STOCK PURCHASE AGREEMENT BETWEEN GAINSCO, INC. MGA INSURANCE COMPANY, INC. AND MONTPELIER RE U.S. HOLDINGS LTD. Dated as of August 13, 2007
EXHIBIT 10.1
BETWEEN
GAINSCO, INC.
MGA INSURANCE COMPANY, INC.
AND
MONTPELIER RE U.S. HOLDINGS LTD.
Dated as of August 13, 2007
TABLE OF CONTENTS
Page No. | ||||
ARTICLE 1 DEFINITIONS |
1 | |||
ARTICLE 2 PURCHASE AND SALE OF COMPANY SHARES |
8 | |||
2.1 Basic Transaction |
8 | |||
2.2 Purchase Price |
8 | |||
2.3 The Closing |
8 | |||
2.4 Deliveries at the Closing |
9 | |||
2.5 Post-Closing Adjustment |
9 | |||
ARTICLE 3 RELATED TRANSACTIONS |
10 | |||
3.1 Corporate Restructuring |
10 | |||
3.2 Transfer of Liabilities and Obligations |
10 | |||
3.3 Reduction in Capital and Surplus |
10 | |||
3.4 Elimination of Intercompany Contracts and Pools |
11 | |||
ARTICLE 4 REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION |
12 | |||
4.1 Representations and Warranties of the Seller Parties |
12 | |||
4.2 Representations and Warranties of the Buyer |
25 | |||
ARTICLE 5 PRE-CLOSING COVENANTS |
26 | |||
5.1 General |
26 | |||
5.2 Notices and Consents |
27 | |||
5.3 Operation of Business |
27 | |||
5.4 Full Access |
28 | |||
5.5 Notice of Developments |
28 | |||
5.6 Exclusivity |
28 | |||
5.7 Preservation of Insurance Lines and Qualifications |
28 | |||
5.8 Financial Statements and Reports |
28 | |||
5.9 No Charter or Bylaw Amendments |
28 | |||
5.10 No Issuance of Securities |
29 | |||
5.11 No Dividends |
29 | |||
5.12 Resignations of Directors and Officers |
29 | |||
5.13 Intercompany Balances and Agreements |
29 | |||
5.14 Tax Matters |
29 | |||
5.15 Press Releases and Public Announcements |
29 | |||
5.16 Asset List |
29 | |||
5.17 State Assessments |
30 | |||
5.18 Regulatory Examinations |
30 | |||
5.19 Assignments |
30 | |||
ARTICLE 6 CONDITIONS TO OBLIGATION TO CLOSE |
30 | |||
6.1 Conditions to Obligation of the Buyer |
30 | |||
6.2 Conditions to Obligations of the Seller Parties |
32 | |||
ARTICLE 7 SELLER’S CLOSING DELIVERIES |
33 |
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Page No. | ||||
ARTICLE 8 BUYER’S CLOSING DELIVERIES |
34 | |||
ARTICLE 9 POST-CLOSING COVENANTS |
35 | |||
9.1 General |
35 | |||
9.2 Litigation Support |
35 | |||
9.3 Cooperation as to Tax Matters |
35 | |||
9.4 Change of Name |
40 | |||
ARTICLE 10 INDEMNIFICATIONS |
40 | |||
10.1 The Seller Parties’ Indemnification of the Buyer |
40 | |||
10.2 The Buyer’s Indemnification of the Seller Parties |
41 | |||
10.3 Notice of Claims |
42 | |||
10.4 Third-Party Claims |
42 | |||
10.5 Interest |
43 | |||
10.6 Remedies |
43 | |||
10.7 Limitations on Indemnification |
44 | |||
ARTICLE 11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES |
44 | |||
ARTICLE 12 TERMINATION |
44 | |||
12.1 Termination of Agreement |
44 | |||
12.2 Effect of Termination |
46 | |||
ARTICLE 13 EXPENSES |
46 | |||
ARTICLE 14 CONFIDENTIALITY |
46 | |||
ARTICLE 15 MISCELLANEOUS |
46 | |||
15.1 No Third-Party Beneficiaries |
46 | |||
15.2 Entire Agreement |
47 | |||
15.3 Succession and Assignment |
47 | |||
15.4 Counterparts |
47 | |||
15.5 Headings |
47 | |||
15.6 Notices |
47 | |||
15.7 Governing Law |
49 | |||
15.8 Amendments and Waivers |
49 | |||
15.9 Severability |
49 | |||
15.10 Construction |
49 | |||
15.11 Incorporation of Exhibits and Schedules |
50 | |||
15.12 Consent to Jurisdiction |
50 | |||
15.13 Enforcement |
50 | |||
15.14 Non-Duplication |
50 |
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LIST OF EXHIBITS
Exhibit 1
|
Administration Agreement | |
Exhibit 2
|
Assumption Agreement | |
Exhibit 3
|
Quota Share Reinsurance Agreement | |
Exhibit 4
|
Reinsurance Trust Agreement | |
Exhibit 5
|
Guaranty Agreement | |
Exhibit 6
|
Transfer and Assignment Agreement |
DISCLOSURE SCHEDULE
Section 1
|
Acceptable Financial Assets | |
Section 2.2
|
Purchase Price Adjustment | |
Section 4.1(c)
|
Noncontravention | |
Section 4.1(e)
|
Shares | |
Section 4.1(f)
|
Title to the Shares | |
Section 4.1(k)
|
Securities and Assets | |
Section 4.1(l)
|
Real Property | |
Section 4.1(m)
|
Employee Benefit Plans and Employees | |
Section 4.l(o)
|
Taxes | |
Section 4.1(p)
|
Suits and Other Proceedings - The Seller Parties and the Company | |
Section 4.1(r)
|
Compliance with Insurance Laws | |
Section 4.1(u)(2)
|
Licenses and Permits – Surplus or Excess Lines Qualifications | |
Section 4.1(u)(6)
|
Licenses and Permits – Deposits | |
Section 4.1(v)
|
Reinsurance | |
Section 4.l(w)(i)
|
Contracts |
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Section 4.l(w)(ii)
|
Specified Contracts | |
Section 4.1(x)
|
Insurance | |
Section 4.l(y)
|
Corporate Records | |
Section 4.l(z)
|
Consents and Approvals – The Seller Parties and the Company | |
Section 4.l(aa)
|
Contracts with Agents and Powers of Attorney | |
Section 4.1(ab)
|
Bank and Financial Institution Accounts | |
Section 4.1(ac)
|
Related Party Transactions | |
Section 4.2(g)
|
Consents and Approvals – The Buyer | |
Section 5.13
|
Intercompany Balances and Agreements | |
Section 6.1(m)
|
Banks with Continuing Accounts |
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THIS STOCK PURCHASE AGREEMENT is entered into as of August 13, 2007 (this
“Agreement”), by and between Montpelier Re U.S. Holdings Ltd., a Delaware corporation (the
“Buyer”); GAINSCO, INC., a Texas corporation (the “Parent”); and MGA Insurance
Company, Inc., a stock property and casualty insurance company domiciled in the State of Texas and
a wholly-owned subsidiary of the Parent (“MGA”). The Parent and MGA are referred to herein
as the “Seller Parties” and the Seller Parties and the Buyer are referred to collectively
herein as the “Parties.”
WHEREAS, on the date hereof the Parent owns all of the issued and outstanding capital stock of
General Agents Insurance Company of America, Inc., a stock property and casualty insurance company
domiciled in the State of Oklahoma (the “Company”) and the Company owns all of the issued
and outstanding capital stock of MGA;
WHEREAS, the Parties have agreed that the Buyer will purchase from the Parent, and the Parent
will sell to the Buyer, all of the issued and outstanding capital stock of the Company in return
for cash;
WHEREAS, the Buyer’s intent in acquiring the capital stock of the Company is that, as of the
Closing Date, the Company shall be a “clean shell” to wit: its assets will consist only of the
Company’s corporate franchise, its license to transact insurance as a property and casualty
insurance company pursuant to the Oklahoma Insurance Code, and certain other assets as contemplated
herein and that the Company shall have no liabilities that have not been provided for as
contemplated herein; and
WHEREAS, in connection with this Agreement, as of the Closing Date, the Seller Parties are to
take the actions provided for herein to (i) cause one hundred percent (100%) of the Company’s
existing insurance liabilities and claims to be reinsured; (ii) provide for the Company’s remaining
liabilities; and (iii) reduce the Company’s capital and surplus, all as contemplated herein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants herein contained, the
Parties agree as follows.
ARTICLE 1
DEFINITIONS
“Acceptable Financial Assets” means only the following kinds of assets which shall be
valued at their Market Value as of the close of business on the Business Day immediately preceding
the Closing Date: (i) cash and Cash Equivalents; (ii) investment grade obligations of U.S.
corporations or state or local governments (or instrumentalities thereof) (other than Cash
Equivalents) that are listed in Section 1 of the Disclosure Schedule and are permissible
1
investments under Oklahoma insurance law; and (iii) existing deposits of cash, securities or other
assets with state insurance departments listed in Section 4.1(u)(6) of the Disclosure Schedule.
“Act” means the Securities Act of 1933, as amended.
“Administration Agreement” means the Administration Agreement between the Company and
MGA substantially in the form attached as Exhibit 1 hereto.
“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated
under the Securities Exchange Act.
“Ancillary MGA Agreements” means the Administration Agreement, the Assumption
Agreement, the Transfer and Assignment Agreement, the Quota Share Reinsurance Agreement and the
Reinsurance Trust Agreement.
“Assumption Agreement” means the Liability Assumption Agreement between the Company
and MGA substantially in the form attached as Exhibit 2 hereto.
“Business Day” means any day other than a Saturday, Sunday, a day on which banking
institutions in the State of Connecticut or Texas are permitted or obligated by law to be closed or
a day on which the New York Stock Exchange is closed for trading.
“Buyer” has the meaning set forth in the preface.
“Buyer Indemnitees” shall have the meaning set forth in Section 10.1 below.
“Cap” shall have the meaning set forth in Section 10.7.
“Cash Equivalent” shall mean United States Treasury obligations or senior corporate
debt obligations issued by Entities rated “AAA” or its equivalent by one or more nationally
recognized rating organizations, in each case having a remaining term to maturity as of the last
Business Day preceding the Closing Date of less than six (6) months.
“Claim Notice” shall have the meaning set forth in Section 10.3 below.
“Closing” has the meaning set forth in Section 2.3 below.
“Closing Date” has the meaning set forth in Section 2.3 below.
“Code” means the Internal Revenue Code of 1986, as amended. Any reference to any
particular Code Section shall be interpreted to include any revision of or successor to that
section regardless of how numbered or classified.
“Company” has the meaning set forth in the preface.
“Company Financial Statements” has the meaning set forth in Section 4.1(g)(3) below.
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“Confidentiality Agreement” shall have the meaning set forth in Article 14.
“Consolidated Tax Return” has the meaning set forth in Section 9.3(a)(1).
“Contract” or “Contracts” has the meaning set forth in Section 4.1(w).
“Deposit” has the meaning set forth in Section 4.1(t)(5) below.
“Disclosure Schedule” means the Disclosure Schedule referred to in this Agreement.
“Elections” has the meaning set forth in Section 9.3(j)(1).
“Employee Benefit Plan” means each written or oral “employee benefits plan” (as such
term is defined in Section 3(3) of ERISA) and each bonus, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock option, stock purchase, phantom stock, retirement,
savings excess benefit, supplemental unemployment, paid-time off, educational assistance, vacation,
sick leave, severance, disability, death benefit, medical, dental or life insurance plan, program
or arrangement, in each case adopted, sponsored, maintained or contributed to or required to be
adopted, sponsored, maintained or contributed to by or on behalf of the Company for the benefit of
any present or former officers, directors, employees, consultants or agents of the Company
(including any dependents or beneficiaries thereof) or as to which the Company may have any present
or future liability.
“Encumbrance” means a Lien, voting agreement, voting trust, proxy or any other similar
arrangement or restriction of any kind whatsoever.
“Entity” means a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization or a
Governmental Authority.
“Environmental Liability” has the meaning set forth in Section 4.1(s).
“Escrow and/or Custodial Agreements” means the agreements entered into by the Company
pursuant to the insurance laws of the states of Louisiana and New Hampshire, including the
Custodian Agreement dated August 10, 1992 by and between the Company and First NH Investment
Services Corporation and the pledged certificates of deposit in the aggregate amount of $200,000.00
securing obligations of the Company under Louisiana insurance laws; provided that the agreement
with respect to Louisiana, and the deposit relating thereto, shall be excluded if, at the Closing,
the Company has a Surplus or Excess Lines Qualification in Louisiana and the deposit is necessary
with respect thereto.
“Existing Reinsurance Agreements” has the meaning set forth in Section 4.1(v) below.
“Filing Party” has the meaning set forth in Section 9.3(a)(3) below.
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“Final Fair Market Value” has the meaning set forth in Section 2.5(b) below.
“Form A Filing” has the meaning set forth in Section 5.2(c) below.
“GAAP” means United States generally accepted accounting principles as in effect from
time to time.
“Governmental Authority” means any court, arbitral body, administrative or
governmental body, department, commission, board, agency, political subdivision or instrumentality,
or any legislative, executive or regulatory authority or agency.
“Guaranty Agreement” means the Guaranty Agreement of the Parent in favor of the Buyer
substantially in the form of Exhibit 5 hereto.
“Income Tax” means any federal, state, local or foreign income tax, including any
interest, penalty or addition thereto, whether disputed or not.
“Income Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Income Taxes, including any schedule or attachment
thereto.
“Indemnified Party” has the meaning set forth in Section 10.3 below.
“Independent Accounting Firm” shall mean an independent nationally recognized
accounting firm mutually acceptable to the Buyer and the Seller Parties.
“Indemnitor” has the meaning set forth in Section 10.3 below.
“Information” shall have the meaning set forth in Article 14 below.
“Insurance License” shall have the meaning set forth in Section 4.1(u)(1) below.
“Investment” as applied to any Person means (i) any direct or indirect purchase or
other acquisition by such Person of any bond, debenture, note, instrument, stock, security or other
obligation or ownership interest (including partnership interests and joint venture interests) of
any other Person and (ii) any capital contribution by such Person to any other Person.
“Knowledge” means the actual knowledge of the designated party or such knowledge that
should have been gained through reasonable inquiry by such party. The Seller Parties or the Buyer
shall be deemed to have knowledge of a particular fact or other matter only if any individual who
is serving as an executive officer of such party has, or at any time had, Knowledge of such fact or
other matter.
“Latest Balance Sheet” means the unaudited statutory balance sheet of the Company as
of March 31, 2007.
“Laws” shall have the meaning set forth in Section 4.1(q) below.
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“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of
any kind (including, without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof), any sale of receivables with recourse, any filing or agreement to
file a financing statement as a debtor under the Uniform Commercial Code or any similar statute
other than to reflect the ownership by a third party of property leased pursuant to a lease which
is not in the nature of a conditional sale or title retention agreement, or any subordination
arrangement in favor of another Person (other than any subordination arising in the ordinary course
of business).
“Loss” means, with respect to any Person, any and all claims, losses, liabilities,
damages, deficiencies, obligations, costs or expenses, penalties and reasonable attorneys’ fees and
disbursements incurred by such Person (other than any Taxes or any such amounts to the extent
related to Taxes).
“Market Value” means (i) in the case of securities (other than Cash Equivalents)
listed on an exchange or on an over-the-counter market, the closing price on such exchange or
market (or the average of the closing bid and asked prices if there is no closing price) plus all
accrued but unpaid interest on such securities through the last Business Day preceding the Closing
Date if such amount is not already reflected in such closing price (or such bid and asked prices)
and (ii) in the case of cash or Cash Equivalents, the face amount thereof.
