Agreement and Plan of Merger dated July 30, 2009 by and among FPIC Insurance Group, Inc., First Professionals Insurance Company, Inc., MFPIC Merger Corp., Advocate, MD Financial Group, Inc., and the Stockholders Representative.* * Schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby agrees to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission

 

 

 

This Agreement and Plan of Merger (this "Agreement") is entered into on July 30, 2009, by and among FPIC Insurance Group, Inc., a Florida corporation ("FIG"), First Professionals Insurance Company, Inc., a Florida stock insurance company and a direct wholly owned subsidiary of FIG (“FPIC” and, collectively with FIG, “Buyer”), FPIC Merger Corp., a Nevada corporation and a direct wholly owned subsidiary of FPIC (“Merger Co”), Advocate, MD Financial Group Inc., a Nevada corporation ("Company"), the individuals named herein as the Stockholders Representative, and the stockholders and warrant holders of the Company that execute and deliver to Company a joinder agreement (“Joinder Agreement”) in the form attached hereto as Exhibit A (each sometimes referred to herein as a “Seller” and collectively as the “Sellers”). Buyer, Merger Co, Company, Stockholders Representative and Sellers are referred to collectively herein as the "Parties" or in the singular as a "Party"

WHEREAS, the Boards of Directors of Buyer, Merger Co and Company have each determined that it is advisable and in the best interests of their respective companies and stockholders for Buyer to acquire Company upon the terms and subject to the conditions set forth herein;

WHEREAS, in furtherance of such acquisition, it is proposed that Company will use commercially reasonable efforts to cause the holders of its capital stock and warrants to enter into this Agreement (as it may be amended from time to time) by executing and delivering Joinder Agreements and to sell their interests in Company to Buyer on the terms and conditions hereof (the “Stock Purchase”);

WHEREAS, the Boards of Directors of Buyer and Merger Co have approved the transactions contemplated hereby, including the Stock Purchase;

WHEREAS, the Board of Directors of Company has (a) approved this Agreement and the merger transactions contemplated hereby involving the Company, (b) determined this Agreement to be in the best interest of Company and the holders of capital stock and warrants for capital stock of Company based upon industry trends and conditions, the current market for strategic transactions in such industry, input from the Company's investment bankers, requests made by Company Holders for liquidity and other considerations and circumstances as deemed by the Board of Directors to be relevant to such determination, and (c) resolved and agreed, subject to the terms and conditions contained herein, to recommend that holders of capital stock and warrants for capital stock of Company sell their interests as part of the Stock Purchase and to vote their Shares (as hereinafter defined) in favor of the Merger (as hereinafter defined);

WHEREAS, also in furtherance of such acquisition and in order to preserve the value and good will of Company and its Subsidiaries for Buyer, Mark E. Adams contemporaneously herewith is entering into an amended and restated Executive Employment Agreement with Company and a Non-Competition Agreement with Buyer and Company;

WHEREAS, also in furtherance of such acquisition, the Boards of Directors of Buyer, Merger Co and Company have each approved the merger of Merger Co with and into Company in accordance with the Nevada Revised Statutes (“Nevada Law”) pursuant to which each issued and outstanding Company Share (as hereinafter defined) not owned by Buyer and not constituting Dissenting Shares (as hereinafter defined) will be converted into the right to receive the per Company Share consideration paid pursuant to the Stock Purchase and upon the terms and subject to the conditions set forth herein;

WHEREAS, in order to induce Buyer and Merger Co to enter into this Agreement, concurrently herewith certain Company Holders (as hereinafter defined) are executing and delivering Joinder Agreements to Company contemporaneously with the execution and delivery of this Agreement by Buyer and Merger Co; and

WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection herewith;

NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

 

Section 1.        Definitions. 

 

"Additional Consideration" means the consideration, if any, payable to former Company Holders pursuant to the provisions of the Earnout Agreement.

 

"Additional Consideration Per Company Share" means an amount equal to the result obtained by dividing Additional Consideration by the aggregate number of Company Shares outstanding or subject to issuance on exercise of outstanding Company Warrants immediately before the Effective Time.

 

"Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, commercially reasonable amounts paid in settlement, liabilities, obligations, Taxes, Liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses.

 

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

 

"Affiliated Group" means any affiliated group within the meaning of Code §1504(a) or any similar group defined under a similar provision of state, local or foreign law.

 

"Allocable Portion" means with respect to the share of any Seller in a particular amount, that fraction equal to the number of Company Shares the Seller holds as set forth in Section 4(b) of the Disclosure Schedule over the total number of Company Shares.

 

"Annual GAAP Financial Statements" has the meaning set forth in Section 4(g)(i) below.

 

"Annual Report" has the meaning set forth in Section 4(g)(i) below.

 

"Applicable Rate" means the corporate base rate of interest publicly announced from time to time by Frost National Bank plus two percent (2.0%) per annum.

 

 

"Buyer" has the meaning set forth in the preface above.

 

"Buyer Knowledge Group" means any of John R. Byers, Charles Divita III and Robert White.

 

"Certificate of Merger" has the meaning set forth in Section 2(e)(i) below.

 

"Closing" means the closing of the Stock Purchase or the Merger, whichever first occurs, and the transactions to occur in conjunction with such closing as contemplated by this Agreement. References to the Stock Purchase Closing means only the Closing of the Stock Purchase and references to the Merger Closing means only the Closing of the Merger.

 

"Closing Consideration" means Thirty Three Million Six Hundred Thousand Dollars ($33,600,000), less (a) the amount of Incentive Bonus payable immediately before Closing, less (b) Excess Transaction Expenses, if any, and (c) less the amount, if any, of the Loss Reserves shown in the Most Recent Statutory Financial Statements that are less than 103% of the loss reserve amount shown in the Closing Reserve Study.

 

"Closing Consideration Per Company Share" means an amount equal to the result obtained by dividing the Closing Consideration by the aggregate number of Company Shares outstanding or subject to issuance on exercise of outstanding Company Warrants immediately before the Closing.

 

"Closing Date" has means the date on which Closing occurs and references to “Stock Purchase Closing Date” or “Merger Closing Date” shall mean the date on which the Stock Purchase or the Merger, respectively, occurs.

 

"Closing Reserve Study” means a study of the statutory loss reserves of the Insurance Company as of June 30, 2009, to be performed by Company Actuary and delivered to Company.

 

"Code" means the Internal Revenue Code of 1986, as amended.

 

"Company" has the meaning set forth in the preface above.

 

"Company Actuary" means Milliman, Inc.

 

"Company Group Benefit Plan" has the meaning set forth in Section 4(o)(i) below.

 

"Company Common Share" means any share of the Company Common Stock.

 

"Company Common Stock" means the common stock, par value $.005 per share, of Company.

 

"Company Employee" has the meaning set forth in Section 10(a) below.

 

"Company Group Employee Agreement" has the meaning set forth in Section 4(o)(i) below.

 

"Company Holder" means each holder of Company Common Stock, Company Preferred Stock or Company Warrants.

 

"Company Knowledge Group" means any of Mark E. Adams, Steven W. Loranger, Thomas J. Smith, or Timothy P. Reardon.

 

"Company Preferred Stock" means the preferred stock, par value $.005, Series A and Series B, of Company.

 

 

"Company Preferred Share" means any share of the Company Preferred Stock.

 

"Company Share" means any outstanding Company Common Share and any Company Common Share into which any outstanding Company Preferred Stock is convertible or for which any outstanding Company Warrant is exercisable.

 

"Company Warrant" means any warrant or other option that Company has issued to a holder that may be exercised for one or more Company Common Shares.

 

"Confidential Information" means any information concerning the business and affairs of Company and its Subsidiaries that is not already generally available to the public.

 

"Confidentiality Agreement" means the Confidentiality and Nondisclosure Agreement, dated December 3, 2008, between Buyer and Company.

 

"Contract" means any binding agreement, commitment, consensual obligation, promise, undertaking or contract (whether written or oral and whether express or implied), including but not limited to any such (a) employment and consulting agreements; (b) joint venture and partnership agreements; (c) agreements restricting the right of a Person to compete with any other Person; (d) loan agreements, indentures, promissory notes and conditional sales agreements, pledges, security agreements, deeds of trust, financing statements and all documents granting or evidencing a Lien on any assets or rights of a Person, and obligations of reimbursement to any issuer of a letter of credit; (e) guarantees and assumptions of any obligation of another Person; (f) undertakings related to the purchase or sale of assets; (g) agreements relating to capital expenditures; (h) licenses, whether as licensor or licensee, of any invention (whether patented or not), trade secret, know-how, copyright, trademark or trade name or other intellectual property, except for pre-packaged software; (i) Leases, including subleases of, and options relating to, real estate; (j) Leases as lessee or lessor of tangible personal property; (k) capitalized leases and sale-leasebacks; (l) data licensing, distribution, supply and development agreements and Internet or web-site agreements; (m) royalty agreements; (n) revocable and irrevocable powers of attorney and proxies; (o) software agreements, except for pre-packaged software; (p) promotional and advertising agreements; provided, however, the term “Contract” will not include oral agreements, oral commitments, oral consensual obligations, oral promises, oral undertakings or oral contracts not Known to Company or insurance policies or contracts (other than reinsurance policies or contracts), or commitments or proposals to issue or write insurance policies or contracts, issued or made by Company in the Ordinary Course of Business.

 

 

"Disclosure Schedule" has the meaning set forth in Section 4 below.

 

"Dissenting Shares" has the meaning set forth in Section 2(e)(v) below.

 

"Earnout Agreement" means the Earnout Agreement between Buyer and Stockholders Representative, substantially in the form attached hereto as Exhibit B.

 

"Effective Time" has the meaning set forth in Section 2(e)(i) below.

 

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

 

 

"Excess Transaction Expenses" means, if Extended Coverage is not obtained by Company prior to Closing, Transaction Expenses in excess of Five Hundred Thousand Dollars ($500,000) or, if Extended Coverage is obtained by Company prior to Closing, Transaction Expenses in excess of Five Hundred Fifty Thousand Dollars ($550,000), in either case to the extent incurred or accrued after June 30, 2009 and on or before the Closing Date.

 

"Extended Coverage" has the meaning set forth in Section 6(d) below.

 

"FIG" has the meaning set forth in the preface above.

 

"Financial Statements" has the meaning set forth in Section 4(g)(i) below.

 

"Fox-Pitt" means Fox-Pitt Kelton Cochran Caronia Waller, the investment banking firm that has represented Company in connection with the transactions contemplated by this Agreement.

 

"FPIC" has the meaning set forth in the preface above.

 

"GAAP" means accounting principles generally accepted in the United States as in effect from time to time, consistently applied.

 

"hereunder," "hereof, " "hereto,"  and words of similar import shall be deemed references to this Agreement and its Annexes and Disclosure Schedule, as a whole, but not to the Exhibits and not to any particular Section or other provision hereof.

 

"Incentive Bonus" means five percent (5%) of the Closing Consideration (for purposes of this definition only, Closing Consideration shall be determined without giving effect to the reduction for the Incentive Bonus as stated in the definition of Closing Consideration) and, when determined and payable under the Earnout Agreement, of Additional Consideration, if any, to be allocated by Company's Board of Directors prior to Closing.

 

"Income Tax" means any federal, state, local, or foreign income tax measured by or imposed on net income, including any interest, penalty, or addition thereto, whether disputed or not.

 

"Income Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto.

 

"Indemnification Ceiling" has the meaning set forth in Section 8(b)(i) below.

 

"Indemnified Party" has the meaning set forth in Section 8(d) below.

 

"Indemnifying Party" has the meaning set forth in Section 8(d) below.

 

"Insurance Subsidiary" means Advocate, MD Insurance Company of the Southwest, Inc.

 

"Intellectual Property Assets" means all intellectual property owned or licensed (as licensor or licensee) by Company or any of its Subsidiaries in which Company or any of its

Subsidiaries has a proprietary interest, including all Marks, patents, Copyrights, trade secrets, Net Names and rights in mask works.

 

"Joinder Agreement" has the meaning set forth in the preface above.

 

"June 30, 2009 Internal Financial Statements" has the meaning set forth in Section 4(g)(i) below.

 

"Knowledge" means actual knowledge without independent investigation, except that “Knowledge”, to a Person’s “Knowledge”, “known to” a Person or a similar phrase, with respect to Company, means the actual knowledge of any member of the Company Knowledge Group, and, with respect to Buyer, means the actual knowledge of any member of the Buyer Knowledge Group, as of the relevant date after reasonable inquiry given the nature of such individual’s position and responsibilities.

 

"Leased Real Property" means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property that is used in Company's or any of its Subsidiaries' business.

 

"Leases" means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto, pursuant to which Company or any of its Subsidiaries holds any Leased Real Property or leases any equipment or other personal property.

