Exhibit 10.68(a)
STOCK PURCHASE AGREEMENT
by and between
DARWIN NATIONAL ASSURANCE COMPANY
and
ULICO CASUALTY COMPANY
Dated as of January 31, 2005
TABLE OF CONTENTS
ARTICLE I DEFINITIONS....................................................... 2
1.1. "2005 Filing Fees"............................................... 2
1.2. "Acquisition Proposals".......................................... 2
1.3. "Actions"........................................................ 2
1.4. "Administrative Services Agreement".............................. 2
1.5. "Affiliate" or "Affiliated"...................................... 2
1.6. "Agreement"...................................................... 2
1.7. "Allocation"..................................................... 2
1.8. "Amended Termination of Pooling Agreement"....................... 2
1.9. "Applicable Law"................................................. 2
1.10. "Arkansas Commissioner".......................................... 2
1.11. "Assumption Agreement"........................................... 2
1.12. "Bankruptcy Exception"........................................... 3
1.13. "Benefit-Related Liability"...................................... 3
1.14. "Business Day"................................................... 3
1.15. "Closing" and "Closing Date"..................................... 3
1.16. "Closing Assets"................................................. 3
1.17. "COBRA".......................................................... 3
1.18. "Code"........................................................... 3
1.19. "Company"........................................................ 3
1.20. "Confidential Information"....................................... 3
1.21. "Documents"...................................................... 3
1.22. "Employees"...................................................... 3
1.23. "Employee Benefit Plan".......................................... 3
1.24. "Employee-Related Liability"..................................... 4
1.25. "ERISA".......................................................... 4
1.26. "ERISA Affiliate"................................................ 4
1.27. "Exhibit"........................................................ 4
1.28. "Filing Fees".................................................... 4
1.29. "Final Purchase Price"........................................... 4
1.30. "GAAP"........................................................... 4
1.31. "Governmental Entity"............................................ 4
1.32. "Guarantee"...................................................... 4
1.33. "Indemnification Event".......................................... 4
1.34. "Indemnitee"..................................................... 4
1.35. "Indemnitor"..................................................... 4
1.36. "Insurance Permit"............................................... 4
1.37. "Intercompany Marketing Agreement"............................... 4
1.38. "Interim Balance Sheets"......................................... 5
1.39. "Joint Marketing Agreements"..................................... 5
1.40. "Latest Balance Sheet"........................................... 5
1.41. "Liability" and "Liabilities".................................... 5
1.42. "Liens or Restrictions".......................................... 5
1.43. "Loss"........................................................... 5
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1.44. "Material Adverse Effect"........................................ 5
1.45. "Negative Tax Adjustment"........................................ 5
1.46. "Parent"......................................................... 5
1.47. "Parent Group"................................................... 5
1.48. "Permit"......................................................... 5
1.49. "Person"......................................................... 6
1.50. "Positive Tax Adjustment"........................................ 6
1.51. "Post-Closing Period"............................................ 6
1.52. "Pre-Closing NOL"................................................ 6
1.53. "Pre-Closing Period"............................................. 6
1.54. "Property"....................................................... 6
1.55. "Purchase Price"................................................. 6
1.56. "Purchaser"...................................................... 6
1.57. "Purchaser's Basket"............................................. 6
1.58. "Purchaser's Knowledge".......................................... 6
1.59. "Quota Share Agreement".......................................... 6
1.60. "Reinsured Liabilities".......................................... 6
1.61. "Related Agreements"............................................. 6
1.62. "Schedule"....................................................... 6
1.63. "Section 2(b) Liabilities"....................................... 7
1.64. "Section 338 Elections".......................................... 7
1.65. "Section 338 Forms".............................................. 7
1.66. "Securities"..................................................... 7
1.67. "Seller"......................................................... 7
1.68. "Seller's Approvals"............................................. 7
1.69. "Seller's Basket"................................................ 7
1.70. "Seller's Knowledge" or "Known to Seller"........................ 7
1.71. "Seller's 338 Payment"........................................... 7
1.72. "Statutory Financial Statements"................................. 7
1.73. "Stock".......................................................... 7
1.74. "Straddle Period"................................................ 7
1.75. "Subsidiary"..................................................... 7
1.76. "Surplus Lines Brokers".......................................... 7
1.77. "Tax" or "Taxes"................................................. 8
1.78. "Tax Adjustment"................................................. 8
1.79. "Tax Claim"...................................................... 8
1.80. "Tax Return"..................................................... 8
1.81. "Tax Savings".................................................... 8
1.82. "Taxing Authority"............................................... 8
1.83. "Termination and Commutation of LPT Agreement"................... 8
1.84. "Third-Party Reinsurance Agreements"............................. 8
1.85. "Transfer Taxes"................................................. 8
1.86. "Transferee"..................................................... 8
1.87. "Trust Agreement"................................................ 8
1.88. "Unauthorized States"............................................ 8
1.89. "Undisclosed Liabilities"........................................ 8
1.90. "USACC".......................................................... 8
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1.91. "Valuation Date"................................................ 9
1.92. "Year End Balance Sheets"....................................... 9
ARTICLE II PURCHASE OF STOCK............................................... 9
2.1. Purchase and Sale............................................... 9
2.2. The Purchase Price.............................................. 9
2.3. Closing......................................................... 10
2.4. Transfer of Stock............................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER....................... 11
3.1. Organization and Standing....................................... 11
3.2. Insurance Permits............................................... 12
3.3. Authorization of Agreements..................................... 13
3.4. Capital Stock of the Company.................................... 14
3.5. Interests in Securities of the Company.......................... 14
3.6. Financial Statements............................................ 14
3.7. Subsidiaries.................................................... 15
3.8. Tax Returns and Reports......................................... 15
3.9. Required Filings................................................ 16
3.10. No Breach of Statute or Contract; Consents and Authorizations... 16
3.11. Legal Proceedings............................................... 18
3.12. Bank Accounts................................................... 18
3.13. Form of Capital and Surplus..................................... 18
3.14. Undisclosed Liabilities......................................... 18
3.15. Contracts....................................................... 19
3.16. Employee Matters................................................ 19
3.17. Powers of Attorney.............................................. 20
3.18. Accuracy of Documents........................................... 20
3.19. Brokers and Finders............................................. 20
3.20. Excess and Surplus Lines Brokers................................ 20
3.21. Assets and Properties........................................... 21
3.22. No Restrictions on Business..................................... 21
3.23. Marketing Agreements............................................ 22
3.24. Policyholder Complaints......................................... 22
3.25. Absence of Certain Changes...................................... 22
3.26. Real Property; Environmental Matters............................ 23
3.27. Insurance Business.............................................. 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER..................... 24
4.1. Organization and Standing....................................... 24
4.2. Authorization of Agreement...................................... 24
4.3. No Breach of Statute or Contract; Consents and Authorizations... 25
4.4. Investment Intent............................................... 25
4.5. No Litigation................................................... 25
4.6. Brokers and Finders............................................. 25
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ARTICLE V CONDUCT AND TRANSACTIONS PRIOR TO CLOSING;
COVENANTS; INDEMNITIES.......................................... 26
5.1. Investigations; Operation of the Business of the Company........ 26
5.2. Pending or Threatened Action.................................... 27
5.3. Tax Audits; Tax Returns......................................... 28
5.4. Section 338(h)(10) Elections.................................... 31
5.5. Transfer Taxes.................................................. 32
5.6. Conduct of Business by Purchaser................................ 32
5.7. Change of Name.................................................. 33
5.8. Disclosure of Confidential Information.......................... 33
5.9. Compliance with Arkansas Insurance Laws......................... 33
5.10. Notification of Changes......................................... 33
5.11. Acquisition Proposals........................................... 33
5.12. Related Agreements.............................................. 34
5.13. Payment of Brokers' or Finders' Fees............................ 34
5.14. Preparation of Financial Statements............................. 34
5.15. Filing Fees..................................................... 34
5.16. Certain Litigation.............................................. 35
5.17. Third-Party Reinsurance Agreements.............................. 35
ARTICLE VI CONDITIONS TO CLOSING; ABANDONMENT OF THE TRANSACTION........... 35
6.1. Conditions to the Obligations of Purchaser...................... 35
6.2. Conditions to the Obligations of Seller......................... 38
6.3. Termination of Agreement and Abandonment of Transactions........ 39
ARTICLE VII TERMINATION OF OBLIGATIONS AND WAIVER OF CONDITIONS;
PAYMENT OF EXPENSES......................................... 40
ARTICLE VIII INDEMNIFICATION............................................... 41
8.1. Indemnification of Purchaser.................................... 41
8.2. Indemnification of Seller....................................... 42
8.3. Notice.......................................................... 42
8.4. Determination of Right to Indemnification....................... 42
8.5. Determination of Amount of Indemnification...................... 42
8.6. Adjustments to Indemnification Amounts.......................... 43
8.7. Indemnification Limits.......................................... 44
8.8. Single Recovery................................................. 45
8.9. Third Party Beneficiaries....................................... 45
8.10. Deemed Adjustment to Purchase Price............................. 45
8.11. Exclusive Remedy................................................ 45
ARTICLE IX GENERAL...................................................... 46
9.1. Amendment and Waiver............................................ 46
9.2. Integrated Contract............................................. 46
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9.3. Publicity....................................................... 46
9.4. Governing Law................................................... 46
9.5. Jurisdiction.................................................... 46
9.6. Notices......................................................... 47
9.7. No Assignment................................................... 48
9.8. Headings........................................................ 48
9.9. Counterparts.................................................... 48
9.10. Severability.................................................... 48
9.11. Third Parties................................................... 49
9.12. Further Assurances.............................................. 49
Schedule 2.2(d) - Authorized States
Schedule 3.1(b) - Officers and Directors/Certificate of Incorporation and Bylaws
Schedule 3.2(b) - Notices of Suspension, Cancellations, or Terminations of Insurance
Permits
Schedule 3.8 - Tax Matters
Schedule 3.9(b) - Filing Fees
Schedule 3.10(b) - Consents and Approvals
Schedule 3.11(a) - Legal Proceedings
Schedule 3.11(b) - Legal Proceedings Brought by the Company
Schedule 3.12 - Bank Accounts
Schedule 3.13 - Capital and Surplus
Schedule 3.14 - Liabilities
Schedule 3.15(a) - Contracts and Commitments to be Terminated or Amended at Closing
Schedule 3.15(b) - Third-Party Reinsurance Agreements
Schedule 3.17 - Power of Attorney
Schedule 3.20(b) - Certain Fee Arrangements
Schedule 4.3(b) - Purchasers' Governmental Approvals
Exhibit A - Administrative Services Agreement
Exhibit B - Amended Termination of Pooling Agreement
Exhibit C - Assumption Agreement
Exhibit D - Guarantee
Exhibit E - 100% Quota Share Reinsurance Agreement
Exhibit F - Termination and Commutation of LPT Agreement
Exhibit G - Trust Agreement
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of January 31, 2005, is by and
between Darwin National Assurance Company, a Delaware property and casualty
insurance company ("Purchaser"), and Ulico Casualty Company, a Delaware property
and casualty insurance company ("Seller").
RECITALS:
WHEREAS, Seller owns 10,000 shares, constituting all of the issued and
outstanding shares, of common stock, par value $420.00 per share (the "Stock"),
of Ulico Indemnity Company, a stock property and casualty insurance company
organized under the laws of the State of Arkansas (the "Company"); and
WHEREAS, prior to the Closing (as defined below), Seller, the Company
and Ulico Standard of America Casualty Company, a California property and
casualty insurance company ("USACC"), shall enter into the Amended Termination
of Pooling Agreement (as defined below) pursuant to which the parties thereto
shall clarify their mutual understanding and agreement concerning the
commutation, settlement and discharge of the intercompany reinsurance pool
referred to therein; and
WHEREAS, on or prior to the Closing, Seller and the Company shall
enter into (i) the Termination and Commutation of LPT Agreement pursuant to
which Seller and the Company shall terminate and commute the Union Liability and
Trustee and Fiduciary Liability Loss Portfolio Reinsurance Agreement dated
November 3, 2004 by and between Seller and the Company, (ii) the Quota Share
Agreement pursuant to which the Company shall cede to Seller, and Seller shall
assume, 100% of all insurance liabilities and obligations of the Company; (iii)
the Trust Agreement pursuant to which funds are to be held in trust to ensure
the payment of amounts due to the Company under the Quota Share Agreement; (iv)
the Administrative Services Agreement pursuant to which Seller shall provide the
Company with those administrative services described therein in respect of the
liabilities ceded pursuant to the Quota Share Agreement; and (v) the Assumption
Agreement pursuant to which Seller shall assume from the Company certain
liabilities of the Company as provided therein; and
WHEREAS, prior to the Closing, the Company and ULLICO Inc., a Maryland
corporation and sole stockholder of Seller ("Parent"), shall enter into the
Guarantee pursuant to which Parent shall guarantee Seller's obligations under
this Agreement, the Quota Share Agreement, Administrative Services Agreement,
Trust Agreement and Assumption Agreement; and
WHEREAS, Purchaser desires to purchase and Seller desires to sell the
Stock upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements contained herein, intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the terms below shall have the following meanings,
except as otherwise expressly provided or unless the context otherwise requires:
1.1. "2005 Filing Fees" shall have the meaning set forth in Section
5.15(b).
1.2. "Acquisition Proposals" shall have the meaning set forth in
Section 5.11.
1.3. "Actions" shall have the meaning set forth in Section 3.11 (a).
1.4. "Administrative Services Agreement" shall refer to the
Administrative Services Agreement to be entered into by and between Seller and
the Company on or prior to the Closing, in the form attached hereto as Exhibit A
(with such changes thereto as may be approved by Purchaser).
1.5. "Affiliate" or "Affiliated" shall mean with respect to any
Person, any Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such Person. A Person will be deemed to
control a Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
1.6. "Agreement" shall refer to this Stock Purchase Agreement together
with all Exhibits and Schedules hereto, as the same may be amended from time to
time.
1.7. "Allocation" shall have the meaning set forth in Section 5.4(b).
1.8. "Amended Termination of Pooling Agreement" shall refer to the
Amended and Restated Termination of Restated Reinsurance Pooling Agreement to be
entered into by and among the Company, Seller and USACC at or prior to the
Closing, in the form attached hereto as Exhibit B (with such changes thereto as
may be approved by Purchaser).
1.9. "Applicable Law" shall mean any law, statute, ordinance,
regulation, writ, injunction, rule, established principle of common law,
directive, decree or administrative ruling of any Governmental Entity or
applicable court decision applicable to a Person or any such Person's
subsidiaries, properties, assets, or to such Person's officers, directors,
managing directors, employees or agents in their capacity as such.
1.10. "Arkansas Commissioner" shall mean the Insurance Commissioner of
the Arkansas Department of Insurance.
1.11. "Assumption Agreement" shall refer to the Assumption Agreement
to be entered into by and between the Company and Seller on or prior to the
Closing and shall be in the form attached hereto as Exhibit C (with such changes
thereto as may be approved by Purchaser).
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1.12. "Bankruptcy Exception" shall refer, in respect of any agreement,
contract or commitment, to any limitation thereon imposed by any bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar law
affecting creditors' rights and remedies generally (including the rights and
remedies of creditors of insurance companies generally) and, with respect to the
enforceability thereof, by general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
1.13. "Benefit-Related Liability" shall have the meaning set forth in
Section 3.16(c).
1.14. "Business Day" shall mean a Monday, Tuesday, Wednesday, Thursday
or Friday on which banking institutions in the State of Delaware are not
authorized or obligated by applicable law to close.
1.15. "Closing" and "Closing Date" shall have the respective meanings
set forth in Section 2.3.
1.16. "Closing Assets" shall have the meaning set forth in Section
2.2(b).
1.17. "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
1.18. "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations promulgated thereunder.
1.19. "Company" shall have the meaning set forth in the recitals
hereto.
1.20. "Confidential Information" shall mean all Documents and
information concerning Parent, Seller or the Company furnished to Purchaser in
connection with this Agreement and any Documents or compilations prepared by or
for Purchaser which contain, reflect or are based upon such information.
1.21. "Documents" shall refer to any books, records, files, papers,
tapes, microfilms and any other documents.
1.22. "Employees" shall have the meaning set forth in Section 3.16(a).
1.23. "Employee Benefit Plan" shall mean any "employee benefit plan"
(as such term is defined in section 3(3) of ERISA), and any other retirement,
pension, profit-sharing, thrift, savings, target benefit, employee stock
ownership, cash or deferred, deferred or incentive compensation, bonus, stay
bonus, stock option, employee stock purchase, phantom stock, stock appreciation,
change in control, retention compensation, medical, dental, vision, psychiatric
or other counseling, employee assistance, tuition reimbursement, vacation,
holiday, sick pay, disability, salary continuation, termination allowance,
severance, employee relocation, death benefit, survivor income, dependent care
assistance, legal assistance or fringe benefit (cash or noncash) plan, program,
policy, practice or arrangement, or any cafeteria plan under Section 125 of the
Code, in which any current or former officer, director, independent contractor
or employee
3
of the Company or any ERISA Affiliate has ever participated, or as to which the
Company or any ERISA Affiliate has ever had any present or contingent
obligation, including any obligation to make contributions.
