AGREEMENT AND PLAN OF MERGER
by and among
ARGONAUT INSURANCE COMPANY,
ARGONAUT MIDWEST INSURANCE COMPANY,
ARGONAUT ACQUISITION CORP.
and
FRONT ROYAL, INC.
Dated as of May 7, 2001
TABLE OF CONTENTS
Page
ARTICLE I. THE MERGER.............................................................................................1
SECTION 1.1 MERGER..........................................................................................1
SECTION 1.2 EFFECTIVE TIME OF THE MERGER....................................................................1
SECTION 1.3 CLOSING.........................................................................................2
SECTION 1.4 ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION...............................2
SECTION 1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.............................................2
ARTICLE II. CONVERSION OF SHARES..................................................................................2
SECTION 2.1 CONVERSION OF SHARES............................................................................2
SECTION 2.2 EXCHANGE OF CERTIFICATES; PAYMENT FOR SHARES....................................................4
SECTION 2.3 STOCK OPTIONS; WARRANTS; RIGHTS.................................................................6
SECTION 2.4 CERTAIN ADJUSTMENTS.............................................................................7
SECTION 2.5 WITHHOLDING.....................................................................................8
SECTION 2.6 LOST, STOLEN OR DESTROYED CERTIFICATES..........................................................8
SECTION 2.7 STOCK TRANSFER BOOKS............................................................................8
SECTION 2.8 DISSENTERS' RIGHTS..............................................................................8
SECTION 2.9 ADDITIONAL MERGER CONSIDERATION.................................................................9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................11
SECTION 3.1 ORGANIZATION...................................................................................11
SECTION 3.2 CAPITALIZATION.................................................................................12
SECTION 3.3 AUTHORIZATION; VALIDITY OF AGREEMENT...........................................................12
SECTION 3.4 NO VIOLATIONS; APPROVALS.......................................................................13
SECTION 3.5 FINANCIAL STATEMENTS...........................................................................13
SECTION 3.6 ABSENCE OF CERTAIN CHANGES.....................................................................14
SECTION 3.7 ABSENCE OF UNDISCLOSED LIABILITIES.............................................................17
SECTION 3.8 EMPLOYEE BENEFIT PLANS; ERISA..................................................................17
SECTION 3.9 LITIGATION; COMPLIANCE WITH LAW................................................................20
SECTION 3.10 INTELLECTUAL PROPERTY..........................................................................21
SECTION 3.11 COMPUTER SYSTEMS...............................................................................21
SECTION 3.12 TAXES..........................................................................................22
SECTION 3.13 ENVIRONMENTAL MATTERS..........................................................................24
SECTION 3.14 LABOR MATTERS..................................................................................24
SECTION 3.15 MATERIAL CONTRACTS.............................................................................25
SECTION 3.16 RESERVES.......................................................................................26
SECTION 3.17 INSURANCE MATTERS..............................................................................27
SECTION 3.18 RELATED PARTY TRANSACTIONS.....................................................................27
SECTION 3.19 OBLIGATIONS TO FORMER OWNERS...................................................................28
SECTION 3.20 GUARANTEES.....................................................................................28
SECTION 3.21 BANK ACCOUNTS..................................................................................28
SECTION 3.22 OTHER AGREEMENTS...............................................................................28
SECTION 3.23 POWERS OF ATTORNEY.............................................................................28
SECTION 3.24 INVESTMENT COMPANY ACT; INVESTMENT ADVISERS ACT................................................28
SECTION 3.25 BOARD RECOMMENDATION...........................................................................29
SECTION 3.26 REQUIRED VOTE BY COMPANY SHAREHOLDERS..........................................................29
SECTION 3.27 BROKERS........................................................................................29
SECTION 3.28 INSURANCE RATINGS..............................................................................29
SECTION 3.29 INSURANCE POLICIES.............................................................................29
SECTION 3.30 SUFFICIENCY OF ASSETS..........................................................................30
SECTION 3.31 ACCURACY OF STATEMENTS.........................................................................30
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY.......................................30
SECTION 4.1 ORGANIZATION...................................................................................30
SECTION 4.2 AUTHORIZATION; VALIDITY OF AGREEMENT...........................................................31
SECTION 4.3 NO VIOLATIONS; APPROVALS.......................................................................31
SECTION 4.4 FINANCING......................................................................................32
SECTION 4.5 BENEFICIAL OWNERSHIP OF SHARES.................................................................32
SECTION 4.6 LITIGATION.....................................................................................32
SECTION 4.7 BROKERS........................................................................................32
ARTICLE V. COVENANTS.............................................................................................33
SECTION 5.1 INTERIM OPERATIONS OF THE COMPANY..............................................................33
SECTION 5.2 ACQUISITION PROPOSALS..........................................................................35
SECTION 5.3 ACCESS TO INFORMATION..........................................................................36
SECTION 5.4 FURTHER ACTION; BEST EFFORTS; COMPANY COMMON STOCK PURCHASES...................................36
SECTION 5.5 SHAREHOLDERS' MEETING; PROXY STATEMENT.........................................................37
SECTION 5.6 VOTING AGREEMENTS; PROXIES.....................................................................38
SECTION 5.7 EMPLOYEE BENEFITS..............................................................................38
SECTION 5.8 DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION.........................................39
SECTION 5.9 PUBLICITY......................................................................................39
SECTION 5.10 PRIVACY POLICY AND PRIVACY MAILING.............................................................40
ARTICLE VI. CONDITIONS...........................................................................................40
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.....................................40
SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE MERGER....................................40
SECTION 6.3 CONDITIONS TO PARENT'S AND MERGER SUBSIDIARY'S OBLIGATION TO EFFECT THE MERGER.................41
ARTICLE VII. TERMINATION.........................................................................................42
SECTION 7.1 TERMINATION....................................................................................42
SECTION 7.2 EFFECT OF TERMINATION..........................................................................43
SECTION 7.3 FEES AND EXPENSES..............................................................................44
ARTICLE VIII. HOLDBACK...........................................................................................45
SECTION 8.1 MERGER CONSIDERATION HOLDBACK..................................................................45
SECTION 8.2 RECOVERABLE AMOUNTS............................................................................45
SECTION 8.3 RELEASE OF ESCROW FUND.........................................................................49
SECTION 8.4 SHAREHOLDER REPRESENTATIVES....................................................................50
ARTICLE IX. MISCELLANEOUS........................................................................................51
SECTION 9.1 AMENDMENT; WAIVER..............................................................................51
SECTION 9.2 SURVIVAL.......................................................................................51
SECTION 9.3 NOTICES........................................................................................51
SECTION 9.4 INTERPRETATION.................................................................................52
SECTION 9.5 HEADINGS; DISCLOSURE SCHEDULE..................................................................53
SECTION 9.6 COUNTERPARTS...................................................................................53
SECTION 9.7 ENTIRE AGREEMENT...............................................................................53
SECTION 9.8 SEVERABILITY...................................................................................53
SECTION 9.9 GOVERNING LAW..................................................................................53
SECTION 9.10 ARBITRATION; ENFORCEMENT.......................................................................53
SECTION 9.11 LIABILITY......................................................................................54
SECTION 9.12 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.......................................................54
48
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 7, 2001,
among Front Royal, Inc., a North Carolina corporation (the "Company"), Argonaut
Insurance Company, a California corporation, Argonaut Midwest Insurance Company,
an Illinois corporation (together, "Parent"), and Argonaut Acquisition Corp., a
North Carolina corporation and a wholly owned subsidiary of Parent ("Merger
Subsidiary").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary
and the Company have approved this Agreement and deem it advisable and in the
best interests of their respective shareholders to consummate the merger
provided for herein, in which Merger Subsidiary will merge with and into the
Company (the "Merger"), on the terms and subject to the conditions set forth
herein;
WHEREAS, the Board of Directors of the Company (the "Board") has: (a)
determined that the Merger is fair to and in the best interests of the
shareholders of the Company; (b) approved this Agreement and the transactions
contemplated hereby; and (c) resolved to recommend that the Company's
shareholders approve and adopt this Agreement and the Merger, subject to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I. THE MERGER
Section 1.1 Merger. Subject to the terms and conditions set forth in this
Agreement, and in accordance with the North Carolina Business Corporation Act
("NCBCA"), at the Effective Time (as defined in Section 1.2), Merger Subsidiary
shall be merged with and into the Company. Following the Merger, the separate
corporate existence of Merger Subsidiary shall cease and the Company shall
continue as the surviving corporation and a wholly owned subsidiary of Parent
(the Company following the Merger, the "Surviving Corporation"). At the
Effective Time, the Merger will have the other effects provided in the
applicable provisions of the NCBCA. Without limiting the generality of the
foregoing and subject thereto, at the Effective Time, all the property, rights,
privileges, powers, immunities and franchises of the Company and Merger
Subsidiary will vest in the Surviving Corporation, and all the debts,
liabilities, obligations and duties of the Company and Merger Subsidiary will
become the debts, liabilities, obligations and duties of the Surviving
Corporation.
Section 1.2 Effective Time of the Merger. Subject to the provisions of this
Agreement, on the Closing Date (as defined in Section 1.3), the Company and
Merger Subsidiary will cause appropriate articles of merger (the "Articles of
Merger") to be executed and filed with the Secretary of State of the State of
North Carolina in such form as required by, and executed in accordance with the
relevant provisions of, NCBCA Section 55-11-05. The Merger shall become
effective on the date and at the time when the Articles of Merger has been duly
filed with the Secretary of State of the State of North Carolina or, subject to
the NCBCA, such time as is agreed upon by the parties and specified in the
Articles of Merger (such effective time, the "Effective Time.")
Section 1.3 Closing. Unless this Agreement shall have been terminated and the
Merger herein contemplated shall have been abandoned pursuant to Section 7.1 and
subject to the satisfaction or waiver of the conditions to the obligations of
the parties to effect the Merger as set forth in Article VI, the consummation of
the Merger (the "Closing") shall take place as promptly as practicable, but in
no event later than 10:00 a.m. on the second Business Day following the
satisfaction or waiver of all of the conditions and obligations set forth in
Article VI of this Agreement (excluding any conditions that, by their nature,
cannot be satisfied until the Closing) at the offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, unless another date, time and/or place is agreed to by the parties hereto
(the "Closing Date").
Section 1.4 Articles of Incorporation and Bylaws of the Surviving Corporation.
The articles of incorporation of the Company as in effect immediately prior to
the Effective Time shall be the articles of incorporation of the Surviving
Corporation but shall, effective at the Effective Time, be amended and restated
in a form reasonably satisfactory to the Parent and the Company. The bylaws of
Merger Subsidiary as in effect immediately prior to the Effective Time shall be
the bylaws of the Surviving Corporation, until thereafter changed or amended as
provided therein, in the articles of incorporation of the Surviving Corporation
or by applicable law.
Section 1.5 Directors and Officers of the Surviving Corporation. The directors
of Merger Subsidiary immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors shall have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's articles of incorporation and bylaws or as otherwise
provided by law. The officers of the Merger Subsidiary immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation until their respective successors are chosen and have
qualified in accordance with the articles of incorporation and bylaws of the
Surviving Corporation or as otherwise provided by law.
ARTICLE II. CONVERSION OF SHARES
Section 2.1 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Merger Subsidiary, the Company or
the holders of any shares of Company Common Stock (as hereinafter defined) or
Company Preferred Stock (as hereinafter defined):
(a) Subject to Section 2.9 and Article VIII, each share of Class A Common Stock
("Class A Common Stock"), Class B Common Stock ("Class B Common Stock"), and
Class C Common Stock ("Class C Common Stock"), each no par value, of the Company
(collectively, the "Company Common Stock") issued and outstanding immediately
prior to the Effective Time (other than the Company Stock to be canceled
pursuant to subsections (d) and (e) below and any Dissenting Shares (as defined
in Section 2.8)) shall be converted into and represent the right to receive,
payable upon surrender of the certificate or certificates which immediately
prior to the Effective Time represented issued and outstanding shares of Company
Common Stock in the manner provided in Section 2.2, $13.6938 per share in cash
(the "Initial Common Stock Merger Consideration") and the Additional Common
Stock Merger Consideration (as defined in Section 2.9), if any (the Initial
Common Stock Merger Consideration and the Additional Common Stock Merger
Consideration are referred to collectively as the "Common Stock Merger
Consideration"), payable to the holder thereof without interest, subject to
adjustment as set forth below. All such Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate or certificates
previously evidencing such shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect thereto, except the right to receive the Common Stock Merger
Consideration for each share of Company Common Stock upon the surrender of such
certificates in accordance with Section 2.2. Any payment made pursuant to this
Section 2.1(a) shall be made net of applicable withholding taxes to the extent
such withholding is required by law.
(b) Subject to Section 2.9 and Article VIII, each share of Series A Convertible
Preferred Stock, par value $100 per share, of the Company (the "Company
Preferred Stock") issued and outstanding immediately prior to the Effective Time
(other than the Company Preferred Stock to be canceled pursuant to subsections
(d) and (e) below and any Dissenting Shares) shall be converted into and
represent the right to receive, payable upon surrender of the certificate or
certificates which immediately prior to the Effective Time represented issued
and outstanding shares of Company Preferred Stock in the manner provided in
Section 2.2, the Preferred Stock Merger Consideration (as hereinafter defined),
payable to the holder thereof without interest. For purposes of this Agreement,
(i) "Preferred Stock Merger Consideration" shall mean the Initial Preferred
Stock Merger Consideration and the Additional Preferred Stock Merger
Consideration (as defined in Section 2.9) and (ii) "Initial Preferred Stock
Merger Consideration" shall mean an amount equal to 16-2/3 times the Initial
Common Stock Merger Consideration. All such Company Preferred Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate or
certificates previously evidencing such shares of Company Preferred Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect thereto, except the right to receive the Preferred Stock
Merger Consideration for each share of Company Preferred Stock upon the
surrender of such certificates in accordance with Section 2.2. Any payment made
pursuant to this Section 2.1(b) shall be made net of applicable withholding
taxes to the extent such withholding is required by law.
(c) Each share of common stock of Merger Subsidiary issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable share of common stock of the Surviving Corporation,
which will constitute the only issued and outstanding shares of capital stock of
the Surviving Corporation immediately after the Effective Time. From and after
the Effective Time, each outstanding certificate theretofore representing shares
of common stock of Merger Subsidiary will be deemed for all purposes to evidence
ownership and to represent the same number of shares of common stock of the
Surviving Corporation.
(d) Each share of Company Common Stock or Company Preferred Stock issued and
outstanding immediately prior to the Effective Time that is held by the Company
or any wholly-owned subsidiary of the Company as treasury stock shall be
canceled and retired and cease to exist and no payment or distribution shall be
made with respect thereto.
(e) Each share of Company Common Stock or Company Preferred Stock held of record
by Parent or Merger Subsidiary or any other direct or indirect wholly-owned
subsidiary of Parent (other than in each case, shares in trust accounts, managed
accounts, custodial accounts and the like that are beneficially owned by third
parties) immediately prior to the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, be canceled and cease
to exist, and no payment shall be made with respect thereto.
(f) As a result of the Merger and without any action on the part of the holder
thereof, at the Effective Time, all shares of Company Common Stock and Company
Preferred Stock shall cease to be outstanding and shall be cancelled and retired
and shall cease to exist, and each holder of such shares shall thereafter cease
to have any rights with respect to such shares of Company Common Stock or
Company Preferred Stock, except the right to receive the Common Stock Merger
Consideration or the Preferred Stock Merger Consideration, as the case may be.
Section 2.2 Exchange of Certificates; Payment for Shares
(a) Prior to the Effective Time, Parent or Merger Subsidiary shall
designate First Union National Bank or such other paying agent mutually agreed
to by the parties hereto (the "Paying Agent") to act as paying agent for the
holders of shares of Company Common Stock and Company Preferred Stock in
connection with the Merger, and shall enter into an agreement providing for the
matters set forth in this Section 2.2, Section 2.9 and Section 8.3 and such
other matters as may be appropriate, the form and terms of which are reasonably
satisfactory to the Company, for the payment of the Common Stock Merger
Consideration and the Preferred Stock Merger Consideration. Immediately prior to
the Effective Time, Parent or Merger Subsidiary shall deposit, or shall cause to
be deposited, with or for the account of the Paying Agent, for the benefit of
the holders of shares of Company Common Stock and Company Preferred Stock (other
than Dissenting Shares and shares to be canceled pursuant to Sections 2.1(d) and
(e)), an amount in cash equal to the aggregate Initial Common Stock Merger
Consideration and Initial Preferred Stock Merger Consideration payable pursuant
to this Section 2.2, less the Holdback to be deposited with the Escrow Agent
pursuant to Section 8.1 (such cash funds, the "Payment Fund"). Any interest,
dividends or other income earned from investment of the Payment Fund shall be
for the account of the Surviving Corporation. At the direction of Parent, the
Paying Agent may invest the Payment Fund in obligations of, or guaranteed by,
the United States of America, in commercial paper obligations receiving the
highest investment grade rating from both ▇▇▇▇▇'▇ Investors Services, Inc. and
Standard & Poor's, a division of McGraw Hill, Inc., or in certificates of
deposit, bank repurchase agreements or banker's acceptances of commercial banks
with capital exceeding $100,000,000 (collectively, "Permitted Investments");
provided, however, that the maturities of Permitted Investments shall be such as
to permit the Paying Agent to make prompt payment to the holders of shares of
Company Common Stock or Company Preferred Stock pursuant to the Merger. Such
funds held by the Paying Agent shall not be used for any purpose except as
expressly provided in this Agreement.
(b) Promptly after the Effective Time, and in any event no later than three
business days following the Effective Time, Parent or Merger Subsidiary will
cause the Paying Agent to mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time evidenced outstanding
shares of Company Common Stock or Company Preferred Stock (the "Certificates"),
whose shares were converted pursuant to Section 2.1 into the right to receive
the Common Stock Merger Consideration or the Preferred Stock Merger
Consideration, respectively (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to such Certificates
shall pass, only upon delivery of such Certificates to the Paying Agent and
shall be in such form and have such other provisions as the Company and Merger
Subsidiary may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for payment of the Common Stock
Merger Consideration or Preferred Stock Merger Consideration, as the case may
be. Upon surrender of a Certificate for cancellation to the Paying Agent or to
such other agent or agents as may be appointed by the Company, together with
such letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor the Common Stock Merger
Consideration or Preferred Stock Merger Consideration for each share of Company
Common Stock or Company Preferred Stock, respectively, formerly represented by
such Certificate, without any interest thereon (other than pursuant to Article
VIII), less any required withholding of taxes, and the Certificate so
surrendered shall forthwith be canceled. The Initial Common Stock Merger
Consideration or Initial Preferred Stock Merger Consideration (less the
Holdback) will be delivered by the Paying Agent as promptly as practicable
following surrender of a Certificate and the related transmittal documents, duly
executed. In the event of a transfer of ownership of Company Common Stock or
Company Preferred Stock which is not registered in the transfer records of the
Company, the Common Stock Merger Consideration or Preferred Stock Merger
Consideration and any dividends or other distributions to which such holder is
entitled, may be issued with respect to such Company Common Stock or Company
Preferred Stock to such a transferee if the Certificates representing such
Company Common Stock or Company Preferred Stock are presented to the Paying
Agent (or if lost, stolen or destroyed, the procedures set forth in Section 2.6
are complied with), accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid. Any release of the Holdback and the Additional Common Stock Merger
Consideration and the Additional Preferred Stock Merger Consideration, if any,
shall be delivered by the Paying Agent as promptly as practicable after receipt
thereof.
(c) Until surrendered as contemplated by this Section 2.2, each Certificate
(other than Dissenting Shares and shares to be canceled pursuant to Sections
2.1(d) and (e)) shall be deemed at any time after the Effective Time to
represent only the right to receive the Common Stock Merger Consideration or
Preferred Stock Merger Consideration as contemplated by this Section 2.2 and
Section 2.9. No interest shall be paid or will accrue on any Common Stock Merger
Consideration or Preferred Stock Merger Consideration payable to holders of
Certificates pursuant to the provisions of this Article II.
