EXHIBIT 4.1
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PURCHASE AGREEMENT
by and among
HALLMARK FINANCIAL SERVICES, INC.,
and
SAMUEL M. CANGELOSI, DONATE A. CANGELOSI,
and DONALD E. MEYER
DATED AS OF NOVEMBER 9, 2005
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This Agreement is subject to arbitration under
the rules and regulations of the American
Arbitration Association as provided
in Article X hereof.
TABLE OF CONTENTS
Page
ARTICLE I TERMS OF THE PURCHASE AND SALE................................ 2
Section 1.1 Sale of Shares...................................... 2
Section 1.2 Purchase Price...................................... 2
Section 1.3 Payment of the Purchase Price....................... 2
Section 1.4 TGA Contingent Purchase Price....................... 3
Section 1.5 Non-Compete Payments................................ 4
Section 1.6 Letter of Credit.................................... 4
Section 1.7 Effective Date of Purchase and Sale................. 4
ARTICLE II CLOSING...................................................... 4
Section 2.1 Closing............................................. 4
Section 2.2 Deliveries by the Sellers........................... 4
Section 2.3 Deliveries by Purchaser............................. 5
Section 2.4 Simultaneous Deliveries............................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS................... 6
Section 3.1 Title to Shares..................................... 6
Section 3.2 Power and Authority................................. 6
Section 3.3 Execution and Validity.............................. 6
Section 3.4 No Conflict; Consents............................... 6
Section 3.5 Company Organization; Good Standing; Delivery of
Charter Documents................................... 7
Section 3.6 Corporate Power and Authority....................... 7
Section 3.7 Capitalization...................................... 7
Section 3.8 No Undisclosed Liabilities.......................... 7
Section 3.9 Sufficiency and Condition of and Title to the
Company Assets...................................... 7
Section 3.10 Real and Personal Property.......................... 8
Section 3.11 Compliance with Laws................................ 8
Section 3.12 Insurance........................................... 8
Section 3.13 Contracts........................................... 9
Section 3.14 Litigation; Orders.................................. 9
Section 3.15 Permits............................................. 9
Section 3.16 Intangible Assets................................... 9
Section 3.17 Employees........................................... 10
Section 3.18 Employee Benefits................................... 10
Section 3.19 Taxes............................................... 12
Section 3.20 Bank Accounts; Powers of Attorney................... 12
Section 3.21 Affiliated Transactions............................. 12
Section 3.22 Books and Records................................... 12
Section 3.23 Full Disclosure.,,,................................. 13
Section 3.24 Brokers............................................. 13
Section 3.25 Absence of Sensitive Payment........................ 13
Section 3.26 Financial Statements................................ 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.................. 13
Section 4.1 Organization; Good Standing; Delivery of Charter
Documents........................................... 13
Section 4.2 Power and Authority................................. 14
Section 4.3 Authorization; Execution and Validity............... 14
Section 4.4 No Conflict; Purchaser Consents..................... 14
Section 4.5 Full Disclosure..................................... 14
Section 4.6 Brokers............................................. 14
ARTICLE V COVENANTS OF SELLERS.......................................... 14
Section 5.1 Cooperation of the Sellers.......................... 14
Section 5.2 Pre-Closing Access to Information................... 14
Section 5.3 Conduct of Business................................. 14
Section 5.4 No Business Changes................................. 15
Section 5.5 Permitted Actions................................... 15
Section 5.6 Supplements to Schedules............................ 16
Section 5.7 Standstill.......................................... 17
Section 5.8 Discharge of Encumbrances........................... 17
Section 5.9 Non-Disclosure; Non-Competition; Non-Solicitation... 17
ARTICLE VI COVENANTS OF PURCHASER....................................... 19
Section 6.1 Cooperation by Purchaser............................ 19
Section 6.2 Confidentiality Agreement........................... 19
ARTICLE VII MUTUAL COVENANTS............................................ 19
Section 7.1 Fees and Expenses................................... 19
Section 7.2 Governmental Consents............................... 20
Section 7.3 Consents to Assign Leases and Contracts............. 20
Section 7.4 Permits............................................. 20
Section 7.5 Further Assurances.................................. 20
Section 7.6 Supplemental Agreements and Consents................ 21
Section 7.7 Tax Matters......................................... 21
Section 7.8 Employee Benefit Plans; Employment.................. 21
ARTICLE VIII CONDITIONS PRECEDENT TO CLOSING............................ 22
Section 8.1 Conditions Precedent to Purchaser's Obligations..... 22
Section 8.2 Conditions Precedent to the Sellers' Obligations.... 23
ARTICLE IX TERMINATION PRIOR TO CLOSING................................. 24
Section 9.1 Termination of Agreement............................ 24
Section 9.2 Procedure Upon Termination.......................... 24
ARTICLE X INDEMNIFICATION AND OFFSET.................................... 24
Section 10.1 Indemnification by Sellers.......................... 24
Section 10.2 Indemnification by Buyer............................ 24
Section 10.3 Claims for Indemnification.......................... 25
Section 10.4 Defense by Indemnifying Party....................... 25
Section 10.5 Offset.............................................. 25
ARTICLE XI ARBITRATION AND EQUITABLE REMEDIES........................... 26
Section 11.1 Settlement Meeting.................................. 26
Section 11.2 Arbitration Proceedings............................. 26
Section 11.3 Place of Arbitration................................ 26
Section 11.4 Discovery........................................... 27
Section 11.5 Equitable Remedies.................................. 27
Section 11.6 Exclusive Jurisdiction.............................. 27
Section 11.7 Judgments........................................... 27
Section 11.8 Expenses............................................ 27
Section 11.9 Cost of the Arbitration............................. 27
Section 11.10 Exclusivity of Remedies............................. 27
ARTICLE XII MISCELLANEOUS............................................... 27
Section 12.1 Amendment........................................... 27
Section 12.2 Counterparts........................................ 27
Section 12.3 Entire Agreement.................................... 28
Section 12.4 Expenses............................................ 28
Section 12.5 GOVERNING LAW....................................... 28
Section 12.6 Consent to Service of Process....................... 28
Section 12.7 No Assignment....................................... 28
Section 12.8 No Third Party Beneficiaries........................ 28
Section 12.9 Notices............................................. 28
Section 12.10 Public Announcements................................ 29
Section 12.11 Representation by Legal Counsel..................... 30
Section 12.12 Schedules........................................... 30
Section 12.13 Severability........................................ 30
Section 12.14 Specific Performance................................ 30
Section 12.15 Successors.......................................... 30
Section 12.16 Time of the Essence................................. 30
Section 12.17 Waiver.............................................. 30
SCHEDULES
Schedule 1.1 Shares
Schedule 3.7 Capitalization
Schedule 3.8 Undisclosed Liabilities
Schedule 3.10(b) Leased Real Property
Schedule 3.10(c) Owned Personal Property
Schedule 3.10(d) Leased Personal Property
Schedule 3.10(e) Personal Property Owned by Others
Schedule 3.12 Insurance
Schedule 3.13 Contracts
Schedule 3.14 Litigation
Schedule 3.15 Permits
Schedule 3.16(a) Owned Intangible Assets
Schedule 3.16(b) Licensed Intangible Assets
Schedule 3.17(a) Employees
Schedule 3.17(b) Employee Contracts
Schedule 3.18(a) Identification of Company Plans and Exceptions
Schedule 3.19(c) Taxes
Schedule 3.20 Bank Accounts; Powers of Attorney
Schedule 3.21 Affiliated Transactions
Schedule 3.26 Financial Statements
Schedule 5.8 Encumbrances Not Discharged
Schedule 7.3(b) Pre-Closing; Required Consents
Schedule 7.4(b) Pre-Closing; Required Permits
Schedule 7.8(a) Assumed Plans
EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B Form of Employment Agreement
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of November 9,
2005 (the "Signing Date"), is made by and among Hallmark Financial Services,
Inc., a Nevada corporation ("Purchaser"), Samuel M. Cangelosi, Donate A.
Cangelosi and Donald E. Meyer (individually, a "Seller" and, collectively,
the "Sellers").
PRELIMINARY STATEMENTS
A. The Sellers collectively own: (i) all of the issued and
outstanding shares of the Class A common stock, no par value per share
(the "TGA Stock"), of Texas General Agency, Inc., a Texas corporation
("TGA"), which shares constitute all the issued and outstanding equity
securities of TGA; and (ii) all of the issued and outstanding shares of
the common stock, $1.00 par value per share (the "TGASRI Stock"), of TGA
Special Risk, Inc., a Texas corporation ("TGASRI"), which shares
constitute all the issued and outstanding equity securities of TGASRI.
B. TGA owns all of the issued and outstanding shares of the common
stock, $1.00 par value per share (the "GSIC Stock"), of Gulf States
Insurance Company, an Oklahoma corporation ("GSIC"), which shares
constitute all of the issued and outstanding equity securities of GSIC.
C. The TGA Stock and the TGASRI Stock are collectively referred to as
the "Stock."
D. TGA, GSIC, and TGASRI are collectively referred to herein as the
"Companies" or individually as a "Company".
E. Purchaser and the Sellers are collectively referred to herein as
the "Parties" or individually as a "Party."
F. The Sellers desires to sell, and the Purchaser desires to
purchase, all of the Stock on the terms and subject to the conditions set
forth in this Agreement.
G. Capitalized terms used in this Agreement and rules of construction
are defined or indexed in Appendix A for the convenience of the reader and
in order to eliminate the need for cross-references. Appendix A is
incorporated herein by this reference.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants, representations and warranties set forth in this
Agreement and for other good, valid and binding consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties, intending to
be legally bound, hereby agree as follows:
ARTICLE I
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TERMS OF THE PURCHASE AND SALE
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Section 1.1 Sale of Shares.
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Subject to the terms and conditions and in reliance upon the
representations and warranties set forth in this Agreement, at the Closing
each Seller shall sell and assign to Purchaser, and Purchaser shall purchase
and acquire from each Seller, the number of shares of the Stock listed on
Schedule 1.1 opposite the name of such Seller (collectively, the "Shares"),
in each case free and clear of all Encumbrances, for the Purchase Price set
forth in Section 1.2 hereof. Such Shares shall represent all of the issued
and outstanding capital stock of any class of TGA and TGASRI.
Section 1.2 Purchase Price.
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The total consideration for the Shares (the "Total Purchase Price") shall
be an amount equal to up to $44,900,000.00, consisting of the sum of:
(a) For the purchase of the TGA Stock, an aggregate amount equal to up
to $44,700,000.00, consisting of an unconditional consideration of
$36,700,000.00 (the "TGA Base Purchase Price") plus additional contingent
consideration of up to $8,000,000.00 (the "TGA Contingent Purchase Price"),
as provided in Section 1.4 hereof (the TGA Base Purchase Price and TGA
Contingent Purchase Price are collectively referred to herein as the "TGA
Purchase Price"); plus,
(b) For the purchase of the TGASRI Stock, an aggregate amount equal to
$200,000.00 (the "TGASRI Purchase Price").
Section 1.3 Payment of the Purchase Price.
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The TGA Purchase Price and the TGASRI Purchase Price shall be payable to
the Sellers in proportion to their ownership of the TGA Stock and the TGASRI
Stock, respectively, in each case as set forth in Schedule 1.1. The Total
Purchase Price shall be payable to the Sellers as follows:
(a) At the Closing, Purchaser shall pay to the Sellers an aggregate of
$13,150,000.00, consisting of the TGASRI Purchase Price and $12,950,000.00
of the TGA Base Purchase Price. Such payments shall be by Purchaser's
checks or by wire transfers of immediately available funds to the bank
account(s) set forth on a notice given to the Purchaser by the Sellers at
least three (3) business days prior to the Closing Date.
(b) The balance of the TGA Base Purchase Price shall be payable by the
Purchaser to the Sellers in two installments of (i) $14,250,000.00, due on
or before the first anniversary of the Effective Date, and (ii)
$9,500,000.00, due on or before the second anniversary of the Effective
Date. The balance of the TGA Base Purchase Price shall be evidenced by
promissory notes (collectively, the "Notes" and, individually, a "Note")
issued by Purchaser to the Sellers in substantially the form of Exhibit A.
(c) The TGA Contingent Purchase Price, if any, shall be payable by the
Purchaser to the Sellers on or before March 30, 2009; provided, however,
that the Sellers may defer payment of the TGA Contingent Purchase Price to
March 30 of any subsequent calendar year in accordance with Section 1.4.
Such payment, if any, shall be by Purchaser's checks or by wire transfers of
immediately available funds to the bank account(s) set forth on a notice
given to the Purchaser by the Sellers at least three (3) business days prior
to the due date of the TGA Contingent Purchase Price.
Section 1.4 TGA Contingent Purchase Price.
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Payment of any TGA Contingent Purchase Price is conditioned on the
Sellers' compliance with the covenants contained in Section 5.9 hereof and
TGA achieving the following operational objectives for 2006, 2007 and 2008
years: (i) gross premium production, net of cancellations, within the
markets in which TGA operated as of the Effective Date at an average
compound annual growth rate of at least two percent (2%) (the "Growth
Factor"); and (ii) a three year accident year loss and loss adjustment
expense ratio ("3-Year LLAE Ratio") of less than 65%. If Sellers have
complied with the covenants contained in Section 5.9 hereof and both
operational objectives have been satisfied, the amount of the TGA Contingent
Purchase Price shall be equal to the product of (x) $8,000,000.00, times (y)
65% minus the greater of the 3-Year LLAE Ratio or 60%, divided by (z) five
percent (5%).
(a) By way of illustration, if TGA's gross premium production, net of
cancellations, for the 2005 calendar year was $100,000,000, in order to
achieve the 2% Growth Factor, TGA would be required to generate cumulative
gross premiums, net of cancellations, during the 2006, 2007 and 2008
calendar years of at least $312,160,080, calculated as follows:
[($100,000,000 x 1.02) + ($100,000,000 x 1.02 x 1.02) + ($100,000,000 x
1.02 x 1.02 x 1.02)] =
[$102,000,000 + $104,040,000 + $106,120,800] = $312,160,080
(b) For purposes hereof, the 3-Year LLAE Ratio shall be computed as
the ratio of the incurred losses and loss adjustment expenses for the 2006,
2007 and 2008 accident years to the net premiums earned for the same
period, all in accordance with statutory insurance accounting principles
consistently applied. The calculation of the 3-Year LLAE Ratio shall
include a reserve for incurred but not reported claims ("IBNR") determined
by Tillinghast, or other actuary mutually agreeable to the Parties, on the
basis of an analysis of data specific to TGA. By way of illustration, if
TGA has achieved the 2% Growth Factor and a 3-Year LLAE Ratio of 61.0%, the
TGA Contingent Purchase Price due Sellers would be $6,400,000, calculated as
follows:
(.65 - .61) / .05 x $8,000,000 = $6,400,000
(c) In the event TGA has achieved the 2% Growth Factor, the Purchaser
shall deliver to the Sellers on or before March 1, 2009, a notice describing
in reasonable detail the Purchaser's calculation of the 3-Year LLAE Ratio,
including the IBNR reserve included therein, and the amount of the TGA
Contingent Purchase Price. In the event TGA has achieved the 2% Growth
Factor but the Sellers do not agree with the IBNR reserve used in the
calculation of the 3-Year LLAE Ratio, the Sellers may, by written notice to
the Purchaser executed by at least two (2) of the Sellers and delivered to
the Purchaser on or before March 15, 2009, defer the payment of the TGA
Contingent Purchase Price, if any, for one (1) year to permit the continued
development of loss and loss adjustment expense for the 2006, 2007 and 2008
accident years. The same procedure shall be used in each successive year
until such time as the Sellers have not timely notified the Purchaser of
their election to defer payment of the TGA Contingent Purchase Price, at
which time payment of the TGA Contingent Purchase Price shall be due and
payable within fifteen (15) calendar days.