1.24. "Employee-Related Liability" shall have the meaning set forth in
Section 3.16(b).
1.25. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the regulations promulgated thereunder.
1.26. "ERISA Affiliate" shall mean any entity that is, or ever has
been, required to be aggregated with the Company as a single employer under
Sections 414(b), (c), (m) or (o) of the Code.
1.27. "Exhibit" shall refer to each of several written Exhibits to
this Agreement, each of which is incorporated into and made a part of this
Agreement for all purposes.
1.28. "Filing Fees" shall have the meaning set forth in Section
3.9(b).
1.29. "Final Purchase Price" shall have the meaning set forth in
Section 2.2(a).
1.30. "GAAP" shall have the meaning set forth in Section 3.6(b).
1.31. "Governmental Entity" shall mean any federal, state, local or
foreign government, political subdivision, legislature, court, agency,
department, bureau, commission or other governmental or regulatory authority,
body or instrumentality, including any insurance or securities regulatory
authority.
1.32. "Guarantee" shall refer to the Guarantee Agreement to be entered
into by and between Parent and the Company on or prior to the Closing, in the
form attached hereto as Exhibit D (with such changes thereto as may be approved
by Purchaser).
1.33. "Indemnification Event" shall refer to any action, proceeding or
claim for which a Person is entitled to indemnification under this Agreement.
1.34. "Indemnitee" shall have the meaning set forth in Section 8.3.
1.35. "Indemnitor" shall have the meaning set forth in Section 8.3.
1.36. "Insurance Permit" shall mean any Permit in any jurisdiction to
issue, underwrite, assume, place, sell or otherwise transact the business of
insurance, including the issuance of insurance policies on an excess or surplus
lines basis.
1.37. "Intercompany Marketing Agreement" shall mean the Intercompany
Marketing and Underwriting Agreement, dated September 1, 2004, by and between
Ulico Insurance Group, the Company and Seller, and any agreements relating
thereto, as such agreements may be amended from time to time.
4
1.38. "Interim Balance Sheets" shall have the meaning set forth in
Section 3.6(b).
1.39. "Joint Marketing Agreements" shall mean (i) the Memorandum of
Understanding by and between Zurich U.S. Construction and Ulico Insurance Group,
Inc. entered into in May 2001 and (ii) the Strategic Alliance Agreement, dated
May 8, 2001, by and among Farmers Group, Inc., Seller, the Company and Ulico
Insurance Group, Inc., and any agreements related thereto, including without
limitation the Agreement of Reinsurance, dated May 8, 2001, by and among Fire
Insurance Exchange, Truck Insurance Exchange, Farmers Insurance Exchange,
Farmers Texas County Mutual, Seller and the Company, and the Service Xxxx and
Trademark License Agreement, dated May 8, 2001, by and among Seller, the
Company, Ulico Insurance Group, Inc. and Farmers Group, Inc., as any such
agreement may be amended from time to time.
1.40. "Latest Balance Sheet" shall have the meaning set forth in
Section 3.6(b).
1.41. "Liability" and "Liabilities" shall have the meanings set forth
in Section 3.14.
1.42. "Liens or Restrictions" shall refer to any lien (including but
not limited to liens for unpaid taxes), pledge, mortgage, security interest,
charge, adverse claim, attachment, automatic or other stay in bankruptcy or
insolvency proceeding, or other encumbrance of any kind.
1.43. "Loss" shall have the meaning set forth in Section 8.1.
1.44. "Material Adverse Effect" shall mean any material adverse effect
on the business, operations, financial condition or results of operations of the
Company, other than any such effect to the extent arising or resulting from (a)
changes in general business or economic conditions, (b) national or
international political or social conditions, including the engagement by the
United States in military hostilities, whether or not pursuant to the
declaration of a national emergency or war, (c) changes in financial, banking,
or securities markets (including any disruption thereof and any decline in the
price of any security or any market index), (d) changes in United States
generally accepted accounting principles or (e) changes in law, rules or
regulations of general applicability.
1.45. "Negative Tax Adjustment" shall have the meaning set forth in
Section 5.3(k).
1.46. "Parent" shall have the meaning set forth in the recitals
hereto.
1.47. "Parent Group" shall have the meaning set forth in Section
3.8(a).
1.48. "Permit" shall refer to any federal, state, local or other
governmental consent, license, permit, grant, eligibility, qualification or
authorization which is held by the Company in a particular jurisdiction
immediately prior to the Closing Date.
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1.49. "Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint stock company,
mutual company, trust, unincorporated organization or Governmental Entity or
agency thereof.
1.50. "Positive Tax Adjustment" shall have the meaning set forth in
Section 5.4(f).
1.51. "Post-Closing Period" shall refer to a taxable period of the
Company beginning after the Closing Date.
1.52. "Pre-Closing NOL" shall have the meaning set forth in Section
5.3(k).
1.53. "Pre-Closing Period" shall refer to a taxable period of the
Company ending on or prior to the Closing Date.
1.54. "Property" shall mean any real, personal or mixed property,
whether tangible or intangible.
1.55. "Purchase Price" shall have the meaning set forth in Section
2.2.
1.56. "Purchaser" shall have the meaning set forth in the preamble.
1.57. "Purchaser's Basket" shall have the meaning set forth in Section
8.7(e).
1.58. "Purchaser's Knowledge" shall refer to the actual knowledge of
(i) individuals who, at the time of execution of this Agreement, perform such
functions or hold such positions with Purchaser as would reasonably be expected
to require them to be aware of the information in question and (ii) officers of
Purchaser holding the position of Vice President or higher.
1.59. "Quota Share Agreement" shall refer to the 100% Quota Share
Reinsurance Agreement to be entered into by and between Seller and the Company
on or prior to the Closing, in the form attached hereto as Exhibit E (with such
changes thereto as may be approved by Purchaser).
1.60. "Reinsured Liabilities" shall have the meaning set forth in
Quota Share Agreement.
1.61. "Related Agreements" shall refer collectively to the Quota Share
Agreement, Trust Agreement, Administrative Services Agreement, Assumption
Agreement, Amended Termination of Pooling Agreement, Termination and Commutation
of LPT Agreement and Guarantee Agreement.
1.62. "Schedule" shall refer to each of several written Schedules to
this Agreement, each of which is incorporated into and made a part of this
Agreement for all purposes.
6
1.63. "Section 2(b) Liabilities" shall have the meaning set forth in
the Assumption Agreement.
1.64. "Section 338 Elections" shall have the meaning set forth in
Section 5.4(a).
1.65. "Section 338 Forms" shall have the meaning set forth in Section
5.4(b).
1.66. "Securities" shall have the meaning set forth in Section 3.13.
1.67. "Seller" shall have the meaning set forth in the preamble.
1.68. "Seller's Approvals" shall have the meaning set forth in Section
3.10(b).
1.69. "Seller's Basket" shall have the meaning set forth in Section
8.7(d).
1.70. "Seller's Knowledge" or "Known to Seller" shall refer to the
actual knowledge of (i) individuals who, at the time of execution of this
Agreement, perform such functions or hold such positions with Parent, Seller or
the Company (prior to the Closing) as would reasonably be expected to require
them to be aware of the information in question and (ii) officers of Parent,
Seller or the Company (prior to the Closing) holding the position of Vice
President or higher.
1.71. "Seller's 338 Payment" shall mean the payment in the amount of
two hundred thousand dollars ($200,000) to Seller pursuant to Section 5.4 to
compensate Seller for making the Section 338 Elections.
1.72. "Statutory Financial Statements" shall mean the Annual
Statements and the Quarterly Statements of the Condition and Affairs of the
Company filed with the Arkansas Insurance Department, in each case including all
exhibits, interrogatories, notes and schedules thereto and any actuarial
opinion, affirmation or certification or other supporting documentation filed in
connection therewith.
1.73. "Stock" shall have the meaning set forth in the first recital of
this Agreement.
1.74. "Straddle Period" shall refer to a taxable period of the Company
beginning before and ending after the Closing Date.
1.75. "Subsidiary" shall mean, with respect to any Person, any
corporation, partnership, limited liability company, joint venture or other
entity in which such Person (i) owns, directly or indirectly, 50% or more of the
outstanding voting securities, equity interests, profits interest or capital
interest, (ii) is entitled to elect at least a majority of the board of
directors or similar governing body, or (iii) in the case of a limited
partnership or limited liability company, is a general partner or managing
member, respectively.
1.76. "Surplus Lines Brokers" shall mean all brokers and producers
that have solicited, negotiated, sold or produced the Company's insurance
business.
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1.77. "Tax" or "Taxes" shall mean all federal, state, county,
municipal, foreign and other income, profits, windfall profits, gains, gross
receipts, net worth, premium, value added, ad valorem, sales, use, excise,
stamp, transfer, franchise, withholding, payroll, employment, occupation,
workers' compensation, disability, severance, unemployment insurance, social
security and property taxes, and all other taxes, levies, fees, imposts, duties
and charges of any kind whatsoever, together with any interest, penalties and
additions thereto imposed by any Taxing Authority, including all amounts imposed
as a result of being a member of an affiliated or combined or unitary group.
1.78. "Tax Adjustment" shall have the meaning set forth in Section
2.2(c)(iii).
1.79. "Tax Claim" shall have the meaning set forth in Section 5.3(i).
1.80. "Tax Return" shall mean all returns, reports, elections,
estimates, declarations, information statements and other forms and documents
(including all schedules, exhibits, and other attachments thereto and any
supplements or amendments thereof) relating to, and required to be filed or
maintained in connection with the calculation, determination, assessment or
collection of, any Taxes (including estimated Taxes).
1.81. "Tax Savings" shall have the meaning set forth in Section
5.3(k).
1.82. "Taxing Authority" shall refer to any Governmental Entity
responsible for the administration or collection of Taxes.
1.83. "Termination and Commutation of LPT Agreement" shall refer to
the Termination and Commutation of Union Liability and Trustee and Fiduciary
Liability Loss Portfolio Reinsurance Agreement to be entered into by and between
the Company and Seller at or prior to the Closing, in the form attached hereto
as Exhibit F (with such changes thereto as may be approved by Purchaser).
1.84. "Third-Party Reinsurance Agreements" shall mean the agreements
between the Company and one or more third-party reinsurers set forth on Schedule
3.15(b).
1.85. "Transfer Taxes" shall have the meaning set forth in Section
5.5.
1.86. "Transferee" shall have the meaning set forth in Section 2.4.
1.87. "Trust Agreement" shall refer to the Trust Agreement by and
among the Company, Seller and Mellon Trust of Delaware, National Association, a
national banking association, as Trustee (or with such other trustee as may be
acceptable to Purchaser and Seller), to be entered into at or prior to Closing,
in substantially the form attached hereto as Exhibit G.
1.88. "Unauthorized States" shall have the meaning set forth in
Section 2.2(d).
1.89. "Undisclosed Liabilities" shall have the meaning set forth in
Section 3.14.
1.90. "USACC" shall have the meaning set forth the recitals hereto.
8
1.91. "Valuation Date" shall have the meaning set forth in Section
2.2(b).
1.92. "Year End Balance Sheets" shall have the meaning set forth in
Section 3.6(b).
ARTICLE II
PURCHASE OF STOCK
2.1. Purchase and Sale. Upon the terms and subject to the conditions
of this Agreement, at the Closing, Purchaser shall purchase from Seller, and
Seller shall sell to Purchaser, all of the Stock.
2.2. The Purchase Price.
(a) Purchaser agrees to pay to Seller, and Seller agrees to
accept from Purchaser, as consideration for the sale of the Stock, an
amount payable at the Closing, such amount, subject to adjustment, if any,
pursuant to Section 2.2(d), to be determined as follows: the sum of (1)
Three Million Dollars ($3,000,000) and (2) the fair market value of the
Closing Assets as determined pursuant to this Section 2.2. For purposes of
this Agreement, the amount equal to the sum of (1) Three Million Dollars
($3,000,000) and (2) the fair market value of the Closing Assets as
determined pursuant to this Section 2.2, shall be referred to as the
"Purchase Price," and the Purchase Price as adjusted for any decrease
pursuant to Section 2.2(d) shall be referred to as the "Final Purchase
Price".
(b) Not later than 6 p.m. EDT on the Business Day immediately
preceding the Closing Date (the "Valuation Date"), Seller shall provide
Purchaser with a complete list and specific description of the following
assets which shall be held by the Company upon the Closing: cash and cash
equivalents, fixed income securities traded in a public market and bonds or
deposits with certain states as required to obtain Insurance Permits in
those states (collectively, the "Closing Assets"); provided; however, that
the Closing Assets, other than cash and cash equivalents, shall be U.S.
Government and Government Agency fixed income securities or fixed income
securities having a rating by Xxxxx'x Investors Services, Inc. of at least
Aa or by the Securities Valuation Office of the National Association of
Insurance Commissioners of at least Category 2. Such description shall
include a valuation as of the close of business on the Valuation Date of
the net fair market value of the Closing Assets. Purchaser shall have an
opportunity at its own expense to verify such valuation and all information
related thereto, concerning such Closing Assets. Without the prior written
consent of Purchaser, Seller shall not, nor shall Seller permit the Company
to, take any action which would cause or require any changes to the
valuation of Closing Assets as of the Valuation Date, or which would cause
the sale or disposition of any Closing Assets.
(c) The net fair market value of the Closing Assets shall be
determined as follows: (i) (x) cash and cash equivalents shall be valued at
face value, (y) investment securities traded in a recognized public market
shall be valued at their closing composite price
9
on the Valuation Date as reported by Bloomberg LP or, if such values are
not reported by Bloomberg LP, for the business day preceding the Valuation
Date as reported by the Wall Street Journal (if there is no closing price,
then the average bid and asked prices shall be used); provided, however,
that if the investment security is quoted only on a yield or discount rate
basis, then such security shall be valued at the price calculated in
accordance with generally accepted financial practice for the mean of the
quoted bid and asked yield or rate, and (z) interests in money market funds
shall have a fair market value equal to their face or par value plus (ii)
interest accrued and dividends attributable to such Closing Assets accrued
as of the close of business on the Valuation Date, increased or decreased
by (iii) the sum of (A) the amount of Taxes reasonably estimated to be
imposed on the Company for any Post-Closing Period (or for any Straddle
Period to the extent that such Taxes are allocable to the Purchaser
pursuant to Section 8.5(c)) with respect to interest and dividends accrued
with respect to the Closing Assets as of the Valuation Date, and (B) the
amount of Taxes reasonably estimated to be imposed on the Company for any
Post-Closing Period (or for any Straddle Period to the extent that such
Taxes are allocable to the Purchaser pursuant to Section 8.5(c)) that would
be incurred if the Closing Assets were sold for their gross fair market
value as of the Valuation Date and no Section 338 Elections were made, less
(C) the amount of Taxes reasonably estimated to be saved by the Company in
any Post-Closing Period (or for any Straddle Period to the extent of the
reduction in the Taxes allocable to the Purchaser pursuant to Section
8.5(c)) that would be incurred if the Closing Assets were sold for their
gross fair market value as of the Valuation Date and no Section 338
Elections were made (the positive or negative amount in this clause (iii)
being referred to herein as the "Tax Adjustment") (it being intended that
the Tax Adjustment shall as nearly as possible equal the amount of the
deferred tax asset or deferred tax liability, as the case may be, in
respect of the Closing Assets that would appear on the balance sheet of the
Company prepared on the Valuation Date and in accordance with generally
accepted accounting principles (applied without regard to any valuation
allowance for such deferred tax assets)).
(d) In the event that the Company is not eligible to issue
insurance policies on an excess or surplus lines basis in one or more of
the states listed on Schedule 2.2(d) hereto (the "Unauthorized States"), on
the Closing Date, the Purchase Price for the Stock payable at the Closing
shall be decreased by the amount listed in the column titled "Purchase
Allocation" on Schedule 2.2(d) for each Unauthorized State. At Closing,
Seller shall provide Purchaser with evidence of each of the surplus lines
eligibilities of the Company.