(d) Any portion of the Payment Fund which remains unclaimed by the former
shareholders of the Company for 180 days after the Effective Time shall, upon
demand of the Surviving Corporation, be delivered to the Surviving Corporation
and all former shareholders of the Company shall thereafter look only to the
Surviving Corporation for payment of their claims for the Common Stock Merger
Consideration or Preferred Stock Merger Consideration for their shares.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation or the
Paying Agent shall be liable to any holder of shares for any Common Stock Merger
Consideration or Preferred Stock Merger Consideration delivered to a public
official pursuant to applicable abandoned property, escheat or similar law.
Section 2.3 Stock Options; Warrants; Rights. (a) Prior to the Effective Time,
the Company shall take all necessary action by an appropriate committee of the
Board of Directors of the Company, to cause each 1996 Plan Option (as
hereinafter defined) to convert to the right to receive a cash payment pursuant
to Section 9.9 of the Company 1996 Incentive Plan, as amended (the "1996
Incentive Plan"), such that immediately prior to the Effective Time, each 1996
Plan Option outstanding immediately prior to the Effective Time, whether or not
then exercisable, shall be canceled and only entitle the holder thereof to
receive as soon as reasonably practicable after the surrender thereof, subject
to Section 2.9 and Article VIII, cash in an amount equal to the product of (i)
the amount, if any, by which the Common Stock Merger Consideration exceeds the
per share exercise price of such 1996 Plan Option times (ii) the number of
shares of Class A Common Stock into which such 1996 Plan Option is exercisable;
provided that any such payment shall be net of all withholding taxes required to
be withheld by the Company. For purposes of this Agreement, "1996 Plan Option"
shall mean an outstanding option to purchase Class A Common Stock granted under
the 1996 Incentive Plan.
(b) Prior to the Effective Time, the Company shall take all necessary action
either to cause (i) an appropriate committee of the Board of Directors of the
Company to cause each 1992 Plan Option (as hereinafter defined) to convert to
the right to receive a cash payment pursuant to the F.R. Acquisition Corp.-1992
Stock Option Plan, as amended (the "1992 Option Plan") or (ii) each holder of a
1992 Plan Option to execute a cancellation agreement, in each case such that
immediately prior to the Effective Time, each 1992 Plan Option outstanding
immediately prior to the Effective Time, whether or not then exercisable, shall
be canceled and only entitle the holder thereof the right to receive as soon as
reasonably practicable after the surrender thereof, subject to Section 2.9 and
Article VIII, cash in an amount equal to the product of (i) the amount, if any,
by which the Common Stock Merger Consideration exceeds the per share exercise
price of such 1992 Plan Option times (ii) the number of shares of Class B Common
Stock into which such 1992 Plan Option is exercisable; provided that any such
payment shall be net of all withholding taxes required to be withheld by the
Company. For purposes of this Agreement, "1992 Plan Option" shall mean an
outstanding option to purchase Class B Common Stock granted under the 1992
Option Plan.
(c) Prior to the Effective Time, the Company shall take all action by
appropriate committee of the Board of Directors of the Company, to cause each
Non-Plan Class A Option (as hereinafter defined) to convert to the right to
receive a cash payment pursuant to the terms of each such Non-Plan Option such
that immediately prior to the Effective Time, each Non-Plan Class A Option
outstanding immediately prior to the Effective Time, whether or not then
exercisable, shall be canceled and only entitle the holder thereof to receive as
soon as reasonably practicable after the surrender thereof, subject to Section
2.9 and Article VIII, cash in an amount equal to the product of (i) the amount,
if any, by which the Common Stock Merger Consideration exceeds the per share
exercise price of such Non-Plan Class A Option times (ii) the number of shares
of Class A Common Stock into which such Non-Plan Class A Option is exercisable;
provided that any such payment shall be net of all withholding taxes required to
be withheld by the Company. For purposes of this Agreement, "Non-Plan Class A
Option" shall mean an outstanding option to purchase Class A Common Stock which
is not granted pursuant to any stock option or incentive plan.
(d) Prior to the Effective Time, the Company shall take all action necessary
either to cause (i) an appropriate committee of the Board of Directors of the
Company to cause each Warrant (as hereinafter defined) to convert to the right
to receive a cash payment pursuant to the terms of each such Warrant or (ii)
each holder of a Warrant to execute a cancellation agreement, in each case such
that immediately prior to the Effective Time, each Warrant outstanding
immediately prior to the Effective Time, whether or not then exercisable, shall
be canceled and only entitle the holder thereof the right to receive as soon as
reasonably practicable after the surrender thereof, subject to Section 2.9 and
Article VIII, cash in an amount equal to the amount, if any, by which the Common
Stock Merger Consideration exceeds the per share exercise price of such Warrant.
For purposes of this Agreement, "Warrant" shall mean an outstanding warrant to
purchase Class A Common Stock.
(e) Prior to the Effective Time, the Company shall take such actions as may be
necessary such that immediately prior to the Effective Time, each Right (as
hereinafter defined) outstanding immediately prior to the Effective Time,
whether or not then exercisable, shall be canceled, retired and cease to exist,
without any payment therefor. For purposes of this Agreement, "Right" shall mean
each right attached to each outstanding share of Class C Common Stock and issued
pursuant to a Rights Agreement dated as of December 31, 1996 between the Company
and the persons or entities party thereto and a Rights Agreement dated as of
August 25, 1997 between the Company and the persons or entities party thereto.
Section 2.4 Certain Adjustments. If at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
shares of capital stock of the Company shall occur by reason of any
reclassification, recapitalization, stock split or combination, exchange,
exchange or readjustment of shares, or any similar transaction, or any stock
dividend thereon with a record date during such period, the Common Stock Merger
Consideration and Preferred Stock Merger Consideration shall be appropriately
adjusted to provide the holders of shares of Company Common Stock and Preferred
Stock the same economic effect as contemplated by this Agreement.
Section 2.5 Withholding. The Surviving Corporation and the Paying Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock or
Company Preferred Stock such amounts as the Surviving Corporation or the Paying
Agent is required to deduct and withhold with respect to the making of such
payment under any provision of federal, state, local or foreign tax law. To the
extent that amounts are so withheld by the Surviving Corporation or the Paying
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the shares of Company Common Stock and
Company Preferred Stock in respect of which such deduction and withholding was
made by the Surviving Corporation or the Paying Agent, as the case may be.
Section 2.6 Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Common Stock Merger Consideration or Preferred Stock
Merger Consideration deliverable in respect thereof as determined in accordance
with this Article II, provided that the Person to whom the Merger Consideration
is paid shall, as a condition precedent to the payment thereof, give the
Surviving Corporation a written indemnity agreement in form and substance
reasonably satisfactory to the Surviving Corporation and, if deemed reasonably
advisable by the Surviving Corporation, a bond in such sum as the Surviving
Corporation may direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to the Certificate claimed to have been
lost, stolen or destroyed. "Person" means an individual, corporation,
partnership, limited liability company, association, trust or other entity or
organization.
Section 2.7 Stock Transfer Books. After the Effective Time, the stock transfer
books of the Company shall be closed and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of shares
of Company Common Stock or Company Preferred Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and their holders shall be entitled to the rights provided herein.
Section 2.8 Dissenters' Rights. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock or Company Preferred Stock
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger and who has delivered a written demand for
appraisal of such shares in accordance with Section 55-13-21 of the NCBCA, if
Section 55-13-02 of the NCBCA provides for appraisal rights for such shares of
Company Common Stock or Company Preferred Stock in the Merger ("Dissenting
Shares"), shall not be converted into the right to receive the Common Stock
Merger Consideration or the Preferred Stock Merger Consideration, as provided in
Section 2.1 hereof, unless and until such holder is no longer able to perfect or
effectively withdraws or otherwise loses his right to appraisal and payment
under the NCBCA. If, after the Effective Time, any such holder is no longer able
to perfect or effectively withdraws or loses his right to appraisal, such
Dissenting Shares shall thereupon be treated as if they had been converted as of
the Effective Time into the right to receive the Common Stock Merger
Consideration or the Preferred Stock Merger Consideration, without interest
thereon. The Company shall give Parent (a) prompt notice of any demands for
appraisal pursuant to Section 55-13-21 of the NCBCA received by the Company,
withdrawals of such demands and any other instruments served pursuant to the
NCBCA and received by the Company and (b) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
NCBCA. The Company shall not, except with the prior written consent of Parent or
as otherwise required by applicable law, make any payment with respect to any
such demands for appraisal or offer to settle or settle any such demands.
Section 2.9 Additional Merger Consideration. (a) The holders as at the Effective
Time (collectively, "Holders" and each, a "Holder") of Class A Common Stock,
Class B Common Stock, Class C Common Stock, Company Preferred Stock, 1996 Plan
Options, 1992 Plan Options, Non-Plan Class A Options and Warrants (other than
Company Common Stock canceled pursuant to Section 2.1(d), (e) and (f) and any
Dissenting Shares (collectively, "Excluded Shares")) (collectively, "Company
Securities") shall be entitled to Additional Merger Consideration (as
hereinafter defined) in the amounts and at the times set forth in this Section
2.9. Parent shall deposit with the Paying Agent promptly after each Computation
Date an amount equal to the Additional Merger Consideration due as at such
Computation Date, which shall be held and invested in Permitted Investments in a
payment fund in accordance with Section 2.2 (the "Additional Consideration
Payment Fund"). The Paying Agent shall, at any time when the Additional Payment
Fund is more than $750,000, and after the Final Computation Date, distribute to
the Holders all amounts in the Additional Consideration Payment Fund as follows:
(i) each Holder of Class A Common Stock, Class B Common Stock and Class C
Common Stock shall be paid, for each share of Company Common Stock, an
amount equal to (1) (A) the Total Additional Merger Consideration then
being distributed divided by (B) an amount equal to 13,590,262 less
the number of Excluded Shares, if any (the "Additional Common Stock
Merger Consideration") plus (2) any earnings on the Additional Common
Stock Merger Consideration then held in the Additional Consideration
Payment Fund (the Additional Common Stock Merger Consideration plus
such earnings thereon are referred to as "Total Additional Common
Stock Consideration");
(ii) each Holder of Company Preferred Stock shall be paid, for each share
of Company Preferred Stock, an amount equal to (1)16-2/3 times the
Additional Common Stock Merger Consideration (the "Additional
Preferred Stock Merger Consideration") plus (2) any earnings on the
Additional Preferred Stock Merger Consideration then held in the
Additional Consideration Payment Fund;
(iii) each Holder of 1996 Plan Options shall be paid an amount, with
respect to each such 1996 Plan Option, equal to the Total Common Stock
Additional Consideration multiplied by the number of shares of Class A
Common Stock into which such 1996 Plan Option was exercisable
immediately prior to the Effective Time;
(iv) each Holder of 1992 Plan Options shall be paid an amount, with respect
to each such 1992 Plan Option, equal to the Total Additional Common
Stock Consideration multiplied by the number of shares of Class B
Common Stock into which such 1992 Plan Option was exercisable
immediately prior to the Effective Time;
(v) each Holder of Non-Plan Class A Options shall be paid an amount, with
respect to each such Non-Plan Class A Option, equal to the Total
Additional Common Stock Consideration multiplied by the number of
shares of Class A Common Stock into which such Non-Plan Class A Option
was exercisable immediately prior to the Effective Time; and
(vi) each Holder of Warrants shall be paid, with respect to each such
Warrant, an amount equal to the Total Additional Common Stock
Consideration multiplied by the number of shares of Class A Common
Stock into which such Warrant was exercisable immediately prior to the
Effective Time.
(b) Any payment made pursuant to this Section 2.9 shall be made net of
applicable withholding taxes to the extent such withholding is
required by law.
(c) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Computation Date" shall mean the day after the first anniversary of
the Closing Date and each anniversary thereof until the Final
Computation Date.
(ii) "Additional Merger Consideration" as of any Computation Date shall
mean (A) $2,500,000, less (B) any amounts of Additional Merger
Consideration theretofore deposited by Parent with the Paying Agent
pursuant to Section 2.9(a), less (C) any Claims Payments (as defined
in Section 8.2(c)) theretofore made out of the Escrow Fund (as defined
in Section 8.1) pursuant to Article VIII, less (D) the principal
balance of any Claims Reserves established by the Escrow Agent
pursuant to Article VIII that are then in existence (or which will be
established as a result of a Claim Notice upon the direction of the
Shareholder Representatives and Parent), plus (E) any Claims
Recoveries theretofore paid into the Escrow Fund or to the Paying
Agent pursuant to Article VIII.
(iii) "Final Computation Date" shall mean the earlier of (A) the date on
which Parent and the Shareholder Representatives (as defined in
Section 8.4) determine that no Additional Merger Consideration is due
by reason of Claims Payments, or (B) when the total deposits of
Additional Merger Consideration pursuant to Section 2.9(a) equal
$2,500,000. The parties acknowledge that the determination of the
Final Computation Date is an arbitrable matter under Section 9.10.
(d) On or promptly following each Computation Date, Parent shall submit to the
Shareholder Representatives a statement, signed by the Chief Financial Officer
of Parent, setting forth a computation of any Additional Merger Consideration
then payable. The Shareholder Representatives shall have the right to request
and receive from Parent reasonable backup documentation with respect to any such
computation. In the event the Shareholder Representatives dispute any such
computation and Parent and the Shareholder Representatives cannot resolve such
dispute, then the Shareholder Representatives may bring an action in arbitration
pursuant to Section 9.10 to seek an adjudication of the dispute.
(e) The parties hereto acknowledge that Section 2.9(a) presumes that no
Dissenting Shares exist. If Dissenting Shares in fact arise, computations will
be adjusted to effect the intention of the parties that the Additional Merger
Consideration is not payable in respect of Dissenting Shares (and that no Holder
is entitled to any part of the Additional Merger Consideration otherwise payable
in respect of Dissenting Shares).
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Subsidiary, as of
the date hereof, unless otherwise expressly stated, that the statements
contained in this Article III are true and correct and will be true and correct
as of the Closing Date (subject to Section 6.3(a)) except as set forth herein or
in the disclosure letter separately delivered by the Company to Parent and
Merger Subsidiary on or prior to the date hereof (the "Disclosure Schedule").
Section 3.1 Organization. (a) The Company and each of its Subsidiaries (as
hereinafter defined) is a corporation or other entity duly incorporated or
organized, as the case may be, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation or organization, has all requisite
corporate or other organizational power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted, and is
qualified or licensed to do business as a foreign corporation, or other entity,
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so organized, existing and in good standing or to have such
power and authority, or to be so qualified or licensed would not be reasonably
expected to have a Material Adverse Effect (as hereinafter defined). The Company
has previously delivered or made available to Parent a complete and correct copy
of each of its Amended and Restated Articles of Incorporation (the "Articles of
Incorporation") and Bylaws, as currently in effect. For purposes of this
Agreement, (i) "Subsidiary" shall mean with respect to any Person, any
corporation or other entity of which more than 50% of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
entity is directly or indirectly owned by such Person, and (ii) "Material
Adverse Effect" shall mean a material adverse effect on the business, assets,
results of operations or financial condition of (A) the Company and its
Subsidiaries taken as a whole, or (B) Rockwood Casualty Insurance Company
("Rockwood") and its Subsidiaries taken as a whole, or (C) Colony Insurance
Company and Preferred National Insurance Company (together, "Colony Insurance
Group") and their respective Subsidiaries taken as a whole, but excluding any
such effect resulting from (1) general economic or securities market conditions,
(2) any occurrence or condition affecting generally the insurance industries in
which the Company and its Subsidiaries operate, (3) the execution or
announcement of this Agreement or the transactions contemplated hereby or (4)
any acts taken with the consent or at the direction of Parent or Merger
Subsidiary.
(b) The Company conducts its insurance operations through the Subsidiaries
listed in Section 3.1(b) of the Disclosure Schedule (the "Company Insurance
Subsidiaries") which sets forth for each Company Insurance Subsidiary and for
any Subsidiary in which any Company Insurance Subsidiary has any direct or
indirect ownership interest: (1) its name and jurisdiction of organization; and
(2) each jurisdiction in which it is licensed, qualified or otherwise authorized
to conduct its business. Each of the Company Insurance Subsidiaries is (i) duly
licensed or authorized as an insurance company, reinsurer, insurance agency or
insurance brokerage in its jurisdiction of incorporation, (ii) duly licensed or
authorized as an insurance company, insurance agent or insurance broker and,
where applicable, a reinsurer, or is an eligible excess or surplus lines
insurer, in each other jurisdiction where it is required to be so licensed,
authorized or eligible, and (iii) duly authorized or eligible in its
jurisdiction of incorporation and each other applicable jurisdiction to write
each line of business reported as being written in the Company Annual Statements
and Quarterly Statements (as defined in Section 3.5(b)), except where the
failure to be so licensed, authorized or eligible, individually or in the
aggregate, would not be reasonably expected to have a Material Adverse Effect.
The Company has previously delivered or made available to Parent a complete and
correct copy of each of its Subsidiaries' articles of incorporation and bylaws,
as currently in effect. The Company has made all required filings under
applicable insurance holding company statutes except where the failure to file,
individually or in the aggregate, would not be reasonably expected to have a
Material Adverse Effect.
Section 3.2 Capitalization. The authorized capital stock of the Company and each
of its Subsidiaries is as set forth on Section 3.2 of the Disclosure Schedule.
All the issued and outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and non-assessable. Section 3.2 of the
Disclosure Schedule sets forth the name of each Person who owns beneficially or
of record any shares of capital stock and other equity interest of any Company
Subsidiary and, in the case of each Company Subsidiary, the number of shares
owned by each such Person. Except as set forth in Section 3.2 of the Disclosure
Schedule as of the date hereof, there are no existing (i) options, warrants,
calls, pre-emptive rights, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating the Company or
any of its Subsidiaries to issue, transfer or sell any shares of capital stock
or other equity interest in, the Company or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or equity interests,
(ii) contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any capital stock of the Company or any
Subsidiary of the Company or (iii) voting trusts or similar agreements to which
the Company is a party with respect to the voting of the capital stock or other
ownership interests of the Company or any of its Subsidiaries.
Section 3.3 Authorization; Validity of Agreement. The Company has the requisite
corporate power and authority to execute and deliver this Agreement and, subject
to approval of its shareholders as contemplated by Section 5.5 hereof, to
consummate the transactions contemplated hereby. The execution and delivery by
the Company of this Agreement and the consummation of the transactions
contemplated hereby have been duly approved and authorized by the Board and,
other than providing its shareholders with notice pursuant to Sections 55-7-05
and 55-13-20 of the NCBCA and the Company's Bylaws and approval and adoption of
this Agreement by its shareholders as contemplated by Section 5.6 hereof, no
other corporate proceedings on the part of the Company are necessary to approve
and authorize the execution and delivery of this Agreement by the Company and
the consummation by it of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery of this Agreement by Parent and Merger
Subsidiary, is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforcement may
be subject to or limited by (a) bankruptcy, insolvency or other similar laws,
now or hereafter in effect, affecting the rights of creditors of insurance
companies or the rights of creditors generally and (b) the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
Section 3.4 No Violations; Approvals. (a) Neither the execution and delivery of
this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will (i) violate any provision of the Articles
of Incorporation or Bylaws of the Company, (ii) except as set forth in Section
3.4(a) of the Disclosure Schedule, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, guarantee, other evidence of indebtedness, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
assets may be bound or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company, any of its Subsidiaries
or any of their properties or assets; except in the case of clauses (ii) or
(iii) for such violations, breaches or defaults which would not be reasonably
expected to have a Material Adverse Effect.
(b) No filing or registration with, notification to, or authorization, consent
or approval of, any court, legislative, executive or regulatory authority or
agency (each a "Governmental Entity") is legally required in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except (i) applicable
requirements under Competition Laws (as defined in Section 5.4(b)), (ii) the
filing of the Articles of Merger with the Secretary of State of the State of
North Carolina, (iii) filings with and approval of the Insurance Commissioners,
Directors or Superintendents, as the case may be, of the jurisdictions listed on
Section 3.4(b) of the Disclosure Schedule and (iv) such other consents,
approvals, orders, authorizations, notifications, registrations, declarations
and filings the failure of which to be obtained or made would not be reasonably
expected to have a Material Adverse Effect.
