STOCK AND ASSET PURCHASE AND SALE AGREEMENT
among
FRONT ROYAL, INC.
and
PNIC HOLDINGS, INC.,
as Buyer;
PREFERRED NATIONAL FINANCIAL CORP.,
WYCON CORPORATION,
UNITED AMERICAN FINANCIAL SERVICES CORPORATION,
AND
AMERICLAIM ADJUSTMENT CORP.,
as Sellers;
and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
(for certain limited purposes specified
in Section 14.8)
March 6, 1998
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................... 2
1.1 "Additional Escrow Amount".......................................... 2
1.2 "Adjustment Difference Amount"...................................... 2
1.3 "Affiliate"......................................................... 2
1.4 "Agreement"......................................................... 2
1.5 "Americlaim Assets"................................................. 2
1.6 "Americlaim Assumed Liabilities".................................... 2
1.7 "Americlaim Assumption Agreement"................................... 2
1.8 "Americlaim Excluded Assets"........................................ 2
1.9 "Americlaim Financial Statements.................................... 2
1.10 "Annual Statutory Statements"....................................... 2
1.11 "Assumption Agreements"............................................. 3
1.12 "Bills of Sale"..................................................... 3
1.13 "Britamco".......................................................... 3
1.14 "Britamco Financial Statements...................................... 3
1.15 "Britamco Runoff Agreement"......................................... 3
1.16 "Business Day"...................................................... 3
1.17 "Buyer"............................................................. 3
1.18 "Buyer's Closing Certificate"....................................... 3
1.19 "Buyer Disclosure Schedule"......................................... 3
1.20 "Cash and Invested Assets Purchase Price Adjustment"................ 3
1.21 "Class A Common Stock".............................................. 3
1.22 "Closing"........................................................... 3
1.23 "Closing Date"...................................................... 3
1.24 "Code............................................................... 4
1.25 "Companies" ........................................................ 4
1.26 "Contracts"......................................................... 4
1.27 "Control"........................................................... 4
1.28 "Deloitte & Touche"................................................. 4
1.29 "Deposit"........................................................... 4
1.30 "Employee Plans".................................................... 4
1.31 "Employees"......................................................... 4
1.32 "Employment Agreements"............................................. 4
1.33 "Ernst & Young"..................................................... 4
1.34 "Equipment Leases".................................................. 4
1.35 "ERISA"............................................................. 4
1.36 "ERISA Affiliate"................................................... 5
1.37 "Escrow Agent"...................................................... 5
1.38 "Escrow Agreement".................................................. 5
1.39 "Final Certificate"................................................. 5
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Page
1.40 "Final Closing Balance Sheet"....................................... 5
1.41 "Florida Code"...................................................... 5
1.42 "Florida Department"................................................ 5
1.43 "Front Royal"....................................................... 5
1.44 "GAAP".............................................................. 5
1.45 "GAAP Book Value of PNIC"........................................... 5
1.46 "GAAP Book Value Purchase Price Adjustment"......................... 5
1.47 "Holdings".......................................................... 5
1.48 "HSR Act"........................................................... 5
1.49 "Indemnity Claim"................................................... 5
1.50 "Intellectual Property"............................................. 6
1.51 "Law"............................................................... 6
1.52 "Lien".............................................................. 6
1.53 "Material Adverse Effect"........................................... 6
1.54 "Material Front Royal Subsidiaries"................................. 6
1.55 "Most Recent Company Financial Statements".......................... 6
1.56 "Non-Compete Agreement"............................................. 6
1.57 "Opinions of Buyer's Counsel"....................................... 6
1.58 "Opinion of Sellers' Counsel"....................................... 6
1.59 "Pension Plan"...................................................... 6
1.60 "Permits"........................................................... 6
1.61 "Permitted Lien".................................................... 7
1.62 "PNIC".............................................................. 7
1.63 "PNIC Shares"....................................................... 7
1.64 "Policyholders' Surplus"............................................ 7
1.65 "Policyholders' Surplus Purchase Price Adjustment".................. 7
1.66 "Preliminary Calculation Certificate"............................... 7
1.67 "Preliminary Closing Balance Sheet" ................................ 7
1.68 "Preliminary Purchase Price Adjustment Amount"...................... 7
1.69 "Purchase Price".................................................... 7
1.70 "Purchase Price Adjustment Amount".................................. 7
1.71 "Purchase Price Escrow Amount"...................................... 7
1.72 "Purchase Securities"............................................... 7
1.73 "Purchase Shares"................................................... 7
1.74 "Purchase Warrants"................................................. 7
1.75 "Quarterly Statutory Statements".................................... 8
1.76 "Registration Rights Agreement"..................................... 8
1.77 "Relationship Agreements"........................................... 8
1.78 "Reserves".......................................................... 8
1.79 "Reserve Estimate Midpoint"......................................... 8
1.80 "Reserve Purchase Price Adjustment"................................. 8
1.81 "SAP"............................................................... 8
1.82 "Securities Act".................................................... 8
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Page
1.83 "Seller" or "Sellers"............................................... 8
1.84 "Seller Assets"..................................................... 8
1.85 "Seller Assumed Liabilities"........................................ 8
1.86 "Seller Excluded Assets"............................................ 8
1.87 "Seller Financial Statements"....................................... 9
1.88 "Seller Shares"..................................................... 9
1.89 "Sellers' Closing Certificates...................................... 9
1.90 "Sellers' Disclosure Schedule"...................................... 9
1.91 "Software Licenses"................................................. 9
1.92 "Statutory Statements".............................................. 9
1.93 "Subsidiary"........................................................ 9
1.94 "Unamark"........................................................... 9
1.95 "Unamark Assets".................................................... 9
1.96 "Unamark Assumed Liabilities"....................................... 9
1.97 "Unamark Assumption Agreement"...................................... 9
1.98 "Unamark Excluded Assets"........................................... 9
1.99 "Unamark Financial Statements....................................... 9
1.100 "Wycon Assets"...................................................... 10
1.101 "Wycon Assumed Liabilities"......................................... 10
1.102 "Wycon Assumption Agreement"........................................ 10
1.103 "Wycon Excluded Assets"............................................. 10
1.104 "Wycon Financial Statements"........................................ 10
1.105 "Year 2000 Conformity".............................................. 10
ARTICLE 2 SALE AND PURCHASE OF SHARES AND ASSETS.............................. 10
2.1 Sale and Purchase of PNIC Shares.................................... 10
2.2 Sale and Purchase of Unamark Assets and Assignment and
Assumption of Certain Unamark Liabilities........................... 11
2.3 Sale and Purchase of Wycon Assets and Assignment and
Assumption of Certain Wycon Liabilities............................. 11
2.4 Sale and Purchase of Americlaim Assets and Assignment and
Assumption of Certain Americlaim Liabilities........................ 12
ARTICLE 3 PURCHASE PRICE...................................................... 13
3.1 The Purchase Price.................................................. 13
3.2 Payment of Purchase Price........................................... 14
3.3 Purchase Price Adjustment........................................... 14