2.3. Closing. The closing of the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Xxxxx Xxxxxxxxxx LLP, 1301 Avenue of the Americas, New York, New York at 10:00
a.m. New York time on the third Business Day following the satisfaction or
waiver of all conditions to the obligations of the parties to consummate the
transaction contemplated hereby (other than conditions with respect to actions
the parties will take at the Closing itself) (the "Closing Date"), or such other
place, times or dates as the parties hereto agree in writing. At the Closing:
(a) Seller shall deliver to Purchaser a certificate or
certificates representing the Stock duly endorsed to Purchaser or
accompanied by duly executed stock powers so as to transfer and assign to
Purchaser good and valid title to the Stock free and clear of all Liens or
10
Restrictions and to constitute Purchaser the sole beneficial owner and
record stockholder of the Company;
(b) Purchaser shall pay to Seller the Final Purchase Price by
wire transfer of immediately available funds to an account designated in
writing by Seller on or before the Closing; and
(c) Seller shall deliver to Purchaser fully executed originals of
(i) the Quota Share Agreement, (ii) the Trust Agreement, (iii) the
Administrative Services Agreement, (iv) the Assumption Agreement, (v) the
Amended Termination of Pooling Agreement, (vi) the Termination and
Commutation of LPT Agreement and (vii) the Guarantee.
2.4. Transfer of Stock. Seller hereby acknowledges and agrees that,
subsequent to the Closing, Purchaser shall have the right to transfer, exchange
or contribute the Stock to any direct or indirect majority owned or wholly owned
Subsidiary of the Purchaser ("Transferee"); provided, however that,
notwithstanding any such transaction, Purchaser shall be considered as the
purchaser of the Stock for federal income tax purposes within the meaning of
Treas. Reg. Section 1.338-3(c).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser, as of the date of
this Agreement (except if another date is specified in the representation or
warranty) and as of the Closing Date, as follows:
3.1. Organization and Standing.
(a) Each of Seller and the Company is duly organized, validly
existing and in good standing under the laws of its respective
jurisdiction, and each of Seller and the Company has all requisite power
and authority to own, lease and operate its assets and Properties
(including, without limitation, the Stock) and to conduct its business as
currently being conducted. Seller is duly qualified or licensed to conduct
business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or the ownership, leasing
or operation of its Properties makes such qualification or licensing
necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing has not had, and would not
reasonably be expected to have, individually or in the aggregate, (i) a
Material Adverse Effect, (ii) a material adverse effect on the ability of
Seller to execute and deliver this Agreement, to perform its obligations
hereunder or to consummate the transactions contemplated hereby, or (iii) a
material adverse effect on the ability of Seller or the Company to execute
and deliver the Related Agreements to which they are a party, to perform
their respective obligations therein or to consummate the transactions
contemplated thereby.
(b) Schedule 3.1(b) identifies each director and executive
officer of the Company as currently in effect and contains true and correct
copies of the Company's
11
Certificate of Incorporation and the Bylaws, including all amendments
thereto through, and as in effect on, the date hereof.
(c) Seller has delivered to Purchaser true, accurate and complete
copies of the stock and minute books of the Company. To Seller's Knowledge,
such stock and minute books are true, accurate and complete and contain
minutes of all meetings, proceedings and other actions of the shareholders
and the board of directors of the Company, and any committees thereof from
the date of the formation of the Company to the date hereof.
3.2. Insurance Permits.
(a) The Company's Arkansas insurance license is in full force and
effect and will be in full force and effect as of the Closing Date, and the
Company has not received any notice of default or termination with respect
to such license or any threatened cancellation or termination in connection
therewith.
(b) Schedule 2.2(d) contains a true and correct list of each
state in which the Company is eligible, authorized or qualified to issue
insurance policies on an excess or surplus lines basis together with
satisfactory evidence (as of a recent date) of such eligibility,
authorization or qualification in each such state. The eligibilities,
authorizations and qualifications set forth on Schedule 2.2(d), together
with the Company's Arkansas insurance license, constitute all Insurance
Permits required for the conduct of the Company's business as now
conducted. The Company shall be so eligible, authorized or qualified, as
the case may be, in each such state listed on Schedule 2.2(d) as of the
Closing Date. Other than as set forth in Schedule 3.2(b), the Company has
not received from any Governmental Entity any notice of suspension or
termination with respect to any such Insurance Permits or any threatened
suspension, cancellation or termination in connection therewith, or any
subpoena or other notice of investigation of any current or prior business
practice of the Company.
(c) The Company is in good standing with all applicable insurance
regulatory authorities with respect to the conduct of the business by the
Company.
(d) Since its formation, the Company has been engaged solely and
exclusively in the insurance business and has conducted no insurance
business or other business in any jurisdiction other than the jurisdictions
listed in Schedule 2.2(d) and Schedule 3.2(b) with respect to which it
would be required to have an Insurance Permit.
(e) The Company has (i) timely paid all guaranty fund assessments
that are due, or claimed or asserted by any insurance regulatory authority
to be due from the Company, or (ii) provided for all such assessments in
its Statutory Financial Statements.
(f) Except as disclosed on Schedule 3.2(b), no proceeding is
pending nor, to Seller's Knowledge, is any proceeding threatened in which
any Person is seeking to revoke or deny the renewal of any Insurance
Permit.
(g) Except as limited by state statute generally applicable to
all companies of a similar type as the Company or as set forth in Schedule
3.2(b), the Company's authority to write the lines and classes of insurance
set forth on Schedule 2.2(d) is unrestricted and the
12
Company is not a party to any agreement or arrangement with any regulatory
official or agency limiting or restricting the Company's ability to make
full use of the Insurance Permits. Except as set forth in Schedule 3.2(b),
each such Insurance Permit is currently in good standing, and, other than
as set forth in Schedule 3.2(b), no Insurance Permit has been withdrawn,
modified, restricted or conditioned in any respect by a state insurance
regulatory authority, and no application for an Insurance Permit filed by
the Company within the last 12 months has been denied or withdrawn. No
event has occurred that, with or without notice or lapse of time or both,
would reasonably be expected to result in the revocation, suspension, lapse
or limitation of any Insurance Permit.
3.3. Authorization of Agreements. Seller has all requisite power to
execute and deliver this Agreement and perform its obligations under this
Agreement, and the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized and approved by all necessary action on the part of Seller. Each of
Seller and the Company has the requisite power to execute and deliver the Quota
Share Agreement, the Trust Agreement, the Administrative Services Agreement, the
Assumption Agreement and Termination and Commutation of LPT Agreement and to
perform its obligations thereunder, and the execution, delivery and performance
of each of the Quota Share Agreement, the Trust Agreement, the Administrative
Services Agreement, the Assumption Agreement and the Termination and Commutation
of LPT Agreement and the consummation of the transactions contemplated thereby
have been duly authorized by all necessary requisite action on the part of each
of Seller and the Company. Each of Seller, the Company and USACC has the
requisite power to execute and deliver the Amended Termination of Pooling
Agreement and to perform its obligations thereunder, and the execution, delivery
and performance of the Amended Termination of Pooling Agreement and the
consummation of the transactions contemplated thereby have been duly authorized
by all necessary requisite action on the part of each of Seller, the Company and
USACC. The Company has all requisite power to execute and deliver the Guarantee
and perform its obligations thereunder, and the execution, delivery and
performance of the Guarantee and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary requisite action
on the part of the Company. This Agreement has been duly executed and delivered
by Seller and is the valid and binding obligation of Seller enforceable against
Seller in accordance with its terms, subject to the Bankruptcy Exception. Prior
to the Closing Date, the Quota Share Agreement, Trust Agreement, Administrative
Services Agreement, Assumption Agreement and Termination and Commutation of LPT
Agreement will have been duly authorized, executed and delivered by each of
Seller and the Company, and, on the Closing Date, each of the Quota Share
Agreement, Trust Agreement, Administrative Services Agreement, Assumption
Agreement and Termination and Commutation of LPT Agreement will be the valid and
binding obligations of each of Seller and the Company enforceable against each
of them in accordance with its terms, subject to the Bankruptcy Exception. Prior
to the Closing Date, the Amended Termination of Pooling Agreement will have been
duly authorized, executed and delivered by each of Seller, the Company and
USACC, and, on the Closing Date, the Amended Termination of Pooling Agreement
will be the valid and binding obligation of each of Seller, the Company and
USACC enforceable against each of them in accordance with its terms, subject to
the Bankruptcy Exception. Prior to the Closing Date, the Guarantee will have
been duly authorized, executed and delivered by the Company, and, on the Closing
Date, the Guarantee will be the valid and binding obligation of the Company.
13
3.4. Capital Stock of the Company. The authorized capital stock of
the Company consists of 10,000 shares of common stock, $420.00 par value per
share, all of which shares have been and are now validly issued and outstanding,
fully paid and nonassessable. The Stock constitutes all of the issued and
outstanding capital stock of the Company. Seller is the lawful owner,
beneficially and of record, of all of the Stock and has good and valid title to
the Stock, free and clear of all Liens or Restrictions, voting trusts or other
voting agreements, contracts, calls, commitments of any kind, including any such
agreement, arrangement, commitment or understanding restricting or otherwise
relating to the voting, dividend rights or dispositions of the Stock. Upon
consummation of the transactions contemplated by this Agreement, Purchaser will
acquire record and beneficial ownership of the Stock, free and clear of any
Liens or Restrictions, voting trusts or other voting agreements, contracts,
calls, commitments of any kind, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting,
dividend rights or dispositions of the Stock.
3.5. Interests in Securities of the Company. There are no outstanding
options, convertible securities, warrants or other rights to subscribe for or
purchase from Seller or the Company, and there are no plans, contracts or
commitments for the granting by Seller or the Company of rights to acquire or
redeem: (i) any capital stock or other ownership interests in the Company
including the Stock; or (ii) any securities convertible into or exchangeable for
any such capital stock or ownership interests in the Company.
3.6. Financial Statements. (a) Seller has delivered to Purchaser
true, correct and complete copies of the Statutory Financial Statements of the
Company for the year ended December 31, 2003 (with the accompanying independent
auditors' report of PricewaterhouseCoopers LLP), and for the quarterly periods
ended March 31, June 30 and September 30, 2004. Subject, in the case of the
quarterly statutory financial statements, to normal recurring year-end
adjustments, the Statutory Financial Statements fairly represent in all material
respects the financial position and the results of operations of the Company as
of and for the respective dates and for periods indicated therein, in accordance
with accounting practices prescribed or permitted by the Arkansas Insurance
Department, applied on a consistent basis. All books of account of the Company
fully and fairly disclose in all material respects all of the transactions,
properties, assets, liabilities and obligations of the Company and are true,
correct and complete in all material respects. The information contained in the
Statutory Financial Statements was prepared in accordance with accounting
practices prescribed or permitted by the Arkansas Insurance Department applied
on a consistent basis and is not inaccurate in any material respect. Except as
disclosed on such Statutory Financial Statements or in the notes thereto, there
has not been any change in the business, financial condition or results of
operations of the Company during the last 12 months that has had, or would
reasonably be expected to have, a Material Adverse Effect. Seller has heretofore
delivered to Purchaser true, correct and complete copies of the Statutory
Financial Statements of the Company for each of the years ended December 31,
1999, 2000, 2001 and 2002 (with the accompanying independent auditors' report of
PricewaterhouseCoopers LLP).
(b) Seller has delivered to Purchaser true, correct and complete
copies of balance sheets of the Company as of December 31, 1999, 2000,
2001, 2002 and 2003 (collectively, the "Year End Balance Sheets") and as of
March 31, June 30, and September 30,
14
2004 (collectively, the "Interim Balance Sheets," and the September 30,
2004 balance sheet, the "Latest Balance Sheet"), all prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the periods involved (except as may be indicated in the notes
thereto). The Year End Balance Sheets are as included in the audited
financial statements of Parent and fairly present in all material respects
the financial position of the Company at the respective dates thereof. The
Interim Balance Sheets were prepared in accordance with GAAP consistently
applied and in a manner consistent with that employed in the Year End
Balance Sheet dated December 31, 2003 and fairly present in all material
respects the financial position of the Company at the respective dates
thereof.
3.7. Subsidiaries. The Company does not own, either of record or
beneficially, any direct or indirect equity interest or any right (contingent or
otherwise) to acquire the same in any other Person.
3.8. Tax Returns and Reports.
(a) Parent is the common parent of an affiliated group of
corporations (within the meaning of section 1504(a) of the Code) (such
group, the "Parent Group") that files a consolidated federal income Tax
Return. For all periods during which it has owned the Company, Parent has
properly included (or, with respect to the taxable year ending on the
Closing Date, will properly include) the Company in its consolidated
federal income Tax Return as a member of the Parent Group.
(b) Other than as set forth on Schedule 3.8, (i) the Company has
filed (or joined in the filing of) when due all material Tax Returns
required to be filed by or with respect to the Company, including Tax
Returns of the Parent Group and of any other consolidated, combined,
unitary or other affiliated group of which the Parent is a member, and all
Taxes shown to be due on such Tax Returns have been timely paid; (ii) all
such Tax Returns were true, correct and complete in all material respects;
(iii) to Seller's Knowledge, there is no action, suit, proceeding,
investigation, audit or claim now pending against, or with respect to, the
Company in respect of any Tax or assessment, nor is any claim for
additional Tax or assessment being asserted or, threatened by any Taxing
Authority with respect to the Company; (iv) no claim has been asserted in
writing by any Taxing Authority in a jurisdiction in which the Company does
not currently file a Tax Return that it is or may be subject to Tax by such
jurisdiction; (v) the Company is not a party to any agreement, whether
written or unwritten, providing for the payment of Taxes, payment for Tax
losses, entitlement to refunds or similar Tax matters; (vi) the Company has
withheld and remitted to its applicable Taxing Authorities all Taxes
required to be withheld in connection with any material amounts paid or
owing to any employee, creditor, attorney, independent contractor or other
Person; (vii) except as set forth in its previously filed Tax Returns,
neither Parent, Seller nor the Company has made, changed or revoked, or
permitted to be made, changed or revoked, any material election or method
of accounting with respect to material Taxes affecting or relating to the
Company; (viii) none of Parent, Seller or the Company has entered into, or
permitted to be entered into, any closing or other agreement or settlement
with respect to Taxes affecting or relating to the Company; (ix) no ruling
with respect to Taxes has been requested by or on behalf of the Company or
by Parent or Seller with respect to any transaction involving the Company
that could affect the liability of the Company for Taxes for any period
after the Closing; (x) the
15
Company has no liability for the Taxes of any Person (other than pursuant
to Treasury Regulation Section 1.1502-6, or any analogous state, local or
foreign law or regulation) as a transferee or successor, by contract or
otherwise; (xi) the statutes of limitations for Tax years of the Company
have closed for all years ending prior to January 1, 1999; (xii) Seller is
not a "foreign person" within the meaning of Section 1445(f)(3) of the
Code; and (xiii) neither Parent, Seller nor the Company has ever engaged in
any transaction that is the same as, or substantially similar to, a
transaction that would be a "reportable transaction" for purposes of
Section 1.6011-4(b) of the Code (including without limitation any
transaction which the Internal Revenue Service has determined to be a
"listed transaction" for purposes of Section 1.6011-4(b)(2) of the Code).
3.9. Required Filings.
(a) All statements, reports, forms or other information required
to be filed with respect to the Company have been or will be timely filed,
and all required regulatory approvals in respect thereof are in full force
and effect, except for any such statements, reports, forms, other
information or regulatory approvals that if not made or obtained would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. All such regulatory filings were true and correct
in all material respects when filed and were in compliance with Applicable
Laws, and no deficiencies have been asserted by any such Governmental
Entity with respect to such regulatory filings that have not been
satisfied.
(b) Schedule 3.9(b) sets forth all amounts which, as of December
31, 2004, have been paid by the Company as annual statement filing fees,
license renewal fees, excess and surplus lines eligibility fees,
examination fees, membership fees or dues to state guaranty associations
and joint underwriting associations, minimum required state insurance
premium taxes (i.e. those imposed without regard to the amount of premiums
written) and other taxes, fees or assessments paid by the Company in order
to maintain its Insurance Permits in good standing (all such fees and
amounts, collectively, the "Filing Fees") for the year ending December 31,
2004 and the dates of payments of each of such amounts. Schedule 3.9(b)
also sets forth an estimate of the amount of Filing Fees which will be due
for calendar year 2004 which have not been paid as of December 31, 2004.
