Exhibit 10.1

 

 

Execution Copy

 

 

AGREEMENT AND PLAN OF MERGER

among

DST lock\line, Inc.,

DST SYSTEMS, INC.,

ASURION CORPORATION,

and

CARDINAL CORPORATION

Dated as of October 27, 2005

 

 

 

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Execution Copy

 

 

TABLE OF CONTENTS

Page

1.

Definitions.

1

 

1.1

Certain Matters of Construction

1

 

1.2

Certain Definitions

2

2.

The Merger.

13

 

2.1

The Merger

13

 

2.2

The Closing

13

 

2.3

Effective Time

13

 

2.4

Effects of Merger

13

 

2.5

Charter and By-laws

13

 

2.6

Directors

14

 

2.7

Officers

14

 

2.8

Tax Consequences

14

3.

Effect on Capital Stock; Exchange of Certificates; Delivery of Merger
Consideration.

14

 

3.1

Effect on Capital Stock

14

 

3.2

Certificates

15

 

3.3

Net Debt Adjustment

16

 

3.4

Other Parent Net Debt Adjustment

19

 

3.5

Withholding Rights

20

4.

Representations and Warranties Relating to the Company

20

 

4.1

Authorization

20

 

4.2

Organization

21

 

4.3

Capitalization

21

 

4.4

Subsidiaries

21

 

4.5

No Violation or Approval; Consents

22

 

4.6

Financial Statements

23

 

4.7

Absence of Changes

23

 

4.8

Taxes

25

 

4.9

Real Estate

27

 

4.10

Certain Regulatory Matters

27

 

4.11

Benefit Plans

27

 

4.12

Intellectual Property

28

 

4.13

Environmental Matters

29

 

4.14

Material Contracts

30

 

4.15

Transactions with Affiliates

31

 

4.16

No Illegal Payments

31

 

4.17

Litigation

31

 

 

 

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4.18

Insurance

31

 

4.19

Suppliers

32

 

4.20

Customers

32

 

4.21

Assets

32

 

4.22

Labor Matters

32

 

4.23

Brokers

32

 

4.24

Bank Accounts

33

5.

Representations and Warranties Relating to the Stockholder.

33

 

5.1

Authorization

33

 

5.2

Organization

33

 

5.3

Title

33

 

5.4

No Violation or Approval; Consents

34

 

5.5

Litigation

34

 

5.6

Brokers

34

 

5.7

Investment Status

34

 

5.8

Section 368

35

6.

Representations and Warranties Relating to Parent and Acquisition Corp.

35

 

6.1

Authorization

35

 

6.2

Organization

36

 

6.3

Capitalization

36

 

6.4

Subsidiaries

36

 

6.5

No Violation or Approval; Consents

37

 

6.6

Financial Statements

38

 

6.7

Absence of Changes

38

 

6.8

Taxes

39

 

6.9

Real Estate

41

 

6.10

Certain Regulatory Matters

42

 

6.11

Benefit Plans

42

 

6.12

Intellectual Property

43

 

6.13

Environmental Matters

44

 

6.14

Material Contracts

44

 

6.15

Transactions with Affiliates

45

 

6.16

No Illegal Payments

46

 

6.17

Litigation

46

 

6.18

Insurance

46

 

6.19

Suppliers

46

 

6.20

Customers

46

 

6.21

Assets

47

 

6.22

Labor Matters

47

 

6.23

Brokers

47

7.

Conditions Precedent to the Obligations of Parent and Acquisition Corp.

47

 

 

 

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7.1

Injunctions

47

 

7.2

Governmental Approvals

47

 

7.3

FIRPTA Certificate

47

 

7.4

Covenants

48

 

7.5

Representations and Warranties

48

 

7.6

Ancillary Documents

48

 

7.7

Legal Opinion

48

 

7.8

Closing Certificates

48

 

7.9

No Bankruptcy

48

 

7.10

Stockholder Liquidated Damages

48

8.

Conditions Precedent to Obligations of the Company and Stockholder.

48

 

8.1

Injunctions

48

 

8.2

Governmental Approvals

49

 

8.3

Covenants

49

 

8.4

Representations and Warranties

49

 

8.5

Ancillary Documents

49

 

8.6

Tax Opinion

49

 

8.7

Legal Opinion

49

 

8.8

Closing Certificates

49

 

8.9

No Bankruptcy

49

9.

Covenants of the Parties.

50

 

9.1

Access to Premises and Information

50

 

9.2

Conduct of Business Prior to Closing

50

 

9.3

Exclusivity

51

 

9.4

Confidentiality; Employees; Customers

51

 

9.5

Preparation for Closing

55

 

9.6

Tax Matters

57

 

9.7

Further Assurances

60

 

9.8

Reporting Obligations

60

 

9.9

Employee Benefits

61

 

9.10

Tax Sharing Agreements

62

 

9.11

Notification

62

 

9.12

Incentive Compensation

62

 

9.13

Code Section 125 Plan

62

 

9.14

CNA Assignment

63

 

9.15

Headquarters

63

 

9.16

Certain Company Employees

63

 

9.17

Parent Charter Amendment

63

10.

Termination; Expiration of Representations, Warranties and Covenants.

63

 

10.1

Termination

63

 

10.2

Effect of Termination

64

 

 

 

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11.

Indemnification

64

 

11.1

Indemnification by Parent

64

 

11.2

Indemnification by Stockholder

65

 

11.3

Cap

66

 

11.4

Procedures

66

 

11.5

Sole Remedy

67

 

11.6

Additional Shares

67

 

11.7

Survival of Covenants

68

12.

Miscellaneous.

68

 

12.1

Notices

68

 

12.2

Expenses of Transaction

69

 

12.3

Severability

69

 

12.4

Amendment

69

 

12.5

Parties in Interest

69

 

12.6

Assignment

70

 

12.7

Governing Law

70

 

12.8

Consent to Jurisdiction

70

 

12.9

Waiver of Jury Trial

70

 

12.10

Reliance

71

 

12.11

Specific Enforcement

71

 

12.12

No Waiver

71

 

12.13

Negotiation of Agreement

71

 

12.14

Headings

71

 

12.15

Counterparts; Facsimile Signature

71

 

12.16

Time is of Essence

72

 

12.17

Entire Agreement

72

 

 

 

 

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Execution Copy

 

 

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made as of the 27th day
of October, 2005, among DST lock\line, Inc., a Delaware corporation (the
“Company”), DST SYSTEMS, INC., a Delaware corporation and the sole stockholder
of the Company (the “Stockholder”), ASURION CORPORATION, a Delaware corporation
(“Parent”), and CARDINAL CORPORATION, a Delaware corporation and wholly-owned
direct subsidiary of Parent (“Acquisition Corp.”).

WHEREAS, the Board of Directors of the Company has approved the merger (the
“Merger”) of Acquisition Corp. with and into the Company on the terms and
subject to the conditions set forth in this Agreement, and has recommended that
Stockholder approve the Merger, and Stockholder has approved the Merger; and

WHEREAS, the Board of Directors of Acquisition Corp. has approved the Merger on
the terms and subject to the conditions set forth in this Agreement, and has
recommended that Parent approve the Merger, and Parent has approved the Merger;
and

WHEREAS, the Company, Stockholder, Parent and Acquisition Corp. desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.

NOW, THEREFORE, in consideration of these premises, the covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:

1.

Definitions.

1.1          Certain Matters of Construction. For purposes of this Agreement, in
addition to the definitions referred to or set forth below in this Section 1:

1.1.1          The words “hereof”, “herein”, “hereunder” and words of similar
import will refer to this Agreement as a whole and not to any particular Section
or provision of this Agreement, and reference to a particular Section of this
Agreement will include all subsections thereof.

1.1.2          The words “party” and “parties” will refer to the Company,
Stockholder, Parent and Acquisition Corp.

 

1.1.3

The word “including” means including without limitation.

1.1.4          Definitions will be equally applicable to both the singular and
plural forms of the terms defined, and references to the masculine, feminine or
neuter gender will include each other gender.

1.1.5          Accounting terms used herein and not otherwise defined herein are
used herein as defined by GAAP (as defined below).

 

 

 

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1.1.6   All references in this Agreement to any Section, Exhibit or Schedule
will, unless the context otherwise requires, be deemed to be a reference to a
Section, Exhibit or Schedule of or to this Agreement, in each case as such may
be amended in accordance herewith, all of which are made a part of this
Agreement.

1.2          Certain Definitions. For purposes of this Agreement, the following
terms will have the following meanings:

 

1.2.1

“Acquisition Corp.” is defined in the Preamble.

 

 

1.2.2

“Additional 3.3.7 Issuance” is defined in Section 3.3.7.

 

1.2.3

“Additional 3.4.3 Issuance” is defined in Section 3.4.3.

1.2.4         “Affiliate” means, as to any Person, each Person directly or
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, the term “control” (including the terms
“controlling,” “controlled by” and “under common control with”) means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities, through one or more intermediaries or otherwise.

 

1.2.5

“Aggregate Parent Value” is defined in Schedule 9.16.

 

1.2.6

“Agreement” is defined in the Preamble.

 

1.2.7         “Ancillary Documents” means the Company Ancillary Agreements
and/or the Parent Ancillary Agreements, and/or the Stockholder Ancillary
Agreements.

 

1.2.8

“Audited Financial Statements” is defined in Section 4.6.

1.2.9         “Balance Sheet True Up Amount” means the amount by which Estimated
Parent Net Debt differs from the product of the Estimated Company Net Debt
multiplied by the Parent Percentage and divided by the Company Percentage. An
illustrative example of the calculation is contained in Schedule 1.2.9 based on
the balance sheets contained in the Company Interim Financial Statements and the
Parent Interim Financial Statements, respectively.

1.2.10       “Business Day” means any day on which banking institutions in New
York, New York are open for the purpose of transacting business.

 

1.2.11

“Certificate of Merger” is defined in Section 2.3.

 

1.2.12

“Certificates” is defined in Section 3.2.1.

 

1.2.13       “Charter” means, the certificate or articles of incorporation or
organization or other charter or organizational documents of any Person (other
than an individual), each as from time to time in effect.

 

 

 

2

 

 

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1.2.14

“Closing” is defined in Section 2.2.

 

 

1.2.15

“Closing Company Net Debt” is defined in Section 3.3.4.

 

1.2.16

“Closing Date” is defined in Section 2.2.

 

 

1.2.17

“Closing Parent Net Debt” is defined in Section 3.3.4.

 

1.2.18       “Code” means the Internal Revenue Code of 1986, as amended, and the
regulations issued thereunder.

 

1.2.19

“Company” is defined in the Preamble.

1.2.20       “Company Ancillary Agreements” means those certain agreements,
contracts and instruments to be entered into in connection with the transaction
set forth herein and specifically identified as such in, and with forms of such
included in, the Stockholder Disclosure Schedule.

 

1.2.21

“Company Charter Documents” is defined in Section 4.2.

1.2.22       “Company Closing Balance Sheet” means the unaudited consolidated
balance sheet of the Target Companies as of the Closing Date, and delivered to
Parent at least three (3) Business Days prior to the Closing Date, prepared in
accordance with GAAP by the Stockholder with reasonable assistance from the
Company.

 

1.2.23

“Company Customers” is defined in Section 4.20.

 

 

1.2.24

“Company Financial Statements” is defined in Section 4.6.

 

 

1.2.25

“Company Interim Financial Statements” is defined in Section 4.6.

1.2.26       “Company IP Rights” means Intellectual Property Rights used by the
Target Companies in the conduct of their business as presently conducted, other
than commercial off-the-shelf software licensed by any Target Company in the
Ordinary Course of Business.

 

1.2.27

“Company Leases” is defined in Section 4.9.2.

1.2.28       “Company Material Adverse Effect” means any change, event, effect
or circumstance that is materially adverse to the business, assets, condition
(financial or other) or results of operations of the Target Companies, on a
consolidated basis; provided, however, that for all purposes of this Agreement,
no change, effect or circumstance will be deemed (either alone or in
combination) to constitute, nor will be taken into account in determining
whether there has been or would reasonably be expected to be, a Company Material
Adverse Effect to the extent that it arises out of or relates to: (a) a general
deterioration in the United States economy or in the industries in which the
Company operates provided such change does not disproportionately affect the
Company as compared to the Parent, (b) any change in accounting requirements or

 

 

3

 

 

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principles imposed upon the Company or any change in applicable laws, rules or
regulations or the interpretation thereof provided such change does not
disproportionately affect the Company as compared to the Parent, (c) compliance
with the terms of, or the taking of any action required by, this Agreement, or
(d) the public announcement of the transactions contemplated by this Agreement.

 

1.2.29

“Company Material Contracts” is defined in Section 4.14.1.

1.2.30       “Company Net Debt” means the sum of (a) the Indebtedness of the
Target Companies on a consolidated basis, either (b) minus the Company Working
Capital, if such Company Working Capital is a positive number (which, for the
avoidance of doubt, will have the effect of decreasing Company Net Debt), or (c)
plus the Company Working Capital, if such Company Working Capital is a negative
number (which, for the avoidance of doubt, will have the effect of increasing
Company Net Debt). Company Net Debt shall be calculated based on the Company
Closing Balance Sheet. For purposes of determining Company Net Debt, no lease
agreement of any Target Company that is accounted for on the books and records
of the Target Company as an operating lease shall be treated as a capital lease.

 

1.2.31

“Company Percentage” means thirty-five percent (35%).

 

1.2.32

“Company Related Entity” is defined in Section 4.11.5

 

1.2.33       “Company Stock” means the common stock of the Company, $1.00 par
value per share.

 

1.2.34

“Company Supplier” is defined in Section 4.19.

1.2.35       “Company Working Capital” means (a) the sum of (i) the current
assets of the Target Companies, plus (ii) the investment balance at Salomon
Smith Barney with respect to the Florida Warranty Services program (to the
extent not already included in current assets), plus (iii) an amount up to
$750,000 of direct expenses actually incurred (determined in good faith) with
respect to a certain new product launch being contemplated by Company management
on the date hereof, minus (iv) the sum of $3,000,000 plus the Aggregate Parent
Value, minus (b) the current liabilities of the Target Companies (excluding all
Indebtedness of the Target Companies otherwise includable therein), in each case
determined in accordance with GAAP on a consolidated basis as of the Closing.

1.2.36       “Contract” means any oral or written contract, agreement, deed,
mortgage, lease, license, instrument, note, commitment, undertaking or
arrangement.

 

1.2.37

“Copyrights” is defined in Section 1.2.59.

1.2.38       “DGCL” means the General Corporation Law of the State of Delaware,
as amended.

 

1.2.39

“Dispute Notice” is defined in Section 3.3.5.

 

 

 

4

 

 

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1.2.40

“DST Flex Plan” is defined in Section 9.13.

 

1.2.41

“Effective Time” is defined in Section 2.3.

 

1.2.42        “Employee Plan” means any plan, program, agreement, policy or
arrangement that is: (a) a Welfare Plan; (b) a pension benefit plan within the
meaning of Section 3(2) of ERISA; (c) a stock bonus, stock purchase, stock
option, restricted stock, stock appreciation right or similar equity-based plan;
or (d) any other insurance, severance, disability, leave of absence, paid time
off, deferred-compensation, retirement, welfare-benefit, bonus, incentive or
fringe benefit plan, agreement or arrangement.

1.2.43       “Environment” means any environmental medium or natural resources
including soil, sediment, surface waters, wetlands, groundwaters, drinking water
supplies, land, surface or subsurface strata, ambient air (including indoor
air), and plant and animal life (including fish and all other aquatic life).

1.2.44       “Environmental Laws” means all applicable federal, state, foreign
or local laws, principles of common law, by-laws, regulations, rules,
ordinances, codes, decrees, orders, licenses, permits, conditions, judicial
interpretations thereof, judgments, rulings, directives, or judicial or
administrative orders, and the requirements of any governmental authority having
jurisdiction with respect thereto, whether existing as of the date hereof or
previously enforced, relating to pollution, protection of the Environment, or
the health and safety of persons or property, including those relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes or any other Hazardous
Substance to the Environment or otherwise relating to the manufacture,
processing, distribution, use, presence, production, labeling, testing,
treatment, storage, disposal, transport, or handling of pollutants, contaminants
or hazardous or toxic materials or wastes.

1.2.45       “ERISA” means the Employee Retirement Income Security Act of 1974
or any successor statute, as amended, and the regulations issued thereunder.

 

1.2.46

“Estimated Parent Amount” is defined in Section 3.3.3.

 

 

1.2.47

“Estimated Company Net Debt” is defined in Section 3.3.1.

 

1.2.48

“Estimated Parent Net Debt” is defined in Section 3.3.2.

 

 

1.2.49

“Excluded Reps” is defined in Section 11.2.3.

 

1.2.50       “Exhibits” means the exhibits included in the Company Disclosure
Schedule and the Parent Disclosure Schedule.

 

1.2.51

“Expiration Date” is defined in Section 10.1.2.

1.2.52       “GAAP” means generally accepted accounting principles, consistently
applied, set forth in the opinions and pronouncements of the Accounting
Principles Board

 

 

5

 

 

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of the American Institute of Certified Public Accountants, and the statements
and pronouncements of the Financial Accounting Standards Board.

1.2.53       “Governmental Entity” means any federal, state, local or foreign
government, court, arbitrational tribunal, administrative agency or commission
or other governmental or regulatory authority, agency or instrumentality.

1.2.54       “Hazardous Substance” means any hazardous, toxic or deleterious
substance, pollutant or contaminant, including any hazardous material, hazardous
waste or regulated substance (as those terms are defined by any Environmental
Law) and including any oil, gasoline, other petroleum-based substances,
asbestos-containing materials, polychlorinated biphenyls, and toxic mold,
mildew, fungi and other pathogens.

1.2.55       “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of
1974 or any successor statute, as amended and in effect from time to time.

1.2.56       “Indebtedness” means with respect to any Person, all obligations
contingent or otherwise, in respect of: (a) borrowed money; (b) indebtedness
evidenced by notes, debentures or similar instruments; (c) capitalized lease
obligations; (d) the deferred purchase price of assets, services or securities
(other than ordinary course trade accounts payable); (e) conditional sale or
other title retention agreements; (f) reimbursement obligations, whether
contingent or matured, with respect to bankers’ acceptances, surety bonds, other
financial guarantees and interest rate protection agreements (without
duplication of other indebtedness supported or guaranteed thereby); (g)
interest, premium, penalties and other amounts owing in respect of the items
described in the foregoing clauses (a) through (f); and (h) the guaranty of the
Indebtedness of any other Person.

 

1.2.57

“Indemnified Party” is defined in Section 11.4.1.

 

 

1.2.58

“Indemnifying Party” is defined in Section 11.4.1.  

1.2.59       “Intellectual Property Rights” means: (a) patents, patent
applications, patent rights, and inventions and discoveries and invention
disclosures (whether or not patented) (collectively, “Patents”); (b) trade
names, trade dress, logos, packaging design, slogans, Internet domain names,
registered and unregistered trademarks and service marks and related
registrations and applications for registration (collectively, “Marks”); (c)
copyrights in both published and unpublished works (collectively, “Copyrights”);
(d) know-how, trade secrets, customer lists, confidential or proprietary
information, research in progress, algorithms, data, designs, processes,
formulae, source and object code, drawings, schematics, blueprints, flow charts,
models, strategies, prototypes, techniques, Beta testing procedures and Beta
testing results (collectively, “Trade Secrets”); and (e) goodwill, franchises,
licenses, permits, consents, approvals, and claims of infringement against third
parties.

 

1.2.60

“IRS” is defined in Section 9.6.7.

 

 

 

6

 

 

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1.2.61       “Knowledge” or “knowledge” means the collective knowledge or
awareness, after reasonable investigation and due inquiry, of (a) in the case of
Stockholder and/or Company, Tom McCullough, Paul Knapp, Kenneth V. Hager and
Gregg Givens, including reasonable investigation and due inquiry of Charles A.
Laue, Jason K. Martin and Rhonda G. Oswald (and assuming such reasonable
investigation and due inquiry) and assuming that such persons possess such
knowledge as they would reasonably be expected to know given their position, and
(b) in the case of Parent and Acquisition Corp., Kevin M. Taweel, Bret E.
Comolli, and Gerald A. Risk.

1.2.62       “Lien” means any mortgage, pledge, lien, security interest, charge,
claim, equitable interest, encumbrance, restriction on transfer, conditional
sale or other title retention device or arrangement (including a capital lease),
transfer for the purpose of subjection to the payment of any Indebtedness, or
restriction on the creation of any of the foregoing, whether relating to any
property or right or the income or profits therefrom.

 

1.2.63

“Losses” is defined in Section 9.6.2.

 

 

1.2.64

“Marks” is defined in Section 1.2.58.

 

 

1.2.65

“Merger” is defined in the Recitals.

 

 

1.2.66

“Merger Consideration” is defined in Section 3.1.1.

 

1.2.67

“Multiemployer Plan” is defined in Section 4.11.

 

 

1.2.68

“Ordinary Course of Business” means the ordinary course of business, consistent
with past practice and custom.

 

 

1.2.69

“Other Investment” is defined in Section 1.2.101.

 

1.2.70

“Parent” is defined in the Preamble.

 

 

1.2.71

“Parent Amount” is defined in Section 3.3.3.

 

1.2.72       “Parent Ancillary Agreements” means those certain agreements,
contracts and instruments to be entered into in connection with the transaction
set forth herein and specifically identified as such, and with forms of such
agreements included in, the Parent Disclosure Schedule.

1.2.73       “Parent Asia Debt” means the Indebtedness of Parent relating to any
Parent Companies’ operations in Asia. See Schedule 1.2.73 for a calculation of
Parent Asia Debt as of the date hereof.

1.2.74       “Parent Asia Debt Contribution” means the excess, if any, of
(a) the Parent Asia Debt minus the Parent Asia Working Capital over
(b) $8,000,000. For purposes of clarity, this amount shall not be less than
zero.

 

 

 

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1.2.75     “Parent Asia Working Capital” means the sum of (a) (i)the current
assets of the Parent Companies attributable to the Parent Companies’ operations
in Asia plus (ii) any cash held in trust for the benefit of fronting insurance
partners attributable to the Parent Companies’ operations in Asia (to the extent
not already included in current assets), minus (b) the current liabilities of
the Parent Companies attributable to the Parent Companies’ operations in Asia,
determined in good faith in a manner consistent with its current accounting
policies and practices with respect to its Asia operations and in accordance
with GAAP where applicable and between the date hereof and Closing Parent will
not change its current accounting policies and practices with respect to its
Asia operations. See Schedule 1.2.75 for a calculation of Parent Asia Working
Capital as of the date hereof.

 

1.2.76

“Parent Audited Financial Statements” is defined in Section 6.6.

 

1.2.77

“Parent Benefits” is defined in Section 9.9.

 

1.2.78       “Parent Charter Amendment” means the amendments to the Parent
Charter to increase the authorized number of shares of Parent Common Stock to
permit Parent’s issuance of the Merger Consideration.

 

1.2.79

“Parent Charter Documents” is defined in Section 6.2.

