PURCHASE AGREEMENT
by and between
CENTRE SOLUTIONS HOLDINGS (DELAWARE) LIMITED
and
SUPERIOR NATIONAL INSURANCE GROUP, INC.
December 7, 1998
TABLE OF CONTENTS
PAGE
ARTICLE I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.1 PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.2 PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER AND BIG . . . . . . . . . . . . . . 4
SECTION 2.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.2 AUTHORIZATION; VALIDITY OF AGREEMENT. . . . . . . . . . . . . . . . . . 5
SECTION 2.3 CONSENTS AND APPROVALS; NO VIOLATIONS . . . . . . . . . . . . . . . . . 5
SECTION 2.4 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.5 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.6 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS . . . . . . . . . . . . . . 6
SECTION 2.7 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.8 BROKERS OR FINDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.9 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.10 EMPLOYMENT MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . .11
SECTION 2.11 NO LIABILITY FOR EMPLOYEE BENEFIT PLANS, ETC. . . . . . . . . . . . . .12
SECTION 2.12 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 2.13 NO UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . .13
SECTION 3.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. . . . . . . . .13
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS . . . . . . . . . . . . . . . . .13
SECTION 3.4 ACQUISITION FOR INVESTMENT. . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE IV. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.1 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.2 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.3 TAX INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.4 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION . . . . . . . . . . .17
SECTION 4.5 NO SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 4.6 TERMINATION AND RELEASE . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 4.7 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 4.8 SELLER'S ENVIRONMENTAL INDEMNITIES. . . . . . . . . . . . . . . . . . .19
SECTION 4.9 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 4.10 NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 4.11 NOTICE AND CURE . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 4.12 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 4.13 REINSURANCE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 4.14 BICO LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 4.15 OPERATIONS INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 4.16 MANAGED CARE REPLACEMENT AGREEMENT. . . . . . . . . . . . . . . . . . .21
SECTION 4.17 INDEMNIFICATION FOR EMPLOYEE MATTERS LIABILITIES. . . . . . . . . . . .22
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ARTICLE V. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 5.1 INDEMNIFICATION BY SELLER . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 5.2 INDEMNIFICATION BY PURCHASER. . . . . . . . . . . . . . . . . . . . . .23
SECTION 5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . .23
SECTION 5.4 NOTICE AND OPPORTUNITY TO DEFEND. . . . . . . . . . . . . . . . . . . .24
SECTION 5.5 ADJUSTMENT FOR INSURANCE AND TAXES. . . . . . . . . . . . . . . . . . .24
SECTION 5.6 MITIGATION OF LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.7 SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.8 TAX INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.9 SET-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.10 EXCLUSIVE REMEDY. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
ARTICLE VI. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING . . . . . .26
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. . . . . . . . . . . . . . .26
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . .29
ARTICLE VII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 7.1 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 7.2 PROCEDURE AND EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . .30
ARTICLE VIII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 8.1 GOVERNING LAWS AND CONSENT TO JURISDICTION. . . . . . . . . . . . . . .31
SECTION 8.2 AMENDMENT AND MODIFICATION. . . . . . . . . . . . . . . . . . . . . . .32
SECTION 8.3 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
SECTION 8.4 INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
SECTION 8.5 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . .34
SECTION 8.7 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.8 SPECIFIC PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.9 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.10 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.11 WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 8.12 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of December 7, 1998 (this
"AGREEMENT"), by and between Centre Solutions Holdings (Delaware) Limited, a
holding company incorporated in the State of Delaware ("PURCHASER") and Superior
National Insurance Group, Inc., a Delaware corporation ("SELLER").
WHEREAS, Seller and Foundation Health Corporation ("FHC") have
entered into that certain Purchase Agreement dated as of May 5, 1998 (the
"ACQUISITION AGREEMENT"), pursuant to which Seller will indirectly acquire from
FHC, among other things, all of the issued and outstanding shares of capital
stock of Business Insurance Group, Inc., a Delaware corporation ("BIG") and
BIG's insurance company subsidiaries, including by and between Centre Solutions
Holdings (Delaware) Limited, a holding company incorporated in the State of
Delaware ("PURCHASER") and Superior National Insurance Group, Inc., a Delaware
corporation ("SELLER").
WHEREAS, Purchaser desires to purchase from Seller, and Seller
desires to cause to be sold to Purchaser, all of the issued and outstanding
shares of capital stock of BICO (the "SHARES") immediately after the closing of
the transactions contemplated by the Acquisition Agreement;
WHEREAS, Seller intends, immediately prior to the Closing (as
hereinafter defined), to cause BICO to transfer all of its assets, liabilities,
employees and business operations to one or more Affiliates (as hereinafter
defined) of Seller so that upon the Closing, BICO will have only the Licenses
(as hereinafter defined), the Surviving Contracts (as defined in Section
6.2(a)(iv)), and certain other assets and liabilities specified herein; and
WHEREAS, prior to or simultaneous with the Closing, in
furtherance of the foregoing and in order to assure continuity of the
underwriting of certain non-California and non-Arizona business presently
underwritten by BICO, the rights to which Seller will have acquired by its
acquisition of BICO, the Underwriting Management Agreement, the Quota Share
Reinsurance Agreement, the Loss Portfolio Transfer Agreement and the Claims
Administration Services Agreement (each as hereinafter defined, each of which is
sometimes hereinafter referred to as a "PROGRAM AGREEMENT" and collectively as
the "PROGRAM AGREEMENTS") shall be executed and delivered.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
ARTICLE I.
PURCHASE AND SALE
SECTION 1.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller shall sell,
assign, transfer and deliver, or cause BIG to sell, assign, transfer and deliver
to Purchaser, and Purchaser shall purchase from Seller or BIG, the Shares, free
and clear of all options, pledges, mortgages, security interests, liens, claims,
rights of first refusal, leases, transfer restrictions under any shareholder or
similar agreement, or other encumbrances or restrictions on voting or transfer
of any kind whatsoever ("ENCUMBRANCES"), other than restrictions imposed by
federal or state securities laws, and free from any and all defects in title.
SECTION 1.2 PURCHASE PRICE.
(a) On the Closing Date (as hereinafter defined) and subject to
the terms and conditions set forth in this Agreement, Seller shall deliver or
cause to be delivered a certificate or certificates representing the Shares duly
endorsed in blank or accompanied by a stock power or stock powers duly executed
in blank and, in consideration of the sale, assignment, transfer and delivery of
the Shares, Purchaser shall pay to Seller an amount (the "PURCHASE PRICE") equal
to the sum of (i) Five million Dollars ($5,000,000), plus (ii) the Adjustment
Amount, as defined below, plus (iii) an amount equal to the Net Statutory
Amount. The term "NET STATUTORY AMOUNT" shall mean the amount resulting from
the subtraction of the Excluded Statutory Amount, as hereinafter defined, from
the BICO Statutory Amount, as hereinafter defined. The term "BICO STATUTORY
AMOUNT" shall mean the amount of the statutory capital and surplus of BICO at
and as of the Closing Date, which amount shall not materially exceed the minimum
statutory or regulatory amount (the "MINIMUM STATUTORY AMOUNT") required to
preserve and maintain in effect the Licenses (as hereinafter defined). The term
"EXCLUDED STATUTORY AMOUNT" shall mean the amount equal to the statutory
deposits (the "EXCLUDED DEPOSITS") that would be listed on Schedule E, Part 2 of
BICO's Annual Statement, with respect to the States listed on EXHIBIT 1.2,
attached hereto and hereby incorporated by reference, if such deposits were
calculated as of the Closing Date. Seller and Purchaser shall use commercially
reasonable efforts to obtain from the applicable state regulatory authorities'
permission to release the Excluded Deposits as promptly as reasonably
practicable on or following the Closing Date. Upon such release, Purchaser
shall transfer to the Seller the Excluded Deposits.
(b) The amount to be paid by Purchaser pursuant to clause
(iii) above shall be determined in accordance with statutory accounting
practices prescribed or permitted by the Department of Insurance of the State of
Delaware, consistently applied. It is understood that at and as of the Closing
Date, BICO shall have a statutory capital and surplus in an amount not less than
the Minimum Statutory Amount. Notwithstanding the foregoing, and without
limiting Purchaser's rights under Article V hereof, the Purchaser shall pay to
Seller, as an adjustment to the Purchase Price, the Adjustment Amount, as
defined below, on the date nine (9) months following the Closing, or such sooner
time as the parties hereto may confirm that the Licenses (as defined in Section
2.1, below) are without lapse, suspension, termination, adverse modification
and/or limitation (the "ADJUSTMENT PERIOD"). For purposes of this Agreement the
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term "ADJUSTMENT AMOUNT" shall mean Six Hundred Thousand Dollars ($600,000), as
such amount may be reduced pursuant to this Section 1.2(b). In the event that
prior to the expiration of the Adjustment Period, any of the Licenses lapse or
are suspended, adversely modified, limited and/or terminated, and are not
reinstated in full prior to the expiration of the Adjustment Period (or, with
respect to the limitations disclosed in Schedule 2.1(a) on the Licenses for the
states of Minnesota and North Carolina, and notwithstanding any such disclosure
in Schedule 2.1(a), any of such Licenses are not reinstated in full prior to
the expiration of the Adjustment Period), then the Adjustment Amount shall be
reduced by $100,000 per jurisdiction in which such lapse, suspension
termination, adverse modification and/or limitation is effective (or, with
respect to the Licenses for the states of Minnesota and North Carolina, per
jurisdiction in which any of such Licenses are not reinstated in full). The
parties understand and agree that Purchaser does not intend to acquire, and will
not acquire, and that BICO will not continue to employ on or after the Closing
Date, any of the employees or officers of BICO. As such, the Purchase Price
does not contemplate Purchaser's acquisition of any employees or officers of
BICO, nor does this Agreement obligate in any way whatsoever Purchaser or BICO
to be responsible for any payroll, benefits, severance, pensions or other
employee related costs or obligations with respect to any employees or officers
of BICO.
SECTION 1.3 CLOSING.
(a) The sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "CLOSING") to be held at the
offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ in Los Angeles as promptly as possible after the
consummation of the transactions contemplated by the Acquisition Agreement, but
in no event later than December 31, 1998, or at such other place or at such
other time or on such other date as Seller and Purchaser may mutually agree in
writing (the day on which the Closing takes place being the "CLOSING DATE").
(b) At the Closing, Seller shall deliver or cause to be delivered
to Purchaser (i) a stock certificate or stock certificates evidencing the Shares
duly endorsed in blank or accompanied by a stock power or stock powers, duly
executed in blank, (ii) an original Underwriting Management Agreement, as
hereinafter defined, duly executed by SN Insurance Services, Inc. ("SNIS") and
BICO, (iii) an original Quota Share Reinsurance Agreement, as hereinafter
defined, duly executed by California Compensation Insurance Company ("CALCOMP")
and BICO, (iv) an original Loss Portfolio Transfer Agreement, as hereinafter
defined, duly executed by CalComp and BICO, (v) an original Claims
Administration Services Agreement, as hereinafter defined, duly executed by a
designee of Seller (reasonably acceptable to Purchaser), and BICO, (vi) evidence
of termination or assumption by Seller and/or any Affiliates thereof of any and
all Contracts by which BICO or any of its assets are bound (other than the
Surviving Contracts), (vii) all books and records of BICO (it being understood
and agreed that if, at any time after the Closing, Seller discovers in its
possession or under its control any other books and records of BICO, Seller will
forthwith deliver such books and records to Purchaser), (viii) certified copies
of resolutions duly adopted by the Boards of Directors of Seller, BIG and/or
BICO, as the case may be, authorizing and approving the execution, delivery and
performance of this Agreement and each other agreement required to be executed
and delivered by Seller, BIG and/or BICO pursuant to this Agreement, (ix)
certified complete and correct copies of the Amended and Restated Certificate of
Incorporation and bylaws of BICO, as in effect on the Closing Date, and (x) all
other previously undelivered certificates and other
3
documents required to be delivered by Seller to Purchaser at or prior to the
Closing Date in connection with the transactions contemplated hereby.
