EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
(Westchester Specialty Group, Inc.)
BY AND BETWEEN
TALEGEN HOLDINGS, INC.,
AND
ACE LIMITED
DATED AS OF SEPTEMBER 18, 1997
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS................................................................................. 2
Section 1.1 Definitions................................................................................ 2
ARTICLE II PURCHASE OF SHARES.......................................................................... 10
Section 2.1 Purchase of Shares......................................................................... 10
Section 2.2 Purchase Price Adjustments................................................................. 10
ARTICLE III THE CLOSING................................................................................. 10
Section 3.1 The Closing................................................................................ 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER.................................................... 11
Section 4.1 Organization and Related Matters........................................................... 11
Section 4.2 Subsidiaries............................................................................... 11
Section 4.3 Authority; No Violation.................................................................... 12
Section 4.4 Consents and Approvals..................................................................... 14
Section 4.5 Stock Ownership............................................................................ 14
Section 4.6 Financial Statements....................................................................... 14
Section 4.7 No Other Broker............................................................................ 15
Section 4.8 Legal Proceedings.......................................................................... 15
Section 4.9 Undisclosed Liabilities.................................................................... 16
Section 4.10 Compliance with Applicable Law; Insurance Operations...................................... 16
Section 4.11 Absence of Certain Changes................................................................ 17
Section 4.12 Technology and Intellectual Property...................................................... 19
Section 4.13 Employee Benefit Plans; ERISA............................................................. 20
Section 4.14 Taxes..................................................................................... 23
Section 4.15 Contracts................................................................................. 24
Section 4.16 No Material Adverse Change................................................................ 25
Section 4.17 Portfolio Investments..................................................................... 25
Section 4.18 Reserves.................................................................................. 25
Section 4.19 Title to Assets, etc...................................................................... 25
Section 4.20 Transactions with Certain Persons......................................................... 26
Section 4.21 Reinsurance and Retrocessions............................................................. 27
Section 4.22 Environmental Laws........................................................................ 27
Section 4.23 Insurance Coverage........................................................................ 28
Section 4.24 Labor Matters............................................................................. 28
Section 4.25 No Other Agreements to Sell the Assets or the Company..................................... 28
Section 4.26 1992/93 Restructuring..................................................................... 28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER..................................................... 29
Section 5.1 Organization and Related Matters........................................................... 29
Section 5.2 Authority; No Violation.................................................................... 29
Section 5.3 Consents and Approvals..................................................................... 30
Section 5.4 Legal Proceedings.......................................................................... 30
Section 5.5 Investment Intent of Buyer................................................................. 30
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Section 5.6 Investment Company.......................................................................... 30
Section 5.7 No Other Broker............................................................................. 30
Section 5.8 Financing................................................................................... 31
ARTICLE VI COVENANTS.................................................................................... 31
Section 6.1 Conduct of Business......................................................................... 31
Section 6.2 Confidentiality and Announcements........................................................... 31
Section 6.3 Expenses.................................................................................... 31
Section 6.4 Access; Certain Communications.............................................................. 31
Section 6.5 Regulatory Matters; Third Party Consents.................................................... 32
Section 6.6 Further Assurances.......................................................................... 33
Section 6.7 Notification of Certain Matters............................................................. 34
Section 6.8 Maintenance of Records...................................................................... 34
Section 6.9 Employees and Employee Plans................................................................ 35
Section 6.10 Pre-Closing Dividends...................................................................... 37
Section 6.11 Crostex/Camfex............................................................................. 37
Section 6.12 Exclusivity................................................................................ 38
Section 6.13 Additional Financial Statements............................................................ 38
Section 6.14 Intercompany Accounts...................................................................... 39
Section 6.15 Rating Agency Presentations................................................................ 39
Section 6.16 Investment Portfolio....................................................................... 40
Section 6.17 Reinsurance Agreements..................................................................... 40
Section 6.18 Person Authorized to Act Prior to the Closing.............................................. 41
Section 6.19 Tax Sharing Agreement Releases............................................................. 41
ARTICLE VII CONDITIONS TO CLOSING........................................................................ 41
Section 7.1 Conditions to Buyer's Obligations........................................................... 41
Section 7.2 Conditions to Seller's Obligations.......................................................... 43
Section 7.3 Mutual Conditions........................................................................... 44
ARTICLE VIII SURVIVAL OF REPRESENTATIONS, WARRANTIES,COVENANTS AND AGREEMENTS; INDEMNIFICATION............ 45
Section 8.1 Survival.................................................................................... 45
Section 8.2 Obligation of Seller to Indemnify, Reimburse, etc........................................... 46
Section 8.3 Obligation of Buyer to Indemnify, Reimburse, etc............................................ 46
Section 8.4 Notice and Opportunity to Defend Against Third Party Claims................................. 46
Section 8.5 Net Indemnity............................................................................... 48
Section 8.6 Tax Indemnification......................................................................... 48
Section 8.7 Limits on Indemnification................................................................... 48
ARTICLE IX TERMINATION.................................................................................. 48
Section 9.1 Termination................................................................................. 48
Section 9.2 Obligations upon Termination................................................................ 49
ARTICLE X MISCELLANEOUS................................................................................ 49
Section 10.1 Amendments; Extension; Waiver.............................................................. 49
Section 10.2 Entire Agreement........................................................................... 49
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Section 10.3 Interpretation.......................................................... 50
Section 10.4 Severability............................................................ 50
Section 10.5 Notices................................................................. 50
Section 10.6 Binding Effect; Persons Benefiting...................................... 51
Section 10.7 Assignment.............................................................. 51
Section 10.8 Counterparts............................................................ 51
Section 10.9 No Prejudice............................................................ 52
Section 10.10 Governing Law.......................................................... 52
Section 10.11 Service; Jurisdiction.................................................. 52
Section 10.12 Specific Performance................................................... 52
EXHIBITS
Exhibit A Form of Guarantee Agreement
Exhibit B Form of Ridge Re Amendment
Exhibit C [Not Used]
Exhibit D Form of Release of Tax Sharing Agreements
Exhibit E Form of Opinion of LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
Exhibit F Form of Opinions of ▇▇▇▇▇▇ & Calder and ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
SCHEDULES
Schedule 1.1 Berkshire Hathaway Reinsurance Agreement
Schedule 1.2 Exclusions from the Definition of Company Employees
Schedule 1.3 Knowledge of Seller
Schedule 4.2 Subsidiaries
Schedule 4.4 Consents and Approvals
Schedule 4.6 Financial Statements
Schedule 4.8 Legal Proceedings
Schedule 4.9 Undisclosed Liabilities
Schedule 4.10 Compliance with Applicable Law; Insurance Operations
Schedule 4.11 Absence of Certain Changes
Schedule 4.12 Technology and Intellectual Property
Schedule 4.13 Employee Benefit Plans; ERISA
Schedule 4.14 Taxes
Schedule 4.15 Contracts
Schedule 4.16 No Material Adverse Change
Schedule 4.17 Portfolio Investments
Schedule 4.19 Title to Assets, etc.
Schedule 4.20 Transactions with Certain Persons
Schedule 4.21 Reinsurance and Retrocessions
Schedule 4.22 Environmental Laws
Schedule 4.24 Labor Matters
Schedule 4.25 No Other Agreements to Sell the Assets of the Company
Schedule 5.3 Consents and Approvals
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of September 18, 1997, by and
between Talegen Holdings, Inc., a Delaware corporation ("Seller"), and ACE
Limited, a Cayman Islands corporation ("Buyer").
RECITALS
WHEREAS, Seller is the owner of 1,000 shares, par value $1.00 per
share (the "Shares"), of common stock of Westchester Specialty Group, Inc., a
Delaware corporation (the "Company"), which Shares constitute all of the issued
and outstanding shares of the Company's capital stock;
WHEREAS, certain of the Company's wholly-owned subsidiaries,
Westchester Fire Insurance Company, a New York stock insurance company
("Westchester Fire"), Westchester Surplus Lines Insurance Company, a Georgia
stock insurance company, and Industrial Underwriters Insurance Company, a Texas
stock insurance company (collectively the "Insurance Subsidiaries"), are engaged
in the property and casualty insurance business;
WHEREAS, Buyer desires to purchase the Shares from Seller upon the
terms and subject to the conditions set forth herein;
WHEREAS, Seller desires to sell the Shares to Buyer upon the terms and
subject to the conditions set forth herein;
WHEREAS, Buyer and Seller have entered into the Tax Agreement (as
defined in Section 1.1) simultaneously with the execution of this Agreement; and
WHEREAS, Xerox Financial Services, Inc., a Delaware corporation
("Parent"), has agreed to enter into a guarantee of certain obligations of
Seller pursuant to this Agreement in the form attached hereto as Exhibit A (the
"Guarantee").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be bound hereby, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, the
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following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Action" means any legal, administrative, arbitration or other
proceeding, claim, suit, action or governmental or regulatory investigation of
any nature.
"Affiliate" means, with respect to any Person, any other Person who
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Agreement" means this Stock Purchase Agreement, together with all
Schedules and Exhibits referenced herein, between Buyer and Seller, as such may
hereafter be amended from time to time.
"Ancillary Agreements" means, collectively, the Ridge Re Agreement (as
amended by the Ridge Re Amendment), the Guarantee and the Tax Agreement.
"Applicable Law" means any domestic or foreign federal, state or local
statute, law, ordinance, rule, regulation, order, writ, injunction, judgment or
decree applicable to Seller, the Company, Buyer or any of their respective
Subsidiaries, properties, assets, officers, directors, employees or agents.
"Asserted Liability" has the meaning set forth in Section 8.4.
"Berkshire Hathaway Reinsurance Agreement" means the reinsurance
agreement between the Company and National Indemnity Company upon such terms and
conditions as are described on Schedule 1.1.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banks in New York, New York are required to be closed for regular
banking business.
"Buyer" has the meaning set forth in the first paragraph of this
Agreement.
"CFI Entities" means, collectively, ▇▇▇▇ & ▇▇▇▇▇▇▇ Holdings, Inc., a
subsidiary of Seller, and United States Fire Insurance Company and The North
River Insurance Company, each of which is a subsidiary of ▇▇▇▇ & ▇▇▇▇▇▇▇
Holdings, Inc.
"Claims Notice" has the meaning set forth in Section 8.4.
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended .
"Company" has the meaning set forth in the Recitals of this Agreement.
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"Company Employees" means those current or former employees of the
Company and its Subsidiaries who, on the Closing Date, are either:
(a) actively employed by the Company or its Subsidiaries, including
those who are absent from employment due to illness, injury, military
service or other authorized absence (including those who are "disabled"
within the meaning of either the short-term or the long-term disability
plan currently applicable to the Company and its Subsidiaries
(collectively, the "Disability Plans"));
(b) former employees who, on the Closing Date, are receiving long-term
disability benefits under the Disability Plans; and/or
(c) former employees who have previously satisfied the requirements
for retiree medical and/or life insurance coverage under the Talegen
Holdings, Inc. Medical and Life Plans for Retirees and Disabled Employees,
but excluding (i) other former employees, (ii) employees otherwise not actively
employed by the Company or its Subsidiaries (other than as specifically included
above), and (iii) those employees of the Company and its Subsidiaries whose
names are set forth on Schedule 1.2. The names of those former employees who
are described in paragraphs (b) and (c) above, as of July 18, 1997, are set
forth on Schedule 1.2.
"Company GAAP Financial Statements" means the audited Consolidated
Balance Sheets of the Company (or its predecessors) as of December 31, 1996 and
1995 and the Consolidated Statements of Operations, Consolidated Statements of
Shareholder's Equity and Consolidated Statements of Cash Flows of the Company
(or its predecessors) for each of the three fiscal years included in the three-
year period ended December 31, 1996, prepared in accordance with GAAP, together
with the notes thereon and the related reports of KPMG Peat Marwick LLP.
"Company Interim Financial Statements" shall mean the unaudited
Consolidated Balance Sheets and the unaudited Consolidated Statements of
Operations, Consolidated Statements of Shareholder's Equity and Consolidated
Statements of Cash Flows of the Company as of and for the six-month periods
ended June 30, 1997 and 1996, as provided in the Company's quarterly monitoring
report.
"Confidentiality Agreement" means that certain letter agreement, dated
March 7, 1997, between Buyer and Seller with respect to the confidentiality of
information about Seller, the Company and their respective Affiliates and other
related Persons which was provided by or at the request of Seller or the Company
to Buyer, as such letter agreement may have been or may hereafter be amended
from time to time.
"Contracts" has the meaning set forth in Section 4.15.
"control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled Person, whether
through the ownership of voting securities, by agreement or otherwise.
"Convention Statements" shall mean (i) the annual convention
statements and the quarterly statement of each Insurance Subsidiary as filed
with an Insurance Regulator for the years ended December 31, 1996, 1995 and 1994
and for the quarterly period ended June 30, 1997, and (ii) the annual
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statutory financial reports of Ridge Re as filed with the insurance regulatory
authorities in Bermuda for the years ended December 31, 1996, 1995 and 1994.
"Crostex/Camfex Leases" shall mean the following:
(a) that certain Amended and Restated Lease Agreement between Crostex
Associates Limited Partnership, as Lessor, and the Crostex/Camfex Pool
Companies, as Lessee, dated as of March 1, 1995, relating to ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ (the "Dallas Lease"); and
(b) that certain Amended and Restated Lease Agreement between Camfex
Associates Limited Partnership, as Lessor, and the Crostex/Camfex Pool
Companies, as Lessee, dated as of March 1, 1995, relating to ▇▇▇▇ ▇. ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ (the "Pleasanton Lease").
"Crostex/Camfex Pool Companies" means United States Fire Insurance
Company, The North River Insurance Company, Westchester Fire and International
Insurance Company.
"Crostex/Camfex Purchase Money Documents" shall mean the following:
(a) that certain "Note Due December 1, 2009," dated December 21,
1984, in the principal amount of $4,468,097 from Crostex Associates Limited
Partnership to the Crostex/Camfex Pool Companies, together with the related
Purchase Money Mortgage, dated as of December 21, 1984, granting the
holders of such promissory note a subordinated security interest in the
building at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, and any other
related documents or instruments (collectively, the "305 Purchase Money
Documents");
(b) that certain "Note Due December 1, 2009," dated December 21,
1984, in the principal amount of $1,263,595 from Crostex Associates Limited
Partnership to the Crostex/Camfex Pool Companies, together with the related
Purchase Money Mortgage, dated as of December 21, 1984, granting the
holders of such promissory note a subordinated security interest in the
building at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, and any other
related documents or instruments (collectively, the "299 Purchase Money
Documents");
(c) that certain "Note Due December 1, 2009," dated December 21,
1984, in the principal amount of $2,214,788 from Crostex Associates Limited
Partnership to the Crostex/Camfex Pool Companies, together with the related
Deed of Trust, dated as of December 1, 1984, granting the holders of such
promissory note a subordinated security interest in the building at ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇, and any other related documents or
instruments (collectively, the "Dallas Purchase Money Documents"); and
(d) that certain "Note Due December 1, 2009," dated December 21,
1984, in the principal amount of $716,407 from Camfex Associates Limited
Partnership to the Crostex/Camfex Pool Companies, together with the related
Deed of Trust, dated as of December 1, 1984, granting the holders of such
promissory note a subordinated security interest in the building at ▇▇▇▇ ▇.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, and any other related documents
or instruments (collectively, the "Pleasanton Purchase Money Documents").
"Dallas Lease" has the meaning set forth in the definition of
"Crostex/Camfex Leases."
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"Dallas Purchase Money Documents" has the meaning set forth in the
definition of "Crostex/Camfex Purchase Money Documents."
"Disability Plans" has the meaning set forth in the definition of
"Company Employees."
"Encumbrance" means any lien (statutory or other), mortgage, pledge,
security interest, lease, claim, charge, easement, limitation, commitment, right
of way, encroachment, restriction or encumbrance of any kind or nature
whatsoever, or any agreement to give any of the foregoing; provided that, with
respect to the Shares only, this definition of "Encumbrance" shall not include
(i) any such encumbrance arising as a result of the status of, or any action
taken by, Buyer or any of its Affiliates and (ii) any limitation or restriction
imposed upon the transfer of the Shares by any registration provision of the
Securities Act of 1933, as amended, or any applicable state securities law
regulating the disposition of the Shares.
"Environmental Law" means any Law which relates to or otherwise
imposes liability or standards of conduct concerning environmental protection,
health and safety of persons, discharges, emissions, releases or threatened
releases of any noises, odors or Hazardous Materials into ambient air, water or
land, or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, cleanup, transport or handling
of Hazardous Materials, including the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act, as amended, the Occupational Safety and Health Act, as
amended, the Resource Conservation and Recovery Act, as amended, the Toxic
Substances Control Act, as amended, the Federal Water Pollution Control Act, as
amended, the Clean Water Act, as amended, any so-called "Superlien" law, and any
other similar federal, state or local Law.
"Environmental Permit" means any permit, license, approval, consent or
other authorization required by or pursuant to any applicable Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a controlled group including the Company, or
under common control with the Company, within the meaning of Section 414 of the
Code or Section 4001 of ERISA.
"Exon-▇▇▇▇▇▇ Amendment" means Section 721 of the Defense Production
Act of 1950, as amended.
"GAAP" means generally accepted accounting principles as used in the
United States as in effect at the time any applicable financial statements were
prepared or any act requiring the application of GAAP was performed.
"Governmental Authority" means the government of the United States or
any foreign country or any state or political subdivision thereof and any
entity, body or authority exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, including
the Pension Benefit Guaranty Corporation and other quasi-governmental entities
established to perform such functions.
"Guarantee" has the meaning set forth in the Recitals of this
Agreement.
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"Hazardous Material" means any (i) hazardous substance, toxic
substance, hazardous waste or pollutant (as such terms are defined by or within
the meaning of any Environmental Law), (ii) material or substance which is
regulated or controlled as a hazardous substance, toxic substance, pollutant or
other regulated or controlled material, substance or matter pursuant to any
Environmental Law, (iii) petroleum, crude oil or fraction thereof, (iv)
asbestos-containing material, (v) polychlorinated biphenyls, (vi) lead-based
paint or (vii) radioactive material, except for those materials or substances
that are subject to regulation or control solely as a result of being a listed
chemical under the California Safe Drinking Water and Toxic Enforcement Act of
1986 (Proposition 65).
"HoldCo" means the wholly owned United States subsidiary of Buyer
formed for the purposes of acquiring and holding the Company and its
Subsidiaries, and any other United States insurance operations Buyer may acquire
from time to time, which has been assigned, prior to the Closing, the purchase
rights of Buyer under this Agreement in accordance with Section 10.7.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnifying Party" has the meaning set forth in Section 8.4.