 

"Legal Requirement" means any federal, state, local, municipal, foreign, international, multinational or other constitution, law, ordinance, principle of common law, code, regulation, order, statute or treaty.

 

"Letter of Transmittal" has the meaning set forth in Section 2(e)(vi)(B) below.

 

"Lien" means any mortgage, pledge, lien, encumbrance, charge, or other security interest.

 

"Loss Reserves" means Company’s estimate, which will be stated  net of any related reinsurance arrangements, of the amounts expected to be paid out in the future on account of all insured events and reflected in the Most Recent Statutory Financial Statements  (i.e., its “carried reserves”), and comprising estimated case reserves on reported claims (which include a provision for case reserve development to the expected ultimate amount) plus estimated insured losses and loss adjustment expenses incurred but not reported.   

 

 

"Material Adverse Effect" or "Material Adverse Change" means any effect or change that would be or is reasonably likely to be materially adverse to the financial condition, business or results of operations of Company and its Subsidiaries, taken as a whole, or to the ability of  Company or the Company Holders possessing the minimum requisite vote to approve the Merger to consummate timely the transactions contemplated hereby; provided that none of the following will be deemed to constitute, and none of the following will be taken into account in determining whether there has been, a Material Adverse Effect or Material Adverse Change: (a) any adverse change, event, development, or effect arising from or relating to (1) general business or economic conditions affecting the United States taken as a whole or the industries in which the

 

 

"Merger" has the meaning set forth in Section 2(e)(i) below.

 

"Merger Closing Consideration" has the meaning set forth in Section 2(e)(iii)(A) below.

 

"Most Recent Financial Statements" has the meaning set forth in Section 4(g)(i) below.

 

"Most Recent GAAP Financial Statements" has the meaning set forth in Section 4(g)(i) below.

 

"Most Recent Statutory Financial Statements" has the meaning set forth in Section 4(g)(i) below.

 

 

"Ordinary Course of Business" means the ordinary course of business of the subject Person consistent with past custom and practice (including with respect to quantity and frequency).

 

"Party" or "Parties" has the meaning set forth in the preface above.

 

"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity or a Governmental Body.

 

"Proportionate Share" means the product of (i) the total losses, damages and expenses described in Section 2(l)(v) below, and (ii) the percentage that the outstanding Company Shares owned, or subject to issuance on exercise of outstanding Company Warrants owned, by the referenced Company Holder constitutes of all Company Shares.

 

 

"Proxy Statement" means the proxy statement or information statements prepared for the Company Holders and describing the transactions contemplated in this Agreement, together with any amendments or supplements thereto.

 

"Purchase Price" means the sum of the Closing Consideration and the Additional Consideration, if any.

 

"Quarterly Report" has the meaning set forth in Section 4(g)(i) below.

 

"Secretary" has the meaning set forth in Section 2(e)(i) below.

 

"Securities Act" means the Securities Act of 1933, as amended.

 

"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.

 

"Seller" has the meaning set forth in the preface above.

 

"Share Certificates" means the certificates evidencing Company Common Shares or Company Preferred Shares.

 

"Shares" means the Company Common Shares or Company Preferred Shares.

 

"Surviving Corporation" has the meaning set forth in Section 2(e)(i) below.

 

"Tax" or "Taxes" means any federal, state, local, or foreign Income Tax, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

 

"Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

"Third Party Claim" has the meaning set forth in Section 8(d) below.

 

"Transaction Expenses" means the expenses of Stockholders Representative paid or payable by Company pursuant to Section 2(l)(v) below, and the expenses of Company and its Subsidiaries, incurred prior to Closing in connection with the transactions contemplated hereby, but shall not include an accrual, if any prior to Closing, of severance pay for Mark E. Adams or the expenses of Company’s 2009 employee bonus program.

 

"Warrant Certificate" means the certificates or other documents representing or comprising Company Warrants.

 

"Warrant Merger Closing Consideration" has the meaning set forth in Section 2(e)(iv) below.

Section 2.         The Stock Purchase and the Merger.

(a)           Solicitation of Joinder Agreements.  Between the date hereof and the Closing Date, Company and the Stockholder Representative will use commercially reasonable  efforts to obtain the execution and delivery of a Joinder Agreements from each Company Holder, together with (i) the Share Certificates and Warrant Certificates evidencing any Shares and Company Warrants held by such Company Holder, (ii) stock transfer powers executed in blank with respect to such Shares, (iii) proxies naming the Stockholders Representative as the Company Holders proxy with directing the Stockholders Representative to vote or give a written consent with respect to the Shares held by such Company Holder to approve this Agreement and the Merger and to vote or give a written consent with respect to such Shares on any other matters that may be presented at the Special Meeting of Company Holders and any adjournment thereof, and (iv) a notice of exercise of any Company Warrants held by such Company Holder that becomes effective immediately before the Closing.

(b)           Stock Purchase.   On and subject to the terms and conditions of this Agreement, at the Stock Purchase Closing, (i) the Stockholders Representative will, acting as attorney-in-fact for each Seller pursuant to its power authority granted in Section 2(l) below, take all such actions (other than payment of the exercise price) as may be necessary to exercise each Company Warrant held by a Seller into or for Company Shares; and (ii) following the completion of such exercises of Company Warrants, either FIG or FPIC will purchase (with the allocable portions to be purchased by each to be determined by Buyer in its discretion) from each Seller, and each Seller agrees to sell to such Buyer, each of his, her, or its Shares (and specifically authorizes the Stockholders Representative to deliver to such Buyer the Share Certificates evidencing such Shares together with the related stock transfer powers) for the Closing Consideration Per Company Share (less, in the case of Company Shares issued pursuant to the exercise of Company Warrants at the Closing without payment of the exercise price as contemplated by the previous provisions of this Section 2(b), the exercise price for such Company Shares).  Buyer agrees to pay, without interest, the amounts due to each Seller by wire transfer or delivery of other immediately available funds either to the account designated for such purpose by such Seller in the Joinder Agreement or, if no such account is designated, by Buyer's check payable to

 

(c)           Short-Form Merger; Merger by Written Consent.  In the event that the Sellers hold Shares or Company Warrants representing at least 90% of the Company Shares (other than Company Shares subject to issuance on exercise of outstanding Company Warrants held by Persons other than Sellers), the Parties will, at the request of Buyer, take all necessary and appropriate action to cause the Merger to become effective upon the Closing, or as soon as practicable thereafter, without a Special Meeting of Holders of Shares, in accordance with Section 92A.180 of Nevada Law or pursuant to the immediately following sentence.  In the event that the Sellers hold Shares or Company Warrants representing at least a majority of the total voting power of the Shares and of each class of Company Preferred Stock, the Parties will, if requested by Buyer, take all necessary and appropriate action, including without limitation by executing appropriate consents in writing under Section 78.320 of Nevada Law, to cause the Merger to be approved by Company Holders and to become effective, whether or not the Stock Purchase Closing has occurred, as soon as practicable, without a Special Meeting of Holders of Shares.

(d)           Stockholders' Meeting.  In the event that the Sellers hold Shares or Company Warrants representing at least a majority of the total voting power of the Shares and of each class of Company Preferred Stock, and if Buyer is not required and does not choose to effect the Merger in accordance with Section 2(c) above, Company and the Stockholders Representative will, in accordance with applicable Legal Requirements and Company’s Articles of Incorporation and Bylaws, (i) duly call, give notice of, convene and hold an annual or special meeting of the holders of its Shares as soon as practicable following the satisfaction or waiver of all conditions contained in Section 7(a) and Section 7(b) below, other than the condition contained in Section 7(a)(x) (concerning Company Holders representing 90% of all Company Shares having consented to the Merger and, if the Stock Purchase Closing has not then occurred, other than conditions with respect to actions the respective Parties are contemplated hereby to take at the Closing itself) for the purpose of considering and taking action on this Agreement and the transactions contemplated hereby, (ii) include in the Proxy Statement the recommendation of Company’s Board of Directors that the Company Holders approve this Agreement, the Merger and the transactions to be consummated in connection with the Merger Closing, and(iii)  use their commercially reasonable efforts to obtain such approval.  To the extent permitted by applicable Legal Requirements, Buyer and Merger Co each agree, and, if the Stock Purchase Closing has not then occurred, each Seller agrees to vote all Company Shares beneficially owned by such Person in favor of the Merger.  Buyer may elect in connection with a Merger effected pursuant to this Section 2(d) to forego the Stock Purchase and the other actions contemplated by Section 2(b) above, in which event the Sellers, and their Company Shares, will be treated in the manner contemplated by the Merger. The Parties will take all necessary and appropriate action to cause the Merger to become effective immediately upon conclusion of such shareholders meeting, or as soon as practicable thereafter, in accordance with Nevada Law.

 

 (e)           Merger.

(i)         The Merger; Effective Time; Effect of Merger.  On and subject to the terms and conditions of this Agreement, and in accordance with Nevada Law, at the Effective Time, Merger Co will be merged with and into Company (the "Merger").  As a result of the Merger, the separate corporate existence of Merger Co will cease and Company will continue as the surviving corporation of the Merger (the “Surviving Corporation”).  The Parties will cause the Merger to be consummated by filing on the Merger Closing Date a certificate of merger (the “Certificate of Merger”) with the Secretary of State of the State of Nevada (the “Secretary”) in such form as is required by, and executed in accordance with the relevant provisions of, Nevada Law.  The effect of the Merger will be as provided in the applicable provisions of Nevada Law.  The term “Effective Time” means the date and time of the filing of the Certificate of Merger with the Secretary (which will be upon the Merger Closing or as soon as practicable thereafter, or such later time as may be agreed in writing by Buyer and Stockholders Representative and specified in the Certificate of Merger).

(ii)        Articles of Incorporation; Bylaws; Officers and Directors.  At the Effective Time and subject to the provisions of Section 6(d) below;

(A) with respect to a Merger pursuant to Section 2(c) above, the Articles of Incorporation and Bylaws of Surviving Corporation, as in effect immediately prior to the Effective Time, will be the Articles of Incorporation and Bylaws of the Surviving Corporation until thereafter amended as permitted by Nevada Law;

(B) with respect to a Merger pursuant to Section 2(d) above, (1) the Articles of Incorporation of Merger Co, as in effect immediately prior to the Effective Time, will be the Articles of Incorporation of the Surviving Corporation until thereafter amended as permitted by Nevada Law provided that the name will be Advocate, MD Financial Group Inc., and (2) the Bylaws of Merger Co, as in effect immediately prior to the Effective Time, will be the Bylaws of the Surviving Corporation until thereafter amended as provided by Nevada Law and such Bylaws; and

  (C) the directors of Merger Co immediately prior to the Effective Time will be the initial directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation until a successor is elected or appointed and has qualified or until the earliest of such director’s death, resignation, removal or disqualification, and the officers of Merger Co immediately prior to the Effective Time will be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified, or as otherwise provided in the Bylaws of the Surviving Corporation.

(iii)           Conversion of Securities.  At the Effective Time, by virtue of the Merger and without any action on the part of Merger Co, Company or the Company Holders:

(A) Each Company Common Share and each Company Preferred Share issued and outstanding immediately prior to the Effective Time (other than any such Shares that are to be canceled pursuant to Section 2(e)(iii)(B) below and any Dissenting Shares (as hereinafter defined)) will be canceled and will be converted automatically into the right to receive, upon surrender, in the manner provided in Section 2(e)(vi) below, of the certificate that formerly evidenced such share, (x) an amount equal to the Closing Consideration Per Company Share in cash payable, without interest, to the Company Holder of such Share (the “Merger Closing Consideration”) and (y) amounts equal to the Additional Consideration Per Company Share payable at the times and in the manner specified in the Earnout Agreement.  All such Shares when so converted will no longer be outstanding and will automatically be cancelled and retired and each Company Holder of a Share Certificate evidencing such Shares will cease to have any rights with respect thereto, except the right to receive the Closing Consideration Per Company Share and any Additional Consideration Per Company Share with respect to such Shares, without interest;

(B) Each Share held in the treasury of Company and each Share owned by Merger Co, FIG or FPIC or any direct or indirect wholly owned subsidiary of FIG, FPIC or Company immediately prior to the Effective Time will be cancelled without any conversion thereof and no payment or distribution will be made with respect thereto; and

(C) Each share of Common Stock, par value $0.005 per share, of Merger Co issued and outstanding immediately prior to the Effective Time will be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock, par value $0.005 per share, of the Surviving Corporation and will constitute the only outstanding shares of capital stock of the Surviving Corporation.

