Exhibit 2.2
--------------------
EXECUTION COPY
--------------------
STOCK PURCHASE AGREEMENT
by and between
LUMBERMENS MUTUAL CASUALTY COMPANY
and
UNITRIN, INC.
1. DEFINITIONS ..........................................................1
2. SALE OF SHARES .......................................................4
2.1. Sale and Purchase of Shares ...................................4
2.2. Purchase Price ................................................4
2.3. [Intentionally Omitted] .....................................4
2.4. Purchase Price Adjustment - Final Payment .....................4
3. RELATED TRANSACTIONS .................................................6
3.1. Closing under the Asset Purchase Agreement ....................6
3.2. Commutation of Intercompany Reinsurance Arrangement ...........6
3.3. Dissolution or Transfer of Point and Quote Insurance
Services, Inc. ..............................................6
4. REPRESENTATIONS AND WARRANTIES OF SELLER .............................6
4.1. Organization ..................................................7
4.2. Authority .....................................................7
4.3. Organization of the Companies .................................7
4.4. Capital Stock .................................................7
4.5. Title to Shares ...............................................8
4.6. No Conflicts or Violations ....................................8
4.7. Financial Statements ..........................................8
4.8. Securities and Assets .........................................9
4.9. Subsidiaries and Real Property ................................9
4.10. Absence of Changes ............................................9
4.11. No Undisclosed Liabilities ....................................9
4.12. [Intentionally Omitted] ......................................10
4.13. No Benefit Plans .............................................10
4.14. Intercompany Liabilities .....................................10
4.15. Taxes. .......................................................10
4.16. Pending Suits and Proceedings ................................11
4.17. Compliance with Laws .........................................11
4.18. Licenses and Permits .........................................11
4.19. Reinsurance ..................................................11
4.20. Contracts ....................................................12
4.21. Corporate Records ............................................12
4.22. Consents and Approvals of Governmental Authorities ...........12
4.23. [Intentionally Omitted] ....................................12
4.24. Bank, Money Market and Brokerage Accounts ....................12
4.25. Parachute Payments/Severance Arrangements ....................12
4.26. Permanent Establishment ......................................12
4.27. Environmental Protection .....................................13
4.28. Intellectual Property. .......................................13
4.29. Insurance Issued by the Insurance Companies ..................14
4.30. Reserves .....................................................15
4.31. Regulatory Filings ...........................................15
4.32. Producers ....................................................15
4.33. Employee Matters. ............................................15
4.34. Reliance National Insurance Company ..........................16
4.35. Information Systems ..........................................16
4.36. ▇▇▇▇▇▇ General Agency and KEA ................................16
4.37. Disclosure ...................................................16
4.38. No Other Representations or Warranties. ......................16
5. REPRESENTATIONS AND WARRANTIES OF BUYER .............................17
5.1. Organization .................................................17
5.2. Authority ....................................................17
5.3. No Conflicts or Violations ...................................17
5.4. Compliance with Securities Laws ..............................18
5.5. Pending Suits and Proceedings ................................18
5.6. Consents and Approvals of Governmental Authorities ...........18
5.7. [Intentionally Omitted] ....................................18
5.8. Disclosure ...................................................18
5.9. No Other Representations or Warranties .......................18
6. COVENANTS OF SELLER .................................................19
6.1. Consents and Approvals .......................................19
6.2. Investigation by Buyer .......................................19
6.3. Conduct of Business ..........................................19
6.4. Financial Statements and Reports .............................19
6.5. Investments ..................................................20
6.6. No Charter Amendments ........................................20
6.7. No Issuance of Securities ....................................20
6.8. No Dividends .................................................20
6.9. No Disposal of Property ......................................20
6.10. No Breach or Default .........................................20
6.11. No Indebtedness ..............................................20
6.12. No Contracts .................................................21
6.13. No Acquisitions ..............................................21
6.14. [Intentionally Omitted] ....................................21
6.15. Intercompany Liabilities .....................................21
6.16. [Intentionally Omitted] ....................................21
6.17. [Intentionally Omitted] ....................................21
6.18. Books and Records ............................................21
6.19. Notice and Cure ..............................................21
7. COVENANTS OF BUYER ..................................................22
7.1. Consents and Approvals .......................................22
7.2. Notice and Cure ..............................................22
8. MUTUAL COVENANTS ....................................................22
8.1. Seller's Tax Returns .........................................22
8.2. Buyer's Tax Returns ..........................................23
8.3. Tax Liability Adjustments ....................................23
8.4. Tax Return Filings ...........................................23
8.5. Amended Returns ..............................................23
8.6. Cooperation ..................................................23
8.7. Post-Closing Prohibitions ....................................24
8.8. Section 338(h)(10) Election ..................................24
8.9. Tax Sharing Agreements .......................................25
8.10. Buyer's Payments .............................................25
8.11. Treatment of Indemnification Payments ........................25
8.12. Consistency of Tax Returns ...................................25
8.13. Eligibility for Elections ....................................25
9. CONDITIONS TO THE OBLIGATIONS OF SELLER .............................25
9.1. Representations and Warranties ...............................25
9.2. Performance ..................................................25
9.3. No Injunction, etc. ..........................................25
9.4. Consents and Authorizations ..................................26
9.5. Delivery of Closing Documents ................................26
9.6. Tender of Purchase Price .....................................26
9.7. Closing under the Asset Purchase Agreement ...................26
10. CONDITIONS TO THE OBLIGATIONS OF BUYER ..............................26
10.1. Representations and Warranties ...............................26
10.2. Performance ..................................................26
10.3. No Injunction, etc. ..........................................26
10.4. Consents and Authorizations ..................................26
10.5. Delivery of Closing Documents ................................27
10.6. Tender of Shares .............................................27
10.7. Satisfactory Completion of the Commutation Agreements ........27
10.8. Satisfactory Completion of the Point and Quote Dissolution
or Transfer ................................................27
10.9. Closing under the Asset Purchase Agreement ...................27
10.10. [Intentionally Omitted] ....................................27
10.11. [Intentionally Omitted] ....................................27
10.12. Estimated Closing Balance Sheet. The Estimated Closing
Balance Sheet shall have been delivered to the Buyer .......27
11. SELLER'S CLOSING DELIVERIES .........................................27
12. BUYER'S CLOSING DELIVERIES ..........................................28
13. INDEMNIFICATIONS ....................................................29
13.1. Indemnification by Seller ....................................29
13.2. Indemnification by Buyer .....................................29
13.3. Limits on Indemnification ....................................29
13.4. Claims Notice ................................................30
13.5. Procedures for Direct Claims .................................31
13.6. Indemnification Payments .....................................32
13.7. Exclusivity ..................................................32
13.8. Tax Indemnification ..........................................32
13.9. Interest .....................................................34
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES .............................37
15. CHANGE OF NAME ......................................................37
15.1. Name Change ..................................................37
15.2. Licensing of ▇▇▇▇▇▇ ▇▇▇▇▇ ....................................37
15.3. Use of ▇▇▇▇▇▇ ▇▇▇▇▇ ..........................................37
16. POST-CLOSING OBLIGATIONS ............................................37
16.1. Cooperation ..................................................37
16.2. Statutory Statements .........................................38
16.3. Post-Closing Access ..........................................38
17. DISPUTE RESOLUTION ..................................................39
18. CONFIDENTIALITY OF INFORMATION ......................................39
19. BROKERAGE ...........................................................39
20. PAYMENT OF EXPENSES .................................................39
21. TERMINATION .........................................................39
22. MISCELLANEOUS .......................................................40
22.1. Waivers ......................................................40
22.2. Amendments ...................................................40
22.3. Notices ......................................................40
22.4. Assignments ..................................................41
22.5. Entire Understanding .........................................41
22.6. Inurement ....................................................41
22.7. Governing Law ................................................41
22.8. Counterparts .................................................41
22.9. Enforceability ...............................................41
22.10. Interpretation ...............................................41
22.11. Captions .....................................................42
22.12. Publicity ....................................................42
STOCK PURCHASE AGREEMENT
------------------------
SCHEDULES
---------
Schedule 1.1 Knowledge of Buyer
Schedule 1.2 Knowledge of ▇▇▇▇▇▇
Schedule 3.2 Intercompany Reinsurance
Schedule 4.7 Financial Statements
Schedule 4.8 Securities and Assets
Schedule 4.9 Subsidiaries and Real Property
Schedule 4.11 Undisclosed Liabilities
Schedule 4.13 Benefit Plans
Schedule 4.14 Intercompany Liabilities
Schedule 4.15 Taxes
Schedule 4.16 Pending Suits and Proceedings
Schedule 4.18 Licenses and Permits
Schedule 4.19 Existing Reinsurance Agreements
Schedule 4.20 Material Written Contracts
Schedule 4.24 Bank, Money and Brokerage Accounts
Schedule 4.28 Intellectual Property
Schedule 4.29(a) Insurance Issued by the Companies
Schedule 4.29(d) Statutory Deposits
Schedule 4.30 Reserves
Schedule 4.31 Regulatory Filings
Schedule 4.32 Producers
Schedule 4.33 Employee Matters
Schedule 4.34 Reliance National Insurance
Schedule 4.35 Information Systems
Schedule 6.1 Seller's Consents and Approvals
Schedule 7.1 Buyer's Consents and Approvals of Governmental Authorities
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT dated as of the 19th day of April, 2002
("Agreement") by and among LUMBERMENS MUTUAL CASUALTY COMPANY, an Illinois
mutual insurance company ("Seller"), and UNITRIN, INC., a Delaware corporation
("Buyer").
WITNESSETH:
WHEREAS, Seller is the owner of all of the issued and outstanding shares of
the capital stock of ▇▇▇▇▇▇ Enterprise Group, Inc., an Illinois corporation
("KEGI");
WHEREAS, KEGI is the owner of all of the issued and outstanding shares of
the capital stock of ▇▇▇▇▇▇ Auto & Home Insurance Company, an Illinois insurance
company ("▇▇▇▇▇▇ Auto"), ▇▇▇▇▇▇ Independence Insurance Company, an Illinois
insurance company ("▇▇▇▇▇▇ Independence" and, together with ▇▇▇▇▇▇ Auto,
collectively the "Insurance Companies"), as well as the direct or indirect owner
of ▇▇▇▇▇▇ Auto & Home General Agency, Inc., a Texas corporation ("▇▇▇▇▇▇ General
Agency"), and ▇▇▇▇▇▇ Enterprise Agency, Inc., a Pennsylvania corporation
("KEA").
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller all of the outstanding shares of the capital stock of KEGI, which
directly or indirectly owns the Insurance Companies, ▇▇▇▇▇▇ General Agency and
KEA, for the consideration and subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the covenants and mutual promises
herein contained, Seller and Buyer agree as follows:
1. DEFINITIONS
"Acceptable Financial Assets" means only the following kinds of assets: (i)
direct obligations of the U.S. Government or its agencies; (ii) U.S. Treasury
Bonds; (iii) publicly traded investment grade equity securities; (iv) publicly
traded investment grade bonds (NAIC "Class 1" or "Class 2"); (v) investment
grade (NAIC "Class 1" or "Class 2") obligations of states, territories and
possessions and their political subdivisions; (vi) cash and cash equivalents;
(vii) assets upon which Buyer and Seller specifically agree; and (viii) accrued
interest on the assets listed in items (i) through (vii) of this definition.
"Ancillary Agreements" shall have the meaning ascribed in the Asset
Purchase Agreement, including the Asset Purchase Agreement, but excluding this
Agreement.
"Asset Purchase Agreement" shall mean the Asset Purchase Agreement dated as
of even date herewith, by and between Seller and certain of its subsidiaries and
affiliates, on the one hand, and Trinity Universal Insurance Company ("Trinity")
and certain of its subsidiaries and affiliates, on the other hand.
"Buyer Indemnitees" means Seller and its affiliates and their respective
officers, directors, employees and agents (other than insurance agents or
producers).
"Closing" means the consummation of the sale and purchase of the Shares as
contemplated by this Agreement. The Closing shall be held at 10:00 a.m. Central
Time at Buyer's offices or at such other place as Seller and Buyer may agree.
"Closing Date" means the date upon which the Closing occurs which shall be
the fifth business day following the satisfaction or waiver of all conditions
precedent set forth in Articles 9 and 10 of this Agreement or such other date as
Seller and Buyer may agree.
"Closing Date Net Worth" shall mean the sum of (i) the statutory capital
and surplus of the Insurance Companies as of the Closing Date determined in
accordance with SAP and (ii) the shareholders' equity of the Non-Underwriting
Companies as of the Closing Date determined in accordance with GAAP, each of (i)
and (ii) adjusted as follows: (A) by giving effect to the transactions
contemplated in Section 3.2, and (B) by not giving effect to any Company's
ownership in any other Company.
"Closing Date Payment" shall have the meaning ascribed in Section 2.2 of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Companies" or "Company" means ▇▇▇▇▇▇ Auto, ▇▇▇▇▇▇ Independence, KEGI, KEA
and ▇▇▇▇▇▇ General Agency.
"Estimated Closing Balance Sheet" means the pro forma balance sheets
prepared in good faith by Seller to be provided pursuant to Section 2.2 hereof
by Seller to Buyer, prepared in conformity with SAP with respect to the
Insurance Companies and in conformity with GAAP with respect to the
Non-Underwriting Companies, setting forth the Closing Date Net Worth and
identifying in reasonable detail each Company's assets and liabilities, as of
the Closing Date.
"Final Payment" shall mean the payment of the adjustment to the Purchase
Price pursuant to Section 2.4 of this Agreement.
"GAAP" means accounting principles generally accepted in the United States
in effect from time to time.
"Insurance Companies" means ▇▇▇▇▇▇ Auto and ▇▇▇▇▇▇ Independence.
"Intellectual Property" means databases, computer software programs,
Internet applications, object code and source code (and related documentation),
trademarks, tradenames and service marks and other intellectual property (and
all registrations and applications with respect thereto).
"Knowledge of Buyer" means the actual knowledge of those persons identified
in Schedule 1.1, as of the date of this Agreement or as of the Closing Date, as
applicable.
"Knowledge of Seller" means the actual knowledge of those persons
identified in Schedule 1.2, as of the date of this Agreement or as of the
Closing Date, as applicable.
2
"Lien" means any lien, security interest, encumbrance, mortgage, pledge,
security agreement, consignment or bailment for security purposes, reservation
or exception, encroachment, easement or other title exception or encumbrance
affecting an asset or property, other than Permitted Liens.