"Indemnitee" has the meaning set forth in Section 8.4.
"Information Returns" shall have the meaning ascribed in the Tax
Agreement.
"Insurance Regulator" means the insurance regulatory authority in the
state in which the applicable Insurance Subsidiary is domiciled.
"Insurance Subsidiaries" has the meaning set forth in the Recitals of
this Agreement.
"Intellectual Property Right" has the meaning set forth in Section
4.12.
"IRP" means The Individual Retirement Plan of Talegen Holdings, Inc.
"IRS" means the Internal Revenue Service.
"knowledge of Seller" means the actual knowledge of the individuals
listed on Schedule 1.3.
"KPMG Report" has the meaning set forth in Section 4.18.
"Latest Balance Sheet" has the meaning set forth in Section 4.9.
"Law" means any law, statute, regulation, ordinance, rule, order,
decree, judgment, consent decree, settlement agreement or governmental
requirement enacted, promulgated, entered into, agreed or imposed by any
Governmental Authority.
"Loss" means any and all claims, losses, liabilities, damages,
judgments or settlements of any nature or kind, and any and all costs and
expenses related thereto (including interest, penalties and attorney's,
accountant's, consultant's and expert's fees and expenses), that are imposed
upon or otherwise incurred or suffered by the relevant party.
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"Material Adverse Effect" means any event, change, condition, fact or
effect which (i) has a material adverse effect on the business, operations,
assets, liabilities, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, taken as a whole, or (ii) would prevent or
materially delay the performance by Seller of its obligations under this
Agreement.
"1992/93 Restructuring" shall mean the restructuring of the insurance
operations of Seller and its subsidiaries pursuant to the Restructuring
Agreement, dated as of September 3, 1993, among Seller, Ridge Re, the Company
and the other parties thereto.
"Parent" has the meaning set forth in the Recitals of this Agreement.
"Permits" has the meaning set forth in Section 4.10.
"Person" means any individual, corporation, company, partnership
(limited or general), joint venture, limited liability company, association,
trust or any other entity.
"Plans" has the meaning set forth in Section 4.13.
"Pleasanton Lease" has the meaning set forth in the definition of
"Crostex/Camfex Leases."
"Pleasanton Purchase Money Documents" has the meaning set forth in the
definition of "Crostex/Camfex Purchase Money Documents."
"Purchase Price" has the meaning set forth in Section 2.1.
"Records" means all records and original documents which pertain to or
are utilized primarily by the Company or its Subsidiaries to administer,
reflect, monitor, evidence or record information relating to the business or
conduct of the Company or its Subsidiaries and all such records and original
documents, including all such records maintained on electronic or magnetic
media, or in any electronic database system of the Company or its Subsidiaries,
or necessary to comply with any Applicable Law with respect to the business of
the Company or its Subsidiaries.
"Reinsurance Agreement" has the meaning set forth in Section 4.21.
"Retirement Plan" means the Retirement Plan of Talegen Holdings, Inc.
"Ridge Re" means Ridge Reinsurance Limited, a Bermuda corporation.
"Ridge Re Agreement" means that certain Springing First Aggregate
Excess of Loss Reinsurance Agreement by and between the Insurance Subsidiaries,
Ridge Re and Parent, dated as of December 31, 1992, together with all
endorsements thereto.
"Ridge Re Amendment" means that certain Endorsement #2 to the
Springing First Aggregate Excess of Loss Reinsurance Agreement by and between
the Insurance Subsidiaries, Ridge Re and Parent, in the form attached hereto as
Exhibit B.
"Ridge Re GAAP Financial Statements" shall mean the audited
Consolidated Balance Sheets of Ridge Re as of December 31, 1996 and 1995 and the
related Statements of Operations and
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Retained Earnings and Cash Flows for the years ended December 31, 1996 and 1995,
prepared in accordance with GAAP, together with the notes thereon and the
related reports of KPMG Peat Marwick.
"Ridge Re Interim Financial Statements" shall mean the unaudited
Consolidated Balance Sheet of Ridge Re as of June 30, 1997, and the related
Statements of Operations and Retained Earnings for the six-month periods ended
June 30, 1997 and June 30, 1996.
"SAP Financial Statements" has the meaning set forth in Section 4.6.
"Section 4.15(b) Contracts" has the meaning set forth in Section 4.15.
"Seller" has the meaning set forth in the first paragraph of this
Agreement.
"SERP" means the Talegen Holdings, Inc. Supplemental Executive
Retirement Plan.
"Shares" has the meaning set forth in the Recitals of this Agreement.
"SIRP" means the Supplemental IRP of Talegen Holdings, Inc.
"Subsidiaries" means the Insurance Subsidiaries and any other
corporation, partnership, joint venture or other entity which the Company
controls, directly or indirectly through one or more intermediaries.
"Tax Agreement" means the Tax Allocation and Indemnification
Agreement, dated as of the date hereof, among Parent, Seller, the Company and
Buyer.
"Tax Returns" shall have the meaning ascribed in the Tax Agreement.
"Taxes" shall have the meaning ascribed in the Tax Agreement.
"305 Purchase Money Documents" has the meaning set forth in the
definition of "Crostex/Camfex Purchase Money Documents."
"299 Purchase Money Documents" has the meaning set forth in the
definition of "Crostex/Camfex Purchase Money Documents."
"Westchester Fire" has the meaning set forth in the Recitals of this
Agreement.
"Wire Transfer" means a payment in immediately available funds by wire
transfer in lawful money of the United States to such account or accounts as
shall have been designated by notice to the paying party.
"Xerox" has the meaning set forth in Section 4.14.
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ARTICLE II
PURCHASE OF SHARES
Section 2.1 Purchase of Shares. Upon the terms and subject to the
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conditions set forth in this Agreement, at the Closing Seller shall sell to
Buyer, and Buyer shall purchase from Seller, the Shares free and clear of all
Encumbrances for a purchase price of Three Hundred Thirty Three Million Dollars
($333,000,000), subject to adjustment in accordance with Sections 2.2 and 6.17
(as adjusted, the "Purchase Price").
Section 2.2 Purchase Price Adjustments. (a) If the Closing shall
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take place at any time after 150 days from the date hereof but on or prior to
180 days from the date hereof, Buyer shall pay to Seller, as an adjustment to
the Purchase Price and in addition to the amount set forth in Section 2.1, an
amount equal to $72,555, multiplied by the number of days subsequent to the
150th day from the date hereof to and inclusive of the Closing Date.
(b) If the Closing shall take place at any time after 180 days
from the date hereof but on or prior to 210 days from the date hereof, Buyer
shall pay to Seller, as an adjustment to the Purchase Price and in addition to
the amount set forth in Section 2.1, an amount equal to the sum of (i)
$2,176,650, plus (ii) an amount equal to $81,805, multiplied by the number of
days subsequent to the 180th day from the date hereof to and inclusive of the
Closing Date.
(c) If the Closing shall take place at any time after 210 days
from the date hereof, Buyer shall pay to Seller, as an adjustment to the
Purchase Price and in addition to the amount set forth in Section 2.1, an amount
equal to the sum of (i) $4,630,800 plus (ii) an amount equal to $91,055,
multiplied by the number of days subsequent to the 210th day from the date
hereof to and inclusive of the Closing Date.
(d) The parties agree to adjust appropriately the Purchase Price
to take into account material adverse changes in U.S. Treasury yields between
August 1, 1997 and the Closing Date.
ARTICLE III
THE CLOSING
Section 3.1 The Closing. Upon the terms and subject to the
-----------
conditions of this Agreement, the closing of the purchase and sale of the Shares
(the "Closing") shall be at 10:00 A.M. at the offices of LeBoeuf, Lamb, ▇▇▇▇▇▇ &
▇▇▇▇▇▇, L.L.P., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at any other
location designated by Seller, on the first Business Day of the calendar month
following the date on which all of the conditions set forth in Article VII
(other than those conditions designating instruments, certificates or other
documents to be delivered at the Closing) shall have been satisfied or waived,
or such other date and time as Buyer and Seller shall agree upon in writing.
-9-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows :
Section 4.1 Organization and Related Matters. Each of Parent, Seller
--------------------------------
and the Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. The Company has the corporate
power and authority to carry on its business as it is now being conducted and to
own, lease or operate all of its properties and assets, and is duly qualified to
do business and is in good standing in each jurisdiction in which the nature of
the business conducted by it or the character of the assets owned by it makes
such qualification necessary, except where the failure to be so qualified would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Seller has delivered or made available to Buyer complete and
correct copies of the articles or certificate of incorporation and bylaws of
each of Seller and the Company, in each case as amended through the date hereof.
The minute books of the Company accurately reflect all formal actions taken at
all meetings and all consents in lieu of meetings of the sole stockholder of the
Company since August 1994 and all formal actions taken at all meetings and all
consents in lieu of meetings of the board of directors of the Company and all
committees thereof since August 1994. True and complete copies of such minute
books have previously been made available for inspection by Buyer.
Section 4.2 Subsidiaries. (a) Schedule 4.2 sets forth a complete and
------------
accurate list, as of the date hereof, of all of the Subsidiaries of the Company.
Schedule 4.2 also contains the jurisdiction of incorporation or formation of
each Subsidiary of the Company, each jurisdiction in which such Subsidiary is
qualified or otherwise authorized to conduct insurance business, the number of
issued and outstanding shares of capital stock of each such Subsidiary and the
record holder(s) thereof. Except as set forth on Schedule 4.2, all of the
outstanding shares of capital stock of the Subsidiaries are owned beneficially
and of record by the Company, free and clear of all Encumbrances and other
restrictions with respect to the transferability or assignability thereof, and
no capital stock of any of its Subsidiaries is or may become required to be
issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable or exercisable for, shares of capital stock of
any of its Subsidiaries and, other than as contemplated by this Agreement, there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may be bound to issue, redeem, purchase
or sell shares of Subsidiary capital stock or securities convertible into or
exchangeable or exercisable for any such shares. Schedule 4.2 contains true and
complete copies of all agreements and other instruments pursuant to which the
Company or any Subsidiary is obligated or required, under any circumstance, to
make contributions to the capital of any Subsidiary. The Subsidiaries are each
corporations duly organized, validly existing and in good standing under the
laws of their respective states of incorporation or domicile, and have the
corporate power and authority to carry on their respective businesses as now
being conducted and to own, lease and operate all of their respective properties
and assets. Each of the Subsidiaries is duly qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character of the assets owned by it makes such qualification necessary, except
where the failure to be so qualified would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Seller has
delivered or made available to Buyer complete and correct copies of the articles
or certificate of incorporation and bylaws of each of the Subsidiaries, in each
case as amended through the date hereof.
(b) Except as set forth on Schedule 4.2, and except for the stock of
its Subsidiaries and portfolio investments made in the ordinary course of
business, there are no corporations, partnerships,
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business associations, joint ventures or other entities in which the Company
owns, of record or beneficially, any direct or indirect equity interest or any
right (contingent or otherwise) to acquire the same.
Section 4.3 Authority; No Violation. (a) Seller has full corporate
-----------------------
power and authority to execute and deliver this Agreement and the Tax Agreement
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Tax Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by all requisite corporate action on the part of Seller,
and no other corporate proceedings on the part of Seller are necessary to
approve this Agreement and the Tax Agreement or to consummate the transactions
contemplated hereby and thereby. This Agreement and the Tax Agreement have been
duly and validly executed and delivered by Seller and (assuming the due
authorization, execution and delivery of this Agreement and the Tax Agreement by
Buyer and any other parties thereto) constitute valid and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms,
except as enforcement may be limited by general principles of equity, whether
applied in a court of law or a court of equity, and by bankruptcy, insolvency,
moratorium and similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement and the Tax
Agreement by Seller, nor the consummation by Seller of the transactions
contemplated hereby and thereby to be performed by it, nor compliance by Seller
with any of the terms or provisions hereof or thereof, will (i) violate any
provision of the Certificate of Incorporation or By-Laws of Seller or the
Company, or (ii) assuming that the consents and approvals referred to in Section
4.4 are duly obtained, (A) violate in any material respect any Applicable Law
with respect to Seller, the Company or the Subsidiaries, or any of their
respective material properties or assets, (B) result in the creation of any
Encumbrance upon any of the Shares, or (C) violate, conflict with, result in a
breach of any provision of, or constitute a default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any Person under, or result in the imposition
of any Encumbrance on any of the properties or assets of the Company under, any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Seller, the Company or the Subsidiaries
is a party, or by which Seller, the Company or the Subsidiaries, or any of their
respective properties or assets, may be bound or affected, except for such
Encumbrances, violations, conflicts, breaches or defaults which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(c) Parent has full corporate power and authority to execute and
deliver the Ancillary Agreements and to consummate the transactions contemplated
thereby. The execution and delivery of the Ancillary Agreements and the
consummation of the transactions contemplated thereby have been duly and validly
approved by all requisite corporate action on the part of Parent, and no other
corporate proceedings on the part of Parent are necessary to approve the
Ancillary Agreements or to consummate the transactions contemplated thereby.
The Tax Agreement has been duly and validly executed and delivered by Parent and
(assuming the due authorization, execution and delivery of the Tax Agreement by
Buyer and any other parties thereto) constitutes a valid and binding obligation
of Parent, enforceable against Parent in accordance with its terms, except as
enforcement may be limited by general principles of equity, whether applied in a
court of law or a court of equity, and by bankruptcy, insolvency, moratorium and
similar laws affecting creditors' rights and remedies generally. Subject to the
occurrence of the Closing, the Guarantee and the Ridge Re Amendment will be duly
and validly executed and delivered by Parent and the Guarantee and the Ridge Re
Agreement, as amended by the Ridge Re Amendment (assuming the due authorization,
execution and delivery of the Ridge Re Amendment by the other parties thereto),
will constitute valid and binding obligations of Parent, enforceable against
Parent in accordance with their respective terms, except as enforcement may be
limited by general principles of equity, whether applied in a court of law or a
court
-11-
of equity, and by bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights and remedies generally.
(d) Neither the execution and delivery of the Ancillary Agreements by
Parent, nor the consummation by Parent of the transactions contemplated thereby
to be performed by it, nor compliance by Parent with any of the terms or
provisions thereof, will (i) violate any provision of the Certificate of
Incorporation or By-Laws of Parent or (ii) violate in any material respect any
Applicable Law with respect to Parent, or any of its material properties or
assets.
(e) Ridge Re is duly organized, validly existing and in good standing
under the laws of Bermuda and has full corporate power and authority to enter
into, and fulfill its obligations under, the Ridge Re Agreement (as amended by
the Ridge Re Amendment) in accordance with its terms. Parent owns of record and
beneficially all the outstanding capital stock of Ridge Re.
(f) Each of Ridge Re and each Insurance Subsidiary has full corporate
power and authority to enter into the Ridge Re Amendment and has taken all
requisite corporate action to consummate the transactions contemplated thereby
and to perform its obligations thereunder. Subject to the occurrence of the
Closing, the Ridge Re Amendment will be duly and validly executed and delivered
by Ridge Re and the Insurance Subsidiaries and the Ridge Re Agreement, as
amended by the Ridge Re Amendment (assuming the due authorization, execution and
delivery of the Ridge Re Amendment by the other parties thereto), will
constitute a legal, valid and binding obligation of Ridge Re, enforceable
against Ridge Re in accordance with its terms, except as enforcement may be
limited by general principles of equity, whether applied in a court of law or a
court of equity, and by bankruptcy, insolvency, moratorium and similar laws
affecting creditors' rights and remedies generally.
Section 4.4 Consents and Approvals. Except for (i) the approval of
----------------------
this Agreement, the Ancillary Agreements and the transactions contemplated
hereby and thereby, and the new intercompany tax agreements among the Company
and the Subsidiaries which shall be effective as of the Closing, by each of the
applicable governmental and regulatory authorities listed on Schedule 4.4, (ii)
the approval of this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby, and the new intercompany tax agreements among
the Company and the Subsidiaries which shall be effective as of the Closing, by
any other governmental or regulatory authorities, the failure of which to obtain
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (iii) the filing of premerger notification reports
under the HSR Act, (iv) the filing of a notice pursuant to the Exon-▇▇▇▇▇▇
Amendment, and (v) consents, approvals, authorizations, declarations, filings
and registrations required by the nature of the business or ownership of Buyer,
no consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority, or any other Person, is required
to be made or obtained by Parent, Seller, Ridge Re, the Company or any
Subsidiary on or prior to the Closing Date in connection with the execution or
delivery of this Agreement or any of the Ancillary Agreements, the performance
of this Agreement or any Ancillary Agreement, or the consummation of the
transactions contemplated hereby and thereby.
Section 4.5 Stock Ownership. Seller owns beneficially and of record
---------------
all of the Shares to be sold to Buyer by Seller, and Seller has full corporate
power and authority to sell, assign, transfer and deliver the Shares to Buyer
upon the terms and subject to the conditions of this Agreement free and clear of
all Encumbrances. The Company has authorized 1,000 shares of common stock,
$1.00 par value, 1,000 shares of which are issued and outstanding, and no shares
of any other class or series of capital stock are authorized, issued or
outstanding. Upon consummation of the transactions contemplated by this
Agreement, Buyer will have good and valid title to such Shares, free and clear
of all Encumbrances. All of the Shares are duly authorized, validly issued,
fully paid, nonassessable and free of any preemptive rights.
-12-
There is no outstanding option, warrant, right, subscription, call, unsatisfied
preemptive right or other agreement or right of any kind to purchase or
otherwise acquire from the Company or Seller any capital stock of the Company.
Section 4.6 Financial Statements. (a) Seller has heretofore
--------------------
delivered to Buyer the Company GAAP Financial Statements, the Ridge Re GAAP
Financial Statements, the Company Interim Financial Statements, the Ridge Re
Interim Financial Statements and the Convention Statements. Except as otherwise
set forth therein, (i) the Company GAAP Financial Statements are based on the
books and records of the Company and its Subsidiaries, fairly present in all
material respects the financial condition and consolidated results of operations
of the Company and its Subsidiaries, as of the dates and for the periods
indicated therein, have been prepared in accordance with GAAP (as in effect at
the time of the respective financial statements) consistently applied, and have
been audited by KPMG Peat Marwick LLP and (ii) the Ridge Re GAAP Financial
Statements are based on the books and records of Ridge Re, fairly present in all
material respects the financial condition and results of operation of Ridge Re,
as of the dates and for the periods indicated therein, have been prepared in
accordance with GAAP (as in effect at the time of the respective financial
statements) consistently applied, and have been audited by KPMG Peat Marwick.