“Material Adverse Effect” means a change, event (including any damage, destruction or
Loss, whether or not covered by insurance), condition, state of facts or development that,
individually or in the aggregate, has had or would reasonably be expected to have a material
adverse effect on the Insurance License or Surplus or Excess Lines Qualifications held by the
Company or on the assets (tangible or intangible), liabilities, regulatory compliance or
governmental relations of the Company; provided, however, to the extent such effect results from
any of the following, such effect shall not be considered a Material Adverse Effect: (i) a change
in the Market Value of Investments made in accordance with the investment guidelines in effect
prior to the date hereof; (ii) any adverse change or effect that is caused by or that arises out of
conditions affecting the economy or securities markets generally; (iii) any adverse change or
effect that arises out of conditions effecting the insurance or financial services industries
generally, including, without limitation, circumstances, changes or effects in or affecting
interest rates, securities markets, accounting principles, practices or conventions or applicable
law (whether federal, state, local or foreign); or (iv) any adverse change or effect resulting from
the announcement or the pendency of the transactions contemplated hereby.
“MGA” has the meaning set forth in the preface.
“MGA Financial Statements” has the meaning set forth in Section 4.1(g)(2) below.
“New York Trust Agreement” means the Company’s Declaration of Trust, dated October 10,
1994, creating a trust in accordance with the New York Insurance Law.
“Parent Financial Statements” has the meaning set forth in Section 4.1(g)(1) below.
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“Parties” has the meaning set forth in the preface.
“Person” means an individual or an Entity.
“Policies” has the meaning set forth in Section 4.1(u)(3) below.
“Pre-Closing Tax Period” shall mean any taxable period or portion thereof that ends on
or prior to the Closing Date.
“Post-Closing Tax Period” shall mean any taxable period or portion thereof that begins
after the Closing Date.
“Purchase Price” has the meaning set forth in Section 2.2.
“Rebate or Kickback” has the meaning set forth in Section 4.1(t).
“Related Transactions” means the transactions described in Sections 3.1, 3.2, 3.3 and
3.4.
“Reinsurance Trust Agreement” means the Reinsurance Trust Agreement substantially in
the form of Exhibit 4, and subject to reasonable revisions requested by the appointed
trustee.
“Quota Share Reinsurance Agreement” means the Quota Share Reinsurance Agreement
between the Company and MGA substantially in the form of Exhibit 3.
“SAP” means, with respect to any Person, the statutory accounting principles and
applicable actuarial standards of practice prescribed or permitted by the rules and regulations of
the National Association of Insurance Commissioners and the insurance commissioner (or similar
authority) of such Person’s jurisdiction of domicile, applied on a basis consistent with that of
prior years (other than where a lack of consistency results from changes in the statutory
accounting principles or actuarial standards of practice so prescribed or permitted).
“Section 2.2 Amount” has the meaning set forth in Section 2.2.
“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Seller Parties” has the meaning set forth in the preface.
“Seller Indemnitees” shall have the meaning set forth in Section 10.2 below.
“Shares” has the meaning set forth in Section 4.1(e) below.
“Straddle Taxes” has the meaning set forth in Section 9.3(f)(3) below.
“Subsidiary” means, with respect to any Person, any corporation, limited liability
company, partnership, association or other business entity of which (i) if a corporation, a
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majority of the total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a limited liability
company, partnership, association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or other business
entity gains or losses or shall be or control any managing director or general partner of such
limited liability company, partnership, association or other business entity.
“Surplus or Excess Lines Qualified” or “Surplus or Excess Lines Qualification” means
(i) with respect to those United States jurisdictions which maintain a list of insurance companies
which are approved, qualified or eligible to write insurance coverage on a “surplus lines” or
“excess lines” basis, as those terms are commonly understood in the United States insurance
industry, the inclusion of the Company on such list or written confirmation from a Governmental
Authority of such United States jurisdiction that the Company will appear in the next publication
of such list; (ii) with respect to those United States jurisdictions in which a surplus lines
association or excess lines association or stamping office maintains a list of insurance companies
approved, qualified or eligible to write insurance coverage on a surplus lines or excess lines
basis, the inclusion of the Company on such list or the written confirmation from the surplus lines
association or excess lines association or stamping office that the Company will appear in the next
publication of such list; and (iii) with respect to the United States jurisdictions in which
neither clause (i) nor clause (ii) above applies, the Company satisfies the requirements of such
jurisdiction for writing insurance coverage on a surplus lines or excess lines basis.
“Tax” or “Taxes” means any and all federal, state, local, foreign and other
net income, gross income, gross receipts, sales, use, ad valorem, transfer, registration, excise,
franchise, capital stock, profits, license, stamp, lease, service, service use, payroll, wage,
employment, social security, severance, occupation, excise, premium, real or personal property,
windfall profits, customs, duties, alternative or add-on minimum, estimated and other taxes, fees,
assessments and charges of any kind whatever, together with any interest and penalties, additions
to tax or additional amounts with respect thereto, whether disputed or not.
“Tax Indemnifying Party” has the meaning set forth in Section 9.3(a)(3) below.
“Tax Claim” has the meaning set forth in Section 9.3(d) below.
“Tax Return” means any return, information report or filing with respect to Taxes,
including any schedules attached thereto and including any amendment thereof.
“Threshold” shall have the meaning set forth in Section 10.7.
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“Transfer and Assignment Agreement” means the Transfer and Assignment Agreement
between the Company and MGA substantially in the form attached as Exhibit 6 hereto.
“Transfer Taxes” has the meaning set forth in Section 9.3(c) below.
ARTICLE 2
PURCHASE AND SALE OF COMPANY SHARES
2.1 Basic Transaction. On and subject to the terms and conditions of this Agreement,
the Buyer agrees to purchase from the Seller Parties, and the Seller Parties agree to sell to the
Buyer, all of the Shares for the consideration specified in Section 2.2.
2.2 Purchase Price. The Buyer agrees to pay to the Seller Parties (as directed by
them) at the Closing an amount equal to the sum of (i) $4,750,000, (ii) $125,000 for each of the
States of Louisiana and Colorado if the Company has a Surplus or Excess Lines Qualification that is
valid, in force, unimpaired and in good standing on the Closing Date in such state, and (iii) the
Market Value of Acceptable Financial Assets owned by the Company immediately prior to the Closing
(which shall exclude (a) the assets to be included in the transfer to the Parent pursuant to
Section 3.1, (b) the assets held in trust pursuant to the New York Trust Agreement and the Liberty
Trust, (c) the assets held pursuant to the Escrow and/or Custodial Agreement for the State of New
Hampshire and, if the Excess or Surplus Lines Qualification for Louisiana is not in force on the
Closing Date, the assets held pursuant to the Escrow and/or Custodial Agreement for the State of
Louisiana, and (d) the assets included in the transfers contemplated by Section 3.3(a)) in an
amount equal to $5,000,000 (the “Purchase Price”); provided, however, that if any of the
Company’s Surplus or Excess Lines Qualifications in the jurisdictions listed in Section 4.1(u)(2)
of the Disclosure Schedule is not valid, in force, unimpaired and in good standing on the Closing
Date, the Purchase Price shall be reduced by the amount set forth in Section 2.2 of the Disclosure
Schedule opposite the name of the jurisdiction in which such Surplus or Excess Lines Qualification
is not valid, in force, unimpaired or in good standing, or, if there is more than one such
jurisdiction, the sum of the amounts set forth in Section 2.2 of the Disclosure Schedule opposite
the names of such jurisdictions (the “Section 2.2 Amount”). At the Closing, in exchange
for the delivery by the Seller Parties to the Buyer of the Shares, the Buyer shall pay to the
Seller Parties the Purchase Price by wire transfer of immediately available funds to a bank account
designated by the Seller Parties.
2.3 The Closing. The closing of the transactions contemplated by this Agreement (the
“Closing”) shall take place at the offices of the Parent at 0000 Xxx Xxxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxx, commencing at 10:00 a.m., local time on a date to be mutually agreed within thirty
(30) days following the satisfaction or waiver of all conditions precedent set forth in this
Agreement (other than conditions with respect to actions that the respective Parties will take at
the Closing itself) or such other date as may otherwise be agreed
upon by the Seller Parties and the Buyer (the “Closing Date”). The Parties shall use their
best efforts to cause the Closing to be effective as of the first day of a calendar month.
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2.4 Deliveries at the Closing. At the Closing, (i) the Seller Parties will deliver to
the Buyer the various certificates, instruments, and documents referred to in Article 7 below, (ii)
the Buyer will deliver to the Seller Parties the various certificates, instruments, and documents
referred to in Article 8 below, (iii) the Seller Parties will deliver to the Buyer stock
certificates representing all of the Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Seller Parties the consideration
specified in Section 2.2.
2.5 Post Closing Adjustment.
(a) At least three (3) Business Days prior the Closing Date, the Seller Parties shall provide
to the Buyer a preliminary determination of the projected Market Value of the Acceptable Financial
Assets as of the Closing Date.
(b) Within five (5) Business Days after the Closing Date, the Seller Parties shall provide to
the Buyer a final determination of the Market Value of the Acceptable Financial Assets as of the
Closing Date (“Final Fair Market Value”). If the Final Fair Market Value exceeds
$5,000,000, then the Buyer shall pay to the Seller Parties an amount equal to such excess, in
immediately available funds by wire transfer to a bank account designated in writing by the Seller
Parties. If the Final Fair Market Value is less than $5,000,000, then the Seller Parties shall pay
to the Buyer an amount equal to such shortfall, in immediately available funds by wire transfer to
a bank account designated in writing by the Buyer. Any payment due pursuant to this Section 2.5(b)
shall be made within ten (10) Business Days after the Closing Date or, if a Dispute Notice is filed
pursuant to Section 2.5(c), within five (5) Business Days after the resolution of the disagreement
described in such Dispute Notice.
(c) In the event that the Buyer disagrees with the Final Fair Market Value of the Acceptable
Financial Assets, the Buyer shall provide notice of such disagreement and the nature or reason
therefor to the Seller Parties no later than three (3) Business Days after the delivery to the
Buyer of such final determination (the “Dispute Notice,” and the date of its delivery, the
“Dispute Notice Date”). The Seller Parties and the Buyer shall use their best efforts to
resolve such disagreement by negotiation for five (5) Business Days following the Dispute Notice
Date, and if no resolution is reached within such period, the dispute shall be jointly submitted by
the Buyer and the Seller Parties to the Independent Accounting Firm on the next Business Day
following the expiration of such period. The Independent Accounting Firm shall make its
determination of the Fair Market Value of the Acceptable Financial Assets as of the Closing Date
within fifteen (15) Business Days after submission thereof, which determination shall be binding
and conclusive on all of the Parties hereto. Each of the Parties shall cooperate fully in
assisting the Independent Accounting Firm, as it may require or request, to reach such
determination and shall take all actions necessary to expedite and to cause the Independent
Accounting Firm to expedite such determination. Upon completion of the Independent Accounting
Firm’s review, payment of any amount required pursuant to Section 2.5(b) shall be made by the
Seller Parties or the Buyer, as the case may be, within five (5) Business Days after
such determination. The Seller Parties and the Buyer shall each pay fifty percent (50%) of the
total fees and expenses of the Independent Accounting Firm; provided, however, if the Independent
Accounting Firm makes its determination of the Fair Market Value of the
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Acceptable Financial Assets
as of the Closing Date and such determination is substantially the same as the value determined by
one of the Parties, then the other Party shall pay 100% of the total fees and expenses of the
Independent Accounting Firm.
ARTICLE 3
RELATED TRANSACTIONS
Subject to the additional conditions precedent set forth in Article 6 of this Agreement, the
obligations of the Buyer and the Seller Parties to consummate the purchase of the Shares is subject
to and conditioned upon completion of the following transactions in form and substance reasonably
satisfactory to the Buyer and the Seller Parties:
3.1 Corporate Restructuring. Prior to the Closing and after completion of the
transaction contemplated in Section 3.3(a), and subject to receipt of all applicable consents and
approvals identified in Section 4.1(z) of the Disclosure Schedule in form and substance reasonably
acceptable to the Parties, the Seller Parties shall cause the Company to transfer to the Parent all
of the issued and outstanding capital stock of MGA.
3.2 Transfer of Liabilities and Obligations.
(a) At the Closing, MGA and the Company shall enter into the Assumption Agreement, the
Transfer and Assignment Agreement, and the Administration Agreement, and the Parent shall enter
into the Guaranty Agreement.
(b) No later than the close of business on the Business Day immediately preceding the Closing
Date, (i) the Seller Parties shall terminate and commute any and all intercompany cessions,
reinsurance agreements, retrocessions, pooling arrangements and other transfers of insurance risk
by and between the Company, on the one hand, and the Seller Parties and their Affiliates, on the
other hand; (ii) MGA shall enter into the Quota Share Reinsurance Agreement, and (iii) MGA and the
Company shall enter into the Reinsurance Trust Agreement, and MGA shall transfer to the trustee,
for deposit to the trust account thereunder, the assets described therein. The performance of MGA
under the Quota Share Reinsurance Agreement, including its financial obligations described therein,
shall be secured by the Reinsurance Trust Agreement.
(c) The Seller Parties and the Buyer acknowledge and agree that it is their mutual intent that
the Company shall have no liabilities or obligations whatsoever at the Closing, except for the
liabilities and obligations specified in the last sentence of Section 4.1(h), and the Seller
Parties shall take all necessary steps to ensure that the Company receives full financial statement
credit for the transfers and assumptions contemplated by this Section 3.2 under the Laws of the
State of Oklahoma.
3.3 Reduction in Capital and Surplus.
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(a) On the Closing Date and prior to the Closing and the transaction contemplated in Section
3.1, and subject to receipt of all applicable consents and approvals identified in Section 4.1(z)
of the Disclosure Schedule in form and substance reasonably acceptable to the Parties, the Company
shall transfer to MGA all of the assets of the Company in amounts sufficient to reduce the
remaining statutory capital and surplus of the Company (without counting its investment in MGA and
after giving effect to the initial reserve transfer contemplated by the Quota Share Reinsurance
Agreement and after taking into account the assets to be transferred pursuant to the Transfer and
Assignment Agreement) to $5,000,000. In connection with the transfer of such assets, at or prior
to the Closing the Company shall notify XX Xxxxxx Xxxxx Bank, as successor to Texas Commerce Bank,
trustee under the New York Trust Agreement, of the Company’s intention to terminate such Trust
Agreement. At the Closing, pursuant to the Transfer and Assignment Agreement, the Company shall
assign to MGA all of the Company’s right, title and interest in and to the New York Trust
Agreement, the Escrow and/or Custodial Agreements, and the Liberty Trust, and all proceeds thereof,
and shall designate MGA as the Company’s agent and representative in connection with all matters
relating to such trusts and other arrangements and shall authorize MGA to take all steps necessary
or desirable to terminate said arrangements, including without limitation, the power and authority
to engage a firm of independent certified public accountants to conduct the audit of the trust fund
and to negotiate with the New York Department of Insurance regarding the termination of the New
York Trust Agreement and the distribution of the proceeds thereof. MGA shall assume and be
responsible for all fees and other costs associated with the administration of the trust after the
Closing Date and all expenses, taxes and other charges and liabilities associated with the
termination of the trust; and MGA shall indemnify and hold the Company harmless from and against
any and all such fees, costs, expenses, taxes and other charges and liabilities relating thereto.
(b) The Seller Parties and the Buyer agree that following the transfer by the Company of the
capital stock of MGA pursuant to Section 3.1 and the amount described in Section 3.3(a) and the
consummation of the transactions contemplated by the Ancillary MGA Agreements, the Company shall
not have any material assets except for the assets specified in the last sentence of Section
4.1(k).
(c) On the Closing Date and after the Closing, the Buyer shall contribute admissible
unencumbered assets to the Company totaling $15,000,000.
3.4 Elimination of Intercompany Contracts and Pools. Except as contemplated by
Section 5.13, prior to the Closing, and subject to all applicable consents and approvals identified
in Section 4.1(z) of the Disclosure Schedule, the Seller Parties shall remove the Company as a
party from all intercompany contracts and pools, excluding reinsurance in place to meet the terms
of this Agreement. Except as contemplated by Section 5.13, the Seller Parties and the Buyer
acknowledge and agree that it is their mutual intent that the Company shall have no liabilities or
obligations with respect to any intercompany contracts or pools whatsoever at or after the Closing.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION
4.1 Representations and Warranties of the Seller Parties. As a material inducement to
the Buyer to enter into this Agreement and purchase the Shares, the Seller Parties, jointly and
severally, make the following representations and warranties to the Buyer. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or
warranty made herein unless the applicable Section of the Disclosure Schedule identifies the
relevant exception in reasonable detail.