(iv)           Company Warrants.  Immediately after the Effective Time, each outstanding Company Warrant will, subject to Company’s receipt of any required consent of the holders of such Company Warrants, be cancelled by the Surviving Corporation, and each holder of a cancelled Company Warrant will be entitled to receive (A) from the Surviving Corporation at the same time as payment of the Merger Closing Consideration for Company Common Shares and Company Preferred Shares is made by the Surviving Corporation in connection with the Merger, in consideration for the cancellation of such Company Warrant, an amount in cash equal to the product of (x) the number of Company Shares previously subject to issuance on exercise of such Company Warrant and (y) the excess, if any, of the Closing Consideration Per Company Share over the exercise price per Company Share previously subject to issuance on exercise of such Company Warrant (the “Warrant Merger Closing Consideration”), and (B) from Buyer, any Additional Consideration Per Company Share in respect of the Company Shares previously subject

to issuance on exercise of such Company Warrant, which will be payable at the times and in the manner specified in the Earnout Agreement.  Each Company Warrant that is not canceled as described above will continue to have, and be subject to, the same terms and conditions set forth in the applicable Company Warrant, except that each of the Company Shares for which such Company Warrant is exercisable will at the Effective Time be converted into the right to receive an amount in cash equal to the Closing Consideration Per Company Share for each Company Share subject to issuance on exercise of such Company Warrant and any Additional Consideration Per Company Share that will become payable under the Earnout Agreement after date of exercise of such Company Warrant.

(v)         Dissenting Shares.  Notwithstanding any provision of this Agreement to the contrary, Company Common Shares and Company Preferred Shares that are outstanding immediately prior to the Effective Time and that are held by Company Holders who are not Sellers and who will not have voted in favor of the Merger or consented thereto in writing and who will have timely demanded dissenters’ rights in accordance with applicable Nevada Law (collectively, the “Dissenting Shares”) will not be converted into or represent the right to receive the Merger Consideration.  Such  Company Holders will be entitled to receive payment of such consideration as may be determined to be due in respect of such Dissenting Shares held by them in accordance with the provisions of Nevada Law, except that all Dissenting Shares held by Company Holders who effectively will have withdrawn or lost their rights to demand appraisal of such Dissenting Shares under Nevada Law will thereupon be deemed to have forfeited such dissenters’ rights and converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Closing Consideration, without any interest thereon, upon surrender, in the manner provided in Section 2(e)(vi) below, of the Share Certificate or Share Certificates that formerly evidenced such Shares.  Company will give Buyer (i) prompt notice of any written notice of intent to seek dissenters’ rights received by Company and (ii) the opportunity to direct all negotiations and proceedings with respect to any such notices.  Company will not, without the prior written consent of Buyer, voluntarily make any payment with respect to, or settle, offer to settle, or otherwise negotiate with respect to, any such notices or demands.

(vi)   Surrender of Shares; etc.

(A) At and after the Effective Time, Buyer will cause the Surviving Corporation to have sufficient funds to pay the Merger Closing Consideration and other amounts, other than Additional Consideration, payable to Company Holders as a result of the Merger.  Pending such payment, such funds will be invested as desired by the Surviving Corporation; provided, however, that no loss on any investment made pursuant to this Section 2(e)(vi) will relieve Buyer or the Surviving Corporation of its obligation to pay the full amount of its obligations to Company Holders as a result of the Merger.  Any and all interest and earnings on such funds will be paid to FPIC or retained by the Surviving Corporation.

(B) Promptly after the Effective Time, Buyer will cause the Surviving Corporation to mail to each Person who was, at the Effective Time, a holder of record of Company Common Shares or Company Preferred Shares entitled to receive the Merger Closing Consideration pursuant to Section 2(e)(iii)(A) above, or a holder of Company Warrants entitled to receive the Warrant Merger Closing Consideration pursuant to Section 2(e)(iv) above, a form of letter of transmittal (the “Letter of Transmittal”) and instructions for use in effecting the surrender of the Share Certificates and Warrant Certificates, and acknowledgment of cancelation of any Company Warrants, pursuant to the Letter of Transmittal which will specify that delivery will be effected, and risk of loss and title to will pass, only upon proper delivery of the Share Certificates and Warrant Certificates to the Surviving Corporation.  Upon surrender to the Surviving Corporation of a Share Certificate, together with the Letter of Transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Share Certificate will be entitled to receive in exchange therefor the Merger Closing Consideration for each Company Common Share or Company Preferred Share formerly evidenced by such Share Certificate, and such Share Certificate will then be canceled.  Upon acknowledging cancelation of a Company Warrant and delivery of a Warrant Certificate in accordance with the Letter of Transmittal and delivery of the Letter of Transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of the canceled Company Warrant will be entitled to receive in exchange therefor the Warrant Merger Closing Consideration for such Company Warrant.  Until surrendered as contemplated by this Section 2(e)(vi)(B), each Share Certificate (other than Share Certificates representing Dissenting Shares) will be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, equal to the Closing Consideration Per Company Share with respect to the Shares represented by such Share Certificate immediately before the Effective Time.  No interest will accrue or be paid on the Merger Closing Consideration payable upon the surrender of any Share Certificate for the benefit of the holder of such Share Certificate or on the Warrant Merger Closing Consideration payable upon acknowledgment of cancelation of a Company Warrant by delivery of a transmittal letter for the benefit of the holder of such canceled Company Warrant.  If payment of the Merger Closing Consideration is to be made to a Person other than the Person in whose name the surrendered Share Certificate is registered on the records of Company, it will be a condition of payment that the Share Certificate so surrendered will be endorsed properly or otherwise be in proper form for transfer and that the Person requesting such payment will have paid all transfer and other taxes required by reason of the payment of the Merger Closing Consideration to a Person other than the registered holder of the Share Certificate surrendered or will have established to the satisfaction of the Surviving Corporation that such taxes either have been paid or are not applicable.  The Surviving Corporation will pay all charges and expenses in connection with the distribution of the Merger Closing Consideration 

and the Warrant Merger Closing Consideration other than the postage or other cost of delivering the letters of transmittal and accompanying Share Certificates and documents to the Surviving Corporation.

(C) Company Holders will be entitled to look to the Surviving Corporation  and Buyers (subject to abandoned property, escheat and other similar laws) only as general creditors thereof with respect to any Merger Closing Consideration or Warrant Merger Closing Consideration that may be payable to them.  Notwithstanding the foregoing, neither the Surviving Corporation nor Buyer will be liable to any Company Holder for any Merger Closing Consideration nor Warrant Merger Closing Consideration delivered to a public official pursuant to any abandoned property, escheat or other similar law in respect of Company Common Stock, Company Preferred Stock or Company Warrants held by such Company Holder.

 (f) Withholding.  Buyer or the Surviving Corporation, as the case may be, will be entitled to deduct and withhold from the consideration otherwise payable to any Company Holder pursuant to this Agreement such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of state, local or foreign Tax law and promptly following any such deduction or withholding shall remit any sums so deducted or withheld to the appropriate taxing authority.  If such amounts are withheld, such amounts will be treated for all purposes of this Agreement as having been paid to the Common Holder in respect of which the Buyer or the Surviving Corporation, as applicable, made such deduction and withholding.

(g) Stock Transfer Books.  At the close of business on the day of the Effective Time, the stock transfer books of Company will be closed and, thereafter, there will be no further registration of transfers of Company Common Shares or Company Preferred Shares on the records of Company.  From and after the Effective Time, the Company Holders of Company Common Shares, Company Preferred Shares or Company Warrants outstanding immediately prior to the Merger Closing will cease to have any rights with respect to such shares except as otherwise provided herein or by applicable Legal Requirements.

(h) Lost Certificates.  If any Share Certificate will have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Share Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, an affidavit made by the Stockholder Representative that such Person is a Company Holder, the Surviving Corporation will pay, in exchange for such affidavit claiming such Share Certificate is lost, stolen or destroyed, the Closing Consideration Per Company Share to be paid in respect to the Shares represented by such Share Certificate, as contemplated by this Section 2 and any Additional Consideration Per Company Share as contemplated by the Earnout Agreement.

(i) Effect of Payments.  All cash paid upon delivery or surrender of Share Certificates or cancelation or exercise of Company Warrants in accordance with the terms of this Section 2 will be deemed to have been paid in full satisfaction of all rights pertaining to the Shares previously represented by such Share Certificates and all rights pertaining to such Company Warrants.

(j) Closing.   The Stock Purchase Closing if any, and the Merger Closing will take place on the second business day following the satisfaction or waiver of the conditions applicable to such Closing pursuant to Section 7 below (other than conditions with respect to actions the respective Parties will take at the Closing itself or after the Closing as contemplated by this Agreement and the Earnout Agreement) or such other date  as Buyer and Company may mutually determine, and will take place at such time and place as Buyer and Company may mutually determine.

(k) Deliveries at Closing. At the Closing, (i) Buyer, Company and Stockholders Representative (acting on behalf of the Company Holders) will execute and deliver the Earnout Agreement, (ii) Company will cause the directors of each of its Subsidiaries to execute and deliver resignations as directors of such Subsidiaries, (iii) Company will cause each of its directors other than such directors who are Stockholders Representative to resign from Company’s Board of Directors and such directors who are Stockholders Representative will fill the resulting vacancies with nominees named by Buyer, and (iv)(A) each of the Sellers, or the Stockholders Representative on behalf of any Seller, and Company will deliver to Buyer the certificate as to his, her or its compliance with and performance of his, her or its covenants and obligations to be performed or complied with at or before the Closing and the various certificates, instruments, agreements and documents to be delivered by such Person at or before the Closing, and (B) each of FIG, FPIC and Merger Co will deliver to Sellers the certificate as to its compliance with and performance of its covenants and obligations to be performed or complied with at or before the Closing and the various certificates, instruments, agreements and documents to be delivered by such Person at or before the Closing, and (C) at the Stock Purchase Closing Buyer will make the payments specified in Section 2(b) above.  Immediately before Closing, Company will deliver the amount of Incentive Bonus to be paid before Closing to the Persons pursuant to the allocations determined by the Company’s Board of Directors and, if requested by Company for such purpose, Buyer will, immediately before Closing, advance Company the funds required for such purpose.

(l) Stockholders Representative. 

(i) By the execution and delivery of the Joinder Agreement, each Seller hereby irrevocably constitutes and appoints, and by virtue of executing and delivering a  Letter of Transmittal each Company Holder that executes and delivers a Letter of Transmittal  thereby irrevocably will constitute and appoint, and by virtue of the approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby by the requisite vote of holders of Shares, each other Company Holder irrevocably constitutes and appoints, Mark E. Adams and Timothy P. Reardon acting jointly as his, her or its true and lawful agent and attorney-in-fact (such individuals collectively, the "Stockholders Representative"), with full power of substitution to act in such Company Holder's name, place and stead with respect to all matters to be performed by the Stockholders Representative expressly set forth in this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby, and to act on such Company Holder's behalf in any dispute, litigation or arbitration involving this Agreement, and to do or refrain from doing

 

 

 

all such further acts and things, and execute all such documents as the Stockholders Representative will deem necessary or appropriate in all such connection with the transactions contemplated by this Agreement, including, without limitation, the power:

 

(A) to waive any condition to the obligations of any Seller to consummate the transactions contemplated by this Agreement;

(B) to execute and deliver all ancillary agreements, certificates and documents, and to make representations and warranties therein, on behalf of any Seller, or other Company Holder, that the Stockholders Representative deems necessary or appropriate in connection with the consummation of the transactions contemplated by this Agreement;

(C) to give and receive notices (including service of process) and communications on behalf of the Company Holders under this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby and thereby;

(D) to execute any amendment or modification to this Agreement and the Earnout Agreement on behalf of the Company Holders;

(E) without limiting the foregoing provisions of this Section 2(l)(i), to take any action (or determine to take no action) in connection with the defense, settlement, compromise, arbitration and/or other resolution, including compliance with any order, of any claim for indemnification by or against any Company Holder, or  any other claim, arbitration, dispute, action, suit or other proceeding brought on behalf of or against any Company Holder, in connection with this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby or thereby;

(F) to assert, bring, prosecute, maintain, settle, compromise, arbitrate and/or otherwise resolve on behalf of the Company Holders any claim by or against any Company Holder for indemnification or any other claim, arbitration, dispute, action, suit, or other proceeding by or against any Company Holder in connection with this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby and thereby;

(G) to do or refrain from doing any further act or deed on behalf of each Company Holder which the Stockholders Representative deems necessary or appropriate in its sole discretion relating to the subject matter of this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby and thereby, as fully and completely as such Company Holder could do if personally present; and

 

 

(ii) Any claim, arbitration, action, suit, or other proceeding, whether in law or equity, to enforce any right, benefit or remedy granted to Company Holders under this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby and thereby will be asserted, brought, prosecuted or maintained only by the Stockholder Representative. 

