par value $0.001
per share, of Merger Sub shall be exchanged into membership
interests of the Surviving Company, and all such membership
interests shall constitute the only outstanding membership
interests of the Surviving Company following the Effective
Time. From and after the Effective Time, any
certificate representing the common stock of Merger Sub shall
be deemed for all purposes to represent membership interests
of the Surviving Company into which such shares of common
stock of Merger Sub represented thereby were exchanged in
accordance with the immediately preceding
sentence.
(c)
All
Membership Interest (except the Dissenting Membership
Interest) shall, by virtue of the Merger and without any
action on the part of the Members, be automatically cancelled
and shall cease to exist, and each Member shall cease to have
any rights with respect thereto, except the right to receive
the Merger Consideration.
(d)
It
is expressly understood and agreed by the parties that the
Merger Consideration shall be reduced on a pro rata basis with
respect to those Membership Interests that constitute
Dissenting Membership Interests. By way of example, in the
event there are Dissenting Membership Interests equal to 3% of
all Membership Interests, the Merger Consideration shall be
reduced by 3%.
1.4
Additional Consideration .
Parent shall pay to the Paying Agent (as defined below) as part of
the Exchange Fund (as defined below) for distribution to the
Members Two Dollars ($2.00) in cash for each dollar exceeding the
Net Income Target of the Surviving Company during either of the
period of (i) July 1, 2008 through June 30, 2009 (“
Period One ”),
and (ii) January 1, 2009 through December 31, 2009 (“
Period Two ”).
In no event shall the Additional Consideration exceed $5,000,000 in
aggregate. For purposes of this Section 1.4, “
Net Income Target ”
shall mean the Net Income of the Surviving Company equal to Twenty
Five Million Dollars ($25,000,000) and “
Net Income ”
shall mean the net income achieved by Surviving Company for the
applicable period computed according to United States generally
accepted accounting principles (“
GAAP ”)
applied in a manner consistent with the Company’s past
practices (but excluding (i) costs and expenses associated with
this Agreement and the Merger and (ii) revenue associated with
bonuses paid to the Company under any “take-out”
transactions completed before January 1, 2008). The Additional
Consideration, if any, shall be payable to the Members within forty
five (45) days after the end of Period One and/ or Period Two,
respectively, and shall be allocated among the Members as set forth
on Exhibit A. For illustration purposes, in the event the Surviving
Company achieves a Net Income of $27,500,000 for Period One, the
Additional Consideration shall equal $5,000,000. For illustration
purposes, in the event the Surviving Company does not achieve the
Net Income Target for Period One and achieves a Net Income of
$27,500,000 for Period Two, the Additional Consideration shall
equal $5,000,000. For further illustration purposes, in the event
the Surviving Company achieves a Net Income of $25,500,000 for
Period One and achieves a Net Income of $26,000,000 for Period Two,
the Additional Consideration shall equal $3,000,000, of which
$1,000,000 will be paid for Period One and $2,000,000 for Period
Two. For further illustration purposes, in the event the Surviving
Company does not achieve the Net Income Target for Period One or
Period Two, no Additional Consideration shall be payable to the
Members.
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1.5
Tender of and Payment .
(a)
Paying Agent; Deposit of Exchange Fund . Prior
to the Effective Time, Parent and Company shall execute a Paying
Agent Agreement designating Continental Stock Transfer & Trust
Company as the paying agent for the Merger Consideration (the
“
Paying Agent ”). No
later than the Effective Time, Parent shall deposit with the Paying
Agent the Cash Consideration by wire transfer of immediately
available funds and shall deliver to the Paying Agent certificates
representing the Stock Consideration, to be held for the benefit of
the Members (other than holders of Dissenting Membership
Interests). No later than (a) forty five (45) days after the end of
Period One, and (b) as soon as practicable (but no later than five
(5) days) after the filing of Parent’s Form 10-K with the
Securities and Exchange Commission (the “
SEC ”)
for Period Two, Parent shall deposit with the Paying Agent
Additional Consideration, if any, by wire transfer of immediately
available funds (collectively with the Initial Consideration, the
“
Exchange Fund ”). The
Exchange Fund shall be held by the Paying Agent pursuant to the
Paying Agent Agreement. Pursuant to the Paying Agent
Agreement, the Paying Agent shall distribute the Exchange Fund to
the holders of the Membership Interests pursuant to the allocation
set forth in Exhibit A.
(b)
Distribution Procedures . Promptly
after the Effective Time, Parent and the Surviving Company shall
cause the Paying Agent to mail to each Member of record, as of the
Effective Time, a letter of transmittal in such form attached to
the Paying Agent Agreement which shall set forth instructions for
distributing the Merger Consideration in respect of the Membership
Interests pursuant to Section 1.3(a) hereof. Upon
delivery to the Paying Agent of the letter of transmittal, properly
completed and duly executed by each Member in accordance with the
instructions thereto, and such other documents as may be reasonably
required pursuant to such instructions, the holder of such
Membership Interests shall be entitled to receive in exchange
therefore its allocable share of the Merger Consideration, to be
mailed promptly following the Paying Agent’s receipt of such
letter of transmittal. No interest shall be paid or
accrued for the Cash Consideration or any Additional Consideration
payable hereunder. If payment of the Merger
Consideration is to be made to a Person other than the Person in
whose name the Membership Interest is registered, it shall be a
condition of payment that the letter of transmittal be in proper
form for such transfer and that the Person requesting such payment
shall have paid all transfer and other Taxes required by reason of
the issuance to a Person other than the registered holder of the
Membership Interest or such Person shall have established to the
satisfaction of the Surviving Company that such Tax either has been
paid or is not applicable. Until receipt from a Member of a duly
executed letter of transmittal as contemplated by this Section 1.5
(which such letter shall contain such (i) customary representations
and warranties, including, but not limited to, such Members’
right, title and interest in their Membership Interest; their
acceptance of the terms and conditions of the proposed transaction;
and acknowledgement by each Member that any and all rights,
preferences, privileges and obligations owed by the Company to the
Members, whether contained in the Member’s Agreement or
otherwise, shall cease and be of no further force or effect and
(ii) the lock-up provisions contained in Exhibit C), each
Membership Interest shall be deemed at all times after the
Effective Time to represent only the right to receive its allocable
share of the Merger Consideration as contemplated by Section 1.3(a)
hereof, without interest thereon. The Paying Agent shall
accept such letters of transmittal upon compliance with such
reasonable terms and conditions as the Paying Agent may impose to
effect an orderly exchange thereof in accordance with normal
exchange practices.
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(c)
Transfer Books; No Further Ownership Rights in the Membership
Interest . At
the Effective Time, the transfer books of the Company shall be
closed, and thereafter there shall be no further registration of
transfers of Membership Interest on the records of the
Company. From and after the Effective Time, the
Membership Interest outstanding immediately prior to the Effective
Time shall cease to have any rights, except as otherwise provided
for herein or by applicable Law.
(d)
Termination of Exchange Fund; No Liability . Any
portion of the Exchange Fund (including any interest received with
respect thereto) that remains undistributed to the Members
following the one year anniversary of the end of Period Two shall
be delivered to the Surviving Company upon demand, and any Members
who have not theretofore complied with this Section 1.5 shall
thereafter be entitled to look only to the Surviving Company
(subject to abandoned property, escheat or other similar Laws) only
as general creditors thereof with respect to the Merger
Consideration, payable without any interest
thereon. Notwithstanding the foregoing, none of Parent,
Merger Sub, the Company, the Surviving Company or the Paying Agent
shall be liable to any Person in respect of any cash held in the
Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar
Law. If any Merger Consideration shall not have been
collected prior to one year (1) year after the end of Period Two
(or immediately prior to such earlier date on which any cash would
otherwise escheat to or become the property of any Governmental
Authority), any such cash in respect of such unclaimed Merger
Consideration shall, to the extent permitted by applicable Law,
become the property of Parent, free and clear of all claims or
interest of any Person previously entitled thereto.