(c) At the Closing, Purchaser shall deliver to Seller: (i) the
Purchase Price (not including the Adjustment Amount, as defined below) by
wire transfer in immediately available funds to an account or accounts
designated by Seller, (ii) certified copies of resolutions duly adopted by
the Board of Directors of Purchaser authorizing and approving the execution,
delivery and performance of this Agreement, and each other agreement required
to be executed and delivered by Purchaser pursuant to this Agreement, and
(iii) all other previously undelivered certificates and other documents
required to be delivered by Purchaser to Seller at or prior to the Closing
Date in connection with the transactions contemplated hereby.
(d) At the Closing, Seller shall assign, convey and transfer to
the Purchaser, and Seller shall cause BIG to assign, convey and transfer to
the Purchaser their respective entire right (including the right to seek
remedies for past infringements and to retain any proceeds recovered in such
suit), title and interest in and to all trade names, service marks and
trademarks, whether registered or unregistered, of BICO, throughout the world
(including all applications for registration, registrations, extensions,
reissues and renewals thereof.)
(e) Notwithstanding anything to the contrary in this Agreement,
Seller and/or BIG, and not Purchaser or BICO, shall be responsible and shall
retain any and all liability for (i) all compensation, benefits, and
perquisites of any kind due any person on account of employment by BICO at
any time or times prior to the Closing Date, or the termination of employment
of any such person by Seller, BICO and/or BIG, including, but not limited to,
medical or dental benefits either reported but not paid or incurred but not
reported prior to the Closing Date and continuation of health care coverage
pursuant to COBRA; and (ii) all notices, payments, fines, taxes or
assessments due to any Governmental Entity pursuant to any applicable
foreign, federal, state or local law, common law, statute, rule or regulation
with respect to the employment, discharge or layoff of employees of BICO by
Seller, BICO and/or BIG for any period prior to the Closing Date, including,
but not limited to, the WARN Act and any applicable state severance pay law
and any rules or regulations that have been issued in connection with any of
the foregoing.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER AND BIG
Seller, on its own behalf and on behalf of BIG, represents and warrants
to Purchaser as follows:
SECTION 2.1 ORGANIZATION. Each of Seller and BICO is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Seller has delivered to Purchaser a complete and correct
copy of the Amended and Restated Certificate of Incorporation and bylaws of
BICO, as in effect on the date hereof. Except as set forth in Schedule 2.1(a),
the licenses, certificates of authority, authorizations, government approvals,
orders, registrations, qualifications, consents and permits and filings, all of
which are described
4
in Schedule 2.1(b) (collectively, the "LICENSES") are valid, binding and in
full force and effect and in good standing in all respects (it being
acknowledged by the parties that certain notifications to regulatory
authorities may be required following a change in control of BICO). Schedule
2.1(b) lists all jurisdictions in which BICO is currently authorized to
transact the business of insurance and/or reinsurance and maintains a valid
License from the applicable insurance department to transact insurance and/or
reinsurance business, along with a description of the scope, by line of
business, of BICO's Licenses in each such jurisdiction. Except as set forth
in Schedule 2.1(a), no such License is the subject of a proceeding for
suspension, revocation or limitation or any similar proceedings and, to the
knowledge of Seller, there is no pending threat of such suspension,
revocation or limitation or any similar proceedings by any Governmental
Entity, as defined below. To the Seller's knowledge, except for compliance
with periodic renewal procedures, no approvals or authorizations are required
to permit BICO to continue to conduct its business as presently conducted
following the Closing.
SECTION 2.2 AUTHORIZATION; VALIDITY OF AGREEMENT. Seller has the
power and authority to execute and deliver this Agreement and all of the
agreements and documents contemplated hereby, to carry out its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by Seller of this
Agreement and all of the agreements and documents contemplated hereby, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by Seller by all necessary corporate action and no other
corporate action on the part of Seller is necessary to authorize the execution
and delivery by Seller of this Agreement and all agreements and documents
contemplated hereby and thereby and the consummation by it of the transactions
contemplated hereby and thereby. This Agreement and each of the agreements and
documents contemplated hereby has been duly executed and delivered by Seller,
and (assuming due and valid authorization, execution and delivery hereof and
thereof by Purchaser and each other party thereto other than Seller) is a valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting creditors' rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
SECTION 2.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as
contemplated by the Acquisition Agreement and except for (a) approvals or
consents of any court, arbitration panel or tribunal, legislative, executive or
regulatory authority or agency (each a "GOVERNMENTAL ENTITY" and collectively
the "GOVERNMENTAL ENTITIES") under applicable insurance laws of each of the
jurisdictions listed in Schedule 2.1(b) or as may be otherwise required by law,
(b) applicable requirements under corporation or "blue sky" laws of various
states and (c) matters specifically described in this Agreement, neither the
execution, delivery or performance of this Agreement or any agreement or
document contemplated hereby by Seller nor the consummation by Seller of the
transactions contemplated hereby or thereby will (i) violate any provision of
the certificate of incorporation, bylaws or other organizational documents of
Seller or BICO, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrances upon any of the
properties or assets of BICO under (or result in being declared void, voidable
or without further binding
5
effect) any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, License, contract, agreement or other instrument,
commitment or obligation to which BICO is a party or by which BICO or any of
its properties or assets may be bound, (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to
Seller or BICO, (iv) require on the part of Seller or BICO any filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Entity or (v) result in a termination, loss or adverse
modification or limitation of any License, except in the case of clauses
(iii), (iv) and (v), for such violations, breaches, defaults or other events
specified therein, which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would
not adversely affect the ability of Seller to consummate the transactions
contemplated by this Agreement or become applicable as a result of the
business or activities in which Purchaser is or proposes to be engaged (to
the extent, and only to the extent, that such business or activities differ
from the business or activities engaged in by BICO prior to the Closing
Date), or as a result of any acts or omissions by Purchaser (other than acts
or omissions resulting from a breach by Seller of any of the representations,
warranties and/or covenants of Seller in this Agreement).
SECTION 2.4 CAPITALIZATION. Schedule 2.4 sets forth the
authorized, issued and outstanding capital stock of BICO. The Shares
constitute all of the issued and outstanding shares of capital stock of BICO.
All of the Shares are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, with no defects of title. There
are no existing (i) options, warrants, calls, subscriptions or other rights,
convertible securities, agreements or commitments of any character obligating
BICO to issue, transfer or sell any shares of capital stock or other equity
interest in BICO or securities convertible into or exchangeable for such
shares or equity interests, (ii) contractual or other obligations of BICO to
repurchase, redeem or otherwise acquire any capital stock of BICO or (iii)
voting trusts or similar agreements or understandings to which Seller or BICO
is a party with respect to the voting of the capital stock of BICO.
SECTION 2.5 LITIGATION. Except as disclosed in Schedule 2.5, there
is no action, suit, proceeding (or, to the knowledge of Seller or BICO,
investigation) pending, or to the knowledge of Seller or BICO, action, suit,
proceeding or investigation threatened, involving Seller or BICO or any of
their respective officers or directors as such, or any of BICO's assets,
including without limitation, any of the Licenses, nor is there any action,
suit, proceeding (or, to the knowledge of Seller or BICO, investigation)
pending, or to the knowledge of Seller or BICO, action, suit, proceeding or
investigation threatened, challenging the validity or propriety of the
transactions contemplated by this Agreement, by or before any Governmental
Entity or by any third party that is reasonably likely to adversely affect
the ability of Seller to consummate the transactions contemplated by this
Agreement or contemplated by the Acquisition Agreement that relate to this
Agreement. Except as disclosed in Schedule 2.5, no material orders, decrees,
awards, sanctions or judgments exist against Seller or BICO or any of their
respective officers or directors, as such, other than those applicable to the
industry as a whole in the jurisdiction where issued.
SECTION 2.6 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS. Except as
disclosed in Schedule 2.6, neither Seller nor BICO is in default or violation of
any term, condition or provision of its certificate of incorporation or bylaws,
or, with respect to BICO only, (i) any License or (ii) statute, law, rule,
regulation, judgment, decree, order or arbitration award
6
applicable to BICO, excluding from this clause (ii), defaults or violations
which would not adversely affect the ability of Seller to consummate the
transactions contemplated by this Agreement or which become applicable as a
result of the business or activities in which Purchaser is or proposes to be
engaged (to the extent, and only to the extent, that such business or
activities differ from the business or activities engaged in by BICO prior to
the Closing Date), or as a result of any acts or omissions by Purchaser
(other than acts or omissions resulting from a breach by Seller of any of the
representations, warranties and/or covenants of Seller in this Agreement), or
the status of any facts pertaining to, Purchaser. Except as set forth on
Schedule 2.6, neither Seller nor BICO has received any written notice since
December 31, 1995 from any Governmental Entity alleging any violation
described in clause (ii) (without giving effect to the exclusions referenced
therein) or directing BICO to take any remedial action with respect to such
law, ordinance or regulation which, in each case, would materially adversely
affect the ability of Seller to consummate the transactions contemplated by
this Agreement.
SECTION 2.7 TAXES. To the knowledge of Seller and except as
disclosed in Schedule 2.7 and the federal waiver given by BICO in connection
with the federal income tax examination which is currently in process for the
tax years disclosed on Schedule 2.7(c) and the related automatic extensions
which result under state law from the execution of such federal waiver:
(a) BICO is taxable as an insurance company. BICO has filed,
within the time and manner prescribed by law, all material returns, material
information statements and material reports (including schedules attached to any
of the foregoing) required to be filed with or supplied to a Tax Authority
(hereinafter defined) with respect to Taxes (hereinafter defined) (collectively,
"TAX RETURNS"). All such Tax Returns were correct and complete in all material
respects. All federal, state, local or foreign income, capital gains, profits,
premium, gross receipts, payroll, capital stock, franchise, employment,
withholding, social security, unemployment, disability, real property, personal
property, stamp, excise, occupation, sales, use, transfer, mining, value added,
investment credit recapture, alternative or add-on minimum, environmental,
estimated or other taxes, duties or assessments of any kind, including any
interest, penalty and additions imposed with respect to such amounts
(collectively, "TAXES") owed by BICO (whether or not shown on any Tax Return)
have been paid. BICO is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by any
federal, national, foreign, state, municipal or other local government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body or other authority exercising any taxing or tax regulatory authority (each,
a "TAX AUTHORITY") in a jurisdiction where BICO does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no Liens on
any of the assets of BICO that arose in connection with any failure (or alleged
failure) to pay any Tax. All written assessments of material Taxes due and
payable by, on behalf of or with respect to BICO have been paid, or are being
contested in good faith by appropriate proceedings and have been reserved
against in accordance with GAAP and statutory accounting procedures and
practices.