"Loss" means actions, claims, losses, liabilities, damages, costs, expenses
(including reasonable attorneys' fees), interest and penalties, but with respect
to direct claims not involving a Third Party Claim (as hereinafter defined),
shall not include punitive or consequential damages other than lost profits
incurred by the Subject Business.
"Material Adverse Effect" means a material adverse effect on the business,
financial condition or results of operations of the Companies taken as a whole;
provided, however, that the following shall be excluded from the definition of
"Material Adverse Effect" and from any determination as to whether such Material
Adverse Effect has occurred or may occur: (a) the effects of changes that are
generally applicable to (i) any segment of the personal lines insurance industry
generally, or (ii) general economic, political or market conditions including
(U) any outbreak or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis; (V) any general
suspension of trading in securities or the declaration of a banking moratorium
or any suspension of payments on the extension of credit by lending
institutions; (W) changes after the date of this Agreement in any applicable law
or in the interpretation of any applicable law by any governmental authority;
(X) changes in GAAP or SAP; (Y) changes in interest rates; and (Z) financial or
securities market fluctuations or conditions; (b) any adverse change or effect
resulting from the announcement or the pendency of the transactions contemplated
by this Agreement; and (c) the effects of any force majeure event.
"Non-Underwriting Companies" means KEGI, ▇▇▇▇▇▇ General Agency and KEA.
"Permitted Lien" as to any asset, means each of the following: (i) Liens
for taxes, assessments and governmental charges or levies not yet due and
payable or which are being contested in good faith; (ii) Liens imposed by law,
including without limitation materialmen's, mechanics', carriers', workmen's,
and repairmen's liens and other similar Liens arising in the ordinary course of
business, and (iii) Liens that do not in the aggregate materially detract from
the value or materially interfere with the current or reasonably contemplated
use of such asset.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint stock company, trust, limited liability company,
governmental, judicial or regulatory body or other entity.
"Purchase Price" means the amount to be paid by Buyer to Seller for the
Shares calculated in accordance with Section 2.2 hereof and shall consist of the
Closing Date Payment as adjusted in accordance with Section 2.4.
"Related Transactions" means the transactions described in Article 3 of
this Agreement.
"SAP" means statutory accounting principles prescribed or permitted by the
Illinois Department of Insurance in effect from time to time.
3
"Seller Indemnitees" means Buyer and its affiliates (including, without
limitation, the Companies following the Closing) and their respective officers,
directors, employees and agents (other than insurance agents or producers).
"Shares" means the shares of the common stock of KEGI representing one
hundred percent (100%) of KEGI's issued and outstanding shares of capital stock.
"Straddle Period" shall have the meaning ascribed in Section 13.8 of this
Agreement.
"Subsidiaries' Shares" means the shares of the common stock of ▇▇▇▇▇▇ Auto,
▇▇▇▇▇▇ Independence, KEA and ▇▇▇▇▇▇ General Agency representing one hundred
percent (100%) of the issued and outstanding shares of capital stock of ▇▇▇▇▇▇
Auto, ▇▇▇▇▇▇ Independence, KEA and ▇▇▇▇▇▇ General Agency.
"Tax" or "Taxes" shall have the meaning ascribed in Section 4.15 of this
Agreement.
"Tax Returns" shall have the meaning ascribed in Section 4.15 of this
Agreement.
2. SALE OF SHARES
2.1. Sale and Purchase of Shares. Subject to the terms and conditions of
this Agreement, Seller agrees to sell, transfer and convey to Buyer, and Buyer
agrees to purchase and accept from Seller for the Purchase Price, all of the
Shares at Closing.
2.2. Purchase Price. The Purchase Price shall be an amount equal to the sum
of (i) the Closing Date Net Worth and (ii) two million dollars ($2,000,000). The
Estimated Closing Balance Sheet shall be delivered by Seller to Buyer no earlier
than ten (10) nor later than five (5) business days before the Closing Date. At
Closing, Buyer shall pay to Seller an amount equal to the sum of (i) the Closing
Date Net Worth as reflected on the Estimated Closing Balance Sheet (the
"Estimated Closing Date Net Worth") and (ii) two million dollars ($2,000,000),
in cash, certified or bank cashier's check, or by wire transfer of immediately
available funds to a bank account designated by Seller (the "Closing Date
Payment"). The Purchase Price shall be adjusted in accordance with Section 2.4.
2.3. [Intentionally Omitted]
2.4. Purchase Price Adjustment - Final Payment.
(a) Not later than sixty (60) calendar days following the Closing
Date, Buyer shall prepare and deliver to Seller its proposed final balance
sheets of the Companies as of the Closing Date, prepared in accordance with
the methodology used and the adjustments made with respect to the Estimated
Closing Balance Sheet (the "Proposed Final Balance Sheet"), which shall set
forth Closing Date Net Worth.
4
(b) Following the delivery of the Proposed Final Balance Sheet and the
Objection Statement (as hereinafter defined) and during the period of any
dispute with respect to the application of this Section 2.4, Buyer shall
provide Seller with reasonable access to the books, records and facilities
of the Company relating to the Proposed Final Balance Sheet and shall
cooperate with Seller to the extent reasonably requested by Seller to
investigate the basis for such dispute.
(c) Not later than forty-five (45) calendar days after receipt of the
Proposed Final Balance Sheet, Seller shall provide Buyer with a letter
listing those items of the Proposed Final Balance Sheet, if any, disputed
by Seller, the reasons set forth in reasonable detail for such dispute and
Seller's proposed adjustments (the "Objection Statement"). If Seller does
not deliver to Buyer the Objection Statement within forty-five (45)
calendar days following receipt of the Proposed Closing Balance Sheet,
Seller shall be deemed to have accepted the Proposed Closing Balance Sheet
for the purposes of any Purchase Price adjustment under this Section 2.4,
and the Proposed Closing Balance Sheet shall become the Final Closing
Balance Sheet (as hereinafter defined) for purposes of this Section 2.4.
(d) If Seller delivers to Buyer an Objection Statement, Seller and
Buyer shall cooperate together in good faith to resolve any disputes set
forth in the Objection Statement and to prepare a final mutually acceptable
closing balance sheet of the Companies as of the Closing Date (the "Final
Closing Balance Sheet). If Seller delivers to Buyer an Objection Statement,
and if Buyer and Seller are unable, within twenty (20) calendar days after
receipt by Seller of the Objection Statement, to resolve the disputed
exceptions set forth in the Objection Statement, such disputed exceptions
shall be referred to PricewaterhouseCoopers, or such other accounting firm
as may be mutually agreed by the parties (the "Independent Accounting
Firm"). Buyer and Seller shall be foreclosed from presenting to the
Independent Accounting Firm for consideration any item not disputed in the
Objection Notice. The Independent Accounting Firm shall determine as
promptly as practicable the manner in which such item or items should be
treated on the Final Closing Balance Sheet; provided, however, that the
dollar amount of each item in dispute shall be determined within the range
of dollar amounts proposed by Seller, on the one hand, and Buyer, on the
other hand. The Independent Accounting Firm shall determine any disputed
exception in accordance with the provisions of this Section 2.4. The
Independent Accounting Firm shall prepare and deliver, within forty-five
(45) days of being retained by the parties, to Buyer and Seller a written
report setting forth the net change to the Proposed Closing Balance Sheet
that results from its determinations regarding the resolution of such
disputed items. The Proposed Closing Balance Sheet, as modified by such
determinations, shall become the Final Closing Balance Sheet for purposes
of this Section 2.4. Such determinations by the Independent Accounting Firm
shall be binding and conclusive on the parties.
(e) During such 45-day period, Seller and Buyer shall each make
available to the Independent Accounting Firm interviews with such
individuals and such information, books and records as may be reasonably
required by the Independent Accounting Firm to issue its written report.
The fees and disbursements of the Independent Accounting Firm acting under
this Section 2.4 shall be shared 50% by Buyer and 50% by Seller.
5
(f) If the final Closing Date Net Worth shown on the Final Closing
Balance Sheet (the "Final Closing Date Net Worth") is less than the
Estimated Closing Date Net Worth, the Purchase Price shall be decreased by
the difference between the Estimated Closing Date Net worth and the Final
Closing Date Net Worth, and if the Final Closing Date Net Worth exceeds the
Estimated Closing Date Net Worth, the Purchase Price shall be increased by
such excess.
(g) If the Purchase Price is increased pursuant to Section 2.4(f),
Buyer shall pay Seller such increase. If the Purchase Price is decreased
pursuant to Section 2.4(f), Seller shall pay Buyer such decrease. Any such
payment shall be made within ten (10) business days of the date on which
the Purchase Price is finally determined in accordance with this Section
2.4 by wire transfer of immediately available funds to such account as the
recipient of such amount may specify in writing.
3. RELATED TRANSACTIONS
Subject to the additional conditions precedent set forth in Section 10 of
this Agreement, the obligation of Buyer to consummate the purchase of the Shares
is subject to and conditioned upon completion of the following transactions in
form and substance reasonably satisfactory to Buyer (hereinafter sometimes
collectively referred to as the "Related Transactions"):
3.1. Closing under the Asset Purchase Agreement. The Closing under the
Asset Purchase Agreement has occurred and the Ancillary Agreements have been
executed.
3.2. Commutation of Intercompany Reinsurance Arrangement. Seller shall
cause each of the Insurance Companies to commute the existing quota share
reinsurance arrangements listed on Schedule 3.2 to this Agreement. The amount of
the reserves transferred to the Insurance Companies pursuant to such
commutations shall be equal to the aggregate amount of the statutory reserves of
such Insurance Companies ceded pursuant to the reinsurance subject to the
commutation, including unearned premium reserves, loss reserves, reserves for
loss adjustment expenses and reserves for losses incurred but not reported
(IBNR), each determined as of the end of the month immediately preceding the
Closing Date. The amount transferred shall be paid in the form of Acceptable
Financial Assets (excluding equity investments) comprising (a) cash or cash
equivalents, or (b) investments with a maturity of less than one (1) year, and
shall be reinvested only in such assets.
3.3. Dissolution or Transfer of Point and Quote Insurance Services, Inc.
Seller shall have completed, in form and substance reasonably acceptable to
Buyer, the dissolution of Point and Quote Insurance Services, Inc. ("Point and
Quote"), or otherwise transferred Point and Quote from KEGI to an affiliate of
Seller other than the Companies, without any liability to any of the Companies
on or after the Closing Date whatsoever.
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
6
4.1. Organization. Seller is a mutual insurance company duly organized,
validly existing and in good standing under the laws of Illinois, and has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder, to own, hold, sell and transfer the Shares
and to consummate the transactions contemplated hereby.
4.2. Authority. The execution, delivery, and compliance with the terms of
this Agreement by Seller and the performance by Seller of its obligations
hereunder have been duly and validly authorized by all necessary corporate
action on the part of Seller, including without limitation, the approval of the
Board of Directors of Seller. This Agreement constitutes a legal, valid, and
binding obligation of Seller and is enforceable against Seller in accordance
with its terms; provided, however, that the enforceability of the rights and
remedies provided in this Agreement is subject to any applicable bankruptcy,
reorganization, insolvency, moratorium, or similar laws affecting generally the
enforcement of creditors' rights and to general principles of equity (whether or
not considered in a court of law or equity).
4.3. Organization of the Companies. KEGI is a corporation duly organized,
validly existing and in good standing under the laws of Illinois, and has all
corporate powers required to own, lease and operate all of its properties and
assets and to carry on its business as now conducted. Each of the Companies is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, duly authorized under its charter and under
applicable laws to conduct its business as currently conducted and to own,
operate and lease its properties. Each of the Companies is duly qualified to do
business as a foreign corporation and each is in good standing in each
jurisdiction where such qualification is necessary, except where the failure to
have such qualification would not materially impact the conduct of the business
of such Company.
4.4. Capital Stock. The authorized capital stock of KEGI currently consists
solely of 10,000,000 shares of common stock, no par value, of which 100,000 are
issued and outstanding. The authorized capital stock of ▇▇▇▇▇▇ Auto currently
consists solely of 100,000 shares of common stock, par value $60 per share, of
which 50,000 are issued and outstanding. The authorized capital stock of ▇▇▇▇▇▇
Independence currently consists solely of 100,000 shares of common stock, par
value $60 per share, of which 50,000 are issued and outstanding. The authorized
capital stock of KEA currently consists solely of 1,000 shares of common stock,
no par value, of which 100 are issued and outstanding. The authorized capital
stock of ▇▇▇▇▇▇ General Agency currently consists solely of 1,000 shares of
common stock, $1.00 par value, of which 1,000 are issued and outstanding. All of
the Shares and the Subsidiaries' Shares are duly authorized, validly issued,
outstanding, fully paid and non-assessable. There are no outstanding securities,
obligations, rights, subscriptions, warrants, options, phantom stock rights,
calls, commitments or demands of any character or (except for this Agreement)
other contracts of any kind that give any Person the right to (a) purchase or
otherwise receive or be issued any shares of capital stock of the Companies or
any security or liability of any kind convertible into or exchangeable for any
shares of capital stock of the Companies or (b) receive any benefits or rights
similar to any rights enjoyed by or accruing to a holder of the Shares or the
Subsidiaries' Shares, or any rights to participate in the equity, income or
election of directors or officers of the Companies.
7
4.5. Title to Shares. Seller has good and marketable title to the Shares
free and clear of all Liens and, upon delivery of the Shares to Buyer pursuant
to Section 2.1 hereof, Buyer will acquire good title thereto, free and clear of
any Lien, other than any Lien that may be created or caused by Buyer or an
affiliate of Buyer. KEGI has good and marketable title to the Subsidiaries'
Shares free and clear of all Liens, except ▇▇▇▇▇▇ General Agency, the shares of
which are owned by ▇▇▇▇▇▇ Auto free and clear of any Lien, other than any Lien
that may be created or caused by Buyer or an affiliate of Buyer.