The Company Interim Financial Statements and the Ridge Re Interim Financial
Statements were prepared in the ordinary course of business and have been
prepared on a consistent basis through the periods indicated and in a manner
consistent with that employed in the Company GAAP Financial Statements and the
Ridge Re GAAP Financial Statements, as the case may be. The Company Interim
Financial Statements and the Ridge Re Interim Financial Statements do not
contain footnote disclosures and are subject to normal recurring year-end
adjustments, but otherwise fairly present in all material respects the financial
condition and results of operations of the Company and Ridge Re, as the case may
be, as of the dates and for the periods indicated therein except as otherwise
set forth therein.
(b) Seller has previously furnished Buyer with copies of audited
statutory financial statements of each of the Insurance Subsidiaries as of
December 31, 1996, 1995 and 1994, together with all exhibits and schedules
thereto, and any actuarial opinion, affirmation or certification filed in
connection therewith, prepared in conformity with the statutory accounting
practices prescribed or permitted by the respective state of domicile for each
Insurance Subsidiary (collectively, the "SAP Financial Statements"). Each of
the balance sheets included in the SAP Financial Statements fairly presents in
all material respects the financial position of the applicable Insurance
Subsidiary as of its date and each of the statements of operations included in
the SAP Financial Statements fairly presents in all material respects the
results of operations of the applicable Insurance Subsidiary for the period
therein set forth, in each case prepared in conformity with the statutory
accounting practices prescribed or permitted by the respective state of domicile
for each Insurance Subsidiary.
Section 4.7 No Other Broker. Other than ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co.
---------------
Incorporated, the fees and expenses of which will be paid by Seller, no broker,
finder or similar intermediary has acted for or on behalf of Seller or the
Company or the Subsidiaries, or is entitled to any broker's, finder's or similar
fee or other commission from Seller, the Company or the Subsidiaries in
connection with this Agreement or the transactions contemplated hereby.
Section 4.8 Legal Proceedings. As of the date hereof, other than
-----------------
Actions arising from or related to the obligations of any Subsidiary under any
insurance policy or similar instrument written, assumed or reinsured by such
Subsidiary, (a) neither the Company nor any of its Subsidiaries is a party to
any, and there are no pending or, to the knowledge of Seller, threatened,
Actions against or otherwise affecting the Company, any of its Subsidiaries or
any of their respective properties or assets or challenging the validity or
propriety of the transactions contemplated by this Agreement which, if
adversely determined, would, individually or in the aggregate, reasonably be
expected to have a Material Adverse
-13-
Effect, and (b) there is no injunction, order, judgment, decree or regulatory
restriction imposed upon the Company, any of its Subsidiaries or any of their
respective properties or assets which (i) has been issued by any insurance
regulatory authority, (ii) would restrict the ability of the Company to conduct
its business in the ordinary course of business consistent with past practice or
(iii) has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. Schedule 4.8 sets forth a true and
complete list, as of the date hereof, of all pending litigation against the
Company or any Subsidiary which (A) does not relate to any liability arising
from insurance policies or similar instruments or (B) alleges "bad faith."
Section 4.9 Undisclosed Liabilities. (a) As of the date hereof,
-----------------------
except for (i) those liabilities or items set forth on Schedule 4.9, (ii) those
liabilities that are reflected or reserved against on the audited balance sheet
of the Company as of December 31, 1996 (the "Latest Balance Sheet"), and (iii)
liabilities incurred in the ordinary course of business consistent with past
practice since the date of such balance sheet, no liabilities, debts, claims or
obligations of any nature, whether accrued, absolute, direct or indirect,
contingent or otherwise, whether due or to become due, that would be required to
be included on a balance sheet to be prepared in accordance with GAAP, have been
incurred by the Company or the Subsidiaries (and, to the knowledge of Seller,
there is no existing condition or set of circumstances which would reasonably be
expected to result in such a liability) other than those that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(b) Each of the Company and each Subsidiary has paid in full all
guaranty fund assessments required by any regulatory authority to be paid by it
prior to the date of this Agreement. As of the date of this Agreement, except
as set forth on Schedule 4.9 and except as and to the extent reserved against in
the Convention Statements or disclosed in the notes thereto, the Company and the
Subsidiaries have not received any guarantee fund assessments.
Section 4.10 Compliance with Applicable Law; Insurance Operations.
----------------------------------------------------
(a) Each of the Company and its Subsidiaries holds in full force and effect all
material licenses, franchises, permits and authorizations ("Permits") necessary
for the lawful ownership and use of their respective properties and assets and
the conduct of their respective businesses (as now conducted) under and pursuant
to Applicable Laws relating to the Company and its Subsidiaries and, to the
knowledge of Seller, there has been no violation of any Permit, nor has Seller
received written notice asserting any such violation, except for such failures
to be in full force and effect and for such violations, if any, which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as set forth on Schedule 4.10 and except as provided in
Applicable Law (including without limitation any requirements for relicensure of
insurance companies), the consummation of the transactions contemplated by this
Agreement will not result in any revocation, cancellation or suspension of any
such Permit, except as a result of the status of Buyer and its Affiliates, and
there are no pending or, to the knowledge of Seller, threatened suits,
proceedings or investigations with respect to revocation, cancellation,
suspension or nonrenewal thereof and there has occurred no event which (whether
with notice or lapse of time or both) will result in such a revocation,
cancellation, suspension or nonrenewal thereof, in any such case except where
such a revocation, cancellation, suspension or non-renewal would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(b) Except as set forth on Schedule 4.10, each of the Company and its
Subsidiaries is in compliance with each Applicable Law relating to it or any of
its material assets, properties or operations, except where noncompliance with
any such Applicable Law would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Affect.
-14-
(c) Each of the Insurance Subsidiaries (i) is an authorized insurer
(on either an admitted or a nonadmitted basis) in each state in which it
presently writes insurance for the type of insurance it presently writes in such
states and (ii) meets in all material respects all statutory and regulatory
requirements of all Governmental Authorities which have jurisdiction over it to
be an authorized insurer on either an admitted or a nonadmitted basis.
(d) Seller has previously made available to Buyer true and complete
copies of the reports (or the most recent draft thereof, to the extent any final
report is not available) reflecting the results of the most recent financial
examinations and market conduct examinations of any of the Insurance
Subsidiaries issued by any Insurance Regulator.
Section 4.11 Absence of Certain Changes. Since December 31, 1996,
--------------------------
except as set forth on Schedule 4.11 or as is expressly contemplated by this
Agreement, the Berkshire Hathaway Reinsurance Agreement or an Ancillary
Agreement, or as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, the Company has conducted its
business in the ordinary course of business, consistent with past practice and
has not:
(a) entered into any new lines of business (whether or not part of the
insurance or reinsurance business), made, or permitted any Subsidiary to
make, any material change in the underwriting, reinsurance, marketing,
claim processing and payment, reserving, investment, financial or
accounting practices or policies of the Company or any of its Subsidiaries
or otherwise make material changes to the operations of the business,
except as required by law, GAAP or the statutory accounting practices of
the respective state of domicile of any such entity;
(b) made any, or permitted any Subsidiary to make any, (i) entry into
or modification of any reinsurance, coinsurance or retrocession agreement
by the Company or any of its Subsidiaries other than in the ordinary course
of business consistent with past practice, or (ii) termination or
commutation of any reinsurance, coinsurance or retrocession agreement
legally carried on the books of the Subsidiaries at the time of such
termination or commutation involving payments of $1,000,000 or more;
(c) issued or sold, or permitted any Subsidiary to issue or sell, any
capital stock, notes, bonds or other securities, or any option, warrant or
other right to acquire the same;
(d) other than the $451,527 dividend paid to Seller in the first
quarter of 1997, redeemed any capital stock or declared, made or paid any
dividends or distributions (whether in cash, securities or other property)
to the holders of capital stock;
(e) merged with, entered into a consolidation with or acquired an
interest of 5% or more in any Person or acquired a substantial portion of
the assets or business of any Person or any division or line of business
thereof, or otherwise acquired any assets (other than fixed maturity
securities, equity securities, cash and short-term investments) with an
aggregate value in excess of $250,000 other than in the ordinary course of
the business consistent with past practice, or permitted any Subsidiary to
do any of the foregoing;
(f) made, or permitted any Subsidiary to make, any capital expenditure
or commitment for any capital expenditure in excess of $250,000 in the
aggregate with respect to any such entity;
-15-
(g) incurred, or permitted any Subsidiary to incur, indebtedness for
money borrowed in excess of $250,000 in the aggregate;
(h) made any loan to, guaranteed any indebtedness for money borrowed
of, or otherwise incurred such indebtedness on behalf of, any Person in
excess of $250,000 in the aggregate other than investments made in the
ordinary course of business, or permitted any Subsidiary to do any of the
foregoing;
(i) (i) granted any increase, or announced any increase, in the wages,
salaries, compensation, bonuses, incentives, severance, pension or other
benefits payable to any of its employees who in the preceding 12 months
received compensation in excess of $100,000, including, without limitation,
any increase or change pursuant to any Plan, (ii) established or increased
or promised to increase any benefits under any Plan, in either case except
as required by law, rule or regulation or any collective bargaining
agreement or involving ordinary increases consistent with past practice,
(iii) entered into any employment, severance or termination agreement with
any such officer or employee, or (iv) permitted any Subsidiary to do any of
the foregoing;
(j) amended or restated, or permitted any Subsidiary to amend or
restate, its charter or by-laws (or other organizational documents);
(k) except as expressly required herein, paid, discharged or satisfied
any claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against on the Latest Balance Sheet or
incurred in connection with the transactions contemplated by this Agreement
or in the ordinary course of business and consistent with past practice;
(l) adopted a plan of complete or partial liquidation or resolutions
providing for the complete or partial liquidation, dissolution,
amalgamation, consolidation, restructuring, recapitalization or other
reorganization of the Company;
(m) except as set forth on Schedule 4.17, acquired investments which
are not rated in one of the four highest categories by a "nationally
recognized statistical rating agency" as defined in the rules or
regulations of the Securities and Exchange Commission;
(n) sold (whether by merger, consolidation or otherwise), leased,
created any Encumbrance with respect to, transferred or disposed of any
material assets of the Company (including without limitation the Shares and
rights of renewal) outside the ordinary course of business consistent with
past practice or entered into any material commitment or transaction
outside the ordinary course of business consistent with past practice;
(o) made any Tax elections or settled or compromised any material
United States federal, state, local or other foreign income tax liability,
or waived or extended the statute of limitations in respect of any such
Taxes;
(p) other than in the ordinary course of business consistent with past
practice, paid or agreed to pay in settlement or compromise of any suits or
claims of liability against the Company, its directors, officers, employees
or agents, more than an aggregate of $100,000 for all such suits and
claims;
-16-
(q) entered into any agreement providing for the acceleration of
payment or performance or other consequence as a result of a change in
control of the Company;
(r) made any prepayment of any liabilities, other than in the ordinary
course of business consistent with past practice, individually or in the
aggregate exceeding $250,000;
(s) as of the date hereof, suffered any damage, destruction, or other
casualty (whether or not covered by insurance) affecting any of the assets
and properties of the Company or any of its Subsidiaries which damage,
destruction, or loss individually or in the aggregate exceeds $250,000 or
the result of which individually or in the aggregate exceeds $250,000;
(t) made any amendment, termination, waiver, disposal, or lapse of, or
other failure to preserve, any license or other form of authorization of
the Company or any of its Subsidiaries, which is material to the conduct of
the business of the Company and its Subsidiaries, taken as a whole; or
(u) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section, except as expressly contemplated by this
Agreement.
Section 4.12 Technology and Intellectual Property. (a) Except as
------------------------------------
set forth on Schedule 4.12, the Company or its Subsidiaries own or possess, or
have enforceable rights or licenses to use, the patents, trademarks, service
marks, trade names, copyrights (including any registrations, applications,
licenses or rights relating to any of the foregoing), technology, trade secrets,
inventions, know-how and computer programs which are necessary to carry on their
respective businesses as presently conducted (each, an "Intellectual Property
Right"), and neither the Company nor its Subsidiaries has received any written
notice of any infringement of the rights of others with respect to any such
Intellectual Property Right that, if such infringement is determined to be
unlawful, would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The execution and delivery of this Agreement by
Seller, and the consummation of the transactions contemplated hereby, will
neither cause the Company or any of its Subsidiaries to be in violation or
default under any licenses, sublicenses or other agreements to which the Company
or any of its Subsidiaries is a party and pursuant to which the Company or any
of its Subsidiaries is authorized to use any Intellectual Property Right, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement, except where any such
violation, default, termination or modification would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect. Except
as set forth on Schedule 4.12, Parent, Seller and their Affiliates (other than
the Company and the Subsidiaries) have no right or title to or interest in any
Intellectual Property Right. Schedule 4.12 sets forth a complete and correct
list, as of the date hereof, and a brief description of, the Intellectual
Property Rights that are material to the Company or any Subsidiary.
(b) To the knowledge of Seller, no use of any Intellectual Property
Right by the Company or any Subsidiary breaches, violates or infringes any
rights of any third party or (except for the payment of computer software
licensing fees) requires any payment for the use of any patent, trade name,
service ▇▇▇▇, trade secret, trademark, copyright or other intellectual property
right or technology owned by any third party.
Section 4.13 Employee Benefit Plans; ERISA. (a) Except as set forth
-----------------------------
on Schedule 4.13, neither Seller, the Company, nor any of the Subsidiaries is a
party to, participates in or has any obligation under, and neither Seller, the
Company, nor any of the Subsidiaries has any obligation with respect to Company
Employees or any other current or former employees of the Company or its
Subsidiaries under,
-17-
(A) any "employee welfare benefit plan" or "employee pension benefit plan" (as
those terms are respectively defined in Section 3(1) and 3(2) of ERISA), (B) any
retirement or deferred compensation plan, incentive compensation plan, stock
plan, unemployment compensation plan, vacation pay, severance pay, bonus or
benefit arrangement, insurance or hospitalization program or any other fringe
benefit arrangements for any current or former employee, director, consultant or
agent, whether pursuant to contract, arrangement, custom or informal
understanding, which does not constitute an employee benefit plan (as defined in
Section 3(3) of ERISA), or (C) any employment agreement.
(b) A true and correct copy each of the plans, arrangements and
agreements set forth on Schedule 4.13 (the "Plans") and copies of all related
trust agreements, schedules, benefit entitlement letters, insurance contracts
(including "stop-loss" policies), and administration contracts, each as in
effect on the date hereof, have been supplied to Buyer. In the case of any Plan
which is not in written form, Buyer has been supplied with an accurate
description of such Plan as in effect on the date hereof. A true and correct
copy of the most recent annual report, actuarial report, summary plan
description and IRS determination letter with respect to each Plan, to the
extent applicable, has been supplied to Buyer, and there have been no material
adverse changes in the financial condition of the respective Plans from that
stated in the annual reports and actuarial reports supplied.
(c) As to all Plans:
(i) All Plans comply, and have been administered in form and in
operation in all respects, with all applicable requirements of Applicable
Law and, as of the date hereof, no event has occurred which will or would
reasonably be expected to cause any such Plan to fail to comply with such
requirements and, as of the date hereof, no notice has been issued by any
governmental authority questioning or challenging such compliance, except
where any such noncompliance would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(ii) All Plans which are employee pension benefit plans and are
intended to be tax-qualified plans comply in form and in operation in all
material respects with all applicable requirements of Sections 401(a) and
501(a) of the Code; there have been no amendments to such Plans which are
not the subject of a favorable determination letter issued with respect
thereto by the IRS, except for those amendments of which copies have been
provided to Buyer prior to the date hereof and, as of the date hereof, no
event has occurred which will or would reasonably be expected to give rise
to disqualification of such Plan under such Sections or to a tax under
Section 511 of the Code, except where any such disqualification would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(d) Except as set forth on Schedule 4.13, neither Seller, the Company
nor any of the Subsidiaries has any commitment, intention or understanding to
create, modify, terminate or adopt any Plan that would result in any additional
material liability to Buyer, the Company or the Subsidiaries.
(e) Neither Seller, the Company, any of their Subsidiaries nor any
ERISA Affiliate maintains, has any obligation to contribute to or otherwise has
any obligation under any multiemployer plan (as defined in Section 3(37) of
ERISA).
(f) Neither Seller, the Company nor any of their Subsidiaries
maintains, has any obligation to contribute to, is a party to, or has any
liability or contingent or potential liability under any "voluntary employees'
beneficiary association" (within the meaning of Section 501(c)(9) of the Code).
-18-
(g) Except as set forth on Schedule 4.13, the execution and delivery
of this Agreement and the performance of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Plan or agreement that will or
would reasonably be expected to result in (i) any payment (whether of severance
pay or otherwise), acceleration, vesting or increase in benefits with respect to
any Company Employee or (ii) an "excess parachute payment" (within the meaning
of Section 280G of the Code).
(h) Except as set forth on Schedule 4.13, Seller shall remain solely
liable for all liabilities, benefits or claims with respect to Company Employees
accrued pursuant to any Plan which is a pension plan under Section 3(2)(A) of
ERISA and which is not intended to be qualified under Section 401(a) of the
Code. The accrued liabilities of the Company and its Subsidiaries under the
SIRP with respect to Company Employees, and the assets associated therewith, are
reflected on the financial statements of the Company and its Subsidiaries, and
such assets are substantially equal to such accrued liabilities.
(i) From and after the Closing, Buyer, the Company and the
Subsidiaries may terminate or amend any Plan maintained solely by the Company or
its Subsidiaries; provided, however, that Buyer shall pay or cause the Company
or its Subsidiaries to pay, benefits in accordance with the terms of the
Enhanced Severance Benefit Plan of Westchester Fire Insurance Company as in
effect on the day before the Closing Date.
(j) None of the assets of any Plan (other than the ESOP maintained by
Xerox) is invested in employer securities or employer real property.
(k) There have been no non-exempt "prohibited transactions" (as
described in Section 406 of ERISA or Section 4975 of the Code) with respect to
any Plan and neither the Company nor any of its Subsidiaries has engaged in any
non-exempt prohibited transaction which (in either case) would reasonably be
expected to result in a material fine or penalty under Section 502 of ERISA or
Section 4975 of the Code.
(l) There have been no acts or omissions with respect to any Plan by
the Company which have given rise to or would reasonably be expected to give
rise to material fines, penalties, taxes of related charges under Section 502 of
ERISA or Chapters 43, 47 or 68 of the Code for which the Company would
reasonably be expected to be liable.
(m) There are no material actions, suits or claims (other than routine
claims for benefits) pending or, to the knowledge of Seller, threatened
involving any Plan or the assets thereof and no facts exist which would
reasonably be expected to give rise to any such actions, suits or claims (other
than routine claims or benefits).