3.4 Escrow Amounts...................................................... 16
ARTICLE 4 THE CLOSING......................................................... 18
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Page
4.1 Closing............................................................. 18
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............................................ 19
5.1 Organization and Good Standing...................................... 20
5.2 Capitalization...................................................... 20
5.3 Authority, Validity and Enforceability.............................. 20
5.4 No Violation or Breach.............................................. 21
5.5 Subsidiaries........................................................ 21
5.6 Seller Assets....................................................... 21
5.7 Seller Shares....................................................... 21
5.8 Compliance with Other Instruments and Laws.......................... 22
5.9 Consents. ......................................................... 22
5.10 Litigation.......................................................... 22
5.11 No Brokers.......................................................... 22
5.12 Absence of Certain Changes.......................................... 23
5.13 Financial Statements................................................ 24
5.14 Licenses and Permits................................................ 25
5.15 Insurance Regulatory Filings........................................ 26
5.16 Reserves............................................................ 26
5.17 Insurance Issued.................................................... 27
5.18 Reinsurance Policies................................................ 27
5.19 Taxes............................................................... 28
5.20 Contracts........................................................... 29
5.21 Employees........................................................... 30
5.22 Employee Benefit Matters............................................ 30
5.23 Assets and Properties............................................... 31
5.24 Operating Insurance................................................. 32
5.25 Bank Accounts....................................................... 32
5.26 Charter Documents and Bylaws........................................ 32
5.27 Minute Books........................................................ 32
5.28 Acquisition for Investment.......................................... 32
5.29 Year 2000........................................................... 33
5.30 Transactions with Interested Persons................................ 33
5.31 PNIC Business....................................................... 33
5.32 Undisclosed Liabilities............................................. 33
5.33 Britamco Business................................................... 34
5.34 Disclosure.......................................................... 34
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Page
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER............................. 34
6.1 Organization and Good Standing of Buyer............................. 34
6.2 Capitalization of Buyer............................................. 34
6.3 Authority, Validity and Enforceability as to Buyer.................. 35
6.4 No Violation or Breach by Buyer..................................... 35
6.5 Consents............................................................ 36
6.6 Issuance of Purchase Shares......................................... 36
6.7 Acquisition for Investment.......................................... 36
6.8 Litigation.......................................................... 36
6.9 No Brokers.......................................................... 37
6.10 Initial Public Offering............................................. 37
6.11 Subsidiaries........................................................ 37
6.12 Compliance with Other Instruments and Laws.......................... 37
6.13 Absence of Certain Changes.......................................... 37
6.14 Financial Statements................................................ 39
6.15 Licenses and Permits................................................ 39
6.16 Insurance Regulatory Filings........................................ 40
6.17 Reserves............................................................ 40
6.18 Undisclosed Liabilities............................................. 40
6.19 Charter Documents and Bylaws........................................ 41
6.20 Disclosure.......................................................... 41
ARTICLE 7 CERTAIN MATTERS PENDING THE CLOSING................................. 41
7.1 Carry on in Regular Course.......................................... 41
7.2 Indebtedness........................................................ 43
7.3 Issuance of Stock................................................... 43
7.4 Compensation........................................................ 43
7.5 Compliance with Law................................................. 43
7.6 Access to Information............................................... 43
7.7 Cooperation; Reasonable Efforts..................................... 45
7.8 Regulatory Filings.................................................. 45
7.9 Consents............................................................ 45
7.10 Publicity........................................................... 45
7.11 No Solicitation..................................................... 45
7.12 Discussions with Florida Department................................. 46
7.13 Articles and Bylaws................................................. 46
7.14 PNIC Business....................................................... 46
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Page
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF BUYER........................................................ 46
8.1 Compliance with Agreement........................................... 46
8.2 Proceedings and Instruments Satisfactory............................ 47
8.3 No Litigation....................................................... 47
8.4 Representations and Warranties...................................... 47
8.5 Agreements.......................................................... 47
8.6 Additional Deliveries at Closing.................................... 48
8.7 Regulatory Approvals................................................ 48
8.8 Consents............................................................ 48
8.9 Directors and Officers.............................................. 48
8.10 Waiting Periods..................................................... 48
8.11 Books and Records................................................... 48
8.12 Direct Written Premiums of PNIC..................................... 48
8.13 Britamco Business................................................... 49
8.14 Audited Financial Statements........................................ 49
8.15 Statutory Statements................................................ 49
8.16 Book Value of PNIC.................................................. 49
8.17 Officers Certificate................................................ 49
ARTICLE 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE SELLERS.................................................. 49
9.1 Compliance with Agreement........................................... 50
9.2 Proceedings and Instruments Satisfactory............................ 50
9.3 No Litigation....................................................... 50
9.4 Representations and Warranties...................................... 50
9.5 Agreements.......................................................... 50
9.6 Additional Deliveries at Closing.................................... 51
9.7 Regulatory Approvals................................................ 51
9.8 Consents............................................................ 51
9.9 Waiting Periods..................................................... 51
9.10 The Dividend........................................................ 51
9.11 Officers Certificate................................................ 51
ARTICLE 10 CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS......................... 52
10.1 Employee Benefit Plan Matters....................................... 52
10.2 Confidentiality..................................................... 53
10.3 Use of Names........................................................ 53
10.4 Non-Solicitation of Employees....................................... 53
10.5 Initial Public Offering............................................. 53
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Page
10.6 Britamco Business................................................... 53
10.7 Certain Tax Matters................................................. 53
10.8 Britamco Financial Statements....................................... 57
ARTICLE 11 INDEMNIFICATION..................................................... 57
11.1 Survival of Representations and Warranties.......................... 57
11.2 Indemnification by Sellers.......................................... 58
11.3 Indemnification by Buyer............................................ 59