(b) BICO has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing by it to each
employee, independent contractor, creditor, stockholder, partner or other third
party.
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(c) BICO does not nor does any director or officer (or employee
responsible for Tax matters) of BICO expect or have reason to expect any Tax
Authority to assess any additional Taxes for any period for which Tax Returns
have been filed. There is no dispute or claim concerning any Tax liability
of BICO either (i) claimed or raised by any Tax Authority in writing or (ii)
as to which any Seller or any director or officer (or employee responsible
for Tax matters) of any Company has knowledge. Part (c) of Schedule 2.7
lists all income Tax Returns filed with respect to BICO for taxable periods
ended after December 31, 1994, and indicates those Tax Returns that have been
audited or are currently the subject of an audit. Sellers have delivered to
the Purchaser correct and complete copies of all federal Tax Returns,
examination reports and statements of deficiencies assessed against or agreed
to by BICO for any period subsequent to December 31, 1994.
(d) BICO has not waived or extended any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) BICO has not has filed a consent under Section 341(f) of
the Internal Revenue Code of 1986, as amended from time to time, and any
successor statute thereto (the "CODE") concerning collapsible corporations.
(f) BICO has not made any payments, is not obligated to make
any payments, or is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code.
(g) BICO has not has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(h) BICO is not a party to any Tax allocation or sharing
agreement which will require any payment by BICO for Taxes accruing after the
Closing Date.
(i) Part (i) of Schedule 2.7 sets forth the following
information with respect to BICO on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions contemplated
hereby: (i) the basis of BICO in its assets; (ii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to any such party;
and (iii) the amount of any deferred gain or loss allocable to each party
arising out of any deferred intercompany transaction.
(j) The unpaid Taxes of BICO (i) did not, as of the most recent
fiscal month end, exceed the reserve for Tax liabilities (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the Balance Sheet (rather than in any notes
thereto) included in the financial statements and (ii) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of BICO in filing their Tax
Returns.
SECTION 2.8 BROKERS OR FINDERS. Seller represents, as to itself
and BICO, that no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any brokers' or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement.
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SECTION 2.9 ENVIRONMENTAL MATTERS.
(a) For the purpose of this Agreement, the following words and
phrases shall have the following meanings:
(i) "ENVIRONMENT" shall mean soil, surface waters,
ground waters, land, stream sediments, surface or subsurface
strata, ambient air, and any environmental medium.
(ii) "ENVIRONMENTAL CONDITION" shall mean any condition
with respect to the Environment on or off any property, owned,
leased or otherwise occupied by BICO ("PREMISES"), whether or not
yet discovered, which could or does result in any damage, loss,
cost, expense, claim, demand, order, or liability to or against
BICO by any third party (including, without limitation, any
Governmental Entity), including, without limitation, any condition
resulting from the operation of BICO's business and/or the
operation of the business of any other property owner or operator
in the vicinity of such Premises and/or any activity or operation
formerly conducted by any person or entity on or off the Premises.
(iii) "ENVIRONMENTAL LAWS" shall mean (a) any federal,
state, or local law, regulation, ordinance, rule, guideline or
by-law regulating or referring to the Environment, whether existing
as of the date hereof or subsequently enacted; (b) any law,
ordinance, regulation, rule, guideline or by-law of any Governmental
Entity that asserts or may assert jurisdiction over the Seller, BICO
or the Premises, or the operations or activities at the Premises,
that regulates or refers to the presence, release, threat of
release, use, handling, manufacturing, generation, production,
storage, treatment, processing, transportation or disposal of any
Hazardous Substances, including, but not limited to (i) requiring
any permit, license, approval, consent or authorization, or the
renewal thereof; (ii) regulating the amount, form, manner of
storage, transport and/or disposal of Hazardous Substances; or (iii)
requiring any reporting, inspection report, business plan,
notification, or any other dissemination of or access to
information regarding Hazardous Substances, including warnings or
notices to tenants, subtenants, employees, occupants, invitees or
consumers.
(iv) "HAZARDOUS SUBSTANCES" shall mean (a) any
pollutant, toxic substance, contaminant, chemical, hazardous waste,
hazardous material, petroleum product, oil, radioactive material or
energy; (whether such energy is radioactive or not) (b) any
substance, gas material or chemical which is or may be defined as
or included in the definition of "hazardous substances," "toxic
substances," "hazardous materials," "hazardous wastes," or words of
similar import under any Environmental Law; (c) radon gas, asbestos
in any form which could or does become friable, urea formaldehyde
foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls in
excess of federal, state or local safety guidelines, whichever are
more stringent; (d) any other chemical, material, gas, or
substance,
9
the exposure or release of which is or may be prohibited, limited
or regulated by any Governmental Entity that asserts or may assert
jurisdiction over the Premises, or the operations or activity at
the Premises, or any chemical, material, gas or substance that does
or may pose a hazard to health and/or safety of the occupants of the
Premises or the owners and/or occupants of property adjacent to or
surrounding the Premises.
(v) "PERMIT" shall mean any environmental permit,
license, approval, consent, or authorization issued by a federal,
state, or local Governmental Entity under any Environmental Law.
(vi) "PREMISES" shall mean any property or location,
whether owned, leased, or otherwise occupied at, from, or which
BICO now or has heretofore conducted business.
(vii) "RELEASE" shall mean any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing, or dumping into the
Environment.
(viii) "THREAT OF RELEASE" shall mean a substantial
likelihood of a Release which requires action to prevent or
mitigate damage to the Environment which may result from such
Release.
(b) Seller's Representations, Warranties, and Obligations.
The Seller, on its own behalf and on behalf of BICO, represents and
warrants to Purchaser, that the following are true and on the date hereof and as
of the Closing Date:
(i) the activities, operations and business by BICO,
including, but not limited to, the business conducted by BICO at
any Premises or any past or ongoing alterations or improvements by
BICO at any Premises is, and has been at all times in compliance
with all Environmental Laws and with all agreements with
Governmental Entities, court and administrative orders regarding
the Environment and binding on BICO, (ii) to the knowledge of
Seller and/or BICO, Hazardous Substances have not been generated,
used, treated, handled, stored, released or disposed of, on, at,
under or about the Premises, and (iii) neither the Seller nor BICO
has knowledge of the existence of any Environmental Condition at
any of the Premises and that, with respect to those Premises where
the Seller or BICO has knowledge of such an Environmental
Condition, that no further action is required to remedy any
condition.
(ii) Neither the Seller nor BICO is aware of any
pending or threatened litigation or proceedings before any
administrative agency in which any person or entity alleges the
violation by BICO of any Environmental Law or the presence,
release, threat of release, placement, storage, disposal or use,
generation or treatment of Hazardous Substances on, at, under or
from any of the Premises,
10
including, without limitation, that Hazardous Substances used,
generated, stored or treated at any Premises were released or
treated to be released at any site other than the Premises
("OFF SITE CLAIMS"), nor has the Seller or BICO (A) received any
notice of and has no actual or constructive knowledge that any
third party, Governmental Entity or any employee or agent thereof,
has determined, threatens to determine or requires an investigation
to determine that there exists any violation by BICO of any
Environmental Law or the presence, release, threat of release, or
placement, use, gain, storage, disposal or treatment of Hazaradous
Substances on, at, under or from the Premises, (B) received any
notice of a claim against BICO under any citizen suit provision of
any Environmental Law; or (C) received any request for inspection
or request for information, notice, demand, administrative inquiry
or any formal or informal complaint or claim with respect to or in
connection with any Environmental Law relating to the busines of
BICO or to any Premises.
(iii) No lien has been imposed on any of BICO's assets
by any Governmental Entity in connection with Environmental Law.
(iv) BICO has all Permits necessary for its activities
and operations of its business and for any past or ongoing
alterations or improvements by BICO at any Premises.
(v) That no storage tanks presently exist on, at,
under or about any Premises or, to Seller's or BICO's knowledge,
previously existed on, at, under or about any Premises, or to the
best of Seller's and BICO's knowledge, are located on any adjoining
property.
(c) Seller, on its own behalf and on behalf of BICO, covenants to
Purchaser, from the date hereof, that Seller shall provide to Purchaser, within
five (5) business days of the date hereof, copies of all documents, records, and
information in its possession or control or available to Seller concerning (A)
BICO's compliance with Environmental Laws, (B) the presence, use, emission,
generation, storage, treatment or disposal of Hazardous Substances at, or under
or from any Premises and (C) Environmental Conditions relevant to BICO's
business and/or any Premises, whether generated by BICO or others, including,
without limitation, environmental audits, environmental risk assessments, or
site assessments of the Premises and/or any adjacent property, documentation
regarding offsite disposal of Hazardous Substances, reports and correspondence.
Furthermore, Seller shall have an ongoing obligation to provide to Purchaser
copies of any additional such documents which come into the possession or
control of or become available to Seller and/or BICO subsequent to the date
hereof and on or prior to the Closing Date, within two (2) business days of any
such document becoming available to Seller or to BICO.
SECTION 2.10 EMPLOYMENT MATTERS. BICO is in compliance in all
material respects with all "Employment Practices Laws." BICO is not engaged in
any unfair labor practice or discriminatory employment practice and, except as
disclosed on Schedule 2.10, no complaint of any such practice against BICO, or
any officer, director, employee or agent of BICO, has been
11
filed or, to Seller's, BIG's or BICO's knowledge, threatened to be filed with
or by the National Labor Relations Board, the Equal Employment Opportunity
Commission or any other administrative agency, federal, state or local, that
regulates labor or employment practices, nor is any grievance filed or, to
the knowledge of Seller, BIG or BICO, threatened to be filed, against BICO
by any employee pursuant to any collective bargaining or other employment
agreement to which BICO is a party or is bound. BICO is in compliance in all
material respects with all applicable federal, state and local laws and
regulations regarding occupational safety and health standards, and has
received no complaints from any federal, state or local agency or regulatory
body alleging violations of any such laws and regulations. For purposes of
this Agreement, the term "EMPLOYMENT PRACTICES LAWS" shall mean any and all
federal, state and/or local laws and/or regulations relating to the terms and
conditions of employment, equal employment opportunity, non-discrimination,
and/or collective bargaining and payment of social security and other taxes.
SECTION 2.11 NO LIABILITY FOR EMPLOYEE BENEFIT PLANS, ETC. Neither
BICO nor Purchaser, nor any of Purchaser's Affiliates, shall, on and after the
Closing Date, have any liability for (i) any compensation, benefits, and
perquisites of any kind with respect to any person on account of employment by
BICO at any time or times prior to the Closing Date, or the termination of
employment of any such person by Seller, BICO and/or BIG, including, but not
limited to, medical or dental benefits either reported but not paid or incurred
but not reported prior to the Closing Date, continuation of health care coverage
pursuant to COBRA or any liabilities arising under, in connection with, or with
respect to any employee benefit plan within the meaning of Section 3(3) of
ERISA or bonus, deferred compensation, stock purchase, stock option, salary
continuation, vacation, sick leave, fringe benefit, incentive, insurance,
welfare or similar arrangement which at any time covered employees of BICO;
and/or (ii) notices, payments, fines, taxes or assessments due to any
Governmental Entity pursuant to any applicable foreign, federal, state or local
law, common law, statute, rule or regulation with respect to the employment,
discharge or layoff of employees of BICO by Seller, BICO and/or BIG for any
period prior to the Closing Date, including, but not limited to, the WARN Act
and any applicable state severance pay law and any rules or regulations that
have been issued in connection with any of the foregoing.