3.10. No Breach of Statute or Contract; Consents and Authorizations.
(a) Neither the execution and delivery of this Agreement by
Seller, nor the execution and delivery of the Quota Share Agreement, Trust
Agreement, Administrative Services Agreement, Assumption Agreement or
Termination and Commutation of LPT Agreement by Seller and the Company, nor
the execution and delivery of the Amended Termination of Pooling Agreement
by Seller, the Company and USACC, nor the execution and delivery of the
Guarantee by the Company, nor performance by any of them of any of their
obligations hereunder or thereunder will (x) conflict with, or result in a
breach of, any of the terms, conditions or provisions of: (i) the
certificate of incorporation or bylaws (or comparable organizational
documents) of Seller, the Company or USACC; (ii) subject to receipt of
approvals referred to in Section 3.10(b), any judgment, order, injunction,
decree or ruling of any court or Governmental Entity or any Applicable Law
to which Seller, the Company or USACC is subject; or (iii) any agreement,
contract or commitment to which
16
Seller, the Company or USACC is a party or is subject, except, in the case
of clauses (ii) and (iii) only, for such conflicts or breaches that (A)
would not be reasonably expected to have a Material Adverse Effect, (B)
would not materially impair the ability of Seller to execute, deliver and
perform its obligations under this Agreement, (C) would not materially
impair the ability of either Seller or the Company to execute, deliver and
perform its obligations under the Quota Share Agreement, the Trust
Agreement, the Administrative Services Agreement, the Assumption Agreement
and the Termination and Commutation of LPT Agreement, (D) would not
materially impair the ability of any of Seller, the Company or USACC to
execute, deliver and perform its obligations under the Amended Termination
of Pooling Agreement, (E) would not materially impair the ability of the
Company to execute, deliver and perform its obligations under the Guarantee
and (F) would not impair the validity of any Insurance Permit, or (y)
result in the creation or imposition of any Lien or Restriction on any of
the Properties or assets of the Company.
(b) Except for approval by the Arkansas Commissioner with respect
to the change in control of the Company and except as set forth in Schedule
3.10(b), none of Seller, the Company or USACC is required to obtain any
consent, approval or authorization from or to make any filings with any
Governmental Entity or any other Person with regard to execution, delivery
and performance of this Agreement (including the transfer of the Stock
pursuant hereto), the Related Agreements or such other agreements or
documents as are to be executed by Seller, the Company or USACC pursuant
hereto and thereto, or the consummation of the transactions contemplated
herein or therein ("Seller's Approvals"). With regard to this Agreement and
the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, so called "bulk reinsurance" statutes,
which generally require a ceding company to provide notification to or
obtain the approval of the insurance department of the applicable
jurisdiction prior to or in connection with the transfer by reinsurance of
all or substantially all of the ceding company's business or a given line
of business, either (x) do not apply or (y) no notification or approval is
required thereunder.
(c) The Company is in compliance with all Applicable Laws
relating to the operation, conduct or ownership of the Property or business
of the Company, except for any such failure to comply that would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
(d) Neither the Company nor, to Seller's Knowledge, any officer,
director, employee or authorized agent on behalf of the Company, has made
any unlawful payment to, or entered into any written or oral understanding
or agreement to make any unlawful payment to, any governmental or
quasi-governmental official, or to any other Person or entity. Neither
Seller nor the Company has received any notice of, nor to Seller's
Knowledge is there, any violation of any Applicable Law relating to the
operation, conduct or ownership of the business of the Company other than a
violation which has been resolved and for which no sanction is pending.
Without limitation of the foregoing, the Company has not been subject of
any allegation made by any Governmental Entity or by any other Person that
the Company has unlawfully shared fees or made any unlawful rebates or
engaged in any other unlawful reciprocal practice, nor has the Company
entered into any written or oral understanding or agreement to do any of
the foregoing and, to Seller's Knowledge, the Company has not
17
engaged in any business practice which could reasonably be expected to give
rise to any such allegation.
3.11. Legal Proceedings.
(a) Except as set forth in Schedule 3.11(a), there are no
unresolved complaints (consumer or otherwise), claims, actions, suits,
arbitrations, hearings, proceedings or investigations, whether at law or in
equity, and whether or not before any Governmental Entity (collectively,
"Actions"), pending or, to Seller's Knowledge, threatened against or
affecting or which pertain to or involve the Company or any Property of the
Company or any individual in his or her capacity as a director, officer or
employee of the Company, or any aspect of the business or operation of the
Company, or the ability of the Company to conduct or transact any insurance
business or to consummate the transactions contemplated by this Agreement
or the Related Agreements. Except as set forth in Schedule 3.11(a), there
are no judgments, orders, decrees or injunctions of any Governmental Entity
issued or outstanding against or which affect the Company or any property
of the Company or any aspect of the business or operation of the Company,
or the ability of the Company to conduct or transact any insurance business
or to consummate the transactions contemplated by this Agreement or the
Related Agreements that remain unsatisfied or require continuing
compliance.
(b) Except as set forth in Schedule 3.11(b), there are no Actions
pending or, to Seller's Knowledge, threatened in which the Company is
either a plaintiff or (if not a formal proceeding) an aggrieved party or
claimant and there are no orders, decrees or injunctions issued in favor of
the Company.
3.12. Bank Accounts. Schedule 3.12 sets forth a list of all bank
accounts maintained by the Company together with the addresses of the banks at
which such accounts are maintained and the contact persons for the Company
thereat.
3.13. Form of Capital and Surplus. The Company's capital and surplus
consist only of (i) cash and cash equivalents, (ii) fixed income securities
traded in a recognized public market and (iii) bonds on deposit with certain
states as required to obtain Insurance Permits in those states. Schedule 3.13
sets forth a description of the items constituting the Company's capital and
surplus (collectively, the "Securities"), including the values thereof, valued
as of December 31, 2004 in accordance with the valuation methods set forth in
Section 2.2 of this Agreement. The Securities comply with the requirements of
the insurance laws and regulations of the State of Arkansas as well as the
insurance laws and regulations of any other applicable jurisdiction.
3.14. Undisclosed Liabilities. (i) The Company does not have any
direct or indirect indebtedness, liability, or other obligation, whether fixed
or unfixed, secured or unsecured, accrued, absolute, contingent or otherwise
(individually, a "Liability," and collectively, "Liabilities") that would be
required by GAAP to be and were not reflected or reserved against in the Latest
Balance Sheet, and no such Liabilities have arisen since the date of the Latest
Balance Sheet except as set forth on Schedule 3.14 hereto and (ii) to Seller's
Knowledge, the Company does not have any Liabilities, whether or not required by
GAAP to be included on a balance sheet prepared in accordance with GAAP, which
are not either reflected or
18
reserved against in the Latest Balance Sheet or set forth on Schedule 3.14
hereto, other than in the case of clauses (i) and (ii), Liabilities arising
under or resulting from this Agreement or the Related Agreements. All
Liabilities which, in the case of clause (i), were required by GAAP to be and
were not reflected or reserved against in the Latest Balance Sheet, or which
have arisen since the date of the Latest Balance Sheet and would be required by
GAAP to be included on a balance sheet prepared in accordance with GAAP and are
not set forth on Schedule 3.14, and, in the case of clause (ii), are Known to
Seller, whether or not such Liabilities would be required by GAAP to be included
on a balance sheet prepared in accordance with GAAP, and which are not either
reflected or reserved against in the Latest Balance Sheet or set forth on
Schedule 3.14 hereto, shall collectively be referred to herein as "Undisclosed
Liabilities".
3.15. Contracts.
(a) To Seller's Knowledge, the Related Agreements constitute all
of the contracts and commitments by which the Company is bound or to which
the Company is subject, and there are no other contracts or commitments to
which the Company is now a party or by which the Company or its assets are
or may be bound or to which the Company or its assets are or may be
subject, other than (i) contracts and commitments identified on Schedule
3.15(a), all of which, except as indicated on such Schedule, shall be
either terminated or amended effective on or prior to the Closing Date to
remove the Company as a party thereto, and to discharge the Company from
any and all obligations, liabilities or commitments thereunder, (ii) the
Third-Party Reinsurance Agreements and (iii) this Agreement. On the Closing
Date, the Related Agreements and the Third-Party Reinsurance Agreements
will constitute all of the contracts and commitments by which the Company
or its assets are or may be bound or to which the Company or its assets are
or may be subject, and there will be no other contracts or commitments to
which the Company is a party or by which the Company or its assets are or
may be bound or to which the Company or its assets are or may be subject,
other than this Agreement.
(b) The Company is not a party to any reinsurance contract other
than the Third-Party Reinsurance Agreements set forth on Schedule 3.15(b).
True and complete copies of all of the Third-Party Reinsurance Agreements,
including all amendments, endorsements and addenda thereto, have been
delivered to the Purchaser prior to the date of this Agreement. The Company
is a cedent, and is not a reinsurer, under each of the Third-Party
Reinsurance Agreements. All Third-Party Reinsurance Agreements providing
reinsurance cover for errors and omissions, medical malpractice, personal
injury or employment practices lines of business (none of which the Company
ever wrote), directors and officers liability, or other similar lines, have
expired or been terminated prior to the date hereof as to new and renewal
business written by the Company.
3.16. Employee Matters.
(a) The Company (i) does not have, and has not at any time since
its formation had, any full-time or part-time employees, independent
contractors, consultants, distributors, salespersons, insurance agents or
persons performing similar functions (other than Surplus Lines Brokers)
(collectively, "Employees") and (ii) is not a party to or obligated
19
under, and does not have any liabilities or obligations with respect to,
any employment, consulting or agency contract or agreement (written or
oral) with any Person.
(b) The Company does not have any liabilities or obligations of
any nature whatsoever to any Employee or to any current or former officers
or directors of the Company or any Affiliate of the Company, including,
without limitation, pursuant to (i) any indemnification agreements (written
or oral), (ii) the Company's Certificate of Incorporation or Bylaws, as
currently in effect or as in effect at any time since the Company's
formation, or (iii) any other agreement, understanding or obligation (any
such obligation or liability referred to herein as an "Employee-Related
Liability").
(c) The Company has not maintained, contributed to, been
obligated to contribute to or have liability (including, without
limitation, potential or contingent liability under Title IV of ERISA or
any liability incurred by an ERISA Affiliate) with respect to any Employee
Benefit Plan (any such obligation or liability referred to herein as a
"Benefit-Related Liability").
(d) The Company is not a party to or otherwise obligated under
any collective bargaining agreement.
(e) Seller acknowledges that Purchaser is assuming no liability
or responsibility with respect to any Employee-Related Liability or
Benefit-Related Liability, or with respect to any agreement or arrangement
with any Surplus Lines Brokers (including any commissions or fees owed in
connection therewith).
3.17. Powers of Attorney. Except as set forth in Schedule 3.17, other
than any powers of attorney granted to insurance commissioners in connection
with state licensing matters, all powers of attorney granted by the Company have
expired or been revoked prior to the date hereof.
3.18. Accuracy of Documents. All minute books and stock records of
the Company and all other Documents delivered by Seller or the Company to
Purchaser in connection with the transactions contemplated hereby are complete
and accurate in all material respects. All corporate books and records of the
Company are maintained in compliance in all material respects with all
applicable statutes, including requirements as to their location.
3.19. Brokers and Finders. Except for Merger and Acquisition
Services, Inc., the fees and expenses of which shall be paid by Seller, no
broker, finder or investment banker is entitled to any fee or commission in
connection with the transactions contemplated hereby or the Related Agreements
based upon arrangements made by or on behalf of Seller or the Company.
3.20. Excess and Surplus Lines Brokers.
(a) Each Surplus Lines Broker, at the time such Surplus Line
Broker solicited, negotiated, sold or produced any insurance business of
the Company, to the extent required by Applicable Law, was duly and
appropriately licensed as a Surplus Line Broker (for the type of business
solicited, negotiated, sold or produced by such excess and surplus lines
broker), in
20
each case, in the particular jurisdiction in which such Surplus Line Broker
solicited, negotiated, sold or produced such insurance business.
(b) Except as set forth on Schedule 3.20(b), the Company is not
and has never been a party to any profit sharing, contingent fee, placement
service, market service or similar agreement with any insurance producer,
agent or broker, including any Surplus Lines Broker. The Company does not
pay and has at no time paid any insurance producer, agent or broker,
including any Surplus Lines Broker, any fees, commissions, overrides,
production bonuses or other payments based upon (i) the amount of business
placed with the Company by clients of such producer, (ii) such producer's
clients rate of renewal of policies with the Company or (iii) the
profitability of the business placed by such producer. The Company has
never provided or submitted a false, sham, phony or otherwise artificial
bid or quote with respect to prospective insurance business. To Seller's
Knowledge, no insurance producer, agent or broker, including any Surplus
Lines Broker, has violated any term or provision of any Applicable Law
applicable to any aspect (including, but not limited to, the soliciting,
negotiating, marketing, sale or production) of the Company's insurance
business.
(c) Schedule 3.20(c) contains a true and complete list of (i) all
agreements with Surplus Lines Brokers or other brokers, agents or producers
and (ii) all marketing agreements (true and complete copies of all such
written agreements and a written description of all such oral agreements
having been made available to Purchaser), which are or were in force or
effective at any time during the period from January 1, 2000 through the
date hereof, to which the Company is or was a party or by which any
Properties of the Company is, was, may be or may have been bound, as such
agreements may have been amended to the date hereof.
3.21. Assets and Properties.
(a) The Company owns and has good and marketable title to all of
its assets and Properties, free from any Liens or Restrictions (other than
any escrowed amounts or other deposits made with state insurance
commissioners).
(b) On the Closing Date, the Company will not own any assets or
Properties, except (i) its corporate charter and the Insurance Permits set
forth on Schedule 3.2(b), (ii) the Closing Assets, and (iii) the
contractual rights of the Company pursuant to this Agreement and the
Related Agreements.
3.22. No Restrictions on Business. Other than pursuant to the
restrictions of Applicable Law and as set forth on Schedule 3.2(b), the Company
is not subject to any contract, agreement, commitment or other contractual
obligation with any Person including, but not limited to, any Governmental
Entity, containing any provision or covenant (i) limiting the ability of the
Company to engage in any line of business, to compete with any Person, to do
business with any Person or in any location or to employ any Person or (ii)
limiting the ability of any Person to compete with or obtain products or
services from the Company. For the avoidance of doubt, the parties hereto
acknowledge that the failure of the Company to have an Insurance Permit (other
than those permits listed on Schedule 2.2(d) hereto) shall not be deemed to
breach this Section 3.22.
21
3.23. Marketing Agreements.
(a) No business was ever written by or on behalf of the Company
pursuant to or in connection with the Joint Marketing Agreements. Pursuant
to termination agreements or amendments reasonably satisfactory to
Purchaser, on or prior to the Closing Date each of the Joint Marketing
Agreements and the Intercompany Marketing Agreement shall be either
terminated or amended effective on or prior to the Closing Date to remove
the Company as a party thereto, and to discharge the Company from any and
all obligations, liabilities or commitments thereunder (other than
obligations, liabilities and commitments arising under business written by
the Company pursuant to the Intercompany Marketing Agreement and ceded to
Seller pursuant to the Quota Share Agreement). From and after the Closing
Date, the Company shall have no obligations, liabilities or commitments
under the Joint Marketing Agreements or Intercompany Marketing Agreement.
(b) Seller, the Company and their respective Affiliates have
complied with all of the covenants, agreements and other obligations of
Seller, the Company and their Affiliates, respectively, arising out of or
related to the Joint Marketing Agreements.
(c) The Company is not subject to any contract, agreement,
commitment or other obligation with any Person including, but not limited
to, any Governmental Entity, concerning the marketing or underwriting of
business, or which are otherwise similar to the Joint Marketing Agreements
or Intercompany Marketing Agreement.
3.24. Policyholder Complaints. Neither the Company or any of its
Affiliates nor, to Seller's Knowledge, any Governmental Entity (including the
Arkansas Commissioner) has received any complaints by policyholders of the
Company of the nature which would customarily be recorded by insurance companies
on a policyholder complaint log.
3.25. Absence of Certain Changes. Except as contemplated by this
Agreement, the Related Agreements or as set forth on Schedule 3.25, and except
for events occurring in the ordinary course of the Company's business, since
December 31, 2003, the Company has not:
(a) been engaged in or conducted any business other than an
insurance business;
(b) incurred any obligation or liability (absolute or
contingent);
(c) mortgaged, pledged or subjected to any Lien or Restriction
any of its assets or Properties;
(d) sold or transferred any assets or Property or cancelled any
debts or claims, except for sales of investment assets, followed by
reinvestment of the net proceeds thereof;
(e) made any loan or advance to, or guaranteed the obligations
of, any individuals, firms, corporations or other entities;
(f) entered into any transaction or agreement, insurance or
otherwise;
22
(g) declared, made, set aside or paid any dividend, distribution
or payment on, or any purchase or redemption of, any shares of any class of
its capital stock or made any commitments therefor;
(h) incurred any indebtedness, absolute or contingent;
(i) made any change in its accounting methods or practices, or
made any change in depreciation or amortization policies or rates adopted
by it;
(j) except as set forth in its consolidated federal income tax
return for its 2003 taxable year and other previously filed Tax Returns,
changed any method of accounting with respect to Taxes, revoked, changed or
made any Tax elections, or compromised or entered into any settlements in
respect of Taxes;
(k) made any payment or commitment to pay any person;
(l) entered into or amended any contract or other agreement
pursuant to which it agrees to indemnify any party or to refrain from
competing with any party;
(m) except for investment assets acquired in the ordinary course
of business, made any acquisition of any of the assets, properties, capital
stock or business of any other person or entity;
(n) suffered or had any adverse change, event or condition in its
business, results of operations, assets, financial condition, or the manner
of conducting its business;
(o) issued, granted, sold or otherwise disposed of any of its
capital stock or other securities, or options or rights to acquire its
capital stock or securities;
(p) amended its Certificate of Incorporation or Bylaws;
(q) formed, acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(r) written up, written down or written off the value of any
material amount of assets; or
(s) entered into any oral or written agreement or understanding
to do any of the acts or things described in this Section 3.25.
