Operation of the Business (a) Except as (A) required by applicable Law, Order or a Governmental Entity, (B) set forth in Section 4.01(a) of the Parent Disclosure Letter, (C) consented to by Buyer in writing (which consent shall not be unreasonably withheld, delayed or conditioned), (D) as required to implement the Internal Reorganization in accordance with the Steps Plan or (E) as expressly required by this Agreement or any other Transaction Document, between the date of this Agreement and the earlier of the Closing and the termination of this Agreement in accordance with Article VII, Parent shall (solely with respect to the Business), and shall cause each Business Company and, solely with respect to the Business, each other Subsidiary to, subject to the restrictions and exceptions set forth in this Section 4.01 or elsewhere in this Agreement or any other Transaction Document, (x) conduct the Business in the ordinary course of business in all material respects and (y) use commercially reasonable efforts to
(1) preserve intact its business organizations (except as required to implement the Internal Reorganization in accordance with the Steps Plan), (2) retain the Business’s current officers and (3) preserve the Business’s relationship with its Key Customers, Key Suppliers, employees and others having business dealings with the Business; provided that no action with respect to matters specifically addressed by Section 4.01(b) shall be deemed to be a breach of this Section 4.01(a) unless such action would constitute a breach of Section 4.01(b).
(b) Without limiting the foregoing, except in respect of matters (A) required by applicable Law, Order or a Governmental Entity, (B) set forth in Section 4.01(b) of the Parent Disclosure Letter, (C) consented to by Buyer in writing (which consent shall not be unreasonably withheld, delayed or conditioned), (D) required to implement the Internal Reorganization in accordance with the Steps Plan or (E) as required by this Agreement or any other Transaction Document, between the date of this Agreement and the earlier of the Closing and the termination of this Agreement in accordance with Article VII, Parent shall not (solely to the extent related to the Business), and shall cause each Business Company and, solely with respect to the Business, each other Subsidiary not to:
(i) in the case of any Business Company, (A) issue, deliver, sell, pledge or transfer any of its capital stock or other equity securities, (B) adjust, split, combine or reclassify any shares of its capital stock or other equity interests or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, its capital stock or other equity interests, (C) grant any options, warrants, calls, rights, “phantom” stock rights, stock appreciate rights or stock-based performance units or other securities convertible into or exchangeable or exercisable for, or rights to purchase, subscribe for or otherwise acquire any shares of its capital stock or equity interests or securities of a Business Company, or (D) repurchase, redeem or otherwise acquire or offer to repurchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock or other equity interests;
(ii) in the case of any Business Company, declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock or other equity interests, other than any dividends or other distributions from any wholly owned Business Subsidiary to a Transferred Company or any other wholly owned Business Subsidiary that are made prior to the Closing Date;
(iii) amend or modify the organizational or similar documents of any Business Company;
(iv) (A) acquire or agree to acquire in any manner (including by merger, consolidation, acquisition of stock, equity interests or assets or any other business combination) any corporation, partnership, other business organization or division or any material properties, equity interests or assets from any third party, (B) enter into any joint venture or other similar partnership with any third party or (C) make any loans or capital contributions to, or investments in, any Person, other than to or in any wholly-owned Business Company, except for extensions of trade credit in the ordinary course of business consistent with past practice;
(v) sell, transfer, assign, lease, mortgage, license, abandon or otherwise dispose of any of the material properties or assets of the Business (including any capital stock or other equity interests of any Business Subsidiary);
(vi) abandon, fail to maintain, sell, transfer, assign, license, cancel, allow to lapse or expire or otherwise dispose of any Registered Intellectual Property or other material Owned Intellectual Property, other than non-exclusive licenses granted to customers of the Business Companies in the ordinary course of business;
(vii) fail to maintain or protect the confidentiality of any material trade secrets and other material confidential information included in the Owned Intellectual Property, except for disclosures pursuant to confidentiality obligations entered into in the ordinary course of business;
(viii) pledge, mortgage, encumber or otherwise subject to a Lien (other than a Permitted Lien) any of the material properties or assets of the Business (including any capital stock or other equity interests in any Business Company);