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(f)
Fractional Shares .
No certificates or scrip representing fractional shares of Parent
Common Stock or book-entry credit of the same shall be issued upon
the surrender of the Membership Interest for exchange and such
fractional share interests will not entitle the owner thereof to
vote or to have any rights of a stockholder of Parent.
Notwithstanding any other provision of this Agreement, each Member
who exchanged Membership Interest pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of
Common Stock shall receive, in lieu thereof, cash (without
interest) in an amount equal to the product of (i) such fractional
part of a share of Common Stock multiplied by (ii) the closing
price for a share of Common Stock on the over the counter bulletin
board, or such other public market on the date of the Effective
Time or, if such date is not a Business Day, the Business Day
immediately before the date on which the Effective Time
occurs.
(g)
Withholding Taxes . Parent
and the Surviving Company shall be entitled to deduct and withhold,
or cause the Paying Agent to deduct and withhold, from the Merger
Consideration payable to a Member pursuant to the Merger any such
amounts as are required under the Internal Revenue Code of 1986, as
amended (the “
Code ”),
or any applicable provision of state, local or foreign Tax
Law. To the extent that such amounts are so withheld by
Parent or the Surviving Company, or caused to be withheld by the
Paying Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the Members in
respect of which such deduction and withholding was made by Parent,
the Surviving Company or the Paying Agent, as the case may
be.
Notwithstanding
any provision of this Agreement to the contrary, to the extent
that Members are entitled to appraisal rights under Chapter
608.4352 of the Florida Act, Membership Interest issued and
outstanding immediately prior to the Effective Time with
respect to which the holder thereof has properly exercised and
perfected the right to dissent from the Merger and to be paid
fair value in accordance with the Florida Act and as to which,
as of the Effective Time, the holder thereof has not failed to
timely perfect or shall have not effectively withdrawn or lost
dissenters’ rights under the Florida Act (the
“
Dissenting Membership Interest ”),
shall not be exchanged into or represent a right to receive the
Merger Consideration into which Membership Interest are exchanged
pursuant to Section 1.3(a) hereof, but the holder thereof shall be
entitled only to such rights as are granted by the Florida
Act. Notwithstanding the immediately preceding sentence,
if any Member who demands appraisal rights with respect to his, her
or its Membership Interest under the Florida Act effectively
withdraws or loses (through failure to perfect or otherwise) his,
her or its appraisal rights, then as of the Effective Time or the
occurrence of such event, whichever later occurs, such
Member’s Membership Interest shall thereupon be deemed to
have been exchanged as of the Effective Time into the right to
receive the Merger Consideration as provided in Section 1.3(a)
hereof, without interest thereon, and such Membership Interest
shall no longer be Dissenting Membership Interest. At
the Effective Time, any holder of Dissenting Membership Interest
shall cease to have any rights with respect thereto, except the
rights provided under the Florida Act and as provided in this
Section 1.6. The Company shall give Parent (i) prompt
written notice of any notice of intent to demand fair value for any
Membership Interest, withdrawals of such notices, and any other
instruments served pursuant to the Florida Act and received by the
Company, and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for fair value of Membership
Interest under the Florida Act. The Company shall not,
except with the prior written consent of Parent, voluntarily make
any payment with respect to any demands for fair value of
Membership Interest or offer to settle or settle any such
demands.
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At
and after the Effective Time and by virtue of the Merger, and
until the same have been duly amended, (i) the Articles of
Organization of the Company (the “
Articles ”),
as in effect immediately prior to the Effective Time, shall be the
articles of organization of the Surviving Company and (ii) the
Member Agreement, as amended, of the Company (“
Member Agreement ”)
shall be amended and restated in its entirety in substantially the
form set forth in Exhibit B (the “
Amended Member Agreement ”)
and such Amended Member Agreement shall be the governing document
of the Surviving Company.
(a)
At
and after the Effective Time, the board of managers of the
Surviving Company and the board of directors of Parent shall
each consist of six (6) members and each comprised of three
(3) members appointed by Parent (who initially will be Messrs.
Gordon G. Pratt, Larry G. Swets, Jr. and James R. Zuhlke) and
three (3) members appointed by the Company (who initially will
be Messrs. Gregory C. Branch, Alec L. Pointevint, II and Kent
G. Whittemore). Mr. Branch shall initially serve as the
Chairman of the Board of the Surviving Company and Parent and
Mr. Pratt shall initially serve as Vice Chairman of the Board
of the Surviving Company and Parent, in each case until their
respective successors are duly elected or appointed and
qualify. Each of the Parties hereto shall take all
necessary action to effectuate the forgoing
sentence. At the Effective Time, the board of
managers of the Surviving Company and the board of directors
of Parent each shall appoint and designate as officers of the
Surviving Corporation and Parent respectively: (i) Mr. Donald
J. Cronin as President & Chief Executive Officer, (ii) Mr.
Nicholas W. Griffin as Chief Financial Officer, and (iii) Mr.
Melville Atwood Russell, II as Chief Underwriting Officer. If,
at the Effective Time, a vacancy shall exist on the board of
directors, board of managers or in any office of the Surviving
Company or Parent, such vacancy may thereafter be filled in
the manner provided by the Parent Organizational Documents,
the Company’s Articles, the Member Agreement or the
Law.
(b)
Certain
officers and directors of Parent set forth below
(“
Parent Executives ”),
and certain entities set forth below (“
Entity Equity Holders ”)
shall enter into “lock-up” agreements substantially in
the form set forth in Exhibit C (each an “
Executive
Lock Up Agreement ”
or “
Entity
Lock Up Agreement ”)
pursuant to which such Parent Executives or Entity Equity Holders,
as the case may be, shall agree, for a period of 90 days from the
Effective Time, that such Parent Executives or Entity Equity
Holders shall neither, on their own behalf or on behalf of
entities, family members or trusts affiliated with or controlled by
them, offer, issue, grant any option on, sell or otherwise dispose
of any Stock Consideration issued to such Parent Executives and
Entity Equity Holders, as the case may be, pursuant to Section
1.3(a) hereinabove, without the prior consent of Parent. Initially,
the Parent Executives shall include Messrs. Branch, Pointevint,
Whittemore, Cronin, Griffin, Russell and Eugene Hearn and any other
new officer or director of Parent. The Entity Equity Holders shall
include Synovus Financial Corp. and Minova Enterprises
Ltd.
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The
Merger shall have all further effects as specified in the
applicable provisions of the Florida Act.
If,
at any time after the Effective Time, the Surviving Company
shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record
or otherwise in the Surviving Company its right, title or
interest in, to or under any of the rights, properties or
assets of Merger Sub or the Company or otherwise carry out
this Agreement, the officers and directors of the Surviving
Company shall be authorized to execute and deliver, in the
name and on behalf of Merger Sub or the Company, all such
deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of Merger Sub or the
Company, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or
assets in the Surviving Company or otherwise to carry out this
Agreement.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
The
following representations and warranties by the Company to
Parent and Merger Sub are qualified by the Company Disclosure
Schedule, which sets forth certain disclosures concerning the
Company, its subsidiaries (each a “
Company Subsidiary ”
and collectively, the “
Company Subsidiaries ”)
and its business (the “
Company Disclosure Schedule ”).