11.4 Limitation of Liability............................................. 59
11.5 Notice of Indemnity Claims.......................................... 59
11.6 Indemnity Amounts to be Computed on After-Tax Basis................. 60
11.7 Remedies Cumulative................................................. 61
ARTICLE 12 TERMINATION......................................................... 61
12.1 Termination......................................................... 61
12.2 Effect of Termination............................................... 61
12.3 Amendment........................................................... 61
12.4 Extension; Waiver................................................... 61
ARTICLE 13 DEPOSIT; PAYMENTS ON TERMINATION.................................... 62
13.1 Deposit............................................................. 62
13.2 Distribution........................................................ 62
13.3 Payment to Sellers.................................................. 62
13.4 Payment to Buyer.................................................... 62
ARTICLE 14 MISCELLANEOUS....................................................... 63
14.1 Entire Agreement.................................................... 63
14.2 Expenses............................................................ 63
14.3 Governing Law....................................................... 63
14.4 Assignment.......................................................... 63
14.5 Further Assurances.................................................. 63
14.6 Notices............................................................. 63
14.7 Counterparts; Facsimile Signature; Headings......................... 64
14.8 Certain Matters Relating to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇........................ 65
14.9 Specific Performance................................................ 65
14.10 Severability........................................................ 65
14.11 No Reliance......................................................... 65
vii
EXHIBITS
1.7 - Form of Assumption Agreement
1.12 - Form of Bills of Sale
1.15 - Form of Britamco Runoff Agreement
1.18 - Form of Buyer's Closing Certificate
1.32 - Employment Agreements
1.38 - Form of Escrow Agreement
1.56 - Form of Non-Compete Agreement
1.76 - Form of Registration Rights Agreement
1.77 - Relationship Agreements
1.89 - Form of Sellers' Closing Certificates
3.1 - Form of Purchase Warrant
3.3 - Form of Preliminary Calculation Certificate
3.4 - Form of Final Certificate
SCHEDULES
1.34 - Equipment Leases
1.61 - Permitted Liens
1.91 - Software Licenses
2.2(a) - Unamark Excluded Assets
2.2(b) - Unamark Assumed Liabilities
2.3(a) - Wycon Excluded Assets
2.3(b) - Wycon Assumed Liabilities
2.4(a) - Americlaim Excluded Assets
2.4(b) - Americlaim Assumed Liabilities
3.1 - Purchase Price Allocation
5.1 - Sellers' Jurisdictions of Organization
5.2 - Capitalization of Sellers
5.9 - Seller Consents
5.10 - Seller Litigation
5.12 - Seller Changes
5.13(b) - Seller Financial Statements
5.14 - Licenses and Permits
5.15 - Deficiencies
5.16 - Reserves Exceptions
5.17 - Insurance Issued
5.18 - Reinsurance
5.19 - Tax Matters
5.20 - Contracts
5.21 - Employees
5.22(d) - Benefit Plans
5.23(a) - Intellectual Property
5.23(b) - Investment Assets
viii
5.23(d) - Leased Property
5.24 - Operating Insurance
5.25 - Bank Accounts
5.29 - Year 2000
5.30 - Related Party Agreements
5.32 - Certain Liabilities
6.2 - Buyer Capitalization
6.5 - Buyer Consents
6.8 - Litigation
6.11 - Subsidiaries
6.13 - Certain Changes
6.15 - Licenses and Permits
6.16 - Deficiencies
6.18 - Undisclosed Liabilities
ix
STOCK AND ASSET PURCHASE AND SALE AGREEMENT
STOCK AND ASSET PURCHASE AND SALE AGREEMENT, dated as of March 6,
1998, among Front Royal, Inc., a North Carolina corporation ("Front Royal"),
PNIC Holdings, Inc., a North Carolina corporation ("Holdings" and, together
with Front Royal, "Buyer"), Preferred National Financial Corp., a Florida
corporation ("PNFC"), Wycon Corporation, a Florida corporation ("Wycon"),
Americlaim Adjustment Corp., a Florida corporation ("Americlaim"), United
American Financial Services Corporation, a Florida corporation ("Unamark"),
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇"), for certain limited purposes
specified in Section 14.8. PNFC, Wycon, Unamark and Americlaim, are each
referred to herein as a "Seller" and are collectively referred to herein as
the "Sellers".
RECITALS
WHEREAS, PNFC wishes to sell to Holdings, and Holdings
wishes to purchase from PNFC, the PNIC Shares owned by PNFC which constitute
all of the issued and outstanding PNIC Shares;
WHEREAS, Unamark wishes to sell to Front Royal, and Front
Royal wishes to purchase from Unamark, all of the assets and business of
Unamark, other than certain excluded assets as set forth in this Agreement,
and Unamark wishes to assign to Front Royal, and Front Royal has agreed to
assume from Unamark, certain liabilities of Unamark as set forth in this
Agreement;
WHEREAS, Wycon wishes to sell to Front Royal, and Front
Royal wishes to purchase from Wycon, all of the assets and business of Wycon,
other than certain excluded assets as set forth in this Agreement, and Wycon
wishes to assign to Front Royal, and Front Royal has agreed to assume from
Wycon, certain liabilities of Wycon as set forth in this Agreement; and
WHEREAS, Americlaim wishes to sell to Front Royal, and Front
Royal wishes to purchase from Americlaim, all of the assets and business of
Americlaim, other than certain excluded assets as set forth in this Agreement,
and Americlaim wishes to assign to Front Royal, and Front Royal has agreed to
assume from Americlaim, certain liabilities of Americlaim as set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the
representations, warranties, covenants and agreements contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1
ARTICLE 1
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings specified. Reference is made to Sections 3.4 and 10.1 for certain
additional defined terms that are used solely in such Section.
1.1 "Additional Escrow Amount" shall have the meaning set forth in
Section 3.4(a) of this Agreement.
1.2 "Adjustment Difference Amount" shall have the meaning set forth
in Section 3.4 of this Agreement.
1.3 "Affiliate" shall mean, with respect to a specified person or
entity, another person or entity that directly, or indirectly through one or
more intermediaries, Controls or is Controlled by or is under common Control
with the person or entity specified. With respect to any individual person,
"Affiliate" shall also include such person's spouse, siblings, parents and
lineal descendants.
1.4 "Agreement" shall mean this Stock and Asset Purchase and Sale
Agreement, together with the Exhibits and Schedules attached hereto and the
Disclosure Schedules, as the same may be amended from time to time in
accordance with the terms hereof.
1.5 "Americlaim Assets" means all of the assets of Americlaim other
than the Americlaim Excluded Assets.
1.6 "Americlaim Assumed Liabilities" has the meaning set forth in
Section 2.4(b) of this Agreement.
1.7 "Americlaim Assumption Agreement" means the Assumption Agreement
dated the Closing Date between Buyer and Americlaim, substantially in the form
of Exhibit 1.7.
1.8 "Americlaim Excluded Assets" has the meaning set forth in Section
2.4(a) of this Agreement.
1.9 "Americlaim Financial Statements" shall have the meaning set
forth in Section 5.13 of this Agreement.
1.10 "Annual Statutory Statements" shall mean the annual statutory
convention statements of PNIC for each of the years ended December 31, 1994,
1995 and 1996, filed, and for the year ended December 31, 1997 to be filed,
with the Florida Department pursuant to the Florida Code (including
management's discussion and analysis and the supporting memorandum to the
actuarial opinions given in connection with such Annual Statutory Statements).
2
1.11 "Assumption Agreements" shall mean the Americlaim Assumption
Agreement, the Wycon Assumption Agreement and the Unamark Assumption
Agreement.
1.12 "Bills of Sale" shall mean the bills of sale dated the Closing
Date between Wycon, Americlaim and Unamark, on the one hand, and Front Royal
(or its designee), on the other hand, substantially in the form of Exhibit
1.12.
1.13 "Britamco" means Britamco Underwriters, Inc., a Florida
corporation.
1.14 "Britamco Financial Statements" shall have the meaning set forth
in Section 5.13(b) of this Agreement.
1.15 "Britamco Runoff Agreement" means the Britamco Runoff Agreement
dated the Closing Date between Buyer and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, substantially in
the form of Exhibit 1.15.
1.16 "Business Day" shall mean any day except a Saturday, Sunday or
any day on which United States chartered banking institutions are required by
United States, Florida or North Carolina Law to close.
1.17 "Buyer" has the meaning set forth in the first paragraph of this
Agreement.
1.18 "Buyer's Closing Certificate" shall mean the certificate of
Buyer, substantially in the form of Exhibit 1.18.
1.19 "Buyer Disclosure Schedule" shall mean the disclosure schedule,
dated the date hereof, furnished by Buyer to Sellers and containing all lists,
descriptions, exceptions and other information and materials as are required
to be included therein pursuant to this Agreement.