(a) Organization of the Seller Parties and the Company.
(1) The Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has all requisite power and authority (corporate
and otherwise) to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted, to execute and deliver this Agreement and the
Guaranty Agreement, to perform its obligations hereunder and thereunder, and to carry out
the other transactions contemplated hereby and thereby.
(2) MGA is a stock property and casualty insurance company duly organized, validly
existing and in good standing under the laws of the State of Texas and has all requisite
power and authority (corporate and otherwise) to own, lease and operate its properties and
assets and to conduct its business as it is now being conducted, to execute and deliver this
Agreement and the Ancillary MGA Agreements, to perform its obligations hereunder and
thereunder, to own, hold, sell and transfer the Shares to the Buyer (subject to the receipt
of the consents and approvals set forth in Section 4.1(z) of the Disclosure Schedule), and
to carry out the other transactions contemplated hereby and thereby.
(3) The Company is a stock property and casualty insurance company duly organized,
validly existing and in good standing under the laws of the State of Oklahoma and has all
requisite power and authority (corporate and otherwise) to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted, to execute
and deliver the Ancillary MGA Agreements, to perform its obligations thereunder and to carry
out the other transactions contemplated hereby and thereby. At the Closing, the Company
will not own and will not be obligated to in any way to acquire, either directly or
indirectly, any voting securities or other equity interest
or securities in any other Entity or be a participant in any partnership, pooling
arrangement or joint venture with any other Person.
(4) The copies of the articles of incorporation, bylaws and other organizational
documents of the Seller Parties and the Company that have been furnished to the Buyer and
its counsel reflect all amendments made thereto at any time prior to the date of this
Agreement or the Closing, as the case may be, and are true, correct and complete.
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(b) Authorization of the Transactions.
(1) The execution and delivery of this Agreement by the Seller Parties and the
performance by the Seller Parties of their respective obligations hereunder have been duly
and validly authorized by all necessary corporate action on the part of each of the Seller
Parties. This Agreement constitutes a legal, valid, and binding obligation of each the
Seller Parties and is enforceable against each of the Seller Parties in accordance with its
terms.
(2) At the Closing, the Guaranty Agreement will have been duly executed and delivered
by the Parent and the performance by the Parent of its obligations thereunder will have been
duly and validly authorized by all necessary corporate action on the part of the Parent and
the Guaranty Agreement will constitute a legal, valid and binding obligation of the Parent
and will be enforceable against the Parent in accordance with its terms.
(3) At the Closing, the Ancillary MGA Agreements will have been duly executed and
delivered by MGA and the performance by MGA of its obligations thereunder will have been
duly and validly authorized by all necessary corporate action on the part of MGA. At the
Closing and subject to the receipt of the consents and approvals set forth in Section 4.1(z)
of the Disclosure Schedule, the Ancillary MGA Agreements will each constitute a legal,
valid, and binding obligation of MGA and will be enforceable against MGA in accordance with
its terms.
(c) Noncontravention.
(1) Neither the execution and delivery of this Agreement or the Guaranty Agreement nor,
subject to the receipt of the consents and approvals set forth in Section 4.1(z) of the
Disclosure Schedule, the consummation of the transactions contemplated hereby and thereby
and the performance of and compliance with the terms hereof and thereof by the Parent will
(i) violate any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Authority to which the
Parent is subject, (ii) violate any provision of the articles of incorporation, bylaws or
other organizational documents of the Parent, (iii) except as set forth in Section 4.1(c) of
the Disclosure Schedule, conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under, or result in
the creation of any Lien upon the Shares or any other assets of the Parent, under any
agreement, contract, lease, license, instrument, or other arrangement to which the Parent is
a party or by or to which it or its assets may be bound or subject.
(2) Neither the execution and delivery of this Agreement, the Administration Agreement
and the Assumption Agreement nor, subject to the receipt of the consents and approvals set
forth in Section 4.1(z) of the Disclosure Schedule, the execution and delivery of the
Transfer and Assignment Agreement, the Quota Share
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Reinsurance Agreement and the Reinsurance
Trust Agreement and the consummation of the transactions contemplated hereby and thereby and
the performance of and compliance with the terms hereof and thereof by MGA and the Company,
will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Authority to which MGA or
the Company is subject, (ii) violate any provision of the articles of incorporation, bylaws
or other organizational documents of MGA or the Company, (iii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice under, or result
in the creation of any Lien upon the Shares or any other assets of MGA or the Company, under
any agreement, contract, lease, license, instrument, or other arrangement to which either
MGA or the Company is a party or by or to which either of them or their assets may be bound
or subject.
(d) Brokers’ Fees. Neither the Seller Parties nor the Company has nor will have any
liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement.
(e) Shares. The authorized capital stock of the Company consists of 4,000,000 shares
of common stock, par value $1.00 per share, of which 3,000,000 shares are issued and outstanding
(the “Shares”). The Company does not have any other class of authorized capital stock.
All of the Shares are duly authorized, validly issued, fully paid and non-assessable. Except as
set forth in Section 4.1(e) of the Disclosure Schedule, there are no outstanding securities, profit
participation rights, obligations, rights, subscriptions, warrants, options, phantom stock rights,
calls, commitments or demands of any character or (except for this Agreement) other contracts of
any kind that give any Person the right to (i) purchase or otherwise receive or be issued any
shares of capital stock of the Company or any security or liability of any kind convertible into or
exchangeable for any shares of capital stock of the Company or any unit, equity appreciation rights
or phantom stock rights in any equity plan, or (ii) other than the Seller Parties, receive any
benefits or rights similar to any rights enjoyed by or accruing to a holder of the Shares, or any
rights to participate in the equity, income or election of directors or officers of the Company.
(f) Title to the Shares. Except as set forth in Section 4(f) of the Disclosure
Schedule, as of the date hereof the Parent has marketable title to the Shares free and clear of all
Liens and, upon delivery of the Shares to the Buyer pursuant to Section 2.4, the Buyer will acquire
good and marketable title thereto, free and clear of any Liens other than those created by the
Buyer.
(g) Financial Statements. The Seller Parties have furnished to the Buyer true and
complete copies of the following financial statements:
(1) The audited consolidated financial statements of the Parent and its consolidated
Subsidiaries as of and for the three years ended December 31, 2004, through December 31,
2006, and the unaudited consolidated financial statements as of and for the quarter ended
March 31, 2007 (together with the notes relating thereto, whether or not
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included therein)
(collectively, the “Parent Financial Statements”). Each Parent Financial Statement,
including without limitation, each consolidated balance sheet and each of the consolidated
statements of operations, shareholders’ equity and comprehensive loss and cash flows
contained therein, (i) was prepared in accordance with GAAP applied on a basis and in a
manner consistent with prior periods except as disclosed in the notes thereto, (ii) is
consistent with the books and records of the Parent and its consolidated Subsidiaries (which
are accurate and complete in all material respects), and (iii) fairly presents the
consolidated financial condition as of the date thereof, and the consolidated results of
operations, shareholders’ equity and cash flows for and during the periods covered thereby,
of the Parent. The Parent maintains, on behalf of itself and its consolidated subsidiaries,
a system of internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management’s general or specific
authorizations, (2) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset accountability, (3)
access to assets is permitted only in accordance with management’s general or specific
authorization and (4) the recorded accountability for assets is compared with the existing
assets at reasonable market intervals and appropriate action is taken with respect to any
differences.
(2) MGA’s audited statutory financial statements as of and for the three years ended
December 31, 2004, through December 31, 2006, and the unaudited statutory financial
statements as of and for the quarter ended March 31, 2007 (together with the notes relating
thereto, whether or not included therein), as filed with or submitted to Texas Department of
Insurance on forms prescribed or permitted by such department (collectively, the “MGA
Financial Statements”). Each MGA Financial Statement complied in all material respects
with all applicable laws, statutes, rules and regulations when so filed, and all material
deficiencies with respect to any MGA Financial Statement have been cured or corrected. Each
MGA Financial Statement, including without limitation, each balance sheet and each of the
statements of operations, capital and surplus accounts and cash flows contained therein, (i)
was prepared in accordance with SAP applied on a basis and in a manner consistent with prior
periods except as disclosed in the notes thereto, (ii) is consistent with the books and
records of MGA (which are accurate and complete in all material respects), and (iii) fairly
presents the financial condition as of the date thereof, and the results of operations for
and during the periods covered thereby, of MGA. MGA has disclosed to the Buyer all
accounting principles or practices used in preparing the MGA Financial Statements for which
MGA has requested approval or received permission from the Texas Department of Insurance.
(3) The Company’s audited statutory financial statements as of and for the three years
ended December 31, 2004, through December 31, 2006, and the unaudited statutory financial
statements as of and for the quarter ended March 31, 2007 (together with the notes relating
thereto, whether or not included therein), as filed with or submitted to the Oklahoma
Insurance Department on forms prescribed or permitted by such department (collectively, the
“Company Financial Statements”). Each Company Financial Statement complied in all
material respects with all applicable laws, statutes, rules and regulations when so filed,
and all material deficiencies with respect to any
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Company Financial Statement have been
cured or corrected. Each Company Financial Statement, including without limitation, each
balance sheet and each of the statements of operations, capital and surplus accounts and
cash flows contained therein, (i) was prepared in accordance with SAP applied on a basis and
in a manner consistent with prior periods except as disclosed in the notes thereto, (ii) is
consistent with the books and records of the Company (which, in turn, are accurate and
complete in all material respects), and (iii) fairly presents the financial condition as of
the date thereof, and the results of operations for and during the periods covered thereby,
of the Company. The Seller Parties have disclosed to the Buyer all accounting principles or
practices used in preparing the Company Financial Statements for which the Company has
requested approval or received permission from the Oklahoma Insurance Department.
(h) Absence of Undisclosed Liabilities. On the date hereof, the Company has no
liabilities or obligations of any nature (whether absolute, accrued, contingent, unliquidated and
whether for insurance liabilities or otherwise, whether or not known to the Seller Parties or the
Company, whether due or to become due and regardless of when asserted) other than liabilities and
obligations reflected in the Company Financial Statements. As of the Closing, the Company will
have no liabilities or obligations of any nature whatsoever, except for liabilities which are
transferred to and assumed by MGA pursuant to the Quota Share Reinsurance Agreement, liabilities
reinsured pursuant to the Existing Reinsurance Agreements, liabilities which are assumed by MGA
from the Company pursuant to the Assumption Agreement, obligations under the Transfer and
Assignment Agreement, liabilities the responsibility for which is delegated to MGA pursuant to the
Administration Agreement, payables to MGA with respect to reinsurance recoverables under the
Existing Reinsurance Agreements, if any, and liabilities for Taxes which are not yet due and
payable.
(i) Absence of Certain Events. Since December 31, 2006, the Company has conducted no
business other than that reasonably related to running off of its existing insurance business and
the settlement of claims, and has not, except in furtherance of the transactions contemplated by
this Agreement, including those identified in Article 3:
(1) issued or renewed any policies of insurance or reinsurance or otherwise engaged in
the insurance or reinsurance business, except for transactions under the Existing
Reinsurance Agreements;
(2) issued any bonds, debentures, notes or other debt securities or any capital stock
or other equity interests or any securities convertible, exchangeable or exercisable into
any capital stock or other equity interests;
(3) borrowed any amount or incurred or become subject to any liability or other
obligation;
(4) declared, set aside or made any payment or distribution of cash or other property
to its shareholders or equity holders with respect to its capital stock or other equity
interests or purchased or redeemed any shares of its capital stock or other equity interests
(including, without limitation, any warrants, options or other rights to acquire its capital
stock or other equity securities);
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(5) mortgaged or pledged any of its properties or assets (tangible or intangible) or
subjected them to any material Lien;
(6) sold, assigned or transferred any of its tangible assets or canceled any material
debts or claims;
(7) sold, assigned, transferred or licensed any intangible assets;
(8) suffered any extraordinary, material losses or waived any rights of material value,
whether or not in the ordinary course of business or consistent with past practice;
(9) made any Investment, except for Investments in the ordinary course of business;
(10) made any capital expenditures or commitments ;
(11) made any loans or advances to, or guaranties for the benefit of, any other
Person;
(12) suffered any material damage, destruction or casualty loss, whether or not covered
by insurance;
(13) taken any steps to incorporate any Subsidiary; or
(14) entered into any other material transaction, except Investment transactions in the
ordinary course of business.
(j) No Material Adverse Effect. As of the date hereof, since March 31, 2007, there
has been, no Material Adverse Effect with respect to the Company.
(k) Securities and Assets. The Company has marketable title to the stock, bonds,
notes and other securities and the other assets owned by the Company on the date of this Agreement,
free and clear of all Liens. Section 4.1(k) of the Disclosure Schedule lists all investments in
stock, bonds, notes and other securities owned by the Company on March 31, 2007, all of which
complied when made in all respects with applicable insurance laws and regulations, except for
restrictions in respect of Deposits or the rights of third parties arising out
of the Existing Reinsurance Agreements. At the Closing Date, the Company will have no assets,
except the Acceptable Financial Assets.
(l) Real Property. Except as set forth in Section 4.1(l) of the Disclosure Schedule,
the Company does not have, and never has had, any ownership interest, security interest, leasehold
interest, license or other interest of any kind in any real property whatsoever.
(m) Employee Benefit Plans and Employees. Except as set forth in Section 4.1(m) of
the Disclosure Schedule, the Company has not adopted, maintained, sponsored, contributed to,
participated in or incurred any liability under or with respect to any Employee Benefit Plan. At
or before the Closing Date, the Company’s participation in all Employee
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Benefit Plans listed in
Section 4.1(m) of the Disclosure Schedule shall have been terminated and any liabilities related
thereto shall have been assumed by MGA pursuant to the Assumption Agreement. The Company has no
employees and has no obligation to pay any compensation or benefits to, and has no other existing
or contingent liability to, any of its former officers, directors or employees.
(n) No Intercompany Liabilities. Except as contemplated by Section 5.13, as of the
Closing, there will be no outstanding liabilities or obligations between or among the Company, on
the one hand, and the Seller Parties or any Affiliate thereof, on the other hand, except under the
Ancillary MGA Agreements.