1.2.80       ”Parent Closing Balance Sheet” means the unaudited consolidated
balance sheet of the Parent Companies as of the Closing Date, and delivered to
Stockholder at least three (3) business days prior to the Closing Date, prepared
in accordance with GAAP by the Parent.

1.2.81       “Parent Common Stock” means the common stock, $.001 par value per
share, of the Parent.

1.2.82       “Parent Companies” means Parent together with its Subsidiaries and
“Parent Company” means each of the Parent Companies individually.

 

1.2.83

“Parent Customers” is defined in Section 6.20.

 

1.2.84

“Parent Decrease” is defined in Section 3.3.7.

 

1.2.85       “Parent Disclosure Schedule” means that certain document delivered
in connection with this Agreement that sets forth certain additional information
regarding the representations and warranties made by Parent and Acquisition
Corp. and that lists the Parent Ancillary Documents.

 

1.2.86

“Parent Dividend Notes” is defined in Section 3.3.3.

 

 

1.2.87

“Parent Excluded Reps” is defined in Section 11.1.3.

 

 

1.2.88

“Parent Financial Statements” is defined in Section 6.6.

 

 

 

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1.2.89

“Parent Flex Plan” is defined in Section 9.13.

 

 

1.2.90

“Parent Interim Financial Statements” is defined in Section 6.6.

1.2.91       “Parent IP Rights” means Intellectual Property Rights used by the
Parent Companies in the conduct of their business as presently conducted, other
than commercial off-the-shelf software licensed by any Parent Company in the
Ordinary Course of Business.

 

1.2.92

“Parent Leases” is defined in Section 6.9.2.

 

 

1.2.93

”Parent Losses” is defined in Section 11.2.1.

1.2.94       “Parent Material Adverse Effect” means any change, event, effect or
circumstance that is materially adverse to the business, assets, condition
(financial or other) or results of operations of the Parent Companies, on a
consolidated basis; provided, however, that for all purposes of this Agreement,
no change, effect or circumstance will be deemed (either alone or in
combination) to constitute, nor will be taken into account in determining
whether there has been or would reasonably be expected to be, a Parent Material
Adverse Effect to the extent that it arises out of or relates to: (a) a general
deterioration in the United States economy or in the industries in which the
Parent operates provided such change does not disproportionately affect the
Parent as compared to the Company, (b) any change in accounting requirements or
principles imposed upon the Parent or any change in applicable laws, rules or
regulations or the interpretation thereof provided such change does not
disproportionately affect the Parent as compared to the Company, (c) compliance
with the terms of, or the taking of any action required by, this Agreement, or
(d) the public announcement of the transactions contemplated by this Agreement.

 

1.2.95

“Parent Material Contracts” is defined in Section 6.14.1.

1.2.96       “Parent Net Debt” means the sum of (a) the sum of (i) the
Indebtedness of the Parent Companies other than the Parent Asia Debt, plus
(ii) the Parent Asia Debt Contribution, on a consolidated basis, and either (b)
minus the Parent Working Capital, if such Parent Working Capital is a positive
number (which, for the avoidance of doubt, will have the effect of decreasing
Parent Net Debt), or (c) plus the Parent Working Capital, if such Parent Working
Capital is a negative number (which, for the avoidance of doubt, will have the
effect of increasing Parent Net Debt); provided, however, that for purposes of
the pre-Closing adjustment described in Section 3.3.3, Parent Net Debt shall be
calculated prior to giving effect to any Pre-Closing Dividend. Except as
specifically provided in this Section 1.2.90, Parent Net Debt shall be
calculated based on the Parent Closing Balance Sheet. For purposes of
determining Parent Net Debt, no lease agreement of any Parent Company that is
accounted for on the books and records of the Parent Company as an operating
lease shall be treated as a capital lease.

 

1.2.97

“Parent Percentage” means sixty-five percent (65%).

 

1.2.98

“Parent Plan” is defined in Section 6.11.1.

 

 

 

 

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1.2.99

“Parent Related Entity” is defined in Section 6.11.5.

 

1.2.100

“Parent Supplier” is defined in Section 6.19.

 

1.2.101     “Parent Working Capital” means (a) the sum of (i) the current assets
of the Parent Companies, plus (ii) the balance of the Parent’s general ledger
account entitled account #99010, on the Parent’s consolidated balance sheet (the
“Other Investment”) not to exceed $16,400,000 (to the extent not included in
current assets) and only to the extent that it is used for the same purpose it
is used for as of the date of this Agreement and to the extent that there have
been no additions to such account other than for the purpose for which it is
used as of the date of this Agreement, plus (iii) for the purposes of
determining cash of Parent, the aggregate amount of exercise and/or conversion
prices for all vested stock options and warrants to acquire Parent Common Stock,
plus (iv) the principal amount of any promissory notes not classified as a
current asset payable to Parent in connection with any vested shares of Parent
Common Stock that were issued pursuant to restricted stock awards, plus (v) any
cash held in trust for the benefit of fronting insurance partners (to the extent
not already included in current assets), minus (b) the sum of (i) the current
liabilities of the Parent Companies (excluding all Indebtedness of the Parent
Companies otherwise includable therein), plus (ii) $10,000,000, in each case
determined in accordance with GAAP on a consolidated basis as of the Closing;
provided, however, that Parent Working Capital shall be calculated without
taking into account Parent Asia Working Capital.

 

1.2.102

“Parent Written Consent” is defined in Section 6.1.2.

 

1.2.103

“Patents” is defined in Section 1.2.59.

 

 

1.2.104

“Performance Options” is defined in Section 9.2.

 

1.2.105     “Permitted Liens” means (a) statutory Liens for current Taxes,
special assessments or other governmental charges not yet due and payable or the
amount or validity of which is being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP, (b) mechanics’, materialmen’s, carriers’, workers’,
repairers’ and similar statutory Liens arising or incurred in the Ordinary
Course of Business, which Liens are not, individually or in the aggregate,
material, (c) zoning, entitlement, building and other land use regulations
imposed by governmental agencies having jurisdiction over any owned real
property that are not violated in any material respect by the current use and
operation of any owned real property, (d) deposits or pledges made in connection
with, or to secure payment of, worker’s compensation, unemployment insurance,
old age pension programs mandated under applicable laws or other social security
in the Ordinary Course of Business, (e) covenants, conditions, restrictions,
easements, encumbrances and other similar matters of record affecting title to
but not adversely affecting current occupancy or use of any owned real property
in any material respect, and (f) restrictions on the transfer of securities
arising under federal and state securities laws.

 

 

 

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1.2.106       “Person” means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.

 

1.2.107

“Pre-Closing Dividend” is defined in Section 3.3.3.

 

 

1.2.108

“Referee” is defined in Section 3.3.6.

 

 

1.2.109

“Reference Balance Sheet Date” is defined in Section 4.6.

1.2.110     “Release” means any release, spill, leak, discharge, emission,
migration or other introduction to, or escape into or through, the Environment.

1.2.111     “Schedule” means the relevant section of the Stockholder Disclosure
Schedule or the Parent Disclosure Schedule, as the case may be, delivered in
connection with this Agreement.

 

1.2.112

“Securities Act” is defined in Section 5.7.

 

1.2.113

“Stockholder” is defined in the Preamble.

 

1.2.114     “Stockholder Ancillary Agreements” means those certain agreements,
contracts and instruments to be entered into in connection with the transaction
set forth herein and specifically identified as such, and with forms of such
agreements included in, the Stockholder Disclosure Schedule.

1.2.115     “Stockholder Disclosure Schedule” means that certain document
delivered in connection with this Agreement that sets forth certain additional
information regarding the representations and warranties made by Company and
Stockholder in this Agreement and that lists the Company Ancillary Agreements
and Stockholder Ancillary Agreements.

 

1.2.116

“Stockholder Excluded Reps” is defined in Section 11.2.3.

 

 

1.2.117

“Stockholder Liquidated Damages” is defined in Section 9.6.7.

 

1.2.118

“Stockholder Losses” is defined in Section 11.1.1.

 

 

1.2.119

“Stockholder Plan” is defined in Section 4.11.1.

 

 

1.2.120

“Stockholder Written Consent” is defined in Section 4.1.2.

 

1.2.121     “Subsidiary” means any Person of which the first specified Person
owns, directly or indirectly through a Subsidiary, at least a majority of the
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally or owns the right to receive more than a majority of the assets,
profits or distributions of such Person upon dissolution or liquidation of such
Person. Notwithstanding the preceding, however, the

 

 

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term “Subsidiary” when applied with respect to Stockholder shall mean and
include only the Target Companies.

 

1.2.122

“Subsidiary Charter Documents” is defined in Section 4.4.2.

 

1.2.123

“Surviving Corporation” is defined in Section 2.1.

 

1.2.124     “Target Companies” means the Company together with its Subsidiaries
and “Target Company” means each of the Target Companies individually.

1.2.125     “Tax” means all taxes or other assessments payable to any federal,
state, local or foreign taxing authority, whether computed on a separate or
consolidated, unitary or combined basis, including (a) income, franchise,
profits, gross receipts, ad valorem, net worth, value added, sales, use, real or
personal property, license, payroll, withholding, employment, social security
(or similar), disability, excise, stamp, occupation, customs duties,
registration, alternative and add-on minimum, estimated, and (b) in all cases,
interest, penalties, additional taxes and additions to tax imposed with respect
thereto.

 

1.2.126

“Tax Indemnified Parties” is defined in Section 9.6.2.

1.2.127     “Tax Returns” means returns, reports, forms and information
statements with respect to Taxes, including any schedule or attachment thereto,
required to be filed with the U.S. Internal Revenue Service or any other
federal, foreign, state, local or provincial taxing authority, domestic or
foreign, including consolidated, combined and unitary tax returns.

1.2.128     “Temporary Difference” means any IRS or state taxing authority
adjustment in an amount in excess of $500,000 in the aggregate to a Target
Company federal or state income tax return attributable to a period prior to
Closing (other than an adjustment with respect to the reorganization pursuant to
which the Merger Consideration is issued as described in Rev. Proc. 84-42,
1984-1 C.B. 521) which (i) increases or decreases the basis of any Target
Company asset or liability for federal or state income tax purposes or (ii)
gives rise to an accounting method change which creates an adjustment under
Section 481(a) of the Code, and the effect of any such adjustment is to either
increase or decrease taxable income of a Target Company in any state or federal
income tax return for a period ending after Closing.

 

1.2.129

“Third Party Rights” is defined in Section 4.12.1.

 

 

1.2.130

“Trade Secrets” is defined in Section 1.2.59.

 

 

1.2.131

“Transferred Employees” is defined in Section 9.9.

 

 

1.2.132

“Unaudited Financial Statements” is defined in Section 4.6.

 

1.2.133

“Vermont-Western” is defined in Section 9.14.

 

 

 

 

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1.2.134      “WARN” means the Worker Adjustment and Retraining Notification Act
of 1988, as amended.

1.2.135      “Welfare Plan” means a welfare benefit plan within the meaning of
Section 3(1) of ERISA.

2.

The Merger.

2.1          The Merger. On the terms and subject to the conditions set forth in
this Agreement, Acquisition Corp. will be merged with and into the Company at
the Effective Time in accordance with the DGCL. At the Effective Time, the
separate corporate existence of Acquisition Corp. will cease, and the Company
will continue as the surviving corporation (the “Surviving Corporation”). The
Surviving Corporation will, all in accordance with the applicable provisions of
the DGCL, (i) possess all the rights, privileges, immunities, powers and
franchises of Acquisition Corp. and the Company, and all property, real,
personal and mixed, and all debts due on whatever account, and all other choses
in action, and all and every other interest of or belonging to or due to each of
the Company and the Acquisition Corp. will be taken and deemed to be transferred
to and vested in the Surviving Corporation without further act or deed, and
(ii) become liable for all of the debts, liabilities and duties of Acquisition
Corp. and the Company. The name of the Surviving Corporation will be “lock\line,
Inc.”, and the purpose thereof will be as set forth in the Charter of the
Surviving Corporation.

2.2          The Closing. Unless this Agreement will have been terminated, and
the transactions contemplated hereby abandoned, pursuant to Section 10, and
subject to the satisfaction or waiver of the conditions set forth in Sections 7
and 8, the closing of the Merger (the “Closing”) will take place at 10:00 a.m.
Kansas City, Missouri time, on the last day of the month in which the last of
the conditions set forth in Sections 7 and 8 will have been fulfilled or waived
in accordance with this Agreement (to the extent such conditions are able to be
fulfilled or waived prior to the Closing and subject to the satisfaction of the
conditions to be satisfied at the Closing), at the offices of Bryan Cave LLP,
1200 Main Street, Kansas City, Missouri 64105, or at such other time or place as
the parties may agree (the day on which the Closing takes place, the “Closing
Date”).

2.3          Effective Time. On the Closing Date, the Surviving Corporation will
cause a certificate of merger in substantially the form of Exhibit A (the
“Certificate of Merger”) to be executed and filed with the Secretary of State of
the State of Delaware in accordance with the relevant provisions of the DGCL and
will make all other filings or recordings required under the DGCL. The Merger
will become effective at such time as the Certificate of Merger is duly filed
with such Secretary of State, or at such other time as the Company and
Acquisition Corp. may agree and specify in the Certificate of Merger (the time
the Merger becomes effective being the “Effective Time”).

2.4          Effects of Merger. At the Effective Time, the effect of the Merger
will be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL (including Section 259 of the DGCL).

 

 

 

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2.5

Charter and By-laws.

2.5.1   The Charter of Acquisition Corp. as in effect immediately prior to the
Effective Time will be the Charter of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law; provided, however,
that such Charter will be amended such that the name of the Surviving
Corporation will be “lock\line, Inc.”.

2.5.2          The By-laws of Acquisition Corp. as in effect immediately prior
to the Effective Time will be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.

2.6          Directors. At the Closing, the directors of Acquisition Corp. will
be the initial directors of the Surviving Corporation and such directors will
hold office until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

2.7          Officers. At the Closing, the officers of Acquisition Corp. will be
the officers of the Surviving Corporation and such officers will hold office
until the earlier of their resignation or removal or until their respective
successors are duly elected or appointed and qualified, as the case may be.

2.8          Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code and that this
Agreement shall constitute a “plan of reorganization” for the purposes of
Section 368 of the Code.

3.

Effect on Capital Stock; Exchange of Certificates; Delivery of Merger
Consideration.

3.1          Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of (i) any shares of
capital stock of the Company, (ii) any options, warrants or other rights to
acquire shares of capital stock of the Company, or (iii) any shares of capital
stock of Acquisition Corp.:

3.1.1          Conversion of Company Stock. Subject to the provisions of Section
3, the shares of Company Stock issued and outstanding immediately prior to the
Effective Time shall be automatically converted into the right to receive the
aggregate number of shares of Parent Common Stock equal to thirty-five percent
(35%), on a post-issuance basis, of the sum of (a) the number of outstanding
shares of Parent Common Stock including any shares issued pursuant to any
restricted stock awards, plus (b) the number of shares of Parent Common Stock
subject to vested but unexercised stock options (including vested but
unexercised Performance Options), vested but unexercised warrants, and any
outstanding unvested Performance Options (such shares, the “Merger
Consideration”) upon the surrender of the stock certificate representing such
shares of Company Stock in the manner provided in Section 3.2.

3.1.2          Cancellation of Company Stock. Subject to Sections 3.1.3 and
3.1.5, as of the Effective Time, all shares of Company Stock will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist, and each holder of a certificate representing any such shares of Company
Stock will cease to have any rights

 

 

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with respect thereto, except the right to receive the Merger Consideration in
accordance with this Section 3.1 upon surrender of such certificate in
accordance with Section 3.2.

3.1.3   Cancellation of Treasury Stock and Options. Each share of Company Stock
and each option, warrant or other right to acquire Company Stock held in the
treasury of the Company, immediately prior to the Effective Time will cease to
be outstanding and be canceled and retired without payment of any consideration
therefor.

3.1.4          Acquisition Corp. Capital Stock. Each share of capital stock of
Acquisition Corp. issued and outstanding at the Effective Time will be converted
into and exchanged for one validly issued, fully paid and nonassessable share of
common stock, par value $.001 per share, of the Surviving Corporation.

3.1.5          Dissenting Shares. In accordance with Section 262 of the DGCL, no
appraisal rights shall be available to holders of shares of Company Stock in
connection with the Merger.

 

3.2

Certificates.

3.2.1          Surrender of Certificates. From and after the Effective Time,
upon surrender by a stockholder of the Company to Parent of the certificate or
certificates or other documents representing all of the outstanding shares of
Company Stock held by such stockholder (the “Certificates”), together with duly
executed transfer powers, such stockholder will be entitled to receive in
exchange for such Certificates, a stock certificate representing the Merger
Consideration into which such shares of Company Stock were converted pursuant to
Section 3.1.1, and the Certificates so surrendered will forthwith be canceled.
Until surrendered as contemplated by this Section 3.2.1, each Certificate will
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration into which the shares of
Company Stock theretofore represented by such Certificate have been converted
pursuant to Section 3.1.1, and the holder thereof will have no rights as a
holder of the stock (or any right to the stock) of the Company or the Surviving
Corporation.

3.2.2          No Further Ownership Rights in Company Stock; Stock Transfer
Books. The Merger Consideration paid in accordance with the terms of this
Section 3 upon conversion of any shares of Company Stock will be deemed to have
been paid in full satisfaction of all rights pertaining to such shares of
Company Stock, and after the Effective Time there will be no further
registration of transfers on the transfer books of the Surviving Corporation of
shares of Company Stock. If, after the Effective Time, any certificates formerly
representing shares of Company Stock so converted are presented to the Surviving
Corporation for any reason, they will be accorded the treatment thereof provided
for in this Section 3.

3.2.3          Lost, Mutilated or Destroyed Certificates. If any holder of
shares of Company Stock will be unable to surrender such holder’s Certificates
because such Certificates have been lost, mutilated or destroyed, such holder
may deliver in lieu thereof an affidavit and, if requested by the Parent, will
deliver an indemnity bond in

 

 

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form and substance and with surety reasonably satisfactory to the Parent, and
such delivery or deliveries, as the case may be, will constitute surrender of
such lost, mutilated or destroyed Certificates for purposes of this Section 3.2.

3.2.4   No Liability. If any Certificate has not been surrendered prior to three
years after the Effective Time (or, if earlier, immediately prior to such
earlier date on which Merger Consideration in respect of such Certificate would
otherwise escheat to or become the property of any governmental authority), any
such shares, cash, dividends or distributions in respect of such Certificate
will, to the extent permitted by applicable law, become the property of Parent,
free and clear of all claims or interest of any Person previously entitled
thereto.

 

3.3

Net Debt Adjustment.

3.3.1          Estimated Company Net Debt. The Stockholder will prepare or cause
to be prepared in good faith and delivered to Parent, not later than three
Business Days prior to the Closing Date, an estimated calculation of Company Net
Debt, as of the Closing Date and prepared in accordance with GAAP (the
“Estimated Company Net Debt”). Parent will have reasonable access to the work
papers and other materials used in the preparation of the Estimated Company Net
Debt.

3.3.2          Estimated Parent Net Debt. Parent will prepare or cause to be
prepared in good faith and delivered to the Company, not later than three
Business Days prior to the Closing Date, an estimated calculation of Parent Net
Debt as of the Closing Date and prepared in accordance with GAAP (the “Estimated
Parent Net Debt”). The Company will have reasonable access to the work papers
and other materials used in the preparation of the Estimated Parent Net Debt.

3.3.3          Pre-Closing Adjustment. To the extent Estimated Parent Net Debt
is lower than the product of Estimated Company Net Debt divided by the Company
Percentage and multiplied by the Parent Percentage, Parent will declare for the
benefit of its stockholders of record as of immediately prior to the Closing
(which will not include the Stockholder), on a pro rata basis, a dividend (the
“Pre-Closing Dividend”), unless the Pre-Closing Dividend would be less than
$10,000,000 in which case Parent need not declare such dividend and may instead
enforce its rights under Section 3.3.7(2), in an aggregate amount up to the
lesser of (a) the amount that the Board of Directors of Parent determines in
good faith (after consultation with, and receiving advice and/or opinions from,
such financial and legal advisors as the Board of Directors of Parent determines
is appropriate in exercising its good faith judgment) is the maximum amount
permitted to be declared as a dividend without violating any applicable law
(including the DGCL) (the “Dividend Cap”) or (b) Balance Sheet True Up Amount
(the “Estimated Parent Amount”). If the Parent declares the Pre-Closing
Dividend, the Pre-Closing Dividend will be paid by Parent no later than
Fifty-Nine (59) days after the Effective Time, and will be reduced by a Parent
Decrease (if any); provided, however, that the Pre-Closing Dividend shall not be
paid prior to the final determination of the Closing Company Net Debt and the
Closing Parent Net Debt unless it is paid through the issuance of promissory
notes in the form attached to Schedule 3.3.3 (“Parent Dividend Notes”) with
principal

 

 

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amounts equal to the aggregate Estimated Parent Amount, bearing interest at a
six percent (6%) annual rate, and containing terms consistent with those set
forth in this Section 3.3.3 (including being subject to a Parent Decrease (if
any)).

3.3.4          Post-Closing True Up. Within sixty (60) days after the Closing
Date, Stockholder will prepare or cause to be prepared in good faith, and will
provide to Parent, a calculation of the Company Net Debt as of the Closing Date
and prepared in accordance with GAAP (the “Closing Company Net Debt”) and Parent
will prepare or cause to be prepared in good faith, and will provide to
Stockholder, a calculation of the Parent Net Debt as of the Closing Date and
prepared in accordance with GAAP (the “Closing Parent Net Debt”). Each party
will have reasonable access to the work papers and other materials used in the
preparation of the Closing Company Net Debt and Closing Parent Net Debt.

3.3.5          Dispute Notice. The Closing Company Net Debt and Closing Parent
Net Debt will be final, conclusive and binding on the parties unless the
Stockholder provides a written notice to Parent with respect to the Closing
Parent Net Debt or unless Parent provides a written notice to Stockholder with
respect to the Closing Company Net Debt (a “Dispute Notice”) no later than
thirty (30) days after delivery of the Closing Company Net Debt and Closing
Parent Net Debt, setting forth in reasonable detail the objections to
calculation of the Closing Company Net Debt and Closing Parent Net Debt. Parent
and Stockholder will attempt to resolve the matters raised in the Dispute Notice
in good faith.

3.3.6          Resolution of Disputes. Ten (10) days after delivery of the
Dispute Notice, either Parent or Stockholder may provide written notice to the
other that it elects to submit the disputed items to KPMG LLP or another
nationally recognized independent accounting firm chosen jointly by Parent and
Stockholder (the “Referee”). The Referee will promptly, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, review
only those items and amounts specifically set forth and objected to in the
Dispute Notice and resolve the dispute with respect to each such specific item
and amount in accordance with the relevant terms of this Agreement and GAAP. The
fees and expenses of the Referee will be borne by the Stockholder and Parent in
the same proportion that the portion of the contested amounts not awarded to the
Stockholder, on the one hand, or Parent, on the other hand, bears to the amount
actually contested by the parties, and the decision of the Referee with respect
to the items of the Closing Company Net Debt and Closing Parent Net Debt
submitted to it will be final, conclusive and binding on the parties. Each of
the parties to this Agreement agrees to use its commercially reasonable efforts
to cooperate with the Referee and to cause the Referee to resolve any dispute no
later than thirty (30) days after selection of the Referee.