1.20 "Cash and Invested Assets Purchase Price Adjustment" shall have
the meaning set forth in Section 3.3 of this Agreement.
1.21 "Class A Common Stock" shall mean the Class A Common Stock, no
par value, of Front Royal.
1.22 "Closing" shall mean the closing of the transactions
contemplated by this Agreement.
1.23 "Closing Date" shall mean a date which is the last day of a
month (or, if the last day of such month is not a Business Day, the next
succeeding Business Day) and which is subsequent to the date on which all
conditions to the Closing have been either satisfied or waived and which is
within thirty Business Days after satisfaction or waiver of the conditions set
forth in Sections 8.7 and 9.7 [Regulatory Approvals], 8.8 and 9.8 [Consents],
and 8.10 and 9.9 [HSR]; provided, that the Buyer or the Sellers may delay the
Closing Date to a date no later than June 30, 1998.
3
1.24 "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
1.25 "Companies" shall mean Americlaim, PNIC, Unamark and Wycon, and
"Company" shall mean any of them.
1.26 "Contracts" shall have the meaning set forth in Section 5.20.
1.27 "Control" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
1.28 "Deloitte & Touche" shall mean Deloitte & Touche, LLP, PNFC's
and Britamco's independent certified public accountants.
1.29 "Deposit" shall have the meaning set forth in Section 13.1.
1.30 "Employee Plans" shall mean any contract, agreement, loan or
arrangement of any of the Companies or the ERISA Affiliates which is an
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
1.31 "Employees" shall have the meaning set forth in Section 5.21
hereof.
1.32 "Employment Agreements" means the Employment Agreements dated
the date hereof between PNIC and each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇,
attached hereto as Exhibit 1.32.
1.33 "Ernst & Young" shall mean Ernst & Young, LLP, Buyer's
independent certified public accountants.
1.34 "Equipment Leases" shall mean the equipment lease obligations of
any of the Sellers listed on Schedule 1.34 of the Disclosure Schedule.
1.35 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.
1.36 "ERISA Affiliate" shall mean each trade or business, whether or
not incorporated, which with any of the Companies is treated as a single
employer under Code Section 414(b), (c), (m) or (o).
1.37 "Escrow Agent" shall mean LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP.
1.38 "Escrow Agreement" shall mean the Escrow Agreement, dated as of
the date of this Agreement, among Buyer, the Sellers and the Escrow Agent,
substantially in the form of Exhibit 1.38 hereto.
4
1.39 "Final Certificate" shall have the meaning set forth in Section
3.4 of this Agreement.
1.40 "Final Closing Balance Sheet" shall have the meaning set forth
in Section 3.4 of this Agreement.
1.41 "Florida Code" shall mean the Florida Insurance Code, and the
regulations thereunder.
1.42 "Florida Department" shall mean the Florida Department of
Insurance.
1.43 "Front Royal" shall have the meaning set forth in the first
paragraph of this Agreement.
1.44 "GAAP" shall mean United States generally accepted accounting
principles, consistently applied.
1.45 "GAAP Book Value of PNIC" as at any date shall mean the
stockholders equity of PNIC determined in accordance with GAAP as at such
date.
1.46 "GAAP Book Value Purchase Price Adjustment" shall have the
meaning set forth in Section 3.3 of this Agreement.
1.47 "Holdings" shall have the meaning set forth in the first
paragraph of this Agreement.
1.48 "HSR Act" shall mean Section 7A of the ▇▇▇▇▇▇▇ Act (Title II of
the ▇▇▇▇- ▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976), as amended, and
the rules and regulations promulgated thereunder.
1.49 "Indemnity Claim" shall have the meaning set forth in Section
11.5 of this Agreement.
1.50 "Intellectual Property" shall have the meaning set forth in
Section 5.23 of this Agreement.
1.51 "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations, permits,
licenses and orders promulgated thereunder.
1.52 "Lien" shall mean any lien, pledge, charge, security interest,
encumbrance, title retention agreement, restriction, advance, claim or option.
5
1.53 "Material Adverse Effect" shall mean reasonably likely to have a
material adverse effect on the properties, business, results of operations, or
financial condition of any of the Companies.
1.54 "Material Front Royal Subsidiaries" shall mean the Subsidiaries
of Front Royal listed on Schedule 6.11 of the Buyer Disclosure Schedule that
are identified in such Schedule as Material Front Royal Subsidiaries. A
Material Front Royal Subsidiary is a Subsidiary that had total assets at
December 31, 1997 of more than 2% of the total assets of Front Royal and its
Subsidiaries on a consolidated basis determined in accordance with GAAP.
1.55 "Most Recent Company Financial Statements" has the meaning set
forth in Section 5.13(a).
1.56 "Non-Compete Agreement" means the Non-Compete Agreement dated
the Closing Date between Buyer and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, substantially in the form
of Exhibit 1.56.
1.57 "Opinions of Buyer's Counsel" shall mean the opinion of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel to Buyer, and the opinion of
the Mang Law Firm, special Florida insurance regulatory counsel to Buyer, in
form and substance reasonably satisfactory to Sellers and Sellers' counsel.
1.58 "Opinion of Sellers' Counsel" shall mean the opinion of LeBoeuf,
Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel to the Sellers, in form and substance
reasonably satisfactory to Buyer and Buyer's counsel.
1.59 "Pension Plan" shall have the meaning set forth in Section 5.22
of this Agreement.
1.60 "Permits" shall mean all licenses, permits and other
governmental authorizations, registrations and approvals required to conduct
the business of each of the Companies, as applicable.
1.61 "Permitted Lien" shall mean the Liens described on Schedule 1.61
of the Sellers' Disclosure Schedule with respect to (a) the Wycon Assets, (b)
the Americlaim Assets and (c) the Unamark Assets.
1.62 "PNIC" means Preferred National Insurance Company, a Florida
corporation.
1.63 "PNIC Shares" means the common stock, par value $1.00 per share,
of PNIC.
1.64 "Policyholders' Surplus" shall mean as at any date with respect
to PNIC the combined capital and surplus of PNIC as at such date, determined
in accordance with SAP.
1.65 "Policyholders' Surplus Purchase Price Adjustment" shall have
the meaning set forth in Section 3.3 hereof.
6
1.66 "Preliminary Calculation Certificate" shall have the meaning set
forth in Section 3.3 hereof.
1.67 "Preliminary Closing Balance Sheet" shall have the meaning set
forth in Section 3.3(a)(ii).
1.68 "Preliminary Purchase Price Adjustment Amount" shall have the
meaning set forth in Section 3.3 of this Agreement.
1.69 "Purchase Price" shall have the meaning set forth in Section 2.2
of this Agreement.
1.70 "Purchase Price Adjustment Amount" shall have the meaning set
forth in Section 3.3 of this Agreement.
1.71 "Purchase Price Escrow Amount" shall have the meaning set forth
in Section 3.4 of this Agreement.
1.72 "Purchase Securities" means the Purchase Shares, the Purchase
Warrants and the Class A Common Stock issuable upon exercise of the Purchase
Warrants.