The Company hereby represents and warrants to Parent and Merger Sub
as follows:
Each
of the Company and the Company Subsidiaries is a corporation
or limited liability company duly organized, validly existing
and in good standing under the Laws of the jurisdiction of its
organization and has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each
of the Company and the Company Subsidiaries is duly qualified
or licensed and in good standing to do business in each
jurisdiction in which the character of the property owned,
leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or
licensed and in good standing would not reasonably be expected
to have a Company Material Adverse Effect. The
Company has heretofore made available to Parent accurate and
complete copies of the Company’s Articles and Member
Agreement and the certificate of incorporation, articles of
organization, by-laws, operating agreements and the equivalent
organizational documents of each of the Company Subsidiaries,
each as currently in effect. None of the Company or
any Company Subsidiary is in violation of any provision of the
Articles, certificate of incorporation, Member Agreement, the
by-laws or its equivalent organizational documents as the case
may be.
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For
purposes of this Agreement, the term “
Company Material Adverse Effect ”
shall mean any occurrence, state of facts, change, event, effect or
circumstance that, individually or in the aggregate, has, or would
reasonably be expected to have, a material adverse effect on the
assets, liabilities, business, results of operations or financial
condition of the Company and the Company Subsidiaries, other than
any occurrence, state of facts, change, event, effect or
circumstance to the extent resulting from (i) political
instability, acts of terrorism or war, changes in national,
international or world affairs, or other calamity or crisis,
including without limitation as a result of changes in the
international or domestic markets but only to the extent such
events are deemed to have a direct impact on the existing
operations of the Company and its future operating prospects, (ii)
any change affecting the United States economy generally or the
economy of any region in which such entity conducts business that
is material to the business of such entity but only to the extent
such events are deemed to have a direct impact on the existing
operations of the Company and its future operating prospects, (iii)
the announcement of the execution of this Agreement, or the
pendency of the consummation of the Merger, (iv) any change in GAAP
or interpretation thereof after the date hereof, or (v) the
execution and performance of or compliance with this
Agreement.
(a)
Except
for the Membership Interest held by the Members as set forth
in Exhibit A, no Membership Interest are issued and
outstanding. All of the outstanding Membership Interest are
duly authorized, validly issued, fully paid and non-assessable
and not subject to any preemptive or similar
rights. None of the outstanding securities of the
Company has been issued in violation of any foreign, federal
or state securities Laws. Except as set forth
above, no Membership Interest, or other equity or voting
interests in the Company, or options, warrants or other rights
to acquire any such Membership Interest or securities were
issued, reserved for issuance or outstanding. The
Company has not granted any restricted Membership Interest,
warrants or other rights to purchase Membership Interest or
entered into any other agreements or commitments to issue any
Membership Interest and has not split, combined or
reclassified any Membership Interest.
(b)
The
Company directly or indirectly owns all of the capital stock
of, or other equity interests in, the Company Subsidiaries.
There are no (i) outstanding options, warrants, puts, calls,
convertible securities, preemptive or similar rights,
(ii) bonds, debentures, notes or other indebtedness
having general voting rights or that are convertible or
exchangeable into securities having such rights, or (iii)
subscriptions or other rights, agreements, arrangements,
contracts or commitments of any character, relating to the
issued or unissued Membership Interest of, or other equity
interests in, the Company or any of the Company Subsidiaries
or obligating the Company or any of the Company Subsidiaries
to issue, transfer, deliver or sell or cause to be issued,
transferred, delivered, sold or repurchased any options or
Membership Interest of, or other equity interest in, the
Company or any of the Company Subsidiaries or securities
convertible into or exchangeable for such shares or equity
interests, or obligating the Company or any of the Company
Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement,
arrangement or commitment for such equity interest. There are
no outstanding obligations of the Company or any of the
Company Subsidiaries to repurchase, redeem or otherwise
acquire any Membership Interest, capital stock of, or other
equity interests in, the Company or any of the Company
Subsidiaries or to provide funds to make any investment (in
the form of a loan, capital contribution or otherwise) in any
other entity.
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(c)
There
are no stockholders or members agreements, voting trusts or
other agreements or understandings to which the Company or any
Company Subsidiary is a party with respect to the voting of
the Membership Interest or the capital stock or equity
interests of any Company Subsidiary.
(d)
No
Indebtedness of the Company or any of the Company Subsidiaries
contains any restriction upon (i) the prepayment of any of
such Indebtedness, (ii) the incurrence of Indebtedness by the
Company or any of the Company Subsidiaries, or (iii) the
ability of the Company or any of the Company Subsidiaries to
grant any Encumbrance on its properties or
assets. As used in this Agreement, “
Indebtedness ”
means (A) all indebtedness for borrowed money or for the deferred
purchase price of property or services (other than Expenses and
current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices), (B)
any other indebtedness that is evidenced by a note, bond,
debenture, credit agreement or similar instrument, (C) all
obligations under financing leases, (D) all obligations in respect
of acceptances issued or created, (E) all liabilities secured by an
Encumbrance on any property and (F) all guarantee
obligations.
(e)
Since
January 1, 2005, the Company has not declared or paid any
distribution or dividend in respect of the Membership Interest
and has not repurchased, redeemed or otherwise acquired any
Membership Interest, and the Board has not authorized any of
the foregoing.
(a)
The
Company has provided to Parent true, complete and correct list
of all Company Subsidiaries and their respective jurisdictions
of organization. Each Company Subsidiary is wholly
owned, directly or indirectly, by the Company. All of
the capital stock and other equity interests of the Company
Subsidiaries are owned, directly or indirectly, by the Company
free and clear of any Encumbrance with respect
thereto. All of the outstanding shares of capital
stock or other equity interests in each of the Company
Subsidiaries are duly authorized, validly issued, fully paid
and non-assessable and were issued free of preemptive rights
and in compliance with applicable Laws. No capital
stock or other equity interests of any of the Company
Subsidiaries are or may become required to be issued or
purchased by reason of any options, warrants, rights to
subscribe to, puts, calls or commitments of any character
whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of any capital stock of, or
other equity interests in, any Company Subsidiary, and there
are no contracts, commitments, understandings or arrangements
by which any Company Subsidiary is bound to issue additional
shares of its capital stock or other equity interests, or
options, warrants or rights to purchase or acquire any
additional shares of its capital stock or other equity
interests or securities convertible into or exchangeable for
such shares or interests. Neither the Company nor
any Company Subsidiary owns any shares of capital stock or
other equity or voting interests in (including any securities
exercisable or exchangeable for or convertible into capital
stock or other equity or voting interests in) any other Person
other than publicly traded securities constituting less than
five percent of the outstanding equity of the issuing entity,
other than capital stock or other equity interest of the
Company Subsidiaries owned by the Company or another Company
Subsidiary.
13
(b)
Section 2.3(b) of
the Company Disclosure Schedule lists the jurisdiction of domicile
of each Company Subsidiary conducting insurance operations and all
jurisdictions in which each such Company Subsidiary is licensed to
write insurance business. Neither the Company nor any
Company Subsidiary is or has been since January 1, 2005
“ commercially
domiciled” in any jurisdiction other than its jurisdiction of
organization or is or since January 1, 2005 otherwise has been
treated as domiciled in a jurisdiction other than its jurisdiction
of organization. Each of the Company Subsidiaries conducting
insurance operations is (i) duly licensed or authorized as an
insurance company in its state of organization, (ii) duly licensed
or authorized as an insurance company in each other jurisdiction
where it is required to be so licensed or authorized and (iii) duly
authorized in its jurisdiction of incorporation and each other
applicable jurisdiction to write each line of business reported as
being written in the Company SAP Statements. All of the
Company Permits of such Company Subsidiaries conducting insurance
operations are in full force and effect and there is no proceeding
or, to the knowledge of the Company, investigation to which the
Company or any Company Subsidiary is subject before a Governmental
Authority that is pending or, to the knowledge of the Company,
threatened that would reasonably be expected to lead to the
revocation, amendment, failure to renew, limitation, suspension or
restriction of any such Company Permits.