(ix) other than borrowings in the ordinary course of business under lines of credit or similar arrangements in existence as of the date of this Agreement, incur, assume, guarantee or otherwise become liable for (whether directly, contingently or otherwise) any indebtedness for borrowed money with an aggregate principal amount in excess of $500,000, other than (A) indebtedness that shall be repaid, settled, canceled or terminated prior to the Closing, (B) intercompany indebtedness between the wholly-owned Business Companies in accordance with (including as to amounts) past practice, and (C) indebtedness to replace existing indebtedness (on substantially similar or better terms and not in amount greater than the existing indebtedness that it is replacing) that is maturing, expiring or otherwise terminating;
(x) enter into any swap or hedging transaction or other derivative agreement other than in the ordinary course of business consistent with past practice (but, in any event, not for speculative purposes);
(xi) except (A) as required pursuant to the terms of any Benefit Plan or Collective Bargaining Agreement as in effect as of the date of this Agreement or adopted, established, entered into or amended after the date of this Agreement not in violation of this Agreement, (B) as contemplated in Section 5.04 of this Agreement, (C) as may be initiated by Parent or one or more of Parent’s Affiliates in good faith with respect to their employees generally in the applicable jurisdiction or geographic location in the ordinary course of business consistent with past practice and in a manner that does not target or otherwise disproportionately affect the Business Employees or (D) arrangements that will not result in any liability under this Agreement or otherwise to Buyer or its Affiliates (including any Business Company), (1) grant to any Business Employee who is entitled to annual salary or fees in excess of $125,000 any material increase in compensation or any material increase in severance, change of control, retention, transaction bonus or termination pay, (2) accelerate the time of payment or vesting of, the lapsing of restrictions or waiving of performance conditions with respect to, or fund or otherwise secure the payment of, any compensation or benefits to any Business Employee under any Benefit Plan, (3) enter into, terminate or materially amend any Benefit Plan (other than an Assumed Benefit Plan), or enter into, terminate or amend any Assumed Benefit Plan or enter into, terminate, amend or negotiate any Collective Bargaining Agreement (provided, however, that the foregoing clauses (1), (2) and (3) shall not restrict any Business Company from providing, or making available to, employees who are newly hired or promoted based on job performance or workplace requirements (in each case in the ordinary course of business), compensation and benefit arrangements (including incentive grants) and Benefit Plans that are substantially consistent with the compensation and benefit arrangements (including incentive grants) and Benefit Plans previously provided to newly hired or promoted employees in similar positions), (4) take any action to fund or in any other way secure the payment of compensation or benefits to any Business Employee under any Benefit Plan, (5) take any action that affects whether or not any employee spends at least 50% of his or her work time in the operation of the Business, including by transferring, hiring or terminating any employees, other than hiring or terminating an employee who is entitled to annual salary or fees of $125,000 or less in the ordinary course of business, terminations due to death, disability or for cause, as determined by Parent and its Affiliates (including the Business Companies) in good faith or hiring or transferring any employees to replace a departed Business Employee in the ordinary course of business consistent with past practice, (6) defer any payroll or other Taxes payable by any Business Company or any employee of any Business Company pursuant to the CARES Act or otherwise or (7) announce or implement any mass layoff or other material reduction in force in respect of any Business Employees, or any furlough, work schedule reduction or similar program affecting (x) ten (10) or more Business Employees or (y) substantially all Business Employees in any jurisdiction;
(xii) except for any actions related to any Parent Consolidated Tax Return or Parent Consolidated Group that would not have any material and adverse effect on Buyer or its Affiliates (including for periods after the Closing, the Business Companies), (A) make or change any material Tax election with respect to the Business or the Business Companies (including for this purpose making any entity classification election not specifically provided for in this Agreement), (B) settle or compromise any material Tax Proceeding or Tax claim, if such Tax Proceeding or Tax claim could reasonably be expected to have material Tax consequences (including with respect to effects on future Tax liabilities) to Buyer (or its Affiliates) that are not fully indemnified under the terms of this Agreement, (C) file any Tax Return with respect to the Business or the Business Companies in a manner that is materially inconsistent with past practices, (D) adopt or change any Tax accounting period or other material method of Tax accounting, (E) enter into any Tax allocation, sharing or similar agreement (other than Ordinary Course Contracts), (F) surrender any right to claim a material Tax refund, credit or other benefit or (G) make any voluntary Tax disclosure or Tax amnesty or similar filing with respect to matters that could reasonably be expected to implicate liabilities for which Buyer or its Affiliates would be liable;