SECTION 2.12 INTELLECTUAL PROPERTY. Schedule 2.12 lists all material
trademarks, copyrights and patents owned or used by BICO in the conduct of its
business, and states all royalties or license fees BICO pays for intellectual
property and/or other proprietary rights used in its business. Except as
disclosed in Section 2.12 of the Disclosure Schedule, there are no pending or,
to the knowledge of Seller and/or BIG, threatened claims of which Seller and/or
BIG have been given written notice, by any person and neither Seller nor BIG has
asserted a claim against any person with respect to any patents, patent rights,
trademarks, trademark rights, service marks, service ▇▇▇▇ rights, trade names,
trade name rights, copyrights, logos, assumed names and applications therefor
and any know-how, technology, trade secrets or other proprietary information
owned or used by BICO in its operations as currently conducted (collectively,
the "BICO INTELLECTUAL PROPERTY"). BICO has such ownership of or such rights by
license, lease or other agreement to BICO Intellectual Property as are necessary
to permit it to conduct its operations as currently conducted. Except as set
forth in Schedule 2.12, to the knowledge of the Seller and BIG, BICO has taken
all appropriate actions and made all appropriate applications and filings
pursuant to applicable laws to perfect or protect its interest in the BICO
Intellectual Property.
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SECTION 2.13 NO UNDISCLOSED LIABILITIES. Except as specifically
reflected in the balance sheet included in BICO's Quarterly Statement as of
September 30, 1998 (or in the notes relating thereto), there are no liabilities
against, relating to or affecting BICO except liabilities incurred in the
ordinary course of business.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
SECTION 3.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION.
Purchaser has the corporate power and authority to execute and deliver this
Agreement and all of the agreements and documents contemplated hereby, to carry
out its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Purchaser of this Agreement and all of the agreements and documents contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate proceedings and no
other action on the part of Purchaser is necessary to authorize the execution
and delivery by Purchaser of this Agreement and all of the agreements and
documents contemplated hereby, and the consummation by it of the transactions
contemplated hereby and thereby. This Agreement and all of the agreements and
documents contemplated hereby have been duly executed and delivered by Purchaser
(and assuming due and valid authorization, execution and delivery hereof and
thereof by Seller and each other party thereto other than Purchaser) is a valid
and binding obligation of Purchaser enforceable against it in accordance with
its terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, affecting creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as
contemplated by the Acquisition Agreement and except for (a) approvals or
consents of any Governmental Entity under applicable insurance laws of each of
the jurisdictions listed in Schedule 2.1(b) or as may be otherwise required by
law, (b) applicable requirements under corporation or "blue sky" laws of various
states and (c) matters specifically described in this Agreement, neither the
execution, delivery or performance of this Agreement or any agreement or
document contemplated hereby by Purchaser nor the consummation by Purchaser of
the transactions contemplated hereby or thereby will (i) violate any provision
of the articles of incorporation or by-laws of Purchaser, (ii) violate any
order, writ, judgment, injunction, decree, law, statute, rule or regulation
applicable to Purchaser or (iii) require on the part of Purchaser any filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Entity, except in the case of clauses (ii) and (iii) for such
violations, breaches or defaults which, or filings,
13
registrations, notifications, authorizations, consents xor approvals the
failure of which to obtain, would not materially adversely affect the ability
of Purchaser to consummate the transactions contemplated by this Agreement.
SECTION 3.4 ACQUISITION FOR INVESTMENT. Purchaser is acquiring the
Shares solely for its own account and not with a view to any distribution or
other disposition of the Shares, and the Shares will not be transferred except
in a transaction registered or exempt from registration under the Securities Act
of 1933, as amended.
ARTICLE IV.
COVENANTS
SECTION 4.1 ACCESS TO INFORMATION. To the extent Seller is permitted
under the terms of the Acquisition Agreement, Seller shall cause BIG and/or BICO
(and, to the extent deemed necessary by Purchaser, FHC) to afford Purchaser's
officers, employees, accountants, counsel and other authorized representatives
access at reasonable times and places throughout the period prior to the Closing
Date or the date of termination of this Agreement, to all books, Contracts,
facilities and personnel of BIG, BICO, FHC and Seller so that Purchaser may
conduct due diligence with respect to BICO's and, to the extent deemed necessary
by Purchaser, FHC's financial and legal condition, including, without
limitation, financial statements, accounting methods, assets, liabilities, tax
matters, regulatory requirements, insurance and reinsurance agreements and other
contractual arrangements. Purchaser and all persons conducting such
investigations on its behalf shall cooperate to minimize interference with the
business operations of BICO, FHC and Seller.
SECTION 4.2 PUBLICITY. Purchaser and Seller shall, subject to their
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies), at all times at or before the Closing, consult
with one another before issuing or making any reports, statements or releases to
the public with respect to this Agreement and/or the transactions contemplated
hereby, and will use good faith efforts to agree on the text of a joint public
report, statement or release or will use good faith efforts to obtain the other
party's approval of the text of any public report, statement or release to be
made solely on behalf of a party. If Seller and Purchaser are unable to agree
on or approve any such public report, statement or release, then such party may
make or issue the legally required or appropriate report, statement or release.
Any such report, statement or release approved or permitted to be made pursuant
to this Section 4.2 may be disclosed or otherwise provided by Seller or
Purchaser to any person or entity, including without limitation to any employee
or customer of either party hereto and to any Governmental Entity.
SECTION 4.3 TAX INDEMNITY. The following provisions shall govern the
allocation of responsibility for certain tax matters and shall govern the tax
indemnification between the parties following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Purchaser
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for BICO for all
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periods ending on or prior to the Closing Date which are filed after the
Closing Date other than income Tax Returns with respect to periods for which
a consolidated, unitary or combined income Tax Return of Seller will include
the operations of BICO. Purchaser shall permit Seller to review and comment
on each such Tax Return described in the preceding sentence prior to filing.
Sellers shall reimburse Purchaser for Taxes of BICO with respect to such
periods (including taxes resulting from an election under Code Section
338(h)(10), if any, within fifteen (15) days after payment by Purchaser or
BICO of such Taxes to the extent such Taxes are not reflected in the reserve
for Tax Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the face of
the Closing Balance Sheet. In all events, Seller shall be responsible for
all taxes resulting from the election under Code Section 338(h)(10).
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. Purchaser shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of BICO for Tax periods which begin before the Closing
Date and end after the Closing Date. Sellers shall pay to Purchaser within
fifteen (15) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of which relates to the portion of such
Taxable period ending on the Closing Date (the "PRE-CLOSING PERIOD") shall (i)
in the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (ii) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant Taxable period ended on the Closing Date. Any
credits relating to a Taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practices
of BICO.
(c) REFUNDS OF CREDITS. At the reasonable request of Seller,
Purchaser shall cooperate or cause BICO to cooperate with Seller in obtaining
any refunds or credits (including interest thereon), other than any refunds or
credits reflected in the reserve for Tax Liability or otherwise shown, on the
face of the Closing Balance Sheet, relating to Taxes for which Seller may be
liable under Section 4.3(i). Purchaser shall be entitled to all other refunds
and credits of Taxes. For purposes of this Section, the terms "refund" and
"credit" shall include a reduction in Taxes and the use of an overpayment of
Taxes as an audit or other Tax offset. Receipt of a refund shall occur upon the
filing of a return or adjustment thereto using such reduction, overpayment or
offset, or upon the receipt of cash.
(d) AMENDED RETURNS. Neither Purchaser nor Seller shall amend
any Tax Returns for periods ending prior to the Closing Date without the prior
written consent of the Purchaser and the Seller. If the Seller desires to amend
or have amended a Tax Return for
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periods ending prior to the Closing Date, and the Seller agrees to hold the
Purchaser harmless from any additional Taxes that Purchaser may have to bear
on account of such amended Tax Returns, Purchaser and Seller shall, at the
Seller's cost, cooperate in such matter to the extent reasonable.
(e) COOPERATION. From and after the Closing, the Seller and the
Purchaser shall cooperate fully with each other and make available or cause to
be made available to each other for consultation, inspection and copying (at
such other party's expense) in a timely fashion such personnel, tax data, Tax
Returns and filings, files, books, records, documents, financial, technical and
operating data, computer records and other information as may be reasonably
required (i) for the preparation by the Purchaser or the Seller of any Tax
Returns, elections, consents or certificates required to be prepared and filed
by the Purchaser or the Seller or any Subsidiary or (ii) in connection with any
audit or proceeding relating to Taxes for which the Purchaser or the Seller is
responsible.
(f) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving the BICO shall be terminated as of the
Closing Date and, after the Closing Date, BICO shall not be bound thereby or
have any liability thereunder.
(g) TRANSFER TAXES. The Seller shall be responsible for the
payment of any and all sales, use, recordation, gains, transfer or similar Taxes
or fees with respect to the transfer of the Assets hereunder (including any
interest or penalties with respect thereto) and shall deliver copies of all Tax
Returns and other documentation filed with respect thereto to the Purchaser
promptly after filing.
(h) CODE SECTION 338(h) (10) ELECTION. Seller covenants and
agrees, at Purchaser's request, to join with Purchaser to make an election
pursuant to Section 338(h)(10) of the Code and to file such forms as are
necessary to effectuate such election in accordance with this Section 4.3.
Purchaser and Seller shall allocate the purchase price under this Agreement
among BICO's assets as set forth in Schedule 4.3(h) and shall file Tax Returns
consistent with such allocation pursuant to Section 1060 of the Code.
(i) INDEMNIFICATION - TAX MATTERS.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereby by the parties to this
Agreement and their respective covenants, agreements and
obligations to be performed pursuant to the terms of this Section
4.3 and Section 2.7 shall, unless waived in writing, survive the
Closing until such time as all applicable statute of limitations in
respect of claims or potential claims by any Tax Authority for
Taxes in respect of all periods ended on or prior to the Closing
Date has expired.
(ii) BY THE SELLER. The Seller agrees to indemnify and
hold harmless the Purchaser, and their respective directors,
officers, employees, agents, successors and assigns (collectively,
the "PURCHASER PARTIES") against, and to reimburse the Purchaser
Parties with respect to, any and all losses, liabilities,
obligations, suits, proceedings, demands, judgments, damages,
claims, expenses and costs, including, without reasonable
16
fees, expenses and disbursements of counsel (collectively,
"DAMAGES"), which each may suffer, incur or pay by reason of any
liability or obligation for Taxes, levied by any foreign, Federal,
state or local Tax Authority with respect to the ownership or use
of the assets of BICO or the conduct of the business of BICO on or
prior to the Closing Date, including, without limitation, any and
all of the Seller's Tax liabilities (whether a direct liability or a
joint and several liability pursuant to Treasury Regulation Section
1.1502-6 or any comparable provision under foreign, state or local
laws by reason of Seller or BICO having been a member of any
consolidated, combined, unitary or similar group).
(iii) BY THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless the Seller and its agents,
representatives, heirs, successors and assigns (collectively, the
"SELLER PARTIES") against, and to reimburse the Seller Parties on
demand with respect to, any and all Damages which each may suffer,
incur or pay by reason of any liability of the Purchaser for Taxes
with respect to the ownership or use of the assets of BICO or the
conduct of the Business of BICO after the Closing Date, including,
without limitation, any and all of Purchaser's tax liabilities.
SECTION 4.4 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION.