(n) Except as set forth on Schedule 4.13, none of the Plans is subject
to Title IV of ERISA, and the Company does not have any material liability or
contingent liability with respect to any Plan that is or has been subject to
Title IV of ERISA.
(o) Each Plan which constitutes a "group health plan" (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code), including any plans
of current and former subsidiaries of Seller which must be taken into account
under Sections 4980B and 414(t) of the Code or Section 601 of ERISA, has been
operated in material compliance with Applicable Law, including coverage
requirements of Section 4980B of the Code and Section 601 of ERISA to the extent
such requirements are applicable. The number of Company Employees, or other
individuals who are or were related to or dependents of
-19-
Covered Employees, receiving continuation coverage under Section 4980B of the
Code or Section 601 of ERISA was nine as of July 18, 1997.
(p) Except as set forth on Schedule 4.13, the Company and its
Subsidiaries do not have any liability or contingent liability for providing,
under any Plan or otherwise, any post-retirement medical or life insurance
benefits, other than statutory liability for providing group health plan
continuation coverage under Part 6 of Title I of ERISA and Section 4980B of the
Code.
(q) Actuarially adequate accruals for all obligations of the Company
and its Subsidiaries under the Plans are reflected in the financial statements
of the Company and its Subsidiaries and such obligations include a pro rata
amount of the contributions which would otherwise have been made in accordance
with past practices and Applicable Law for the plan years which include the
Closing Date.
(r) No compensation which the Company or its Subsidiaries has paid or
is obligated to pay to any employee is nondeductible on account of Section
162(m) of the Code.
Section 4.14 Taxes. (a) Seller and the Company (and any affiliated
-----
group of which the Company is a member) have timely filed with the appropriate
taxing authorities all federal and, to the knowledge of Seller, state and local
Tax Returns and Information Returns required to be filed through the date hereof
(taking into account all valid extensions). All such federal and, to the
knowledge of Seller, state and local Tax Returns and Information Returns are
complete and accurate in all material respects. The Company is a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, that includes Seller, Parent and Xerox Corporation ("Xerox"), which is the
common parent of the affiliated group.
(b) All Taxes shown in the Tax Returns referred to in Section 4.14(a)
that are due and payable by the Company and its Subsidiaries before the date
hereof have been timely paid.
(c) Except as set forth on Schedule 4.14, there are no Encumbrances on
any of the assets of the Company or any of its Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Taxes (other than
Taxes that are not due as of the date hereof).
(d) Except as set forth on Schedule 4.14, to the knowledge of Seller,
there is no action, suit, proceeding, investigation, audit, extensions of the
statute of limitations or claim now pending that relates to Tax liabilities
attributable to items of income, gain, deduction, loss or credits of the Company
or any of its Subsidiaries.
(e) The Company and the Subsidiaries have withheld and paid all
federal and, to the knowledge of Seller, all state and local Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
(f) A representation with respect to Taxes contained in this Section
4.14 shall be deemed to be accurate unless an inaccuracy contained therein
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 4.15 Contracts. (a) Schedule 4.15(a) sets forth a complete
---------
and accurate list, as of the date hereof, of all contracts, agreements,
commitments, arrangements, leases, insurance policies or other instruments,
written or oral, to which the Company or any of its Subsidiaries is a party
(excluding policies of insurance or reinsurance in the ordinary course of
business), or by which any of their respective
-20-
assets, business or operations may be bound or affected, which contain
obligations of the Company or its Subsidiaries in excess of $250,000 in any one
fiscal year or $500,000 in the aggregate in any five year period (unless such
contract is terminable on not more than one year's notice without cause and
payment of penalty) or which are otherwise necessary or material to the business
of the Company and its Subsidiaries taken as a whole (collectively, the
"Contracts").
(b) Except as set forth on Schedule 4.15(b), as of the date hereof
none of the Company or any of its Subsidiaries is a party to or owner of any:
(i) agreement, contract, commitment or undertaking (other than
contracts of insurance or reinsurance or retrocession agreements) the
performance or non-performance of which is individually or, with respect to
any related series of agreements, in the aggregate, material to the Company
and the Subsidiaries, taken as a whole;
(ii) agreement, contract, commitment or undertaking (other than
contracts of insurance or reinsurance or retrocession agreements) which
provides for an aggregate purchase price or payments of more than $100,000
under any agreement during any two-year period (or $100,000 in the
aggregate, during any two-year period, in the case of any related series of
agreements);
(iii) agreement for the sale or lease of any of the assets and
properties of the Company or any of its Subsidiaries other than in the
ordinary course of business consistent with past practice;
(iv) material mortgage, pledge, conditional sales contract, security
agreement, factoring agreement, or other similar material agreement with
respect to any real or personal property of the Company or any of its
Subsidiaries;
(v) agreement with a labor union or labor association;
(vi) loan agreement, promissory note issued by it, guarantee,
subordination or similar type of agreement;
(vii) noncompetition or non-solicitation agreement;
(viii) power of attorney or agreement with a managing general agent
or third party administrator; or
(ix) support agreement, guarantee or other agreement for the benefit
of any Affiliate of the Company (including any Affiliate of Seller).
(c) With respect to each Contract and each contract set forth on
Schedule 4.15(b) (each a "Section 4.15(b) Contract"), (i) to the knowledge of
Seller, assuming the due authorization, execution and delivery thereof by the
other party or parties thereto, such Contract or Schedule 4.15(b) Contract is
valid and binding in all material respects in accordance with its terms and is
in full force and effect, (ii) the Company and its Subsidiaries are not, and, to
the knowledge of Seller, no other party thereto is, in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained therein except where such defaults would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect and (iii) to
the knowledge of Seller, no event has occurred which, with or without the giving
of notice or lapse of time, or both, would constitute a default thereunder
-21-
except where such defaults would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Schedule 4.15(a) or 4.15(b), no Contract or Schedule 4.15(b) Contract requires
the consent of any party in connection with the transactions contemplated
hereby.
Section 4.16 No Material Adverse Change. Except as set forth on
--------------------------
Schedule 4.16, since December 31, 1996, there has been no change in the
business, operations, assets, liabilities, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries which has had or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; provided, however, to the extent such effect results from any of
the following, such effect shall not be considered a Material Adverse Effect for
purposes of this Section 4.16: (i) general conditions applicable to the economy
of the United States, including changes in interest rates, (ii) conditions
affecting the property and casualty insurance or reinsurance business as a
whole, or (iii) conditions or effects resulting from the announcement of the
existence and terms of this Agreement.
Section 4.17 Portfolio Investments. Seller has previously delivered
---------------------
to Buyer true and complete lists, as of July 31, 1997, of all assets held in the
investment portfolios of the Company and its Subsidiaries as of such date and
has attached such lists hereto as Schedule 4.17. All such assets included in
such investment portfolios were purchased by the Company or a Subsidiary in
compliance with Applicable Law.
Section 4.18 Reserves. Seller has delivered to Buyer a true and
--------
complete copy of that certain report entitled "Westchester Specialty Group, Inc.
Review of Loss and Loss Adjustment Expense Reserves as of December 31, 1996"
(the "KPMG Report"). The Ridge Re Agreement is in full force and effect.
Notwithstanding any other provision of this Agreement (including Sections 4.6
and 4.9), Seller makes no representation or warranty that the reserves of the
Company or any of its Subsidiaries for losses, loss adjustment expenses or
uncollectible reinsurance are adequate or sufficient. The sole provisions of
this Agreement with respect to the adequacy or sufficiency of such reserves are
set forth in this Section 4.18.
Section 4.19 Title to Assets, etc. The Company and its Subsidiaries
---------------------
have good and marketable title to, or valid and subsisting leasehold interests
in, all real and material personal property and other material assets on their
books and reflected on the Company's balance sheet at December 31, 1996 or
acquired in the ordinary course of business since December 31, 1996 which would
have been required to be reflected on such balance sheet if acquired on or prior
to December 31, 1996, other than assets which have been disposed of in the
ordinary course of business. The Company and its Subsidiaries do not own any
real estate. Schedule 4.19 sets forth a true and complete listing, as of the
date hereof, of all real estate leases or subleases to which the Company or any
of its Subsidiaries is a party. None of such assets is subject to any
Encumbrance, except for Encumbrances reflected in the financial statements of
the Company as of December 31, 1996 or which in the aggregate are not
substantial in amount or do not materially interfere with the present use of
such property or assets. Assuming the due authorization, execution and delivery
of all such leases by the other parties thereto, all such leases are valid,
binding and enforceable against the Company (and, to the knowledge of Seller,
against each other party thereto) in accordance with their respective terms,
and, to the knowledge of Seller, there does not exist, under any lease of real
property or personal property, any material defect or any event which, with
notice or lapse of time or both, would constitute a material default by the
Company or by any other party thereto. Except as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect, the
Company and its Subsidiaries have the right to quiet enjoyment of all real
property leased by any of them for the full term of each such lease or sublease
or similar agreement (or any renewal option) relating thereto and such leased
property is not subject to any failure to have the right to quiet enjoyment.
-22-
Section 4.20 Transactions with Certain Persons. (a) Except as set
---------------------------------
forth on Schedule 4.20, neither any officer, director or employee of Parent,
Seller, the Company, any Subsidiary or any Affiliate nor any member of any such
Person's immediate family is presently a party to any material transaction with
the Company or any of its Subsidiaries which would be required to be disclosed
under Item 404 of Regulation S-K promulgated by the Securities and Exchange
Commission, including any contract or other binding arrangement (i) providing
for the furnishing of material services by such Person (except in such Person's
capacity as an officer, director, employee or consultant), (ii) providing for
the rental of material real or personal property from such Person, or (iii)
otherwise requiring material payments to (other than for services as officers,
directors or employees of Xerox, Parent, Seller, the Company or any Subsidiary)
such Person.
(b) Except as set forth on Schedule 4.20 or in the ordinary course of
business consistent with past practice, since December 31, 1996 no intercompany
trade receivables and payables have been settled between Seller or any Affiliate
(other than the Company and its Subsidiaries) on the one hand and the Company
and/or any Subsidiary on the other hand.
(c) Schedule 4.20 sets forth a true and complete list of all written
(and a true and complete summary of all oral) contracts, agreements or
commitments between the Company or any of its Subsidiaries and Xerox or any
Affiliate (other than the Company and its Subsidiaries) thereof as of the date
of this Agreement which (i) cannot be terminated upon less than 30 days' notice,
and (ii) require payments annually of more than $250,000.
(d) Except as set forth on Schedule 4.20, no indebtedness for money
borrowed is owed by the Company or any of its Subsidiaries to Seller or any of
its Affiliates (except for the Company and its Subsidiaries).
Section 4.21 Reinsurance and Retrocessions. Schedule 4.21 contains a
-----------------------------
true and complete list of all reinsurance and retrocession treaties and
agreements in force as of the date of this Agreement to which any Subsidiary is
a ceding party (including any terminated or expired treaty or agreement under
which as of December 31, 1996 there remains an outstanding liability with
respect to paid or unpaid case reserves in excess of $500,000), any terminated
or expired treaty or agreement under which there remains any outstanding
liability from one reinsurer with respect to paid or unpaid case reserves in
excess of $100,000 and any treaty or agreement with any Affiliate of such
Subsidiary, the effective date of each such treaty or agreement, and the
termination date of any treaty or agreement which has a definite termination
date (individually a "Reinsurance Agreement" and collectively, the "Reinsurance
Agreements"), copies of which have been delivered or made available to Buyer.
Assuming the due authorization, execution and delivery of each such Reinsurance
Agreement by the other parties thereto, each such Reinsurance Agreement is valid
and binding in all material respects in accordance with its terms and is in full
force and effect. None of the in-force Reinsurance Agreements may be terminated
by any party thereto due to a change of control of the Company or any of the
Subsidiaries. No other party to any Reinsurance Agreement has given notice to
the Company or any of its Subsidiaries that it intends to terminate or cancel
any such Reinsurance Agreement as a result of the transactions contemplated
hereby or the contemplated operations of the Company or its Subsidiaries after
the consummation of the transactions contemplated hereby, which termination or
change would reasonably be expected to have a Material Adverse Effect. To the
knowledge of Seller, no Subsidiary is in default in any respect as to any
provision of any reinsurance or retrocession treaty or agreement or has failed
to meet the underwriting standards required for any business reinsurance
thereunder except for defaults, which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
-23-
Section 4.22 Environmental Laws. (a) To the knowledge of Seller,
------------------
except as set forth on Schedule 4.22 and as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect: (i) the
Company and each of its Subsidiaries is in compliance with all applicable
Environmental Laws, and possesses and is in compliance with all Environmental
Permits required under such laws for the conduct of its business and operations,
(ii) there are no past, present or future events, conditions, circumstances,
practices, plans or legal requirements that would reasonably be expected to
prevent, or increase the burden on the Company or any of its Subsidiaries of
complying with applicable Environmental Laws or of their obtaining, renewing or
complying with all Environmental Permits required under such laws for the
conduct of its business and operations, (iii) there are and have been no
conditions at any property owned, operated or otherwise used by the Company or
any Subsidiary now or in the past, or at any other location, that would
reasonably be expected to give rise to liability of the Company or any of its
Subsidiaries under any Environmental Law, and (iv) since September 3, 1993,
there have been no past and there are now no pending or threatened Actions
regarding the Company or any of its Subsidiaries brought by any Person or
Governmental Authority regarding any Environmental Law or Hazardous Material.
(b) Notwithstanding the representations contained in this Section,
Buyer acknowledges that Seller is not making any representations (express or
implied in or pursuant to this Agreement) with respect to any violation of or
noncompliance with Environmental Law or Environmental Permits, or failure to
obtain Environmental Permits, in each case by reason of any insurance,
reinsurance, indemnity, guaranty or assumption of liability policy of any party,
entered into by the Company or any Insurance Subsidiary.
Section 4.23 Insurance Coverage. The Company has furnished to Buyer
------------------
a true and correct list, as of the date hereof, of all policies of insurance
relating to the assets, properties, business, operations, employees, officers or
directors of the Company and each of its Subsidiaries. The Company maintains
insurance relating to such assets, properties, business, operations, employees,
officers and directors which is reasonable for a company of its size engaged in
the property and casualty insurance business.
Section 4.24 Labor Matters. Since December 31, 1996, the operation
-------------
of the business of the Company and its Subsidiaries has not been materially and
adversely affected by labor problems. To the knowledge of Seller, (i) no such
problem would, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect and (ii) the activities of the Company and its
Subsidiaries have been in compliance in all material respects with all
Applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours. Schedule 4.24 sets forth as of
the date hereof, to the knowledge of Seller, a description of all pending or
threatened disputes or claims applicable to the Company or any of its
Subsidiaries alleging employment discrimination, sexual harassment or any unfair
employment practice.
Section 4.25 No Other Agreements to Sell the Assets or the Company.
-----------------------------------------------------
Except as set forth on Schedule 4.25, none of Parent, Seller, the Company or any
Subsidiary has any agreement, absolute or contingent, with any other Person to
sell the capital stock, material assets (other than with respect to the sale of
portfolio assets in the ordinary course of business consistent with past
practice) or business of the Company or any Subsidiary or to effect any merger,
consolidation or other reorganization of the Company or any Subsidiary or to
enter into any agreement with respect thereto.
Section 4.26 1992/93 Restructuring. The 1992/93 Restructuring
---------------------
complied with, and all novations made pursuant to the 1992/93 Restructuring were
made in accordance with, all applicable statutes, rules, regulations, orders,
writs, injunctions, judgments and decrees, except for such failures to be
-24-
in accordance therewith which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. To the knowledge of
Seller, as of the date hereof, no party has raised any judicial, regulatory or
other formal challenge: (i) seeking to overturn the contracts and arrangements
entered into in connection with the 1992/93 Restructuring or (ii) seeking to
invalidate the novation process (not including challenges to the novation status
of individual policies in the context of insurance policy claims or litigation)
provided for under the Assumption and Indemnity Reinsurance Agreements entered
into as a part of the 1992/93 Restructuring.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 5.1 Organization and Related Matters. Buyer is a
--------------------------------
corporation, duly organized, validly existing and in good standing under the
laws of the Cayman Islands. The copies of the Memorandum of Association and the
Articles of Association, and any amendments thereto, of Buyer previously
delivered to the Company are complete and correct copies of such instruments as
in effect as of the date of this Agreement.
Section 5.2 Authority; No Violation. (a) Buyer has full corporate
-----------------------
power and authority to execute and deliver this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly approved by all requisite corporate action on the part of
Buyer, and no other corporate proceedings on the part of Buyer are necessary to
approve this Agreement and the Ancillary Agreements or to consummate the
transactions contemplated hereby and thereby. This Agreement and the Tax
Agreement have been duly and validly executed and delivered by Buyer and
(assuming the due authorization, execution and delivery of this Agreement and
the Tax Agreement by Seller and the other parties thereto) constitute valid and
binding obligations of Buyer, enforceable against Buyer in accordance with their
respective terms, except as enforcement may be limited by general principles of
equity, whether applied in a court of law or a court of equity, and by
bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights
and remedies generally.
(b) Neither the execution and delivery of this Agreement and the
Ancillary Agreements by Buyer, nor the consummation by Buyer of the transactions
contemplated hereby and thereby to be performed by it, nor compliance by Buyer
with any of the terms or provisions hereof or thereof, will (i) violate any
provision of the Memorandum of Association or the Articles of Association of
Buyer, or (ii) assuming that the consents and approvals referred to in Section
5.3 are duly obtained, (A) violate in any material respect any Applicable Law
with respect to Buyer, or any of its material properties or assets or (B)
violate, conflict with, result in a breach of any provision of, or constitute a
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under, or require the consent of any Person under, or
result in the imposition of any Encumbrance on any of the properties or assets
of Buyer under, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer is a party, or
by which Buyer or any of its properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults which, would not,
individually or in the aggregate, prevent or materially delay the performance by
Buyer of any of its obligations hereunder.
-25-
Section 5.3 Consents and Approvals. Except for (i) the approval of
----------------------
this Agreement, the Ancillary Agreements and the transactions contemplated
hereby and thereby, and the new intercompany tax agreements among the Company
and the Subsidiaries which shall be effective as of the Closing, by each of the
applicable governmental and regulatory authorities set forth on Schedule 5.3,
(ii) the approval of this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby, and the new intercompany tax
agreements among the Company and the Subsidiaries which shall be effective as of
the Closing, by any other governmental or regulatory authorities, the failure of
which to obtain would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, (iii) the filing of premerger
notification reports under the HSR Act, (iv) the filing of a notice pursuant to
the Exon-▇▇▇▇▇▇ Amendment, and (iv) consents, approvals, authorizations,
declarations, filings and registrations required by the nature of the business
or ownership of Seller, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, or any other Person, is required to be made or obtained by Buyer on
or prior to the Closing Date in connection with the execution or delivery of
this Agreement or any of the Ancillary Agreements, the performance of this
Agreement or any Ancillary Agreement, or the consummation of the transactions
contemplated hereby and thereby.