(o) Taxes. Except as set forth in Section 4.1(o) of the Disclosure Schedule, (i) all
Tax Returns which are required to be filed by or with respect to the Company have been duly and
timely filed in accordance with all applicable Laws; (ii) all such Tax Returns are true, correct
and complete and have been prepared in compliance with all applicable laws and regulations; (iii)
all Taxes due or claimed or asserted by any Taxing authority to be due from or with respect to the
Company for the periods covered by such returns (whether or not such Taxes are shown on a Tax
Return) have been duly and timely paid; (iv) the Company is not currently the beneficiary of any
extension of time within which to file any Tax Return; (v) all Taxes which are required to be
withheld from amounts paid or owing to any employee, shareholder, creditor or third party
contractor of the Company have been withheld and paid over to the appropriate Taxing authorities;
(vi) all Taxes have been duly and fully provided for in the books and records of the Company in
accordance with SAP, including without limitation, in each of the Company Financial Statements;
(vii) no statute of limitations with respect to any Taxes has been waived and no extension of time
with respect to any Tax assessment or deficiency has been agreed to by or on behalf of the Company;
(viii) the accrual for Taxes on the Latest Balance Sheet would be adequate to pay all Tax
liabilities of the Company if its current tax year were to end on the date of the Latest Balance
Sheet (excluding any amount recorded which is attributable solely to timing differences between
book and Tax income); (ix) since the date of the Latest Balance Sheet, the Company has not incurred
any liability for Taxes; (x) an assessment of any additional Taxes for periods for which Tax
Returns have been filed by the Company would not exceed the recorded liability therefor on the
Latest Balance Sheet (excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); (xi) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with respect to the Company
and neither of the Seller Parties nor the Company has received any
notice indicating an intent to commence any such proceeding; (xii) no information related to
Tax matters has been requested by any foreign, federal, state or local taxing authority and no
notice indicating an intent to open an audit or other review has been received by the Seller
Parties or the Company from any foreign, federal, state or local taxing authority; (xiii) there are
no material unresolved claims concerning the Company’s Tax liabilities; (xiv) no claim has been
made by any Taxing authority that the Company is subject to Tax or required to file a Tax Return in
any jurisdiction where it has not filed Tax Returns; (xv) there are no Liens for Taxes (other than
Taxes not yet due and payable) upon any of the assets of the Company; (xvi) the Company is not
liable for the Taxes of any other Person (a) as a transferee or successor, (b) by contract or
indemnity, (c) under Treasury Regulation §1.1502-6 (or any corresponding provision of state, local
or foreign Tax law) or (d) otherwise; (xvii) the Company is not a party to or bound by any
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Tax
indemnity, Tax sharing or Tax allocation agreement; (xviii) the Company is not jointly or severally
liable for Taxes as a result of being a member of a consolidated group, other than the consolidated
group of which the Seller Parties and their Affiliates are members; (xix) the Company will not be
required to include any material item of income in, or exclude any material item of deduction from,
taxable income for any taxable period (or portion thereof) ending after the Closing as a result of
any (a) change in method of accounting for a taxable period ending on or prior to the Closing Date,
(b) “closing agreement” as described in Section 7121 of the Code (or any corresponding provision of
state, local or foreign law) executed prior to the Closing, (c) intercompany transactions or any
excess loss account described in the Treasury Regulations under Section 1502 of the Code (or any
corresponding provision of state, local or foreign law), (d) installment sale or open transaction
disposition made prior to the Closing, or (e) prepaid amount received prior to the Closing; and
(xx) the Company has not distributed stock of another Person, or had its stock distributed by
another Person, in a transaction that was purported or intended to be governed in whole or in part
by Section 355 or 361 of the Code.
(p) Suits and Other Proceedings. Except as set forth in Section 4.1(p) of the
Disclosure Schedule, as of the date of this Agreement there are no actions, suits, proceedings,
claims, investigations or examinations pending against either of the Seller Parties or the Company
or, to the Knowledge of the Seller Parties, threatened against or affecting either of the Seller
Parties or the Company, nor any administrative, arbitration or mediation proceedings pending
against either of the Seller Parties or the Company or, to the Knowledge of the Seller Parties,
threatened against the Seller Parties or the Company, nor is there any outstanding order, writ,
injunction, award or decree of any Governmental Authority or any arbitration tribunal or mediator
against either of the Seller Parties or the Company. Section 4.1(p) of the Disclosure Schedule
contains an accurate list and description of such pending or threatened actions or proceedings and
the amount reserved by the Company in respect of any potential liability that may arise out of or
in connection with each such action or proceeding. Except as set forth in Section 4.1(p) of the
Disclosure Schedule and except for any third party claims made or actions or other proceedings
commenced after the date of this Agreement under any insurance policy, binder, commitment,
endorsement or contract issued by the Company, at the Closing Date there will be no actions, suits,
proceedings, claims, investigations or examinations pending against either of the Seller Parties or
the Company or, to the Knowledge of the Seller Parties, threatened against or affecting either of
the Seller Parties or the Company, nor any administrative, arbitration or mediation proceedings
pending against either of the Seller Parties or the Company or, to the Knowledge of the Seller
Parties, threatened against the Seller Parties or the Company, nor will there be any outstanding
order, writ, injunction, award or decree of any Governmental
Authority or any arbitration tribunal or mediator against either of the Seller Parties or the
Company on the Closing Date, which in any such case (i) would restrain, enjoin, prohibit or in any
way impair the ability of the Seller Parties or the Company to consummate the transactions
contemplated hereby, (ii) would reasonably be expected to have a Material Adverse Effect, or (iii)
would reasonably be expected to have a material adverse effect on the ability of the Company to
conduct an insurance business after the Closing under the Insurance License or any of the Surplus
or Excess Lines Qualifications.
(q) Compliance with Laws. To the Knowledge of the Seller Parties, the Company has
complied in all material respects with, and is now complying in all material respects with, all
foreign, federal, state and local statutes, laws, regulations, ordinances,
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judgments, injunctions,
orders, licenses, approvals, permits and other requirements (collectively, “Laws”)
applicable to the Company or its business, properties or assets and no noncompliance therewith,
whether or not material, will have, or is reasonably likely to result in a materially adverse
effect on the condition or business of the Company, or the Insurance License or Surplus or Excess
Lines Qualifications held by the Company as of the date of this Agreement. Neither of the Seller
Parties nor the Company has received notice from any Governmental Authority of, or has any
Knowledge of, any alleged noncompliance. The Company is not relying on any exemption from or
deferral of any Law that would not be available to it after the Closing. To the Knowledge of the
Seller Parties, there are no pending changes in any Law that would prevent the Company from
conducting an insurance or reinsurance business after the Closing.
(r) Compliance with Insurance Laws. Without limiting the representations and
warranties contained in Sections 4.1(q) and (u), except as set forth in Section 4.1(r) of the
Disclosure Schedule:
(1) To the Knowledge of the Seller Parties, the Company is in compliance in all
material respects with the requirements of the insurance laws and regulations of the State
of Oklahoma and the insurance laws and regulations of other jurisdictions which are
applicable to its operations, and has filed all notices, reports, statements, registrations,
documents and other information required to be filed thereunder; and the Company has
received no notification from any insurance regulatory authority to the effect that any
additional permit or license from such insurance regulatory authority is needed to be
obtained by the Company.
(2) The Company is not undergoing any statutory or similar examination of its books,
records, accounts or business by any federal or state regulatory agency or other
Governmental Authority.
(3) The Company belongs to all guaranty fund associations, pools, bureaus, and similar
organizations required by applicable law in Oklahoma and in each other jurisdiction in which
the Company maintains a Surplus or Excess Lines Qualification in order for the Company to
conduct its business in such jurisdiction and has paid or will pay all assessments or other
amounts due to such guaranty fund associations or similar organizations for all periods
through the Closing Date.
(s) Environmental Compliance. To the Knowledge of the Seller Parties, the Company is
not subject to, and neither of the Seller Parties nor the Company has any reason to believe that
the Company may become subject to, any material liability (contingent or otherwise) or material
corrective or remedial obligation arising under any federal, state, local or foreign law, rule or
regulation (including the common law) relating to or regulating health, safety, pollution or the
protection of the environment. Any such liability, regardless of materiality and regardless of the
Knowledge of the Seller Parties, is referred to herein as an “Environmental Liability”.
(t) Rebates and Kickbacks. To the Knowledge of the Seller Parties, neither the
Company nor any of its officers, managers, directors, employees or agents, nor any other Person or
entity acting on behalf of the Company, acting alone or together, has unlawfully or in violation of
any policy or code of ethics of the Company or any its Affiliates: (i) received,
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directly or
indirectly, any rebates, payments, commissions, promotional allowances or any other economic
benefits, regardless of their nature or type, from any customer, governmental employee or other
person or entity with whom the Company has done business, directly or indirectly; (ii) directly or
indirectly, given or agreed to give any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or similar benefit to any customer, governmental employee or other person or
entity regardless of form, whether in money, property or services including, without limitation,
(x) to obtain favorable treatment in securing any business or in obtaining any license or approval,
(y) to pay for favorable treatment for business secured or any license or governmental approval
obtained, or (z) to obtain special concessions or pay for special concessions already obtained for
or in respect of the Company. Any such action, regardless of the Knowledge of the Seller Parties,
is referred to herein as a “Rebate or Kickback”.
(u) Licenses and Permits.
(1) The Company is licensed to do a property and casualty insurance business in the
State of Oklahoma (the “Insurance License”), and such Insurance License is valid and
is in full force and effect and free and clear of all Liens. The Company is not a party to
any agreement, and is not subject to any order, formal or informal, limiting the Company’s
ability to make full use of the Insurance License which has been issued to it or requiring
the Company to comply with regulatory standards, procedures or requirements different from
those generally applicable to companies with certificates of authority or licenses similar
to the Insurance License. The Company has not (i) relinquished the Insurance License or had
it revoked or suspended, (ii) been involved in a proceeding, whether formal or informal, to
revoke, suspend, limit or restrict the Insurance License or the Company’s corporate charter,
(iii) been notified by any Governmental Authority that such Governmental Authority might
have cause to revoke, suspend, limit or restrict such Insurance License or the Company’s
corporate charter, or become aware that any such suspension, revocation, or limitation has
been threatened by any Governmental Authority, or (iv) written any business in any
jurisdiction on an admitted basis other than those in which it is qualified to write
business on an admitted basis. Subject to the receipt of the consents and approvals set
forth in Section 4.1(z) of the Disclosure Schedule, the Insurance License is not subject to
termination as a result of the execution of this Agreement nor the consummation of the
transactions contemplated hereby.
(2) Section 4.l(u)(2) of the Disclosure Schedule contains a true and correct list of
each jurisdiction in which the Company is Surplus or Excess Lines Qualified as of the date
of this Agreement. Other than as set forth in Section 4.1(u)(2) of the Disclosure Schedule,
the Company has not received a notice of suspension or termination with respect to any such
eligibility, the Seller Parties have no Knowledge of any threatened cancellation or
termination in connection therewith, nor does either of the Seller Parties have Knowledge of
any event, inquiry, investigation or proceeding that could reasonably be expected to result
in such cancellation or termination. The Company has not written or assumed any business in
any other jurisdiction on a non-admitted basis other than the class or type of business
which it is authorized to write in such jurisdiction
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(3) All forms of insurance policies and riders thereto issued by the Company
(collectively, the “Policies”) are, to the extent required under applicable
insurance laws, on forms approved by the applicable insurance regulatory authorities of the
jurisdiction where issued or have been filed with and not objected to by such regulatory
authorities within the period provided for objection. The Company does not have any
Policies currently issued and in force.
(4) To the Knowledge of the Seller Parties, the Company is in material compliance with
all applicable insurance laws regulating the practices of marketing and selling the
insurance policies it is licensed and authorized to issue and no noncompliance therewith,
whether or not material, will have, or is reasonably likely to result in, a Material Adverse
Effect with respect to the Company.
(5) 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, and
(ii) provided for all such assessments in the Company Financial Statements to the extent
necessary to be in conformity in all material respects with SAP.
(6) Section 4.1(u)(6) of the Disclosure Schedule lists all funds maintained by the
Company with Governmental Authorities under any applicable insurance law (each a
“Deposit”). Section 4.1(u)(6) of the Disclosure Schedule accurately sets forth the
assets comprising each such Deposit, and the name of the bank and the number of the bank
account in which such Deposit is maintained.
(7) The Company is not currently the subject of any investigation, examination,
supervision, conservation, rehabilitation, liquidation, receivership, insolvency or other
similar proceeding nor is the Company operating under any written or oral formal or informal
agreement or understanding with the licensing authority of any jurisdiction or any other
regulatory authority or requires it to take, or refrain from taking any action.
(v) Reinsurance. Section 4.1(v) of the Disclosure Schedule lists all (i) reinsurance
and retrocessional treaties and agreements pursuant to which the Company is a party and has ceded
liability, under which any party to such agreement may have any liability or other obligations to
the Company, and of which the Seller Parties have Knowledge and (ii) reinsurance
and retrocessional treaties and agreements to which the Company is a party and under which the
Company may have any liability or other obligations (collectively, the “Existing Reinsurance
Agreements”). The Seller Parties have provided the Buyer with access to a true and complete
copy of each of the Existing Reinsurance Agreements. Each of the Existing Reinsurance Agreements
is valid and binding on the Company in all respects in accordance with its terms and, to the
Knowledge of the Seller Parties, each of the Existing Reinsurance Agreements is valid and binding
on the reinsurer thereto in accordance with its terms, in each case, except as enforcement may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium, or similar laws affecting
generally the enforcement of creditors’ rights and by the general principles of equity (whether or
not considered in a court of law or equity). The Seller Parties have no reason to believe that any
amount recoverable by the Company pursuant to an Existing
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Reinsurance Agreement is not fully
collectible in due course, excluding any amounts covered by the Reinsurance Trust Agreement. The
Company is not in default in any material respect as to any Existing Reinsurance Agreement, nor on
the date of this Agreement is either of the Seller Parties aware that the financial condition of
any party to an Existing Reinsurance Agreement is impaired to the extent that a default thereunder
may be reasonably anticipated. Except as disclosed in Section 4.1(v) of the Disclosure Schedule,
none of the Existing Reinsurance Agreements contains any “change of control” provision or any other
provision providing that the other party thereto may terminate such Existing Reinsurance Agreement
prior to its established expiration date as a result of the transactions contemplated by this
Agreement. On the date of this Agreement the Company is entitled to take full credit on its
statutory financial statements filed with the Oklahoma Insurance Department with respect to
liabilities ceded under all Existing Reinsurance Agreements pursuant to which the Company has ceded
reinsurance and will be entitled on and after the Closing Date to such credit with respect to all
liabilities ceded under the Quota Share Reinsurance Agreement.
(w) Contracts. Section 4.1(w)(i) of the Disclosure Schedule sets forth a list of all
material contracts, agreements and commitments (including undertakings or commitments to any
Governmental Authority but excluding insurance policies issued by the Company in the normal course
of business) which are in force and to which the Company is a party or by which any of its assets
or properties are bound or subject (the “Contracts”). Section 4.1(w)(ii) of the Disclosure
Schedule identifies each Contract (i) which provides that a “change of control” of the Company
will cause a termination of the Contract or constitutes a default thereunder or otherwise grants to
the other party the right to terminate the Contract upon a change of control, (ii) which grants any
Person a Lien on all or any part of the assets of the Company or (iii) under which the Company may
have any liability, liquidated or unliquidated, contingent or otherwise, after the Closing. The
Seller Parties have provided the Buyer with a full, accurate and complete copy of each of the
Contracts.
(x) Insurance. Section 4.1(x) of the Disclosure Schedule contains a true and complete
list of all policies of fire, liability, workmen’s compensation and other forms of insurance
policies and fidelity bonds presently in effect insuring the Company’s business showing the policy
limits, type of coverage, annual premiums, expiration dates and deductibles. The Seller Parties
have provided the Buyer with access to complete and correct copies of all such insurance policies
and fidelity bonds. All such policies and fidelity bonds are valid, outstanding and enforceable
policies and provide insurance coverage for the properties, assets and operations
of the Company, of the kinds, in the amounts and against the risks required to comply with
applicable Law. In the event that any such policy is a “claims made” policy, the Seller Parties
represent and warrant that the Seller Parties shall retain all liabilities for claims against such
policy made after the Closing for events occurring prior to the Closing that would have been
covered under such policy if it had been written on an occurrence basis. There are no outstanding
unpaid claims made by the Company under any of such policies or bonds, and the Company has received
no notice of cancellation or non-renewal thereof. The Company has not been refused any insurance
with respect to any aspect of its operations or businesses, nor has its coverage been limited by
any insurance carrier to which it has applied for insurance or with which it has carried insurance.
No notice of cancellation or termination has been received with respect to any such policy or
fidelity bond. The activities and operations of the Company have
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been conducted in a manner so as
to conform in all material respects to all applicable provisions of such insurance policies and
fidelity bonds.
(y) Corporate Records. The Seller Parties have provided the Buyer with full, accurate
and complete copies of the Company’s articles of incorporation, bylaws and other organizational
documents. The Seller Parties have also provided the Buyer with the corporate minutes and all
amendments thereto of the Company since January 1, 1997, all of which corporate minutes and
amendments thereto are correct and complete in all material respects and accurately reflect in all
material respects all proceedings of the shareholders and directors of the Company (and all
committees thereof) since January 1, 1997. Except as set forth in Schedule 4.1(y) of the
Disclosure Schedule, the stock record book of the Company contains complete and accurate records of
the stock ownership of the Company and the transfer of the shares of its capital stock.