(d) Notwithstanding the foregoing provisions of this Section 1.4, any
TGA Contingent Purchase Price otherwise payable to the Sellers shall be
reduced by such amount (not in excess of the TGA Contingent Purchase Price
otherwise payable) as TGA shall have paid at the written instructions of the
Sellers to employees of TGA as one-time incentive bonuses.
Section 1.5 Non-Compete Payments.
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In addition to the Total Purchase Price, the Purchaser shall pay to the
Sellers an aggregate amount of $2,000,000.00 (the "Non-Compete Payments") in
consideration of their compliance with the restrictive covenants contained
in Section 5.9 hereof. The Non-Compete Payments shall be paid to the
Sellers in proportion to their ownership of the TGA Stock, as set forth in
Schedule 1.1, and shall be payable (i) an aggregate of $750,000.00 at the
Closing, (ii) an aggregate of $750,000.00 on or before the first anniversary
of the Effective Date, and (iii) an aggregate of $500,000.00 on or before
the second anniversary of the Effective Date. All Non-Compete Payments
shall be by Purchaser's checks or by wire transfers of immediately available
funds to the bank account(s) set forth on a notice given to the Purchaser by
the Sellers at least three (3) business days prior to the due date of each
payment. The Purchaser and the Sellers agree that they shall not take any
position or action inconsistent with the foregoing determination of the
amount of the Non-Compete Payments in the filing of any federal income tax
returns.
Section 1.6 Letter of Credit.
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The Purchaser's payment of the Notes and the Non-Compete Payments shall
be secured by a letter of credit issued by a federally chartered banking
institution reasonably acceptable to Sellers or other security reasonably
acceptable to the Sellers. For so long as any portion of the Notes or the
Non-Compete Payments remains unpaid, such letter of credit or other security
shall be maintained by the Purchaser in an amount not less than the
aggregate unpaid balance of the Notes and the Non-Compete Payments.
Section 1.7 Effective Date of Purchase and Sale.
-----------------------------------
The Parties hereto agree that the effective date for the sale of the
Shares shall be the earlier of the Closing Date or January 1, 2006 (the
"Effective Date").
ARTICLE II
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CLOSING
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Section 2.1 Closing.
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The consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Mark Holland, P.C., 9901 IH-10
West, Suite 795, San Antonio, Texas 78230 on the first business day of the
calendar month following the date on which all of the conditions set forth
in Article VIII, to the extent not waived, are satisfied. The Closing may
be postponed to such other date as the Parties may mutually agree. The date
on which the Closing actually occurs is hereinafter referred to as the
"Closing Date."
Section 2.2 Deliveries by the Sellers.
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At the Closing, the Sellers or each Seller, as the case may be, shall
deliver the following:
(a) the closing and secretary's certificates referred to in Section
8.1(e) and Section 8.1(f);
(b) certificates representing the number of Shares of TGA and TGASRI,
as applicable, listed on Schedule 1.1 opposite the name of each Seller, in
each case duly endorsed in blank or accompanied by duly executed stock
transfer powers in favor of Purchaser dated the Effective Date;
(c) a certificate dated within ten (10) business days prior the Closing
Date from the Secretary of State (or other proper official) of the
jurisdiction of formation of each Company certifying as to each Company's
valid existence and good standing in such jurisdiction;
(d) the recorded Charter Documents of each Company, recently certified
by the Secretary of State (or other proper official) of the jurisdiction of
formation of each Company;
(e) all Books and Records of each Company;
(f) executed counterparts of all Required Consents and Required
Permits;
(g) a receipt for the payment of the TGASRI Purchase Price and that
portion of the TGA Base Purchase Price paid at Closing;
(h) each of the agreements referred to in Section 7.6(a) to which any
Seller is a party, each executed by the appropriate Seller(s);
(i) each of the consents referred to in Section 7.6(b);
(j) a written opinion of counsel to the Sellers addressed to the
Purchaser confirming that the representations and warranties contained in
Section 3.1 through Section 3.7 hereof are true, correct and complete and
that, to the best of such counsel's knowledge, the Sellers' other
representations and warranties are true, correct and complete, which opinion
shall be in form and substance reasonably satisfactory to the Purchaser and
its counsel; and
(k) all other previously undelivered documents, instruments and
writings required to be delivered by the Sellers to Purchaser at or prior to
the Closing pursuant to this Agreement and such other documents, instruments
and certificates as Purchaser may reasonably request in connection with the
transactions contemplated by this Agreement.
Section 2.3 Deliveries by Purchaser.
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At the Closing, Purchaser shall deliver, or cause to be delivered, to
the Sellers the following:
(a) the TGASRI Purchase Price and that portion of the TGA Base Purchase
Price payable at Closing in accordance with Section 1.3, together with that
portion of the Non-Compete Payments payable at Closing in accordance with
Section 1.5;
(b) the Notes;
(c) a letter of credit or other security in accordance with Section
1.6;
(d) the closing and secretary's certificates referred to in Sections
8.2(d) and 8.2(e);
(e) each of the agreements referred to in Section 7.6(a) to which
Purchaser is a party, each executed by Purchaser;
(f) all other previously undelivered documents, instruments and
writings required to be delivered by Purchaser to the Sellers at or prior to
the Closing pursuant to this Agreement and such other documents, instruments
and certificates as the Sellers may reasonably request in connection with
the transactions contemplated by this Agreement.
Section 2.4 Simultaneous Deliveries.
-----------------------
The delivery of the documents required to be delivered at the Closing
pursuant to this Agreement shall be deemed to occur simultaneously. No
delivery shall be effective until each Party has received, or waived receipt
of, all the documents that this Agreement entitles such Party to receive.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES OF SELLERS
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Each Seller, jointly and severally, hereby represents and warrants to
Purchaser that the statements made in this Article III are true, correct and
complete.
Section 3.1 Title to Shares.
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Each Seller is the record and beneficial owner of the number of Shares
of TGA and TGASRI listed on Schedule 1.1 opposite the name of such Seller,
free and clear of all Encumbrances. TGA is the record and beneficial owner
of the GSIC Stock free and clear of all Encumbrances. At the Closing, each
Seller will transfer to Purchaser its entire right, title and interest in
and to the Shares free and clear of all Encumbrances.
Section 3.2 Power and Authority.
-------------------
Each Seller has the requisite power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby, including the execution, delivery and
performance of all of the Transaction Documents to which such Seller is a
party.
Section 3.3 Execution and Validity.
----------------------
Each of the Transaction Documents, when executed by each Seller and
delivered to Purchaser, will constitute a valid, legal and binding
obligation of such Seller, enforceable against such Seller in accordance
with the terms of such Transaction Document, subject to any Law Affecting
Creditors' Rights.
Section 3.4 No Conflict; Consents.
---------------------
The execution, delivery and performance by each Seller of each
Transaction Document will not (a) violate any Law, (b) violate any of the
Charter Documents of any of the Companies, (c) violate any Order to which
such Seller or any of the Companies is a party or by which such Seller, any
of the Companies or any of their respective assets are bound, (d) result in
the creation of any Encumbrance on any of the Shares, or (e) require any
Consent from any Person that will not be obtained and delivered on or before
the Closing.
Section 3.5 Company Organization; Good Standing; Delivery of Charter
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Documents.
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Each Company is a corporation duly organized, validly existing and in
good standing under the laws of the state in which such Company is
incorporated. Each Company is duly qualified or licensed as a foreign
corporation in each jurisdiction in which the nature of such Company's
business makes qualification or licensing necessary. Prior to the Signing
Date, each Company has delivered, or caused to be delivered, to Purchaser
true and complete copies of the Charter Documents of such Company as in
effect on the Signing Date.
Section 3.6 Corporate Power and Authority.
-----------------------------
Each Company has all the requisite corporate power and authority
necessary to own, operate and lease its assets and to carry on its business
as and where conducted.
Section 3.7 Capitalization.
--------------
Schedule 3.7 lists the total number of authorized, issued and
outstanding shares of all classes of the capital stock of each Company and
the record holder(s) of all such issued and outstanding shares. All issued
and outstanding shares of each Company have been duly authorized and validly
issued and are fully paid and nonassessable. There is no authorized or
outstanding option, subscription, warrant, call, preemptive right,
commitment or other right or agreement (each, a "Subscription Right")
obligating any Company to issue or sell any shares of its capital stock or
any securities convertible into or exercisable for any shares of its capital
stock. None of the shares of any Company were issued or will be transferred
pursuant to this Agreement in violation of any preemptive or preferential
rights or rights of first refusal of any Person. Other than as reflected in
Schedule 3.7, no Company has any subsidiaries or owns any shares of capital
stock, partnership interests or other beneficial ownership interests in any
other Person.
Section 3.8 No Undisclosed Liabilities.
--------------------------
Except as set forth in Schedule 3.8, none of the Companies is subject to
any Claim of any nature, absolute or contingent, and no events have occurred
or circumstances exist that could give rise to any future Claim, that could
have a Material Adverse Effect on the assets or business of any Company.
Section 3.9 Sufficiency and Condition of and Title to the Company
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Assets.
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(a) Sufficiency of the Company Assets. The assets reflected on the
Books and Records of each Company (collectively, the "Company Assets")
constitute all the assets, properties, licenses and other arrangements which
are presently being used or are reasonably related to the business of such
Company, and are sufficient to operate such business in a manner consistent
with past practice and historic capacity.
(b) Condition of the Company Assets. Each of the Company Assets
complies with Law and is in good and normal operating condition and repair,
structurally sound with no known defects (ordinary wear and tear excepted),
and suitable for its intended use.
(c) Title to the Company Assets. At the Closing, each Company will
hold good, valid and indefeasible title to, or a valid leasehold interest
in, each of the Company Assets, free and clear of all Encumbrances, other
than Permitted Encumbrances.
(d) No Transfers. Except as expressly provided herein, during the six
month period preceding the Closing Date, no Company has transferred any
Company Assets to a Seller or affiliate of any Seller nor has any Company
made any distribution of cash to any Seller or affiliate of any Seller,
except for salaries and expense reimbursement in the ordinary course of
business or other payments which, in the aggregate, do not exceed $10,000.
Section 3.10 Real and Personal Property.
--------------------------
(a) Owned Real Property. None of the Companies own any interest in
real property.
(b) Leased Real Property. Schedule 3.10(b) lists, as of the Signing
Date, all leases of real property (collectively, the "Real Property Leases")
to which any of the Companies is a party. As of the Signing Date, all of
the Real Property Leases are valid, binding and in full force and effect.
Neither any Company nor, to the Sellers' Knowledge, any other Person is in
default under any of the Real Property Leases, nor is there any event or
circumstance which with notice or lapse of time, or both, would constitute a
default thereunder by any Company or any other Person.
(c) Owned Personal Property. Schedule 3.10(c) lists, as of the Signing
Date, all of the depreciable personal property (including all machinery,
equipment, vehicles, structures, fixtures and furniture) owned by each
Company and used in the business of such Company or located on its premises.
(d) Leased Personal Property. Schedule 3.10(d) lists, as of the
Signing Date, all leases of personal property (collectively, the "Personal
Property Leases") to which any of the Companies is a party. As of the
Signing Date, all of the Personal Property Leases are valid, binding and in
full force and effect. Neither any Company nor, to the Sellers' Knowledge,
any other Person is in default under any of the Personal Property Leases,
nor is there any event or circumstance which with notice or lapse of time,
or both, would constitute a default thereunder by any Company or any other
Person.
(e) Personal Property Owned by Others. Schedule 3.10(e) lists, as of
the Signing Date, all artwork, memorabilia and other personal property
routinely located on the premises of any of the Companies which is not owned
by the Companies, together with the name(s) of the owner(s) of such personal
property.
Section 3.11 Compliance with Laws.
--------------------
Each Company has complied with all Laws in the conduct of its business.
No Company has received any notice from any Governmental Authority or other
Person asserting that such Company has violated any Law. No events have
occurred or, to Sellers' Knowledge, circumstances exist that could cause any
Company to violate any Law in the future.
Section 3.12 Insurance.
---------
Schedule 3.12 lists, as of the Signing Date, all insurance policies
which insure the business of any Company or any of the assets of any Company
against loss (collectively, the "Insurance Policies"), including each
insurer's name, coverage deductible and limit, expiration date and current
premium. Each Insurance Policy is in full force and effect, all premiums
with respect thereto have been paid to the extent due, and no notice of
cancellation or termination has been received with respect to any such
policy, other than any policy that will be replaced or is intended to be
replaced prior to the expiration thereof by policies providing substantially
the same coverage from an insurer that is financially sound and reputable.
The Insurance Policies provide the Companies with adequate insurance
coverage against the risks involved in the conduct of the business of the
Companies and ownership of the assets of the Companies. The coverage
provided by the Insurance Policies will not in any way be affected by, or
terminate or lapse by reason of, the consummation of the transactions
contemplated by this Agreement. True and complete copies of all Insurance
Policies have been provided to Purchaser.
Section 3.13 Contracts.
---------
Schedule 3.13 lists, as of the Signing Date, all contracts relating to
the business and assets of each Company or by which any of the assets of
such Company is bound, pursuant to which the obligations of any party
thereto are, or are contemplated to be, with respect to any such contract
(a) in excess of $10,000 during any twelve month period during the term
thereof, (b) not terminable prior to 90 days after the Signing Date, or (c)
otherwise material to the business of such Company. All of the contracts
listed on Schedule 3.13 and any contracts entered into after the Signing
Date in accordance with Section 5.3 (collectively, the "Material Contracts")
are or will be valid and binding and in full force and effect, subject to
Laws Affecting Creditors' Rights. Neither any Company nor, to the Sellers'
Knowledge, any other Person is in default under any Material Contract, nor
is there any event or circumstance which with notice or lapse of time, or
both, would constitute a default thereunder by such Company or any other
Person. No Company is a party to any contract which (x) requires the
Consent of any Person in order to consummate the transactions contemplated
by this Agreement, except as otherwise stated on Schedule 3.13, (y) is in
excess of the normal, ordinary and usual requirements of the business of
such Company, or (z) is excessive in price or quantity. True and complete
copies of all the Material Contracts have been provided to Purchaser.