(iii) The appointment of the Stockholders Representative will be deemed coupled with an interest and, subject to Section 2(l)(viii) below, will be irrevocable, and Buyer, Company, each of their Affiliates and any other Person may conclusively and absolutely rely, without inquiry, upon any action, decision or instruction of the Stockholders Representative on behalf of Company Holders in all matters referred to herein. All notices delivered by Buyer or the Surviving Corporation (following the Closing) to the Stockholders Representative (whether pursuant hereto or otherwise) for the benefit of Company Holders will constitute notice to the Company Holders.

(iv) The Stockholders Representative will act for the Company Holders on all of the matters set forth in this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby and thereby in the manner the Stockholders Representative believes to be  appropriate for Company Holders representing a majority or more of the Company Shares and consistent with its obligations under this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby and thereby, but the Stockholders Representative will not be responsible to the Company Holders for any loss or damages it or they may suffer by reason of the performance by the Stockholders Representative of its duties under this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby and thereby, other than loss or damage arising from fraud or willful violation of Legal Requirements. The Stockholder Representative will not be entitled to receive any compensation for performing such role.

(v) The Company will pay the reasonable out-of-pocket expenses of Stockholders Representative, either directly to the payee or by reimbursement, incurred in connection with the transactions contemplated hereby (including, without limitation, the cost of legal counsel retained by the Stockholders Representative on behalf of the Company Holders) through Closing, promptly upon request of Stockholders Representative.  The Company Holders, jointly and severally, agree to indemnify and hold harmless the Stockholders Representative from any loss, damage or expense arising from the performance of its duties as the Stockholders Representative hereunder, but excluding any expense payable by Company pursuant to the preceding sentence and any loss or damage arising from fraud or willful violation of Legal Requirements by the Stockholders Representative.  Each Company Holder paying more than its Proportionate Share shall be entitled to contribution from any Company Holder paying less than its Proportionate Share.

(vi)  All actions, decisions and instructions of the Stockholders Representative taken, made or given pursuant to the authority granted to the Stockholders Representative pursuant to this Section 2(l) will be conclusive and binding upon each Company Holder, and no Stockholder will have the right to object, dissent and protest or otherwise contest the same.

(vii) This Section 2(l) is not intended to, and does not, create or impose any fiduciary duty on any current or future Stockholders Representative. Each Company Holder acknowledges and agrees that: (A) Buyer requires appointment of the Stockholders Representative to reduce the burden of dealing with numerous Company Holders; (B) the Stockholders Representative has agreed to undertake this obligation without compensation solely as an accommodation to the other Company Holders; (C) the Stockholders Representative is engaged in a broad range of transactions, including without limitation ongoing employment and relationships with Company extending beyond the Closing, which may involve interests that differ from those of the Company Holders, and the Stockholders Representative has no obligation to disclose such interests and transactions to the Company Holders by virtue of any fiduciary, advisory or agency relationship; and (D) the duties and obligations of the Stockholder Representative are strictly contractual and are limited to those expressly set forth in this Section 2(l). To induce the Stockholders Representative named in this Agreement and as may hereafter be appointed to serve in such capacity, each Company Holder hereby waives and disclaims, to the fullest extent permitted by law, any and all duties arising at law or in equity, including without limitation all fiduciary duties, and all claims he, she or it may have against the Stockholders Representative for breach of any duty arising out of or in connection with actions or omissions of the Stockholders Representative pursuant to this Section 2(l).

(viii) By affirmative vote of the Company Holders who represented at least a majority of the Company Shares immediately prior to Closing, new Stockholders Representatives may appointed and one or more Stockholders Representative may be removed and replaced at any time without cause; provided that no appointment, removal or replacement shall be binding or effective as to the Buyer or Company until its receipt of notice pursuant to Section 11(j) from the Company Holders taking such action, and no removal shall be permitted that would result in no Stockholders Representative at any time.  A Stockholders Representative (other than the sole Stockholders Representative) may resign at any time by written notice to Company and simultaneously mailing a copy of such resignation to the former Company Holders at their respective last addresses known to the resigning Stockholders Representative. A sole Stockholders Representative may only resign by at least sixty (60) days prior written notice to the Company and simultaneously mailing a copy of such resignation to the former Company Holders at their respective last addresses known to the resigning Stockholders Representative.

(ix) The provisions of this Section 2(l) are independent and severable, will constitute an irrevocable power of attorney, coupled with an interest and surviving death or dissolutions, granted by the Company Holders to the Stockholders Representative, will

be enforceable notwithstanding any rights or remedies that any Company Holder may have, and will be binding upon the executors, heirs, legal representatives, successors and assigns of each such Company Holder.

Section 3.         Representations and Warranties Concerning Transaction. 

(a) Sellers' Representations and Warranties.  Each Seller severally and individually and not jointly represents and warrants to Buyer that the statements contained in this Section 3(a) are correct and complete as of the date of this Agreement and as of the date of execution of the Joinder Agreement by such Seller with respect to himself, herself, or itself, except as set forth in Annex I attached hereto or to the Joinder Agreement executed by such Seller.

(i) Organization of Certain Sellers. Seller (if a corporation or other entity) is duly organized, validly existing, and in good standing under the Legal Requirements of the jurisdiction of its incorporation (or other formation).

(ii) Authorization of Transaction. Seller has full power and authority (including full corporate or other entity power and authority) to execute and deliver this Agreement and to perform his, her, or its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Seller, enforceable in accordance with its terms except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights or by general principles of equity.  Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Body or other Person in order to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by Seller.

(iii) Non-contravention. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will, with respect to Seller,: (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Body to which Seller is subject or, if Seller is an entity, any provision of its charter, bylaws, or other governing documents, (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any Contract or other arrangement to which Seller is a party or by which he, she, or it is bound or to which any of his, her, or its assets is subject, or (C) result in the imposition or creation of a Lien upon or with respect to his, her or its Company Common Shares, other Company Shares, Company Preferred Shares, or Company Warrants.

 

 

 

has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

(v) Shares; Warrants. Seller holds of record and owns beneficially, and good and valid legal title to, the number of Company Common Shares, Company Preferred Shares and Company Warrants set forth next to his, her, or its name in Section 4(b) of the Disclosure Schedule, free and clear of any restrictions on transfer by Seller (other than restrictions under the Securities Act and state securities laws), Taxes, Liens, options, warrants, purchase rights, Contracts, commitments, equities, claims, and demands. Upon the purchase of such equity interests of Seller pursuant to the terms of this Agreement, Buyer will receive good and valid legal title thereto and full beneficial ownership thereof, free and clear of all Liens, Taxes and rights of others of any kind other than those created or permitted by Buyer. Seller is not a party to any option, warrant, purchase right, or other Contract or commitment (other than this Agreement) that could require Seller to sell, transfer, or otherwise dispose of any capital stock or rights to purchase any capital stock of Company. Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of Company except a proxy or proxies naming Stockholder Representative as contemplated by this Agreement.

(vi) Certain Business Relationships with Company and Its Subsidiaries. Except for any Seller who has purchased medical professional liability insurance from the Insurance Company in the Ordinary Course of Business, neither Seller nor any of Seller’s Affiliates or family members has been involved in any material business or financial arrangement or relationship with Company or any of its Subsidiaries within the past 12 months other than as a Company Holder, employee, director or officer and neither Seller nor such other Persons owns any material asset, tangible or intangible, that is used in the business of Company or any of its Subsidiaries.  Neither  Seller nor any of Seller’s Affiliates or family members, is directly or indirectly engaged in a business, or owns, manages, operates, controls, finances or participates in the ownership, management, operation, control or financing of, is connected as a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant or otherwise with, any Person engaged in a business, involved in any material way with medical professional liability insurance or other products or services competitive with Company or any of its Subsidiaries.

(vii) Information Regarding Transactions.  Seller has received and read a copy of this Agreement and all exhibits and schedules hereto, including but not limited to Section 6(e) below and the Earnout Agreement, and Seller has relied on nothing other than such documents and other information provided by Company and Stockholders Representative in deciding whether to become a Party.  In addition, Seller acknowledges that he , she or it has been given the opportunity to (A) ask questions and receive satisfactory answers from Company and Stockholders Representative concerning the terms and conditions of the transaction contemplated hereby, and (B) obtain additional information in order to evaluate the merits of the transaction contemplated hereby and to verify the accuracy of the information provided to him, her or it by Company and Stockholders Representative in connection with the transaction contemplated hereby.  Seller also acknowledges that

the Earnout Payments (as such term is defined in the Earnout Agreement) are contingent upon the ability of Company to reach certain performance thresholds during the two-year period following Closing and such Earnout Payments may be reduced or eliminated as a result of breaches of Company’s and, with respect to Seller’s portion of such Earnout Payments, Seller’s warranties and covenants contained in this Agreement, to the extent hereinafter set forth in this Agreement and as set forth in the Earnout Agreement.

(b) Buyer's Representations and Warranties.  Buyer represents and warrants to Company and each Seller that the statements contained in this Section 3(b) are correct and complete as of the date of this Agreement, except as set forth in Annex II attached hereto.

(i) Organization of Buyer and Merger Co. Each of FIG, FPIC and Merger Co is a corporation duly organized, validly existing, and in good standing under the Legal Requirements of the jurisdiction of its incorporation.

(ii) Authorization of Transaction. Each of FIG, FPIC and Merger Co has full power and authority (including full corporate or other entity power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer enforceable in accordance with its terms  except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights or by general principles of equity. Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Body or other Person in order to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by Buyer.

(iii) Non-contravention. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Body to which Buyer or Merger Co is subject or any provision of its charter, bylaws, or other governing documents or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any Contract or other arrangement to which Buyer or Merger Co is a party or by which it is bound or to which any of its assets is subject.

(iv) Sufficient Funds. Buyer has sufficient funds on hand to pay the Closing Consideration.

 

 

(vi) Investment and other Securities Representations. Buyer is not acquiring the Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act.  Buyer is an "accredited investor" as such term is defined in Rule 501 under the Securities Act. Buyer acknowledges that the Shares to be acquired by Buyer pursuant to the transactions contemplated hereby have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and cannot be disposed of unless they are subsequently registered under the Securities Act and the securities laws of any applicable state or other jurisdiction or an exemption from such registration is available.

(vii) No Other Representations.  Buyer acknowledges that, in connection with the transactions contemplated hereby, it is not relying upon any express or implied representations or warranties of any nature, whether in writing, orally or otherwise, made by or on behalf of or imputed to the Company or the Company Holders, except as expressly set forth in this Agreement and in the other documents, instruments and certificates executed in connection with the transactions contemplated hereby. Without limiting the generality of the foregoing, Buyer acknowledges that neither Company nor the Company Holders makes any representation or warranty with respect to (A) any projections, estimates or budgets delivered to or made available to Buyer of revenues,  results of operations (or any component thereof), cash flows or financial condition (or any component thereof) of Company and its Subsidiaries after the Closing or the business and operations of Company and its Subsidiaries after the Closing or (B) any other information or documents made available to Buyer or its counsel, accountants or advisors with respect to Company and its Subsidiaries or any of their respective businesses, assets, liabilities or operations, except as expressly set forth in this Agreement and in the other  documents, instruments and certificates executed in connection with the transactions contemplated hereby.

Section 4.         Representations and Warranties Concerning Company and Its Subsidiaries.  Company represents and warrants to Buyer that the statements contained in this Section 4 are correct and complete as of the date of this Agreement, except as set forth in the disclosure schedule delivered by Company to Buyer on the date hereof  (the "Disclosure Schedule").

(a) Organization, Qualification, and Corporate Power; Authorization of Transaction.  Company and each of its Subsidiaries are corporations duly organized, validly existing, and in good standing under the Legal Requirements of the jurisdiction of their incorporation.  Company and each of its Subsidiaries are duly authorized to conduct business and are in good standing under the Legal Requirements of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a Material Adverse Effect. Company and its Subsidiaries each has full corporate power and authority to execute and deliver this Agreement and the other agreements of Company and its Subsidiaries contemplated hereby, to perform its obligations hereunder and thereunder, to carry on the business in which it is engaged and to own, lease and use the properties and assets owned, or leased, and used by them. Section 4(a) of the Disclosure Schedule identifies the directors and officers of Company and each of its Subsidiaries.  This Agreement constitutes the valid and legally binding obligation of Company,

 

 

(b) Capitalization.   The entire authorized capital stock of Company consists of One Hundred and Fifty Million (150,000,000) shares, of which One Hundred Million (100,000,000) shares are designated as  Common Stock, par value $0.005 per share, and Fifty Million (50,000,000) shares are designated as Preferred Stock, par value $0.005 per share, of which Six Million (6,000,000) shares have been further designated as shares of Series A Preferred Stock, and Fifteen Million (15,000,000) shares have been further designated as shares of Series B Preferred Stock.   Exactly 4,180,300 shares of such Common Stock, 3,884,999 shares of such Series A Preferred Stock, and 3,634,643 shares of such Series B Preferred Stock are issued and outstanding and Company Warrants to acquire 675,138 Company Common Shares are issued and outstanding, all as of the date of this Agreement.  All of the issued and outstanding Shares have been duly authorized, are validly issued, fully paid, and non-assessable, and are held of record by the respective Company Holders as set forth in Section 4(b) of the Disclosure Schedule. All of the Company Warrants have been duly authorized and are held of record by the respective Company Holders as set forth in Section 4(b) of the Disclosure Schedule.  There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other Contracts, commitments or rights that could require Company, directly or indirectly, to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Company.