(z) Consents and Approvals. Except for the consents and approvals listed in Section
4.1(z) of the Disclosure Schedule, no consent, approval or authorization of, or declaration, filing
or registration with, any Person is required to be obtained or made by either of the Seller Parties
or the Company in connection with the Related Transactions or the execution, delivery and
performance by the Seller Parties and the Company of this Agreement and the other agreements and
instruments referred to herein and the consummation of the transactions contemplated hereby.
(aa) Contracts with Agents and Powers of Attorney, Etc. Section 4.1(aa) of the
Disclosure Schedule is a complete and accurate list of all contracts that the Company has on the
date hereof with producing or general agents, and on or before the Closing all of such contracts
shall have been terminated. The Company has not granted any currently effective power of attorney
to any person, except pursuant to the Ancillary MGA Agreements.
(ab) Bank and Financial Institution Accounts. Set forth in Section 4.1(ab) of the
Disclosure Schedule is a true, correct and complete list showing the name and address of each bank
or other financial institution with which the Company has an account, line of credit or safe
deposit box, the account numbers or box numbers relating thereto, and the name of each person
authorized to draw thereon or have access thereto. There are no credit cards issued to any present
or past officer, employee or agent of the Company under which the Company has any current or
potential future liability.
(ac) Related Party Transactions. Except as set forth in Section 4.1(ac) of the
Disclosure Schedule, no officer, director, employee, shareholder, member or Affiliate of the Seller
Parties or any individual related by blood, marriage or adoption to any such individual or any
Entity in which any such Person or individual owns any beneficial interest, is a party to any
material agreement, contract, commitment or transaction with the Company or has any material
interest in any material assets of the Company.
(ad) Examination Reports. The Seller Parties have furnished or will furnish to the
Buyer true and correct copies of the latest examination report of the Oklahoma Insurance Department
and copies of all independent audit reports of the Company. The Seller Parties will
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allow the
Buyer access to complete and correct copies of all registrations, filings and submissions made by
the Company with any Governmental Authority, which are reasonably required for the conduct of the
Company’s business after the Closing and any reports of examinations issued by any such
Governmental Authority that relate to the Company.
(ae) Disclosure. No representation or warranty by the Seller Parties contained in
this Agreement or in any certificate, notice or schedule furnished to the Buyer or any of its
representatives hereunder contains an untrue statement of a material fact or omits to state a
material fact required to be stated herein or therein or necessary to make the statements herein or
therein not misleading, and, to the Knowledge of the Seller Parties, no statement contained in any
document furnished to the Buyer or to which the Buyer was given access pursuant to this Agreement,
when taken together and with the disclosures herein and in the Disclosure Schedule, contains an
untrue statement of a material fact or omits to state a material fact required to be stated herein
or therein or necessary to make the statements herein or therein not misleading, which statement or
omission, whether related to this Agreement or any certificate, notice, schedule or other document,
affects (i) the title to the Shares, (ii) the Insurance License, (iii) the Excess or Surplus Lines
Qualifications or (iv) would reasonably be expected to have a Material Adverse Effect.
4.2 Representations and Warranties of the Buyer. The Buyer hereby represents and
warrants to the Seller Parties as follows:
(a) Organization of the Buyer. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of State of Delaware and has all requisite power and
authority (corporate and otherwise) to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
(b) Authorization of Transaction. The execution, delivery, and compliance with the
terms of this Agreement by the Buyer and the performance by the Buyer of its obligations hereunder
have been duly and validly authorized by all necessary corporate action on the part of the Buyer.
This Agreement, assuming due execution and delivery by the Seller Parties , constitutes a legal,
valid, and binding obligation of the Buyer and is enforceable against the Buyer in accordance with
its terms.
(c) Noncontravention. Neither the execution and delivery of this Agreement nor,
subject to the receipt of the consents and approvals set forth in Section 4.2(g) of the Disclosure
Schedule, the consummation of the transactions contemplated hereby and the fulfillment of and
compliance with the terms hereof by the Buyer, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any
Governmental Authority to which the Buyer is subject, (ii) violate any provision of the certificate
of incorporation, bylaws or other organizational documents of the Buyer, (iii) conflict with,
result in a breach of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require any notice under, or result
in the creation of any Lien upon any assets of the Buyer, under any agreement, contract, lease,
license, instrument, or other arrangement to which either the Buyer is a party or by or to which it
or its assets may be bound or subject.
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(d) Brokers’ Fees. The Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions contemplated by this
Agreement for which the Seller Parties or the Company could become liable or obligated.
(e) Investment. The Buyer is buying the Shares for investment only and not with a
view to resale in connection with any distribution of any of the Shares except in compliance with
the Act and all other applicable securities laws. The Buyer understands that the Shares have not
been registered under the Act or under the securities laws of any state and that the Shares may not
be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of in the
absence of an effective registration under the Act except pursuant to a valid exemption from such
registration. The Buyer is an “accredited investor” (as defined in Rule 501(a) of Regulation D
under the Securities Act of 1933) and has knowledge and experience in financial and business
matters such that it is capable of evaluating the merits and risks associated with the purchase of
the Shares and is able to bear the economic risks of an investment therein for an indefinite period
of time.
(f) Suits and Other Proceedings. There are no actions, suits, proceedings, claims,
investigations or examinations pending against the Buyer or, to the Knowledge of the Buyer,
threatened against or affecting the Buyer, nor any administrative, arbitration or mediation
proceedings pending against the Buyer or, to the Knowledge of the Buyer, threatened against the
Buyer, nor is there any outstanding order, writ, injunction, award or decree of any Governmental
Authority or any arbitration tribunal or mediator against the Buyer, which in any such case would
restrain, enjoin, prohibit or in any way impair the ability of the Buyer to consummate any of the
transactions contemplated herein. Section 4.2(f) of the Disclosure Schedule contains an accurate
description of each such pending or threatened action or proceeding.
(g) Consents and Approvals. Except for the consents and approvals listed in Section
4.2(g) of the Disclosure Schedule, no consent, approval or authorization of, or declaration, filing
or registration with, any Person (including, without limitation, any Governmental Authority) is
required to be obtained or made by the Buyer in connection with the Buyer’s execution, delivery and
performance by the Buyer of this Agreement and the other agreements and instruments referred to
herein and the consummation of the transactions contemplated hereby.
ARTICLE 5
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the execution of this
Agreement and the Closing.
5.1 General. Each of the Parties will use its commercially reasonable efforts to take
all action and to do all things necessary, proper or advisable in order to consummate and make
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effective the transactions contemplated by this Agreement (including satisfaction, but not waiver,
of the closing conditions set forth in Article 6 below).
5.2 Notices and Consents.
(a) The Seller Parties will (i) take commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use commercially reasonable efforts to obtain as promptly
as practicable, all consents, approvals, and authorizations of the Persons (including, without
limitation, any Governmental Authorities) identified in Section 4.1(z) of the Disclosure Schedule,
(ii) make such declarations, filings and registrations with such Persons (including, without
limitation, any Governmental Authorities) identified in Section 4.1(z) of the Disclosure Schedule,
including making the necessary filings with respect to the Related Transactions within ten (10)
Business Days after the date hereof, and provide such other information and communications to such
Persons (including, without limitation, any Governmental Authorities) as the Buyer or such Persons
may reasonably request, and (iii) cooperate with the Buyer in obtaining, as promptly as
practicable, all approvals, consents and authorizations of Persons (including, without limitation,
any Governmental Authorities) identified in Section 4.2(g) of the Disclosure Schedule.
(b) The Buyer will (i) take commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use commercially reasonable efforts to obtain as promptly as
practicable, all consents, approvals and authorizations of the Persons (including, without
limitation, any Governmental Authorities) identified in Section 4.2(g) of the Disclosure Schedule,
(ii) make such declarations, filings and registrations with the Persons (including, without
limitation, any Governmental Authorities) identified in Section 4.2(g) of the Disclosure Schedule,
including the filing of a Form A Holding Company Acquisition Statement with the Oklahoma Insurance
Department (the “Form A Filing”) within ten (10) Business Days after the date hereof, and
provide such other information and communications to such Persons (including, without limitation,
any Governmental Authorities) as the Seller Parties or such Persons may reasonably request, and
(iii) cooperate with the Seller Parties in obtaining, as promptly as practicable, all approvals,
consents and authorizations of Persons (including, without limitation, any Governmental
Authorities) identified in Section 4.1(z) of the Disclosure Schedule.
(c) The Seller Parties agree to provide the Buyer with prompt notice of the receipt by a
Seller Party of any approval, consent or authorization of a Person (including, without limitation,
any Governmental Authority) identified in Section 4.1(z) of the Disclosure Schedule, and the Buyer
agrees to provide the Seller Parties with prompt notice of the Buyer’s receipt of any approval,
consent, or authorization of a Person (including, without limitation, any Governmental Authority)
identified in Section 4.2(g) of the Disclosure Schedule. The Buyer agrees that not less than three
(3) Business Days prior to the Buyer’s filing of its Form A Filing, the Buyer will provide to the
Seller Parties a copy of such Form A Filing and provide the Seller Parties with three (3) Business
Days to provide comments thereon.
5.3 Operation of Business. Except as may otherwise be contemplated by this Agreement
and except for ongoing transactions pursuant to the Quota Share Reinsurance Treaty
-27-
Attaching
January 1, 1993 between and among the Company, MGA and Gainsco County Mutual Insurance Company, the
Seller Parties will not cause or permit the Company to, and the Company will not, engage in any
business other than that reasonably related to running off its existing insurance business and the
settlement of claims.
5.4 Full Access. The Seller Parties will permit, and the Seller Parties will cause
the Company to permit, representatives of the Buyer to have full access at all reasonable times,
and in a manner so as not to interfere with the normal business operations of the Company, to all
premises, properties, personnel, books, records, contracts, and documents of or pertaining to the
Company. The Buyer will treat any information it receives from the Seller Parties or the Company
in the course of the reviews contemplated by this Section 5.4 in accordance with Article 14.
5.5 Notice of Developments. Each Party will give prompt written notice to the other
of any development causing a breach of any of its own representations and warranties in Article 4.
No disclosure by any Party pursuant to this Section 5.5, however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation or breach of
warranty.
5.6 Exclusivity. The Seller Parties shall not (and the Seller Parties hereby agree to
cause their respective subsidiaries, Affiliates, shareholders, representatives, employees,
directors and officers not to), directly or indirectly through any other party, (i) initiate or
make any offer or proposal or engage in any discussions or negotiations with or provide any
non-public information to any other person, firm, entity or corporation with respect to the sale or
other transfer of all or substantially all of the assets of the Company or its outstanding capital
stock or other equity interests or a merger or consolidation with or into a third party involving
the Company, or (ii) solicit any offer or proposal relating any such transaction involving the
Company; and the Seller Parties will notify the Buyer promptly of the receipt of any unsolicited
offer or proposal relating any such transaction involving the Company.
5.7 Preservation of Insurance Lines and Qualifications. The Seller Parties shall,
and shall cause the Company to, use commercially reasonable efforts to preserve the Company’s
Insurance License
and all Surplus Lines and Excess Lines Qualifications in effect as of the date of this Agreement in
full force and effect.
5.8 Financial Statements and Reports. As promptly as practicable, the Seller Parties
will deliver to the Buyer true and complete copies of such financial statements, reports, or
analyses related to the Company as may be prepared or received by the Seller Parties, the Company,
or any other Affiliate of the Company to the extent such other Affiliate’s financial statements
specifically relate to the Company’s business, operations, or affairs, including without
limitation, quarterly statements, normal internal reports, and special reports (such as those of
consultants) specifically relating to the Company’s business operations and affairs.
5.9 No Charter or Bylaw Amendments. The Seller Parties will cause the Company to
refrain from amending the Company’s articles of incorporation or bylaws and from taking any
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action
with respect to any such amendment without first having obtained the Buyer’s written consent
thereto.
5.10 No Issuance of Securities. The Seller Parties will cause the Company to refrain
from authorizing or issuing any shares of the Company’s capital stock or other equity interests or
entering into any contract or granting any option, warrant, or right calling for the authorization
or issuance of any such shares or other equity interests, or creating or issuing any securities
directly or indirectly convertible into or exchangeable for any such shares or other equity
interests, or issuing any options, warrants, or rights to purchase any such convertible securities.
5.11 No Dividends. The Seller Parties will cause the Company to refrain from
declaring, setting aside, or paying any dividend or other distribution in respect of the capital
stock of the Company and from directly or indirectly redeeming, purchasing or otherwise acquiring
any capital stock of the Company or any interest in or right to acquire any such stock, except that
the Company shall make the transfers contemplated in Sections 3.1 and 3.3(a).
5.12 Resignations of Directors and Officers. The Seller Parties will cause all of the
members of the Company’s Board of Directors and all officers of the Company to tender, effective as
of the Closing Date, their releases and resignations from the Board of Directors and as officers of
the Company, as the case may be.
5.13 Intercompany Balances and Agreements. Except as set forth in Section 5.13 of the
Disclosure Schedule or as contemplated by the Ancillary MGA Agreements, prior to the Closing, the
Seller Parties shall (i) settle, or cause to be settled, all intercompany balances between the
Company, on the one hand, and the Seller Parties and any of their Affiliates, on the other hand,
and (ii) terminate, or cause to be terminated, each contract between the Company, on the one hand,
and any of the Seller Parties or their Affiliates, on the other hand.
5.14 Tax Matters. Except to the extent required by law, no new elections with respect
to Taxes or any changes in current elections with respect to Taxes, to the extent any such
elections or changes could adversely affect the Taxes of the Company for any taxable period or
portion thereof beginning after the Closing Date, shall be made after the date of this Agreement
without the prior written consent of the Buyer.
5.15 Press Releases and Public Announcements. No Party shall issue any press release
or make any public announcement relating to the subject matter of this Agreement or the
transactions contemplated hereby prior to, or on, the Closing Date without the prior written
approval of the other Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading agreement concerning
its or its Affiliates’ publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Party prior to making the disclosure).
5.16 Asset List. No earlier than twenty (20) Business Days prior to the Closing Date,
the Seller Parties shall provide to the Buyer a list of any investment grade obligations, other
than Acceptable Financial Assets, which are owned by the Company as of the date of delivery of such
list and will not be transferred to the Parent or MGA in connection with the Related Transactions
-29-
(the “Asset List”). Unless the Buyer reasonably objects in writing to the retention by the
Company of any assets set forth on the Asset List within five (5) Business Days of the Buyer’s
receipt of the Asset List, the Buyer shall be deemed to have accepted such assets as Acceptable
Financial Assets. In the event that the Buyer does so object to the retention by the Company of
any investments included on the Asset List, the Seller Parties shall, prior to Closing, substitute
the objectionable assets with assets that are reasonably acceptable to the Buyer.
5.17 State Assessments. The Seller Parties agree to pay any and all guaranty fund and
catastrophe pool assessments, assigned risk plan assessments, board and bureau fees, whether
imposed before, on or after the Closing Date, made by any state guaranty fund, pool, board, bureau,
plan or similar entity, net of any premium tax deductions or offsets, relating to insurance
premiums earned or received by the Company on or before the Closing Date.
5.18 Regulatory Examinations. The Seller Parties shall cooperate with the Buyer in
providing a response to any reports of examination conducted by any state insurance regulatory
authorities involving matters that occurred on or before the Closing Date and shall pay any and all
fines, penalties or assessments made against the Company (i) as a result of any examinations that
were or are conducted by an insurance regulatory authority on or before the Closing Date or (ii)
with respect to matters that occurred on or before the Closing Date.
