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EXHIBIT 2
PURCHASE AGREEMENT
by and between
FOUNDATION HEALTH CORPORATION
and
SUPERIOR NATIONAL INSURANCE GROUP, INC.
May 5, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I
PURCHASE AND SALE
SECTION 1.1 Purchase and Sale................................................. 3
SECTION 1.2 Purchase Price.................................................... 3
SECTION 1.3 Closing........................................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 2.1 Organization...................................................... 4
SECTION 2.2 Capitalization.................................................... 5
SECTION 2.3 Ownership of Stock................................................ 5
SECTION 2.4 Authorization; Validity of Agreement.............................. 5
SECTION 2.5 Consents and Approvals; No Violations............................. 6
SECTION 2.6 Financial Statements.............................................. 7
SECTION 2.7 No Undisclosed Liabilities........................................ 8
SECTION 2.8 Absence of Certain Changes........................................ 8
SECTION 2.9 Employee Benefit Plans; ERISA..................................... 9
SECTION 2.10 Litigation........................................................ 10
SECTION 2.11 No Default; Compliance with Applicable Laws....................... 11
SECTION 2.12 Taxes............................................................. 11
SECTION 2.13 Property.......................................................... 13
SECTION 2.14 Intellectual Property............................................. 13
SECTION 2.15 Contracts......................................................... 14
SECTION 2.16 Labor Matters..................................................... 15
SECTION 2.17 Brokers or Finders................................................ 16
SECTION 2.18 Transactions with Related Parties................................. 16
SECTION 2.19 Environmental Matters............................................. 16
SECTION 2.20 Year 2000 Compliance.............................................. 18
SECTION 2.21 Insurance......................................................... 18
SECTION 2.22 Bank Accounts..................................................... 18
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
SECTION 3.1 Organization...................................................... 19
SECTION 3.2 Authorization; Validity of Agreement; Necessary Action............ 19
SECTION 3.3 Consents and Approvals; No Violations............................. 20
SECTION 3.4 Acquisition for Investment........................................ 21
SECTION 3.5 Financing......................................................... 21
SECTION 3.6 Investigation by Purchaser........................................ 21
SECTION 3.7 Capital Adequacy; Solvency........................................ 22
ARTICLE IV
COVENANTS
SECTION 4.1 Interim Operations of Seller...................................... 22
SECTION 4.2 Access to Information............................................. 25
SECTION 4.3 Tax Matters....................................................... 26
SECTION 4.4 Employee Matters.................................................. 32
SECTION 4.5 Publicity......................................................... 34
SECTION 4.6 Approvals and Consents; Cooperation; Notification................. 34
SECTION 4.7 No Solicitation................................................... 36
SECTION 4.8 Excluded Assets, Real Property.................................... 36
SECTION 4.9 Intercompany Accounts............................................. 36
SECTION 4.10 Reserve Cover..................................................... 37
SECTION 4.11 Audited Financial Statements; Quarterly Statements................ 38
SECTION 4.12 Related Party Service Agreements.................................. 38
SECTION 4.13 Lease Renewals.................................................... 38
SECTION 4.14 Further Assurances................................................ 39
SECTION 4.15 State Insurance Regulatory Approval for CCIC...................... 39
SECTION 4.16 Stockholder Approval and Financing................................ 40
ARTICLE V
INDEMNIFICATION
SECTION 5.1 Indemnification by Seller......................................... 40
SECTION 5.2 Indemnification by Purchaser...................................... 41
SECTION 5.3 Survival of Representations and Warranties........................ 41
SECTION 5.4 Notice and Opportunity to Defend.................................. 42
SECTION 5.5 Adjustment for Insurance and Taxes................................ 43
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SECTION 5.6 Mitigation of Loss................................................ 43
SECTION 5.7 Subrogation....................................................... 44
SECTION 5.8 Tax Indemnification............................................... 44
SECTION 5.9 Set-Off........................................................... 44
SECTION 5.10 Exclusive Remedy.................................................. 44
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Closing....... 45
SECTION 6.2 Conditions to the Obligations of Purchaser........................ 45
SECTION 6.3 Conditions to the Obligations of Seller........................... 47
ARTICLE VII
TERMINATION
SECTION 7.1 Termination....................................................... 48
SECTION 7.2 Procedure and Effect of Termination............................... 49
SECTION 7.3 Breakup Fee....................................................... 50
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Governing Laws and Consent to Jurisdiction........................ 50
SECTION 8.2 Amendment and Modification........................................ 51
SECTION 8.3 Notices........................................................... 51
SECTION 8.4 Interpretation.................................................... 52
SECTION 8.5 Counterparts...................................................... 53
SECTION 8.6 Entire Agreement; Third Party Beneficiaries....................... 53
SECTION 8.7 Severability...................................................... 54
SECTION 8.8 Service of Process................................................ 54
SECTION 8.9 Specific Performance.............................................. 54
SECTION 8.10 Assignment........................................................ 54
SECTION 8.11 Expenses.......................................................... 54
SECTION 8.12 Waivers........................................................... 55
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ANNEXES
Index to Defined Terms ....................................... Annex A
EXHIBITS
Description of Reinsurance Agreement ......................... Exhibit A
Service Agreements ........................................... Exhibits B-1-B-4
Form of Voting Agreement ..................................... Exhibit C-1-C-2
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Index to Disclosure Schedule
Title Section
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Capitalization 2.2
Consents and Approvals; No Violations 2.5
Financial Statements 2.6
No Undisclosed Liabilities 2.7
Absence of Certain Changes 2.8
Employee Benefit Plans; ERISA 2.9(a)
Employee Benefit Plans; ERISA 2.9(d)
Employee Benefit Plans; ERISA 2.9(e)
Employee Benefit Plans; ERISA 2.9(h)
Employee Benefit Plans; ERISA 2.9(k)
Litigation 2.10
No Default; Compliance With Applicable Laws 2.11(a)
No Default; Compliance With Applicable Laws 2.11(b)
Taxes 2.12
Property 2.13
Intellectual Property 2.14
Contracts 2.15
Labor Matters 2.16
Transactions with Related Parties 2.18
Environmental Matters 2.19(b)
Year 2000 Matters 2.20
Insurance 2.21
Bank Accounts 2.22
Interim Operations of Seller 4.1
Employee Benefits 4.4(b)
Intercompany Accounts 4.9
Index to Purchaser Disclosure Schedule
Title Section
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Consent and Approvals; No Violations 3.3
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of May 5, 1998 (this "Agreement"), by
and between Foundation Health Corporation, a Delaware corporation ("Seller"),
and Superior National Insurance Group, Inc., a Delaware corporation
("Purchaser").
WHEREAS, Seller is the owner of all of the outstanding shares (the
"Shares") of capital stock of Business Insurance Group, Inc., a Delaware
insurance holding company (the "Company"), whose principal assets are all of the
capital stock of each of California Compensation Insurance Company, a California
stock insurance company ("CalComp"), Business Insurance Company, a Delaware
stock insurance company ("BIC"), Combined Benefits Insurance Company, a
California stock insurance company ("CBIC") and Commercial Compensation
Insurance Company, a New York stock insurance company ("CCIC", and together with
CalComp, BIC and CBIC, taken as a whole, the "Insurance Subsidiaries", and
together with the Company, the "Seller Subsidiaries");
WHEREAS, the Seller Subsidiaries have the right to acquire the
reinsurance policy described on Exhibit A (the "Reinsurance Agreement") and a
condition to the obligations of the Purchaser to consummate the transactions
contemplated hereby is that the Seller Subsidiaries shall have entered into the
Reinsurance Agreement;
WHEREAS, Purchaser desires to purchase from Seller, and Seller
desires to sell to Purchaser, all of the Shares of the Company, and by that
means, the ownership of the Seller Subsidiaries, subject to the terms and
conditions of this Agreement;
WHEREAS, Seller intends, prior to the Closing (as hereinafter
defined), to cause the Company to dividend or otherwise distribute all of the
capital stock of each of Foundation Health Medical Resource Management, d/b/a
Reviewco ("Reviewco"), Foundation Integrated Risk Management Solutions,
Incorporated, d/b/a FIRM Solutions ("FIRMS") and Axis Integrated Resources, Inc.
("Axis"), each a wholly owned subsidiary of the Company (collectively, the
"Excluded Assets") to one or more other Affiliates of Seller;
WHEREAS, contemporaneous with the Closing (i) Purchaser, the Company
and Reviewco will enter into a long-term service agreement consistent
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with the terms of Exhibit B-1 (e.g., medical xxxx review, PPO utilization and
certain managed care services), (ii) Purchaser, the Company and FIRMS will enter
into a long-term service agreement consistent with the terms of Exhibit B-2
(e.g., claim negotiation and review services), (iii) Purchaser, the Company and
Axis will enter into a long-term service agreement consistent with the terms of
Exhibit B-3 (e.g., recruitment of employees and placement of temporary workers
services) and (iv) Purchaser, the Company and Foundation Health Systems, Inc.
("FHS"), will enter into a term sheet setting forth the terms of a transitional
service agreement in the form of Exhibit B-4 (e.g., transitional corporate
administrative services) (collectively, the "Service Agreements");
WHEREAS, Seller holds certain promissory notes, dated May 30, 1996
and August 9, 1996 issued by the Company in the current combined principal
amount of $121,250,000 plus all accrued and unpaid interest thereon (the
"Intercompany Note"), which will be satisfied in connection with the sale of the
Shares;
WHEREAS, certain stockholders of Purchaser, including certain of the
executive officers and directors of the Purchaser and Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P. and certain of their affiliates
have entered into Voting Agreements, dated the date hereof in the forms of
Exhibit C-1-C-2 (the "Voting Agreements"), whereby such stockholders have agreed
under the terms thereof to vote all of their shares of common stock of Purchaser
in favor of all matters that require stockholder approval in order to consummate
the transactions contemplated hereby; and
WHEREAS, Purchaser and Seller desire to treat the sale of the Shares
as a sale of the Seller Subsidiaries' assets for purposes of Federal income
taxation and to make an election under Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to the Company and
each of the Insurance Subsidiaries.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound hereby, agree
as follows:
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ARTICLE I
PURCHASE AND SALE
SECTION 1.1 Purchase and Sale. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller shall sell,
assign, transfer and deliver to Purchaser, and Purchaser shall purchase from
Seller, the Shares, free and clear of all options, pledges, security interests,
liens or other encumbrances or restrictions on voting or transfer
("Encumbrances"), other than restrictions imposed by Federal or state securities
laws.
SECTION 1.2 Purchase Price. On the Closing Date (as hereinafter
defined) and subject to the terms and conditions set forth in this Agreement,
Seller shall deliver a certificate or certificates representing the Shares duly
endorsed in blank or accompanied by stock powers duly executed in blank and, in
consideration of the sale, assignment, transfer and delivery of the Shares,
Purchaser shall pay to Seller an amount equal to $280,000,000 less the cost of
the Reinsurance Agreement (the "Purchase Price") by wire transfer of immediately
available funds to an account or accounts designated by Seller. The Intercompany
Note will be settled prior to Closing. Interest accrued prior to Closing on the
Intercompany Note may continue to be paid to Seller consistent with past
practices. All accrued but unpaid interest on the Intercompany Note as of the
Closing Date will be settled pursuant to Section 4.9.
SECTION 1.3 Closing.
(a) The sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at the
offices of Xxxxxxx & XxXxxxxx in Los Angeles at 8:00 a.m. local time on a date
as soon as practical following the satisfaction or waiver of all conditions to
the obligations of the parties set forth in Article VI, but in no event later
than September 15, 1998 (or October 15, 1998, in the event Purchaser has
commenced its common stock rights offering contemplated by the Financing
Agreements), or at such other place or at such other time or on such other date
as Seller and Purchaser mutually agree on in writing (the day on which the
Closing takes place being the "Closing Date").
(b) At the Closing, Seller shall deliver or cause to be delivered to
Purchaser (i) stock certificates evidencing the Shares duly endorsed in blank or
accompanied by stock powers duly executed in blank, (ii) duly executed Service
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Agreements, (iii) a duly executed Reinsurance Agreement and (iv) all other
previously undelivered certificates and other documents required to be
delivered by Seller to Purchaser at or prior to the Closing Date in connection
with the transactions contemplated hereby.
(c) At the Closing, Purchaser shall deliver to Seller (i) the
Purchase Price by wire transfer in immediately available funds to an account or
accounts designated by Seller, (ii) duly executed Service Agreements and (iii)
all other previously undelivered certificates and other documents required to be
delivered by Purchaser to Seller at or prior to the Closing Date in connection
with the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
SECTION 2.1 Organization. Seller and each Seller Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. Seller and each Seller Subsidiary is duly
qualified or licensed to do business as a foreign corporation or other entity
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary. Seller has
made available to Purchaser a complete and correct copy of each of the articles
or certificate of incorporation, bylaws, certificate of formation, operating
agreement or similar organizational documents of Seller and each Seller
Subsidiary, as currently in effect. As used in this Agreement, "Seller Material
Adverse Effect" means any material adverse change in, or material adverse effect
on, the business, financial condition or operations of the Seller Subsidiaries,
taken as a whole; provided, however, that, the effects of changes that are
generally applicable to (i) changes resulting from market fluctuations in the
value of the Seller Subsidiaries' investment portfolio and (ii) the commutation
of the Agreement of Reinsurance No. 8382 and the Agreement of Reinsurance No.
8429, each between the Seller Subsidiaries and General Reinsurance Corporation,
if completed prior to Closing, shall be excluded from the determination of
Seller Material Adverse Effect; and provided, further, that any adverse effect
on the Seller Subsidiaries resulting from
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the execution of this Agreement and the announcement of this Agreement and the
transactions contemplated hereby shall also be excluded from the determination
of Seller Material Adverse Effect.
SECTION 2.2 Capitalization. Section 2.2 of the written statement
delivered by Seller to Purchaser at or prior to the execution of this Agreement
(the "Disclosure Schedule") sets forth the authorized, issued and outstanding
capital stock of each Seller Subsidiary. All the outstanding shares of capital
stock of the Seller Subsidiaries are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. There are no existing (i)
options, warrants, calls, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating Seller or any
Seller Subsidiary to issue, transfer or sell any shares of capital stock or
other equity interest in any Seller Subsidiary or securities convertible into
or exchangeable for such shares or equity interests, (ii) contractual or other
obligations of any Seller Subsidiary to repurchase, redeem or otherwise acquire
any capital stock of Seller or any Seller Subsidiary or (iii) voting trusts or
similar agreements or understandings to which Seller or any Seller Subsidiary
is a party with respect to the voting of the capital stock of any Seller
Subsidiary.