3.3.7          Post-Closing Adjustments. Promptly, and in any event no later
than five (5) days after final determination of the Closing Company Net Debt and
Closing Parent Net Debt in accordance with Section 3.3.5 or 3.3.6 either:

(1)          if the Pre-Closing Dividend has been declared, then either (a) if
the aggregate differences in the Closing Company Net Debt and Closing Parent Net

 

 

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Debt, respectively, as compared to the Estimated Company Net Debt and Estimated
Parent Net Debt, would lead to an increase (the “Dividend Increase”) in the
Estimated Parent Amount, then the amount of the Pre-Closing Dividend shall be
increased by the Dividend Increase (but in no circumstance shall the Pre-Closing
Dividend, after taking into account any Dividend Increase, exceed the Dividend
Cap). In the event that the Dividend Increase would cause the Pre-Closing
Dividend to exceed the Dividend Cap, then Stockholder will either, at
Stockholder’s option, contribute to the Surviving Corporation in cash, or
contribute to Parent shares of Parent Common Stock (at a price per share of
$8.25), in an amount as is necessary for the Balance Sheet True Up Amount to
equal zero (after recalculating the Balance Sheet True Up Amount to give effect
to such contribution by Stockholder and after giving effect to the Pre-Closing
Dividend and the Dividend Increase (not to exceed the Dividend Cap). If such
contribution is to be made in cash, Stockholder will promptly pay such amount to
the Surviving Corporation by wire transfer of immediately available funds to the
account or accounts specified by the Surviving Corporation in writing to
Stockholder prior to such date; or (b) if the aggregate differences in the
Closing Company Net Debt and Closing Parent Net Debt, respectively, as compared
to the Estimated Company Net Debt and Estimated Parent Net Debt, would lead to a
decrease in the Estimated Parent Amount (the “Parent Decrease”) (had the Balance
Sheet True Up Amount been calculated using the Closing Company Net Debt and
Closing Parent Net Debt, respectively), then Parent shall cause the Pre-Closing
Dividend to be reduced, on a pro rata basis, by the Parent Decrease;

(2)   if the Pre-Closing Dividend has not been declared because the Dividend Cap
is less than the Balance Sheet True Up Amount, and to the extent the Parent Net
Debt is less than the product of the Company Net Debt divided by the Company
Percentage multiplied by the Parent Percentage (calculated using the Closing
Company Net Debt and Closing Parent Net Debt), then Stockholder will either, at
Stockholder’s option, contribute to the Surviving Corporation in cash, or
contribute to the Parent shares of Parent Common Stock (at a price per share of
$8.25), in an amount as is necessary for the Balance Sheet True Up Amount to
equal zero (calculated using the Closing Company Net Debt and Closing Parent Net
Debt and after recalculating the Balance Sheet True Up Amount to give effect to
such contribution by Stockholder). If such contribution is to be made in cash,
Stockholder will promptly pay such amount to the Surviving Corporation by wire
transfer of immediately available funds to the account or accounts specified by
the Surviving Corporation in writing to Stockholder prior to such date; or

(3)          to the extent that the Parent Net Debt is greater than the product
of Company Net Debt divided by the Company Percentage and multiplied by the
Parent Percentage, Parent will promptly either (a) raise capital from its
stockholders (other than the Stockholder) through the issuance of additional
shares of Parent Common Stock (the “Additional 3.3.7 Issuance”) in an aggregate
amount equal to such positive number at a price per share of $8.25 and will take
such action as is necessary to issue to Stockholder, as additional
consideration, an

 

 

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amount of shares of Parent Common Stock as is equal to thirty-five percent (35%)
of the shares of Parent Common Stock issued in the Additional 3.3.7 Issuance, on
a post-issuance basis, or (b) issue additional shares of Parent Common Stock to
Stockholder, as additional consideration, in an amount equal to the product
obtained by dividing such positive number by $8.25 and then increasing the
number of shares so issued so that Stockholder’s equity interest in Parent prior
to the issuance of such additional shares is in no way diluted by the issuance
of such shares, i.e., the Stockholder shall not be required to suffer any of the
economic cost of the issuance of the additional shares.

 

3.4

Other Parent Net Debt Adjustment.

3.4.1          If within twelve (12) months after the Effective Time, more than
80% of the Other Investment should be expensed as a current period expense under
GAAP, then Parent will promptly pay in accordance with Section 3.4.3 to
Stockholder, an amount equal to the Company Percentage multiplied by the amount
of the Long Term Asset as determined in the Closing Parent Net Debt.

3.4.2          If any of the vesting restrictions on the shares of restricted
stock of Parent granted to Charles A. Laue as contemplated by his employment
agreement dated on or around the date hereof do not lapse, or if the restricted
stock is otherwise cancelled, on or before the fifth anniversary of the date of
such grant, then Stockholder shall be entitled to receive pursuant to Section
3.4.3 an amount equal to the product of (a) $3,000,000, multiplied by (b) a
fraction, the numerator of which is equal to the unvested number of shares of
restricted stock of Parent so issued to Charles A. Laue at such time, and the
denominator of which is the total number of shares of restricted stock of Parent
so issued to Charles A. Laue. If any of the vesting restrictions on the shares
of restricted stock of Parent issued to any employee listed on Schedule 9.16 do
not lapse, or if the restricted stock is otherwise cancelled, on or prior to the
fifth anniversary of the date of such grant, then Stockholder shall, with
respect to any such employee, be entitled to receive pursuant to Section 3.4.3
an amount equal to the product of (x) the Parent Value shown opposite such
employees name on Schedule 9.16, multiplied by (y) a fraction, the numerator of
which is equal to the unvested number of shares of such restricted stock so
issued to such employee at such time, and the denominator of which is the total
number of shares of such restricted stock so issued to such employee.

3.4.3          If Stockholder is entitled to a payment under Section 3.4.1 or
Section 3.4.2, Parent will promptly either (a) raise capital from its
stockholders (other than the Stockholder) through the issuance of additional
shares of Parent Common Stock (the “Additional 3.4.3 Issuance”) in an amount
equal to the payment obligation to Stockholder at a price per share of the then
current fair market value of the Parent Common Stock and will take such action
as is necessary to issue to Stockholder, as additional consideration, an amount
of shares of Parent Common Stock in the Additional 3.4.3 Issuance such that
Stockholder’s equity interest in Parent prior to the Additional 3.4.3 Issuance
is in no way diluted by the issuance of such additional shares (i.e., the
Stockholder shall not be required to suffer any of the economic cost of the
issuance of the additional shares) or (b) issue additional shares of Parent
Common Stock to Stockholder,

 

 

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as additional consideration, equal to the product obtained by the dividing the
amounts due Stockholder by the then current fair market value of the Parent
Common Stock and then increasing the number of shares so issued so that
Stockholder’s equity interest in Parent prior to the issuance of such additional
shares is in no way diluted by the issuance of such shares, i.e., the
Stockholder shall not be required to suffer any of the economic cost of the
issuance of the additional shares.

3.5       Withholding Rights. Each of the Parent and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Stock such
amounts as it reasonably determines that it is required to deduct and withhold
with respect to the making of such payment under the Code, or any other
applicable provision of law. To the extent that amounts are so withheld by the
Surviving Corporation or the Parent, as the case may be, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Company Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or the Parent, as the case may
be.

4.

Representations and Warranties Relating to the Company

In order to induce Parent and Acquisition Corp. to enter into and perform this
Agreement and to consummate the transactions contemplated hereby, the Company
and the Stockholder, on a joint and several basis, hereby make the following
representations and warranties to Parent and Acquisition Corp.

 

4.1

Authorization.

4.1.1          The Company has the corporate power and authority to execute and
deliver this Agreement, the Company Ancillary Agreements, and all other
documents, agreements and certificates to which it is a party that are executed
and delivered in connection with this Agreement and to perform its obligations
hereunder and thereunder. All corporate actions or proceedings to be taken by or
on the part of the Company to authorize and permit the execution and delivery by
the Company of this Agreement and the Company Ancillary Agreements and the
instruments required to be executed and delivered by it pursuant hereto and
thereto, the performance by such Company of its obligations hereunder and
thereunder and the consummation by the Company of the transactions contemplated
hereby and thereby, have been duly and properly taken. This Agreement and
certain of the Company Ancillary Agreements have been duly executed and
delivered by the Company and this Agreement constitutes (and the Company
Ancillary Agreements so executed and delivered will as of the Effective Time
constitute) the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with their respective terms. Any Company
Ancillary Agreements that are not executed and delivered on the date hereof
will, when executed and delivered by the Company, constitute the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms.

4.1.2          The Board of Directors of the Company at a meeting duly called
and held or by written consent as provided under the DGCL, has by the unanimous
vote of all

 

 

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directors (i) approved this Agreement and the Company Ancillary Agreements and
the transactions contemplated hereby and thereby, including the Merger and
(ii) recommended that the stockholders of the Company adopt this Agreement and
the transactions contemplated hereby, including the Merger. As of the date
hereof, the affirmative vote of the holders of all of the outstanding shares of
Company Stock entitled to vote on the Merger have approved this Agreement and
the transactions contemplated hereby (including the Merger) pursuant to a duly
executed, and irrevocable, written consent in accordance with the DGCL delivered
to the Company (the “Stockholder Written Consent”), and the Company has
delivered true and accurate copies of the Stockholder Written Consent to Parent.

4.2          Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has the corporate power and authority to carry on the business in which
it is engaged and to own, lease and use the properties owned, leased and used by
it. The Company is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing as would not reasonably be
expected to have a Company Material Adverse Effect. The Company has made
available to Parent a true, complete and correct copy of the Company’s Charter
and By-laws, each as amended (collectively, the “Company Charter Documents”).
Schedule 4.2 lists the directors and officers of each Target Company.

4.3          Capitalization. As of the date hereof and as of immediately prior
to the Effective Time, the entire authorized capital stock of the Company
consists of 75,000 shares of Company Stock, of which 100 shares are issued and
outstanding. All of such issued and outstanding shares are duly authorized,
validly issued, fully paid and non-assessable, were not issued in violation of
any law or of the preemptive rights of any stockholder and are held beneficially
and of record by the Stockholder. There is no outstanding warrant, right,
option, conversion privilege, stock purchase plan, put, call or other
contractual obligation relating to the offer, issuance, purchase or redemption,
exchange, conversion, voting or transfer of any shares of capital stock of the
Company or other securities convertible into or exchangeable for capital stock
of the Company (now, in the future or upon the occurrence of any contingency) or
that provides for any stock appreciation or similar right, and there are no
agreements to register any securities or sales or resales thereof under the
federal or state securities laws. The Company has not redeemed or repurchased
any Company Stock since December 31, 2003.

 

4.4

Subsidiaries.

4.4.1          Schedule 4.4 sets forth: (1) the name and jurisdiction of
organization of each Subsidiary of the Company; (2) the number of shares of
authorized capital stock of each class of capital stock of each such Subsidiary
(or other ownership interests); and (3) the number of issued and outstanding
shares of each class of capital stock (or other ownership interests) of each
such Subsidiary, the names of the record holders thereof and the number of
shares (or other ownership interests) held by each such holder.

 

 

 

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4.4.2   Each Subsidiary of the Company is a corporation or other entity duly
formed and validly existing under the laws of the jurisdiction of its
organization. Each Subsidiary of the Company has the entity power and authority
to carry on the business in which it is engaged and to own, lease and use the
properties owned, leased and used by it. Each Subsidiary of the Company is duly
qualified or licensed as a foreign entity to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing as would not reasonably be expected
to have a Company Material Adverse Effect. The Company has made available to
Parent true, complete and correct copies of the respective organizational
documents of its Subsidiaries, each as amended (collectively, the “Subsidiary
Charter Documents”).

4.4.3          All of the issued and outstanding shares of capital stock (or
other ownership interests) of each Subsidiary of the Company are duly
authorized, have been validly issued, are fully paid and non-assessable, were
not issued in violation of any law or the preemptive right of any stockholder
and are held of record by the Company or its Subsidiaries. There is no warrant,
right, option, conversion privilege, stock purchase plan, put, call or other
contractual obligation relating to the offer, issuance, purchase or redemption,
exchange, conversion, voting or transfer of any shares of capital stock of any
Subsidiary of the Company or other securities convertible into or exchangeable
for capital stock of any Subsidiary of the Company (now, in the future or upon
the occurrence of any contingency) or that provides for any stock appreciation
or similar right, and there are no agreements to register any securities of any
Subsidiary of the Company or sales or resales thereof under the federal or state
securities laws.

4.4.4          Neither the Company nor any of its Subsidiaries controls directly
or indirectly, or has any direct or indirect equity participation or ownership
interest in, any Person that is not a Subsidiary of the Company.

 

4.5

No Violation or Approval; Consents.

4.5.1          Except as set forth in Schedule 4.5.1, the execution, delivery
and performance of this Agreement and the Company Ancillary Agreements by the
Company, and the consummation by the Company of the transactions contemplated
hereby and thereby, do not and will not, (1) conflict with, or result in any
violation or breach of, any provision of the Company Charter Documents or the
Subsidiary Charter Documents, (2) conflict with, or result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, require a consent, notice
or waiver under, constitute a change in control under, require the payment of a
penalty under or result in the imposition of any Lien (other than Permitted
Liens) on any Target Companies’ assets under, any of the terms, conditions or
provisions of any Company Material Contract, or (3) conflict with or violate any
permit, concession, franchise, license, judgment, injunction, order, decree,
statute, law, ordinance, rule or regulation applicable to any Target Company or
any Target Company’s properties or assets, which permit (or permits) is (or
are), individually (or collectively), material to the

 

 

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business, assets, condition (financial or other) or operations of the Target
Companies, taken as a whole.

4.5.2   No material consent, approval, license, permit, order or authorization
of, or registration, declaration, notice or filing with, any Governmental Entity
is required by or with respect to any Target Company in connection with the
execution and delivery of this Agreement and the Company Ancillary Agreements by
the Company or the consummation by the Company of the transactions contemplated
hereby or thereby, except for (1) the pre merger notification requirements under
the HSR Act, (2) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate corresponding documents with the appropriate
authorities of other states in which the Company is qualified as a foreign
corporation to transact business, and (3) approval of or notice to the state
insurance regulatory authorities set forth on Schedule 4.5.2.

4.6          Financial Statements. Set forth in Schedule 4.6 is a copy of the
following financial statements of the Target Companies: (a) the unaudited
consolidated balance sheets of the Company for the years ended December 31, 2004
and 2003 and the related consolidated statements of income and of cash flows for
the fiscal years of the Company ended on such dates (the “Unaudited Financial
Statements”), (b) the audited consolidated balance sheets of the operations of
the Target Companies for the years ended December 31, 2004 and 2003 and related
consolidated statements of income and cash flows for the fiscal years of the
operations of the Target Companies ended on such dates (the “Audited Financial
Statements”), and (c) the unaudited consolidated balance sheet of the Target
Companies as of September 30, 2005 (the “Reference Balance Sheet Date”) and the
related consolidated statements of operations, cash flows and stockholders’
equity for the nine month period ending on the Reference Balance Sheet Date (the
“Company Interim Financial Statements” and, collectively with the Unaudited
Financial Statements and the Audited Financial Statements, the “Company
Financial Statements”). The Company Financial Statements (i) were prepared on
the basis of the Target Companies’ books and records and present fairly the
financial position of the Target Companies on a consolidated basis and the
results of operations of the Target Companies on a consolidated basis as of the
respective dates thereof and for the periods covered thereby in all material
respects and (ii) were prepared in accordance with GAAP, applied on a consistent
basis throughout the periods covered thereby, subject, in the case of the
Unaudited Financial Statements and the Interim Financial Statements, to the
absence of footnotes and normal year end adjustments (which such adjustments
will not be material, individually or in the aggregate) and subject in the case
of the Company Financial Statements to the carve outs of a type generally
described on Schedule 4.6.

4.7          Absence of Changes. Except as expressly contemplated by this
Agreement or as set forth in Schedule 4.7, since the Reference Balance Sheet
Date, the Target Companies have operated their businesses in the Ordinary Course
of Business and there has not been:

(1)          any event or series of events that has had or that would reasonably
be expected to have a Company Material Adverse Effect;

(2)          any acquisition by any Target Company (i) by merging or
consolidating with, or by purchasing all or a substantial portion of the assets
or

 

 

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any stock of, or by any other manner, any business or any corporation,
partnership, joint venture, limited liability company, association or other
business organization or division thereof, or (ii) of any assets that are
material, individually or in the aggregate, to the Target Companies, taken as a
whole, except purchases of inventory and raw materials in the Ordinary Course of
Business;

(3)   any sale, lease, license, pledge or other disposition of any material
asset of any Target Company other than in the Ordinary Course of Business;

(4)          any amendment to any Company Charter Documents or Subsidiary
Charter Documents;

(5)          (i) any declaration or payment of any dividends or other
distribution in respect of any capital stock or other equity securities of any
Target Company (other than dividends and distributions by a wholly owned
Subsidiary of the Company to its parent), (ii) any split, combination or
reclassification of any of the capital stock or other equity securities of any
Target Company or issuance or authorization for the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of its
capital stock or any other equity security, or the grant of any options,
warrants or other rights to purchase or obtain (including upon conversion,
exchange or exercise) any shares of its capital stock or any other equity
securities, or (iii) any purchase, redemption or other acquisition of any shares
of its capital stock or any other equity securities or any rights, warrants or
options to acquire any such shares of capital stock or other equity securities;

(6)          any amendment, modification, rescission, termination, waiver or
release of any Company Material Contract;

(7)          any Lien placed on any of the material assets or properties of any
Target Company other than Permitted Liens or purchase money or similar security
interests in connection with the purchase of inventory or equipment in the
Ordinary Course of Business;

(8)          any resignation, termination or removal of any officer or key
employee of any Target Company or change in the terms and conditions (including
salary, bonus, severance and benefit terms) of the employment of any officers or
key employee of any Target Company or the establishment of any new employee
benefit plan or program or the amendment of any existing employee benefit plan
or program (including, in each case, deferred compensation and bonus plans);

 

(9)

any change in any accounting policies, procedures or methods;

(10)        any transaction with any Affiliate (other than another Target
Company) other than in the Ordinary Course of Business with respect to certain
support activities provided by Stockholder to any of the Target Companies,
including, without limitation data processing services; or

 

 

 

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(11) any agreement or understanding to take any of the actions specified in
subsections (1)-(10) above.

 

4.8

Taxes.

4.8.1          Tax Returns; Taxes. Each Target Company has timely and properly
filed with the appropriate taxing authorities all Tax Returns in all
jurisdictions in which Tax Returns are required to be filed, and such Tax
Returns are correct and complete in all material respects and were prepared in
substantial compliance with all applicable laws and regulations. All Taxes of
each Target Company required to be paid by such Target Company as of the date
hereof, whether disputed or not and whether or not shown on any Tax Return, have
been fully and timely paid, and all Taxes of each Target Company required to be
paid by such Target Company through the Closing Date, whether disputed or not
and whether or not shown on any Tax Return, will be paid prior to the Closing
Date. No claim has been made by a taxing authority in a jurisdiction where any
Target Company does not file a Tax Return that such Target Company is or may be
subject to taxation by that jurisdiction. The accruals and reserves for Taxes
reflected in the Company’s Interim Financial Statements are adequate in
accordance with GAAP to cover the liability for all Taxes accrued or which
should be accrued for in accordance with GAAP, by each Target Company through
the Closing Date. There are no Liens for any Taxes (other than a Lien for Taxes
not yet due and payable) on any of the properties or assets of any Target
Company. Each Target Company currently computes, and has always computed, its
taxable income using the accrual method of accounting.

4.8.2          Withholding. All Taxes and other assessments and levies that any
Target Company is or was required to withhold or collect have been withheld and
collected and have been paid over to the proper governmental authorities.

4.8.3          Disputes; Waivers; Extensions. Except as set forth on Schedule
4.8.3, no Target Company has received any written request for information
related to Tax matters, notice of assessment or proposed assessment, deficiency,
claim, adjustment or proposed adjustment or any other notice indicating an
intent to open an audit or other review in connection with any Taxes, which
notice has not been satisfied by payment or been withdrawn, and there are no
pending audits, examinations or administrative or judicial proceedings regarding
any Taxes of any Target Company. No Target Company has current waivers or
extensions in effect with respect to any statute of limitations in respect of
any Taxes or agreed to a Tax assessment or deficiency. No Target Company is
currently the beneficiary of any extension of time with which to file any Tax
Return.

4.8.4          Affiliated Groups. Except as set forth on Schedule 4.8.4, no
Target Company is a party to any Tax allocation or sharing agreement among
members of an affiliated group filing a consolidated, combined, or entity Tax
Return, and no Target Company 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 the Company) or has any liability for any Taxes of any Person under
Treasury Regulation section 1.1502-6 or any similar provision of state, local,
or foreign law (other than any Target Company).

 

 

 

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4.8.5   FIRPTA. No Target Company has ever been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

4.8.6          Section 280G. No Target Company is a party to any Contract,
agreement, plan or arrangement covering any employee or former employee thereof
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible by reason of the transactions contemplated by this
Agreement pursuant to Section 280G of the Code or Section 162 of the Code.

4.8.7          Classification. The Company is and always has been classified as
a United States corporation within the meaning of the Code. Each Target Company
(other than the Company, lock\line of Puerto Rico, Inc. and lock\line Warranty
Services of Puerto Rico, Inc.) is classified as a single member limited
liability company that is treated as a “disregarded entity” under the Code and
for state income tax purposes. Except for lock\line of Puerto Rico, Inc. and
lock\line Warranty Services of Puerto Rico, Inc., no Target Company conducts
business, or generates revenue, in a foreign jurisdiction.

4.8.8          Other. No Target Company will be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any:

(1)          change in method of accounting for a taxable period ending on or
prior to the Closing Date;

(2)          “closing agreement” as described in Section 7121 of the Code (or
any corresponding or similar provision of state, local or foreign income Tax
law) executed on or prior to the Closing Date;

(3)          intercompany transaction or excess loss account described in
Treasury Regulations under Section 1502 of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law);

(4)          installment sale or open transaction disposition made on or prior
to the Closing Date; or

 

(5)

prepaid amount received on or prior to the Closing Date.

4.8.9          Reportable Transactions; Substantial Understatement. No Target
Company has ever (i) engaged in a transaction that qualifies as a “reportable
transaction” within the meaning of Treasury Regulations Section 1.6011-4 or (ii)
taken a position on any Tax Return that could give rise to a substantial
understatement of Tax within the meaning of Code Section 6662 (or any similar
provision of state, local or foreign law).

4.8.10       Certain Transactions. No Target Company has distributed stock of
another Person, or has had its stock distributed by another Person, in a
transaction that was purported or intended to be governed in whole or in part by
Section 355 or Section 361 of the Code. No Target Company has disposed of
property in a transaction being

 

 

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accounted for under the installment method pursuant to Section 453 or 453A of
the Code or as an open transaction.

