Dated as of April 23,
2009
INTER-ATLANTIC FINANCIAL,
INC.
PATRIOT RISK MANAGEMENT,
INC.
THE STOCKHOLDERS OF PATRIOT RISK
MANAGEMENT, INC.
APPENDIX B.
COMPANY DISCLOSURE SCHEDULE
APPENDIX C.
PURCHASER DISCLOSURE SCHEDULE
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EXHIBIT
1
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EXHIBIT
2
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AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
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EXHIBIT
3
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STOCK PURCHASE AGREEMENT (“Agreement”), dated as of
April 23, 2009, between Inter-Atlantic Financial, Inc., a
Delaware corporation (“Purchaser”), Patriot Risk
Management, Inc., a Delaware corporation (the
“Company”), and the shareholders of the Company who are
each a signatory to this Agreement (each, a “Seller,”
and collectively, the “Sellers”). Terms used herein and
not otherwise defined in this Agreement are defined in
Appendix A hereto.
WHEREAS , the Sellers own of record and beneficially
346,026 shares of common stock, par value $0.001 per share, and
800,000 shares of Class B Common Stock, par value $0.001 per
Share, and 1,000 shares of Series A Convertible Preferred
Stock, (collectively (the “Purchase Shares”), of the
Company, representing 100% of the Company’s issued and
outstanding capital stock;
WHEREAS , Purchaser desires to purchase and acquire from
the Sellers, and the Sellers desire to sell and transfer to
Purchaser, the Purchase Shares on the terms and subject to the
conditions hereinafter set forth; and
NOW,
THEREFORE , the parties
hereto hereby agree as follows:
CLOSING; SALE AND
PURCHASE
The closing (the “Closing”) of the
transactions contained in this Article I shall take place at
10:00 A.M., Eastern Time, on the second Business Day after all
of the conditions contained in Articles VII and VIII have been
satisfied or waived (other than those conditions which will be
satisfied at the Closing Time), or at such other time or such other
date as Purchaser and the Sellers may agree, at the offices of DLA
Piper LLP (US), 1251 Avenue of the Americas, New York, New York
(hereinafter, such date is referred to as the “Closing
Date” and such time on the Closing Date is referred to as the
“Closing Time”).
1.2 Sale and Purchase of the Purchase
Shares . Upon the terms and subject to the conditions set forth
herein, at the Closing, the Sellers agree to sell, convey, transfer
and assign the Purchase Shares to Purchaser free and clear of all
Liens, and deliver to Purchaser certificates representing the
Purchase Shares, duly endorsed in blank or accompanied by stock or
other appropriate powers in blank with all appropriate transfer
stamps affixed thereto (the “Stock Certificates”), and
Purchaser agrees to purchase the Purchase Shares from the Sellers
for an aggregate consideration of (the “Purchase
Price”) (i) Six Million Nine Hundred Thousand
(6,900,000) shares of Purchaser Common Stock, plus
(ii) at the times and subject to the terms and conditions set
forth therein, the shares of Purchaser Common Stock issuable
pursuant to Section 1.5.
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1.3 Delivery of Purchase Price and Stock
Certificates .
Subject to satisfaction or waiver by the
relevant party of the relevant conditions to Closing, at the
Closing, (i) 6,900,000 shares of Purchaser Common Stock shall
be issued by Purchaser to the Sellers pursuant to the allocation
set forth on Exhibit 1 and (ii) the Stock Certificates
shall be delivered by the Sellers to Purchaser.
1.4
Directors and Officers .
At the Closing, the directors of Purchaser
immediately prior to the Closing shall resign, and the Board of
Directors of Purchaser will be comprised of two individuals
designated by Purchaser’s stockholders, Andrew Lerner and
Fred Hammer, and those individuals currently serving as directors
of the Company.
1.5 Additional
Consideration.
(a) In the event that at any time after the
Closing but prior to the fifth anniversary of the Closing Date, the
average closing trading price on the NYSE Amex (or on another
national securities market on which the Company Class A Common
Stock is then quoted for trading) of Company Class A Common
Stock for 20 consecutive trading days equals or exceeds the
following per share amounts: (i) $12, (ii) $13, (iii) $14, (iv) $15
and (v) $16 per share (subject to adjustment in the event of stock
splits, reverse stock splits, stock dividends, recapitalizations or
similar events), then the shares of Purchaser Common Stock
comprising the Purchase Price shall be increased by an additional
1,000,000 shares of Purchaser Common Stock for reaching each of the
foregoing per share amounts.
(b) All additional shares of Purchaser
Common Stock issuable by Purchaser to the Sellers under this
Section 1.5 shall be allocated among the Sellers based on the
amounts set forth on Exhibit 1 and shall be issued within ten
Business Days after the date of the occurrence of the events
described in subsection (a) above. Any additional shares of
Purchaser Common Stock issued pursuant to this Section shall be
treated and reported as part interest in accordance with
Section 1274 of the Code and the regulations
thereunder.
1.6 Actions Simultaneous . For purposes
of agreement of the parties hereto, all actions to be taken and all
documents to be executed and delivered by all parties at the
Closing shall be deemed to have been taken and executed and
delivered simultaneously and no actions shall be deemed to have
been taken nor shall any documents be deemed to have been executed
and delivered until all actions have been taken and all documents
have been executed and delivered.
Section 1.7 of the Company Disclosure
Schedule contains a complete list of Existing Options as of the
Closing Time. At the Closing Time, each Existing Option shall be
assumed or substituted by the Purchaser in a transaction described
in Sections 409A or 424(a), as applicable, of the Code, and
the Treasury Regulations thereunder. Each Existing Option so
assumed or substituted by the Purchaser under this Agreement will
continue to have, and be subject to, the same terms and conditions
of such Existing Option immediately prior to the Closing Time,
except that each Existing Option will be exchanged and converted
into an option to purchase shares of Purchaser Common Stock in
accordance with the applicable requirements of Sections 409A and
424 of the Code and the Treasury Regulations thereunder. As soon as
practicable after the Closing Time, the Purchaser shall deliver to
the holders of Existing Options, notices describing the conversion
of such Existing Options, and the agreements evidencing the
Existing Options shall continue in effect on the same terms and
conditions.
2
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS WITH RESPECT TO THE PURCHASE SHARES
Each Seller, severally but not jointly, hereby
represents and warrants to Purchaser as to such Seller and the
Purchase Shares owned by such Seller, as set forth
below.
2.1 Authority; Execution and Delivery;
Enforceability . Each Seller has full power, authority and
capacity to execute and deliver this Agreement and, to the extent a
party thereto, the Related Agreements, to perform such
Seller’s respective obligations hereunder and under such
Related Agreements and to consummate the transactions contemplated
hereby and by such Related Agreements. Each of this Agreement and
(when executed) the Related Agreements has been (or will be) duly
executed and delivered by such Seller (to the extent a party
thereto), and constitutes (or will, when executed, constitute) the
legal, valid and binding obligation of such Seller (to the extent a
party thereto), enforceable against such Seller in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
moratorium and other similar Laws of general applicability relating
to or affecting creditors’ rights and to general equity
principles.
Except as set forth in Section 2.2 of the
Seller Disclosure Schedule, the execution and delivery of this
Agreement and the Related Agreements by such Seller (to the extent
a party thereto) does not, and the consummation of the transactions
contemplated hereby and by such Related Agreements and compliance
with the terms hereof and of such Related Agreements, will not (or
would not with the giving of notice or the passage of
time):
(a) constitute a default under or a
violation or breach (with or without notice) of, result in the
acceleration of any obligation under, any provision of any contract
or other instrument to which such Seller is a party or result in
the termination or revocation of any authorization held by such
Seller or the Company necessary to the ownership of the Purchase
Shares or the operation of the business of the Company;
(b) violate any Order or any Law affecting
such Seller; or
(c) result in the creation of any Lien on
such Seller’s Purchase Shares.
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2.3 Title to
Purchase Shares .
Except as set forth in Section 2.3 of the
Seller Disclosure Schedule, each Seller has good and valid title to
the Purchase Shares owned by such Seller as set forth on the Seller
Disclosure Schedule, free and clear of all Liens. At the Closing,
each Seller will transfer legal and beneficial, good and valid
title to each of the Purchase Shares, free and clear of all Liens.
No Seller is currently bound by any contract, agreement,
arrangement, commitment or understanding (written or oral) with,
and has not granted any option or right currently in effect or
which would arise after the date hereof to, any Person other than
Purchaser with respect to the acquisition of any of such
Seller’s Purchase Shares.
2.4 Consents and Approvals . Except as
set forth in Section 2.4 of the Seller Disclosure Schedule, no
consent, approval, waiver, license, permit, order or authorization
of, or registration, declaration or filing with, any Governmental
Authority, and no consent, approval, waiver or other similar
authorization of any other Person (including, without limitation,
any Person who is a party to a Contract binding on or affecting the
Company or any Subsidiary), is required to be obtained by or on
behalf of such Seller as a result of, or in connection with, or as
a condition of the lawful execution, delivery and performance of
this Agreement or the Related Agreements (to the extent a party
thereto) or the consummation of the transactions contemplated
hereby and by such Related Agreements.