SECTION 2.3 Ownership of Stock. The Shares are owned by Seller free
and clear of all Encumbrances, other than restrictions imposed by Federal and
state securities laws. All of the issued and outstanding shares of the stock of
each of the Insurance Subsidiaries is owned by the Company free and clear of all
Encumbrances other than restrictions imposed by Federal and state securities
laws. Upon the consummation of the transactions contemplated hereby, Purchaser
will acquire title to the Shares, free and clear of all Encumbrances, other than
restrictions imposed by Federal and state securities laws.
SECTION 2.4 Authorization; Validity of Agreement. Seller and each
Seller Subsidiary, as appropriate, has the power and authority to execute and
deliver this Agreement and all the agreements and documents contemplated hereby,
to carry out its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller and each Seller Subsidiary, as appropriate, of this
Agreement, and all the agreements and documents contemplated hereby and thereby,
and the consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate action, and no other
corporate action on the part of Seller or such Seller Subsidiary is necessary to
authorize the execution and delivery by Seller and such Seller Subsidiary as,
appropriate, of this Agreement and all the
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agreements and documents contemplated hereby and thereby and the consummation by
it of the transactions contemplated hereby and thereby. This Agreement and each
of the agreements and documents contemplated hereby has been duly executed and
delivered by Seller and the Seller Subsidiaries, as appropriate, and (assuming
due and valid authorization, execution and delivery hereof by Purchaser) is a
valid and binding obligation of Seller and the Seller Subsidiaries, as
appropriate, enforceable against Seller and the Seller Subsidiaries, as
appropriate, in accordance with its terms, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
SECTION 2.5 Consents and Approvals; No Violations. Except as
disclosed in Section 2.5 of the Disclosure Schedule and except for (a) filings
pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (b) approvals or consents of any court, legislative, executive
or regulatory authority or agency (a "Governmental Entity") under insurance
holding company laws of the states in which the Seller Subsidiaries are
domiciled or as may be otherwise required by law, (c) applicable requirements
under corporation or "blue sky" laws of various states and (d) matters
specifically described in this Agreement, neither the execution, delivery or
performance of this Agreement or any agreement or document contemplated hereby
by Seller or any Seller Subsidiary, as the case may be, nor the consummation by
Seller or any Seller Subsidiary, as the case may be, of the transactions
contemplated hereby or thereby will (i) violate any provision of the articles or
certificate of incorporation, bylaws or other organizational documents of Seller
or any Seller Subsidiary, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrances upon any of the
properties or assets of Seller or any Seller Subsidiary under (or result in
being declared void, voidable or without further binding effect) any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument, commitment or obligation to
which Seller or any Seller Subsidiary is a party or by which any of them or any
of their properties or assets may be bound, (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to
Seller, any Seller Subsidiary or any of their properties or assets, (iv) require
on the part of Seller or any Seller Subsidiary any filing or registration with,
notification to, or authorization, consent or approval of, any Governmental
Entity or (v) result in a termination,
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loss or adverse modification of any license, permit, certificate or franchise
granted to, or otherwise held by, Seller or any Seller Subsidiary; except in the
case of clauses (ii) through (v) for such violations, breaches, defaults or
other events specified therein, which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would (A)
not have a Seller Material Adverse Effect and would not materially adversely
affect the ability of Seller to consummate the transactions contemplated by
this Agreement or (B) become applicable as a result of the business or
activities in which Purchaser is or proposes to be engaged or as a result of any
acts or omissions by, or the status of any facts pertaining to, Purchaser.
SECTION 2.6 Financial Statements.
(a) Seller has delivered to Purchaser the unaudited consolidated
balance sheets of the Seller Subsidiaries as of December 31, 1997, and the
related unaudited consolidated statements of income for each of the two years in
the period ended December 31, 1997 (collectively, the "Financial Statements").
Except as set forth in Section 2.6 of the Disclosure Schedule, (i) the Financial
Statements have been derived from the books and records of the Seller
Subsidiaries and (ii) (A) the unaudited consolidated balance sheets included in
the Financial Statements present fairly in all material respects, the financial
position of the Seller Subsidiaries as of the respective dates thereof, and (B)
the other related unaudited statements of income present fairly, in all material
respects, the results of their operations for the periods therein specified, in
each case prepared in accordance with United States Generally Accepted
Accounting Principles ("GAAP"), except for the absence of footnote disclosures,
Statements of Cash Flows and Statements of Changes in Stockholders' Equity, all
of which are required under GAAP.
(b) Seller has delivered to Purchaser copies of audited statutory
financial statements for each Insurance Subsidiary as of the year ended December
31, 1997, prepared in conformity with accounting practices prescribed or
permitted by the respective state of domicile for each Insurance Subsidiary
(collectively, the "STAT Financial Statements"). Each of the balance sheets
included in the STAT Financial Statements fairly presents in all material
respects the financial position of the applicable Seller Subsidiary as of
December 31, 1997 and each statement of operations included in the STAT
Financial Statements fairly presents in all material respects the results of
operations of the applicable Insurance Subsidiary for the period therein set
forth, in each case in accordance with statutory accounting practices prescribed
or permitted by the respective state of domicile.
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(c) Notwithstanding any other provision of this Agreement (including
Sections 2.6 and 2.7), Seller makes no representation or warranty with respect
to (i) the items set forth in Section 2.6 of the Disclosure Schedule (the
"Listed Items") or (ii) the reserves of the Seller Subsidiaries for losses or
loss adjustment expenses (including, without limitation, whether such reserves
or liabilities are adequate or sufficient). Purchaser acknowledges that nothing
in this Agreement (including Sections 2.6 and 2.7) is intended to, or shall be
construed to, provide a guaranty of the adequacy of (i) the Listed Items or (ii)
the loss and loss adjustment expense reserves of Seller as shown in the
Financial Statements or the STAT Financial Statements.
SECTION 2.7 No Undisclosed Liabilities. Except as disclosed in
Section 2.7 of the Disclosure Schedule and as set forth in Section 2.6(c) above
and except (a) for liabilities and obligations incurred in the ordinary course
of business, consistent with past practices, after December 31, 1997, (b) for
liabilities and obligations disclosed in the Financial Statements or the STAT
Financial Statements and (c) for liabilities and obligations incurred in
connection with the transactions contemplated hereby or otherwise as
contemplated by this Agreement, since December 31, 1997, the Seller Subsidiaries
have not incurred any liabilities or obligations that would constitute a Seller
Material Adverse Effect.
SECTION 2.8 Absence of Certain Changes. Except as (a) disclosed in
Sections 2.6 or 2.8 of the Disclosure Schedule or (b) contemplated by this
Agreement, since December 31, 1997, the Seller Subsidiaries have not (i)
suffered any change constituting a Seller Material Adverse Effect, (ii) amended
their articles or certificate of incorporation, bylaws or other organizational
documents, (iii) materially changed their accounting principles, practices or
methods, except as required by GAAP or applicable law, (iv) suffered any event
or change or taken any action that would have violated Section 4.1(b) through
(m) below if it had occurred or been taken after the date hereof and (iv) the
Company has not (x) split, combined or reclassified the Shares or (y) declared
or set aside or paid any dividend or other distribution with respect to the
Shares other than regular cash dividends which have been declared consistent
with past practice and set forth in Section 2.8 of the Disclosure Schedule
(excluding dividends or distributions payments made to Seller Subsidiaries).
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SECTION 2.9 Employee Benefit Plans; ERISA.
(a) Section 2.9(a) of the Disclosure Schedule sets forth a list of
all material employee benefit plans, programs and agreements, (including but not
limited to plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all multiemployer plans (as
defined in Section 4001(a)(3) of ERISA maintained or contributed to by the
Seller Subsidiaries, or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), which together with the Seller Subsidiaries, would be
deemed a "single employer" within the meaning of Section 414 of the Code for the
benefit of employees, former employees and directors of, and consultants of, and
consultants to, the Seller Subsidiaries ("Benefit Plans").
(b) With respect to each Benefit Plan, Seller has made available to
Purchaser complete copies of the plan documents (including all amendments
thereto) and, where applicable, the most recent summary plan description, all
other material employee communications and the most recent Internal Revenue
Service determination letter relating to such Benefit Plan.
(c) Each Benefit Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including,
without limitation, ERISA and the Code, except where the failure to so
administer such plan would not reasonably be expected to have a Seller Material
Adverse Effect.
(d) Except as disclosed in Section 2.9(d) of the Disclosure Schedule,
no Benefit Plan provides medical or death benefits with respect to current
or former employees of the Seller Subsidiaries beyond their termination of
employment other than (i) to the extent required by applicable law , (ii) death
benefits under any "pension plan" (as defined in Section 3(2) of ERISA) or (iii)
benefits the full cost of which is borne by the current or former employee (or
his beneficiary).
(e) Except as set forth in Section 2.9(e) of the Disclosure
Schedule, all costs of administering and contributions required to be made to
each Benefit Plan under the terms of that Benefit Plan, ERISA, the Code or any
other applicable law have been timely made.
(f) No Benefit Plan is subject to Code Section 412.
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(g) The Internal Revenue Service has issued a favorable
determination letter with respect to each Benefit Plan that is intended to
qualify under Section 401(a) of the Code and to the knowledge of Seller, no
event has occurred (either before or after the date of the letter) that would
disqualify the plan.
(h) Except as set forth in Section 2.9(h) of the Disclosure
Schedule, to the knowledge of Seller, there are no investigations, proceedings,
or lawsuits, either currently in progress or expected to be instituted in the
future, relating to any Benefit Plan, by any administrative agency, whether
local, state, or federal.
(i) There are no pending or, to the knowledge of Seller, threatened
lawsuits or other claims (other than routine claims for benefits under the plan
and qualified domestic relations orders) against or involving (i) any Benefit
Plan or (ii) any Fiduciary of such plan (within the meaning of Section 3(21)(A)
of ERISA) brought on behalf of any participant, beneficiary, or Fiduciary
thereunder relating to any Benefit Plan.
(j) None of the Seller Subsidiaries have any intention or legally
binding commitment to create any additional Benefit Plan, or to modify or change
any existing Benefit Plan so as to increase benefits to participants or the cost
of maintaining the plan.
(k) Except as disclosed in Section 2.9(k) of the Disclosure
Schedule, none of the Benefit Plans or employment contracts with any of the
Seller Subsidiaries provide any benefits that become payable solely as a result
of the consummation of this transaction.
SECTION 2.10 Litigation. Except as disclosed in Section 2.10 of the
Disclosure Schedule, there is no action, suit, proceeding or, to the knowledge
of Seller or any Seller Subsidiary, investigation pending or, to the knowledge
of Seller or any Seller Subsidiary, action, suit, proceeding or investigation
threatened, involving the Seller Subsidiaries or any of their assets or their
officers or directors as such, or challenging the validity or propriety of the
transactions contemplated by this Agreement by or before any Governmental Entity
or by any third party that is reasonably likely to have a Seller Material
Adverse Effect. Except as disclosed in Section 2.10 of the Disclosure Schedule,
no material orders, decrees, awards, sanctions or judgments exist against
Seller or the Seller Subsidiaries, any of their assets or their officers or
directors as such, other than those applicable to the industry as a whole in the
jurisdiction where issued.
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SECTION 2.11 No Default; Compliance with Applicable Laws.
(a) Except as disclosed in Section 2.11(a) of the Disclosure
Schedule, none of the Seller Subsidiaries is in default or violation of any
term, condition or provision of (i) its articles or certificates of
incorporation, bylaws or similar organizational documents, (ii) any of the
Material Agreements (as hereinafter defined) or (iii) any statute, law, rule,
regulation, judgment, decree, order, arbitration award, or licenses, permits,
consents, approvals and authorizations of any Governmental Entity ("Permits")
applicable to any Seller Subsidiary including, without limitation, laws, rules
and regulations relating to the environment, occupational health and safety,
employee benefits, wages, workplace safety, equal employment opportunity and
any unlawful discrimination, excluding from the foregoing clauses (ii) and
(iii), defaults or violations which would not have a Seller Material Adverse
Effect or which become applicable as a result of the business or activities in
which Purchaser is or proposes to be engaged or as a result of any acts or
omissions by, or the status of any facts pertaining to, Purchaser. Except as set
forth on Disclosure Schedule 2.11(a) hereto, neither Seller nor any Seller
Subsidiary has received any written notice since January 1, 1996 from any
Governmental Entity alleging any violation described in clause (iii) or
directing Seller or any Seller Subsidiary to take any remedial action with
respect to such law, ordinance or regulation which in each case would have a
Seller Material Adverse Effect.
(b) Each Insurance Subsidiary has been duly authorized by the
relevant state insurance regulatory authorities to issue the insurance contracts
that it is currently writing in the respective states in which it conducts its
business, with such authority listed state by state for each Insurance
Subsidiary in Section 2.11(b) of the Disclosure Schedule. Each Insurance
Subsidiary has all other material Permits necessary to conduct its business in
the manner and in the areas in which it is presently being conducted by such
Insurance Subsidiary, and all such material Permits are valid and in full force
and effect.
SECTION 2.12 Taxes. Except as disclosed in Section 2.12 of the
Disclosure Schedule:
(a) the Seller Subsidiaries have (i) timely filed or caused to be
filed all Tax Returns (as hereinafter defined) required to be filed by them
other than those Tax Returns the failure of which to file would not have a
Seller Material Adverse Effect, and all such returns were true, correct and
complete in all material respects
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when filed and (ii) paid or accrued (in accordance with GAAP) all material Taxes
(as hereinafter defined) shown to be due on such Tax Returns other than such
Taxes that are being contested in good faith by the Seller Subsidiaries;
(b) neither Seller nor the Seller Subsidiaries have received written
notice of any ongoing or pending nor to the knowledge of Seller or the Seller
Subsidiaries, there are no threatened federal, state, local or foreign audits
or examinations of any Tax Return of the Seller Subsidiaries except a federal
income tax examination which is currently in process for the tax year ended June
30, 1996;
(c) there are no outstanding written requests, agreements, consents
or waivers to extend the statutory period of limitations applicable to the
assessment of any material Taxes or deficiencies against the Seller Subsidiaries
other than the six-month statute extension which results from filing of federal
tax returns by the extended due date;
(d) none of the Seller Subsidiaries is a party to an agreement
providing for the allocation or sharing of Taxes, except with its common parent,
FHS, which agreement will be terminated effective as of December 31, 1997; and
(e) there are no material statutory liens for Taxes upon the assets
of any Seller Subsidiary which are not provided for in the Financial Statements,
except liens for Taxes not yet due and payable and liens for Taxes that are
being contested in good faith.
(f) No assessment, audit or other proceeding by any taxing authority
is proposed, pending, or, to the knowledge of the Seller or the Seller
Subsidiaries, threatened with respect to any Taxes or Tax returns of any of the
Seller Subsidiaries.