5.19 Assignments. The Seller Parties shall use their reasonable best efforts prior to
the Closing to cause the following assignments to occur (including reasonable best efforts to
obtain the necessary consents thereto): assignment by the Company to MGA of (i) that certain
Software License Agreement dated June 13, 2003, by and between the Company and SunGard iWorks, as
amended and (ii) that certain 3-Year Price
Contract dated April 5, 2007, by and between Financial Software Innovations, Inc. and General
Agents Insurance Companies Group. The Seller Parties shall make a request prior to the Closing of
the consent of Liberty County Mutual Insurance Company for: (i) the assignment and novation by the
Company to MGA of that certain 100% Quota Share Reinsurance Agreement dated December 2, 2002 by and
among the Company, GAINSCO County Mutual Insurance Company (now known as Liberty County Mutual
Insurance Company) and MGA Agency, Inc.; and (ii) the assignment by the Company to MGA of all
right, title and interest in and to that certain Reinsurance Trust Agreement dated December 2, 2002
among JPMorganChase Bank, GAINSCO County Mutual Insurance Company and the Company.
ARTICLE 6
CONDITIONS TO OBLIGATION TO CLOSE
6.1 Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate
the transactions to be performed by it in connection with the Closing is subject to satisfaction of
the following conditions:
(a) the representations and warranties of the Seller Parties set forth in Section 4.1
that are qualified as to materiality shall be true and correct, and the representations and
warranties set forth in Section 4.1 that are not so qualified shall be true and correct in
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all material respects, in each case at and as of the Closing Date, except that any
representations and warranties that are given as of a particular date or period shall be
true and correct only as of such date or period;
(b) the Seller Parties shall have performed and complied in all material respects with
all of their respective covenants hereunder through the Closing;
(c) no injunction, judgment, order, decree, ruling, charge or investigation shall be
pending or threatened before any Governmental Authority wherein a judgment, order, writ,
injunction, stipulation or decree would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, or (iii) permit consummation of the
transactions contemplated by this Agreement only subject to any condition or restriction
that has had or would reasonably be expected to have a Material Adverse Effect;
(d) the Seller Parties shall have delivered to the Buyer a certificate to the effect
that each of the conditions specified above in Sections 6.1(a) and (b) is satisfied in all
respects;
(e) the Parties shall have received, without any conditions or limitations to which the
Buyer has a reasonable objection, all authorizations, consents and approvals of, and shall
have made such declarations, filings and registrations with, Persons (including,
without limitation, any Governmental Authorities) identified in Sections 4.l(z) and
4.2(g) of the Disclosure Schedule;
(f) all certificates, instruments and other documents required by Article 7 to be
delivered by the Seller Parties to the Buyer shall have been so delivered;
(g) the Seller Parties shall have tendered the Shares in exchange for the payment of
the Purchase Price as contemplated by Article 2;
(h) the Insurance License of the Company shall be valid, in force, unimpaired and in
good standing on the Closing Date; the Surplus or Excess Lines Qualifications of the Company
shall be valid, in force, unimpaired and in good standing, to the extent that such status is
reasonably determinable, on the Closing Date in jurisdictions in which the sum of the
respective percentages of projected premiums, calculated using the percentages set forth
opposite the name of each jurisdiction in Section 2.2 of the Disclosure Schedule, total at
least seventy percent (70%);
(i) all of the members of the Company’s Board of Directors and all of the Company’s
officers shall have tendered their written releases and resignations effective as of the
Closing Date;
(j) the Ancillary MGA Agreements and the Guaranty Agreement shall have been duly
executed and delivered by the parties thereto;
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(k) each of the Related Transactions that are the responsibility of the Seller Parties
shall have been completed in accordance with Article 3;
(l) no Material Adverse Effect shall have occurred after the date of this Agreement;
(m) the Company shall have delivered to the Buyer signature cards with each bank listed
in Section 6.1(m) of the Disclosure Schedule at which the Company will maintain one or more
accounts that continue after the Closing, terminating the ability of any of the Company’s
officers or employees to sign checks and take other actions on behalf of the Company and
transferring such ability to the chief executive officer and chief financial officer of the
Buyer;
(n) the Company shall have delivered to the Buyer long-form certificates of good
standing issued by the Oklahoma Secretary of State, and certificates evidencing that the
Company is in good standing in all jurisdictions where the Company is obligated to be
registered as a foreign corporation, dated as of a date not earlier than five (5) Business
Days before the Closing Date;
(o) all corporate actions and other proceedings required to carry out the transactions
contemplated hereby or incidental hereto shall be reasonably satisfactory to and shall have
been approved by counsel for the Buyer and such counsel shall have been
furnished with certified copies of such corporate actions and other proceedings as it
shall have reasonably requested; and
(p) the Buyer shall have received an opinion of Akin Gump Xxxxxx Xxxxx & Xxxx LLP,
counsel to the Seller Parties and the Company, in a form reasonably acceptable to the Buyer
and its counsel.
The Buyer may waive any condition specified in this Section 6.1 if it executes a writing so
stating at or prior to the Closing.
6.2 Conditions to Obligations of the Seller Parties. The obligations of the Seller
Parties to consummate the transactions to be performed by them in connection with the Closing are
subject to satisfaction of the following conditions:
(a) the representations and warranties of the Buyer set forth in Section 4.2 that are
qualified as to materiality shall be true and correct, and the representations and
warranties set forth in Section 4.2 that are not so qualified shall be true and correct in
all material respects, in each case at and as of the Closing Date, except that any
representations and warranties that are given as of a particular date or period shall be
true and correct only as of such date or period;
(b) the Buyer shall have performed and complied in all material respects with all of
its covenants hereunder through the Closing;
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(c) no injunction, judgment, order, decree, ruling, charge or investigation shall be
pending or threatened before any Governmental Authority wherein a judgment, order, writ,
injunction, stipulation or decree would (i) prevent consummation of any of the transactions
contemplated by this Agreement, or (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation;
(d) the Buyer shall have delivered to the Seller Parties a certificate to the effect
that each of the conditions specified above in Sections 6.2(a) and (b) is satisfied in all
respects;
(e) the Parties shall have received, without any conditions or limitations to which the
Seller Parties have a reasonable objection, all consents, approvals and authorizations of,
and shall have made such declarations, filings and registrations with, Persons (including,
without limitation, any Governmental Authorities) identified in Sections 4.1(z) and 4.2(g)
of the Disclosure Schedule;
(f) all certificates, instruments and other documents required by Article 8 to be
delivered by the Buyer to the Seller Parties shall have been so delivered;
(g) the Buyer shall have tendered payment of the Purchase Price in the manner described
in Article 2 in exchange for the Shares;
(h) the Ancillary MGA Agreements and the Guaranty Agreement shall have been duly
executed and delivered by the parties thereto; and
(i) the Seller Parties shall have received an opinion of Xxxxxxx & Xxxxxxx LLP, counsel
to the Buyer, in a form reasonably acceptable to the Seller Parties and their counsel.
The Seller Parties may waive any condition specified in this Section 6.2 if they execute a
writing so stating at or prior to the Closing.
ARTICLE 7
SELLER’S CLOSING DELIVERIES
At the Closing, the Seller Parties will deliver to the Buyer the following items against
delivery of items specified in Article 8 below:
(a) The certificate or certificates representing the Shares duly endorsed in blank or
with stock powers duly endorsed in blank;
(b) A certificate executed by the President or other duly authorized officer of each of
the Seller Parties certifying that all corporate action on the part of such Seller
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Party
necessary to authorize the execution, delivery and performance of this Agreement and the
transactions contemplated thereunder by the Seller Parties have been duly taken;
(c) The certificate required by Section 6.1(d) and the opinion required by 6.1(p);
(d) Duly executed resignations from all of the Company’s directors and officers
effective as of the Closing Date;
(e) Evidence of the receipt by the Seller Parties, in such form as is reasonably
acceptable to the Buyer, of the approvals, consents and authorizations of, and of such
declarations, filings or registrations with, Persons (including, without limitation, any
Governmental Authorities) identified in Section 4.1(z) of the Disclosure Schedule;
(f) Confirmation which can reasonably be obtained, issued by each of the regulatory
authorities or surplus or excess lines associations, as appropriate, of the State of
Oklahoma and the jurisdictions listed in Section 4.1(u)(2) of the Disclosure Schedule, other
than those jurisdictions where the Company is considered Surplus or Excess Lines Qualified
pursuant to clause (iii) of the definition thereof, evidencing the licensure or Surplus or
Excess Lines Qualification, as the case may be, of the Company in such jurisdiction; and
(g) Possession of any and all books and records of the Company (i) relating to the
Insurance License and the Surplus or Excess Lines Qualifications and the ongoing regulatory
matters (including all documents and records relating to the Deposits), (ii) the Company’s
minute books (including the original or certified copies of the Company’s articles of
incorporation and bylaws), stock record book, and the corporate seal of the Company, and
(iii) any other books and records reasonably requested by the Buyer which are related to any
assets which the Company will have title to after the Closing or to other matters for which
the Company will have any continuing responsibility after the Closing.
ARTICLE 8
BUYER’S CLOSING DELIVERIES
At the Closing, the Buyer will deliver to the Seller Parties the following items against
delivery of items specified in Article 7:
(a) A certificate executed by the President or other duly authorized officer of the
Buyer certifying that all corporate action on the part of the Buyer necessary to authorize
the execution, delivery and performance of this Agreement and the transactions contemplated
hereunder by the Buyer has been duly taken;
(b) The certificate required by Section 6.2(d) and the opinion required by Section
6.2(i);
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(c) Copies of the documents evidencing the Buyer’s receipt, in such form as is
acceptable to the Seller Parties, of the approvals, consents and authorizations of, and of
such declarations, filings or registrations with, the Persons (including, without
limitation, any Governmental Authorities) identified in Section 4.2(g) of the Disclosure
Schedule; and
(d) Cash by wire transfer of immediately available funds for the full amount of the
Purchase Price specified in Section 2.2 of this Agreement.
ARTICLE 9
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the Closing.
9.1 General. In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery of such further
instruments and documents) as the other Party reasonably may request, all at the sole cost and
expense of the requesting Party; provided, however, that the foregoing shall not limit any Party’s
rights to indemnification under Article 10. With respect to actions referred to herein to be taken
by the Company after the Closing, the Buyer will cause the Company to take such actions.
9.2 Litigation Support. In the event and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing involving the Company, each of the other Parties shall
cooperate with it and its counsel in the defense or contest, make available their personnel, and
provide such testimony and access to their books and records as shall be necessary in connection
with the defense or contest, all at the sole cost and expense of the contesting or defending Party;
provided, however, that the foregoing shall not limit any Party’s rights to indemnification under
Article 10.
9.3 Cooperation as to Tax Matters.
(a) Preparation and Filing of Tax Returns.
(1) The Parent shall include the income of the Company in the Parent’s federal
consolidated income Tax Returns for all taxable periods or portions thereof ending on or
before the Closing Date, shall prepare or cause to be prepared in a manner consistent with
past practice (to the extent such past practices could not in the reasonable judgment of the
Parent cause the Parent or any Affiliate thereof to incur any additions to Taxes or
penalties) and file or cause to be filed on a timely basis all (i) Tax Returns of the
Company for taxable periods ending on or before the Closing Date and (ii)
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consolidated,
unitary, combined or similar Tax Returns (the “Consolidated Tax Returns”) that
include the Company and the Parent or any Affiliate of the Parent; and subject to the
Buyer’s indemnity for Taxes pursuant to this Section 9.3, the Seller Parties shall pay or
shall cause to be paid all Taxes attributable to such Tax returns. The Buyer shall cause
the Company to furnish all information reasonably requested by the Seller Parties with
respect to the preparation of any such Tax returns.
(2) Except as provided in Section 9.3(a)(1), the Buyer shall prepare or cause to be
prepared and file or cause to be filed on a timely basis all Income Tax Returns with respect
to the Company for taxable periods beginning after the Closing Date and the Buyer shall be
responsible for filing all other Tax Returns of or relating to the Company to the extent
such Tax Returns are required to be filed on a date after the Closing Date and shall (except
as otherwise provided below) pay all Taxes attributable to such Tax Returns. At the
Parent’s request and expense, the Buyer shall cooperate in filing one or more amended
returns or other requests for, and pursuant to Section 9.3(b) shall promptly pay over to the
Parent, any refund of or credit for any Taxes attributable to the Pre-Closing Tax Period.
(3) With respect to any Tax return required to be filed or caused to be filed by the
Seller Parties or the Buyer pursuant to Section 9.3(a)(1) or Section 9.3(a)(2) with respect
to the Company (such Party the “Filing Party”) and as to which an amount of Tax is
allocable to the Party that is not the Filing Party (the “Tax Indemnifying Party”),
the Filing Party shall provide the Tax Indemnifying Party and its authorized representatives
with a copy of such completed Tax Return or in the case of a Consolidated Tax Return, a pro
forma Tax Return for the Company (prepared on a separate company basis) and a statement
certifying and setting forth the calculation of the amount of Tax shown on such Tax Return
that is allocable to such Tax Indemnifying Party, together with appropriate supporting
information and schedules at least fifteen (15) Business Days prior to the due date
(including any extension thereof) for the filing of such Tax Return or Consolidated Tax
Return (as the case may be), and such Tax Indemnifying Party and its authorized
representatives shall have the right to review and comment on such Tax Return (as the case
may be) and statement prior to the filing of such Tax return.
(4) A Tax Indemnifying Party shall pay the Filing Party the amount so allocated to it
pursuant to this Section 9.3 at least three (3) Business Days before the due date of the Tax
return required to be filed by the Filing Party or within twenty (20) Business Days
following an agreement between the Seller Parties and the Buyer that an indemnity amount is
payable by the other, or within fifteen (15) Business Days of (i) an assessment of a Tax by
a taxing authority, or (ii) a “determination” as defined in Section 1313(a) of the Code (or
any similar provision of state or local law) has been made. If liability under this Section
9.3 is in respect of costs or expenses other than Taxes, payment by the Tax Indemnifying
Party of any amounts due under this Section 9.3 shall be made within ten (10) days after the
date when the Tax Indemnifying Party has been notified by the Filing Party that the Tax
Indemnifying Party has a liability for a
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determinable amount under this Section 9.3 and is
provided with calculations and all other materials supporting such liability.
(b) Tax Refunds, Credit and Tax Attributes. Rights and benefits relating to all Tax
attributes of the Company arising from or relating to any Pre-Closing Tax Period shall remain with
the Parent and the Buyer shall pay to the Parent an amount equal to any Tax refund the Buyer or any
Affiliate thereof obtains from any such Tax attributes within the earlier of thirty (30) days
after: (i) the Buyer or any Affiliate thereof files a Tax return which claims, reflects or reports
such Tax benefit or (ii) the Buyer or any Affiliate thereof receives a Tax refund which relates or
is attributable to any such Pre-Closing Tax Period Tax attributes of the Company. The Buyer agrees
that it will not make any elections or take any positions with respect to Taxes that could
adversely affect the Parent’s interest and rights in the Pre-Closing Tax Period Tax attributes of
the Company. The Buyer further agrees that it shall not (unless otherwise requested by the Parent)
carry back, and shall not cause or permit the Company or any other Affiliate of the Buyer or the
Company to carry back, any net operating loss, loss from operations or any other Tax attribute of
the Company to any Pre-Closing Tax Period of the Company or the Parent or any Affiliate thereof
(including, but not limited to, any member of any Affiliated, combined or unitary group of which
the Company is or was a member). The Buyer agrees that the Seller
Parties shall not have any obligation under this Agreement to return or remit any refund or
other Tax benefit attributable to a breach by the Buyer of the immediately preceding sentence and
any Tax refund or Tax benefit resulting from any such breach will be solely for the Seller Parties’
account.
(c) Transfer Taxes. The Seller Parties shall be liable for and shall pay, and shall
hold the Buyer and its Affiliates harmless against any real property transfer or gains, sales, use,
transfer, value added, stock transfer, stamp Taxes, any transfer, recording, registration, and
other fees, and any similar Taxes which become payable in the applicable jurisdiction in connection
with the effectuation of the transactions contemplated hereunder and imposed upon the Seller
Parties, the Company or the Buyer and any Affiliates thereof (“Transfer Taxes”).