1.73 "Purchase Shares" shall have the meaning set forth in Section
3.1 of this Agreement.
1.74 "Purchase Warrants" shall have the meaning set forth in Section
3.1 of this Agreement.
1.75 "Quarterly Statutory Statements" shall mean the quarterly
statutory convention statements of PNIC for the three-month periods ended
March 31, 1997, June 30, 1997, and September 30, 1997, filed with the Florida
Department pursuant to the Florida Code.
1.76 "Registration Rights Agreement" means the Second Amendment,
dated the Closing Date, in the form attached hereto as Exhibit 1.76, to the
Amended and Restated Registration Rights Agreement dated December 31, 1996, as
amended, among Buyer, the Sellers and the other parties thereto.
1.77 "Relationship Agreements" means the Endorsement Agreements dated
on or about the date hereof among PNIC and each of National Lawyers Risk
Management Association, American Society of Accountants, Inc., North American
Title Organization, Inc., and National Society of Dental Practitioners,
attached hereto as Exhibit 1.77.
1.78 "Reserves" as at any date with respect to PNIC shall mean PNIC's
loss, loss adjustment (allocated and unallocated) and unearned premium
reserves).
7
1.79 "Reserve Estimate Midpoint" shall mean the midpoint of the range
of estimates of Reserves as at the Closing Date established by Deloitte &
Touche for purposes of computing GAAP Book Value of PNIC as at the Closing
Date for purposes of Section 3.3(a)(i).
1.80 "Reserve Purchase Price Adjustment" shall have the meaning set
forth in Section 3.3 of this Agreement.
1.81 "SAP" shall mean statutory accounting practices required,
prescribed or permitted by the Florida Department, or other applicable
regulatory authority, consistently applied throughout the specified period and
in the comparable period in the immediately preceding year.
1.82 "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
1.83 "Seller" or "Sellers" has the meaning set forth in the first
paragraph of this Agreement.
1.84 "Seller Assets" means the Wycon Assets, the Unamark Assets and
the Americlaim Assets.
1.85 "Seller Assumed Liabilities" means the Wycon Assumed
Liabilities, the Unamark Assumed Liabilities and the Americlaim Assumed
Liabilities.
1.86 "Seller Excluded Assets" means the Wycon Excluded Assets, the
Unamark Excluded Assets and the Americlaim Excluded Assets.
1.87 "Seller Financial Statements" has the meaning set forth in
Section 5.13(a) of this Agreement.
1.88 "Seller Shares" means the PNIC Shares.
1.89 "Sellers' Closing Certificates" shall mean the certificates of
each of the Sellers, substantially in the forms attached as Exhibit 1.89.
1.90 "Sellers' Disclosure Schedule" shall mean the disclosure
schedule, dated the date hereof, furnished by Sellers to Buyer and containing
all lists, descriptions, exceptions and other information and materials as are
required to be included therein pursuant to this Agreement.
1.91 "Software Licenses" shall mean all licenses related to software
used by any of PNIC, Wycon, Unamark or Americlaim, including, without
limitation, those listed on Schedule 1.91 of the Sellers' Disclosure Schedule.
1.92 "Statutory Statements" shall mean, collectively, the Annual
Statutory Statements and the Quarterly Statutory Statements.
8
1.93 "Subsidiary" of any corporation or other business entity shall
mean any corporation or other business entity a majority of the voting stock
(or other beneficial interests) of which, entitled to vote for the election of
directors (or their counterparts), is owned by such corporation or other
business entity and all Subsidiaries of such corporation or other business
entity.
1.94 "Unamark" means United American Financial Services Corporation,
a Florida corporation.
1.95 "Unamark Assets" means all of the assets of Unamark other than
the Unamark Excluded Assets.
1.96 "Unamark Assumed Liabilities" has the meaning set forth in
Section 2.2(b) of this Agreement.
1.97 "Unamark Assumption Agreement" means the Assumption Agreement
dated the Closing Date between Buyer and Unamark, substantially in the form of
Exhibit 1.7.
1.98 "Unamark Excluded Assets" has the meaning set forth in Section
2.2(a) of this Agreement.
1.99 "Unamark Financial Statements" shall have the meaning set forth
in Section 5.13(b) of this Agreement.
1.100 "Wycon Assets" means all of the assets of Wycon other than the
Wycon Excluded Assets.
1.101 "Wycon Assumed Liabilities" has the meaning set forth in
Section 2.3(b) of this Agreement.
1.102 "Wycon Assumption Agreement" means the Assumption Agreement
dated the Closing Date between Buyer and Wycon, substantially in the form of
Exhibit 1.7.
1.103 "Wycon Excluded Assets" has the meaning set forth in Section
2.3(a) of this Agreement.
1.104 "Wycon Financial Statements" shall have the meaning set forth
in Section 5.13(a).
1.105 "Year 2000 Conformity" means that neither performance nor
functionality is affected by dates prior to, during or after the year 2000, in
particular: (a) no value for current date will cause any interruption in
operation; (b) date-based functionality must behave consistently for dates
prior to, during and after the year 2000; (c) in all interfaces and data
storage, the century in any date must be specified either explicitly or by
unambiguous algorithms or inferencing rules; and (d) the year 2000 must be
recognized as a leap year.
9
Unless the context of this Agreement otherwise requires, (a) words of
any gender are deemed to include the other genders, (b) words using the
singular or plural number also include the plural or singular number,
respectively, (c) the terms "hereof," "herein," "hereby," "hereto," and
derivative or similar words refer to this entire Agreement, (d) the terms
"ARTICLE," "Article" or "Section" refer to the specified ARTICLE, Article or
Section of this Agreement, (e) the phrase "in the ordinary course of business
and consistent with past practice" refers to the business, operations,
affairs, and practice consistent with past practices of such business,
operations, and affairs, (f) the term "including" and other forms of such
term, with respect to any matter or thing, means "including but not limited
to" such matter or thing, and (g) all references to "dollars" or "$" refer to
currency of the United States of America.
ARTICLE 2
SALE AND PURCHASE OF SHARES AND ASSETS
2.1 Sale and Purchase of PNIC Shares. Subject to the terms and
conditions of this Agreement, at the Closing, for the consideration specified
in Section 3.1, PNFC shall sell, assign and transfer to Holdings, and Holdings
shall purchase from PNFC, the PNIC Shares owned by PNFC, which shall
constitute all of the issued and outstanding shares of capital stock of PNIC.
2.2 Sale and Purchase of Unamark Assets and Assignment and Assumption
of Certain Unamark Liabilities. (a) Subject to the terms and conditions of
this Agreement, at the Closing, for the consideration specified in Section
3.1, Unamark shall sell, assign, convey, transfer and deliver to Front Royal
(or its designee), and Front Royal (or its designee) shall purchase from
Unamark, for the consideration specified in Section 3.1, all of Unamark's
right, title and interest in and to all assets of Unamark, other than those
listed on Schedule 2.2(a) (collectively, the "Unamark Excluded Assets"). To
the extent that any of the Unamark Assets are non-assignable or
non-transferable to Buyer, or non-assignable or non-transferable without the
consent of a third party, or shall be subject to any option by any third party
by virtue of a request for permission to assign or transfer by reason of or
pursuant to this Agreement or the transactions contemplated hereby, this
Agreement shall not constitute a contract to assign or transfer the same if an
attempted assignment or transfer would (i) constitute a breach of any such
agreement requiring consent or (ii) create rights in others not desired by
Buyer. If Unamark shall have failed to procure consent to any such assignment
or transfer or waiver of such option with respect to a Unamark agreement prior
to the Closing Date, and the Closing nevertheless takes place, Unamark shall
use its commercially reasonable efforts to make the use and benefit of such
Unamark Asset available to Buyer to the same extent, as nearly as may be
possible, as if such impediment to assignment or transfer did not exist.