(c) Non-contravention.   Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Body to which Company or any of its Subsidiaries are subject or any provision of the charter or bylaws, or other governing documents, of Company or any of its Subsidiaries or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any Contract or other arrangement to which Company or any of its Subsidiaries is a party or by which it is bound or to which any of their assets is subject (or result in the imposition of any Lien upon any of their assets).  Except as disclosed on Section 4(c) of the Disclosure Schedule, neither Company nor any of its Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Body or other Person in order for the Parties to consummate the transactions contemplated by this Agreement.

 

(e) Title to Tangible Assets.   Company and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, the material tangible assets they use regularly in the conduct of their business.

(f) Subsidiaries.   Section 4(f) of the Disclosure Schedule sets forth for each Subsidiary of Company (i) its name and jurisdiction of incorporation, (ii) the number of authorized shares for each class of its capital stock, (iii) the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, and (iv) the number of shares of its capital stock held in treasury. All of the issued and outstanding shares of capital stock of each Subsidiary of Company have been duly authorized and are validly issued, fully paid, and non-assessable. Company or one of its Subsidiaries holds of record and owns beneficially all of the outstanding shares of each Subsidiary of Company. Except for the Subsidiaries set forth in Section 4(f) of the Disclosure Schedule, neither Company nor any of its Subsidiaries owns or has any right to acquire, directly or indirectly, any outstanding capital stock of, or other equity interests in, any Person.  There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other Contracts, commitments or rights that could require any Subsidiary of Company, directly or indirectly, to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary of Company.

(g) Financial Statements.

(i)           Company previously has delivered to Buyer the audited financial statements of Company and its Subsidiaries, on a consolidated basis, as at and for the year ended December 31, 2008 (the “Annual GAAP Financial Statements”) and the unaudited financial statements of Company and its Subsidiaries, on a consolidated basis, as at and for the six months ended June 30, 2009 (the “Most Recent GAAP Financial Statements”). In addition, Company has delivered to Buyer a true and complete copy of the Insurance Subsidiary’s Annual Report for the year ended December 31, 2008, as filed with the Texas Insurance Department (the “Annual Report”) its Quarterly Report for the three months ended March 31, 2009 as filed with the Texas Department of Insurance (the “Quarterly Report”), and the June 30, 2009 internal financial statements of the Insurance Subsidiary (the "June 30, 2009 Internal Financial Statements".  The financial statements contained in the Annual Report are referred to herein as the “Annual Statutory Financial Statements,” the March 31, 2009 financial statements contained in the Quarterly Report,  together with the June 30, 2009 Internal Financial Statements, are referred to herein as the “Most Recent Statutory Financial Statements” and, together with the Most Recent GAAP Financial Statements, as the  “Most Recent Financial Statements” and, together with the Annual GAAP Financial Statements and the financial statements contained in the Annual Report, as the “Financial Statements”.

 

 

(iii)           The Most Recent GAAP Financial Statements have been prepared from the books and records of Company and its Subsidiaries and fairly present in all material respects, on a consolidated basis, financial position, results of operations and the other information contained therein, as at the dates and for the periods indicated therein, in conformity with GAAP, subject to normal period-end adjustments and lack of footnotes and other presentation items.

(iv)           The Annual Report and the Quarterly Report have been prepared from the books and records of the Insurance Subsidiary, are materially correct and complete and comply with applicable Legal Requirements.  The financial statements contained therein are fairly presented in conformity with statutory accounting principles. No material deficiency has been asserted with respect to any of the information contained in the Annual Report or the Quarterly Report by the Texas Department of Insurance or any other Governmental Body.  Company has delivered to Buyer copies of all material correspondence sent or received since January 1, 2008, between Company or any of its Subsidiaries and the Texas Department of Insurance or other Governmental Body.  The reserves established and reflected in the Company Financial Statements were determined by the Company Actuary in accordance with generally accepted actuarial standards consistently applied, and to Company's Knowledge are fairly stated in all material respects in accordance with sound actuarial principles and are in compliance in all material respects with the requirements of applicable insurance laws, rules and regulations in the State of Texas as well as those of any other applicable jurisdictions.

(v)           The June 30, 2009 Internal Financial Statements  have been prepared from the books and records of the Insurance Subsidiary in accordance with statutory accounting principles, but are subject to normal period-end adjustments and lack of footnotes and other presentation items.

(vi)           Transaction Expenses incurred through June 30, 2009 were not more than $120,000, all which has been charged as an expense in the Financial Statements.

(vii)           To Company's Knowledge, neither the Company nor any of its Subsidiaries has any material liabilities, obligations or commitments of any nature, whether known or unknown, absolute, accrued, contingent or otherwise and whether due or to become due, that are not disclosed in the Financial Statements, except those incurred in the Ordinary Course of Business since June 30, 2009.

 

(i) Tax Matters.

(i) Company and each of its Subsidiaries have filed, or has received from the applicable taxing authority an extension of time in which to file, all Tax Returns that they were required to file, and have paid all Taxes shown thereon as owing.

(ii) No Tax Returns have been audited, and the Company has not received any notice of an audit.  Additionally, to Company's Knowledge, Company has fully and properly disclosed in its Income Tax Returns and in Section 4(i)(ii) of the Disclosure Schedule any uncertain tax positions in the Financial Statements.

(iii) Neither Company nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to an Income Tax assessment or deficiency.

(iv) Neither Company nor any of its Subsidiaries is a party to any Income Tax allocation or sharing agreement.

 (v) Neither Company nor any of its Subsidiaries has been a member of an Affiliated Group filing a consolidated federal Income Tax Return (other than a group the common parent of which was Company).

(j) Real Property. 

(i)  Neither Company nor any of its Subsidiaries owns or has ever owned in fee any interest in real property.

 (ii) Section 4(j)(ii) of the Disclosure Schedule sets forth the address of each parcel of Leased Real Property, and a true and complete list of all Leases for each such parcel of Leased Real Property. Company has delivered to Buyer a true and complete copy of each such Lease document.  Company and its Subsidiaries has the legal right to possess and quietly enjoy the real property subject to such Leases and has received no notice from any Person asserting any claim or right inconsistent therewith.

(k) Intellectual Property. 

 

Subsidiaries and all pending patent applications filed by Company or any of its Subsidiaries.  All of such issued patents are currently in compliance with formal Legal Requirements (including payment of filing, examination and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within six months after the date hereof.  No such patent or patent application has been or is now involved in any interference, reissue, reexamination, or opposition proceeding.  To the Knowledge of Company, there is no potentially interfering patent or patent application of any other Person with respect to any patent or patent application.

 (iv)           Section 4(k) of the Disclosure Schedule contains a complete and accurate list and summary description of all Marks.  All Marks have been registered with the United States Patent and Trademark Office, are currently in compliance with all formal Legal Requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable and are not subject to any maintenance fees or taxes or actions falling due within six months after the date hereof.  No Mark has been or is now involved in any opposition, invalidation or cancellation Proceeding and, to the Knowledge of Company, no such action is threatened with respect to any of the Marks.  To the Knowledge of Company, there is no potentially interfering trademark or trademark application of any other Person.  No Mark is infringed or, to the Knowledge of Company, has been challenged or threatened in any way.  None of the Marks as used by the Company and its Subsidiaries infringes or is alleged to infringe any trade name, trademark or service mark of any other Person.

(v)           Section 4(k) of the Disclosure Schedule contains a complete and accurate list and summary description of all registered Copyrights.  All of the registered Copyrights are currently in compliance with formal Legal Requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within six months after the date hereof.   No Copyright is infringed or, to the Knowledge of Company, has been challenged or threatened in any way.  None of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any other Person or is a derivative work based upon the work of any other Person.  All works encompassed by the Copyrights have been marked with the proper copyright notice.

(vi)           Section 4(k) of the Disclosure Schedule contains a complete and accurate list and summary description of all Net Names.  All Net Names have been registered in the name of Company or one of its Subsidiaries and are in compliance with all formal Legal Requirements.  No Net Name has been or is now involved in any dispute, opposition, invalidation or cancellation proceeding and, to the Knowledge of Company, no such action is threatened with respect to any Net Name.  To the Knowledge of Company, there is no domain name application pending of any other Person that would or would potentially interfere with or infringe any Net Name.  No Net Name is infringed or, to the Knowledge of Company, has been challenged, interfered with or threatened in any way.  No Net Name infringes, interferes with or is alleged to interfere with or infringe the trademark, copyright or domain name of any other Person.

 

 (l) Contracts.   Except in respect of the Contracts listed in Section 4(l) of the Disclosure Schedule, Contracts entered into in the Ordinary Course of Business, the performance of which involves aggregate consideration of less than $20,000, Leases listed in Section 4(j)(ii) of the Disclosure Schedule and insurance arrangements listed in Section 4(m) of the Disclosure Schedule, none of Company, any of its Subsidiaries or any of their assets or rights is a party to or bound by any Contract.  To the Knowledge of Company, each Contract listed is in full force and effect and is legal, valid and binding and enforceable against each other party thereto, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights or by general principles of equity.  Except as set forth in such Sections of the Disclosure Schedule, neither Company, any of its Subsidiaries Group nor, to the Knowledge of Company, any other party to any such Contract is in material breach thereof or material default thereunder and there does not exist under any provision thereof any event that, with the giving of notice or the lapse of time or both, would constitute such a material breach or material default by Company, any of its Subsidiaries  or, to the Knowledge of Company, any other party to any such Contract. Except as set forth in such Sections of the Disclosure Schedule, Company has delivered or made available to Buyer true, correct and complete copies of each of such written Contracts and provided summaries of any such oral Contracts. Except as set forth in Section 4(l) and Section 4(o)(vi) of the Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to any Contract that contains a “change in control,” “potential change in control” or similar provision, that, as a result of the consummation of the transactions contemplated hereby will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether severance pay or otherwise) becoming due from Company or any of its Subsidiaries to any Person, or the acceleration, termination or modification of any obligations, rights, or contracts under such Contract.

(m) Insurance.   Company and its Subsidiaries maintain insurance policies and reinsurance policies with insurers and reinsurers, in such amounts and against such risks of Company and its Subsidiaries as are customary and reasonable for the business, rights and the assets of Company and its Subsidiaries. Company and its Subsidiaries maintain all policies that it is required to have under the provisions of any Lease or other Contract to which such Person is a party.  Section 4(m) of the Disclosure Schedule lists and describes briefly all policies of liability, theft, fire, title, workers' compensation, reinsurance and other forms of insurance and surety bonds insuring Company, any of its Subsidiaries or the employees, properties, assets and business of Company and its Subsidiaries. All policies listed in Section 4(m) of the Disclosure Schedule are in full force and effect; no such policy or the future proceeds thereof has been assigned to any other Person; and all premiums and other payments due under or on account of any such policy have been paid.

 

Most Recent Financial Statements.  To the Knowledge of Company, (i) no action, suit, proceeding, hearing, or investigation of the nature or relating to the matters described in the preceding sentence has been threatened which, in the event of an adverse outcome, would be reasonably expected to materially exceed the amounts reserved by Company on its Most Recent Financial Statements or have a Material Adverse Effect, and (ii) there is no basis for any action, suit, proceeding, hearing, or investigation of such nature or relating to such matters which, in the event of an adverse outcome, would be reasonably expected to result in a material charge to the consolidated earnings of Company and its Subsidiaries or have a Material Adverse Effect.

(o) Employee and Employee Benefit Matters. 