The
Company has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby, including the Merger, (i)
have been duly and validly authorized by the Board of the
Company, and (ii) no other corporate proceedings on the part
of the Company are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions
contemplated hereby, other than receipt of the Required
Company Vote. The affirmative vote of the Members of the
Company holding at least 66 2/3% of the issued and outstanding
Membership Interest (the “
Required Company Vote ”)
is necessary to approve and adopt this Agreement and to consummate
the transactions contemplated hereby (including the Merger).
This Agreement has been duly and validly executed and delivered by
the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with
its terms, except to the extent that enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting the
enforcement of creditors’ rights generally, and the fact that
equitable remedies or relief (including, but not limited to, the
remedy of specific performance) are subject to the discretion of
the court from which such relief may be sought (collectively, the
“
Enforceability Exceptions ”).
14
No
consent, approval, waiver, authorization or permit of, or
notice to or declaration or filing with (each, a
“
Consent ”),
any nation or government, any state or other political subdivision
thereof, any entity, authority or body exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including any governmental or regulatory
authority, agency, department, board, commission, administration or
instrumentality, any court, tribunal or arbitrator or any
self-regulatory organization, other than the Florida Office of
Insurance Regulation (each, a “
Governmental Authority ”),
on the part of the Company or any of the Company Subsidiaries is
required to be obtained or made in connection with the execution,
delivery or performance by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby
(including the Merger), other than (i) the filing of the Articles
of Merger with the Secretary of State in accordance with the
Florida Act, (ii) such filings as may be required in any
jurisdiction where the Company or any Company Subsidiary is
qualified or authorized to do business as a foreign corporation in
order to maintain such qualification or authorization, and (iii)
pursuant to Antitrust Laws.
The
execution and delivery by the Company of this Agreement, the
consummation by the Company of the Merger and the other
transactions contemplated hereby, and compliance by the
Company with any of the provisions hereof, will not (i)
conflict with or violate any provision of the Articles, Member
Agreement, certificate of incorporation, operating agreement,
by-laws or equivalent organizational documents of the Company
or any of the Company Subsidiaries, (ii) require any Consent
under or result in a material violation or breach of, or
constitute (with or without due notice or lapse of time or
both) a material default (or give rise to any right of
termination, cancellation, amendment or acceleration) under,
any Company Material Contract to which the Company or any of
the Company Subsidiaries is a party or by which the
Company’s or any of the Company Subsidiaries’
assets are bound, (iii) result (immediately or with the
passage of time or otherwise) in the creation or imposition of
any liens, claims, mortgages, pledges, security interests,
equities, options, assignments, hypothecations, preferences,
priorities, deposit arrangements, easements, proxies, voting
trusts or charges of any kind or restrictions (whether on
voting, sale, transfer, disposition or otherwise) or other
encumbrances or restrictions of any nature whatsoever, whether
imposed by agreement, Law or equity, or any conditional sale
contract, title retention contract or other contract to give
or refrain from giving any of the foregoing (the
“
Encumbrances ”)
upon any of the properties, rights or assets of the Company or any
of the Company Subsidiaries causing a Company Material Adverse
Effect, or (iv) subject to obtaining the Consents from Governmental
Authorities referred to in Section 2.5 hereof, conflict with,
contravene or violate in any material respect any foreign, federal,
state or local Order, statute, law, rule, regulation, ordinance,
writ, injunction, arbitration award, directive, judgment, decree,
principle of common law, constitution, treaty or any interpretation
thereof enacted, promulgated, issued, enforced or entered by any
Governmental Authority (each, a “
Law ”
and collectively, the “
Laws ”)
to which the Company or any of the Company Subsidiaries or any of
their respective assets or properties is subject.
15
(a)
As
used herein, the term “
Company Financials ”
means the Company’s audited consolidated financial statements
(including, in each case, any related notes thereto), consisting of
the Company’s balance sheets, statements of income and
statements of cash flow, as of December 31, 2005, December 31, 2006
and December 31, 2007 and the unaudited consolidated financial
statements as of March 31, 2008 and any subsequent quarter. The
Company has made or will make available to Parent true and complete
copies of the Company Financials. The Company Financials (i) in all
material respects accurately reflects or will reflect the
Company’s books and records as of the times and for the
periods referred to therein, (ii) were prepared in accordance with
GAAP applied on a consistent basis throughout the periods
involved (except
for the absence of footnotes and year-end audit adjustments in the
case of unaudited Company Financials) ,
(iii) fairly present in all material respects the consolidated
financial position of the Company as of the respective dates
thereof and the consolidated results of the Company’s
operations and cash flows for the periods indicated and (iv) to the
extent required for inclusion in the Proxy Statement, comply in all
material respects with the Securities Act of 1933, as amended (the
“
Securities Act ”),
Regulation S-X and the published general rules and regulations of
the SEC.
(b)
The
Company has disclosed to Parent and the Company’s
outside auditors and the Board (i) all significant
deficiencies or material weaknesses in the design or operation
of the Company’s internal controls over financial
reporting that are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and
report financial information and (ii) any fraud, whether or
not material, that involves management or other employees who
have a significant role in the Company’s internal
controls over financial reporting.
16
(c)
None
of the Company, any Company Subsidiary, or any manager,
director, officer, or to the Company’s knowledge, any
auditor or accountant of the Company or any Company Subsidiary
or any employee of the Company or any Company Subsidiary has
received any complaint, allegation, assertion or claim,
whether or not in writing, regarding the accounting or
auditing practices, procedures, methodologies or methods of
the Company or any Company Subsidiary or their respective
internal accounting controls, including any complaint,
allegation, assertion or claim that the Company or any Company
Subsidiary has engaged in questionable accounting or auditing
practices. No attorney representing the Company or any Company
Subsidiary, whether or not employed by the Company or any
Company Subsidiary, has reported evidence of any violation of
consumer protection, insurance (including regulations and
Orders promulgated by the Florida Office of Insurance
Regulation) or securities Laws, breach of fiduciary duty or
similar violation by the Company or any of its officers,
Directors, employees or agents to the Board or any committee
thereof or to any Director or executive officer of the
Company.
(d)
As
used herein, the term “
Company SAP Statements ”
means the statutory statements of the Company and each of the
Company Subsidiaries as filed with the Florida Office of Insurance
Regulation for the years ended December 31, 2005, December 31, 2006
and December 31, 2007 and any such quarterly statutory statements
filed subsequent to the date hereof. The Company has
made available to Parent true and complete copies of the Company
SAP Statements filed as of the date of this Agreement with respect
to the Company and with respect to the Company Subsidiaries
required to file such Company SAP Statements. The
Company and each of the Company Subsidiaries has filed or
submitted, or will file or submit, all Company SAP Statements
required to be filed with or submitted to the Florida Office of
Insurance Regulation on forms prescribed or permitted by the
Florida Office of Insurance Regulation. The Company SAP
Statements were, and any Company SAP Statements filed after the
date hereof will be, prepared in all material respects in
conformity with statutory accounting principles (“
SAP ”)
consistently applied for the periods covered thereby, and the
Company SAP Statements present, and any Company SAP Statements
filed after the date hereof will present, in all material respects
the statutory financial position of the Company and such Company
Subsidiaries as of the respective dates thereof and the results of
operations of the Company and such Company Subsidiaries for the
respective periods then ended. The Company SAP
Statements complied, and the Company SAP Statements filed after the
date hereof will comply, in all material respects with all
applicable Laws when filed, and no deficiency has been asserted
with respect to any Company SAP Statements filed prior to the date
hereof by the Florida Office of Insurance Regulation or any other
Governmental Authority. The annual statutory balance
sheets and income statements included in the Company SAP Statements
as of the date hereof have been, where required by applicable Law,
audited by Thomas, Howell & Ferguson, P.A. and the Company has
made available to Parent true and complete copies of all audit
opinions related thereto. Except as indicated therein,
all assets that are reflected as admitted assets on the Company SAP
Statements comply in all material respects with all applicable
Laws. The Company and Company Subsidiaries use only
prescribed (and no permitted) practices in the preparation of the
Company SAP Statements.