4.6. No Conflicts or Violations. The execution and delivery of this
Agreement by Seller do not, and the performance of its obligations under this
Agreement will not:
(a) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, any of
the terms, conditions or provisions of the certificate of incorporation or
bylaws of Seller or the Companies;
(b) subject to obtaining the consents and approvals contemplated by
Sections 6.1 and 7.1, violate any term or provision of any statute, law,
regulation or rule or any writ, judgment, decree, injunction, or similar
order, or any agreement with any governmental or regulatory authority
applicable to Seller or the Companies;
(c) result in the creation or imposition of any Lien upon any assets
or properties of the Companies;
(d) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give
to any Person any right of termination, cancellation, acceleration, or
modification in or with respect to, any material contract, license or other
agreement to which Seller or any of the Companies is a party or by which
any of their respective assets or properties may be bound; or
(e) require Seller or any of the Companies to obtain any material
consent, approval, or action of, or make any material filing with or give
any notice to, any Person except as identified on Schedule 6.1 and except
for a notice filing with the Illinois Department of Insurance following the
Closing.
4.7. Financial Statements. Seller has furnished or made available to Buyer
true and complete copies of the following financial statements (collectively,
the "Financial Statements"):
(a) the Insurance Companies' audited annual statutory financial
statements for the three years ended December 31, 1998 through 2000 and the
Insurance Companies' amended unaudited statutory annual financial statement
for the year ended December 31, 2001 (together with the notes relating
thereto and the reports thereon, whether or not included therein) filed
with or submitted to the insurance regulatory authority in Illinois on
forms prescribed or permitted by such authority; and
(b) the Insurance Companies' unaudited quarterly statutory financial
statements for the quarters ended March 31, 2001, June 30, 2001 and
September 30, 2001 (together with the
8
notes relating thereto and the reports thereon, whether or not included
therein) filed with or submitted to the insurance regulatory authority in
Illinois on forms prescribed or permitted by such authority.
Except as set forth in Schedule 4.7, each such Financial Statement complied
in all material respects with all applicable laws, statutes, rules and
regulations when so filed, and any asserted deficiencies with respect to any
such Financial Statement have been cured or corrected. Each such Financial
Statement, including without limitation each balance sheet and each of the
statements of operations, capital and surplus account and cash flow contained
therein was prepared in accordance with SAP applied on a basis and in a manner
consistent with prior periods except as disclosed in the footnotes thereto, and
fairly represents the financial condition as of the respective date thereof, and
the results of operations and changes in capital and surplus and in cash flow
for and during the respective period covered thereby, of the respective
Insurance Company. Seller has disclosed to Buyer all accounting principles or
practices used in preparing the Financial Statements for which Seller has
requested approval or received permission from the Illinois Department of
Insurance.
4.8. Securities and Assets. A true and complete list and description of all
stocks, debentures, notes, and other securities and all assets (whether admitted
or non-admitted) owned, leased, or held by the Companies on the date of this
Agreement is set forth in Schedule 4.8, and the Companies have good and valid
title to all such stocks, debentures, notes, and other securities and assets.
4.9. Subsidiaries and Real Property. Except as set forth in Schedule 4.9,
the Companies do not have, and never have had, any subsidiaries or, except as
part of its general investment portfolio, any equity interest in any
corporation, partnership, joint venture or other business association or entity
of any kind. Other than as set forth in Schedule 4.9, the Companies do not have,
and never have had, any ownership interest, security interest, leasehold
interest or other interest of any kind in any real property whatsoever.
4.10. Absence of Changes. Since December 31, 2001, Seller and the Companies
have operated only in the ordinary course of business and consistent with past
practice, and there has not been, occurred, or arisen any change in, or any
event (including without limitation any damage, destruction, or Loss whether or
not covered by insurance), condition, or state of facts of any character that
individually or in the aggregate has or may reasonably be expected to have a
Material Adverse Effect.
4.11. No Undisclosed Liabilities. Except (i) as set forth in Schedule 4.11,
(ii) for policyholder benefits payable under policies issued by the Insurance
Companies and (iii) to the extent specifically reflected in the balance sheet
included in the Financial Statements of the Insurance Companies (or in the notes
relating thereto) and the Estimated Closing Balance Sheet, there were and will
be no liabilities, indebtedness or obligations of any nature (other than
non-financial obligations under the reinsurance agreements disclosed on Schedule
4.19) against, relating to, or affecting such Companies as of the respective
dates of such Financial Statements and the Estimated Closing Balance Sheet
required by SAP to be reflected on a balance sheet of such Insurance Companies.
9
4.12. [Intentionally Omitted]
4.13. No Benefit Plans. Except as set forth in Schedule 4.13, the Companies
have not adopted, maintained, sponsored or participated in any pension, welfare,
bonus, deferred compensation, incentive compensation, profit sharing, stock,
retirement, 401(k) or other benefit plan or arrangement, or any group term life
insurance, group health insurance or group dental plans, for or involving any of
its officers, directors, employees, agents, consultants, or other similar
representatives.
4.14. Intercompany Liabilities. Except as set forth on Schedule 4.14 or
otherwise contemplated by this Agreement, there are no outstanding liabilities
or contracts between or among the Companies and Seller or any other affiliate of
the Companies.
4.15. Taxes.
(A) Each of the Companies (i) has filed, or caused to be filed, with
the appropriate taxing authority all material Tax Returns (as hereafter
defined) required to be filed on or before the date hereof (giving effect
to any valid extension of time), and such Tax Returns were true, correct
and complete in all material respects when filed, and (ii) has paid or
caused to be paid in full, or has made adequate provision in the
appropriate Financial Statements, for all material Taxes (as hereinafter
defined) shown to be due on such Tax Returns. There are no material liens
for Taxes upon the assets of any of the Companies except for statutory
liens for current Taxes not yet due.
(B) The United States federal income Tax Returns in which any Company
has joined have been audited by the Internal Revenue Service or are closed
by the applicable statute of limitations for all taxable years through
December 31, 1997. As of the date hereof, except as described in Schedule
4.15, neither Seller nor any of the Companies has given, or been requested
in writing to give, waivers or extensions of any statute of limitations
relating to any material Tax Returns filed by or on behalf of any of the
Companies.
(C) The Financial Statements and the Estimated Closing Balance Sheet
shall reflect an adequate accrual for all material Taxes due and accrued
(except for Taxes attributable to the Code Section 338(h)(10) election
provided for in Section 8.8), if any, based on all activity prior to and
including the date of such financial statements. For purposes of this
Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation, all net income, gross
income, premium or privilege, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment,
excise, estimated, severance, stamp, occupation, property or other taxes,
customs duties, fees, assessments, or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority (domestic or
foreign) upon any Company and the term "Tax Returns" shall mean all
returns, declarations, reports, estimates, and statements, regarding Taxes,
required to be filed under United States federal, state, local or any
foreign laws.
10
4.16. Pending Suits and Proceedings. Except as set forth in Schedule 4.16,
there are no actions, suits, claims, or investigations pending or, to Knowledge
of Seller, threatened, nor any legal, administrative or arbitration proceedings
pending or to Knowledge of Seller threatened, nor is there any outstanding
order, writ, injunction or decree of any court, governmental agency or
arbitration tribunal, against Seller or the Companies which (a) would restrain,
enjoin, prohibit or in any way impair the ability of Seller or the Companies to
consummate any of the transactions contemplated herein, (b) could be expected to
have a Material Adverse Effect on the Companies, (c) could materially restrict
the Companies' conduct of their business or (d) require the Companies to take or
refrain from taking any action in a material respect.
4.17. Compliance with Laws. The Companies have not been and are not in
material violation (with or without notice or lapse of time or both) of any term
or provision of any law, statute, rule or regulation or any writ, judgment,
decree, injunction, or similar order applicable to the Companies or any of their
assets or properties.
4.18. Licenses and Permits. Each of the Insurance Companies possesses a
license, certificate of authority, permit or other authorization to transact an
insurance business (a "Certificate of Authority") in each state or other
jurisdiction in which the Insurance Companies are required to possess a
Certificate of Authority. Schedule 4.18 contains a list of each Certificate of
Authority held by the Insurance Companies indicating the jurisdiction and lines
of business covered thereby. All such Certificates of Authority are in full
force and effect. Except as otherwise disclosed in Schedule 4.18, the Insurance
Companies have not breached any provision of, and are not in material default of
the terms of, and have not engaged in any activity which would cause revocation
or suspension of, any such Certificates of Authority. Other than the
transactions contemplated by this Agreement, to the Knowledge of Seller, there
is no event, inquiry, investigation or proceeding that would reasonably be
expected to result in the suspension, revocation or limitation of any such
Certificate of Authority, and to the Knowledge of Seller, other than the
transactions contemplated by this Agreement, there is no reasonable basis for
any such suspension, revocation or limitation. The Insurance Companies are not
currently the subject of any investigation, supervision, conservation,
rehabilitation, liquidation, receivership, insolvency or other similar
proceeding nor are the Insurance Companies operating under any written or oral
formal or informal agreement or understanding with the licensing authority of
any jurisdiction or any other regulatory authority which restricts the conduct
of its business or requires it to take, or refrain from taking, any action.
4.19. Reinsurance. Schedule 4.19 lists all ceded or assumed reinsurance or
retrocessional contractual treaties and agreements to which either of the
Insurance Companies is a party and under which there is liability by either
party to such agreement (collectively, the "Existing Reinsurance Agreements").
Each of the Existing Reinsurance Agreements is valid and binding in all material
respects in accordance with its terms. Neither Seller nor the Companies have
received any notice from any of their reinsurers that any amount recoverable by
the Companies pursuant to an Existing Reinsurance Agreement is not fully
collectible in due course. The Companies are not in default as to any Existing
Reinsurance Agreement. Except as disclosed on Schedule 4.19, none of the
Existing Reinsurance Agreements contains any provision providing that the other
party thereto may terminate such Existing Reinsurance
11
Agreement as a result of a change of control. Except as disclosed on Schedule
4.19, the Companies are entitled to take full credit on their statutory
financial statements filed with state insurance regulatory authorities with
respect to any Existing Reinsurance Agreement pursuant to which the Companies
have ceded reinsurance.
4.20. Contracts. Schedule 4.20 sets forth a list of all material written
contracts and agreements with, and written commitments to, any governmental or
regulatory authority and all other contracts, agreements and commitments
providing for a payment of ten thousand dollars ($10,000) or more, in each case,
to which any of the Companies is a party or by which any of their assets or
properties are bound or subject and which are in force or under which the
Companies may have any liability after Closing (except insurance policies issued
by the Insurance Companies, the Existing Reinsurance Agreements identified in
Schedule 4.19 and agreements contemplated by this Agreement).
4.21. Corporate Records. Seller has provided Buyer with full and complete
copies of the Companies' certificates of incorporation, bylaws, stock record
books and the corporate minutes and all amendments thereto which are correct and
complete in all material respects and accurately reflect all proceedings of the
shareholders and directors of the Companies (and all committees thereof). The
stock record book of the Companies contains complete and accurate records of the
stock ownership of the Companies and the transfer of shares of its capital
stock.
4.22. Consents and Approvals of Governmental Authorities. Except for the
consents and approvals listed in Schedule 6.1, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required to be obtained or made by Seller or
Companies in connection with Seller's execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein by
Seller and the Companies.
4.23. [Intentionally Omitted]
4.24. Bank, Money Market and Brokerage Accounts. Set forth in Schedule 4.24
hereto is a true, correct and complete list showing the name and address of each
banking institution, mutual fund or stock brokerage firm with which the
Companies have an account or safe deposit box, the account numbers or box
numbers relating thereto, and the name of each person authorized to draw thereon
or to have access thereto.
4.25. Parachute Payments/Severance Arrangements. None of the Companies is a
party to any agreement, contract, arrangement, or plan that has resulted or
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code. None of the
Companies is party to, or otherwise bound by, any agreement or understanding
(other than corporate severance policies applicable to employees generally)
which obligates the Companies for the payment of any severance to any employee.
4.26. Permanent Establishment. None of the Companies has ever had a
permanent establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States and such foreign country.
12
4.27. Environmental Protection. With respect to any real property listed on
Schedule 4.9 (the "Property"), neither Seller, nor the Companies, nor, to the
Knowledge of Seller, any prior owners or occupants, have disposed on, or failed
to remove hazardous waste from, nor is there any hazardous waste of any kind
present on or under the surface of, the Property and the Property is free from
any and all hazardous waste as that term is defined under the environmental
protection laws and regulations of all applicable federal, state and local
authorities. The Property and its use complies and has complied with all
applicable Environmental Protection Agency, Occupational Safety and Health
Administration and all other federal, state and local laws and administrative
rules and regulations governing the soil, water and air in or around the
Property. There is no pending or, to the Knowledge of Seller, threatened
enforcement action, administrative order or proceeding, nor is there any notice
of violation or investigation relating to such laws, ordinances, rules or
regulations concerning the Companies or the Property, or any portion thereof, or
any existing or previous owners of any portions thereof nor, to the Knowledge of
Seller, has any event occurred or is any event occurring which could give rise
to any action, order, proceeding, violation or investigations.
4.28. Intellectual Property.
(a) Schedule 4.28 contains a list of all registered Intellectual
Property rights of any kind owned or licensed and used by the Companies,
specifying as to each, as applicable: (i) the nature of such Intellectual
Property right, (ii) the owner of such Intellectual Property; (iii) the
jurisdictions by or in which such Intellectual Property right (A) is
exercised or (B) has been issued or registered or in which an application
for such issuance or registration has been filed and (iv) the registration
or application numbers. All of the Intellectual Property used by the
Companies in the conduct of their business is owned by, or licensed to, the
Companies.
(b) Schedule 4.28 sets forth a list of all material licenses,
sublicenses and other agreements pursuant to which any Person unrelated to
the Companies is authorized to use any Intellectual Property.
(c) Except as set forth on Schedule 4.28, (i) none of the Seller or
any of the Companies is a defendant in any action, suit, investigation or
proceeding relating to, and has not been notified of, any alleged claim of
infringement of any Intellectual Property, and the use of any Intellectual
Property by the Companies in the conduct of their business does not breach,
violate or infringe any intellectual property rights of any third party or
require any payment for the use of any patent, trade name, service ▇▇▇▇,
trade secret, trademark, copyright or other intellectual property right
owned by any third party and (ii) none of the Seller or any of the
Companies has any outstanding claim or suit for, and, to the Knowledge of
Seller, there is no continuing infringement by any third Person of any
Intellectual Property. No owned Intellectual Property and no licensed
Intellectual Property is subject to any outstanding Lien, judgment,
injunction, order, decree or agreement of any kind restricting the use
thereof by the Companies or restricting the licensing thereof by the
Companies to any Person, except as otherwise provided in Section 15.3 of
this Agreement.