Section 5.4 Legal Proceedings. As of the date hereof, Buyer is not a
-----------------
party to any, and there are no pending or, to the knowledge of Buyer,
threatened, Actions against or otherwise affecting Buyer or its properties or
assets or challenging the validity or propriety of the transactions contemplated
by this Agreement which, if adversely determined, would, individually or in the
aggregate, prevent or materially delay the performance by Buyer of any of its
obligations pursuant to this Agreement, and there is no injunction, order,
judgment, decree or regulatory restriction imposed upon Buyer or its properties
or assets which would, individually or in the aggregate, prevent or materially
delay the performance by Buyer of any of its obligations pursuant to this
Agreement.
Section 5.5 Investment Intent of Buyer. The Shares to be acquired
--------------------------
under this Agreement will be acquired by Buyer for its own account and not for
the purpose of a distribution. Buyer will refrain from transferring or
otherwise disposing of any of the Shares acquired by it, or any interest
therein, in such manner as to violate any registration provision of the
Securities Act of 1933, as amended, or any applicable state securities law
regulating the disposition thereof.
Section 5.6 Investment Company. Buyer is not an investment company
------------------
subject to registration and regulation under the Investment Company Act of 1940,
as amended.
Section 5.7 No Other Broker. Other than ▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇
---------------
Securities Corporation, the fees and expenses of which will be paid by Buyer, no
broker, finder or similar intermediary has acted for or on behalf of Buyer or
any Affiliate of Buyer, or is entitled to any broker's, finder's or similar fee
or other commission from Buyer, or any Affiliate of Buyer, in connection with
this Agreement or the transactions contemplated hereby.
Section 5.8 Financing. Buyer has, and at the Closing will have,
---------
sufficient cash to consummate the transactions contemplated hereby and to pay
all related fees and expenses.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business. During the period from the date of
-------------------
this Agreement through the Closing Date, except as contemplated or permitted by
this Agreement or with the consent of
-26-
Buyer, the Company shall (and shall cause its Subsidiaries to) (a) carry on its
business in the ordinary course consistent with past practice, (b) use
reasonable best efforts to (i) preserve its present business organization and
relationships and those of its Subsidiaries, (ii) keep available the present
services of its employees, and (iii) preserve the rights, franchises, goodwill
and relations of its customers and others with whom business relationships
exist, (c) not pay or agree to pay in settlement or compromise of any suits or
claims of liability against the Company, its directors, officers, employees or
agents, more than an aggregate of $250,000 for all such suits and claims, (d)
not make any prepayment of any liabilities, individually or in the aggregate,
exceeding $250,000, and (e) not enter into any agreement described in Section
4.15(b). Without limiting the generality of the foregoing, except as
contemplated or permitted by this Agreement or consented to by Buyer, Seller
shall not take any of the actions referred to in paragraphs (a) through (u)
(excluding paragraph (s)) of Section 4.11 between the date of this Agreement and
the Closing Date.
Section 6.2 Confidentiality and Announcements. (a) Except as
---------------------------------
provided in Section 6.2(b), neither Seller or Buyer, nor any of their respective
Affiliates, shall publicly disclose the execution, delivery or contents of this
Agreement, other than with the prior written consent of the other party hereto,
or other than as required by any Applicable Law or the rules of any stock
exchange upon prior notice to the other party hereto.
(b) Buyer and Seller shall agree with each other as to the form and
substance of any press release related to this Agreement or the transactions
contemplated hereby, and shall consult each other as to the form and substance
of other public disclosures related thereto, provided, however, that nothing
contained herein shall prohibit either party, following notification to the
other party if practicable, from making any disclosure which its counsel
determines to be required by any Applicable Law or the rules of any stock
exchange.
Section 6.3 Expenses. Regardless of whether any or all of the
--------
transactions contemplated by this Agreement are consummated, and except as
otherwise expressly provided herein, Buyer and Seller shall each bear their
respective direct and indirect expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation of the
transactions contemplated hereby.
Section 6.4 Access; Certain Communications. Between the date of
------------------------------
this Agreement and the Closing Date, subject to Applicable Laws relating to the
exchange of information, Seller shall (and shall cause the Company and its
Subsidiaries to) afford to Buyer and its authorized agents and representatives
complete access, upon reasonable notice and during normal business hours, to all
contracts, documents and information of or relating to the assets, liabilities,
business, operations and other aspects of the business of the Company and its
Subsidiaries and, during such period, Seller shall (and shall cause the Company
and each of its Subsidiaries to) furnish promptly to Buyer, (a) all
correspondence or written communication between the Company or any of its
Subsidiaries and A.M. Best, Standard & Poor's Corporation, ▇▇▇▇▇'▇ Investor
Services, Inc., any Governmental Authority or any Insurance Regulator which
relates to the transactions contemplated hereby or which is otherwise material
to the financial condition or operation of the Company and its Subsidiaries
taken as a whole, and (b) subject to any attorney-client privilege applicable to
the Company or its Subsidiaries, all other information concerning its business,
properties and personnel as Buyer may reasonably request. Seller shall cause
the Company Employees (subject to any attorney-client privilege applicable to
the Company or its Subsidiaries) to provide reasonable assistance to Buyer in
Buyer's investigation of matters relating to the purchase of the Shares,
provided, however, that Buyer's investigation shall be conducted in a manner
which does not interfere with the Company's or its Subsidiaries' normal
operations, customers and employee relations. Without limiting any of the terms
thereof, the terms of the Confidentiality Agreement shall govern Buyer's and its
agents' and representatives' obligations with respect to all confidential
information with respect to
-27-
the Company or its Subsidiaries which has been provided or made available to
them at any time, including during the period between the date of this Agreement
and the Closing Date.
Section 6.5 Regulatory Matters; Third Party Consents. (a) Buyer and
----------------------------------------
Seller shall cooperate with each other and use reasonable best efforts promptly
to prepare and file all necessary documentation, to effect all applications,
notices, petitions and filings, and to obtain as promptly as practicable all
permits, consents, approvals, waivers and authorizations of all third parties
and Governmental Authorities which are necessary or advisable to consummate the
transactions contemplated by this Agreement. Buyer and Seller shall have the
right to review in advance, and shall consult with the other on, in each case
subject to Applicable Laws relating to the exchange of information, all the
information relating to Seller, the Company and the Subsidiaries or Buyer, as
the case may be, and any of their respective Affiliates, which appear in any
filing made with, or written materials submitted to, any third party or any
Governmental Authority in connection with the transactions contemplated by this
Agreement, provided, however, that nothing contained herein shall be deemed to
provide either party with a right to review any information provided to any
Governmental Authority on a confidential basis in connection with the
transactions contemplated hereby. The parties hereto agree that they will
consult with each other with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and Governmental Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party shall keep the other apprised of the status of matters
relating to completion of the transactions contemplated herein. The party
responsible for any such filing shall promptly deliver to the other party
evidence of the filing of all applications, filings, registrations and
notifications relating thereto (except for any confidential portions thereof),
and any supplement, amendment or item of additional information in connection
therewith (except for any confidential portions thereof). The party responsible
for a filing shall also promptly deliver to the other party a copy of each
material notice, order, opinion and other item of correspondence received by
such filing party from any Governmental Authority in respect of any such
application (except for any confidential portions thereof). In exercising the
foregoing rights and obligations, Buyer and Seller shall act reasonably and as
promptly as practicable.
(b) Without limiting the generality of the foregoing, within 20
Business Days after the date hereof, Buyer shall make Form A filings with the
insurance departments of the States of New York, California (if required),
Georgia and Texas with respect to the transactions contemplated hereby. Buyer
shall promptly make any and all other filings and submissions of information
with such insurance departments which are required or requested by such
insurance departments in order to obtain the approvals required by such
insurance departments to consummate the transactions contemplated hereby. Seller
agrees to furnish Buyer with such necessary information and reasonable
assistance as Buyer may reasonably request in connection with its preparation of
such Form A filings and other filings or submissions. Buyer shall keep Seller
fully apprised of its actions with respect to all such filings and submissions
and shall provide Seller with copies of such Form A filings and other filings or
submissions.
(c) Buyer and Seller shall, upon request, furnish each other with all
information concerning themselves, their subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary in connection
with any statement, filing, notice or application made by or on behalf of Buyer,
the Company or any of their respective Affiliates to any Governmental Authority
in connection with the transactions contemplated by this Agreement (except to
the extent that such information would be, or relates to information that would
be, filed under a claim of confidentiality).
(d) Buyer and Seller shall promptly advise each other upon receiving
any communication from any Governmental Authority whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that
-28-
there is a reasonable likelihood that any requisite regulatory approval will not
be obtained or that the receipt of any such approval will be materially delayed.
(e) Seller shall use commercially reasonable efforts to obtain, with
respect to each Insurance Subsidiary, copies of certificates of admission or
authority from the insurance commissioner or similar authority of each state in
which such Insurance Subsidiary is admitted or authorized to conduct business.
Section 6.6 Further Assurances. Each of the parties hereto shall
------------------
execute such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date,
use reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the transactions contemplated
hereby, including the execution and delivery of any documents, certificates,
instruments or other papers that are reasonably required for the consummation of
the transactions contemplated hereby.
Section 6.7 Notification of Certain Matters. (a) Each party shall
-------------------------------
give prompt notice to the other party of (i) the occurrence, or failure to
occur, of any event or existence of any condition that has caused or would
reasonably be expected to cause any of its representations or warranties
contained in this Agreement to be untrue or inaccurate in any material respect
at any time after the date of this Agreement, up to and including the Closing
Date (except to the extent such representations and warranties speak as of a
particular date), and (ii) any failure on its part to comply with or satisfy, in
any material respect, any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement.
(b) Seller may, prior to the Closing, by written notice to Buyer,
supplement any Schedule to reflect any change or event that occurs after the
date of this Agreement or to otherwise correct or amend any such Schedule,
provided that all such supplemental Schedules shall be delivered to Buyer by
Seller at the same time on a Business Day not fewer than three Business Days
prior to the Closing.
(c) Such supplemental Schedules shall be deemed to cure any breach of
any of Seller's representations or warranties for purposes of Section 7.1(a)
unless the impact of all matters disclosed on such supplemental Schedules would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as set forth in Section 6.7(d), such supplemental
Schedules shall not be deemed to have cured any breach of any of Seller's
representations or warranties for purposes of Article VIII hereof.
(d) Such supplemental Schedules shall be deemed to cure any breach of
any of Seller's representations or warranties for purposes of Article VIII
hereof if the impact of all matters disclosed on such supplemental Schedules is
reasonably expected to have a Material Adverse Effect and Buyer exercises its
right to proceed with the Closing.
(e) The delivery by Seller to Buyer of such supplemental Schedules
shall be accompanied by a written statement that, in Seller's opinion, the
impact of all matters disclosed on such supplemental Schedules either would or
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. If Seller's written opinion is that such impact would
reasonably be expected to have a Material Adverse Effect, Buyer shall be deemed
to have agreed with such opinion. If Seller's written opinion is that such
impact would not reasonably be expected to have a Material Adverse Effect, Buyer
may dispute such opinion, provided that Buyer shall deliver to Seller, at least
one Business Day prior to the Closing, a written statement that, in Buyer's
opinion, the impact of all
-29-
matters disclosed on such supplemental Schedules would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 6.8 Maintenance of Records. Through the Closing Date the
----------------------
Company shall maintain the Records in all material respects in the same manner
and with the same care that the Records have been maintained prior to the
execution of this Agreement. From and after the Closing Date, each of the
parties shall permit the other party reasonable access to any applicable Records
in its possession, and the right to duplicate such Records, to the extent that
the requesting party has a reasonable business purpose for requesting such
access or duplication. Each party hereto shall notify the other party of any
extension of any applicable statute of limitations related to such Records and
Buyer shall obtain the consent of Seller before destroying any of the Records
retained pursuant to this Section. Notwithstanding any other provision of this
Section, access to any Records may be denied to the requesting party if the
other party is required under Applicable Law to deny such access.
Section 6.9 Employees and Employee Plans. (a) (i) Except as
----------------------------
provided otherwise in Section 4.13(i), no provision of this Agreement shall be
construed to prohibit the Company or its Subsidiaries from having the right to
terminate the employment of any Company Employee, with or without cause, or to
amend or to terminate after the Closing any employee benefit plan established,
maintained or contributed to by the Company or its Subsidiaries.
(ii) Service by the Company Employees with the Company, Seller or
any of their Affiliates shall be recognized under each benefit plan, program or
arrangement established, maintained or contributed to for the benefit of any
Company Employee by Buyer, the Company or any of their Affiliates after the
Closing for purposes of eligibility to participate and vesting, but in no event
shall this Agreement require that such service prior to the Closing Date be
taken into account in determining the accrual of benefits under any such benefit
plan or arrangement, including, without limitation, a defined benefit plan.
Seller shall provide Buyer prior to the Closing with evidence of full vesting of
Company Employees under the Retirement Plan, the SERP and the IRP, and Buyer and
Seller each acknowledge that the IRP vesting rules also govern participating
Company Employees' vesting under the SIRP.
(iii) The parties acknowledge that any former employees included
within the definition of Company Employees shall have, after the Closing, such
re-employment rights, if any, as may be available to them under Applicable Law
with respect to the Company and its Subsidiaries and not with respect to Seller
or any of its other Affiliates.
(iv) Buyer shall, or shall cause the Company to, (A) notify Seller
if the employment of any Company Employee, who also is a "Covered Employee"
under the Talegen Holdings, Inc. Retention Incentive Plan, terminates within the
12-month period beginning on the Closing Date and (B) provide to Seller such
information as Seller may reasonably request to enable Seller to determine such
Company Employee's eligibility for a retention benefit under such Plan. Seller
hereby acknowledges and agrees that it shall remain solely liable for, and
either retain all liability for (or reimburse the Company with respect to) all
obligations arising under and benefits payable from, the Talegen Holdings, Inc.
Retention Incentive Plan. Buyer shall not be responsible for any obligations
arising thereunder and shall not be liable for any payments required to be made
thereunder. Buyer hereby acknowledges and agrees that the Company will remain,
after the Closing Date, subject to the obligations imposed on the "Company"
under the Enhanced Severance Benefit Plan of Westchester Fire Insurance Company.
(b) Prior to the Closing Date, Seller shall take whatever corporate
action is necessary to ensure that the Company and its Subsidiaries shall cease
being "participating employers" and shall cease co-sponsorship of any welfare
plans (as defined in Section 3(1) of ERISA) jointly adopted, sponsored or
-30-
maintained by Seller and the Company or the Subsidiaries as of the Closing Date;
provided, however, that at the option of Buyer, Buyer may elect, by written
notice to Seller, given no less than 30 days prior to the Closing Date, to
continue coverage of Company Employees under the Talegen Holdings, Inc. Medical
and Dental Plans for the period commencing on the Closing Date and ending on
December 31, 1997 or such earlier date as specified by Buyer, by written notice
to Seller, given no less than 30 days prior to such earlier ending date. If
Buyer makes such election, Buyer shall reimburse Seller on a monthly basis,
within 10 Business Days of notification by Seller of the amount of such costs,
for the monthly costs (including its pro rata share of administrative expenses
and "stop-loss" premiums) incurred in providing such coverage. Such costs of
coverage shall be determined by Seller in accordance with substantially the same
methods and procedures under which such costs of coverage were determined by
Seller immediately prior to the Closing Date. Subject to Section 6.9(a)(i),
the Company shall retain responsibility for providing medical benefits to all
Company Employees, including Company Employees who are receiving, or who are
eligible to receive (as described in paragraph (a) of the "Company Employee"
definition), benefits under the Disability Plans.
(c) Seller retains all current, contingent and potential liability
with respect to the Retirement Plan and SERP, and the Retirement Plan shall
retain liability for all benefits accrued through the Closing Date with respect
to the Company Employees. Effective as of the Closing Date, all Company
Employees shall be deemed, for all purposes in applying the Retirement Plan, to
have terminated their service on that date.
(d) As soon as practicable following the Closing Date, Seller shall
take whatever action is necessary (i) to permit Company Employees to elect a
distribution of their benefits from the IRP in accordance with the IRP and
Applicable Law, and (ii) in accordance with Seller's current practice and
Applicable Law, to permit Company Employees who do not elect a distribution of
their benefits from the IRP to continue to repay (by check) any outstanding loan
balances existing under the IRP as of the Closing Date. As soon as practicable
following the Closing Date, Seller shall take whatever action is necessary to
cause Company and its Subsidiaries (i) to cease being "participating companies"
and co-sponsors of the SIRP, (ii) to transfer to the Company any assets
associated with the liabilities of the Company and its Subsidiaries that are not
held by the Company as of the Closing Date, and (iii) to enable the Company and
its Subsidiaries to effect the distribution of Company Employees' benefits under
the SIRP in accordance with the SIRP and Applicable Law.
(e) (i) The Company shall, or shall cause its Subsidiaries to,
retain in place and be responsible for all payments required under the Enhanced
Severance Plan of Westchester Fire Insurance Company. Seller shall have no
liability for any payments made or owing under such Plan with respect to
terminations of employment which occur subsequent to the Closing Date.
(ii) Subject to Section 6.9(a)(iv), the Company or one of its
Subsidiaries shall make all payments required to be made to any current or
former Company or Subsidiary employee under the Retention Incentive Plan of
Talegen Holdings, Inc. Seller shall promptly reimburse, on an after-tax basis
(determined at 75% of the maximum applicable federal corporate income tax rate),
the Company and its Subsidiaries, as appropriate, for any such payments. If it
is later determined that any payment made pursuant to this Section 6.9(e)(ii) is
non deductible by the Company under Section 280G of the Code, then Seller shall
pay to the Company an amount equal to the excess of such payment made by the
Company over the amount previously reimbursed by Seller under this Section
6.9(e)(ii).
(f) Buyer and Seller agree to cooperate to carry out the duties and
responsibilities set forth in this Section 6.9. In addition, Seller agrees to
make available to Buyer such information as Buyer may reasonably request to
carry out the provisions of this Section 6.9.