17
(e)
The
policy reserves and other actuarial amounts carried on the
Company SAP Statements of the Company and each Company
Subsidiary, as of the respective dates of such Company SAP
Statements, (i) were in compliance in all material respects
with the requirements for reserves established by the Florida
Office of Insurance Regulation, (ii) have been computed in all
material respects in accordance with the requirements for
reserves established by the Florida Office of Insurance
Regulation, (iii) were determined in all material respects in
accordance with generally accepted actuarial principles in
effect at such time, consistently applied and prepared in
accordance with applicable SAP, (iv) were computed on the
basis of methodologies consistent in all material respects
with those used in computing the corresponding reserves in
prior fiscal years, except as otherwise noted in the Company
SAP Statements, (v) have been computed on the basis of
assumptions consistent with those used to compute the
corresponding items in such financial statements, (vi) were
fairly stated in all material respects in accordance with
sound actuarial principles, and (vii) include provisions for
all actuarial reserves and related items which ought to be
established in accordance with applicable Laws and in
accordance, in all material respects, with prudent insurance
practices generally followed in the insurance
industry. To the knowledge of the Company, there
are no facts or circumstances that could reasonably
necessitate any material change in such reserves above those
reflected in the Company SAP Statements (other than increases
or decreases consistent with past experience, computed in a
manner consistent with past practice, and resulting from the
ordinary course of business).
(f)
Except
for assessments of state mandated funds and associations, no
claim or assessment is pending or, to the knowledge of the
Company, threatened against any Company
Subsidiary.
(a)
Except
as consented to in writing by Parent (and excluding the
Merger), since December 31, 2007, the Company and the Company
Subsidiaries have conducted their respective businesses in the
ordinary course of business consistent with past practice and
there has not occurred any action that would constitute a
breach of Section 4.1 if such action were to occur or be taken
after the date of this Agreement.
(b)
Since
December 31, 2007, there has not been any fact, change,
effect, occurrence, event, development or state of
circumstances that has had or would reasonably be expected to
have, individually or in the aggregate, a Company Material
Adverse Effect.
Except
as and to the extent reflected or reserved against in the
Company Financials, neither the Company nor any of the Company
Subsidiaries has incurred any liabilities or obligations of
the type required to be reflected on a balance sheet in
accordance with GAAP that is not adequately reflected or
reserved on or provided for in the Company Financials, other
than liabilities of the type required to be reflected on a
balance sheet in accordance with GAAP that have been incurred
since March 31, 2008 in the ordinary course of
business.
18
Neither
the Company nor any of the Company Subsidiaries is in conflict
with, or in default or violation of, nor since January 1, 2005
has it received any notice of any conflict with, or default or
violation of, (A) any applicable Law by which it or any
property or asset of the Company or any Company Subsidiary is
bound or affected, or (B) any Company Material Contract to
which the Company or any Company Subsidiary is a party or by
which the Company or any Company Subsidiary or any property,
asset or right of the Company or any Company Subsidiary is
bound or affected, except, in each case, for any such
conflicts, defaults or violations that would not reasonably be
expected to be material to the Company or any of its
Subsidiaries. Notwithstanding the generality of the
foregoing, (x) the Company and each Company Subsidiary and, to
the knowledge of the Company, their respective agents, have
marketed, sold and issued insurance products in compliance in
all material respects with all Laws applicable to the business
of the Company and such Company Subsidiary and in the
respective jurisdictions in which such products have been
sold, (y) since January 1, 2005, the Company and each Company
Subsidiary have given or made all required notices,
submissions, reports or other filings under applicable Law,
including insurance holding company statutes, and (z) all
contracts, agreements, arrangements and transactions in effect
between the Company, any Company Subsidiary and any affiliate
are in compliance in all material respects with the
requirements of all applicable insurance holding company
statutes. There is no pending or, to the knowledge of the
Company, threatened proceeding or investigation to which the
Company or a Company Subsidiary is subject before any
Governmental Authority regarding whether the Company or any of
the Company Subsidiaries has violated in any material respect
(and none of the Company or any Company Subsidiary has
received notice since January 1, 2005 of any material
violation of or noncompliance with any Law applicable to the
Company or any Company Subsidiary, or directing the Company or
any Company Subsidiary to take any remedial action with
respect to such applicable Law or otherwise, and no material
deficiencies of the Company or any Company Subsidiary have
been asserted to the Company or any Company Subsidiary by any
Governmental Authority with respect to possible violations of)
any applicable Laws. Since January 1, 2005, the Company and
the Company Subsidiaries have filed all material reports,
statements, documents, registrations, filings or submissions
required to be filed with any insurance regulatory authority
or Governmental Authority, and all such reports,
registrations, filings and submissions are in compliance (and
complied at the relevant time) with applicable Law and no
material deficiencies have been asserted by any such
Governmental Authority since January 1, 2005 with respect to
any reports, statements, documents, registrations, filings or
submissions required to be filed with respect to the Company
or the Company Subsidiaries with any Governmental Authority
that have not been remedied. Since January 1, 2005,
the businesses of the Company and each Company Subsidiary are
and have been conducted in compliance in all material respects
with any applicable Laws.
19
(a)
There
are no (1) written agreements, consent agreements, memoranda
of understanding, commitment letters, cease and desist orders,
or similar undertakings to which the Company or any Company
Subsidiary is a party, on the one hand, and any Governmental
Authority is a party or addressee, on the other hand, (2)
Orders or directives of or supervisory letters from a
Governmental Authority specifically with respect to the
Company or any Company Subsidiary, or (3) resolutions or
policies or procedures adopted by the Company or a Company
Subsidiary at the request of a Governmental Authority, that
(A) limit in any material respect the ability of the
Company or any of the Company Subsidiaries to issue insurance
policies, (B) in any manner impose any requirements on the
Company or any of the Company Subsidiaries in respect of
risk-based capital requirements that materially add to or
otherwise materially modify in any respect the risk-based
capital requirements imposed under applicable Laws,
(C) require the Company or any of its affiliates to make
capital contributions, purchase surplus notes or make loans to
a Company Subsidiary, or (D) in any manner relate to the
ability of the Company or any of the Company Subsidiaries to
pay dividends or otherwise materially restrict the conduct of
business of the Company or any of the Company Subsidiaries in
any respect.
(b)
The
Company and the Company Subsidiaries hold all permits,
licenses, franchises, grants, authorizations, consents,
exceptions, variances, exemptions, orders and other
governmental authorizations, certificates, consents and
approvals necessary to lawfully conduct their businesses as
presently conducted and contemplated to be conducted, and to
own, lease and operate their assets and properties
(collectively, the “
Company Permits ”),
all of which are in full force and effect, and no suspension or
cancellation of any of the Company Permits is pending or, to the
knowledge of the Company, threatened, except where the failure of
any Company Permits to have been in full force and effect, or the
suspension or cancellation of any of the Company Permits, would not
reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
Section 2.11(b) of
the Company Disclosure Schedule sets forth each Company Permit. The
Company and the Company Subsidiaries are not in violation in any
material respect of the terms of any Company Permit.