Section 3.5 Financial Statements. (a)The Company has previously made available
to Parent (a) audited consolidated financial statements of the Company and its
Subsidiaries for the years ended December 31, 1998, December 31, 1999 and
December 31, 2000 and (b) unaudited consolidated financial statements of the
Company and its Subsidiaries as of each fiscal quarter ending after December 31,
2000, as soon as practicable after its preparation (collectively, the "Company
Financial Documents"). The Company Financial Documents have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except as otherwise
noted therein and except that the quarterly financial statements are subject to
year-end adjustments and do not contain all footnote disclosures required by
GAAP) and fairly present in all material respects the consolidated financial
position and the consolidated statements of operations and cash flows of the
Company and its consolidated Subsidiaries as at the dates thereof or for the
periods presented therein.
(b) The Company has previously made available to Parent complete and correct
copies of the audited statutory financial statements and the annual statements
of each of the Company Insurance Subsidiaries as filed with the insurance
commissioner or other appropriate official for its respective jurisdiction of
incorporation for the years ended December 31, 1998, 1999 and 2000, together
with all exhibits and schedules thereto (the "Annual Statements"). The Company
has made available to Parent, and will make available to Parent as soon as
practicable after their preparation, with complete and correct copies of each
quarterly statement of each of the Company Insurance Subsidiaries as filed with
the insurance commissioner or other appropriate official for its respective
jurisdiction of incorporation for periods subsequent to December 31, 2000 and
all exhibits and schedules thereto (the "Quarterly Statements"). The Annual
Statements and the Quarterly Statements of the Company Insurance Subsidiaries
have been, or will be, as the case may be, prepared in accordance with Statutory
Accounting Practices ("SAP") throughout the periods involved and in accordance
with the books and records of the Company Insurance Subsidiaries, except as
expressly set forth or disclosed in the notes, exhibits or schedules thereto.
Each of the statutory financial statements contained in the Annual Statements
and the Quarterly Statements fairly presents, or will fairly present, as the
case may be, in all material respects the assets, liabilities and capital and
surplus, of the Company Insurance Subsidiaries, including all boards, bureau
fees and assessments accrued and/or paid, as of the dates thereof in accordance
with Statutory Accounting Practices, subject, in the case of the Quarterly
Statements, to normal year-end adjustments and any other adjustments described
therein.
(c) As of December 31, 2000, neither the Company nor any of the Company
Insurance Subsidiaries had any known material liability or obligation, whether
liquidated, unliquidated, accrued, absolute, fixed, contingent or otherwise, of
a nature required to be reflected on a statutory financial statement prepared in
accordance with SAP which is not fully and correctly reflected or reserved
against in accordance with SAP in the balance sheet forming a part of the Annual
Statement of the Company or of such Company Insurance Subsidiary for the year
ended December 31, 2000.
Section 3.6 Absence of Certain Changes. Except as disclosed in Section 3.6 of
the Disclosure Schedule, from December 31, 2000, (a) the Company and its
Subsidiaries have conducted their respective operations in the ordinary course,
(b) there has not been an event, condition or occurrence that would be
reasonably expected to constitute a Material Adverse Effect, (c) neither the
Company nor any of its Subsidiaries has taken action that if taken after the
date hereof would constitute a violation of Section 5.1 hereof, and (d) none of
the Company nor any of its Subsidiaries has:
(i) suffered any damage, destruction or loss to any of its physical assets
or properties (whether or not covered by insurance), the total amount
of which is or will be greater than $250,000;
(ii) sold, transferred, conveyed, assigned or otherwise disposed of any of
their physical assets or properties other than sales not greater than
$250,000 individually or in the aggregate;
(iii)waived, released, compromised or canceled material actions against
any third parties or any material debts owing to them other than in
the ordinary course of business;
(iv) made any changes in their accounting systems (GAAP or SAP), policies,
principles or practices, other than changes required by GAAP or SAP or
as a result of changes in GAAP or SAP or as required by changes in tax
laws or regulations;
(v) entered into, authorized or permitted any transaction with any
director, officer, or Affiliate other than transactions between the
Company and its Subsidiaries or among Subsidiaries;
(vi) authorized for issuance, issued, sold, delivered or agreed or
committed to issue, sell or deliver (whether through the issuance or
granting of options, warrants, convertible or exchangeable securities,
commitments, subscriptions, rights to purchase or otherwise) any
shares of their capital stock or equity interests or any other
securities, or amended any of the terms of any such securities, other
than as a result of exercises of options or warrants outstanding on
the date hereof and referred to in Section 2.3;
(vii)split, combined, or reclassified any shares of their capital stock or
equity interests, declared, set aside or paid any dividend or other
distribution (whether in cash, stock, or property or any combination
thereof) in respect of their capital stock or equity interests, or
redeemed or otherwise acquired any of their securities;
(viii) made any borrowing, incurred any indebtedness for borrowed money, or
assumed, guaranteed, endorsed or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other
Person, or made any payment or repayment in respect of any
indebtedness, individually or in the aggregate, in excess of $250,000;
(ix) made any loans, advances or capital contributions to, or investments
in, any Person which exceed $250,000 in the aggregate other than such
loans, advances, capital contributions or investments made in the
ordinary course of business;
(x) entered into any agreement, Contract, lease, or license (or series of
related agreements, Contracts, leases, and licenses), involving more
than $250,000, other than insurance policies and surety bonds entered
into in the ordinary course of business and other than as set forth in
Schedule 3.15 of the Disclosure Schedule;
(xi) accelerated, terminated, modified, or cancelled any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) to which the Company or any of its
Subsidiaries is a party or by which any of them is bound, requiring
aggregate payments of greater than $250,000, other than terminations,
modifications or cancellations of agency contracts in the ordinary
course of business of the Company and its Subsidiaries;
(xii)entered into, adopted, amended or terminated any bonus, profit
sharing, compensation, termination, stock option, stock appreciation
right, restricted stock, performance unit, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer, consultant or employee, or increased
the compensation or fringe benefits of any director, officer,
consultant or employee or paid any benefit not required or permitted
by any existing plan and arrangement, or entered into any contract,
agreement, commitment or arrangement to do any of the foregoing (other
than new hires and normal increases in the ordinary course of business
and fiscal year-end and discretionary bonuses consistent with past
practice or to reflect promotions);
(xiii) imposed any encumbrance on any assets, except for (A) deposits by an
Insurance Subsidiary with insurance authorities in a state in
connection with the writing of business by such Insurance Subsidiary,
and (B) such encumbrances on assets having an aggregate fair market
value below $250,000;
(xiv)made or authorized any change in the articles of incorporation or
bylaws (or comparable documents) of the Company or any of its
Subsidiaries;
(xv) initiated or been made a party to any lawsuits or proceedings (other
than in the ordinary course of business in the course of litigating
and settling claims) and other than lawsuits or proceedings not
material to the business or financial condition of the Company and its
Subsidiaries, taken as a whole;
(xvi)made any material change in the methodology used in the determination
of the reserve liability of the Company or any of its Subsidiaries;
(xvii) terminated, amended or entered into as a ceding or assuming insurer
any reinsurance, coinsurance or other similar agreement or any trust
agreement or security agreement relating thereto;
(xviii) introduced any new insurance product or made any material changes
in its customary marketing, pricing, underwriting, investing or
actuarial practices and policies;
(xix)cancelled any liability owed to the Company or any of its
Subsidiaries by any other Person or entity other than in the ordinary
course of business;
(xx) materially written-off or written-down, or made any determination to
materially write-off or write-down, any material assets or properties
(other than any statutory write-down of investment assets which is not
related to a permanent impairment of value and other than in the
ordinary course of business and consistent with past practice and
GAAP) of the Company or any of its Subsidiaries or any portion
thereof;
(xxi)made expenditures or commitments for additions to property, plant,
equipment, or other tangible or intangible capital assets or
properties of the Company or any of its Subsidiaries in excess of
$150,000 in the aggregate unless contemplated in the capital budget of
the Company and its Subsidiaries for fiscal year 2001 as disclosed to
Parent;
(xxii) made any material change in any marketing relationship between any
Company Insurance Subsidiary and any Person or entity through which
any Subsidiary sells Insurance Contracts which is material to the
Company, Colony Insurance Group or Rockwood; or
(xxiii) committed to any of the foregoing.
Section 3.7 Absence of Undisclosed Liabilities. Except as disclosed in the
Company Financial Documents, including as reflected or reserved against in the
balance sheet of the Company for the year ended December 31, 2000 (the "Balance
Sheet") or in the notes thereto and except for liabilities in respect of
litigation as disclosed in Section 3.9 of the Disclosure Schedule, neither the
Company nor any of its Subsidiaries had as of that date any liabilities which
were required to be set forth in the Balance Sheet or the notes thereto in
accordance with GAAP. Except as disclosed in the Company Financial Documents or
as disclosed in Section 3.7 of the Disclosure Schedule, since the date of the
Balance Sheet, the Company has not incurred any material liabilities that would
be required to be reflected or reserved against in a consolidated balance sheet
of the Company and its Subsidiaries prepared in accordance with GAAP, except for
such liabilities as were incurred in the ordinary course of business,
liabilities resulting from the execution and delivery of this Agreement or
relating to the transactions contemplated hereby and liabilities in respect of
litigation as disclosed in Section 3.9 of the Disclosure Schedule and
liabilities under Environmental Laws as disclosed in Section 3.13 of the
Disclosure Schedule.
Section 3.8 Employee Benefit Plans; ERISA. (a)Except as set forth in Section
3.8(a) of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries nor any of their respective ERISA Affiliates (hereinafter defined)
maintains, is a party to, participates in, or has any liability, or contingent
liability with respect to:
(i) any "employee welfare benefit plan" or "employee pension benefit plan"
(as those terms are defined in Sections 3(1) and 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
(ii) any retirement or deferred compensation plan, incentive compensation
plan, stock plan, unemployment compensation plan, vacation plan,
vacation pay plan, severance pay, bonus or benefit arrangement,
insurance or hospitalization program or any other fringe benefit
arrangements for any current or former employee, director, consultant
or agent, whether pursuant to contract, arrangement, custom or
informal understanding, which does not constitute an employee benefit
plan (as defined in Section 3(3) of ERISA); or
(iii) any employment agreement or consulting agreement.
An "ERISA Affiliate" means each corporation, trade or business (whether or not
incorporated) that, together with the Company or any of its Subsidiaries, would
be treated as a single employer under Section 414(b), (c), (m) or (o) of the
Code. The "Code" means the Internal Revenue Code of 1986, as amended.
(b) Section 3.8(b) of the Disclosure Schedule sets forth all agreements relating
to each employee benefit plan or arrangement described in Section 3.8(a)(i) and
(ii) (each, an "Employee Benefit Plan") and each employment agreement or
consulting agreement described in Section 3.8(a)(iii) (each, an "Employee
Agreement"), including all trust agreements, insurance contracts, administration
contracts, investment management agreements, subscription and participation
agreements, and recordkeeping agreements, and each as in effect on the date
hereof. A true, accurate and complete copy of each such plan and related
agreement has been provided or made available to Parent. In the case of any
Employee Benefit Plan which is not in written form, Parent has been provided or
made available an accurate description of such Employee Benefit Plan as in
effect on the date hereof. A copy of each U.S. Internal Revenue Service ("IRS")
or U.S. Department of Labor ("DOL") audit on any Employee Benefit Plan during
the last three years, and a true and correct copy of the most recent annual
report, actuarial report, accountant's opinion of the plan's financial
statements, summary plan description and IRS determination letter with respect
to each Employee Benefit Plan, to the extent applicable, and there have been no
material changes in the financial condition in the respective plans from that
stated in the annual reports and actuarial reports provided. Except as set forth
in Section 3.8(b) of the Disclosure Schedule, with respect to each such IRS or
DOL audit of an Employee Benefit Plan, all audit issues have been fully
resolved, as of the date hereof, to the satisfaction of the IRS or DOL, as
applicable.
(c) As to all Employee Benefit Plans:
(i) All Employee Benefit Plans comply and have been administered in form
and in operation in all material respects in accordance with their
terms and with all applicable requirements of law (including, in the
case of any Employee Benefit Plan which is an employee pension benefit
plan, the requirements of Sections 401(a) and 501(a) of the Code), and
no event has occurred which will or could cause any such Employee
Benefit Plan to fail to comply with such requirements and no written
notice has been issued by any Governmental Entity challenging such
compliance.
(ii) Each Employee Benefit Plan which is an employee pension benefit plan
is the subject of a favorable determination letter issued by the IRS
with respect to the qualified status of such plan under Section 401(a)
of the Code and the tax-exempt status of any trust which forms a part
of such plan under Section 501(a) of the Code; all amendments to any
such plan for which the remedial amendment period (within the meaning
of Section 401(b) of the Code and applicable regulations) has expired
are covered by a favorable IRS determination letter; and no event has
occurred since the date of such determination that would materially
and adversely affect such qualification.
(iii)None of the assets of any Employee Benefit Plan are invested in
employer securities or employer real property.
(iv) There have been no "prohibited transactions" (as described in Section
406 of ERISA or Section 4975 of the Code) with respect to any Employee
Benefit Plan and neither the Company nor any of its Subsidiaries has
engaged in any prohibited transaction.
(v) There have been no acts or omissions by either the Company nor any of
its Subsidiaries nor any of their respective ERISA Affiliates which
have given rise to or may give rise to fines, penalties, taxes or
related charges under Section 502 of ERISA or Chapters 43, 47 or 68 of
the Code for which the Company or any of its Subsidiaries may be
liable.
(vi) There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Company, threatened
involving any Employee Benefit Plan or the assets thereof and no facts
exist which could give rise to any such actions, suits or claims
(other than routine claims for benefits).
(vii)No Employee Benefit Plan is subject to Title IV of ERISA and no
Employee Benefit Plan is a multiemployer plan (within the meaning of
Section 3(37) of ERISA).
(viii) Each Employee Benefit Plan which constitutes a "group health plan"
(as defined in Section 607(i) of ERISA or Section 4980B(g)(2) of the
Code), including any plans of current and former affiliates which must
be taken into account under Sections 4980B and 414(t) of the Code or
Sections 601-608 of ERISA, have been operated in compliance with
applicable Law, including continuation coverage requirements of
Section 4980B of the Code and Section 601 of ERISA and the portability
and nondiscrimination requirements of Sections 9801 and 9802 of the
Code and Sections 701-707 of ERISA, to the extent such requirements
are applicable.
(ix) Except as set forth in Section 3.8(c) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any liability or
contingent liability for providing, under any Employee Benefit Plan or
otherwise, any postretirement medical or life insurance benefits,
other than statutory liability for providing group health plan
continuation coverage under Part 6 of Title I of ERISA and Section
4980B of the Code.
(x) There has been no act or omission that would impair the ability of the
Company or any of its Subsidiaries (or any successor thereto) to
unilaterally amend or terminate any Employee Benefit Plan.
(d) Except as set forth in Section 3.8(d) of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any employee of the Company or its Subsidiaries to severance pay; (ii)
accelerate the time of payment or vesting of, or increase the amount of,
compensation due to any employee of the Company or its Subsidiaries; or (iii)
result in the payment to any employee of the Company or its Subsidiaries of an
amount that will be an "excess parachute payment" (within the meaning of Section
280G(b)(1) of the Code).
Section 3.9 Litigation; Compliance with Law. (a) Except as disclosed in Section
3.9(a) of the Disclosure Schedule and except for claims under Environmental Laws
(which are the subject of Section 3.13), there is no suit, claim, action,
proceeding or investigation pending or, to the actual knowledge of the Company,
threatened against the Company or any of its Subsidiaries which would reasonably
be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 3.9(b) of the Disclosure Schedule and except
for Environmental Laws (which are the subject of Section 3.13), the Company and
its Subsidiaries are operating in substantial compliance with all laws,
statutes, regulations, judgments, decrees, orders or injunctions of any
Governmental Entity, which are material to the Company and the Subsidiaries and
in substantial compliance with all applicable Insurance Laws (as hereinafter
defined). For purposes of this Agreement, "Insurance Laws" shall mean laws,
statutes, ordinances, regulations, rules, policies, guidelines, orders or
directives of any Governmental Entity applicable to the business and products of
insurance.
(c) The Insurance Subsidiaries hold all licenses and approvals necessary for the
lawful conduct of their insurance business ("Insurance Approvals"). The Company
and its Subsidiaries hold all other licenses, permits, variances and approvals
of Governmental Entities necessary for the lawful conduct of their respective
businesses as currently conducted except for licenses, permits, variances or
approvals under Environmental Laws (which are the subject of Section 3.13) and
except where the failure to hold such other licenses, permits, variances or
approvals would not be reasonably expected to have a Material Adverse Effect.
The consummation of the transactions contemplated by this Agreement will not
result in any revocation, cancellation, limitation or suspension of any such
Insurance Approval or any such other approval, certificate, filing, notice,
right, permit, license or franchise which revocation, cancellation, limitation
or suspension would be reasonably likely to have a Material Adverse Effect.
(d) Except as set forth in Section 3.9(d) of the Disclosure Schedule, and except
for normal examinations conducted by any Governmental Entity in the regular
course of the business of the Company and its Subsidiaries, during the last five
years, or in the case of each Subsidiary, such shorter period of time that the
Company has owned or controlled such Subsidiary, to the knowledge of the Company
no Governmental Authority has initiated any proceeding with respect to, or
investigation into the business or operations of, the Company or any of its
Subsidiaries.
Section 3.10 Intellectual Property. (a) Section 3.10(a) of the Disclosure
Schedule sets forth a list of all patents, trademarks and service marks
registered with the U.S. Patent and Trademark Office and owned by the Company or
any of its Subsidiaries, and all Internet domain names registered by the Company
or any of its Subsidiaries.
(b) To the knowledge of the Company, except as disclosed in Section 3.10(b) of
the Disclosure Schedule, the conduct of the business of the Company and its
Subsidiaries as currently conducted does not infringe upon any trademarks, trade
names, copyrights, service marks or trade secrets (collectively, "Intellectual
Property") of any third party except where such infringement would not be
reasonably expected to have a Material Adverse Effect.
(c) Except as set forth in Section 3.10(c) of the Disclosure Schedule, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in the loss of, or any
encumbrance on, the rights of the Company or any Subsidiary with respect to the
Intellectual Property owned or used by them. Except as set forth in Section
3.10(c) of the Disclosure Schedule, no claim by any third party contesting the
validity, enforceability, use or ownership of any of the Intellectual Property
has been made, is currently outstanding or, to the knowledge of the Company, has
been threatened, and to the knowledge of the Company, there are no grounds for
the same. Except as set forth in Section 3.10(c) of the Disclosure Schedule, the
loss or expiration of any Intellectual Property rights would not reasonably be
expected to result in a Material Adverse Effect, and no such loss or expiration
is threatened, pending or reasonably foreseeable.
Section 3.11 Computer Systems. Except as set forth in Section 3.11 of the
Disclosure Schedule, all computer hardware and software and related materials
used by the Company or any of its Subsidiaries and necessary for the conduct of
the Company's and its Subsidiaries' business as currently conducted,
(collectively referred to as the "Computer System") are in good working order
and condition (ordinary wear and tear excepted), and neither the Company nor any
of its Subsidiaries has experienced any significant defects in design,
workmanship or material, and the Computer System has the performance
capabilities, characteristics and functions necessary to conduct the business as
presently conducted. The use of the Computer System (including any software
modifications) (i) has not violated or infringed upon, and will not violate or
infringe upon, the rights of any third parties and (ii) has not resulted, and to
the knowledge of the Company, will not result, in the termination of (A) any
maintenance, service or support agreement relating to any part of the Computer
System or any reduction in the services provided to the Company or any of its
Subsidiaries with respect to the business of the Company or its Subsidiaries,
(B) warranties available to the Company or any of its Subsidiaries with respect
to the business of the Company or its Subsidiaries, or (C) rights of the Company
or any of its Subsidiaries with respect to the use of such Computer System. The
Company and each of its Subsidiaries has adequate user and service documentation
for the Computer System. After the closing of the transactions contemplated
hereunder, to the knowledge of the Company, each of the Company and its
Subsidiaries will be able to fully utilize the Computer System on an ongoing
basis without any modifications thereto. Except as set forth in Section 3.11 of
the Disclosure Schedule, the century change is supported in the Computer
System's logic and data and, as of the date hereof, the Computer System has had
no problems processing data related to dates following December 31, 1999.