Section 3.14 Litigation; Orders.
------------------
Except as set forth in Schedule 3.14, there are no Actions pending, or
to the Sellers' Knowledge, threatened against or affecting any Company, its
business or any of its assets as of the Signing Date. No Company is subject
to any Order.
Section 3.15 Permits.
-------
Schedule 3.15 lists all of the Permits related to the assets of each
Company or operation of the business of such Company, and indicates those
Permits for which the Consent of any Person is required to assign such
Permit. Each Company has obtained, maintains in effect, and complies with
the terms and conditions of all Permits required by Law. There is no Action
pending or, to the Sellers' Knowledge, threatened in writing to revoke or
limit any Permit listed on Schedule 3.15. Each Company has all Permits
necessary for the business of each Company as presently conducted.
Section 3.16 Intangible Assets.
-----------------
(a) Owned Intangible Assets. Schedule 3.16(a) lists all of the
Intangible Assets owned by each Company as of the Signing Date. With
respect to the Intangible Assets listed on Schedule 3.16(a) and all of the
Intangible Assets obtained or developed prior to the Closing, (i) such
Company owns all right, title and interest in and to such Intangible Assets
free and clear of all Encumbrances, (ii) such Company has not sold,
transferred, licensed, sub-licensed or conveyed any interest in any of such
Intangible Assets, and (iii) to Sellers' Knowledge, no Person has infringed
upon or misappropriated any of such Intangible Assets.
(b) Licensed Intangible Assets. Schedule 3.16(b) lists all licenses
and contracts related to any Intangible Asset used by each Company as of the
Signing Date. Each license or contract listed on Schedule 3.16(b) and each
license or contract related to an Intangible Asset which is entered into
after the Signing Date in accordance with Section 5.3 is valid, binding and
in full force and effect. No Company has infringed upon or misappropriated
any Intangible Asset owned by another Person.
Section 3.17 Employees.
---------
(a) Employees. Schedule 3.17(a) lists the name, job title, date of
employment and current annual compensation (salary, bonus and participation
in any non-qualified deferred or incentive compensation arrangement) for
each employee of each Company employed as of the Signing Date (collectively,
the "Employees"). All Employees are either United States citizens or
otherwise authorized to engage in employment in the United States in
accordance with all Laws. All sums due for Employee compensation and
benefits and all vacation time owing to any Employee (including all persons
whose employment by a Company is terminated prior to the Signing Date) have
been duly and adequately accrued on the accounting Books and Records of each
Company.
(b) Contracts. Except as set forth in Schedule 3.17(b), no Company is
a party to (i) any contract for employment between such Company and an
Employee of such Company that cannot be terminated at will without cost, or
(ii) any collective bargaining agreement or other contract to or with any
labor union, Employee representative or group of Employees. Each Company's
employment of an Employee of such Company is terminable at will without any
penalty or severance obligation of any kind on the part of such Company.
(c) Compliance with Labor Laws. Each Company has complied and is
presently complying with all Laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, and is
not engaged in any unfair labor practice or unlawful employment practice.
Section 3.18 Employee Benefits.
-----------------
(a) Identification of Company Plans. Schedule 3.18(a) sets forth a
list of all Employee Benefit Plans which provide compensation or benefits to
employees, officers, directors or consultants of the Companies including,
without limitation, all Employee Benefit Plans and all employment or
executive compensation agreements (collectively, the "Company Plans").
Sellers have delivered to Purchaser true and complete copies of: (i) each of
the Company Plans and any related funding agreements thereto (including
insurance contracts) including all amendments, all of which are legally
valid and binding and in full force and effect and there are no defaults
thereunder, (ii) the currently effective Summary Plan Description pertaining
to each of the Company Plans, (iii) the three most recent annual reports for
each of the Company Plans, (iv) the most recent IRS determination letter for
each Company Plan which is intended to constitute a qualified plan under
Section 401 of the Code, and (v) financial statements for each funded
Company Plan. Notwithstanding any statement or indication in this Agreement
to the contrary, except as disclosed on Schedule 3.18(a), there are no
Company Plans which the Companies or Purchaser will not be able to terminate
(or in which the Companies will not be able to terminate the participation
of their employees) immediately after the Closing in accordance with their
terms and ERISA, and without incurring any expenses (including, but not
limited to, loads or termination charges imposed with respect to insurance
policies or mutual funds used to fund such Company Plans), other than
administrative expenses in connection with such termination and benefits
accrued as of the date of termination.
(b) Compliance with Applicable Laws. All Company Plans comply with and
are and have been operated in material compliance with each applicable
provision of ERISA, the Code, other federal statutes, state Law (including,
without limitation, state insurance Law) and the regulations and rules
promulgated pursuant thereto or in connection therewith. Neither any
Company nor any member of the same controlled group of businesses as any
Company within the meaning of Section 4001(a)(14) of ERISA (an "ERISA
Affiliate") has failed to make any material contributions or to pay any
material amounts due and owing as required by the terms of any Company Plan.
Other than routine claims for benefits under the Company Plans, there are no
pending or, to Sellers' Knowledge, threatened investigations, proceedings,
claims, lawsuits, disputes, actions, audits or controversies involving the
Company Plans or the fiduciaries, administrators, or trustees of any of the
Company Plans or any ERISA Affiliate as the employer or sponsor under any
Company Plan, with any of the IRS, the Department of Labor, the Pension
Benefit Guaranty Corporation, any participant in or beneficiary of any
Company Plan or any other Person whomsoever. To Sellers' Knowledge, there
is no reasonable basis for any such claim, lawsuit, dispute, action or
controversy.
(c) Pension Benefit Plans. Neither any Company nor any ERISA Affiliate
is or ever has been a sponsor or obligated to contribute to any plan covered
by Title IV of ERISA or Section 412 of the Code, or any "multiemployer
plan," within the meaning of Section 3(37) of ERISA. Each of the Company
Plans which is intended to be a qualified plan under Section 401(a) of the
Code has received a favorable determination letter from the IRS, and has
been operated substantially in accordance with its terms and with the
provisions of the Code.
(d) Welfare Benefit Plans. Each Company Plan which is required to
comply with the provisions of Part 6 of Title I of ERISA, Section 601 et
seq., and Code Section 4980B and the provisions of Part 7 of Title I of
ERISA, Section 701 et seq., and Code Section 4980D has complied in all
material respects. Except as required by such Sections of the Code, no
Company Plan which is a Welfare Benefit Plan provides for any post-
employment benefits.
(e) Effect of Consummation. The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee of any Company or any other individual to a bonus, severance pay,
unemployment compensation or similar payment by any of the Companies, (ii)
otherwise accelerate the time of payment or vesting, or increase the amount
of any compensation due to any current or former employee of any Company,
(iii) result in any prohibited transaction described in Section 406 of ERISA
or Section 4975 of the Code for which an exemption is not available, or (iv)
in any way result in any liability of a Company with respect to any Employee
Benefit Plan of any Person. None of the Companies is a party or subject to
any agreement, contract or other obligation which would require the making
of any payment, other than payments as contemplated by this Agreement, to
any employee of the Companies, Sellers or to any other Person as a result of
the consummation of the transactions contemplated herein.
Section 3.19 Taxes.
-----
(a) Tax Returns. All Tax returns (including amended returns and claims
for refund), reports, and declarations of estimated Tax (collectively,
"Returns") which were required to be filed by each Company with any
Governmental Authority have been timely filed. All Returns are true and
correct and accurately reflect the Tax liabilities of such Company. All
Taxes shown to be due pursuant to such Returns have been paid in full.
(b) Statute of Limitations and Tax Actions. No Company has executed
any presently effective waiver or extension of any statute of limitations
against assessments and collection of Taxes. There are no pending or, to
the Sellers' Knowledge, threatened Claims, assessments, notices, proposals
to assess, deficiencies or audits with respect to Taxes.
(c) Miscellaneous Tax Representations. Proper and accurate amounts
have been withheld and remitted by each Company from and with respect to all
Persons from whom it is required by applicable law to withhold for all
periods in compliance with the tax withholding provisions of all Laws. No
Company or, to the Sellers' Knowledge, any other corporation has filed an
election under Section 341(f) of the Code that is applicable to such Company
or any of the assets of such Company. Except as listed on Schedule 3.19(c),
no Company is a party to any tax sharing agreement. There is no contract,
plan or arrangement covering any Person that, individually or collectively,
would give rise to the payment of any amount that would not be deductible by
any Company by reason of Section 162(m) or Section 280G of the Code. No
Company is a "foreign person" within the meaning of Section 1445(f)(3) of
the Code. Except as listed on Schedule 3.19(c), no Company has ever been a
member of any group that filed a consolidated federal income tax return.
Section 3.20 Bank Accounts; Powers of Attorney.
---------------------------------
Schedule 3.20 lists the names of (a) each bank, trust company and stock
or other broker with which each Company has an account, credit line or safe
deposit box or vault, or otherwise maintains relations (the "Bank
Accounts"), (b) all Persons authorized to draw on, or to have access to,
each of the Bank Accounts, and (c) all Persons authorized by proxies, powers
of attorney or other like instruments to act on behalf of such Company in
any matter concerning the business of such Company. Each of the Bank
Accounts has a positive cash balance. No proxies, powers of attorney or
other like instruments are irrevocable.
Section 3.21 Affiliated Transactions.
-----------------------
Except as set forth on Schedule 3.21, there are no outstanding loans or
other transactions between any Company and any Seller, officer, director,
shareholder, consultant or affiliate of such Company or any spouse or child
of any such person. No Seller, officer, director, shareholder, consultant
or affiliate of any Company nor any spouse or child of any such person owns
or has any interest in, directly or indirectly, any real or personal
property owned by or leased to such Company.
Section 3.22 Books and Records.
-----------------
The Books and Records of each Company, all of which have been made
available to Purchaser prior to the Signing Date, are true, correct and
complete and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal
controls.
Section 3.23 Full Disclosure.
---------------
No representation or warranty of any Seller made in this Agreement, nor
any written statement furnished to Purchaser pursuant hereto or in
connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact which affects the business
or financial condition of any Company, or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading.
Section 3.24 Brokers.
-------
Sellers have engaged Philo Smith & Company to advise them with respect
to this Transaction. The Sellers will pay all fees of Philo Smith & Company
pursuant to their agreement with funds other than those of any Company. No
other person is or will become entitled to receive any brokerage or finder's
fee, advisory fee or other similar payment for the transactions contemplated
by this Agreement by virtue of having been engaged by or acted on behalf of
any Seller or any Company. Sellers agree to indemnify and defend the
Purchaser and to hold Purchaser harmless from any claim by any individual or
entity asserting a broker or agency relationship relative to this
Transaction.
Section 3.25 Absence of Sensitive Payment.
----------------------------
No Company has made or maintained (i) any contributions, payments or
gifts of its funds or property to any governmental official, employee or
agent where either the payment or the purpose of such contribution, payment
or gift was or is illegal under the laws of the United States or any state
thereof, or any other jurisdiction (foreign or domestic); or (ii) any
contribution, or reimbursement of any political gift or contribution made by
any other person, to candidates for public office, whether federal, state,
local or foreign, where such contributions by such Company were or would be
a violation of applicable law.
Section 3.26 Financial Statements.
--------------------
The Sellers have delivered to the Purchaser copies of the consolidated
financial statements of the Companies described on Schedule 3.26
(collectively, the "Financial Statements"). To the best of Sellers'
knowledge the Financial Statements were prepared in accordance with GAAP
applied on a consistent basis and fairly present the financial position of
the Companies as of their respective dates and the results of operations and
cash flows of the Companies for the respective periods covered thereby in
accordance with GAAP (subject, in the case of unaudited statements, to
normal, recurring adjustments, consistently applied, none of which,
individually or in the aggregate, is material). Except as set forth in
Schedule 3.26, none of the Companies has any material liability or
obligation of any kind or nature (fixed or contingent) which is not
reflected, reserved against or disclosed in the Financial Statements and
accompanying footnotes.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser hereby represents and warrants to the Sellers that the
statements set forth in this Article IV are correct and complete.
Section 4.1 Organization; Good Standing; Delivery of Charter Documents.
----------------------------------------------------------
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. Purchaser is duly qualified
as a foreign corporation in the State of Texas.
Section 4.2 Power and Authority.
-------------------
Purchaser has all requisite corporate power and authority necessary to
execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby, including the execution,
delivery and performance of all of the Transaction Documents to which
Purchaser is a party.
Section 4.3 Authorization; Execution and Validity.
-------------------------------------
Each of the Transaction Documents, when executed and delivered by
Purchaser, will be duly authorized, executed and delivered, and will
constitute a valid, legal and binding obligation of Purchaser, enforceable
against Purchaser in accordance with the terms of such Transaction Document,
subject to any Law Affecting Creditors' Rights.
Section 4.4 No Conflict; Purchaser Consents.
-------------------------------
The execution, delivery and performance by Purchaser of each Transaction
Document to which it is a party will not (a) violate any Law, (b) violate
any Charter Document of Purchaser, (c) violate any Order to which Purchaser
is a party or by which Purchaser or its assets is bound, or (d) require any
Consent from any Person.
Section 4.5 Full Disclosure.
---------------
No representation or warranty of Purchaser made in this Agreement, nor
any written statement furnished to the Sellers pursuant hereto or in
connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact which affects the business
or financial condition of Purchaser, or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading.
Section 4.6 Brokers.
-------
No Person is or will become entitled to receive any brokerage or
finder's fee, advisory fee or other similar payment for the transactions
contemplated by this Agreement by virtue of having been engaged by or acted
on behalf of Purchaser. Purchaser agrees to indemnify and defend Sellers and
to hold Sellers harmless from any claim by any individual or entity
asserting a broker or agency relationship with Purchaser relating to this
Transaction.
ARTICLE V
---------
COVENANTS OF SELLERS
--------------------
Section 5.1 Cooperation of the Sellers.
--------------------------
From the Signing Date through the Closing Date, the Sellers shall use
all reasonable efforts (a) to take all actions and to do all things
necessary or advisable to consummate the transactions contemplated by this
Agreement, (b) to cooperate with Purchaser in connection with the foregoing,
including using reasonable efforts to obtain all of the Consents, and (c)
subject to the other terms and conditions of this Agreement, to cause all
the conditions set forth in Section 8.1, the satisfaction of which is in the
reasonable control of such Seller, to be satisfied on or prior to Closing.
Section 5.2 Pre-Closing Access to Information.
---------------------------------
From the Signing Date through the Closing Date, the Sellers shall afford
to Purchaser and its Representatives access to the properties and the Books
and Records of each Company.
Section 5.3 Conduct of Business.