(xiii) change any methods or principles of financial accounting used by the Business, except as required by GAAP (or any interpretation thereof) or the Financial Accounting Standards Board or any similar organization;
(xiv) release, compromise or settle any Action (A) involving payments (exclusive of attorney’s fees) by the Business Companies in excess of $1,000,000 individually or in excess of $2,500,000 in the aggregate, (B) granting injunctive or other equitable remedy against the Business Companies or the Business or (C) which imposes any material restrictions on the operations of the Business;
(xv) adopt or enter into any plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any Business Company;
(xvi) prior to the date that is nine (9) months after the date of this Agreement, enter into any material line of business outside of the Business or abandon or discontinue any existing material line of business;
(xvii) terminate or cancel any of the insurance policies of or covering the Business or any Business Company, including allowing the policies to expire without renewing such policies or obtaining comparable replacement coverage, or prejudicing rights to insurance payments or coverage;
(xviii) (x) other than in the ordinary course of business, enter into any Contract that, if entered into prior to the date hereof, would be required to be set forth on Section 2.17(a) of the Parent Disclosure Letter (other than clauses (iv), (vii) or (xix) thereof), and (y) enter into any Contract that, if entered into prior to the date hereof, would be required to be set forth on clause (iv), (vii) or (xix) of Section 2.17(a) of the Parent Disclosure Letter;
(xix) other than in the ordinary course of business, amend, modify, renew, terminate or extend, or waive any claim or right under, or terminate any Material Contract;
(xx) subject to Section 5.25, make or commit to make, any capital expenditure in excess of $1,000,000 individually, or $5,000,000 in the aggregate;
(i) accelerate the collection or receipt of accounts receivable, discount any accounts receivable, or engage in any other activity that has or would reasonably be expected to have the effect of accelerating to pre-Closing periods accounts receivable that would otherwise be expected to be collected in post-Closing periods, or delay the payment of accounts payable or defer expenses or (ii) conduct its cash management practices other than in the ordinary course of business (including with respect to collection of accounts receivable, payment of accounts payable and accrued expenses, pricing and credit practices and operation of cash management practices generally); or
(xxii) authorize, commit or agree to take any of the actions described in this Section 4.01(b).
(c) Notwithstanding anything to the contrary set forth in this Agreement, nothing contained in this Agreement or any other Transaction Document shall prevent Parent or its Subsidiaries (including the Business Companies) from taking any action or failing to take any action (1) in response to COVID-19 or COVID-19 Measures, in each case, to the extent reasonably necessary to mitigate a proximate risk to health and human safety and to the extent reasonably consistent with any such actions (or omissions) as Parent and its Subsidiaries have taken in response thereto prior to the date hereof and (2) in response to COVID-19 Measures, in each case, to the extent reasonably necessary to comply with such COVID-19 Measures, taking into account (x) the scope and duration of such act or failure to act and (y) the actions being taken by companies that are similarly situated and that operate in similar industries in response to COVID-19 Measures, and, in each case, (i) no such actions or failure to take such actions shall be deemed to violate or constitute a breach of this Agreement, (ii) all such actions or failure to take such actions shall be deemed to constitute an action taken in the ordinary course of business, and (iii) no such actions or failure to take such actions shall serve as a basis for Buyer to terminate this Agreement or assert that any of the conditions to the Closing contained herein have not been satisfied; provided that, to the extent reasonably practicable, Parent shall consult with Buyer prior to taking any such material actions, or failing to take any such material actions.
(d) Nothing contained in this Agreement or any other Transaction Document shall give Buyer, directly or indirectly, the right to control or direct the operations of Parent or its Subsidiaries (including any Business Company) prior to the Closing. Prior to the Closing, Parent and its Subsidiaries (including the Business Companies) shall exercise, consistent with the terms and conditions of this Agreement and the other Transaction Documents, complete unilateral control and supervision over their business operations (including the Business).