Section 3.12 Taxes. (a) The amount provided on the Company Financial Documents
for all Taxes are adequate to cover all unpaid liabilities for Taxes, whether or
not disputed, that have accrued with respect to or are applicable to the period
ended on and including the Closing Date or to any years and periods prior
thereto and for which the Company and each of its Subsidiaries may be directly
or contingently liable in its own right or as a transferee of the assets of, or
successor to, any person. There are no tax liens (other than liens for current
Taxes not yet due and payable) upon the properties or assets of the Company or
any of its Subsidiaries. "Taxes" means all taxes, charges, fees, duties, levies
or other assessments, including, without limitation, income, gross receipts, net
proceeds, premium (including, without limitation, excess and surplus tax), ad
valorem, turnover, real and personal property (tangible and intangible), sales,
use, franchise, excise, value added, stamp, leasing, lease, user, transfer,
fuel, excess profits, occupational, interest equalization, windfall profits,
severance and employees' income withholding, unemployment and Social Security
taxes, which are imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof, including any interest, penalties
or additions to tax related thereto.
(b) Except as set forth in Section 3.12(b) of the Disclosure Schedule, the
Company and each of its Subsidiaries, as appropriate, has: (i) timely filed
(taking in account all valid extensions), or caused to be filed, all material
Tax Returns of whatever nature required to be filed by the Company or any of its
Subsidiaries as of the date of this Agreement in any jurisdiction to which the
Company or its Subsidiaries is subject, and (ii) timely paid in full all Taxes
shown on the Tax Returns or provided adequate reserves therefor. Each such Tax
Return is true and correct in all material respects, and neither the Company nor
any of its Subsidiaries will have any material additional liability with respect
thereto. "Tax Return" means all federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amended tax returns relating to Taxes of the Company or any of its
Subsidiaries.
(c) The Company has delivered to or made available for review by Parent complete
and correct copies of Tax Returns of the Company and all direct or indirect
Subsidiaries of the Company filed for the taxable years ended December 31, 1996
through the date of this Agreement inclusive.
(d) Except as set forth in Section 3.12(d) of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries has granted or has been requested to
grant any unexpired waiver or extension of any statute of limitations in
connection with or in respect of the examination of any Tax Return filed by, or
with respect to, the Company or any of its Subsidiaries.
(e) Except as set forth in Section 3.12(e) of the Disclosure Schedule, no Tax
Return is presently undergoing an audit or examination by the IRS or any other
taxing authority, and the Company is not aware of any proposed or contemplated
commencement of any such audit or examination; there are no proceedings or
actions pending for the assessment, or collection of additional Taxes; and there
are no material outstanding deficiencies asserted by any taxing authority.
(f) The Company has disclosed the contents of, or made available to Parent
copies of, all IRS revenue agent's reports and other written assertions of
deficiencies or other liabilities for Taxes of the Company or any of its
Subsidiaries received by the Company or any of its Subsidiaries from any taxing
authority with respect to past periods for which the applicable statute of
limitations has not expired.
(g) Except as set forth in Section 3.12(g) of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries has received a Tax Ruling or entered
into a Tax Closing Agreement with any taxing authority (foreign or domestic)
that would affect the Company or such Subsidiary after the Closing Date. For
purposes of the preceding sentence, the term "Tax Ruling" shall mean written
rulings of a taxing authority relating to Taxes, and the term "Tax Closing
Agreement" shall mean a written and legally binding agreement with a taxing
authority relating to Taxes.
(h) Each of the Company and each of its Subsidiaries has complied with all
applicable Laws relating to the withholding of Taxes and have timely collected
or withheld and paid over to the proper taxing authority all amounts required to
be so collected or withheld for all periods up to (but not including) the
Closing Date.
(i) Except as set forth in Section 3.12(i) of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries is or will be required to make any
material adjustment under Section 481(a) of the Code by reason of a change or
proposed change in accounting method or otherwise.
(j) The Company and each of the Subsidiaries set forth in Section 3.12(j) of the
Disclosure Schedule is properly treated as an "insurance company" as defined for
purposes of Sections 801 and 848 of the Code, and has qualified for such
treatment for each taxable year of its existence.
(k) Neither the Company nor any of its Subsidiaries is or has been a "United
States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(l) Except as set forth in Section 3.12(l) of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries is subject to any joint venture,
partnership or other arrangement or contract which is treated as a partnership
for federal income tax purposes.
(m) None of the assets of the Company nor any of its Subsidiaries constitute
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the Code, and none of the assets reflected on the Balance
Sheet is subject to a lease, safe harbor lease or other arrangement as a result
of which any Company or any of its Subsidiaries is not treated as the owner for
federal income tax purposes.
Section 3.13 Environmental Matters. Except as to actions, suits, claims, or
proceedings arising out of, or based on Insurance Contracts (as hereinafter
defined), and except as disclosed in Section 3.13 of the Disclosure Schedule, to
the knowledge of the Company: (a) the Company and its Subsidiaries are in
compliance with all applicable Environmental Laws (as hereinafter defined); (b)
there has been no release of Hazardous Substances (as hereinafter defined) at,
on, or under the properties currently owned or operated by the Company and its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures); (c) there was no release of Hazardous Substances at, on or under
the properties formerly owned or operated by the Company or any of its
Subsidiaries during the period of ownership or operation by the Company or any
of its Subsidiaries; (d) the Company has not received written notice that either
the Company or its Subsidiaries is liable for any Hazardous Substance disposal
or contamination on any third party property; (e) neither the Company nor any of
its Subsidiaries has received any written notice, demand, letter, claim or
request for information alleging that the Company or any of its Subsidiaries may
be in violation of or liable under any Environmental Law; (f) neither the
Company nor any of its Subsidiaries is subject to any orders, decrees, or
injunctions of any Governmental Entity or has received written notice of
liability pursuant to any indemnity or agreement with any third party relating
to liability under any Environmental Law; and (g) there are no circumstances or
conditions involving the Company or any of its Subsidiaries that are reasonably
likely to result in any claims, liability, investigations, costs or restrictions
on the ownership, use or transfer of any property of the Company pursuant to any
Environmental Law. For purposes of this Agreement: (i) "Environmental Law" shall
mean any federal, state, local or foreign law, regulation, order, decree,
permit, authorization, common law or agency requirement relating to: (1) the
protection, investigation or restoration of the environment, health and safety,
or natural resources, (2) the disposal, release or threatened release of any
Hazardous Substance or (3) noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to Persons or property as the result of exposure
to Hazardous Substances; (ii) "Hazardous Substance" shall mean any substance
that is: (1) listed, classified or regulated as hazardous pursuant to any
Environmental Law; (2) any petroleum product or by-product, asbestos-containing
material, lead containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (3) any other substance which is regulated as
a pollutant, contaminant or as hazardous, toxic or dangerous by any Governmental
Entity pursuant to any Environmental Law and (iii) "Insurance Contracts" means
all contracts, treaties, policies or other written arrangements to which any of
the Company Insurance Subsidiaries is a party or by or to which any of them is
bound or subject providing for insurance, ceding or assumptions of reinsurance,
excess insurance or retrocessions, including, without limitation, all insurance
policies, reinsurance policies, and retrocession agreements, in each case as
such contract, treaty, policy or other written arrangement may have been
amended, modified or supplemented.
Section 3.14 Labor Matters. (a) Except as set forth in Section 3.14(a) of the
Disclosure Schedule, the Company and its Subsidiaries are not a party to any
labor or collective bargaining agreement, and no employees of the Company or any
of its Subsidiaries are represented by any labor organization.
(b) Except as set forth in Section 3.14(b) of the Disclosure Schedule: (i) to
the knowledge of the Company, there are no strikes, work stoppages, slowdowns,
lockouts, arbitrations or grievances or other labor disputes pending or
threatened in writing against or involving the Company or any of its
Subsidiaries that would be reasonably expected to have a Material Adverse
Effect; (ii) within the three years prior to the date hereof, there have been no
representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the knowledge of the Company,
threatened in writing to be brought or filed with the National Labor Relations
Board or any other labor relations tribunal or authority; and (iii) within the
three years prior to the date hereof, to the knowledge of the Company, there
have been no organizing activities involving the Company and its Subsidiaries
with respect to any group of employees of the Company or any of its
Subsidiaries.
(c) Within the six months prior to date hereof, there has been no "mass layoff"
or "plant closing" as defined by the Worker Adjustment Retraining and
Notification Act of 1988 with respect to the Company and its Subsidiaries.
Section 3.15 Material Contracts. Except as set forth in Section 3.15 of the
Disclosure Schedule, there are no Contracts that involve aggregate payments in
excess of $250,000 per annum and that are material to the business, financial
position or results of operations of the Company (such Contracts, the "Material
Contracts"). For purposes of this Agreement, "Contract" shall mean any written
agreement, contract, lease, note, loan, evidence of indebtedness, letter of
credit, franchise agreement, undertaking, covenant not to compete, employment
agreement, license, instrument, obligation, commitment, purchase and sales
order, quotation and other executory commitment, which pursuant to its terms has
not expired, terminated or been fully performed by the parties thereto. Section
3.15 of the Disclosure Schedule sets forth a true, accurate and complete list of
all Material Contracts together with the following types (without regard to
payment levels) to which the Company or any of its Subsidiaries is a party or by
which the Company or any such Subsidiary is bound:
(a) all leases or subleases of real property used in the business of the
Company or any of its Subsidiaries;
(b) all leases of automobiles used in the business of the Company or any of
its Subsidiaries;
(c) all reinsurance (whether as assuming or ceding insurer or otherwise),
coinsurance or other similar Contracts;
(d) any Contract involving an investment by the Company or any of its
Subsidiaries in any partnership, limited liability company or
joint-venture, other than such investments made in the ordinary course
of business;
(e) any Contract involving noncompetition or any other restriction with
respect to the geographical area of operations or scope or type of
business of the Company or any of its Subsidiaries;
(f) any Contract pursuant to which the Company or any of its Subsidiaries
grants or is granted any license or other rights to use any of the
assets of the Company or any of its Subsidiaries or any rights of joint
use with respect to any of such assets; and
(g) any Contract relating to any acquisition or disposition of any capital
stock or equity interest of the Company or any of its Subsidiaries.
To the extent that a Material Contract or any other Contract set forth in
Section 3.15 of the Disclosure Schedule (together, the "Disclosed Contracts")
are evidenced by documents, copies thereof (including any amendments or waivers
with respect thereto) have been made available to the Parent. To the extent that
the Disclosed Contracts are not evidenced by documents, the Company has provided
to the Parent a written description of all of the material terms and conditions
of such Disclosed Contracts. Each Material Contract is in full force and effect
and is enforceable against the Company or the applicable Subsidiary a party
thereto in accordance with its terms, except where the failure to be in full
force and effect or to be enforceable would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. There does
not exist under any Material Contract any default or condition or event that,
after notice or lapse of time or both, would constitute a default on the part of
the Company or any Subsidiary or, to the knowledge of the Company, on the part
of any other parties to such Material Contract, except for such defaults which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. The execution , delivery and performance by the Company
of this Agreement and the consummation of the transactions contemplated hereby
and thereby, do not and will not conflict with, or result in the breach or
termination of any provision of, or constitute a default (with or without the
giving of notice or the lapse of time, or both) under, or give rise to any right
of termination, cancellation or loss of any benefit to which the Company or any
Subsidiary is entitled under any provision of a Material Contract except as set
forth in Schedule 3.4(a) of the Disclosure Schedule.
Section 3.16 Reserves. (a) The reserves established or reflected on the Annual
Statements of each Company Insurance Subsidiary for the years ended December 31,
1999 and 2000 for unearned premiums, losses, loss adjustment expenses, claims
and similar purposes (including claims litigation) are in compliance in all
material respects with the requirements for reserves established by the
insurance departments of the jurisdiction of domicile of such Company Insurance
Subsidiary, were determined in all material respects in accordance with
published actuarial standards of practice and principles consistently applied,
and are fairly stated in all material respects in accordance with accepted
actuarial and statutory accounting principles. The admitted assets of the
Company and each Company Insurance Subsidiary as determined under applicable
laws are in an amount at least equal to the minimum amounts required by
applicable laws. Nothing in this Section 3.16 shall constitute a guarantee
against adverse loss development.
(b) Except for regular periodic assessments in the ordinary course of business
or assessments based on developments which are publicly known within the
insurance industry, to the knowledge of the Company, no claim or assessment is
pending or threatened against any Company Insurance Subsidiary by (i) any state
insurance guaranty associations in connection with such association's fund
relating to insolvent insurers or (ii) any assigned risk plan or other
involuntary market plan which if determined adversely would, individually or in
the aggregate, be reasonably likely to result in a cost to the Company or any of
its Subsidiaries of an amount in excess of $500,000.
Section 3.17 Insurance Matters. (a) To the extent required under applicable law,
all Insurance Contracts, including all applications, supplements, endorsements,
riders and ancillary agreements in connection therewith, that are issued by the
Company Insurance Subsidiaries and any and all marketing materials, comply in
all material respects with the insurance statutes, regulations and rules
applicable thereto.
(b) Except as set forth in Section 3.17(b) of the Disclosure Schedule, neither
the Company nor any Company Insurance Subsidiary, nor, to the knowledge of the
Company, any other party to a reinsurance or coinsurance treaty or agreement to
which the Company or any Company Insurance Subsidiary is a party, is in default
in any material respect as to any provision thereof, and no such agreement
contains any provision providing that the other party thereto may terminate such
agreement by reason of the transactions contemplated by this Agreement except
for such treaties or agreements the default under or termination of which as
would not, individually or in the aggregate, be reasonably expected to result in
a cost to the Company or any of its Subsidiaries of an amount in excess of
$500,000. Except as set forth in Section 3.17(b) of the Disclosure Schedule, the
Company has not received any notice to the effect that the financial condition
of any other party to any such agreement is impaired with the result that a
default thereunder may reasonably be anticipated, whether or not such default
may be cured by the operation of any offset clause in such agreement.
Section 3.18 Related Party Transactions. Except as set forth in Section 3.8 or
Section 3.18 of the Disclosure Schedule, no director, officer, "affiliate" or
"associate" (as such terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of the Company or any of
its Subsidiaries (each a "Related Party") (i) has outstanding any indebtedness,
liabilities or other similar obligations to the Company or any of its
Subsidiaries other than indebtedness to any individual in excess of $10,000 in
connection with expense advances and similar arrangements, (ii) to the knowledge
of the Company, owns any direct or indirect interest of any kind in (excepting
less than 1% stock holdings in securities of publicly traded companies), or is a
director, officer, employee, partner, affiliate or associate of, or consultant
or lender to, or borrower from, or has the right to participate in the
management, operations or profits of, any Person which is (A) a competitor,
supplier, customer, distributor, lessor, tenant, creditor or debtor of the
Company or any of its Subsidiaries, (B) engaged in a business related to the
business of the Company or any of its Subsidiaries, or (C) participated in any
transaction to which the Company or any of its Subsidiaries is a party; or (iii)
is otherwise a party to any contract, arrangement or understanding with the
Company or any of its Subsidiaries.
Section 3.19 Obligations to Former Owners. Section 3.19 of the Disclosure
Schedule sets forth a true, accurate and complete list of each obligation (as of
the date hereof) of the Company or any of its Subsidiaries to any former owner
of any of the Subsidiaries (or any Affiliate of any former owner) arising out of
the acquisition by the Company of such Subsidiary.
Section 3.20 Guarantees. Except as set forth in Section 3.20 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a guarantor or
otherwise is liable for any liability or obligation (including indebtedness) of
any Person other than the Company or another Subsidiary.
Section 3.21 Bank Accounts. Section 3.21 of the Disclosure Schedule sets forth a
true, accurate and complete list of the names and locations of each bank or
other financial institution at which the Company or any of its Subsidiaries has
an account (giving the account numbers) or safe deposit box and the names of all
Persons authorized to draw thereon or have access thereto, and the names of all
persons, if any, now holding powers of attorney or comparable delegation or
authority from the Company or such Subsidiary and a summary statement thereof.
Section 3.22 Other Agreements. Neither the Company nor any of its Subsidiaries
or Affiliates is a party to any contract, arrangement, agreement or
understanding providing for the sale or other disposition of any material assets
of the Company or any of its Subsidiaries or for the sale or disposition of any
Company Common Stock or Company Preferred Stock other than (a) this Agreement
and the transactions contemplated hereby, (b) transactions involving the
purchase and sale of investment assets entered into in the ordinary course of
business, or (c) outstanding options, warrants and convertible preferred stock
referred to in Article II.
Section 3.23 Powers of Attorney. Except as set forth in Section 3.23 of the
Disclosure Schedule, there are no outstanding powers of attorney executed by or
on behalf of the Company or any of its Subsidiaries.
Section 3.24 Investment Company Act; Investment Advisers Act. (a) Neither the
Company nor any of its Subsidiaries is an "investment company" nor is either of
the Company or any of its Subsidiaries directly or indirectly controlled by or
acting on behalf of any Person which is an "investment company," as defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act").
(b) Neither the Company nor any of its Subsidiaries is an "investment adviser"
nor is either the Company or any of its Subsidiaries directly or indirectly
controlled by or acting on behalf of any Person which is an "investment
adviser," as defined in the Investment Company Act.
Section 3.25 Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by the requisite vote of those directors
present (i) determined that this Agreement and the transactions contemplated
hereby are fair to and in the best interests of the shareholders of the Company
and has approved the same, (ii) resolved to recommend, subject to the board's
fiduciary duties, that the holders of the shares of Company Common Stock approve
this Agreement and the transactions contemplated herein and (iii) resolved to
call a special meeting of the shareholders of the Company to approve the Merger.
Section 3.26 Required Vote by Company Shareholders. The affirmative vote of the
holders of two-thirds of the outstanding shares of Class A Common Stock, Class B
Common Stock and Class C Common Stock, voting together as a single class, are
the only votes of any class of capital stock of the Company required by the
NCBCA, the Articles of Incorporation or the Bylaws of the Company to adopt and
approve this Agreement, the Merger and the other transactions contemplated
hereby.
Section 3.27 Brokers. Except for Bear, ▇▇▇▇▇▇▇ & Co. Inc. ("Bear ▇▇▇▇▇▇▇") and
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, Inc. ("KBW"), no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company is solely responsible for the
fees and expenses of Bear ▇▇▇▇▇▇▇ and KBW. Section 3.27 of the Disclosure
Schedule sets forth an estimate of all expenses to be incurred by the Company in
connection with the consummation of the transactions contemplated in this
Agreement.
Section 3.28 Insurance Ratings. As of the date hereof, the Company has no reason
to believe that any rating presently held by the Company or any of its Insurance
Subsidiaries is likely to be modified, qualified, lowered or placed under
surveillance for a possible downgrade for any reason other than as a result of
the transactions contemplated hereby.
Section 3.29 Insurance Policies. Section 3.29 of the Disclosure Schedule sets
forth a true, accurate and complete list of all policies of fire, liability,
life, and employee health, environmental, worker's compensation and other forms
of insurance currently held and maintained by the Company and each of its
Subsidiaries (other than those disclosed pursuant to Disclosure Schedule
3.8(b)), specifying the insurer, the amount of coverage and the type of
insurance under each such policy. None of such policies is in default. Each of
such policies is in full force and effect and all premium payments are current
or accruals therefor provided. No written notice of cancellation or termination
has been received by the Company or such Subsidiary with respect to any such
policy. Coverage for the Company and their Subsidiaries under all such policies
will not expire prior to the Closing Date and will not terminate as a result of
the transactions contemplated hereby. Such policies are sufficient for
compliance with all applicable laws, where necessary. Except as set forth in
Section 3.29 of the Disclosure Schedule, and except with respect to reinsurance
treaties, neither the Company nor any of its Subsidiaries during the last five
years, or in the case of each Subsidiary, such shorter period of time that the
Company has owned and controlled such Subsidiary, (i) has been refused any
insurance with respect to its assets or operations, nor has any such coverage
been restricted to less than the requested scope or amount by the relevant
carrier, or (ii) has filed any bonding claims against the issuers of the
policies set forth in Section 3.29 of the Disclosure Schedule. A copy of each
such policy has been delivered or made available to Parent.
Section 3.30 Sufficiency of Assets. Except as set forth in Section 3.30 of the
Disclosure Schedule, (1) the personal, real, intellectual and other assets
(including, without limitation, rights under any Contracts to which a Subsidiary
is a party) that are owned, leased or licensed by any Subsidiary constitute all
of the properties, assets and rights necessary to operate the business of the
Company in all material respects as currently conducted; and (2) the business of
the Company is currently conducted in all respects through the Subsidiaries.
Section 3.31 Accuracy of Statements. This Agreement, the Disclosure Schedule,
the documents, schedules, disclosures and statements made by or on behalf of the
Company to Parent in connection with the consummation of the Merger, taken as a
whole, do not contain any untrue statement of a material fact with respect to
the Company and the Subsidiaries or omit to state a material fact necessary to
make the statements regarding the Company and the Subsidiaries, in light of the
circumstances in which they are made, not misleading.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary, jointly and severally, represent and warrant to
the Company that the statements contained in this Article IV are true and
correct.
Section 4.1 Organization. Argonaut Insurance Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, Argonaut Midwest Insurance Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Illinois, and Merger Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of North Carolina.
Since the date of its incorporation, Merger Subsidiary has not engaged in any
activities other than in connection with or as contemplated by this Agreement.
Each of Parent and Merger Subsidiary has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and is qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so organized, existing and in good standing or to
have such power and authority, or to be so qualified or licensed would not be
reasonably expected to have a material adverse effect on the business, assets,
results of operations or financial condition of Parent and its Subsidiaries,
taken as a whole, or materially impair or delay the consummation of the
transactions contemplated by this Agreement. Argonaut Insurance Company and
Argonaut Midwest Insurance Company have previously delivered or made available
to the Company complete and correct copies of their respective articles of
incorporation and bylaws or correlative documents and the articles of
incorporation and bylaws of Merger Subsidiary, in each case as currently in
effect.
Section 4.2 Authorization; Validity of Agreement. Each of Parent and Merger
Subsidiary has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery by each of Parent and Merger Subsidiary of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the respective Boards of Directors of Parent and Merger
Subsidiary, and by Argonaut Insurance Company and Argonaut Midwest Insurance
Company as the only shareholders of Merger Subsidiary and no other corporate
proceedings on the part of Parent or Merger Subsidiary are necessary to
authorize the execution and delivery of this Agreement by Parent and Merger
Subsidiary and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of Parent and Merger
Subsidiary and, assuming due authorization, execution and delivery of this
Agreement by the Company, is a valid and binding obligation of each of Parent
and Merger Subsidiary, enforceable against each of them in accordance with its
terms, except as such enforcement may be subject to or limited by (a)
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (b) the effect of general principles
of equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
Section 4.3 No Violations; Approvals. (a) Neither the execution and delivery of
this Agreement by Parent and Merger Subsidiary nor the consummation by Parent
and Merger Subsidiary of the transactions contemplated hereby will (i) violate
any provision of the respective articles of incorporation or bylaws of Parent or
Merger Subsidiary, (ii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, contract, agreement
or other instrument or obligation to which Parent or any of its Subsidiaries is
a party or by which any of them or any of their assets may be bound or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of its Subsidiaries or any of their properties or
assets; except in the case of clauses (ii) and (iii) for violations, breaches or
defaults which would not be reasonably expected to have a material adverse
effect on the business, results of operations or financial condition of Parent
and its Subsidiaries, taken as a whole, or materially impair or delay the
consummation of the transactions contemplated by this Agreement.
(b) No filing or registration with, notification to, or authorization, consent
or approval of, any Governmental Entity is required in connection with the
execution and delivery of this Agreement by Parent and Merger Subsidiary or the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby, except (i) applicable requirements under Competition Laws, (ii) the
filing of the Articles of Merger with the Secretary of State of the State of
North Carolina, (iii) filing with and approval of the Insurance Commissioner
from the State of California, (iv) filing with and approval of the Insurance
Commissioner from the State of Illinois, (v) filings with and approval of the
Insurance Commissioners, Directors or Superintendents, as the case may be,
identified in Section 3.4(b) of the Disclosure Schedule, and (vi) such other
consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings the failure of which to be obtained or made would not
be reasonably expected to have a material adverse effect on the business,
results of operations or financial condition of Parent and its Subsidiaries,
taken as a whole, or materially impair or delay the consummation of the
transactions contemplated by this Agreement.
Section 4.4 Financing. Parent and Merger Subsidiary have sufficient funds
available (either through internal sources or through existing credit
arrangements) to pay the Common Stock Merger Consideration and Preferred Stock
Merger Consideration for each issued and outstanding share of Company Common
Stock and Company Preferred Stock, respectively, as of the Effective Time and
all payments potentially required under Section 2.3 and to perform their
obligations hereunder and the obligations of the Surviving Corporation and its
Subsidiaries following the Effective Time, including the Company's obligations
under its outstanding indebtedness.
Section 4.5 Beneficial Ownership of Shares. None of Parent, Merger Subsidiary or
any of their respective affiliates or associates (as defined in Rule 12b-2 under
the Exchange Act) "beneficially owns" (as defined in Rule 13d-3 under the
Exchange Act) or will beneficially own as of the Effective Time or the Closing
Date any outstanding shares of Company Common Stock, any securities convertible
into or exchangeable for Company Common Stock or any outstanding shares of
Company Preferred Stock as of the date of this Agreement.
Section 4.6 Litigation. There is no suit, claim, action, proceeding or
investigation pending or, to the actual knowledge of Parent, threatened against
Parent or any of its Subsidiaries which seeks to enjoin or prohibit, or
otherwise questions the validity of, any action taken or to be taken by Parent
or Merger Subsidiary in connection with this Agreement or which would
individually or in the aggregate be reasonably expected to have a material
adverse effect on Parent's ability timely to perform its obligations hereunder
or to consummate the transactions contemplated hereby.
Section 4.7 Brokers. Except for ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co. ("▇▇▇▇▇▇▇ ▇▇▇▇▇"), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent and Merger
Subsidiary. Parent and Merger Subsidiary are solely responsible for the fees and
expenses of ▇▇▇▇▇▇▇ ▇▇▇▇▇.
ARTICLE V. COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and agrees
that, except as (i) contemplated by this Agreement or set forth in Section 5.1
of the Disclosure Schedule, (ii) required by applicable law, by any contracts or
agreements of the Company disclosed in Section 3.14 of the Disclosure Schedule
or by any Plan or Employee Agreement disclosed in Section 3.8(a) of the
Disclosure Schedule or (iii) agreed to in writing by Parent or Merger
Subsidiary, after the date hereof and prior to the Effective Time:
(a) the business of the Company and its Subsidiaries shall be conducted only in
the ordinary course consistent with past practices and, to the extent consistent
therewith, the Company shall use its reasonable efforts to preserve its business
organization and the business organization of its Subsidiaries intact and
maintain existing relations with customers, suppliers, employees and creditors;
(b) the Company shall not amend its Articles of Incorporation or Bylaws;
(c) neither the Company nor its Subsidiaries shall (i) split, combine or
reclassify any shares of its capital stock or declare, set aside or pay any
dividend or other distribution payable in cash, stock or property with respect
to its capital stock other than dividends payable by Subsidiaries to the Company
or payable from one Subsidiary to another Subsidiary; and neither the Company
nor its Subsidiaries shall (ii) issue, sell, transfer, pledge, dispose of or
encumber any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock of any class of the Company or its
Subsidiaries other than issuances of shares of Company Common Stock pursuant to
securities, options, warrants, calls, commitments or rights existing at the date
hereof and disclosed to Parent or Merger Subsidiary (including as disclosed in
the Company Financial Documents); (iii) incur any long-term indebtedness or
incur short-term indebtedness other than under credit facilities existing on the
date hereof and other than financing and other equipment leases entered into in
the ordinary course of business; (iv) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock; or (v) other than in the
ordinary course of business and other than transactions among the Company and
its Subsidiaries or among Subsidiaries, make loans or advances or assume,
guarantee, endorse or otherwise as an accommodation become responsible for, the
obligations of any other individual or entity; provided that the Company shall
have the right (A) to pay at or prior to the Closing all accrued and unpaid
dividends on outstanding shares of Company Preferred Stock as of the Closing
Date to the extent such dividends have not been waived in writing by the holder
of any such shares prior to the Closing Date and (B) to distribute to all
shareholders, option holders and warrant holders interests in FRINC, LLC;
(d) neither the Company nor its Subsidiaries shall (i) except for normal
increases in the ordinary course of business and fiscal year-end and
discretionary bonuses consistent with past practice or to reflect promotions,
grant any material increase in the compensation payable or to become payable by
the Company or any of its Subsidiaries to any officer or director; (ii) adopt,
amend or otherwise increase, or accelerate the payment or vesting of the amounts
payable or to become payable to any officer or director of the Company or any of
its Subsidiaries under any existing bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock appreciation right,
restricted stock purchase, insurance, pension, retirement or other employee
benefit plan, agreement or arrangement; or (iii) enter into or amend in any
material respect any existing employment or severance agreement with, or, except
in accordance with the existing written policies of the Company or existing
contracts or agreements, grant any severance or termination pay to any officer
or director of the Company or any of its Subsidiaries;
(e) neither the Company nor its Subsidiaries shall (i) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial equity
interest in, or a substantial portion of the assets of, or by any other manner,
any Person or business (other than inventory and other items in the ordinary
course of business); or (ii) enter into any agreement with respect to any
liquidation or disposition involving any Subsidiary, or any acquisition or
disposition of all or substantially all of its assets or securities of any of
the Subsidiaries;
(f) neither the Company nor its Subsidiaries shall change the accounting
principles used by it unless required by GAAP or SAP or as a result of changes
in GAAP or SAP;
(g) the Company shall not acquire, transfer, sell, lease, pledge or encumber any
assets material to any Subsidiary, other than such acquisitions, transfers,
sales, leases, pledges or encumbrances in the ordinary course of business of the
Company or such Subsidiary and except for transactions involving investment
assets;
(h) except pursuant to Section 5.2, the Company shall not enter into an
agreement with respect to the disposition of a material amount of assets of any
Subsidiary, or any release or relinquishment of any material contract rights of
any Subsidiary, other than any such agreements, releases or relinquishments
entered into in the ordinary course of business of the Company or any Subsidiary
and except for transactions involving investment assets;
(i) the Company shall not permit any Subsidiary to enter into any new material
Contract (including, without limitation, any new Contract that would fit within
the definition of Material Contract if in effect on the date hereof) or
terminate, amend, modify or waive compliance of any provision in any respect
adverse to any of the Subsidiaries in any existing Material Contract, other than
such Contracts entered into, terminated, amended or modified in the ordinary
course of business and any renewals or extensions of any Contracts existing on
the date hereof;
(j) neither the Company nor any of its Subsidiaries shall make or change any Tax
election, release, assign, settle or compromise any material Tax liability, or
waive any statute of limitations for any Tax claim or assessment unless required
by any changes in tax laws or regulations;
(k) the Company shall not change any Subsidiary's reserving methods or pricing
and sales practices other than in the ordinary course of business of the Company
or such Subsidiary; and
(l) neither the Company nor its Subsidiaries will enter into an agreement,
contract, commitment or arrangement to do any of the foregoing.
Section 5.2 Acquisition Proposals. (a) The Company agrees that, except as
expressly contemplated by this Agreement, neither it nor any of its Subsidiaries
nor any of the officers or directors of it or its Subsidiaries shall, and that
it shall direct and use its best efforts to cause its and its Subsidiaries'
employees, investment bankers, attorneys, accountants, financial advisors,
agents or other representative not to, (i) initiate or solicit the making of any
Acquisition Proposal (as hereafter defined) or (ii) except as permitted below,
engage in negotiations or discussions with, or furnish any information or data
to, any third party relating to an Acquisition Proposal (other than the
transactions contemplated by this Agreement). Notwithstanding anything to the
contrary contained in this Agreement, the Company and its Board (i) may
participate in negotiations or discussions (including, as a part thereof, making
any counterproposal) with or furnish information or data to any third party if
either (A) the Board determines in good faith that such third party is
reasonably likely to submit to the Company an Acquisition Proposal which would
be a Superior Proposal (as hereafter defined) or (B) the Board determines in
good faith, after consultation with its counsel, that the failure to participate
in such negotiations or discussions or to furnish such information or data may
constitute a breach of the Board's fiduciary duties under applicable law and
(ii) shall be permitted to (x) take and disclose to the Company's shareholders a
position with respect to the Merger or another Acquisition Proposal (including a
Superior Proposal), or amend or withdraw such position or (y) make such other
disclosure to the Company's shareholders if the Board determines in good faith,
after consultation with its counsel, that the failure to make such disclosure
may constitute a breach of the Board's fiduciary duties or otherwise violate
applicable law.
(b) The Company shall promptly advise Parent in writing of the receipt of any
inquiries or proposals relating to an Acquisition Proposal and any actions taken
pursuant to subparagraph (a) above unless the Board determines in good faith,
after consultation with its counsel, that taking such action may constitute a
breach of the fiduciary duties of the Board.
(c) For purposes of this Agreement, (i) "Acquisition Proposal" shall mean any
proposal or offer to enter into any (1) direct or indirect acquisition or
purchase of a business that constitutes 15% or more of the net revenues, net
income or the assets of the Company and its Subsidiaries, taken as a whole, (2)
direct or indirect acquisition or purchase of 15% or more of any class of equity
securities of the Company or any of its Subsidiaries whose business constitutes
15% or more of the net revenues, net income or assets of the Company and its
Subsidiaries, taken as a whole, and (3) merger, consolidation or other business
combination, sale of shares of capital stock, tender offer, or exchange offer
that if consummated would result in any person beneficially owning 15% or more
of any class of equity securities of the Company or any of its Subsidiaries
whose business constitutes 15% or more of the net revenues, net income or assets
of the Company and its Subsidiaries, taken as a whole, other than the
transactions contemplated by this Agreement and (ii) the term "Superior
Proposal" shall mean any bona fide Acquisition Proposal made by a third party on
terms and conditions which the Board determines in its good faith judgment to be
more favorable than the transactions contemplated hereby.
Section 5.3 Access to Information. From the date of this Agreement until the
Effective Time, upon reasonable notice, the Company shall afford to Parent and
its authorized representatives reasonable access during normal business hours to
all of its books and records and, during such period, the Company shall furnish
promptly to Parent such other information used in the operation of its business
as Parent may reasonably request and the provision of which is not inconsistent
with applicable laws or agreements. Parent and its authorized representatives
will conduct all such inspections in a manner which will minimize any
disruptions of the business and operations of the Company and its Subsidiaries.
Until the Effective Time, Parent and Merger Subsidiary will hold any such
information in accordance with the provisions of the confidentiality agreement
between the Company and Parent, dated as of January 25, 2001 (the
"Confidentiality Agreement"), and will cause such information to be so held by
their Representatives (as defined in the Confidentiality Agreement). Upon a
termination of this Agreement pursuant to Section 7.1, Parent, Merger Subsidiary
and their respective Representatives shall return (and hold confidential) all
information provided pursuant to this Section 5.3 and all other Evaluation
Material (as defined in the Confidentiality Agreement) pursuant to the
procedures set forth in the Confidentiality Agreement.
Section 5.4 Further Action; Best Efforts; Company Common Stock Purchases. (a)
Upon the terms and subject to the conditions herein provided, each of the
parties hereto agrees to use its best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using best efforts to
satisfy the conditions precedent to the obligations of any of the parties
hereto, to obtain all necessary authorizations, consents and approvals, and to
effect all necessary registrations and filings, including filings with and
approval of the Insurance Commissioners, Directors or Superintendents, as the
case may be, of the jurisdictions listed on Section 3.4(b) of the Disclosure
Schedule. Each of the parties hereto will furnish to the other parties such
necessary information and reasonable assistance as such other parties may
reasonably request in connection with the foregoing and will provide the other
parties with copies of all filings made by such party with any Governmental
Entity or any other information supplied by such party to a Governmental Entity
in connection with this Agreement and the transactions contemplated hereby. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of the parties shall take or cause to be taken all such
necessary action.
(b) Parent and the Company shall use their respective best efforts to make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (i) the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and, to the extent applicable, the laws of any foreign nations with
similar purpose, and any related governmental request thereunder, (ii) the
applicable Insurance Laws and (iii) any other applicable law (provided that
nothing herein stated shall require the Company to take or cause to be taken any
action, or to do or cause to be done any things, which the Board, in the
exercise of its fiduciary duties, determines, in good faith after consultation
with its legal advisors, should not be taken or done). The Company, Parent and
Merger Subsidiary shall cooperate with each other in connection with the making
of all such filings, including providing copies of all such documents to the
non-filing party and its advisors prior to filing and, if requested, consult
with the non-filing party regarding additions, deletions or changes suggested by
the non-filing party in connection therewith. Parent, Merger Subsidiary and the
Company shall use their respective best efforts to resolve such objections, if
any, as may be asserted with respect to the transactions contemplated hereby
under the laws, rules, guidelines or regulations of any Governmental Entity.
Without limiting the foregoing, the Company and Parent shall file Notification
and Report Forms under the HSR Act with the Federal Trade Commission (the "FTC")
and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and all other requisite documents and notifications with any other
antitrust or cartel authority having jurisdiction over the transactions
contemplated hereby as soon as practicable and shall use best efforts to respond
as promptly as practicable to all inquiries received from the FTC or the
Antitrust Division for additional information or documentation; and Parent and
Merger Subsidiary shall use their best efforts to take or cause to be taken all
actions necessary, proper or advisable to obtain any consent, waiver, approval
or authorization relating to any Competition Law that is required for the
consummation of the transactions contemplated by this Agreement, which efforts
shall include the proffer by Parent and Merger Subsidiary of their willingness
to accept an order providing for the divestiture by Parent and Merger Subsidiary
of such of the assets of the Company (or, in lieu thereof, assets and businesses
of Parent or its Subsidiaries), as are necessary for Parent and Merger
Subsidiary fully to consummate the transactions contemplated by this Agreement,
and an offer to hold separate such assets and businesses pending such
divestiture. For purposes of this Agreement, "Competition Laws" shall mean
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws that are designed or intended to prohibit, restrict or
regulate actions having the purpose or effect of monopolization, lessening of
competition or restraint of trade and includes the HSR Act and, to the extent
applicable, laws of any foreign nations with similar purpose.
(c) Parent and Merger Subsidiary will not purchase or otherwise become a
beneficial owner of any shares of Company Common Stock, any securities
convertible into or exchangeable for Company Common Stock or any shares of
Company Preferred Stock without the prior written consent of the Board, which
consent may be given or withheld for any or no reason, and each of Parent and
Merger Subsidiary agrees that any such purchase may be subject to such
conditions and limitations as the Board deems appropriate.
Section 5.5 Shareholders' Meeting; Proxy Statement. (a) The Company shall, as
soon as practicable following the date of this Agreement, duly call, convene and
hold a meeting of its shareholders (the "Company Shareholders' Meeting") for the
purpose of obtaining the approval of this Agreement and the transactions
contemplated hereby by the shareholders of the Company entitled to vote thereon.
The Board will, to the extent consistent with its fiduciary obligations, (i)
recommend to the shareholders of the Company the adoption and approval of this
Agreement and the transactions contemplated hereby and (ii) use its reasonable
best efforts to obtain the necessary approvals by the shareholders of the
Company of this Agreement and the transactions contemplated hereby. At the
Company Shareholders' Meeting, all of the Company Common Stock then owned by
Parent, Merger Subsidiary or any other subsidiary of Parent shall be voted in
favor of adoption of the Agreement and to approve the Merger (subject to
applicable law).
(b) The Company shall prepare, and Parent and Merger Subsidiary shall cooperate
with the Company in such preparation, a Proxy Statement (the "Proxy Statement")
and cause the Proxy Statement to be mailed to its shareholders. Parent agrees
that it will provide the Company with all information concerning Parent or
Merger Subsidiary necessary or appropriate to be included in the Proxy
Statement. The Company represents and warrants that the Proxy Statement (and any
amendment thereof or supplement thereto) at the date mailed to Company
shareholders and at the time of the Company Shareholders' Meeting, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; except that no representation is made by the Company with respect to
statements made in the Proxy Statement based on information supplied by Parent
or the Merger Subsidiary for inclusion in the Proxy Statement. Each of Parent
and Merger Subsidiary represents and warrants that none of the information
supplied by Parent or Merger Subsidiary for inclusion in the Proxy Statement
(including any amendments or supplements thereto) will, at the date mailed to
shareholders and at the time of the Company Shareholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. Subject to
the fiduciary obligations of the Board under applicable law, the Company shall
include in the Proxy Statement the recommendation of the Board that shareholders
of the Company vote in favor of the approval and adoption of this Agreement and
the transactions contemplated hereby.
Section 5.6 Voting Agreements; Proxies. Concurrently with the execution of this
Agreement, each director of the Company who holds Company Common Stock is
entering into a Voting Agreement ("Voting Agreement") with Parent pursuant to
which such director agrees to vote all of his shares of Company Common Stock to
approve this Agreement and the Merger and the other transactions contemplated by
this Agreement, and grants Parent an irrevocable proxy to so vote such
director's shares of Company Common Stock, in the form of Exhibit A attached
hereto.
Section 5.7 Employee Benefits. Parent and Merger Subsidiary hereby:
(i) agree to assume, honor and maintain without any amendment thereto, and
cause the Surviving Corporation to assume, honor and maintain without
any amendment thereto, for a period of one year immediately following
the Effective Time, each Employee Benefit Plan and Employee Agreement
identified in Section 3.8(a) of the Disclosure Schedule for the
benefit of the employees of the Company and its Subsidiaries, and to
make required payments when due under each such Employee Benefit Plan
and Employee Agreement;
(ii) acknowledge that for purposes of the Employee Benefit Plans and
Employee Agreements identified in Section 3.8(a) of the Disclosure
Schedule, the consummation of the Merger will constitute a "Change in
Control" of the Company (as that term is defined in each such Employee
Benefit Plan or Employee Agreement).
Section 5.8 Directors' and Officers' Insurance and Indemnification.
(a) The Articles of Incorporation and Bylaws of the Surviving Corporation shall
contain the provisions with respect to indemnification set forth in Article III
of the Company's Articles of Incorporation and Article IX of the Company's
Bylaws on the date of this Agreement and shall provide for indemnification to
the fullest extent permitted by and in accordance with the NCBCA, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time (provided that in the event any claim is
asserted or made within such six year period, all rights to indemnification in
respect of any such claim shall continue until final disposition of any such
claim) in any manner that would adversely affect the rights thereunder of
individuals who at any time prior to the Effective Time were directors or
officers of the Company in respect of actions or omissions occurring at or prior
to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement).
(b) Each of Parent and Argonaut Group, Inc. agree that at all times after the
Effective Time it shall, and shall cause the Surviving Corporation and its
Subsidiaries to, indemnify each person who is now, or has been at any time prior
to the date hereof, an employee, agent, director or officer of the Company or of
any of the Company's Subsidiaries (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the full extent permitted by
applicable law, with respect to any claim, liability, loss, damage, cost or
expense, whenever asserted or claimed, based in whole or in part on, or arising
in whole or in part out of, any matter existing or occurring at or prior to the
Effective Time. Parent and Argonaut Group, Inc. shall, and shall cause the
Surviving Corporation to, maintain in effect for not less than six years after
the Effective Time policies of directors' and officers' liability insurance
equivalent in all material respects to those maintained by or on behalf of the
Company and its Subsidiaries on the date hereof (and having at least the same
coverage and containing terms and conditions which are no less advantageous to
the persons currently covered by such policies as insured) with respect to
matters existing or occurring at or prior to the Effective Time; and Parent and
Argonaut Group, Inc., jointly and severally, in addition to the indemnification
provided above in this Section 5.8, shall indemnify the Indemnified Parties for
the balance of such insurance coverage on the same terms and conditions as
though Parent were the insurer under those policies.
Section 5.9 Publicity. Neither the Company, Parent nor any of their respective
affiliates shall issue or cause the publication of any press release or make any
public statements with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by any listing agreement with a
national securities exchange in which case, the party proposing to issue such
press release or make such public statement shall use all reasonable efforts to
consult with the other party before issuing such press release or making such
public statement.
Section 5.10 Privacy Policy and Privacy Mailing. The Company shall comply with
all privacy requirements as prescribed by the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, 5 U.S.C.
ss.6801 et seq., and the rules and regulations thereunder.
-- ---
ARTICLE VI. CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) This Agreement and the Merger shall have been approved and adopted by the
affirmative vote of the holders of two-thirds of the outstanding shares of Class
A Common Stock, Class B Common Stock and Class C Common Stock, voting together
as a single class.
(b) The obligations of the parties hereunder are expressly subject to the
approvals of the Insurance Commissioners of the States of California and
Illinois and of the Insurance Commissioners, Directors or Superintendents, as
the case may be, of the Insurance Departments of the jurisdictions listed on
Section 3.4(b) of the Disclosure Schedule.
(c) No Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any order, executive order, stay, decree, judgment or injunction or
statute, rule or regulation which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger
and there shall be no suit, action or proceeding by a Governmental Entity
seeking to restrain, enjoin or prohibit the Merger; provided, however, that this
condition may not be asserted by a party to this Agreement if such party shall
have failed to use its best efforts to prevent the entry of any such injunction
or other order and to appeal any injunction or other order that may be entered.
(d) Other than filing the Articles of Merger in accordance with the NCBCA, all
authorizations, consents and approvals of all Governmental Entities required to
be obtained prior to consummation of the Merger shall have been obtained, except
for such authorizations, consents and approvals the failure of which to be
obtained would not be reasonably likely to have a Material Adverse Effect.
(e) Any waiting period applicable to the Merger under the HSR Act shall have
expired or been terminated.
Section 6.2 Conditions to the Company's Obligation to Effect the Merger. The
obligation of the Company to effect the Merger is also subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions, unless waived by the Company:
(a) The representations and warranties of Parent set forth in the Agreement (i)
to the extent qualified by materiality shall be true and correct, and (ii) to
the extent not qualified by materiality shall be true and correct, except that
this clause (ii) of this condition shall be deemed satisfied so long as any
failures of such representations and warranties to be true and correct do not
individually or in the aggregate materially adversely affect Parent or this
Agreement, in each of clauses (i) and (ii) at and as of the Effective Time as if
made at and as of the Effective Time (except to the extent that any such
representation or warranty expressly speaks as of an earlier date, in which case
it shall be true and correct as of such date); and the Company shall have
received a certificate signed on behalf of Parent by one of its executive
officers to such effect.
(b) Parent shall have, in all material respects, performed all covenants and
agreements and complied with all conditions required by this Agreement to be
performed or complied with by the Parent.
(c) Each of Argonaut Insurance Company and Argonaut Midwest Insurance Corp.
shall have delivered to the Company a certificate, dated the Closing Date and
signed by a duly authorized officer, to the effect that each of the conditions
specified in clauses (a) and (b) of this Section 6.2 is satisfied in all
respects.
(d) The Company shall have received an opinion from ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇,
counsel to the Parent, with respect to the due authorization and execution and
enforceability of this Agreement.
(e) Parent and Escrow Agent shall have executed the Escrow Agreement.
Section 6.3 Conditions to Parent's and Merger Subsidiary's Obligation to Effect
the Merger. The obligation of Parent and Merger Subsidiary to effect the Merger
is also subject to the fulfillment at or prior to the Effective Time of the
following additional conditions, unless waived by Parent or Merger Subsidiary:
(a) The representations and warranties of the Company set forth in the Agreement
(i) to the extent qualified by a Material Adverse Effect shall be true and
correct, and (ii) to the extent not qualified by a Material Adverse Effect shall
be true and correct, except that this clause (ii) of this condition shall be
deemed satisfied so long as any failures of such representations and warranties
to be true and correct do not individually or in the aggregate have a Material
Adverse Effect, in each of clauses (i) and (ii) at and as of the Effective Time
as if made at and as of the Effective Time (except to the extent that any such
representation or warranty expressly speaks as of an earlier date, in which case
it shall be true and correct as of such date); and Parent shall have received a
certificate signed on behalf of the Company by one of its executive officers to
such effect.
(b) The Company shall have, in all material respects, performed all covenants
and agreements and complied with all conditions required by this Agreement to be
performed or complied with by the Company.
(c) None of the options, warrants and rights referred to in Section 2.3 shall
remain outstanding after the Effective Time, no more than 3% of the outstanding
Company Common Stock will be subject to appraisal under Section 55-13-21 of the
NCBCA, and none of the Company Preferred Stock will be subject to appraisal
under Section 55-13-21 of the NCBCA.
(d) Except as disclosed in the Disclosure Schedule or in the Company Financial
Documents filed prior to the date of this Agreement, since December 31, 2000,
there shall not have occurred any change, circumstance or event, concerning the
Company or any of the Company's Subsidiaries, that has had or would be
reasonably expected to have a Material Adverse Effect and Parent shall have
received a certificate, dated the Closing Date, signed on behalf of the Company
by one of its executive officers to such effect.
(e) The Book Value of the Company as of the Closing Date, prior to deducting any
expenses accrued or incurred in connection with or arising out of the
transactions contemplated in this Agreement, shall be no less than $98,500,000,
and the Company shall have delivered to Parent a certificate signed on behalf of
the Company by one of its executive officers to such effect. "Book Value" means
the consolidated stockholders' equity of the Company, calculated in conformity
with GAAP and consistent with past accounting and actuarial practices, but
before adjustments on account of unrealized gains and losses required by FASB
115.
(f) The Company shall have delivered to the Parent a certificate, dated the
Closing Date and signed by a duly authorized officer, to the effect that each of
the conditions specified in clauses (a), (b) and (c) of this Section 6.3 is
satisfied in all respects.
(g) The Company shall have delivered to Parent a Certificate of Non-Foreign
Status duly executed by an officer of the Company in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treas. Reg.ss.1.1445-2(c)(3).
(h) The Parent shall have received opinions from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel to the Company, and from Brooks, Pierce,
McLendan, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, special North Carolina counsel to the Company, as
to due authorization and execution and enforceability of this Agreement.
(i) The Shareholder Representatives and the Escrow Agent shall have executed the
Escrow Agreement.
ARTICLE VII. TERMINATION
Section 7.1 Termination. Notwithstanding anything herein to the contrary, this
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time, whether before or after shareholder approval thereof:
(a) by the mutual written consent of the Board of Directors of each of Argonaut
Insurance Company and Argonaut Midwest Insurance Corp. and the Board of
Directors of the Company;
(b) by either the Company or Parent if: (i) the Merger has not been consummated
on or prior to October 7, 2001, or such other date, if any, as Parent and the
Company shall agree upon (the "Termination Date") (provided that the right to
terminate this Agreement under this Section 7.1(b)(i) shall not be available to
a party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the Effective Time to occur on or
before such date); or (ii) if the shareholders of the Company fail to approve
and adopt this Agreement at the Company Shareholders' Meeting (including any
postponement or adjournment thereof), provided, however that Parent may not
terminate this Agreement pursuant to this Section 7.1(b)(ii) if Parent shall
have materially breached this Agreement; or (iii) the Board of Directors of the
Company shall have withdrawn or modified in a manner adverse to Parent its
approval or recommendation of this Agreement pursuant to Section 5.2(a); or (iv)
any Governmental Entity shall have issued a statute, order, decree or regulation
or taken any other action (which statute, order, decree, regulation or other
action the parties hereto shall have used their best efforts to lift), in each
case permanently restraining, enjoining or otherwise prohibiting the Merger or
making the Merger illegal and such statute, order, decree, regulation or other
action shall have become final and nonappealable;
(c) by the Company in order to execute a definitive agreement relating to an
Acquisition Proposal which is a Superior Proposal;
(d) by the Company upon a breach of any representation or warranty or material
covenant or agreement on the part of the Parent set forth in this Agreement, or
if any representation or warranty of the Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) and Section
6.2(b) would not be satisfied (a "Terminating Parent Breach"); provided,
however, that, if such Terminating Parent Breach is curable by the Parent prior
to the Closing Date through the exercise of its commercially reasonable efforts
and for so long as the Parent continues to exercise such commercially reasonable
efforts, the Company may not terminate this Agreement under this Section 7.1(d)
prior to the Termination Date; or
(e) by the Parent upon a breach of any representation or warranty or material
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) would not be satisfied (a "Terminating Company Breach"); provided,
however, that, if such Terminating Company Breach is curable by the Company
prior to the Closing Date through the exercise of its commercially reasonable
efforts and for so long as the Company continues to exercise such commercially
reasonable efforts, the Parent may not terminate this Agreement under this
Section 7.1(e) prior to the Termination Date.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 7.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become null
and void, and there shall be no liability on the part of Parent, Merger
Subsidiary or the Company except (a) to the extent such termination results from
the material breach by a party of any of its representations and warranties,
covenants or agreements set forth in this Agreement, (b) as set forth in Section
7.3 hereof and (c) with respect to compliance with the Confidentiality Agreement
and the obligation to return or hold Evaluation Material pursuant to the
procedures set forth therein and in Section 5.3.
Section 7.3 Fees and Expenses. (a) Except as otherwise contemplated by this
Agreement, all costs and expenses incurred in connection with this Agreement and
the consummation of the transactions contemplated hereby shall be paid by the
party incurring such expenses.
(b) If this Agreement is terminated:
(i) by Parent pursuant to Section 7.1(b)(ii) or 7.1(b)(iii) and at the time
of the termination a third party shall have made, and not revoked, a
bona fide Acquisition Proposal which is a Superior Proposal and such
Acquisition Proposal is consummated prior to the first anniversary of
such termination; or
(ii) by the Company pursuant to Section 7.1(b)(iii) or 7.1(c)
then in any such case described in clauses (i) or (ii), provided that each of
Parent and Merger Subsidiary is not then in material breach of any
representation, warranty, covenant or other agreement pertaining to them
contained herein (after having been notified by the Company of such breach and
given at least a 30 day opportunity to cure the same), the Company shall pay to
Parent liquidated damages in an amount equal to $4,950,000 (the "Liquidated
Damage Amount"). Upon payment by the Company of the Liquidated Damage Amount the
Company shall be fully released and discharged from any liability or obligation
resulting from or under this Agreement.
(c) In no event shall more than one Liquidated Damage Amount be payable under
this Section 7.3.
(d) All payments made pursuant to Section 7.3(b) shall be made by wire transfer
of immediately available funds to an account designated by Parent. In the event
of a termination of this Agreement by the Company pursuant to Section
7.1(b)(iii) or 7.1(c), such amount shall be paid no later than one business day
following such termination. In the event of a termination of this Agreement by
Parent pursuant to Section 7.1(b)(ii) or 7.1(b)(iii), pursuant to which
Liquidated Damages became payable under Section 7.3(b)(i), such amount shall be
paid prior to the consummation of the relevant Acquisition Proposal.
(e) If this Agreement is terminated by the Company or the Parent pursuant to
Section 7.1(d) or 7.1(e), as the case may be, then the party terminating this
Agreement shall be entitled to an amount equal to $4,950,000 (the "Breach
Amount"). Upon payment of the Breach Amount, the Parent, Merger Subsidiary or
the Company, as the case may be, shall be fully released and discharged from any
liability or obligation resulting from or under this Agreement.
(f) This Section 7.3 shall survive any termination of this Agreement
indefinitely.
ARTICLE VIII. HOLDBACK
Section 8.1 Merger Consideration Holdback. In order to ensure that the
representations, warranties and covenants made by the Company under this
Agreement are not breached and in order to provide for an exclusive source of
recovery by Argonaut Group, Inc., Parent and the Surviving Corporation in the
event of such a breach, the Company agrees that $8,000,000 (the "Holdback")
shall be deposited in an interest-bearing escrow account (the Holdback, together
with any additional monies received by the Escrow Agent, as hereinafter defined,
for inclusion in such account and any interest earned thereon, the "Escrow
Fund") pursuant to the terms and conditions of an Escrow Agreement,
substantially in the form of Exhibit B hereto (the "Escrow Agreement"), dated as
of the Closing Date, among the Shareholder Representatives, Parent and an escrow
agent mutually agreed to by the Company and Parent (the "Escrow Agent"). If the
parties do not mutually agree otherwise, the Escrow Agent shall be ▇▇▇▇▇▇ Bank.
The Holdback shall be deposited with the Escrow Agent concurrently with the
payment of the Payment Fund (less the Holdback) to the Paying Agent pursuant to
Section 2.2. The Escrow Fund shall be invested as provided in the Escrow
Agreement, and the Escrow Fund shall not be used for any purpose except as
expressly provided in this Agreement and the Escrow Agreement.
Section 8.2 Recoverable Amounts. (a) Subject to the provisions hereof, Parent
and Surviving Corporation shall be entitled to recover from the Escrow Fund any
liability, loss, damage, cost or other expense incurred, or required to be
recognized, by Argonaut Group, Inc., Parent, the Surviving Corporation or any of
its Subsidiaries (collectively, "Recoverable Amounts") arising out of any breach
by the Company of any representation, warranty or covenant of the Company set
forth in this Agreement, provided that none of Argonaut Group, Inc., Parent or
Surviving Corporation shall be entitled to be paid any amounts under this
Section 8.2 other than on account of Qualifying Claims. For purposes of this
Agreement, a "Qualifying Claim" shall mean (i) a claim for recovery out of the
Escrow Fund, (ii) arising out of or as a result of a single breach by the
Company of a representation, warranty or covenant, (iii) submitted prior to the
first anniversary of the Closing Date and (iv) which results in Recoverable
Amounts in excess of $3,000,000. Subject to the provisions hereof, the Escrow
Agent shall only be obligated to pay, and Argonaut Group, Inc., Parent and the
Surviving Corporation shall only be entitled to recover, (1) the full amount of
each Qualifying Claim, net of Claims Recoveries (as defined in Section
8.2(d)(iv)) actually received by any of them (and not merely recognized in
accordance with GAAP or any other applicable reporting requirement) at the time
such Qualifying Claim is otherwise payable hereunder, and (2) such net amount to
the extent that any liability, loss, damage, cost or other expense is actually
incurred (and not merely recognized in accordance with GAAP or any other
applicable reporting requirement) by Argonaut Group, Inc., Parent, the Surviving
Corporation or any of its Subsidiaries, as the case may be. The parties hereto
acknowledge that even if a claim at any time qualifies as a Qualifying Claim
hereunder (and even if the Shareholder Representatives have conceded the same
for purposes of Section 8.2(f)), no payment from the Escrow Fund shall be made
in respect of such Qualifying Claim unless, at the time payment is otherwise to
be made hereunder, the amount to be paid on account of such Qualifying Claim
(without considering Claim Recoveries) in fact exceeds $3,000,000. As among
Argonaut Insurance Company, Argonaut Midwest Insurance Company and Surviving
Corporation, the Escrow Agent shall allocate payments otherwise payable to them
hereunder in such proportion as they, in their discretion, shall direct.
(b) In order to assert a claim under this Section 8.2, as soon as reasonably
possible after Parent obtains knowledge of a claim but in any event not later
than the first anniversary of the Closing Date, Parent shall give written notice
(a "Claim Notice") to the Shareholder Representatives appointed pursuant to
Section 8.4, with a copy to the Escrow Agent, of such claim, which Claim Notice
shall set forth the facts and circumstances giving rise to such claim, the
amount of Recoverable Amounts asserted with respect thereto, and the basis for
concluding that such claim is a Qualifying Claim. Upon and after becoming aware
of any event which could reasonably be expected to give rise to any claim
hereunder, Parent and the Surviving Corporation shall diligently pursue all
commercially reasonable alternative sources of recovery for such claim,
including but not limited to any applicable insurance policies, indemnifications
or any other third party arrangements which would offset or recoup such
Recoverable Amounts.
(c) Promptly following delivery of any Claim Notice with respect to a claim,
Parent and the Shareholder Representatives shall act in good faith as
expeditiously as possible to resolve such claim. In the event that any such
claim is not resolved by such parties within 30 days after delivery of such
Claim Notice, such claim may, at the instance of either the Shareholder
Representatives or Parent, be resolved by arbitration pursuant to the provisions
of Section 9.10. In the event of any such arbitration, the Shareholder
Representatives and Parent shall direct the Escrow Agent to record an amount of
the Escrow Fund equal to the amount of such disputed claim as a sub-account of
the Escrow Fund (a "Claims Reserve") until resolution of such claim. If multiple
claims are disputed, the Shareholder Representatives and Parent shall direct the
Escrow Agent to so record a sub-account for each individual claim, each with the
appropriate Claims Reserve. The parties hereto acknowledge that aggregate Claims
Reserves may exceed the amount of the Escrow Fund. Such Claims Reserves shall be
released as follows:
(i) If any such arbitration results in a determination, finding, order or
judgment of the arbitrators that the claim submitted is a Qualifying Claim, or
the parties thereto otherwise settle such dispute in favor of Parent or the
Surviving Corporation, Parent or the Surviving Corporation, as the case may be,
shall be entitled to that amount of the associated Claims Reserve equal to (1)
the amount awarded by the arbitrators, or such amount mutually agreed to by the
parties thereto, as the case may be, plus (2) the amount of all reasonable legal
fees and expenses incurred by Parent or the Surviving Corporation, as the case
may be, in connection with such arbitration or such lesser amount as may be
determined by the arbitrators pursuant to Section 9.10 or otherwise mutually
agreed by the parties hereto, which fees and expenses shall be paid from the
Escrow Fund as a whole (such amounts in clauses (1) and (2), together, "Claims
Payments") plus (3) the earnings on that portion of the associated Claims
Reserve that is so awarded or agreed upon pursuant to clause (1) above.
(ii) If any such arbitration does not result in a determination, finding, order
or judgment of the arbitrators that the claim submitted is a Qualifying Claim
and such arbitration is concluded on or prior to the first anniversary of the
Closing Date, the associated Claims Reserve, together with any earnings thereon,
shall be released from the associated sub-account and returned to the Escrow
Fund and be available for inclusion in any Claims Reserves thereafter recorded
and/or for distribution to the Paying Agent or as otherwise provided in this
Agreement. In addition, in any such case, Parent or the Surviving Corporation,
as the case may be, shall reimburse the Escrow Fund for all reasonable legal
fees and expenses incurred by the Shareholder Representatives in connection with
such arbitration or such lesser amount as may be determined by the arbitrators
pursuant to Section 9.10.
(iii) If any such arbitration does not result in a determination, finding, order
or judgment of the arbitrators that the claim submitted is a Qualifying Claim
and such arbitration is concluded after the first anniversary of the Closing
Date, such portion of the associated Claims Reserve, together with any earnings
thereon, shall be released (1) to the Escrow Agent in an amount equal to the
aggregate amount by which any remaining Claims Reserves exceed the amount of the
Escrow Fund, and (2) to the Paying Agent in an amount equal to the excess
thereof, which amount shall be distributed pursuant to Section 2.2. In addition,
in any such case of a release of fund to the Paying Agent, Parent or the
Surviving Corporation, as the case may be, shall pay to the Paying Agent for
distribution pursuant to Section 2.2, an amount equal to all reasonable legal
fees and expenses incurred by the Shareholder Representatives in connection with
such arbitration, or such lesser amount as may be determined by the arbitrators
pursuant to Section 9.10, plus the Yield Shortfall (as hereinafter defined), if
any.
(d) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Guaranteed Yield" shall mean, with respect to each Escrow Release,
interest accrued thereon at a rate of 8% per annum, calculated from the
Closing Date to and including the date of such Escrow Release.
(ii) "Yield Shortfall" shall mean, with respect to each Escrow Release, that
amount by which the Guaranteed Yield exceeds the amount of interest
actually earned on such Escrow Release, calculated from the Closing
Date to and including the date of such Escrow Release.
(iii) "Escrow Release" shall mean any release by the Escrow Agent to the
Paying Agent out of the Escrow Fund including, without limitation,
Claims Reserves or Claims Recoveries, but shall not include any legal
fees and expenses paid from the Escrow Fund to the Shareholder
Representatives pursuant to Section 8.4.
(iv) "Claims Recoveries" shall mean the total amount of any insurance,
indemnity and any other offset or recovery actually received by Parent
or the Surviving Corporation for any claim or Qualifying Claim
excluding any Claims Payments.
(e) Notwithstanding anything herein to the contrary, in the event Parent or
Surviving Corporation receives Claims Recoveries, (i) prior to the first
anniversary of the Closing Date, then promptly after receipt thereof, Parent or
the Surviving Corporation, as the case may be, shall pay to the Escrow Agent for
deposit in the Escrow Fund an amount equal to such Claims Recoveries, provided
that in the event that such payment is not made to the Escrow Agent, the amount
of any Claims Payments thereafter made by the Escrow Agent to Parent or the
Surviving Corporation, as the case may be, shall be reduced by an amount equal
to such Claims Recoveries not so paid, and (ii) on or after the first
anniversary of the Closing Date and prior to the fourth anniversary of the
earliest date on which the balance in the Escrow Fund equals zero, then promptly
after receipt thereof, Parent or the Surviving Corporation, as the case may be,
shall pay to the Paying Agent for distribution pursuant to Section 2.2, an
amount equal to such Claims Recoveries.
(f) Upon delivery of a Claim Notice asserting a Qualifying Claim based upon a
claim made by third parties against the Surviving Corporation or any of the
Subsidiaries:
(i) If the balance of the Escrow Fund (exclusive of any amount in Claims
Reserves for unrelated disputed claims) is less than 60% of the amount of
the Recoverable Amount that is the subject of such Claim Notice, the Parent
or Surviving Corporation, as the case may be, shall have the right to
defend against such claim (including the selection of counsel and
settlement of the claim), provided Parent or the Surviving Corporation, as
the case may be, shall keep the Shareholder Representatives fully and
completely informed of the status of the claim at all stages of the
proceedings thereof, and further provided that the Shareholder
Representatives may elect to revoke such authority to defend against such
claim at any time that it reasonably appears that the balance in the Escrow
Fund (exclusive of any amount in Claims Reserves for unrelated disputed
claims) is equal to not less than 60% of such Recoverable Amount.
(ii) If (1) the balance of the Escrow Fund (exclusive of any amount in Claims
Reserves for unrelated disputed claims) is equal to or greater than 60% of
the amount of the Recoverable Amount that is the subject of such Claim
Notice, and (2) the Shareholders Representatives have irrevocably conceded
in writing that the third party claim is a Qualifying Claim, the
Shareholder Representatives may elect to direct the defense of such claim
(including the selection of counsel and settlement of the claim), provided
the Shareholder Representatives shall keep Parent and the Surviving
Corporation fully and completely informed of the status of the claim at all
stages of the proceedings thereof, and further provided that Parent or the
Surviving Corporation may elect to revoke such authority to defend against
such claim at any time that it reasonably appears that the balance in the
Escrow Fund (exclusive of any amount in Claims Reserves for unrelated
disputed claims) is less than 60% of such Recoverable Amount.
(iii)Notwithstanding anything in the foregoing to the contrary, if at any time
the balance of the Escrow Fund (including all amounts in Claims Reserves)
is less than 60% of the aggregate of all Recoverable Amounts for all then
pending Claim Notices, by written notice to the Shareholder
Representatives, Parent and Surviving Corporation, in their sole
discretion, may elect to revoke any authority of the Shareholder
Representatives to defend any or all such claims of third parties and shall
have the right to manage the defense of any claims thereafter arising.
In the case of clauses (i) and (ii) above, any counsel so retained by Parent or
Surviving or by the Shareholder Representatives, as the case may be, shall
acknowledge in writing to the other party hereto the limitation on the authority
of Parent or the Surviving Corporation or of the Shareholder Representatives, as
the case may be, under this Section 8.2(f).
(g) Notwithstanding anything herein to the contrary, the parties hereto
acknowledge and agree that a Qualifying Claim otherwise payable to Parent or the
Surviving Corporation shall be paid to the extent of the Escrow Fund even if any
associated Claims Reserve is less than the amount thereof.
Section 8.3 Release of Escrow Fund. (a) In the event that on or prior to the
first anniversary of the Closing Date, no Claim Notice has been given pursuant
to the terms and conditions of Section 8.2, then on first anniversary of the
Closing Date, or as soon as possible thereafter, (i) the Escrow Agent shall
deliver to the Paying Agent the Escrow Fund (including, any interest earned on
such monies deposited therein) and (ii) Parent or the Surviving Corporation
shall deliver to the Paying Agent an amount equal to the Yield Shortfall.
(b) In the event that on or prior to the first anniversary of the Closing Date,
one or more Claim Notices have been given pursuant to the terms and conditions
of Section 8.2, then on the day after the first anniversary of the Closing Date,
or as soon as possible thereafter, and from time to time thereafter, (i) the
Escrow Agent shall deliver to the Paying Agent the Escrow Fund to the extent it
exceeds the Claims Reserves that are then in existence (or which will be
established as a result of a Claim Notice upon the direction of the Shareholder
Representatives and Parent), including, any interest earned on such monies so
delivered, and (ii) concurrently with such delivery to the Paying Agent, Parent
or the Surviving Corporation shall deliver to the Paying Agent an amount equal
to the Yield Shortfall with respect to such Escrow Release.
(c) The parties hereto further acknowledge and agree that the aggregate amount
of all Yield Shortfall payments under this Article VIII shall in no event exceed
an amount equal to the difference between (i) 8% per annum with respect to the
particular Escrow Release, and (ii) the amount of interest actually earned on
the aggregate balance of the Escrow Fund, calculated from the Closing Date to
and including the date the balance in the Escrow Fund equals zero.
(d) Any monies released from the Escrow Fund to the Paying Agent pursuant hereto
and the Escrow Agreement shall be distributed by the Paying Agent to the Holders
in the same manner as the balance of the Initial Common Stock Merger
Consideration and the Initial Preferred Stock Merger Consideration.
Section 8.4 Shareholder Representatives. Upon the approval of this Agreement and
the Merger by the requisite vote of the holders of the Company Common Stock,
each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, J. ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ (collectively, the
"Shareholder Representatives" and each, a "Shareholder Representative") shall be
irrevocably appointed to act as the representatives for the Holders with respect
to all post-Closing matters requiring any action or decision by the Shareholder
Representatives as provided in this Article VIII. The Shareholder
Representatives are hereby authorized to take any and all such actions and make
any decisions necessary or desirable in connection with the defense and/or
settlement of any claims and the Escrow Agreement. In furtherance of the
foregoing, the Shareholder Representatives may by written notice to the Escrow
Agent, with a copy to Parent, request payment for or reimbursement of any and
all reasonable legal fees and expenses paid or payable by any of the Shareholder
Representatives in connection with any post-Closing matters requiring any action
by the Shareholder Representatives as provided in this Article VIII including,
without limitation, the defense and/or settlement of any claims and the Escrow
Agreement, and the Escrow Agent shall be authorized to release from time to time
from the Escrow Fund an amount equal to such fees and expenses so requested
unless, within ten days after such notice the Parent objects to such payment by
delivery of notice to the Shareholder Representatives and the Escrow Agent, in
which case such fees and expenses will not be disbursed absent (1) agreement
between the Shareholder Representatives and the Parent or (2) a judgment of the
arbitrators in connection with the resolution of a claim that such fees are
reasonable and are not required to be reimbursed by Parent. Amounts so released
for such fees and expenses will in no event be taken into account for purposes
of any determination of the Yield Shortfall. Any notice or other communication
to be delivered to the Shareholder Representatives shall be delivered to each of
them pursuant to Section 9.3 and any notice or other communication to be signed
by the Shareholder Representatives shall be valid and binding if signed by any
two Shareholder Representatives. Parent and the Surviving Corporation shall be
entitled to rely on such appointment and treat the Shareholder Representatives
as the duly appointed representatives for the Holders. If any Shareholder
Representative shall be unable to serve, the remaining Shareholder
Representatives shall appoint a replacement therefor, and if at any time only
one Shareholder Representative is then serving, then such Shareholder
Representative is authorized to act alone pursuant to this Section 8.4. Each
Shareholder Representative, by execution hereof, confirms such appointment and
authority and acknowledges and agrees that such appointment is irrevocable, it
being understood that the willingness of Parent to enter into this Agreement is
based, in part, on the appointment of a representative to act for such
post-Closing matters. In acting as the representative of the Holders, the
Shareholder Representatives may rely upon, and shall not be liable to any Holder
for acting or refraining from acting upon, an opinion of counsel, certificate of
auditors or other certificates, statement, instrument, opinion, report, notice,
request, consent, order, arbitrator's award, appraisal, bond other paper or
document reasonably believed by him to be genuine and to have been signed or
presented by the proper party or parties. No Shareholder Representative shall
incur any liability to any Holder with respect to any action taken or suffered
by him in his capacity as Shareholder Representative in reliance upon any note,
direction, instruction, consent, statement or other documents believed by him to
be genuinely and duly authorized. In addition, no Shareholder Representative
shall incur any liability to any Holder for any action or inaction except his
own fraud or willful misconduct. Each Shareholder Representative may perform his
duties as Shareholder Representatives either directly or by or through his
agents or attorneys and no Shareholder Representative shall be responsible to
any other Holder for any misconduct or negligence on the part of any agent or
attorney appointed with reasonable care by him hereunder or for any action or
inaction by any other Shareholder Representative. The parties acknowledge that
any liability, loss, damage, cost or other expense incurred by Argonaut Group,
Inc., Parent or the Surviving Corporation as a result of a claim by a Holder
against Argonaut Group, Inc., Parent or the Surviving Corporation seeking
damages as a result of or arising out of any act or omission of the Shareholder
Representatives under this Agreement in their capacities as such shall be
Recoverable Amounts under this Article VIII.
ARTICLE IX. MISCELLANEOUS
Section 9.1 Amendment; Waiver. (a) This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval by the shareholders of the Company of the
matters presented in connection with the Merger, but after any such approval no
amendment shall be made without the approval of such shareholders if such
amendment changes the amount or form of the Common Stock Merger Consideration or
Preferred Stock Merger Consideration or alters or changes any of the other terms
or conditions of this Agreement if such alteration or change would materially
adversely affect the rights of such shareholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
(b) At any time prior to the Effective Time, the parties may (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties contained herein or in any document, certificate or writing
delivered pursuant hereto or (iii) waive compliance with any of the agreements
or conditions of the other parties hereto contained herein other than terms
which could not be amended without shareholder approval pursuant to Section
9.1(a). Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement shall not constitute a waiver of such rights.
Section 9.2 Survival. Subject to Article VIII, the respective representations
and warranties of Parent, Merger Subsidiary and the Company contained herein or
in any certificates or other documents delivered prior to or as of the Effective
Time shall not survive beyond the Effective Time. Subject to Article VIII, the
covenants and agreements of the parties hereto (including the Surviving
Corporation after the Merger) shall survive the Effective Time without
limitation (except for those which, by their terms, contemplate a shorter
survival period).
Section 9.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
business days after the day when mailed in the United States by certified or
registered mail, postage prepaid, addressed at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to the Company, to:
Front Royal, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and
(b) if to Parent, Argonaut Group, Inc. or Merger Subsidiary, to:
Argonaut Insurance Company
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Given, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.4 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". The phrase "made available" when used in this Agreement shall mean
that the information referred to has been provided in a data room in connection
with the due diligence review conducted by Parent or has been otherwise made
available if requested by the party to whom such information is to be made
available. The words "affiliates" and "associates" when used in this Agreement
shall have the respective meanings ascribed to them in Rule 12b-2 under the
Exchange Act. The phrase "beneficial ownership" and words of similar import when
used in this Agreement shall have the meaning ascribed to it in Rule 13d-3 under
the Exchange Act. The phrase "business day" as used in this Agreement shall mean
any day other than Saturday and Sunday and any day on which banks are not
required or authorized to close in the State of New York. The phrase "the actual
knowledge of the Company" shall mean the actual knowledge of the directors and
executive officers of the Company.
Section 9.5 Headings; Disclosure Schedule. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Any matter disclosed pursuant to
any Section of the Disclosure Schedule shall be deemed to be disclosed for all
purposes under this Agreement but such disclosure shall not be deemed to be an
admission or representation as to the materiality of the item so disclosed.
Section 9.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
be considered one and the same agreement.
Section 9.7 Entire Agreement. This Agreement, together with the Confidentiality
Agreement, constitutes the entire agreement, and supersedes all prior agreements
and understandings (written and oral), among the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties among the parties other than those set forth or
referred to herein.
Section 9.8 Severability. In the event that this Agreement or any other
instrument referred to herein, or any of their respective provisions, or the
performance of any such provision, is found to be invalid, illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such proportions of this Agreement as shall be
found to be invalid, illegal or unenforceable under the applicable laws or
regulations without, to the maximum extent permitted by law, affecting the
validity of the remaining provisions of the Agreement. Should any method of
termination of this Agreement or a portion thereof be found to be invalid,
illegal or unenforceable, such method shall be reformed to comply with the
requirements of applicable law so as, to the greatest extent possible, to allow
termination by that method. Nothing herein shall be construed as a waiver of any
party's right to challenge the validity of such law. Section 9.9 Governing Law.
This Agreement shall be governed and construed in accordance with the laws of
the State of North Carolina without giving effect to the principles of conflicts
of law thereof.
Section 9.10 Arbitration; Enforcement. In the event of any dispute between the
parties with respect to any matter set forth herein, either Parent, on the one
hand, or the Company (or, after the Closing, the Shareholder Representatives in
the event of a dispute under Section 2.9 or under Article VIII), on the other
hand, may demand that the dispute be submitted to binding arbitration. The
demand for arbitration by any party (the "Demanding Party") shall (i) be in
writing, (ii) be served on the other party (the "Non-Demanding Party") in the
manner prescribed in Section 9.3 for giving notices, and (iii) set forth the
matter or matters to be arbitrated and the name of the arbitrator chosen by the
Demanding Party. Within fifteen Business Days after receipt of such demand, the
Non-Demanding Party shall choose an arbitrator and provide written notice of
such selection to the Demanding Party and shall specify the name and address of
such arbitrator. If the Non-Demanding Party shall fail to choose an arbitrator
and notify the Demanding Party as herein provided within such fifteen-day
period, the Demanding Party shall have the right to apply to the American
Arbitration Association (the "AAA") located in New York, New York for an
appointment of an arbitrator. The two arbitrators so chosen as set forth above
shall promptly appoint a third arbitrator as soon as practicable, provided,
however, if they do not do so within twenty Business Days after notice is given
to the parties of the appointment of the second arbitrator, either Party may
apply to the AAA for the appointment of the third arbitrator. Any arbitration
pursuant hereto shall be in accordance with the Commercial Arbitration Rules of
the AAA as then in effect, except to the extent that such rules are in conflict
with the provisions of this Section 9.10; provided, however, if the AAA is not
then functioning or such rules are not then in effect, arbitration proceedings
shall be conducted in accordance with the requirements of the Uniform
Arbitration Act. All such arbitration proceedings shall take place in New York,
New York. The arbitrators shall meet as soon as practicable after the third
arbitrator is appointed. Both the foregoing agreement of the parties to
arbitrate any and all claims, and the results, determination, finding, judgment
and/or award rendered pursuant to such arbitration, shall be final and binding
on the parties hereto and may be specifically enforced by legal proceedings in
any court having jurisdiction over such action. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the arbitrators shall be
authorized to issue an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement, and any such injunction issued by the arbitrators may be entered in
any court having jurisdiction. The arbitrators are also authorized to award
legal fees and costs.
Section 9.11 Liability. Argonaut Insurance Company and Argonaut Midwest
Insurance Company agree that their obligations under this Agreement shall be
joint and several.
Section 9.12 Assignment; No Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by, the parties and their respective successors and assigns. Except to the
extent necessary to enforce the provisions of Sections 2.3, 5.5 and 5.7, nothing
in this Agreement (whether expressed or implied) is intended to confer upon any
person other than the parties hereto and their respective permitted successors
and assigns, any rights or remedies under or by reason of this Agreement nor is
anything in this Agreement intended to relieve or discharge the liability of any
party hereto, nor shall any provision hereof give any person any right of
subrogation against, or action over against any party.
[SIGNATURE PAGE FOLLOWS]
10521-00032/886877.4
10521-00032/886877.4
IN WITNESS WHEREOF, Parent, Merger Subsidiary, Argonaut Group, Inc. and
the Company have caused this Agreement to be signed by their respective officers
hereunto duly authorized as of the date first written above.
FRONT ROYAL, INC.
By:/s/J.▇▇▇▇ ▇▇▇▇▇
----------------------------------------
Name:J. ▇▇▇▇ ▇▇▇▇▇
Title:President and Chief Executive
Officer
ARGONAUT INSURANCE COMPANY
By:/s/▇▇▇▇ ▇. ▇▇▇▇▇▇, III
----------------------------------------
Name:▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title:President and Chief Executive
Officer
ARGONAUT MIDWEST INSURANCE COMPANY
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, III
----------------------------------------
Name:▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title:President and Chief Executive
Officer
ARGONAUT ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, III
----------------------------------------
Name:▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title:President and Chief Executive
Officer
For purposes of Sections
5.8 and 9.3 hereof,
ARGONAUT GROUP, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, III
----------------------------------------
Name:▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title:President and Chief Executive
Officer
In their individual capacity as
Shareholder Representatives for purposes
of Article VIII hereto,
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
By: /s/ J.▇▇▇▇ ▇▇▇▇▇
----------------------------------------
Name: J. ▇▇▇▇ ▇▇▇▇▇
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Exhibit A - Form of Voting Agreement
[Argonaut Group Inc. Logo]
May 7, 2001
===================
-------------------
Dear ____________:
This letter is to confirm our agreement regarding all of the shares of
Class A Common Stock, no par value, Class B Common Stock, no par value and Class
C Common Stock, no par value common stock (collectively "FRINC Common Stock") of
Front Royal, Inc., a North Carolina corporation (the "Company"), beneficially
owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) by you and any other shares of FRINC Common Stock as to which
you may hereafter acquire beneficial ownership (collectively, the "Shares").
The Shares owned as of the date hereof are listed on Schedule 1 hereto.
In order to induce Argonaut Insurance Company, a California corporation,
Argonaut Midwest Insurance Company, an Illinois corporation (together, "Buyer")
and its affiliates, to enter into an Agreement and Plan of Merger, dated as of
May 7, 2001, by and among the Buyer, Argonaut Acquisition Corp. and the Company
(the "Merger Agreement"), you hereby agree as follows:
1. You hereby represent and warrant as to the Shares that (i) you are
the sole owner of and/or have full right, power and authority to vote the
Shares, and this letter agreement is a valid and binding agreement, enforceable
against you, in accordance with its terms, and (ii) neither the execution of
this letter agreement nor the consummation by you of the transactions
contemplated hereby will constitute a violation of, or conflict with, or default
under, any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which you are a party or by which you or the Shares
are bound. You further confirm that you are a member in good standing of the
board of directors of the Company.
2. You hereby agree not to sell, transfer or encumber the Shares prior
to the later of (i) the date on which the Merger Agreement is terminated in
accordance with its terms and (ii) the date on which this letter agreement is
terminated in accordance with its terms.
3. You agree to vote or cause to be voted all of the Shares (i) in
favor of approval and adoption of the Merger Agreement and the transactions
contemplated thereby and the Merger (as defined in the Merger Agreement) and
(ii) against any other mergers, recapitalizations, business combinations, sales
of assets, liquidations or similar transactions involving the Company, or any
other matters which would be inconsistent with the Merger Agreement or the
transactions contemplated thereby. In furtherance of your voting agreement in
this paragraph, you hereby revoke any and all previous proxies with respect to
any of the Shares and grant to Buyer and such individuals or corporations as
Buyer may designate an irrevocable proxy to vote all of the Shares owned by you
in accordance with this paragraph on any matters which may be presented to
shareholders of the Company with respect to any matters related to the Merger
Agreement or the transactions contemplated thereby, the Merger or any other
mergers, recapitalizations, business combinations, sales of assets, liquidations
or similar transactions involving the Company, or any other matters which would
be inconsistent with the Merger Agreement or the transactions contemplated
thereby or the Merger. You hereby acknowledge that the proxy granted by the
foregoing is coupled with an interest and is irrevocable. In addition, you
hereby agree to execute such additional documents as Buyer may reasonably
request to effectuate its proxy and voting rights under this paragraph.
4. We each hereby agree that this letter agreement creates legally
binding commitments, enforceable in accordance with their terms. This letter
agreement (i) constitutes the entire agreement among the parties hereto with
respect to the matter hereof and (ii) supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This letter agreement is not intended to confer upon any
other person any rights or remedies hereunder.
5. This letter agreement may be terminated (i) at any time by mutual
written consent of the parties hereto or (ii) by either party on or after the
date on which the Merger Agreement is terminated in accordance with its terms;
provided, however, that, if the Merger Agreement is terminated pursuant to
Section 7.1(b)(ii), 7.1(b)(iii) or 7.1(c) of the Merger Agreement, it shall be a
condition precedent to your right to terminate this letter agreement that you
pay to Buyer an amount (the "Spread") equal to the product of (x) the number of
Shares and (y) the difference between the Offer Price (as defined below) and
Common Stock Merger Consideration as applied to the Shares. No termination of
this letter agreement shall relieve either party from liability for any breach
of this letter agreement. You acknowledge that the agreements contained in this
paragraph 5 are an integral part of the transactions contemplated by this letter
agreement and that, without these agreements, Buyer would not enter into the
Merger Agreement. Accordingly, if you fail to pay promptly the Spread due
pursuant to this paragraph 5 and, in order to obtain such payment, Buyer
commences a suit that results in a judgment against you for the Spread, you
shall pay to Buyer (in addition to the Spread) all costs and expenses
(including, without limitation, fees and disbursements of counsel, financial
advisors, actuaries and accountants) incurred by Buyer in connection with such
suit, together with interest on the amount of the Spread at the prime rate of
Citibank N.A. in effect on the date that such payment was required to be made.
For purposes of this paragraph 5, the term "Offer Price" shall mean the price
per share of FRINC Common Stock to be paid by any third party pursuant to an
Acquisition Proposal (as defined in the Merger Agreement).
6. You acknowledge that irreparable damage to Buyer would occur in the
event that you do not perform any provision of this letter agreement in
accordance with its specific terms or otherwise breach this letter agreement.
You agree that, in the event of any breach or threatened breach by you of any
covenant or obligation contained in this letter agreement, Buyer shall be
entitled to seek and obtain (i) a decree or order of specific performance to
enforce the performance of such covenant or obligation and (ii) an injunction
restraining such breach or threatened breach. You further agree that Buyer shall
not be required to obtain, furnish or post any bond or similar instrument in
connection with or as a condition to obtaining any remedy referred to in this
paragraph 6, and you hereby irrecoverably waive any right that you may have to
require the obtaining, furnishing or posting of any such bond or similar
instrument.
7. This letter agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
New York. Each of the parties shall pay its own expenses in connection with the
execution and performance of this letter agreement.
8. If any term, provision, covenant or restriction of this letter
agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this letter agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and there shall be deemed
substituted for the provision at issue a valid, legal and enforceable provision
as similar as possible to the provision at issue.
Please indicate your agreement to the foregoing by signing this letter
agreement in the space provided below, whereupon a binding agreement will have
been formed between us in respect of the foregoing.
Sincerely,
ARGONAUT INSURANCE COMPANY
By :_______________________
Name:______________________
Title:_____________________
ARGONAUT MIDWEST INSURANCE COMPANY
By :_______________________
Name:______________________
Title:_____________________
Acknowledged and agreed as of the date first above written:
By :___________________________________
Name:__________________________________
Title:_________________________________
SCHEDULE 1
SHARES
10521-00032/886477.4
5/6/01
Exhibit B
Form of Escrow Agreement
ESCROW AGREEMENT, dated as of [insert Closing Date], among
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, J. ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ (collectively, the "Shareholder
Representatives"), Agronaut Insurance Company and Argonaut Midwest Insurance
Company (together, "Parent") and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
(the "Escrow Agent").
WHEREAS:
A. Pursuant to an Agreement and Plan of Merger, dated as of
May 7, 2001 (the "Merger Agreement"), among Front Royal, Inc. (the "Company"),
Parent and Argonaut Acquisition Corp. ("Merger Subsidiary"), on the date hereof,
Merger Subsidiary was merged with and into the Company and the separate
corporate existence of Merger Subsidiary ceased and the Company continued as the
surviving corporation and a wholly owned subsidiary of Parent. Capitalized terms
not otherwise defined herein shall have the respective meanings set forth in the
Merger Agreement.
B. Section 8.1 of the Merger Agreement provides that Parent
shall deposit $8,000,000 of the total Initial Common Stock Merger Consideration
and Initial Preferred Stock Merger Consideration payable pursuant thereto into
escrow with the Escrow Agent in order to provide an exclusive source of recovery
by Parent and the Surviving Corporation in the event any of the representations,
warranties or covenants of the Company under the Merger Agreement are breached
(such amount, together with any additional monies received by the Escrow Agent
and any interest earned thereon, the "Escrow Fund").
C. The Escrow Agent is willing to act as escrow agent
pursuant to the terms of this Escrow Agreement with respect to the Escrow Fund.
NOW, THEREFORE, IT IS AGREED:
1. Deposit of Monies in Escrow. On the date hereof, Parent
has delivered the Escrow Fund to the Escrow Agent, receipt of which is hereby
acknowledged by the Escrow Agent, which the Escrow Agent shall hold and disburse
pursuant to the terms of this Agreement.
2. Investment of Escrow Fund. Within two business days after
the date hereof, the Escrow Agent shall cause the Escrow Fund deposited with it
pursuant to this Agreement to be maintained and invested in an interest-bearing
money market account or accounts with Citibank, N.A. or any other nationally
recognized commercial bank. Any interest earned on or from the Escrow Fund shall
be deemed to be a part of the Escrow Fund and shall be held and disbursed in
accordance with the terms of this Agreement.
-6-
10521-00032/886477.4
3. Not Responsible. The Escrow Agent shall not be responsible
for any interest earned on or from the Escrow Fund except for such as is
actually received, nor shall the Escrow Agent be responsible for any loss
resulting from the investment of the Escrow Fund (including, but not limited to,
the loss of any interest arising from the sale of any investment prior to
maturity).
4. Disbursement of Escrow Fund; Sub-Accounts.
(a) The Escrow Agent shall hold the Escrow Fund and shall not de-
liver any amounts thereof to any party other than (i) pursuant to clause (b)
below, (ii) pursuant to a Joint Written Direction (as defined in clause (c) be-
low), (iii) to the extent permitted in Section 8.4 of the Merger Agreement, to
the Shareholder Representatives in accordance with written instructions from the
Shareholder Representatives in order to fund legal fees and expenses, or (iv) by
depositing the Escrow Fund with a court of competent jurisdiction in accordance
with the provisions of paragraph 8 hereof or with a successor escrow agent in
accordance with the provisions of paragraph 8 hereof.
(b) In the event that a Qualifying Claim is Finally Resolved
(as defined in clause (c) below), the Escrow Agent shall deliver the Escrow
Fund, or a portion thereof, as set forth in a Joint Written Direction or in a
final determination, finding, order or judgment of the arbitrators pursuant to
Section 9.10 of the Merger Agreement.
(c) For purposes of this Agreement, "Finally Resolved" shall mean
the following with respect to any Qualifying Claim made by Parent:
(i) if the Qualifying Claim is resolved
prior to a dispute, the amount of the Qualifying Claim as set forth in
a joint written direction from Parent and the Shareholder Representa-
tives that directs the Escrow Agent to release all or a portion of the
Escrow Fund or to take or refrain from taking an action pursuant to
this Agreement (any such joint written direction given pursuant to this
Agreement, a "Joint Written Direction");
(ii) if the Qualifying Claim is disputed
in whole or in part by the Shareholder Representatives but is subse-
quently resolved, compromised or settled, the amount of the Qualifying
Claim as set forth in a Joint Written Direction; or
(iii) if the Qualifying Claim results in
an arbitration pursuant to Section 9.10 of the Merger Agreement, the
delivery of a final determination, finding, order or judgment of the
arbitrators.
(d) Upon the expiration of the Hold Period (as hereinafter
defined), the Escrow Agent shall (i) retain such portion of the Escrow Fund in
an amount equal to pay in full all Qualifying Claims, if any, that have not been
Finally Resolved at such time, until such Qualifying Claims have been Finally Re
solved; (ii)continue to hold such additional amounts as may be directed by the
Shareholder Representatives and the Parent to fund any disputes relating to
claims; and (iii) deliver the balance of the Escrow Fund to the Paying Agent by
wire transfer to the account of the Paying Agent set forth on Exhibit 4(d)
hereof. For purposes hereof, "Hold Period" shall mean the period commencing on
the date hereof and ending on the earlier of (1) 12 months from the date hereof
and (2)the date set forth in a Joint Written Direction.
(e) Upon receipt from time to time of written notice from
Parent and the Shareholder Representatives, the Escrow Agent shall open or
record as a sub-account such Claims Reserves in such amount and with respect to
the associated Qualifying Claims as set forth therein.
5. Liability of Escrow Agent. It is agreed that the duties and
obligations of the Escrow Agent are only such as are herein specifically
provided and no other. The Escrow Agent's duties are as a depositary only, and
the Escrow Agent shall incur no liability whatsoever, except for its willful
misconduct or gross negligence. The Escrow Agent may consult with counsel of its
choice, and shall not be liable for any action taken, suffered or omitted by it
in accordance with the advice of such counsel. The Escrow Agent shall not be
bound in any way by any other terms of any other agreement to which Parent and
the Shareholder Representatives are parties, whether or not the Escrow Agent has
knowledge thereof, and the Escrow Agent shall not in any way be required to
determine whether or not any other agreement has been complied with by
Shareholder Representatives or Parent or any other party thereto. The Escrow
Agent shall not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Escrow Agreement unless the
same shall be in writing and signed jointly by Shareholder Representatives and
Parent and agreed to by the Escrow Agent. In the event that the Escrow Agent
shall be uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands which, in its opinion, are in conflict with any
of the provisions of this Escrow Agreement, it shall be entitled to refrain from
taking any action other than to keep safely, all property held in escrow until
it shall jointly be directed otherwise in writing by the Shareholder
Representatives and Parent or by a final judgment of a court of competent
jurisdiction.
6. Full Protection. The Escrow Agent is fully protected
in relying upon any written notice, demand, certificate or document which it,
in good faith, believes to be genuine.
7. No Legal Proceedings. The Escrow Agent shall not be
required to institute legal proceedings of any kind and shall not be required to
defend any legal proceedings which may be instituted against it.
8. Deposit Into Court. If the Escrow Agent at any time, in
its sole discretion, deems it necessary or advisable to relinquish custody of
the Escrow Fund, it may do so by delivering the same to any other escrow agent
mutually agreeable to the Shareholder Representatives and Parent and if no such
escrow agent shall be selected, then the Escrow Agent may do so by delivering
the Escrow Fund (a) to any bank or trust company in the Borough of Manhattan,
City and State of New York, which is willing to act as escrow agent thereunder
in place and instead of the Escrow Agent or (b) to the clerk or other proper
officer of a court of competent jurisdiction as may be permitted by law within
the State, County and City of New York. The fee of any such bank or trust
company or court officer shall be borne jointly and severally by the Shareholder
Representatives, on the one hand, and Parent, on the other hand. Upon such
delivery, the Escrow Agent shall be discharged from any and all further
responsibility or liability with respect to the Escrow Fund except as herein
provided.
9. No Fiduciary Duty. The Escrow Agreement shall not create
any fiduciary duty on the Escrow Agent's part to the Shareholder Representatives
or Parent or any of their respective affiliates, nor disqualify the Escrow Agent
from representing the Shareholder Representatives or any of their affiliates in
any dispute with Parent or any of its affiliates including, without limitation,
any dispute with respect to the Merger Agreement.
10. Expenses. The out-of-pocket expenses paid or incurred by
the Escrow Agent in the administration of its duties hereunder, including, but
not limited to, all counsel and advisors' and agents' fees including, without
limitation, counsel fees under paragraph 5 hereof, and all taxes or other
governmental charges, if any, shall be paid jointly and severally from the
Escrow Fund and by Parent. Each of Parent and the Shareholder Representatives
hereby authorizes the Escrow Agent to deliver to the Escrow Agent from the
Escrow Fund an amount equal to any and all such out-of-pocket expenses and taxes
or other governmental charges.
11. Indemnification of Escrow Agent. Parent hereby indemnifies
and holds the Escrow Agent harmless from and against any and all loss, damage,
tax, liability and expense that may be incurred by the Escrow Agent, arising out
of or in connection with its acceptance of appointment as the Escrow Agent
hereunder, or the performance of its duties pursuant to this Escrow Agreement,
including all legal costs and expenses of the Escrow Agent defending itself
against any claim or liability in connection with its performance hereunder;
provided that each of Parent and the Shareholder Representatives hereby
authorizes the Escrow Agent to deliver to the Escrow Agent from the Escrow Fund
an amount equal to any and all such loss, damage, tax, liability and expense.
12. Notices. All notices, requests, demands and other
communications hereunder shall be in writing, with copies to all the other
parties hereto, and shall be deemed to have been duly given (i) when delivered,
if by hand, (ii) when delivered, if sent by Express Mail, Federal Express or
other express delivery service (receipt requested) or (iii) three days after the
mailing thereof by first class registered or certified mail, return receipt
requested, postage prepaid, as follows:
(a) To the Shareholder ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Representatives: [address]
and
J. ▇▇▇▇ ▇▇▇▇▇
[address]
and
▇▇▇▇ ▇▇▇▇▇▇
[address]
with a copy to: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Aronsohn & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
(b) If to Parent to: Argonaut Insurance Company
Argonaut Midwest Insurance Company
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇ III
with a copy to: ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Given, Esq.
(c) If to Escrow Agent to: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Aronsohn & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
or at such other address as any of the parties to this Escrow Agreement may
hereafter designate by written notice to the others.
13.Governing Law. This Escrow Agreement shall be construed
and enforced in accordance with the law of the State of New York applicable to
contracts entered into and performed entirely within New York.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed the day and year first above written.
------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
J. ▇▇▇▇ ▇▇▇▇▇
------------------------------
▇▇▇▇ ▇▇▇▇▇▇
AGRONAUT INSURANCE COMPANY
By:___________________________
Name:
Title:
AGRONAUT MIDWEST
INSURANCE COMPANY
By:___________________________
Name:
Title:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
ARONSOHN & ▇▇▇▇▇▇ LLP
By:___________________________
A Member of the Firm
10521-00032/886477.4
Exhibit 4(d)
Wire Transfer Instructions
[insert instructions]