4.8.11       Section 368. The representation letter in the form attached as
Schedule 9.6.7 to the Stockholder Disclosure Schedule is, and at the Closing,
will be true, accurate and complete in all material respects.

 

4.9

Real Estate.

 

 

4.9.1

No Target Company owns any real property.

4.9.2          Schedule 4.9.2 sets forth a list of all leases of real property
to which any Target Company is a party (the “Company Leases”) and a list of any
other locations where any employees of any Target Company are regularly located.
The Company has made true and complete copies of the Company Leases available to
Parent. Each of the Company Leases is legal, valid, binding, enforceable against
the Company and to the Company’s Knowledge against the other parties thereto and
in full force and effect. No action has been taken or omitted by any Target
Company and, to the Company’s knowledge, no other event has occurred or
condition exists, that constitutes, or after notice or lapse of time or both
would constitute, a material default under any Company Lease or that would
reasonably be expected to have a Company Material Adverse Effect.

4.10       Certain Regulatory Matters. The Company is neither the subject of,
nor has it received notice from any supervisory official of that official’s
intent to take action against the Company that would result in the issuance of a
cease and desist order, an order of supervisory control or similar action to
take control of the Company’s operations or finances, an action to suspend or
revoke the Company’s licenses to engage in its business or any other activity
material to the operation of its business. Further, the Company has not been
notified by any Governmental Authority that it is in violation of any law
applicable to its business that is likely to materially adversely impact the
Company’s continued operation.

 

4.11

Benefit Plans.

4.11.1       Company Plans. Except as described in Schedule 4.11, Target
Companies do not primarily sponsor any Employee Plans. Schedule 4.11 sets forth
a list of all Employee Plans that are sponsored or maintained by the Stockholder
to which the Target Companies contribute or are required to contribute, or with
respect to which the Target Companies have any liability for premiums or
benefits and that benefit any employee or former employee of any Target Company
(a “Stockholder Plan”).

4.11.2       Plan Qualification; Plan Administration. Each Stockholder Plan that
is intended to be qualified under Section 401(a) of the Code has received a
favorable IRS determination letter as to its qualified status and, to the
Company’s knowledge, there is no fact or circumstance that would reasonably be
expected to cause the revocation of such letter, including by reason of any
corrective action that may be taken pursuant to Rev. Proc. 2003-44 to cure any
qualification defect with respect to any such Stockholder Plan without material
liability to any Target Company; each Stockholder Plan is in compliance in all
material respects with applicable law; and the requirements of Part 6 of

 

 

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Subtitle B of Title I of ERISA and of Section 4980B of the Code have been met
with respect to each Stockholder Plan that is a Welfare Plan subject to such
provisions.

4.11.3       All Contributions and Premiums Paid. All required contributions,
assessments and premium payments on account of each Stockholder Plan have been
paid if due and payable or accrued in accordance with GAAP if not yet due and
payable.

4.11.4       Claims. With respect to each Stockholder Plan, there are no
existing (or, to the Company’s knowledge, threatened) lawsuits, claims or other
controversies, other than claims for information or benefits in the normal
course.

4.11.5       No Liability. No Employee Plan maintained, sponsored or contributed
to by the Target Companies or any of their Affiliates within the preceding three
years is subject to Title IV of ERISA and, to the Company’s knowledge, no event
(including any action or any failure to take any action) has occurred within the
immediately preceding three years with respect to any Employee Plan currently or
at any time during the past three years maintained by any Target Company or any
corporation, trust, partnership or other entity (a “Company Related Entity”)
that would be considered as a single employer with the Company under Sections
4001(b)(1) of ERISA or Section 414(b), 414(c), 414(m) or 414(o) of the Code,
that would subject any Target Company to any material liability under Title IV
of ERISA or give rise to a liability under ERISA.

4.11.6       Multiemployer Plans. With respect to current and former employees
of the Target Companies, none of the Target Companies or any Company Related
Entity contributes or, within the immediately preceding three years has been
required to contribute, to any multiemployer plan within the meaning of Section
3(37) of ERISA (a “Multiemployer Plan”) or has any liability to employees
(including withdrawal liability) under any Multiemployer Plan.

4.11.7       Retiree Benefits; Certain Welfare Plans. Except as required under
Section 601 et seq. of ERISA, no Stockholder Plan that is a Welfare Plan
provides benefits or coverage following retirement or other termination of
employment. To the Company’s knowledge, nothing has occurred with respect to any
Stockholder Plan described in Section 4980B of the Code that could subject any
Target Company or any Company Related Entity to a material Tax under Section
4980B of the Code.

 

4.12

Intellectual Property.

4.12.1       Schedule 4.12 contains a complete and accurate list of all Patents,
Marks and registered Copyrights currently owned by any Target Company. Except as
set forth on Schedule 4.12 (with specific reference to the subsections below for
which such disclosure relates):

(1)          the Target Companies exclusively own or possess adequate and
enforceable rights to use, without payment to a third party, all of the Company
IP Rights, free and clear of all Liens;

 

 

 

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(2)   all Patents, Marks and Copyrights currently owned by any Target Company
that have been issued by or registered with, as applicable, the U.S. Patent and
Trademark Office, the U.S. Copyright Office or in any similar office or agency
anywhere in the world have not been abandoned, lapsed or cancelled and are
enforceable and to, the Company’s knowledge, valid, and the Target Companies are
current in all related maintenance fees;

(3)          there are no pending, or, to the Company’s knowledge, threatened
claims against any Target Company or any of their employees alleging that any of
the Company IP Rights or the operation of the business of any Target Company,
infringes or conflicts with the Intellectual Property Rights of others (“Third
Party Rights”);

(4)          none of the Company IP Rights other than Patents infringes or
conflicts with any Third Party Right and, to the Company’s knowledge, none of
the Patents included in the Company IP Rights infringes or conflicts with any
Third Party Right;

(5)          no Target Company has received any written communications alleging
that any Target Company has violated or, by conducting its business, would
violate any Third Party Rights or that any of the Company IP Rights are invalid
or unenforceable;

(6)          no current or former employee or consultant of any Target Company
owns any rights in or to any of the Company IP Rights;

(7)          to the Company’s knowledge, there is no violation or infringement
by a third party of any of the Company IP Rights; and

(8)          each Target Company has taken reasonable security measures to
protect the secrecy and confidentiality of all Trade Secrets used or held for
use in the business of such Target Company.

4.12.2       The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any material instrument or agreement governing any of the Company IP
Rights, will not cause the forfeiture or termination or give rise to a right of
forfeiture or termination of any the Company IP Rights or impair the right of
any Target Company to use, sell or license any the Company IP Rights or portion
thereof.

4.13       Environmental Matters. Each Target Company and its operations and
assets are in material compliance with all applicable Environmental Laws, and
each Target Company holds and is in material compliance with all permits,
certificates, licenses, approvals, registrations, and authorizations required
under all applicable Environmental Laws in connection with the Target Companies’
business. No Target Company is the subject of any outstanding written order from
any Governmental Entity relating to or respecting (i) any Environmental Laws, or
(ii) any Release or threatened Release of a Hazardous Substance. No claim has
been made, is pending or to the Knowledge of Stockholder, threatened against any
of the Target Companies with respect

 

 

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to its business or any Target Company alleging that any such entity is in
violation of any applicable Environmental Law or any Environmental permit or has
any liability under any applicable Environmental Law. No facts, circumstances or
conditions exist with respect to the business of any Target Company or with
respect to any property currently or, to the Knowledge of Stockholder, formerly
owned, operated or leased by any Target Company or, to the Knowledge of
Stockholder, any property of which any Target Company arranged for the disposal
or treatment of Hazardous Substances that could reasonably be expected to result
in any Target Company incurring any material costs or liabilities. There are no
(i) pending investigations for which any Target Company has received written
notification or (ii) investigations threatened in writing of the business of any
Target Company or currently or, to the Knowledge of Stockholder, previously
owned, operated or leased property of any Target Company which could reasonably
be expected to lead to the imposition on any Target Company or on its assets of
any material costs or liabilities or Liens under any applicable Environmental
Law.

 

4.14

Material Contracts.

4.14.1       Schedule 4.14 sets forth a complete and accurate list of the
following Contracts to which any Target Company is a party that is currently in
effect:

(1)          any Contract or commitment in connection with which or pursuant to
which the Target Companies will receive (or are expected to receive), in the
aggregate, more than $1,000,000 in the fiscal year ending December 31, 2005;

(2)          any Contract or commitment (other than off-the-shelf, commercially
available software) pursuant to which the Target Companies are expected to spend
or incur liabilities, in the aggregate, more than $200,000 in the fiscal year
ended December 31, 2005;

(3)          any non-competition or other Contract that prohibits or otherwise
restricts, in any material respect, any Target Company from freely engaging in
business anywhere in the world;

(4)          any employment or consulting Contract with any executive officer or
other employee of any Target Company other than those that are terminable at
will by such Target Company on no more than 30 days’ notice without liability or
financial obligation to such Target Company;

(5)          any Contract establishing a partnership or joint venture or that
involves a sharing of revenues, profits or losses by any Target Company with any
other Person;

 

(6)

any agreement relating to Indebtedness of any Target Company;

(7)          any collective bargaining Contract or other Contract with any labor
union or other employee representative of a group of employees;

 

(8)

any Contract with any Governmental Entity; and

 

 

 

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(9)   any other Contract that is material to the Target Companies, taken as a
whole.

(collectively, the “Company Material Contracts”). The Company has made available
to Parent copies of each Company Material Contract specified in Sections (2)
through (9) above.

4.14.2       Each Company Material Contract is valid and in full force and
effect and constitutes the legal, valid, binding and enforceable obligation of
the Target Company that is a party thereto, and of the other parties thereto.
Except as set forth in Schedule 4.14.2, to the Company’s knowledge, there has
been no written notice or threat to terminate any Company Material Contract,
except for discussion concerning terms of renewal or non-renewal at the normal
expiration date of contracts. No Target Company that is a party thereto, nor, to
the Company’s knowledge, any other party thereto is in material default in
complying with any provisions of any such Company Material Contract, and no
condition, event or fact exists that, with notice, lapse of time or both, would
constitute a material default thereunder by the Target Company party thereto or,
to the Company’s knowledge, any other party thereto.

4.15       Transactions with Affiliates. Except as set forth on Schedule 4.15,
there are no Contracts, leases or commitments between the Target Companies, on
the one hand, and any of the Company’s Affiliates, or any (current or former)
officer, director, employee of any Target Company or the Stockholder on the
other hand, and there is no Indebtedness owing by any such aforementioned Person
to or from any Target Company.

4.16       No Illegal Payments. None of the Target Companies or their respective
directors, officers, or, to the Company’s knowledge, employees or agents, has
directly or indirectly (a) given or agreed to give any illegal gift,
contribution, payment or similar benefit to any supplier, customer, governmental
official or employee, or (b) made or agreed to make any illegal contribution, or
reimbursed any illegal political gift or contribution made by any other Person,
to any candidate for federal, state, local or foreign public office, in each
case that might subject the Target Companies to any damage or penalty in any
civil, criminal or governmental litigation or proceeding.

4.17       Litigation. Except as set forth on Schedule 4.17, there is no action,
suit, claim, audit, inquiry, proceeding or, to the Company’s knowledge,
investigation, at law or in equity, arbitration, or administrative or other
proceeding pending or, to the Company’s knowledge, threatened against any Target
Company, in any case seeking damages in excess of $100,000 in any such matter.
There are no judgments, orders or decrees outstanding against any Target
Company.

4.18       Insurance. Schedule 4.18 sets forth all policies or binders of
insurance covering the operations of the Target Companies issued to the Target
Companies (and not those policies or binders of insurance covering the
operations of the Target Companies issued to the Stockholder, all of which will
expire at Closing). The Company has made available to Parent true and accurate
copies of all such policies or binders as in effect on the date hereof. No
Target Company has received written notice of a payment or material default with
respect to their

 

 

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obligations under, or notice of cancellation or nonrenewal of, any of such
policies. Such insurance policies insure the Target Companies against risks of a
character and in such amounts as are usually insured against by similarly
situated companies in the same or similar businesses. Except as set forth on
Schedule 4.18, to the Knowledge of Stockholder, (i) no Target Company has claims
pending against any of the insurance carriers under any of such policies), (ii)
there has been no actual or alleged occurrence of any kind that may give rise to
any such claim, and (iii) no Target Company has made any claims under any policy
at any time since January 1, 2003, in each case in excess of $500,000. Such
policies, on a whole, are valid and binding and are in full force and effect as
of the date hereof.

4.19       Suppliers. Within the last twelve months, no supplier that the Target
Companies have paid or are under contract to pay $500,000 or more during such
period (each, a “Company Supplier”) canceled, materially modified in a manner
adverse to the Target Companies, or otherwise terminated its relationship with
any Target Company, or materially decreased its services, supplies or materials
to any Target Company. To the Company’s knowledge, except for discussion
concerning terms of renewal or non-renewal at the normal expiration date of
contracts, no Company Supplier has notified any Target Company of any plan or
intention to take any actions described in the foregoing sentence.

4.20       Customers. Except as set forth on Schedule 4.20, no customer of the
Target Companies that accounted for more than One Million Dollars ($1,000,000)
of the consolidated revenues of the Target Companies for the fiscal year ended
December 31, 2004 or Seven Hundred and Fifty Thousand Dollars ($750,000) for the
period ended on the Reference Balance Sheet Date (the “Company Customers”) has
canceled or otherwise terminated its relationship with the Target Companies or
has materially decreased its usage or purchase of the services or products of
the Target Companies. No Company Customer has, to the Company’s knowledge, any
plan or intention to terminate, cancel or otherwise materially and adversely
modify its relationship with the Target Companies or to decrease materially or
materially limit its usage, purchase or distribution of the services or products
of the Target Companies. No Target Company has taken any action, or failed to
take any action, which would give rise to a right to terminate for cause on the
part of any Company Customers pursuant to any contract with a Company Customer.

4.21       Assets. Except as set forth on Schedule 4.21, the Target Companies
have good and valid title to or a valid and enforceable leasehold interest in,
all of their assets and properties (whether tangible or intangible) that are
material or necessary to the operation of the business of the Target Companies,
taken as a whole, free and clear of all Liens other than Permitted Liens.

4.22       Labor Matters. There are no pending or, to the Company’s knowledge,
threatened union organizational efforts, labor strikes, disputes, walkouts, work
stoppages, slow-downs or lockouts involving any Target Company. Each Target
Company is in compliance with all applicable labor and employment-related laws
and regulations in all material respects.

4.23       Brokers. Except as set forth on Schedule 4.23, no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled, as a result of any action, agreement or commitment of any Target
Company or any of their Affiliates, to any broker’s,

 

 

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finder’s, financial advisor’s or other similar fee or commission in connection
with any of the transactions contemplated by this Agreement.

4.24          Bank Accounts. Schedule 4.24 sets forth (i) the names, and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which any Target Company maintains safe deposit boxes,
checking accounts or other accounts of any nature, together with a description
of said accounts and (ii) the names of all persons authorized to draw thereon,
make withdrawals therefrom or have access thereto.

5.

Representations and Warranties Relating to the Stockholder.

In order to induce Parent and Acquisition Corp. to enter into and perform this
Agreement and to consummate the transactions contemplated hereby, the
Stockholder hereby makes the following representations and warranties to Parent
and Acquisition Corp.

5.1             Authorization5.1.1    . The Stockholder has the corporate power
and authority to execute and deliver this Agreement and all other documents,
agreements and certificates to which it is a party that are executed and
delivered in connection with this Agreement (the “Stockholder Ancillary
Agreements”) and to perform its obligations hereunder and thereunder. All
corporate actions or proceedings to be taken by or on the part of the
Stockholder to authorize and permit the execution and delivery by the
Stockholder of this Agreement and the Stockholder Ancillary Agreements and the
instruments required to be executed and delivered by it pursuant hereto and
thereto, the performance by such Stockholder of its obligations hereunder and
thereunder and the consummation by the Stockholder of the transactions
contemplated hereby and thereby, have been duly and properly taken. This
Agreement and certain of the Stockholder Ancillary Agreements have been duly
executed and delivered by the Stockholder and this Agreement constitutes (and
the Stockholder Ancillary Agreements so executed and delivered will as of the
Effective Time constitute) the legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with their
respective terms. Any Stockholder Ancillary Agreements that are not executed and
delivered on the date hereof will, when executed and delivered by the
Stockholder, constitute the legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms.
The Stockholder has irrevocably approved the transactions contemplated by this
Agreement (including the Merger) pursuant to the Stockholder Written Consent.

5.2          Organization. The Stockholder is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Stockholder has the corporate power and authority to carry on the business
in which it is engaged and to own, lease and use the properties owned, leased
and used by it.

5.3          Title. The Stockholder is the sole beneficial and record owner of,
and has good and valid title to, all of the issued and outstanding Company
Stock, free and clear of any Liens (except for restrictions on transfer imposed
by applicable securities laws). The Stockholder is not party to any option,
warrant, purchase right or other Contract or commitment that requires the
Stockholder to sell, transfer or otherwise dispose of any capital stock of the
Company.

 

 

 

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5.4          No Violation or Approval; Consents. Except as set forth in Schedule
4.5.1, the execution, delivery and performance of this Agreement and the
Stockholder Ancillary Agreements by the Stockholder, and the consummation by the
Stockholder of the transactions contemplated hereby and thereby, do not and will
not, (1) conflict with, or result in any violation or breach of, any provision
of its Charter or by laws, each as amended, (2) conflict with, or result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, require a
consent, notice or waiver under, constitute a change in control under, require
the payment of a penalty under or result in the imposition of any Lien (other
than Permitted Liens) on any Target Companies’ assets under, any of the terms,
conditions or provisions of any Company Material Contract, or (3) conflict with
or violate any permit, concession, franchise, license, judgment, injunction,
order, decree, statute, law, ordinance, rule or regulation applicable to any
Target Company or any Target Company’s properties or assets, which permit (or
permits) is (or are), individually (or collectively), material to the business,
assets, condition (financial or other) or operations of the Target Companies,
taken as a whole. No material consent, approval, license, permit, order or
authorization of, or registration, declaration, notice or filing with, any
Governmental Entity is required by or with respect to the Stockholder or any
Target Company in connection with the execution and delivery of this Agreement
and the Stockholder Ancillary Agreements by the Stockholder or the consummation
by the Stockholder of the transactions contemplated hereby or thereby, except
for (1) the pre merger notification requirements under the HSR Act and (2) the
filing of the Certificate of Merger with the Delaware Secretary of State and
appropriate corresponding documents with the appropriate authorities of other
states in which the Company is qualified as a foreign corporation to transact
business and (3) approval of the state insurance regulatory authorities set
forth in Schedule 4.5.2.

5.5          Litigation. There is no action, suit, claim, proceeding or, to the
Stockholder’s knowledge, investigation, at law or in equity, arbitration, or
administrative or other proceeding pending or, to the Stockholder’s knowledge,
threatened against the Stockholder or any Target Company that in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement.

5.6          Brokers. Except as set forth on Schedule 4.23, no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled, as a result of any action, agreement or commitment of the Stockholder
or any of its Affiliates, to any broker’s, finder’s, financial advisor’s or
other similar fee or commission in connection with any of the transactions
contemplated by this Agreement.

5.7          Investment Status. Stockholder is acquiring the Merger
Consideration for its own account, for investment only and not with a view to,
or any present intention of, effecting a distribution of the Merger
Consideration or any part thereof except pursuant to a registration or an
available exemption under applicable law. Stockholder acknowledges that the
Merger Consideration has not been registered under the Securities Act of 1933,
as amended (the “Securities Act”) or the securities laws of any state or other
jurisdiction and cannot be sold, disposed of or otherwise transferred unless
they are subsequently registered under the Securities Act and any applicable
state laws or an exemption from such registration is available.

 

 

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Stockholder is an “accredited investor” within the meaning of such term under
Rule 501 promulgated under the Securities Act.

5.8          Section 368. The representation letter in the form attached as
Schedule 9.6.7 to the Stockholder Disclosure Schedule is, and at the Closing,
will be true, accurate and complete in all material respects.

6.

Representations and Warranties Relating to Parent and Acquisition Corp.

In order to induce Stockholder and the Company to enter into and perform this
Agreement and to consummate the transactions contemplated hereby, the Parent and
Acquisition Corp., on a joint and several basis, hereby make the following
representations and warranties to Stockholder and the Company.

 

6.1

Authorization.

6.1.1          Each of the Parent and Acquisition Corp. has the corporate power
and authority to execute and deliver this Agreement, the Parent Ancillary
Agreements, and all other documents, agreements and certificates to which it is
a party that are executed and delivered in connection with this Agreement and to
perform its respective obligations hereunder and thereunder. All corporate
actions or proceedings to be taken by or on the part of the Parent or
Acquisition Corp. to authorize and permit the execution and delivery by the
Parent or Acquisition Corp., as the case may be, of this Agreement and the
Parent Ancillary Agreements and the instruments required to be executed and
delivered by it pursuant hereto and thereto, the performance by such Parent and
Acquisition Corp. of its respective obligations hereunder and thereunder and the
consummation by the Parent and Acquisition Corp. of the transactions
contemplated hereby and thereby, have been duly and properly taken. This
Agreement and certain of the Parent Ancillary Agreements have been duly executed
and delivered by the Parent or Acquisition Corp., as the case may be, and this
Agreement constitutes (and the Parent Ancillary Agreements so executed and
delivered will as of the Effective Time constitute) the legal, valid and binding
obligation of the Parent or Acquisition Corp. as the case may be, enforceable
against the Parent or Acquisition Corp., as the case may be, in accordance with
their respective terms. Any Parent Ancillary Agreements that are not executed
and delivered on the date hereof will, when executed and delivered by the
Parent, constitute the legal, valid and binding obligation of the Parent,
enforceable against the Parent in accordance with its terms.

6.1.2          The Board of Directors of Acquisition Corp. at a meeting duly
called and held or by written consent as provided under the DGCL, has by the
unanimous vote of all directors (i) approved this Agreement and the Parent
Ancillary Agreements and the transactions contemplated hereby and thereby,
including the Merger and (ii) recommended that the stockholders of Acquisition
Corp. adopt this Agreement and the transactions contemplated hereby, including
the Merger. As of the date hereof, the affirmative vote of the holders of all of
the outstanding shares of the capital stock of Acquisition Corp. entitled to
vote on the Merger have approved this Agreement and the transactions
contemplated hereby (including the Merger) pursuant to a duly executed, and
irrevocable, written consent in accordance with the DGCL delivered to the Parent
(the

 

 

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“Parent Written Consent”), and the Parent has delivered true and accurate copies
of the Parent Written Consent to the Stockholder.