(g) No consent to the application of Section 341(f)(2) of the Code
has been made or filed by or with respect to any of the Seller Subsidiaries or
any of their assets and properties.
(h) The Seller Subsidiaries have not taken any action that would
require an adjustment pursuant to Section 481 of the Code by reason of a change
in accounting method or otherwise.
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(i) There have not been, nor will there be from the date hereof
through and including the Closing Date, any payments, or any agreements to make
payments, which are contingent upon, or related to, the transactions
contemplated hereunder and which would be "excess parachute payments" under
Section 280G of the Code.
(j) The Seller Subsidiaries have not executed or entered into any
closing agreement pursuant to Section 7121 of the Code, or any predecessor pro-
visions thereof or any similar provision of state or other law with respect to
any period for which the statute of limitations has not expired.
"Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, occupation, use,
service, service use, value added, license, net worth, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States
Internal Revenue Service or any taxing authority (whether domestic or foreign
including, without limitation, any state, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "Tax Return" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes.
SECTION 2.13 Property. Except as set forth in Section 2.13 of the
Disclosure Schedule, each Seller Subsidiary has sufficient leaseholds or rights
to real property to conduct its respective businesses as currently conducted in
all material respects. Section 2.13 of the Disclosure Schedule lists all
facility leases and agreements or rights to use facilities to which any of the
Seller Subsidiaries is a party in any capacity. No notice of default has been
given to Seller or any Seller Subsidiary, there is no existing default, and no
conditions that, with notice or lapse of time, would constitute a default by any
party to any such agreements.
SECTION 2.14 Intellectual Property. Section 2.14 of the Disclosure
Schedule lists all material trademarks, copyrights and patents owned or used by
the Seller Subsidiaries in the conduct of their business, and states all
royalties or license fees the Seller Subsidiaries pay for material proprietary
rights used in any of their businesses. Except as disclosed in Section 2.14 of
the Disclosure Schedule, there are
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no pending or, to the knowledge of Seller or the Seller Subsidiaries, threatened
claims of which Seller or the Seller Subsidiaries have been given written
notice, by any person and neither Seller nor any Seller Subsidiary has asserted
a claim against any person with respect to any patents, patent rights,
trademarks, trademark rights, service marks, service xxxx rights, trade names,
trade name rights, copyrights, logos, assumed names and applications therefor
and any know-how, technology, trade secrets or other proprietary information
owned or used by the Seller Subsidiaries in their respective operations as
currently conducted (collectively, the "Seller Intellectual Property"). The
Seller Subsidiaries have such ownership of or such rights by license, lease or
other agreement to Seller Intellectual Property as are necessary to permit them
to conduct their respective operations as currently conducted, except where the
failure to have such rights would not have a Seller Material Adverse Effect.
Except as set forth in Section 2.14 of the Disclosure Schedule, to the knowledge
of the Seller and the Seller Subsidiaries, the Seller Subsidiaries have taken
all appropriate actions and made all appropriate applications and filings
pursuant to applicable laws to perfect or protect their interest in the Seller
Intellectual Property.
SECTION 2.15 Contracts. Seller has delivered or listed in Section
2.15 of the Disclosure Schedule and made available to Purchaser copies of all
written Material Agreements (as hereinafter defined). Except as set forth in
Section 2.15 of the Disclosure Schedule, each Material Agreement is in full
force and effect and, to the knowledge of Seller and the Seller Subsidiaries, is
valid and enforceable by the applicable Seller Subsidiary in accordance with its
terms. Except as set forth in Section 2.15 of the Disclosure Schedule, none of
Seller Subsidiaries is in default in the observance or the performance of any
term or obligation to be performed by it under any Material Agreement; to the
knowledge of Seller there does not exist any event that, with the giving of
notice or the lapse of time or both, would constitute a breach of or a default
under any Material Agreement; and to the knowledge of Seller, there have been no
intentional waivers or releases of any rights or remedies of any Seller
Subsidiaries under any Material Agreement except for such breaches, defaults or
waivers the effect of which, individually or in the aggregate, would not have a
Seller Material Adverse Effect. To the knowledge of Seller and the Seller
Subsidiaries, no other person is in default in the observance or the
performance of any term or obligation to be performed by it under any Material
Agreement. As used in this Agreement, "Material Agreement(s)" shall mean each
agreement, arrangement, instrument, bond, commitment, franchise, indemnity,
indenture, lease, license or understanding to which any Seller Subsidiary is a
party or to which any Seller Subsidiary or any of its respective properties is
subject that (i) obligates any Seller Subsidiary to pay an amount in excess of
$150,000 in any twelve-month period
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beginning after December 31, 1997, (ii) provides for the extension of credit,
(iii) provides for a guaranty by any Seller Subsidiary of obligations of others
in excess of $150,000, (iv) constitutes an employment agreement or personal
service contract not terminable on less than sixty (60) days' notice without
penalty, (v) expressly limits, in any material respect, the ability of any
Seller Subsidiary to engage in any line of business, compete with any person or
expand the nature or geographic scope of its business, (vi) creates a joint
venture, (vii) since January 1, 1996, involved the acquisition or disposition of
a portion of the business or assets of any Seller Subsidiary that provided for
an aggregate purchase price in excess of $5,000,000 (other than the sale of
obsolete equipment or materials, in each case, in the ordinary course of
business) (the "Disposed Businesses"), (viii) producer agreements that the
Insurance Subsidiaries have entered into with the ten largest producers overall
for the Insurance Subsidiaries taken as a whole and (ix) all excess of loss,
quota share and aggregate stop reinsurance agreements and reinsurance assumed or
fronting arrangements. Notwithstanding the foregoing, the term "Material
Agreement(s)" does not include insurance contracts (including runoff contracts,
reinsurance (other than as provided in clause (ix) above), retrocession
agreements, surety agreements and financial guaranties, structured annuities
for settlement of claims, agreements entered into with parties identified on
Schedule M of the STAT Financial Statements, incentive commission agreements and
agent and broker agreements (other than as provided in clause (viii) above))
entered into by the Seller Subsidiaries in the ordinary course of the insurance
business except as specifically described above.
SECTION 2.16 Labor Matters. Except as set forth in Section 2.16 of
the Disclosure Schedule, (a) neither Seller nor any Seller Subsidiary is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, (b) there
is no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of Seller, threatened against Seller or the Seller Subsidiaries,
except for any such proceeding which would not have, individually or in the
aggregate, a Seller Material Adverse Effect and (c) the Seller Subsidiaries are
in material compliance with all applicable regulations respecting employment
practices, terms and conditions of employment, wages and hours, equal employment
opportunity, and the payment of social security and similar taxes. Set forth in
Section 2.16 of the Disclosure Schedule is a list of all (i) employment
contracts, (ii) severance policies, (iii) compensation and bonus plans
applicable to employees of the Seller Subsidiaries and (iv) historic bonus and
compensation practices applicable to employees of the Seller Subsidiaries.
Except as set forth in Section 2.16 of the Disclosure Schedule, there is no
material controversy pending or, to the knowledge of Seller or the Seller
Subsidiaries threatened between
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the Seller Subsidiaries and any of their employees, and to the knowledge of
Seller or the Sellers Subsidiaries there are not facts that could reasonably
result in any such material controversy. The Seller Subsidiaries are not liable
for any claims for past due wages, bonuses or compensation or any penalties for
failure to pay such past due wages, bonuses or compensation.
SECTION 2.17 Brokers or Finders. Except for the fees payable to
Xxxxxxx Xxxxx Xxxxxx and Xxxxxxxx Xxxxxxx Partners, Inc., which will be paid by
Seller, Seller represents, as to itself and the Seller Subsidiaries, that no
agent, broker, investment banker, financial advisor or other firm or person is
or will be entitled to any brokers' or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement.
SECTION 2.18 Transactions with Related Parties. Except as set forth
in Section 2.18 of the Disclosure Schedule or with respect to inconsequential
matters, no Affiliate of the Seller Subsidiaries has any contract for services,
borrowed or loaned money or other property with, or made any material
contractual or other claims on or against, any Seller Subsidiary or has any
interest in any property used by any Seller Subsidiary. Seller has made
available to Purchaser copies of all Forms B required to be filed by the Seller
Subsidiaries with insurance regulatory authorities in calender year 1997.
SECTION 2.19 Environmental Matters.
(a) Definitions. The following terms, when used in this Section 2.19,
shall have the following meanings:
(i) "Seller Subsidiaries" for purposes of this Section 2.19
includes (A) Seller, (B) the Seller Subsidiaries, (C) all affiliates of
the Seller Subsidiaries, and (D) all partnerships, joint ventures and
other entities or organizations in which any Seller Subsidiary was at any
time after January 1, 1993, or is a partner, joint venturer, member or
participant.
(ii) "Release" means and includes any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment of any Hazardous
Substance, and otherwise as defined in any Environmental Law.
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(iii) "Hazardous Substance" means any pollutants, contaminants
and any toxic, hazardous, infectious, carcinogenic, corrosive, ignitable
or flammable chemical, chemical compound, material or waste, whether
solid, liquid or gas, including asbestos, urea formaldehyde, PCB's, radon
gas, crude oil or any fraction thereof, all forms of natural gas,
petroleum products or by-products or derivatives, radioactive substance
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Law as hazardous or toxic.
(iv) "Environmental Laws" mean all laws, rules, regulations,
ordinances, orders or decrees as now in effect which regulate or relate to
the protection or clean-up of the environment, the use, treatment,
storage, transportation, generation, manufacture, processing distribution,
handling or release or threatened release of Hazardous Substances, the
preservation or protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resources, or the health of persons,
including protection of the health of employees. Environmental Laws
include, without limitation, the Federal Water Pollution Control Act,
Resource Conservation & Recovery Act, Clean Water Act, Safe Drinking Water
Act, Atomic Energy Act, Occupational Safety and Health Act, Toxic
Substances Control Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and Liability Act, Hazardous Materials
Transportation Act and all analogous or related federal, state or local
statutes, laws, rules and regulations.
(v) "Environmental Conditions" mean the release into the
environment of any Hazardous Substance as a result of which any Seller
Subsidiary has or may become liable to any person or entity or by reason
of which any of the assets of any Seller Subsidiary may suffer or be
subjected to any encumbrance or lien.
(b) Environmental Representations. Except as set forth in Section
2.19(b) of the Disclosure Schedule and except for claims which individually or
in the aggregate are not reasonably likely to have a Seller Material Adverse
Effect, each Seller Subsidiary is in compliance in all material respects, with
all Environmental Laws.
(c) Notice of Violation. Neither Seller nor any Seller Subsidiary has
received any written notice of alleged, actual or potential responsibility for,
or any written inquiry or written notice of investigation regarding (i) any
Release or threat-
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ened Release by any Seller Subsidiary or any Hazardous Substance at any
location, or (ii) an alleged violation of or non-compliance by any Seller
Subsidiary with the conditions of any permit required under any Environmental
Law or the provisions of any Environmental Law. Neither Seller nor any Seller
Subsidiary has received any written notice of any other claim, demand or action
by any person or entity alleging any actual or threatened injury or damage to
any person, entity, property, natural resource or the environment arising from
or relating to any Release or threatened Release by any Seller Subsidiary of any
Hazardous Substances.
(d) Environmental Conditions. There are no present or past
Environmental Conditions in any way relating to any Seller Subsidiary, the
business or the assets of any Seller Subsidiary, except for any Environmental
Conditions which individually or in the aggregate are not reasonably likely to
have a Seller Material Adverse Effect.
SECTION 2.20 Year 2000 Compliance. To the knowledge of Seller and the
Seller Subsidiaries, no Seller Subsidiary owns or uses any application programs,
databases, software or hardware (including distributed systems and imbedded
chips), the performance of which will be adversely affected by dates after the
commencement of the year 2000 ("Year 2000 Matters") except to the extent such
adverse effects would not have a Seller Material Adverse Effect. Set forth in
Section 2.20 of the Disclosure Schedule is a description of the Seller
Subsidiaries' compliance program with respect to Year 2000 Matters and a
statement as to their progress in meeting such program's compliance schedule and
goals as of the date hereof.
SECTION 2.21 Insurance. Section 2.21 of the Disclosure Schedule sets
forth the insurance carriers and areas of coverage with respect to the insurance
policies of the Seller Subsidiaries.
SECTION 2.22 Bank Accounts. Section 2.22 of the Disclosure Schedule
sets forth a list of the Seller Subsidiaries' bank accounts, safe deposit boxes,
and related powers of attorney, and identifies all persons authorized to draw
thereon or have access thereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
SECTION 3.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not have a Purchaser Material
Adverse Effect (as hereinafter defined). Purchaser is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would not
have a Purchaser Material Adverse Effect. As used in this Agreement, "Purchaser
Material Adverse Effect" means any material adverse change in, or material
adverse effect on, the business, financial condition or operations of Purchaser
and its Subsidiaries, taken as a whole; provided, however, that any adverse
effect on Purchaser and its Subsidiaries resulting from the execution of this
Agreement and the announcement of this Agreement and the transactions
contemplated hereby shall also be excluded from the determination of Purchaser
Material Adverse Effect.
SECTION 3.2 Authorization; Validity of Agreement; Necessary Action.
Subject to the approval of its stockholders, Purchaser has the corporate power
and authority to execute and deliver this Agreement and all the agreements and
documents contemplated hereby, and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Purchaser of this Agreement
and all the agreements and documents contemplated hereby, and the consummation
of the transactions contemplated hereby, have been duly authorized by all
necessary corporate proceedings, subject to stockholder approval by a majority
of all stockholders entitled to vote, and no other corporate action on the part
of Purchaser is necessary to authorize the execution and delivery by Purchaser
of this Agreement and all the agreements and documents contemplated hereby, and
the consummation by it of the transactions contemplated hereby. Stockholders
holding or otherwise controlling the right to vote not less than 41.8% of the
outstanding voting shares of the Purchaser have executed and delivered Voting
Agreements to the Seller. This Agreement and
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all the agreements and documents contemplated hereby, have been duly executed
and delivered by Purchaser and by certain of its stockholders as appropriate
(and assuming due and valid authorization, execution and delivery hereof by
Seller) is a valid and binding obligation of Purchaser and such stockholders, as
appropriate, enforceable against them in accordance with its terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 3.3 Consents and Approvals; No Violations. Except as set
forth in Section 3.3 of the written statement delivered by Purchaser to Seller
at or prior to the execution of the Agreement (the "Purchaser Disclosure
Schedule") and except for (a) filings pursuant to the HSR Act, (b) approvals or
consents of Governmental Entities under insurance holding company laws of the
states in which the Seller Subsidiaries are domiciled, (c) filings required
pursuant to the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, (d) approval by Purchasers' stockholders and (e)
matters specifically described in this Agreement, neither the execution,
delivery or performance of this Agreement by Purchaser nor the consummation by
Purchaser of the transactions contemplated hereby will (i) violate any provision
of the certificate of incorporation, bylaws or other organizational documents of
Purchaser, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Purchaser or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, (iii) violate any order, writ, judgment,
injunction, decree, law, statute, rule or regulation applicable to Purchaser,
any of its Subsidiaries or any of their properties or assets or (iv) require on
the part of Purchaser any filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity except in the
case of clauses (ii), (iii) or (iv) for such violations, breaches or defaults
which, or filings, registrations, notifications, authorizations, consents or
approvals the failure of which to obtain would not have a Purchaser Material
Adverse Effect and would not materially adversely affect the ability of
Purchaser to consummate the transactions contemplated by this Agreement.