-31-
Section 6.10 Pre-Closing Dividends. Between the date hereof and the
---------------------
Closing, the Company shall not pay dividends to Seller other than as is
expressly contemplated by this Agreement or an Ancillary Agreement.
Section 6.11 Crostex/Camfex. (a) On or prior to the Closing Date,
--------------
subject to obtaining any necessary consents from Crostex Associates Limited
Partnership, Camfex Associates Limited Partnership or other third parties
(including applicable Governmental Authorities), Seller shall cause the
following to occur with respect to the Crostex/Camfex Leases:
(i) Seller shall cause Westchester Fire to transfer its interest in
the Dallas Lease to one of the CFI Entities, and shall cause such CFI
Entity to assume such interest in the Dallas Lease and indemnify
Westchester Fire for all liabilities and other Loss thereunder; and
(ii) Seller shall cause Westchester Fire to transfer its interest in
the Pleasanton Lease to Talegen Properties, Inc., a subsidiary of Seller,
and shall cause Talegen Properties, Inc. to assume such interest in the
Pleasanton Lease and indemnify Westchester Fire for all liabilities and
other Loss thereunder.
(b) On or prior to the Closing Date, subject to obtaining any
necessary consents from Crostex Associates Limited Partnership, Camfex
Associates Limited Partnership or other third parties (including applicable
Governmental Authorities), Seller shall cause the following to occur with
respect to the Crostex/Camfex Purchase Money Documents:
(i) Seller shall cause Westchester Fire to transfer its interests in
the 305 Purchase Money Documents and the Dallas Purchase Money Documents to
one of the CFI Entities, for consideration equal to the respective
statutory carrying values of Westchester Fire's percentage interests in the
two promissory notes each entitled "Note Due December 1, 2009" that are
part of the 305 Purchase Money Documents and the Dallas Purchase Money
Documents, respectively; and
(ii) Seller shall cause Westchester Fire to transfer its interests in
the 299 Purchase Money Documents and the Pleasanton Purchase Money
Documents to Talegen Properties, Inc. or another designee of Seller, for
consideration equal to the respective statutory carrying values of
Westchester Fire's percentage interests in the two promissory notes each
entitled "Note Due December 1, 2009" that are part of the 299 Purchase
Money Documents and the Pleasanton Purchase Money Documents, respectively.
Section 6.12 Exclusivity. During the period from the date of this
-----------
Agreement through the Closing Date:
(a) Parent, Seller and the Company shall cease any discussions or
negotiations with any third party regarding (i) any merger, sale of assets
not in the ordinary course of business, acquisition, business combination,
change of control or other similar transaction involving the Company or any
Subsidiary or any division of the Company or any Subsidiary, (ii) any
purchase or other acquisition by any Person of Shares, or (iii) any sale or
issuance by the Company or any Subsidiary of any shares of its capital
stock;
(b) Neither Parent, Seller, the Company nor any Subsidiary shall,
nor shall any of them authorize or permit any of their respective
directors, officers, employees, representatives, agents or Affiliates to,
directly or indirectly, solicit, initiate, encourage, respond favorably to,
-32-
permit or condone inquiries or proposals from, or provide any confidential
information to, or participate in any discussions or negotiations with, any
Person (other than Buyer and its directors, officers, employees,
representatives and agents) concerning (i) any merger, sale of assets not
in the ordinary course of business, acquisition, business combination,
change of control or other similar transaction involving the Company or any
Subsidiary or any division of the Company or any Subsidiary, (ii) any
purchase or other acquisition by any Person of Shares, or (iii) any sale or
issuance by the Company or any Subsidiary of any shares of its capital
stock;
(c) Seller will promptly advise Buyer of, and communicate to Buyer
the terms and conditions of (and the identity of the Person making), any
such inquiry or proposal received; and
(d) Seller shall use commercially reasonable efforts to enforce the
terms of any confidentiality or standstill agreements with third parties
relating to the Company or any of its Subsidiaries or any of their
respective businesses, assets or employees and to require any such party to
return any confidential information regarding the Company and its
Subsidiaries and their respective businesses which they may have obtained
pursuant to any such agreement. All of Seller's rights in and to such
confidentiality and standstill agreements shall be assigned to Buyer upon
the occurrence of the Closing.
Section 6.13 Additional Financial Statements. During the period from
-------------------------------
the date of this Agreement through the Closing Date, as soon as is reasonably
practicable after the end of the applicable financial period, Seller shall
furnish to Buyer (a) each annual convention statement filed by the Insurance
Subsidiaries during such period pursuant to the requirements of any Applicable
Law, (b) the quarterly convention statements of the Insurance Subsidiaries for
each interim quarterly period subsequent to June 30, 1997, which shall have been
prepared on an accounting basis consistent with the Convention Statements,
subject to normal year-end adjustments, and, with respect to the financial
statements included therein, in conformity with the statutory accounting
practices prescribed or permitted by the respective state of domicile for each
Insurance Subsidiary, (c) the quarterly financial statements of the Company and
Ridge Re for all quarterly periods subsequent to June 30, 1997, which shall have
been prepared on a basis consistent with the Company GAAP Financial Statements
and the Ridge Re GAAP Financial Statements, as the case may be, subject to
normal year-end adjustments and the absence of footnote disclosure, (d) the
consolidated financial statements for the Company and Ridge Re for the year
ended December 31, 1997, which shall have been prepared in accordance with GAAP
and on a basis consistent with the Company GAAP Financial Statements and the
Ridge Re GAAP Financial Statements, as the case may be, and (e) (to the extent
ordinarily prepared) all monthly financial statements of the Company, the
Subsidiaries and Ridge Re (for months subsequent to June 1997), which shall have
been prepared in a manner consistent with past practice.
Section 6.14 Intercompany Accounts. (a) All intercompany accounts
---------------------
(other than those relating to Taxes and those under or relating to reinsurance
contracts and arrangements) between the Company and any Subsidiary, on the one
hand, and Parent and any of its Affiliates (other than the Company and its
Subsidiaries), on the other hand, as of the Closing shall be settled in
accordance with the financial terms of such intercompany accounts (but
irrespective of the terms of payment of such intercompany accounts) in the
manner provided in this Section. At least five business days prior to the
Closing, Seller shall prepare and deliver to Buyer a statement setting out in
reasonable detail the calculation of all such intercompany account balances
based upon the latest available financial information as of such date and, to
the extent reasonably requested by Buyer, provide Buyer with supporting
documentation to verify the underlying intercompany charges and transactions.
All such intercompany account balances shall be paid in full in cash prior to
the Closing. All intercompany accounts relating to Taxes will be governed by the
Tax Agreement.
-33-
(b) As promptly as practicable, but no later than 60 days after the
Closing Date, Seller shall cause to be prepared and delivered to Buyer a
statement setting out in reasonable detail the calculation of such intercompany
account balances as of the Closing Date (giving effect to any settlement under
Section 6.14(a) and any other payments). Buyer and Seller shall cooperate in
the preparation of any such calculation including the provision of supporting
documentation to verify the underlying intercompany charges, transactions and
payments. If Buyer disagrees with Seller's calculation of such intercompany
balances Buyer may, within 30 days after delivery of such statement, deliver a
notice to Seller disagreeing with such calculation and setting forth Buyer's
calculation of such amount. If Buyer and Seller are unable to resolve such
disagreement within 30 days thereafter, such disagreement shall be resolved by
independent accountants of nationally recognized standing reasonably
satisfactory to Buyer and Seller. The net amount of any such intercompany
balance shall be paid in cash promptly thereafter, together with interest
thereon from and including the Closing Date to but excluding the date of payment
at a rate equal to 5% per annum. Such interest shall be payable at the same
time as the payable to which it relates and shall be calculated daily on the
basis of a year of 365 days and the actual number of days elapsed.
Section 6.15 Rating Agency Presentations. Buyer shall give Seller
---------------------------
reasonable notice of any meetings prior to the Closing Date with any rating
agency (including without limitation A.M. Best and Standard & Poor's
Corporation) to discuss the ratings (including insurance claims paying ratings)
of the Insurance Subsidiaries, and Seller at its option may have a
representative at such meetings. Seller shall give Buyer reasonable notice of
any meetings prior to the Closing Date with any rating agency (including without
limitation A.M. Best and Standard & Poor's Corporation) to discuss the ratings
(including insurance claims paying ratings) of the Insurance Subsidiaries, and
Buyer at its option may have a representative at such meetings.
Section 6.16 Investment Portfolio. Five days prior to the Closing
--------------------
Date, Seller shall cause the Company to deliver to Buyer a list of all
investments in the investment portfolio for the Company and the Subsidiaries as
of such date.
Section 6.17 Reinsurance Agreements. (a) Except in the ordinary
----------------------
course of business consistent with past practice and except for the Berkshire
Hathaway Reinsurance Agreement, without the prior written approval of Buyer
(which approval shall not be unreasonably withheld), Seller shall cause the
Company and each Subsidiary not to (i) amend any reinsurance or retrocession
agreement (except for the Ridge Re Amendment), (ii) enter into or commit to
enter into any loss portfolio transfer or other similar transaction, agreement
or arrangement or series of related transactions, agreements or arrangements
involving any ceded reinsurance of the Company or any Subsidiary, (iii) enter
into or commit to enter into any reinsurance or retrocession contract or treaty
except to replace, renew or extend existing reinsurance and retrocession
agreements and treaties on terms which are not different in any material respect
from the terms of the agreement or treaty being replaced, renewed or extended,
as the case may be, or (iv) commute or terminate any contract of reinsurance.
(b) [Not used.]
(c) Seller shall use reasonable best efforts to cause, at or
immediately prior to the Closing, the transfer of $69,000,000 from Westchester
Fire to the Company, and from the Company to Seller, as a return of capital, in
either case as a return of capital, dividend, repurchase or redemption of its
capital stock.
-34-
(d) If the amount transferred to the Company by Westchester Fire, and
to Seller by the Company, pursuant to Section 6.17(c) is less than $69,000,000,
Buyer shall pay to Seller as an adjustment to the Purchase Price at the Closing
the amount of such deficiency.
(e) [Not used.]
(f) Seller shall not have any obligation to pay more than (i)
$60,000,000 ($500,000 of which has been paid prior to the date of this
Agreement), plus (ii) the amount transferred to the Company by Westchester Fire,
and to Seller by the Company, pursuant to Section 6.17(c), as consideration for
the reinsurance contemplated by the Berkshire Hathaway Reinsurance Agreement
unless Buyer pays to Seller an amount pursuant to Section 6.17(d), in which case
Seller shall also be obligated to pay as consideration for such reinsurance an
additional amount equal to such amount paid by Buyer to Seller pursuant to
Section 6.17(d).
(g) Seller shall pay or cause to be paid the balance of the
consideration for the reinsurance contemplated by the Berkshire Hathaway
Reinsurance Agreement.
(h) Nothing in this Section 6.17 shall limit or impair in any manner
any of the rights of the parties under any other Section of this Agreement or
any of its Schedules or Exhibits.
Section 6.18 Person Authorized to Act Prior to the Closing. Seller
---------------------------------------------
shall deliver (a) a true and complete list of the names and locations of all
banks, trust companies, securities brokers, and other financial institutions at
which each of the Company and each of its Subsidiaries have an account or safe
deposit box or maintain a banking, custodial, trading, or other similar
relationship, (b) a true and complete list and description of each such account,
box, and relationship, indicating in each case the account number and the names
of the respective officers, employees, agents, or other similar representatives
of the Company and its Subsidiaries transacting business with respect thereto,
(c) a true and complete list of each Person authorized to draw on each such
account, entitled to have access thereto or authorized to borrow money (or
furnish security for the same) therefrom, and (d) a true and complete list of
each power of attorney granted to any Person or Persons for any purpose.
Section 6.19 Tax Sharing Agreement Releases. At or prior to the
------------------------------
Closing, Seller shall cause the Company and each of its Subsidiaries to execute
and deliver to Seller, and Seller shall execute and deliver to the Company and
each of its Subsidiaries, releases with respect to any prior tax sharing
agreements in the form attached hereto as Exhibit D.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Buyer's Obligations. In addition to the
---------------------------------
conditions set forth in Section 7.3, the obligations of Buyer to effect the
Closing shall be subject to the following conditions, any one or more of which
may be waived in writing by Buyer:
(a) The representations and warranties of Seller set forth in this
Agreement shall be true and correct in all material respects (except that
representations and warranties qualified by materiality or Material Adverse
Effect shall be true and correct in all respects) as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date, in which case such representations and
warranties shall be true and correct, or true and
-35-
correct in all material respects, as applicable, as of such earlier date)
as of the Closing Date as though made on and as of the Closing Date;
(b) Seller shall have performed and complied in all material respects
with all agreements, covenants, obligations and conditions required by this
Agreement to be performed or complied with by Seller on or prior to the
Closing Date;
(c) Seller shall have caused to be delivered to Buyer one or more
certificates representing all of the Shares, free and clear of all
Encumbrances, duly executed in blank or accompanied by stock powers duly
executed in blank, in proper form for transfer, with all appropriate stock
transfer tax stamps affixed, and shall have paid one half of all other
transfer taxes required to be paid by any United States federal, state or
local Governmental Authority in connection with the sale and delivery to
Buyer of the Shares;
(d) Seller shall have caused to be delivered to Buyer a receipt
evidencing payment by Buyer of the Purchase Price;
(e) Seller shall have caused to be delivered to Buyer the Guarantee,
duly executed on behalf of Parent;
(f) Seller shall have caused to be delivered to Buyer the Records of
the Company and its Subsidiaries to the extent not located at offices of
the Company or its Subsidiaries (unless such Records have been previously
delivered to such offices prior to the Closing);
(g) Seller shall have caused to be delivered to Buyer certificates as
to the good standing of the Company and its Subsidiaries in the respective
jurisdictions of their incorporation or domicile, dated as of a date not
earlier than 10 days prior to the Closing Date, together with copies of the
Certificates of Incorporation of the Company and its Subsidiaries certified
by the applicable Secretary of State or other appropriate authority;
(h) Seller shall have caused to be delivered to Buyer resolutions of
the board of directors of Seller, certified by the Secretary or Assistant
Secretary of Seller, approving and authorizing the execution, delivery and
performance of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby, and the
By-laws of the Company and each of its Subsidiaries, certified by the
respective Secretary or Assistant Secretary of the Company and each of its
Subsidiaries as of the Closing Date;
(i) On or prior to the Closing Date, the General Services Agreements
between Seller and each of the Insurance Subsidiaries, each dated January
1, 1993, as amended, shall have been terminated;
(j) Seller shall cause to be delivered to Buyer those certificates of
admission or authority from the insurance commissioner or similar authority
of each state in which an Insurance Subsidiary is admitted or authorized to
conduct business which were obtained by Seller in accordance with Section
6.5(e);
(k) Seller shall cause to be delivered to Buyer the resignations of
(i) each person who is a director of the Company, and (ii) each person who
is a director and/or an officer of the Company and/or any of the
Subsidiaries if such person's principal employment is as an officer or an
employee of Seller and/or Parent;
-36-
(l) Buyer shall have received written evidence reasonably
satisfactory to Buyer that all consents and approvals required for the
consummation of the transactions contemplated hereby or the ownership and
operation by Buyer of the Company, the Subsidiaries and their respective
businesses have been obtained, and all required filings have been made,
including (without limitation) those set forth on Schedule 4.4;
(m) Seller shall have delivered to Buyer an opinion of LeBoeuf, Lamb,
▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., substantially in the form attached hereto as
Exhibit E;
(n) Buyer shall have entered into an amendment to the Claims Services
Agreement with Envision Claims Management Corporation which provides for
substantially the same terms as are currently in effect, with a minimum
term of one year after the Closing Date on a cost-plus-15% pricing basis,
and which provides only to Buyer the right to terminate such agreement at
no cost upon 30 days notice;
(o) A financial report of KPMG Peat Marwick LLP with respect to the
Company Interim Financial Statements pursuant to the requirements of SAS
No. 71, Interim Financial Information (AICPA, Professional Standards);
(p) Buyer shall have received from Seller, the Company and each of
its Subsidiaries releases with respect to any prior tax sharing agreements
in the form attached hereto as Exhibit D; and
(q) Seller shall have caused to be delivered to Buyer a certificate
executed by a duly authorized officer of Seller certifying that the
conditions set forth in this Section 7.1 have all been satisfied.
Section 7.2 Conditions to Seller's Obligations. In addition to the
----------------------------------
conditions set forth in Section 7.3, the obligations of Seller to effect the
Closing shall be subject to the following conditions, any one or more of which
may be waived in writing by Seller:
(a) The representations and warranties of Buyer contained in this
Agreement shall be true in all material respects (except representations
and warranties qualified by materiality shall be true and correct in all
respects) as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date, in which case
such representations and warranties shall be true and correct, or true and
correct in all material respects, as applicable, as of such earlier date)
on the Closing Date as though made on and as of the Closing Date;
(b) Buyer shall have performed and complied in all material respects
with all agreements, covenants, obligations and conditions required by this
Agreement to be performed or complied with by Buyer on or prior to the
Closing Date;
(c) Buyer shall have caused to be delivered to Seller an amount equal
to the Purchase Price by Wire Transfer;
(d) Buyer shall have paid all transfer taxes required to be paid in
connection with the sale and delivery to Buyer of the Shares, other than
transfer taxes paid by Seller pursuant to Section 7.1(c);
-37-
(e) Buyer shall have caused to be delivered to Seller a receipt
evidencing receipt by Buyer of the Shares;
(f) Buyer shall have caused to be delivered to Seller the Guarantee
duly executed by Buyer;
(g) Buyer shall have caused to be delivered to Seller a certificate
as to good standing of Buyer in the jurisdiction of its incorporation,
dated as of a date not earlier than 10 days prior to the Closing Date,
together with a copy of the Memorandum of Association of Buyer certified by
the Registrar of Companies or other appropriate authority;
(h) Buyer shall have caused to be delivered to Seller resolutions of
the board of directors of Buyer, certified by the Secretary or Assistant
Secretary of Buyer, approving and authorizing the execution, delivery and
performance of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby;
(i) Buyer shall have delivered to Seller an opinion of ▇▇▇▇▇▇ &
Calder and an opinion of ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, each substantially in the
form attached hereto as Exhibit F;
(j) A binding commitment in form and substance reasonably
satisfactory to Seller for the Berkshire Hathaway Reinsurance Agreement
shall have been duly executed by all the parties thereto and be in full
force and effect; and
(k) Buyer shall have caused to be delivered to Seller a certificate
executed by a duly authorized officer of Buyer certifying that the
conditions set forth in this Section 7.2 have all been satisfied.