(c)
No
investigation, review or market conduct examination by any
Governmental Authority with respect to the Company or any
Company Subsidiary is pending or, to the knowledge of the
Company, threatened, nor does the Company have knowledge of
any Governmental Authority’s intention to conduct any
such investigation or review.
There
is no private, regulatory or governmental inquiry, action,
suit, proceeding, litigation, claim, arbitration or
investigation (each, an “
Action ”)
pending before any arbitrator, agency, court or tribunal, foreign
or domestic, or, to the knowledge of the Company, threatened
against the Company, any of the Company Subsidiaries or any of
their respective properties, rights or assets or any of their
respective managers, officers or directors (in their capacities as
such) that would reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect. There
is no decree, directive, order, writ, judgment, stipulation,
determination, decision, award, injunction, temporary restraining
order, cease and desist order or other order by, or any capital
plan, supervisory agreement or memorandum of understanding with any
Governmental Authority (each, an “
Order ”)
binding against the Company, any of the Company Subsidiaries or any
of their respective properties, rights or assets or any of their
respective managers, officers or directors (in their capacities as
such) that would prohibit, prevent, enjoin, restrict or materially
alter or delay any of the transactions contemplated by this
Agreement (including the Merger), or that would reasonably be
expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The Company and the Company
Subsidiaries are in material compliance with all
Orders. There is no material Action that the Company or
any of the Company Subsidiaries has pending against other
parties.
20
There
is no agreement or Order binding upon the Company or any of
the Company Subsidiaries that has or could reasonably be
expected to have the effect of prohibiting, preventing,
restricting or impairing in any respect any business practice
of the Company or any of the Company Subsidiaries as their
businesses are currently conducted, any acquisition of
property by the Company or any of the Company Subsidiaries,
the conduct of business by the Company or any of the Company
Subsidiaries as currently conducted, or restricting in any
material respect the ability of the Company or any of the
Company Subsidiaries from engaging in business as currently
conducted or from competing with other parties.
(a)
Section 2.14 of
the Company Disclosure Schedule sets forth a list of, and the
Company has made available to Parent, true, correct and complete
copies of, each written contract, agreement, commitment,
arrangement, lease, license, permit or plan and each other
instrument to which the Company or any Company Subsidiary is a
party or by which the Company or any Company Subsidiary is bound as
of the date hereof (each, a “
Company Material Contract ”)
that:
(ii)
contains
covenants that materially limit the ability of the Company or
any Company Subsidiary (or which, following the consummation
of the Merger, could materially restrict the ability of the
Surviving Company or any of its affiliates) (A) to compete in
any line of business or with any Person or in any geographic
area or to sell, supply, price, develop or distribute any
service, product or asset, including any non-competition
covenants, exclusivity restrictions, rights of first refusal
or most-favored pricing clauses or (B) to purchase or acquire
an interest in any other entity, except, in each case, for any
such contract that may be canceled without any penalty or
other liability to the Company or any Company Subsidiary upon
notice of 60 days or less;
21
(iii)
involves
any joint venture, partnership, limited liability or other
similar agreement or arrangement relating to the formation,
creation, operation, management or control of any partnership
or joint venture that is material to the business of the
Company and the Company Subsidiaries, taken as a
whole;
(iv)
involves
any exchange traded, over-the-counter or other swap, cap,
floor, collar, futures contract, forward contract, option or
other derivative financial instrument or contract, based on
any commodity, security, instrument, asset, rate or index of
any kind or nature whatsoever, whether tangible or intangible,
including currencies, interest rates, foreign currency and
indices;
(v)
relates
to indebtedness (whether incurred, assumed, guaranteed or
secured by any asset) having an outstanding principal amount
in excess of $50,000;
(vi)
was
entered into after January 1, 2005 or has not yet been
consummated, and involves the acquisition or disposition,
directly or indirectly (by merger or otherwise), of assets or
capital stock or other equity interests of another
Person;
(vii)
by
its terms calls for aggregate payments by the Company or the
Company Subsidiaries under such contract of more than $50,000
per year;
(viii)
with
respect to any material acquisition, pursuant to which the
Company or any Company Subsidiary has (A) any continuing
indemnification obligations or (B) any “ earn-out”
or other contingent payment obligations;
(ix)
involves
any managers, directors or executive officers of the Company
or any Company Subsidiary that cannot be cancelled by the
Company (or the applicable Company Subsidiary) within 60
days’ notice without liability, penalty or
premium;
(x)
obligates
the Company or any Company Subsidiary to provide
indemnification or a guarantee in excess of
$50,000;
(xi)
obligates
the Company or any Company Subsidiary to make any capital
commitment or expenditure (including pursuant to any joint
venture);
(xii)
relates
to the development, ownership, licensing or use of any
Intellectual Property material to the business of the Company
or any of its subsidiaries, other than “ shrink
wrap,” “ click
wrap,” and “ off
the shelf” software agreements and other agreements for
software commercially available on reasonable terms to the
public generally with license, maintenance, support and other
fees of less than $50,000 per year (collectively,
“
Off-the-Shelf Software Agreements ”);
or
(xiii)
provides
for any confidentiality or standstill
arrangements.
22
(b)
With
respect to each Company Material Contract: (i) the
Company Material Contract is legal, valid, binding and
enforceable in all material respects against the Company or
the Company Subsidiary party thereto and, to the
Company’s knowledge, the other party thereto, and in
full force and effect; (ii) except as set forth in Section
2.14 of the Disclosure Schedule, the consummation of the
transactions contemplated by the Agreement will not affect the
terms, validity or enforceability of the Company Material
Contract against the Surviving Company or such Company
Subsidiary and, to the Company’s knowledge, the other
party thereto; (iii) neither the Company nor any of the
Company Subsidiaries is in breach or default in any material
respect, and no event has occurred that with the passage of
time or giving of notice or both would constitute such a
breach or default by the Company or any of the Company
Subsidiaries, or permit termination or acceleration by the
other party, under the Company Material Contract; and (iii) to
the Company’s knowledge, no other party to the Company
Material Contract is in breach or default in any material
respect, and no event has occurred that with the passage of
time or giving of notice or both would constitute such a
breach or default by such other party, or permit termination
or acceleration by the Company or any of the Company
Subsidiaries, under such Company Material
Contract.
(a)
Section 2.15(a) of
the Company Disclosure Schedule contains a list of (A) all
registered Intellectual Property, Intellectual Property that is the
subject of a pending application for registration, and material
unregistered Intellectual Property, in each case that is, owned by
the Company or any of the Company Subsidiaries and (B) all material
Intellectual Property, other than Off-the-Shelf Software
Agreements, licensed, used or held for use by the Company or any of
the Company Subsidiaries in the conduct of its business
(“
Licensed Intellectual Property ”). Except
where failure to own, license or otherwise possess such rights has
not had and would not reasonably be expected to result in a Company
Material Adverse Effect, each of the Company and the Company
Subsidiaries has (i) all right, title and interest in and to all
Company Intellectual Property owned by it, (the “
Company Intellectual Property ”)
free and clear of all Encumbrances, other than Permitted
Encumbrances and (ii) all necessary proprietary rights in and to
all of its Licensed Intellectual Property, free and clear of all
Encumbrances, other than Permitted Encumbrances. Neither
the Company nor any of the Company Subsidiaries has received any
notice alleging that it has infringed, diluted or misappropriated,
or, by conducting its business as proposed, would infringe, dilute
or misappropriate, the Intellectual Property rights of any Person,
and to the knowledge of the Company there is no valid basis for any
such allegation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions
contemplated hereby will impair or materially alter the
Company’s or any Company Subsidiary’s rights to any
Company Intellectual Property or Licensed Intellectual
Property. To the knowledge of the Company, there is no
unauthorized use, infringement or misappropriation of the Company
Intellectual Property or Licensed Intellectual Property by any
third party. All of the rights within the Company
Intellectual Property and Licensed Intellectual Property are valid,
enforceable and subsisting, and there is no Action that is pending
or, to the Company’s knowledge, threatened that challenges
the rights of the Company or any of the Company Subsidiaries in
respect of any Company Intellectual Property or Licensed
Intellectual Property or the validity, enforceability or
effectiveness thereof. The Company Intellectual Property
and the Licensed Intellectual Property constitute all material
Intellectual Property used in or necessary for the operation by the
Company and the Company Subsidiaries of their respective businesses
as currently conducted. Neither the Company nor any of
the Company Subsidiaries is in breach or default in any material
respect (or would with the giving of notice or lapse of time or
both be in such breach or default) under any license to use any of
the Licensed Intellectual Property.