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SECTION 3.4 Acquisition for Investment. Purchaser is acquiring the
Shares solely for its own account and not with a view to any distribution or
other disposition of such Shares, and the Shares will not be transferred except
in a transaction registered or exempt from registration under the Securities
Act of 1933, as amended.
SECTION 3.5 Financing. Purchaser has (i) entered into a valid,
binding and enforceable stock purchase agreement and backup letter agreement
with the Zurich Centre Investments Ltd. (collectively, the "IP Stock Purchase
Agreement") with Insurance Partners, L.P. ("IP"), Insurance Partners Offshore
(Bermuda), L.P. ("IPB") and Capital Z Partners, Ltd. ("Capital Z"), and (ii)
received a written "highly confident letter" from Xxxxxxxxx, Xxxxxx & Xxxxxxxx
(together, the "Financing Agreements") for financing the consummation of the
transactions contemplated hereby. IP, IPB and Capital Z have sufficient
unencumbered funds unconditionally committed to fulfill their respective
obligations under the IP Stock Purchase Agreement. The proceeds for such
financing set forth in the Financing Agreements, together with Purchaser's cash
on hand as of the date hereof and as of the Closing Date, will be sufficient to
enable Purchaser to pay the full amount of the Purchase Price at the Closing.
True and complete copies of each of the Financing Agreements have been provided
to Seller by Purchaser.
SECTION 3.6 Investigation by Purchaser. In entering into this
Agreement, Purchaser:
(a) acknowledges that, except for the specific representations and
warranties of Seller contained in Article II, none of Seller, any Seller
Subsidiary, or any of their respective directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives, makes or
shall be deemed to have made any representation or warranty, either express or
implied, as to the accuracy or completeness of any of the information
(including, without limitation, any reserve estimates, projections, forecasts or
other forward-looking information) provided or otherwise made available to
Purchaser or any of its directors, officers, employees, Affiliates, controlling
persons, agents, advisors or representatives (including, without limitation, in
any management presentations, information or offering memorandum, the actuarial
report entitled "An Actuarial Analysis of the Loss and Loss Adjustment Expense
Reserves of Business Insurance Group as of December 31, 1997," prepared by
Xxxxxxxx & Xxxxxxxxx, Inc. (the "M&R Report"), supplemental information or other
materials or information with respect to any of the above); and
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(b) agrees, to the fullest extent permitted by law, that Seller and
its directors, officers, employees, Affiliates, controlling persons, agents,
advisors or representatives shall not have any liability or responsibility
whatsoever to Purchaser or any of its directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives on any
basis in respect of the specific representations and warranties of Seller set
forth in Article II, except as and only to the extent expressly set forth herein
with respect to such representations and warranties and subject to the
limitations and restrictions contained herein.
SECTION 3.7 Capital Adequacy; Solvency. Purchaser represents that
immediately after the sale of the Shares and the other transactions contemplated
herein, Purchaser (and any successor corporation) will have a positive net worth
(calculated in accordance with GAAP) and will not be insolvent (as defined under
the federal Bankruptcy Code (the "Bankruptcy Code") and in equity) and that the
sale of the Shares and other transactions contemplated hereby and any borrowing
by Purchaser in connection with such transactions will not have the effect of
hindering, delaying or defrauding any creditors of Purchaser (or any successor
corporation). Purchaser further represents that (A) upon consummation of the
sale of the Shares and within the meaning of Section 548 of the Bankruptcy Code,
the Seller Subsidiaries (and any successor corporations) will (i) have adequate
capitalization, (ii) not have an unreasonably small capital with respect to the
business or transactions engaged in or to be engaged in and (iii) not have
incurred debts that would be beyond the ability of Purchaser (or any successor
corporation) to pay as such debts mature and (B) the Purchase Price is a
reasonably equivalent value in exchange for the Shares.
ARTICLE IV
COVENANTS
SECTION 4.1 Interim Operations of Seller. Promptly upon the execution
of this Agreement, Seller agrees that Purchaser may place certain senior
executives, including Xxxxxx Xxxxxx (the "Interim Consulting Team"), in interim
consulting positions at the Company and the Insurance Subsidiaries pursuant to
consulting arrangements which are reasonably acceptable to the parties and
consistent with the terms of this Agreement. The Seller agrees to cause the
Company and the Insurance Subsidiaries to take, or not take, such actions as the
Interim Consulting Team may reasonably direct with respect to (i) the strategy
and execution of the Seller Subsidiaries' underwriting, reinsurance, claims
handling and other operational
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functions, and (ii) the restructuring of certain asset positions, both in the
Seller Subsidiaries' investment portfolios and otherwise, each subject to
Seller's approval, which will not be unreasonably withheld. The Interim
Consulting Team will coordinate all of its activities under this Agreement
through Xxx X. Xxxxxxx, B. Xxxxxx Xxxxxx and Xxxxxxx X. Xxxxx or their
designees. Notwithstanding any other provision of the Agreement, neither the
Seller, nor any of the Seller Subsidiaries, shall be obligated to commute any
insurance or reinsurance policy or otherwise take any action that may be
reasonably expected to cause any Governmental Entity to require Seller or any of
its Affiliates to make a capital contribution to the Seller Subsidiaries. Absent
the written approval of one of the Interim Consulting Team, Seller covenants and
agrees that, except (i) as contemplated by this Agreement (including the
distribution of the Excluded Assets) or (ii) as disclosed in Section 4.1 of the
Disclosure Schedule after the date hereof and prior to the Closing Date:
(a) the business of the Seller Subsidiaries shall be conducted only
in the ordinary and usual course of business and shall not include any actions
inconsistent with the transactions contemplated hereby or by the agreements
contemplated hereunder;
(b) none of the Seller Subsidiaries will amend its articles or
certificate of incorporation, bylaws or similar organizational documents;
(c) the Company will not (i) split, combine or reclassify the Shares,
(ii) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to the Shares, provided, that the Company
may dividend or otherwise distribute or take any other necessary action to allow
Seller to retain the Excluded Assets, (iii) issue or sell any additional shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, the Shares or any capital
stock of the Company, or (iv) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(d) none of the Seller Subsidiaries shall (i) adopt any new employee
benefit plan (including any stock option, stock benefit or stock purchase plan)
or amend any existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans or as may be
required by applicable law or (ii) increase any compensation or enter into or
amend any employment, severance, termination or similar agreement with any of
its present or future officers or directors, except for promotions in the
ordinary course of business consistent with past practices, normal merit
increases of five percent (5%) or less per
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annum in the ordinary and usual course of business and the payment of cash
bonuses to employees pursuant to and consistent with existing plans or programs,
with respect to which any necessary accruals have been made;
(e) none of the Seller Subsidiaries shall, except as may be required
or contemplated by this Agreement or in the ordinary and usual course of
business, consistent with prior practice, acquire, sell, lease or dispose of any
assets which, individually or in the aggregate, are material to the financial
position or results of operations of the affected Seller Subsidiary;
(f) none of the Seller Subsidiaries shall (i) incur or assume any
long-term or short-term debt or issue any debt securities except for borrowings
under existing lines of credit in the ordinary course of business consistent
with past practice, (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, indirectly, contingently or otherwise) for the
material obligations of any other person except in the ordinary and usual course
of business consistent with past practice in an amount not material to the
affected Seller Subsidiary, (iii) make any loans, advances or capital
contributions to, or investments in, any other person other than in the ordinary
and usual course of business consistent with past practice, (iv) pledge or
otherwise encumber the Shares or any shares of any Insurance Subsidiary or (v)
mortgage or pledge any of its material assets, tangible or intangible, or create
or suffer to exist any material Encumbrance of any kind with respect to any such
asset;
(g) none of the Seller Subsidiaries shall (i) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof or any equity interest therein
(other than purchases of marketable securities in the ordinary course of
business), (ii) other than capital expenditures provided for in the 1998 capital
expenditures budgets of the Seller Subsidiaries, which budgets have been
delivered or made available to Purchaser, authorize any new capital expenditure
or expenditures which, individually, is in excess of $150,000 or, in the
aggregate, are in excess of $500,000 or (iii) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any action
which would be prohibited hereunder;
(h) none of the Seller Subsidiaries shall adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such liquidation
or a dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization;
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(i) none of the Seller Subsidiaries shall materially change any of
the accounting methods or practices used by it unless required by GAAP,
statutory accounting practices or applicable law;
(j) none of the Seller Subsidiaries shall settle or compromise any
claim (including arbitration) or litigation, which after insurance reimbursement
involves an amount in excess of $500,000 or otherwise is material to the Seller
Subsidiaries taken as a whole, without the prior written consent of Purchaser,
which consent will not be unreasonably withheld;
(k) none of the Seller Subsidiaries shall make any payment, loan or
advance of any amount to or in respect of, or engage in the sale, transfer or
lease of any of its property or assets to, or enter into any contract with, any
Affiliate, except (i) in accordance with the terms of the agreements set forth
in Section 2.18 of the Disclosure Schedule, and (ii) in connection with Seller's
retention of the Excluded Assets and the owned real property, as contemplated by
this Agreement;
(l) none of the Seller Subsidiaries shall amend the terms of the (i)
Material Agreements, as disclosed in Section 2.15 of the Disclosure Schedule and
(ii) contracts, agreements or arrangements with any related party, as disclosed
in Section 2.18 of the Disclosure Schedule, to cause any change in the cost,
services being provided, or term of any such agreements, other than as
specifically contemplated by this Agreement;
(m) none of the Seller Subsidiaries shall cancel any indebtedness or
intentionally waive, release, grant or transfer any rights of substantial value
to the affected Seller Subsidiary, except in the ordinary course of business and
consistent with past practice, or forgive or waive any rights in connection with
any loans to its officers, directors or other related individuals; and
(n) neither Seller nor any Seller Subsidiary will authorize or enter
into an agreement to do any of the foregoing.
SECTION 4.2 Access to Information. Seller shall cause each Seller
Subsidiary to afford Purchaser's officers, employees, accountants, counsel and
other authorized representatives full and complete access during normal business
hours throughout the period prior to the Closing Date or the date of termination
of this Agreement, to its and its offices, properties, contracts, commitments,
books and records (including but not limited to Tax Returns related solely to
the Seller Subsid-
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iaries) and any report, schedule or other document filed or received by it
during such period pursuant to the requirements of Federal or state securities
laws and to use all reasonable efforts to cause its representatives to furnish
promptly to Purchaser such additional financial and operating data and other
information as to its businesses and properties as Purchaser or its duly
authorized representatives may from time to time reasonably request and to make
reasonably available the officers and employees of each Seller Subsidiary to
answer fully and promptly reasonable questions put to them; provided, however,
that nothing herein shall require Seller or the Seller Subsidiaries to disclose
any information to Purchaser if such disclosure would violate applicable laws or
regulations of any Governmental Entity. Unless otherwise required by law and
until the Closing Date, Purchaser will hold any such information which is
nonpublic in confidence in accordance with the provisions of the Confidentiality
Agreement between Seller and Purchaser, dated as of January 6, 1998 (the
"Confidentiality Agreement").
SECTION 4.3 Tax Matters.
(a) Section 338(h)(10) Election; Allocation of "Adjusted Grossed-Up
Basis." Seller and Purchaser agree to elect under section 338(h)(10) of the Code
to treat the sale of the Shares as a sale by the Company of all of its assets
and a sale by the Insurance Subsidiaries of all their assets (the "Section
338(h)(10) Election") and shall make any such available election under any
substantially similar state or local law, if requested by Seller. As reasonably
requested by Seller, Purchaser shall take such actions as Seller deems necessary
to effect the Section 338(h)(10) Election (including, without limitation, the
timely filing of Internal Revenue Service Form 8023 (Corporate Qualified Stock
Purchase Elections).
(b) Allocation. On or before the date that is 30 days after the
Closing Date, Purchaser shall provide to Seller a proposed allocation of the
Purchase Price for the deemed sale of assets resulting from the making of the
Section 338(h)(10) Election, setting forth the estimated fair market values of
the assets of each of the Company and the Insurance Subsidiaries. On or before
the date that is 60 days after the Closing Date, Seller and Purchaser shall
agree upon a final allocation of such purchase price (the "Final Allocation").
Seller and Purchaser shall cooperate in developing the Final Allocation,
provided, however, that Purchaser's allocation shall be presumed to be an
allocation based upon the fair market values of the Seller Subsidiaries and that
Seller shall have the burden of proof to demonstrate that such allocation is not
an appropriate allocation.
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(c) Forms. On or before the date that is ten days before the Closing
Date, Seller shall provide to Purchaser drafts of all forms, together with all
drafts of required attachments thereto, other than allocation of the Purchase
Price, required for making the Section 338(h)(10) Election and any such
available election under any substantially similar state or local law if
requested by Seller (the "Election Forms"). On the Closing Date, Seller shall
deliver to Purchaser the Election Forms, properly executed by Seller or any
proper Affiliate of Seller. Seller and Purchaser shall cooperate in drafting and
making final the Election Forms, and any dispute with respect thereto shall be
resolved pursuant to Section 4.3(n). Seller shall be responsible for filing the
Election Forms with the proper taxing authorities, provided that Purchaser shall
be responsible for filing any Election Form that must be filed with its Tax
Returns.
(d) Modification; Revocation. Purchaser and Seller each agrees that
it shall not, and shall not permit any of its respective Affiliates to, take any
action to modify the Election Forms following the execution thereof, or to
modify or revoke the Section 338(h)(10) Election, or any such available election
under any substantially similar state or local law if requested by Seller,
following the filing of the Election Forms, without the written consent of
Purchaser or Seller, as the case may be.
(e) Consistent Treatment. Purchaser and Seller shall, and shall cause
their respective Affiliates to, file all Tax Returns in a manner consistent with
the information contained in the Election Forms as filed and the Final
Allocation, unless otherwise required because of a change in applicable tax law.