3.26. Real Property; Environmental Matters.
(a) The Company does not own and since its formation has never
owned any real property. The Company is not a party to, and neither the
Company nor the business of the Company is in any way subject to, any lease
(as lessee or lessor) or sublease (as sublessee or sublessor) of real
property.
23
(b) Except for claims in the normal course of its insurance
business, all of which will be reinsured pursuant to the Quota Share
Agreement, no litigation, suits, claims, proceedings or investigations or
private or governmental enforcement actions or orders are pending or, to
Seller's Knowledge, threatened against the Company with respect to any
Hazardous Material or applicable Environmental Law (each as defined below).
(c) Neither Seller nor the Company has received any notice from
any Governmental Entity or other Person of any claims or potential
violations by the Company of, or liability under, any Environmental Law.
(d) To Seller's Knowledge, there is not (i) any activity on any
properties presently or formerly owned or operated by the Company which was
conducted, or is being conducted, in violation of any Environmental Law, or
(ii) any actual or threatened release (including, without limitation, any
spill, discharge, leak, emission, ejection, escape or dumping) or improper
or inadequate storage of, or contamination caused by, any Hazardous
Material on or under any properties of the Company, which in any of such
cases has or would reasonably be expected to have a Material Adverse
Effect.
(e) For purposes of this Section 3.26, "Environmental Law" means
any Applicable Law relating to pollution or protection of the environment,
health, safety, or natural resources or to the use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials; and "Hazardous Material" means any material,
substance, waste, pollutant, contaminant, chemical or other matter that is
defined as a hazardous material, hazardous substance, hazardous waste,
toxic material, toxic substance or other term having a similar meaning
under Applicable Law or is otherwise subject to elimination, abatement,
removal, remediation or cleanup under Applicable Law.
3.27. Insurance Business. No insurance policy or contract issued by
or on behalf of the Company is in-force as of the date hereof. The Company is
not required pursuant to Applicable Law or the terms of any insurance policy or
contract issued by or on behalf of the Company to issue or renew any insurance
policy or contract.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller, as of the date of this
Agreement (except if another date is specified in the representation or
warranty) and as of the Closing Date, as follows:
4.1. Organization and Standing. Purchaser is a property and casualty
insurance company duly organized, validly existing and in good standing under
the laws of the State of Delaware.
4.2. Authorization of Agreement. Purchaser has all requisite power to
execute and deliver this Agreement and perform its obligations under this
Agreement, and the execution, delivery and performance of this Agreement and the
consummation of the transactions
24
contemplated by this Agreement have been duly authorized and approved by all
necessary corporate action on the part of Purchaser. This Agreement has been
duly executed and delivered by Purchaser and is the valid and binding obligation
of Purchaser enforceable against it in accordance with its terms, subject to the
Bankruptcy Exception.
4.3. No Breach of Statute or Contract; Consents and Authorizations.
(a) Neither the execution and delivery by Purchaser of this
Agreement nor performance by Purchaser of its obligations hereunder will
conflict with, or result in a breach of, any of the terms, conditions or
provisions of: (i) the Certificate of Incorporation or Bylaws of Purchaser;
(ii) subject to receipt of approvals referred to in Section 4.3(b), any
judgment, order, injunction, decree or ruling of any court or Governmental
Entity, or any Applicable Law, to which Purchaser is subject; or (iii) any
agreement, contract or commitment to which Purchaser is a party or is
subject, except, in the case of clauses (ii) and (iii) only, for such
conflicts or breaches which would not materially impair the ability of
Purchaser to execute, deliver and perform its obligations under this
Agreement.
(b) To Purchaser's Knowledge, except for (i) the approval by the
Arkansas Commissioner with respect to the change in control of the Company
and (ii) any approvals by the insurance department of any other
jurisdiction asserting regulatory authority over the transactions
contemplated by this Agreement which are required by applicable law,
regulation or rule to be obtained by Seller, there are no governmental
approvals required to permit the consummation of the transactions
contemplated by this Agreement.
4.4. Investment Intent. Purchaser represents and warrants that (i)
subject to the provisions of Section 2.4 hereof, Purchaser is acquiring the
Stock for its own account, for investment purposes only and not with a view to
the resale, distribution or other disposition thereof or any part thereof or any
interest therein, and (ii) Purchaser has such knowledge of and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its prospective investment in the Company as contemplated by this
Agreement. Purchaser acknowledges that the Stock will not be registered under
the Securities Act of 1933, as amended, or under any state securities law and,
therefore, may not be sold by Purchaser except pursuant to an effective
registration statement under such Securities Act or an exemption from
registration thereunder and pursuant to registration or qualification under any
applicable state securities law or exemption therefrom.
4.5. No Litigation. There are no actions, suits or administrative,
arbitration or other proceedings or governmental investigations (including
counterclaims) pending or, to Purchaser's Knowledge, threatened in writing to
restrain, prohibit or otherwise challenge the performance by Purchaser of the
transactions contemplated by this Agreement.
4.6. Brokers and Finders. Except for Merger and Acquisition Services,
Inc., the fees and expenses of which shall be paid by Seller, no broker, finder
or investment banker is entitled to any fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Purchaser.
25
ARTICLE V
CONDUCT AND TRANSACTIONS PRIOR TO
CLOSING; COVENANTS; INDEMNITIES
5.1. Investigations; Operation of the Business of the Company.
Between the date of this Agreement and the Closing:
(a)(i) Upon receipt of reasonable notice, Seller will give, or
cause to be given, to Purchaser or Purchaser's representatives and agents,
reasonable access to the books, records and officers of the Company and, to
the extent that the same pertain to the Company, the books and records of
Seller, and Seller will cause the officers and employees of Seller and of
the Company to furnish to Purchaser upon reasonable prior notice such
financial data and other information with respect to the assets and the
conduct of the business of the Company as Purchaser shall from time to time
reasonably request; provided, however, that any such investigation shall be
conducted during normal business hours and in such manner so as not to
interfere unreasonably with the operation of the business of Seller or the
Company.
(ii) Until the Closing Date and thereafter at all times if the
transactions contemplated by this Agreement are not consummated,
Purchaser shall hold any Confidential Information in confidence unless
and until such time as such information otherwise becomes publicly
available, and, in the event of the termination of this Agreement,
upon request by Seller, shall deliver to Seller all such Confidential
Information so obtained by Purchaser.
(iii) It is acknowledged and agreed that unauthorized use of any
Confidential Information would cause irreparable injury constituting
the proper subject of injunctive relief and specific performance, in
addition to providing Purchaser an action for damages. Notwithstanding
any other provision of this Agreement, the covenants of Purchaser set
forth in this Section 5.1(a) shall survive the cancellation,
abandonment or termination of this Agreement.
(b) Each of Seller and Purchaser agrees that it will promptly
make or cause to be made any filing or submission required to be made by it
or on its behalf or on behalf of the Company with the Arkansas Commissioner
and with the insurance department or similar regulatory authority of any
other jurisdiction asserting regulatory authority over the transactions
contemplated by this Agreement.
(c) Seller and Purchaser shall cooperate in using all reasonable
efforts to cause the conditions to the Closing hereunder to be satisfied as
soon as practicable including, without limitation, obtaining the consents,
approvals and authorizations necessary for the Closing. For purposes of
this Agreement, the covenant of the parties to use their "reasonable
efforts" shall not require any party to incur any unreasonable expenses.
(d) Except as otherwise provided for by the terms of this
Agreement, without the prior written consent of Purchaser, Seller will not
permit the Company to: (i) issue or sell, or commit to issue or sell, any
shares of its capital stock; (ii) grant or commit to grant any
26
options, warrants or rights to subscribe for, purchase, or otherwise
acquire any shares of its capital stock; (iii) issue or commit to issue any
securities convertible into or exchangeable for shares of its capital
stock; (iv) either declare, set aside, pay or commit to pay any dividend or
other distribution with respect to its capital stock or transfer any asset
for any other purpose; (v) directly or indirectly redeem, purchase or
otherwise acquire or dispose of, or commit to acquire or dispose of, any
shares of its capital stock; (vi) effect a split, modification or
reclassification of its capital stock or a recapitalization of the Company;
(vii) change the Certificate of Incorporation or Bylaws of the Company;
(viii) make, or agree to make, any borrowings or any guarantee, or agree to
guarantee, the borrowings of any other Person; (ix) enter into or become
party to any contract or commitment other than the Related Agreements; (x)
write any insurance or reinsurance business, on a surplus lines basis or
otherwise, or engage in any business except as may be specifically
contemplated in this Agreement; (xi) take any action that would cause the
Company to incur any Employee-Related Liability, Benefit Related Liability,
Undisclosed Liability or liability of the nature described in Section
3.20(b), (xii) take any action that would cause the Company to incur any
other liability whatsoever not fully indemnified hereby or that would have
the effect of impairing the value of the assets or the validity of any
Insurance Permit; (xiii) enter into any new employment, severance or
consulting contracts or otherwise hire any employees, contract with any
independent contractors or appoint any insurance agents; (xiv) subject any
of its Properties or assets to any Liens or Restrictions; or (xv) except as
set forth herein, take any action not in the ordinary course of the
Company's business or which would be inconsistent with delivering to
Purchaser a corporation as otherwise contemplated in this Agreement.
(e) Except as specifically consented to in writing by Purchaser,
Seller shall not, and shall not permit the Company to, take any action or
omit to take action that would result in a breach of any representation or
warranty of Seller contained in this Agreement.
(f) Except as otherwise contemplated by this Agreement or
specifically consented to in writing by Purchaser, from the date of this
Agreement through the Closing Date, Seller shall cause the Company to (i)
conduct its business only in the ordinary course consistent with past and
current practices, (ii) comply in all material respects with all Applicable
Laws, (iii) preserve and maintain in full force and effect the Insurance
Permits and (iv) perform in all material respects its obligations under all
contracts and commitments to which it is a party or by which it is bound.
(g) Purchaser covenants to use reasonable efforts to file as
promptly as practicable the Statement Regarding the Acquisition of Control
of or Merger with a Domestic Insurer (Form A) with the Arkansas
Commissioner.
5.2. Pending or Threatened Action. Between the date of this Agreement
and the Closing Date, Seller and Purchaser shall each inform the other, promptly
upon any party's obtaining knowledge thereof, of any pending or threatened
Action by any Governmental Entity which could reasonably be anticipated (i) to
prohibit or restrain or impair the consummation of the transactions contemplated
by this Agreement or the Related Agreements, or the performance by Parent,
Seller, the Company, USACC or Purchaser of their respective obligations under
this Agreement or the Related Agreements, as applicable, (ii) to have a Material
Adverse Effect or
27
(iii) to have the effect of impairing the value of the Closing Assets or other
Property of the Company or the validity of any Insurance Permit.
5.3. Tax Audits; Tax Returns.
(a) Seller, at its sole cost and expense, shall, or shall cause
Parent or the Company to, file or cause to be filed when due all Tax
Returns of or including the Company that are required to be filed by or
with respect to the Company for any Pre-Closing Period and Seller shall, or
shall cause Parent (or the Company prior to the Valuation Date) to, remit
(or cause to be remitted) any Taxes due in respect of such Tax Returns. All
Tax Returns described in this Section 5.3(a) will be prepared in a manner
consistent with the past practice of Parent, Seller and the Company.
Purchaser shall cause the Company to sign (or cause the Company to grant
Seller power of attorney to sign) any Tax Returns that are prepared in
accordance with Applicable Law, are required to be filed by or with respect
to the Company for any Pre-Closing Period and that are filed after the
Closing Date.
(b) Purchaser, at its sole cost and expense, shall file or cause
to be filed when due all Tax Returns that are required to be filed for any
Post-Closing Period or any Straddle Period by or with respect to the
Company and, subject to Section 8.5(c) hereof, Purchaser shall remit (or
cause to be remitted) any Taxes due in respect of such Tax Returns.
(c) Purchaser shall not amend, or allow the Company to amend, any
Tax Return of the Company for any Pre-Closing Period. Purchaser shall, or
shall cause the Company to, pay to Seller the net amount of any refunds for
Taxes received by the Company or Purchaser after the Closing Date, and
attributable to Taxes paid by Seller under this Agreement or with respect
to any Pre-Closing Period, less any Taxes or other costs imposed on the
Company, Purchaser or any of their Affiliates as a result of receiving or
claiming such refund, and subject to repayment by Seller in the event that
Purchaser, the Company or any of their Affiliates is subsequently required
to return such refund. All such Tax refunds shall be paid within five (5)
days of receipt by the Company or Purchaser (or within five (5) days of
request therefor by the Purchaser in the case of a refund required to be
returned).
(d) Purchaser shall cause the Company to prepare in a manner
consistent with past practice of the Company and to deliver to Parent or
Seller all relevant Tax information relating to the Company reasonably
required to permit Parent or Seller to file or cause to be filed when due
all Tax Returns pursuant to Section 5.3(a) of this Agreement.
(e) Purchaser and the Company will provide Seller (and its
attorneys, accountants and agents) with the right, at reasonable times,
upon reasonable notice, to have access to, copy and use, any records or
information that are reasonably available to the Company and that Seller
deems in its reasonable discretion relevant for the preparation of any Tax
Returns, any audit or other examination by any Taxing Authority, the filing
of any claim for a refund of Tax or for the allowance of any Tax credit, or
any judicial or administrative proceedings relating to liability for Taxes
of the Company for taxable periods ending on or prior to the Closing Date.
Purchaser shall retain all books and records provided to it with respect to
any Tax matters pertinent to the Company, Seller or Parent relating to any
Pre-Closing Period until the expiration of the applicable statute of
limitations (and, to the extent
28
notified by Seller, any extensions thereof) of the respective tax periods.
Seller shall, or shall cause Parent to, reimburse Purchaser for all
reasonable out-of-pocket expenses incurred by Purchaser in connection with
providing such information. Any information obtained pursuant to this
Section 5.3(e) shall be held in strict confidence and shall be used solely
in connection with the reason for which it was requested.
(f) In the case of any income or premium Tax Return for any
Straddle Period, Purchaser shall provide Seller with copies of the
completed Tax Return for such taxable period and a schedule apportioning
the Tax shown on such Tax Return as between Seller and Purchaser and
specifying the amount due to or from Seller (all computed in accordance
with Section 8.5(c) hereof), together with such related work papers and
other documents as Seller shall reasonably request, no later than
forty-five (45) days before the due date for the filing of such Tax Return.
Seller and its authorized representatives shall have the right to review
the Tax Return and schedule received from Purchaser pursuant to the terms
of this Section 5.3(f). Seller and Purchaser shall consult with one another
and resolve reasonably and in good faith and in accordance with Applicable
Law any issues concerning the apportionment required by this Section 5.3(f)
as a result of the review of any such Tax Return and schedule received from
Purchaser. Seller shall, or shall cause Parent to, pay the amount of Tax,
if any, due and owing from Seller to Purchaser no later than five (5) days
prior to the date of filing of such Tax Return.
(g) Seller shall cause any Tax sharing agreement or similar
arrangement with respect to Taxes involving the Company, on the one hand,
and Parent or Seller, or any Affiliates of Seller, on the other hand, to be
either terminated or amended effective as of the Closing Date, so that to
the extent any such agreement or arrangement relates to the Company after
the Closing Date, none of Parent, the Company, Seller nor any of their
respective Affiliates shall have any obligation thereunder to the other,
whether to make payment or otherwise, under any such agreement or
arrangement for any past, present or future period.
(h) Except as otherwise expressly contemplated by this Agreement,
from the date hereof to and including the Closing Date, Seller shall not
permit the Company to, and shall cause Parent not to permit the Company to,
without the prior written consent of Purchaser, which shall not be
unreasonably withheld, conditioned or delayed, directly or indirectly (i)
make, change or revoke, or permit to be made, changed or revoked, any
election or method of accounting, with respect to Taxes affecting the
Company for Post-Closing Tax Periods, except elections made on the
consolidated federal income tax return of the Parent for periods ending on
December 31, 2004 and on the Closing Date that are consistent with similar
elections made for prior tax periods or are as disclosed on Schedule 3.8,
(ii) enter into, or permit to be entered into, any closing or other
agreement or settlement with respect to Taxes of the Company affecting or
relating to Post-Closing Tax Periods, or (iii) enter into any transaction
or series of transactions other than in the ordinary course of business, or
take any position on any Tax Return for any taxable period (or portion
thereof) ending on or prior to the Closing Date that would have the effect
of increasing the Company's tax liability for any taxable period (or
portion thereof) beginning after the Closing Date.