2.5 Litigation and Claims . Except as set
forth in Section 2.5 of the Seller Disclosure Schedule, there
is no Action pending or, to the Knowledge of such Seller,
threatened, against or affecting such Seller that could reasonably
be expected to affect such Seller’s ability to consummate the
transactions contemplated hereby or by the Related Agreements (to
the extent a party thereto).
Except as set forth in Section 2.6 of the
Seller Disclosure Schedule, neither such Seller nor any party
acting on such Seller’s behalf has paid or become obligated
to pay any fee or commission to any broker, finder or intermediary
for or on account of the transactions contemplated hereby or by the
Related Agreements, and the Company will not be liable or obligated
in any way whatsoever with respect to any such fee or
commission.
2.7
Investment Representations .
Each Seller hereby acknowledges and agrees that
each of the shares of Purchaser Common Stock to be received by such
Seller pursuant to this Agreement will not be registered under the
Securities Act or any state securities laws and may not be offered
or sold except pursuant to registration or an exemption from the
registration requirements of the Securities Act and all applicable
state securities laws, subject to the terms and conditions of the
Stockholders Agreement. In this connection, each Seller understands
Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and
by the Securities Act.
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2.8 Accredited Investor .
Each Seller represents that: (i) such
Seller is an “accredited investor” (as such term is
defined in Regulation D under the Securities Act) and is
acquiring Purchaser Common Stock for its own account, for
investment purposes only, and not with a view to the resale or
offer for sale thereof or with any present intention of
distributing or selling or offering for sale any of such
securities; and (ii) such Seller is capable of bearing the
economic risk of such investment, including a complete loss of the
investment in Purchaser Common Stock.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SELLERS
WITH RESPECT TO THE COMPANY
The Company
hereby represents and warrants to Purchaser as set forth
below.
3.1 Organization; Good Standing . The
Company is a corporation duly organized, validly existing and in
good standing under the laws of state of Delaware. The Company has
full corporate power and authority to conduct all of the business
and activities conducted by it, and to own or lease and operate all
of the assets owned or leased by it; and is duly licensed,
registered or qualified to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of the
business and activities conducted by it, and/or the character of
the assets owned or leased by it, makes such qualification or
license necessary, except where the failure to be so licensed or
qualified would not result in a Material Adverse Effect.
3.2
Subsidiaries; Equity Interests .
(a) Section 3.2 of the Company
Disclosure Schedule contains a complete list of each of the
Company’s direct or indirect subsidiaries (each, a
“Subsidiary”). Each such Subsidiary, including but not
limited to Guarantee Insurance Company Inc. (referred to herein as
the “Insurance Subsidiary”) is a corporation duly
organized, validly existing and in good standing under the Laws of
its jurisdiction of incorporation, each of which is listed on the
Company Disclosure Schedule. Each Subsidiary has full corporate
power and authority to conduct all of the business and activities
conducted by it, and to own or lease and operate all of the assets
owned or leased by it; and is duly licensed or qualified to do
business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of the business and activities
conducted by it, and/or the character of the assets owned or leased
by it, makes such qualification or license necessary, except where
the failure to be so licensed or qualified would not result in a
Material Adverse Effect. Each jurisdiction in which each of such
subsidiaries is qualified to do business is listed on the Company
Disclosure Schedule. Except as set out on Section 3.2 of the
Company Disclosure Schedule, none of the Insurance Subsidiaries are
commercially domiciled in any other jurisdiction.
(b) Except as set forth in
Section 3.2(b) of the Company Disclosure Schedule, neither the
Company nor any Subsidiary, directly or indirectly, owns any
capital stock of or other equity interests in any Person. Neither
the Company nor any Subsidiary is a participant in any joint
venture, partnership or similar arrangement.
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The execution and delivery of this Agreement by
the Sellers does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof, will not
(or would not with the giving of notice or the passage of
time):
(a) except as set forth in
Section 3.3(a) of the Company Disclosure Schedule, constitute
a default under or a violation or breach (with or without notice)
of, or result in the acceleration of any obligation of the Company
or any Subsidiary under, or change in any right or obligation of,
the Company, any Subsidiary or counterparty under, any provision of
any Contract to which the Company or any Subsidiary is a party or
result in the termination or revocation of any authorization held
by the Company or any Subsidiary or necessary to the ownership of
the Company or any Subsidiary or the operation of the business of
the Company or any Subsidiary;
(b) violate any Order or any Law affecting
the Company or any Subsidiary, or their respective
assets;
(c) violate or contravene the terms or
provisions of the Amended and Restated Certificate of
Incorporation, By-laws or similar formation or organizational
documents of the Company or any Subsidiary; or
(d) result
in the creation of any Lien on any of the assets of the Company or
any Subsidiary.
3.4
Authority; Execution and Delivery; Enforceability; Corporate
Documents
The Company has full corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated hereby. All corporate acts and other proceedings
required to be taken by the Company to authorize the execution,
delivery and performance of this Agreement have been duly and
properly taken. This Agreement has been duly 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, subject to bankruptcy, insolvency,
fraudulent transfer, moratorium and other similar Laws of general
applicability relating to or affecting creditors’ rights and
to general equity principles. The Sellers have delivered to
Purchaser complete and correct copies of the Amended and Restated
Certificate of Incorporation, By-laws and other organizational
documents and stock transfer books of the Company and each
Subsidiary. The Sellers have delivered to Purchaser copies of all
minute books and all other existing records of any meeting of the
board of directors (and any committee thereof) or stockholders of
the Company and each Subsidiary, which minute books and records are
complete and correct in all material respects. To the knowledge of
the Company, no meeting of the board of directors (or committee
thereof) or stockholders of the Company or any Subsidiary has
occurred for which minutes have not been prepared and are not
contained in such minute books.
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3.5
Capitalization; Options
(a) The authorized capital stock of the
Company consists of 5,000,000 shares of preferred stock, par value
of $.001 per share, of which 1,200 shares has been designated
Series A Convertible Preferred Stock, 1,000 shares of which
are issued and outstanding; 40,000,000 shares of Common Stock, par
value of $.001 per share, 346,026 shares of which are issued and
outstanding; 4,000,000 shares of Series B Common Stock, par
value $.001 per share, 800,000 shares of which are issued and
outstanding; 62,500 shares of Company Common Stock underlie options
granted pursuant to the 2005 Stock Option Plan; 101,000 shares of
Company Common Stock underlie options granted pursuant to the 2006
Stock Option Plan. Except as set forth in this Section 3.5(a), no
shares or classes of the Company’s capital stock are issued,
outstanding or reserved for issuance.
(b) The authorized capital stock of each
Subsidiary and the number of issued and outstanding shares is set
forth on Section 3.5(b) of the Company Disclosure Schedule.
All the outstanding shares of capital stock of the Company and each
Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable, free and clear of all Liens. The
rights, preferences, privileges and restrictions applicable to the
Company’s capital stock are as set forth in the
Company’s currently effective Certificate of Incorporation.
Except as set forth in Section 3.5(a) above, there are no
outstanding subscriptions, warrants, options, contracts, rights
(preemptive or otherwise), calls, demands, commitments, voting
agreements, voting trusts proxies or other arrangements of any
character binding on the Company or any Subsidiary relating to any
authorized and issued or unissued shares of capital stock of the
Company or any Subsidiary, or other instruments binding on the
Company or any Subsidiary convertible into or exchangeable for such
stock, or which obligate the Company or any Subsidiary to seek
authorization to issue additional shares of any class of stock, nor
will any be created by virtue of this Agreement or the transactions
contemplated hereby. None of the shares of capital stock of the
Company or any Subsidiary were issued in violation of any
applicable Laws.
3.6 Consents
and Approvals
Except as set forth in Section 3.6 of the
Company Disclosure Schedule, no consent, approval, waiver, license,
permit, order or authorization of, or registration, declaration or
filing with, any Governmental Authority, and no consent, approval,
waiver or other similar authorization of any other Person
(including without limitation any Person who is a party to a
Contract binding on or affecting the Company or any Subsidiary), is
required to be obtained by or on behalf of the Company or any
Subsidiary as the case may be, as a result of, or in connection
with, or as a condition of the lawful execution, delivery and
performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.7 Title to
Assets; Sufficiency of Assets .
(a) Except as set forth in
Section 3.7(a) of the Company Disclosure Schedule, the Company
and the Subsidiaries have good and valid title to all of the
properties and assets (whether tangible or intangible) that they
purport to own, free and clear of all Liens (other than Permitted
Liens), including, without limitation, all of the tangible and
intangible assets reflected on the balance sheet included in the
Company Audited Financial Statements, other than assets disposed of
since December 31, 2008 in the ordinary course of business
consistent with past practice.
(b) Except as set forth in
Section 3.7(b) of the Company Disclosure Schedule, none of the
Sellers, or any of their Affiliates, own, directly or indirectly,
any material assets used in or necessary to conduct the business of
the Company or the Subsidiaries.