Section 7.3 Mutual Conditions. The obligations of each of Buyer and
-----------------
Seller to effect the Closing shall be subject to the following conditions, any
one or more of which may be waived in writing, as to itself, by either party:
(a) No order, injunction or decree issued by any Governmental
Authority of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this
Agreement shall be in effect. No proceeding initiated by any Governmental
Authority seeking an injunction against the transactions contemplated by
this Agreement shall be pending. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Authority which prohibits, restricts or makes
illegal consummation of the transactions contemplated hereby;
(b) All approvals of Governmental Authorities required to consummate
the transactions contemplated hereby (including, without limitation,
required approvals from the insurance regulatory authorities of the States
of New York, California (if required), Georgia and Texas) shall have been
obtained without any conditions, restrictions or limitations which would
reasonably be expected to have either a Material Adverse Effect or a
material adverse effect on the business, operations, assets, liabilities,
condition (financial or otherwise) or results of operations of (i) Buyer
and its subsidiaries, taken as a whole, or (ii) HoldCo and its subsidiaries
(including the Insurance Subsidiaries and any other entities which will be
subsidiaries of HoldCo immediately after the Closing has occurred), taken
as a whole, and such consents, approvals and waivers shall remain in full
force and effect and all statutory waiting periods in respect thereof shall
have expired; provided that, for purposes of this Section 7.3(b) only, in
determining whether a material
-38-
adverse effect with respect to HoldCo would reasonably be expected to
occur, the GAAP consolidated stockholders' equity of HoldCo shall be deemed
to be equal to the GAAP consolidated stockholders' equity of the Company
and its Subsidiaries as of the end of the most recently completed calendar
quarter prior to the Closing;
(c) In respect of the notifications of Buyer and Seller pursuant to
the HSR Act, the applicable waiting period and any extensions thereof shall
have expired or been terminated; and
(d) Article XIII of the Ridge Re Agreement shall be amended through
the entering into of the Ridge Re Amendment (and such amendment shall have
the effect of eliminating any profit commission payment upon the expiration
of the term of such agreement and any commutation payment upon the
commutation of such agreement).
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; INDEMNIFICATION
Section 8.1 Survival. (a) Notwithstanding any right of Buyer to
--------
investigate the affairs of the Company and its Subsidiaries, and notwithstanding
any knowledge of facts determined or determinable by Buyer pursuant to such
investigation or right of investigation, Buyer has the right to rely upon the
representations, warranties, covenants and agreements of Seller contained in
this Agreement. The representations and warranties of the parties set forth in
Sections 4.1, 4.2, 4.3, 4.5, 4.7, 5.1, 5.2, 5.5, 5.6 and 5.7 shall survive the
Closing without limitation as to time. All other representations and warranties
of the parties set forth in this Agreement shall terminate and expire on (i)
March 31, 1999, if the Closing occurs prior to January 1, 1998, or (ii) the date
18 months after the Closing Date if the Closing occurs on or after January 1,
1998, except that the representations and warranties of Seller in Sections 4.13
and 4.14 shall survive until 90 days after the expiration of the applicable
statute of limitations or extensions thereof with respect to the subject matter
thereof. Notice with respect to any claim in respect of any inaccuracy in or
breach of any representation or warranty shall be in writing and shall be given
to the party against which such claim is asserted. Any representation or
warranty shall survive the time it would otherwise terminate pursuant to this
Section 8.1 to the extent that the party claiming indemnification for such
breach shall have delivered to the other party written notice setting forth with
reasonable specificity the basis of such claim prior to the expiration of such
time pursuant to this Section 8.1.
(b) All covenants and agreements made by the parties to this
Agreement which contemplate performance following the Closing Date shall survive
the Closing Date. All other covenants and agreements shall not survive the
Closing Date and shall terminate as of the Closing.
Section 8.2 Obligation of Seller to Indemnify, Reimburse, etc.
--------------------------------------------------
Subject to the limitations set forth in Sections 8.1, 8.5, 8.6 and 8.7, Seller
shall indemnify, reimburse, defend and hold harmless Buyer and its directors,
officers, employees, Affiliates, and their respective successors and assigns
from and against any Loss incurred by any of them based upon, arising out of or
otherwise in respect of (i) any inaccuracy in or any breach of any
representation or warranty of Seller (after taking into account the exceptions
to such representations and warranties which are set forth on the Schedules, as
supplemented in accordance with Sections 6.7(b) and 6.7(d), related to such
representations and warranties), (ii) the nonfulfillment on the part of Seller
of any unwaived covenant or agreement set forth in this Agreement which survives
the Closing Date in accordance with Section 8.1, (iii) the failure of Seller or
any ERISA Affiliate on or before the Closing Date to operate any employee
benefit plan (as defined in Section 3(3) of
-39-
ERISA) established, maintained or sponsored by Seller or any ERISA Affiliate in
accordance with the terms of any such plan or Applicable Law, and (iv) the
transactions described in Section 6.11.
Section 8.3 Obligation of Buyer to Indemnify, Reimburse, etc.
-------------------------------------------------
Subject to the limitations set forth in Sections 8.1, 8.5 and 8.7, Buyer shall
indemnify, defend and hold harmless Seller and its directors, officers,
employees, Affiliates, and their respective successors and assigns from and
against any Loss incurred by any of them based upon, arising out of or otherwise
in respect of (i) any inaccuracy in or breach of any representation or warranty
of Buyer (after taking into account the exceptions to such representations and
warranties which are set forth on the Schedules related to such representations
and warranties), and (ii) the nonfulfillment on the part of Buyer of any
unwaived covenant or agreement set forth in this Agreement which survives the
Closing Date in accordance with Section 8.1.
Section 8.4 Notice and Opportunity to Defend Against Third Party
----------------------------------------------------
Claims. (a) Promptly after receipt from any third party by either party hereto
------
(the "Indemnitee") of a notice of any demand, claim or circumstance that,
immediately or with the lapse of time, would give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss for which
indemnification may be sought hereunder, the Indemnitee shall give written
notice thereof (the "Claims Notice") to the party obligated to provide
indemnification pursuant to Section 8.2 or 8.3 (the "Indemnifying Party"),
provided, however, that a failure to give such notice shall not prejudice the
Indemnitee's right to indemnification hereunder except to the extent that the
Indemnifying Party is actually prejudiced thereby. The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall indicate the
amount (estimated, if necessary) of the Loss that has been or may be suffered by
the Indemnitee.
(b) The Indemnifying Party may elect to compromise or defend, at its
own expense and by its own counsel (reasonably acceptable to the Indemnified
Party), any Asserted Liability. If the Indemnifying Party elects to compromise
or defend such Asserted Liability, it shall, within 20 Business Days following
its receipt of the Claims Notice (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnitee of its intent to do so, and the
Indemnitee shall cooperate, at the expense of the Indemnifying Party, in the
compromise of, or defense against, such Asserted Liability. If the Indemnifying
Party (i) elects to compromise or defend the Asserted Liability but fails to
notify the Indemnitee of its election as herein provided, (ii) contests its
obligation to provide indemnification under this Agreement or (iii) fails to
contest such Asserted Liability in good faith in a timely manner, the Indemnitee
may pay, compromise or defend such Asserted Liability and the Indemnifying Party
shall be bound by the determination made in such Action. Notwithstanding the
foregoing, neither the Indemnifying Party nor the Indemnitee may settle or
compromise any claim without the consent of the other party, provided, however,
that such consent to settlement or compromise shall not be unreasonably withheld
provided that an Indemnitee shall not be required to consent to any settlement
that (A) does not include as an unconditional term thereof the giving by the
claimant or the plaintiff of a release of the Indemnitee from all liability with
respect to such Action or (B) involves the imposition of equitable remedies or
the imposition of any material obligations on such Indemnitee other than
financial obligations for which such Indemnitee will be indemnified hereunder.
In any event, the Indemnitee and the Indemnifying Party may participate, at
their own expense, in the defense of such Asserted Liability; provided, however,
that if the defendants in any Action shall include both an Indemnifying Party
and any Indemnitee and such Indemnitee shall have reasonably concluded that
counsel selected by Indemnifying Party has a conflict of interest because of the
availability of different or additional defenses to such Indemnitee, such
Indemnitee shall have the right to select separate counsel to participate in the
defense of such Action on its behalf, at the expense of the Indemnifying Party;
provided that the Indemnifying Party shall not be obligated to pay the expenses
of more than one separate counsel for all Indemnitees, taken together. If the
Indemnifying Party chooses to defend any claim, the Indemnitee shall make
available to
-40-
the Indemnifying Party any books, records or other documents within its control
that are necessary or appropriate for such defense.
(c) Amounts payable by the Indemnifying Party to the Indemnitee in
respect of any Losses for which such party is entitled to indemnification
hereunder shall be payable by the Indemnifying Party as incurred by the
Indemnitee.
(d) In the event of any dispute between the parties regarding the
applicability of the indemnification provisions of this Agreement, the
prevailing party shall be entitled to recover all Losses incurred by such party
arising out of, resulting from or relating to such dispute.
Section 8.5 Net Indemnity. The amount of any Loss from and against
-------------
which either party is liable to indemnify, reimburse, defend and hold harmless
the other party or any other Person pursuant to Section 8.2 or Section 8.3 shall
be reduced by any insurance or other recoveries or any Tax benefit that such
indemnified Person realizes at any time as a result of or in connection with
such Loss and increased by any Taxes such indemnified Person realizes at any
time in respect of indemnification for such Loss.
Section 8.6 Tax Indemnification. Section 8.2 hereof shall provide
-------------------
indemnification to Buyer for Taxes only to the extent that such Taxes are not
addressed by the Tax Agreement. To the extent that Taxes are addressed by the
Tax Agreement, the provisions of the Tax Agreement shall govern the liabilities
and the indemnification rights and obligations of the parties without regard to
the limitations provided in this Article VIII.
Section 8.7 Limits on Indemnification. No party shall have any right
-------------------------
to seek indemnification under this Agreement (i) until Losses which would
otherwise be indemnifiable hereunder have been incurred by such party (including
by all other indemnitees affiliated with or related to such party), exceed
$3,000,000 in the aggregate, after insurance or other recoveries and on an
after-tax basis, and such party (including such affiliated or related Persons)
shall only be entitled to be indemnified for Losses in excess of such aggregate
amount, (ii) for an aggregate amount in excess of $116,550,000, (iii) for
punitive, special or consequential damages, or (iv) in respect of Losses to the
extent such Losses result from or arise out of actions taken by such party or an
Affiliate, employee, representative or agent thereof after the Closing. If the
Closing has occurred, except as provided in Section 10.12, the remedies provided
by this Section 8.7 shall be the sole and exclusive remedy for the parties to
this Agreement with respect to any breach of this Agreement.
ARTICLE IX
TERMINATION
Section 9.1 Termination. (a) This Agreement may be terminated on or
-----------
prior to the Closing Date only as follows:
(i) by mutual written consent of Buyer and Seller;
(ii) at the election of either Buyer or Seller, if the Closing Date
shall not have occurred on or before February 28, 1998; provided that if
the conditions set forth in Section 7.3(b) have not been satisfied as of
such date, this Agreement may not be terminated until April 30, 1998, if it
can reasonably be anticipated that such conditions can be satisfied by
April 30, 1998, provided that no party shall be entitled to terminate this
Agreement pursuant to this Section 9.1(a)(ii) if such
-41-
party's failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before
such date;
(iii) by either Buyer or Seller if a court of competent jurisdiction
shall have issued an order, decree or ruling permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable; or
(iv) by Buyer if the impact of all matters disclosed on the
supplemental Schedules permitted by Section 6.7(b) would be reasonably
expected to have a Material Adverse Effect.
(b) The termination of this Agreement shall be effectuated by the
delivery of a written notice of such termination from the party terminating this
Agreement to the other party.
Section 9.2 Obligations upon Termination. In the event that this
----------------------------
Agreement shall be terminated pursuant to Section 9.1, all obligations of the
parties hereto under this Agreement shall terminate and there shall be no
liability of any party hereto to any other party except (i) as set forth in
Section 6.2 and Section 6.3, and (ii) that nothing herein will relieve any party
from liability for any breach of this Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendments; Extension; Waiver. This Agreement may not
-----------------------------
be amended, altered or modified except by written instrument executed by Buyer
and Seller.
Section 10.2 Entire Agreement. (a) This Agreement, the Tax
----------------
Agreement, the Ancillary Agreements and the Confidentiality Agreement constitute
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersede all prior agreements and understandings,
written and oral, among the parties with respect to the subject matter hereof.
Buyer acknowledges that neither Seller or any of its Affiliates, nor any
representative or advisor of any of them, has made any representation or
warranty to Buyer except as specifically made in this Agreement. Except as
specifically provided for in this Agreement, all Tax matters among the parties
shall be governed by the Tax Agreement.
(b) Buyer acknowledges that neither Seller or any of its Affiliates,
nor any representative or advisor of any of them, has made any representation or
warranty to Buyer except as specifically made in this Agreement. In particular,
no such Person has made any representation or warranty to Buyer with respect to:
(i) any information set forth in the Confidential Offering Memorandum
distributed by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated in connection with the proposed
sale of the Company and its Subsidiaries, or (ii) any financial projection or
forecast relating to the Company or its Subsidiaries. With respect to any such
projection or forecast delivered by or on behalf of Seller to Buyer, Buyer
acknowledges that: (A) there are uncertainties inherent in attempting to make
such projections and forecasts, (B) it is familiar with such uncertainties, (C)
it is taking full responsibility for making its own evaluation of the adequacy
and accuracy of all such projections and forecasts so furnished to it, (D) it is
not acting in reliance on any such projection or forecast so furnished to it,
and (E) it shall have no claim against any such Person with respect to any such
projection or forecast.
-42-
Section 10.3 Interpretation. When reference is made in this
--------------
Agreement to Sections, Exhibits or Schedules, such reference is to the Sections,
Exhibits or Schedules of this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. 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 phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement. The
words "hereof", "herein", "hereby" and other words of similar import refer to
this Agreement as a whole unless otherwise indicated. Whenever the singular is
used herein, the same shall include the plural, and whenever the plural is used
herein, the same shall include the singular, where appropriate.
Section 10.4 Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, that
provision shall be interpreted to be only so broad as is enforceable.
Section 10.5 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if they are: (a) delivered in
person, (b) transmitted by facsimile (with confirmation), (c) mailed by
certified or registered mail (return receipt requested), or (d) delivered by an
express courier (with confirmation) to a party at its address listed below (or
at such other address as such party shall deliver to the other party by like
notice):
To Seller: Talegen Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
General Counsel
With a copy to: LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, Esq.
To Buyer: ACE Limited
The ACE ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇, Esq., General Counsel
-43-
With a copy to: ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Best, Esq.
Section 10.6 Binding Effect; Persons Benefiting. This Agreement
----------------------------------
shall inure to the benefit of and be binding upon the parties hereto and the
respective successors and permitted assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof.
Section 10.7 Assignment. Neither this Agreement or the Ancillary
----------
Agreements, nor any of the rights, interests or obligations under this Agreement
or the Ancillary Agreements, shall be assigned, in whole or in part, by
operation of law or otherwise by either of the parties hereto without the prior
written consent of the other party, and any such assignment that is not
consented to shall be null and void, except that before or after the Closing
Buyer shall have the right, without such consent, to assign to a direct or
indirect wholly-owned subsidiary of Buyer its rights and obligations under this
Agreement and the Ancillary Agreements, provided that no such assignment shall
relieve Buyer of its obligations hereunder or thereunder if such assignee does
not perform such obligations.
Section 10.8 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same agreement, it being understood
that all of the parties need not sign the same counterpart.
Section 10.9 No Prejudice. This Agreement has been jointly prepared
------------
by the parties hereto and the terms hereof shall not be construed in favor of or
against any party on account of its participation in such preparation.
Section 10.10 Governing Law. THIS AGREEMENT, THE LEGAL RELATIONS
-------------
BETWEEN THE PARTIES AND THE ADJUDICATION AND THE ENFORCEMENT THEREOF SHALL BE
GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK.
Section 10.11 Service; Jurisdiction. Each of the parties hereto
---------------------
agrees to personal jurisdiction in any action brought in any court, federal or
state, within the State of New York having subject matter jurisdiction over
matters arising under this Agreement.
Section 10.12 Specific Performance. Each of the parties hereto
--------------------
acknowledges and agrees that the other parties hereto would be irreparably
damaged in the event any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. Accordingly,
each of the parties hereto agrees that they each shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state thereof having subject matter jurisdiction, in addition to any other
remedy to which any of the parties may be entitled, at law or in equity.
-44-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first set forth above.
TALEGEN HOLDINGS, INC.
By: _____________________
Name:
Title:
ACE LIMITED
By: _____________________
Name:
Title:
-45-
EXHIBIT A
FORM OF GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (this "Guarantee") is made and entered into
as of _________, 199_ by and between Xerox Financial Services, Inc. (the
"Guarantor"), a Delaware corporation, and ACE Limited, a Cayman Islands
corporation ("Buyer").
WHEREAS, Buyer and Talegen Holdings, Inc., a Delaware corporation
("Talegen") and a wholly-owned subsidiary of the Guarantor, have entered into a
Stock Purchase Agreement, dated as of September 18, 1997 (the "Purchase
Agreement"), which provides for the acquisition by Buyer of all of the
outstanding capital stock of Westchester Specialty Group, Inc., a Delaware
corporation ("WSG"), a wholly-owned subsidiary of Talegen;
WHEREAS, Ridge Reinsurance Limited, a Bermuda corporation ("Ridge
Re"), and the Insurance Subsidiaries (as defined in the Purchase Agreement) have
entered into an Aggregate Excess of Loss Reinsurance Agreement, dated as of
December 31, 1992, as amended (the "Ridge Re Agreement"); and
WHEREAS, as an inducement to Buyer to enter into and consummate the
transactions contemplated by the Purchase Agreement, the Guarantor has agreed to
enter into this Guarantee;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. The Guarantor hereby unconditionally and irrevocably guarantees to
Buyer and to the other Protected Parties (as defined below) the due, punctual
and full payment of (a) all amounts payable by Talegen under Article VIII of the
Purchase Agreement and (b) all amounts payable by Ridge Re under the Ridge Re
Agreement, in each case as and when the same shall become due and payable in
accordance with the terms thereof. As used in this Agreement, the term
"Protected Parties" shall mean Buyer and its directors, officers, employees,
Affiliates (as defined in the Purchase Agreement) and their respective
successors and assigns, including WSG and its subsidiaries.
2. This Guarantee is a guarantee of payment, performance and
compliance when due, and is in no way conditional or contingent upon any other
event, contingency or circumstance whatsoever (other than the condition that
Talegen or Ridge Re, as the case may be, fails to pay or perform its respective
obligations when due or when required to be performed).