(a) The parties shall use their best efforts and good faith, and
cooperate with each other, to obtain as promptly as practicable all approvals,
consents and agreements of Governmental Entities and/or third parties necessary
or advisable to consummate the transactions contemplated by this Agreement, and
each party shall keep the other apprised of the status of matters relating to
completion of the transactions contemplated hereby. 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,
and any supplement, amendment or item of additional information in connection
therewith. The party responsible for a filing shall, to the extent reasonably
requested, also promptly deliver to the other party a copy of each material
notice, order, opinion and other item or correspondence received by such filing
party from any Governmental Entity in respect of any such application.
(b) Seller and Purchaser shall use all reasonable efforts to file
as soon as practicable all notifications, filings and other documents required
to obtain all governmental authorizations, approvals, consents or waivers, and
to respond as promptly as practicable to any inquiries received from any
insurance regulatory authority or other Governmental Entity for additional
information or documentation and to respond as promptly as practicable to all
inquiries and requests received from any State Attorney General or other
Governmental Entity in connection therewith.
(c) Purchaser and Seller shall each promptly make any and all
filings and submissions of information with the insurance departments of the
states listed in Schedule 4.4(c) which are required or requested by such
insurance departments to obtain the approvals required by such insurance
departments to consummate the transactions contemplated hereby. Seller and
Purchaser each agree to furnish the other party with such information and
reasonable assistance as such other party may reasonably request in connection
with its preparation of such Form A filings and other filings or submissions.
Purchaser and Seller shall each use reasonable efforts to keep the other party
fully apprised of its actions with respect to all such filings and submissions
17
and shall provide the other party with copies of such Form A filings and other
filings or submissions in connection with the transactions contemplated by this
Agreement.
(d) Purchaser and Seller shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
(e) Each of Seller and Purchaser shall give prompt notice to the
other of the occurrence or failure to occur of an event that would, or, with the
lapse of time would, cause any condition to the consummation of the transactions
contemplated hereby not to be satisfied.
SECTION 4.5 NO SOLICITATION. Seller shall not, directly or
indirectly, through any Affiliate, officer, director, employee, investment
banker, attorney, representative or agent of Seller or BICO, solicit, initiate,
or encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, an Acquisition Proposal (as hereinafter defined). Seller
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. For purposes of this Agreement, "ACQUISITION PROPOSAL"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving BICO or the acquisition of any equity
interest in, or a substantial portion of the assets of, BICO, other than the
transactions contemplated by this Agreement.
SECTION 4.6 TERMINATION AND RELEASE.
(a) Except as set forth on Schedule 4.6(a), Seller, BIG and/or
BICO shall have terminated and/or Seller and/or any Affiliate(s) thereof shall
have assumed, in each case effective on or prior to the Closing Date, any and
all agreements, arrangements, instruments, bonds, indemnities, indentures,
leases, licenses (not including the Licenses listed on Schedule 2.1(b)) and/or
understandings (each a "CONTRACT" and collectively the "CONTRACTS") to which
BICO is a party or to which any of its assets is subject, and Seller and/or any
Affiliate(s) thereof shall retain all remaining obligations and/or liability, if
any, arising out of or relating to such Contracts and/or the termination of or
assumption by Seller and/or any Affiliate(s) thereof, BICO and/or BIG of any or
all such Contracts.
(b) Without limiting anything in Section 4.6(a), above, and
except as set forth on Schedule 4.6(a), Seller shall, and Seller shall cause BIG
and BICO and their respective Affiliates, including such Affiliates as are, or
have been party to, any Contract to which BICO is a party or to which any of its
assets is subject, to release BICO and Purchaser, effective as of the Closing
Date, from any and all liabilities and obligations owing by BICO with respect to
such Contracts.
SECTION 4.7 FURTHER ASSURANCES. Each party agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement.
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SECTION 4.8 SELLER'S ENVIRONMENTAL INDEMNITIES.
(a) Seller agrees to indemnify and hold harmless Purchaser, its
officers, directors, employees, agents, successors, and assigns (the
"INDEMNITEES"), against and in respect of, any and all damages, claims,
losses, liabilities, and expenses (including without limitation, reasonable
legal, accounting, consulting, engineering, and other expenses), which may be
imposed upon, incurred by, or asserted against any of the Indemnitees by any
other party or parties (including, without limitation, a Governmental
Entity), arising out of, in connection with, or relating to the subject
matter of: (a) Seller's or BICO's breach of any of the representations and
warranties set forth in Section 2.9; (b) any Environmental Condition or
claimed Environmental Condition, existing as of and/or prior to the Closing
Date, even if not discovered until after the Closing Date; or (c) any
violation of any Environmental Laws or any claimed violation of any
Environmental Laws with respect to the Premises, or the Seller's business
activities or any facilities or operations thereon, existing as of and/or
prior to the Closing Date. Such damages, claims, losses, liabilities, and
expenses are hereinafter referred to as "ENVIRONMENTAL LIABILITIES". This
indemnity shall survive the Closing and shall be in addition to Seller's
obligations under Section 5.1. Anything to the contrary contained herein
notwithstanding, no Indemnitee shall be entitled to recover from Seller
pursuant to this Section 4.8 unless and until the total of all claims
pursuant to this Section 4.8 by all Indemnitees exceeds $25,000 and then only
for the amount by which such claims exceed $25,000.
(b) Purchaser shall provide to Seller prompt written notice of
any Environmental Liability, with respect to which indemnification is to be
claimed hereunder. However, Seller shall not be relieved of its obligations
under this agreement if Purchaser's failure to promptly notify Seller of an
Environmental Liability does not prejudice Seller's rights or materially
increase its liabilities and obligations hereunder.
SECTION 4.9 CONDUCT OF BUSINESS. Except as contemplated by this
Agreement and the Acquisition Agreement, Seller and/or BIG will cause BICO
to, and BICO will, conduct its business only in the ordinary course and
consistent with past practice, and neither the Seller, BIG nor BICO shall
take any actions inconsistent with the transactions contemplated by this
Agreement. Without limitation of the foregoing, BIG will cause BICO to, and
BICO will: (i) comply in all material respects with all laws, ordinances and
regulations of Governmental Entities applicable to BICO; (ii) perform in all
material respects its obligations under all Surviving Contracts; (iii)
conduct all underwriting of all new, renewal and existing insurance business
in accordance with BICO's now existing underwriting guidelines applied
consistent with Seller's past practice; and (iv) administer, investigate and
otherwise handle all claims with respect to any and all insurance policies,
binders, certificates, endorsements, annuities, and/or Contracts of
insurance or reinsurance issued, renewed, reinsured, or underwritten by or
on behalf of the Company (each an "INSURANCE POLICY" and collectively the
"INSURANCE POLICIES") in accordance with BICO's now existing claims
administration guidelines applied consistent with Seller's past practice.
SECTION 4.10 NEGATIVE COVENANTS. Seller and/or BIG will cause BICO
to, and BICO will, refrain from (unless otherwise consented to in writing by
Purchaser, as respects each such action):
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(a) Amending its Amended and Restated Certificate of
Incorporation or bylaws and from taking any action with respect to any such
amendment;
(b) Authorizing or issuing any shares of BICO's capital stock
or other equity securities or entering into any Contract or granting any
option, warrant or right calling for the authorization or issuance of any
such shares or other equity securities, or creating or issuing any securities
directly or indirectly convertible into or exchangeable for any such shares
or other equity securities, or issuing any option, warrant or right to
purchase any such convertible securities or securities exchangeable for such
shares or other equity securities;
(c) Violating, breaching, defaulting, or, except as
contemplated by this Agreement, terminating and from taking or failing to
take any action that (with or without notice or lapse of time or both) would
constitute a violation, breach, default, or termination in any way under any
term of any of the Contracts to which BICO is a party or by which any of the
assets of BICO is or may be bound;
(d) (i) Merging, consolidating, or otherwise combining or
agreeing to merge, consolidate, or otherwise combine with any other person or
entity, (ii) acquiring or agreeing to acquire blocks of business or all or
substantially all the assets or properties or capital stock or other equity
securities of any other person or entity, or (iii) otherwise acquiring or
agreeing to acquire control or ownership of any other person or entity; and
(e) Except in the ordinary course of business and consistent
with past practice, and/or except as set forth in any or all of the Program
Agreements, creating, incurring, assuming, guaranteeing or otherwise becoming
liable for, and from canceling, paying, agreeing to cancel or pay, or
otherwise providing for a complete or partial discharge in advance of a
scheduled payment date with respect to, any liability, and from waiving any
right of BICO to receive any direct or indirect payment or other benefit
under any liability owing to BICO.
SECTION 4.11 NOTICE AND CURE. Seller will notify Purchaser promptly
in writing of, and contemporaneously will provide Purchaser with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance occurring after the date of this Agreement
that causes or will cause any covenant or agreement of Seller (on its own
behalf or on behalf of BIG or BICO) under this Agreement to be breached, or
that renders or will render untrue any representation or warranty of Seller
(on its own behalf or on behalf of BIG or BICO) contained in this Agreement
as if the same were made on or as of the date of such event, transaction or
circumstance.
SECTION 4.12 CONFIDENTIALITY. Each of Purchaser and Seller will
refrain, and will cause its respective officers, directors, employees, agents
and other representatives to refrain, from disclosing to any other person or
entity any confidential documents or confidential information disclosed by or
on behalf of the other party hereto acquired by it in connection with this
Agreement or the transactions contemplated hereby unless (i) such disclosure
is compelled by judicial or administrative process or by other requirements
of law and notice of such disclosure is furnished to such other party hereto;
(ii) either party hereto deems it necessary (upon advice of such party's
legal counsel) to disclose any such confidential documents or
20
information in connection with the requirements of any federal securities or
state blue sky law; or (iii) such confidential documents or information can
be shown to have been (A) previously known by the party hereto receiving such
documents or information, (B) in the public domain through no fault of such
receiving party, or (C) later acquired by such receiving party from other
public sources.
SECTION 4.13 REINSURANCE AGREEMENT. In the event CalComp shall at
any time have an A.M. Best rating of B- or less (or in the event CalComp's
A.M. Best rating shall have been downgraded two or more levels from its
rating on the Closing Date), BICO shall have the right, in its discretion:
(a) to cancel the Loss Portfolio Transfer and 100% Quota Share Reinsurance
Contract between BICO and CalComp (the "REINSURANCE AGREEMENT") effective
upon 30 days prior written notice to CalComp; and (b) to require Seller to
arrange for a substitute reinsurer to enter into a reinsurance agreement with
BICO on terms identical to the terms of the Reinsurance Agreement.
SECTION 4.14 BICO LIABILITIES.
(a) Schedule 4.14 lists all liabilities of BICO as of September
30, 1998. Seller guarantees that on the Closing Date, BICO shall have cash
or cash equivalents in an amount equal to the sum of: (i) such liabilities of
BICO remaining on the Closing Date, plus (ii) any and all liabilities of BICO
arising subsequent to September 30, 1998 and on or prior to the Closing Date
that remain outstanding on the Closing Date (other than pursuant to the
Surviving Contracts), whether or not reflected on the books and records of
BICO on the Closing Date.