23
(b)
For
purposes of this Agreement, “
Intellectual Property ”
means (A) United States, international and foreign patents and
patent applications, including divisionals, continuations,
continuations-in-part, reissues, reexaminations and extensions
thereof and counterparts claiming priority therefrom; utility
models; invention disclosures; and statutory invention
registrations and certificates; (B) United States and foreign
registered, pending and unregistered trademarks, service marks,
trade dress, logos, trade names, corporate names and other source
identifiers, domain names, Internet sites and web pages; and
registrations and applications for registration for any of the
foregoing, together with all of the goodwill associated therewith;
(C) United States and foreign registered and unregistered
copyrights, and registrations and applications for registration
thereof; rights of publicity; and copyrightable works; (D) all
inventions and design rights (whether patentable or unpatentable)
and all categories of trade secrets as defined in the Uniform Trade
Secrets Act, including business, technical and financial
information; and (E) confidential and proprietary information,
including know-how.
(a)
Section 2.16(a) of
the Company Disclosure Schedule lists, with respect to the Company
and the Company Subsidiaries and any trade or business (whether or
not incorporated) that is treated as a single employer with the
Company and the Company Subsidiaries within the meaning of Section
414(b), (c), (m) or (o) of the Code (an “
ERISA Affiliate ”),
(i) all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
(“
ERISA ”)),
(ii) loans to managers, officers and directors other than advances
for expense reimbursements incurred in the ordinary course of
business and any securities option, securities stock purchase,
phantom securities, securities appreciation right, equity-related,
supplemental retirement, severance, sabbatical, medical, dental,
vision care, disability, employee relocation, cafeteria benefit
(Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs, agreements or
arrangements, (iii) all bonus, pension, retirement, profit sharing,
savings, deferred compensation or incentive plans, programs,
policies, agreements or arrangements, (iv) other fringe,
perquisite, or employee benefit plans, programs, policies,
agreements or arrangements and (v) any current or former
employment, consulting, change of control, retention or executive
compensation, termination or severance plans, programs, policies,
agreements or arrangements, written or otherwise, as to which
unsatisfied liabilities or obligations (contingent or otherwise)
remain for the benefit of, or relating to, any present or former
employee, consultant, manager or director, or which could
reasonably be expected to have any liabilities or obligations
(together, the “
Benefit Plans ”).
24
(b)
Any
Company Benefit Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal
Revenue Service (“
IRS ”)
a current favorable determination letter as to its qualified status
under the Code, including all amendments to the Code effected by
the Tax Reform Act of 1986, or has applied to the IRS for such a
determination letter prior to the expiration of the requisite
period under applicable Treasury Regulations or IRS pronouncements
in which to apply for such determination letter and to make any
amendments necessary to obtain a favorable determination or has
been established under a standardized prototype plan for which an
IRS opinion letter has been obtained by the plan sponsor and is
valid as to the adopting employer.
(c)
There
has been no “ prohibited
transaction,” as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, by the Company or, to the
knowledge of the Company, by any trusts created thereunder,
any trustee or administrator thereof or any other Person, with
respect to any Company Benefit Plan. Each Company
Benefit Plan has been administered in accordance with its
terms and in material compliance with the requirements
prescribed by any and all applicable Laws (including ERISA and
the Code), and the Company and each ERISA Affiliate have
performed in all material respects all obligations required to
be performed by them under, are not in any respect in default
under or violation of, and have no knowledge of any default or
violation by any other party to, any of the Company Benefit
Plans. All contributions and premiums required to
be made by the Company or any ERISA Affiliate to any Company
Benefit Plan have been made on or before their due dates,
including any legally permitted extensions. No
Action has been brought, or to the knowledge of the Company is
threatened, against or with respect to any such Company
Benefit Plan, including any audit or inquiry by the IRS,
United States Department of Labor (the “
DOL ”)
or other Governmental Authority (other than as would not result in
a Company Material Adverse Effect). To the knowledge of
the Company, each Company Benefit Plan that is a “
nonqualified
deferred compensation plan” within the meaning of Section
409A of the Code and any awards thereunder, in each case that is
subject to Section 409A of the Code, has been operated in good
faith compliance, in all material respects, with Section 409A of
the Code since January 1, 2005.
(d)
Except
as otherwise provided in this Agreement, the consummation of
the transactions contemplated by this Agreement will not,
either alone or in combination with any other event or events,
(i) entitle any current or former employee, manager, director
or consultant of the Company or any of the Company
Subsidiaries to any payment (whether of severance pay,
unemployment compensation, golden parachute, bonus or
otherwise), (ii) accelerate, forgive indebtedness, vest,
distribute, or increase benefits or obligation to fund
benefits with respect to any employee or director of the
Company or any of the Company Subsidiaries, or (iii)
accelerate the time of payment or vesting of Company Options,
or increase the amount of compensation due any such employee,
director or consultant.
(e)
No
amounts payable under any of the Company Benefit Plans or any
other contract, agreement or arrangement with respect to which
the Company or any of the Company Subsidiaries may have any
liability will not be deductible for federal income Tax
purposes by virtue of Section 162(m) or Section 280G of the
Code. None of the Company Benefit Plans contains
any provision requiring a gross-up pursuant to Section 280G or
409A of the Code or similar Tax provisions.
25
(f)
No
Company Benefit Plan maintained by the Company or any of the
Company Subsidiaries provides benefits, including death or
medical benefits (whether or not insured), with respect to
current or former employees of the Company or any of the
Company Subsidiaries after retirement or other termination of
service (other than (i) coverage mandated by applicable Laws,
(ii) death benefits or retirement benefits under any
“ employee
pension benefit plan,” as that term is defined in
Section 3(2) of ERISA, or (iii) benefits, the full direct cost
of which is borne by the current or former employee (or
beneficiary thereof)).
(g)
Neither
the Company nor any ERISA Affiliate has any liability with
respect to any (i) employee pension benefit plan (within the
meaning of Section 3(2) of ERISA) which is subject to Part 3
of Subtitle B of Title I of ERISA, Title IV of ERISA or
Section 412 of the Code , (ii) “ multiemployer
plan” as defined in Section 3(37) of ERISA or (iii)
“ multiple
employer plan” within the meaning of Sections 4063 and
4064 of ERISA or Section 413(c) of the Code.
(h)
Neither
the Company nor any of its ERISA Affiliates has (i) used the
services or workers provided by third party contract labor
suppliers, temporary employees, “ leased
employees” (as that term is defined in Section 414(n) of
the Code), or individuals who have provided services as
independent contractors to an extent that would reasonably be
expected to result in the disqualification of any of the
Company Benefit Plans or the imposition of penalties or excise
taxes with respect to the Company Benefit Plans by the IRS or
the DOL.