(d) None of the non-public Intellectual Property, the value of which
is contingent upon maintenance of the confidentiality thereof, has been
disclosed by the Companies to any
13
Person other than employees, representatives and agents of the Companies or
other than pursuant to a confidentiality or non-disclosure agreement.
4.29. Insurance Issued by the Insurance Companies. Except as set forth on
Schedule 4.29:
(a) all forms of insurance policies and riders thereto (collectively,
"Policies") currently issued (or filed pending current review by applicable
regulatory authorities) by the Insurance Companies are, to the extent
required under applicable insurance laws, on forms approved by applicable
regulatory authorities of the jurisdiction where issued or have been filed
with and not objected to by such regulatory authorities within the period
provided for objection. Schedule 4.29(a) contains a list of each such
Policy indicating those Policies which are currently issued and those which
are filed pending review. All policy applications with respect to Policies
currently issued as of the date of this Agreement and required to be filed
with or approved by applicable authorities under applicable insurance laws
have been so filed or approved. Any premium rates with respect to Policies
currently issued, required to be filed with or approved by applicable
regulatory governmental authorities under applicable insurance laws have
been so filed or approved and premiums charged conform thereto. No
deficiencies have been asserted by any regulatory authority with respect to
any such filings which have not been cured or otherwise resolved to the
satisfaction of such regulatory authority.
(b) each Company is in compliance, in all material respects, to the
extent applicable to such Company, with all insurance laws regulating the
practices of selling property and casualty insurance policies, including
but not limited to applicable insurance laws regulating advertisements,
requiring mandatory disclosure of policy information, prohibiting the use
of unfair methods of competition and deceptive acts or practices and
regulating replacement transactions.
(c) the Insurance Companies have (i) timely paid all guaranty fund
assessments that are due, or claimed or asserted by any insurance
regulatory authority to be due from the Insurance Companies, or (ii)
provided for all such assessments in the Insurance Companies' Financial
Statements to the extent necessary to be in conformity with SAP.
(d) Schedule 4.29(d) lists all funds required to be maintained under
any applicable insurance law in each jurisdiction in which the Insurance
Companies hold a Certificate of Authority (each a "Deposit"). Schedule
4.29(d) accurately sets forth the dollar amount of each such Deposit, the
state pursuant to which such Deposit is maintained and the name of the bank
and the number of the bank account in which such Deposit is maintained.
(e) the underwriting standards utilized and rates and rating factors
and criteria applied by the Insurance Companies with respect to Policies
outstanding as of the date hereof have been previously disclosed to Buyer
and with respect to any such Policies reinsured in whole or in part,
conform in all material respects to the standards and ratings required
pursuant to the terms of the related reinsurance, coinsurance, modified
coinsurance or other similar agreements; and
14
(f) (i) each insurance agent or broker, at the time such agent or
broker wrote, sold or produced business for either of the Insurance
Companies, to the extent required by law, was duly appointed by such
Insurance Company to act as an agent for the Insurance Company and, to
Seller's Knowledge, was duly licensed as an insurance agent or broker (for
the type of business written, sold or produced by such insurance agent or
broker) in the particular jurisdiction in which such agent or broker wrote,
sold or produced such business for the Insurance Companies; and (ii)
neither of the Insurance Companies nor, to Seller's Knowledge, any such
insurance agent or broker violated (or with or without notice or lapse of
time or both would have violated) any term or provision of applicable law
in any material respect (including but not limited to, laws relating to the
marketing, sale or production of the Insurance Companies' products).
4.30. Reserves. Except as set forth on Schedule 4.30, the statutory
reserves, and other liability amounts required by SAP to be determined using
actuarial methods, in the statutory statements for the year ended December 31,
2001 for the Insurance Companies (the "Reserves") were determined in accordance
with commonly accepted actuarial standards applied in each case in a manner
consistent with past practices, are fairly stated in accordance with sound
actuarial principles, and are based on actuarial assumptions which are in
accordance with those called for by the provisions of Policies issued by the
Insurance Companies and necessary to meet the requirements of applicable law.
4.31. Regulatory Filings. Seller has made available for inspection by Buyer
all registrations, filings, submissions made with any governmental or regulatory
body, and reports of examinations issued by any such governmental or regulatory
body since January 1, 1999 made by or with respect to the Companies. Seller has
timely filed, or caused to be timely filed, all reports, statements, documents,
registrations, filings or submissions required to be filed by Seller or the
Companies with any governmental or regulatory body in connection with the
business pursued by the Companies. Except as disclosed in Schedule 4.31, all
such registrations, filings and submissions were in compliance in all material
respects with applicable law when filed or as amended or supplemented, and no
material deficiencies have been asserted by any such governmental or regulatory
body with respect to such registrations, filings or submissions that have not
been satisfied or otherwise resolved.
4.32. Producers. Except as provided on Schedule 4.32, the Companies enjoy
good relations, and are not involved in any material dispute, with their agents,
general agents, brokers, reinsurance intermediaries, employees, consultants,
producers, financial institutions, internet portal and service providers, and
other persons and entities which market their products (collectively,
"Producers"). Schedule 4.32 contains the standard forms of contract or contracts
with such Producers, including any Contract or arrangement with any of the
Companies that provides for compensation outside the prevailing industry
practice. The Companies have implemented procedures and programs which are
reasonably designed to ensure that its agents and employees are in compliance
with all applicable laws, including laws, regulations, directives and opinions
of governmental authority relating to advertising, licensing and sales practice.
4.33. Employee Matters.
15
Except as set forth in Schedule 4.33, none of the Companies has (i) ever
had any employees, or (ii) adopted, maintained, sponsored or participated in any
pension, welfare, deferred compensation, incentive compensation, profit sharing,
stock, retirement, 401(k), or other benefit plan or arrangement, or any group
term life insurance, group health insurance or group dental plans, for or
involving any of its officers, directors, agents, consultants or other similar
representatives.
4.34. Reliance National Insurance Company. Except as otherwise specifically
described in Schedule 4.34 or as otherwise reflected in the Financial
Statements, none of the Companies is subject to any liability whatsoever
resulting from or relating to the transactions pursuant to which Seller acquired
certain of Reliance National Insurance Company's business. under that certain
agreement, dated December 29, 1999, by and among Seller and Reliance National
Insurance Company.
4.35. Information Systems. Schedule 4.35 lists all of the material hardware
(including, without limitation, computers, servers and peripheral devices and
telecommunications devices) owned or leased by the Companies ("Hardware") and
used in the Companies' businesses as currently conducted. Schedule 4.35 lists
the material software owned or licensed (other than "shrink wrap" software) and
used in the Companies' business and operations as currently conducted. Except as
set forth on Schedule 4.35, no material owned Hardware or software is, and to
Sellers' Knowledge no material licensed or leased Hardware or software is,
subject to any outstanding Lien, judgment, injunction, order, decree or
agreement of any kind restricting its use by the Companies. Except as set forth
on Schedule 4.35, as to any material Hardware or software which Schedule 4.35
indicates is not owned by the Companies, the Companies have the right to use the
same pursuant to a valid license therefore. At Closing, the Companies will
possess all current documentation relating to software listed on Schedule 4.35.
4.36. ▇▇▇▇▇▇ General Agency and KEA. Each of ▇▇▇▇▇▇ General Agency and KEA
(i) is duly organized, validly existing and in good standing under the laws of
its state of incorporation; (ii) has its principal place of business in the
Commonwealth of Pennsylvania; (iii) has as one of its purposes the authority to
act as an agent, general agent or managing general agent ("Agent"), as the case
may be, under applicable insurance laws; and (iv) possesses a license to act as
an Agent issued by the insurance regulatory authority in each jurisdiction in
which it currently transacts business.
4.37. Disclosure. To the Knowledge of Seller, no representation or warranty
by Seller contained in this Agreement nor any exhibit, schedule, statement,
certificate or other instrument furnished or to be furnished by or on behalf of
Seller to Buyer or its representatives in connection herewith or pursuant hereto
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make any statement contained
herein or therein not materially misleading.
4.38. No Other Representations or Warranties.
(a) Except for the representations and warranties contained in (i)
this Agreement, (ii) the Schedules hereto, or (iii) any certificate
furnished to Buyer pursuant to this Agreement,
16
none of Seller, any advisor to Seller, or any other third Person makes any
express or implied representation or warranty on behalf of Seller, and
Seller hereby disclaims any such representation or warranty whether by
Seller, any of its affiliates, officers, directors, employees, agents,
advisors or representatives or by any other third Person.
(b) In particular, without limiting the foregoing disclaimer, none of
the following shall be deemed to constitute a representation or warranty of
any Person referred to in paragraph (a) of this Section 4.38: (i) any
financial projection or forecast relating to the Companies or (ii) any oral
or written information presented to the Buyer or its affiliates during any
discussions with management, other than any information set forth in (x)
this Agreement, (y) the Schedules hereto, or (z) any certificate furnished
to Buyer pursuant to this Agreement. With respect to any projection or
forecast delivered by or on behalf of Seller to Buyer or any of its
affiliates, the Buyer acknowledges that (A) there are uncertainties
inherent in attempting to make such projections and forecasts, (B) it is
familiar with such uncertainties, (C) it is taking full responsibility for
making its own evaluation of the adequacy and accuracy of all such
projections and forecasts so furnished to it, and (D) it shall have no
claim against Seller or any third Person with respect thereto other than a
claim for fraud or bad faith.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
5.1. Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of Delaware, and has all requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
5.2. Authority. The execution, delivery, and compliance with the terms of
this Agreement by Buyer and the performance by Buyer of its obligations
hereunder have been duly and validly authorized by all necessary corporate
action on the part of Buyer. This Agreement constitutes a legal, valid, and
binding obligation of Buyer and is enforceable against Buyer in accordance with
its terms; provided, however, that the enforceability of the rights and remedies
provided in this Agreement is subject to any applicable bankruptcy,
reorganization, insolvency, moratorium, or similar laws affecting generally the
enforcement of creditors' rights and to general principles of equity (whether or
not considered in a court of law or equity).
5.3. No Conflicts or Violations. The execution and delivery of this
Agreement by Buyer do not, and the performance of its obligations under this
Agreement will not:
(a) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, any of
the terms, conditions or provisions of the articles or certificate of
incorporation or bylaws of Buyer;
(b) subject to obtaining the consents and approvals contemplated by
Sections 6.1 and 7.1, violate any term or provision of any statute, law,
regulation or rule or any writ,
17
judgment, decree, injunction, or similar order, or any agreement with any
governmental or regulatory authority applicable to Buyer;
(c) result in the creation or imposition of any Lien upon any assets
or properties of Buyer;
(d) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give
to any Person any right of termination, cancellation, acceleration, or
modification in or with respect to, any material contract to which Buyer is
a party or by which any of its assets or properties may be bound; or
(e) require Buyer to obtain any material consent, approval, or action
of, or make any material filing with or give any notice to, any Person
except as identified on Schedule 7.1.
5.4. Compliance with Securities Laws. Buyer is acquiring the Shares for its
own account for investment only, with no present intention of reselling or
otherwise disposing of all or any portion of the Shares in a manner which would
constitute a violation of the federal or applicable state securities laws and
regulations.
5.5. Pending Suits and Proceedings. There are no actions, suits, claims, or
investigations pending or, to the Knowledge of Buyer, threatened, nor any legal,
administrative or arbitration proceedings pending or to the Knowledge of Buyer
threatened, nor is there any outstanding order, writ, injunction or decree of
any court, governmental agency or arbitration tribunal, against or affecting
Buyer which would restrain, enjoin, prohibit or in any way impair the ability of
Buyer to consummate any of the transactions contemplated herein.
5.6. Consents and Approvals of Governmental Authorities. Except for the
consents and approvals listed in Schedule 7.1, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required to be obtained or made by Buyer in
connection with Buyer's execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein by Buyer.
5.7. [Intentionally Omitted]
5.8. Disclosure. To the Knowledge of Buyer, no representation or warranty
by Buyer contained in this Agreement nor any exhibit, schedule, statement,
certificate or other instrument furnished or to be furnished by or on behalf of
Buyer to Seller or its representatives in connection herewith or pursuant hereto
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make any statement contained
herein or therein not misleading.
5.9. No Other Representations or Warranties. Except for the representations
and warranties contained in (i) this Agreement, (ii) the Schedules hereto, or
(iii) any certificate furnished to Seller pursuant to this Agreement, none of
Buyer, any advisor to Buyer or any other third Person makes any express or
implied representation or warranty on behalf of Buyer, and Buyer hereby
disclaims any such representation or warranty whether by Buyer or any of its
18
affiliates, officers, directors, employees, agents, advisors or representatives
or any other third Person.
6. COVENANTS OF SELLER
Seller covenants and agrees with Buyer that, at all times before the
Closing, Seller will comply with all covenants and provisions of this Article 6
except (i) to the extent Buyer may otherwise consent in writing (ii) to the
extent otherwise required or permitted by this Agreement or any Ancillary
Agreement or (iii) as required by applicable law or regulation.
6.1. Consents and Approvals. Seller will, and will cause the Companies to,
(a) take all commercially reasonable steps necessary, and proceed diligently and
in good faith and use all commercially reasonable efforts to obtain, as promptly
as practicable, all consents, approvals, authorizations, and clearances of the
Persons identified on Schedule 6.1 required of Seller or the Companies to
consummate the transactions contemplated hereby, (b) provide such other
information and communications to such Persons as Buyer or such Persons may
reasonably request, and (c) cooperate with Buyer in obtaining, as promptly as
practicable, all approvals, consents, authorizations, and clearances of Persons
required of Buyer to consummate the transactions contemplated hereby.
6.2. Investigation by Buyer. Seller will provide and will cause the
Companies to provide Buyer and its counsel, accountants, actuaries, and other
representatives with reasonable access, upon prior written notice and during
normal business hours, to all facilities, officers, employees, agents,
accountants, actuaries, assets, and books and records of the Companies and will
furnish Buyer and such representatives during such period with all such
information and data (including without limitation copies of contracts and other
books and records) concerning the business, operations, and affairs of the
Companies as Buyer or any of such representatives reasonably may request. The
foregoing shall not require Seller to permit any inspection, or to disclose any
information, that in the reasonable judgment of Seller could reasonably be
expected to result in (i) the disclosure of any trade secrets of third parties
or the violation of any obligations of Seller or any of the Companies with
respect to confidentiality if Seller shall have used reasonable efforts to
obtain the consent of such third party to such inspection or disclosure, (ii)
the waiver of any applicable attorney-client privilege, or (iii) the violation
of any applicable law or regulation.