Conduct of the Business From the date hereof until the Closing or the termination of this Agreement in accordance with Section 7.1, Seller shall cause the Transferred Companies to: (x) conduct the Business in all material respects in the ordinary course consistent with past practice; and (y) use their reasonable best efforts to preserve intact the Business and the current relationships and goodwill of the Transferred Companies with customers, suppliers, contractors, licensors, employees, agents, producers, distributors, insureds, Insurance Regulators and others having business dealings with them. Without limiting the generality of the foregoing, from the date hereof until the Closing or the termination of this Agreement in accordance with Section 7.1, except as otherwise expressly permitted or required by this Agreement or as set forth in Section 4.1 of the Seller Disclosure Letter, without the prior written consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), Seller shall cause the Transferred Companies not to:
(a) (i) split, combine or reclassify any of its outstanding capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its outstanding capital stock or (ii) purchase, redeem or otherwise acquire any shares of outstanding capital stock of the Transferred Companies or any rights, warrants or options to acquire any such shares, other than, in each case, any such transaction solely involving Transferred Companies following which each Transferred Company remains a direct or indirect wholly owned Subsidiary of Seller;
(b) issue, sell, grant, pledge or otherwise encumber any shares of capital stock of any of the Transferred Companies, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, other than, in each case, any such transaction solely involving Transferred Companies following which each Transferred Company remains a direct or indirect wholly owned Subsidiary of Seller;
(c) amend its Organizational Documents in a manner that would be adverse to Buyer’s interests;
(d) sell, lease, license or otherwise dispose of (including by way of reinsurance) any of the material assets (other than Investment Assets, which are the subject of clause (y) of this Section 4.1) of any of the Transferred Companies, except in the ordinary course of business consistent with past practice;
(e) enter into any Contract with respect to any merger, consolidation, liquidation, dissolution or business combination (including any acquisition of assets or liabilities comprising a business or a segment, division or line of business) involving any of the Transferred Companies;
(f) purchase, sell, lease, pledge, exchange, encumber or otherwise dispose or acquire any property or assets (other than transactions occurring in the ordinary course of business consistent with past practice and other than Investment Assets, which are the subject of clause (y) of this Section 4.1) for which the aggregate consideration paid or payable in any individual transaction is in excess of $2,000,000 or in the aggregate in excess of $7,500,000;
(g) (i) amend, extend, renew or otherwise modify in any material respect any of the Leases, (ii) assign or sublease any material portion of any of the Leased Real Property or (iii) enter into any new lease, terminate any lease or buy any real property;
(i) modify or amend in any material respect or terminate any material Contract, (ii) waive, release or assign any material rights or claims under any material Contract or (iii) enter into any material Contract, in each case other than in the ordinary course of business consistent with past practice; or (x) modify, amend or terminate any OB Contract or (y) waive, release or assign any rights or claims under any OB Contract;
(i) incur any financial Indebtedness for borrowed money from third party lending sources (other than current trade accounts payable incurred in respect of property or services purchased in the ordinary course of business consistent with past practice) or assume, grant, guarantee or endorse, pledge or otherwise secure any assets or property or otherwise as an accommodation become responsible for (whether primary or secondary) the obligations of any Person (other than a Transferred Company), or make any third party loans or advances (other than, in each case, in the ordinary course of business consistent with past practice), for individual amounts in excess of $1,000,000 or in the aggregate in excess of $2,000,000;
(j) default under any Indebtedness, or fail to pay or satisfy when due any Liability, of any of the Transferred Companies in excess of $500,000 (other than any such Liability that is being contested in good faith);
(k) forgive, cancel or compromise any material debt or claim or waive or release any right, in each case other than in the ordinary course of business consistent with past practice or pursuant to an Insurance Contract;
(l) enter into any new line of business;
(m) make any capital expenditures in excess of $2,000,000 individually or $5,000,000 in the aggregate (not including those made in the ordinary course of business);
(n) voluntarily abandon any material Permit, except to the extent required in order to comply with applicable Law, or voluntarily terminate, fail to renew or permit to lapse any material Permit;