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(c) All of the material tangible personal
property of the Company and the Subsidiaries has been maintained in
accordance with generally accepted industry practice and is in good
working order and condition, reasonable wear and tear excepted in
all material respects, and is suitable for the use to which they
are being put. All of the leased personal property of the Company
and the Subsidiaries is in the condition required of such property
by the terms of the lease applicable thereto during the relevant
term of the lease. None of such tangible personal property is in
need of maintenance or repairs, except as shown in
Section 3.7(c) of the Company Disclosure Schedule and except
for ordinary routine maintenance and repairs that are not material
in cost.
(d) No Person has any written or oral
agreement, option, understanding or commitment, or any right or
privilege (whether at law, by contract or otherwise) capable of
becoming such, for the purchase or other acquisition from the
Company or any Subsidiary of any of their assets other than in the
ordinary course.
(e) The tangible property and assets owned
and leased by each of the Company and each Subsidiary include all
rights, assets and property necessary for the conduct of the
business of the Company and each Subsidiary after the Closing,
substantially in the same manner as it was conducted prior to the
Closing.
(a) Section 3.8 of the Company
Disclosure Schedule sets forth a true, complete and correct list of
all real property and interests in real property owned or leased by
the Company or any Subsidiary (each of such real properties being
referred to herein individually as a “Company Property”
and collectively as the “Company Properties”) as lessee
or lessor. Each lease pursuant to which Company or a Subsidiary
leases a Company Property is referenced to herein as a Real
Property Lease. Except as set forth in the Company Disclosure
Schedule, there are no real properties or interests in real
properties owned in any respect by the Company or any Subsidiary.
The Company Properties constitute all interests in real property
currently used or currently held for use in connection with the
business of the Company and the Subsidiaries and which are
necessary for the continued operation of such business by Purchaser
as such business is currently conducted. To the Knowledge of the
Company, all of the Company Properties, buildings, fixtures and
improvements thereon leased by the Company and Subsidiaries are in
good operating condition and repair (subject to normal wear and
tear) in all material respects. The Company has delivered to
Purchaser true, complete and correct copies of the Real Property
Leases, together with all amendments, modifications or supplements
thereto. No Person (other than the Company or a Subsidiary) has
subleased or otherwise uses, possesses or occupies any of the
premises covered by a Real Property Lease, except as shown on the
Company Disclosure Schedule.
(b) Each Real Property Lease is in full
force and effect, has not been amended (except as set forth on
Section 3.8(b) of the Company Disclosure Schedule) and is a
legal, valid and binding agreement, enforceable in accordance with
its terms, of the Company or the Subsidiaries and, to the Knowledge
of the Company, of each other Person that is a party thereto.
Neither the Company nor any Subsidiary has received written notice
of any, default in any material respect (or any condition or event
which, after notice or lapse of time or both, would constitute a
default in any material respect) thereunder which remains uncured,
except as set forth on the Company Disclosure Schedule. Neither the
Company nor any Subsidiary has assigned or transferred all or any
portion of its interests in any Real Property Lease. There are no
disputes under any of the Real Property Leases in relation to the
state of repair of the premises demised or otherwise, except as set
forth on the Company Disclosure Schedule. Each Real Property Lease
has not been assigned or encumbered by the Company or any
Subsidiary, except as set forth on the Company Disclosure
Schedule.
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(c) No proceeding is pending or, to
Knowledge of the Company, threatened for the taking or condemnation
of all or any portion of the Company Properties. There is no
brokerage commission or finder’s fee due from the Company or
any Subsidiary and unpaid with regard to any of the Company
Properties, or which will become due at any time in the future with
regard to any Company Properties.
(d) Except as set forth on
Section 3.8(d) of the Company Disclosure Schedule, the Company
Properties and assets owned, leased or used by the Company or any
Subsidiary in the operation of the Company Properties, including
the walls, ceilings and other structural elements of any
improvements erected on any part thereof and the building systems
such as heating, plumbing, ventilation, air conditioning and
electric, are adequate and sufficient for the current operations of
the Company’s and the Subsidiaries’ business in all
material respects.
(e) Neither the Company nor any Subsidiary
has received any written notice that any portion of any of the
security deposits under the Real Property Leases has been applied
or retained by the lessor or licensor or sublessor thereunder,
except as set forth on Section 3.8(e) of the Company
Disclosure Schedule. Neither the Company nor any Subsidiary has
within the last three years, with respect to any Real Property
Lease, (i) made, asserted or has any defense, set off or
counterclaim, (ii) claimed or is entitled to
“free” rent, rent concessions, rebates or rent
abatements, (iii) questioned or disputed its share of any
additional rent or other charges required to be paid under such
Real Property Lease, or (iv) made rent payments in advance for
more than one month, except as set forth on the Company Disclosure
Schedule. Except as set forth on the Company Disclosure Schedule,
neither the Company nor any Subsidiary has exercised any option
granted to it under any such Real Property Lease to (A) cancel
or terminate such Real Property Lease or lessen the term thereof,
(B) renew or extend the term thereof or (C) take
additional space. Except as set forth on the Company Disclosure
Schedule, there are no written or oral promises, understandings or
commitments between the Company or any Subsidiary, on the one hand,
and each other Person that is a party to such Real Property Lease,
on the other hand, other than those contained in such Real Property
Lease.
(f) To the Knowledge of the Company, the
Company Properties are fully serviced by storm and sanitary sewers,
water, gas, telephone and paved roads, and each of the said
premises has valid and legal access to and from said
roads.
3.9
Employment Related Agreements and Actions .
(a) Section 3.9(a) of the Company
Disclosure Schedule contains a complete and correct list of the
directors and the officers of the Company and each
Subsidiary.
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(b) Section 3.9(b) of the Company
Disclosure Schedule contains a complete and correct list of all
Contracts currently in effect with current or former employees,
consultants, or independent contractors of the Company and each
Subsidiary, in each case which provides for payments in excess of
$100,000 per annum. The Company and each Subsidiary have delivered
to Purchaser true, correct and complete copies of each such
Contract and performed obligations required to be performed by it,
and is entitled to all benefits under and is not in default under,
any such Contract and, to the Knowledge of the Company, no other
party to any such Contract is in default thereunder. Each such
Contract is in full force and effect, unamended, and is a legal,
valid and binding agreement, enforceable in accordance with its
terms, of the Company or a Subsidiary and, to the Knowledge of the
Company, each other Person that is a party thereto. Except as set
forth in the Company Disclosure Schedule, no event has occurred
(including the performance of this Agreement) which, with the lapse
of time or the giving of notice or both, would constitute a default
by the Company or any Subsidiary, or, to the Knowledge of the
Company, by any other party to any such Contract.
(c) With respect to employees of the
Company or any Subsidiary (“Employees”), except as set
forth in Section 3.9(c) of the Company Disclosure
Schedule:
(i) none of the Employees is represented by
a labor union or organization, no labor union or organization has
been certified or recognized as a representative of any such
Employees, and neither the Company nor any Subsidiary is a party to
or has any obligation under any collective bargaining agreement or
other labor union contract or side agreement with any labor union
or organization, or has any obligation to recognize or deal with
any labor union or organization, and there are no such contracts or
side agreements pertaining to or which determine the terms or
conditions of employment of any Employee;
(ii) there are no pending or, to the
Knowledge of the Company, threatened representation campaigns,
elections or proceedings or questions concerning union
representation involving any of the Employees;
(iii) to the Knowledge of the Company,
there are no present activities or efforts of any labor union or
organization (or representatives thereof) to organize any of the
Employees, nor any demands for recognition or collective
bargaining, nor any strikes, slowdowns or work stoppages of any
kind or, to the Knowledge of the Company threats thereof, and no
such activities, efforts, demands, strikes, slowdowns or work
stoppages have occurred since January 1, 2004;
(iv) neither the Company nor any Subsidiary
has engaged in, admitted committing or been held in any
administrative or judicial proceeding to have committed any unfair
labor practice under the National Labor Relations Act, as amended,
or any other applicable Law, and there are no unfair labor practice
charges or complaints pending or, to the Knowledge of the Company,
threatened, against the Company or any Subsidiary;
(v) there are no controversies, claims,
demands or grievances pending or, to the Knowledge of the Company,
threatened between the Company or any Subsidiary and any of their
respective Employees or any actual or claimed representative
thereof;
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(vi) the Company and the Subsidiaries have
at all times materially complied and are in compliance in all
material respects with all applicable Laws respecting employment,
wages, hours, compensation, occupational health and safety, and
payment and withholding of taxes in connection with employment, and
neither the Company, nor any Subsidiary, is liable for any arrears
of wages or any taxes or penalties for failure to comply with any
of the foregoing;
(vii) there are no claims, complaints or
legal or administrative proceedings pending or, to the Knowledge of
the Company, threatened against the Company or any Subsidiary
before any federal, state or municipal court or any other
Governmental Authority involving or relating to any past or present
Employees or applicants for employment of the Company or any
Subsidiary, or relating to any acts, omissions or practices of the
Company or any Subsidiary relating to discrimination, harassment,
wage payment, overtime and hours of work, workplace safety or any
other employment-related issues. Neither the Company nor any
Subsidiary is a party to or bound by any Order respecting the
employment or compensation of any Employees or prospective
Employees, other than garnishments of employee wages obtained by
third parties. There are no pending investigations or abatement
orders and no citations issued within the past 3 years by the
Occupational Safety and Health Administration or any other
Governmental Authority relating to the Company or any
Subsidiary;
(viii) the Company and the Subsidiaries
have paid in full to all of the Employees, or accrued on its books,
all wages, salaries, commissions, bonuses, benefits and other
compensation due to such Employees or otherwise arising under any
policy, practice, agreement, plan, program, statute or other
applicable Law;
(ix) neither the Company nor any Subsidiary
is closing, or since January 1, 2006, has closed any Facility,
effectuated any layoffs of Employees or implemented any early
retirement, separation or window program, nor has the Company or
any Subsidiary planned or announced any such action or program for
the future;
(x) the Company and each Subsidiary are in
compliance with their obligations pursuant to WARN, and all other
notification and bargaining obligations arising under any
collective bargaining agreement or Law; and
(xi) there are no written or oral
employment manuals, policies, plans, guides, handbooks or
instruction booklets that set out any terms and or conditions of
employment for any of the Employees. To the Knowledge of the
Company, none of the Employees have any non-competition or
non-solicitation or other restrictive covenant agreements other
than with the Company or any Subsidiary.