3. The covenants and agreements of the Guarantor set forth in this
Guarantee and the Guarantor's obligations under this Agreement shall be absolute
and unconditional, shall not be subject to any counterclaim, setoff, deduction,
diminution, abatement, recoupment, suspension, deferment, reduction or defense
(other than full and strict compliance by the Guarantor with its obligations
hereunder) based upon any claim that the Guarantor or any other Person or entity
has against Talegen, Ridge Re or any other Person or entity (other than Buyer),
and shall remain in full force and effect without regard to, and shall not be
released, discharged or in any way affected by, any circumstance or condition
whatsoever (whether or not the Guarantor shall have any knowledge or notice
thereof). The obligations of the Guarantor set forth in this Guarantee
constitute the full recourse obligations of the Guarantor enforceable against it
to the
full extent of all of the Guarantor's assets and properties, notwithstanding any
provision in any agreement limiting the liability of any other Person or entity.
4. The Guarantor hereby waives notice of, and consents to, any change
in the time, manner or place of payment or performance, and any other amendment
or waiver, or any consent to departure or other indulgence, from time to time
granted to Talegen or Ridge Re by Buyer or any other Protected Party with
respect to the matters guaranteed hereunder, and the Guarantor hereby waives
notice of nonperformance or nonpayment and, except as provided herein, all other
notices and demands whatsoever and any requirement that Buyer or any other
Protected Party protect, secure, perfect or insure any security interest or lien
or any property subject thereto or exhaust any right.
5. No amendment or waiver of any provision of this Guarantee nor any
consent to any departure by the Guarantor herefrom shall in any event be
effective unless the same shall be in writing and signed by the party or parties
against whom such amendment or waiver is sought to be enforced, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No failure on the part of any party to
exercise or delay in exercising any right hereunder shall operate as a waiver
of, nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of, any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
6. The Guarantor represents and warrants to Buyer and to the other
Protected Parties as follows:
(a) The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Guarantor is duly qualified to do business in each jurisdiction in which
the ownership of properties by the Guarantor and the business and
activities of the Guarantor require such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
financial condition, business or results of operation of the Guarantor or
on the ability of the Guarantor to perform its obligations under this
Guarantee;
(b) The Guarantor has full power, authority and legal right to
own its properties and to carry on its business as now conducted and is
duly authorized and empowered to execute, deliver and perform its
obligations under this Guarantee;
(c) This Guarantee has been duly authorized, executed and
delivered by the Guarantor and constitutes a legal, valid and binding
instrument, enforceable against the Guarantor in accordance with its terms,
except as enforcement may be limited by general principles of equity,
whether applied in a court of law or a court of equity, and by bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights and
remedies generally; and
(d) Neither the execution and delivery of this Guarantee by the
Guarantor, nor the consummation by the Guarantor of the transactions
contemplated hereby to be performed by it, nor compliance by the Guarantor
with any of the terms or provisions hereof, will (i) violate any provision
of the Certificate of Incorporation or By-Laws of the Guarantor or (ii)
violate in any material respect any Applicable Law with respect to the
Guarantor, or any of its material properties or assets.
7. This Guarantee is a continuing guarantee and shall remain in full
force and effect until payment in full of the obligations and all other amounts
payable under this Guarantee and shall(a) be
A-2
binding upon the Guarantor, its successors and assigns, and (b) inure to the
benefit of and be enforceable by (i) any successors of Buyer, or any transferee
of all or substantially all of the assets of Buyer, and (ii) any successors,
heirs, executors or beneficiaries of any of the other Protected Parties. Neither
the terms nor execution of this Guarantee shall prohibit the Guarantor's sale,
assignment or transfer of all or a part of its interest in Talegen or Ridge Re;
provided, however, that in the event of any such sale, assignment or transfer,
this Guarantee shall remain in full force and effect.
8. Any provision of this Guarantee which is prohibited or
unenforceable in any jurisdiction shall be, as to such jurisdiction, ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition on unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9. This Guarantee shall be governed, construed, applied and enforced
in accordance with the laws of the State of New York, and no defense given or
allowed by the laws of any other state or country shall be interposed in any
action hereon unless such defense is also given or allowed by the laws of the
State of New York.
10. This Agreement is not intended to confer upon any person other
than the parties hereto and the other Protected Parties any rights or remedies
hereunder.
11. This Guarantee may be executed in any number of counterparts, and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement. This Guarantee shall
become effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that the parties
need not sign the same counterpart.
A-3
IN WITNESS WHEREOF, each of the parties hereto has caused this
Guarantee to be executed on its behalf by its duly authorized officer.
XEROX FINANCIAL SERVICES, INC.
By:___________________________
Name:
Title:
ACE LIMITED
By:___________________________
Name:
Title:
A-4
EXHIBIT B
FORM OF RIDGE RE AMENDMENT
ENDORSEMENT #2
TO THE
SPRINGING FIRST
AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT
By and between
WESTCHESTER FIRE INSURANCE COMPANY
WESTCHESTER SURPLUS LINES INSURANCE COMPANY
(formerly Industrial Indemnity Company of Hawaii)
INDUSTRIAL UNDERWRITERS INSURANCE COMPANY
and
RIDGE REINSURANCE LIMITED
and
XEROX FINANCIAL SERVICES, INC.
I. Article XIII entitled "Term, Termination and Commutation" is hereby
amended by deleting it in its entirety and inserting the following new Article
XIII entitled "Term, Termination and Commutation":
ARTICLE XIII
------------
TERM, TERMINATION AND COMMUTATION
---------------------------------
(a) Term. This Agreement shall be effective as of the date hereof and
----
shall remain in effect until the natural expiry of all liabilities on the
Subject Business, or until termination or commutation in accordance with
Sections (b) and (c) of this Article XIII.
(b) Termination. Except as provided for in Section (c) of this
-----------
Article, this Agreement shall be noncancelable, except at the discretion of the
Commissioner acting as rehabilitator, liquidator or receiver of the Company or
the Reinsurer.
(c) Commutation. At the end of each full calendar year from and
-----------
including 2002 to and including 2007, the Company and the Reinsurer shall
attempt to commute this Agreement by mutual consent. If no commutation or other
termination of this Agreement occurs prior to the end of the calendar year 2007,
the Company and the Reinsurer shall commute this Agreement either by mutual
consent at a price to be agreed or, if no agreement is reached by June 30, 2008,
the Company and the Reinsurer shall submit to binding arbitration by a
nationally recognized actuarial firm, reasonably acceptable to both parties,
whose decision as to price shall be final and binding on the Company and the
Reinsurer. Notwithstanding anything in the foregoing to the contrary, until June
30, 2008 the parties may arbitrarily refuse to agree to a commutation.
(d) Due and Unpaid Obligations. Notwithstanding anything herein to
--------------------------
the contrary, any unpaid or outstanding obligations of the Reinsurer due or
overdue the Company at the time of the termination, commutation or expiration of
this Agreement shall be paid upon such termination, commutation or expiration of
this Agreement.
II. Article XVIII entitled "Miscellaneous" is hereby amended by inserting
at the end thereof a Section (g) to read as follows:
"(g) Waiver of Offset Rights by Reinsurer. The Reinsurer shall pay to
------------------------------------
the Company any and all amounts payable hereunder without regard to any rights
of offset that the Reinsurer may have against the Company or XFS, any such
rights of offset hereby being waived."
IN WITNESS WHEREOF the parties hereto have caused this Endorsement to
be executed on their behalf by their respective officers thereunto duly
authorized as of the date first written in the Agreement to which this
Endorsement applies.
RIDGE REINSURANCE LIMITED
B-2
By:___________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
WESTCHESTER FIRE
INSURANCE COMPANY
By:___________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
B-3
WESTCHESTER SURPLUS LINES
INSURANCE COMPANY
By:___________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
INDUSTRIAL UNDERWRITERS
INSURANCE COMPANY
By:___________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
XEROX FINANCIAL SERVICES, INC.
By:___________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
B-4
EXHIBIT C
[NOT USED]
EXHIBIT D
FORM OF RELEASE OF TAX SHARING AGREEMENTS
This Release of obligations under the Xerox Corporation/▇▇▇▇ and
▇▇▇▇▇▇▇, Inc. Federal Income Tax Allocation Agreement ("Xerox/C&F Tax Sharing
Agreement") and obligations under the ▇▇▇▇ and ▇▇▇▇▇▇▇, Inc. Federal Income Tax
Allocation Agreement ("C&F Tax Sharing Agreement") is made and entered into by
and among Xerox Corporation, a New York corporation ("Xerox"); Xerox Financial
Services, Inc., a Delaware corporation ("XFS"); Talegen Holdings, Inc., a
Delaware corporation ("Talegen"); and Westchester Specialty Group, Inc., a
Delaware corporation (the "Company"), Westchester Fire Insurance Company, a New
York corporation, Westchester Surplus Lines Insurance Company, a Georgia
corporation, Industrial Underwriters Insurance Company, a Texas corporation,
Westchester Specialty Insurance Services, Inc., a Nevada corporation, and
Industrial Excess & Surplus Insurance Brokers, a California corporation
(collectively, the "Company Subsidiaries"), dated as of ____________ __, 1997.
WHEREAS, XFS, Talegen, and the Company are among the parties to the
Purchase Agreement and the Tax Agreement, as defined herein;
WHEREAS, as of the Closing Date, Section 11(d) of the Tax Agreement
terminates, with respect to the Company and the Company Subsidiaries, any and
all agreements with respect to Taxes (other than the Purchase Agreement and the
Tax Agreement) to which the Company or any of the Company Subsidiaries, on the
one hand, and Talegen or any of its subsidiaries (other than the Company and the
Company Subsidiaries), on the other hand, are or were parties at any time at or
before the Closing Date;
WHEREAS, as of the Closing Date, Section 11(d) of the Tax Agreement
extinguishes, with respect to the Company and the Company Subsidiaries, any and
all liabilities with respect to Taxes (other than under the Purchase Agreement
and the Tax Agreement) between the Company or any of the Company Subsidiaries,
on the one hand, and Talegen or any of its subsidiaries (other than the Company
and the Company Subsidiaries), on the other hand, that exist on the Closing
Date; and
WHEREAS, pursuant to paragraph 6.19 of the Purchase Agreement, it has
been agreed that the Company and each of the Company Subsidiaries shall execute
and deliver to Xerox, XFS and Talegen, and Xerox, XFS and Talegen shall execute
and deliver to the Company and each of the Company Subsidiaries, releases of any
and all obligations under tax sharing agreements (other than under the Tax
Agreement) existing as of the Closing Date;
NOW THEREFORE, in consideration of the mutual promises contained
herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Definitions.
a. "C&F TAX SHARING AGREEMENT" -- the Federal Income Tax
Allocation Agreement by and between ▇▇▇▇ and ▇▇▇▇▇▇▇, Inc., a New Jersey
Corporation ("C&F") (now Talegen), and each of its subsidiaries incorporated in
the United States, effective January 11, 1983 and amended April 15, 1992,
referenced in and made part of the Xerox/C&F Tax Sharing Agreement.
b. "CLOSING DATE" -- the Closing Date as defined in the
Purchase Agreement.
c. "PURCHASE AGREEMENT" -- the stock purchase agreement, dated
as of September 18, 1997, pursuant to which ACE Limited, a Cayman Islands
corporation ("Buyer"), will purchase from Talegen, and Talegen will sell to
Buyer, all of the issued and outstanding capital stock of the Company.
d. "TAX AGREEMENT" -- the Tax Allocation and Indemnification
Agreement dated as of the date of the Purchase Agreement and made and entered
into among XFS, Talegen, the Company and Buyer.
e. "TAXES" -- Taxes as defined in the Tax Agreement.
f. "XEROX/C&F TAX SHARING AGREEMENT" -- the Federal Income Tax
Allocation Agreement by and between Xerox and C&F on behalf of C&F and its
subsidiaries incorporated in the United States, effective January 11, 1983, and
amended April 15, 1992.
2. As of the Closing Date, the Company and each of the Company
Subsidiaries hereby fully and completely release Xerox, XFS and Talegen, and
each of them, and Xerox, XFS and Talegen hereby fully and completely release the
Company and each of the Company Subsidiaries, from any and all obligations
contained in or derived from either the Xerox/C&F Tax Sharing Agreement or the
C&F Tax Sharing Agreement. There shall be no continuing obligations pursuant to
the termination provisions of either the Xerox/C&F Tax Sharing Agreement or the
C&F Tax Sharing Agreement.
3. The Company and each of the Company Subsidiaries understands that
neither Xerox, XFS, nor Talegen shall make any payments on or after the Closing
Date to the Company or any of the Company Subsidiaries under either the
Xerox/C&F Tax Sharing Agreement or the C&F Tax Sharing Agreement, and that
payments, if any, to the Company and the Company Subsidiaries from Xerox, XFS or
Talegen on and after the Closing Date with respect to Taxes shall be made
pursuant only to the Tax Agreement.
4. Xerox, XFS and Talegen understand that the Company and the
Company Subsidiaries shall not make any payments on or after the Closing Date
under either the Xerox/C&F Tax Sharing Agreement or the C&F Tax Sharing
Agreement and that any payments to Xerox, XFS or Talegen on or after the Closing
Date with respect to Taxes shall be made pursuant only to the Tax Agreement.
5. This Release shall be binding on and inure to the benefit of any
successor, by merger, acquisition of assets, or otherwise, to any of the parties
hereto to the same extent as if such successor had been an original party to
this Release.
6. Except as provided in paragraph 5 above, this Release shall be
neither assignable nor transferable by any party hereto, whether by operation of
law or otherwise, without the prior consent of the other parties hereto.
D-2
7. This Release shall be governed by and construed in accordance
with the laws of the State of New York.
XEROX CORPORATION
By:_____________________________
Name:
Title:
XEROX FINANCIAL SERVICES, INC.
By:_____________________________
Name:
Title:
TALEGEN HOLDINGS, INC.
By:_____________________________
Name:
Title:
WESTCHESTER SPECIALTY GROUP, INC.
By:_____________________________
Name:
Title:
WESTCHESTER FIRE INSURANCE COMPANY
By:_____________________________
Name:
Title:
WESTCHESTER SURPLUS LINES INSURANCE COMPANY
By:_____________________________
Name:
D-3
Title:
INDUSTRIAL UNDERWRITERS INSURANCE
COMPANY
By:_____________________________
Name:
Title:
WESTCHESTER SPECIALTY INSURANCE SERVICES,
INC.
By:_____________________________
Name:
Title:
INDUSTRIAL EXCESS & SURPLUS INSURANCE
BROKERS
By:_____________________________
Name:
Title:
D-4
EXHIBIT E
FORM OF OPINION OF LEBOEUF, LAMB, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
1. Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
2. Upon the delivery of and payment for the Shares as provided under
the Agreement, and issuance of new certificates representing the Shares in the
name of Buyer, and assuming that Buyer effected its purchase in good faith and
without notice of an adverse claim within the meaning of Section 8-302 of the
New York Uniform Commercial Code, Buyer will acquire Seller's rights in the
Shares free of any adverse claim.
3. (a) Seller has full corporate power and authority to execute and
deliver the Agreement and the Tax Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Agreement and the Tax
Agreement and the consummation of the transactions contemplated thereby have
been duly and validly approved by all requisite corporate action on the part of
Seller, and no other corporate proceedings on the part of Seller are necessary
to approve the Agreement or the Tax Agreement or to consummate the transactions
contemplated thereby. The Agreement and the Tax Agreement have been duly and
validly executed and delivered by Seller and (assuming the due authorization,
execution and delivery of the Agreement and the Tax Agreement by Buyer and the
other parties thereto) constitute valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except as
enforcement may be limited by general principles of equity, whether applied in a
court of law or a court of equity, and by bankruptcy, insolvency, moratorium and
similar laws affecting creditors' rights and remedies generally.
(b) Parent has full corporate power and authority to enter into
the Guarantee and to consummate the transactions contemplated thereby. The
execution and delivery by Parent of the Guarantee and the consummation of the
transactions contemplated thereby have been duly authorized by all requisite
corporate action on the part of Parent, and no other corporate proceedings are
required on the part of Parent to approve the Guarantee or to authorize the
transactions contemplated thereby. The Guarantee has been duly executed and
delivered by Parent and, assuming the due authorization, execution and delivery
by the other party thereto, constitutes the valid and binding obligations of
Parent, enforceable in accordance with its terms, except as enforcement may be
limited by general principles of equity, whether applied in a court of law or a
court of equity, and by bankruptcy, insolvency, moratorium and similar laws
affecting creditors' rights and remedies generally.
4. Except for the applicable filings under the HSR Act and the
filing of a notice pursuant to the Exon-▇▇▇▇▇▇ Amendment, no consents or
approvals of or filings or registrations under New York law or the federal law
of the United States are necessary in connection with (i) the execution and
delivery by Seller of the Agreement, and (ii) the consummation by Seller of the
transactions contemplated thereby, other than those filings, consents and
approvals which have been obtained.
EXHIBIT F
FORM OF OPINION OF ▇▇▇▇▇▇ & ▇▇▇▇▇▇
1. Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of the Cayman Islands.
2. Buyer has full corporate power and authority to execute and
deliver the Agreement and the Ancillary Agreements and to consummate the
transactions contemplated thereby. The execution and delivery of the Agreement
and the Ancillary Agreements and the consummation of the transactions
contemplated thereby have been duly and validly approved by all requisite
corporate action on the part of Buyer, and no other corporate proceedings on the
part of Buyer are necessary to approve the Agreement or the Ancillary Agreements
or to consummate the transactions contemplated thereby. The Agreement and the
Ancillary Agreements have been duly and validly executed and delivered by Buyer
and (assuming the due authorization, execution and delivery of the Agreement and
the Ancillary Agreements by Seller and the other parties thereto) constitute
valid and binding obligations of Buyer, enforceable against Buyer in accordance
with their respective terms, except as enforcement may be limited by general
principles of equity, whether applied in a court of law or a court of equity,
and by bankruptcy, insolvency, moratorium and similar laws affecting creditors'
rights and remedies generally.
FORM OF OPINION OF ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
1. Except for the applicable filings under the HSR Act and the
filing of a notice pursuant to the Exon-▇▇▇▇▇▇ Amendment, no consents or
approvals of or filings or registrations under New York law or the federal law
of the United States are necessary in connection with (i) the execution and
delivery by Buyer of the Agreement, and (ii) the consummation by Buyer of the
transactions contemplated thereby, other than those filings, consents and
approvals which have been obtained.
------------------------------------
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