(f) Expenses Resulting from Section 338(h)(10) Elections. Purchaser
and its Affiliates (including the Company and the Insurance Subsidiaries
following the Closing), on the one hand, and Seller and its Affiliates, on the
other hand, shall bear their respective administrative, legal and similar
expenses resulting from the making of the Section 338(h)(10) Election and any
such available elections under any substantially similar state or local law if
requested by Seller.
(g) Tax Sharing Agreement. The tax sharing agreement between, among
others, each of the Seller Subsidiaries and its common parent, FHS, referenced
in Section 2.12(d) shall be terminated effective as of April 30, 1998. After the
Closing Date none of the Seller Subsidiaries, Seller, or any Affiliate of Seller
shall have any further rights or liabilities thereunder, except to the extent
stated on the balance sheet of the Seller Subsidiaries as of April 30, 1998
(using the Seller Subsidiaries' actual financial statements at and as of March
31, 1998, together with projected
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April 30, 1998 results as provided by Xxxxxxx Xxxxx Xxxxxx to the Purchaser),
with all amounts then due being paid as soon as such amounts are determined but
in no event later the Closing Date. This Agreement shall be the sole Tax sharing
agreement relating to any Seller Subsidiary for all Pre-Closing Tax Periods.
(h) Actions out of the Ordinary Course. If Purchaser causes or
permits the Seller Subsidiaries or any Affiliate of Purchaser to take any action
on the Closing Date other than actions contemplated by this Agreement or actions
in the ordinary course of business, including but not limited to the
distribution of any dividend or the effectuation of any redemption, Purchaser
shall indemnify Seller for any resulting tax liability from such action.
(i) Tax Indemnity. (i) Notwithstanding any other provisions of this
Agreement, from and after the Closing Date, Seller shall be liable to, and shall
indemnify and hold harmless, Purchaser and the Seller Subsidiaries against the
following Taxes, but only for Taxes in excess of the sum of Taxes paid prior to
December 31, 1997, Taxes accrued as current Taxes payable or reserves on the
December 31, 1997 financial balance sheet, and Taxes accrued or paid after
December 31, 1997 in the ordinary course of business, in accordance with past
practice, with respect to business operations for the period of January 1, 1998
through the Closing Date: (A) Taxes imposed on the Seller Subsidiaries with
respect to taxable years or periods ending on or before the Closing Date; (B)
with respect to taxable years or periods beginning before the Closing Date and
ending after the Closing Date, Taxes imposed on the Seller Subsidiaries which
are allocable, pursuant to such clause (ii) hereof, to the portion of such
taxable year or period ending on the Closing Date (an "Interim Period") (Interim
Periods and any taxable years or periods that end on or prior to the Closing
Date being referred to collectively hereinafter as "Pre-Closing Periods"); (C)
Taxes imposed on any member of any affiliated group with which the Seller and
the Seller Subsidiaries or any Seller Subsidiary files or has filed a Tax Return
on a consolidated, combined or unitary basis for a taxable year or period
beginning before the Closing Date; (D) Taxes required to be paid or reimbursed
by the Seller under subsection (i)(iii) hereof (to the extent such Taxes have
not been paid by Seller); (E) Taxes or additional Taxes imposed on the Purchaser
or the Seller Subsidiaries as a result of a breach of the representations and
warranties set forth in Section 2.12 of this Agreement or of the covenants
contained in this subsection (i) without duplication; or (F) Taxes or other
payments required to be made after the date hereof by the Seller Subsidiaries to
any party under any Tax sharing, indemnity or allocation agreement (whether or
not written).
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(ii) In order to apportion appropriately any Taxes relating to
any taxable year or period that includes an Interim Period, the parties
hereto shall, to the extent permitted under applicable law, elect with the
relevant Tax authority to treat, for all purposes, the Closing Date as the
last day of the taxable year or period of the Seller Subsidiaries, and
such Interim Period shall be treated as a short taxable year and a
Pre-Closing Period for purposes of this subsection (i). In any case where
applicable law does not permit the Seller Subsidiaries to treat the
Closing Date as the last day of the taxable year or period of the Seller
Subsidiaries with respect to Taxes that are payable with respect to an
Interim Period, the portion of any such Tax that is allocable to the
portion of the Interim Period ending on the Closing Date shall be:
(x) in the case of Taxes that are either (1) based upon or
related to income or receipts, or (2) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible), deemed equal to the amount which would be
payable if the taxable year or period ended on the Closing Date
(except that, solely for purposes of determining the marginal tax
rate applicable to income or receipts during such period in a
jurisdiction in which such tax rate depends upon the level of income
or re ceipts, annualized income or receipts may be taken into
account, if appropriate, for an equitable sharing of such Taxes); and
(y) in the case of Taxes not described in subparagraph (x)
above that are imposed on a period basis and measured by the level of
any item, deemed to be the amount of such Taxes for the entire period
(or, in the case of such Taxes determined on an arrears basis, the
amount of such Taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of
calendar days in the Interim Period ending on the Closing Date and
the denominator of which is the number of calendar days in the entire
relevant period.
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(iii) The Seller shall be liable for and shall pay all
applicable sales, transfer, recording, deed, stamp and other similar
taxes, including, without limitation, any real property transfer or gains
taxes (if any), resulting from the consummation of the transactions
contemplated by this Agreement.
(j) Purchaser and Seller Subsidiaries Indemnification. Except as
otherwise provided in Section 4.3(i), Purchaser and the Seller Subsidiaries
shall be liable for, and shall indemnify and hold Seller and any of its
Affiliates harmless against, (i) any and all Taxes imposed on the Seller
Subsidiaries relating or apportioned to any taxable year or portion thereof
ending after the Closing Date and (ii) the loss of any tax benefit solely as a
result of Purchaser's failure to take any action required under Section 4.3
necessary to effectuate the filing of the Section 338(h)(10) Election.
(k) Refunds or Credits. At the reasonable request of Seller,
Purchaser shall cooperate, or cause the Seller Subsidiaries to cooperate, with
Seller in obtaining any refunds or credits (including interest thereon), other
than any refunds or credits on the December 31, 1997 financial statements of the
Seller Subsidiaries, relating to Taxes for which Seller may be liable under
Section 4.3(i); provided, however, that Purchaser shall not be required to file
such claims for refund to the extent such claims for refund would have a
material adverse effect in future periods or to the extent the claims for refund
relate to a carryback of an item. Purchaser shall be entitled to all other
refunds and credits of Taxes; provided, however, it will not allow the amendment
of any Tax Return relating to any Taxes for a period ending on or prior to the
Closing Date or the carryback of an item to a period ending prior to Closing
without Seller's consent. For purposes of this Section 4.3(k), the terms
"refund" and "credit" shall include a reduction in Taxes and the use of an
overpayment of Taxes as an audit or other Tax offset. Receipt of a refund shall
occur upon the filing of a return or an adjustment thereto using such reduction,
overpayment or offset, or upon the receipt of cash.
(l) Mutual Cooperation. As soon as practicable, but in any event
within 30 days after either Seller's or Purchaser's request, Purchaser shall, or
shall cause the Seller Subsidiaries to, deliver to Seller or Seller shall
deliver to Purchaser, as the case may be, such information and other data
relating to the Tax Returns and Taxes of the Seller Subsidiaries and shall
provide such other assistance as may reasonably be requested, to cause the
completion and filing of all Tax Returns or to respond to audits by any taxing
authorities with respect to any Tax Returns or taxable periods or to otherwise
enable Seller, Purchaser or the Seller Subsidiaries to satisfy
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their accounting or Tax requirements. For a period of five years from and after
the Closing, Purchaser and Seller shall, and shall cause their Affiliates to,
maintain and make available to the other party, on such other party's reasonable
request, copies of any and all information, books and records referred to in
this Section 4.3(l). After such five-year period, Purchaser or Seller may
dispose of such information, books and records, provided that prior to such
disposition, Purchaser or Seller shall give the other party the opportunity to
take possession of such information, books and records.
(m) Contests. Whenever any taxing authority asserts a claim, makes an
assessment or otherwise disputes the amount of Taxes for which Seller is or may
be liable under this Agreement, Purchaser shall, if informed of such an
assertion, inform Seller within ten business days, and Seller shall have the
right to control any resulting proceedings and to determine whether and when to
settle any such claim, assessment or dispute to the extent such proceedings or
determinations affect the amount of Taxes for which Seller may be liable under
the Agreement except the Purchaser shall have the right to consent, which
consent will not be unreasonably withheld, to any settlement to the extent such
proceedings or settlement materially affect the amount of Taxes imposed on the
Seller Subsidiaries for periods beginning after the Pre-Closing Periods. If
Purchaser fails to provide such notice and such failure shall materially
prejudice Seller's ability to defend such assessment, then Seller's obligation
under Section 4.3(i) shall be null and void with regard to such assessment.
Whenever any taxing authority asserts a claim, makes an assessment or otherwise
disputes the amount of Taxes for which Purchaser is liable under this Agreement,
Purchaser shall have the right to control any resulting proceedings and to
determine whether and when to settle any such claim, assessment or dispute,
except that Seller shall have the right to consent, which consent shall not be
unreasonably withheld, to any settlement to the extent such proceedings
materially affect the amount of Taxes for which Seller is or may be liable under
this Agreement.
(n) Resolution of Disagreements Between Seller and Purchaser. If
either Seller or Purchaser disagrees as to the amount of Taxes for which it may
be liable under this Agreement or Seller and Purchaser are unable to agree as to
the Final Allocation, the parties shall promptly consult each other to resolve
such dispute following the receipt of written notice from either party to begin
such consultation (the "Consultation Notice"). If any such point of disagreement
cannot be resolved within 60 days of the date of the Consultation Notice, or in
the case of the Final Allocation, within the 60-day period required by Section
4.3(b), as appropriate, Seller and Purchaser shall within ten days after such
period jointly select a nationally recognized independent public accounting or
law firm which has not, except pursuant
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to this Section 4.3(n), performed any services since January 1, 1993, for Seller
or Purchaser or their respective Affiliates, to act as an arbitrator to resolve,
within 60 days after its selection, all points of disagreement concerning tax
matters with respect to this Agreement and presented to such accounting firm at
the time of its selection. If the parties cannot agree on the selection of an
accounting or law firm within such ten-day period, they shall cause their
respective accounting firms to select such firm within five business days of the
end of such ten-day period. Any such resolution shall be conclusive and binding
on Purchaser and Seller. The fees of such independent public accountants or law
firm shall be divided equally between Seller and Purchaser. Seller and Purchaser
shall (and shall cause the Seller Subsidiaries to) provide to such firm full
cooperation. Such firm shall be instructed to reach its conclusion regarding the
dispute within 60 days of its selection.
(o) Survival of Obligations. The obligations of the parties set forth
in Section 4.3 shall be unconditional and absolute, and shall remain in effect
until the expiration of the applicable statutes of limitations.
SECTION 4.4 Employee Matters.
(a) As of the Closing Date, Purchaser shall cause the Seller
Subsidiaries to continue to employ all persons who, immediately prior to the
Closing Date, were employees ("Company Employees") of the Seller Subsidiaries on
terms consistent with Purchaser's employment policies and benefit plans in
general effect at that time. Such employment may be with Purchaser, its
affiliates or with third party employee leasing companies, as determined by
Purchaser and shall be on terms mutually satisfactory to each Company Employee
and Purchaser. With respect to any employee benefits that are provided to
Company Employees under any of Purchaser's employee benefit plans, programs,
policies and arrangements, including vacation policies ("Purchaser Plans"),
service accrued by Company Employees during employment with Seller and the
Seller Subsidiaries prior to the Closing Date shall be recognized for all
purposes, except to the extent necessary to prevent duplication of benefits.
Nothing in this Section 4.4 shall require that the Purchaser (i) maintain any
particular benefit plan or benefit in effect for any period of duration
following the Closing Date, or (ii) continue to employ any individual for any
period of duration following the Closing Date, except as required by any
employment contract or laws.
(b) Purchaser agrees to assume and honor, and cause the Seller
Subsidiaries to assume and honor, without modification, all employment,
severance, retention, other incentive agreements and arrangements,
postretirement medical,
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dental and life insurance arrangements and all supplemental pension plans, as
amended through the date hereof (each, an "Employee Arrangement"), for the
benefit of any employees and former employees of the Company or any Company
Subsidiary. The Employee Arrangements set forth in Section 4.4(b) of the
Disclosure Schedule represent all the employment-related obligations of the
Seller Subsidiaries that will remain in effect following the Closing Date.
(c) Purchaser shall cause each Purchaser Plan to waive (i) any
pre-existing condition restriction which was waived under the terms of any
analogous Benefit Plan immediately prior to the Closing and (ii) waiting period
limitation which would otherwise be applicable to a Company Employee on or after
the Closing to the extent such Company Employee had satisfied any similar
waiting period limitation under an analogous Benefit Plan prior to the Closing.
Company Employees shall also be given credit for any deductible or co-payment
amounts paid in respect of the Benefit Plan year in which the Closing occurs, to
the extent that, following the Closing, they participate in any Purchaser Plan
for which deductibles or co-payments are required. For purposes of this
Agreement, "Company Employees" shall include those Company Employees who, as of
immediately prior to the Closing Date, are on lay-off, disability or leave of
absence, paid or unpaid.
(d) Purchaser shall have no liability or obligation whatsoever in
connection with options to purchase FHS common stock that were granted by FHS to
any Company employee; provided, however, that Company employees shall be
eligible for Purchaser equity incentives, subject to the discretion of the
compensation committee of the Board of Directors of the Purchaser.
(e) As soon as practicable following the Closing Date, all Company
Employees who are participants in the FHS 401(k) Associate Savings Plan, as
amended and restated as of September 1, 1997, shall be given the opportunity to
receive a distribution of their respective account balances and shall be given
the opportunity to elect to "roll over" such account balance to the Superior
National Insurance Company 401(k) Plan, as amended and restated (the "Superior
401(k) Plan"), in both cases subject to, and in accordance with, the provisions
of such Plans and applicable law. Prior to such distributions, (i) Purchaser
will provide FHS with such documents and other information as FHS shall
reasonably request to assure itself that the Superior 401(k) Plan and the trust
established pursuant thereto are qualified and tax-exempt under Sections 401(a)
and 501(a) of the Code and will accept eligible rollover distributions from
Company Employees and (ii) FHS shall provide Purchaser with such documents and
other information as Purchaser may reasonably request to assure itself that the
FHS 401(k) Associate Savings Plan and the trust established
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pursuant thereto are qualified and tax-exempt under Sections 401(a) and 501(a)
of the Code and can make eligible rollover distributions. If as of the date
hereof, the Superior 401(k) Plan will not accept eligible rollover distributions
from Company Employees, Purchaser shall cause such plan to be so amended as soon
as practicable following the Closing Date.