(b) Subject to the terms and conditions of this Agreement,
and pursuant to the Unamark Assumption Agreement, effective as of the Closing,
Unamark shall assign to Buyer and Buyer shall assume from Unamark and Buyer
shall thereafter pay, perform and discharge, only the liabilities of Unamark
listed on Schedule 2.2(b) (such liabilities, the "Unamark Assumed
Liabilities"). The Unamark Assumed Liabilities to be assumed by Buyer on the
Closing Date
10
shall not include any liabilities or obligations of Unamark (i) for funded
debt and indebtedness for borrowed money, (ii) for Federal, state, local or
foreign income or payroll taxes or penalties, fines or interest with respect
thereto payable with respect to the ownership or operation of the Unamark
Assets or payable by or with respect to Unamark for any period prior to the
Closing Date (including payments pursuant to any tax indemnity or tax sharing
agreement), (iii) to indemnify any person by reason of the fact that such
person was a director, officer, employee or agent of any such entity or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee or agent of another entity, (iv) which constitute a breach
or violation by Unamark of any of the representations, warranties, covenants
or provisions of this Agreement, (v) with respect to any "employee benefit
plan" within the meaning of ERISA, (vi) arising from costs and expenses
related to the transactions contemplated by this Agreement, (vii) criminal
fines and penalties arising from or related to the conduct of the business of
Unamark or (viii) any liabilities of Unamark or, except as specifically set
forth in this Agreement, any of its Affiliates, not specifically set forth on
Schedule 2.2(b).
2.3 Sale and Purchase of Wycon Assets and Assignment and Assumption
of Certain Wycon Liabilities. (a) Subject to the terms and conditions of this
Agreement, at the Closing, for the consideration specified in Section 3.1,
Wycon shall sell, assign, convey, transfer and deliver to Front Royal (or its
designee), and Front Royal (or its designee) shall purchase from Wycon, for
the consideration specified in Section 3.1, all of Wycon's right, title and
interest in and to all assets of Wycon, other than those listed on Schedule
2.3(a) (collectively, the "Wycon Excluded Assets"). To the extent that any of
the Wycon Assets are non-assignable or non-transferable to Buyer, or
non-assignable or non-transferable without the consent of a third party, or
shall be subject to any option by any third party by virtue of a request for
permission to assign or transfer by reason of or pursuant to this Agreement or
the transactions contemplated hereby, this Agreement shall not constitute a
contract to assign or transfer the same if an attempted assignment or transfer
would (i) constitute a breach of any such agreement requiring consent or (ii)
create rights in others not desired by Buyer. If Wycon shall have failed to
procure consent to any such assignment or transfer or waiver of such option
with respect to a Wycon agreement prior to the Closing Date, and the Closing
nevertheless takes place, Wycon shall use its commercially reasonable efforts
to make the use and benefit of such Wycon Asset available to Buyer to the same
extent, as nearly as may be possible, as if such impediment to assignment or
transfer did not exist.
(b) Subject to the terms and conditions of this Agreement,
and pursuant to the Wycon Assumption Agreement, effective as of the Closing,
Wycon shall assign to Buyer and Buyer shall assume from Wycon and Buyer shall
thereafter pay, perform and discharge only the liabilities of Wycon listed on
Schedule 2.3(b) (such liabilities, the "Wycon Assumed Liabilities"). The Wycon
Assumed Liabilities to be assumed by Buyer on the Closing Date shall not
include any liabilities or obligations of Wycon (i) for funded debt and
indebtedness for borrowed money, (ii) for Federal, state, local or foreign
income or payroll taxes or penalties, fines or interest with respect thereto
payable with respect to the ownership or operation of the Wycon Assets or
payable by or with respect to Wycon for any period prior to the Closing Date
(including payments pursuant to any tax indemnity or tax sharing agreement),
(iii) to indemnify any person by reason of the fact that such person was a
director, officer, employee or agent of
11
any such entity or was serving at the request of any such entity as a partner,
trustee, director, officer, employee or agent of another entity, (iv) which
constitute a breach or violation by Wycon of any of the representations,
warranties, covenants or provisions of this Agreement, (v) with respect to any
"employee benefit plan" within the meaning of ERISA, (vi) arising from costs
and expenses related to the transactions contemplated by this Agreement, (vii)
criminal fines and penalties arising from or related to the conduct of the
business of Wycon or (viii) any liabilities of Wycon or, except as
specifically set forth in this Agreement, any of its Affiliates, not
specifically set forth on Schedule 2.3(b).
2.4 Sale and Purchase of Americlaim Assets and Assignment and
Assumption of Certain Americlaim Liabilities. (a) Subject to the terms and
conditions of this Agreement, at the Closing, for the consideration specified
in Section 3.1, Americlaim shall sell, assign, convey, transfer and deliver to
Front Royal (or its designee), and Front Royal (or its designee) shall
purchase from Americlaim, for the consideration specified in Section 3.1, all
of Americlaim's right, title and interest in and to all assets of Americlaim,
other than those assets listed on Schedule 2.4(a) (the "Americlaim Excluded
Assets"). To the extent that any of the Americlaim Assets are non-assignable
or non-transferable to Buyer, or non-assignable or non-transferable without
the consent of a third party, or shall be subject to any option by any third
party by virtue of a request for permission to assign or transfer by reason of
or pursuant to this Agreement or the transactions contemplated hereby, this
Agreement shall not constitute a contract to assign or transfer the same if an
attempted assignment or transfer would (i) constitute a breach of any such
agreement requiring consent or (ii) create rights in others not desired by
Buyer. If Americlaim shall have failed to procure consent to any such
assignment or transfer or waiver of such option with respect to an Americlaim
agreement prior to the Closing Date, and the Closing nevertheless takes place,
Americlaim shall use its commercially reasonable efforts to make the use and
benefit of such Americlaim Asset available to Buyer to the same extent, as
nearly as may be possible, as if such impediment to assignment or transfer did
not exist.