-------------------
Except as provided in Section 5.5 below, from the Signing Date through
the Closing Date, the Sellers shall, and shall cause each Company to, use
all reasonable efforts to (i) preserve substantially the relationships with
its Representatives, suppliers and customers, (ii) perform its obligations
under all contracts, leases and Permits in all material respects, (iii)
comply with all Laws, (iv) confer with Purchaser regarding operational
matters of a material nature, (v) report periodically to Purchaser regarding
the status of its business and the results of its operations, and (vi)
conduct its business in the ordinary course and consistent with past
practices.
Section 5.4 No Business Changes.
-------------------
Except as provided in Section 5.5 below, from the Signing Date through
the Closing Date, the Sellers shall not, and shall cause each Company not
to, without the express written consent of the Purchaser: (i) enter into
any material agreement relating to the assets, properties or business of any
of the Companies, other than in the ordinary course of business; (ii) incur
or discharge any material obligation or liability, except in the ordinary
course of business; (iii) commit to make or make any capital expenditures;
(iv) cancel or fail to renew any Permit; (v) impose any lien, pledge or
encumbrance upon the Shares or any of the assets of any of the Companies;
(vi) make any change or authorize to be made any change to the Charter
Documents of any of the Companies; (vii) declare, set aside, or pay any
dividend or make any distribution with respect to the Shares (whether in
cash or in kind) or redeem, purchase, or otherwise acquire any of the
Shares; (viii) issue, deliver or sell any shares of the capital stock of any
class of any Company or split, combine or reclassify any of the capital
stock of any Company; (ix) incur any indebtedness for borrowed money;
(x) forgive or cancel any indebtedness owing to any of the Companies or
waive any claims or rights of value belonging to any of the Companies,
(xi) sell, lease, license or otherwise dispose of any of the assets or
properties of any of the Companies, other than in the ordinary course of
business; (xii) pay or increase the rate or terms of compensation or
benefits payable to or to become payable to any of the directors, officers,
employees, consultants or agents of any of the Companies above the amounts
reflected in Schedule 3.17(a); (xiii) amend or otherwise make any changes to
any of the Company Plans or increase the rate or terms of any benefits
payable under the Company Plans; (xiv) make any other change in the terms of
employment of any Employee, other than in the ordinary course of business;
(xv) make or rescind any express or deemed election relating to any Tax; or
(xvi) commit pursuant to a legally binding agreement to do any of the
foregoing.
Section 5.5 Permitted Actions.
-----------------
Notwithstanding the provisions of Section 5.3 and Section 5.4, after
the Signing Date but prior to the Closing Date, the Sellers shall be
permitted to cause TGA to declare and pay to Sellers (or such other
employees of the Companies as the Sellers may determine) or otherwise effect
bonus compensation consisting of, in the aggregate:
(a) Cash in an amount equal to the lesser of: (i) the positive
difference, if any, between (y) the net income of TGA and TGASRI for the
nine months ended September 30, 2005, as reflected in the interim Financial
Statements for such period prepared on a consistent basis with past
practice, minus (z) $650,000; or (ii) 110% of the net income of TGA and
TGASRI for the nine months ended September 30, 2004, as reflected in the
interim Financial Statements for such period prepared on a consistent basis
with past practice; and
(b) An assignment of TGA's right to receive sliding scale contingent
commissions due under Paragraph A.5 of Addendum A of the Managing General
Agency Agreement between the Republic Group of Insurance Companies
("Republic") and TGA originally effective January 1, 1993, with respect to
business produced on or before December 31, 2005, for Republic and its
reinsurers other than GSIC.
(i) The Sellers shall use their best efforts to arrange for
Republic and its reinsurers (other than GSIC) to make all payments of
such assigned sliding scale contingent commissions directly to the
Sellers.
(ii) Sellers shall in all events be solely liable for any refund
or recoupment of the assigned sliding scale contingent commissions
which may become due to Republic or its reinsurers (other than GSIC).
Sellers shall indemnify and hold TGA harmless against any and all
refund, recoupment or other liability attributable to or arising as a
result of payments of the assigned sliding scale contingent commissions
by Republic and its reinsurers (other than GSIC).
(iii) If the Sellers are unable to arrange for Republic and
its reinsurers (other than GSIC) to make all payments of such assigned
sliding scale contingent commissions directly to the Sellers, then TGA
shall, upon receipt of any payment for sliding scale contingent
commissions assigned to Sellers, forward such payment to the Sellers
within ten (10) business days; provided, however, that the Sellers
shall have provided to TGA a letter of credit (in an amount reasonably
satisfactory to TGA and issued by a federally chartered banking
institution reasonably acceptable to the Purchaser), or other security
reasonably acceptable to TGA, to secure the Sellers' liability for and
obligation to indemnify and hold TGA harmless against any and all
refund, recoupment or other liabilities attributable to or arising as a
result of payments of the assigned sliding scale contingent commissions
by Republic and its reinsurers (other than GSIC). If the Sellers fail
to provide to TGA a letter of credit or other security reasonably
acceptable to TGA, then TGA shall, upon receipt of any payment for
sliding scale contingent commissions assigned to Sellers, be authorized
and entitled to retain, as cash collateral to secure the Sellers'
liability for and obligation to indemnify and hold TGA harmless against
any and all refund, recoupment or other liabilities attributable to or
arising as a result of payments of the assigned sliding scale
contingent commissions by Republic and its reinsurers (other than
GSIC), an amount equal to up to 50% of each such payment. In such
event, TGA shall release such retained cash collateral to the Sellers
upon the earlier to occur of (A) the Sellers providing a letter of
credit or other security reasonably acceptable to TGA, or (B) the
extinguishment of any and all refund, recoupment or other liability
attributable to or arising as a result of payments of the assigned
sliding scale contingent commissions by Republic and its reinsurers
(other than GSIC), either by settlement with Republic and its
reinsurers (other than GSIC) or the ultimate development of all losses
affecting such assigned sliding scale contingent commissions.
Section 5.6 Supplements to Schedules.
------------------------
If, between the Signing Date and the Closing Date, any Seller becomes
aware that any of its representations and warranties in this Agreement or
the schedules to this Agreement was inaccurate when made or if during such
period any event occurs or condition changes that causes any of such
representations and warranties to be inaccurate, then such Seller shall
notify Purchaser thereof in writing and supplement the schedules hereto to
account for any such inaccuracy, event or change. Any such supplement to
the schedules shall not be deemed to have been disclosed as of the Signing
Date, or to have cured any breach of a representation and warranty made in
this Agreement, unless so agreed in writing by Purchaser.
Section 5.7 Standstill.
----------
Until the earlier to occur of the Closing or the termination of this
Agreement pursuant to Article IX, each Seller shall not, nor shall any
Seller permit any Company or any of their Representatives to, (a) directly
or indirectly encourage, solicit, initiate or participate in discussions or
negotiations with, or provide any information or assistance to, any Person
(other than Purchaser and its Representatives) concerning any merger, sale
of securities, sale of substantial assets, investment proposals or similar
transaction involving any Company, (b) entertain or discuss any acquisition
or investment proposals whatsoever with respect to any Company, (c) except
as required by law after not less than five days notice to Purchaser,
disclose to any third party any non-published information concerning any
Company, the business of such Company or such Company's financial condition,
or (d) withdraw such Seller's intention to sell its Shares to Purchaser.
Each Seller shall, and shall cause each Company to, promptly notify
Purchaser if it receives any such proposal or offer or any inquiry or
contact with respect thereto. Until termination of this Agreement, no
Seller will, directly or indirectly, (i) sell, transfer, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
encumbrance, assignment or other disposition of, any of its Shares, or (ii)
grant any proxies, deposit any Shares into a voting trust or enter into a
voting agreement with respect to such Shares.
Section 5.8 Discharge of Encumbrances.
-------------------------
Except as set forth in Schedule 5.8, each Company and each Seller shall
take all actions and do all things necessary to cause all Encumbrances,
other than Permitted Encumbrances, on any of the Stock or the assets of any
of the Companies to be terminated or otherwise discharged at or prior to the
Closing.
Section 5.9 Non-Disclosure; Non-Competition; Non-Solicitation.
-------------------------------------------------
(a) Non-Disclosure Agreement. Sellers acknowledge that the
Confidential Information obtained or possessed by them will be the property
of Purchaser and the Companies from and after the Closing Date. Therefore,
Sellers each agree that they will not (i) disclose to any person, either
directly or indirectly, any Confidential Information, unless and solely to
the extent that such Confidential Information is required to be disclosed by
law or pursuant to a final judicial order or decree, (ii) use for its own
account or use, cause, facilitate or allow any third party to use
Confidential Information in any way, or (iii) remove any Confidential
Information or any copy, summary or compilation of any kind of any
Confidential Information from the premises of any Company or the premises of
any Company's customers following the Closing Date. Sellers further agree
to deliver to Purchaser all memoranda, notes, plans, records, reports and
other documents (and copies thereof) relating to any Company or the conduct
of any Company's business that they may possess or have under control at the
Closing Date.
(b) Work Product. All records and documents embodying any Confidential
Information or pertaining to the existing or contemplated scope of each
Company's business, which have been conceived, prepared or developed by a
Seller in connection with his ownership interest in such Company, use by
such Company or otherwise, either alone or with others (herein called "Work
Product"), shall be the sole property of such Company. At or prior to the
Closing Date, such Seller shall deliver all Work Product to such Company.
(c) Non-Competition Agreement. For a period of five (5) years after
the Closing, no Seller shall, directly or indirectly, without the express
written consent of the Purchaser, (i) own, engage in, manage, operate, join,
control, or participate in the ownership, management, operation, or control
of, or be connected as a stockholder, director, officer, employee, agent,
partner, joint venturer, member, beneficiary, or otherwise with, in any
"Competing Business" (defined below) anywhere in the "Restricted
Territories" (defined below); (ii) induce any customers of any Company to
patronize any Competing Business; (iii) solicit or accept any Competing
Business from any customer of any Company; (iv) request or advise any
customers of any Company to withdraw, curtail or cancel such customer's
business with any Company; or (v) disclose to any other person, firm or
corporation engaged in any Competing Business the names or addresses of any
of the customers of any Company. For purposes of this Agreement, the term
"Competing Business" is defined to mean any activity or business that is or
would be competitive with the business conducted by any Company at any time
prior to the Closing. The term "Restricted Territories" is defined to mean
the states of Arkansas, Louisiana, New Mexico, Oklahoma, and Texas.
(d) Non-Solicitation Agreement. For a period of five (5) years after
the Closing each Seller shall not, either on its own behalf or on behalf of
any business competing with Purchaser, directly or indirectly (i) solicit or
induce, or in any manner attempt to solicit or induce any person employed
by, or an agent of, any Company or Purchaser to terminate such person's
employment or agency, as the case may be, with such entity, or (ii) solicit,
divert, or attempt to solicit or divert, or otherwise accept as a supplier
or customer, any Person which sells or furnishes any products or services
to, or receives any products or services from, any Company or Purchaser, nor
will such Seller attempt to induce any such supplier or customer to cease
being (or any prospective supplier or customer not to become) a supplier or
customer of any Company or Purchaser.
(e) Modification of Restrictions. Sellers agree that if an arbitrator
or a court of competent jurisdiction determines that the length of time or
any other restriction, or portion thereof, set forth in this Section 5.9 is
overly restrictive and unenforceable, the arbitrator or court shall reduce
or modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
Parties agree that the restrictions of this Section 5.9 shall remain in full
force and effect. Sellers further agree that if an arbitrator or court of
competent jurisdiction determines that any provision of this Section 5.9 is
invalid or against public policy, the remaining provisions of this
Section 5.9 and the remainder of this Agreement shall not be affected
thereby, and shall remain in full force and effect.
(f) Injunctive Relief. In the event of any pending, threatened or
actual breach of any of the covenants or provisions of this Section 5.9, as
determined by an arbitrator or a court of competent jurisdiction, it is
understood and agreed by Sellers that the remedy at law for a breach of any
of the covenants or provisions of this Section 5.9 may be inadequate and,
therefore, the Purchaser and the Companies shall be entitled to a
restraining order or injunctive relief in addition to any other remedies at
law and in equity, as determined by an arbitrator or a court of competent
jurisdiction. The Sellers waive any bond, surety, or other security that
might be required of the Purchaser or any Company as a condition of any such
restraining order or injunctive relief.
(g) Acknowledgments of Sellers. Each Seller acknowledges that (i) any
public disclosure of the Confidential Information will have an adverse
effect on each Company, Purchaser and the business of such Company, (ii)
such Company and Purchaser would suffer irreparable injury if a Seller
breaches any of the terms of this Section 5.9, (iii) such Company and
Purchaser will be at a substantial competitive disadvantage if such entity
fails to acquire and maintain exclusive ownership of the Confidential
Information or to abide by the restrictions provided for in this Section
5.9, (iv) the scope of the protective restrictions provided for in this
Section 5.9 are reasonable when taking into account (A) the negotiations
between the Parties and (B) that the Sellers are the direct beneficiary of
the Purchase Price paid pursuant to this Agreement, (v) the consideration
being paid to the Sellers pursuant to this Agreement is sufficient
inducement for the Sellers to agree to the terms hereof, (vi) the provisions
of this Section 5.9 are reasonable and necessary to protect the business of
each Company, to prevent the improper use or disclosure of the Confidential
Information and to provide such Company and Purchaser with exclusive
ownership of all such Confidential Information and (vii) the terms of this
Section 5.9 preclude the Sellers from engaging in the conduct of the
business of each Company for a reasonable period.
(h) Release. Each Seller, in the capacity as a shareholder, director,
officer and/or employee of each Company, as applicable, hereby agrees to
execute and deliver on the Closing Date, in a form reasonably satisfactory
to the Purchaser, a written release of each Company from any and all claims
resulting from or related to any matter arising prior to the Closing Date,
except as provided in this Agreement.
ARTICLE VI
----------
COVENANTS OF PURCHASER
----------------------
Section 6.1 Cooperation by Purchaser.
------------------------
From the Signing Date through the Closing Date, Purchaser shall use all
reasonable efforts (a) to take all actions and to do all things necessary or
advisable to consummate the transactions contemplated by this Agreement, (b)
to cooperate with each Company and each Seller in connection with the
foregoing, including using reasonable efforts to obtain all of the Consents
and the Releases, and (c) subject to the other terms and conditions of this
Agreement, to cause all the conditions set forth in Section 8.2, the
satisfaction of which is in the reasonable control of Purchaser, to be
satisfied on or prior to Closing.
Section 6.2 Confidentiality Agreement.
-------------------------
The Purchaser acknowledges and agrees that, through the Closing Date,
the Purchaser remains bound by that certain Confidentiality Agreement with
TGA dated May 25, 2005.
ARTICLE VII
-----------
MUTUAL COVENANTS
----------------
Section 7.1 Fees and Expenses.
-----------------
Each Party hereto will be responsible for and bear all its own costs and
expenses incurred at any time in connection with pursuing, negotiating or
consummating this Agreement and all other agreements contemplated by the
Transaction Documents, including without limitation the preparation,
negotiation and execution of the Letter of Interest related hereto. Such
costs and expenses incurred by Sellers will be paid by Sellers with funds
other than those of any Company.