(d) Tax Notice; Tax Controversies. The Seller Parties and the Buyer shall provide to
each other notice within ten (10) days of receipt of any notice of deficiency, proposed adjustment,
assessment, audit, examination or other administrative or court proceeding, suit, dispute or other
claim (a “Tax Claim”) in which the IRS or any other Governmental Authority makes or
proposes to make a Tax adjustment to any Tax period which includes any period up to the Closing
Date. The Seller Parties shall control any such proceeding to the extent such proceeding could
adversely affect the Taxes of the Seller Parties or any Affiliate thereof or could result in the
Seller Party’s being liable for any amount of Taxes or losses related thereto either under the Law
or pursuant to this Agreement, and the Buyer shall control all other such proceeding, provided
that, with respect to any such Tax Claim, the Party not controlling the proceeding of such Tax
Claim or its representative shall (to the extent permitted by Law) have the right, at its expense,
to participate in any such Tax Claim. The Parties agree that they will not settle, compromise or
agree to any Tax adjustment which affects or could affect the other Party’s Tax liability without
the prior written consent of the other Party, which consent shall not be unreasonably withheld;
provided, that the Seller Parties shall have the right to settle or compromise any such proceedings
that the Seller Parties control without the consent of the Buyer
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provided that the settlement or
compromise could not affect the Tax liability of the Company after the Closing Date.
(e) Cooperation and Controversies. Except as provided in Section 9.3(a), the Seller
Parties, the Buyer and the Company shall reasonably cooperate, and shall cause their respective
Affiliates, agents, auditors, representatives, officers and employees reasonably to cooperate, in
preparing and filing all Tax Returns (including amended returns and claims for refund), including
maintaining and making available to each other all records necessary in connection with Taxes and
with respect to any Tax Claim, which cooperation shall include, but not be limited to (i) providing
all relevant information that is available to the Buyer, the Seller Parties and/or the Company, as
the case may be, with respect to such Tax Claim, (ii) making personnel available at reasonable
times, and (iii) preparation of responses to requests for information, provided that the foregoing
shall be done in a manner so as to not interfere unreasonably with the conduct of business by the
Buyer, the Seller Parties or the Company, as the case may be. Neither the Seller Parties, the
Company nor the Buyer shall dispose of any Tax Returns, Tax schedules, Tax work papers or any books
or records unless it first offers in writing to the other Party the right to take possession of
such materials at such other Party’s sole expense and the other Party fails to accept such offer
within fifteen (15) days of the offer being made or if
an offer is accepted fails to take possession within thirty (30) days of the date on which the
offer is made. Any information obtained under this Section 9.3(e) shall be kept confidential,
except as may be otherwise necessary in connection with the filing of Tax returns or claims for
refund or in conducting an audit or other proceeding.
(f) Tax Indemnities.
(1) The Seller Parties shall be liable for and shall indemnify and hold harmless the
Buyer and the Company from and against any and all damages, Taxes and expenses arising out
of (i) any breach of the Seller Parties’ covenants in this Section 9.3, and (ii) any
liability for Taxes of the Company for any Pre-Closing Tax Period.
(2) The Buyer shall indemnify and hold harmless the Seller Parties from and against any
and all Taxes, and any damages and expenses related thereto, that relate or are attributable
to any Post-Closing Tax Period, other than those that are specifically indemnified by the
Seller Parties pursuant to paragraph (f)(1) above.
(3) In the case of Taxes that are payable with respect to a taxable period that begins
before the Closing Date and ends after the Closing Date (“Straddle Taxes”), the
portion of any such Tax that is allocable to the portion of the period ending on the Closing
Date shall be: (i) with respect to premium Taxes the amount of such Taxes that relate to
premiums written as of the Closing Date, (ii) in the case of Taxes imposed on a periodic
basis with respect to the assets of the Company, or otherwise measured by the level of any
item (other than premiums), deemed to be the amount of such Taxes for the entire period (or,
in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period), multiplied by a fraction the numerator of which is the number
of calendar days in the period ending on the Closing Date and the denominator of which is
the number of calendar days in the
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entire period irrespective of the lien or assessment date
of such Taxes, and (iii) with respect to Taxes imposed on or measured by income, gross
receipts, wages, expenses or other similar periodic measures (other than premiums) or
imposed on sales, assignments or any other transfers of any property shall be deemed equal
to the amount which would be payable if the taxable year ended with the Closing Date (based
on an interim closing of the books as of the close of the Closing Date).
(g) Survival. All agreements, covenants and indemnification matters contained in this
Section 9.3 shall survive the Closing until the expiration of the applicable statute of limitations
period.
(h) Termination of Tax Sharing Agreements. As of the Closing Date, the Seller Parties
shall cause all Tax allocation, Tax sharing, Tax indemnification and reimbursement and similar
agreements and arrangements between the Seller Parties and their Affiliates, on the one hand, and
the Company, on the other, to be extinguished and terminated with respect to the Company, and any
rights or obligations existing under any such agreement or arrangement (including any obligation of
the Company to make any payment of any kind thereunder) shall be extinguished and no longer
enforceable.
(i) Coordination. Except as provided in Section 4.1(o) with respect to
representations and warranties relating to Tax matters and Section 5.14, notwithstanding any other
provision in this Agreement to the contrary, this Section 9.3 shall control all matters relating to
Taxes and any claims, liabilities, damages, deficiencies, obligations, costs or expenses, penalties
and reasonable attorneys’ fees and disbursements related thereto.
(j) Section 338(h)(10) Election.
(1) The Parent and the Buyer shall jointly make timely and irrevocable elections under
Section 338(h)(10) of the Code and, if permissible, similar elections under any applicable
state or local income tax laws with respect to the purchase and sale of the Shares (the
“Elections”) through the filing of a Form 8023 (and any state equivalent). The
Parent, the Company and the Buyer shall report the transactions contemplated herein
consistent with the Elections and shall take no position contrary thereto 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 tax provision). The Seller Parties and the Buyer shall
cooperate in good faith to complete all necessary filings for the elections in a timely
manner. The Seller Parties shall pay all Taxes and shall be entitled to receive any tax
benefit arising as a result of the Elections.
(2) For purposes of making the Elections, Buyer shall determine the value of the
tangible and intangible assets of the Company and shall within sixty (60) days after the
Closing Date provide the Parent with written notice setting forth the allocation of the
Buyer’s “adjusted grossed-up basis” in the shares of the Company (within the meaning of the
Treasury Regulations under Section 338 of the Code) to such assets (the “Initial
Allocation”). The Initial Allocation shall be binding upon the Buyer and the Seller
Parties for purposes of allocating the “deemed selling price” (within the
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meaning of the
Treasury Regulations) among the assets of the affected entities; provided, however, that if
the Parent believes that all or a portion of the Initial Allocation is incorrect and
notifies the Buyer of such belief within thirty (30) days after having received the Initial
Allocation from the Buyer, the Independent Accounting Firm will determine whether the
Initial Allocation is incorrect and the determination of such Independent Accounting Firm
shall be final and the Buyer and the Seller Parties shall then be bound by the Initial
Allocation as adjusted, if necessary, to reflect the determination of the Independent
Accounting Firm (the “Final Allocation”). Notwithstanding anything to the contrary
in this Agreement, the Final Allocation shall be determined no later than twenty (20) days
prior to the date that the Buyer must file the Election forms. In the event it is
determined that the Initial Allocation was incorrect, the Buyer shall pay to the Seller
Parties the cost of the Independent Accounting Firm. The Seller Parties and the Buyer shall
bear equally all costs of the Independent Accounting Firm which are not paid by the Buyer
pursuant to the immediately preceding sentence. The Buyer and the Parent shall file, and
cause their respective Affiliates to file, all forms that relate to the Election in a manner
consistent with the Final Allocation and notwithstanding anything to the contrary in this
Agreement, shall take no position inconsistent therewith.
9.4 Change of Name. Promptly after Closing, but in no event later than sixty (60)
days following the Closing, the Buyer shall cause the Company to (i) change its name to a name that
does not include the phrase “General Agents” and (ii) cease issuing any policies or transacting any
insurance business utilizing the name, trademarks, service marks, patents, copyrights or other
intellectual property rights of the Company or any of its Affiliates as of the date hereof,
including, without limitation, the phrase “General Agents” except to the extent (i) necessary in
connection with carrying out the transactions contemplated by the Ancillary MGA Agreements or (ii)
required to be used in regulatory filings or proceedings to describe the Company’s relationships
prior to the Closing; provided, however, that when the use of such names or intellectual property
rights is necessitated or required as set forth in (i) or (ii) above, the Buyer shall clearly
indicate in writing in conjunction therewith that such name is the Company’s former name. Neither
the Buyer nor the Company will use the name “GAINSCO” or any derivative thereof following the
Closing.
ARTICLE 10
INDEMNIFICATIONS
10.1 The Seller Parties’ Indemnification of the Buyer. The Seller Parties, jointly
and severally, agree to defend, indemnify and hold the Buyer and its shareholders, subsidiaries,
Affiliates, officers, directors, employees, agents and other representatives, successors and
assigns (the “Buyer Indemnitees”), harmless at all times from and against any and all
Losses resulting from or relating in any way to:
(i) any inaccuracy or breach of any representation or warranty or breach or
nonfulfillment of any covenant or agreement made by the Seller Parties which is
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contained in
this Agreement or in any certificate furnished by either of the Seller Parties pursuant
hereto;
(ii) any actions, omissions, operations or business of the Company, or any of its
shareholders, Affiliates, officers, directors, employees, agents and other representatives,
and their respective successors and assigns, occurring prior to the Closing the
responsibility for which has not been assumed by MGA under the Quota Share Reinsurance
Agreement or the Assumption Agreement;
(iii) the failure of the Seller Parties or the Company to obtain the consent of any
third party or Governmental Authority required of the Seller Parties or the Company
regarding the Share purchase, the Related Transactions or any of the other transactions
contemplated hereby;
(iv) any and all insurance and reinsurance claims, liabilities and obligations of the
Company pertaining to the operations of the Company prior to the Closing that are not
reinsured pursuant to the Quota Share Reinsurance Agreement, including without
limitation, all commissions, fees, unearned premiums and commission and/or premium
adjustments;
(v) any of the suits or other proceedings described in Section 4.1(p) of the Disclosure
Schedule;
(vi) any Environmental Liability arising out of events or circumstances that occurred
prior to the Closing;
(vii) any Rebates or Kickbacks occurring prior to the Closing; and
(viii) any enforcement of this indemnity.
10.2 The Buyer’s Indemnification of the Seller Parties. The Buyer agrees to defend,
indemnify and hold the Seller Parties and their respective shareholders, subsidiaries, Affiliates,
officers, directors, employees, agents, successors and assigns (the “Seller Indemnitees”),
harmless at all times from and against any and all Losses resulting from or relating in any way to:
(i) any inaccuracy or breach of any representation or warranty or breach or
nonfulfillment of any covenant or agreement made by the Buyer which is contained in this
Agreement or in any certificate or document furnished by the Buyer pursuant hereto;
(ii) any actions, omissions, operations or business of the Company, or any of its
shareholders, Affiliates, officers, directors, employees, agents and other representatives,
and their respective successors and assigns, following the Closing; or
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(iii) the failure of the Buyer to obtain the consent of any third party or Governmental
Authority required of the Buyer regarding the Share purchase, the Related Transactions or
any of the other transactions contemplated hereby;
(iv) any and all insurance and reinsurance claims, liabilities and obligations of the
Company pertaining to the operations of the Company after the Closing, including without
limitation, all commissions, fees, unearned premiums and commissions and premium
adjustments; and
(v) any enforcement of this indemnity.
10.3 Notice of Claims. Any party seeking indemnification under this Agreement (the
“Indemnified Party”) shall give to the party from which indemnification is sought (the
“Indemnitor”) prompt written notice (a “Claim Notice”) describing in reasonable
detail the facts giving rise to any claim for indemnification hereunder and shall include in such
Claim Notice (if then known) the amount or the method of computation of the amount of such claim,
and a reference to the provisions of this Agreement or such other agreement upon which such claim
is based; provided, that a Claim Notice in respect of any action at law or suit in equity by or
against a third Person as to which indemnification will be
sought shall be given promptly after the action or suit is commenced; and provided, further, that
failure to give such notice shall not relieve the Indemnitor of its obligations hereunder except to
the extent it shall have been prejudiced by such failure. The parties to the Administration
Agreement, the Assumption Agreement and the Transfer and Assignment Agreement shall follow and
comply with the notice requirements of this Section 10.3 in connection with the indemnification
obligations set forth in those agreements.
10.4 Third-Party Claims. The Indemnitor shall have thirty (30) days after receipt of
any Claim Notices or information necessary to make the Claim Notice complete, relating to any third
Person claim, action or suit (collectively, “Claim”) to notify the Indemnified Party of its
election to conduct and control the defense, compromise or settlement of such Claim. Unless the
Indemnitor gives the foregoing notice, the Indemnified Party shall have the right to conduct and
control, through counsel of its own choosing, the defense, compromise or settlement of such Claim,
and in any such case the Indemnitor shall cooperate in connection with such Claim and shall furnish
such records, information and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by the Indemnified Party in connection
therewith; provided that, should the Indemnitor fail to timely give notice as provided above in
this Section 10.4, (i) the Indemnitor may, in any event, participate, through counsel chosen by it
and at its own expense, in the defense of any such Claim and (ii) if the Indemnitor has
acknowledged and agreed in writing that it has an obligation to provide indemnification under this
Agreement or the Assumption Agreement, for any Loss incurred in connection with or arising from
such Claim, the Indemnitor shall have the right to assume control of the defense, compromise or
settlement of such Claim from the Indemnified Party at any time by giving written notice of such
election to the Indemnified Party. If the Indemnitor timely gives notice as provided above in this
Section 10.4 or assumes control of the defense, compromise or settlement of any Claim, the
Indemnified Party shall cooperate in connection with such Claim and shall furnish such records,
information and testimony and attend such
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conferences, discovery proceedings, hearings, trials and
appeals as may be reasonably requested by the Indemnitor in connection therewith; provided, that
the Indemnified Party may participate, through counsel chosen by it and at its own expense, in the
defense of any such Claim, as to which the Indemnitor has so elected to conduct and control the
defense thereof; and provided further, that the Indemnitor shall not, without the written consent
of the Indemnified Party (which consent shall not be unreasonably withheld) pay, compromise or
settle any such Claim (i) in any case where the Indemnitor has not acknowledged its obligation to
provide indemnification to the Indemnified Party under this Agreement or the Assumption Agreement,
or (ii) seeking any relief against an Indemnified Party other than monetary damages; and provided
further, that the Indemnitor shall, at any time prior to the settlement or commencement of trial
with respect to any Claim, tender the defense, compromise and settlement of such Claim to the
Indemnified Party should the Indemnitor reasonably determine, based upon the information furnished
to it by the Indemnified Party or obtained by the Indemnitor in the course of defending the Claim,
that the Indemnitor is not obligated to provide indemnification to the Indemnified Party under this
Agreement or the Assumption Agreement.
10.5 Interest. In the case of any payments made or costs or damages incurred and paid
by a party, interest on the amount thereof shall accrue beginning the date any Loss is paid by the
Indemnified Party or a date thirty (30) days after
written notice of the claim is given, whichever is later, provided that such notice is accompanied
by documentation describing the basis of such claim in reasonable detail for evaluation; provided
further, however, that the claiming party shall only be entitled to receive such interest to the
extent that it is determined that such party is entitled to indemnification hereunder. Interest
shall accrue until the claim is paid in full at a variable rate equal to the prime interest rate
(as published in the Money Rates column of The Wall Street Journal) on the date that such interest
begins to accrue.