(d) Neither the Company nor any Subsidiary
has any Employees whose primary work location is outside the United
States.
11
(a) Section 3.10(a) of the Company
Disclosure Schedule contains a complete and correct list of all
Contracts that involve payments by, or to, the Company and/or any
Subsidiary, of more than $100,000 per annum or $200,000 in the
aggregate (or the equivalent amount in such other currencies in
which the Company or any Subsidiary conduct business) and all
material Contracts without regard to dollar amount, or such lower
amount expressly set forth, in the following categories (each, a
“Material Contract”):
(i) partnership or joint venture Contracts
or arrangements or any other agreements involving a sharing of
revenue or profits;
(ii) Contracts restricting the Company or
any Subsidiary from carrying on its business or activities, as the
case may be, in its usual and customary manner in any jurisdiction,
including, without limitation, restricting the Company or any
Subsidiary from hiring or soliciting any Person, or operating its
assets at maximum capacity;
(iii) any non-competition agreements in
favor of or restricting the Company or any Subsidiary (other than
employment or consulting agreements);
(iv) each Contract between the Company or
any Subsidiary, on the one hand, and any officer, director or
Affiliate of the Company or any Subsidiary, on the other
hand;
(v) any Contracts for the sale or other
disposition by the Company or any Subsidiary of any of its assets,
or the acquisition by the Company or any Subsidiary of any assets,
other than in the ordinary course of business, consistent with past
practice;
(vi) any Contracts relating to the leasing
or chartering of any assets of the Company to or from any third
party, except those with annual payments not more than
$100,000;
(vii) any Contract that (a) limits or
contains restrictions on the ability of the Company or any
Subsidiary to declare or pay dividends on, or to make any other
distribution in respect of or to issue or purchase, redeem or
otherwise acquire its capital stock, or to incur Indebtedness, or
to incur or suffer any Lien, to purchase or sell any of assets or
properties, to change the lines of business in which it
participates or engages or to engage in any Business Combination,
or (b) require the Company or any Subsidiary to maintain
specified financial ratios or levels of net worth or other indicia
of financial condition;
(viii) any Contract relating to
Indebtedness incurred or accrued by, or credit provided to, the
Company or any Subsidiary;
(ix) any Contract of support,
indemnification, guaranty, suretyship or assumption or any similar
commitment with respect to the obligations, liabilities (whether
accrued, absolute, contingent or otherwise) or indebtedness of any
other Person;
12
(x) any letters of credit, any currency
exchange, commodities or other hedging arrangement or capitalized
leases;
(xi) each outstanding loan or advance made
by the Company or any Subsidiary to any director, officer,
employee, stockholder or other Affiliate of the Company or any
Subsidiary (other than any intercompany indebtedness reflected in
the financial statements of the Company or such Subsidiary and any
business-related advances to employees made in the ordinary course
of business, consistent with past practice);
(xii) any reinsurance or retrocession
agreements or other agreements relating to the transfer or
assumption of risk by the Company or any Subsidiary (other than
risk assumed under primary insurance policies issued by the
Company’s insurance company Subsidiaries);
(xiii) any agency, producer, third party
administrator, reinsurance intermediary, profit sharing, contingent
commission, service or other agreements relating to insurance
businesses of any Company or Subsidiary; and
(xiv) any Contract with any Seller or any
Contract made out of the ordinary course of business and not
consistent with past practice.
(b) Except as set forth in
Section 3.10(b) of the Company Disclosure Schedule, the
Company and each Subsidiary have, with respect to all Material
Contracts, delivered to Purchaser true, correct and complete copies
thereof and performed in all material respects the obligations
required to be performed by them, and are entitled to all benefits
under and are not in default in any material respect under, any
Material Contract, and each Material Contract is in full force and
effect, unamended, and, to the Knowledge of the Company, no other
party to any Material Contract is in default in any material
respect under any Material Contract. Except as set forth in the
Company Disclosure Schedule, no event has occurred (including the
performance of this Agreement) which, with the lapse of time or the
giving of notice or both, would constitute a default in any
material respect by the Company or any Subsidiary, or, to the
Knowledge of the Company, by any other party to any Material
Contract. For purposes of this Section 3.10(b),
representations that are qualified by Knowledge with respect to
another party’s compliance shall be deemed not to include the
Knowledge qualifier if such other party to the Material Contract is
an Affiliate of the Company or any Subsidiary.
3.11
Intellectual Property .
(a) The
term “Intellectual Property” means, collectively, all
worldwide:
(i) all U.S. and foreign patents, patent
applications, mask works and all divisions, continuations,
continuations-in-part, reissues, re-examinations and extensions
thereof), whether pending or issued (collectively,
“Patents”);
(ii) all U.S. and foreign pending
applications to register and all issued registrations for
trademarks, service marks and trade dress (collectively
“Registered Trademarks”), Internet domain names, and
all common law trademarks, service marks, trade dress, trade names
and other commercial product or service designations and together
with all goodwill and similar value associated with any of the
foregoing;
13
(iii) copyrights (whether or not
registered), mask works, “moral rights,” and all U.S.
and foreign registrations and applications for registration thereof
(“Registered Copyrights”), as well as rights to renew
all such copyrights; and
(iv) all trade secrets (as such are
determined under applicable law), know-how and other confidential
business information (“Trade Secrets”), including
technical information, inventions (whether patentable or
unpatentable), designs and other industrial property, patent
disclosures, any and all technology, supplier lists, computer
software programs or applications, in both source and object code
form, technical documentation of such software programs,
statistical models, customer lists, inventions, sui generis
database rights, databases, and data, whether in tangible or
intangible form and whether or not stored, compiled or memorialized
physically, electronically, graphically, photographically or in
writing;
(v) all remedies against and rights to sue
for past infringements, and rights to damages and profits due or
accrued in or relating to any of the foregoing.
(b) Section 3.11 of the Company
Disclosure Schedule contains a true and complete list of all
Patents, Registered Copyrights and Registered Trademarks owned by
the Company or any Subsidiary and contains a reasonable
identification of all common law trademarks and unregistered
copyrights (including copyrights in computer software) owned by the
Company or any Subsidiary the loss of which could be reasonably
expected to have a Material Adverse Effect (collectively, the
“Company Intellectual Property”), and includes details
of all due dates for further filings, maintenance and other
payments or other actions falling due in respect of the Company
Intellectual Property within ninety (90) days following the
date of this Agreement. All of the issued Patents, Registered
Trademarks and Registered Copyrights included in the Company
Intellectual Property are and remain valid and subsisting, in good
standing, with all fees, payments and filings due as of the date of
this Agreement duly made. All of the Patents, Registered Trademarks
and Registered Copyrights included in the Company Intellectual
Property are in compliance with all formal legal requirements. To
the extent that any Patents, Registered Copyrights and Registered
Trademarks included in the Company Intellectual Property are not
publicly available from Governmental Authorities, the Company has
made available to Purchaser copies of the files relating to the
prosecution thereof.
(c) The term “Licensed Intellectual
Property” means Intellectual Property rightfully used by the
Company and/or a Subsidiary pursuant to a valid license,
sublicense, consent or other similar written or oral agreement and
material to the business of the Company and/or a Subsidiary. The
parties and date of each such agreement, to the extent such
agreement involves payments by, or to, the Company and/or any
Subsidiary, of more than $100,000 per annum or $200,000 in the
aggregate, are set forth in Section 3.10 or Section 3.11
of the Company Disclosure Schedule and the Company has delivered to
Purchaser correct and complete copies of all such written
agreements (and an accurate summary of all such oral
agreements).