Section 7.2 Governmental Consents.
---------------------
Promptly after the Signing Date, each Party shall take all actions and
do all things necessary to obtain all Consents required by any Governmental
Authority to consummate the transactions contemplated hereby.
Section 7.3 Consents to Assign Leases and Contracts.
---------------------------------------
(a) Cooperation and Reasonable Efforts. Each Party hereby agrees to
use reasonable efforts, to take reasonable actions (including Purchaser's
delivery to third parties of its audited financial statements) and to
cooperate with each other as may be necessary to obtain Consents to transfer
and assign the Encumbered Instruments. Except as expressly provided herein,
no Party shall be required to pay any sum, to incur any obligation or to
agree to any amendment of any Encumbered Instrument in order to obtain any
such Consent to transfer and assign the Encumbered Instrument.
(b) Pre-Closing; Required Consents. Schedule 7.3(b) lists the
Encumbered Instruments to which a Consent to transfer and assign must be
obtained from the appropriate third party prior to Closing (collectively,
the "Required Consents"). Except for the Required Consents, the obtaining
of any Consents related to the Encumbered Instruments shall not be a
condition to Closing, and Closing shall occur irrespective of whether any
such Consent has been obtained.
Section 7.4 Permits.
-------
(a) Cooperation and Reasonable Efforts. Each Party hereby agrees to
use reasonable efforts, to take reasonable actions and to cooperate with
each other as may be necessary to transfer to Purchaser, or assist Purchaser
in obtaining, all Permits required to conduct the business of each Company.
On or as soon as practicable after the Signing Date, each Party shall file,
separately or jointly with any other Party, as the case may be, all
applications necessary to transfer or obtain the Permits. Each Party shall
use reasonable efforts to resolve such objections, if any, as may be
asserted by any Governmental Authority with respect to the applications
contemplated hereby. The Sellers, as a group, and Purchaser shall each pay
one-half of the fees and expenses incurred in connection with transferring
or obtaining all Permits.
(b) Pre-Closing; Required Permits. Schedule 7.4(b) lists the Permits
which must be transferred to or obtained by Purchaser prior to Closing (the
"Required Permits"). Except for the Required Permits, the transfer or
issuance to Purchaser of any Permit shall not be a condition to Closing, and
Closing shall occur irrespective of whether any such Permit has been
transferred or obtained.
Section 7.5 Further Assurances.
------------------
Subject to the other terms and conditions of this Agreement, at any time
and from time to time, whether before or after Closing, each Party shall
execute and deliver all instruments and documents and take all other action
that the other Parties may reasonably request to consummate or to evidence
the consummation of the transactions contemplated by this Agreement.
Section 7.6 Supplemental Agreements and Consents.
------------------------------------
(a) At or prior to the Closing, the applicable Parties and the
Companies shall enter into the following agreements (the "Supplemental
Agreements"):
(i) the Seller releases required pursuant to Section 5.9(h); and
(ii) employment agreements in substantially the form attached
hereto as Exhibit A between TGA and each of Samuel M.
Cangelosi, Donate A. Cangelosi and Donald E. Meyer.
(b) Prior to the Closing, the Sellers shall have obtained the Required
Consents, in form and substance reasonably satisfactory to Purchaser, to the
transactions contemplated by the Transaction Documents.
Section 7.7 Tax Matters.
-----------
(a) All federal, state, local and foreign income, ad valorem, excise,
sales, use, payroll, unemployment, and other taxes and assessments ("Taxes")
that are due and payable by any Company or by any Seller on behalf of any
Company have been properly computed, duly reported, fully paid, and
discharged. There are no unpaid Taxes that are or could become a lien on
the property or assets of any Company or require payment by any Company,
except for current Taxes not yet due and payable. All current Taxes not yet
due and payable by each Company have been properly accrued on the balance
sheets of each Company. No Company has incurred any liability for
penalties, assessments, or interest under the Internal Revenue Code. No
unexpired waiver executed by or on behalf of any Company with respect to any
Taxes is in effect.
(b) Tax Audits. Whenever any Taxing Authority asserts a claim, makes
an assessment, or otherwise disputes the amount of Taxes of any of the
Companies for which the Sellers are or may be liable under this Agreement,
Purchaser will promptly notify the Sellers and the Sellers shall fully
cooperate with Purchaser and the Companies in connection with any disputes,
proceedings or determinations relating to any Taxes to the extent such
proceedings or determinations affect the amount of Taxes for which the
Sellers are liable under this Agreement.
Section 7.8 Employee Benefit Plans; Employment.
----------------------------------
(a) Employee Benefit Plans. From and after the Effective Date, the
Companies shall elect to continue as a participating employer in the Company
Plans listed on Schedule 7.8(a) (the "Assumed Plans") and the coverage of
the Employees under all the Assumed Plans shall remain in effect in
accordance with the terms of the Assumed Plans. Purchaser may elect in its
sole discretion at any time to become the plan administrator and sponsoring
employer with the sole authority to designate the plan administrator or
amend or terminate any Assumed Plan.
(b) No Representations. Without the written consent of Purchaser,
neither Sellers nor any Company will make any promises or commitments to any
employee of the Companies with regard to his or her employment status with
Purchaser or any Company, or the terms or conditions upon which such
employment might occur or be continued.
ARTICLE VIII
------------
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 8.1 Conditions Precedent to Purchaser's Obligations.
-----------------------------------------------
The obligation of Purchaser to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction of the following
conditions, any of which may be waived in writing by Purchaser.
(a) Accuracy of Representations and Warranties. The representations
and warranties made by each Seller in this Agreement shall have been true
and complete as of the Signing Date and as of the Closing Date as though
made as of the Closing Date, except to the extent such representations or
warranties made as of a specific date shall have been correct and complete
as of the specified date.
(b) Performance of Covenants. Each Company and each Seller shall have
performed and complied with all agreements, covenants and obligations
required by this Agreement to be performed by such party prior to or at the
Closing.
(c) No Material Adverse Change. No Company has undergone any Material
Adverse Change since the Signing Date.
(d) Consents. Each Company and each Seller, as the case may be, shall
have received and delivered to Purchaser all the Required Consents and the
Required Permits, each in form and substance satisfactory to Purchaser, and
shall have given all notices required to be given to any Persons prior to
the consummation of the transactions contemplated by this Agreement.
(e) Closing Certificate. Each Seller and an executive officer of each
Company shall have delivered to Purchaser a certificate confirming (i) the
satisfaction of the conditions set forth in Sections 8.1(a), 8.1(b) and
8.1(c) and (ii) the continuing force and effect of the Required Consents and
Required Permits.
(f) Secretary's Certificate. Each Company shall have delivered to
Purchaser a certificate executed by the secretary or an assistant secretary
of such Company certifying as to (i) such Company's Charter Documents, (ii)
such Company's good standing, (iii) the resolutions in which such Company's
board of directors approved the Transaction Documents to which such Company
is a party and the transactions contemplated thereby, and (iv) the
incumbency of such Company's officers who execute any documents on behalf of
such Company in connection with this Agreement.
(g) Deliveries. Each Company and each Seller, as the case may be,
shall have delivered the documents required by Sections 2.2 and such other
documents as Purchaser may reasonably require.
(h) No Order or Action. No Order shall be in effect forbidding or
enjoining the consummation of the transactions contemplated hereby. No
Action shall be pending or threatened before any court or other Governmental
Authority seeking to enjoin the Closing or seeking damages against Purchaser
or any of its Representatives as a result of any of the transactions
contemplated by this Agreement, provided that neither Purchaser nor any of
its affiliates instituted such Action.
(i) Contemporaneous Closing. The acquisition by Purchaser of all of
the issued and outstanding equity securities of Pan American Acceptance
Corporation, a Texas corporation, shall have previously been or
contemporaneously be consummated pursuant to a definitive purchase agreement
executed by and among the Purchaser, Samuel M. Cangelosi, Donate A.
Cangelosi and Carol A. Meyer.
Section 8.2 Conditions Precedent to the Sellers' Obligations.
------------------------------------------------
The obligation of each Seller to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions, any of which may be waived in writing by the Sellers.
(a) Accuracy of Representations and Warranties. The representations
and warranties made by Purchaser in this Agreement shall have been true and
complete as of the Signing Date and as of the Closing Date as though made as
of the Closing Date, except to the extent such representations or warranties
made as of a specific date shall have been correct and complete as of the
specified date.
(b) Performance of Covenants. Purchaser shall have performed and
complied with all agreements, covenants and obligations required by this
Agreement to be performed by Purchaser prior to or at the Closing.
(c) Closing Certificate. An executive officer of Purchaser shall have
delivered to the Sellers a certificate confirming the satisfaction of the
conditions set forth in Sections 8.2(a) and 8.2(b).
(d) Secretary's Certificate. Purchaser shall have delivered to the
Company and each Seller a certificate executed by the secretary or an
assistant secretary of Purchaser certifying as to (i) the resolutions in
which Purchaser's board of directors approved this Agreement and the
transactions contemplated hereby, and (ii) the incumbency of Purchaser's
officers who execute any documents on behalf of Purchaser in connection with
this Agreement.
(e) Deliveries. Purchaser shall have delivered the documents required
by Section 2.3 and such other documents as the Sellers may reasonably
require.
(f) No Order or Action. No Order shall be in effect forbidding or
enjoining the consummation of the transactions contemplated hereby. No
Action shall be pending or threatened before any court or other Governmental
Authority seeking to enjoin the Closing or seeking damages against any
Company or any Seller or any of their Representatives as a result of any of
the transactions contemplated by this Agreement, provided that neither any
Company nor any Seller nor any of their affiliates instituted such Action.
ARTICLE IX
----------
TERMINATION PRIOR TO CLOSING
----------------------------
Section 9.1 Termination of Agreement.
------------------------
This Agreement may be terminated at any time prior to the Closing:
(a) by mutual agreement of Purchaser and the Sellers;
(b) by Purchaser at any time after the occurrence of a Material Adverse
Change in any Company; or
(c) by Purchaser or any Seller at any time on or after March 30, 2006,
if any of the conditions provided for in Section 8.1 or 8.2, respectively,
shall not have been met or waived in writing prior to such date.
Section 9.2 Procedure Upon Termination.
--------------------------
In the event of termination pursuant to Section 9.1, written notice
thereof shall be immediately given to the other Parties and the transactions
contemplated by this Agreement shall be terminated, without any further
action by any Party. If the transactions contemplated by this Agreement are
terminated as provided herein:
(a) each Party shall return all documents, work papers and other
materials of the other parties, whether obtained before or after the
execution hereof, to the party furnishing the same; and
(b) such termination shall not in any way limit, restrict or relieve
any Party of liability for any breach of this Agreement.
ARTICLE X
---------
INDEMNIFICATION AND OFFSET
--------------------------
Section 10.1 Indemnification by Sellers.
--------------------------
Sellers, jointly and severally, shall indemnify and hold harmless Purchaser,
each Company, and their respective directors, officers, employees, agents,
attorneys and shareholders (collectively, the "Purchaser Group") in respect
of any and all Claims incurred by the Purchaser Group, in connection with
each and all of the following:
(a) Any breach of any representation or warranty made by the Sellers in
this Agreement; and
(b) The breach of any covenant, agreement or obligation of Sellers
contained in this Agreement or any other instrument delivered at the
Closing, including, without limitation, the agreement and covenants of
Sellers set forth in Section 5.9 of this Agreement.
Section 10.2 Indemnification by Buyer.
------------------------
Purchaser shall indemnify and hold harmless Sellers in respect of any and
all Claims reasonably incurred by Sellers, in connection with each and all
of the following:
(a) Any breach of any representation or warranty made by Purchaser in
this Agreement; and
(b) The breach of any covenant, agreement or obligation of Purchaser
contained in this Agreement or any other instrument delivered at the
Closing.
Section 10.3 Claims for Indemnification.
--------------------------
Whenever any Claim shall arise for indemnification hereunder, the party
entitled to indemnification (the "Indemnified Party") shall promptly notify
the other party (the "Indemnifying Party") of the Claim and, when known, the
facts constituting the basis for such Claim. In the event of any Claim for
indemnification hereunder resulting from or in connection with any Claim or
legal proceedings by a third party, the notice to the Indemnifying Party
shall specify, if known, the amount or an estimate of the amount of the
liability potentially arising therefrom. The Indemnified Party shall not
settle or compromise any Claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the
Indemnifying Party.
Section 10.4 Defense by Indemnifying Party.
-----------------------------
In connection with any Claim giving rise to indemnity hereunder resulting
from or arising out of any Claim or legal proceeding by a Person who is not
a party to this Agreement, the Indemnifying Party at its sole cost and
expense may, upon written notice to the Indemnified Party given within
twenty (20) days after delivery of the written notice referred to in Section
10.3 hereof assume the defense of any such Claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to
indemnify the Indemnified Party with respect to all elements of such Claim.
Without the prior written consent of the Indemnified Party, the Indemnifying
Party will not enter into any settlement of any third-party claim which
would lead to liability or create any financial or other obligation on the
part of the Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder, or which provides for injunctive or
other non-monetary relief applicable to the Indemnified Party, or does
not include an unconditional release of all Indemnified Parties. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. If
the Indemnifying Party does not assume the defense of any such Claim or
litigation resulting therefrom with counsel reasonably satisfactory to the
Indemnified Party, (a) the Indemnified Party may defend against such Claim
or litigation, in such manner as it may deem appropriate, including, but not
limited to, settling such Claim or litigation, after giving notice of the
same to the Indemnifying Party, on such terms as the Indemnified Party may
deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its
counsel and at its own expense. If the Indemnifying Party thereafter seeks
to question the manner in which the Indemnified Party defended such third
party Claim or the amount or nature of any such settlement, the Indemnifying
Party shall have the burden to prove by a preponderance of the evidence that
the Indemnified Party did not defend or settle such third party Claim in a
reasonably prudent manner as a prudent businessman would if his own funds
were subject to such suit.
Section 10.5 Offset.
------
The Indemnified Party shall have the right to offset any amounts for which
it is entitled to indemnification under this Article X against any amounts
otherwise payable by the Indemnified Party to the Indemnifying Party under
this Agreement. The Purchaser shall further have the right to offset
against any amounts otherwise payable to the Sellers any liabilities arising
from any Claim described in Schedule 3.8, as well as any other amount
expressly permitted under this Agreement.
ARTICLE XI
----------
ARBITRATION AND EQUITABLE REMEDIES
----------------------------------
Section 11.1 Settlement Meeting.
------------------
The Parties shall attempt in good faith to resolve promptly through
negotiations any Claim or dispute under this Agreement. If any such Claim
or dispute should arise, the Parties shall meet at least once to attempt to
resolve the matter (the "Settlement Meeting"). Any Party may request the
other Parties to attend a Settlement Meeting at a mutually agreed time and
place within ten days after delivery of a notice of a Claim or dispute. The
occurrence of a Settlement Meeting with respect to a Claim or dispute shall
be a condition precedent to seeking any arbitration or judicial remedy,
provided that if a Party refuses to attend a Settlement Meeting the other
Parties may proceed to seek such remedy.