6.3. Conduct of Business. Except as otherwise specifically contemplated by
this Agreement, Seller will cause each of the Companies to conduct its business
only in the ordinary course and consistent with past practice.
6.4. Financial Statements and Reports. As promptly as practicable, and
except as otherwise provided herein, Seller will deliver to Buyer true and
complete copies of such financial statements, reports, or analyses as may be
prepared or received by the Companies, including without limitation monthly and
quarterly statements, normal internal reports (such as those reflecting monthly
cash flow), and special reports (such as those of consultants) relating to the
Companies' business operations and affairs. Each such financial statement,
including without limitation each balance sheet and each of the statements of
operations, capital and surplus
19
account and cash flow, shall be prepared in accordance with SAP or GAAP, as
applicable, applied on a basis and in a manner consistent with prior periods
except as disclosed in the footnotes thereto, shall be true and complete in all
material respects, and shall fairly represent the financial condition as of the
respective date thereof, and the results of operations and changes in capital
and surplus and in cash flow for and during the respective period covered
thereby of the Companies. Each such report or analysis shall be true and
complete in all material respects. Not later than June 1, 2002, Seller shall
provide to Buyer a complete copy of the audited annual statutory financial
statement filed by each Insurance Company with the Illinois Department of
Insurance.
6.5. Investments. The Companies will invest its future cash flow, any cash
from matured and maturing investments, any cash proceeds from the sale of the
Companies' assets, and any cash funds currently held by the Companies,
exclusively in Acceptable Financial Assets, except as otherwise required by law,
statute, rule or regulation.
6.6. No Charter Amendments. Seller will cause the Companies to refrain from
amending the Companies' certificates of incorporation or bylaws and from taking
any action with respect to any such amendment.
6.7. No Issuance of Securities. Seller will cause the Companies to refrain
from authorizing or issuing any shares of the Companies' 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 options, warrants, or rights to purchase any such convertible
securities.
6.8. No Dividends. Seller will cause the Companies to refrain from
declaring, setting aside, or paying any dividend or other distribution in
respect of the capital stock of the Companies and from directly or indirectly
redeeming, purchasing, or otherwise acquiring any capital stock of the Companies
or any interest in or right to acquire any such stock.
6.9. No Disposal of Property. Seller will cause the Companies to refrain
from disposing of any assets or properties of the Companies and from permitting
any assets or properties of the Companies to be subjected to any Liens, in each
case, other than in the ordinary course of business.
6.10. No Breach or Default. Seller will cause the Companies to refrain from
violating, breaching, or defaulting, and from taking or failing to take any
action, in each case, in any material respect, that (with or without notice or
lapse of time or both) would constitute a violation, breach, or default, in any
way under any term of any contract to which any of the Companies is a party or
by which any of the assets or properties of the Companies is or may be bound.
6.11. No Indebtedness. Between the date hereof and the Closing, without the
prior written consent of Buyer, Seller shall not permit any of the Companies to
incur or to become subject to any material liability or obligation (absolute,
contingent or otherwise) (including,
20
without limitation, any surplus notes) except liabilities or obligations
incurred in the ordinary course of business (other than bank indebtedness in
excess of the bank indebtedness of the Company outstanding on the date hereof,
which excess shall not be deemed in the ordinary course of business) or as
required by law or regulatory authority or as contemplated hereunder.
6.12. No Contracts. Except with the approval of Buyer or as required by
applicable law, and except as otherwise contemplated in this Agreement or any
Ancillary Agreement, Seller will cause the Companies to refrain from issuing or
entering into any contract, agreement or other commitment, written or otherwise,
other than any insurance contracts or policies and other agreements entered into
in the ordinary course.
6.13. No Acquisitions. Seller will cause the Companies to refrain from (a)
merging, consolidating, or otherwise combining or agreeing to merge,
consolidate, or otherwise combine with any other Person, (b) 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
(c) otherwise acquiring or agreeing to acquire control or ownership of any other
Person.
6.14. [Intentionally Omitted]
6.15. Intercompany Liabilities. At least two (2) business days before the
Closing Date, Seller will furnish Buyer with a true and complete list and
description of all liabilities and receivables between the Companies and Seller
or any other affiliate of the Companies (including any liability of the
Companies under any Tax allocation or Tax sharing agreement) which would
otherwise be outstanding on the Closing Date. Except as specifically provided
below with respect to Tax sharing agreements, or as otherwise contemplated in
this Agreement, all such liabilities will be paid in full at or before the
Closing. Except as contemplated in this Agreement, the Companies will not enter
into any contract and, will not engage in any transaction with or make any
payment or distribution to Seller or any other affiliate of the Companies.
Except as contemplated in this Agreement, on the Closing Date, Seller will
terminate and will cause its affiliates to terminate each contract between or
among the Companies and Seller or any other affiliate of the Companies.
6.16. [Intentionally Omitted]
6.17. [Intentionally Omitted]
6.18. Books and Records. On the Closing Date, Seller will deliver to Buyer
or will make available to Buyer at the offices of the Companies all books and
records of the Companies and, if (at any time after the Closing) Seller
discovers in its possession or under its control any other books and records of
the Companies, Seller will forthwith deliver such books and records to Buyer.
6.19. Notice and Cure. Seller will notify Buyer promptly in writing of, and
contemporaneously will provide Buyer with true and complete copies of any and
all information or documents relating to, and will use commercially reasonable
efforts to cure before the
21
Closing, any event, transaction, or circumstance occurring after the date
of this Agreement that causes or will cause any covenant or agreement of Seller
under this Agreement to be breached, or that renders or will render untrue any
representation or warranty of Seller contained in this Agreement as if the same
were made on or as of the date of such event, transaction, or circumstance.
Notwithstanding the foregoing, Buyer shall have the right to terminate this
Agreement pursuant to clause (a)(iii) of Section 21 only if Seller has not cured
any breach of any of its obligations hereunder within the period specified in
Section 21.
7. COVENANTS OF BUYER
Buyer covenants and agrees with Seller that, at all times before the
Closing, Buyer will comply with all covenants and provisions of this Article 7,
except (i) to the extent Seller may otherwise consent in writing, (ii) to the
extent otherwise required or permitted by this Agreement, or (iii) as required
by applicable law or regulation.
7.1. Consents and Approvals. Buyer will (a) take all commercially
reasonable steps necessary or desirable, and proceed diligently and in good
faith and use all commercially reasonable efforts to obtain, as promptly as
practicable, all consents, approvals, authorizations, and clearances of the
Persons identified on Schedule 7.1 required of Buyer to consummate the
transactions contemplated hereby, (b) provide such other information and
communications to such Persons as Seller or such Persons may reasonably request,
and (c) cooperate with Seller in obtaining, as promptly as practicable, all
approvals, consents, authorizations, and clearances of Persons required of
Seller to consummate the transactions contemplated hereby.
7.2. Notice and Cure. Buyer will notify Seller promptly in writing of, and
contemporaneously will provide Seller with true and complete copies of any and
all information or documents relating to, and will use its best 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
Buyer under this Agreement to be breached, or that renders or will render untrue
any representation or warranty of Buyer contained in this Agreement as if the
same were made on or as of the date of such event, transaction, or circumstance.
Notwithstanding the foregoing, Seller shall have the right to terminate this
Agreement pursuant to clause (a)(iii) of Section 21 only if Buyer has not cured
any breach of any of its obligations hereunder within the period specified in
Section 21.
8. MUTUAL COVENANTS
8.1. Seller's Tax Returns. Seller shall prepare and file, or cause to be
prepared and filed, all material Tax Returns for taxable periods ending on or
prior to the Closing Date required to be filed (giving effect to any valid
extensions of time) including, but not limited to, all calendar year 2001 Tax
Returns and those Tax Returns for the short taxable period commencing on January
1, 2002, and ending on the Closing Date and shall pay all Taxes shown thereon to
be due. Seller shall prepare such Tax Returns in a manner consistent with the
Tax Returns of the Companies filed prior to the Closing for taxable periods
ending on or before December 31, 2000 (the "Prior Year Returns"). Buyer shall
cause the Companies to pay, or shall itself pay or make provisions to pay on a
timely basis, to Seller all Taxes to the extent reflected
22
as liabilities on the Final Closing Balance Sheet as adjusted in accordance with
Section 8.3. Such payment will exclude any Taxes which are a result of the Code
Section 338(h)(10) election as described in Section 8.8. The Final Closing
Balance Sheet will not reflect an accrual for the Taxes which result from (1)
the Code Section 338(h)(10) election, (2) the purchase and sale of the Shares,
or (3) Section 3.1 of this Agreement.
8.2. Buyer's Tax Returns. Buyer shall prepare and file, or cause to be
prepared and filed, all material Tax Returns for taxable periods ending after
the Closing Date required to be filed (giving effect to any valid extensions of
time) and shall pay all Taxes due with respect to such Tax Returns; provided
that Seller shall reimburse Buyer for any Straddle Period amount owed by Seller
pursuant to Section 13.8 (A) subject to offset for any Taxes accrued for on the
Final Closing Balance Sheet, within 30 days of Buyer's written notification to
Seller of Seller's liability pursuant to Section 13.8 (A).
8.3. Tax Liability Adjustments. All liabilities or refunds for Taxes for
Tax periods covered in Sections 8.1 and 8.2 which are reflected or which should
have been reflected on the Final Closing Balance Sheet shall be adjusted to
their correct amount based on the Tax Returns as actually filed. Cash settlement
of the difference between the accruals on the Final Closing Balance Sheet and
the actual Tax Returns shall be made within 30 days of the filing of such Tax
Returns.
Any and all Taxes attributable to a Pre-Closing Tax Period that arise from
the Code Section 338(h)(10) election described in Section 8.8 below shall be
entirely borne by Seller.
8.4. Tax Return Filings. Buyer and Seller agree to cause the Companies to
file all Tax Returns for the period including the Closing Date on the basis that
the relevant taxable period ended as of the close of business on the Closing
Date, unless the relevant taxing authority will not accept a Tax Return filed on
that basis.
8.5. Amended Returns. Seller shall be responsible for filing any amended,
consolidated, combined or unitary Tax Returns for taxable years ending on or
prior to the Closing Date which are required as a result of examination
adjustments made by the Internal Revenue Service or by the applicable state or
local taxing authorities for such taxable years as finally determined. For those
jurisdictions in which separate Tax Returns are filed by any of the Companies,
any required amended returns resulting from such examination adjustments, as
finally determined, shall be prepared by Seller and furnished to such Company,
as the case may be for approval, signature and filing at least 30 days prior to
the due date for filing such returns.
8.6. Cooperation. Seller, each of the Companies and Buyer shall reasonably
cooperate, and shall cause their respective affiliates, officers, employees,
agents, auditors and representatives reasonably to cooperate, in preparing and
filing all Tax Returns, including maintaining and making available to each other
all records necessary in connection with Taxes and in resolving all disputes and
audits with respect to all taxable periods relating to Taxes. Buyer and Seller
recognize that Seller and its affiliates will need access, from time to time,
after the Closing Date, to certain accounting and Tax records and information
held by the Companies to the extent such records and information pertain to
events occurring prior to the Closing Date;
23
therefore, Buyer agrees, and agrees to cause each of the Companies, (i) to use
its best efforts to properly retain and maintain such records until the
applicable statute of limitations has expired, and (ii) to allow Seller and its
agents and representatives (and agents or representatives of any of its
affiliates), at times and dates mutually acceptable to the parties, to inspect,
review and make copies of such records as Seller may deem necessary or
appropriate from time to time, such activities to be conducted during normal
business hours and at Seller's expense.
Seller shall provide prompt notice (within thirty (30) days of receiving an
Internal Revenue Service Notice of Proposed Adjustment or similar notification
from any other taxing authority) to Buyer of any issue raised in any official
inquiry, examination or proceeding involving any Taxes relating to any of the
Companies for any period prior to and including the Closing Date.
8.7. Post-Closing Prohibitions. On or after the Closing Date, neither Buyer
nor any of the Companies shall, with respect to any Pre-Closing Tax Period (as
defined hereinafter), (i) file any amended Tax Return, or (ii) carry back any
loss or other Tax attribute.
8.8. Section 338(h)(10) Election. If Buyer and Seller mutually agree, Buyer
and Seller shall join in timely making an election under Code Section 338(h)(10)
and similar elections under any applicable state or local income Tax laws with
respect to each Company. In the event that the Buyer and Seller mutually agree
to make a Code Section 338(h)(10) election, then the Buyer and Seller shall
report the transactions consistent with such election under Code Section
338(h)(10) or any similar state or local Tax provision (the "Elections"). Buyer
and Seller shall timely execute any and all forms necessary to effectuate the
Elections (including, without limitation, Internal Revenue Service Form 8023 and
any similar forms under applicable state or local income Tax laws (the "Section
338 Forms").
In the event the Elections are made, the Buyer and Seller agree to use all
reasonable efforts to enter into an agreement (the "Allocation Agreement") as
soon as practicable after the Closing to determine the Modified Aggregate Deemed
Sale Price ("MADSP"), pursuant to Code Section 338(h)(10) and the regulations
thereunder, of the assets of the Companies. Buyer shall initially prepare a
statement(s) setting forth a proposed computation and allocation of MADSP (the
"Computation") and submit it to Seller no later than 120 days after the Closing.
If within 30 days of Seller's receipt of the Computation, Seller shall not have
objected in writing to such Computation, the Computation shall become the
Allocation Agreement. If within 60 days of Seller's receipt of the Computation,
Seller and Buyer have not adopted an Allocation Agreement, the parties shall
submit any disputed matter to the Independent Accounting Firm, and cause the
Independent Accounting Firm to deliver a final, binding and conclusive written
report resolving all such disputed matters within 30 days of the submission
thereof to the Independent Accounting Firm. Seller and Buyer shall each cause
the Section 338 Forms to be duly executed by an authorized person for Seller and
Buyer, respectively, within 30 days prior to the date such Section 338 Forms are
required to be filed, and shall duly and timely file the Section 338 Forms in
accordance with applicable Tax laws and the terms of this Agreement.
Notwithstanding the previous statements in Section 8.8 of this Agreement,
Buyer and Seller agree to make a Code Section 338(h)(10) election with respect
to KEGI.