(i) If (i) Purchaser or the Company receives a written notice
from any Taxing Authority proposing an audit or other examination of a Tax
Return of the Company for any
29
Pre-Closing Period or (ii) a claim is made or threatened in writing by any
Taxing Authority that, if successful, may result in an indemnity payment
under Section 8.1 hereof (each a "Tax Claim"), Purchaser shall promptly
notify Seller in writing stating the nature and basis of such Tax Claim,
and the amount thereof, to the extent known. Failure to give such notice
shall not relieve Seller from any liability that it may have on account of
this indemnification or otherwise, unless and to the extent that Seller is
materially adversely prejudiced thereby. Seller will have the right, upon
notification to Purchaser within thirty (30) days of the date Purchaser
notified Seller of such Tax Claim, to assume at its own expense the control
of any audit or other defense of any Tax Claim with its own counsel. If
Seller elects not to control any audit or other defense of a Tax Claim,
Purchaser shall have the authority to settle such Tax Claim subject to
Seller's consent which shall not be unreasonably withheld, conditioned or
delayed. Seller's right to control a Tax Claim will be limited to issues in
respect of which amounts in dispute would be paid by Seller or for which
Seller would be liable pursuant to Section 8.1 hereof. Purchaser shall
cooperate in good faith with Seller in contesting any Tax Claim, which
cooperation shall include providing records and information that are
reasonably available to the Company and relevant to such Tax Claim. All
reasonable out-of-pocket expenses of Purchaser related to such cooperation
shall be borne by Seller. Notwithstanding the foregoing: (i) Seller shall
not have the right to control any issue involved in a Tax Claim unless
Seller first acknowledges in writing its obligation to fully indemnify
Purchaser for the Taxes asserted in connection with such issue; (ii) no
settlement or disposition of any Tax Claim shall be made without
Purchaser's prior written consent (which consent shall not be unreasonably
withheld, delayed or conditioned); and (iii) Purchaser and Seller shall
jointly control all proceedings involving any claims for Taxes assessed in
respect of a Straddle Period, and each party shall bear its own
out-of-pocket costs and expenses relating to such claims.
(j) Seller, Purchaser and the Company agree that for all income
Tax purposes, the taxable period of the Company shall be terminated as of
the close of business on the date of the Closing in accordance with
Treasury Regulations Section 1.1502-76(b)(1) and items of income, gain,
loss, deduction or credit shall be apportioned based upon a closing of the
books for Tax purposes in accordance with Treasury Regulation Section
1.1502-76(b) (other than transactions properly allocable thereunder to the
portion of the day after the Closing shall occur, which shall be treated
for all federal income tax purposes as occurring at the beginning of the
following day). No elections shall be made under either Treasury Regulation
Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's
items) or Treasury Regulation Section 1.1502-76(b)(2)(iii) (to ratably
allocate the items for the month which includes the Closing Date). Seller,
Purchaser and the Company further agree to, and Seller shall cause Parent
to, file all Tax Returns, handle the contest of any audit and otherwise act
for all Tax purposes consistent with the provisions of this Section 5.3(j).
(k) If the Seller and Purchaser do not make the Section 338
Elections and in a Post-Closing Period the liability of the Company for any
income Tax is actually reduced (determined by assuming that all other
current or prior period (but not including any carryback) losses,
deductions or credits of the Company or any consolidated, combined, or
unitary group that includes the Company as a member are used first,
regardless of any ordering rule in Applicable Law) (the "Tax Savings") by
reason of any net operating loss carryover of the Company from any
Pre-Closing Period (a "Pre-Closing NOL"), then, (i) to
30
the extent that the Tax Savings equals all or any part of the Tax Adjustment
that decreased the amount of the Purchase Price payable to Seller (the "Negative
Tax Adjustment"), Purchaser shall pay the Seller an amount equal to the lesser
of the Tax Savings or the Negative Tax Adjustment, and (ii) to the extent that
the Tax Savings exceeds the Negative Tax Adjustment, then for purposes of
determining the amount of Tax incurred by the Company that reduces a refund due
to Seller pursuant to Section 5.3(c), or increases an Indemnification Payment by
Seller pursuant to Section 8.6(ii), the amount of such Tax Savings in excess of
the Negative Tax Adjustment shall be deemed to offset any Tax described in such
Sections. Nothing contained herein shall be construed as creating any obligation
on the part of the Company (or any consolidated, combined, or unitary group that
includes the Company as a member) to claim or deduct any Pre-Closing NOL in any
Straddle Period or Post-Closing Period, and if any Pre-Closing NOL shall be
reduced, disallowed or adjusted and such reduction, disallowance or adjustment
results in any loss or repayment of any Tax Savings, the amount of such lost or
repaid Tax Savings (plus any interest thereon or penalties related thereto) up
to the amount of the Negative Tax Adjustment paid to the Seller or applied to
offset any Tax shall be treated and indemnified (pursuant to Section
8.1(c)(ii)(A)) as Liabilities of the Company for Taxes assessed in respect of a
Pre-Closing Period.
5.4. Section 338(h)(10) Elections.
(a) At the request of Purchaser, and subject to the receipt of
Seller's 338 Payment, Seller agrees to (and agrees to cause Parent to, if
applicable) join with Purchaser in making a timely and irrevocable election
pursuant to Section 338(h)(10) of the Code, and, at Purchaser's request,
any corresponding or analogous election under applicable state, local or
foreign law (collectively, the "Section 338 Elections").
(b) Purchaser shall be solely responsible for preparing drafts of
all forms, attachments and schedules necessary to effectuate the Section
338 Elections, including, without limitation, IRS Form 8023 or applicable
successor form, any similar forms or applicable successor forms under
applicable state or local income tax laws, and the determination of the
ADSP (as defined in applicable Treasury Regulations under Section 338 of
the Code) and the allocation of ADSP among the assets of the Company and
other relevant items (the "Allocation"), valuing the Closing Assets using
the methodology set forth in Section 2.2 hereof (the "Section 338 Forms").
Purchaser shall furnish a copy of the draft Section 338 Forms to Seller for
Seller's review and comment, which Seller agrees to do promptly. Seller
shall, and if required, Seller shall cause Parent to, cooperate in good
faith with Purchaser's preparation of the Section 338 Forms, and Seller
agrees to (and agrees to cause Parent to) promptly provide to Purchaser
true, correct and complete information regarding Seller (or Parent or
Parent Group, if applicable) reasonably requested by Purchaser and
necessary to complete the Section 338 Forms.
(c) Thereafter, Purchaser shall deliver to Seller for execution
by Seller (or Parent, if applicable) the final Section 338 Forms. Within
five (5) days of delivering the final Section 338 Forms to Seller,
Purchaser shall pay to Seller (by wire transfer in U.S. dollars of
immediately available funds to the bank account specified in writing by
Seller to Purchaser) an amount equal to Seller's 338 Payment, and Seller
agrees to (and agrees to cause Parent to, if applicable) simultaneously
execute and deliver to Purchaser the final Section 338 Forms.
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(d) If Purchaser has paid Seller's 338 Payment to Seller, then
Seller agrees that Seller (i) shall (or shall cause Parent to, if
applicable) report the acquisition of the Company by Purchaser in a manner
consistent with the making of the Section 338 Elections (ii) shall not, and
shall cause Parent and each member of Parent Group not to, take a position
in any Tax Return or audit or any proceeding before any Taxing Authority or
otherwise inconsistent with the Section 338 Elections, including the
determination of the ADSP and the Allocation shown thereon, unless and to
the extent required to do so pursuant to a determination (as defined in
Section 1313(a) of the Code or any similar state or local law).
(e) Purchaser shall bear the costs and expenses of preparing the
Section 338 Forms and the Allocation
(f) If Purchaser and Seller make Section 338 Elections with
respect to Purchaser's acquisition of the Stock, then the Seller's 338
Payment shall be increased by the amount of the Negative Tax Adjustment or,
if the Tax Adjustment increased the amount of the Purchase Price payable to
Seller (the "Positive Tax Adjustment"), the Seller's 338 Payment shall be
reduced by the amount of the Positive Tax Adjustment.
(g) The amount of the Seller's 338 Payment, as increased or
decreased, as the case may be, by the Negative Tax Adjustment or the
Positive Tax Adjustment paid to the Seller, if any, shall be treated for
all tax purposes as the payment to Seller of additional purchase price for
the Stock.
5.5. Transfer Taxes. Seller shall cause all appropriate stock
transfer Tax stamps required by New York to be affixed to the certificate or
certificates representing the Stock, and Seller or Purchaser, as required by
Applicable Law, shall cause all other appropriate stock transfer Tax stamps to
be affixed to the certificate or certificates representing the Stock. Seller,
the Company and Purchaser shall cooperate in the preparation, execution and
filing of all returns, applications or other documents regarding any real
property transfer, transfer gains, sales or other similar transfer Taxes that
become payable in connection with the sale of the Stock (other than the stock
transfer taxes mentioned above) pursuant to this Agreement (collectively,
"Transfer Taxes"). Any Transfer Taxes shown as due on such returns shall be
borne by Purchaser or Seller as required by Applicable Law.
5.6. Conduct of Business by Purchaser. Purchaser covenants that it
shall not, and it shall not permit the Company to, take any action that would
cause the Company to incur any liability whatsoever until the day following the
Closing Date including, without limitation, the commencement of operations by
the Company, the hiring of employees or insurance agents for the Company, the
writing of any insurance business by the Company or engaging in any reinsurance
or other business by the Company, amending or modifying any governing document
of the Company or the taking of any other action whatsoever which obligates the
Company to act or omit to act and if Purchaser elects to make the Section 338
Elections, Purchaser shall not, and it shall not permit the Company to, take any
action after the Closing that would cause the purchase of the Stock hereunder to
fail to constitute a "qualified stock purchase" as defined in Section 338(d)(3)
of the Code.
32
5.7. Change of Name. As promptly as practicable after the Closing,
the Company shall change its name so that the Company does not have the word
"Ulico" in its name, and the Company shall cease using the word "Ulico" in any
of its business dealings. Purchaser shall promptly provide Seller with copies of
all documentation effecting such name change, as filed with each applicable
jurisdiction. Further, Purchaser hereby covenants that it will not use the words
"Ulico", "ULLICO", or any derivatives thereof in any of its business dealings,
and that it will not present itself or any of its Affiliates to the public as
being related in any way to Seller or Parent. For the avoidance of doubt,
statements by Purchaser and its Affiliates in regulatory documents, public
filings or otherwise that it has purchased the Company from Seller and
disclosures related thereto shall not be deemed to breach the covenant set forth
in this Section 5.7.
5.8. Disclosure of Confidential Information. Seller shall not, and
shall cause its Affiliates and its and their respective officers and directors
not to, disclose any confidential information of the Company after the date
hereof to any third party, unless compelled to disclose by judicial or
administrative process or, in the written opinion of its counsel, by other
requirements of law. It is acknowledged and agreed that unauthorized use of any
confidential information of the Company would cause irreparable injury
constituting the proper subject of injunctive relief and specific performance,
in addition to providing Purchaser an action for damages.
5.9. Compliance with Arkansas Insurance Laws. During the period from
the date hereof to the Closing Date, Seller shall, and shall cause the Company
to, comply with all of the requirements of Arkansas insurance laws.
5.10. Notification of Changes.
(a) Seller shall, after the first notice or occurrence thereof
but not later than the Closing Date, promptly notify Purchaser in writing
of any event or the existence of any state of facts that would (i) make any
of its representations and warranties in this Agreement untrue, (ii)
reasonably be likely to constitute a Material Adverse Effect, (iii)
materially impair the ability of Seller to execute, deliver and perform its
obligations under this Agreement, including, without limitation, the
provisions of Article VIII hereof or (iv) materially impair the ability of
Parent, Seller, the Company and/or USACC to execute, deliver or perform
their respective obligations under any of the Related Agreements.
(b) Purchaser shall, after the first notice or occurrence thereof
but not later than the Closing Date, promptly notify Seller in writing of
any event or the existence of any state of facts that would (i) make any of
its representations and warranties in this Agreement untrue or (ii)
materially impair the ability of Purchaser to execute, deliver and perform
its obligations under this Agreement.
5.11. Acquisition Proposals. From the date hereof through the Closing
Date, Seller shall not, nor shall Seller permit any of its Affiliates or any of
the officers, directors, employees, representative or agents of Seller or any of
such Affiliates to, directly or indirectly, solicit, initiate or participate in
any way in discussions or negotiations with, or provide any information or
assistance to, or enter into any agreement with, any person or group of persons
33
(other than Purchaser) concerning any acquisition of an equity interest in, or
in a merger, consolidation, liquidation, dissolution, or disposition of assets
of the Company, or any disposition of any of the securities of the Company
(other than sales of investment securities in its investment portfolio with the
prior written consent of Purchaser) (each, an "Acquisition Proposal"), or assist
or participate in, facilitate or encourage any effort or attempt by any other
person to do or seek to do any of the foregoing. Seller shall promptly
communicate to Purchaser the terms of any Acquisition Proposal which it or any
such other person may receive.
5.12. Related Agreements. On or prior to the Closing Date, (i) Seller
shall, and shall cause the Company to, execute and deliver each of the Quota
Share Agreement, Trust Agreement and Assumption Agreement, (ii) Seller shall,
and shall cause the Company and USACC to, execute and deliver the Amended
Termination of Reinsurance Pooling Agreement and (iii) Seller shall cause the
Company to execute the Guarantee.
5.13. Payment of Brokers' or Finders' Fees. At or prior to the
Closing, Seller will pay the finder's fee due to Merger and Acquisition
Services, Inc.
5.14. Preparation of Financial Statements. With respect to any period
ending on or prior to the Closing Date for which Statutory Financial Statements
are required to be filed (including without limitation the year ended December
31, 2004), Seller shall prepare, on a basis consistent with past practices, all
Statutory Financial Statements of the Company, and Seller shall promptly provide
to Purchaser, at least fifteen (15) business days prior to the due date,
including any extensions, for the filing thereof, such Statutory Financial
Statements together with such other information reasonably relevant to such
Statutory Financial Statements, including schedules and work papers. Following
receipt of any Statutory Financial Statements prepared by Seller, Purchaser
shall promptly notify Seller if it disputes any of the information contained in
such Statutory Financial Statements. The parties shall cooperate to promptly
resolve any such dispute. Subsequent to the Closing, Seller shall provide
Purchaser with such assistance in the preparation of Statutory Financial
Statements of the Company as may reasonably be requested by Purchaser or the
Company. Subsequent to the Closing, Seller shall also provide to Purchaser such
information as may reasonably be required by Purchaser in connection with
Purchaser's preparation of GAAP financial statements for the financial reporting
period in which the Closing occurs and for subsequent reporting periods.
5.15. Filing Fees. (a) On or prior to the Closing Date, the Company
shall have paid all remaining Filing Fees due for calendar year 2004. At or
prior to the Closing Date, the Company shall deliver to Purchaser an updated
Schedule 3.9(b) indicating the amounts and dates (whether before or after the
date hereof) on which all such Filing Fees for calendar year 2004 were paid and
shall deliver to Purchaser satisfactory evidence thereof.
(b) The parties agree that the filing fees which will be due for the
calendar year 2005 (the "2005 Filing Fees") shall be allocated between the
Seller and Purchaser in accordance with this Section 5.15(b) and that such
allocation shall be binding on the parties regardless of the actual amount of
the 2005 Filing Fees and regardless of when such 2005 Filing Fees are actually
paid. First, the parties hereto stipulate and agree that the total amount used
to calculate 2005 Filing Fees for purposes of this Section 5.15(b) shall be the
aggregate amount of Filing Fees for calendar year 2004 as shown on Schedule
3.9(b) (i.e., as of the date of this Agreement,
34
$19,825.95). Next, it is agreed that one-fourth of such aggregate amount of
Filing Fees (i.e., as of the date of this Agreement, $4,956.48) shall be
chargeable to the Seller and three-fourths of such Filing Fees shall be
chargeable to the Purchaser as follows: From the amount equal to one-fourth of
the 2005 Filing Fees shall be deducted all amounts actually paid by the Company
prior to the Closing Date. If the resulting balance is less than zero, such
negative balance shall considered a prepaid expense and shall be reimbursed by
Purchaser to Seller on the Closing Date. If the resulting balance is positive,
such amount shall be considered an unpaid expense as of the Closing Date and
shall be offset against the Purchase Price. The foregoing adjustments shall
constitute complete settlement between the parties with respect to the 2005
Filing Fees, provided, nothing in this Section 5.15(b) shall relieve Seller from
any obligation as otherwise set forth in this Agreement resulting from a breach
of the representations and warranties set forth in Section 3.9(b).