Section 11.2 Arbitration Proceedings.
-----------------------
If the Parties have not resolved a monetary Claim or dispute at the
Settlement Meeting, any Party may submit the matter to arbitration. A panel
of three arbitrators shall conduct the arbitration proceedings in accordance
with the provisions of the Federal Arbitration Act (99 U.S.C. Section 1 et
seq.) and the Commercial Arbitration Rules of the American Arbitration
Association (the "Arbitration Rules"). The decision of a majority of the
panel shall be the decision of the arbitrators.
(a) Arbitration Notice. To submit a monetary Claim or dispute to
arbitration, a Party shall furnish the other Parties and the American
Arbitration Association with a notice (the "Arbitration Notice") containing
(i) the name and address of such Party, (ii) the nature of the monetary
Claim or dispute in reasonable detail, (iii) the Party's intent to commence
arbitration proceedings under this Agreement, and (iv) the other information
required under the Federal Arbitration Act and the Arbitration Rules.
(b) Selection of Arbitrators. Within ten days after delivery of the
Arbitration Notice, Purchaser and Sellers, as a group, shall each select one
arbitrator from the list of the American Arbitration Association's National
Panel of Commercial Arbitrators. Within ten days after the selection of the
last of those two arbitrators, those two arbitrators shall select the third
arbitrator from such list. If the first two arbitrators cannot select a
third arbitrator within such ten day period, the American Arbitration
Association shall select such third arbitrator from the list. Each
arbitrator shall be an individual not subject to disqualification under Rule
No. 19 of the Arbitration Rules with experience in settling complex
litigation involving mergers and acquisitions.
(c) Arbitration Final. The arbitration of the matters in controversy
and the determination of any amount of damages or indemnification shall be
final and binding upon the Parties to the maximum extent permitted by Law,
provided that any Party may seek any equitable remedy available under Law as
provided in this Agreement. This agreement to arbitrate is irrevocable.
Section 11.3 Place of Arbitration.
--------------------
Any arbitration proceedings shall be conducted in San Antonio, Texas or
at such other location as the Parties may agree. The arbitrators shall hold
the arbitration proceedings within sixty (60) days after the selection of
the third arbitrator.
Section 11.4 Discovery.
---------
During the period beginning with the selection of the third arbitrator
and ending upon the conclusion of the arbitration proceedings, the
arbitrators shall have the authority to permit the Parties to conduct such
discovery as the arbitrators consider appropriate.
Section 11.5 Equitable Remedies.
------------------
Notwithstanding anything else in this Agreement to the contrary, after
the Settlement Meeting a Party shall be entitled to seek any equitable
remedies available under Law, including an injunction prohibiting a breach
of the provisions of Section 5.9 or an Order requiring a Seller to perform
this Agreement. Any such equitable remedies shall be in addition to any
damages or indemnification rights that such Party may assert in an
arbitration proceeding.
Section 11.6 Exclusive Jurisdiction.
----------------------
The Parties agree that any claim for equitable relief relating to this
Agreement shall be instituted in a federal or state court sitting in San
Antonio, Texas, which courts and their respective appellate courts shall be
the exclusive venue for any such claim. Each Party waives any objection
that it may have to the laying of such venue, and irrevocably submits to the
jurisdiction of any such court with respect to any such claim. Any service
of process and other notice in any such case shall be effective against a
Party when transmitted in accordance with Section 12.9, provided that a
Party also may serve process in any manner permitted by Law.
Section 11.7 Judgments.
---------
Any arbitration award under this Agreement shall be final and binding.
Any court having jurisdiction may enter judgment on such arbitration award
upon application of a Party.
Section 11.8 Expenses.
--------
If any Party commences arbitration proceedings or court proceedings
seeking equitable relief with respect to this Agreement, the prevailing
Party in such arbitration proceedings or case may receive as part of any
award or judgment reimbursement of such Party's reasonable attorneys' fees
and expenses to the extent that the arbitrators or court considers
appropriate.
Section 11.9 Cost of the Arbitration.
-----------------------
The arbitrators shall assess the costs of the arbitration proceedings,
including their fees, to the Parties in such proportions as the arbitrators
consider reasonable under the circumstances.
Section 11.10 Exclusivity of Remedies.
-----------------------
To the extent permitted by Law, the arbitration and judicial remedies
set forth in this Article XI shall be the exclusive remedies available to
the Parties with respect to any dispute under this Agreement or Claim for
damages under this Agreement.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
Section 12.1 Amendment.
---------
No amendment of this Agreement shall be effective unless in a writing
signed by Purchaser and each Seller.
Section 12.2 Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original agreement, but all of which shall
constitute one and the same agreement. Any Party may execute and deliver
this Agreement by an executed signature page transmitted by a facsimile
machine. If a Party transmits its signature page by a facsimile machine,
such Party shall promptly thereafter deliver an originally executed
signature page to the other Parties, provided that any failure to deliver
such an originally executed signature page shall not affect the validity,
legality, or enforceability of this Agreement.
Section 12.3 Entire Agreement.
----------------
This Agreement constitutes the entire agreement and understanding
between the Parties and supersedes all prior agreements and understandings,
both written and oral, with respect to the subject matter of this Agreement.
Section 12.4 Expenses.
--------
Each Party shall bear its own expenses with respect to the negotiation
and preparation of this Agreement and the Closing, including any fees and
expenses of its Representatives, provided that if a Party terminates this
Agreement because of another Party's breach of this Agreement, the non-
breaching Party shall be entitled to seek reimbursement of its expenses as
part of its damages with respect to such breach. The Sellers, as a group,
shall bear any Tax imposed in connection with the transfer of the Shares to
Purchaser pursuant to this Agreement.
Section 12.5 GOVERNING LAW.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE CONFLICTS OF
LAWS PRINCIPLES OF SUCH STATE.
Section 12.6 Consent to Service of Process.
-----------------------------
Each Party waives any objection that such party may now or hereafter
have to the laying of venue of any such Action, and irrevocably submits to
the jurisdiction of any such court in any such Action. Any and all service
of process and any other notice in any such Action shall be effective
against such Party when transmitted in accordance with Section 12.9.
Nothing contained herein shall be deemed to affect the right of any Party to
serve process in any manner permitted by Law.
Section 12.7 No Assignment.
-------------
No Party may assign its benefits or delegate its duties under this
Agreement without the prior written consent of all of the other Parties.
Any attempted assignment or delegation without such prior consent shall be
void. Notwithstanding this prohibition against assignment and delegation,
Purchaser may assign its rights and delegate its duties under this Agreement
to a wholly-owned subsidiary of Purchaser without the Sellers' consent.
Upon Purchaser's assignment of its benefits and delegation of its duties
under this Agreement to such a wholly owned subsidiary, Purchaser shall be
released from any obligations under this Agreement. In addition, after the
Closing, Purchaser may assign its rights under this Agreement to a purchaser
of all of the assets or equity of Purchaser without the Sellers' consent,
and any such purchaser and any subsequent purchasers of all of the assets or
equity of Purchaser may similarly assign such rights.
Section 12.8 No Third Party Beneficiaries.
----------------------------
This Agreement is solely for the benefit of the Parties and no other
Person shall have any right, interest, or claim under this Agreement.
Section 12.9 Notices.
-------
All claims, consents, designations, notices, waivers, and other
communications in connection with this Agreement shall be in writing. Such
claims, consents, designations, notices, waivers, and other communications
shall be considered received (i) on the day of actual transmittal when
transmitted by facsimile with written confirmation of such transmittal, (ii)
on the next business day following actual transmittal when transmitted by a
nationally recognized overnight courier, or (iii) on the third business day
following actual transmittal when transmitted by certified mail, postage
prepaid, return receipt requested; in each case when transmitted to a Party
at its address set forth below (or to such other address to which such Party
has notified the other Parties in accordance with this Section to send such
claims, consents, designations, notices, waivers, and other communications):
Purchaser: Hallmark Financial Services, Inc.
777 Main Street, Suite 1000
Fort Worth, Texas 76102
Phone: (817) 348-1800
Fax: (817) 348-1815
Attn.: Mr. Mark Morrison
with a copy to: McGuire, Craddock & Strother, P.C.
3550 Lincoln Plaza
500 North Akard
Dallas, Texas 75201
Phone: (214) 954-6800
Fax: (214) 954-6868
Attn.: Steven D. Davidson
Sellers: Texas General Agency, Inc.
7411 John Smith Dr., Ste. 1400
San Antonio, Texas 78229
Phone: (210) 949-9100
Fax: (210) 949-9121
Attn: Mr. Samuel M. Cangelosi
with a copy to: Mark Holland, P.C.
9901 IH-10 West, Suite 795
San Antonio, Texas 78230
Phone: (210) 690-1956
Fax: (210) 690-1735
Attn.: Mark Holland
Section 12.10 Public Announcements.
--------------------
The Parties shall agree on the terms of any press releases or other
public announcements related to this Agreement, and shall consult with each
other before issuing any press releases or other public announcements
related to this Agreement; provided, however, that any Party may make a
public disclosure if in the opinion of such Party's counsel it is required
by Law or the rules of the Securities Exchange Commission, American Stock
Exchange or other regulatory agency to make such disclosure. The Parties
agree, to the extent practicable, to consult with each other regarding any
such public announcement in advance thereof.
Section 12.11 Representation by Legal Counsel.
-------------------------------
Each Party is a sophisticated Person that was advised by experienced
legal counsel and other advisors in the negotiation and preparation of this
Agreement.
Section 12.12 Schedules.
---------
All references in this Agreement to schedules shall mean the schedules
identified in this Agreement, which are incorporated into this Agreement and
shall be deemed a part of this Agreement for all purposes. Each Section of
this Agreement that refers to a schedule shall have a separate schedule. In
addition, any disclosure under a particular Section's schedule shall be made
under the heading of any relevant subsection of such Section. A disclosure
of an item in a schedule for a particular Section or under a heading in a
schedule corresponding to a particular subsection shall not be a disclosure
under any other Section's schedule or any other subsection, unless so noted
specifically on such schedule. The Sellers have delivered to Purchaser a
correct and complete copy of each document described on each schedule to
this Agreement and a correct and complete written description of each
unwritten arrangement or other item described on each such schedule.
Section 12.13 Severability.
------------
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall not invalidate the remaining provisions of this
Agreement or affect the validity or enforceability of such provision in any
other jurisdiction. In addition, any such prohibited or unenforceable
provision shall be given effect to the extent possible in the jurisdiction
where such provision is prohibited or unenforceable.
Section 12.14 Specific Performance.
--------------------
Each Seller acknowledges that the benefits that Purchaser will derive
from the transactions contemplated by this Agreement are unique and
irreplaceable. Accordingly, if such Seller improperly abandons or
terminates this Agreement, Purchaser would not have an adequate remedy at
law. Purchaser therefore shall be entitled to a court order requiring such
Seller to perform this Agreement. No Seller shall be entitled to specific
performance of this Agreement.
Section 12.15 Successors.
----------
This Agreement shall be binding upon and shall inure to the benefit of
each Party and its heirs, legal representatives, permitted assigns, and
successors, provided that this Section shall not permit the assignment or
other transfer of this Agreement, whether by operation of law or otherwise,
if such assignment of other transfer is not otherwise permitted under this
Agreement.
Section 12.16 Time of the Essence.
-------------------
Time is of the essence in the performance of this Agreement and all
dates and periods specified in this Agreement.
Section 12.17 Waiver.
------
No provision of this Agreement shall be considered waived unless such
waiver is in writing and signed by the Party that benefits from the
enforcement of such provision. No waiver of any provision in this
Agreement, however, shall be deemed a waiver of a subsequent breach of such
provision or a waiver of a similar provision. In addition, a waiver of any
breach or a failure to enforce any term or condition of this Agreement shall
not in any way affect, limit, or waive a Party's rights under this Agreement
at any time to enforce strict compliance thereafter with every term and
condition of this Agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, each Party executed, or caused a duly authorized
officer to execute, this Agreement as of the Signing Date.
PURCHASER: HALLMARK FINANCIAL SERVICES, INC.
By: _______________________________________
Name: _______________________________________
Title: _______________________________________
SELLERS: ______________________________________________
Samuel M. Cangelosi
______________________________________________
Donate A. Cangelosi
______________________________________________
Donald E. Meyer
APPENDIX A
DEFINITIONS AND RULES OF INTERPRETATION
Definitions. Unless the context otherwise requires, the terms defined
in this Appendix shall have the meanings specified below for all purposes of
this Agreement:
"3-Year LLAE Ratio" shall have the meaning set forth in Section
1.4.
"Action" means any action, arbitration proceeding, cause of
action, charge, counterclaim, cross claim, inquiry, investigation, legal
action, litigation, Order, proceeding, or suit.
"Agreement" shall have the meaning set forth in the Preamble.
"Arbitration Notice" shall have the meaning set forth in Section
11.2(a).
"Arbitration Rules" shall have the meaning set forth in Section
11.2.
"Assumed Plans" shall have the meaning set forth in Section
7.8(a).
"Bank Accounts" shall have the meaning set forth in Section 3.20.
"Books and Records" shall mean all the books and records
maintained by or for any Person, including all accounting records, minute
books, stock records, computerized records and storage media and the
software used in connection therewith.
"Charter Documents" shall mean (i) in the case of a corporation,
its articles or certificate of incorporation and its bylaws, (ii) in the
case of a partnership, its partnership certificate and its partnership
agreement, and (iii) in the case of any other Person, its organic and
governing documents; in each case as such document has been amended or
supplemented from time to time prior to the Signing Date.
"Claim" shall mean any arbitration award, assessment, charge,
citation, claim, damage, demand, directive, expense, fine, interest, joint
or several liability, lawsuit, notice, obligation, payment, penalty, or
summons of any kind or nature whatsoever, including any damages incurred
because of the claimant's negligence or gross negligence or any strict
liability imposed upon the claimant, any consequential or punitive damages,
and any reasonable attorneys' fees and expenses. A Claim shall be
considered to exist even though it may be conditional, contingent, indirect,
potential, secondary, unaccrued, unasserted, unknown, unliquidated, or
unmatured.
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Companies" and "Company" shall have the meaning set forth in
Recital D.
"Company Assets" shall have the meaning set forth in Section
3.9(a).
"Company Plans" shall have the meaning set forth in Section
3.18(a).
"Competing Business" shall have the meaning set forth in Section
5.9(c).
"Confidential Information" means any proprietary information, and
any information which Purchaser reasonably considers to be proprietary,
pertaining to the Companies' and Purchaser's past, present or prospective
business secrets, methods or policies, earnings, finances, security holders,
lenders, key employees, nature of services performed by such entity's sales
personnel, procedures, standards and methods, information relating to
arrangements with suppliers, the identity and requirements of arrangements
with customers, all policyholder information of policyholders, the type,
volume or profitability of services or products for customers, drawings,
records, reports, documents, manuals, techniques, ratings, information,
data, statistics, trade secrets and all other information of any kind or
character relating to each of the Parties, whether or not reduced to
writing.