14
(d) To the Knowledge of the Company,
neither the Company nor any Subsidiary has infringed upon or
misappropriated any Intellectual Property rights or personal right
of any Person anywhere in the world. The Company has not received
any written notice, nor is any Action pending or, to the Knowledge
of the Company, threatened by any Person, (i) challenging the
validity, enforceability, effectiveness or ownership by the Company
or any Subsidiary of any of the Company Intellectual Property, or
(ii) asserting that the use, distribution, licensing,
sublicensing, sale or any other exercise of rights in any product,
service, work, technology or process as now used or offered or
proposed for use, licensing, sublicensing, sale or other manner of
commercial exploitation by the Company or any Subsidiary infringes
or will infringe on any Intellectual Property rights or personal
right of any Person. To the Knowledge of the Company, there is and
has been no unauthorized use, disclosure, infringement or
misappropriation of any Company Intellectual Property or Licensed
Intellectual Property by any third party, employee or former
employee.
(e) All personnel (including employees,
agents, consultants and contractors), who have authored or invented
(or co-authored or co-invented) any of the Company Intellectual
Property on behalf of the Company or any Subsidiary have executed
nondisclosure agreements with the Company or such Subsidiary and
either (i) have authored or invented such Company Intellectual
Property as “work made for hire” and/or other
arrangement or agreements with the Company or such Subsidiary in
accordance with applicable Law that has accorded the Company and
such Subsidiary full, effective, exclusive and original ownership
of all rights whatsoever in all Intellectual Property rights
thereby arising or relating thereto, or (ii) have executed
appropriate instruments of assignment in favor of the Company and
such Subsidiary as assignee that have conveyed to the Company and
such Subsidiary effective and exclusive ownership of all
Intellectual Property rights thereby arising and related
thereto.
(f) The Company and each Subsidiary do not
owe any royalties or other payments to third parties in respect of
any of the Company Intellectual Property or Licensed Intellectual
Property, except (i) pursuant to Contracts disclosed in
Section 3.10 or Section 3.11 of the Company Disclosure
Schedule (or not required to be disclosed in Section 3.10 or
Section 3.11 of the Company Disclosure Schedule), and
(ii) license, maintenance and other fees payable in the
ordinary course with respect to licensed software.
(g) The Company and each Subsidiary has
used its commercially reasonable efforts to regularly scan all
software programs included among the Company Intellectual Property
and Licensed Intellectual Property with virus detection software
and the results of such scans have been made available to
Purchaser. For the purposes of this Agreement, “virus”
means any computer code intentionally designed to disrupt, disable
or harm in any manner the operation of any software or hardware,
including, without limitations, worms, bombs, trojan horses,
backdoors or other disabling device code, or any other design or
routine which improperly causes any system, software, data or
information to be erased or become inoperable or otherwise
incapable of being used, either automatically or upon command by
any Person.
(h) The Company and each Subsidiary has
implemented commercially reasonable steps in the physical and
electronic protection of their information and electronically
stored assets from unauthorized disclosure, use or modification.
Section 3.11 of the Company Disclosure Schedule sets forth:
(i) each breach of security since January 1, 2008 of
which the Company has Knowledge or is aware; (ii) its known or
anticipated consequences; and (iii) the steps the Company and
each Subsidiary have taken to remedy such breach.
15
(i) The Company and each Subsidiary has
taken and will continue to take commercially reasonable measures to
protect the secrecy, confidentiality, and value of all of the
Company Intellectual Property rights. Neither the Company nor any
Subsidiary (or to the Knowledge of the Company, any other party)
have taken any action nor, to the Knowledge of the Company, failed
to take any action that directly or indirectly caused any Company
Intellectual Property to enter the public domain or in any way
adversely affect its value to Purchaser, or its absolute ownership
thereof.
(j) The Company and each Subsidiary has
implemented commercially reasonable steps consistent with
“best” practices in the information systems industries
in the physical and electronic protection of their information and
electronically stored assets from unauthorized disclosure, use or
modification. Section 3.11(j) of the Company Disclosure
Schedule sets forth: (i) each breach of security since
January 1, 2006 of which the Company has Knowledge or is
aware; (ii) its known or anticipated consequences; and
(iii) the steps the Company and each Subsidiary have taken to
remedy such breach.
(k) The Company and each Subsidiary has
taken and will continue to take commercially reasonable measures to
protect the secrecy, confidentiality, and value of all of the
Company Intellectual Property rights. Neither the Company nor any
Subsidiary (or to the Knowledge of the Company, any other party)
have taken any action nor, to the Knowledge of the Company, failed
to take any action that directly or indirectly caused any Company
Intellectual Property to enter the public domain or in any way
adversely affect its value to Purchaser, or its absolute ownership
thereof.
3.12 Insurance . Other than with respect
to any insurance or reinsurance arrangements entered into in the
ordinary course of the Company’s business:
(a) All material property and assets of the
Company and the Subsidiaries are insured against loss or damage by
all insurable hazards or risks on a replacement cost basis, subject
to the deductibles in each applicable insurance policy.
Section 3.12(a) of the Company Disclosure Schedule contains a
complete and correct list (together with their respective
termination dates) of all policies of fire, casualty, general
liability, product liability, business interruption, defamation,
personal injury, property damage, workers’ compensation and
all other forms of insurance carried by the Company and the
Subsidiaries or pursuant to which the Company or any Subsidiary is
a named beneficiary or pursuant to which the business or properties
of the Company or any Subsidiary is insured, complete and correct
copies of which have been provided to Purchaser. All of such
policies and any substantially equivalent replacement coverages are
in full force and effect and no notice of nonrenewal, cancellation
or termination has been received with respect to such coverage, and
such policies are for amounts and for coverages customary for
businesses of the type and size of the Company and its
Subsidiaries, taken as a whole. The Company or the applicable
Subsidiary has notified such insurers of any claim which could
potentially exceed the applicable insurance policy deductible
amount arising since May 1, 2003 known to it which it believes
is covered by any such insurance policy and has provided Purchaser
with a copy of such claim. Except as set forth in Section 3.12
of the Company Disclosure Schedule, the Company and its
Subsidiaries do not self-insure any insurance programs. To the
Knowledge of the Company, no insurer issuing insurance policies to
the Company and/or any Subsidiary is currently insolvent, subject
to liquidation, conservation or rehabilitation proceedings or
otherwise financially impaired constituting a Material Adverse
Effect.
16
(b) Except as set forth in
Section 3.12(b) of the Company Disclosure Schedule, the
Company or each applicable Subsidiary has notified the insurers of
the Company and/or such Subsidiary of all claims known to them
which are believed to be covered by insurance. All such claims have
been filed on a timely basis with insurers and pursued by
cooperating with and responding to insurers’ requests for
documentation and/or information. To the extent any claim has been
denied by insurers, information concerning such claim is set forth
in the Company Disclosure Schedule.
(c) Except as set forth in
Section 3.12(c) of the Company Disclosure Schedule, there are
no pending or potential claims under insurance covering the Company
and/or any Subsidiary.
3.13 Books and Records . All accounting,
financial and corporate Books and Records have been fully, properly
and accurately kept and are complete in all material
respects.
3.14
Financial Statements; Liabilities .
(a) The Company has provided to Purchaser
the audited consolidated balance sheets of the Company and the
Subsidiaries as of, and the audited consolidated statements of
operations, retained earnings and cash flows of the Company and the
Subsidiaries for the fiscal years ended, December 31, 2006, 2007
and 2008, together with the notes thereto and the opinions of BDO
Seidman, LLP thereon (collectively, the “Company Audited
Financial Statements”). The Company Audited Financial
Statements have been prepared from the Books and Records of the
Company and its Subsidiaries, and present fairly in all material
respects, in conformity with GAAP consistently applied and
consistent with prior periods, the assets, liabilities, income,
losses, retained earnings, financial condition, results of
operations and cash flows of the Company and its Subsidiaries on a
consolidated basis for the periods and dates covered
thereby.
(b) Except as set forth in
Section 3.14(b) of the Company Disclosure Schedule, neither
the Company nor any Subsidiary has any liabilities or obligations
of any kind, whether absolute, accrued, asserted or unasserted,
contingent or otherwise that are required by GAAP to be set forth
on a consolidated balance sheet of the Company, except liabilities,
obligations and contingencies, that (i) are reflected on or
accrued or reserved against in the Company Audited Financial
Statements for the fiscal year ended December 31, 2008, or
reflected in any notes thereto or (ii) were incurred since
December 31, 2008 in the ordinary course of
business.
(c) As used herein, the term “Company
SAP Statements” means the statutory financial statements of
Guarantee Insurance (the only Subsidiary required to file statutory
financial statements) as filed with the Florida Office of Insurance
Regulation for the years ended December 31, 2006,
December 31, 2007 and December 31, 2008 and any such
annual and quarterly statutory statements filed subsequent to the
date hereof, including all exhibits, interrogatories, notes,
schedules and any actuarial opinions, affirmations and
certifications or other supporting documents. The Company has made
available to Purchaser true and correct copies of the Company SAP
Statements filed as of the date of this Agreement. Guarantee
Insurance Company has filed or
17
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 SAP
consistently applied for the periods covered thereby (except as may
be indicated in the notes thereto), 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 such Company Subsidiaries as at the respective dates
thereof and the results of operations of such Insurance
Subsidiaries for the respective periods referred to in such
statements. No written notice asserting any material deficiency has
been received by the Company with respect to any Company SAP
Statement filed prior to the date hereof by the Florida Office of
Insurance Regulation. The annual statutory balance sheets and
income statements included in the Company SAP Statements for the
years ended December 31, 2006 and December 31, 2007 have
been, and for the year ended December 31, 2008 will be, where
required by applicable Law, audited by BDO Seidman, and the Company
has made available to Purchaser true and correct 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 Florida Laws
regulating the investments of insurance companies. There are no
permitted practices utilized by the Company or any Insurance
Subsidiary in the preparation of the Company SAP Statements that
depart from the National Association of Insurance
Commissioners’ Accounting Practices and Procedures
Manual.