(b) Subject to the terms and conditions of this Agreement,
and pursuant to the Americlaim Assumption Agreement, effective as of the
Closing, Americlaim shall assign to Buyer and Buyer shall assume from
Americlaim and Buyer shall thereafter pay, perform and discharge only the
liabilities of Americlaim listed on Schedule 2.4(b) (such liabilities, the
"Americlaim Assumed Liabilities"). The Americlaim Assumed Liabilities to be
assumed by Buyer on the Closing Date shall not include any liabilities or
obligations of Americlaim (i) for funded debt and indebtedness for borrowed
money, (ii) for Federal, state, local or foreign income or payroll taxes or
penalties, fines or interest with respect thereto payable with respect to the
ownership or operation of the Americlaim Assets or payable by or with respect
to Americlaim for any period prior to the Closing Date (including payments
pursuant to any tax indemnity or tax sharing agreement), (iii) to indemnify
any person by reason of the fact that such person was a director, officer,
employee or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee or agent of another
entity, (iv) which constitute a breach or violation by Americlaim of any of
the representations, warranties, covenants or provisions of this Agreement,
(v) with respect to any "employee benefit plan" within the meaning of ERISA,
(vi) arising from costs and expenses related to the transactions contemplated
by this Agreement, (vii) criminal fines and penalties arising from or related to
the
12
conduct of the business of Americlaim or (viii) any liabilities of Americlaim
or, except as specifically set forth in this Agreement, any of its Affiliates,
not specifically set forth on Schedule 2.4(b).
ARTICLE 3
PURCHASE PRICE
3.1 The Purchase Price. The aggregate purchase price (the "Purchase
Price") for the PNIC Shares and the Seller Assets shall consist of (i)
$35,000,000 in cash, subject to adjustment as set forth in Section 3.3(a) and
3.4 below, (ii) 500,000 shares of Class A Common Stock (the "Purchase
Shares"), free and clear of all Liens (other than the restrictions on transfer
referred to in Section 5.28), and (iii) warrants (the "Purchase Warrants"),
free and clear of all Liens (other than the restrictions on transfer referred
to in Section 5.28) to purchase an additional 1,050,000 shares of Class A
Common Stock at an exercise price of $10.00 per share (which Purchase Warrants
shall be substantially in the form of Exhibit 3.1), subject, in the case of
clauses (ii) and (iii), to adjustment as set forth in Section 3.3(b) below.
The Purchase Price shall be allocated among the Sellers as set forth on
Schedule 3.1. The allocation of the Purchase Price shall be reported by Buyer
and the Sellers in a manner consistent with the allocation of the Purchase
Price set forth herein with all federal, state and local and foreign tax
authorities. The Purchase Price shall be payable as provided in Section 3.2.
3.2 Payment of Purchase Price. Payment of the cash portion of the
Purchase Price shall be in U.S. dollars, and shall be made by Buyer at the
Closing in accordance with Section 4.1, subject to Section 3.4, and delivery
of the Purchase Shares and Purchase Warrants shall be made at the Closing in
accordance with Section 4.1.
3.3 Purchase Price Adjustment. (a) (i) The cash portion of the
Purchase Price, as set forth in Section 3.1, shall be adjusted, as
appropriate, as follows:
(A) The cash portion of the Purchase Price shall be
increased or decreased, as appropriate, on a
dollar-for-dollar basis by the amount by which the GAAP Book
Value of PNIC as at the Closing Date is greater than or less
than $35,000,000; provided that the maximum upward increase
in the Purchase Price on account of this Section
3.3(a)(i)(A) shall be $5,000,000. The adjustment described
in this Section 3.3(a)(i)(A) is referred to as the "GAAP
Book Value Purchase Price Adjustment."
(B) If the Closing Date is on or after May 31,
1998, the cash portion of the Purchase Price shall be
decreased by an amount equal to 25% of the amount, if any,
by which the cash and invested assets of PNIC as at the
Closing Date, determined in accordance with GAAP, is less
than $70,000,000. The adjustment described in this Section
3.3(a)(i)(B) is referred to as the "Cash and Invested Assets
Purchase Price Adjustment."
13
(C) The cash portion of the Purchase Price shall be
increased on a dollar-for-dollar basis by the amount, if
any, by which the Reserves of PNIC as at the Closing Date,
used for purposes of computing the GAAP Book Value of PNIC
as at the Closing Date and for purposes of computing
Policyholders' Surplus as at the Closing Date, exceed the
Reserve Estimate Midpoint by more than $500,000; or shall be
decreased on a dollar-for-dollar basis by the amount, if
any, by which the Reserves of PNIC as at the Closing Date,
used for purposes of computing the GAAP Book Value of PNIC
as at the Closing Date and for purposes of computing
Policyholders' Surplus as at the Closing Date, are less
than the Reserve Estimate Midpoint by more than $500,000.
The adjustment described in this Section 3.3(a)(i)(C) is
referred to as the "Reserve Purchase Price Adjustment."
(D) The cash portion of the Purchase Price shall be
decreased on a dollar-for-dollar basis by the amount by
which the Policyholders' Surplus of PNIC as at the Closing
Date is more than $50,000 less than the GAAP Book Value of
PNIC as at the Closing Date, excluding differences on
account of (i) the treatment of deferred acquisition costs,
(ii) the ▇▇▇▇-to-market of the investment portfolio, (iii)
inclusion of nonadmitted assets, (iv) the elimination of the
statutory provision for reinsurance and (v) the treatment of
income taxes. The adjustment described in this Section
3.3(a)(i)(D) is referred to as the "Policyholders' Surplus
Purchase Price Adjustment."
(E) In the event the Closing Date is not the last
day of a month, then all the foregoing computations and
adjustments (including without limitation the computation of
Reserves for purposes of determining the Reserve Estimate
Midpoint) shall be made as of the last day of the month
immediately preceding the Closing Date.
(F) The foregoing adjustments shall be made and
applied cumulatively, and any reductions in the cash portion
of the Purchase Price shall be applied to offset any
increases, and vice versa, and the net resulting adjustment
is referred to herein as the "Purchase Price Adjustment
Amount."
(ii) On the Closing Date PNFC shall deliver to Buyer a
certificate (the "Preliminary Calculation Certificate"),
substantially in the form attached hereto as Exhibit 3.3, setting
forth and/or certifying (1) the best good faith estimate of PNFC and
PNIC as of the Closing Date of (A) the GAAP Book Value of PNIC as at
the Closing Date and the GAAP Book Value Purchase Price Adjustment
(the "GAAP Book Value of PNIC Preliminary Determination Amount"), (B)
the cash and invested assets of PNIC as at the Closing Date and the
Cash and Invested Assets Purchase Price Adjustment (the "Cash and
Invested Assets Preliminary Determination Amount"), (C) the
difference between Policyholders' Surplus and the GAAP Book Value of
PNIC and the Policyholders' Surplus Purchase Price Adjustment (the
"Policyholders' Surplus Difference Preliminary Determination
Amount"), and (D) the reserves of PNIC and the
14
Reserve Purchase Price Adjustment (the "PNIC Reserves Preliminary
Determination Amount"), and (2) the balance sheet of PNIC as of the
Closing Date prepared on a proforma basis and based on estimates of
historical data and analysis of trends in a good faith effort to
approximate GAAP ("Preliminary Closing Balance Sheet"). The GAAP
Book Value of PNIC Preliminary Determination Amount, the Cash and
Invested Assets Preliminary Determination Amount, the Policyholders'
Surplus Difference Preliminary Determination Amount and the PNIC
Reserves Preliminary Determination Amount are referred to herein as
the "Preliminary Determinations" and the calculations made to derive
the Preliminary Determinations are referred to as the "Preliminary
Calculations." The Preliminary Calculation Certificate shall be
signed by the Chief Financial Officer of PNFC and the Chief
Financial Officer of PNIC.