"Consent" shall mean a consent, approval, order, authorization or
waiver from, notice to or declaration, registration or filing with any
Person.
"Effective Date" shall mean shall have the meaning set forth in
Section 1.7.
"Employee Benefit Plan" shall mean any (i) Pension Benefit Plan,
(ii) Welfare Benefit Plan, (iii) accident, dental, disability, health, life,
medical, or vision plan or insurance policy, (iv) bonus, executive,
incentive or deferred compensation plan, (v) change in control plan, (vi)
fringe benefits and perquisites, (vii) holiday, sick pay, leave, vacation,
moving or tuition reimbursement or other similar policy, (viii) stock
option, stock purchase, phantom stock, restricted stock or stock
appreciation plan, (ix) severance plan, or (x) other employee arrangement,
commitment, custom, policy or practice.
"Employees" shall have the meaning set forth in Section 3.17(a).
"Encumbered Instrument" shall mean any contract or lease that by
its terms requires Consent from a third party by reason of the transactions
contemplated by the Transaction Documents.
"Encumbrance" shall mean any title defect or objection, mortgage,
lien, deed of trust, equity, judgment, claim, restrictive covenant, use
restriction, charge, pledge, security interest or other encumbrance of any
nature whatsoever, including all leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title or
interest retention arrangements.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section
3.18(b).
"Financial Statements" shall have the meaning set forth in Section
3.26.
"GAAP" shall mean generally accepted accounting principles in
effect in the United States of America as of the Signing Date.
"GPSRI" shall have the meaning set forth in Recital B.
"GPSRI Stock" shall have the meaning set forth in Recital B.
"GSIC" shall have the meaning set forth in Recital B.
"GSIC Stock" shall have the meaning set forth in Recital B.
"Governmental Authority" shall mean any federal, state, local,
tribal, foreign or other governmental agency, department, branch,
commission, board, bureau, court, instrumentality or body.
"Growth Factor" shall have the meaning set forth in Section 1.4
"IBNR" shall have the meaning set forth in Section 1.4(b).
"Indemnified Party" shall have the meaning set forth in
Section 10.3.
"Indemnifying Party" shall have the meaning set forth in
Section 10.3.
"Insurance Policies" shall have the meaning set forth in Section
3.12.
"Intangible Asset" shall mean any patent, trademark, trademark
license, servicemark, servicemark license, computer software, trade name,
masthead, brand name, slogan, copyright, reprint right, franchise, license,
process, authorization, invention, know-how, formula, trade secret and other
intangible asset, together with any pending application, continuation-in-
part or extension therefor.
"Law" shall mean any applicable code, statute, law, common law,
rule, regulation, order, ordinance, judgment, decree, order, writ or
injunction of any Governmental Authority.
"Law Affecting Creditors' Rights" shall mean any bankruptcy,
fraudulent conveyance or transfer, insolvency, moratorium, reorganization,
or other law affecting the enforcement of creditors' rights generally, and
any general principles of equity.
"Material Adverse Change" shall mean, with respect to a Person,
that such Person has (i) breached a Material Contract, (ii) incurred a Claim
or become a party to an Action that could have a significant and detrimental
effect upon it, (iii) suffered a Material Adverse Effect, or (iv) violated
any Law or Order to which it or any of its assets is subject or bound.
"Material Adverse Effect" shall mean, with respect to a Person,
the occurrence of an event or the existence of a circumstance that has a
material adverse effect on such Person's assets, business, cash flows,
financial condition, liabilities, operations, prospects, or relationships,
including the occurrence of any event or the existence of any circumstance
that could cause such an effect in the future in an amount of $100,000.00 or
more.
"Material Contracts" shall have the meaning set forth in Section
3.13.
"Non-Compete Payments" shall have the meaning set forth in Section
1.5.
"Note" and "Notes" shall have the meaning set forth in Section
1.3(b).
"Order" shall mean any consent decree, decree, determination,
injunction, judgment, order, or writ of any arbitrator or Governmental
Authority.
"Parties" and "Party" shall have the meaning set forth in Recital
E.
"Pension Benefit Plan" shall mean (i) an "employee pension benefit
plan" as defined in Section 3(2) of ERISA, and (ii) a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.
"Permit" shall mean any license, approval, certificate, franchise,
registration, qualification, permit or authorization issuable by any
Governmental Authority or industry self-regulating organization.
"Permitted Encumbrance" shall mean any Encumbrance directly
related to (i) workers', repairmen's and similar Encumbrances imposed by Law
that have been incurred in the ordinary course of business, (ii) retention
of title agreements with suppliers entered into in the ordinary course of
business, and (iii) the rights of others to customer deposits.
"Person" shall mean any association, bank, business trust,
corporation, estate, general partnership, Governmental Authority,
individual, joint stock company, joint venture, labor union, limited
liability company, limited partnership, non-profit corporation, professional
association, professional corporation, trust, or any other organization or
entity.
"Personal Property Leases" shall have the meaning set forth in
Section 3.10(d).
"Purchaser" shall have the meaning set forth in the Preamble.
"Purchaser Group" shall have the meaning set forth in Section
10.1.
"Real Property Leases" shall have the meaning set forth in Section
3.10(b).
"Representatives" shall mean, with respect to a Person, such
Person's directors, employees, officers, agents, accountants, affiliates,
consultants, investment bankers, attorneys, lenders, representatives and
shareholders.
"Republic" shall have the meaning set forth in Section 5.5(b).
"Required Consents" shall have the meaning set forth in Section
7.3(b).
"Required Permits" shall have the meaning set forth in Section
7.4(b).
"Restricted Territories" shall have the meaning set forth in
Section 5.9(c).
"Returns" shall have the meaning set forth in Section 3.19(a).
"Sellers" shall have the meaning set forth in the Preamble.
"Sellers' Knowledge" shall mean the actual knowledge as of the
date that a specific representation or warranty is made or deemed made,
after reasonable inquiry, of an individual Seller.
"Settlement Meeting" shall have the meaning set forth in Section
10.1.
"Shares" shall have the meaning set forth in Section 1.1.
"Signing Date" shall have the meaning set forth in the Preamble.
"Stock" shall have the meaning set forth in Recital C.
"Subscription Right" shall have the meaning set forth in Section
3.7.
"Supplemental Agreements" shall have the meaning set forth in
Section 7.6(a).
"Tax" shall mean any assessment, charge, duty, fee, impost, levy,
tariff, or tax of any nature whatsoever imposed by any Governmental
Authority or payable pursuant to any tax sharing agreement, including any
income, payroll, withholding, excise, gift, alternative minimum, capital
gain, added value, social security, sales, use, real and personal property,
use and occupancy, business and occupation, mercantile, real estate, capital
stock, and franchise tax or charge, together with any related interest,
penalties or additions thereon.
"Taxing Authority" shall mean the Internal Revenue Service and any
other domestic or foreign Governmental Authority responsible for the
administration of any Tax.
"TGA" shall have the meaning set forth in Recital A.
"TGA Base Purchase Price" shall have the meaning set forth in
Section 1.2(a).
"TGA Contingent Purchase Price" shall have the meaning set forth
in Section 1.2(a).
"TGA Purchase Price" shall have the meaning set forth in Section
1.2(a).
"TGA Stock" shall have the meaning set forth in Recital A.
"TGASRI" shall have the meaning set forth in Recital A.
"TGASRI Purchase Price" shall have the meaning set forth in
Section 1.2(c).
"TGASRI Stock" shall have the meaning set forth in Recital A.
"Total Purchase Price" shall have the meaning set forth in Section
1.2.
"Transaction Documents" shall mean this Agreement, the
Supplemental Agreements, and all other documents and instruments executed
and delivered pursuant to or in furtherance of this Agreement.
"Welfare Benefit Plan" shall mean an "employee welfare benefit
plan" as defined in Section 3(1) of ERISA, including an employee welfare
benefit plan which is a "multiemployer welfare plan" as defined in Section
3(37) of ERISA and a "multiple employer welfare arrangement" as defined in
Section 3(40) of ERISA.
"Work Product" shall have the meaning set forth in Section 5.9(b).
Accounting Terms. Except as otherwise provided in this Agreement, all
accounting terms defined in this Agreement, whether defined in this Article
or otherwise, shall be construed in accordance with GAAP on a consolidated
basis.
Articles, Sections, Exhibits and Schedules. Except as specifically
stated otherwise, references to Articles, Sections, Exhibits and Schedules
refer to the Articles, Sections, Exhibits and Schedules of this Agreement.
Attorneys' Fees. Whenever this Agreement refers to a Person's
"attorneys' fees and expenses," such reference also shall include any fees
and expenses of accountants, experts, investigators, and other professional
advisors whose services such Person's attorney considered advisable in
connection with the prosecution or defense of the particular matter.
Breach. The term "breach" with respect to any contract or instrument
means any breach or violation of, or default under, such contract or
instrument, any conflict with another contract or instrument or any
emergence of a right of another party to such contract or instrument to
accelerate, cancel, modify or terminate such contract or instrument,
including any such breach, violation, default, conflict, or right that will
arise after notice or lapse of time.
Drafting. Neither this Agreement nor any provision set forth in this
Agreement shall be interpreted in favor of or against any Party because such
Party or its legal counsel drafted this Agreement or such provision. No
prior draft of this Agreement or any provision set forth in this Agreement
shall be used when interpreting this Agreement or its provisions.
Headings. Article and Section headings are used in this Agreement only
as a matter of convenience and shall not have any effect upon the
construction or interpretation of this Agreement.
Include. The term "include" or any derivative of such term does not
mean that the items following such term are the only types of such items.
Or. The term "or" shall not be interpreted as excluding any of the
items described.
Plural and Singular Words. Whenever the plural form of a word is used
in this Agreement, that word shall include the singular form of that word.
Whenever the singular form of a word is used in this Agreement, that word
shall include the plural form of that word.
Predecessors. Any of the Sellers' representations and warranties
concerning any Claim against any Company, any liability or obligation of any
Company, or any violation of Law by any Company shall include any Claims
with respect to each predecessor of any Company, including all direct and
indirect predecessors of any such predecessor.
Pronouns. Whenever a pronoun of a particular gender is used in this
Agreement, if appropriate that pronoun also shall refer to the other gender
and the neuter. Whenever a neuter pronoun is used in this Agreement, if
appropriate that pronoun also shall refer to the masculine and feminine
gender.
Representations and Warranties. The Sellers' representations and
warranties under this Agreement shall mean the representations and
warranties set forth in Article III and the reaffirmation of the Sellers'
representations and warranties in certificates delivered pursuant to Article
II. Purchaser's representations and warranties under this Agreement shall
mean the representations and warranties set forth in Article IV and the
reaffirmation of those representations and warranties in the certificates
delivered pursuant to Article II.
Statutes. Any reference to Law or any specific statute shall include
any changes to such law or statute after the Signing Date, any successor law
or statute, and any regulations and rules promulgated under such law or
statute and any successor law or statute, whether promulgated before or
after the Signing Date.
EXHIBIT A
PROMISSORY NOTE
---------------
$7,916,666.67 San Antonio, Texas January 1, 2006
FOR VALUE RECEIVED, HALLMARK FINANCIAL SERVICES, INC., a Nevada
corporation ("Maker"), promises to pay to the order of _____________________
(the "Noteholder"), the principal sum of Seven Million Nine Hundred Sixteen
Thousand Six Hundred Sixty-Six and 67/100 Dollars ($7,916,666.67), as
provided below. All sums hereunder are payable at such place in Bexar
County, Texas, as the Noteholder hereof may designate in writing.
This Note shall be payable, without interest, in two (2) annual
installments of principal. The first annual installment of Four Million
Seven Hundred Fifty Thousand and No/100 Dollars ($4,750,000.00) shall be due
and payable on or before January 1, 2007. The second annual installment of
Three Million One Hundred Sixty-Six Thousand Six Hundred Sixty-Six and
67/100 Dollars ($3,166,666.67) shall be due and payable on or before January
1, 2008.
The principal of this Note may be prepaid, in whole or in part, at any
time or from time to time, without penalty. All past due principal on this
Note shall bear interest at the rate of six percent (6%) per annum until
paid. All sums called for, payable, or to be paid hereunder shall be paid
in lawful money of the United States of America, which, at the time of
payment, is legal tender for the payment of public and private debts.
This Note is executed by Maker pursuant to the terms of that certain
Purchase Agreement (herein so called) dated November __, 2005, between the
Maker and Samuel M. Cangelosi, Donate A. Cangelosi and Donald E. Meyer
(collectively, the "Sellers"). Maker's payment of this Note is to be
secured by a letter of credit issued by a federally chartered banking
institution reasonably acceptable to Sellers or other security reasonably
acceptable to the Sellers, as provided in Section 1.6 of the Purchase
Agreement. Payment of any installment of this Note is subject to the
Maker's right of offset provided in Section 10.5 of the Purchase Agreement.
If this Note is not paid at its maturity, regardless of how such
maturity may be brought about, then Noteholder may exercise any of its
rights provided hereunder or any of its remedies at law or in equity.
Failure to exercise any of such rights upon any default shall not constitute
a waiver of the right to exercise any of them at any time. If, after
default, this Note is placed in the hands of an attorney for collection, or
if collected through judicial proceedings, Maker shall pay, in addition to
the sums referred to above, a reasonable sum as a collection or attorneys'
fee, and all other costs reasonably incurred by Holder in collection of the
unpaid amounts due hereunder.
Maker and all sureties, endorsers, guarantors, and any other party now
or hereafter liable for the payment of this Note in whole or in part, hereby
severally (i) agree to the release of any party primarily or secondarily
liable hereon, (ii) agree that Noteholder shall not be required first to
institute suit or exhaust its remedies hereon against Maker or others liable
or to become liable hereon or to enforce its right against them, and (iii)
consent to any extension or postponement of time of payment of this Note and
to any other indulgence with respect hereto without notice thereof to any of
them.
This Note shall be governed by and construed in accordance with Texas
law and the laws of the United States applicable to transactions in Texas.
If any term or provision of this Note or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Note, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall, at the election of Noteholder, not be affected
thereby, and each such other term and provision of this Note shall be valid
and be enforced to the fullest extent permitted by law.
THIS NOTE SHALL BE DUE AND PAYABLE IN BEXAR COUNTY, TEXAS. MAKER
CONSENTS TO JURISDICTION AND VENUE FOR ANY SUIT ON OR BY REASON OF THIS NOTE
IN THE STATE AND FEDERAL COURTS LOCATED IN BEXAR COUNTY, TEXAS.
IN WITNESS WHEREOF, Maker has duly executed this Note as of the date
and year first above written.
MAKER:
HALLMARK FINANCIAL SERVICES, INC.