(b) Notwithstanding anything to the contrary in this Agreement,
including, without limitation, any disclosure by Seller to Purchaser with
respect to any Contracts, Seller agrees to indemnify and hold harmless the
Indemnitees, against and in respect of, any and all damages, claims, losses,
liabilities, and expenses (including without limitation, reasonable legal,
accounting, consulting and other expenses), which may be imposed upon,
incurred by, or asserted against any of the Indemnitees by any other party or
parties (including, without limitation, any Governmental Entity), arising out
of, in connection with, or relating to (i) any breach by Seller of the
representations, warranties and/or covenants in Section 4.14(a), and/or (ii)
any Contracts (other than the Surviving Contracts). This indemnity shall
survive the Closing, shall be in addition to Seller's obligations under
Section 5.1 and shall be consistent with Sections 5.3, 5.4, 5.5, 5.6, 5.7 and
5.9.
SECTION 4.15 OPERATIONS INSURANCE. Seller shall, on or before the
Closing Date, cause BICO, BIG and/or FHS to enter into such liability,
property and casualty, automobile, workers' compensation, errors and
omissions, directors and officers liability, and other similar insurance
policies and/or Contracts of insurance with respect to the ownership, use
and/or operations of the businesses or property of BICO (collectively the
"OPERATIONS INSURANCE POLICIES"), which Operations Insurance Policies shall
in form and substance be satisfactory to Purchaser, will be in effect on the
Closing Date, and will be in the amounts and provide such coverages as are
described in Schedule 4.15.
SECTION 4.16 MANAGED CARE REPLACEMENT AGREEMENT. Seller shall, on
or before the Closing Date or as soon thereafter as possible: (i) cause BICO
to terminate, effective on or
21
before the Closing Date or as soon thereafter as possible, the agreement
between Healthcare Compare Corp. and BICO, entered into as of October 1,
1995, as amended, including, without limitation, all supplements, appendices
and exhibits thereto (collectively, the "HEALTHCARE COMPARE CORP. CONTRACT"),
and (ii) cause BICO to enter into with Healthcare Compare Corp. (or another
managed-care provider acceptable to Purchaser in Purchaser's discretion), an
agreement to replace the Healthcare Compare Corp. Contract (the "MANAGED CARE
REPLACEMENT AGREEMENT"), containing such terms and conditions as are
satisfactory to Purchaser in its sole discretion, and in form and substance
satisfactory to Purchaser, in its sole discretion. Notwithstanding anything
to the contrary in this Agreement, including, without limitation, any
disclosure by Seller to Purchaser, Seller agrees to indemnify and hold
harmless the Indemnitees against and in respect of, any and all damages,
claims, losses, liabilities, and expenses (including without limitation,
reasonable legal, accounting, consulting and other expenses), which may be
imposed upon, incurred by, or asserted against any of the Indemnitees by any
other party or parties (including, without limitation, any Governmental
Entity), arising out of, in connection with, or relating to the Healthcare
Compare Corp. Contract (whether arising prior to or subsequent to the
Closing Date) and/or arising out of, in connection with, or relating to the
Managed Care Replacement Agreement prior to the Closing Date. This indemnity
shall survive the Closing, shall be in addition to Seller's obligations under
Section 5.1 and shall be consistent with Sections 5.3, 5.4, 5.5, 5.6, 5.7 and
5.9.
SECTION 4.17 INDEMNIFICATION FOR EMPLOYEE MATTERS LIABILITIES.
Notwithstanding anything to the contrary in this Agreement, including,
without limitation, any disclosure in Schedule 2.5 or Schedule 2.10, Seller
agrees to indemnify and hold harmless the Indemnitees against and in respect
of, any and all "Employee Matters Liabilities". For purposes of this
Agreement, the term "EMPLOYEE MATTERS LIABILITIES" shall mean any and all
damages, claims, losses, liabilities, and expenses (including without
limitation, reasonable legal, accounting, consulting and other expenses),
which may be imposed upon, incurred by, or asserted against any of the
Indemnitees by any other party or parties (including, without limitation, any
Governmental Entity), arising out of, in connection with, or relating to: (i)
Seller's, BIG's or BICO's breach of any of the representations, warranties
and/or covenants by or on behalf of Seller, BIG and/or BICO set forth in
Section 2.10, Section 2.11 and/or Section 6.2(b)(v), and (ii) any "Employment
Practices Litigation". For purposes of this Agreement, the term "EMPLOYMENT
PRACTICES LITIGATION" shall mean any and all actions and/or proceedings of
any kind whatsoever arising out of, relating to or in connection with the
breach or violation, or alleged breach or violation, on or prior to the
Closing Date, by Seller, BIG and/or BICO and/or any officer, director,
employee or agent of Seller, BIG and/or BICO, of any or all Employment
Practices Laws. This indemnity shall survive the Closing, shall be in
addition to Seller's obligations under Section 5.1 and shall be consistent
with Sections 5.3, 5.4, 5.5, 5.6, 5.7 and 5.9.
ARTICLE V.
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION BY SELLER. Subject to the conditions
set forth in this Article V, Seller agrees to indemnify, defend and hold
Purchaser, its officers, directors, agents,
22
employees, successors, assigns and Affiliates (the "PURCHASER INDEMNIFIED
PARTIES"), harmless from and in respect of any and all losses, damages, costs
and reasonable expenses (including, without limitation, reasonable expenses
of investigation and defense fees and disbursements of counsel and other
professionals) (collectively, "LOSSES"), that they may incur (i) arising out
of or due to any inaccuracy of any representation or the breach of any
warranty, covenant, undertaking or other agreement of Seller contained in
this Agreement or described in any Schedule hereto or (ii) that relate to or
arise out of or in connection with the assets, businesses, operations,
conduct, products or employees (including former employees) of BICO relating
to or arising out of or in connection with occurrences existing prior to the
Closing Date.
SECTION 5.2 INDEMNIFICATION BY PURCHASER. Subject to the limits
set forth in this Article V, Purchaser agrees to indemnify, defend and hold
Seller, its officers, directors, agents, employees, successors, assigns and
Affiliates (the "Seller Indemnified Parties"), harmless from and in respect
of any and all Losses that they may incur (i) arising out of or due to any
inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of Purchaser contained in this Agreement or
(ii) arising out of any and all actions, suits, claims and administrative or
other proceedings of every kind and nature instituted or pending against
Seller or any of its Affiliates at any time after the Closing Date to the
extent that such Losses (x) relate to or arise out of or in connection with
the assets, businesses, operations, conduct, products, environmental
conditions or violations of Environmental Laws and/or employees (including
former employees) of BICO relating to or arising out of or in connection with
occurrences after the Closing Date and (y) do not arise out of a breach of
Seller's representations and warranties in, or a default in the performance
of any of Seller's covenants under, this Agreement and/or the Acquisition
Agreement.
SECTION 5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in this Agreement or
in any instrument delivered pursuant to this Agreement and the
indemnification obligations of Seller under Section 5.1 will survive the
Closing Date and will remain in full force and effect thereafter for a period
of three (3) years from the Closing Date; PROVIDED, HOWEVER, that (i) the
representations and warranties contained in Section 2.7 shall be governed by
Section 4.3, (ii) the representations and warranties contained in Section 2.9
shall be governed by Section 4.8, and (iii) the representations and
warranties contained in Section 2.10 and 2.11 shall be governed by Section
4.17; PROVIDED, FURTHER, that such representations, warranties and
indemnification obligations shall survive (if at all) beyond such period with
respect to any inaccuracy therein, breach thereof or obligation thereunder,
provided notice of such shall have been duly given within the applicable time
period, in accordance with Section 5.4. Anything to the contrary contained
in this Article V notwithstanding, no Purchaser Indemnified Party shall be
entitled to recover from Seller with respect to any Losses that may be
incurred arising out of or relating to any inaccuracy or breach of any
representation or warranty or any breach of any covenant, undertaking or
other agreement unless and until the total of all claims for such Losses,
whether such claims are brought under this Article V or otherwise, exceeds
$25,000 and then only for the amount by which such claims exceed $25,000.
Anything to the contrary contained in this Article V notwithstanding, no
Seller Indemnified Party shall be entitled to recover from Purchaser with
respect to any Losses that may be incurred arising out of or relating to any
inaccuracy or breach of any representation or warranty or any breach of any
covenant, undertaking or other agreement unless and until the total of all
claims for such Losses, whether such claims are brought under this Article V
or otherwise,
23
exceeds $25,000 and then only for the amount by which such claims exceed
$25,000. In addition, anything to the contrary contained herein
notwithstanding, Seller shall not be entitled to recover from Purchaser more
than the Purchase Price in the aggregate pursuant to this Article V.
SECTION 5.4 NOTICE AND OPPORTUNITY TO DEFEND. If an event occurs
which a party asserts is an indemnifiable event pursuant to Section 5.1 or
5.2, the party seeking indemnification shall promptly notify the other party
obligated to provide indemnification (the "INDEMNIFYING PARTY"). If such
event involves (i) any claim or (ii) the commencement of any action or
proceeding by a third person, the party seeking indemnification will give
such Indemnifying Party prompt written notice of such claim or the
commencement of such action or proceeding; PROVIDED, HOWEVER, that the
failure to provide prompt notice as provided herein will relieve the
Indemnifying Party of its obligations hereunder only to the extent that such
failure prejudices the Indemnifying Party hereunder. If any such action is
brought against any party seeking indemnification and it notifies the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall
be entitled to participate therein and, to the extent that it wishes, at its
cost, risk and expense to assume the defense thereof, with counsel reasonably
satisfactory to the party seeking indemnification, unless the named party to
such action or proceeding includes both an Indemnifying Party and a party
seeking indemnification and the party seeking indemnification has been
advised in writing by counsel that there may be one or more legal defenses
available to such party that are different from or additional to those
available to the Indemnifying Party, in which event the party seeking
indemnification shall be entitled, at the Indemnifying Party's reasonable
cost and expense, to separate counsel of its own choosing reasonably
acceptable to the Indemnifying Party. After notice from the Indemnifying
Party to the party seeking indemnification of such election to so assume the
defense thereof, the Indemnifying Party shall not be liable to the party
seeking indemnification for any legal expenses of other counsel or any other
expenses subsequently incurred by such party in connection with the defense
thereof. The party seeking indemnification agrees to cooperate in all
reasonable respects with the Indemnifying Party and its counsel in the
defense against any such asserted liability. The party seeking
indemnification shall have the right to participate at its own expense in the
defense of such asserted liability. The Indemnifying Party shall be entitled
to compromise or settle any claim as to which it is providing
indemnification, which compromise or settlement shall be made only with the
written consent of the party being indemnified, such consent not to be
unreasonably withheld. If an Indemnifying Party fails to assume the defense
of a claim within 30 calendar days after receipt of the notice of claim by
the Indemnifying Party, the party seeking indemnification, against which such
claim has been asserted, will, upon delivering notice to such effect to the
Indemnifying Party, have the right to undertake, at the Indemnifying Party's
reasonable cost and expense subject to the limitations set forth in this
Article V, the defense, compromise or settlement of such claim on behalf of
and for the account of the Indemnifying Party subject to the limitations set
forth in this Article V; PROVIDED, HOWEVER, that such claim shall not be
compromised or settled without the written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld. If the party seeking
indemnity assumes the defense of the claim, it shall keep the Indemnifying
Party reasonably informed of the progress of any such defense, compromise or
settlement. In no event shall an Indemnifying Party be liable for any
settlement effected without its consent, which will not be unreasonably
withheld.