6.2          Organization. Each of Parent and Acquisition Corp. is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Acquisition Corp. has the corporate power
and authority to carry on the business in which it is engaged and to own, lease
and use the properties owned, leased and used by it. Each of Parent and
Acquisition Corp. is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing as would not reasonably be
expected to have a Parent Material Adverse Effect. The Parent has made available
to Stockholder a true, complete and correct copy of the Parent’s Charter
(subject to the Parent Charter Amendment) and By-laws, each as amended
(collectively, the “Parent Charter Documents”).

6.3          Capitalization. As of the date hereof, the entire authorized
capital stock of the Parent consists of 150,000,000 shares of Parent Common
Stock, and as of immediately prior to the Effective Time the entire authorized
capital stock of the Parent will consist of 215,000,000 shares of Parent Common
Stock, of which 81,552,441 shares are issued and outstanding and owned of record
as set forth on Schedule 6.3. All of such issued and outstanding shares are duly
authorized, validly issued, fully paid and non-assessable and were not issued in
violation of any law or of the preemptive rights of any stockholder. The shares
of Parent Common Stock issued pursuant to Section 3.1 and under Section 11.6 (if
any) shall upon issuance be duly authorized, validly issued, fully paid and
non-assessable, and shall not be issued in violation of any law or the
preemptive rights of any stockholder. Except as set forth in Schedule 6.3, there
is no outstanding warrant, right, option, conversion privilege, stock purchase
plan, put, call or other contractual obligation relating to the offer, issuance,
purchase or redemption, exchange, conversion, voting or transfer of any shares
of capital stock of the Parent or other securities convertible into or
exchangeable for capital stock of the Parent (now, in the future or upon the
occurrence of any contingency) or that provides for any stock appreciation or
similar right, and there are no agreements to register any securities or sales
or resales thereof under the federal or state securities laws.

 

6.4

Subsidiaries.

6.4.1          Schedule 6.4 sets forth: (1) the name and jurisdiction of
organization of each Subsidiary of the Parent; (2) the number of shares of
authorized capital stock of each class of capital stock of each such Subsidiary;
and (3) the number of issued and outstanding shares of each class of capital
stock of each such Subsidiary, the names of the record holders thereof and the
number of shares held by each such holder.

6.4.2          Each Subsidiary of the Parent is a corporation or other entity
duly formed and validly existing under the laws of the jurisdiction of its
organization. Each Subsidiary of the Parent has the entity power and authority
to carry on the business in which it is engaged and to own, lease and use the
properties owned, leased and used by it. Each Subsidiary of the Parent is duly
qualified or licensed as a foreign entity to do

 

 

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business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing as would not reasonably be
expected to have a Parent Material Adverse Effect.

6.4.3   All of the issued and outstanding shares of capital stock of each
Subsidiary of the Parent are duly authorized, have been validly issued, are
fully paid and non-assessable, were not issued in violation of any law or the
preemptive right of any stockholder and are held of record by the Parent or its
Subsidiaries as set forth on Schedule 6.4. Except as set forth on Schedule
6.4.3, there is no warrant, right, option, conversion privilege, stock purchase
plan, put, call or other contractual obligation relating to the offer, issuance,
purchase or redemption, exchange, conversion, voting or transfer of any shares
of capital stock of any Subsidiary of the Parent or other securities convertible
into or exchangeable for capital stock of any Subsidiary of the Parent (now, in
the future or upon the occurrence of any contingency) or that provides for any
stock appreciation or similar right, and there are no agreements to register any
securities of any Subsidiary of the Parent or sales or resales thereof under the
federal or state securities laws.

6.4.4          Except as set forth on Schedule 6.4.4, neither the Parent nor any
of its Subsidiaries controls directly or indirectly, or has any direct or
indirect equity participation or ownership interest in, any Person that is not a
Subsidiary of the Parent.

 

6.5

No Violation or Approval; Consents.

6.5.1          The execution, delivery and performance of this Agreement and the
Parent Ancillary Agreements by the Parent and Acquisition Corp., as the case may
be, and the consummation by the Parent and Acquisition Corp., as the case may
be, of the transactions contemplated hereby and thereby (including without
limitation, payment of the Pre-Closing Dividend (and issuance of the Parent
Dividend Notes)), do not and will not, (1) conflict with, or result in any
violation or breach of, any provision of the Parent Charter Documents (as
modified by the Parent Charter Amendment), (2) except as set forth Schedule
6.5.1(2), conflict with, or result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any material benefit) under, require a consent, notice or waiver under,
constitute a change in control under, require the payment of a penalty under or
result in the imposition of any Lien (other than Permitted Liens) on any of
Parent Companies’ assets under, any of the terms, conditions or provisions of
any Parent Material Contract, or (3) conflict with or violate any permit,
concession, franchise, license, judgment, injunction, order, decree, statute,
law, ordinance, rule or regulation applicable to any Parent Company or any of
Parent Companies’ properties or assets, which permit (or permits) is (or are),
individually (or collectively), material to the business, assets, condition
(financial or other) or operations of the Parent Companies, taken as a whole.

6.5.2          No material consent, approval, license, permit, order or
authorization of, or registration, declaration, notice or filing with, any
Governmental Entity is required by

 

 

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or with respect to any Parent Company in connection with the execution and
delivery of this Agreement and the Parent Ancillary Agreements by the Parent or
Acquisition Corp., as the case may be, or the consummation by the Parent or
Acquisition Corp., as the case may be, of the transactions contemplated hereby
or thereby, except for (1) the pre merger notification requirements under the
HSR Act, (2) the filing of the Certificate of Merger with the Delaware Secretary
of State, (3) approval of or notice to the state insurance regulatory
authorities set forth on Schedule 6.5.2, and (4) the Charter Amendment.

6.6          Financial Statements. The Parent has furnished Stockholder with
copies of the following financial statements of the Parent Companies: (a) the
audited consolidated balance sheets for the years ended December 31, 2004 and
2003 and the related consolidated statements of income and of cash flows for the
fiscal years of the Parent ended on such dates (the “Parent Audited Financial
Statements”), and (b) the unaudited consolidated balance sheet of the Parent
Companies as of the Reference Balance Sheet Date and the related consolidated
statements of operations, cash flows and stockholders’ equity for the nine month
period ending on the Reference Balance Sheet Date (the “Parent Interim Financial
Statements” and, collectively with the Parent Audited Financial Statements, the
“Parent Financial Statements”). The Parent Financial Statements (i) were
prepared on the basis of the Parent Companies’ books and records and present
fairly the financial position of the Parent Companies on a consolidated basis
and the results of operations of the Parent Companies on a consolidated basis as
of the respective dates thereof and for the periods covered thereby in all
material respects and (ii) were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, subject, in the case of
Parent Interim Financial Statements, to the absence of footnotes and normal year
end adjustments (which will not be material, individually or in the aggregate).

6.7          Absence of Changes. Except as expressly contemplated by this
Agreement or as set forth in Schedule 6.7, since the Reference Balance Sheet
Date, the Parent Companies have operated their businesses in the Ordinary Course
of Business and there has not been:

(1)          any event or series of events that has had or that would reasonably
be expected to have a Parent Material Adverse Effect;

(2)          any acquisition by any Parent Company (i) by merging or
consolidating with, or by purchasing all or a substantial portion of the assets
or any stock of, or by any other manner, any business or any corporation,
partnership, joint venture, limited liability company, association or other
business organization or division thereof, or (ii) of any assets that are
material, individually or in the aggregate, to the Parent Companies, taken as a
whole, except purchases of inventory and raw materials in the Ordinary Course of
Business;

(3)          any sale, lease, license, pledge or other disposition of any
material asset of any Parent Company other than in the Ordinary Course of
Business;

(4)          any amendment to any Parent Charter Documents (other than the
Parent Charter Amendment which is contemplated to occur on or prior to the
Closing Date);

 

 

 

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(5)   (i) except for the Pre-Closing Dividend, any declaration or payment of any
dividends or other distribution in respect of any capital stock or other equity
securities of any Parent Company (other than dividends and distributions by a
wholly owned Subsidiary of the Parent to its parent), (ii) any split,
combination or reclassification of any of the capital stock or other equity
securities of Parent or issuance or authorization for the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of its
capital stock or any other equity security, or the grant of any options,
warrants or other rights to purchase or obtain (including upon conversion,
exchange or exercise) any shares of its capital stock or any other equity
securities other than as shown on Schedule 6.3, or (iii) any purchase,
redemption or other acquisition of any shares of its capital stock or any other
equity securities or any rights, warrants or options to acquire any such shares
of capital stock or other equity securities;

(6)          any amendment, modification, rescission, termination, waiver or
release of any Parent Material Contract;

(7)          any Lien placed on any of the material assets or properties of any
Parent Company other than Permitted Liens or purchase money or similar security
interests in connection with the purchase of inventory or equipment in the
Ordinary Course of Business;

(8)          any resignation, termination or removal of any officer or key
employee of any Parent Company or change in the terms and conditions (including
salary, bonus, severance and benefit terms) of the employment of any officers or
key employee of any Parent Company or the establishment of any new employee
benefit plan or program or the amendment of any existing employee benefit plan
or program (including, in each case, deferred compensation and bonus plans);

 

(9)

any change in any accounting policies, procedures or methods;

(10)        any transaction with any Affiliate (other than a Subsidiary of
Parent) other than in the Ordinary Course of Business; or

(11)        any agreement or understanding to take any of the actions specified
in subsections (1)-(10) above.

 

6.8

Taxes.

6.8.1          Tax Returns; Taxes. Except as set forth on Schedule 6.8.1, each
Parent Company has timely and properly filed with the appropriate taxing
authorities all Tax Returns in all jurisdictions in which Tax Returns are
required to be filed, and such Tax Returns are correct and complete in all
material respects and were prepared in substantial compliance with all
applicable laws and regulations. All Taxes of each Parent Company required to be
paid by such Parent Company as of the date hereof, whether disputed or not and
whether or not shown on any Tax Return, have been fully and timely paid, and all
Taxes of each Parent Company required to be paid by such Parent Company through
the

 

 

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Closing Date, whether disputed or not and whether or not shown on any Tax
Return, will be paid prior to the Closing Date. No claim has been made by a
taxing authority in a jurisdiction where any Parent Company does not file a Tax
Return that such Parent Company is or may be subject to taxation by that
jurisdiction. The accruals and reserves for Taxes reflected in the Parent’s
Interim Financial Statements are adequate in accordance with GAAP to cover the
liability for all Taxes accrued or which should be accrued for in accordance
with GAAP by each Parent Company through the Closing Date. There are no Liens
for any Taxes (other than a Lien for Taxes not yet due and payable) on any of
the properties or assets of any Parent Company. Each Parent Company currently
computes, and has always computed, its taxable income using the accrual method
of accounting.

6.8.2          Withholding. All Taxes and other assessments and levies that any
Parent Company is or was required to withhold or collect have been withheld and
collected and have been paid over to the proper governmental authorities.

6.8.3          Disputes; Waivers; Extensions. Except as set forth on Schedule
6.8.3, no Parent Company has received any written request for information
related to Tax matters, notice of assessment or proposed assessment, deficiency,
claim, adjustment or proposed adjustment or any other notice indicating an
intent to open an audit or other review in connection with any Taxes, which
notice has not been satisfied by payment or been withdrawn, and there are no
pending audits, examinations or administrative or judicial proceedings regarding
any Taxes of any Parent Company. No Parent Company has current waivers or
extensions in effect with respect to any statute of limitations in respect of
any Taxes or agreed to a Tax assessment or deficiency. No Parent Company is
currently the beneficiary of any extension of time with which to file any Tax
Return.

6.8.4          Affiliated Groups. No Parent Company is a party to any Tax
allocation or sharing agreement among members of an affiliated group filing a
consolidated, combined, or entity Tax Return (other than a group the common
parent of which is Parent), and except as set forth on Schedule 6.8.4 no Parent
Company 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 the Parent)
or has any liability for any Taxes of any Person under Treasury Regulation
section 1.1502-6 or any similar provision of state, local, or foreign law (other
than any Parent Company).

6.8.5          FIRPTA. No Parent Company has ever been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

6.8.6          Classification. Each Parent Company is and always has been
classified as a United States corporation within the meaning of the Code.

6.8.7          Other. No Parent Company will be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any:

 

 

 

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(1)   change in method of accounting for a taxable period ending on or prior to
the Closing Date;

(2)          “closing agreement” as described in Section 7121 of the Code (or
any corresponding or similar provision of state, local or foreign income Tax
law) executed on or prior to the Closing Date;

(3)          intercompany transaction or excess loss account described in
Treasury Regulations under Section 1502 of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law);

(4)          installment sale or open transaction disposition made on or prior
to the Closing Date; or

 

(5)

prepaid amount received on or prior to the Closing Date.

6.8.8          Reportable Transactions; Substantial Understatement. No Parent
Company has ever (i) engaged in a transaction that qualifies as a “reportable
transaction” within the meaning of Treasury Regulations Section 1.6011-4 or (ii)
taken a position on any Tax Return that could give rise to a substantial
understatement of Tax within the meaning of Code Section 6662 (or any similar
provision of state, local or foreign law).

6.8.9          Certain Transactions. No Parent Company has distributed stock of
another Person, or has had its stock distributed by another Person, in a
transaction that was purported or intended to be governed in whole or in part by
Section 355 or Section 361 of the Code. No Parent Company has disposed of
property in a transaction being accounted for under the installment method
pursuant to Section 453 or 453A of the Code or as an open transaction.

6.8.10       Section 368. The representation letter in the form attached as
Schedule 9.6.7 to the Parent Disclosure Schedule is, and at the Closing, will be
true, accurate and complete in all material respects. Acquisition Corp. is newly
formed solely for the purpose of entering into the transactions contemplated by
the Merger Agreement.

 

6.9

Real Estate.

 

 

6.9.1

No Parent Company owns any real property.

6.9.2          Schedule 6.9.2 sets forth a list of all leases of real property
to which any Parent Company is a party (the “Parent Leases”) and a list of any
other locations where any employees of any Parent Companies are regularly
located. Except as set forth on Schedule 6.9.2, the Parent has made true and
complete copies of the Parent Leases available to Stockholder. Each of the
Parent Leases is legal, valid, binding, enforceable against the Parent and the
Parent’s Knowledge against the other parties thereto and in full force and
effect. No action has been taken or omitted by any Parent Company and, to the
Parent’s knowledge, no other event has occurred or condition exists, that
constitutes, or after notice or lapse of time or both would constitute, a
material default under any Parent Lease or that would reasonably be expected to
have a Parent Material Adverse Effect.

 

 

 

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6.10       Certain Regulatory Matters. No Parent Company is the subject of, nor
has any Parent Company received notice from, any supervisory official of that
official’s intent to take action against any Parent Company that would result in
the issuance of a cease and desist order, an order of supervisory control or
similar action to take control of any Parent Company’s operations or finances,
an action to suspend or revoke any Parent Company’s licenses to engage in its
business or any other activity material to the operation of its business.
Further, no Parent Company has been notified by any Governmental Authority that
it is in violation of any law applicable to its business that is likely to
materially adversely impact any Parent Company’s continued operation.

 

6.11

Benefit Plans.

6.11.1       Parent Plans. Schedule 6.11 sets forth a list of all Employee Plans
that are sponsored or maintained by the Parent Companies to which the Parent
Companies contribute or are required to contribute, or with respect to which the
Parent Companies have any liability for premiums or benefits and that benefit
any employee or former employee of any Parent Company (a “Parent Plan”).

6.11.2       Plan Qualification; Plan Administration. Each Parent Plan that is
intended to be qualified under Section 401(a) of the Code has received a
favorable IRS determination or opinion letter as to its qualified status and, to
the Parent’s knowledge, there is no fact or circumstance that would reasonably
be expected to cause the revocation of such letter, including by reason of any
corrective action that may be taken pursuant to Rev. Proc. 2003-44 to cure any
qualification defect with respect to any such Parent Plan without material
liability to any Parent Company; each Parent Plan is in compliance in all
material respects with applicable law; and the requirements of Part 6 of
Subtitle B of Title I of ERISA and of Section 4980B of the Code have been met
with respect to each Parent Plan that is a Welfare Plan subject to such
provisions.

6.11.3       All Contributions and Premiums Paid. All required contributions,
assessments and premium payments on account of each Parent Plan have been paid
if due and payable or accrued in accordance with GAAP if not yet due and
payable.

6.11.4       Claims. With respect to each Parent Plan, there are no existing
(or, to the Parent’s knowledge, threatened) lawsuits, claims or other
controversies, other than claims for information or benefits in the normal
course.

6.11.5       No Liability. No Employee Plan maintained, sponsored or contributed
to by the Parent Companies or any of their Affiliates within the preceding six
years is subject to Title IV of ERISA and, to the Parent’s knowledge, no event
(including any action or any failure to take any action) has occurred within the
immediately preceding six years with respect to any Employee Plan currently or
at any time during the past six years maintained by any Parent Company or any
corporation, trust, partnership or other entity (a “Parent Related Entity”) that
would be considered as a single employer with the Parent under Sections
4001(b)(1) of ERISA or Section 414(b), 414(c), 414(m) or 414(o) of the Code,
that would subject any Parent Company to any material liability under Title IV
of ERISA or give rise to a liability under ERISA.

 

 

 

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6.11.6       Multiemployer Plans. With respect to current and former employees
of the Parent Companies, none of the Parent Companies nor any Parent Related
Entity contributes or, within the immediately preceding six years has been
required to contribute, to any Multiemployer Plan or has any liability to
employees (including withdrawal liability) under any Multiemployer Plan.

6.11.7       Retiree Benefits; Certain Welfare Plans. Except as required under
Section 601 et seq. of ERISA, no Parent Plan that is a Welfare Plan provides
benefits or coverage following retirement or other termination of employment. To
the Parent’s knowledge, nothing has occurred with respect to any Parent Plan
described in Section 4980B of the Code that could subject any Parent Company or
any Parent Related Entity to a material Tax under Section 4980B of the Code. No
Parent Plan is a “voluntary employees’ beneficiary association” within the
meaning of Code Section 501(c)(9) or a “multiple employer welfare arrangement”
within the meaning of ERISA Section 3(40).

 

6.12

Intellectual Property.

6.12.1         Schedule 6.12 contains a complete and accurate list of all
Patents, Marks and registered Copyrights currently owned by any Parent Company.
Except as set forth on Schedule 6.12 (with specific reference to the subsections
below for which such disclosure relates):

(1)          the Parent Companies exclusively own or possess adequate and
enforceable rights to use, without payment to a third party, all of the Parent
IP Rights, free and clear of all Liens;

(2)          all Patents, Marks and Copyrights currently owned by any Parent
Company that have been issued by or registered with, as applicable, the U.S.
Patent and Trademark Office, the U.S. Copyright Office or in any similar office
or agency anywhere in the world have not been abandoned, lapsed or cancelled and
are enforceable and to, the Parent’s knowledge, valid, and the Parent Companies
are current in all related maintenance fees;

(3)          there are no pending, or, to the Parent’s knowledge, threatened
claims against any Parent Company or any of their employees alleging that any of
the Parent IP Rights or the operation of the business of any Parent Company,
infringes or conflicts with Third Party Rights;

(4)          none of the Parent IP Rights other than Patents infringes or
conflicts with any Third Party Right and, to the Parent’s knowledge, none of the
Patents included in the Parent IP Rights infringes or conflicts with any Third
Party Right;

(5)          no Parent Company has received any written communications alleging
that any Parent Company has violated or, by conducting its business, would
violate any Third Party Rights or that any of the Parent IP Rights are invalid
or unenforceable;

 

 

 

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(6)   no current or former employee or consultant of any Parent Company owns any
rights in or to any of the Parent IP Rights;

(7)          to the Parent’s knowledge, there is no violation or infringement by
a third party of any of the Parent IP Rights; and

(8)          Each Parent Company has taken reasonable security measures to
protect the secrecy and confidentiality of all Trade Secrets used or held for
use in the business of such Parent Company.

6.12.2       The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any material instrument or agreement governing any of the Parent IP
Rights, will not cause the forfeiture or termination or give rise to a right of
forfeiture or termination of any the Parent IP Rights or impair the right of any
Parent Company to use, sell or license any the Parent IP Rights or portion
thereof.

6.13       Environmental Matters. Each Parent Company and its operations and
assets are in material compliance with all applicable Environmental Laws, and
each Parent Company holds and is in material compliance with all permits,
certificates, licenses, approvals, registrations, and authorizations required
under all applicable Environmental Laws in connection with the Parent Companies’
business. No Parent Company is the subject of any outstanding written order with
any Governmental Entity relating to or respecting (i) any Environmental Laws, or
(ii) any Release or threatened Release of a Hazardous Substance. No claim has
been made, is pending or to the Knowledge of Parent, threatened against any of
the Parent Companies with respect to its business or any Parent Company alleging
that any such entity is in violation of any applicable Environmental Law or any
environmental permit or has any liability under any applicable Environmental
Law. No facts, circumstances or conditions exist with respect to the business of
any Parent Company or with respect to any property currently or, to Parent’s
Knowledge, formerly owned, operated or leased by any Parent Company or, to
Parent’s Knowledge, any property of which any Parent Company arranged for the
disposal or treatment of Hazardous Substances that could reasonably be expected
to result in any Parent Company incurring any material costs or liabilities.
There are no (i) pending investigations for which any Parent Company has
received written notification or (ii) investigations threatened in writing
regarding the business of any Parent Company or currently or, to Parent’s
Knowledge, previously owned, operated or leased property of any Parent Company
which could reasonably be expected to lead to the imposition on any Parent
Company or on its assets of any material costs or liabilities or Liens under any
applicable Environmental Law.

 

6.14

Material Contracts.

6.14.1       Schedule 6.14 sets forth a complete and accurate list of the
following Contracts to which any Parent Company is a party that is currently in
effect:

(1)          any Contract or commitment in connection with which or pursuant to
which the Parent Companies will receive (or are expected to receive), in the
aggregate, more than $1,000,000 in the fiscal year ending December 31, 2005;

 

 

 

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(2)   any Contract or commitment (other than off-the-shelf, commercially
available software) pursuant to which the Parent Companies are expected to spend
or incur liabilities, in the aggregate, more than $200,000 per year in the
fiscal year ended December 31, 2005;

(3)          any non-competition or other Contract that prohibits or otherwise
restricts, in any material respect, any Parent Company from freely engaging in
business anywhere in the world;

(4)          any employment or consulting Contract with any executive officer or
other employee of any Parent Company other than those that are terminable at
will by such Parent Company on no more than 30 days’ notice without liability or
financial obligation to such Parent Company;

(5)          any Contract establishing a partnership or joint venture or that
involves a sharing of revenues, profits or losses by any Parent Company with any
other Person;

 

(6)

any agreement relating to Indebtedness of any Parent Company;

(7)          any collective bargaining Contract or other Contract with any labor
union or other employee representative of a group of employees;

(8)          any Contract with any Governmental Entity pursuant to which any
Parent Company will receive more than $100,000 annually; and

(9)          any other Contract that is material to the Parent Companies, taken
as a whole.

(collectively, the “Parent Material Contracts”). The Parent has made available
to the Company copies of each Parent Material Contract specified in Sections (2)
through (9) above.