5.16. Certain Litigation With regard to each of the Actions set forth
on Schedule 3.11(b) in which, as of the date of this Agreement, the Company is a
plaintiff, Seller agrees to take, or cause the Company to take, prior to the
Closing, appropriate action such that, at the Closing, the Company shall have
been removed as a plaintiff in each such Action or, if removal is not feasible,
then all of the rights and obligations of the Company in respect of each such
Action shall have been assigned to Seller or an affiliate of Seller, with the
effect that, from and after the Closing, the Company shall have no further
involvement in any of such Actions. Seller further agrees that, from the date of
this Agreement through the Closing Date, Seller shall not permit the Company to
commence, or to be named as a plaintiff in, any Action other than an Action set
forth on Schedule 3.11(b).
5.17. Third-Party Reinsurance Agreements
.. Seller agrees to use commercially reasonable efforts to terminate or take any
other action with respect to any Third-Party Reinsurance Agreement which is
reasonably requested by Purchaser or the Company subsequent to the Closing, and
to provide regular periodic updates as to Seller's efforts to comply with any
such request.
ARTICLE VI
CONDITIONS TO CLOSING; ABANDONMENT OF THE TRANSACTION
6.1. Conditions to the Obligations of Purchaser. Except to the extent
waived by Purchaser in writing, the obligations of Purchaser to consummate the
transactions contemplated herein and to purchase the Stock shall be subject to
the satisfaction of each of the following conditions:
(a) The representations and warranties made by Seller contained
in this Agreement shall be true and correct in all material respects at and
as of the Closing, as if and to the same effect as though made at and as of
the Closing Date. Seller shall have performed all of its obligations and
complied in all material respects with all covenants and conditions
required by this Agreement to be performed or complied with by it at or
prior to the Closing. Seller shall have delivered to Purchaser a
certificate, in form and substance satisfactory to Purchaser, dated the
Closing Date and signed on its behalf by its President, any Vice President
35
or Chief Financial Officer, in his or her respective representative
capacity, and not individually, to all such effects and certifying to the
satisfaction of the conditions to be performed by Seller or the Company
(prior to the Closing) set forth in this Section 6.1.
(b) No Action shall have been instituted and remain pending
before a court or other Governmental Entity to restrain, prohibit or
otherwise challenge the transactions contemplated by this Agreement or the
Related Agreements, the sale of the Stock to Purchaser or the performance
of the material obligations of the parties to this Agreement or the Related
Agreements; nor shall any Governmental Entity have notified any party to
this Agreement or the Company that the consummation of the transactions
contemplated by this Agreement or the Related Agreements would constitute a
violation of Applicable Law and that it intends to commence proceedings to
restrain consummation of such transactions, to force divestiture if such
transactions are consummated or to materially modify the terms or the
results of such transactions, unless such Government Entity shall have
withdrawn such notice prior to the Closing Date.
(c) Seller's Approvals shall have been obtained and shall be in
full force and effect without conditions reasonably found objectionable by
Purchaser.
(d) Seller and the Company shall have entered into the Quota
Share Agreement, the Trust Agreement, the Administrative Services
Agreement, the Assumption Agreement and the Termination and Commutation of
LPT Agreement, fully executed originals of which shall have been delivered
to Purchaser.
(e) Parent and Company shall have entered into the Guarantee, a
fully executed original of which shall have been delivered to Purchaser.
(f) Seller, the Company and USACC shall have entered into the
Amended Termination of Pooling Agreement, a fully executed original of
which shall have been delivered to Purchaser.
(g) Purchaser shall have received from counsel to Seller, Parent
and the Company, which counsel shall be reasonably satisfactory to
Purchaser, one or more opinions, dated the Closing Date and addressed to
Purchaser, in form and substance reasonably satisfactory to Purchaser,
which opinions shall be to the effect that:
(i) Each of Seller and the Company is duly organized, validly
existing and in good standing under the laws of its respective
jurisdiction;
(ii) (A) Seller has all requisite corporate power and authority
to execute, deliver and perform its obligations under each of this
Agreement, the Quota Share Agreement, the Trust Agreement, the
Administrative Services Agreement, the Assumption Agreement, the
Amended Termination of Pooling Agreement and the Termination and
Commutation of LPT Agreement and (B) all action required on the part
of Seller to authorize the execution, delivery and performance of each
of this Agreement, the Quota Share Agreement, the Trust Agreement, the
Administrative Services Agreement, Assumption Agreement, the Amended
Termination of Pooling Agreement and the Termination and Commutation
of LPT Agreement has been taken;
36
(iii) (A) the Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under each
of the Quota Share Agreement, the Trust Agreement, the Administrative
Services Agreement, the Assumption Agreement, the Amended Termination
of Pooling Agreement, the Guarantee and the Termination and
Commutation of LPT Agreement and (B) all action required on the part
of the Company to authorize the execution, delivery, and performance
of each of the Quota Share Agreement, the Trust Agreement, the
Administrative Services Agreement, the Assumption Agreement, the
Amended Termination of Pooling Agreement, the Guarantee and the
Termination and Commutation of LPT Agreement has been taken;
(iv) (A) USACC has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Amended
Termination of Pooling Agreement, (B) all actions required on the part
of USACC to authorize the execution, delivery, and performance of the
Amended Termination of Pooling Agreement have been taken, and (C)
USACC has the power to perform its obligations thereunder;
(v) (A) Parent has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Guarantee and
(B) all actions required on the part of Parent to authorize the
execution, delivery, and performance of the Guarantee have been taken;
(vi) each of this Agreement, the Quota Share Agreement, the Trust
Agreement, the Administrative Services Agreement, the Assumption
Agreement, the Amended Termination of Pooling Agreement and the
Termination and Commutation of LPT Agreement has been duly executed
and delivered by Seller and constitutes the valid and binding
obligation of Seller, enforceable against Seller in accordance with
its terms, subject to the Bankruptcy Exception;
(vii) each of the Quota Share Agreement, the Trust Agreement, the
Administrative Services Agreement, the Assumption Agreement, the
Amended Termination of Pooling Agreement, the Guarantee and the
Termination and Commutation of LPT Agreement has been duly executed
and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, subject to the Bankruptcy Exception;
(viii) the Amended Termination of Pooling Agreement has been duly
executed and delivered by USACC and constitutes the valid and binding
obligation of USACC, enforceable against USACC in accordance with its
terms, subject to the Bankruptcy Exception;
(ix) the Guarantee has been duly executed and delivered by Parent
and constitutes the valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, subject to
the Bankruptcy Exception; and
37
(x) neither the execution and delivery by Seller of this
Agreement, nor the execution and delivery of the Related Agreements by
Parent, Seller, Company or USACC, as applicable, nor the compliance by
any of them with the terms and provisions hereof and thereof will
conflict with, or result in a breach of, any of the terms, conditions
or provisions of: (A) the certificate of incorporation or bylaws (or
comparable organizational documents) of Parent, Seller, the Company or
USACC or (B) any material agreement to which Parent, Seller, the
Company or USACC is a party.
In rendering such opinion, such counsel may rely, to the extent such counsel
deems such reliance necessary or appropriate: (A) upon opinions of local counsel
as to matters of law other than that of the federal laws of the United States
(provided such local counsel's opinions are received from counsel reasonably
satisfactory to Purchaser and its counsel and are addressed to Purchaser) and
(B) as to matters of fact, upon certificates of state officials and of any
officer or officers of Seller, the Company or USACC provided in all such cases
that the extent of any such reliance is specified in such opinion. For purposes
of the opinion described in paragraph (x)(B) above, it is understood and agreed
that such counsel shall opine only to those agreements which are identified by
Parent, Seller, the Company or USACC, as the case may be, to such counsel as
material agreements.
(h) Purchaser shall have received the evidence of the surplus
lines eligibilities of the Company described in Section 2.2(d) hereof,
certified by Seller as being in full force and effect.
(i) At the Closing, Seller shall deliver to Purchaser
resignations of all officers and directors of the Company, effective upon
the Closing.
(j) All contracts listed on Schedule 3.15(a), including the Joint
Marketing Agreements and the Intercompany Agreement, shall have been
terminated or amended as provided in Section 3.15(a) hereof.
(k) Purchaser shall have received a certificate of Seller
satisfying the requirements of Treasury Regulation Section 1.1445-2(b)(2).
(l) The Company shall continue to be authorized to issue
insurance policies on a surplus lines basis in the State of California.
6.2. Conditions to the Obligations of Seller. Except to the extent
waived by Seller in writing, the obligations of Seller to consummate the
transactions contemplated herein and to sell the Stock shall be subject to the
satisfaction of each of the following conditions:
(a) The representations and warranties of Purchaser contained in
this Agreement shall be true and correct in all material respects at and as
of the Closing, as if and to the same effect as though made at and as of
the Closing Date. Purchaser shall have performed all of its obligations and
complied in all material respects with all covenants and conditions
required by this Agreement to be performed or complied with by it at or
prior to the Closing. Purchaser shall have delivered to Seller certificates
of Purchaser, in form and substance satisfactory to Seller, dated the
Closing Date and signed on behalf of Purchaser by
38
its President or a Vice President in his or her respective representative
capacity, and not individually, to all such effects and certifying to the
satisfaction of the conditions to be performed by Purchaser set forth in
this Section 6.2.
(b) No Action shall have been instituted and remain pending
before a court or other Governmental Entity to restrain, prohibit or
otherwise challenge the transactions contemplated by this Agreement or the
Related Agreements, the sale of the Stock by Seller or the performance of
the material obligations of the parties to this Agreement or the Related
Agreements; nor shall any Governmental Entity have notified either party to
this Agreement or the Company that the consummation of the transactions
contemplated by this Agreement or the Related Agreements would constitute a
violation of Applicable Law and that it intends to commence proceedings to
restrain the consummation of such transactions, to force divestiture if
such transactions are consummated, or to materially modify the terms or the
results of such transactions, unless such Government Entity shall have
withdrawn such notice prior to the Closing Date.
(c) Seller's Approvals and Purchaser's Approvals shall have been
obtained and shall be in full force and effect without conditions
reasonably found objectionable by Seller.
(d) Seller shall have received from Xxxxx Xxxxxxxxxx LLP, counsel
to Purchaser, one or more opinions, dated the Closing Date and addressed to
Seller, in form and substance reasonably satisfactory to Seller, which
opinions shall be to the effect that:
(i) Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware;
(ii) all action required on the part of Purchaser to authorize
the execution, delivery and performance of this Agreement by Purchaser
has been taken, and Purchaser has the power to perform its obligations
hereunder; and
(iii) this Agreement has been duly executed and delivered by
Purchaser and constitutes the valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms,
subject to the Bankruptcy Exception.
In rendering such opinions such counsel may rely, to the extent such counsel
deems such reliance necessary or appropriate: (A) upon opinions of local counsel
as to matters of law other than that of the federal laws of the United States
(provided such local counsel's opinions are received from counsel reasonably
satisfactory to Seller and its counsel and are addressed to Seller); and (B) as
to matters of fact, upon certificates of state officials and of any officer or
officers of Purchaser, provided in all such cases the extent of any such
reliance is specified in such opinion.
(e) At the Closing, Purchaser shall elect successor directors for
resigning directors of the Company, and such successor directors shall
elect successor officers of the Company.
6.3. Termination of Agreement and Abandonment of Transactions.
Notwithstanding anything in this Agreement to the contrary, this Agreement and
the transactions
39
contemplated hereby may be terminated in any of the following ways at any time
before the Closing and in no other manner:
(a) By mutual written consent of Seller and Purchaser;
(b) By Purchaser, if the conditions set forth in Section 6.1
shall not have been met on or before May 2, 2005; or
(c) By Seller, if the conditions set forth in Section 6.2 shall
not have been met on or before May 2, 2005.
In the event of termination of this Agreement pursuant hereto, no
party hereto shall have any liability or obligation to any other party hereto in
respect of this Agreement, except that the provisions of Section 5.1(a)(ii),
Article VII and Section 9.3 shall survive any such termination, and except that
nothing herein shall relieve any party from liability for any breach of any of
its covenants or agreements or willful breach of its representations and
warranties contained in this Agreement prior to termination of this Agreement or
any obligations hereunder.
ARTICLE VII
TERMINATION OF OBLIGATIONS AND WAIVER
OF CONDITIONS; PAYMENT OF EXPENSES
In the event that this Agreement shall be terminated pursuant to
Section 6.3(a) of this Agreement, all further obligations of the parties under
this Agreement shall terminate without further liability of Seller, on the one
hand, or Purchaser, on the other hand, to the other, and each party will pay all
of its own costs and expenses incident to the negotiation and preparation of
this Agreement and to its performance of, and compliance with, all agreements
and conditions contained in this Agreement on its part to be performed or
complied with, including the fees, expenses and disbursements of counsel,
provided that the obligations of the parties under Section 9.3 and the
obligations of Purchaser under Section 5.1(a)(ii) shall survive any such
termination. Termination of this Agreement pursuant to Section 6.3(b) or Section
6.3(c) shall be without prejudice to the rights and remedies available to
Seller, on the one hand, or Purchaser, on the other hand, under Applicable Law,
including the right to recover all expenses, costs and other damages, but no
party shall be entitled to incidental or consequential damages including loss of
anticipated profits. If any of the conditions specified in Section 6.1 have not
been satisfied, Purchaser may, nevertheless, at its election waive such
conditions in writing and proceed with the transactions contemplated by this
Agreement. If any of the conditions specified in Section 6.2 have not been
satisfied, Seller may, nevertheless, at its election waive such conditions in
writing and proceed with the transactions contemplated by this Agreement. In the
event that the transactions contemplated by this Agreement are consummated, each
party will pay all of its own costs and expenses in connection therewith.
40
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification of Purchaser. Seller shall indemnify and hold
harmless Purchaser and its shareholders, Affiliates, subsidiaries, officers,
directors, employees, agents and assigns from and against any and all
liabilities, claims, liens, obligations, damages, losses, costs and expenses
(including fines, assessments (including guaranty fund assessments), penalties
and reasonable investigatory and attorney's fees and disbursements) ("Loss")
actually suffered or incurred by any of them or the Company by reason of or
arising out of or related to:
(a)(i) the breach, failure or inaccuracy of any representation or
warranty made by Seller in this Agreement or any Schedule to this
Agreement;
(ii) any pending or threatened Action set forth on Schedule
3.11(a) hereto;
(iii) any Action based upon the conduct of the Company's business
at any time during the period from the formation of the Company
through the Closing or any actions taken or omissions made at any time
during the period from the formation of the Company through the
Closing; or
(iv) any violation or alleged violation of Applicable Law based
upon the conduct of the Company's business at any time during the
period from the formation of the Company through the Closing;
(b) the failure by Seller to perform any of the covenants or
agreements contained in this Agreement; or
(c) any of the following:
(i) all Reinsured Liabilities;
(ii) (A) all Liabilities of the Company for Taxes assessed in
respect of, and all costs and expenses of Tax audits or the
preparation of Tax Returns for, all Pre-Closing Periods, and the
Parent's portion of any Straddle Period; (B) all Liabilities resulting
by reason of the several liability of the Company pursuant to Treasury
Regulation Section 1.1502-6 or any analogous state, local or foreign
law or regulation or by reason of the Company having been a member of
an affiliated, consolidated, combined or unitary group of which the
Company was a member on or prior to the Closing Date; (C) all
Liabilities of the Company in respect of Taxes of any other Person or
entity pursuant to any agreement or contract, whether written or
unwritten, entered into on or before the Closing Date, or as a
transferor or successor, by contract or otherwise; and (D) all
Liabilities arising as a result of a breach of the representations
provided in Section 3.8 hereof, or the failure of Seller or Parent to
perform their respective obligations pursuant to Section 5.3 or
Section 5.4;
41
(iii) all Liabilities of the Company arising out of or relating
to activities of the nature described in Section 3.20(b), including
those set forth on Schedule 3.20(b);
(iv) all Liabilities of the Company arising out of or relating to
any arrangement or agreement with any Surplus Lines Broker (including
any commissions or fees owed in connection therewith); and
(v) all Liabilities of the Company arising out of or relating to
any of the Third-Party Reinsurance Agreements or any other reinsurance
contract to which the Company is a party.