(o) settle or compromise or agree to the dismissal of any Litigation or threatened Litigation (in each case, except for claims under any insurance policies within applicable policy limits that do not allege bad faith), other than any settlement or compromise that involves solely cash payments of less than $5,000,000 in any individual case or of less than $10,000,000 in the aggregate (provided that Seller shall provide prior written notice to Buyer of any such settlement or compromise that involves solely cash payments in excess of $2,000,000 in any individual case);
(p) other than in the ordinary course of business consistent with past practice, dispose of, permit to lapse, abandon, dedicate to the public domain, waive, release or assign any rights, or settle any claims, or permit the creation of any material Lien with respect to any Intellectual Property material to the Business;
(q) (i) establish, adopt, amend or terminate any Company Benefit Plan or any arrangement which upon its establishment or adoption would constitute a material Company Benefit Plan or (ii) materially amend or terminate any related material insurance policy or related material vendor contract, in either case except (A) in the ordinary course of business consistent with past practice or (B) as may be required by applicable Laws or pursuant to the terms of any Company Benefit Plan as in effect on the date hereof;
(r) make or promise to make any material bonus, profit-sharing or similar payment, or fund, increase or accelerate the vesting, payment or amount of wages, salary, commissions, fringe benefits, severance benefits, deferred compensation or other compensation or benefits (including equity-based compensation, whether payable in cash or otherwise) or remuneration payable to, or for the benefit of, any Employee, in each case except (i) as required by applicable Law or the terms of any Company Benefit Plan as in effect on the date hereof and (ii) with respect to Employees other than the LTIP Employees, to the extent such action is (x) not material or (y) made in the ordinary course of business consistent with past practice (including in connection with promotions and employee review cycles consistent with past practice);
(i) terminate the employment of any Key Employee (other than for cause) or hire any new employee who would be, upon hiring, a Key Employee or (ii) enter into a collective bargaining agreement or similar labor agreement with respect to any Employees or renew, extend or renegotiate any existing collective bargaining agreement or similar labor agreement with respect to any Employees, except, in the case of this clause (ii), as may be required by applicable Law;
(i) settle or compromise any Tax Audit or forgo the right to any refund of Taxes; (ii) change any of the Transferred Companies’ methods, policies or practices of Tax accounting or methods of reporting income or deductions for Tax purposes from those employed in the preparation of its most recently filed Tax Return; (iii) amend any Tax Return of or with respect to any of the Transferred Companies; (iv) enter into any agreement with a Tax Authority with respect to any Transferred Company, or terminate any agreement entered into with a Tax Authority with respect to any Transferred Company that is in effect as of the date hereof; (v) alter or make any Tax election; (vi) request a ruling relating to Taxes; (vii) grant any power of attorney relating to Tax matters; or (viii) prepare any Tax Return in a manner that is not consistent with past practices;
(u) terminate, cancel or amend, or cause the termination, cancellation or amendment of, any material insurance coverage (and any surety bonds, letters of credit, cash collateral or other deposits related thereto required to be maintained with respect to such coverage) maintained by the Transferred Companies that is not replaced by comparable insurance coverage;
(v) change in any material respect the terms for, or policies with respect to, the payment of commissions to any of its insurance agents, brokers or producers;
(w) enter into any reinsurance commutations (other than as contemplated by Section 4.16 and the Commutation Agreement), or enter into, amend, modify or otherwise revise any reinsurance agreement or treaty that results in a material change in risk or coverage;
(x) make any material change in its underwriting, reinsurance, claims administration, selling, reserving, Tax or financial accounting policies, guidelines, practices or principles (other than any change required by a change in applicable Laws, GAAP or SAP or, in respect of underwriting or claims administration policies, guidelines, practices or principles, in the ordinary course of business consistent with past practice);
(y) other than as set forth in Schedule 4.1(y), amend or otherwise change the Investment Guidelines or make any investment or manage its Investment Assets other than in compliance with the Investment Guidelines;
(z) during the period from the date hereof to the Closing Date, spend less than 90% (without the consent of Buyer) or more than 100% (without the consent of Seller), in the aggregate, of the advertising spending called for during such period by the advertising plan set forth on Schedule 4.1(z) (for purposes of calculating such aggregate percentage, the spending called for in any period by such advertising plan that is not fully completed between the date hereof and the Closing Date shall be determined on a pro rata basis based on the number of days of such partial period that actually elapsed between the date hereof and the Closing Date), with the actual amount of such spending within such limits being determined by the management of the Transferred Companies in its sole discretion; or
(aa) agree or commit to do any of the foregoing.