(i)           Section 4(o)(i) of the Disclosure Schedule contains a true and complete list of (A) each plan, program, policy, payroll practice, Contract or other arrangement providing for compensation, severance, termination pay, performance awards, equity or equity-related awards, fringe benefits or other employee pension or welfare benefits of any kind, whether formal or informal or funded or unfunded, that is now sponsored, maintained, contributed to or required to be contributed to, by Company or any of its Subsidiaries or pursuant to which Company or any of its Subsidiaries has, or could reasonably be expected to have, any liability, including, without limitation, any "employee benefit plan" within the meaning of Section 3(3) of ERISA (each a "Company Group Benefit Plan"); and (B) each management, employment, bonus, option, equity (or equity related), severance, consulting, non-compete, confidentiality or similar Contract currently in effect between Company or any of its Subsidiaries and any current, former or retired employee, officer, consultant, independent contractor, agent, member or partner of Company or any of its Subsidiaries (each a "Company Group Employee Agreement"). Neither the Company nor any of its Subsidiaries currently sponsors, maintains, contributes to, or is it required to contribute to, nor has Company or any of its Subsidiaries ever sponsored, maintained, contributed to or been required to contribute to, or incurred any liability to, (C) any "defined benefit plan" (as defined in ERISA Section 3(35)), (D) any "multiemployer plan" (as defined in ERISA Section 3(37)) or any plan that has two or more contributing sponsors at least two of whom are not under common control (within the meaning of Section 4063 of ERISA), (E) except as set forth on Section 4(o)(i) of the Disclosure Schedule, any plan that is, is intended to be, or has ever been treated as a "qualified plan" (within the meaning of Section 401(a) of the Code) or any plan that is, is intended to be, or has ever been treated as a plan subject to Title IV of ERISA, or (F) any Company Group Benefit Plan or Company Group Employee Agreement that provides, or has any liability to provide, life insurance, medical, severance or other employee welfare benefits to any employee (or Affiliate or family member thereof) upon or following the employee's retirement or termination of employment, except as required by Section 4980B of the Code or Part 6 of Title I of ERISA.

 

 

(iii)           Company has provided to Buyer accurate and complete copies of all documents embodying or relating to each Company Group Benefit Plan and each Company Group Employee Agreement, including all amendments thereto, trust or funding agreements relating thereto, the two most recent annual reports required under ERISA, the most recent determination letter received from the Internal Revenue Service, if any, and the most recent summary plan description (with all material modifications).

(iv)           All contributions required to be made to or with respect to any Company Group Benefit Plan or Company Group Employee Agreement by applicable Legal Requirements or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Company Group Benefit Plan or Company Group Employee Agreement, for any period through the Closing Date have been or, as applicable, will be, timely made or paid in full or, to the extent not required to be made or paid on or before the Closing Date, will be fully disclosed on Section 4(o)(iv) of the Disclosure Schedule.

(v)           Each Company Group Benefit Plan and each Company Group Employee Agreement is currently, and has been and will be at all times prior to the Closing Date, maintained substantially in accordance with its terms and in compliance in all material respects with all applicable Legal Requirements, including, without limitation, ERISA and the Code. There is not now nor, to the Knowledge of Company, do any circumstances exist that could reasonably be expected to give rise to, any requirement for the posting of security with respect to a Company Group Benefit Plan or Company Group Employee Agreement or the imposition of any Lien on any assets or rights of Company or any of its Subsidiaries under applicable Legal Requirements, including, without limitation, ERISA and the Code.

(vi)           Except as set forth on Section 4(o)(vi) of the Disclosure Schedule, the execution and performance of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional or subsequent events directly related to the transactions contemplated by this Agreement) constitute an event under any Company Group Benefit Plan or Company Group Employee Agreement that will or may result in any payment, acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligations to fund benefits with respect to any employee or former employee or any spouse or dependent thereof.

 

(vii)           (A) Neither Company nor any of its Subsidiaries is delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by the date hereof or amounts required to be reimbursed by them to the date hereof, (B) Company and each of its Subsidiaries is in material compliance with all applicable Legal Requirements respecting employment, employment practices, employment safety, labor, terms and conditions of employment

 

 

(viii)           For purposes of this Section 4(o), the term "employee" will be considered to include individuals rendering personal services to Company or any of its Subsidiaries as independent contractors.

(ix)           Section 4(o)(ix) of the Disclosure Schedule contains a true, correct and complete list of the name of each individual who is an employee of Company or any of its Subsidiaries on the date hereof along with his or her current job title, base compensation, eligibility for bonus compensation or any other compensation, date of hire, last date and amount of increase in compensation, any employee benefit that is not generally available to employees of Company and its Subsidiaries and employment address. Section 4(o)(ix) of the Disclosure Schedule contains a true, correct and complete list of individuals currently rendering services to Company or any of its Subsidiaries for which Company or one of its Subsidiaries is obligated to issue a Form 1099, as consultants or independent contractors, along with information regarding compensation and reimbursement levels for each such individual during all such periods.  Each Person who was classified as a consultant or an independent contractor at any time by Company or any of its Subsidiaries was properly so classified under applicable Legal Requirements, has been provided a Form 1099 if such form was due prior to the date hereof and no Taxes should have been withheld from any payment made to any such Person that were not withheld.

(x)           Except as set forth on Section 4(o)(x) of the Disclosure Schedule, with respect to each Company Group Benefit Plan and Company Group Employee Agreement, there have been no "prohibited transactions" (within the meaning of Section 406 of ERISA and Section 4975 of the Code) and no fiduciary with respect to any Company Group Benefit Plan or Company Group Employee Agreement has incurred or, to the Knowledge of Company, can reasonably be expected to incur, liability for a breach of fiduciary duty or other failure to act or comply in connection with the administration or investment of the assets of any Company Group Benefit Plan. Further, no action, suit, proceeding, or hearing or, to the Knowledge of Company, investigation with respect to any Company Group Benefit Plan or Company Group Employee Agreement is pending or, to the Knowledge of Company, threatened.  Company has no Knowledge of any existing circumstances that could reasonably be expected to give rise to any action, suit, proceeding, hearing, or investigation involving a Company Group Benefit Plan or Company Group Employee Agreement.

 

(p) Bank Accounts.  Company has delivered to Buyer a true, correct and complete list of each bank and other financial institution at which Company or any Subsidiary has an account (including a securities custodial or investment account) or safe deposit box and the address of each such bank and other institution, the number of such account or box and the name of each individual authorized to draw on or have access thereto.

(q) Information Technology.  Section 4(q) of the Disclosure Schedule sets forth a list and brief description of all material computer hardware and Software used by Company or any of its Subsidiaries and identifies which are owned by Company or one of its Subsidiaries directly and which are licensed to Company or one of its Subsidiaries for use. Company and each of its Subsidiaries have the unrestricted right to use all Software associated with its respective databases.

(r)  Board Recommendation.  The Board of Directors of Company, at a meeting duly called and held, has by vote of those directors present (who constituted all of the directors then in office) (A) determined that this Agreement and the transactions contemplated hereby, including the Stock Purchase and the Merger, taken together, are in the best interests of the Company Holders, based upon input the Board of Directors of Company has received from Fox Pitt and various other factors, and (B) resolved to recommend that the Company Holders of Shares approve this Agreement and such transactions and to sell their interests in Company to Buyer on the terms and conditions hereof.

(s) Vote Required.  The only votes or approvals of Company Holders necessary to approve the Merger by written consent without a meeting is the affirmative written consent of the Company Holders of at least two thirds of the issued and outstanding Shares, provided such affirmative written consents include the Company Holders of at least a majority of the outstanding shares of each class of Company Preferred Stock. The only votes or approvals of Company Holders necessary to approve the Merger at a meeting of holders of Shares is the affirmative vote of at least a majority of the issued and outstanding Shares, provided such affirmative votes include the vote of at least a majority of the outstanding shares of each class of Company Preferred Stock.

(t) Absence of Sensitive Payments.  To the Knowledge of Company, none of Company, any of its Subsidiaries or Affiliates or any officer or director of any of them, acting alone or together, has performed any of the following acts:  (A) the making of any contribution, payment, remuneration, gift or other form of economic benefit to or for the private use of any governmental official, employee or agent where such economic benefit or the purpose of such economic benefit was illegal under the laws of the United States or the jurisdiction in which such payment was made, or (B) the establishment or maintenance of any unrecorded fund, asset or liability for any purpose or the making of any false or artificial entries on its books.

 

Board of Directors, and no meeting of any such stockholders or Board of Directors has been held for which minutes have not been prepared and are not contained in such minute books.  No material corporate action has been taken by any committee of the Board of Directors other than actions that have been ratified or otherwise approved by the Board of Directors and reflected in the minutes of meetings of the Board of Directors.  At the Closing all of those books and records will be in the possession of Company and its Subsidiaries.

(v) Certain Business Relationships with Company and Its Subsidiaries.   To Company’s Knowledge, none of Company’s or its Subsidiaries’ directors or officers, or their Affiliates or immediate family members, (i) has been involved in any material business or financial arrangement or relationship with Company or any of its Subsidiaries within the past 12 months other than as a Company Holder, employee, director or officer, (ii) owns any material asset, tangible or intangible, that is used in the business of Company or any of its Subsidiaries (iii) is directly or indirectly engaged in a business, or owns, manages, operates, controls, finances or participates in the ownership, management, operation, control or financing of, is connected as a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant or otherwise with, any Person engaged in a business, involved in any material way with the administration, development, provision, operation, management, marketing or  sale of medical professional liability insurance or other products or services competitive with Company or any of its Subsidiaries in the State of Mississippi or the State of Texas.

(w) Absence of Certain Developments or Changes.  To Company’s Knowledge, there has not occurred any event or development that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.  Since December 31, 2008, except as reflected in the Most Recent Financial Statements, Company and its Subsidiaries have conducted their activities and operation in the Ordinary Course of Business and maintained its books and records in reasonable detail that accurately and fairly reflect the transactions of Company and its Subsidiaries in all material respects. Since December 31, 2008, except as set forth in the Most Recent Financial Statements or as otherwise expressly contemplated by this Agreement, there has not been:

 

(i)           any declaration, setting aside or payment of distributions in respect of any of the Shares;

(ii)           any entering into of any Company Group Employee Agreement, or any increase in the compensation payable, or to become payable, by Company or any of its Subsidiaries to any of its directors, officers, employees or agents over the rates payable at December 31, 2008;

(iii)           any issuance of securities of Company or any of its Subsidiaries, including options, warrants or other Contracts evidencing or requiring such issuance;

(iv)           any amendment or termination (other than in the Ordinary Course of Business) of, default by Company or any of its Subsidiaries or, to the Knowledge of

Company, default by any other party under, any material Contract to which Company or any of its Subsidiaries is a party;

 

(v)           any discharge or satisfaction of any Lien or liability of Company or any of its Subsidiaries except in the Ordinary Course of Business with respect to current liabilities and insurance policy liabilities;

(vi)           any incurrence by Company or any of its Subsidiaries of any liability except current liabilities and insurance policy  liabilities incurred, and obligations (other than in respect of indebtedness) entered into, in the Ordinary Course of Business;

(vii)           any institution of any Company Group Benefit Plan or Company Group Employee Agreement or any changes made in any Company Group Benefit Plan or Company Employee Agreement;

(viii)           any capital expenditure;

(ix)           any announcement or initiation of any general increase in compensation, bonus, insurance or employee benefits involving employees or directors of Company or any of its Subsidiaries;

(x)           any sale, disposition or lease of any assets of Company or any of its Subsidiaries except in the Ordinary Course of Business or any mortgage, pledge, or grant or imposition of any Lien on any asset or property of Company or any of its Subsidiaries;

(xi)           any cancellation or waiver of any material claims or rights of Company or any of its Subsidiaries;

(xii)           any amendment to the Articles of Incorporation or bylaws of  Company or any of its Subsidiaries, or of any Company Preferred Stock Certificate of Designation; or

 

 

hereby or (B) will cease to do business, or significantly reduce the business conducted, with the Insurance Subsidiary after or as a result of the consummation of any transactions contemplated hereby.

(y) Communications with Company Holders. With respect to the transactions contemplated hereby, Company has provided, or will provide, to the Company Holders true and correct copies of the following documents: (i) this Agreement, (ii) the Earnout Agreement, (iii) the Proxy Statement, (iv) the Joinder Agreement, and (v) such other documents and information as Company believes necessary or appropriate.  All such information contained in the Proxy Statement is or will be correct and complete in all material respects, and such information does not, or will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

Section 5.          Pre-Closing Covenants.  The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing.

(a) General.   Each of the Parties will use his, her, or commercially reasonable efforts to take all actions and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set forth in Section 7 below).

(b) Notices and Consents; Closing Reserve Study.   Company will give any notices to third parties, and use commercially reasonable efforts to obtain any third party consents (including but not limited to the consent and approval of Company Holders to the Merger and other transactions contemplated hereby), referred to in Section 4(c) above. Each of the Parties will give any notices to, make any filings with, and use commercially reasonable efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Section 3(a)(ii), Section 3(b)(ii) and Section 4(c) above.  In furtherance thereof, Buyer agrees to file its Form A application with the Texas Department of Insurance as promptly as practicable and will use commercially reasonable efforts to make its initial filing by August 15, 2009 (or at the earliest practicable date thereafter when a conference can be arranged with representatives of the Texas Insurance Department) and to promptly respond to requests of the Texas Department of Insurance.  Company will obtain the Closing Reserve Study from Company Actuary and deliver a copy thereof to Buyer.