8.2. Indemnification of Seller. Purchaser shall indemnify and hold
harmless Seller and its shareholders, Affiliates, subsidiaries, officers,
directors, employees, agents and assigns from and against any Loss actually
suffered or incurred by any of them by reason of or arising out of or related
to:
(a) the breach, failure or inaccuracy of any representation or
warranty made by Purchaser in the Agreement or any Schedule to this
Agreement;
(b) the failure by Purchaser to perform any of the covenants or
agreements of Purchaser contained in this Agreement; or
(c) all Liabilities of the Company for Taxes assessed in respect
of, and all costs and expenses of Tax audits or the preparation of Tax
Returns for, all taxable periods beginning after the Closing Date, and the
portion of any Straddle Period beginning after the Closing Date.
8.3. Notice. The party seeking indemnification (the "Indemnitee")
shall promptly notify the indemnifying party (the "Indemnitor") if the
Indemnitee believes that it has incurred a Loss for which indemnification may be
asserted under this Article VIII. Such notice shall specify the circumstances of
such asserted Loss and must be given prior to the date recovery of such Loss is
time barred due to the expiration of any period of limitation set forth in
Section 8.7. Failure to provide notice in accordance with this Section 8.3 shall
not be deemed a waiver of the right of the Indemnitee to indemnification other
than to the extent that such failure prejudices the defense of the claim by the
Indemnitor.
8.4. Determination of Right to Indemnification. The determination of
the right of an Indemnitee to indemnification under this Agreement with respect
to any Loss shall be finally determined by Purchaser and Seller jointly;
provided, however, if Purchaser and Seller cannot make such a joint
determination within thirty (30) days from the date on which the notice provided
in Section 8.3 is delivered, either party may commence litigation with respect
to such disagreement in a court in the State of Delaware.
8.5. Determination of Amount of Indemnification. The amount of any
asserted Loss for which an Indemnitee seeks indemnification pursuant to this
Article VIII shall be finally determined as follows:
42
(a) Subject to paragraphs (b) and (c) below, such determination
shall be made jointly by Purchaser and Seller; provided, however, if
Purchaser and Seller cannot make such a joint determination within thirty
(30) days from the date on which the notice provided in Section 8.3 is
given, either party may commence litigation with respect to such
disagreement in a court in the State of Delaware.
(b) In the case of any Loss arising out of or resulting from a
liability or obligation to, or claim, action or suit by, any party seeking
monetary relief other than the Indemnitee, the Indemnitor shall give
written notice to the Indemnitee within thirty (30) days after its receipt
of the notice given pursuant to Section 8.3, that the Indemnitor disputes
and intends to defend the liability, obligation, claim, action or suit
giving rise to such Loss or potential Loss. In such event the Indemnitor
shall have the right to litigate or otherwise contest (at the expense of
the Indemnitor) such liability, obligation, claim, action or suit with
counsel selected by the Indemnitor. The Indemnitor and Indemnitee shall, in
any case, cooperate in such litigation or other contest and shall keep each
other advised of the progress and disposition thereof. The Indemnitor may
not settle any such Loss without Indemnitee's written consent (which
consent shall not be unreasonably withheld) unless such settlement (A)
includes only the payment of money and the execution and delivery of
appropriate releases including a complete release of the Indemnitee and (B)
with respect to Taxes, has no adverse or binding effect on the Company for
any taxable period (or portion thereof) beginning after the Closing Date.
Upon the final adjudication of any such liability, obligation, claim,
action or suit, the amount of the Loss attributable thereto shall be then
determined pursuant to (a) above.
(c) In the case of any Straddle Period, Seller shall be solely
responsible for all Taxes of the Company (and that portion of the Company's
costs for the preparation of each such Tax Return and Tax Audits)
attributable to the portion of the period ending on, and that includes, the
Closing Date (other than transactions properly allocable to the portion of
the day after the Closing), and Purchaser shall be solely responsible and
shall indemnify Seller for all Taxes imposed on the income or operations of
the Company and attributable to the portion of the period beginning after
the Closing Date (including transactions properly allocable to the portion
of the day after the Closing). For purposes of this Agreement, the portion
of any Tax that is attributable to the portion of a Straddle Period up to
and including the Closing Date shall be (i) in the case of a Tax that is
not based on gross or net income, premiums, sales or gross receipts
(including real property taxes), the total amount of such Tax for the
period in question multiplied by a fraction, the numerator of which is the
number of days in the Straddle Period through and including the Closing
Date, and the denominator of which is the total number of days in such
Straddle Period, and (ii) in the case of any Tax that is based on any of
gross income, premiums, sales or gross receipts, the Tax that would be due
with respect to the portion of the Straddle Period through and including
the Closing Date, if such portion of the Straddle Period were a separate
taxable period, except that exemptions, allowances, deductions, credits or
graduated rates that are calculated or applied on an annual basis (such as
the deduction for depreciation or capital allowances) shall be apportioned
on the basis of the gross income, premiums, sales or gross receipts for
each such period, or if not based upon such gross income, premiums, sales
or gross receipts, then on a per diem basis.
8.6. Adjustments to Indemnification Amounts. The amount of any Loss
subject to indemnification under Section 8.1 or Section 8.2 shall be (i) reduced
by any insurance
43
or other recoveries or Tax benefits that the Indemnitee actually receives as a
result of or in connection with such Loss, and (ii) increased by any Taxes such
Indemnitee actually incurs with respect to the indemnification for such Loss
under Section 8.1 or Section 8.2, as the case may be.
8.7. Indemnification Limits.
(a) Time Limits. No Indemnitor shall have any obligation to
indemnify an Indemnitee for any Loss pursuant to Section 8.1(a) or Section
8.2(a) unless, on a date not later than the fifth anniversary of the
Closing Date, the Indemnitee provides notice to the Indemnitor in
accordance with the provisions of Section 8.3. The foregoing limit shall
not apply, expressly or by implication, (i) to claims based on the breach,
failure or inaccuracy of any representation or warranty made in Sections
3.1 (Organization and Standing), 3.2 (Insurance Permits), 3.3
(Authorization of Agreements), 3.4 (Capital Stock of the Company), 3.5
(Interests in Securities of the Company), 3.8 (Tax Returns and Reports),
3.16 (Employee Matters), 3.19 (Brokers and Finders), 3.20 (Excess and
Surplus Lines Brokers), 3.22 (No Restrictions on Business) and 3.23
(Marketing Agreements), each of which shall survive indefinitely, (ii) to
claims based on Sections 4.1 (Organization and Standing), 4.2
(Authorization of Agreement) and 4.6 (Brokers and Finders), each of which
shall survive indefinitely, (iii) to claims arising under Section 8.1(b) or
8.1(c), each of which shall survive indefinitely, and (iv) to claims
arising under Section 8.2(b) or 8.2(c), each of which shall survive
indefinitely. Each covenant or agreement contained in this Agreement shall
survive indefinitely.
(b) Seller's Maximum Obligation for Certain Claims. Seller shall
have no obligation to make payment to an Indemnitee in respect of
indemnifiable claims made pursuant to Section 8.1(a)(i) in an amount which,
when added to the sum of (A) the aggregate amount of payments previously
paid by Seller in respect of indemnifiable claims made pursuant to Section
8.1(a)(i) (other than pursuant to the Sections identified in clause (i) of
Section 8.7(a)) plus (B) the aggregate amount of payments previously paid
by Seller in respect of Section 2(b)(i) Liabilities, would exceed the
amount of the Final Purchase Price; provided, however, that such limitation
on amount of payment set forth in this Section 8.7(b) shall not apply, and
no limitation shall apply, to limit recovery by an Indemnitee for
indemnification under Section 3.14 (Undisclosed Liabilities) or under the
sections of this Agreement referenced in clauses (ii), (iii) or (iv) of
Section 8.1(a) or clauses (i) or (iii) of Section 8.7(a).
(c) Purchaser's Maximum Obligation for Certain Claims. Purchaser
shall have no obligation to make payment to an Indemnitee in respect of
indemnifiable claims made pursuant to Section 8.2(a) in an amount which,
when added to the aggregate amount of payments previously paid by Purchaser
in respect of such indemnifiable claims made pursuant to Section 8.2(a)
(other than pursuant to the Sections identified in clause (ii) of Section
8.7(a)), would exceed the amount of the Final Purchase Price; provided,
however, that such limitation on amount of payment set forth in this
Section 8.7(c) shall not apply, and no limitation shall apply, to limit
recovery by an Indemnitee for indemnification under the sections of this
Agreement referenced in clauses (ii) or (iv) of Section 8.7(a).
(d) Indemnification Basket. Except as hereinafter provided in
this Section 8.7(d), Seller shall have no obligation to provide
indemnification pursuant to Section 8.1(a)(i)
44
except to the extent that the aggregate amount of indemnification to which
Purchaser, but for this Section 8.7(d), otherwise shall have become
entitled hereunder would exceed $50,000 ("Seller's Basket"), in which
event, subject to the limitation set forth in Section 8.7(b) above, Seller
shall be obligated to provide indemnification with respect to all amounts
in excess of Seller's Basket. Notwithstanding anything to the contrary in
this Agreement, Seller shall be obligated to provide indemnification
pursuant to Section 8.1(a)(i) without regard to Seller's Basket referred to
in the immediately preceding sentence in respect of representations and
warranties made under the sections of this Agreement referenced in Section
8.7(a)(i).
(e) Purchaser's Indemnification Basket. Except as hereinafter
provided in this Section 8.7(e), Purchaser shall have no obligation to
provide indemnification pursuant to Section 8.2(a) except to the extent
that the aggregate amount of indemnification to which Seller, but for this
Section 8.7(e), otherwise shall have become entitled hereunder would exceed
$50,000 ("Purchaser's Basket"), in which event, subject to the limitation
set forth in Section 8.7(c) above, Purchaser shall be obligated to provide
indemnification with respect to all amounts in excess of Purchaser's
Basket. Notwithstanding anything to the contrary in this Agreement,
Purchaser shall be obligated to provide indemnification pursuant to Section
8.2(a) without regard to Purchaser's Basket referred to in the immediately
preceding sentence in respect of representations and warranties made under
the sections of this Agreement referenced in Section 8.7(a)(ii).
(f) No Application to Related Agreements. For the avoidance of
doubt, none of the limitations set forth in this Section 8.7 shall in any
way apply to the liabilities and obligations of the parties under the
Related Agreements, except as explicitly provided in the Assumption
Agreement.
8.8. Single Recovery. It is the intention of the parties to this
Agreement and the Related Agreements that no party shall make any demand for
payment, indemnification or reinsurance payment with respect to any Loss,
Reinsured Liability or other Liability hereunder or thereunder to the extent
that such payment, indemnification or reinsurance payment would result in the
duplication of recovery to any party (or any Affiliate thereof) to this
Agreement or any Related Agreement in respect of any Loss, Reinsured Liability
or other Liability under this Agreement and/or any Related Agreement.
8.9. Third Party Beneficiaries. The Company and all indemnified
parties are intended to be third party beneficiaries of this Article VIII.
8.10. Deemed Adjustment to Purchase Price. Purchaser and Seller agree
to treat, to the maximum extent permitted under Applicable Law, any payments
under this Article VIII as an adjustment to the Purchase Price for Tax purposes.
8.11. Exclusive Remedy. Except as expressly set forth in this
Agreement, the parties hereto acknowledge and agree that the indemnification
provisions in this Article VIII shall be the exclusive remedy of the Purchaser
and the Seller with respect to the transactions contemplated by, and any claims
arising under, this Agreement; provided, however, that the foregoing shall not,
in any way, be deemed to limit any remedies under any Related Agreement,
including the remedies against Parent under the Guarantee.
45
ARTICLE IX
GENERAL
9.1. Amendment and Waiver. This Agreement may not be amended,
modified or supplemented except upon execution and delivery of a written
agreement executed by the parties hereto. Any of the terms, covenants,
representations, warranties or conditions hereof may be waived in writing at any
time by or on behalf of the party which is entitled to the benefits thereof. Any
waiver of any of the provisions of this Agreement by any party hereto shall be
binding only if set forth in an instrument in writing signed on behalf of such
party. No failure to enforce any provision of this Agreement shall be deemed to
or shall constitute a waiver of such provision, and no waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver of
any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
9.2. Integrated Contract. This Agreement and the Schedules and
Exhibits to this Agreement (which constitute part of this Agreement) and the
other documents and writings referred to herein or delivered pursuant hereto
(including, without limitation, the Related Agreements) contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and thereof.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
9.3. Publicity. From the date hereof until the Closing Date, the
parties will consult with each other and will mutually agree by written consent
upon any publication or press release of any nature with respect to this
Agreement or the transactions contemplated hereby (such agreement not to be
unreasonably withheld) and shall not issue any such publication or press release
prior to such consultation and agreement, except as may be required by
Applicable Law or by obligations pursuant to any listing agreement with any
securities exchange or any securities exchange regulation, in which case the
party proposing to issue such publication or press release shall use reasonable
efforts to consult in good faith with the other party before issuing any such
publication or press release.
9.4. Governing Law. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to the principles regarding the choice of
law.
9.5. Jurisdiction.
(a) The parties hereto hereby consent and agree that they shall
commence any action with respect to any claims or disputes between or among
the parties hereto pertaining to this Agreement or the Related Agreements
or to any matter arising out of or related to such agreements in the United
States District Court for the District of Delaware, so long as the action
falls within the subject matter jurisdiction of such court; in the event
any such action shall be determined by the court to be outside its subject
matter jurisdiction, then the parties agree to commence any such action in
the state courts of Delaware located in New Castle
46
County. The parties hereto expressly submit and consent in advance to such
jurisdiction in any action or suit commenced in any such court, and hereby
waive any objection which it may have based upon lack of personal
jurisdiction, improper venue or forum non conveniens and hereby consent to
the granting for such legal or equitable relief as is deemed appropriate by
such court. Each party hereto irrevocably consents to the service of
process by registered or certified mail, postage prepaid, to it at its
address given pursuant to Section 9.6 hereof. Subject to the foregoing,
nothing in this Agreement shall be deemed or operate to affect the right of
Purchaser or Seller to serve legal process in any other manner permitted by
law, or to preclude the enforcement by Purchaser or Seller of any judgment
or order obtained in the forum specified in this subsection or the taking
of any action under this Agreement and the Related Agreements to enforce
the same in any other appropriate forum or jurisdiction.
(b) To the extent that Purchaser or Seller has or may hereafter
acquire any immunity from the jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to
such party or such party's property, Purchaser and Seller hereby
irrevocably waive such immunity in respect of their respective obligations
under this Agreement and the Related Agreements.
9.6. Notices. All notices, requests, claims, demands and other
communications required or permitted under this Agreement shall be in writing
and sufficiently given, upon receipt or three days after deposit in the United
States mail (registered or certified, postage prepaid, return receipt requested)
or by telex, facsimile or other written form of electronic communication, to the
respective parties as follows:
If to Seller, to:
Ulico Casualty Company
0000 Xxx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
ULLICO Inc.
0000 Xxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
00
Xxxxx Xxxx & Xxxxxxxx, XXX
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to Purchaser, to:
Darwin National Assurance Company
00 Xxxxxxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xx. Xxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other address or person as either party hereto may, from time to
time, designate in a written notice given in like manner (except that a notice
of change of address shall not be deemed to have been given until received by
the addressee).
9.7. No Assignment. Neither this Agreement nor any rights, interests
or obligations hereunder may be assigned by any party hereto without the prior
written consent of all other parties party hereto; provided, however, that
Purchaser may assign its rights, interests and obligations hereunder to a wholly
or majority owned subsidiary of Purchaser without the prior written consent of
Seller, provided that Purchaser shall promptly give Seller written notice of
such assignment after it is completed. Any permitted assignment by Purchaser
(including any assignment permitted by the proviso to the preceding sentence)
shall not release Purchaser from its obligations and responsibilities hereunder.
9.8. Headings. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.9. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.10. Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions
48
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable in any other jurisdiction.
9.11. Third Parties. Nothing herein expressed or implied is intended
or shall be construed to confer upon or give to any Person, other than the
parties hereto, any rights or remedies under or by reason of this Agreement,
except as provided in Article VIII hereof.
9.12. Further Assurances. Seller and Purchaser will, whenever and as
often as reasonably requested to do so by the other party or its successors, do
any and all such other and further acts, and execute, acknowledge and deliver
any and all such other and further assignments, transfers and instruments of
further assurances, approvals and consents as are necessary or proper in order
to complete, ensure and perfect the transactions contemplated by this Agreement.
[SIGNATURE PAGE FOLLOWS]
49
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf by its officers or representatives
thereunto duly authorized, all as of the day and year first above written.
(Purchaser) DARWIN NATIONAL ASSURANCE COMPANY
By: /s/ Xxxx X. Xxxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxxx
Title: Chief Financial Officer and Treasurer
(Seller) ULICO CASUALTY COMPANY
By: /s/ Xxxx X. Xxxxxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Senior Vice President,
Chief Financial Officer and Treasurer
1