6.14.2       Each Parent Material Contract is valid and in full force and effect
and constitutes the legal, valid, binding and enforceable obligation of the
Parent Company that is a party thereto, and to knowledge of Parent of the other
parties thereto. To the Parent’s knowledge, there has been no written notice or
threat to terminate any Parent Material Contract, except for discussion
concerning terms of renewal or non-renewal at the normal expiration date of
contracts. No Parent Company that is a party thereto, nor, to the Parent’s
knowledge, any other party thereto is in material default in complying with any
provisions of any such Parent Material Contract, and no condition, event or fact
exists that, with notice, lapse of time or both, would constitute a material
default thereunder by the Parent Company party thereto, nor, to the Parent’s
knowledge, any other party thereto.

6.15       Transactions with Affiliates. Except as set forth on Schedule 6.15,
there are no Contracts, leases or commitments between the Parent Companies, on
the one hand, and any of the Parent’s Affiliates, or any stockholder of Parent
or (current or former) officer, director,

 

 

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employee of any Parent Company on the other hand, and there is no Indebtedness
owing by any such aforementioned Person to or from any Parent Company.

6.16       No Illegal Payments. None of the Parent Companies nor their
respective directors, officers, or, to the Parent’s knowledge, employees or
agents, has directly or indirectly (a) given or agreed to give any illegal gift,
contribution, payment or similar benefit to any supplier, customer, governmental
official or employee, or (b) made or agreed to make any illegal contribution, or
reimbursed any illegal political gift or contribution made by any other Person,
to any candidate for federal, state, local or foreign public office, in each
case that might subject the Parent Companies to any damage or penalty in any
civil, criminal or governmental litigation or proceeding.

6.17       Litigation. Except as set forth on Schedule 6.17, there is no action,
suit, claim, audit, inquiry, proceeding or, to the Parent’s knowledge,
investigation, at law or in equity, arbitration, or administrative or other
proceeding pending or, to the Parent’s knowledge, threatened against any Parent
Company, in any such case seeking damages in excess of $100,000 in any such
matter. There are no judgments, orders or decrees outstanding against any Parent
Company.

6.18       Insurance. No Parent Company has received written notice of a payment
or material default with respect to its obligations under, or notice of
cancellation or nonrenewal of, any of its insurance policies. Except as set
forth on Schedule 6.18, to the Parent’s Knowledge, (i) no Parent Company has
claims pending against any of the insurance carriers under any of such policies
in excess of $500,000, (ii) there has been no actual or alleged occurrence of
any kind that may give rise to any such claim, and (iii) no Parent Company has
made any such claims under any policy at any time since January 1, 2003, in each
case in excess of $500,000.

Parent’s insurance policies insure the Parent Companies against risks of a
character and in such amounts as are usually insured against by similarly
situated companies in the same or similar businesses. Such policies, on a whole,
are valid and binding and are in full force and effect as of the date hereof.

6.19       Suppliers. Except as set forth on Schedule 6.19, within the last
twelve months, no supplier that the Parent Companies have paid or are under
contract to pay $500,000 or more during such period (each, a “Parent Supplier”)
canceled, materially modified in a manner adverse to the Parent Companies, or
otherwise terminated its relationship with any Parent Company, or materially
decreased its services, supplies or materials to any Parent Company. To the
Parent’s knowledge, except for discussions concerning terms of renewal or
non-renewal at the normal expiration date of contracts, no Parent Supplier has
notified any Parent Company of any plan or intention to take any actions
described in the foregoing sentence.

6.20       Customers. Except as set forth on Schedule 6.20, no customer of the
Parent Companies that accounted for more than One Million Dollars ($1,000,000)
of the consolidated revenues of the Parent Companies for the fiscal year ended
December 31, 2004 or Seven Hundred and Fifty Thousand Dollars ($750,000) for the
period ended on the Reference Balance Sheet Date (the “Parent Customers”) has
canceled or otherwise terminated its relationship with the Parent Companies or
has materially decreased its usage or purchase of the services or

 

 

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products of the Parent Companies. No Parent Customer has, to the Parent’s
knowledge, any plan or intention to terminate, cancel or otherwise materially
and adversely modify its relationship with the Parent Companies or to decrease
materially or materially limit its usage, purchase or distribution of the
services or products of the Parent Companies. No Parent Company has taken any
action, or failed to take any action, which would give rise to a right to
terminate for cause on the part of any Parent Customers pursuant to any contract
with a Parent Customer.

6.21       Assets. Except as set forth on Schedule 6.21, The Parent Companies
have good and valid title to or a valid and enforceable leasehold interest in,
all of their assets and properties (whether tangible or intangible) that are
material or necessary to the operation of the business of the Parent Companies,
taken as a whole, free and clear of all Liens other than Permitted Liens.

6.22       Labor Matters. There are no pending or, to the Parent’s knowledge,
threatened union organizational efforts, labor strikes, disputes, walkouts, work
stoppages, slow-downs or lockouts involving any Parent Company. Except as set
forth on Schedule 6.22, each Parent Company is in compliance with all applicable
labor and employment-related laws and regulations in all material respects.

6.23       Brokers. Except as set forth on Schedule 6.23, no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled, as a result of any action, agreement or commitment of Parent or any of
its Affiliates, to any broker’s, finder’s, financial advisor’s or other similar
fee or commission in connection with any of the transactions contemplated by
this Agreement.

7.

Conditions Precedent to the Obligations of Parent and Acquisition Corp.

The obligations of Parent and Acquisition Corp. to effect the Merger and to
consummate the other transactions contemplated hereby are subject to the
satisfaction or waiver (in writing by Parent) on or prior to the Closing Date of
each of the following conditions:

7.1          Injunctions. No final, non-appealable judgment will have been
entered by any Governmental Entity pertaining to the transactions contemplated
by this Agreement, the result of which would prevent or make illegal the
consummation of such transactions. No Governmental Entity will have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or permanent) that is
in effect and has the effect of prohibiting the consummation of the transactions
contemplated by this Agreement.

7.2          Governmental Approvals. All Governmental Entities the consent,
authorization or approval of which is necessary under any applicable law, rule,
order or regulation for the consummation of the transactions contemplated by
this Agreement will have consented to, authorized, permitted or approved such
transactions, and any waiting periods (and any extensions thereof) under the HSR
Act or similar foreign laws applicable to the transactions contemplated hereby
will have expired or been terminated.

7.3          FIRPTA Certificate. The Company will have delivered to Parent a
certificate meeting the requirements of Treasury Regulation Section
1.1445-2(c)(3).

 

 

 

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7.4          Covenants. The covenants and obligations that Company and
Stockholder are required to perform or to comply with pursuant to (i) the second
sentence of Section 9.2, and (ii) Section 9.14, at or prior to Closing will have
been duly performed and complied with in all material respects.

7.5          Representations and Warranties. The representations and warranties
set forth in Sections 4.1, 4.2 (first sentence only), 4.3 and 4.10 will be true
and correct in all material respects as of the Closing as though made anew
(unless the representation and warranty specifically relates to an earlier
date).

7.6          Ancillary Documents. Each of the Ancillary Documents required to be
executed and delivered by the Company and/or Stockholder will have been executed
and delivered.

7.7          Legal Opinion. Parent shall have received an opinion from Bryan
Cave LLP, counsel to Stockholder and the Company, in form and substance as set
forth in Section 7.7 of the Stockholder Disclosure Schedule, address to Parent
and dated as of the Closing Date.

7.8          Closing Certificates. Stockholder shall have delivered to Parent a
certificate confirming satisfaction of the conditions set forth in Sections 7.4
and 7.5 as of the Closing Date.

7.9          No Bankruptcy. No Target Company shall have (i) applied for,
suffered, or consented to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property or called a meeting of its creditors, (ii) admitted in
writing its inability, or been generally unable, to pay its debts as they become
due or ceased operations of its present business, (iii) made a general
assignment for the benefit of creditors, (iv) commenced a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in effect), (v) been
adjudicated a bankrupt or insolvent, (vi) filed a petition seeking to take
advantage of any other law providing for the relief of debtors, or (vii)
acquiesced to, or failed to have dismissed, any petition which is filed against
it in any involuntary case under such bankruptcy laws.

7.10       Stockholder Liquidated Damages. Stockholder shall not have made a
claim prior to the Effective Time that Parent owes Stockholder the Stockholder
Liquidated Damages pursuant to Section 9.6.7; provided, however, that no failure
by Stockholder to make such a claim shall constitute a waiver of any right of
Stockholder pursuant to this Agreement.

8.

Conditions Precedent to Obligations of the Company and Stockholder.

The obligations of the Company and Stockholder to effect the Merger and to
consummate the other transactions contemplated hereby are subject to the
satisfaction or waiver (in writing by the Company) on or prior to the Closing
Date of each of the following conditions:

8.1          Injunctions. No final, non-appealable judgment will have been
entered by any Governmental Entity pertaining to the transactions contemplated
by this Agreement, the result of which would prevent or make illegal the
consummation of any such transactions. No Governmental Entity will have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or permanent) that is

 

 

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in effect and has the effect of prohibiting the consummation of the transactions
contemplated by this Agreement.

8.2          Governmental Approvals. All Governmental Entities the consent,
authorization or approval of which is necessary under any applicable law, rule,
order or regulation for the consummation of the transactions contemplated by
this Agreement will have consented to, authorized, permitted or approved such
transactions, and any waiting periods (and any extensions thereof) under the HSR
Act or similar foreign laws applicable to the transactions contemplated hereby
will have expired or been terminated.

8.3          Covenants. The covenants and obligations that Parent and
Acquisition Corp. are required to perform or to comply with pursuant to (i) the
second sentence of Section 9.2 and (ii) 9.67 at or prior to Closing will have
been duly performed and complied with in all material respects.

8.4          Representations and Warranties. The representations and warranties
made by Parent set forth in Sections 6.1, 6.2 (first sentence only), 6.3, 6.10
and 9.6.7 will be true and correct in all material respects as of the Closing as
though made anew (unless the representation and warranty specifically relates to
an earlier date).

8.5          Ancillary Documents. Each of the Ancillary Documents required to be
executed and delivered by the Parent and Acquisition Corp. will have been
executed and delivered.

8.6          Tax Opinion. Stockholder shall have received opinions from its tax
advisors in the forms attached to the Stockholder Disclosure Schedule pursuant
to the transmittal letters from such tax advisors to Stockholder as of the date
hereof, dated as of the Effective Time, to the effect that, if the Merger is
consummated in accordance with the provisions of this Agreement, under current
Law as of the Effective Time, for federal income tax purposes, the Merger should
qualify as a reorganization within the meaning of Section 368 of the Code;
provided, however, if Stockholder is not able to obtain such tax opinions as a
result of an action taken by Stockholder or any Target Company, or if Parent,
prior to the Effective Time owes Stockholder the Stockholder Liquidated Damages
pursuant to Section 9.6.7 and agrees to pay the same to Stockholder, Stockholder
may not rely on the failure of this condition as justification for not closing
the transaction.

8.7          Legal Opinion. Stockholder shall have received an opinion from
Goodwin Proctor LLP, counsel to Parent and Acquisition Corp., in form and
substance as set forth in Section 8.7 of the Parent Disclosure Schedule,
addressed to Stockholder and dated as of the Closing Date.

8.8          Closing Certificates. Parent shall have delivered to Stockholder a
certificate confirming satisfaction of the conditions set forth in Sections 8.3
and 8.4 as of the Closing Date.

8.9          No Bankruptcy. No Parent Company shall have (i) applied for,
suffered, or consented to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property or called a meeting of its creditors, (ii) admitted in
writing its inability, or been generally unable, to pay its debts as they become
due or ceased operations of its present business, (iii) made a general
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creditors, (iv) commenced a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (v) been adjudicated a bankrupt or
insolvent, (vi) filed a petition seeking to take advantage of any other law
providing for the relief of debtors, or (vii) acquiesced to, or failed to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws.

9.

Covenants of the Parties.

9.1          Access to Premises and Information. Upon reasonable notice and
subject to supervision by the requested party or its agents, on and prior to the
Closing Date, each party will, and will cause its Subsidiaries to, permit the
other Party and their authorized representatives to have reasonable access
during normal operating hours to the records and books of account of such Party
in possession of such Party (and to make copies thereof) and the premises and
personnel of such party during normal business hours that relate in any manner
to the conduct or operations of the Parent Companies or Target Companies, as the
case may be, on or prior to the Closing Date for the sole purpose of confirming
the accuracy of the representations and warranties made herein.

9.2          Conduct of Business Prior to Closing. Prior to the Closing, except
for declaring the Pre-Closing Dividend, the Parent Charter Amendment or as
otherwise contemplated by this Agreement, each of Parent, Acquisition Corp. and
Company will, and will cause its Subsidiaries to, (i) conduct their business
only in the Ordinary Course of Business (including not settling any material
legal proceedings without the other party’s written consent if (a) such
settlement requires anything other than a cash payment on the part of the
settling party and (b) such settlement would have, on a post-closing
determination, a Parent Material Adverse Effect) and (ii) use reasonable best
efforts to maintain and preserve their respective business organizations and
assets and maintain and preserve their respective relationships with their
respective employees, customers, distributors and suppliers. Neither Company nor
Parent shall cause any dividend or distribution of cash or other property (other
than dividends and distributions of cash by Company consistent with its past
cash management practices), stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Company
Stock or Parent Common Stock, as the case may be), stock issuance, issuance of
any stock option or other security convertible into equity securities, amendment
to any outstanding stock option or restricted stock award, reorganization,
recapitalization or other transaction with respect to Company Stock or Parent
Common Stock, as the case may be, to occur after the date hereof and prior to
the Effective Time, except (i) for the issuance of shares of stock upon exercise
of outstanding options; (ii) for the issuance by Parent Company of options with
respect to Parent Common Stock to new employees, employees upon promotion and
for employee anniversaries, provided, however, the total number of options to be
granted pursuant to this exception shall not exceed 750,000 shares in the
aggregate (and not more than 100,000 shares in any month and not more than
100,000 shares to any individual), all at an exercise price of not less than
fair market value and all with a vesting schedule consistent with the historical
practices of Parent; (iii) Parent may accelerate the vesting with respect to or
cash out or purchase the stock options listed on Schedule 9.2 for Parent Common
Stock (or shares of Parent Common Stock subject thereto) (the “Performance
Options”); and (iv) as otherwise contemplated herein, including the declaration
of the Pre-Closing Dividend and any issuance of Parent Dividend Notes. Each
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and will cause its Subsidiaries to refrain, from taking any action which would
cause any of such Party’s representations or warranties made herein to be
untrue.

9.3          Exclusivity. Until the earlier of the termination of this Agreement
or the consummation of the Closing, the Stockholder and the Company will not,
and will cause its respective Subsidiaries and its and their respective
directors, officers, employees, bankers, brokers and other advisors not to, (a)
solicit, encourage, facilitate or initiate any inquiries or the making,
submission or announcement of any proposal or offer from any Person relating to,
or enter into or consummate any transaction or Contract, relating to, the
acquisition of any Target Company or any capital stock or other securities, or
any substantial portion of the assets, or any financing, of any Target Company
(other than sales of inventory in the Ordinary Course of Business), including
any acquisition structured as a merger, consolidation or share exchange or any
similar transaction; or (b) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner, any effort or attempt by any Person to do or
seek any of the foregoing.

 

9.4

Confidentiality; Employees; Customers.

 

9.4.1

Confidentiality Agreement.

 

(1)          “Confidential Information” means nonpublic information that the
Disclosing Party conveys to the Receiving Party in connection with the
transactions contemplated by this Agreement and the Ancillary Documents (the
“Transactions”), whether oral, written or otherwise, including information
furnished directly by or to the affiliates, subsidiaries, directors, officers,
partners, employees, agents, advisors or representatives (collectively,
“Representatives”), of the Disclosing Party or Receiving Party for the purpose
of considering or advising in relation to the Transactions and all reports,
analyses, compilations, studies and other materials prepared by either party or
its Representatives (in whatever form maintained, whether documentary, computer
storage or otherwise) containing, reflecting or based upon, in whole or in part,
any such information. Confidential Information includes, without limitation, (i)
this Agreement and each Ancillary Document; (ii) lists of customers, prospective
customers and business partners of any party, as well as customer requirements
and preferences; (iii) agreements with vendors; (iv) contracts, forecasts, price
lists and proposals for customers and vendors; (v) marketing and sales data and
plans; (vi) financial plans, statements and records; (vii) other business
information, data and plans including tax, legal and employment records; (viii)
nonpublic information about a Disclosing Party’s products and services; (ix)
security procedures and security technology; (x) computer software, formulas,
methods, know-how, processes, designs, developmental work, trade secrets and
other intellectual property; (xi) performance tests or product evaluations and
reported problems with any software, products or services; (xii) all nonpublic
information, including personal information, of customers and potential
customer, employees and service providers of any party; and (xiii) any other
information identified by the Disclosing Party as confidential. Disclosure of
the Disclosing Party’s Confidential Information to the Receiving Party may be
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tangible or electronic form, or occur by demonstration of any party’s
proprietary products.

(2)   Confidential Information shall not include any information that: (i) is or
subsequently becomes publicly available without Receiving Party’s breach of any
obligation owed to Disclosing Party under this Agreement; (ii) became known to
Receiving Party from a source other than Disclosing Party other than by the
breach of an obligation of confidentiality owed to Disclosing Party; (iii) was
known to the Receiving Party prior to its disclosure to the Receiving Party by
the Disclosing Party; or (iv) is independently developed by Receiving Party
without use of Confidential Information provided by Disclosing Party.

(3)          “Confidential Materials” shall mean all tangible materials
containing Confidential Information, including without limitation, written or
printed documents and computer disks or tapes, whether machine or user readable.

(4)          Parent, Stockholder and the Company are each, for purposes of this
Section 9.4.1, a “Receiving Party” and a “Disclosing Party.”

(5)          Receiving Party shall not disclose any Confidential Information to
third Parties except to Receiving Party’s employees, consultants, agents,
advisors or other independent representatives as provided below. However,
Receiving Party may disclose Confidential Information in accordance with
judicial or other governmental order; provided, Receiving Party shall give
Disclosing Party reasonable notice prior to such disclosure and shall comply
with any protective order or equivalent judicial action obtained by Disclosing
Party that prohibits such disclosure. Receiving Party shall take reasonable
security precautions, at least as great as the precautions it takes to protect
its own confidential information, to keep the Confidential Information protected
from disclosure to third parties.

(6)          Receiving Party may disclose Confidential Information only to those
employees of Receiving Party who have a need to know, and only to such employees
who are obligated to maintain the confidentiality of such information and comply
with the terms of this Agreement or are bound by secrecy obligations
substantially similar to the obligations contained in this Agreement. In the
event Receiving Party requires any disclosure of the Confidential Information to
any consultant, agent, advisor or other independent representative of Receiving
Party, then Receiving Party shall inform each such consultant, agent or other
independent representative of the confidential nature of the Confidential
Information and shall direct such person to treat the Confidential Information
confidentially and not to use it for any purpose other than evaluating the
Transaction. Receiving Party shall be responsible for ensuring compliance by all
of its employees, consultants, agents, advisors and representatives with the
terms of this Section 9.4.1.

 

 

 

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(7)   The terms of confidentiality under this Agreement shall not be construed
to limit either Party’s right to develop independently or acquire products
without use of the other Party’s Confidential Information. In addition, the
Disclosing Party acknowledges that the Receiving Party may currently or in the
future be developing information internally, or receiving information from other
parties, that is similar to the Confidential Information. Accordingly, nothing
in this Agreement will prohibit the Receiving Party from developing or having
developed for itself or for any other third parties products, concepts, systems
or techniques that are similar to or compete with the products, concepts,
processes, systems or techniques contemplated by or embodied in the Confidential
Information, provided that the Receiving Party does not violate any of its
obligations under this Section 9.4.1 in connection with such development.

(8)          Receiving Party shall notify Disclosing Party immediately upon
discovery of any unauthorized use or disclosure of Confidential Information
and/or Confidential Materials, or any other breach of this Agreement by
Receiving Party, and will cooperate with Disclosing Party in every respect to
help Disclosing Party regain possession of the Confidential Information and/or
Confidential Materials and prevent any further unauthorized use thereof.

(9)          In the event that the parties do not close the transactions
contemplated hereby, each party agrees (1) within five Business Days to return
or destroy all confidential information that was provided by any other party in
contemplation of the transactions hereunder, and provide written certification
of such destruction to the other party; (2) to refrain from using such
Confidential Information; and (3) to keep such Confidential Information strictly
confidential. All Confidential Information and Confidential Materials that are
provided by the Disclosing Party to the Receiving Party are and shall remain the
property of Disclosing Party. No license or conveyance under any trademark,
patent, copyright, mask work protection right or other intellectual property
right is either granted or implied under this Agreement.

(10)        Receiving Party acknowledges and agrees that in the event of any
breach or threatened breach of this Agreement, monetary damages and legal
remedies may not be a sufficient remedy, and that Disclosing Party shall be
entitled, without waiving any other rights or remedies, to the issuance of a
temporary restraining order and an injunction for the purpose of preventing any
further breach or threatened breach of this Agreement, as well as any other
equitable relief as may be deemed appropriate by a court of competent
jurisdiction. Receiving Party agrees to waive any requirement for the posting of
any bond in connection with such equitable relief.

(11)        From and after the date hereof, the Stockholder shall keep
confidential, and not use in a manner competitive with or otherwise harmful to
the business of any Parent Company or Target Company, any Confidential
Information of any Target Company unless such information is required to be
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reasonable prior notice to Parent unless such notice is prohibited by applicable
law). Additionally, the Parent and Stockholder hereby agree to extend the term
of this Section 9.4.1 for five (5) years after the Effective Time, except if
this Agreement is terminated and the transactions set forth herein do not close,
the provisions of this Section 9.4.1 shall be extended for five (5) years after
the termination of this Agreement; provided, however, that with respect to any
Confidential Information that constitutes a trade secret of any Target Company
or Parent Company, the term of this Section 9.4.1 shall survive indefinitely.

9.4.2          Announcements. Any announcements by any Party hereto of the
transactions contemplated hereby must be approved in advance (as to form,
content, timing and manner of distribution) by each of Parent and the
Stockholder (with such approval to not be unreasonably withheld); provided,
however, that Stockholder may, with reasonable prior written notice to Parent,
(i) issue or cause the publication of any press release or other public
announcement to the extent it determines that so doing is required by applicable
law or by the rules and regulations of the New York Stock Exchange and (ii) make
public statements that are consistent with the parties’ prior announcements or
public disclosures regarding the transactions contemplated hereby.

9.4.3          Return of Confidential Information. In the event that the parties
do not close the transactions contemplated hereby, each party agrees, (1) within
five Business Days to return or destroy all confidential information that was
provided by any other party in contemplation of the transactions hereunder, and
provide written certification of such destruction to the other party; (2) to
refrain from using such confidential information; and (3) to keep such
confidential information strictly confidential.

9.4.4          Employees. Effective as of the date hereof, (i) Parent will not,
and Parent will cause its Subsidiaries to not, solicit for employment or hire
any employees of the Stockholder or the Target Companies (except in connection
with the Closing); and (ii) Stockholder will not, and Stockholder will cause its
Subsidiaries to not, solicit for employment or hire any employees of Parent
Companies. This Section shall terminate immediately at the Effective Time. In
the event that this Agreement is terminated and the transactions set forth
herein do not close, this Section shall remain in effect until two (2) years
after the termination of this Agreement.

9.4.5          Non-Disclosure to Customers. Each party acknowledges and agrees
that if the transaction set forth herein is not completed for any reason,
statements made to customers or prospective customers concerning this Agreement
and the transactions set forth herein could be damaging to the other parties to
this Agreement. As a result, in addition to any obligations of the parties under
this Agreement, in the event the transactions set forth herein are not
completed, the parties agree that they will provide a joint press release in a
mutually agreed form announcing that the transaction has been abandoned. For a
period of two (2) years following the termination of this Agreement, each party
agrees that it will not, and that it will cause each of its employees, officers,
directors and representatives, to not discuss, directly or indirectly, the
transactions referred to in this Agreement or the terms of this Agreement with
any customer or prospective customer. Each party agrees that if such party
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Section 9.4.5, such party shall pay to the other the sum of $100,000 per breach,
upon demand, as advancement of legal fees and expenses and not as a measure of
damages therefrom. Such advanced legal fees and expenses shall be in addition to
any other rights and remedies that may be available for a breach of this Section
9.4.5.

9.4.6          Equitable Remedies. Each of the parties agrees that the
restrictions set forth in Sections 9.4.1 through 9.4.5 are necessary for the
protection of the business and goodwill of the parties hereto. Accordingly, each
of the parties agrees that in the event of a breach of any such covenant by such
party, the other party will have available, in addition to any right or remedy
available at law or in equity, the right to obtain an injunction from a court of
competent jurisdiction restraining such breach or threatened breach and specific
performance of any such provision of this Agreement. All parties agree that no
bond or other security shall be required in obtaining such equitable relief and
each party consents to the issuance of such injunction and to the ordering of
such specific performance in the event of a breach by such party.

9.5          Preparation for Closing. Each of the parties hereto agrees to use
reasonable best efforts to bring about the fulfillment of the conditions
precedent contained in this Agreement, including all necessary consents,
waivers, approvals and authorizations, subject to the following:

9.5.1          General. Subject to the terms and conditions of this Agreement,
each party hereto will use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) to
consummate the transactions contemplated by this Agreement as promptly as
practicable after the date of this Agreement, including (i) preparing and filing
as promptly as practicable with any Governmental Entity all documentation to
effect all necessary filings, notices, petitions, statements, registrations,
submissions of information, applications and other documents and (ii) obtaining
and maintaining all approvals, consents, registrations, permits, authorizations
and other confirmations required to be obtained from any Governmental Entity
that are necessary, proper or advisable to consummate the transactions
contemplated by this Agreement and (iii) execute and deliver any Ancillary
Agreements.

9.5.2          HSR. In furtherance and not in limitation of the foregoing, each
of Parent and Company will make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the transactions
contemplated hereby as promptly as practicable, and in any event on or before
the earlier to occur of ten (10) Business Days after the date hereof and October
31, 2005, and to supply as promptly as practicable any additional information
and documentary material that may be requested pursuant to the HSR Act and to
take all other actions necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as practicable (provided
that early termination will not be requested unless agreed to in writing by both
Parent and the Company).

9.5.3          Coordination. Each of Parent and Company will (i) promptly notify
the other party of any written or oral communication to that party or its
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Governmental Entity and, subject to applicable law (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and
charges thereunder), permit the other party to review in advance any proposed
written communication to any Governmental Entity, in each case concerning the
review, clearance or approval of any of the transactions contemplated hereby
under the HSR Act or any similar applicable foreign laws; (ii) not agree to
participate, or to permit its Affiliates to participate, in any substantive
meeting or discussion with any Governmental Entity in respect of any filings,
investigation or inquiry concerning the review, clearance or approval of any of
the transactions contemplated hereby under the HSR Act or any similar applicable
foreign laws unless it consults with the other party in advance and, to the
extent permitted by such Governmental Entity, gives the other party the
opportunity to attend and participate in such meeting; provided, that if the
Governmental Entity or applicable law (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings and charges thereunder)
does not permit such participation by the other party, or if both parties agree
that such joint participation would not be advisable, the party meeting with
such Governmental Entity will allow outside counsel for the other party to
attend and participate, to the extent permitted by the Governmental Entity or
applicable law (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges thereunder); and (iii) furnish
the other party with copies of all correspondence, filings, and communications
(and memoranda setting forth the substance thereof) drafted by or in conjunction
with outside legal counsel between it and its Affiliates and its respective
representatives on the one hand, and any Governmental Entity or members of such
Governmental Entity’s staff on the other hand, concerning the review, clearance
or approval of any of the transactions contemplated hereby under the HSR Act or
any similar applicable foreign law, except to the extent prohibited by
applicable law (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges thereunder) or the instructions
of such Governmental Entity.

9.5.4   Limitations. Notwithstanding anything to the contrary herein, nothing in
this Agreement will require any Party to (i) agree to or to effect any
divesture, hold separate, or enter into any license or similar agreement with
respect to, or agree to restrict its ownership or operation of, any business or
assets, (ii) enter into, amend, or agree to enter into or amend, any Contracts,
(iii) otherwise waive, abandon or alter any material rights or obligations of
any Target Company or any Parent Company or (iv) file or defend any lawsuit,
appeal any judgment or contest any injunction issued in a proceeding initiated
by a Governmental Entity; provided, however, if it shall appear reasonably
necessary in order to obtain approvals under the HSR Act with respect to this
transaction for any party to abandon any acquisition, then such party shall
promptly abandon such acquisition and terminate its rights pursuant thereto.
Parent and the Company each agree that, other than with respect to the
transaction contemplated herein, (a) it will not make any filings under the HSR
Act and (b) it will not announce or enter into any agreement with respect to or
otherwise close on any merger or acquisition transaction until such time as the
transaction contemplated hereby has been closed or this Agreement has been
terminated in accordance with its terms, whichever is earlier.

9.5.5          Consents. Prior to the Closing Date, the Company will use
reasonable best efforts, and will cause each of its Subsidiaries to use
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secure the consents, waivers, approvals and authorizations set forth in Schedule
4.5. Parent and Acquisition Corp. will reasonably cooperate with each Target
Company in connection with its efforts to obtain such consents, waivers,
approvals and authorizations.

 

9.6

Tax Matters.

9.6.1          Tax Returns. Stockholder will prepare or cause to be prepared and
file or cause to be filed all Tax Returns for the Target Companies that are
required to be filed on or prior to the Closing Date. For all taxable periods of
the Target Companies ending on or prior to the Closing Date, Stockholder will
include in its federal consolidated federal income Tax Return the federal income
Taxes of all Target Companies that constitute includible corporations within the
meaning of section 1504(b) of the Code. For all taxable periods of the Target
Companies ending on or prior to the Closing Date, Stockholder will include in
its state consolidated, combined or unitary income Tax Return the state income
Taxes of all Target Companies that have previously been included in such
consolidated, combined or unitary income Tax Return. Parent will file
consolidated federal income Tax Returns for the Target Companies for all taxable
periods beginning as of the beginning of the day following the Closing Date,
pursuant to Treasury Regulations Section 1.1502-76(b)(1)(ii). Parent will
prepare or cause to be prepared and file or cause to be filed when due
(including any  extensions)  all other Tax Returns not described above of the
Target Companies  that are required to be filed after the Closing Date and shall
be responsible for all Taxes with respect to such Tax Returns.

9.6.2          Tax Indemnification. The Parent, Surviving Corporation and their
respective Affiliates, directors, officers, employees and advisors (the “Tax
Indemnified Parties”) will be indemnified and held harmless by the Stockholder
from and against any and all loss, damage, claim, liability, judgment, fee,
penalty, fine, cost or settlement payment (including reasonable attorneys’ fees)
(“Losses”) attributable to (i) all Taxes of any member of an affiliated,
consolidated, combined or unitary group of which any Target Company (or any
predecessor of any of the foregoing) is or was a member on or prior to the
Closing Date, including pursuant to Treasury Regulations Section 1.1502-6 or any
analogous or similar state, local, or foreign law or regulation, and (ii) any
and all Taxes of any person (other than any Target Company) imposed on any
Target Company as a transferee or successor, by contract or pursuant to any law,
rule, or regulation, which Taxes relate to an event or transaction occurring
before the Closing Date and are properly allocable to a Taxable period ending on
or before the Closing.

9.6.3          Deductions. Parent shall pay in cash to Stockholder 40% of any
tax deduction by any Target Company after the Closing Date associated with the
exercise of any stock options to purchase shares of Stockholder or the vesting
of any restricted stock of Stockholder by employees of any Parent Company or
Target Company prior to or following the Closing. Any amount paid by Parent or
Target with respect to the Stockholder shares giving rise to such deduction, and
received by Stockholder pursuant to this section, shall be treated as a partial
payment for stock by Parent or Target and as a reduction in the capital
contribution by Stockholder, with respect to the Stockholder shares giving rise
to such deduction, consistent with the provisions of Treasury Regulation Section
1.1032-3.

 

 

 

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9.6.4          Transfer Taxes. The Stockholder will be liable for any sales,
use, transfer, stock transfer or withholding or like Taxes related to the
transactions contemplated by this Agreement.

9.6.5          Information Return. The parties agree to cooperate to the extent
necessary in connection with the filing of any information return or similar
document relating to Parent’s acquisition of the Company.

9.6.6          Cooperation on Tax Matters. Each party hereto will cooperate
fully, as and to the extent reasonably requested by any other party hereto in
connection with any Tax matters relating to the Target Companies (including by
the provision of reasonably relevant records or information). The person or
party requesting such cooperation will pay the reasonable out-of-pocket expenses
of such other person or party.

9.6.7          Tax Treatment. Pursuant to the terms of this Agreement and the
Ancillary Documents, Stockholder and the Target Companies shall cause the Merger
to qualify, and will not take any action either prior to or after Closing which
could reasonably be expected to prevent the Merger from qualifying, as a
reorganization under Section 368 of the Code. Immediately prior to the Effective
Time, Stockholder and Company shall provide the tax advisors rendering an
opinion under Section 8.6 with a representation letter in the form attached as
Schedule 9.6.7 to the Stockholder Disclosure Schedule and Parent and Acquisition
Corp. shall provide the tax advisors rendering an opinion under Section 8.6 with
a representation letter in the form attached as Schedule 9.6.7 of the Parent
Disclosure Schedule. Stockholder shall use its reasonable best efforts to cause
the tax advisors to render their opinions in accordance with the transmittal
letters referenced in Section 8.6.

(1)          Provided that no party shall have breached the other provisions of
this Section 9.6.7, except as otherwise required by the Internal Revenue Service
(the “IRS”) pursuant to a determination (as defined in Section 1313 of the Code)
or otherwise, or by applicable law, neither Parent nor Stockholder shall take a
position on any tax returns inconsistent with the treatment of the Merger for
tax purposes as a reorganization within the meaning of Section 368(a)(1)(A) of
the Code by reason of Section 368(a)(2)(E) of the Code, in the case of any
merger of the Acquisition Corp. with and into Company with Company being the
surviving corporation.

(2)          Parent represents and covenants, solely for tax purposes, now, and
as of the Closing Date, the following: (i) prior to the Merger, it will be in
“control” of Acquisition Corp. within the meaning of Section 368(c) of the Code;
(ii) it has no present plan or intention to and will not for a period of 24
months following the Closing liquidate Company or merge Company with or into
another corporation, or sell, distribute or otherwise dispose of the Company
Stock, except for transfers of stock described in Section 368(a)(2)(C) of the
Code or Treasury Regulation Section 1.368-2(k)(2), or cause the Company to sell
or otherwise dispose of any of its assets except for dispositions made in the
ordinary course of business or transfers described in Section 368(a)(2)(C) or
Treasury Regulation

 

 

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Section 1.368-2(k)(2); and (iii) that it presently intends to and will for a
period of at least 24 months following the Closing continue the Company’s
historic business or use a significant portion of Company’s business assets in
business in a manner that satisfies the continuity of business enterprise
requirement set forth in Treasury Regulation Section 1.368-1(d).

(3)   Parent and Stockholder each covenants that it will not take any action
following the Closing that would result in the Company failing to hold
“substantially all” of its assets within the meaning of Section 368(a)(2)(E) of
the Code.

Parent understands and agrees that the amount of actual damages that would be
sustained as a result of a violation by Parent or Acquisition Corp. of this
Section 9.6.7 prior to Closing in a manner that causes the transaction to fail
to qualify as a tax-free reorganization under the Code, is incapable or
difficult of precise estimation. Therefore, Parent agrees that if Parent or
Acquisition Corp. breaches the terms of this Section 9.6.7 for any reason prior
to Closing in a manner that is the sole cause of the transaction failing to
qualify as a tax-free reorganization under the Code and Stockholder elects not
to close the transaction pursuant to Section 8.6, Parent shall pay to
Stockholder, as liquidated damages and not as a penalty, and as Stockholder’s
sole remedy for such breach, the sum of $60,000,000 (the “Stockholder Liquidated
Damages”), and Parent acknowledges that such liquidated amount bears a
reasonable proportion to the probable loss sustained by such breach. Such
liquidated damages shall be the sole and exclusive remedy for any claims in such
circumstances; provided, however, that no failure by Stockholder to elect not to
close shall constitute a waiver of any right of Stockholder pursuant to this
Agreement. Notwithstanding the foregoing, the Stockholder Liquidated Damages
shall only be paid in the event that there has been a final judgment, decree or
order, or Parent and Stockholder agree in writing, to the effect that the Merger
would not qualify as a tax-free reorganization under the Code.

9.6.8          Reimbursement for Temporary Differences. To the extent
Stockholder is required to pay the IRS or any state income tax authority an
addition to tax for a period prior to Closing attributable to any Temporary
Difference, Parent or Target Company will pay to Stockholder the federal and
state income tax benefit realized (using an assumed combined federal and net
state income tax rate of 40%) by any Target Company in any post Closing federal
or state income tax return relating to any such Temporary Difference. Likewise,
to the extent Stockholder receives a refund from the IRS or any state income tax
authority attributable to a period prior to Closing attributable to any
Temporary Difference, Stockholder will pay to Target Company or Parent the
federal and state income tax benefit foregone (using an assumed combined federal
and net state income tax rate of 40%) by any Target Company in any post Closing
federal or state income tax return relating to any such Temporary Difference.
This Section 9.6.8 shall only apply to the extent the aggregate amount of the
tax benefit relating to such Temporary Difference exceeds $500,000. Any payments
required to be made to Stockholder pursuant to this Section 9.6.8 shall be paid
through the issuance to Stockholder of shares of Parent Common Stock, the fair
market value of which at the time of issuance shall be equal to the amount owed
to Stockholder. Any payments

 

 

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required to be made to Target Company or Parent by Stockholder shall be paid
through the cancellation of shares of Parent Common Stock delivered to
Stockholder pursuant to the terms of this Agreement based on the fair market
value of Parent Common Stock at the time of cancellation. The parties agree that
the fair market value of the Parent Common Stock for purposes of this Section
9.6.8 shall be determined at the time any payment is due under this Section
9.6.8. This Section 9.6.8 shall expire upon an initial public offering of Parent
Common Stock by Parent.

9.7          Further Assurances. Each party, upon the request from time to time
of any other party hereto after the Closing, and at the expense of the
requesting party but without further consideration, will do each and every act
and thing as may be necessary or reasonably requested to consummate the
transactions contemplated hereby in an orderly fashion.

9.8          Reporting Obligations. Parent shall, following the Closing, provide
the following to Stockholder:

(1)          all unaudited balance sheets, statements of income and expense,
cash flows, and changes in stockholders’ equity, and information necessary for
Stockholder to properly and accurately account for Stockholder’s equity interest
in the earnings of Parent in accordance with GAAP by the 7th Business Day after
each month-end in the case of the income statement and by the 10th Business Day
in the case of all other information;

(2)          direct the Parent’s auditor to provide to the Parent’s Audit
Committee required communications under Statement of Auditing Standards No. 61
regarding the audit of the consolidated financial statements of Parent within 45
days after the end of each fiscal year (to commence with the fiscal year ended
December 31, 2006);

(3)          audited GAAP financial statements as soon as practicable after the
end of each fiscal year, but in any event within ninety (90) days after the end
of the fiscal year;

(4)          unaudited quarterly GAAP financial statements with appropriate
narrative commentary describing significant variances as compared to the prior
year comparative period within 10 Business Days of each calendar quarter-end,
which unaudited GAAP financial information shall be accompanied by an instrument
executed by the Chief Financial Officer or President of Parent that certifies
that such financials were prepared in accordance with GAAP consistently applied
with prior practice and fairly present the financial condition of the Parent,
subject to the lack of notes and year-end adjustments;

(5)          as soon as practicable, but in any event within 45 days after the
commencement of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months, and as soon as prepared, any
other budgets or revised budgets prepared by Parent;

 

 

 

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(6)          access to (including access by Stockholder’s independent auditors)
and cooperation in review of the books and records of Parent, including
direction to Parent’s auditors to provide access to audit work papers;

(7)          access to the books and records of Parent to perform periodic
impairment studies; and

(8)          all other information reasonably related to Stockholder’s
satisfaction of its obligations under the applicable reporting rules of the
Securities and Exchange Commission on a timely and accurate basis.

In regard to (3) above, if Stockholder reasonably believes that Parent will be
deemed to be considered significant to Stockholder under SEC reporting
guidelines and therefore required to include Parent audited financial statements
in Stockholder’s Form 10-K, Stockholder may, with reasonable notice, request
that Parent audited financial statements be delivered to Stockholder, for
incorporation into Stockholder’s Form 10-K, within 53 days after the end of the
fiscal year.

To facilitate Parent’s ability to satisfy the reporting obligations outlined
above, Stockholder will make reasonable efforts to compute the Monthly Close
Process under the Transition Services Agreement in a timely manner sufficient
for Parent to meet its obligations.

9.9          Employee Benefits. Effective as of the Effective Time, the Target
Companies shall cease to be participating employers in all Stockholder Plans.
The benefits of (a) those individuals actively employed by the Target Companies
as of the Effective Time and (b) those individuals who are on a leave of absence
from the Target Companies as of the Effective Time (collectively, “Transferred
Employees”), shall be discontinued as of the Effective Time. From and after the
Effective Time, Parent shall, or shall cause the Surviving Corporation to,
provide to “Transferred Employees” and their eligible dependents, employee
benefits and compensation plans, programs and arrangements that are
substantially equivalent to those provided to similarly situated employees of
the Parent Companies (the “Parent Benefits”). From and after the Effective Time,
Parent shall (i) provide all Transferred Employees with credit for purposes of
eligibility, vesting, and benefit accrual under the Parent Benefits plans (in
which service is relevant for purposes of eligibility, vesting and benefit
accrual) for service with the Target Companies (and any Company Related Entity
as defined in Section 4.11.5) prior to the Effective Time, (ii) cause any
pre-existing conditions or limitations, eligibility waiting periods (including
actively-at-work requirements) or required physical examinations or other
evidence of insurability requirements under any Parent Benefits plan that is a
welfare benefit plan to be waived with respect to the Transferred Employees and
their eligible dependents, to the extent waived or previously met under the
corresponding plan in which the applicable Transferred Employee participated
immediately prior to the Effective Time, and (iii) give the Transferred
Employees and their eligible dependents credit for the plan year in which the
Effective Time (or commencement of participation in a Parent Benefit plan)
occurs towards applicable deductibles and annual out-of-pocket limits for
expenses incurred prior to the Effective Time (or the date of commencement of
participation in a Parent Benefit plan). Further, Parent agrees to take all
actions necessary to ensure that a qualified retirement plan sponsored by Parent
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Corporation following the Effective Time shall accept direct rollovers of
distributions made to the Transferred Employees from the DST Systems, Inc.
401(k) Profit Sharing and the Employee Stock Ownership Plan and Trust Agreement
of DST Systems, Inc., including rollovers of participant loans and related
promissory notes, and shall continue to accept loan repayments from the
Transferred Employees by payroll deduction per the term of such promissory
notes.

9.10       Tax Sharing Agreements. All tax sharing agreements between
Stockholder, on the one hand,  and any Target  Company on the other hand,  shall
be terminated as of the Closing Date, provided however, any amounts due
Stockholder under any such agreement with respect to any taxable period ending
on or prior to the Closing Date shall be paid to Stockholder pursuant to such
tax sharing agreement provided that such amounts were reflected as current
liabilities for the purposes of calculating Company Working Capital.

9.11       Notification. Between the date of this Agreement and the Closing
Date, Parent and Acquisition Corp. will promptly notify Stockholder and Company
in writing if Parent or Acquisition Corp. becomes aware of any fact or condition
that causes or constitutes a material breach of any of Parent’s or Acquisition
Corp.’s representations and warranties as of the date of this Agreement, or if
Parent or Acquisition Corp. becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a material breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Between the
date of this Agreement and the Closing Date, Company and Stockholder will
promptly notify Parent and Acquisition Corp. in writing if Company or
Stockholder becomes aware of any fact or condition that causes or constitutes a
material breach of any of Company’s or Stockholder’s representations and
warranties as of the date of this Agreement, or if Company or Stockholder
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a material breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition.

9.12       Incentive Compensation. After the Closing, but in no event later than
the 15th day of the third month following the Closing, Parent will pay, or cause
to be paid, any bonuses or other non-equity based incentive compensation that
have been accrued by Company prior to the Closing and reflected in current
liabilities for the purposes of calculating Company Working Capital.

9.13       Code Section 125 Plan. Stockholder shall take all actions necessary
to effectuate a “spin-off,” effective as of the Effective Time, of that portion
of the DST Systems, Inc. Flexible Benefit Program (the “DST Flex Plan”)
consisting of the elections and account balances of Transferred Employees to a
plan sponsored by Parent or Surviving Corporation which is substantially similar
to the DST Flex Plan (the “Parent Flex Plan”), so that the elections of such
Transferred Employees as in effect immediately before the Effective Time remain
in effect under the Parent Flex Plan for the remainder of the year in which the
Effective Time occurs. If the aggregate amount of the transferred account
balances of the Transferred Employee is positive, Stockholder shall pay
Purchaser the amount of such aggregate positive balances promptly following the
account balance transfer.

 

 

 

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9.14       CNA Assignment. Parent, Stockholder and the Target Companies shall
use commercially reasonable efforts to obtain the consent of CNA and/or North
Rock for the transactions contemplated by the Assignment and Novation Agreement
included in the Ancillary Documents and if such consent cannot be obtained on or
prior to the date that all conditions to the Closing contained in Sections 7 and
8 have otherwise been obtained, the Stockholder shall cause Vermont Western
Insurance Company, a Vermont-domiciled captive re-insurance company
(“Vermont-Western”), and Parent shall cause Mill River RE, Limited, a
Bermuda-domiciled, segregated cell capture re-insurance company, to enter into
re-insurance agreements containing the same terms and provisions as contained in
the current re-insurance agreements between Vermont Western and North Rock
Insurance Company, Limited (“North Rock”) described in Schedule 9.14 of
Stockholder’s Disclosure Schedule.