(a)
The
Company has or will have timely filed, or caused to be timely
filed, all material federal, state, local and foreign Tax
returns and reports required to be filed by it or the Company
Subsidiaries (taking into account all available extensions)
(collectively, “
Tax Returns ”),
which such Tax Returns are true, accurate, correct and complete,
and has paid, collected or withheld, or caused to be paid,
collected or withheld set forth on such Tax Returns, all material
Taxes required to be paid, collected or withheld, other than such
Taxes for which adequate reserves in the Company Financials have
been established in accordance with GAAP.
Section 2.17 of
the Company Disclosure Schedule sets forth each jurisdiction where
the Company and each Company Subsidiary files or is required to
file a Tax Return. There are no claims, assessments, audits,
examinations, investigations or other proceedings pending against
the Company or any of the Company Subsidiaries in respect of any
Tax, and neither the Company nor any of the Company Subsidiaries
has been notified in writing of any proposed Tax claims or
assessments against the Company or any of the Company Subsidiaries
(other than, in each case, claims or assessments for which adequate
reserves in the Company Financials have been established in
accordance with GAAP or are immaterial in amount). There are no
material liens with respect to any Taxes upon any of the
Company’s or its Subsidaries’ assets, other than (i)
Taxes, the payment of which is not yet due, or (ii) Taxes or
charges being contested in good faith by appropriate proceedings
and for which adequate reserves in the Company Financials have been
established in accordance with GAAP. Neither the Company nor any of
the Company Subsidiaries has any outstanding waivers or extensions
of any applicable statute of limitations to assess any material
amount of Taxes. There are no outstanding requests by
the Company or any of the Company Subsidiaries for any extension of
time within which to file any Tax Return or within which to pay any
Taxes shown to be due on any Tax Return. There are no
Encumbrances for material amounts of Taxes on the assets of the
Company or any of the Company Subsidiaries, except for statutory
liens for current Taxes not yet due and payable or Taxes that are
being contested in good faith and for which adequate reserves in
the Company Financials have been established in accordance with
GAAP.
26
(b)
Neither
the Company nor any of the Company Subsidiaries has
constituted either a “ distributing
corporation” or a “ controlled
corporation” (within the meaning of Section 355(a)(1)(A)
of the Code) in a distribution of securities (to any Person or
entity that is not a member of the consolidated group of which
the Company is the common parent corporation) qualifying for,
or intended to qualify for, Tax-free treatment under Section
355 of the Code (i) within the two-year period ending on the
date hereof or (ii) in a distribution which could otherwise
constitute part of a “ plan”
or “ series
of related transactions” (within the meaning of Section
355(e) of the Code) in conjunction with the
Merger.
(c)
Neither
the Company nor any of the Company Subsidiaries is or (i) has
been at any time within the five-year period ending on the
date hereof a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code and (ii)
has ever been a member of any consolidated, combined, unitary
or affiliated group of corporations for any Tax purposes other
than a group of which the Company is or was the common parent
corporation.
(d)
Neither
the Company nor any of the Company Subsidiaries has made any
change in accounting method or received a ruling from, or
signed an agreement with, any taxing authority that would
reasonably be expected to have a Company Material Adverse
Effect following the Closing.
(e)
As
of the date hereof, neither the Company nor any of the Company
Subsidiaries is being audited by any taxing authority or has
been notified by any Tax authority that any such audit is
contemplated or pending.
(f)
Neither
the Company nor any of the Company Subsidiaries participated
in, or sold, distributed or otherwise promoted, any
“ reportable
transaction,” as defined in Treasury Regulation section
1.6011-4.
(g)
Neither
the Company nor any of the Company Subsidiaries has taken any
action that would reasonably be expected to give rise to (i) a
“ deferred
intercompany transaction” within the meaning of Treasury
Regulation section 1.1502-13 or an “ excess
loss account” within the meaning of Treasury Regulation
section 1.1502-19, or (ii) the recognition of a deferred
intercompany transaction.
27
(h)
Since
December 31, 2005, neither the Company nor any of the Company
Subsidiaries have (i) changed any Tax accounting methods,
policies or procedures except as required by a change in Law,
(ii) made, revoked, or amended any material Tax election,
(iii) filed any amended Tax Returns or claim for refund, or
(iv) entered into any closing agreement affecting or otherwise
settled or compromised any material Tax liability or
refund.
(i)
For
purposes of this Agreement, the term “
Tax ”
or “
Taxes ”
shall mean any tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, imposed by any
Governmental Authority (including any federal, state, local,
foreign or provincial income, gross receipts, property, sales, use,
net worth, premium, license, excise, franchise, employment,
payroll, alternative or added minimum, ad valorem, transfer or
excise tax) together with any interest, addition or penalty imposed
thereon.
Except
for Raymond James & Associates, Inc., the fees of which
will be borne by the Company, no broker, finder or investment
banker is entitled to any brokerage, finder’s or other
fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on
behalf of the Company.
(a)
Section 2.19(a) of
the Company Disclosure Schedule contains a correct and complete
list of all real property and interests in real property leased or
subleased by the Company or any of the Company Subsidiaries from or
to any Person (collectively, the “
Company Real Property ”). The
list set forth in
Section 2.19(a) of
the Company Disclosure Schedule contains, with respect to each of
the Company Real Properties, all existing leases, subleases,
licenses or other occupancy contracts to which the Company or any
of the Company Subsidiaries is a party or by which the Company or
any of the Company Subsidiaries is bound, and all amendments,
modifications, extensions and supplements thereto (collectively,
the “
Tenant Leases ”),
the terms of which have been complied with by the Company and any
Company Subsidiary in all material respects. The Company
Real Property set forth in
Section 2.19(a) of
the Company Disclosure Schedule comprises all of the real property
necessary and/ or currently used in the operations of the business
of the Company and the Company Subsidiaries. The Company
does not own any real property. Except as would not have
a Company Material Adverse Effect, the Company or a Company
Subsidiary has good and valid title to all of its personal
property, assets and rights, free and clear of all Encumbrances
other than Permitted Encumbrances.
(b)
A
correct and complete copy of each Tenant Lease has been
furnished to Parent prior to the date hereof. The
Company or the Company Subsidiary party thereto has a valid,
binding and enforceable leasehold interest under each of the
Tenant Leases, free and clear of all Encumbrances other than
Permitted Encumbrances, and each of the Tenant Leases is in
full force and effect. Neither the Company or any
of the Company Subsidiaries nor, to the knowledge of the
Company, any other party to any Tenant Lease is in breach of
or in default under, in any material respect, any of the
Tenant Leases. The Company and the Company
Subsidiaries enjoy peaceful and undisturbed possession under
all such Tenant Leases, have not received notice of any
material default, delinquency or breach on the part of the
Company or any Company Subsidiary, and there are no existing
material defaults (with or without notice or lapse of time or
both) by the Company or any Company Subsidiary or, to the
knowledge of the Company, any other party
thereto. For purposes of this Agreement, the term
“
Permitted Encumbrances ”
means (i) Encumbrances with respect to Taxes either not yet due or
being contested in good faith in appropriate proceedings (and for
which adequate reserves in the Company Financials have been
established in accordance with GAAP); and (ii) mechanics’,
materialmen’s or similar statutory Encumbrances for amounts
not yet due or being contested in good faith in appropriate
proceedings; (iii) the terms and conditions of the lease creating
the leaseholds.
28
(a)
There
are no Actions pending or, to the knowledge of the Company,
threatened involving the Company or any of the Company
Subsidiaries and any of their employees or former employees,
including any harassment, discrimination, retaliatory act or
similar claim. There has been: (i) no labor union
organizing or attempting to organize any employee of the
Company or any of the Company Subsidiaries into one or more
collective bargaining units; and (ii) no labor dispute,
strike, work slowdown, work stoppage or lock out or other
coll
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