24
8.9. Tax Sharing Agreements. All Tax sharing agreements between the
Companies, on the one hand, and Seller and its affiliates (other than the
Companies), on the other hand, shall be terminated effective at Closing, and the
Companies shall not be bound thereby and shall have no liability after the
Closing for amounts due or arising thereunder, other than in respect of any
Taxes (due or refundable) which are attributable to a Pre-Closing Tax Period.
The Companies shall not be entitled to any refunds of Taxes to the extent that
such refunds were not accrued for as a current recoverable on the Final Closing
Balance Sheet, except for those contemplated by Section 8.3 of this Agreement.
8.10. Buyer's Payments. Buyer shall be responsible for and shall pay to the
Seller any Taxes imposed on Seller or its affiliates as a result of transactions
occurring on the Closing Date that are properly allocable to periods after the
Closing Date as provided in Treasury Regulation Section 1.1502-76(b)(1)(ii)(B)
or comparable provisions of state or local law.
8.11. Treatment of Indemnification Payments. All indemnification amounts
paid by Seller or Buyer shall be treated to the extent permitted by applicable
law as an adjustment to the purchase price for Tax purposes.
8.12. Consistency of Tax Returns. Seller and Buyer shall file all Tax
Returns consistently, and take no position that is inconsistent, with the Code
Section 338(h)(10) election.
8.13. Eligibility for Elections. Seller and Buyer represent, warrant and
covenant that they are eligible to make the Elections.
9. CONDITIONS TO THE OBLIGATIONS OF SELLER
Except as may be waived in writing by Seller, the obligations of Seller
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
9.1. Representations and Warranties. All representations and warranties of
Buyer contained in this Agreement that contain any materiality qualifier shall
be true and correct in all respects, and all representations and warranties of
Buyer that do not contain a materiality qualifier shall be true and correct in
all material respects, in each case, on and as of the Closing Date as if made on
and as of the Closing Date, except that any representations and warranties that
are made as of a particular date and which relate solely to a particular date or
period shall be true and correct in all material respects as of such date and
for such period.
9.2. Performance. Buyer shall have performed and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
9.3. No Injunction, etc. There shall not be outstanding, pending or
threatened on the Closing Date any lawsuit, action, governmental proceeding,
order or decree, or any complaint or judicial or administrative or regulatory
proceeding or written notice seeking an order or decree restraining or enjoining
or otherwise opposing the consummation of this Agreement or any of the
25
transactions contemplated hereby or that could impair the ability of Buyer to
consummate the transactions contemplated herein.
9.4. Consents and Authorizations. All consents and approvals set forth on
Schedules 6.1 and 7. 1 shall have been received on terms and conditions
reasonably satisfactory to Seller.
9.5. Delivery of Closing Documents. Buyer shall have furnished at the
Closing all documents and materials contemplated by Article 12 of this
Agreement.
9.6. Tender of Purchase Price. Buyer shall have tendered payment of the
Closing Date Payment in the manner described in Section 2.2 of this Agreement.
9.7. Closing under the Asset Purchase Agreement. The Closing under the
Asset Purchase Agreement shall have occurred and the Ancillary Agreements shall
have been executed.
10. CONDITIONS TO THE OBLIGATIONS OF BUYER
Except as may be waived in writing by Buyer, the obligations of Buyer under
this Agreement are subject to the fulfillment, prior to or at the Closing, of
each of the following conditions:
10.1. Representations and Warranties. All representations and warranties of
Seller contained in this Agreement shall be true and correct on and as of the
Closing Date as if made on and as of the Closing Date (except that any
representations and warranties that are made as of a particular date and which
relate solely to a particular date or period shall be true and correct as of
such date and for such period), except as would not in the aggregate have a
Material Adverse Effect (ignoring, for this purpose, any materiality qualifier
in any such representation or warranty).
10.2. Performance. Seller shall have performed and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
10.3. No Injunction, etc. There shall not be outstanding, pending or
threatened on the Closing date any lawsuit, action, governmental proceeding,
order or decree, or any complaint or judicial or administrative or regulatory
proceeding or written notice seeking an order or decree restraining or enjoining
or otherwise opposing the consummation of this Agreement or any of the
transactions contemplated hereby or that could have a Material Adverse Effect.
10.4. Consents and Authorizations. All consents and approvals set forth on
Schedules 6.1 and 7.1: (a) to be obtained from a governmental authority shall
have been obtained on terms and conditions that would not (i) result in a
Material Adverse Effect or (ii) result in the imposition on the Companies, any
of their Affiliates or any of their respective businesses, of any material cost,
liability or restriction not consented to by Buyer, and (b) to be obtained from
any other third party shall have been obtained, other than such consents and
approvals the failure to
26
obtain which would not, individually or in the aggregate, result in a Material
Adverse Effect. All consents and approvals described in clause (b) of the
preceding sentence that have been obtained shall be on terms and conditions
which would not (1) result in a Material Adverse Effect, or (2) result in the
imposition on the Companies, any of their affiliates or any of their respective
businesses of any material cost, liability or restriction not consented to by
Buyer.
10.5. Delivery of Closing Documents. Seller shall have furnished at the
Closing all documents and materials contemplated by Article 11 of this
Agreement.
10.6. Tender of Shares. Seller shall have tendered the Shares to Buyer.
10.7. Satisfactory Completion of the Commutation Agreements. Each of the
commutation agreements contemplated in Section 3.2 shall have been entered into
in form and substance reasonably satisfactory to Buyer.
10.8. Satisfactory Completion of the Point and Quote Dissolution or
Transfer. The dissolution or transfer of Point and Quote shall have been
completed as contemplated in Section 3.3.
10.9. Closing under the Asset Purchase Agreement. The Closing under the
Asset Purchase Agreement shall have occurred and the Ancillary Agreements shall
have been executed.
10.10. [Intentionally Omitted]
10.11. [Intentionally Omitted]
10.12. Estimated Closing Balance Sheet. The Estimated Closing Balance Sheet
shall have been delivered to the Buyer.
11. SELLER'S CLOSING DELIVERIES
At the Closing, Seller will deliver to Buyer the following items against
delivery of items specified in Article 12 below:
(a) The certificate representing the Shares duly endorsed in blank or
with stock powers duly endorsed in blank;
(b) A certificate executed by the President or other duly authorized
officer of Seller certifying that all corporate action on the part of
Seller necessary to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated thereunder by Seller has
been duly taken;
(c) A certificate executed by the President or other duly authorized
officer of Seller certifying that (i) all representations and warranties of
Seller contained in this Agreement are true and correct on and as of the
Closing Date as if made on and as of such Closing Date (except that any
representations and warranties that are made as of a particular date and
which
27
relate solely to a particular date or period shall be certified as true and
correct as of such date and for such period) except as would not in the
aggregate have a Material Adverse Effect (ignoring, for this purpose, any
materiality qualifier in any such representation or warranty); and (ii)
Seller has performed and complied in all material respects with all of its
obligations under this Agreement which are to be performed or complied with
prior to or on the Closing Date;
(d) Duly executed resignations from all of the Companies' directors
and officers effective as of the Closing Date;
(e) Copies of any documents evidencing that the conditions precedent
to the sale of the Shares as set forth in Article 10 of this Agreement have
been satisfied;
(f) Copies of any and all consents and approvals listed on Schedule
6.1 that have been obtained prior to the Closing Date;
(g) Certificates issued within fifteen (15) days prior to Closing by
each of the regulatory authorities having jurisdiction over the Insurance
Companies in the states listed on Schedule 4.18, evidencing the licensure
and good standing of the Companies;
(h) A certificate issued within fifteen (15) days prior to Closing by
the Illinois Department of Insurance evidencing the licensure and good
standing of the Insurance Companies in Illinois; and
(i) The Companies' minute books (including the original or a certified
copy of the Certificate of Incorporation and Bylaws), stock record books,
and corporate seals.
12. BUYER'S CLOSING DELIVERIES
At the Closing, Buyer will deliver to Seller the following items against
delivery of items specified in Article 11 above:
(a) A certificate executed by the President or other duly authorized
officer of Buyer certifying that all corporate action on the part of Buyer
necessary to authorize the execution, delivery and performance of this
Agreement by Buyer has been duly taken;
(b) A certificate executed by the President or other duly authorized
officer of Buyer certifying that (i) all representations and warranties of
Buyer that contain any materiality qualifier are true and correct in all
respect, and all representations and warranties of Buyer that do not
contain a materiality qualifier are true and correct in all material
respects, in each case, on and as of the Closing Date as if made on and as
of such Closing Date, except that any representations and warranties that
are to be made as of a particular date and which relate solely to a
particular date or period shall be certified as true and correct in all
material respects as of such date and for such period; and (ii) Buyer has
performed and complied in all material respects with all of its obligations
under this Agreement which are to be performed or complied with prior to or
on the Closing Date;
28
(c) Copies of any and all consents and approvals listed on Schedule
7.1 that have been obtained prior to the Closing;
(d) Cash or a certified or bank cashier's check or wire transfer of
immediately available funds for the full amount of the Closing Date Payment
specified in Section 2.2 of this Agreement; and
(e) Copies of any documents evidencing that the conditions precedent
set forth in Article 9 of this Agreement have been satisfied.
13. INDEMNIFICATIONS
13.1. Indemnification by Seller. Seller hereby agrees upon the terms,
conditions and limitations and in accordance with the procedures set forth in
this Article 13, to defend the Seller Indemnitees from and against any Loss or
Losses asserted against any Seller Indemnitee and to indemnify and hold harmless
the Seller Indemnitees for all actual Loss or Losses imposed upon or incurred by
any of the Seller Indemnitees, in either case arising from (i) any breach of
representation or warranty, or non-fulfillment of any covenant or agreement, by
Seller contained in this Agreement or any certificate, schedule, list or other
document delivered by Seller to Buyer pursuant to this Agreement, (ii) any
employment contracts between Seller or any of its affiliates and any individual
providing services to any of the Companies or (iii) any enforcement of this
indemnity. Notwithstanding anything in this Agreement to the contrary, Seller
shall not be required hereunder to indemnify, defend or hold Seller Indemnitees,
any of their affiliates or any other Person or entity harmless from or against
any Losses arising from or relating to (A) insurance or reinsurance losses or
loss adjustment expenses (including reserves in respect thereof), except to the
extent specifically provided in Section 13A, or (B) Taxes, except to the extent
specifically provided in Section 13.8, or (C) any Losses reflected on the Final
Closing Balance Sheet.
13.2. Indemnification by Buyer. Buyer hereby agrees upon the terms,
conditions and limitations and in accordance with the procedures set forth in
this Article 13 to defend the Buyer Indemnitees from and against any Loss or
Losses asserted against any Buyer Indemnitee and to indemnify and hold harmless
the Buyer Indemnitees for all actual Loss or Losses imposed upon or incurred by
any of the Buyer Indemnitees, in either case arising from (i) any breach of
representation or warranty, or non-fulfillment of any covenant or agreement, by
Buyer contained in this Agreement or any certificate, schedule, list or other
document delivered by Buyer to Seller pursuant to this Agreement or (ii) any
enforcement of this indemnity.
13.3. Limits on Indemnification. Notwithstanding the foregoing,
(a) Except as expressly provided in this Section 13.3(a), the
aggregate amount for which Seller shall be liable under this Article 13
shall in no event exceed the Purchase Price, as finally determined using
the Final Closing Balance Sheet. Seller shall be required to indemnify the
Seller Indemnitees pursuant to this Article 13 only to the extent that the
indemnified amounts and aggregate Losses incurred by the Seller Indemnitees
exceeds five hundred thousand dollars ($500,000) and, in such event,
indemnification shall be made by Seller only to the extent of such
29
excess. The limitations contained in the preceding two sentences of this
Section 13.3(a) shall not apply to any Losses arising under (w) Section
13.1(ii); (x) Section 13.8; (y) Section 13.9; or (z) Section 13.1(iii) to
the extent such enforcement under such Section 13.1(iii) relates to Losses
under (w), (x) or (y).
(b) Each Indemnified Party (as hereinafter defined) shall use
commercially reasonable efforts to collect any amounts available under any
insurance coverage with respect to any Loss indemnifiable hereunder and
from such other Person alleged to have responsibility therefor and to
realize any Tax benefit with respect to the Loss. The amount of any Losses
sustained by an Indemnified Party shall be reduced by the amount of any Tax
benefit with respect to the Loss. If an Indemnified Party realizes a Tax
benefit or receives an amount under insurance coverage or from any other
Person alleged to have responsibility with respect to Losses sustained at
any time subsequent to any indemnification provided pursuant to this
Article 13, then such Indemnified Party shall promptly reimburse the
applicable Indemnifying Party (as hereinafter defined) for any payment made
or expense incurred by such Indemnifying Party in connection with providing
such indemnification up to such amount realized or received by the
Indemnified Party, as applicable.
(c) Each Indemnified Party shall be obligated to use its commercially
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 Indemnified Party in
respect of such Loss to the extent such Indemnified Party has failed to
comply with the foregoing obligation.
(d) Upon making any indemnification payment, the Indemnifying Party
will, to the extent of such payment, be subrogated to all rights of the
Indemnified Party against any third Person in respect of the Loss to which
the payment relates; provided, however, that until the Indemnified Party
recovers full payment of its Loss, any and all claims of the Indemnifying
Party against any such third Person on account of said payment are hereby
made expressly subordinated and subjected in right of payment to the
Indemnified Party's rights against such third Person. Without limiting the
generality of any other provision hereof, each such Indemnified Party and
Indemnifying Party will duly execute upon request all instruments
reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights.
13.4. Claims Notice.
(a) In the event that any party hereto wishes to assert a claim for
indemnification hereunder (including, but not limited to, claims arising
from a claim or demand made, or an action, proceeding or investigation
instituted, by any Person not a party to this Agreement that may result in
a Loss for which indemnification is claimed under this Article 13 (a "Third
Party Claim")), such party seeking indemnification (the "Indemnified
Party") shall give written notice (a "Claims Notice") to the other party
(the "Indemnifying Party"). Such Claims Notice shall be delivered to the
Indemnifying Party as promptly as practicable after such claim becomes
known to the Indemnified Party, specifying in detail the facts constituting
the basis for, and the amount of, the claim asserted. The failure by any
Indemnified Party to notify the Indemnifying Party in
30
a timely manner as specified in the preceding sentence shall relieve any
Indemnifying Party from its indemnification obligations only to the extent
such failure or other actions taken by the Indemnified Party in response to
such claim shall actually prejudice an Indemnifying Party.