SECTION 4.5 Publicity. Purchaser and Seller shall, subject to their
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies), consult with each other and use reasonable
efforts to agree upon the text of any press release before issuing it or
otherwise making public statements with respect to the transactions contemplated
by this Agreement.
SECTION 4.6 Approvals and Consents; Cooperation; Notification.
(a) The parties shall use all reasonable efforts, and cooperate with
each other, to obtain as promptly as practicable all Permits and third-party
consents necessary or advisable to consummate the transactions contemplated by
this Agreement, and each party shall keep the other apprised of the status of
matters relating to completion of the transactions contemplated hereby.
Purchaser and Seller shall have the right to review in advance, to the extent
reasonably practicable, and shall consult with the other on, in each case
subject to applicable laws relating to the exchange of information, all the
information relating to Seller, the Seller Subsidiaries or Purchaser, as the
case may be, and any of their respective Affiliates, which appears in any filing
made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement, provided, however, that nothing contained herein shall be deemed to
provide either party with a right to review any information provided to any
Governmental Entity on a confidential basis in connection with the transactions
contemplated hereby. The party responsible for any such filing shall promptly
deliver to the other party evidence of the filing of all applications, filings,
registrations and notifications relating thereto (except for any confidential
portions thereof), and any supplement, amendment or item of additional
information in connection therewith (except for any confidential portions
thereof). The party responsible for a filing shall, to the extent reasonably
requested, also promptly deliver to the other party a copy of each material
notice, order, opinion and other item or correspondence received by such filing
party from any Governmental Entity in respect of any such application (except
for any confidential portions thereof).
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(b) Seller and Purchaser shall use all reasonable efforts to file as
soon as practicable all notifications, filings and other documents required to
obtain all governmental authorizations, approvals, consents or waivers,
including, without limitation, under the HSR Act, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice and any other Governmental
Entity for additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection therewith.
(c) Without limiting the generality of the foregoing, within 20
business days after the date hereof, Purchaser shall, if applicable as required
by law, make Form A filings with the insurance departments of the states listed
in Section 2.11(b) of the Disclosure Schedule with respect to the transactions
contemplated hereby. Purchaser shall promptly make any and all other filings and
submissions of information with such insurance departments which are required or
requested by such insurance departments to obtain the approvals required by such
insurance departments to consummate the transactions contemplated hereby. Seller
agrees to furnish Purchaser with such information and reasonable assistance as
Purchaser may reasonably request in connection with its preparation of such
Form A filings and other filings or submissions. Purchaser shall keep Seller
fully apprised of its actions with respect to all such filings and submissions
and shall provide Seller with copies of such Form A filings and other filings or
submissions in connection with the transactions contemplated by this Agreement
(except for any confidential portions thereof).
(d) Purchaser and Seller shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
(e) Seller shall give prompt notice to Purchaser of the occurrence of
any Seller Material Adverse Effect, and Purchaser shall give prompt notice to
Seller of the occurrence of any Purchaser Material Adverse Effect. Each of
Seller and Purchaser shall give prompt notice to the other of the occurrence or
failure to occur of an event that would, or, with the lapse of time would, cause
any condition to the consummation of the transactions contemplated hereby not to
be satisfied.
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SECTION 4.7 No Solicitation. Seller shall not, directly or
indirectly, through any Affiliate, officer, director, employee, investment
banker, attorney, representative or agent of Seller or any of the Seller
Subsidiaries, solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, an Acquisition Proposal
(as hereinafter defined). Seller will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. For purposes of this
Agreement, "Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving the
Seller Subsidiaries or the acquisition of any equity interest in, or a
substantial portion of the assets of, the Seller Subsidiaries, other than the
transactions contemplated by this Agreement.
SECTION 4.8 Excluded Assets, Real Property.
(a) Seller and the Seller Subsidiaries shall take all actions
necessary to cause the Excluded Assets to be transferred (by dividend or
otherwise) to one or more other Affiliates of Seller so that such other
Affiliates acquire valid title to the Excluded Assets prior to the Closing.
(b) Seller and the Seller Subsidiaries shall take all actions
necessary to cause all right, title or interest in any real property owned by
any Seller Subsidiary prior to the Closing Date, whether held for use or for
investment, to be transferred (by dividend or otherwise) to one or more other
Affiliates of the Seller so that such other Affiliates prior to the Closing
acquire all ownership rights and title to such real property assets previously
held by a Seller Subsidiary. Seller, or another Affiliate of the Seller, shall
replace the book value of all the owned real estate assets so transferred with
cash (or cash equivalents reasonably acceptable to Purchaser) equal in value to
such book value at the date of transfer.
SECTION 4.9 Intercompany Accounts.
All intercompany accounts and Item 5 on Section 2.18 of the
Disclosure Schedule (an administrative service agreement between the Company and
FHS, effective 10/1/97), including, without limitation, the August 23, 1994
promissory note from Seller to CalComp in the principal amount of $10,000,000,
as set forth in Section 4.9 of the Disclosure Schedule, between the Seller
Subsidiaries, on the one hand, and Seller or its Affiliates on the other hand
("Intercompany Accounts") will be terminated at or before the Closing, and, if
practicable, settled at or before the Closing, and if not, then as soon as
practicable after the Closing Date and, in any event, within 60 days thereafter,
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provided, that all principal and accrued interest under the promissory notes set
forth in Section 4.9 of the Disclosure Schedule will be paid in full at the
Closing.
SECTION 4.10 Reserve Cover.
(a) Prior to the Closing, Seller shall cause the Seller Subsidiaries
to purchase $150,000,000 of adverse development protection on loss and allocated
loss adjustment expense reserves for claims occurring on or before December 31,
1997, pursuant to the Reinsurance Agreement. If Purchaser should determine while
the Reinsurance Agreement is in effect to commute it, Purchaser shall pay to
Seller, as soon as is practicable, one-half of (a) the then fair market value of
the returned assets less (b) the sum of (i) the then net present value (using a
discount rate reasonably acceptable to the parties) of the commuted reserves,
plus (ii) the tax cost of the commutation. Should Seller and Purchaser not agree
upon the fair market value of such assets, the net present value of such
commutation reserves or the tax costs of such commutation, they shall mutually
retain Ernst & Young LLP ("E&Y") to act as an independent actuary (the
"Independent Actuary") to determine the correct value and shall be bound by its
determination. If E&Y shall decline to serve in such capacity or has a conflict
with either of the parties, the parties shall agree on the appointment of the
Independent Actuary within a 10 day period. If the parties cannot agree upon the
selection of the Independent Actuary within a ten-day period, they shall cause
their respective accounting firms to select such firm within five business days
of the end of such ten-day period. Any such resolution shall be conclusive and
binding on Purchaser and Seller. Seller and Purchaser shall (and shall cause the
Seller Subsidiaries to) provide to such firm full cooperation. Such firm shall
be instructed to reach its conclusion regarding the dispute within 60 days of
its selection. The cost of the Independent Actuary's services shall be evenly
borne by Seller and Purchaser and shall be paid by Purchaser out of the
commutation savings proceeds, evenly reducing the proceeds available to each
party, prior to paying to Seller its portion of the commutation savings.
(b) Within 60 days of the date hereof (but in any event at least five
days prior to the Closing Date), Purchaser may request, in writing, and, if
requested, Seller agrees it shall cause the Seller Subsidiaries to increase the
amount of reinsurance cover by $25,000,000, consistent with the terms of the
Reinsurance Agreement, for aggregate ultimate net losses incurred by Seller
Subsidiaries on or prior to June 30, 1998 for losses occurring on or prior to
that portion of the 1998 accident year commencing on January 1, 1998 to and
including June 30, 1998, in exchange for a
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$5,000,000 increase in the purchase price payable at the Closing by Purchaser
pursuant to Section 1.2.
SECTION 4.11 Audited Financial Statements; Quarterly Statements.
(a) As soon as practical after the date hereof but in no event after
45 days following the date hereof, Seller shall deliver to Purchaser audited
GAAP financial statements for the Seller Subsidiaries, on a consolidated basis,
for each of the years ended on December 31, 1995, December 31, 1996 and December
31, 1997, including a balance sheet as of the latter two dates, and the
statements of operations, shareholders' equity and cash flows, and the related
management letters for the periods ending on each of such dates (collectively
the "Audited Financial Statements").
(b) Within 30 days after the end of each fiscal quarter after the
date hereof prior to the Closing, Seller shall deliver to Purchaser quarterly
GAAP financial statements (the "Quarterly Financial Statements") for the Seller
Subsidiaries, on a consolidated basis, including a balance sheet as of the end
of each quarter and statements of operations for each 1998 quarterly period then
ended, in a form sufficient for filing as part of Purchaser's proxy statement.
(c) Upon the reasonable request of Purchaser, Seller shall promptly
provide, or cause to be provided, to Purchaser such information as may be
reasonably required by Purchaser in connection with its Proxy Statement (as
defined below) and all other documents required to be filed by Purchaser in
order to consummate the transactions contemplated hereby.
SECTION 4.12 Related Party Service Agreements. Purchaser shall enter
into the Service Agreements with certain related parties of Seller on terms
consistent with the terms of Exhibits B-1 through B-4.
SECTION 4.13 Lease Renewals. Purchaser and Seller shall use all
reasonable efforts in good faith to negotiate leases of three years in duration
(or such shorter period of time as may be remaining on the applicable underlying
lease) for all properties and facilities of the Seller Subsidiaries where the
use of such property or facility by a Seller Subsidiary is not the subject of a
lease, or the use by an Affiliate of a Seller Subsidiary is not the subject of a
lease. The monthly rents payable on such new leases will be equal to the total
monthly rental cost of the Seller's Affiliate for such facility times the
percentage of the space (based on square footage) to be used by
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the Seller Subsidiary. All lease agreements in effect on the date of this
Agreement shall be honored for their remaining term by both Purchaser and
Seller.
SECTION 4.14 Further Assurances. (a) Each party agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement.
(b) Purchaser will use all reasonable efforts to cause a stockholder
or stockholders of Purchaser holding at least 5% of the outstanding common stock
of Purchaser who have not entered into Voting Agreements on or prior to the date
hereof to enter into a Voting Agreement as soon as practicable after the date
hereof.
SECTION 4.15 State Insurance Regulatory Approval for CCIC.
Notwithstanding the provision of Section 6.1(c), in the event that Purchaser is
unable to obtain state insurance regulatory approval to acquire CCIC within five
(5) business days after the receipt of state insurance regulatory approval for
all of the other Insurance Subsidiaries, Seller shall have the right to treat
CCIC as an "Excluded Asset" by providing written notice (the "CCIC Notice") to
Purchaser of its election to distribute the stock of CCIC out of the Company.
Following delivery of the CCIC Notice:
(i) CCIC will be deemed to be an "Excluded Asset" and will no
longer be treated as an "Insurance Subsidiary" for all purposes under the
Agreement;
(ii) the Purchase Price will be reduced by 80% of the net book
value of CCIC included in the most recent Quarterly Financial Statement
delivered to Purchaser (the "CCIC Value");
(iii) Purchaser and Seller agree to negotiate in good faith to
enter into an interim management agreement prior to Closing pursuant to
which Seller will agree to continue to operate CCIC, at Purchaser's full
cost and risk, consistent with the terms of Section 4.1 of this Agreement
until Seller is able to secure the necessary state insurance regulatory
approval to acquire all of the capital stock of CCIC;
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(iv) Seller agrees that it will take all steps reasonably
necessary to secure such state insurance regulatory approval as soon as
possible after the delivery of the CCIC Notice;
(v) Purchaser agrees that it will purchase the capital stock of
CCIC from Seller or its Affiliates, subject only to receipt of the
necessary state insurance regulatory approvals and the Closing, for a
price equal to the CCIC Value plus interest on such amount from the date
of Closing until the date of purchase of the capital stock of CCIC
accruing at a rate of 10% per annum (the "CCIC Purchase");
(vi) upon consummation of the CCIC Purchase, CCIC will be deemed
to be an "Insurance Subsidiary" as of the Closing Date; and
(vii) notwithstanding the foregoing, Seller will be free to sell
the capital stock or assets of CCIC to a third party at any time after
twelve (12) months after the Closing Date after which time Purchaser will
no longer have the obligation to purchase CCIC pursuant to this Section
4.15.
SECTION 4.16 Stockholder Approval and Financing. Purchaser shall, as
promptly as practicable, after the date hereof prepare and file with the
Securities Exchange Commission a proxy statement (the "Proxy Statement") and
take such other actions necessary in accordance with applicable law and its
Certificate of Incorporation and bylaws to convene a meeting of its stockholders
to consider and vote upon the approval of the transaction contemplated by the
Financing Agreements in connection with the consummation of the transactions
contemplated by this Agreement. The Proxy Statement shall include the
recommendation of the Board of Directors of Purchaser that its stockholders vote
in favor of those matters requiring their approval in order to consummate the
transactions contemplated by this Agreement and the Financing Agreements. The
Board of Directors of Purchaser shall take all reasonable steps to solicit and
obtain such approval. The Purchaser agrees to use its best efforts to arrange
and complete financing of the transactions as contemplated by the Financing
Agreements, including taking all steps necessary to enforce its rights under the
Financing Agreements. Purchaser further agrees that prior to the Closing it will
not amend the terms of the IP Stock Purchase Agreement without the prior written
consent of Seller if such amendments would adversely effect the completion of
the Financing Agreements.
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ARTICLE V
INDEMNIFICATION
SECTION 5.1 Indemnification by Seller. Subject to the limits set
forth in this Article V, Seller agrees to indemnify, defend and hold Purchaser,
its officers, directors, agents and Affiliates (the "Purchaser Indemnified
Parties"), harmless from and in respect of any and all losses, damages, costs
and reasonable expenses (including, without limitation, reasonable expenses of
investigation and defense fees and disbursements of counsel and other
professionals and losses in connection with any clean-up or remedial action
pursuant to Environmental Laws), (collectively, "Losses"), that they may incur
arising out of or due to any inaccuracy of any representation or the breach of
any warranty, covenant, undertaking or other agreement of Seller contained in
this Agreement or the Disclosure Schedule; provided, however, that Seller shall
have no liability to Purchaser under this Section 5.1 unless Purchaser
Indemnified Parties shall have met the aggregate deductible requirements of
Section 5.3. Notwithstanding any other provision of this Agreement, including
this Section 5.1, the Seller shall have no obligation to indemnify, or otherwise
have any liability to, the Purchaser Indemnified Parties for any Loss arising
out of, or relating to the business or operations of the Seller Subsidiaries
following the date hereof (the "Excluded Losses"), including without limitations
any Excluded Breach (as defined below) unless written notice of a Loss occurring
during the first 20 business days after the date hereof is provided as
contemplated by Section 7.1(e) within 35 days following the date hereof.