(d) The reserves carried on the Company SAP
Statements, as of the respective dates of such Company SAP
Statements, for future policy benefits, claims losses and similar
purposes (including claims litigation) (i) have been computed
and are in compliance in all material respects with the
requirements for reserves established by the Florida Office of
Insurance Regulation, except as otherwise noted in such Company SAP
Statements, (ii) 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, (iii) were computed on the basis of
methodologies consistent in all material respects with those used
in computing the corresponding reserves in the most recent prior
fiscal year, except as otherwise noted in the Company SAP
Statements, and (iv) were fairly stated in all material
respects in accordance with sound actuarial principles.
3.15
Accounting Practices .
(a) The Company and the Subsidiaries
maintain in all material respects accurate books and records
reflecting their assets and liabilities and maintain proper and
adequate internal accounting controls that provide assurances that:
(i) transactions are executed with the authorization of the
Company’s management; (ii) transactions are recorded as
necessary to permit preparation of the Company’s financial
statements in accordance with GAAP and to maintain accountability
for such assets; (iii) access to such assets is permitted only
in accordance with the authorization of the Company’s
management; (iv) the reporting of such assets is compared with
existing assets at regular intervals; and (v) its accounts,
notes and other receivables and inventory are recorded accurately,
and proper and adequate procedures are implemented to effect the
collection of the accounts, notes and other receivables on a
current, timely and consistent basis in accordance with applicable
Laws and local practices.
18
(b) Except as set forth in
Section 3.15 of the Company Disclosure Schedule, neither the
Company nor any Subsidiary has received or been under a duty to
report (including any self reporting obligations) a non-frivolous
complaint, allegation, assertion or claim, whether written or oral,
regarding the accounting, reserving or auditing practices,
procedures, methodologies or methods of the Company or any
Subsidiary or their respective internal accounting controls,
including any complaint, allegation, assertion or claim that any
Company or any Subsidiary has engaged in questionable accounting,
reserving or auditing practices.
(a) The
Company and each Subsidiary has:
(i) duly and timely filed, or caused to be
filed, in accordance with applicable Law all Company Tax Returns
required to be filed, each of which is true, correct and complete
in all material respects,
(ii) duly and timely paid in full, or
caused to be paid in full, all Company Taxes due and payable
(whether or not shown on any Company Tax Returns), and
(iii) properly accrued, in accordance with
GAAP in the Company Audited Financial Statements and has adequate
reserves for the payment of all Company Taxes that are or may
become payable for all taxable periods or portions thereof ending
through the date hereof and the Closing Date,
respectively.
(b) Except as set forth in
Section 3.16(b) of the Company Disclosure Schedule,
(i) no Company Tax Return has ever been filed, and no Company
Tax has ever been determined, on a consolidated, combined, unitary
or other similar basis (including, but not limited to, a
consolidated federal income Tax return) under any Tax Law with
respect to Taxes other than for a group of which the Company is the
common parent, (ii) neither the Company nor any Subsidiary has
any liability for the Taxes of any person (other than the Company
and its current Subsidiaries) under Treasury Regulation section
1.1502-6 or any similar provision of state, local or foreign law as
a transferee or successor, by contract or otherwise, and
(iii) neither the Company nor any Subsidiary is a party to any
tax sharing, tax indemnity or other agreement or arrangement with
respect to Taxes with any person under which the Company or any
Subsidiary will have any continuing rights or obligations following
the Closing Date.
(c) Except as set forth in
Section 3.16(c) of the Company Disclosure Schedule,
(i) neither the Internal Revenue Service nor any foreign,
state, local or other Governmental Authority is now asserting or,
to the Knowledge of the Company, threatening to assert any
deficiency or claim for Taxes, and (ii) no federal, state,
local or foreign audits or other administrative proceedings are
presently pending with regard to any Company Tax Returns or Company
Taxes.
(d) The Company and each Subsidiary have
complied with all applicable Laws relating to the deposit,
collection, withholding, payment or remittance of any Tax
(including, but not limited to, sales Taxes, use Taxes and payroll
and withholding Taxes).
19
(e) There is no Lien for any Tax upon any
asset or property of the Company or any Subsidiary (except for any
statutory Lien for any Tax not yet due).
(f) No jurisdiction where a Company Tax
Return has not been filed has made or, to the Knowledge of the
Company, threatened to make a claim for the filing of any Company
Tax Return.
(g) Except as set forth in
Section 3.16(g) of the Company Disclosure Schedule, neither
the Company nor any Subsidiary is a party to any agreement with any
Governmental Authority (including, but not limited to, any closing
agreement within the meaning of Code Section 7121 or any
analogous provision of applicable Law) in respect of Company Taxes
or Company Tax Returns.
(h) Except as set forth in
Section 3.16(h) of the Company Disclosure Schedule, the
federal income Tax Returns of the Company and each of its
Subsidiaries consolidated in such returns have been examined by and
settled with the Internal Revenue Service, or the statute of
limitations on assessment or collection of any federal income Taxes
due from the Company or any of its Subsidiaries has expired,
through such taxable years as are set forth in the Company
Disclosure Schedule. Except as set forth in the Company Disclosure
Schedule, there are no outstanding requests, agreements, consents
or waivers to extend the statutory period of limitations applicable
to the assessment of any Company Taxes.
(i) Sellers have made available to
Purchaser complete and correct copies of (i) all Company Tax
Returns for the past three taxable years; and (ii) all Tax
examination reports and statements of deficiencies assessed with
respect to the Company or any Subsidiary for the last three taxable
years.
(j) There is no change of accounting method
that currently requires, or will require, an adjustment to the
taxable income of the Company of any Subsidiary under
Section 481 of the Code for any period following the Closing
Date. Neither the Company or any Subsidiary will be required to
include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date (A) pursuant to a “closing
agreement” as described in Section 7121 of the Code (or
any corresponding or similar provision of state, local or foreign
income Tax Law) executed on or prior to the Closing Date,
(B) as a result of an “intercompany transaction”
consummated prior to the Closing or an “excess loss
account” existing at the Closing as such terms are defined in
Treasury Regulations under Section 1502 of the Code (or any
corresponding or similar provision of state, local or foreign
income Tax Law), (C) pursuant to an installment sale or open
transaction disposition made prior to the Closing, or (D) as a
result of any prepaid amount received prior to the
Closing.
(k) Neither the Company nor any Subsidiary
is, nor has it ever been, a “United States real property
holding corporation” within the meaning of Code
Section 897(c)(2) at any time during the applicable period
referred to in Code Section 897(c)(l)(A)(ii).
20
3.17 Absence of Certain Changes and
Events .
Since December 31, 2008, except as set
forth in Section 3.17 of the Company Disclosure Schedule, the
Company and each Subsidiary have conducted its business in the
ordinary course thereof consistent with past practice and there has
not been any:
(a) change in the business, assets,
liabilities (absolute, accrued, contingent or otherwise), reserves,
working capital, results of operations or financial condition of
the business of the Company or any Subsidiary, or any event,
condition or contingency (either individually or taken together)
that constitutes, or could reasonably be expected to constitute, a
Material Adverse Effect;
(b) (A) incurrence, payment or
discharge of any liability or obligation (absolute, accrued,
contingent or otherwise) in excess of $100,000, (B) sale or
transfer of any property with a value in excess of $100,000, or
(C) acquisition or sale, lease, grant of interest in, or other
disposition of, any assets or businesses with a value in excess of
$100,000, in each of clauses (A), (B) and (C), other than in
the ordinary course of business, consistent with past
practice;
(c) guarantee or any other assumption of
the Indebtedness or other obligations of any Person in excess of
$100,000;
(d) settlement or compromise of any Action
in excess of $100,000 other than in the ordinary course of
business;
(e) instance of the Company or any
Subsidiary permitting or allowing any of their respective
properties or assets (real, personal or mixed, tangible or
intangible) to be subjected to any Lien (other than a Permitted
Lien) in excess of $100,000;
(f) Tax election or change in a Tax
election or the filing for any change of any method of accounting
with any relevant Governmental Authority;
(g) change in any method of accounting
applied in the preparation of the Company Audited Financial
Statements, other than a change which is required by reason of a
concurrent change in Law or GAAP;
(h) (A) adoption of or amendment to
any benefit plan or bonus, profit sharing, deferred compensation,
incentive, stock option or stock purchase plan, program or
commitment, paid time off for sickness or other plan, program or
arrangement for the benefit of its employees, consultants or
directors, (B) grant of any increase (other than increases
required under any Contract entered into before December 31,
2008 and annual increases in the ordinary course of business,
consistent with past practice) in the compensation of its
employees, officers or directors (including any such increase
pursuant to any bonus, profit sharing or other compensation or
incentive plan, program or commitment) or (C) pay any form of
compensation, dividend or guaranty, other than base salary, to any
employee, officer or director;
(i) entering into, change, termination or
modification of any Material Contract;
(j) issuance or sale by the Company or any
Subsidiary of any capital stock of the Company or any Subsidiary,
or any security convertible into or exchangeable for, or any right
exercisable to acquire, any shares of such capital
stock;
(k) declaration, distribution or the
setting aside for distribution of any property (including cash), or
directly or indirectly, the redemption, purchase or other
acquisition of any shares of capital stock;
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(l) amendment, termination or waiver of any
rights of value to the Company or any Subsidiary in excess of
$100,000;
(m) any
extraordinary loss, damage or destruction, whether or not covered
by insurance;
(n) increase in the Company’s or any
Subsidiary’s reserves for contingent liabilities;
(o) writing off as uncollectible any
Inventory or Accounts Receivable or any portion thereof in amounts
exceeding $50,000 in each instance or $100,000 in the
aggregate;
(p) (i) disposal or lapse of any
rights to the ownership or use of Company Intellectual Property, or
(ii) disclosure to any Person (other than representatives of
Purchaser) of any trade secret, formula, process, or other know-how
included in the Company Intellectual Property not theretofore a
matter of public knowledge in a manner which materially and
adversely affects its value to the Company;
(q) making of any single capital
expenditure or commitment in excess of $100,000 for additions to
property, plant, equipment or intangible capital assets or the
making of aggregate capital expenditures and commitments in excess
of $500,000 (or the equivalent amount in such other currencies in
which the Company or any Subsidiary conducts business) or additions
to property, plant, equipment or intangible capital assets;
or
(r) agreement, whether in writing or
otherwise, to take any action described in this Section
3.17.
3.18 Litigation and Claims . Except as
set forth in Section 3.18 of the Company Disclosure Schedule,
there is no Action pending or, to the Knowledge of the Company,
threatened or contemplated against or affecting the Company or any
Subsidiary or any property or assets used by them or any of the
Company’s capital stock, and there is no Action pending or,
to the Knowledge of the Company, threatened or contemplated,
against the Company or any Subsidiary affecting the propriety or
validity of the transactions contemplated hereby. To the Knowledge
of the Company, no event has occurred or circumstance exists which
would reasonably be expected to give rise to or serve as a basis
for the commencement of any Action by or against the Company or any
Subsidiary. Except as set forth in the Company Disclosure Schedule,
neither the Company nor any Subsidiary is subject to or in default
under or with respect to any Order.
3.19
Governmental Permits; Compliance with Laws .
(a) The Company and each Subsidiary owns,
holds or possesses all material Governmental Permits which are
necessary to entitle it to own or lease, operate and use its assets
and to carry on its business as currently conducted. Each such
material Governmental Permit is valid, subsisting and in good
standing. The Insurance Subsidiary is (i) duly licensed and/or
authorized to conduct insurance business in its jurisdiction of
domicile and each jurisdiction in which it conducts insurance
business and is required to be so licensed or authorized;
(ii) duly authorized in its jurisdiction of domicile and each
other applicable jurisdiction to write each line of business
reported as being written in the SAP Statements (as hereinafter
defined), including reinsurance, as applicable; and (iii) is
in compliance in all material respects with all applicable
insurance holding company requirements,
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including
filing and reporting requirements. The business of the Insurance
Subsidiary has been and is being conducted in compliance in all
material respects with the terms of its licenses and all such
licenses, qualifications or Governmental Permits are in full force
and effect. Except as set forth in Section 3.19 of the Company
Disclosure Schedule, there is no proceeding or investigation
pending or, to the Knowledge of the Company, threatened, which
would reasonably be expected to lead to the revocation, amendment,
failure to renew, limitation, suspension or restriction of any such
license, qualification or Governmental Permit. Except as set forth
on Section 3.19(a) of the Company Disclosure Schedule, there
are no written agreements, memoranda of understanding, commitment
letters or similar undertakings binding on the Insurance Subsidiary
to which the Company or any Subsidiary is a party, one hand and any
governmental authority is a party or addressee, on the other hand,
or orders or directives by, or supervisory letters from, any
governmental authority specifically with respect to the Company or
any Subsidiaries which (A) specifically limits the ability of
the Company or any Subsidiary to issue insurance policies;
(B) require any investments of Insurance Subsidiaries to be
treated as nonadmitted assets; (C) require the divestiture of
any investments of the Insurance Subsidiaries; (D) impose
requirements that increase or otherwise modify the risk based
capital requirements imposed under applicable Laws or (E) in
any manner relate to the ability of the Company or any Subsidiaries
to pay dividends or otherwise restrict the conduct of business of
the Company or any Subsidiary in any material respect.
(b) Section 3.19(b) of the Company
Disclosure Schedule sets forth a complete and correct list and
brief description of each Governmental Permit owned, held or
possessed by the Company or any Subsidiary. Except as set forth on
the Company Disclosure Schedule, all such material Governmental
Permits are renewable by their terms or in the ordinary course of
business without the need for the Company or any Subsidiary to
comply with any special rules or procedures, agree to any
materially different terms or conditions, or pay any amounts other
than routine filing fees.
(c) The Company and each Subsidiary have
conducted their respective businesses in compliance, and are
currently in compliance, in all material respects with all Laws
which are applicable to their respective businesses, and, to the
Knowledge of Sellers, its agents have marketed, sold and issued
insurance policies and promoted the Company’s insurance
business in compliance in all material respects with applicable
laws.
3.20 Environmental Matters .
Except as set forth in Section 3.20 of the
Company Disclosure Schedule:
(a) The Company and each Subsidiary, and
the assets of the Company and each Subsidiary (including real
property leased by the Company and each Subsidiary) are in
compliance in all material respects with applicable Environmental
Laws;
(b) Neither the Company nor any Subsidiary
has caused or permitted a release of a Hazardous Substance to the
Environment at any of the Facilities;
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(c) To the Knowledge of the Company, there
are no Environmental Conditions present at, on, or under, any
Facility as a result of activities of the Company or any Subsidiary
or, to the Knowledge of Sellers, as a result of the actions of any
of their employees, agents or any other Person, in each case in
amounts exceeding the levels permitted by applicable Environmental
Law or under circumstances that would reasonably be expected to
result in liability in any material respect under or relating to
Environmental Law;
(d) Neither the Company nor any Subsidiary
has disposed of, arranged for the disposal of, released, threatened
to release, or transported any Hazardous Substances in violation of
any applicable Environmental Law or in a manner that would
reasonably be expected to result in liability under or relating to
Environmental Law;
(f) Neither the Company nor any Subsidiary
is subject to any Actions, is subject to any Order or has received
any written notice or other written communication, or to the
Knowledge of the Company any oral notice or oral communication,
from any Governmental Authority or the current or prior owner or
operator of any of the Facilities or any other Person, in each case
with respect to any actual or potential violation or failure to
comply with any Environmental Law or of any actual or threatened
obligation or liability under any Environmental Law, or regarding
any Hazardous Substances; and to the Knowledge of the Company,
neither the Company nor any Subsidiary is threatened with any such
Action, Order, notice or communication;
(g) Neither the Company nor any Subsidiary
has been charged with or convicted of an offense for non-compliance
with any Environmental Laws; and
(h) There are no Environmental Reports in
the custody or control of the Company or any Subsidiary relating to
the Facilities, the business of the Company or any Subsidiary or
activities of the Company or any Subsidiary that have not been
delivered to Purchaser.
(a) Except as set forth in
Section 3.21 of the Company Disclosure Schedule, none of the
Company, any Subsidiary, nor any other Person which together with
the Company, any Subsidiary or any of the Sellers constitutes a
member of the Company’s, any Subsidiary’s or such
Seller’s “controlled group” or “affiliated
service group” (within the meaning of
Sections 4001(a)(14) and/or (b) of ERISA and/or
Sections 414(b), (c), (m) or (o) of the Code (each
such group or groups and each member thereof hereinafter referred
to individually and collectively as the “Group”))
sponsors or maintains, or has any material liability with respect
to or has any present or future obligation to contribute to or make
payment under (i) any employee benefit plan (as defined in
Section 3(3) of ERISA) which is subject to ERISA, or
(ii) any other material benefit plan, program, contract or
arrangement of any kind whatsoever (whether for the benefit of
present, former, retired or future employees, consultants or
independent contractors of the Group, or for the benefit of any
other Person or Persons) including, without limitation, plans,
programs, contracts or arrangements with respect to pension,
retirement, profit sharing, deferred compensation, thrift, savings,
stock ownership, stock bonus, restricted stock, health, dental,
medical, life, hospitalization, disability, relocation, child care,
educational assistance, stock purchase, stock option, incentive,
bonus, sabbatical leave, vacation, severance, cafeteria, pre-tax
premium, flexible spending or other contribution, benefit or
payment of any kind, and plans, programs, contracts or arrangements
providing for contributions, benefits or payments in the event of a
change of ownership or control in whole or in part of the Company
or any Subsidiary (all such employee benefit plans and other
benefit plans, programs, contracts or arrangements, whether written
or oral, hereinafter individually and collectively called the
“Employee Benefit Plans”). Except as set forth in
Section 3.21 of the Company Disclosure Schedule, neither the
Company nor any Subsidiary has any obligation other than as
required by applicable Law, to amend any Employee Benefit Plan so
as to increase benefits thereunder or otherwise or to establish any
new benefit plan, program, contract or arrangement.
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(b) No Employee Benefit Plan is subject to
Title IV of ERISA, Section 302 of ERISA or Section 412 or
413(c) of the Code. No member of the Group is a party to, or
participates in, or has any obligation or liability, contingent or
otherwise, with respect to any multiemployer plan (as defined in
Section 3(37) of ERISA). Each Employee Benefit Plan that
provides for the payment of deferred compensation subject to
Section 409A of the Code complies in form and operation with
the requirements of that Section or comparable provision of any
applicable Law. The Group has no obligation to indemnify or hold
harmless any individual for any liability that results from the
failure to comply with the requirements of Section 409A of the
Code or comparable provision of any other applicable Law. The Group
has not material liability for nonreporting or underreporting of
income subject to Section 409A of the Code.
(c) Any and all amounts which any member of
the Group is required to pay, deduct or remit, as contributions or
otherwise, with respect to the Employee Benefit Plans, have been
timely paid, deducted, remitted or accrued as of the
Closing.
(d) Except as set forth in
Section 3.21(d) of the Company Disclosure Schedule, each
Employee Benefit Plan has been established, maintained, operated
and administered in all material respects in accordance with its
terms and all applicable Law. All reports and information required
to be filed with any Government Authority, or to be furnished to
any participant, with respect to any Employee Benefit Plan have
been timely filed, delivered or furnished. Each Employee Benefit
Plan which is intended to be “qualified” within the
meaning of Sections 401(a) and 501(a) of the Code (a
“Qualified Plan”) is the subject of an Internal Revenue
Service opinion letter as to its qualified status and nothing has
occurred to adversely affect such qualified status. There are no
pending, or to the Company’s Knowledge, threatened or
anticipated Actions, suits, claims, trials, demands,
investigations, arbitrations or proceedings (other than routine
claims for benefits) involving any of the Employee Benefit Plans
with respect to or affecting the Company or any Subsidiary or any
current or former employee of the Company or any Subsidiary. There
have been no nonexempt “prohibited transactions” within
the meaning of Section 406 of ERISA or Section 4975 of
the Code with respect to any of the Employee Benefit
Plans.
(e) A complete and correct copy of each of
the Employee Benefit Plans and governing documents thereof, and all
amendments thereto, whether currently effective or to become
effective at a later date, and all contracts and agreements
relating thereto, or to the funding thereof (including, without
limitation, all trust agreements, insurance contracts, investment
management agreements, subscription and participation agreements,
administration and recordkeeping agreements) have been delivered to
Purchaser. In the case of any Employee Benefit Plan that is not in
written form, an accurate and complete description of such Employee
Benefit Plan has been delivered to Purchaser. With respect to each
Employee Benefit Plan, Company has delivered to Purchaser a
complete and correct copy of each of (i) the three most recent
annual reports (Form 5500 series), including any schedules
thereto and audit reports, (ii) the most recent summary plan
description (including summaries of material modification), and a
copy of any other material or documents distributed to any
Employee, participant or any beneficiary in connection with any
Employee Benefit Plan, (iii) the most recent Internal Revenue
Service opinion letter, and (iv) in the case of any funded
Employee Benefit Plan, to the extent not included in the annual
reports (Form 5500 series) delivered to Purchaser, a current
schedule of assets (and the fair market value thereof assuming
liquidation of any asset which is not readily tradable) held with
respect thereto.
25
(f) There have been no material adverse
changes in the financial condition of the respective Employee
Benefit Plans (or other information provided hereunder) from that
stated in each Employee Benefit Plan’s most recent of such
annual reports.
(g) No Employee Benefit Plan provides
benefits including, without limitation, death or medical benefits
(whether or not insured), with respect to any employees, former
employees or directors of the Company or any Subsidiary beyond
their retirement or other termination of service, other than group
health continuation coverage mandated by applicable Law. No
Employee Benefit Plan is a “voluntary employees beneficiary
association” (within the meaning of Section 501(c)(9) of
the Code), and there have been no other “welfare benefit
funds’ (within the meaning of Section 419 of the Code)
relating to employees or former employees.
(h) Except as set forth in
Section 3.21(h) of the Company Disclosure Schedules, neither
the execution and delivery by the Company of this Agreement nor the
consummation by the Company of the transactions contemplated hereby
shall (either alone or upon the occurrence of additional events or
acts) (x) require the Company or any Subsidiary to make any
payment to, or obtain any consent or waiver from, any officer,
director, employee, consultant or agent of any member of the Group
(other than the Sellers) or (y) accelerate vesting or payment
of any benefits or any payments, increase the amount or value of
any benefit or payment or result in the payment of or obligation to
pay any “excess parachute payment” (within the meaning
of Section 280G of the Code).
(i) Except as set forth in
Section 3.21(i) of the Company Disclosure Schedule, neither
the Company nor any Subsidiary is a party to any Contract that
results or could result in any amount that is not deductible under
Code Section 162(m), Code Section 280G, or Code
Section 404, or any similar provision of applicable
Law.
(j) Except for temporary clerical or
security personnel, none of the Group’s employees is a
“leased employee” within the meaning of Section 414(n)
of the Code.
3.22
Accounts Receivable/Reinsurance Recoverables .
(a) Except to the extent of the amount of
the reserve for doubtful accounts reflected in the Company Audited
Financial Statements or as set forth on Section 3.22(a) of the
Company Disclosure Schedule, all Accounts Receivable (including all
insurance premiums receivable) of the Company or any Subsidiary
reflected therein and all Accounts Receivable (including all
insurance premiums receivable) that have arisen since
December 31, 2008 (except Accounts Receivable that have been
collected since such date) are valid and enforceable claims and
constitute bona fide Accounts Receivable resulting from the sale of
goods and services in the ordinary course of business.
26
(b) Reinsurance Recoverables of the Company
or any Subsidiary reflected in the Company Audited Financial
Statements and all Reinsurance Recoverables that have arisen since
December 31, 2008 (except Reinsurance Recoverables that have
been collected since such date) are valid and enforceable claims
and constitute bona fide Reinsurance Recoverables resulting from
the sale of goods and services in the ordinary course of
business.
Except as set forth on Section 3.23 of the
Company Disclosure Schedule, no current customer of the Company
accounted for greater than 5% of the Company’s 2008 annual
revenue.
3.24 Bank Accounts . Section 3.24 of
the Company Disclosure Schedule sets forth a complete list of
(i) all bank accounts, savings deposits, money-market
accounts, certificates of deposit, safety deposit boxes, and
similar investment accounts with banks or other financial
institutions maintained by or on behalf of the Company or any
Subsidiary showing the depository bank or institution address,
appropriate bank contact personnel, account number and names of
signatories, and (ii) the names of all Persons holding powers
of attorney from the Company or any Subsidiary. True, correct and
complete copies of all powers of attorney granted by the Company or
any Subsidiary have been provided to Purchaser. The Company and all
Subsidiaries are in compliance with all applicable insurance Laws
relating to maintenance and operation of accounts, including, but
not limited to, fiduciary accounts holding premium trust funds,
refunds and claim funds.
Except as set forth on Section 3.25 of the
Company Disclosure Schedule, neither the Company nor any Subsidiary
or any party acting on their behalf, has paid or become obligated
to pay any fee or commission to any broker, finder or intermediary
for or on account of the transactions contemplated hereby. The
Company has delivered to the Purchaser a copy of any agreement the
Company has with any broker, finder or intermediary for or on
account of the transactions contemplated hereby.
(a) Examinations . The Company has
made available to Purchaser copies of all draft and final financial
examination reports and market conduct examination reports of state
insurance departments with respect to any Company Subsidiary that
have been issued since January 1, 2004.
(b) Policy Materials . To the
extent required under applicable Laws, all policies, binders, slips
or other agreements of insurance and other agreements and materials
that are issued or used in connection with the Insurance
Subsidiaries’ business, including applications, brochures and
marketing materials, are on forms approved by applicable insurance
regulatory authorities or filed and not objected to by such
authorities within the period provided for objection, and, in
either case, not subsequently disapproved or required to be
withdrawn or retired from issuance or use which have not been so
withdrawn or retired, subject to such exceptions that, individually
or in the aggregate, would not result in a Material Adverse Effect.
In addition, (i) any rates or rating plans of the Insurance
Subsidiaries required to be filed with or approved by any
applicable Governmental Authority have been so filed or approved
and (ii) the rates applied by each of the Company Subsidiaries
to the contracts of insurance conform to the relevant filed or
approved rates, subject, in the case of both (i) and (ii), to
such exceptions that, individually or in the aggregate, would not
result in a Material Adverse Effect.
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