 

 

 

 

(d) Full Access.   Company will, and will cause each of its Subsidiaries to, permit, representatives of Buyer (including legal counsel and accountants) to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Company and its Subsidiaries, to all premises, properties, personnel, books, records (including tax records), Contracts, and documents of or pertaining to Company and each of its Subsidiaries.  Buyer will treat and hold as such any Confidential Information it receives from any of Sellers, Company, and its Subsidiaries in the course of the reviews contemplated by this Section 5(d) as provided in the Confidentiality Agreement.

(e) Notice of Developments.

(i) From time to time before the Closing, the Company may supplement the Disclosure Schedules to disclose any matter hereafter arising that, if existing or occurring at or before the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedule, or that is necessary to correct any information in the Disclosure Schedule that has become inaccurate after the date hereof. For avoidance of doubt, the Company may only supplement the Disclosure Schedules to reflect matters arising after the date of this Agreement.


 

 

 

to be as a result of a failure of a condition in Section 7(a) or incorporated by reference in Section 7(d).  If Buyer does not elect to terminate this Agreement as a result of such authorization and the Closing nevertheless occurs, then notwithstanding anything to the contrary in this Agreement, Buyer shall not be entitled to indemnification or any other remedies in respect of such matter or matters set forth in such designated supplements.

 

 (iv) If any such supplements are provided to Buyer and Company does not authorize Buyer to terminate this Agreement pursuant to Section 5(e)(iii) above with respect to any such supplements, and the Closing occurs, such supplements shall not affect the rights of Buyer to indemnification, or any other remedy, with respect to such matter or matters after the Closing to the extent provided in this Agreement.

(v) Nothing contained in this Section 5 will affect the rights of Buyer to indemnification, or any other remedy, to the extent provided in this Agreement for any matter or matters not permitted to be the subject of a supplement under the terms of Section 5(i) or Section 5(ii) above.

(vi) Buyer will give prompt notice to Company and Stockholders Representative of any breach of or inaccuracy in any representation or warranty of Company or any Seller promptly after becoming Known to Buyer other than any such breach or inaccuracy that is or could be the subject of a notice by another Party under the provisions of this Section 5. Such notice shall be deemed not to constitute a supplement provided by Company or a Seller pursuant to Section 5(e)(i) or Section (ii) above.

 (f) Exclusivity.   Company will not, and will not authorize or permit any of its Subsidiaries or any other Person acting on its behalf to, directly or indirectly, solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of capital stock or assets of Company or any of its Subsidiaries (including any acquisition structured as a merger, consolidation, or share exchange), including by way of furnishing information, cooperating  or taking any other action to facilitate any enquiries or the making of any proposal that constitutes or may reasonably be expected to lead to an acquisition proposal for capital stock or assets of Company or any of its Subsidiaries. In the event that any Company or any of its Subsidiaries receives an unsolicited offer for such a transaction or obtains information that such an offer is likely to be made, Company will provide Buyer with notice thereof as soon as practical, including the identity of the prospective purchaser or soliciting party.

 

Quarterly Report for the three months ended June 30, 2009, which Quarterly will Report will contain information not materially inconsistent with the information contained in the June 30, 2009 Internal Financial Statements.

 

(i) Certain Employee Agreements.  Buyer will offer to enter into, or to cause the Company to enter into, agreements, that will become effective as of the Closing, with Thomas Smith and Steve Loranger, substantially on the terms previously discussed between Buyer and Stockholders Representative.

Section 6.         Post-Closing Covenants.   The Parties agree as follows with respect to the period following the Closing.

(a) General.   In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, Buyer and Stockholders Representative will take such further action (including the execution and delivery of such further instruments and documents) as the other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 8 below).

(b) Litigation Support.   In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving Company or any of its Subsidiaries, each of the other Parties will cooperate with him, her, or it and his, her, or its counsel in the defense or contest, make available his, her, or its personnel, and provide such testimony and access to his, her, or its books and records as will be necessary in connection with the defense or contest, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 8 below).

 

attorneys' fees and disbursements incurred in connection with any claim, action, suit, proceeding or  investigation, whether civil, criminal, administrative or investigative, arising  out of actions or omissions by them in their capacity as directors, officers or employees prior to and through the Closing, and (to the extent provided in such Articles of Incorporation, bylaws, organizational documents or Contracts) specifically including the transactions contemplated hereby, will continue in full force and effect for a period of six (6) years from the Closing; provided, however, that all rights to indemnification in respect of any claims asserted or made within such period will continue until the disposition of such claim. Following the Closing, Buyer will not, and will not permit Company or any Subsidiary to, amend or modify its  Articles of Incorporation or bylaws or other organizational documents, as applicable, except as required by applicable Legal Requirements, if the effect of such amendment or modification would be to lessen or otherwise adversely affect the exculpation of, or rights to indemnification,  defense or advancement of expenses of, such Indemnified Persons as provided therein, and Buyer will cause Company or any Subsidiary to advance, from its own resources, expenses to each such Indemnified  Person in connection with any proceeding involving such Indemnified Person to the fullest extent so permitted by the provisions of such Articles of Incorporation, bylaws, other organizational documents or Contracts upon receipt of any undertaking required by applicable Legal Requirements or in the Articles of Incorporation, bylaws, other organizational documents or contracts of Company or such Subsidiary, as applicable. In the event that Company or any Subsidiary transfers all or substantially all of its properties and assets to any Person, then and in each such case, proper provision will be made so that the transferee of such properties or assets will assume the obligations of Company or such Subsidiary, as applicable, under this Section 6(d). Such transfer and assumption shall not release the Buyer or Company from its obligations under this Section 6(d). Prior to the Closing, Company will purchase an extended reporting period endorsement under Company's existing directors' and officers'  liability  insurance coverage (“Extended Coverage”) for Company's and its Subsidiaries' directors and officers in a form acceptable to Company which will provide such directors and officers with coverage for six (6) years (or such shorter period permitted by the existing policy) following the Closing, which coverage (to the extent permitted by the existing policy) will be equal to the existing coverage under, and have other terms not materially less favorable to, the insured Persons than the directors' and officers' liability insurance coverage presently maintained by Company. This Section 6(d) is intended to benefit each of the  Indemnified  Persons and their  respective  heirs and personal representatives, each of  whom will be entitled to enforce the provisions hereof. Nothing in this Section 6(d) will be deemed to extend to Sellers (other than Sellers and trustees, officers or directors of Sellers in their capacity as officers or directors of Company) any rights of directors, officers or employees provided for herein.

 

(f)  Incentive Bonus Payments. Buyer will cause Company to pay the amount of Incentive Bonus payable after Closing to the Persons in the allocations as determined by Company’s Board of Directors prior to Closing.

 

(iii) there will not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement;

(iv) Stockholders Representative and Company each will have delivered to Buyer a certificate to the effect that each of the conditions specified above in Section 7(a)(i)-(iii) above is satisfied in all respects, except that the certificate may be qualified to the knowledge of the Stockholders Representative and Company without investigation as to the performance and compliance of the Sellers with their covenants and the accuracy of Sellers’ representations, and which shall also accurately state the amount of all Transaction Expenses incurred from July 1, 2009 through Closing;

(v) Buyer, the Sellers, Company and Company’s Subsidiaries will have received all authorizations, consents, and approvals of Governmental Bodies and other Persons referred to in Section 3(a)(ii), Section 3(b)(ii) and Section 4(c) above, including without limitation approval of any required Form A filings by applicable state insurance regulatory authorities and all such authorizations, consents and approvals will be in full force and effect and will not contain or be subject to any conditions or other requirements not reasonably satisfactory to Buyer;

 

(ix)  Buyer will have received from counsel to Company an opinion in form and substance reasonably satisfactory to it and its counsel, addressed to Buyer and dated as of the Closing Date;

(x) Stockholders Representative or Company will have obtained and delivered to Buyer Joinder Agreements, and/or written consents to the Merger (in such form as is reasonably acceptable to Buyer), signed by Company Holders representing at least 90% of the Company Shares;

(xi) Neither this Agreement (including the Disclosure Schedule) nor any certificate delivered pursuant hereto will have contained any untrue statement of a material fact relating to Company and its Subsidiaries taken as a whole, or omitted to state a material fact relating to Company and its Subsidiaries taken as a whole necessary to make the statements made, in light of the circumstances in which they are made, not misleading; and

(xii) all actions to be taken by Stockholders Representative or Company in connection with consummation of the transactions contemplated hereby will have been taken and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Buyer.

Buyer may waive, in whole or in part, any condition specified in this Section 7(a) if it executes a writing so stating at or prior to the Closing.

 

(iii) there will not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement;

(iv) Buyer will have delivered to Sellers a certificate to the effect that each of the conditions specified above in Section 7(b)(i)-(iii) above is satisfied in all respects;

(v) each of the Parties and each of Company’s Subsidiaries will have received all other authorizations, consents, and approvals of Governmental Bodies and other Persons referred to in Section 3(a)(ii), Section 3(b)(ii) and Section 4(c) above and all such authorizations, consents and approvals will be in full force and effect and will not contain or be subject to any conditions or other requirements not reasonably satisfactory to Stockholders Representative;

(vi) Stockholders Representative will have received from counsel to Buyer an opinion in form and substance reasonably satisfactory to Stockholders Representative and counsel to Company, addressed to Sellers, and dated as of the Closing Date; and

(vii) all actions to be taken by Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Stockholders Representative.

 

The Stockholders Representative may waive, in whole or in part, any condition specified in this Section 7(b) on behalf of all Sellers or any Seller by executing a writing so stating at or prior to the Closing.
 

 

(iii)  Company Holders holding Shares, or Company Warrants exercisable for Shares, representing in the aggregate fewer than ten percent (10%) of Company Shares will have satisfied the prerequisites of Nevada Law to demand payment for their Shares under Sections 92A.300 through 92A.500 of Nevada Law, or will have elected, in accordance with the terms of such Company Holders’ Company Warrants, to receive consideration different from the consideration for such Company Warrants or underlying Shares contemplated by the Merger.

(d) Conditions to the Merger Closing if the Stock Purchase Closing Has Not Occurred.  In the event the Stock Purchase Closing has not occurred prior to the Effective Time, the Parties’ obligations to consummate the Merger Closing are subject to the satisfaction of the conditions set forth in Section 7(c) above and, in addition, to their respective conditions set forth in Sections 7(a)(i) through  (xii) above (but excluding Section 7(a)(x) above) and 7(b)(i) through (vii) above.

Section 8.                      Remedies for Breaches of This Agreement.

(a) Survival of Representations and Warranties.  All of the representations and warranties of the Parties contained in this Agreement will survive the Closing hereunder and (other than those contained in Section 3(a)(v), Section 3(a)(vii), Section 4(b), Section 4(i) and Section 4(o) above)  continue in full force and effect through March 31, 2011 and those contained in Section 3(a)(v), Section 3(a)(vii), Section 4(b), Section 4(i) and Section 4(o) above)  will continue in full force and effect through the date on which the last Earnout Payment (as defined in the Earnout Agreement) is required to be made pursuant to the terms of the Earnout Agreement.

 

excess of One Hundred Thousand Dollars ($100,000) by reason of all such inaccuracies and breaches are equal to or less than the Indemnification Ceiling, the Sellers as a group (by action of the Stockholders Representative) will indemnify Buyer from and against any such excess Adverse Consequences Buyer will suffer (including any Adverse Consequences Buyer will suffer after the end of any applicable survival period) caused proximately by the inaccuracy or breach, provided such indemnification, if any, may solely be obtained by reducing the Additional Consideration, if any, as may be otherwise payable by Buyer, and in no event will exceed, in aggregate, the Indemnification Ceiling.  To the extent that Buyer's Adverse Consequences by reason of all such breaches and inaccuracies exceed the Indemnification Ceiling, or to the extent that any claims for indemnification are made after the end of any applicable survival period, Sellers will have no obligation to indemnify Buyer from and against such Adverse Consequences in excess of the Indemnification Ceiling or that relate solely to a claim made after the end of the applicable survival period.

(ii) In the event that any of a Seller’s representations and warranties in Section 3(a) above are breached, at any time at or before the Closing, or were inaccurate as of the Closing, or any of his, her or its covenants contained herein are breached and not cured at or before the Closing, then such Seller, severally and individually but not jointly with other Sellers, will indemnify Buyer from and against the entirety of any Adverse Consequences Buyer will suffer (including any Adverse Consequences Buyer will suffer after the end of any applicable survival period) caused proximately by such inaccuracy or breach, up to the amount of such Seller’s Allocable Portion of the Closing Consideration and of the Additional Consideration.  To the extent that Buyer's Adverse Consequences by reason of all such breaches with respect to such Seller exceed such Seller’s Allocable Portion of the Indemnification Ceiling, or to the extent that any claims for indemnification are made after the end of any applicable survival period, such Seller will have no obligation to indemnify Buyer from and against such Adverse Consequences in excess of such Seller’s Allocable Portion of the Indemnification Ceiling or that relate solely to a claim made after the end of the applicable survival period.