10.6 Remedies. The Parties hereto expressly acknowledge and agree that all rights and
remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available; provided, however, the Parties agree that all such remedies shall be
subject to the limitations set forth in this Section 10.6 and in Section 10.7. No Indemnitor shall
be liable or otherwise responsible to any Person for special, consequential, incidental or punitive
damages or for diminution in value or lost profits that arise out of or relate to this Agreement or
the performance or breach hereof; provided, however, that the foregoing shall not apply to any
amounts paid or owed by an Indemnified Party with respect to any Claim by a third party. No Party
shall be liable for any indemnification pursuant to this Article 10 for any claims for
misrepresentations and breaches of warranty that are the basis upon which any other Party has
terminated its Agreement pursuant to Section 12.1 or that are based on misrepresentations and
breaches of warranty that have been expressly and specifically waived in writing. In addition to
the limitations set forth in Section 10.7, the maximum amount for which the Seller Parties shall be
liable under this Agreement with respect to a breach or failure of any representation, warranty or
covenant pertaining to a Surplus or Excess Lines Qualification because such Surplus or Excess Lines
Qualification is not valid, in force, unimpaired and in good standing on the Closing Date, shall be
equal to the amount of the adjustment to the Purchase Price provided for in Section 2.2 so long as
the sum of the respective percentages attributable to the remaining jurisdictions, calculated using
the percentages set forth opposite the name of each jurisdiction in Section 2.2 of
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the Disclosure
Schedule, total an amount equal to or greater than the percentage set forth in Section 6.1(h).
10.7 Limitations on Indemnification. The maximum amount for which the Seller Parties
shall be liable under Section 10.1(i) shall not exceed in the aggregate an amount equal to the
Purchase Price less Five Million Dollars ($5,000,000.00) (the “Cap”). No Loss shall be
indemnifiable under Section 10.1(i) or considered in determining the amounts for which indemnity
would otherwise be provided under Section 10.1(i) unless and until the aggregate amount of Losses
claimed under Section 10.1(i) exceeds $100,000, after which the Seller Parties shall be liable back
to and include the first dollar of aggregate Losses so claimed, such that such amount is a
threshold and not a deductible (the “Threshold”); provided that the Seller Parties’
liability under Section 10.1(i) for Losses that arise from the breach of the representations and
warranties of Seller Parties set forth in Sections 4.1(b), 4.1(c), 4.1(e), 4.1(f), 4.1(m) and
4.1(o) shall not be subject to the Cap or the Threshold. Nothing set forth in this Section 10.7
limits the Seller Parties’ liability for breach of any of the representations and warranties of the
Seller Parties of which the Seller Parties had actual knowledge at any time prior to the date on
which such representation or warranty was made or any intentional breach by the Seller Parties of
any covenant or obligation hereunder.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Except as provided in Section 9.3(g), each representation and warranty made by the Seller
Parties and the Buyer shall survive the Closing and remain in effect until the expiration of two
(2) years following the Closing; provided, however, that the representations, warranties and
covenants contained in Sections 4.1(f), 4.1(o), 4.1(u)(1) and 15.14 shall survive the Closing
indefinitely and the representations and warranties contained in Section 4.1(s) shall survive the
Closing for sixty (60) days after the expiration of the applicable statute of limitations, and each
such representation and warranty shall be fully applicable and effective whether or not any of the
Parties rely in fact thereon or have knowledge (acquired either before or after the date hereof,
and whether from the other Party or from its own investigation) of any fact at variance with, or of
any breach of, any such representation or warranty.
ARTICLE 12
TERMINATION
12.1 Termination of Agreement. Prior to the Closing, the Parties may terminate this
Agreement as provided below:
(a) the Buyer and the Seller Parties may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice to the Seller
Parties at any time prior to the Closing in the event (i) the Seller Parties have given
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the
Buyer any notice pursuant to Section 5.5 and (ii) the development that is the subject of the
notice has had or is reasonably expected to have a material adverse effect on the ability of
the Seller Parties to meet the conditions specified in Section 6.1 and Article 7 or
otherwise consummate the transactions contemplated hereby;
(c) the Seller Parties may terminate this Agreement by giving written notice to the
Buyer at any time prior to the Closing in the event (i) the Buyer has given the Seller
Parties notice pursuant to Section 5.5 and (ii) the development that is the subject of the
notice has had a material adverse effect on the ability of the Buyer to meet the conditions
specified in Section 6.2 and Article 8 or otherwise consummate the transactions contemplated
hereby;
(d) by any Party if all regulatory approvals required by the Oklahoma Insurance
Department and the Texas Department of Insurance have not been obtained by November 15,
2007, or the Closing shall not have been consummated by December 15, 2007, for any reason;
provided, however, that the right to terminate this Agreement under this Section 12.1(d)
shall not be available to any Party whose action or failure to act has
been the principal cause of the failure of the Closing to occur on or before such date
and such action or failure to act constitutes a material breach of this Agreement;
(e) by the Buyer if any Governmental Authority shall have issued an injunction,
judgment, order, decree or taken any other action which, in any case, would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii) cause any of
the transactions contemplated by this Agreement to be rescinded following the Closing, or
(iii) permit consummation of the transactions contemplated by this Agreement only subject to
one or more conditions or restrictions that has had or could have a Material Adverse Effect,
which action is final and nonappealable;
(f) by the Buyer, upon a breach of any representation, warranty, covenant or agreement
on the part of the Seller Parties set forth in this Agreement or if any representation or
warranty of the Seller Parties shall have become untrue, in either case such that the
conditions set forth in Section 6.1 would not be satisfied as of the Closing Date; provided
that the Buyer may not terminate this Agreement under this Section 12.1(f) if such
inaccuracy in the representations and warranties or breach by the Seller Parties is cured by
the Seller Parties prior to the Closing Date, provided further that the Seller Parties and
the Company continue to exercise commercially reasonable efforts to cure such inaccuracy or
breach (it being understood that the Buyer may not terminate this Agreement pursuant to this
Section 12.1(f) if the Buyer shall have materially breached this Agreement); and
(g) by the Seller Parties, upon a breach of any representation, warranty, covenant or
agreement on the part of the Buyer set forth in this Agreement or if any representation or
warranty of the Buyer shall have become untrue, in either case such that the conditions set
forth in Section 6.2 would not be satisfied as of the Closing Date; provided, that the
Company may not terminate this Agreement under this Section 12.1(g) if such inaccuracy in
the Buyer’s representations and warranties or breach by the Buyer is
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cured by the Buyer
prior to the Closing Date, provided further that the Buyer continues to exercise
commercially reasonable efforts to cure such inaccuracy or breach (it being understood that
the Seller Parties may not terminate this Agreement pursuant to this Section 12.1(g) if the
Seller Parties shall have materially breached this Agreement).
12.2 Effect of Termination. In the event of the termination of this Agreement by the
Seller Parties or the Buyer pursuant to this Article 12, this Agreement shall become null and void
and of no further force or effect, except for the provisions of (i) Article 14 relating to the
obligation of each of the parties to keep confidential certain Information obtained by it, (ii)
Article 13 relating to certain expenses, and (iii) this Article 12, and except that nothing in this
Article 12 shall be deemed to release any Party from any liability for any prior willful breach by
such Party of the terms and provisions of this Agreement.
ARTICLE 13
EXPENSES
Except as otherwise expressly provided herein, the Buyer and the Seller Parties shall each pay
all of their own fees, expenses and costs in connection with this Agreement and the transactions
and deliveries contemplated hereby, including without limitation, fees of attorneys and financial
advisors, and any brokers or finders which may have been retained by such Party in connection with
this transaction.
ARTICLE 14
CONFIDENTIALITY
Each of the Seller Parties and the Buyer agree to hold, and to cause their respective
Affiliates and representatives to hold, all books, records, data and information (collectively, the
“Information”) furnished to it (or its Affiliates or representatives) by or on behalf of
the other Party in connection with the transactions contemplated by this Agreement in confidence to
the extent required by, and in accordance with, Section 7 of the Letter of Intent Regarding the
Purchase of General Agents Insurance Company of America, dated May 16, 2007 (the
“Confidentiality Agreement”) between the Buyer and the Parent.
ARTICLE 15
MISCELLANEOUS
15.1 No Third-Party Beneficiaries. Except as specifically provided in Article 10,
this Agreement shall not confer any rights or remedies upon any Person other than the Parties and
their respective successors and permitted assigns.
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15.2 Entire Agreement. This Agreement (including its exhibits and schedules), the
Ancillary MGA Agreements, the Guaranty Agreement and the Confidentiality Agreement constitute the
entire agreement among the Parties relating to the subject matter hereof and thereof and supersede
any prior or contemporaneous understandings, agreements, or representations by or among the
Parties, written or oral, with respect thereto, including the Letter of Intent Regarding the
Purchase of General Agents Insurance Company of America, dated May 16, 2007, among the Parent and
Montpelier Re Holdings Ltd., other than Section 7 thereof.
15.3 Succession and Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted assigns. No Party may assign
either this Agreement or any of its rights, interests or obligations hereunder without the prior
written approval of the other
Parties except that the Buyer may assign its interest hereunder, without the consent of the other
Parties hereto, to any Affiliate of the Buyer, in which case the Buyer shall remain liable for all
of its obligations under this Agreement.
15.4 Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together will constitute one and the same
instrument.
15.5 Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
15.6 Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly given if (and then two (2) Business Days after) it is sent by a
reputable overnight delivery service or by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below:
If to the Seller Parties, to:
GAINSCO, INC.
0000 Xxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Attention: Xxxxxx X. Xxxxx, Chief Financial Officer
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
0000 Xxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Attention: Xxxxxx X. Xxxxx, Chief Financial Officer
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
With a copy to:
Xxxx X. Xxxxxxx
General Counsel
GAINSCO, Inc.
0000 Xxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
General Counsel
GAINSCO, Inc.
0000 Xxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
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Telephone: (000) 000-0000
And an additional copy to:
Xxxxx Xxxxxxxxxx
Xxxx Xxxx Xxxxxxx Xxxxx & Xxxx LLP
000 Xxxx 0xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Xxxx Xxxx Xxxxxxx Xxxxx & Xxxx LLP
000 Xxxx 0xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
If to the Buyer, to:
Montpelier Re U.S. Holdings Ltd.
Xxx Xxxxxxxxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
General Counsel
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
E-mail: xxx.xxxxxxx@xxxxxxxxxxxx.xxx
Xxx Xxxxxxxxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
General Counsel
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
E-mail: xxx.xxxxxxx@xxxxxxxxxxxx.xxx
With a copy to:
Montpelier Re Holdings Ltd.
Xxxxxxxxxx Xxxxx
00 Xxxxx Xxx Xxxx
P.O. Box HM 2079
Xxxxxxxx XX HX Bermuda
Attention: Xxxxxxxx X. Xxx, Esq.
General Counsel
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
E-mail: xxxxxxxx.xxx@xxxxxxxxxxxx.xx
Xxxxxxxxxx Xxxxx
00 Xxxxx Xxx Xxxx
P.O. Box HM 2079
Xxxxxxxx XX HX Bermuda
Attention: Xxxxxxxx X. Xxx, Esq.
General Counsel
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
E-mail: xxxxxxxx.xxx@xxxxxxxxxxxx.xx
And an additional copy to:
Xxxxxxx & Xxxxxxx LLP
Xxx Xxxxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxx, Xx., Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
E-mail: xxxxxxxxx@xxxxxxx.xxx
Xxx Xxxxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxx, Xx., Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
E-mail: xxxxxxxxx@xxxxxxx.xxx
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Any Party may send any notice, request, demand, claim, or other communication hereunder to the
intended recipient at the address set forth above using any other means (including personal
delivery, messenger service, telecopy, telex, regular mail or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
15.7 Governing Law. This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Delaware without giving effect to any choice or conflict of
law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
15.8 Amendments and Waivers. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by the Buyer and the Seller Parties. No
waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
15.9 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction. If any term or other
provision of this Agreement is held invalid, illegal or incapable of being enforced, the Parties
shall negotiate in good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest extent possible.
15.10 Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption
or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement. When a reference is made in this Agreement to an Article or
to a Section, Subsection, Exhibit or Schedule, such reference shall be to an Article of, a Section
or Subsection of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.
Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and
“hereunder” and words of similar import when used in this Agreement shall refer to this Agreement
as a whole (including, without limitation, the Disclosure Schedule) and not to any particular
provision of this Agreement. The words “date hereof” shall refer to the date of this Agreement set
forth in the preface. The term “or” is not exclusive. The word “extent” in the phrase “to the
extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not
mean simply “if.” The phrase “capital stock” or “capital stock of the Company” shall refer to any
ownership, membership, voting or other equity interest in the Company. The definitions contained
in this Agreement are applicable to the singular as well as the plural forms
-49-
of such terms. Any
agreement or instrument defined or referred to herein or in any agreement or instrument that is
referred to herein means such agreement or instrument as from time to time amended, modified or
supplemented. References to a person are also to its successors and permitted assigns. The
covenants and agreements of the Parties shall survive until the expiration of the time period for
their performance as provided herein. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.
15.11 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified
in this Agreement are incorporated herein by reference and made a part hereof as if fully set forth
herein.
15.12 Consent to Jurisdiction. Any legal action, suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby shall be instituted in a United
States District Court located in Chicago, Illinois or in the courts of the State of Illinois
located in Chicago, and each party hereto agrees not to assert as a defense in any such action,
suit or proceeding, any claim that it is not subject personally to the jurisdiction of such court,
that its property is exempt or immune from attachment or execution, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced in or by such
court. Each Party further irrevocably submits to the jurisdiction of such court in any such
action, suit or proceeding. Any and all service of process and any other notice in any such
action, suit or proceeding shall be effective against any party if given properly pursuant to the
United States Federal Rules of Civil Procedure or other applicable rules.
15.13 Enforcement. The Parties agree that irreparable damage might occur in the event
that any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the
terms and provisions of this Agreement, this being in addition to any other remedy to which they
are entitled at law or in equity.
15.14 Non-Duplication. Notwithstanding any provision in this Agreement or in any
other agreement entered into pursuant hereto, the intent of the Parties with respect to this
Agreement and all other agreements related to the sale of the Company by the Seller Parties to the
Buyers is that any payment made, or any obligation to make a payment owed, by the Seller Parties,
or either of them, to the Buyer (or to the Company) shall not be duplicative of any other payment
or obligation made or owed under this Agreement or any other agreement entered into pursuant to the
terms of this Agreement, including without limitation any of the Ancillary MGA Agreements or the
Guaranty Agreement. This principle shall apply regardless of the number of agreements under which
an obligation may be owed by the Seller Parties and regardless of the number of different Persons
that may be individually entitled to recover.
* * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above
written.
The Seller Parties: GAINSCO, INC |
||||
By: | /s/ Xxxxx X. Xxxxxxxx | |||
Name: | Xxxxx X. Xxxxxxxx | |||
Title: | President and Chief Executive Officer | |||
MGA INSURANCE COMPANY, INC. |
||||
By: | /s/ Xxxxx X. Xxxxxxxx | |||
Name: | Xxxxx X. Xxxxxxxx | |||
Title: | President and Chief Executive Officer | |||
The Buyer: MONTPELIER RE U.S. HOLDINGS LTD. |
||||
By: | /s/ Xxxxxx X. Xxxxxxxx | |||
Name: | Xxxxxx X. Xxxxxxxx | |||
Title: | President | |||
Signature Page to Stock Purchase Agreement
1
Disclosure Schedule / Section 2.2
Purchase Price Adjustment
1
Disclosure Schedule / Section 4.1(t)(2)
Licenses and Permits — Surplus or Excess Lines Qualifications
Alabama
Alaska
Arkansas
Connecticut
District of Columbia
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Iowa
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Jersey
New Mexico
North Carolina
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Utah
Vermont
Xxxxxxxx
Xxxxxxxxxx
Wyoming
Alaska
Arkansas
Connecticut
District of Columbia
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Iowa
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Jersey
New Mexico
North Carolina
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Utah
Vermont
Xxxxxxxx
Xxxxxxxxxx
Wyoming
1
Disclosure Schedule / Section 4.1(u)(6)
Licenses and Permits – Deposits
Bank | ||||||||||||||
Account | Security | Interest | Maturity | Par | ||||||||||
State | Bank | Number | Description | Rate | Date | Cusip # | Value | |||||||
1
Disclosure Schedule / Section 4.1(ab)
Bank and Financial institution Accounts
Account or Safe Deposit Box | ||||
(including address of bank. | ||||
mutual fund or stock | Account or Box | Individuals with authority to draw | ||
brokerage) | Number | thereon or have access thereto | ||
1