SECTION 5.5 ADJUSTMENT FOR INSURANCE AND TAXES. The amount which
an Indemnifying Party is required to pay to, for or on behalf of the other
party (hereinafter referred
24
to as an "INDEMNITEE") pursuant to this Article V and Section 4.3 shall be
adjusted (including, without limitation, retroactively) (i) by any insurance
proceeds actually recovered by or on behalf of such Indemnitee in reduction
of the related indemnifiable loss (the "INDEMNIFIABLE LOSS") and (ii) to take
account of any tax benefit actually realized as a result of any Indemnifiable
Loss, less the cost of procuring such insurance proceeds or tax benefit.
Amounts required to be paid, as so reduced, are hereinafter sometimes called
an "INDEMNITY PAYMENT." If an Indemnitee has received or has had paid on its
behalf an Indemnity Payment for an Indemnifiable Loss and subsequently
receives insurance proceeds for such Indemnifiable Loss, or realizes any tax
benefit as a result of such Indemnifiable Loss, then the Indemnitee shall (i)
promptly notify the Indemnifying Party of the amount and nature of such
proceeds and benefits, together with the cost of procuring them, and (ii) pay
to the Indemnifying Party the amount of such insurance proceeds or tax
benefit (reduced by such procurement cost), or, if lesser, the amount of the
Indemnity Payment.
SECTION 5.6 MITIGATION OF LOSS. Each Indemnitee is obligated to
use its reasonable efforts to mitigate the amount of any Loss for which it is
entitled to seek indemnification hereunder, and the Indemnifying Party shall
not be required to make any payment to an Indemnitee in respect of such Loss
to the extent such Indemnitee failed to comply with the foregoing obligation.
SECTION 5.7 SUBROGATION. Upon making any Indemnity Payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the Loss to
which the payment relates; PROVIDED, HOWEVER, that until the Indemnitee
recovers full payment of its Loss, any and all claims of the Indemnifying
Party against any such third party on account of such payment are hereby made
expressly subordinated and subjected in right of payment of the Indemnitee's
rights against such third party. Without limiting the generality of any
other provision hereof, each such Indemnitee and Indemnifying Party will duly
execute upon request all instruments reasonably necessary to evidence and
perfect the above-described subrogation and subordination rights.
SECTION 5.8 TAX INDEMNIFICATION. None of the provisions of this
Article V, with the exception of Section 5.5, shall apply to the claims,
obligations, liabilities, covenants and representations under Section 4.3,
which shall be governed solely by the terms thereof.
SECTION 5.9 SET-OFF. Neither Seller nor Purchaser shall have any
right to set-off any Losses against any payments to be made by such party or
parties pursuant to this Agreement, except as otherwise expressly provided
herein or therein.
SECTION 5.10 EXCLUSIVE REMEDY. Following the Closing, the
indemnities provided for in this Article V shall be the sole and exclusive
remedies (other than the indemnities provided in Sections 4.3, 4.8, 4.14,
4.16, and/or 4.17) of the parties and their respective officers, directors,
employees, Affiliates, agents, representatives, successors and assigns for
any breach of or inaccuracy in any representation or warranty or any breach,
nonfulfillment or default in the performance of any of the covenants or
agreements contained in this Agreement (but not any such covenants or
agreements to the extent they are by their terms to be performed after the
Closing Date). The parties shall not be entitled to a recission of this
Agreement or to any further indemnification rights or claims of any nature
whatsoever in respect thereof (whether by
25
contract, common law, statute, law, regulation or otherwise, including,
without limitation, under the Racketeer Influence and Corrupt Organizations
Act of 1970, as amended), all of which the parties hereby waive; PROVIDED,
HOWEVER, that nothing herein is intended to waive any claims for intentional
fraud.
ARTICLE VI.
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
CLOSING. The obligations of Seller, on the one hand, and Purchaser, on the
other hand, to consummate the Closing are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of
the following conditions:
(a) no arbitrator or Governmental Entity shall have issued any
preliminary restraining order, injunction, writ, decree, order or ruling of
any nature, and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of any of the material
transactions contemplated by this Agreement; PROVIDED, that the parties shall
have used all reasonable efforts to cause any such order, decree, ruling,
statute, rule or regulation to be vacated or lifted;
(b) the required insurance regulatory approvals of the
consummation of the transactions contemplated hereunder (the "STATE INSURANCE
REGULATORY APPROVAL"), which are set forth in Schedule 6.1(b), shall have
been obtained;
(c) except as permitted under Section 1.2, above, with respect
to no more than ten (10) Licenses, as more fully described in Section 1.2,
above, all appropriate consents, approvals, authorizations, licenses and
orders of any applicable federal, state, local and foreign regulatory
authority having or asserting jurisdiction over the subject matter of this
Agreement or as otherwise required in connection with the consummation of the
transactions contemplated hereby, and otherwise as may be required to permit
the change or transfer in control of BICO to occur while preserving in full
force and effect in all respects any and all of the Licenses; and
(d) to the extent required or so structured, approval by the
board of directors of FHC.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The
obligations of Purchaser to consummate the transactions contemplated hereby
are subject to the satisfaction (or waiver by Purchaser) of the following
further conditions:
(a) the representations and warranties of Seller and/or by or
on behalf of BIG and/or BICO shall be true and accurate as of the Closing
Date as if made at and as of such time (other than those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time which need to be true and accurate only
as of such date or with respect to such period);
26
(b) the Seller shall have made the following additional
representations and warranties, which shall be true and accurate as of the
Closing Date:
(i) OWNERSHIP OF STOCK. The Shares are owned by Seller free
and clear of all Encumbrances, other than restrictions imposed by federal and
state securities laws. Upon the consummation of the transactions
contemplated hereby, Purchaser will acquire title to the Shares, free and
clear of all Encumbrances, other than restrictions imposed by federal and
state securities laws;
(ii) ASSETS. BICO has no subsidiaries and its assets consist
solely of the Licenses listed on Schedule 2.1(b), and the U.S. Treasury
securities, cash and other securities or assets on deposit with insurance
regulatory authorities in accordance with applicable law that are described
on Schedule 6.2(b)(ii), a copy of which shall be delivered on the Closing
Date and which Schedule shall be satisfactory to Purchaser, in form and
substance, in its sole judgment;
(iii) NO UNDISCLOSED LIABILITIES. Except as set forth in
Schedule 6.2(b)(iii), BICO has no liabilities, contingent or otherwise, of
any kind or nature;
(iv) SURVIVING CONTRACTS. Except for the Program Agreements,
the Managed Care Replacement Agreement, and the Operations Insurance Policies
(collectively, the "SURVIVING CONTRACTS"), BICO is not party to any Contracts
of any kind or nature. Each Surviving Contract is in full force and effect
and, to the knowledge of Seller or BICO, is valid and enforceable by BICO in
accordance with its terms. BICO is not in default in the observance or the
performance of any term or obligation to be performed by it under any
Surviving Contract; to the knowledge of Seller there does not exist any event
that, with the giving of notice or the lapse of time or both, would
constitute a breach of or a default under any Surviving Contract; and to the
knowledge of Seller, there have been no intentional waivers or releases of
any rights or remedies of BICO under any Surviving Contract except for such
breaches, defaults or waivers the effect of which, individually or in the
aggregate, would not materially adversely affect the ability of Seller to
consummate the transactions contemplated hereby. To the knowledge of Seller
and/or BICO, no other person is in default in the observance or the
performance of any term or obligation to be performed by it under any
Surviving Contract; and
(v) EMPLOYEES. BICO shall, on and after the Closing Date, have
no officers or employees, and neither BICO nor Purchaser, nor any of
Purchaser's Affiliates, shall have, on or after the Closing Date, any
liability for (A) any compensation, benefits, and perquisites of any kind
with respect to any person on account of employment by BICO at any time or
times prior to the Closing Date, or the termination of employment of any such
person by Seller, BICO and/or BIG, including, but not limited to, medical or
dental benefits either reported but not paid or incurred but not reported
prior to the Closing Date, continuation of health care coverage pursuant to
COBRA or any liabilities arising under, in connection with, or with respect
to any employee benefit plan within the meaning of Section 3(3) of ERISA or
bonus, deferred compensation, stock purchase, stock option, salary
continuation, vacation, sick leave, fringe benefit, incentive, insurance,
welfare or similar arrangement which at any time covered employees of BICO;
and/or (B) notices, payments, fines, taxes or assessments due to any
Governmental Entity pursuant to any applicable foreign, federal, state or
local law, common law, statute, rule or regulation with respect to the
employment, discharge or layoff of employees of BICO by Seller, BICO and/or
27
BIG for any period prior to the Closing Date, including, but not limited to,
the WARN Act and any applicable state severance pay law and any rules or
regulations that have been issued in connection with any of the foregoing;
(c) Seller, BIG and BICO shall have performed in all material
respects the obligations hereunder required to be performed by them at or
prior to the Closing Date;
(d) Purchaser shall have received an incumbency certificate and
a certificate signed by two executive officers of Seller, dated as of the
Closing Date, to the effect that the conditions set forth in Section 6.2(a),
Section 6.2(b) and Section 6.2(c) have been satisfied;
(e) Purchaser shall have received an original of the
"UNDERWRITING MANAGEMENT AGREEMENT," in the form of EXHIBIT A hereto, duly
executed by SNIS and BICO;
(f) Purchaser shall have received an original of the "QUOTA
SHARE REINSURANCE AGREEMENT," in the form of EXHIBIT B hereto; duly executed
by CalComp and BICO;
(g) Purchaser shall have received an original of the LOSS
PORTFOLIO TRANSFER AGREEMENT, in the form of EXHIBIT C hereto, duly executed
by CalComp and BICO;
(h) Purchaser shall have received an original of the CLAIMS
ADMINISTRATION SERVICES AGREEMENT, in the form of EXHIBIT D hereto, duly
executed by Seller's designee (reasonably acceptable to Purchaser) and BICO;
(i) Purchaser shall have received originals of the Operations
Insurance Policies, in form and substance be satisfactory to Purchaser in its
sole discretion, in the amounts and providing such coverages as are described
in Schedule 4.15.
(j) Purchaser shall have received letters of resignation from
each member of the board of directors of BICO, which resignations shall be
effective as of the Closing Date;
(k) Purchaser shall have received certified copies of
resolutions duly adopted by the Boards of Directors of Seller, BIG and/or
BICO, as the case may be, authorizing and approving the execution, delivery
and performance of this Agreement and each other agreement required to be
executed and delivered by Seller, BIG and/or BICO pursuant to this Agreement;
(l) Purchaser shall have completed its due diligence
investigation of BICO, and, to the extent deemed necessary by Purchaser, FHC
and BIG and their respective financial and legal condition, including,
without limitation, financial statements, accounting methods, assets,
liabilities, tax matters, regulatory requirements, insurance and reinsurance
agreements and other contractual arrangements, it being understood and agreed
that the completion by Purchaser of such due diligence shall not limit in any
respect any of Purchaser's rights with respect to any breach by Seller, BIG
and/or BICO of any of their respective representations, warranties and/or
covenants in this Agreement (made by them or on their behalf);
(m) Seller shall have delivered copies to Purchaser of all
certificates of good standing, certificates of qualification and certificates
of authority for BICO, consistent with the
28
disclosure provided in Schedule 2.1(b); and
(n) Purchaser shall have received such other documents and
instruments in connection with the Closing as are reasonably requested by it.