 

reason of all such breaches and inaccuracies exceed such Seller’s Allocable Portion of the Indemnification Ceiling, or to the extent that any such claims for indemnification are made after the end of any applicable survival period, Buyer will have no obligation to indemnify Sellers or such Seller, as the case may be, from and against such Adverse Consequences in excess of the Indemnification Ceiling or any single Seller’s Allocable Portion of the Indemnification Ceiling or that relate solely to a claim made after the end of the applicable survival period.

(d) Matters Involving Third Parties.  Promptly after receipt by a Party seeking indemnification hereunder (an "Indemnified Party") of notice of any claim or the commencement by any third party or dissenting Company Holder (a “Third Party Claim”) of any claim or proceeding that might result in another Party hereto (the "Indemnifying Party") becoming obligated to indemnify or make any other payment to the Indemnified Party under this Agreement, the Indemnified Party shall notify the Indemnifying Party forthwith in writing of the commencement thereof or of the claim, and shall furnish the Indemnifying Party with all information and documents relating thereto promptly after its receipt thereof. The failure of the Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability that it may have on account of this indemnification or otherwise, except and only to the extent that the Indemnifying Party is prejudiced thereby. The Indemnifying Party shall have the right, within thirty (30) days after being so notified, to assume and control the defense of such claim or proceeding with counsel reasonably satisfactory to the Indemnified Party in good faith and at the Indemnifying Party's own expense; provided that unless and until the Indemnifying Party shall assume such defense pursuant to this sentence, the Indemnified Party shall have the right to conduct and control the defense of such claim or proceeding (including the settlement thereof) without the Indemnifying Party's consent and shall be entitled to payment from the Indemnifying Party of all reasonable costs of such defense (including attorney's fees and expenses and costs of appeals and experts). In any such claim or proceeding the defense of which the Indemnifying Party shall have so assumed, the Indemnified Party shall have the right to participate therein and retain its own counsel at its own expense, unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of the same counsel or (ii) the named parties to any such proceeding (including impleaded parties) include both the Indemnifying Party and the Indemnified Party, and representation of such parties by the same counsel would be inappropriate due to actual or potential differing interests between them, in which case, i.e. clause (ii), such separate counsel may be retained by the Indemnified Party at the expense of the Indemnifying Party. The Indemnifying Party may elect to settle any claim or Proceeding defended by it without the written consent of the Indemnified Party provided that such settlement is limited solely to payment of monetary damages that are payable in full by the Indemnifying Party and the Indemnified Party is fully discharged at the time of the settlement from any liability with respect to the claim or proceeding, and the Indemnified Party shall not admit any liability with respect thereto or settle, compromise, pay or discharge the same without the prior written consent of the Indemnifying Party so long as the Indemnifying Party is controlling or defending such claim in good faith. The Indemnifying Party may not enter into any settlement that is not limited solely to payment of monetary damages without the Indemnified Party's prior written consent.  Each of the Parties covenant to use all commercially reasonable efforts to cooperate fully with respect to the defense of any claim, action or proceeding covered by this Section 8(d).

           (e) Treatment of Insurance Proceeds in Relation to Indemnification Payments.   All indemnification payments under this Section 8 will be paid by the Indemnifying Party net of insurance proceeds obtained by the Indemnified Party.

(f) Exclusive Remedy.   Except with respect to claims of fraud or willful misconduct, or claims under federal or state securities laws, if the Closing occurs this Section 8 will provide the sole and exclusive remedy for, any and all Adverse Consequences sustained or incurred by any Indemnified Party with respect to the representations and warranties of this Agreement and with respect to the agreements and covenants contained in this Agreement that are to be performed before the Closing Date.  Nothing contained in this Section 8, however, will limit in any way any Party’s rights if the Closing does not occur for any reason or any Party’s rights, whether or not the Closing occurs, to seek or to obtain specific performance, an injunction or other equitable remedies that may be sought and, to the extent appropriate, obtained in addition to and not in lieu of compensation for Adverse Consequences.

 

 (g) Reduction of Additional Consideration.  With respect to any indemnity obligation arising under Section 8(b)(i) or Section 8(d) above, Buyer's sole recourse for monetary compensation will be the reduction in Additional Consideration, if any, as may be payable to Sellers, in the manner contemplated by the Earnout Agreement.  With respect to any indemnity obligation arising under Section 8(b)(ii) and, regarding cost and expenses, under Section 8(d), Buyer's sole recourse for monetary compensation will be directly against the liable Seller or, after written notice to Stockholders’ Representative, against such Seller’s Allocable Portion of the Additional Consideration, if any, as earned and either paid or to be paid to such Seller, in the manner contemplated by the Earnout Agreement and shall be limited, individually and in the aggregate, to the amount of (i) such Seller’s Allocable Portion of the Closing Consideration  and, if any and in the manner and to the extent contemplated by the Earnout Agreement, Additional Consideration, reduced by (ii) the cumulative sum of any and all amounts recovered by Buyer from such Seller pursuant to Section 8(b)(i), Section 8(b)(ii) or Section 8(d) above.

 

Seller contained in this Agreement, if such representation, warranty or covenant is not qualified by the term "material" and does not contain terms such as "Material Adverse Effect" or "Material Adverse Change,” or (B) in the event of any inaccuracy or breach, whether or not material, of any representation or warranty of Company or a Seller contained in this Agreement or in any certificate delivered to Buyer in connection herewith, or of any covenant of Company or a Seller contained in this Agreement, if such representation, warranty or covenant is qualified by the term "material” or contains terms such as "Material Adverse Effect" or "Material Adverse Change," provided in each such case Buyer has notified Stockholders Representative of the inaccuracy or breach, and such inaccuracy or breach has not been cured to the reasonable satisfaction of Buyer within 30 days after the notice of inaccuracy or breach.

 

(iii) Stockholders Representative may terminate this Agreement by giving notice to Buyer at any time prior to the Closing in the event of any material inaccuracy or breach of any representation or warranty of Buyer contained in this Agreement or in any certificate delivered to Stockholders Representative in connection herewith, or of any material covenant of Buyer contained in this Agreement, if such representation, warranty or covenant is not qualified by the term "material" and does not contain terms such as "Material Adverse Effect" or "Material Adverse Change,” or in the event of any inaccuracy or breach, whether or not material, of any representation or warranty of Buyer contained in this Agreement or in any certificate delivered to Stockholders Representative in connection herewith, or of any covenant of Buyer contained in this Agreement, if such representation, warranty or covenant is qualified by the term "material” or contains terms such as "Material Adverse Effect" or "Material Adverse Change," provided in each such case Stockholders Representative has notified Buyer of the inaccuracy or breach, and such inaccuracy or breach has not been cured to the reasonable satisfaction of Stockholders Representative within 30 days after the notice of inaccuracy or breach.

(b) Effect of Termination.  If any Party terminates this Agreement pursuant to Section 9(a) above, all rights and obligations of the Parties hereunder will terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); provided, however, that the confidentiality provisions contained in Section 5(d) above will survive termination.

Section 10.  Employees; Benefits.

(a) Continuation of Employment Immediately After Closing.   Buyer will ensure that all Persons who were employed by Company or any of its Subsidiaries immediately preceding the Closing Date, including those on vacation, leave of absence or disability (the "Company

 

 

Employees"), will remain employed in a comparable position on and immediately after the Closing, at not less than the same base rate of pay; provided, however, the provisions of this Section 10 shall not apply to any Company Employee that is party to an employment agreement with Company or any of its Subsidiaries or to any action of Buyer, Company or any of its Subsidiaries taken after the Closing Date.

 

(b) Change of Control.  Buyer acknowledges that consummation of the transactions contemplated by this Agreement will constitute a change in control under Company Group Benefit Plans to the extent, if any, set forth on Section 4(o)(vi) of the Disclosure Schedule. From and after the Closing, Buyer will not prevent Company from making any payments required under all such Company Group Benefit Plans at the time and in the amount provided under the terms of such Company Group Benefit Plans.

(c) Period of Service. To the extent that service is relevant for purposes of eligibility, vesting, calculation of any benefit, or benefit accrual under any employee benefit plan, program or arrangement established or maintained by Buyer (other than any defined benefit pension plan) following the Closing Date for the benefit of Company Employees, such plan, program or arrangement will credit such Company Employees for service on or prior to the Closing Date that was recognized by the Company or its Subsidiaries, as the case may be, for purposes of employee benefit plans, programs or arrangements maintained by the Company, except to the extent it would result in a duplication of benefits. In addition, with respect to any welfare benefit plan (as defined in Section 3(1) of ERISA) established or maintained by Buyer following the Closing Date for the benefit of Company Employees, such plan will waive any pre-existing condition exclusions to the extent such condition was covered under a Company Group Benefit Plan immediately preceding the Closing Date and provide that any covered expenses incurred on or before the Closing Date by any Company Employee or by a covered dependent will be taken into account for purposes of satisfying applicable deductible coinsurance and maximum out-of-pocket provisions after the Closing Date.

 (d) No Employee Third Party Beneficiaries.  Nothing in this Agreement will be interpreted or construed to confer any third party rights upon the Company Employees or any other Person who is not a party to this Agreement. This Section 10(d) will be binding on all successors and assigns of Buyer and Company. Notwithstanding the foregoing, (i) nothing in this Agreement will be interpreted or construed to confer upon the Company Employees any right with respect to continuance of employment by the Company, such Subsidiaries or Buyer, nor will this Agreement interfere in any way with the right of the Company, such Subsidiaries or Buyer to terminate any employee's employment at any time and (ii) nothing in this Agreement will interfere in any way with the right of Buyer to amend, terminate or otherwise discontinue any or all plans, practices or policies of Buyer in effect from time to time.

Section 11.                     Miscellaneous.

(a) Nature of Sellers' Obligations.    The covenants of each Seller in Section 2(a) above concerning the sale of his, her, or its Company Shares to Buyer and the representations and warranties of each Seller in Section 3(a) above concerning the transaction are individual and not joint or several obligations. This means that the particular Seller making the representation,

 

 

warranty, or covenant will be solely responsible to the extent provided in Section 8(b)(ii) above for any Adverse Consequences Buyer may suffer as a result of any breach thereof.

 

(b) Nature of Buyer Obligations; Subsidiary Actions. The liabilities and obligations of each Buyer and Merger Co under this Agreement, the Earnout Agreement and any other document, instrument or certificate executed in connection with the transactions contemplated hereby or thereby (collectively “Transaction Documents”) are joint and several. The Knowledge of Merger Co shall be attributed to Buyers, and the Knowledge of any Buyer shall be attributed to Merger Co. and the other Buyer, as the case may be. With respect to any provision in a Transaction Document requiring action to be taken or not taken by a Subsidiary of a Buyer, the parent Buyer undertakes to cause the Subsidiary to take or not take such action, as the case may be. With respect to any provision in a Transaction Document requiring action to be taken or not taken by a Subsidiary of company, Company undertakes to cause the Subsidiary to take or not take such action, as the case may be.

 

(c) Press Releases and Public Announcements.   No Party will issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of Buyer and Stockholders Representative, which approval will not be unreasonably withheld; provided, however, that Buyer may make any public disclosure it believes in good faith is required by applicable Legal Requirements or any listing or trading agreement concerning its publicly traded securities (in which case the Buyer will use its commercially reasonable  efforts to advise the other Parties prior to making the disclosure).  The Parties anticipate a press release by Buyer, Company, and Stockholders Representative will be issued within four (4) business days after execution of the Agreement.

(d) No Third-Party Beneficiaries.   This Agreement will not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

(e) No Code §338 Election.   Neither Buyer, Company, nor any of their Affiliates will make any election under Code §338 with respect to the transactions contemplated by this Agreement.

(f) Entire Agreement.   This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements (other than the Confidentiality Agreement), or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.

(g) Succession and Assignment.   This Agreement will be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his, her, or its rights, interests, or obligations hereunder without the prior written approval of Buyer and Stockholders Representative.

(h) Counterparts.   This Agreement may be executed in one or more counterparts (including by means of facsimile), each of which will be deemed an original but all of which together will constitute one and the same instrument.

 

 

 

(i) Headings.   The section headings contained in this Agreement are inserted for convenience only and will not affect in any way the meaning or interpretation of this Agreement.

(j) Notices.  All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder will be deemed duly given (i) when delivered personally to the recipient, or (ii) when received by the recipient by facsimile transmission or electronic mail and recipient confirms such receipt by facsimile transmission or electronic mail, and addressed to the intended recipient as set forth below: