STOCK PURCHASE AGREEMENT
Exhibit 2.01
EXECUTION
VERSION
THIS STOCK PURCHASE AGREEMENT (“Agreement”) is entered into as of the 18th day of
December, 2009 (the “Effective Date”) by and between Argonaut Insurance Company
(“Seller”) and Patriot National Insurance Group, Inc. (“Buyer”).
RECITALS
1. Seller is a corporation organized under the laws of the State of Illinois with its
principal executive offices located at 00000 Xxxxxxx Xxxxx, Xxx Xxxxxxx, Xxxxx.
2. Buyer is a corporation organized under the laws of the State of Delaware with its principal
executive offices located at 000 X. Xxx Xxxx Xxxxxxxxx, Xx. Lauderdale, Florida.
3. Seller is the beneficial and record owner of one million (1,000,000) shares of common
stock, $2.00 par value (the “Common Stock”), of Argonaut-Southwest Insurance Company (the
“Company”), which shares represent one hundred percent (100%) of the issued and outstanding
capital stock (the “Stock”) of the Company.
4. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller the Stock, upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties as
hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I — DEFINITIONS
The following terms shall have the respective meanings set forth below throughout this
Agreement:
“AAA Rules” has the meaning set forth in Section 10.8.
“Affiliate” means, with respect to any Person, at the time in question, any other
Person controlling, controlled by or under common control with such Person.
“Agreement” has the meaning set forth in the first paragraph of this Agreement.
“Annual Financial Statements” has the meaning set forth in Section 3.11.
“Applicable Law” means any domestic or foreign federal, state or local statute, law,
ordinance or code, or any rules, regulations, administrative interpretations, or orders issued by
any governmental authority pursuant to any of the foregoing, and any order, writ, injunction,
directive, judgment or decree of a court of competent jurisdiction applicable to the parties
hereto.
“Asserted Liability” has the meaning set forth in Section 9.4.
“Basket” has the meaning set forth in Section 9.3.
“Books and Records” means all records, documents, databases, administrative records,
claim records, policy files, sales records, files and records relating to regulatory matters or
correspondence with regulatory authorities, reinsurance records, underwriting records, accounting
records and all other records, data and information (in whatever form maintained) in the possession
or control of the Company relating exclusively to the conduct of the Company’s business as
currently conducted, but excluding any such books and records that are subject to the
attorney-client or any other privilege or to the work product doctrine.
“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City are required or authorized by law to be closed.
“Buyer” has the meaning set forth in the Recitals of this Agreement.
“Buyer Indemnified Parties” has the meaning set forth in Section 9.1.
“Capital and Surplus” shall mean the net admitted assets of the Company minus the
total liabilities of the Company.
“Claims Notice” has the meaning set forth in Section 9.4.
“Closing” has the meaning set forth in Section 2.3.
“Closing Date” has the meaning set forth in Section 2.3.
“Code” has the meaning set forth in Section 3.16.
“Company” has the meaning set forth in the Recitals of this Agreement.
“Common Stock” has the meaning set forth in the Recitals of this Agreement.
“Confidentiality Agreement” has the meaning set forth in Section 5.12.
“Consolidated Returns” has the meaning set forth in Section 3.16.
“Contract” means a contract, agreement, guarantee, commitment, indenture, note, bond,
mortgage, non-governmental license or assignment, whether written or oral.
“Effective Date” has the meaning set forth in the preamble of this Agreement.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and all
regulations promulgated thereunder.
“FOIR” means the Florida Office of Insurance Regulation.
“IDOI” means the Illinois Department of Insurance.
“Indemnified Party” means a Buyer Indemnified Party or a Seller Indemnified Party, as
applicable.
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“Invested Assets” has the meaning given such term in Section 3.22.
“Knowledge” means (i) with respect to the knowledge of the Seller, the actual
knowledge of the individuals listed on Schedule 1.01(a), and (ii) with respect to the
knowledge of the Buyer, the actual knowledge of the individuals listed on Schedule 1.01(b).
“Lien” means any lien, pledge, security interest, encumbrance, restriction, easement,
limitation, claim, charge or defect of title.
“Losses” has the meaning set forth in Section 9.1.
“Material Adverse Effect” with respect to a Person means (unless otherwise indicated)
any circumstance, change in, or effect on the business and affairs of such Person that (i) is, or
would reasonably be expected to be, materially adverse to the business, operations, assets or
liabilities, results of operations, or financial condition of such Person, or (ii) would reasonably
be expected to prevent or materially delay the performance by such Person of its obligations
hereunder or the consummation of the transactions contemplated hereby.
“Person” means any individual, corporation, limited liability company, partnership,
limited partnership, firm, joint venture, association, joint-stock company, trust, unincorporated
organization, governmental, judicial or regulatory body or other entity.
“Purchase Price” has the meaning set forth in Section 2.2.
“Required Consent” has the meaning set forth in Section 3.21.
“SAP” means statutory accounting practices prescribed or permitted by the insurance
regulatory authorities of the applicable states where the Company is licensed to transact
insurance.
“Securities Act” means the Securities Act of 1933, as amended.
“Seller” has the meaning set forth in the Recitals of this Agreement.
“Seller Indemnified Parties” has the meaning set forth in Section 9.2.
“Stock” has the meaning set forth in the Recitals of this Agreement.
“Straddle Period” has the meaning set forth in Section 5.3.
“Subsidiary” means any corporation, partnership, joint venture or other legal entity
in which the person or entity directly or indirectly, owns or controls the voting of at least a 50%
share or other equity interest or for which such person or entity, directly or indirectly, acts as
a general partner.
“Taxes” (or “Tax” as the context may require) mean (i) all federal, state,
county, local, foreign and other taxes (including, without limitation, income, payroll and employee
withholding, unemployment insurance, social security, premium (or similar taxes based on premiums),
license, transfer, excise, sales, use, gross receipts, franchise, ad valorem, severance,
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capital and property taxes and other governmental charges and assessments), and includes
interest, additions to tax and penalties with respect thereto and (ii) any liability of the Company
for the payment of amounts with respect to payments of a type described in clause (i) above as a
result of being a member of an affiliated, consolidated, combined or unitary group, or as a result
of any obligation of the Company under any Tax sharing arrangement or Tax indemnity arrangement.
“Trademarks” means all United States and foreign trademarks (including service marks
and trade names, whether registered or at common law), registrations and applications therefor,
domain names, logos and designs owned by the Company and used in connection with the conduct of the
business as currently conducted by the Company, together with the goodwill associated therewith,
together with any and all (i) renewals thereof and (ii) rights to xxx for past, present and future
infringement or misappropriation thereof.
“YTD Financial Statements” has the meaning set forth in Section 3.11.
“YTD Statement Date” has the meaning set forth in Section 3.11.
ARTICLE II — PURCHASE AND SALE OF STOCK
2.1 Purchase and Sale of Stock. Subject to the terms and conditions set forth in this
Agreement, Seller shall sell, convey, assign, transfer and deliver the Stock and all rights and
title thereto to Buyer at the Closing, and Buyer shall purchase, acquire and accept the Stock from
Seller at the Closing for the Purchase Price set forth in Section 2.2 hereof.
2.2 Purchase Price. As consideration for the purchase of the Stock, at the Closing (defined
below) the Buyer shall pay to Seller an amount in cash equal to $17,189,952.00, which equals
$1,200,000.00 plus $15,989,952.00, the latter figure being the statutory Capital and Surplus of the
Company (identified on Line 35 of the Company’s statutory financial statements as “Surplus as
regards policyholders”) as of September 30, 2009, as adjusted to reflect the elimination of the
$507,006.00 deferred tax liability prior to Closing, as disclosed in Schedule 3.18.
2.3 Time, Date and Place of Closing. The transactions which are the subject of this Agreement
shall be closed (the “Closing”) on the first Business Day after the date on which all of
the conditions set forth in Sections 6.1 and 6.2 are satisfied or waived (other
than conditions which by their terms are to be satisfied at the Closing); or on such other date and
time as the parties shall mutually agree in writing (the “Closing Date”). The Closing
shall take place via electronic exchanges of closing documents, followed by overnight delivery of
originals and wet signature documents to the respective parties.
ARTICLE III — SELLER’S REPRESENTATIONS AND WARRANTIES
Seller represents and warrants to Buyer as of the date of this Agreement, as well as of the
Closing Date, as follows, subject to the exceptions set forth in the Company Disclosure Schedules
referenced in the following representations and warranties, and except for non-material changes to
the Company Disclosure Schedules that are disclosed by the Company or the Seller to the Buyer not
less than five (5) days before Closing:
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3.1 Organization of Seller and the Company. The Seller is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Illinois. The Company is a
corporation duly organized, validly existing and in good standing under the laws of the State of
Illinois and has all requisite corporate power and authority to loan, lease and operate its
properties, whether real, personal or mixed property, and whether tangible or intangible, and to
conduct its business as currently being conducted. Seller has heretofore delivered to the Buyer
true and complete copies of the Articles of Incorporation (or other charter or organization
documents), including all amendments thereto, and Bylaws, as currently in effect, of the Company.
The Company is duly qualified and in good standing as a foreign corporation in all jurisdictions in
which the nature of its business or the ownership of its properties makes such a qualification
necessary, except in such instances where the failure to be so qualified or in good standing would
not result in a Material Adverse Effect.
3.2 Authority. The execution, delivery, and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby have been duly and properly authorized by all
necessary corporate action in accordance with the Articles of Incorporation and Bylaws of Seller,
and no other corporate proceedings on the part of Seller are necessary to authorize the execution,
delivery and performance of this Agreement or the consummation of any of the transactions
contemplated hereby. This Agreement and the other agreements and instruments to be executed,
delivered and performed by Seller in connection with the transactions contemplated hereby, have
been duly executed and delivered by the Seller, and constitute the legal, valid and binding
obligations of Seller, enforceable against the Seller, in accordance with their terms except as
such enforceability may be limited by applicable bankruptcy, insolvency or other similar laws
affecting creditors’ rights generally, and except as rights to specific enforcement may be limited
by the application of equitable principles (whether such equitable principles are applied in a
proceeding of law or equity).
3.3 No Conflicts. Except as set forth on Schedule 3.3, neither the execution and
delivery of this Agreement nor the performance by Seller of any of its obligations hereunder will:
(a) conflict with or result in the breach of, or constitute a default under, the Articles of
Incorporation or the Bylaws of the Seller or the Company or of any Contract to which the Company or
Seller is a party or by which the Company, Seller, or any property or assets of the Company or
Seller may be bound or affected where the conflict, breach or default thereunder would result in a
Material Adverse Effect; (b) create or impose any Lien on any of the assets of the Company; or (c)
violate or be in conflict with any Applicable Law, the violation or conflict of which would
constitute a Material Adverse Effect.
3.4 Capitalization of the Company. The authorized capital stock of the Company consists
solely of one million (1,000,000) shares of common stock, $2.00 par value per share, 1,000,000 of
which are now validly issued and outstanding, fully paid, nonassessable and free of preemptive and
rescission rights of any kind. Except for the rights of Buyer with respect to the Stock provided
for herein, there are no outstanding options, subscriptions, contracts, agreements, arrangements,
warrants or other rights, written or oral, to purchase or otherwise acquire any of the Stock or any
other capital stock of the Company, or securities convertible into or exchangeable for, any of the
Stock or any other capital stock of the Company. No Person has any right to any payment or
consideration with respect to any ownership or other claim relating to the Stock or any other
capital stock of the Company except for Seller. Except for the rights of
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Buyer with respect to the Stock provided for herein, neither Seller nor the Company has made any
commitment relating to the issuance, voting, sale or disposition of any of the Stock or any other
capital stock of the Company, or any such warrants, options, subscriptions, contracts, agreements,
arrangements, rights, convertible or exchangeable securities, or evidences of indebtedness of the
Company.
3.5 Ownership of Stock of the Company. All of the Stock is owned of record and beneficially
by Seller, free and clear of all Liens. No Person has any rights by way of stock option,
convertible security, subscription, warrant, contract or other agreement or arrangement, written or
oral, to purchase or acquire any capital stock of the Company. Seller has full right, power and
authority to transfer the Stock to Buyer and upon Closing, Buyer will receive good and marketable
title to the Stock free and clear of all Liens. The Company has not issued or entered into any
note, loan, subordinated debenture, surplus debenture, debt security or other agreement, document
or instrument evidencing indebtedness for borrowed money which remains unpaid as of the date
hereof, that affects Seller’s ownership of the Stock or Seller’s authority to transfer the Stock to
Buyer upon Closing.
3.6 Corporate Records. The minute books and stock record books of the Company which have been
made available for Buyer’s review are complete and correct in all material respects and set forth
all material actions of the Board of Directors, committees of the Board of Directors and the
shareholders of the Company (in the case of the minute book) and a record of all stock issuances
and transfers (in the case of the stock record book), through the Closing Date.
3.7 Officers and Directors. Schedule 3.7 attached hereto sets forth the name and
office of every current officer and director of the Company.
3.8 Compliance with Applicable Laws. Except as described on Schedule 3.8, (i) the
Company has complied, in all material respects, with all Applicable Laws and (ii) to Seller’s
Knowledge, has not received notice of any alleged violation of any Applicable Law.
3.9 Contracts. Except as described on Schedule 3.9(a) the Company is not a party to,
nor does it have any obligations under, nor are any of its assets bound by, any contract,
agreement, relationship or commitment, whether written or oral, including, without limitation,
agreements relating to the hiring of agents, brokers, producers, representatives or other
independent contractors; reinsurance agreements; service contracts; claims adjustment service
contracts; agreements regarding the sale of insurance products or services; bonus or incentives,
deferred compensation, group insurance and other employee benefit plans or arrangements; leases or
other contracts relating to real or personal property; loan agreements, security agreements,
conditional sale or title retention agreements or other instruments relating to financing; managing
general agency agreements; contracts for the purchase or sale of materials, supplies or equipment;
contracts for the purchase, acquisition, sale or disposition of any assets of the Company or the
grant to any Person of any option or preferential rights to purchase any assets of Company;
contracts relating to licenses of Trademarks; employment agreements; contracts with any officers,
directors or Affiliates of the Company or of the Seller. Schedule 3.9(b) is a true and
complete list of all insurance policies and settlement agreements made in connection with insurance
claims, copies of which have been, or will be made available to Buyer for inspection prior to
Closing and which are all such policies and settlement agreements to which the Company is a party
or bound. Seller has furnished Buyer a true and accurate copy of
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each written contract and a true and accurate summary of each such oral agreement listed on
Schedule 3.9(a).
3.10 Real Estate. The Company neither owns nor leases any real estate.
3.11 Financial Statements. Seller has delivered to Buyer true, correct and complete copies of
the Company’s unaudited balance sheet as of September 30, 2009 (the “YTD Statement Date”)
and unaudited statements of revenues and expenses for the 9-month period ending on the YTD
Statement Date (the “YTD Financial Statements”) and the Company’s audited annual statements
for calendar years ended December 31, 2007 and December 31, 2008 (the “Annual Financial
Statements”). The YTD Financial Statements and the Annual Financial Statements present fairly,
in all material respects, admitted assets, liabilities, Capital and Surplus, results of its
operations and cash flows of the Company as of the dates and for the periods indicated, determined
in conformity with SAP applied on a basis consistent with prior periods. Except as shown in the
YTD Financial Statements and the Annual Financial Statements, the Company did not as of the
respective dates of the Annual Financial Statements and the YTD Financial Statements have any
liabilities or obligations which, in conformity with SAP applied on a basis consistent with prior
periods, would have been required to be disclosed or provided for in either the YTD Financial
Statements or the Annual Financial Statements. The Annual Financial Statements comply in all
material respects with all Applicable Laws, and were and are complete and correct in all material
respects when filed. As of the date of the Closing the Company will have no liabilities or
obligations or any kind or nature, whether known or unknown as of such date, which have not been
fully reserved and provided for in the YTD Financial Statements.
3.12 Reinsurance Protection. All liabilities of the Company with respect to past and future
claims or losses (including loss adjustment expenses) under all insurance contracts issued by the
Company at any time, as well as any extracontractual liabilities arising from such claims or
losses, whether based in tort, contract, statute or any other legal theory, are fully reinsured on
a 100 percent quota share basis by the Seller, and as a result the Company has no net unreinsured
liability arising from such past or future claims or losses.
3.13 Absence of Changes.
(a) Since the YTD Statement Date, there has not been any material change in the financial
condition or in the results of operations, business, properties or assets of the Company.
(b) Except as set forth in Schedule 3.13 and except for the discharge of liabilities
and distribution of capital incident to the Company’s winding up activities, since the YTD
Statement Date, the Company has operated its business only in the ordinary course of business
consistent with past practice and has not:
(i) amended its Certificate or Articles of Incorporation, Bylaws or other charter or
organizational document, or merged with or into or consolidated with any other Person, subdivided
or in any way reclassified any shares of its capital stock or changed or agreed to change in any
manner the rights of its outstanding capital stock;
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(ii) issued or sold any capital stock or other equity interest or any bonds, debentures,
notes, debt instruments, evidences of indebtedness or other securities of any kind, including,
without limitation, any stock appreciation rights, options, warrants, calls or any other rights of
any kind to purchase or otherwise receive an equity interest;
(iii) made any direct or indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock or other equity interest or any bonds, debentures, notes, debt
instruments, evidences of indebtedness or other securities of any kind;
(iv) incurred any indebtedness for borrowed money or entered into any commitment to borrow
money or guarantee any liability for borrowed money;
(v) made any change in its accounting or reserving methods or practices;
(vi) allowed the creation of any Lien on any of its tangible or intangible assets or property,
or any sale, transfer, assignment, lease or abandonment of any interest in any of its tangible or
intangible assets or property, other than sales, transfers, assignments and leases in the ordinary
course of business consistent with past practice;
(vii) entered into any contract, commitment or transaction resulting in the imposition of
liabilities or obligations not fully reserved and provided for in the YTD Financial Statements;
(viii) made any acquisition of all or any substantial part of the assets, properties,
securities or business of any other Person;
(ix) increased or agreed to increase any salary, wages, bonus, severance, compensation,
pension or other benefits payable or to become payable, or granted any severance or termination
payments or benefits, to any of its current or former officers, directors, employees, consultants,
agents or other representatives; or
(x) entered into any contract, commitment or transaction to do any of the foregoing.
3.14 Employee Benefit Plans. The Company has no employees or employee benefit plans. The
Company is not required to have or maintain any such employee benefit plan, nor is the Company
subject to any ERISA requirements or subject to liability pursuant to any ERISA requirements.
3.15 Labor Matters.
(a) There are no employment agreements, collective bargaining agreements, union contracts or
similar types of agreements (including, without limitation, any side letters) to which the Company
is a party to or by which the Company is bound or covered.
(c) There has been no strike or union organizational activity or any allegation, charge or
complaint of employment discrimination, unfair labor practice or other similar
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occurrence, nor are
any such occurrences pending or, to the Seller’s Knowledge, threatened against the Company.
(d) No present or former employee of the Company has any claim against the Company (whether
under federal or state law, any employment agreement or otherwise) on account of or for (i)
overtime pay; (ii) wages or salary; (iii) vacation time off or pay in lieu of vacation time off; or
(iv) any material violation of any statute, ordinance or regulation relating to minimum wages or
maximum hours of work. Except as described in Schedule 3.15, no person or party
(including, but not limited to, governmental agencies of any kind) has filed, or to the Knowledge
of Seller has threatened to file, any claim against the Company under or arising out of any
statute, ordinance or regulation relating to discrimination in employment or employment practices.
As of the date of the Closing, the Company will have no obligation or liability with respect to any
employees or former employees of the Company, financial or otherwise, with respect to any employee
benefit plan, pension or retirement plan, bonus plan or deferred compensation arrangement
maintained by the Company or covering any employee or former employee of the Company.
3.16 Tax Returns. Other than Tax returns and reports for which the failure to file would not
result in a Material Adverse Effect, through the Effective Date the Company has filed all federal,
state, county, local and foreign Tax returns and reports which it is required to file under
Applicable Law, whether for itself or in consolidation with Affiliates, and solely with respect to
the Company, such returns and reports are correct and complete, in all material respects, and
timely filed (including any applicable filing extensions). Solely with respect to the Company, as
of the Effective Date, the Company has paid all Taxes which have become due pursuant to such
returns or reports or pursuant to any assessment received with respect thereto. The Company has
paid for all premium Taxes which are owed or estimated to be owed by the Company and as of the
Effective Date is current with respect to all premium Tax returns and Tax payments in all states of
operation. The Seller’s parent files consolidated federal income Tax returns and certain
consolidated and unitary state income Tax returns (collectively, the “Consolidated
Returns”) which include the Company and other Affiliates and such Consolidated Returns are the
subject of frequent audits; however, to Seller’s Knowledge, there are no threatened actions,
proceedings or investigations by any governmental authority with respect to any separate Tax
returns filed solely by the Company or any income, loss or deduction items of the Company reported
on the Consolidated Returns which could have a Material Adverse Effect on the Company. With
respect to any period of time through Closing for which Tax returns or reports have not yet been
filed, or for which Taxes are not yet due or owing, the Seller has established or has caused the
Company to establish adequate reserves for all liabilities for Taxes relating to the Company which
are accrued but not yet due and payable. The Company has made all payments of estimated Taxes
required to be made by the Company through the Effective Date under Applicable Law. No penalties
or other charges are due with respect to the late filing of any Tax return of the Company required
to be filed on or before the Effective Date. There is no Lien for Taxes (other than for Taxes not
yet due and payable), whether imposed by any federal, state, county or local taxing authority,
outstanding against the Company’s assets, properties or business. Neither the Company nor the
Seller has ever made an election pursuant to Section 1362 or Section 341(f) of the Internal Revenue
Code of 1986, as amended (the “Code”), that the Company be taxed as a Subchapter S
corporation or a collapsible corporation.
Through the Closing Date, the Company’s net operating losses for federal income tax purposes
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as set
forth in the Annual Financial Statements are not subject to any limitations imposed by Section 382
of the Code.
3.17 Personal Property. Attached hereto as Schedule 3.17 is a true, correct and
complete list and description of all personal property owned or leased by Company. The Company has
good and marketable title to all of its personal property free and clear of any Lien.
3.18 Legal Proceedings. Attached hereto as Schedule 3.18 is a true, correct and
complete list of currently open insurance policy claims incurred in the regular course of the
business, and all other such claims incurred under or related to any insurance or reinsurance
policy written or assumed by the Company as of the date hereof, with respect to which the combined
case and loss adjustment expense reserve for each such claim currently exceeds $25,000, and other
than such claims there is no claim, suit, action, arbitration proceeding, or investigation pending
or, to Seller’s Knowledge, threatened against the Company or to which the Company is otherwise a
party, before any court, or before any governmental department, commission, board, agency, or
instrumentality or before any arbitration panel; nor to Seller’s Knowledge is there any basis for
any such claim, suit, action, proceeding, or investigation. The Company is not bound by or subject
to any order, judgment, injunction, award or decree of any court, governmental or regulatory body,
or arbitration tribunal which has had or is reasonably likely to have a Material Adverse Effect.
3.19 Authorizations and Certificates of Authority. The Company possesses all authorizations
and certificates of authority necessary for the conduct of its business as currently conducted.
Schedule 3.19 sets forth a true and complete list of all such authorizations and
certificates of authority and the jurisdictions to which they apply, identifying all authorized
lines of insurance in such jurisdictions. All such authorizations and certificates of authority
are valid and in full force and effect. Except as disclosed on Schedule 3.19, there is no
action, proceeding, inquiry or investigation pending or, to Seller’s Knowledge, threatened for the
suspension, modification, limitation, cancellation, revocation or non-renewal of any such
certificate of authority and the Seller has no Knowledge of any existing fact or circumstance which
(with or without notice or lapse of time or both) is reasonably likely to result in the suspension,
modification, limitation, cancellation, revocation or non-renewal of any such certificate of
authority. The Company is not engaged in any insurance business in any jurisdiction in which it is
not duly authorized or qualified to transact such business.
3.20 Bank Accounts and Deposits. Attached hereto as Schedule 3.20 is a true, accurate
and complete list of (i) each bank, or other financial institution in which the Company has an
account or safe deposit box, the number of each such account or box, a list of all assets held in
each account or box and the names of all persons authorized to draw thereon, give instructions with
respect thereto or to have access thereto; and (ii) any account or deposit maintained with the IDOI
or any other federal or state governmental entity. The deposits listed in Schedule 3.20
are the only deposits required by statute, regulation, bulletin, or otherwise, in any state where
the Company is licensed to transact business, and such deposits are in an amount equal to or
greater than the amount of any applicable required deposit.
3.21 Required Consents. Schedule 3.21 sets forth a complete and accurate list and
description of each registration, filing, application, notice, transfer, consent, approval, court
order, qualification or waiver (each a “Required Consent”, collectively “Required
Consents”)
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that to the Seller’s Knowledge is required to be obtained by Seller or the Company
by virtue of the execution of this Agreement or the consummation of the transactions contemplated
herein to prevent the possibility of a termination, breach or impairment of any contract,
reinsurance or other agreement disclosed or referred to in any schedule hereto or to continue after
Closing the agreements of the reinsurers to provide reinsurance to the Company. The Company is not
commercially domiciled in California, Texas or any other state where being commercially domiciled
would require compliance by the Company or any potential acquirer of the Company with such state’s
insurance holding company laws.
3.22 Investments. The Company is in possession of all certificates or other documentation
evidencing ownership of the “Invested Assets” (which shall be defined as those assets of
the Company listed in the YTD Financial Statements) and has good and marketable title, free and
clear of all Liens, to all of the Invested Assets. None of the Invested Assets is in default in
the payment of principal, interest or dividends, and all Invested Assets substantially comply with
the investment guidelines adopted by the Company and all insurance laws and regulations of each of
the jurisdictions to which the Company is subject thereto. Schedule 3.22 sets forth all
amounts deposited by the Company for the benefit of policyholders as required by regulatory
authorities.
3.23 Regulatory Filings. Except as may be required for the transactions contemplated by this
Agreement, the Company has duly filed with all appropriate governmental authorities, to the extent
that filing of the same is required by laws, rules or regulations, all annual and quarterly
statements and other statements, documents, filings, registrations and reports including, without
limitation, any filings required under any state’s insurance holding company system act. All such
statements, documents, filings, registrations and reports were in compliance in all material
respects with all Applicable Law when filed, and there are no material omissions therefrom. Except
as set forth in Schedule 3.23, there is no action, proceeding, dispute, controversy,
inquiry or investigation pending or, to Seller’s Knowledge, threatened by any governmental
authority relating to the Company. Except for regular periodic assessments in the ordinary course
of business, no claim or assessment is pending or, to Seller’s Knowledge, threatened against the
Company by any state insurance guaranty association in connection with that association’s fund
relating to insolvent insurers.
3.24 Agents and Producers. Schedule 3.24 lists all agents, brokers, producers,
managing general agents, underwriting managers and other Persons through whom Company has written
or sold any insurance, reinsurance or retrocessional coverage since January 1, 2007. All Persons
listed on Schedule 3.24 are, and at all relevant times were, duly licensed and, where
applicable, appointed to act as agents, brokers, producers, managing general agents or underwriting
managers in the jurisdictions where they engage in such activities. Except as set forth in
Schedule 3.24, there are no laws or contracts which prohibit the termination of any
appointment or agreement with such Persons other than the sending of written notice without cause
by the Company of ninety (90) days or less.
3.25 No Brokers. No broker, finder or investment banker has been retained or engaged on
behalf of Seller or the Company, nor is any Person claiming to have been engaged by Seller or the
Company entitled to any brokerage, finders or other fee, compensation or commission in connection
with the transactions contemplated by this Agreement.
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ARTICLE IV — BUYER’S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller as of the date of this Agreement as follows:
4.1 Organization. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
4.2 Authority, Validity and Enforceability. The execution, delivery, and performance of this
Agreement by Buyer and the consummation of the transactions contemplated hereby by the Buyer have
been duly and properly authorized by all necessary corporate action in accordance with applicable
law and with the Articles of Incorporation and Bylaws of Buyer, and no other corporate proceedings
on the part of Buyer are necessary to authorize the execution, delivery and performance of this
Agreement or the consummation of any of the transactions contemplated hereby. This Agreement and
the other agreements and instruments to be executed, delivered and performed by Buyer in connection
with the transactions contemplated hereby, have been duly executed and delivered by the Buyer and
constitute the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in
accordance with their terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency or other similar laws affecting creditors’ rights generally and except as rights to
specific enforcement may be limited by the application of equitable principles (whether such
equitable principles are applied in a proceeding of law or equity).
4.3 Required Consents. Schedule 4.3 sets forth a complete and accurate list and
description of each registration, filing, application, notice, transfer, consent, approval, court
order, qualification or waiver (each a “Required Consent”, collectively “Required
Consents”) that to the Buyer’s Knowledge is required to be obtained by Buyer or the Company by
virtue of the execution of this Agreement or the consummation of the transactions contemplated
herein.
4.4 Transaction not a Breach. Neither the execution and delivery of this Agreement nor its
performance by Buyer will conflict with or result in a breach of the terms, conditions or
provisions of the Articles of Incorporation or Bylaws of Buyer, or any contract, agreement,
mortgage or other instrument or obligation of any nature to which Buyer is a party or by which
Buyer is bound, and except for the approval of the FOIR which Buyer must obtain, neither the
execution and delivery of this Agreement nor its performance by Buyer will contravene or violate
any statute or any judicial or governmental regulation, order, injunction, judgment or decree, or
require the approval, consent or permission of any governmental or regulatory body or authority.
4.5 Investment Intent. The Stock will be acquired by the Buyer for its own account without a
view to a distribution or resale thereof, it being understood that the Buyer shall have the right
to sell or otherwise dispose of any of the Stock pursuant to a registration or an exemption
therefrom under the Securities Act and any applicable state securities law.
4.6 Litigation. There are no actions, causes of action, proceedings, claims at law or equity
pending or, to the knowledge of Buyer, threatened against or involving Buyer or any of its
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Affiliates which relates to this Agreement or any of the transactions contemplated hereby or which
would have a Material Adverse Effect.
4.7 No Brokers. No broker, finder or investment banker retained or engaged on behalf of Buyer
or any of its Affiliates, nor any Person claiming to have been engaged by Buyer or any of its
Affiliates, is entitled to any brokerage, finders or other fee, compensation or commission in
connection with the transactions contemplated by this Agreement.
4.8. Availability of Funds. Subject to the satisfaction of the condition set forth in Section
6.1(h) below, Buyer will have available, and will possess on the Closing Date, sufficient and
readily available cash and cash equivalents to enable Buyer to consummate the transactions
contemplated by this Agreement. Notwithstanding anything to the contrary in the preceding
sentence, Buyer may secure necessary financing for the purposes of purchasing Company.
No bankruptcy proceedings are pending or contemplated by or, to the Knowledge of Buyer,
threatened against Buyer. Buyer is not insolvent, and the execution of this Agreement, and the
consummation of the transactions contemplated hereunder, will not render Buyer insolvent.
ARTICLE V — OTHER AGREEMENTS
5.1 Inspection. Seller shall allow the Buyer and its authorized representatives or designees
access at reasonable times after the date hereof, and prior to the Closing Date, to all of the
properties and records of the Company, and shall furnish Buyer and its authorized representatives
or designees such access to the properties and records of the Company, as will allow Buyer to
obtain requested information and to make preparations for the continued post-closing operation of
the business of the Company. The Seller will reasonably cause the officers and employees of Seller
or its Affiliates, having any knowledge concerning the operation of the business of the Company, to
cooperate in connection with any such requests and examinations and to make disclosure to Buyer and
its representatives of all reasonably requested facts, information and documentation regarding the
condition of the Company, and pertaining to the business of the Company. The Seller further agrees
to cooperate with Buyer and request the auditors, actuaries, consultants, reinsurers, advisors, and
other authorized representatives of the Company, to reasonably cooperate in connection with any
such examination and to make disclosure to Buyer and its representatives of all requested work
papers, studies, evaluations and facts regarding the condition of the Company, and of the business
of the Company, all at Buyer’s cost and expense. All such examinations and investigations shall be
conducted during normal business hours and without unreasonably interfering with the operations of
the Company or any of its Affiliates. Notwithstanding the foregoing, Seller and its Affiliates
shall not be required to disclose any information where disclosure would jeopardize any
attorney-client privilege or contravene any law, rule or regulation.
5.2 Operation of Business. Except for the discharge of liabilities and distribution of
capital incident to the Company’s winding up activities and except as otherwise provided or
disclosed herein, and except as required for compliance with any Applicable Laws, Seller will cause
the Company, from the date of this Agreement until the Closing hereunder:
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(a) To maintain the status quo of the Company and not incur or make any commitment or incur
any expenditures other than in the ordinary course of business;
(b) To maintain the Invested Assets of the Company in securities of substantially the same
quality, liquidity and duration as the Invested Assets as of the YTD Statement Date, except that
Seller shall, prior to the Closing Date, cause the Company to liquidate its common stock investment
in Facility Insurance Holding Corporation and any other equity investments held by the Company as
of the YTD Statement Date and replace such securities with cash or other liquid non-equity
investments having a statutory carrying value at least equal to the statutory carrying value of
such securities as of the YTD Statement Date;
(c) Not to change or amend the Articles of Incorporation or Bylaws of the Company or to
appoint or elect any person as a director or officer who is not serving as such on the date hereof
without the prior written consent of Buyer, which consent shall not be unreasonably withheld;
(d) Not to issue or sell, or to grant options, warrants or rights to purchase or subscribe to,
or enter into any arrangement or contract with respect to the issuance or sale of, any of its
capital stock or any securities or obligations convertible into or exchangeable for any shares of
its capital stock, or to make any changes in its capital structure;
(f) Not to organize any Subsidiary, acquire any capital stock or other equity securities of
any other corporation, or acquire any equity or ownership interest in any business, and not to
merge with, liquidate into or otherwise combine with any other Person;
(g) To preserve the corporate existence and business organization of the Company intact;
(h) To preserve and maintain in full force and effect, and in good standing, all certificates
of authority of the Company and all licensure in effect as of the YTD Statement Date;
(i) Not to obligate the Company to pay any employee compensation or benefits, or modify any
compensation or benefit arrangements in any way that would increase the rights or accelerate the
payments as a result of a change of control of the Company;
(j) Not to incur any indebtedness for borrowed money, nor guarantee any obligation, nor permit
or suffer any of its assets to be subject to any Lien;
(k) Comply in all material respects with all laws, statutes, ordinances, rules and regulations
of governmental authorities applicable to Company;
(l) Perform in all material respects its obligations under all contracts and commitments to
which it is a party or by or to which it is bound or subject;
(m) Not to make any material change in any financial reporting, tax, accounting, actuarial or
reserving methods or practices or in the Company’s investment guidelines;
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(n) Not to incur any liabilities or obligations of any nature that are not fully reserved and
provided for in the YTD Financial Statements;
(o) Not to issue or renew any insurance contracts, other than insurance contracts which the
Company is legally obligated to renew or is obligated to issue based on outstanding binding
commitments as of the date this Agreement is executed; or
(p) Take any other action, or omit to do any act, that individually or in the aggregate would
reasonably be likely to result in a Material Adverse Effect.
5.3 Taxes.
(a) Tax Returns. With respect to Tax returns that the Company is required to file on
or prior to the Closing Date (including, without limitation, all federal, state and local returns
for income, sales, use, property, intangible, premium, and franchise Taxes), Seller shall be
responsible for preparing and filing such returns, and Seller shall be responsible for making any
required Tax payments with respect to such returns. In addition, Seller shall pay any Taxes for
the portion of the taxable period through the end of the Closing Date for any taxable period that
includes (but does not end on) the Closing Date (“Pre-Closing Tax Period”). The Buyer and
the Company shall cooperate with the Seller to the extent reasonably necessary to prepare such Tax
returns. The Buyer shall, or shall cause the Company to, file Tax returns (including, without
limitation, all federal, state and local returns for income, sales, use, property, intangible,
premium, and franchise Taxes) which include, and report the operations from, the Company for the
taxable period beginning on the day following the Closing Date and for any taxable period that
includes (but does not end on) the Closing Date (a “Straddle Period”). With respect to
Straddle Periods, (i) Buyer shall prepare the Tax returns in a manner which is materially
consistent with the Company’s past practice, (ii) the Buyer shall provide the Seller with copies of
such Tax returns to be filed by the Buyer at least thirty (30) days prior to the due date thereof
(giving effect to any extensions thereto), (iii) no Tax return shall be filed without Seller’s
prior written consent, and (iv) the amount of any Taxes based on or measured by income or receipts
of the Company for the Pre-Closing Tax Period shall be determined based on an interim closing of
the books as of the close of business on the Closing Date (but expressly excluding any business
conducted or assets acquired by the Company after the Closing Date) and the amount of other Taxes
of the Company for Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the
entire Straddle Period (but expressly excluding any Taxes incurred as a result of business
conducted or assets acquired by the Company after the Closing Date) multiplied by a fraction the
numerator of which is the number of days in the Taxable period ending on the Closing Date and the
denominator of which is the total number of days in the Straddle Period. If there is any
disagreement between the Buyer and the Seller with respect to such Straddle Period Tax returns, the
Seller’s determination shall control as long as it is reasonably consistent with the Company’s past
practice.
(b) Conduct of Tax Audits. Seller and Buyer agree to provide prompt notice of, and to
cooperate with each other as reasonably necessary in connection with, any official Tax inquiry, Tax
determination or Tax-related legal proceeding affecting a Tax liability of the Company (whether
before or after the Closing Date) or in connection with a determination of any Tax liability or
treatment (including the preparation of any Tax liability or treatment relating
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to the Company).
Seller and Buyer shall make available to each other Party a reasonable amount of time, at no cost
to such Party, of its employees and officers, together with documents, correspondence, reports and
other materials relating solely to the Company and reasonably bearing on such Tax inquiry,
examination, proceeding or determination of Tax liability or treatment, provided that Seller and
Buyer (or Company after Closing) shall be reimbursed for any reasonable out-of-pocket expenses
incurred in assisting another Party hereunder, which reimbursement shall be paid by the Party
requesting the assistance within ten (10) Business Days of Seller, Company or Buyer, as applicable,
providing the reimbursing Party written notice in reasonable detail of the amount and reason for
such expenses (including but not limited to third party invoices, if any). With respect to any
suit, action or proceeding (including any Tax audit) which relates to a Pre-Closing Tax Period or a
Straddle Period, upon written notice to the Company, Seller shall have the right to control the
defense of any such suit, action or proceeding in such manner as it reasonably may deem appropriate
and will have authority to effect a compromise or settlement at such time and in such manner as
Seller determines is reasonably necessary, provided, before effecting any compromise or settlement,
Seller shall consult with the Buyer on the terms of the compromise or settlement.
(c) Post-Closing Access for Tax Matters. After the Closing, the Seller and Buyer
shall provide, and shall cause each of their Affiliates to provide, to the other party and its
Affiliates such information (including access to books and records) relating to the Company as the
Seller or Buyer may reasonably request in order to permit filing of any Tax return, the
determination of any Tax liability or right to refund, and the conduct or defense of any audit,
claim, suit, or other proceeding in respect of the Tax obligations of Company. The Buyer and
Seller shall cooperate with each other as reasonably necessary in the conduct of any audit, claim,
suit, or other proceeding involving the Company for any Tax purpose.
(d) Post-Closing Tax Matters. If, after the Closing, a Tax audit or other proceeding
relating to any Tax period ended prior to the Closing results in a refund of Taxes paid by Seller,
then Seller shall be entitled to receive and retain such refund. If, after the Closing, a Tax
audit or other proceeding relating to any Tax period ended prior to the Closing results in an
assessment, liability or obligation for Taxes, fees, interest or penalties, then Seller shall be
obligated to promptly pay and discharge all such assessments, liabilities and obligations and any
and all liens, claims or encumbrances arising therefrom.
(e) Survival of Obligations. Buyer’s and Seller’s agreements under this Section
5.3 shall survive the Closing of this Agreement.
5.4 Closing Costs. The Buyer and Seller shall each bear its own costs and expenses in
connection with the transactions contemplated hereby, including, but not limited to, the fees for
Buyer’s and Seller’s respective attorneys. Buyer shall indemnify Seller and its Affiliates from
any claim, loss, damage or expense incurred as a result of any demand for commissions, brokers’
fees or finders’ fees by any Person claiming to have been engaged by Buyer or any of
its Affiliates. Seller shall indemnify Buyer and its Affiliates from any claim, loss, damage or
expense incurred as a result of any demand for commissions, brokers’ fees or finders’ fees by any
Person claiming to have been engaged by Seller or any of its Affiliates.
5.5 Government Filings. Seller and Buyer shall, as soon as reasonably practicable after
execution of this Agreement, and, as provided herein, as a condition to Closing make any
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and all
filings required to be made by them with any and all governmental authorities in connection with
the consummation of the transactions contemplated herein. Accordingly, and not in limitation of
the preceding sentence, Buyer and Seller shall cooperate in filing, as soon as practicable after
the execution of this Agreement (i) an application by the Company with the IDOI and the FOIR for
the redomestication of the Company from Illinois to Florida; and (ii) an application by the Company
with the FOIR for a certificate of authority to write all lines of insurance that the Company is
writing in any state (the “Company Applications”). The Buyer agrees to bear all expenses
reasonably incurred by either the Buyer, the Seller or the Company associated with the preparation
and filing of the Company Applications. In addition, the Buyer will promptly file, as soon as
practicable after the execution of this Agreement, at its expense, an application to acquire
control of the Company with the FOIR, and shall provide a copy of the completed application to
Seller prior to filing the application with the FOIR. Each party shall furnish the other party
with any reasonably necessary information, certificates and other documents in a timely manner and
shall cooperate with the other party in all ways reasonably necessary to effect any of the filings
which are subject to this Section 5.5.
5.6 Cooperation and Reasonable Efforts. Subject to the terms and conditions hereof, each of
the parties shall cooperate with the other and will cause their Affiliates to cooperate to the
extent necessary to consummate the transactions contemplated by this Agreement. Each of the
parties agrees to use its reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement.
5.7 Notification of Certain Matters. Each of the parties shall give prompt notice to the
other of the occurrence or non-occurrence of any event which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or inaccurate in any material
respect at or prior to the Closing and any material failure of any party to comply with or satisfy
any covenant, condition or agreement to be complied with our satisfied by it hereunder.
5.8 Public Announcements. Each party shall notify the other prior to issuing any press
release or making any public statement pertaining to this Agreement or the transactions
contemplated hereby, and shall not issue any such press release or make any such public statement
without obtaining the prior written approval of the other party hereto, except as required by
Applicable Law or stock exchange rules, or except as may be disclosed in filings made with the
Securities and Exchange Commission.
5.9 No Solicitation. Seller and the Company agree that during the term of this Agreement,
neither they nor their any of their respective representatives or employees will solicit or respond
favorably to any solicitation from, or otherwise enter into negotiations or reach any agreement
with, any Person regarding the merger, recapitalization, consolidation, the sale of all or
substantially all the assets of the Company, or the sale of any of the Company’s capital stock.
5.10 Intercompany Accounts; Pooling Agreements. Seller shall use its reasonable efforts to
cause all intercompany amounts receivable or payable with respect to the Company (whether or not
currently due or payable) to be settled in full without any premium or penalty at or prior to the
Closing. All agreements with Affiliates, except for any reinsurance agreements covering business
written by the Company, shall be terminated without any further liability or obligation thereunder
to Company effective at or prior to the Closing.
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5.11 Reinsurance Arrangements. Except as otherwise provided or disclosed in this Agreement,
between the date hereof and the Closing Date, Seller will not permit Company to enter into,
terminate or breach any pooling, reinsurance, coinsurance, retrocession, underwriting management,
or managing general agency agreement or any similar contract unless approved in writing by the
Buyer.
5.12 Confidentiality of Information and Documents. The Mutual Non-disclosure Agreement, dated
October 26, 2009 between Buyer and Seller (the “Confidentiality Agreement,” attached hereto
as Exhibit A) will remain in full force and effect in accordance with its terms and will
apply to any information furnished pursuant to this Agreement.
5.13 Assets of the Company. As of the Closing Date, the assets of the Company shall be of a
type, form and quality to permit the Company to receive full credit, without limitation, reduction
or restriction, for the fair market value thereof from all applicable regulatory authorities.
5.14 Records. At or as soon as reasonably practicable after the Closing, Seller will deliver
or cause to be delivered to Buyer any Books and Records of the Company of which Buyer does not
already have copies.
5.16 Transfer or Termination of In-Force Insurance Contracts. Seller hereby acknowledges that
an integral part of Buyer’s strategy in acquiring the Company is that the Company will have no
in-force insurance contracts as of the Closing Date. To that end, Seller agrees to take action as
soon as possible after the execution of this Agreement to effect novations, commutations or
transfers, via assumption reinsurance or other means, of all insurance contracts of the Company
that are in force as of the Effective Date or may become in force after the Effective Date (due to
the Company’s legal obligation to issue or renew such insurance contracts after the Effective Date)
(such insurance contracts being referred to herein collectively as “Legacy Insurance Contracts”)
such that the Seller or one of its Affiliates replaces the Company as the policy issuing insurer
with respect to such contracts, or otherwise to cause the Company to cancel or non-renew such
contracts as soon as practicable in accordance with all legal and regulatory requirements. To the
extent all such novations are not complete by the Closing Date, the Seller agrees to continue to
effect all such remaining novations as soon as possible after the Closing Date. Until such time as
all Legacy Insurance Contracts of the Company are fully and completely novated, the Seller will
continue to provide 100 percent indemnity reinsurance to the Company with respect to all such
contracts, and will continue to perform on behalf of the Company all servicing with respect to such
contracts, including premium collection, claim payment, and all other policy servicing
responsibilities, and shall provide to Buyer and the Company all accounting and journal entry
support to enable the Company to complete and timely file all financial statements and tax returns
covering any period ending after the Closing Date. The Seller also agrees that it will continue to
reinsure on a 100
percent indemnity reinsurance basis all other liabilities of the Company with respect to any
and all insurance contracts issued by the Company at any time prior to the Closing Date
(“Pre-Closing Liabilities”), and that it will not terminate such reinsurance at any time before or
after the Closing Date. If at any xxxx Xxxxxx’x AM Best rating falls below “A-,” Seller agrees that
within 30 days thereafter it will procure, at its sole cost and expense, 100% indemnity reinsurance
of the Company’s remaining Pre-Closing Liabilities with another reinsurer that
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carries an AM Best
rating of at least “A-“, so that at all times the reinsurance provided to the Company with respect
to its Pre-Closing Liabilities is provided by a carrier having an AM Best rating of at least “A-.”
5.17 Responsibility for Preparation of Financial Statements and Regulatory Filings. The
parties agree that Seller shall be responsible to prepare and file on behalf of the Company all
financial statements and other regulatory filings and statements required with respect to any
period ending on or prior to the Closing, regardless of whether such statements or filings are due
to be filed prior to or after the Closing. Buyer agrees that the Company shall be responsible for
preparing and filing all financial statements and other regulatory filings and statements with
respect to any period ending after the Closing. The Buyer, Seller and Company mutually agree to
cooperate and provide all commercially reasonable support and assistance to enable the responsible
party to make such filings, including but not limited to accounting and journal entry support and
access to books and records. All required accounting and journal entry data with respect to Legacy
Insurance Contracts and Pre-Closing Liabilities shall be provided by Seller to Buyer within 15 days
after the end of the period with respect to which a financial statement or regulatory report or
filing must be made.
ARTICLE VI — CONDITIONS TO OBLIGATIONS
6.1 Conditions to Obligations of Buyer. All obligations of Buyer under this Agreement with
respect to the Closing are subject to the fulfillment of each of the following conditions:
(a) Each and every representation and warranty of Seller contained in this Agreement shall be
true and accurate in all material respects at the Closing.
(b) Seller and the Company shall have performed and complied, in all material respects, with
all covenants and conditions required by this Agreement to be performed or complied with prior to
or at the Closing.
(c) No action or proceeding shall have been instituted before any court or governmental agency
to restrain or prohibit, or to obtain damages in respect of, this Agreement, or the consummation of
the transactions contemplated in this Agreement.
(d) All authorizations, regulatory clearances or other governmental consents or approvals
required in connection with the purchase and sale of the Stock and the consummation of the Closing
(including, without limitation: (i) the approval by the IDOI and the FOIR of the redomestication of
the Company from Illinois to Florida; (ii) the granting by the FOIR of a certificate of authority
to the Company to write all lines of insurance the Company is
presently writing in any state; and (iii) the approval by the FOIR of the acquisition by the Buyer
of the Stock) shall have been duly obtained, made or given and shall be in full force and effect.
(e) There shall have been no material adverse change in the financial condition or actuarial
valuations of the Company since the YTD Statement Date, except for the discharge of liabilities and
distribution of capital incident to the Company’s winding up activities and as otherwise
contemplated or permitted by this Agreement.
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(f) Buyer shall have received evidence reasonably satisfactory to Buyer confirming the valid
existence and good standing of the certificates of authority of the Company necessary to transact
insurance in all of the jurisdictions identified on Schedule 3.19.
(g) The Buyer shall have received all of the documents listed in Section 7.1.
(h) The Buyer or an affiliate of Buyer shall have successfully raised capital equal to at
least Fifty Million Dollars ($50,000,000) pursuant to a public or private offering of debt or
equity securities.
(i) The Buyer shall have completed its ongoing due diligence investigation of the business,
assets, operations, properties, financial condition, contingent liabilities, prospects and material
agreements of the Company and shall have confirmed, in writing, to the Seller within 30 days of the
date of this Agreement that the Buyer is satisfied with the results of such investigation, such
satisfaction not to be unreasonably withheld.
6.2 Conditions to Obligations of Seller. All of the obligations of the Seller hereunder with
respect to the Closing are subject to the fulfillment of each of the following conditions:
(a) Each and every representation and warranty of Buyer contained in this Agreement shall be
true in all material respects at the Closing.
(b) Buyer shall have performed or complied, in all material respects, with all covenants and
conditions required by this Agreement to be performed or complied with by it prior to or at
Closing.
(c) No action or proceeding shall have been instituted before any court or governmental agency
to restrain or prohibit, or to obtain damages in respect of, this Agreement, or the consummation of
the transactions contemplated in this Agreement.
(d) All authorizations, regulatory clearances or other governmental consents or approvals
required in connection with the purchase and sale of the Stock and the consummation of the Closing
(including, without limitation: (i) the approval by the IDOI and the FOIR of the redomestication of
the Company from Illinois to Florida; (ii) the granting by the FOIR of a certificate of authority
to the Company to write all lines of insurance the Company is presently writing in any state; and
(iii) the approval by the FOIR of the acquisition by the Buyer of the Stock) shall have been duly
obtained, made or given and shall be in full force and effect.
(e) The Seller shall have received the Purchase Price and the other deliveries from Buyer set
forth in Section 7.2.
6.3 Termination of Agreement. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual written consent of Seller and Buyer;
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(b) by either Seller or Buyer, by giving written notice to the other party, if a court of
competent jurisdiction or other governmental entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement,
except that this right of termination shall not be available to a party that has not complied with
its obligations under this Agreement;
(c) by either Seller or Buyer, by giving written notice to the other party, if the other party
has committed a material breach of any representation, warranty, covenant or agreement of this
Agreement, and such breach has not been cured or waived in writing within ten (10) Business Days of
written notice to the other party;
(d) by Buyer, by giving written notice to Seller, if the Closing shall not have occurred on or
before March 30, 2010 by reason of the failure of any condition precedent contained in Section
6.1 (unless the failure results primarily from a breach by Buyer of any representation,
warranty, covenant or agreement of Buyer contained in this Agreement); and
(e) by Seller, by giving written notice to Buyer, if the Closing shall not have occurred on or
before March 30, 2010 by reason of the failure of any condition precedent contained in Section
6.1 (h) or Section 6.2 or if the Buyer elects to materially change its capital raising plans or
timeline for raising such capital (unless the failure results primarily from a breach by Seller of
any representation, warranty, covenant or agreement of Seller contained in this Agreement).
(f) by Buyer, by giving written notice to Seller, if financial statements of the Company are
required to be included in any filing with the Securities and Exchange Commission by Patriot Risk
Management, Inc. and such financial statements are not available to be included in such filing at
such time as may be required by Patriot Risk Management, Inc.
In the event that Seller terminates this Agreement pursuant to Section 6.3(c), Buyer
shall promptly reimburse Seller and the Company for documented out-of-pocket costs and expenses in
connection with this Agreement and the transactions contemplated hereby, provided that
Buyer’s liability for such costs and expenses under this Section 6.3 shall not exceed
$100,000 and that the minimum amount of any such Buyer’s liability shall be $25,000, such amount
representing a fair approximation of lost opportunity of Seller to sell Company to another
acquiror. In the event that Buyer terminates this Agreement pursuant to Section 6.3(c),
Seller shall promptly reimburse Buyer for documented out-of-pocket costs and expenses in connection
with this Agreement and the transactions contemplated hereby, provided that Seller’s
liability for such costs and expenses under this Section 6.3 shall not exceed $100,000.
The reimbursement of Buyer’s or Seller’s
costs and expenses in the event of a Section 6.3(c) termination is the sole remedy in such
situations.
6.4 Effect of Termination. In the event of termination of this Agreement pursuant to
Section 6.3, this Agreement shall thereafter become void and have no effect, except for the
survival of Sections 5.4 (Expenses), 5.8 (with respect to public announcements as
described therein), 5.12 (with respect to confidentiality as described therein) and
6.3 (with respect to reimbursement of expenses); provided, however, that nothing herein
shall relieve any party from
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liability for any breach of any of its representations, warranties,
covenants or agreements contained in this Agreement prior to termination of this Agreement.
ARTICLE VII — DELIVERIES AT CLOSING
7.1 Deliveries by Seller at Closing. At the Closing, Seller will deliver to Buyer the
following documents:
(a) Share certificates representing all of the Stock, duly endorsed for transfer to Buyer or
with separate stock transfer powers duly endorsed by Seller for transfer of the Stock to Buyer;
(b) The original certificates of authority of the Company, together with evidence reasonably
satisfactory to Buyer confirming, except as disclosed in Schedule 3.19, the valid existence
and good standing of all such certificates of authority of the Company to transact insurance as
required by Section 6.1(f);
(c) The corporate seal (if available), the minute book, and the stock records of the Company;
(d) Resignations of all officers and members of the Board of Directors of the Company, to be
effective as of the Closing;
(e) A copy of the resolution of Seller’s Board of Directors, certified by Seller’s Secretary
or Assistant Secretary as having being duly adopted and being in full force and effect, authorizing
Seller’s execution and performance of this Agreement;
(f) A certificate dated as of the Closing Date, signed by an officer of the Seller, certifying
as to the fulfillment of the conditions set forth in Sections 6.1(a) and 6.1(b).
(g) An opinion of counsel to Seller, in a form reasonably acceptable to Buyer, addressing the
opinions set forth in Schedule 7.1 attached hereto.
7.2 Deliveries by Buyer at Closing. At the Closing, Buyer will deliver to Seller:
(a) A wire transfer, pursuant to Seller’s instructions provided to Buyer in advance of the
Closing, in the amount of the Purchase Price required by Section 2.2 hereof;
(b) A copy of a resolution of Buyer’s Board of Directors, certified by Buyer’s Secretary as
having been duly adopted and being in full force and effect, authorizing Buyer’s execution and
performance of this Agreement; and
(c) A certificate dated as of the Closing Date, signed by an officer of the Buyer, certifying
as to the fulfillment of the conditions set forth in Sections 6.2(a) and 6.2(b).
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations and warranties made by Seller in Article III and Buyer in
Article IV of this Agreement shall survive the Closing Date indefinitely. The covenants
and agreements of the parties to be performed prior to the Closing Date shall not survive the
Closing, and neither party may bring a claim for breach of any such covenants or agreements after
the Closing. The other covenants and agreements of the parties contained herein shall survive the
Closing and shall expire, if at all, in accordance with their respective terms.
ARTICLE IX
INDEMNIFICATION AND OTHER REMEDIES
INDEMNIFICATION AND OTHER REMEDIES
9.1 Seller’s Obligation to Indemnify. Subject to the limitations set forth in this
Article IX, Seller agrees to indemnify, defend and hold harmless Buyer and the Company
(with respect to the Company, after the Closing only) and their respective directors, officers,
employees, Affiliates and assigns (the “Buyer Indemnified Parties,” and individually a
“Buyer Indemnified Party”) from and against all claims, losses, liabilities, damages,
deficiencies, costs or expenses, penalties (including any penalty or sanction by any regulatory
body) and reasonable outside attorneys’ fees and disbursements (collectively, “Losses,” and
individually a “Loss”), asserted against, imposed upon or incurred by Buyer by reason of or
arising out of or in connection with (i) any misrepresentation, breach of or failure to perform any
representation, warranty, covenant or agreement of Seller in this Agreement; (ii) Seller’s
ownership or operation of the Company prior to the Closing to the extent that such liability was
not disclosed in the documents and schedules referenced in Article III, or was not fully reflected
and accrued for in the YTD Financial Statements; and (iii) costs, fees and other expenses of Seller
as set forth in Section 5.4 hereof.
9.2 Buyer’s Obligation to Indemnify. Buyer agrees to indemnify, defend and hold harmless
Seller and its directors, officers, employees, Affiliates and assigns (the “Seller Indemnified
Parties,” and individually a “Seller Indemnified Party”) from and against all Losses,
asserted against, imposed upon or incurred by any Seller Indemnified Party by reason of or arising
out of or in connection with (i) any misrepresentation, breach of or failure to perform any
representation, warranty, covenant or agreement of Buyer in this Agreement, (ii) Buyer’s ownership
or operation of the Company following the Closing, and (iii) costs, fees and other expenses of
Buyer as set forth in Section 5.4 hereof.
9.3 Limits on Indemnification. Neither the Seller nor the Buyer shall have any obligation to
indemnify an Indemnified Party with respect to any Losses under this Article IX until the aggregate
amount of all Losses that such Indemnified Party has suffered, sustained, incurred or paid or is
required to pay exceeds $75,000 (the “Basket”), at which point the indemnifying party shall
be obligated to indemnify the Indemnified Party from and against all such Losses. With respect to
any indemnifiable Losses that are also compensable under an insurance or reinsurance contract that
provides protection to the indemnified party, the indemnified party shall first pursue the Losses
and/or allow the indemnifying party to do so on the indemnified party’s behalf, any such recovery
from such insurance or reinsurance contract being offset against any Losses of the indemnified
party.
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9.4 Notice of Asserted Liability. Promptly after receipt by an Indemnified Party hereunder of
notice of any demand, claim or circumstances which, with or without the lapse of time, would give
rise to a claim or the commencement (or threatened commencement) of any action, proceeding or
investigation by a third party (an “Asserted Liability”) that may result in a Loss, such
Indemnified Party shall give notice thereof (the “Claims Notice”) to the indemnifying
party. The Claims Notice shall describe the Asserted Liability in reasonable detail and shall
provide a good-faith, non-binding estimate of the Loss that has been or may be suffered by such
Indemnified Party and shall include a statement as to the basis for the indemnification sought.
Failure to provide a Claims Notice in a timely manner shall not be deemed a waiver of the
Indemnified Party’s right to indemnification other than to the extent that such failure prejudices
the defense of the claim by the indemnifying party.
9.5 Opportunity to Defend. The indemnifying party may elect to compromise or defend, at its
own expense and by its own counsel (which counsel shall be reasonably acceptable to the Indemnified
Party), any Asserted Liability; provided, however, the indemnifying party may not compromise or
settle any Asserted Liability without the consent of the Indemnified Party (which consent shall not
be unreasonably withheld or delayed) unless (i) any monetary payment required by the terms of such
compromise or settlement will be fully discharged, directly or by reason of indemnity hereunder, by
the indemnifying party, and (ii) such compromise or settlement involves no other obligations
binding upon the Indemnified Party. If the indemnifying party elects to compromise or defend such
Asserted Liability, it shall, within 30 days from receipt of the Claims Notice, notify the
Indemnified Party of its intent to do so, and the Indemnified Party shall cooperate, at the expense
of the indemnifying party to the extent such expenses are subject to indemnification hereunder, in
the compromise of, or defense against, such Asserted Liability. The Indemnified Party may not
settle or compromise any Asserted Liability without the indemnifying party’s consent, which will
not be unreasonably withheld or delayed.
9.6 Procedures for Direct Claims. In the event any Indemnified Party shall have a claim for
indemnity against any indemnifying party that does not involve an Asserted Liability, the
Indemnified Party shall promptly deliver notice of such claim to the indemnifying party. Such
notice referred to in the preceding sentence shall state the relevant facts and include therewith
relevant documents and a
statement in reasonable detail as to the basis for the indemnification sought. The failure by
any Indemnified Party so to notify the indemnifying party shall not be deemed a waiver of the
Indemnified Party’s right to indemnification with respect to any claim made pursuant to this
Section 9.6.
9.7 Payment. Any payment pursuant to this Article IX shall be made not later than 30
days after the indemnifying party’s liability for the Loss is deemed final by mutual written
agreement of the Buyer and the Seller or by order of an arbitrator or court of competent
jurisdiction that is not subject to appeal, reconsideration or review.
9.8 Exclusive Remedy. The parties hereto expressly acknowledge that, absent fraud or
intentional misrepresentation, (a) the provisions of this Article IX shall be the sole and
exclusive remedy for monetary damages caused as a result of breaches of the covenants, agreements,
warranties and representations contained in this Agreement, and (b) no indemnifying party shall be
liable or otherwise responsible to any Indemnified Party or other Person for special,
consequential, incidental or punitive damages or for diminution in value or
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lost profits that arise
out of or relate to this Agreement or the performance or breach hereof. Nothing in this
Section 9.8 shall be construed as limiting the availability of any remedies at law or
equity to which a party may be entitled as a result of fraud or intentional misrepresentation by
the other party or its Affiliates.
9.9 Time Limits for Claims. The obligation of Seller to indemnify, defend and hold harmless
Buyer Indemnified Parties and for Buyer to indemnify, defend and hold harmless Sellers Indemnified
Parties shall terminate at 5:00 p.m. (Central time) on the third anniversary of the Closing Date;
provided, however, that such obligations to indemnify, defend and hold harmless
shall not terminate with respect to any item as to which the person to be indemnified or the
related party thereto shall have, before the expiration of the applicable period, previously made a
claim in accordance with this Agreement.
ARTICLE X — MISCELLANEOUS
10.1 Notices. Any notices hereunder shall be in writing and shall be deemed to have been
given when delivered by hand or by the first Business Day after being sent by overnight courier
(such as Federal Express), or on the third Business Day after being deposited in the United States
Mail, registered or certified, return receipt requested, postage prepaid, or upon the sender
receiving confirmation of receipt if sent by electronic facsimile transmission, addressed or sent,
as follows:
IF TO SELLER:
Argonaut Insurance Company
000 X. Xxxxxxxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Facsimile: (000) 000-0000
000 X. Xxxxxxxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Facsimile: (000) 000-0000
With a copy to:
Argo Group US, Inc.
00000 Xxxxxxx Xxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxxxx
General Counsel
Facsimile: (000) 000-0000
IF TO BUYER:
00000 Xxxxxxx Xxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxxxx
General Counsel
Facsimile: (000) 000-0000
IF TO BUYER:
Patriot Risk Management, Inc.
000 Xxxx Xxx Xxxx Xxxx., Xxxxx 0000
Xx. Xxxxxxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
000 Xxxx Xxx Xxxx Xxxx., Xxxxx 0000
Xx. Xxxxxxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
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or to such other person, or at such other address or facsimile phone number as a party may from
time to time specify by notice in writing to the other party, given in the manner provided in this
Section.
10.2 Severability. The unenforceability or invalidity of any provision of this Agreement
shall not affect the enforceability or validity of any other provision.
10.3 Assignment. Neither Seller nor Buyer may assign this Agreement or any responsibilities
or obligations hereunder without the express prior written consent of the other party. Subject to
the foregoing, this Agreement shall inure to the benefit of and shall be binding upon Seller and
Buyer and their respective successors and assigns.
10.4 Entire Agreement; Amendment. This Agreement, together with the Confidentiality
Agreement, sets forth the entire understanding of the parties and supersedes all prior discussions
and agreements between the parties with respect to the subject matter hereof. Each party hereto
acknowledges and agrees that no representations, warranties, promises or inducements have been made
to such party, except as expressly set forth herein, and that such party is entering into this
Agreement without reliance on any written or oral statements or representations, other than those
expressly set forth in this Agreement. This Agreement may be modified only by instruments signed by
both of the parties hereto.
10.5 Documents. Each party will execute all documents and take such other actions as the
other party may reasonably request in order to consummate the transactions provided for
herein and to accomplish the purposes of this Agreement. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.6 Third Parties. Nothing in this Agreement is intended to confer any right or remedy under
or by reason of this Agreement on any Person other than the parties hereto and their respective
successors and assigns.
10.7 Governing Law. This Agreement shall be construed and governed in accordance with the
laws of the State of Florida without reference to the choice of law principles thereof. Except as
provided in Section 10.8, the parties hereby irrevocably consent to the personal
jurisdiction of and the propriety of venue in the courts of the State of Florida located in Broward
County, Florida and of any federal court located therein in connection with any permitted action or
proceeding arising out of or relating to this Agreement, any document or instrument delivered
pursuant to or in connection with this Agreement, or a breach of this Agreement or any such
document or instrument.
10.8 Arbitration. In the event of any controversy or claim between the parties hereto arising
out of or relating to this Agreement, then such controversy or claim shall be submitted to binding
arbitration under the American Arbitration Association (the “AAA Rules”). Arbitration
shall begin upon the filing by one of the parties of a written demand for arbitration. Such demand
shall contain a statement setting forth the nature of the dispute, the amount involved, if any, and
the remedy sought. Such demand shall be served upon the other party pursuant to the notice
provisions of Section 10.1 hereof. Arbitration shall proceed under the AAA Rules, except
as follows:
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(a) One neutral arbitrator shall be selected upon the mutual consent of the parties to the
arbitration, and such arbitrator shall be an active or retired, disinterested executive officer
with ten (10) years or more experience as an officer of an insurance or reinsurance company. In
the event the parties cannot agree on an arbitrator, each party shall appoint an individual and
those two individuals shall select the arbitrator. In the event one party demands arbitration and
the responding party does not respond within twenty (20) days of the written demand, the claimant
shall select the arbitrator.
(b) The site for the arbitration hearing shall be Chicago, Illinois.
(c) Except as otherwise specified herein, there shall be no discovery or dispositive motion
practice (such as motions for summary judgment or to dismiss or the like) except as may be
permitted by the arbitrator who shall authorize such discovery as it is shown to be necessary to
insure a fair hearing.
(d) The decision of the arbitrator shall be final and binding on both parties and shall be
submitted in writing within thirty (30) days after the conclusion of the arbitration hearing.
Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
(e) The costs of the arbitration proceeding, including the fees of the arbitrator and the
administrative fees of arbitration, shall be borne equally by the parties unless the
arbitrator orders otherwise. The arbitrator, in its discretion, may also allocate an award of
other reasonable out-of-pocket costs of the parties, including reasonable attorneys’ fees, as it
deems fair and equitable under the circumstances.
10.9 Interpretation. The parties are equally responsible for the content of this Agreement.
In any claim or dispute which involves the interpretation of an alleged ambiguity, the language
herein shall not be more strictly construed against one party (as the drafter) than the other.
Signatures on following page
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.
BUYER: | ||||||
PATRIOT NATIONAL INSURANCE GROUP, INC. | ||||||
By: | /s/ Xxxxxx X. Xxxxxxx | |||||
Name: | Xxxxxx X. Xxxxxxx | |||||
Title: | President & Chief Executive Officer | |||||
SELLER: | ||||||
ARGONAUT INSURANCE COMPANY | ||||||
By: | /s/ Xxxxxxx X. Xxxxxxx | |||||
Name: | Xxxxxxx X. Xxxxxxx | |||||
Title: | President | |||||
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