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER. The
obligations of Seller to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Seller) of the following conditions:
(a) the representations and warranties of Purchaser shall be
true and accurate as of the Closing Date as if made at and as of such time
(other than those representations and warranties that address matters only as
of a particular date or only with respect to a specific period of time which
need to be true and accurate only as of such date or with respect to such
period), except where the failure of such representations and warranties to
be so true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) would not
materially adversely affect the ability of Purchaser to consummate the
transactions contemplated by this Agreement;
(b) Purchaser shall have performed in all material respects all
of the obligations hereunder required to be performed by Purchaser, at or
prior to the Closing Date;
(c) Seller shall have received an incumbency certificate and a
certificate signed by two executive officers of Purchaser, dated as of the
Closing Date, to the effect that the conditions set forth in Section 6.3(a)
and Section 6.3(b) have been satisfied;
(d) The transactions contemplated by the Acquisition Agreement
shall have been consummated;
(e) Seller shall have received a duly executed copy of the
Underwriting Management Agreement;
(f) Seller shall have received a duly executed copy of the
Quota Share Reinsurance Agreement; and
(g) Seller shall have received certified copies of resolutions
duly adopted by the Board of Directors of Purchaser authorizing and
approving the execution, delivery and performance of this Agreement and each
other agreement required to be executed and delivered by Purchaser pursuant
to this Agreement;
(h) Seller shall have received such other documents and
instruments in connection with the Closing as are reasonably requested by it.
29
ARTICLE VII.
TERMINATION
SECTION 7.1 TERMINATION. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time prior to the
Closing Date:
(a) by the mutual consent of Seller and Purchaser;
(b) by Seller or Purchaser:
(i) upon the termination of the Acquisition Agreement;
(ii) if the Closing shall not have occurred on or prior
to December 31, 1998; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7.1(b)(ii) shall not be
available to any party whose failure to fulfill any obligation
under this Agreement (or, with respect to Seller, whose failure to
fulfill any obligation under the Acquisition Agreement) has been
the cause of, or resulted in, the failure of the Closing to occur
on or prior to such date; or
(iii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use all
reasonable efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the material transactions
contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and non-appealable;
(c) by Seller if Purchaser (x) breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect, in each case such that the conditions set forth in Section 6.1
or Section 6.3 would not be satisfied; PROVIDED, HOWEVER, that if any such
breach is curable within a reasonable period of time by Purchaser through the
exercise of Purchaser's best efforts and for so long as Purchaser shall be so
using its best efforts to cure such breach, Seller may not terminate this
Agreement pursuant to this Section 7.1(c); or
(d) by Purchaser if Seller (x) breaches or fails in any
material respect to perform or comply with any of its material covenants and
agreements contained herein or (y) breaches its representations and
warranties in any material respect, in each case such that the conditions set
forth in Section 6.1 or Section 6.2 would not be satisfied; PROVIDED,
HOWEVER, that if any such breach is curable within a reasonable period of
time by Seller through the exercise of Seller's best efforts and for so long
as Seller shall be so using its best efforts to cure such breach, Purchaser
may not terminate this Agreement pursuant to this Section 7.1(d).
SECTION 7.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of
the termination and abandonment of this Agreement by Seller or Purchaser
pursuant to Section 7.1, written
30
notice thereof shall forthwith be given to the other party. If the
transactions contemplated by this Agreement are terminated as provided herein:
(a) each party will return all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) all confidential information received by either party with
respect to the business of any other party or its subsidiaries or Affiliates
shall be treated in accordance with the provisions of the Section 4.12, which
shall survive the termination of this Agreement; and
(c) neither party will have any liability under this Agreement
to the other except (i) as stated in subparagraphs (a) and (b) of this
Section 7.2, and (ii) for any willful breach of any provision of this
Agreement.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1 GOVERNING LAWS AND CONSENT TO JURISDICTION.
(a) The laws of the State of New York (irrespective of its
choice of law principles) shall govern all issues concerning the validity of
this Agreement, the construction of its terms and the interpretation and
enforcement of the rights and duties of the parties.
(b) To the extent permitted by law, Seller and Purchaser each
hereby irrevocably:
(i) consent to any suit, action or other proceeding
with respect to this Agreement being brought in any federal court
of competent jurisdiction; and
(ii) waive any objection that they may have now or
hereafter to the venue of any such suit, action or other proceeding
in any such court and any claim that any of the foregoing have been
brought in an inconvenient forum; and
(iii) acknowledge the competence of any such court; and
agree that the final judgment in any such suit, action or other
proceeding brought in any such court, after expiration of all
rights of appeal, shall be conclusive and binding upon them and may
be enforced in any court to the jurisdiction of which they are or
may be subject by a suit upon such judgment, a certified copy of
which shall be conclusive evidence of their liability; and
(iv) agree that service of process in any suit, action
or other proceeding brought in any such court may be made upon them
by notice sent by certified mail to the address set forth in this
Agreement, or to such other address of which they shall have given
written notice to the other sent by overnight courier or certified
mail to the address set forth in this Agreement; and
31
(v) waive all claims of error by reason of any service
effected in accordance with the provisions of subparagraph (iv)
above and agree that such service shall be deemed in every respect
effective service upon them in any suit, action or other proceeding
and shall be taken and held to be valid personal service upon or
personal delivery to them, to the fullest extent permitted by law.
SECTION 8.2 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all
respects by written agreement of the parties at any time prior to the Closing
Date with respect to any of the terms contained herein.
SECTION 8.3 NOTICES. All notices, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon actual receipt or when delivered by hand or by Federal
Express or a similar overnight courier, (ii) five days after being deposited
in any United States Post Office enclosed in a postage prepaid, registered or
certified envelope addressed or (iii) when successfully transmitted by
facsimile (with a confirming copy of such communication to be sent as
provided in clause (i) or (ii) above), to the receiving party during regular
business hours at the address or facsimile number set forth below (or at such
other address or facsimile number for a party as shall be specified by like
notice); PROVIDED, HOWEVER, that any notice of change of address or facsimile
number shall be effective only upon receipt:
(a) if to Purchaser, to:
Centre Solutions Holdings (Delaware) Limited
c/o Zurich Centre Group, LLC
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
32
with a copy to:
Rosenman & Colin LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (212) - ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(b) if Seller, to:
Superior National Insurance Group, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Financial Officer
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
SECTION 8.4 INTERPRETATION.
(a) The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement,
and article, Section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement
unless otherwise specified. The words describing the singular number shall
include the plural and vice versa, and words denoting any gender shall
include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa. As used in this Agreement, the
term "AFFILIATE(S)" shall have the meaning set forth in Rule l2b-2 of the
Securities Exchange Act of 1934, as amended. The phrases "to the knowledge
of," "to a party's best knowledge," or any similar phrase shall mean such
facts and other information which as of the date of determination are known
to the referenced party. The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement," "the date hereof" and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to December
7, 1998. As used in this Agreement, the term "business day" means a day,
other than a Saturday or a Sunday, on which banking institutions in the city
of New York are open. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this
33
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any provisions of this Agreement.
(b) The Schedules and Exhibits hereto shall be construed with
and as an integral part of this Agreement as if the same had been set forth
verbatim herein. Any matter disclosed pursuant to such Schedules and
Exhibits shall be deemed to be disclosed for all purposes under this
Agreement, but such disclosure shall not be deemed to be an admission or
representation as to the materiality of the item so disclosed.
(c) Headings are for convenience of the parties only and shall
be given no substantive or interpretative effect whatsoever.
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, all of which shall together be considered one and the
same agreement.
SECTION 8.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This
Agreement, including the Exhibits, Schedules and other documents and
instruments referred to herein, (i) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
including the letter of intent dated June 2, 1998, as amended, between the
parties with respect to the subject matter hereof and (ii) except as provided
herein, are not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
SECTION 8.7 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 8.8 SPECIFIC PERFORMANCE. Each party acknowledges and
agrees that in the event of any breach of this Agreement, the non-breaching
party would be irreparably and immediately harmed and could not be made whole
by monetary damages. It is accordingly agreed that the parties will (a)
waive, in any action for specific performance, the defense of adequacy of a
remedy at law and (b) be entitled, in addition to any other remedy to which
they may be entitled at law or in equity, to compel specific performance of
this Agreement in any action instituted in accordance with Section 8.1.
SECTION 8.9 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
(whether by operation of law or otherwise) without the prior written consent
of the other party. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
SECTION 8.10 EXPENSES. Except as otherwise provided herein, all
costs and expenses incurred in connection with the transactions contemplated
hereby, this Agreement and the consummation of the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, whether
or not the transactions contemplated hereby are consummated.
34
SECTION 8.11 WAIVERS. Except as otherwise provided in this
Agreement, any failure of either party to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled
to the benefits thereof only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
SECTION 8.12 SURVIVAL. The indemnification agreements set forth in
Sections 4.3, 4.8, 4.14, 4.16, 4.17 and Article V hereof, shall survive the
Closing in accordance with their respective terms, and any and all covenants
and agreements in this Agreement to be performed after the Closing shall
survive the Closing in accordance with their terms, including, without
limitation, the covenants and agreements of Seller set forth in Sections 1.2
and/or 4.13 of this Agreement.
35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
PURCHASER: CENTRE SOLUTIONS HOLDINGS (DELAWARE) LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
SELLER: SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------------
Name: J. ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Executive Vice President &
Chief Financial Officer
36
SCHEDULE NO. GENERAL DESCRIPTION OF SCHEDULE
Exhibit 1.2: States whose statutory deposits will be used to
calculate the "Excluded Statutory Amount"
Schedule 2.1(a): exceptions to valid licenses
Schedule 2.1(b): licenses in all jurisdictions in which BICO is
currently authorized to transact the business of
insurance
Schedule 2.4: the authorized, issued and outstanding capital stock of
BICO
Schedule 2.5: actions, suits, or proceedings involving Seller or BICO
or any of their respective officers or directors as
such, or any of BICO's assets
Schedule 2.6: default or violation of any term, condition or
provision of its certificate of incorporation or
bylaws, by Seller or BICO
Schedule 2.7: Exceptions to BICO tax information represented by
Seller.
Schedule 2.7 Part (c): all income Tax Returns filed with respect to BICO for
taxable periods ended after December 31, 1994, and
indicates those Tax Returns that have been audited or
are currently the subject of an audit
Schedule 2.7 Part (i): the basis of BICO in its assets; the amount of any net
operating loss, net capital loss, and the amount of any
deferred gain or loss allocable to each party
Schedule 2.10: complaints of any unfair labor practice or
discriminatory employment practice against BICO filed
or threatened to be filed by the NLRB, the EEOC or any
other administrative agency
Schedule 2.12: Intellectual Property -- listing of all material
trademarks, copyrights and patents owned or used by
BICO in the conduct of its business
Schedule 4.3(h): Code Section 338(h)(10) Election - allocation by
Purchaser and Seller of the purchase price among BICO's
assets
Schedule 4.4(c): list of states which require Purchaser and Seller to
make filings and submissions of information with the
insurance departments of those states
Schedule 4.6(a): contracts not terminated and released by Seller, BIG
and/or BICO as of the Closing Date
Schedule 4.14: all liabilities of BICO as of September 30, 1998.
Schedule 4.15: operations insurance provided by Seller in favor of
BICO.
Schedule 6.1(b): required insurance regulatory approvals of the
consummation of the transactions contemplated in SPA
Schedule 6.2(b)(ii): BICO assets on deposit with insurance regulatory
authorities
Schedule 6.2(b)(iii): BICO's liabilities as of Closing
The Registrant agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request.