SECTION 5.2 Indemnification by Purchaser. Subject to the limits set
forth in this Article V, Purchaser agrees to indemnify, defend and hold Seller,
its officers, directors, agents and Affiliates, harmless from and in respect of
any and all Losses that they may incur (i) arising out of or due to any
inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of Purchaser contained in this Agreement and (ii)
arising out of any and all actions, suits, claims and administrative or other
proceedings of every kind and nature instituted or pending against Seller or any
of its Affiliates at any time after the Closing Date to the extent that such
Losses (x) relate to or arise out of or in connection with the assets,
businesses, operations, conduct, products, environmental conditions or
violations of Environmental Laws and/or employees (including former employees)
of the Seller Subsidiaries relating to or arising out of or in connection with
occurrences after the Closing Date and (y) do not arise out of a breach of
Seller's
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representations and warranties in, or a default in the performance of any of
Seller's covenants under, this Agreement;
SECTION 5.3 Survival of Representations and Warranties. The several
representations and warranties of the parties contained in this Agreement or in
any instrument delivered pursuant to this Agreement will survive the Closing
Date and will remain in full force and effect thereafter for a period of one
year from the Closing Date; provided, however, that the representations and
warranties contained in Section 2.12 shall be governed by Section 4.3 and the
representations and warranties contained in Section 2.19 will survive the
Closing Date for a period of two years from the Closing Date; provided, further,
that such representations or warranties shall survive (if at all) beyond such
period with respect to any inaccuracy therein or breach thereof, notice of which
shall have been duly given within such one year or two years time period, as
applicable, in accordance with Section 5.4. Other than as stated in the tax
indemnity in Section 4.3, anything to the contrary contained herein
notwithstanding, neither party shall be entitled to recover from the other
unless and until the total of all claims for indemnity or damages with respect
to any inaccuracy or breach of any such representations or warranties or breach
of any covenants, undertakings or other agreements, whether such claims are
brought under this Article V or otherwise (other than, in each case, the
Excluded Losses), exceeds $5,000,000 and then only for the amount by which such
claims for indemnity or damages exceed $5,000,000; provided, however, that no
party shall be entitled to recover from the other more than $50,000,000 in the
aggregate pursuant to this Article V.
SECTION 5.4 Notice and Opportunity to Defend. If an event occurs
which a party asserts is an indemnifiable event pursuant to Section 5.1 or 5.2,
the party seeking indemnification shall promptly notify the other party
obligated to provide indemnification (the "Indemnifying Party"). If such event
involves (i) any claim or (ii) the commencement of any action or proceeding by a
third person, the party seeking indemnification will give such Indemnifying
Party prompt written notice of such claim or the commencement of such action or
proceeding, provided, however, that the failure to provide prompt notice as
provided herein will relieve the Indemnifying Party of its obligations hereunder
only to the extent that such failure prejudices the Indemnifying Party
hereunder. If any such action is brought against any party seeking
indemnification and it notifies the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall be entitled to participate therein and, to
the extent that it wishes, at its cost, risk and expense to assume the defense
thereof, with counsel reasonably satisfactory to the party seeking
indemnification, unless the named party to such action or proceeding includes
both an Indemnifying
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Party and a party seeking indemnification and the party seeking indemnification
has been advised in writing by counsel that there may be one or more legal
defenses available to such party that are different from or additional to those
available to the Indemnifying Party, in which event the party seeking
indemnification shall be entitled, at the Indemnifying Party's reasonable cost
and expense to separate counsel of its own choosing reasonably acceptable to the
Indemnifying Party. After notice from the Indemnifying Party to the party
seeking indemnification of such election to so assume the defense thereof, the
Indemnifying Party shall not be liable to the party seeking indemnification for
any legal expenses of other counsel or any other expenses subsequently incurred
by such party in connection with the defense thereof. The party seeking
indemnification agrees to cooperate in all reasonable respects with the
Indemnifying Party and its counsel in the defense against any such asserted
liability. The party seeking indemnification shall have the right to participate
at its own expense in the defense of such asserted liability. The Indemnifying
Party shall be entitled to compromise or settle any claim as to which it is
providing indemnification, which compromise or settlement shall be made only
with the written consent of the party being indemnified, such consent not to be
unreasonably withheld. If an Indemnifying Party fails to assume the defense of a
claim within 30 calendar days after receipt of the notice of claim by the
Indemnifying Party, the party seeking indemnification, against which such claim
has been asserted, will, upon delivering notice to such effect to the
Indemnifying Party, have the right to undertake, at the Indemnifying Party's
reasonable cost and expense subject to the limitations set forth in this Article
V, the defense, compromise or settlement of such claim on behalf of and for the
account of the Indemnifying Party subject to the limitations set forth in this
Article V; provided, however, that such claim shall not be compromised or
settled without the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld. If the party seeking indemnity assumes the
defense of the claim, it shall keep the Indemnifying Party reasonably informed
of the progress of any such defense, compromise or settlement. In no event shall
an Indemnifying Party be liable for any settlement effected without its consent,
which will not be unreasonably withheld.
SECTION 5.5 Adjustment for Insurance and Taxes. The amount which an
Indemnifying Party is required to pay to, for or on behalf of the other party
(hereinafter referred to as an "Indemnitee") pursuant to this Article V and
Section 4.3 shall be adjusted (including, without limitation, retroactively) (i)
by any insurance proceeds actually recovered by or on behalf of such Indemnitee
in reduction of the related indemnifiable loss (the "Indemnifiable Loss") and
(ii) to take account of any tax benefit actually realized as a result of any
Indemnifiable Loss, less the cost of
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procuring such insurance proceeds or tax benefit. Amounts required to be paid,
as so reduced, are hereinafter sometimes called an "Indemnity Payment." If an
Indemnitee has received or has had paid on its behalf an Indemnity Payment for
an Indemnifiable Loss and subsequently receives insurance proceeds for such
Indemnifiable Loss, or realizes any tax benefit as a result of such
Indemnifiable Loss, then the Indemnitee shall (i) promptly notify the
Indemnifying Party of the amount and nature of such proceeds and benefits,
together with the cost of procuring them, and (ii) pay to the Indemnifying Party
the amount of such insurance proceeds or tax benefit (reduced by such
procurement cost), or, if lesser, the amount of the Indemnity Payment.
SECTION 5.6 Mitigation of Loss. Each Indemnitee is obligated to use
its reasonable efforts to mitigate the amount of any Loss for which it is
entitled to seek indemnification hereunder, and the Indemnifying Party shall not
be required to make any payment to an Indemnitee in respect of such Loss to the
extent such Indemnitee failed to comply with the foregoing obligation.
SECTION 5.7 Subrogation. Upon making any Indemnity Payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the Loss to which
the payment relates; provided, however, that until the Indemnitee recovers full
payment of its Loss, any and all claims of the Indemnifying Party against any
such third party on account of such payment are hereby made expressly
subordinated and subjected in right of payment of the Indemnitee's rights
against such third party. Without limiting the generality of any other provision
hereof, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the above
described subrogation and subordination rights.
SECTION 5.8 Tax Indemnification. None of the provisions of this
Article V, with the exception of Section 5.5, shall apply to the claims,
obligations, liabilities, covenants and representations under Section 4.3, which
shall be governed solely by the terms thereof.
SECTION 5.9 Set-Off. Neither Seller nor Purchaser shall have any
right to set-off any Losses against any payments to be made by such party or
parties pursuant to this Agreement or the Service Agreements, except as
otherwise expressly provided herein or therein.
SECTION 5.10 Exclusive Remedy. Following the Closing, the indemnities
provided for in this Article V shall be the sole and exclusive remedies of
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the parties and their respective officers, directors, employees, Affiliates,
agents, representatives, successors and assigns for any breach of or inaccuracy
in any representation or warranty or any breach, nonfulfillment or default in
the performance of any of the covenants or agreements contained in this
Agreement (but not any such covenants or agreements to the extent they are by
their terms to be performed after the Closing Date). The parties shall not be
entitled to a recission of this Agreement or to any further indemnification
rights or claims of any nature whatsoever in respect thereof (whether by
contract, common law, statute, law, regulation or otherwise, including, without
limitation, under the Racketeer Influence and Corrupt Organizations Act of
1970, as amended), all of which the parties hereby waive, provided, however,
that nothing herein is intended to waive any claims for intentional fraud.
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Closing. The obligations of Seller, on the one hand, and Purchaser, on the other
hand, to consummate the Closing are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of the
following conditions:
(a) no arbitrator or Governmental Entity shall have issued any order,
decree or ruling, and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of the material
transactions contemplated by this Agreement; provided that the parties shall
have used all reasonable efforts to cause any such order, decree, ruling,
statute, rule or regulation to be vacated or lifted;
(b) any waiting period applicable to the transactions contemplated
hereby under the HSR Act shall have expired or been terminated;
(c) the required state insurance regulatory approvals of the
consummation of the transactions contemplated hereunder (the "State Insurance
Regulatory Approval"), including the approval of the California Department of
Insurance pursuant to California Insurance Code Section 1215 et seq., shall have
been obtained, provided, that if Purchaser is unable to obtain Insurance
Regulatory Approval for CCIC and Seller has exercised its right under Section
4.15 to treat CCIC
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as an Excluded Asset, this Section 6.1(c) shall be deemed satisfied with respect
to CCIC; and
(d) all authorizations, approvals or consents required to permit the
consummation of the transactions contemplated hereby shall have been obtained
and be in full force and effect, except where the failure to have obtained any
such authorizations, approvals or consents would not have a Seller Material
Adverse Effect or a Purchaser Material Adverse Effect, as the case may be.
SECTION 6.2 Conditions to the Obligations of Purchaser. The
obligations of Purchaser to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Purchaser) of the following further
conditions:
(a) the representations and warranties of Seller shall be true and
accurate as of the Closing Date as if made at and as of such time (other than
(i) Section 2.8 and (ii) those representations and warranties that address
matters only as of a particular date or only with respect to a specific period
of time which need to be true and accurate only as of such date or with respect
to such period), except (x) where the failure of such representations and
warranties to be so true and accurate (without giving effect to any limitation
as to "materiality" or "material adverse effect" set forth therein), would not
have, a Seller Material Adverse Effect or (y) where the failure of such
representations to be true and accurate arises out of, or relates to, the
business or operations of the Seller Subsidiaries following the date hereof (an
"Excluded Breach"), unless written notice of such failure or inaccuracy
occurring within the first 20 business days after the date hereof is provided as
contemplated by Section 7.1(e) within 35 days following the date hereof;
(b) Seller shall have performed in all material respects the
obligations hereunder required to be performed by it at or prior to the
Closing Date;
(c) Purchaser shall have received an incumbency certificate and a
certificate signed by two executive officers of Seller, dated as of the Closing
Date, to the effect that the conditions set forth in Section 6.2(a) and Section
6.2(b) have been satisfied;
(d) the Seller Subsidiaries shall have entered into the Reinsurance
Agreement;
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(e) all Intercompany Accounts have been terminated as of the Closing
Date;
(f) Seller shall have entered into the Transitional Services
Agreement contemplated by Exhibit B-4 hereto;
(g) Purchaser shall have received letters of resignation from each of
the members of the Board of Directors of each Seller Subsidiary, which resigna-
tions shall be effective as of the Closing Date;
(h) the Company shall have no subsidiaries other than the Insurance
Subsidiaries; and
(i) Seller shall have delivered copies to Purchaser of all
certificates of good standing, certificates of qualification and certificates
of authority for each Seller Subsidiary consistent with the disclosure provided
in Section 2.11(b) of the Disclosure Schedules.
SECTION 6.3 Conditions to the Obligations of Seller. The obligations
of Seller to consummate the transactions contemplated hereby are subject to the
satisfaction (or waiver by Seller) of the following conditions:
(a) the representations and warranties of Purchaser shall be true and
accurate as of the Closing Date as if made at and as of such time (other than
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need to
be true and accurate only as of such date or with respect to such period),
except where the failure of such representations and warranties to be so true
and accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) would not have a Purchaser Material
Adverse Effect;
(b) Purchaser shall have performed in all material respects all of
the obligations hereunder required to be performed by Purchaser, at or prior to
the Closing Date;
(c) Seller shall have received an incumbency certificate and a
certificate signed by two executive officers of Purchaser, dated as of the
Closing Date, to the effect that the conditions set forth in Section 6.3(a) and
Section 6.3(b) have been satisfied;
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(d) Purchaser shall have delivered executed copies of each of the
Service Agreements; and
(e) at the Closing, Purchaser shall have delivered to Seller a
certificate (which certificate shall survive the Closing) to the effect that (i)
Purchaser has conducted and is satisfied with the results of its business,
accounting and legal due diligence review of the Shares and the business and
affairs of Seller and the Seller Subsidiaries and (ii) in completing the
transactions contemplated in accordance with this Agreement, Purchaser has not
and is not relying on any representation or warranty of Seller or the Seller
Subsidiaries which is not expressly stated in this Agreement.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing Date:
(a) by the mutual consent of Seller and Purchaser;
(b) by Seller or Purchaser:
(i) if the Closing shall not have occurred on or prior to
November 30, 1998 (or December 31, 1998 if the only condition remaining
unfulfilled at November 30, 1998 is approval by any required Governmental
Entity and Seller and Purchaser are continuing to seek to obtain such
approval); provided, however, that the right to terminate this Agreement
under this Section 7.1(b)(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or prior to
such date; or
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use all reasonable efforts to lift),
in each case permanently restraining, enjoining or otherwise prohibiting
the material
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transactions contemplated by this Agreement, and such order, decree,
ruling or other action shall have become final and non-appealable;
(c) by Seller if Purchaser (x) breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect and such breach would have a Purchaser Material Adverse Effect,
in each case such that the conditions set forth in Section 6.1 or Section 6.3
would not be satisfied; provided, however, that if any such breach is curable
within a reasonable period of time by Purchaser through the exercise of
Purchaser's best efforts and for so long as Purchaser shall be so using its best
efforts to cure such breach, Seller may not terminate this Agreement pursuant to
this Section 7.1(c);
(d) by Purchaser if Seller (x) breaches or fails in any material
respect to perform or comply with any of their material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect (other than Excluded Breaches) and such breach would have a
Seller Material Adverse Effect, in each case such that the conditions set forth
in Section 6.1 or Section 6.2 would not be satisfied; provided, however, that if
any such breach is curable within a reasonable period of time by Seller through
the exercise of Seller's best efforts and for so long as Seller shall be so
using its best efforts to cure such breach, Purchaser may not terminate this
Agreement pursuant to this Section 7.1(d);
(e) by Purchaser if, from the date of this Agreement through to the
Closing Date, there shall have occurred a "Material Adverse Change," as
hereinafter defined, in the financial condition, business or operations of the
Seller Subsidiaries, taken as a whole. A "Material Adverse Change", for purposes
of this Section 7.1(e), means (i) during the twenty (20) business days following
the date of this Agreement, any change in the business or operations of the
Seller Subsidiaries that meets the definition of a Seller Material Adverse
Effect and with respect to which Purchaser provides Seller, within thirty-five
(35) days following the date hereof, written notice of its desire to terminate
this Agreement pursuant to this Section 7.1(e) and (ii) after such twenty (20)
business day period, subject to the right to provide written notice as provided
by the immediately preceding clause (i), until the Closing Date, a change in the
business or operations of the Seller Subsidiaries that meets the definition of a
Seller Material Adverse Effect, other than a Seller Material Adverse Effect
arising out of, or relating to, the business or operations of the Seller
Subsidiaries after the date hereof or the matters disclosed in the Disclosure
Schedules; or
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(f) by Seller if (x) Purchaser, its board of directors or officers
fails to recommend to Purchaser's stockholders, or withdraws, revokes or
otherwise adversely modifies its approval or recommendation of the transactions
contemplated hereby or (y) the stockholders of Purchaser fail to approve those
matters requiring their approval in order to consummate the transactions
contemplated hereby.