(b) Subject to the provisions of Section 13.4(c), upon receipt of a
Claims Notice the Indemnifying Party shall have the right to assume the
defense and control of Third Party Claims. In the event the Indemnifying
Party exercises such rights to assume the defense and control of a Third
Party Claim, the Indemnified Party shall have the right but not the
obligation reasonably to participate in (but not control) the defense of
Third Party Claims with its own counsel and at its own expense. Any
election by an Indemnifying Party whether to assume the defense of a Third
Party Claim must be received by the Indemnified Party within a reasonable
time period after receipt of the Indemnified Party's Claims Notice, and
failure to send such notice within a reasonable time shall be deemed an
election not to defend. If the Indemnifying Party elects to assume the
defense of a Third Party Claim, the Indemnifying Party shall select
counsel, contractors and consultants of recognized standing and competence
after consultation with the Indemnified Party; shall take all steps
necessary in the defense or settlement of such Third Party Claims; and
shall at all times diligently and promptly pursue the resolution of such
Third Party Claims. The Indemnified Party shall, and shall cause each of
its directors, officers, employees, agents, representatives, Affiliates and
permitted assigns to, cooperate fully with the Indemnifying Party in the
defense of any Third Party Claim defended by the Indemnifying Party, which
cooperation shall include, without limitation, designating a liaison
counsel to whom the Indemnifying Party may direct notices and other
communications, using reasonable efforts to make witnesses available, and
providing records and documents to the extent such witnesses, records and
documents are relevant to the Third Party Claim.
(c) The Indemnifying Party shall be authorized to consent to a
settlement of, or the entry of any judgment arising from, any Third Party
Claim as to which the Indemnifying Party has assumed the defense in
accordance with the terms of Section 13.4(b), without the consent of any
Indemnified Party, but only to the extent that such settlement or entry of
judgment (i) provides solely for the payment of money, and (ii) provides a
complete release of, or dismissal with prejudice of claims against, any
Indemnified Party potentially affected by such Third Party Claim from all
matters that were or could have been asserted in connection with such
claims. Except as provided above, settlement or consent to entry of
judgment shall require the prior approval of the Indemnified Party, such
approval not to be unreasonably withheld. If requested by the Indemnifying
Party, the Indemnified Party will cooperate with the Indemnifying Party and
its counsel in contesting any Third Party Claim, or, if appropriate and
related to the Third Party Claim in question, in making any counterclaim or
cross-complaint against any Person (other than the Indemnified Party or its
directors, officers, employees, agents, representatives, Affiliates,
successors and permitted assigns). Unless and until the Indemnifying Party
elects to defend the Third Party Claim, the Indemnified Party shall have
the right, at its option and at the Indemnifying Party's expense, to defend
and resolve the Third Party Claim in such manner as it reasonably deems
appropriate.
13.5. Procedures for Direct Claims. In the event any Indemnified Party
shall have a claim for indemnity against any Indemnifying Party that does not
involve a Third Party Claim,
31
the Indemnified Party shall deliver written notice of such claim with reasonable
promptness after such claim becomes known to the Indemnified Party to the
Indemnifying Party specifying in detail the facts constituting the basis for,
and the amount of, the claim asserted. The failure by any Indemnified Party to
notify the Indemnifying Party in a timely manner as specified in the preceding
sentence shall relieve any Indemnifying Party from its indemnification
obligations only to the extent such failure or other actions taken by the
Indemnified Party in response to such claim shall actually prejudice an
Indemnifying Party.
13.6. Indemnification Payments. Any payment arising under this Article 13
shall be made by wire transfer of immediately available funds to such account or
accounts as the Indemnified Party shall designate to the Indemnifying Party in
writing.
13.7. Exclusivity. If the Closing occurs, and further subject in any case
to (i) the right to enforce the indemnities provided for in this Article 13, and
(ii) to any rights and remedies provided in any Ancillary Agreement, and to the
extent permitted by applicable law, the indemnities provided for in this Article
13 shall be the exclusive remedies of the parties hereto and their respective
officers, directors, employees, agents and affiliates 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), and the parties shall
not be entitled to a rescission of this Agreement or to any further
indemnification rights or claims of any nature whatsoever in respect thereof
(including, without limitation, any common law rights of contribution), all of
which the parties hereto hereby waive.
13.8. Tax Indemnification.
(A) In addition to any of the other indemnification obligations
arising under this Agreement, Seller hereby agrees upon the terms and
conditions and in accordance with the procedures set forth in this
Agreement, to indemnify, defend and hold the Seller Indemnitees harmless
from and against any Losses that any of the Seller Indemnitees shall incur
or suffer, regardless of any Knowledge of Buyer of such Loss or Losses at
the time of the Closing, resulting from or relating to (1) any and all
liability for Taxes (i) of the Companies related to any taxable period
ending on or prior to the Closing Date and the portion ending on the
Closing Date of any taxable period that includes (but does not end on) such
day ("Pre-Closing Tax Period") but only to the extent such Taxes have not
been accrued for on the Final Closing Balance Sheet and (ii) attributable
to Pre-Closing Tax Periods which result from the Elections contemplated by
Section 8.8 of this Agreement, and (2) any enforcement of this indemnity.
Notwithstanding the foregoing, Seller shall not indemnify any Seller
Indemnitee from any liability for Taxes attributable to any action taken
after the Closing by Buyer, any of its affiliates (including any of the
Companies), (other than any such action expressly required by applicable
law or by this Agreement) (a "Buyer Tax Act") or attributable to a breach
by Buyer of its obligations under this Agreement (including but not limited
to Buyer's covenants under Article 8 of this Agreement).
32
In the case of any taxable period that includes (but does not end on)
the Closing Date (a "Straddle Period"):
(i) real, personal and intangible property Taxes ("property
Taxes") of the Companies for the Pre-Closing Tax Period shall be equal
to the amount of such property Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of days
during the Straddle Period that are in the Pre-Closing Tax Period and
the denominator of which is the number of days in the Straddle Period;
and
(ii) the Taxes of the Companies (other than property Taxes) for
the Pre-Closing Tax Period shall be computed as if such taxable period
ended as of the close of business on the Closing Date.
(B) Buyer hereby agrees upon the terms and conditions and in
accordance with the procedures set forth in this Agreement to indemnify,
defend and hold the Buyer Indemnitees harmless from and against any Loss or
Losses that any of the Buyer Indemnitees shall incur or suffer, resulting
from or relating to (1) any and all liability for Taxes (i) of the
Companies related to any taxable period ending after the Closing Date
(except to the extent such taxable period began before the Closing Date, in
which case Buyer's indemnity will cover only that portion of any such Taxes
that are not for the Pre-Closing Tax Period) and (ii) attributable to a
Buyer Tax Act or to a breach by Buyer of its obligations under this
Agreement (including but not limited to Buyer's covenants under Article 8
of this Agreement), and (2) any enforcement of this indemnity.
(C) If a claim with respect to Taxes shall be made by any taxing
authority, which, if successful, might result in an indemnity payment to an
indemnified party pursuant to Section 13.8(A) or 13.8(B), the party
receiving such claim shall promptly notify the other party in writing of
such claim (a "Tax Claim"). If the indemnified party receives notification
of a Tax Claim and fails to notify the indemnifying party within a
sufficient period of time to allow the indemnifying party to effectively
contest such Tax Claim, or in reasonable detail to apprise the indemnifying
party of the nature of the Tax Claim, in each case taking into account the
facts and circumstances with respect to such Tax Claim, the indemnifying
party shall not be liable to the indemnified party, any of its affiliates
or any of their respective officers, directors, agents or employees to the
extent that indemnifying party's position is actually prejudiced as a
result thereof.
With respect to any Tax Claim relating solely to a Pre-Closing Tax Period,
Seller shall control all proceedings taken in connection with such Tax Claim
(including selection of counsel) and, without limiting the foregoing, may in its
sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with respect
thereto, and may, in its sole discretion, either pay the Tax claimed and ▇▇▇ for
a refund where applicable law permits such refund suits or contest the Tax Claim
in any permissible manner.
33
Seller, the Companies, and each of their respective affiliates shall
cooperate with Buyer in contesting any Tax Claim, which cooperation shall
include the retention until the applicable statute of limitations has expired
and (upon Buyer's request) the provision to Buyer of records and information
which are reasonably relevant to such Tax Claim, and making their employees
available on a mutually convenient basis to provide additional reasonably
relevant information or explanation of any material provided hereunder or to
testify at proceedings relating to such Tax Claim. The Buyer, the Companies and
each of their respective affiliates shall cooperate with Seller on the same
basis as provided for in the preceding sentence.
In no case shall Buyer, the Companies, or any of their respective officers,
directors, agents or employees settle or otherwise compromise any Tax Claim
relating to a Pre-Closing Tax Period (excluding Straddle Periods) without
Seller's prior written consent. Likewise, in no case shall Seller, the
Companies, or any of their respective officers, directors, agents or employees
settle or otherwise compromise any Tax Claim relating to a Post-Closing Tax
Period (excluding Straddle Periods) without Buyer's prior written consent.
13.9. Interest. In the case of any payments made or costs or damages
incurred and paid by a party, interest on the amount thereof shall accrue
beginning the date any Loss is paid by the Indemnified Party or a date thirty
(30) days after written notice of the claim is given, whichever is later,
provided that such notice is accompanied by documentation describing the basis
of such claim in reasonable detail for evaluation; provided further, however,
that the claiming party shall only be entitled to receive such interest to the
extent that it is determined that such party is entitled to indemnification
hereunder. Interest shall accrue until the claim is paid in full at a variable
rate equal to the prime interest rate as published in the Money Rates column of
the Wall Street Journal (the "Interest Rate").
13A. POST-CLOSING RESERVE ADJUSTMENTS.
13A.1. Calculation and Adjustment. Not later than 90 days following the end
of each calendar year until the Settlement Date (as defined in Section 13A.2),
and not later than 90 days following the Settlement Date, Buyer shall provide
Seller with a written report (the "Reserve Report") reflecting the calculation
contemplated by Section 13A.2 ("Indicated Reserve Amount"), together with all
work papers and actuarial memoranda used in establishing the Indicated Reserve
Amount. The calculation of the Indicated Reserve Amount will be prepared in
conformity with SAP as in effect on the Closing Date consistently applied and
the books and records of the Insurance Companies (with the exception of ULAE
which shall be calculated in accordance with Section 13A.2), and will present
fairly the loss and loss adjustment expense reserves of the Insurance Companies
as of the Settlement Date (or earlier date thereof). In the event that the
Indicated Reserve Amount reflected on the final Reserve Report prepared as of
the Settlement Date exceeds the loss and loss adjustment expense ("LAE")
reserves, net of related third party reinsurance, salvage and subrogation
recoverables and receivables, as shown in the Closing Date Balance Sheet
("Closing Reserves"), by at least $100,000, Seller shall pay or cause to be paid
to Buyer in immediately available funds 90% of the amount (including such
$100,000 amount) by which the Indicated Reserve Amount exceeds the Closing
Reserves (including such $100,000 amount). In the event that the Closing
Reserves exceed the Indicated Reserve Amount by at least $100,000, Buyer shall
pay or cause to be paid to Seller in immediately available funds
34
90% of the amount (including such $100,000 amount) by which the Closing Reserves
exceed the Indicated Reserve Amount (including such $100,000 amount).
13A.2. Calculation Methodology. The Indicated Reserve Amount will be equal
to the sum of (i) the Indicated Loss Reserve Amount as defined in Section 13A.3
and (ii) the Indicated ALAE Reserve Amount as defined in Section 13A.4 and (iii)
the ULAE Percentage of the sum of (a) the Indicated Loss Reserve Amount plus (b)
the Indicated ALAE Reserve Amount for the Subject Business ("ULAE"), in the case
of each of (i) and (ii) and (iii) as of December 31, 2005 (the "Settlement
Date") solely with respect to insurance or reinsurance issued, underwritten or
assumed prior to the Closing Date by the Insurance Companies (the "Subject
Business"). ULAE Percentage will be determined based on the quotient of (i) the
amount of the unallocated loss adjustment expense reserves as of the Closing
Date with respect to the Subject Business divided by (ii) the amount of the
Closing Reserves. Notwithstanding anything herein to the contrary, and except as
otherwise provided by Section 13A.7, the Indicated Reserve Amount shall exclude
from losses and LAE any losses and LAE liabilities (i) paid or incurred in
excess of the limits of any original policy, (ii) constituting an
extra-contractual liability, or (iii) arising from the negligence, fraud or bad
faith of any Insurance Company or any other of Buyer's affiliates or agents in
the handling of the underlying claim, but only to the extent that any such
losses and LAE liabilities in the case of each of (i), (ii) and (iii) arise out
of acts or omissions occurring after the Closing Date.
13A.3. Indicated Loss Reserve Amount. The Indicated Loss Reserve Amount
will be the sum of (i) claims paid after the Closing Date for losses occurring
on or prior to the Closing Date with respect to the Subject Business, (ii) case
loss reserves held as of the Settlement Date for losses occurring on or prior to
the Closing Date with respect to the Subject Business, and (iii) the bulk and
incurred but not reported ("IBNR") loss reserves held as of the Settlement Date
for losses occurring on or prior to the Closing Date with respect to the Subject
Business, less applicable third party reinsurance, salvage and subrogation
recoveries received or receivable after the Closing Date and applicable to
losses incurred on or prior to the Closing Date. The loss reserves for the
Subject Business will be calculated in accordance with SAP as in effect on the
Closing Date consistently applied and generally accepted actuarial practices
consistently applied.
13A.4. Indicated ALAE Reserve Amount. The Indicated ALAE Reserve Amount
will be the sum of (i) allocated loss adjustment expenses ("ALAE") paid after
the Closing Date for losses occurring on or prior to the Closing Date with
respect to the Subject Business, (ii) case ALAE reserves held as of the
Settlement Date for losses occurring on or prior to the Closing Date with
respect to the Subject Business and (iii) bulk and IBNR ALAE reserves held as of
the Settlement Date for losses occurring on or prior to the Closing Date with
respect to the Subject Business, less applicable third party reinsurance,
salvage and subrogation recoveries received or receivable after the Closing Date
and applicable to losses incurred on or prior to the Closing Date. The ALAE
reserves for the Subject Business will be calculated in accordance with SAP as
in effect on the Closing Date consistently applied and generally accepted
actuarial practices consistently applied.