9.15       Headquarters. For a period of five (5) years after the Effective Time
or until an initial public offering, whichever is earlier, Parent (a) shall
maintain a significant presence and operations base in Kansas City, Missouri
consistent with the presence and operations base maintained by the Company as of
the Effective Time, (b) will refer, both internally and externally to customers
and the media to such operations base as the Parent’s North American Operational
Headquarters, and (c) agrees that any reductions in force after the Closing
shall not disproportionately impact such presence in Kansas City, Missouri.

9.16       Certain Company Employees. If, on or prior to the third Business Day
prior to the Closing, any of the Company employees listed on Schedule 9.16
hereto fully and effectively waives, pursuant to a writing executed for the
benefit of and delivered to Stockholder, all rights such employee has with
respect to the vesting of all of the restricted shares of common stock in
Stockholder that such employee owns, as shown next to such employee’s name on
Schedule 9.16 under the heading “Restricted Shares in Stockholder,” which
vesting is related to the transactions contemplated by this Agreement, then
Parent will, after the Effective Time, issue such number of restricted shares of
Parent Common Stock to such employee, pursuant to a restricted stock award
agreement approved by the Parent’s Board of Directors, as shown opposite such
employee’s name on Schedule 9.16 under the heading “Restricted Shares in Parent”
for the price per share opposite such employee’s name on Schedule 9.16 under the
heading “Price Per Share.”

9.17       Parent Charter Amendment. On or prior to the Closing Date, Parent
shall file the Parent Charter Amendment.

10.

Termination; Expiration of Representations, Warranties and Covenants.

10.1       Termination. The Parties may not terminate this Agreement other than
as follows:

10.1.1       Notwithstanding anything to the contrary contained herein, the
parties may terminate this Agreement by mutual written consent of all of the
parties at any time prior to the Closing.

10.1.2       Parent and Acquisition Corp. may terminate this Agreement by giving
written notice to the Company and Stockholder at any time prior to the Closing,
if the Closing will not have occurred on or before July 31, 2006 (the
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reason of the failure of any condition precedent under Section 7 hereof (unless
the failure results primarily from either Parent or Acquisition Corp. itself
breaching any representation, warranty, or covenant contained in this
Agreement); provided, however, if at July 31, 2006 the only condition precedent
that remains unsatisfied under Section 7 is Section 7.2 as a result of the
failure to have obtained consents and approvals required by state insurance
authorities, then Parent and Acquisition Corp. agree that the Agreement shall
not be terminated, and the Expiration Date shall be extended, until such
consents or approvals are obtained.

10.1.3       The Company and Stockholder may terminate this Agreement by giving
written notice to Parent and Acquisition Corp. at any time prior to the Closing,
if the Closing will not have occurred on or before the Expiration Date, by
reason of the failure of any condition precedent under Section 8 hereof (unless
the failure results primarily from the Company or the Stockholder itself
breaching any representation, warranty, or covenant contained in this
Agreement); provided, however, if the only condition precedent that remains
unsatisfied under Section 8 is Section 8.2 as a result of the failure to have
obtained consents and approvals required by state insurance authorities, then
Company and Stockholder agree that the Agreement shall not be terminated, and
the Expiration Date shall be extended, until such consents or approvals are
obtained.

10.2       Effect of Termination. If any party terminates this Agreement
pursuant to Section 10.1 above, all rights and obligations of the parties
hereunder will terminate without any liability of any party to any other party,
except that (a) the rights and obligations of the parties under Section 9.4,
this Section 10.2 and Section 12 will survive such termination, and (b) nothing
herein will relieve any party from liability for any breach hereof occurring
prior to termination.

11.

Indemnification

 

11.1

Indemnification by Parent.

11.1.1       Indemnification. After the Effective Time, subject to the
limitations set forth in Sections 11.1.1, 11.1.2, 11.1.3 and 11.3, Parent agrees
to indemnify Stockholder and hold Stockholder harmless from and with respect to
any and all claims, liabilities, losses, damages, costs and expenses, whether or
not involving a third party claim, including the reasonable fees and
disbursements of counsel and expert witnesses (collectively, the “Stockholder’s
Losses”), related to or arising directly or indirectly out of (a) any breach of
any representation or warranty made by Parent or Acquisition Corp. in this
Agreement, and (b) any breach by Parent or Acquisition Corp. of any covenant,
obligation, or undertaking made by Parent or Acquisition Corp. in this
Agreement.

11.1.2       Indemnification Period. Except for Stockholder’s Losses arising
from a misrepresentation or breach under Sections 6.1, 6.2, 6.3, 6.4 and 6.8.10
(which claims may be made at any time until 90 days after the expiration of the
applicable statute of limitations), no claim may be made under Section 11.1.1(a)
after the first anniversary of the Closing Date.

 

 

 

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11.1.3       Limitations. For breaches of the representations and warranties in
Sections 6.8, 6.9, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19, 6.22
and 6.23, Parent shall have no liability under Section 11.1.1(a) for any claim
until the total of Stockholder’s Losses resulting from such breach or breaches
exceeds $25,000,000, and then only for the amount by which Stockholder’s Losses
exceed $25,000,000. For breaches of the representations and warranties in
Sections 6.5, 6.6, 6.7, 6.10, 6.20 and 6.21, Parent shall have no liability
under Section 11.1.1(a) until the total of Stockholder’s Losses resulting from
such breach or breaches exceeds $10,000,000, and then for the entire amount of
such Stockholder’s Losses (including the portion less than $10,000,000). The
limitations of this Section 11.1.3 shall not apply to claims pursuant to Section
11.1.1(a) for any breach of the representations and warranties set forth in
Sections 6.1, 6.2, 6.3, and 6.4 (the “Parent Excluded Reps”). In the event a
breach of a representation and warranty could reasonably be construed as a
breach to which the $25,000,000 deductible applies and a breach to which the
$10,000,000 basket applies, such breach shall be treated as one where the
$10,000,000 basket applies and not the $25,000,000 deductible.

 

11.2

Indemnification by Stockholder.

11.2.1       Indemnification. After the Effective Time, subject to the
limitations set forth in Sections 11.2.1, 11.2.2, 11.2.3 and 11.3, Stockholder
agrees to indemnify Parent and Acquisition Corp., and hold Parent harmless from
and with respect to any and all claims, liabilities, losses, damages, costs and
expenses, whether or not involving a third party claim, including the reasonable
fees and disbursements of counsel and expert witnesses (collectively, the
“Parent’s Losses”), related to or arising directly or indirectly out of (a) any
breach of any representation or warranty made by Stockholder in this Agreement,
and (b) any breach by Stockholder of any covenant, obligation, or undertaking
made by Stockholder in this Agreement.

11.2.2       Indemnification Period. Except for Parent’s Losses arising from a
misrepresentation or breach under Sections 4.1, 4.2, 4.3, 4.4, 4.8.10 and 5.8
(which claims may be made at any time until 90 days after the expiration of the
applicable statute of limitations), no Claim may be made under Section 11.2.1(a)
after the first anniversary of the Closing Date.

11.2.3       Limitations. For breaches of the representations and warranties in
Sections 4.8, 4.9, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.22
and 4.23, Stockholder shall have no liability under Section 11.2.1(a) for any
claim until the total of Parent’s Losses resulting from such breach or breaches
exceeds $25,000,000 and then only for the amount by which Parent’s Losses exceed
$25,000,000. For breaches of the representations and warranties in Sections 4.5,
4.6, 4.7, 4.10, 4.20, and 4.21, Parent shall have no liability under Section
11.2.1(a) until the total of Parent’s Losses resulting from such breach or
breaches exceeds $10,000,000, and then for the entire amount of such Parent’s
Losses (including the portion less than $10,000,000). The limitations of this
Section 11.2.3 shall not apply to claims pursuant to Section 11.2.1(a) for any
breach of the representations and warranties set forth in Sections 4.1, 4.2, 4.3
and 4.4 (the “Stockholder Excluded Reps,” and together with the “Parent Excluded
Reps,” the

 

 

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“Excluded Reps”). In the event a breach of a representation and warranty could
reasonably be construed as a breach to which the $25,000,000 deductible applies
and a breach to which the $10,000,000 basket applies, such breach shall be
treated as one where the $10,000,000 basket applies and not the $25,000,000
deductible.

11.3       Cap. Except with respect to Excluded Reps, any covenants set forth
herein, fraud, and any intentional acts, neither Parent nor Stockholder shall
have liability with respect to claims made under this Article 11 in excess of
$100,000,000 in the aggregate; provided, however, that neither Parent nor
Stockholder shall have liability with respect to claims made under this Article
11 (including claims with respect to breaches of any representations and
warranties contained in any Excluded Reps and/or breaches or any covenants set
forth herein) in excess of $350,000,000 in the aggregate.

 

11.4

Procedures.

11.4.1       If a party hereto seeks indemnification, with respect to any notice
it has received from a third party, under Section 11.1.1 or 11.2.1, such party
(the “Indemnified Party”) shall promptly give written notice to the party from
which indemnification is being sought (the “Indemnifying Party”) after receiving
such notice from such third party, describing the claim, the amount of such
claim (if known and quantifiable), and the basis thereof; provided that the
failure to so notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent such failure shall have
materially prejudiced the Indemnifying Party. The Indemnifying Party will have
the right to defend the Indemnified Party against the claim made by the third
party with counsel of its choice reasonably satisfactory to the Indemnified
Party so long as (i) the claim by the third party involves primarily money
damages; (ii) the Indemnifying Party conducts the defense of the claim made by
the third party actively and diligently and in good faith; and (iii) the
Indemnifying Party notifies the Indemnified Party within 15 calendar days after
the delivery of such initial notification (but in any event, in time to allow
any response to any complaint to be timely filed), of its intent to assume the
defense of such Third Party Claim pursuant to the provisions of this Section
11.4.

11.4.2       So long as the Indemnifying Party is conducting the defense of the
claim made by the third party in accordance with Section 11.4.1 above, (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of such claim, (ii) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement with
respect to such claim, nor take any voluntary action prejudicial to the
determination of such claim, without the prior written consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or delayed)
and (iii) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to such claim unless written agreement
from the party bringing such claim is obtained releasing the Indemnified Party
from all liability thereunder.

11.4.3       In the event that the Indemnifying Party does not (or otherwise
ceases to) conduct the defense of the claim made by the third party under
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(i) the Indemnified Party may defend against such claim in any manner it may
deem appropriate and may consent to the entry of judgment or enter into a
settlement of such claim without the prior written consent of the Indemnifying
Party; and (ii) the Indemnifying Party or Parties will reimburse the Indemnified
Party promptly for the costs of defending against such claim (including
reasonably attorneys’ fees and expenses).

11.4.4       With regard to any and all claims for which indemnification is
payable as described in this Section 11.4, such indemnification will be paid by
the Indemnifying Party upon the earliest to occur of (i) the entry of a judgment
against the Indemnified Party and the expiration of any applicable appeal
period, or if earlier, ten (10) business days prior to the date that the
judgment creditor has the right to execute the judgment, (ii) the entry of an
unappealable judgment or final appellate decision against the Indemnified Party
or (iii) a settlement of the claim. Notwithstanding the foregoing, if there is
no good faith dispute as to the applicability of indemnification, the reasonable
legal fees and expenses of counsel to the Indemnified Party will be reimbursed
on a current basis by the Indemnifying Party if such legal fees and expenses are
a liability of the Indemnifying Party.

11.5       Sole Remedy. After the Effective Time and except as set forth in
Section 9.6 and as otherwise provided herein (including Sections 3.3, 3.4, 3.5,
and 9.4.5), indemnification pursuant to this Section 11 is the sole and
exclusive remedy for any and all claims arising under, or in connection with,
this Agreement and no party shall be entitled to make any claim that would
circumvent the limitations set forth in this Section 11; provided, however, that
Stockholder shall have the right to equitable relief as set forth in Sections
9.4.6 and 12.11, and that Parent shall have the right to equitable relief as set
forth in Sections 9.4.6 and 12.11.

 

11.6

Additional Shares.

11.6.1       In the event the Closing occurs, subject to the limitations
contained in Section 11, any damages owed pursuant to this Section 11 to
Stockholder shall be paid through the issuance to Stockholder of a number of
shares of Parent Common Stock, equal in number to the product obtained by
dividing the amounts due Stockholder by $8.25 and then issuing an additional
number of shares to Stockholder so that Stockholder’s equity interest in Parent
prior to the additional distribution is in no way diluted by the issuance of
such additional shares, i.e., the Stockholder shall not be required to suffer
any of the economic cost of the issuance of the additional shares.

11.6.2       In the event the Closing occurs, subject to the limitations
contained in Section 11, any damages owed pursuant to this Section 11 to Parent
shall be paid through the cancellation of shares of Parent Common Stock
delivered to Stockholder pursuant to the terms of this Agreement. The parties
agree that the number of shares to be cancelled under this Section 11.6.2 shall
equal the damages owed by Stockholder pursuant to this Section 11 divided by
$8.25 and the number of shares to be cancelled shall be calculated in such a
manner such that Stockholder shall in no way benefit from the shares that are
cancelled due to its equity interest in Parent.

 

 

 

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11.6.3       In the event of any stock split, stock dividend or other
subdivision of the outstanding shares of Parent Common Stock, the value of the
Parent Common Stock under Section 11.6.1 and 11.6.2, shall be equitably
adjusted. Any shares of Parent Common Stock issued or cancelled pursuant to this
Section 11 shall be treated by all parties as an adjustment to the Merger
Consideration, unless otherwise required by applicable law.

11.6.4       Stockholder hereby (a) irrevocably appoints the Secretary of Parent
as it attorney-in-fact, which appointment is coupled with an interest, with full
power and authority to take all actions necessary on behalf of Stockholder or
otherwise with respect to any cancellation of any shares of Parent Common Stock
pursuant to this Section 11.6, and (b) covenants and agrees not to, directly or
indirectly, offer, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of or otherwise dispose of or transfer any shares of Parent
Common Stock it received pursuant to this Agreement to any Person unless such
Person first delivers a written and binding acknowledgement to Parent that such
Person agrees to be bound by, and to have such shares of Parent Common Stock
bound by, the provision of this Section 11.6.

11.7       Survival of Covenants. All covenants and obligations in this
Agreement shall survive the Closing.

12.

Miscellaneous.

12.1       Notices. All notices, requests, demands, claims and other
communications required or permitted hereunder will be in writing and will be
sent by nationally recognized overnight courier, registered mail or certified
mail. Any notice, request, demand, claim, or other communication required or
permitted hereunder will be deemed duly given, as applicable, (a) one Business
Day following the date sent when sent by overnight delivery or (b) five Business
Days following the date mailed when mailed by registered or certified mail
return receipt requested and postage prepaid to the following address:

If to the Company or the Stockholder, to:

DST Systems, Inc.

333 W. 11th Street

Kansas City, Missouri 64105

Attention: Chief Executive Officer

Facsimile: (816) 435-8630

– with a copy to –

DST Systems, Inc.

333 W. 11th Street

Kansas City, Missouri 64105

Attention: General Counsel

Facsimile: (816) 435-8630

 

 

 

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If to Parent, Acquisition Corp. or the Surviving Corporation, to:

Asurion Corporation

160 Bovet Rd., Suite 402

San Mateo, California 94402

Attention: General Counsel

Facsimile: (650) 349-9407

 

– with a copy to –

Goodwin | Procter LLP

Exchange Place

Boston, Massachusetts 02109

Facsimile: (617) 523-1231

Attention: Richard E. Floor and James M. Curley

Notwithstanding the foregoing, any party may send any notice, request, demand,
claim, or other communication required or permitted hereunder to the intended
recipient at the address set forth above using any other means (including
personal delivery, messenger service, facsimile transmission, ordinary mail, or
electronic mail); provided, however, that no such notice, request, demand,
claim, or other communication will be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any party may change
the address to which notices, requests, demands, claims, and other
communications required or permitted hereunder are to be delivered by giving the
other party notice in the manner herein set forth.

12.2       Expenses of Transaction. Whether or not the transactions provided for
herein are consummated, each of the parties hereto will assume and bear all
expenses, costs and fees (including legal and accounting fees and expenses)
incurred by such party in connection with the preparation, negotiation and
execution of this Agreement and the transactions contemplated hereby.

12.3       Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or under
public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.

12.4       Amendment. This Agreement may be amended by the parties hereto at any
time prior to the Closing, but only by an instrument in writing executed by each
of Parent and the Company.

12.5       Parties in Interest. This Agreement will be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or

 

 

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will be construed to or will confer upon any other Person any right, claim,
cause of action, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including by way of subrogation.

12.6       Assignment. This Agreement will be binding upon and inure to the
benefit of and be enforceable by the successors and permissible assigns of the
Company, Stockholder, Parent and Acquisition Corp. This Agreement and any rights
and obligations hereunder will not be assigned, hypothecated or otherwise
transferred by any party hereto (by operation of law or otherwise) without the
prior written consent of the other parties hereto, which consent will not
unreasonably be withheld.

12.7       Governing Law. This Agreement, and all claims arising in whole or in
part out of, related to, based upon, or in connection herewith or the subject
matter hereof will be governed by and construed in accordance with the domestic
substantive laws of the State of New York, without giving effect to any choice
or conflict of law provision or rule that would cause the application of the
laws of any other jurisdiction; provided, however, that the Merger and the
effects thereof will be governed by the DGCL.

12.8       Consent to Jurisdiction. Each party to this Agreement, by its
execution hereof, hereby (a) irrevocably submits to the exclusive jurisdiction
of the state courts of The State of New York, New York County or the United
States District Court for the Southern District of New York for the purpose of
any and all actions, suits or proceedings arising in whole or in part out of,
related to, based upon or in connection with this Agreement or the subject
matter hereof, (b) waives to the extent not prohibited by applicable law, and
agrees not to assert, by way of motion, as a defense or otherwise, in any such
action, any claim that it is not subject personally to the jurisdiction of the
above-named courts, that its property is exempt or immune from attachment or
execution, that any such action brought in one of the above-named courts should
be dismissed on grounds of forum non conveniens, should be transferred to any
court other than one of the above-named courts, or should be stayed by reason of
the pendency of some other proceeding in any other court other than one of the
above-named courts, or that this Agreement or the subject matter hereof may not
be enforced in or by such court, and (c) agrees not to commence any such action
other than before one of the above-named courts nor to make any motion or take
any other action seeking or intending to cause the transfer or removal of any
such action to any court other than one of the above-named courts whether on the
grounds of inconvenient forum or otherwise. Each party hereby (x) consents to
service of process in any such action in any manner permitted by New York law;
(y) agrees that service of process made in accordance with clause (x) or made by
registered or certified mail, return receipt requested, at its address specified
pursuant to Section 12.1 hereof, will constitute good and valid service of
process in any such action; and (z) waives and agrees not to assert (by way of
motion, as a defense, or otherwise) in any such action any claim that service of
process made in accordance with clause (x) or (y) does not constitute good and
valid service of process.

12.9       Waiver of Jury Trial. To the extent not prohibited by applicable law
that cannot be waived, each party hereby waives, and covenants that it will not
assert (whether as plaintiff, defendant or otherwise), any right to trial by
jury in any forum in respect of any issue, claim, demand, action or cause of
action arising in whole or in part under, related to, based on or in connection
with this Agreement or the subject matter hereof, whether now existing or
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arising and whether sounding in tort or contract or otherwise. Any party hereto
may file an original counterpart or a copy of this Section 12.9 with any court
as written evidence of the consent of each such party to the waiver of its right
to trial by jury.

12.10     Reliance. Each of the parties hereto acknowledges that it has been
informed by each other party that the provisions of Sections 12.8 and 12.9 above
constitute a material inducement upon which such party is relying and will rely
in entering into this Agreement, and each such party agrees that any breach by
such party of any of the provisions of Sections 12.8 or 12.9 above would
constitute a material breach of this Agreement.

12.11     Specific Enforcement. Each party acknowledges and agrees that the
other parties would be irreparably damaged in the event that this Agreement were
not performed in accordance with its specific terms or were otherwise breached.
It is accordingly agreed that each party hereto will be entitled to seek an
injunction to specifically enforce the terms of this Agreement, in addition to
any other remedy to which such party may be entitled hereunder, at law or in
equity.

12.12     No Waiver. No failure or delay on the part of any party hereto in the
exercise of any right hereunder will impair such right or be construed to be a
waiver of, or acquiescence in, any breach of any representation, warranty or
agreement herein, nor will any single or partial exercise of any such right
preclude any other or further exercise thereof or of any other right. No waiver
by any party will be effective unless such waiver is specifically contained in a
writing signed by such waiving party.

12.13     Negotiation of Agreement. Each of the parties acknowledges that it has
been represented by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement and that it has
executed the same with consent and upon the advice of said independent counsel.
Each party and its counsel cooperated in the drafting and preparation of this
Agreement and the documents referred to herein, and any and all drafts relating
thereto will be deemed the work product of the parties and may not be construed
against any party by reason of its preparation. Accordingly, any rule of law or
any legal decision that would require interpretation of any ambiguities in this
Agreement against the party that drafted it is of no application and is hereby
expressly waived.

12.14     Headings. The headings contained in this Agreement are inserted only
for reference as a matter of convenience and in no way define, limit, or
describe the scope or intent of this Agreement, and will not affect in any way
the meaning or interpretation of this Agreement.

12.15     Counterparts; Facsimile Signature. This Agreement may be executed in
any number of counterparts, and by the different parties hereto in separate
counterparts, each of which will be deemed an original for all purposes and all
of which together will constitute one and the same instrument. This Agreement
may be executed by facsimile signature by any party and such signature will be
deemed binding for all purposes hereof without delivery of an original signature
being thereafter required.

 

 

 

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12.16      Time is of Essence. The Parties agree that time is of the essence
with respect to all dates and time periods set forth in this Agreement.

12.17      Entire Agreement. The agreement of the parties that is comprised of
this Agreement, the Ancillary Documents, the Exhibits and Disclosure Schedules
hereto sets forth the entire agreement and understanding between the parties and
supersedes any prior Contract, agreement or understanding, whether oral or
written, relating to the subject matter hereof and thereof.

 

 

 

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Execution Copy

 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed under
seal by their respective duly authorized officers as of the day and year first
written above.

Parent:

ASURION CORPORATION

By:        /s/ KEVIN TAWEEL                                    

 

Name:

Kevin Taweel

 

 

Title:

Chairman

 

Acquisition Corp.:

CARDINAL CORPORATION

By:        /s/ KEVIN TAWEEL                                    

 

Name:

Kevin Taweel

 

Title:

Chairman

 

The Company:

DST lock\line, Inc.

 

By:        /s/ CHARLES A. LAUE                                

 

Name:

Charles A. Laue

 

Title:

President

 

The Stockholder:

DST SYSTEMS, INC.

By:        /s/ GREGG WM. GIVENS                            

 

Name:

Gregg Wm. Givens

 

 

Title:

Vice President and Chief Accounting Officer

 

 

Signature Page of Agreement and Plan of Merger