By: _____________________________________________
Name: ____________________________________________
Title: ___________________________________________
EXHIBIT B
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is made effective as the
_____ day of ___________, 200__ (the "Effective Date"), by and between
TEXAS GENERAL AGENCY, INC., a Texas corporation (the "Company"), and
____________________________, an individual (the "Employee").
Recitals:
--------
A. The Company, directly and through subsidiaries, develops, markets
and services property and casualty insurance with a particular emphasis on
commercial automobile and general liability risks.
B. The Company desires to employ the Employee pursuant to the terms
of this Agreement, and the Employee desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
Agreement:
---------
1. Appointment and Duties. The Company employs the Employee on the
terms and conditions set forth herein, and the Employee accepts such
employment. The Employee shall initially serve as _______________________
of the Company, and shall perform all duties and functions reasonably
appurtenant to such position and as directed by the Chief Executive Officer
or Board of Directors of the Company. The Company, acting through its Chief
Executive Officer or Board of Directors, may from time to time redefine the
title and duties of the Employee in furtherance of the business of the
Company. The Employee shall perform his duties in accordance with, and
shall at all times strictly adhere to, all rules, regulations and policies
as may be adopted from time to time by the Company.
2. Full Time Employment. The Employee agrees that, during the term
of his employment by the Company, he will devote his full working time,
attention and energies to the diligent performance of his duties as an
employee of the Company. The Employee shall not, without the prior written
consent of the Company, directly or indirectly, at any time during the term
of his employment with the Company: (a) accept employment with or render
services of a business, professional or commercial nature to any other
individual, corporation, partnership, governmental authority or other
entity; (b) engage in any business venture or business activity which the
Company may in good faith consider to be competitive with or adverse to the
business of the Company, whether alone, as a partner, or as an officer,
director, employee or shareholder or otherwise (except that the ownership of
not more than one per cent of the stock or other equity interest of any
publicly traded corporation or other entity shall not be deemed a violation
hereof); or (c) engage in any venture or activity which the Company may in
good faith consider to interfere with Employee's performance of his duties
hereunder.
3. Compensation. All compensation shall be payable to the Employee
in accordance with the Company's customary payroll practices and shall be
subject to withholding for federal and state income taxes, social security
payments and similar deductions, as required by applicable law.
a. Salary. The Employee shall initially receive a base salary
of $200,000 per year. Such salary shall be reviewed annually and may
be increased, but not decreased, in the sole discretion of the Board of
Directors of the Company.
b. Bonus. The Employee shall be entitled to an annual bonus of
not less than $102,000 payable on or before each anniversary of the
Effective Date during the term hereof and conditioned only on the
Employee's continued employment with the Company on each such
anniversary date. At the request of the Employee, the Company shall
pay all or any portion of such annual bonus to such other employees of
the Company as may be specified by the Employee.
4. Other Programs and Benefits. The Employee shall be entitled to
participate in other programs and benefits provided by the Company
(including, without limitation, group insurance plans and profit sharing
plans) to the same extent as other employees of the Company similarly
situated. Without limiting the generality of the foregoing, the Company
shall provide health insurance benefits for the Employee comparable to those
provided as of the date hereof. The Company shall pay the reasonable
expense of mobile telephone usage for the Employee (but not members of the
Employee's family). Notwithstanding any previous policy of the Company, the
Employee shall be responsible for the cost of his automobile (including
personal automobile insurance), country club dues and other non-reimbursable
personal expenses.
5. Term. Unless otherwise terminated in accordance with Section 6,
the Employee's employment under this Agreement shall commence on the
Effective Date and shall continue until the third anniversary of the
Effective Date and thereafter at the will of the parties. Upon the
termination of the Employee's employment for any reason, the Employee will
be entitled to receive all accrued compensation through the date of
termination.
6. Termination and Severance. The employment of the Employee
hereunder may be terminated by the Company at any time, with or without
Cause (as defined below). In the event the employment of Employee is
terminated by the Company without Cause, the Employee shall continue to
receive an amount equal to his base salary at the time of termination for a
period of time following the date of termination equal to the sum of (i)
three months, plus (ii) one week for each completed month of service
following the Effective Date; provided, that the total period of base salary
continuation shall in no event exceed 12 months. The severance payments
provided herein are in lieu of any and all other benefits or claims which
the Employee might assert against the Company, and may be conditioned upon
the Employee's execution of a full and complete release of the Company from
any and all liabilities arising in connection with his employment by the
Company or the termination thereof. Such severance payments shall be made
to the Employee in accordance with the Company's customary payroll practices
and shall be subject to withholding for federal and state income taxes,
social security payments and similar deductions, as required by applicable
law. For purposes of this Agreement, "Cause" shall mean any of the
following, as determined in the good faith judgment of the Board of
Directors of the Company: (i) commission of a crime (other than minor
traffic violations); (ii) breach of any of the terms of this Agreement; or
(iii) insubordination, dishonesty or neglect in the performance of the
duties assigned to Employee hereunder.
7. Non-Disclosure; Non-Competition; Non-Solicitation. The Company
covenants and agrees that it will provide to the Employee all Confidential
Information (as defined below) of the Company reasonably necessary to permit
the Employee to fulfill his duties and responsibilities hereunder. The
Employee acknowledges that, as a consequence of his employment by the
Company, the Employee will be furnished and have access to substantially all
Confidential Information of the Company. The Employee further acknowledges
that (i) any public disclosure of the Confidential Information will have an
adverse effect on the Company and its business, (ii) the Company will suffer
irreparable injury if the Employee breaches any of the terms of this Section
7, (iii) the Company will be at a substantial competitive disadvantage if it
fails to acquire and maintain exclusive ownership of the Confidential
Information or the Employee fails to abide by the restrictions provided for
in this Section 7, (iv) the scope of the protective restrictions provided
for in this Section 7 are reasonable when taking into account the Employee's
access to Confidential Information and the importance of such Confidential
Information to the Company, (v) the compensation being paid to the Employee
pursuant to this Agreement and the post-employment rights of the Employee
hereunder are sufficient inducement for the Employee to agree to the terms
hereof, (vi) the provisions of this Section 7 are reasonable and necessary
to protect the business of the Company, to prevent the improper use or
disclosure of the Confidential Information and to provide the Company with
exclusive ownership of all such Confidential Information, and (vii) the
terms of this Section 7 preclude the Employee from engaging in the conduct
of the business of the Company for a reasonable period.
a. Non-Disclosure Agreement. Employee agrees that he will not
(i) disclose to any person, either directly or indirectly, any
Confidential Information, unless and solely to the extent that such
Confidential Information is required to be disclosed by law or pursuant
to a final judicial order or decree, (ii) use for his own account or
use, cause, facilitate or allow any third party to use Confidential
Information in any way, or (iii) remove any Confidential Information or
any copy, summary or compilation of any kind of any Confidential
Information from the premises of the Company or the premises of any
Company's customers.
b. Work Product. All records and documents embodying any
Confidential Information or pertaining to the existing or contemplated
scope of the Company's business, whether conceived, prepared or
developed by the Employee, the Company or otherwise, either alone or
with others ("Work Product"), shall be the sole property of the
Company.
c. Return of Materials. Upon termination of his employment for
any reason, the Employee shall promptly deliver to the Company all
materials in any medium containing, referring to or derived from any
Confidential Information or Work Product of the Company, together with
all other manuals, letters, notes, reports, data, tables and
calculations which are the property of the Company, which are in the
Employee's possession or under his control.
d. Non-Competition Agreement. The Employee covenants and agrees
that, during the term of his employment by the Company and for a period
of two (2) years following the termination of his employment with the
Company for any reason, the Employee will not, directly or indirectly,
(i) own, engage in, manage, operate, join, control, or participate in
the ownership, management, operation, or control of, or be connected as
a stockholder, director, officer, employee, agent, partner, joint
venturer, member, beneficiary, or otherwise with, any "Competing
Business" (defined below) anywhere in the "Restricted Territories"
(defined below); (ii) induce any customers of the Company to patronize
any Competing Business; (iii) solicit or accept any Competing Business
from any customer of the Company; (iv) request or advise any customers
of the Company to withdraw, curtail or cancel such customer's business
with the Company; or (v) disclose to any other person, firm or
corporation engaged in any Competing Business the names or addresses of
any of the customers of the Company. For purposes of this Agreement,
the term "Competing Business" is defined to mean any activity or
business that is or would be competitive with the business conducted by
the Company at the time of termination of the Employee's employment
with the Company. The term "Restricted Territories" is defined to mean
any state in which the Company is authorized to conduct its business.
e. Non-Solicitation Agreement. For a period of two (2) years
following the termination of his employment with the Company for any
reason, the Employee will not, either on his own behalf or on behalf of
any Competing Business, directly or indirectly (i) solicit or induce,
or in any manner attempt to solicit or induce any person employed by,
or an agent of, the Company to terminate such person's employment or
agency, as the case may be, with the Company, or (ii) solicit, divert,
or attempt to solicit or divert, or otherwise accept as a supplier or
customer, any person which sells any products and services of,
furnishes products or services to, or receives products and services
from the Company, nor will the Employee attempt to induce any such
supplier or customer to cease being (or any prospective supplier or
customer not to become) a supplier or customer of the Company.
f. Modification of Restrictions. The Employee agrees that if an
arbitrator or a court of competent jurisdiction determines that the
length of time or any other restriction, or portion thereof, set forth
in this Section 7 is overly restrictive and unenforceable, the
arbitrator or court shall reduce or modify such restrictions to those
which it deems reasonable and enforceable under the circumstances, and
as so reduced or modified, the parties hereto agree that the
restrictions of this Section 7 shall remain in full force and effect.
The Employee further agrees that if an arbitrator or court of competent
jurisdiction determines that any provision of this Section 7 is invalid
or against public policy, the remaining provisions of this Section 7
and the remainder of this Agreement shall not be affected thereby, and
shall remain in full force and effect.
g. Injunctive Relief. In the event of any pending, threatened
or actual breach of any of the covenants or provisions of this Section
7, as determined by an arbitrator or a court of competent jurisdiction,
it is understood and agreed by the Employee that the remedy at law for
a breach of any of the covenants or provisions of this Section 7 may be
inadequate and, therefore, the Company shall be entitled to a
restraining order or injunctive relief in addition to any other
remedies at law and in equity, as determined by an arbitrator or a
court of competent jurisdiction. The Employee waives any bond, surety,
or other security that might be required of the Company as a condition
of any such restraining order or injunctive relief.
h. Confidential Information Defined. For purposes of this
Agreement, "Confidential Information" means any proprietary
information, and any information which the Company reasonably considers
to be proprietary, pertaining to the Company's past, present or
prospective business secrets, methods or policies, earnings, finances,
security holders, lenders, key employees, nature of services performed
by sales personnel, procedures, standards and methods, information
relating to arrangements with suppliers, the identity and requirements
of arrangements with customers, all policyholder information of
policyholders, the type, volume or profitability of services or
products for customers, drawings, records, reports, documents, manuals,
techniques, ratings, information, data, statistics, trade secrets and
all other information of any kind or character relating to the Company,
whether or not reduced to writing.
i. Affiliates. Any reference to the Company in this Section 7
shall be deemed to include the Company, its parent corporation, its
subsidiaries and any other entity controlled by or under common control
with such parent or subsidiaries.
8. Applicable Law and Venue. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL OBLIGATIONS OF THE
PARTIES CREATED HEREUNDER ARE DEEMED PERFORMABLE IN TARRANT COUNTY, TEXAS,
AND ANY ACTION TO ENFORCE OR CONSTRUE THE TERMS OF THIS AGREEMENT SHALL BE
BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN TARRANT
COUNTY, TEXAS.
9. Attorney Fees. If any action at law or in equity, including an
action for injunction or declaratory relief, is brought to enforce or
interpret the provisions of this Agreement, each party shall pay their own
legal fees and all of their costs and expenses of litigation.
10. Non-Waiver. The failure by the Company to complain of any act or
omission on the part of the Employee, no matter how long the same may
continue, shall not be deemed to be a waiver by the Company of any of its
rights under this Agreement. The waiver by the Company at any time,
expressed or implied, of any breach or attempted breach of this Agreement
shall not be deemed a waiver or a consent to any subsequent breach or
attempted breach of the same or any other type. If any action by the
Employee shall require the consent or approval of the Company, such consent
to or approval of the Company to such action on any one occasion shall not
be deemed a consent to or approval of any other action on the same or any
subsequent occasion.
11. Provisions Severable. Should any term or provision of this
Agreement for any reason be held to be or declared illegal, invalid, void or
unenforceable either in its entirety or in a particular application, the
remainder of this Agreement shall nonetheless remain in full force and
effect and, if the subject, term or provision is deemed to be illegal,
invalid, void or unenforceable only with respect to a particular
application, such term or provision shall remain in full force and effect
with respect to all other applications. In the event that any of the terms
or provisions of this Agreement shall be held to be or declared illegal,
invalid, void or unenforceable solely by virtue of the fact that such term
or provision exceeds the permissible bounds of applicable law with respect
to its scope or duration, this Agreement shall be deemed amended, modified
and reformed to the extent necessary to reduce the scope or duration of such
term or provision to that permissible under applicable law, and the parties
request that any court examining such issue employ great latitude in
reforming this Agreement so as to make this Agreement, as reformed, valid
and enforceable.
12. Entire Agreement. This Agreement constitutes the entire
understanding of the parties and supersede all prior understanding or
agreements, whether written or oral, between the parties with respect to the
subject matter of this Agreement. Except as provided herein, no amendment,
modification or alteration of the terms of this Agreement shall be binding
unless in writing, dated subsequent to the date of this Agreement, and
executed by all parties hereto.
13. Binding Effect and Assignment. Each and all of the covenants,
terms and provisions contained herein shall be binding upon and inure to the
benefit of the respective successors, heirs, and legal representatives of
the Company and the Employee. This Agreement may not be assigned by either
party without the prior written consent of the other party.
14. Notice. All notices, requests, demands or other communications
required or permitted to be given or made under this Agreement shall be
deemed to have been duly given immediately upon personal delivery or mailing
by first class, certified mail, postage prepaid. Any party may change the
address to which notices, requests, demands or other communications to such
party shall be mailed or sent by giving notice to the other parties in the
manner provided herein. The addresses of the parties for purposes of this
Agreement are as set forth on the signature page hereof.
15. Headings. No heading or caption contained in this Agreement shall
be considered in interpreting any of its terms or provisions.
16. Execution in Counterparts. This Agreement and any amendment may
be executed in any number of counterparts, either by the parties or their
duly authorized attorney-in-fact, with the same effect as if all parties had
signed the same document.
IN WITNESS WHEREOF, the Company and the Employee have caused this
Agreement to be executed to be effective as of the Effective Date
hereinabove set forth.
COMPANY:
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TEXAS GENERAL AGENCY, INC.
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Mark E. Schwarz, Chief Executive Officer
Notice Address:
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777 W. Main Street
Suite 1000
Fort Worth, Texas 76102
Attn.: Chief Executive Officer
EMPLOYEE:
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Notice Address:
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