13A.5. Dispute Resolution. Following the delivery of the Reserve Report to
Seller, Buyer will cause the Insurance Companies to allow Seller to have
reasonable access, during
35
normal business hours and upon reasonable notice, to the books, records and work
papers of the Insurance Companies relating to the Indicated Reserve Amount and
the Subject Business; provided, however, that such access does not unreasonably
disrupt the normal business operations of the Insurance Companies, Buyer or its
other affiliates. In the event that the Seller has any disagreement with the
Indicated Reserve Amount reflected in the Reserve Report then all unresolved
disagreements shall be submitted to an independent actuarial firm of national
standing and reputation as the parties shall jointly select and retain (the
"Independent Actuary") for resolution in accordance with this Agreement. In the
event that the parties are unable to jointly select an Independent Actuary, each
of the Buyer, on the one hand, and the Seller, on the other hand, shall select
an independent certified public accounting firm of national standing and
reputation, which firms shall jointly select the Independent Actuary for joint
retention by the parties. The parties shall, and Buyer shall cause the Insurance
Companies to, cooperate in good faith with the Independent Actuary and shall
give the Independent Actuary access to all books, records, work papers and other
information and documents relating to the items in disagreement as the
Independent Actuary may reasonably request for purposes of such resolution. The
Independent Actuary shall, within thirty (30) days after its engagement, deliver
to the parties a conclusive written resolution of all disagreements submitted to
it, which written resolution shall be in accordance with this Agreement and
shall be final and binding upon the parties hereto. The Indicated Reserve Amount
reflected in the Reserve Report shall be adjusted accordingly to reflect any
such resolution and, as so adjusted, shall be deemed final for purposes of the
payments provided in Section 13A.1. Seller on the one hand, and Buyer on the
other hand, shall each pay one-half of the fees and expenses of the Independent
Actuary.
13A.6. Payment. Except for any amounts in dispute under Section 13A.5,
balances due from either party under Section 13A.1 shall be paid within 30 days
of delivery by Buyer of the final Reserve Report contemplated by Section 13A.1.
Balances in dispute shall be paid within 30 days after the parties are notified
of the determination rendered by the Independent Actuary. Any such amounts shall
bear interest at an annual rate equal to the Interest Rate from the date of
delivery of the aforesaid report until payment in full.
13A.7. Certain Covenants. With respect to the Subject Business, from the
Closing Date until the Settlement Date, Buyer agrees to cause each Insurance
Company to, in good faith, (i) pay and settle claims, and handle the defense of
pending or threatened claims, suits or proceedings in no case on a basis less
favorable to such Insurance Company than those practices of affiliates of Buyer,
except to the extent as may otherwise be required by law, (ii) establish
reserves for losses and loss adjustment expenses in accordance with generally
accepted actuarial standards, but in no case on a basis less favorable to such
Insurance Company than those practices of other affiliates of Buyer, and (iii)
not delegate any claims adjustment or claims handling authority to any person or
entity not affiliated therewith, in each case, other than on a basis more
favorable to and involving lesser liabilities, obligations and other costs for
such Insurance Company. While this Section 13A is in effect, Seller shall have
the right to inspect and copy, at its own expense, through its duly authorized
representatives, the books, records and accounts of each Insurance Company
pertaining to the Subject Business and payments of losses and loss adjustment
expenses in respect thereof during normal business hours and upon reasonable
notice; provided, however, such inspection and copying shall not unreasonably
36
disrupt the normal business operations of any Insurance Company, Buyer or its
other affiliates. During the term of this Agreement, Buyer shall provide to
Seller in relation to the Subject Business (i) on a monthly basis a list of all
cases with reserves set at an amount in excess of $100,000, and (ii) on an
annual basis a list of all open claims. Upon the written request of Seller,
Buyer will afford Seller an opportunity to participate with the relevant
Insurance Company, at the sole expense of Seller, in the settlement of any such
claim, and the Insurance Company and Seller shall cooperate in every respect in
such settlement; provided, however, in the event that Seller participates in a
settlement, and to the extent such participation results in or contributes to
(i) liabilities paid or incurred in excess of the limits of any original policy,
(ii) liabilities constituting extra-contractual liabilities, or (iii) a finding
of negligence, fraud or bad faith as contemplated by Section 13A.2, such
settlement and all liabilities associated therewith shall be included to such
extent in the Indicated Reserve Amount.
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES
All representations and warranties of the parties hereto contained in this
Agreement shall survive the execution and delivery hereof until the date that is
two years after the Closing Date, except: (i) that the representations and
warranties contained in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 5.1 and 5.2 shall
survive indefinitely; (ii) with respect to matters as to which a Claims Notice
shall have been given conforming to the requirements of Section 13.4 or 13.5 by
a party hereto prior to such expiration date; and (iii) Sections 4.15, 4.27 and
13.8 and Article 8 shall not terminate until the expiration of the applicable
statute of limitations.
15. CHANGE OF NAME
15.1. Name Change. Buyer shall use its commercially reasonable efforts to
cause a change in the legal name of the Companies to a name selected by Buyer on
or before the fifth anniversary of the Closing.
15.2. Licensing of ▇▇▇▇▇▇ ▇▇▇▇▇. The parties acknowledge that, prior to the
Closing Date, Seller will cause the Companies to transfer to Seller or another
affiliate of Seller any and all rights that any of the Companies may have to (i)
any trademarks that contain the name "▇▇▇▇▇▇" or any variation or derivation
thereof, (ii) any logos or other marks that contain any marks owned or used by
Seller or any of its other affiliates, and (iii) any Internet domain names
containing the word "▇▇▇▇▇▇."
15.3. Use of ▇▇▇▇▇▇ ▇▇▇▇▇. The Companies' right to use the name "▇▇▇▇▇▇" or
any of the ▇▇▇▇▇▇ Brands (as such term is defined in the Asset Purchase
Agreement) shall be in accordance with and subject to the limitations and
restrictions set forth in Section 5.14 of the Asset Purchase Agreement.
16. POST-CLOSING OBLIGATIONS
16.1. Cooperation. After Closing, Seller and Buyer shall cooperate with
each other by furnishing any additional information which may be reasonably
requested by either with respect to the Companies' pre-Closing operations.
Seller agrees to make available to Buyer at
37
reasonable times and upon reasonable notice during normal business hours members
of the Companies' pre-Closing management or members of Seller's management
familiar with the Companies' pre-Closing operations, to the extent such persons
remain employed by Seller or an affiliate of Seller, to respond to the Buyer's
requests for such information.
16.2. Statutory Statements. Seller shall prepare and timely mail and shall
bear the expense of preparing, mailing and filing all of the statutory
statements (and related reports and filings) of the Companies for any period
ended prior to the Closing Date which statement or report is required to be
filed prior to the Closing Date (without giving effect to any extension of time
for filing which may be obtained by Seller or the Companies). Buyer shall
prepare, execute and bear the expense of filing all statutory statements (and
related reports and filings) of the Companies required to be filed after the
Closing Date. Seller shall provide Buyer on a timely basis with pro forma
regulatory reports and filings containing all information necessary regarding
the Companies through the Closing Date necessary for the completion of all
reports and filings required to be filed by Buyer hereunder.
16.3. Post-Closing Access.
(a) Following the Closing Date, Buyer shall, and shall cause the
Companies to, allow Seller, upon reasonable prior notice and during normal
business hours, through its affiliates, employees and representatives, the
right to (x) examine and make copies, at Seller's expense, of the books and
records of the Companies and of the Buyer, to the extent that Buyer's books
and records relate to the Companies and, in either case, maintained after
the Closing Date, and (y) reasonable access to the Buyer's and Companies'
employees, in the case of either clause (x) or (y), for any reasonable
purpose relating to the Companies, including, without limitation, the
preparation or examination of Tax returns, regulatory and statutory filings
and financial statements and the conduct of any litigation or otherwise, or
the conduct of any regulatory, policyholder or other dispute resolution
whether pending or threatened. The Buyer shall, and shall cause the
Companies to, maintain the books and records of the Companies for
examination and copying by Seller for a period of not less than five years
following the Closing Date or any longer period as mandated by applicable
law or regulation, after which, the Buyer or the Companies may destroy such
records in its discretion. Access to such records shall not unreasonably
interfere with the business operations of the Buyer, any Company or any of
their respective successors.
(b) Following the Closing Date, Seller shall allow Buyer, upon
reasonable prior notice and during normal business hours, through its
affiliates, employees and representatives, the right to (x) examine and
make copies, at Buyer's expense, of the books and records of the Seller
retained by the Seller and maintained by Seller after the Closing Date, but
only to the extent that such books and records relate to the Companies; and
(y) reasonable access to any of Seller's employees, in the case of either
clause (x) or (y), for any reasonable purpose relating to the Companies
including, without limitation, the preparation or examination of Tax
returns, regulatory and statutory filings and financial statements and the
conduct of any litigation or otherwise, or the conduct of any regulatory,
policyholder or other dispute resolution whether pending or threatened. The
Seller shall maintain such books and records for examination and copying by
the Buyer for a period of not less than five years following the Closing
Date or any
38
longer period as mandated by applicable law or regulation, after which, the
Seller may destroy such records in its discretion. Access to such records
shall not unreasonably interfere with the business operations of the Seller
or any successor company.
17. DISPUTE RESOLUTION
All controversies or claims arising out of or relating to this Agreement
will be resolved in accordance with the dispute resolution provisions contained
in the Asset Purchase Agreement, except as otherwise expressly provided for in
this Agreement.
18. CONFIDENTIALITY OF INFORMATION
All books, records, data and information (collectively the "Information")
furnished by either Seller or Buyer to each other in connection with the
transactions contemplated by this Agreement shall remain and be deemed to be the
exclusive property of the party furnishing the Information unless and until the
Closing occurs and shall be held in the strictest of confidence by the other
parties to the extent such information is not publicly available and shall not
be used by such other parties for any purpose other than consideration of the
transactions contemplated by this Agreement and obtaining consents and approvals
for such transactions. In the event that the transactions contemplated by this
Agreement are not consummated, each party shall return all Information in its
possession which is deemed to be the exclusive property of any other party,
together with all copies thereof, and shall continue to hold such Information in
strict confidence and not use such Information for any purpose whatsoever. Upon
execution of this Agreement, that certain Confidentiality Agreement between
Seller and Buyer dated November 8, 2001 shall terminate automatically and be of
no further force or effect.
19. BROKERAGE
Seller agrees to indemnify Buyer and to hold it harmless from and against
any and all claims for any broker's or finder's fee or commission arising out of
or based on any act or omission of Seller or its affiliates.
Buyer agrees to indemnify Seller and to hold it harmless from and against
any and all claims for any broker's or finder's fee or commission arising out of
or based on any act or omission of Buyer or its affiliates.
20. PAYMENT OF EXPENSES
Buyer and Seller shall each pay all of their own expenses in connection
with this Agreement and the transactions and deliveries contemplated hereby,
including without limitation, any expenses incurred in connection with any
claims made by any third party calling into question the transactions
contemplated hereby.
21. TERMINATION
(a) This Agreement may be terminated, and the transactions
contemplated hereby abandoned, prior to Closing (i) by the mutual written
consent of Buyer and Seller, (ii) by Seller
39
or by Buyer if the Closing has not occurred by December 31, 2002; provided,
however, that if the Closing has not occurred due solely to the failure of
a party to receive a required approval from a governmental authority, the
parties agree to extend the December 31, 2002 termination date to March 31,
2003, or (iii) by either party if the other party shall fail to perform any
of its obligations under this Agreement and such failure is not cured
within thirty (30) days after written notice of the non-performance is
given to the non-performing party.
(b) If this Agreement is terminated and the transactions hereby are
not consummated as described above, this Agreement shall become null and
void and of no further force and effect, except that (a) in the event of
such termination because of any breach, the breaching party shall be liable
to the other party for all actual damages arising directly from such
breach, including, but not limited to, reasonable consultant fees and
expenses; and (b) the obligations arising under Articles 17, 18, 19 and 20
and Sections 22.3, 22.6, 22.7 and 22.12 and this Section 21 shall remain in
full force and effect.
22. MISCELLANEOUS
22.1. Waivers. No action taken pursuant to this Agreement, including,
without limitation, proceeding with Closing, shall be deemed to constitute a
waiver by any party taking such action or compliance with any representations,
warranties, covenants, or agreements contained in this Agreement unless such
waiver is in writing. The waiver by any of the parties of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of a
breach of any other provision of this Agreement.
22.2. Amendments. This Agreement may not be amended or modified except by
written instrument signed by all parties.
22.3. Notices. All notices, consents, demands, requests, approvals and
other communications, which are required or may be given hereunder shall be in
writing and shall be deemed to have been duly given at the time delivered as
follows:
(i) If to Seller:
Lumbermens Mutual Casualty Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: General Counsel
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Sidley ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇
Bank One Plaza
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(ii) If to Buyer:
Unitrin, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other person or persons at such address or addresses as may be
designated by written notice to the other parties hereunder.
22.4. Assignments. This Agreement may be assigned by Buyer to any direct or
indirect subsidiary of Buyer and all references herein to Buyer shall be deemed
to include any such assignee; provided, that no such assignment shall relieve
Buyer of its obligations under this Agreement. Except as otherwise provided in
this Section 22.4, this Agreement may not be assigned by either party without
the prior written consent of the other party.
22.5. Entire Understanding. This Agreement, together with the schedules and
exhibits hereto, constitute the entire understanding of the parties with respect
to the subject matter hereof and supersedes all prior agreements whether written
or otherwise.
22.6. Inurement. This Agreement shall be binding upon, and inure to the
benefit of, the parties and their respective successors and permitted assigns.
22.7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to principles
of conflicts of law thereunder.
22.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22.9. Enforceability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction, shall as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
22.10. Interpretation. All pronouns and any variations thereof shall be
deemed to refer to masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
41
22.11. Captions. The captions and headings throughout this Agreement are
for convenience and reference only, and shall in no way be deemed to define,
modify or add to the construction of any provision of, or to the scope or intent
of, this Agreement.
22.12. Publicity. Except as may otherwise be required by applicable law, no
release or announcement concerning this Agreement or the transactions
contemplated hereby shall be made without the prior written approval of the
other party, which approval shall not be unreasonably withheld or delayed. The
parties shall cooperate with each other in making any release or announcement.
42
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
LUMBERMENS MUTUAL UNITRIN, INC.
CASUALTY COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------- ----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------- --------------------------------
Title: Senior Vice President Title: President and Chief Operating
---------------------------- -------------------------------
Officer
-------------------------------
43