SECTION 7.2 Procedure and Effect of Termination. In the event of the
termination and abandonment of this Agreement by Seller or Purchaser pursuant to
Section 7.1, written notice thereof shall forthwith be given to the other party.
If the transactions contemplated by this Agreement are terminated as provided
herein:
(a) each party will return all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) all confidential information received by either party with
respect to the business of any other party or its subsidiaries or Affiliates
shall be treated in accordance with the provisions of the Confidentiality
Agreement, which shall survive the termination of this Agreement; and
(c) neither party will have any liability under this Agreement to the
other except (i) as stated in subparagraphs (a) and (b) of this Section 7.2,
(ii) for any willful breach of any provision of this Agreement and (iii) as
provided in the Confidentiality Agreement.
SECTION 7.3 Breakup Fee. In the event that the conditions to closing
set forth in Article VI with respect to a party have been met and there is no
basis for such party to terminate this Agreement pursuant to Section 7.1, yet,
upon written request, such party does not agree upon and does not meet a
reasonable schedule to set the Closing Date and complete the Closing, then such
party shall be deemed to have wrongfully failed to close and the other party
shall be entitled to: (a) obtain injunctive relief to require the Closing to
occur; or (b) receive a $15,000,000 payment from the other party and seek
additional monetary damages from the other party, if any, provided, however,
that the occurrence of the Closing shall preclude in full the availability of
alternative (b). In addition, in the event Seller terminates the Agreement
pursuant to Section 7.1(f), Seller shall be entitled to receive a $15,000,000
payment from Purchaser and seek additional monetary damages, if any. Any payment
required above shall be paid in immediately available funds within three (3)
business
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days of the demand for such payment and shall accrue interest at LIBOR plus 2%
per annum. For the purposes of this Agreement, "LIBOR" shall mean "LIBOR" as
defined in FHS's senior credit facility.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Governing Laws and Consent to Jurisdiction. The laws of
the State of Delaware (irrespective of its choice of law principles) shall
govern all issues concerning the validity of this Agreement, the construction of
its terms and the interpretation and enforcement of the rights and duties of the
parties. Each party irrevocably submits to the exclusive jurisdiction of the
federal courts of the United States of America located in Los Angeles County,
California (and federal courts having jurisdiction over appeals therefrom) in
respect of the transactions contemplated by this Agreement, the other agreements
and documents referred to herein and the transactions contemplated by this
Agreement and such other documents and agreements.
SECTION 8.2 Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all respects
by written agreement of the parties at any time prior to the Closing Date with
respect to any of the terms contained herein.
SECTION 8.3 Notices. All notices, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon actual receipt or when delivered by hand or by FedEx or a similar overnight
courier, (ii) five days after being deposited in any United States Post Office
enclosed in a postage prepaid, registered or certified envelope addressed or
(iii) when successfully transmitted by telecopier (with a confirming copy of
such communication to be sent as provided in clause (i) or (ii) above), to the
receiving party during regular business hours at the address or telecopier
number set forth below (or at such other address or telecopier number for a
party as shall be specified by like notice), provided, however, that any notice
of change of address or telecopier number shall be effective only upon receipt:
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(a) if to Purchaser, to:
Superior National Insurance Group, Inc.
00000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
Attention: J. Xxxxx Xxxxxx
with a copy to:
Xxxxxxx & XxXxxxxx
0000 Xxxxx Xxxxxx, Xxxxx #000
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
(b) if Seller, to:
Foundation Health Systems, Inc.
000 Xxxxx Xxxx
Xxxxxx, XX 00000
Telephone : (000) 000-0000
Telecopy No: (000) 000-0000
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Xxxxxxx &
Xxxx (Illinois)
000 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Telephone No.: (000 000-0000
Telecopy No.: (000 000-0000
Attention: Xxxxx X. Xxxxx, Esq.
SECTION 8.4 Interpretation.
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(a) The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified. The words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. As used in this Agreement, the term "Affiliate(s)" shall have the
meaning set forth in Rule l2b-2 of the Securities Exchange Act of 1934, as
amended. The phrases "to the knowledge of," "to a party's best knowledge," or
any similar phrase shall mean such facts and other information which as of the
date of determination are actually known to any vice president or chief
financial officer and any officer superior to any of the foregoing, of the
referenced party. The phrase "made available" in this Agreement shall mean that
the information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement," "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to May 5, 1998. As used in this
Agreement, the term "business day" means a day, other than a Saturday or a
Sunday, on which banking institutions in the city of Los Angeles are open. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties,
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement.
(b) The Disclosure Schedule shall be construed with and as an
integral part of this Agreement as if the same had been set forth verbatim
herein. Any matter disclosed pursuant to the Disclosure Schedule shall be deemed
to be disclosed for all purposes under this Agreement, but such disclosure shall
not be deemed to be an admission or representation as to the materiality of the
item so disclosed.
(c) Headings are for convenience of the parties only and shall be
given no substantive or interpretative effect whatsoever.
(d) Notwithstanding the provisions of Section 1.2, the Purchase Price
shall be increased by the amount of any capital contributions made to the
Company after December 31, 1997 in order to fund any capital contributions or
any other payment (a "Governmental Payment"), in an amount not to exceed
$25,000,000,
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which are required by any Governmental Entity (as defined below) and such
increase shall be payable by wire transfer of immediately available funds to an
account designated by Seller; provided that an increase in the Purchase Price
attributable to Governmental Payments in excess of $10,000,000 shall be paid in
the form of a senior note from Purchaser (the "Purchaser Note") with the
principal amount thereon due three years from the Closing Date and bearing a
rate of interest, payable quarterly, equal to the interest on the senior notes
to be issued by Purchaser pursuant to the Financing Agreements. The Purchaser
Note, if any, shall be in a form reasonably acceptable to Seller and Purchaser.
SECTION 8.5 Counterparts. This Agreement may be executed in multiple
counterparts, all of which shall together be considered one and the same
agreement.
SECTION 8.6 Entire Agreement; Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement and the Disclosure Schedule (i) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and (ii)
except as provided herein, are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
SECTION 8.7 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 8.8 Service of Process. Each party irrevocably consents to
the service of process outside the territorial jurisdiction of the courts
referred to in Section 8.1 hereof in any such action or proceeding by mailing
copies thereof by registered United States mail, postage prepaid, return receipt
requested, to its address as specified in or pursuant to Section 8.3 hereof.
However, the foregoing shall not limit the right of a party to effect service of
process on the other party by any other legally available method.
SECTION 8.9 Specific Performance. Each party acknowledges and agrees
that in the event of any breach of this Agreement, each non-breaching
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party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that, subject to the terms of Section
7.3, the parties will (a) waive, in any action for specific performance, the
defense of adequacy of a remedy at law and (b) be entitled, in addition to any
other remedy to which they may be entitled at law or in equity, to compel
specific performance of this Agreement in any action instituted in accordance
with Section 8.1.
SECTION 8.10 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
(whether by operation of law or otherwise) without the prior written consent of
the other party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and assigns.
SECTION 8.11 Expenses. Except as otherwise provided herein, all costs
and expenses incurred in connection with the transactions contemplated hereby,
this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such costs and expenses, whether or not the
transactions contemplated hereby is consummated, provided that Purchaser shall
pay all fees associated with any filings made under the HSR Act in connection
with the transactions contemplated by this Agreement.
SECTION 8.12 Waivers. Except as otherwise provided in this Agreement,
any failure of either party to comply with any obligation, covenant, agreement
or condition herein may be waived by the party or parties entitled to the
benefits thereof only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
FOUNDATION HEALTH CORPORATION
By: /s/ B. XXXXXX XXXXXX
---------------------------------
Name: B. XXXXXX XXXXXX
Title: SR. VP, GEN. COUNSEL & SECRETARY
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By:
---------------------------------
Name:
Title:
By: /s/ J. XXXXX XXXXXX
---------------------------------
Name: J. XXXXX XXXXXX
Title: Chief Financial Officer
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ANNEX A
INDEX OF DEFINED TERMS
Defined in
Terms Section
----- ----------
Acquisition Proposal...................................... 4.7
Adjusted Grossed-Up Basis................................. 4.3(a)
Affiliate(s).............................................. 8.4(a)
Agreement................................................. Preamble
Audited Financial Statements.............................. 4.11(a)
Axis...................................................... Preamble
Bankruptcy Code .......................................... 3.7
Benefit Plans............................................. 2.9(a)
BIC....................................................... Preamble
business day.............................................. 8.4(a)
CalComp................................................... Preamble
Capital Z................................................. 3.5
CBIC...................................................... Preamble
CCIC...................................................... Preamble
CCIC Notice............................................... 4.15
CCIC Purchase............................................. 4.15(v)
CCIC Value................................................ 4.15(ii)
Closing................................................... 1.3(a)
Closing Date.............................................. 1.3(a)
Code...................................................... Preamble and 2.12(g)
Company Employees......................................... 4.4(a), 4.4(c)
Company................................................... Preamble
Confidentiality Agreement................................. 4.2
Consultation Notice....................................... 4.3(n)
Disposed Businesses....................................... 2.15
Disclosure Schedule....................................... 2.2
E&Y....................................................... 4.10(a)
Election Forms............................................ 4.3(c)
Employee Arrangement...................................... 4.4(b)
Encumbrances.............................................. 1.1
Environmental Conditions.................................. 2.19(a)(v)
A-1
64
Defined in
Terms Section
----- ----------
Environmental Laws........................................ 2.19(a)(iv)
ERISA..................................................... 2.9(a)
ERISA Affiliate........................................... 2.9(a)
Excluded Assets........................................... Preamble
Excluded Breach........................................... 6.2(a)
Excluded Losses........................................... 5.1
FHS....................................................... Preamble
Final Allocation.......................................... 4.3(b)
Financial Statements...................................... 2.6(a)
Financing Agreements...................................... 3.5
FIRMS..................................................... Preamble
GAAP...................................................... 2.6(a)
Governmental Entity....................................... 2.5
Governmental Payment...................................... 1.2
Hazardous Substance....................................... 2.19(a)(iii)
HSR Act................................................... 2.5
Indemnifiable Loss........................................ 5.5
Indemnifying Party........................................ 5.4
Indemnitee................................................ 5.5
Indemnity Payment......................................... 5.5
Independent Actuary....................................... 4.10(a)
Insurance Subsidiaries.................................... Preamble
Intercompany Accounts..................................... 4.9
Intercompany Note......................................... Preamble
Interim Consulting Team................................... 4.1
Interim Period ........................................... 4.3(i)
IP........................................................ 3.5
IPB....................................................... 3.5
IP Stock Purchase Agreement............................... 3.5
Listed Items.............................................. 2.6(c)
LIBOR..................................................... 7.3
Losses.................................................... 5.1
M&R Report................................................ 3.6(a)
Material Adverse Change................................... 7.1(e)
Material Agreement(s)..................................... 2.15
Permits................................................... 2.11(a)
A-2
65
Defined in
Terms Section
----- ----------
Pre-Closing Periods....................................... 4.3(i)
Proxy Statement........................................... 4.16
Purchase Price............................................ 1.2
Purchaser................................................. Preamble
Purchaser Indemnified Parties............................. 5.1
Purchaser Disclosure Schedule............................. 3.3
Purchaser Note............................................ 1.2
Purchaser Plans........................................... 4.4(a)
Purchaser Material Adverse Effect......................... 3.1
Quarterly Financial Statements............................ 4.11(b)
Reinsurance Agreement..................................... Preamble
Release................................................... 2.19(a)(ii)
Reviewco.................................................. Preamble
Section 338(h)(10) Election............................... 4.3(a)
Seller.................................................... Preamble
Seller Intellectual Property.............................. 2.14
Seller Subsidiaries....................................... Preamble and 2.19(a)(i)
Seller Material Adverse Effect............................ 2.1
Service Agreements........................................ Preamble
Shares.................................................... Preamble
State Insurance Regulatory Approval....................... 6.1(c)
STAT Financial Statements................................. 2.6(b)
Superior 401(k) Plan...................................... 4.4(e)
Taxes..................................................... 2.12
Tax Return................................................ 2.12
Voting Agreements......................................... Preamble
Year 2000 Matters......................................... 2.20
A-3
66
List of Omitted Disclosure Schedules
Title Section
----- -------
Capitalization 2.2
Consents and Approvals; No Violations 2.5
Financial Statements 2.6
No Undisclosed Liabilities 2.7
Absence of Certain Changes 2.8
Employee Benefit Plans; ERISA 2.9(a)
Employee Benefit Plans; ERISA 2.9(d)
Employee Benefit Plans; ERISA 2.9(e)
Employee Benefit Plans; ERISA 2.9(h)
Employee Benefit Plans; ERISA 2.9(k)
Litigation 2.10
No Default; Compliance With Applicable Laws 2.11(a)
No Default; Compliance With Applicable Laws 2.11(b)
Taxes 2.12
Property 2.13
Intellectual Property 2.14
Contracts 2.15
Labor Matters 2.16
Transactions with Related Parties 2.18
Environmental Matters 2.19(b)
Year 2000 Matters 2.20
Insurance 2.21
Bank Accounts 2.22
Consent and Approvals; No Violations 3.3
Interim Operations of Seller 4.1
Employee Benefits 4.4(b)
Intercompany Accounts 4.9
The Registrant shall furnish supplementally a copy of any omitted
schedule to the Securities and Exchange Commission upon request.
v