(iii) At the Closing Date, the cash portion of the Purchase
Price shall be provisionally adjusted in accordance with Section
3.3(a)(i) based on the Preliminary Calculations and the Preliminary
Determinations. The provisional adjustment, if any, to the cash
portion of the Purchase Price resulting from such calculations is
referred to as the "Preliminary Purchase Price Adjustment Amount." At
the Closing, the Buyer shall pay to the Sellers, as appropriate,
$35,000,000, plus or minus the Preliminary Purchase Price Adjustment
Amount, less $1,000,000 to be deposited into escrow in accordance
with Section 3.4.
(b) The number of Purchase Shares and the number of shares
of Class A Common Stock issuable upon exercise of the Purchase Warrants, and
the exercise price therefor, shall be adjusted either upward or downward to
account for any stock splits or stock dividends (or other similar events) with
respect to the Class A Common Stock during the period between the date of this
Agreement and the Closing Date.
3.4 Escrow Amounts. (a) At the Closing, Buyer shall deposit into
escrow with the Escrow Agent, in accordance with the Escrow Agreement, an
aggregate of $2,000,000, consisting of (i) $1,000,000 of the cash portion of
the Purchase Price allocable to PNFC (the "Purchase Price Escrow Amount") and
(ii) $1,000,000 of Buyer's funds (the "Additional Escrow Amount").
(b) The Buyer and PNFC shall arrange for Deloitte & Touche
to deliver, as promptly as practicable after the Closing, to Buyer, PNFC and
Ernst & Young an actuarial reserve study of the Reserves of PNIC as at the
Closing Date and setting forth a range of appropriate Reserves for PNIC as at
such date.
(c) The Buyer and PNFC shall arrange for Deloitte & Touche,
as promptly as practicable after the Closing, to perform an audit of the
Preliminary Closing Balance Sheet, and to prepare and deliver to Buyer, PNIC
and the Escrow Agent financial statements of PNIC as of the Closing Date. Such
financial statements (the "Closing Financial Statements") shall include a
balance sheet (the "Final Closing Balance Sheet") and statements of
operations, changes in shareholders' equity, and statements of cash flows as
at the Closing Date and for the portion of the fiscal year then ended, shall
include all footnote disclosures required by GAAP, shall include
15
an audited reconciliation of GAAP to SAP, and shall be certified by Deloitte &
Touche in accordance with GAAP. Promptly after its receipt of the Closing
Financial Statements, PNFC shall prepare and deliver to each of Buyer and the
Escrow Agent a final certificate (the "Final Certificate"), substantially in
the form attached hereto as Exhibit 3.4, setting forth its computations of the
Purchase Price Adjustment and the amount of the difference (the "Adjustment
Difference Amount"), if any, between the Preliminary Purchase Price Adjustment
Amount and the Purchase Price Adjustment Amount.
(d) The cost of the actuarial reserve study referred to in
Section 3.4(c) shall be borne equally by PNFC and Buyer, and the cost of the
audit of the Closing Financial Statements shall be borne by PNFC.
(e) Prior to and following the Closing, for the purpose of
reviewing the Preliminary Closing Balance Sheet and the Closing Financial
Statements and related materials, PNFC and PNIC shall permit Buyer,
▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ & ▇▇▇▇▇ full and complete access to the books and
records of PNIC, to the audit work papers of Deloitte & Touche and to the
personnel of PNFC, PNIC and Deloitte & Touche. Buyer shall have the right at
any time during the thirty (30) day period following its receipt of the Final
Certificate, the Closing Financial Statements and supporting materials to
object to (i) any item or items in the Closing Financial Statements, and (ii)
any other matters set forth in or related to the computations set forth in the
Final Certificate. Any such objection (an "Objection Notice") shall be in
writing, shall be given to PNFC, Deloitte & Touche and to the Escrow Agent,
and shall set forth in reasonable detail the nature and basis for Buyer's
objections. If Buyer does not give an Objection Notice within such thirty (30)
day period, then the Final Certificate and the Final Balance Sheet, as
prepared and delivered by PNFC and Deloitte & Touche, respectively, shall be
final and binding on the parties. Following the giving of an Objection Notice,
Buyer and PNFC shall negotiate in good faith a resolution of all matters set
forth in the Objection Notice. If the parties resolve all such matters, then
they shall make a determination of the Adjustment Difference Amount and shall
issue a Joint Written Direction (as defined in the Escrow Agreement) to the
Escrow Agent. If the parties cannot resolve all such matters within fifteen
(15) days after the date on which Buyer gave the Objection Notice, then
thereafter either of Buyer or PNFC may elect, upon notice to the other, to
submit all unresolved matters to KPMG Peat Marwick or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as the
parties may agree (and if they cannot agree, the selection shall be made by
flip of a coin) (the "Independent Party"), which shall resolve all matters in
dispute (but only such matters) between the parties and whose decision as to
the Adjustment Difference Amount shall be conclusive and binding on the
parties. The decision of the Independent Party shall be in writing (such
writing is referred to as an "Independent Direction Certificate"), shall be in
a form substantially similar to the Final Certificate, and shall be delivered
to Buyer, PNFC, Escrow Agent, Deloitte & Touche and Ernst & Young. The fees
and expenses of the Independent Party shall be borne equally by PNFC and
Buyer.
(f) The following provisions shall apply after final
determination of the Adjustment Difference Amount pursuant to subsection (c)
or (e), above. If the Adjustment Difference Amount is zero, then the Escrow
Agent shall deliver the Purchase Price Escrow Amount, plus
16
any interest or income thereon, to PNFC and the Additional Escrow Amount, plus
any interest or income thereon, to Buyer. If the Adjustment Difference Amount
is greater than zero, then the Purchase Price shall be adjusted either upward
or downward, as applicable, by the Adjustment Difference Amount. If the
Purchase Price, as adjusted by the Preliminary Purchase Price Adjustment
Amount, is adjusted downward by the Adjustment Difference Amount then the
Escrow Agent shall deliver the Adjustment Difference Amount,
plus any interest or income thereon, to Buyer from the Purchase Price Escrow
Amount, deliver the balance of the Purchase Price Escrow Amount, plus interest
or income earned on such balance, to PNFC and shall deliver the Additional
Escrow Amount, plus interest or income thereon, to Buyer. If the Purchase
Price, as adjusted by the Preliminary Purchase Price Adjustment Amount, is
adjusted upward by the Adjustment Difference Amount then the Escrow Agent
shall deliver the Adjustment Difference Amount, plus any interest or income
thereon, to PNFC from the Additional Escrow Amount, deliver the balance of the
Additional Escrow Amount, plus any interest or income earned on such balance,
to Buyer, and shall deliver the Purchase Price Escrow Amount, plus any
interest or income thereon, to PNFC. The right to receive amounts pursuant to
this Section 3.4 shall not be an exclusive remedy to either party on account
of any adjustment to the Purchase Price or other claim under this Agreement,
and if the Purchase Price Escrow Amount or the Additional Escrow Amount is
insufficient to settle in full any adjustments to the cash portion of the
Purchase Price, then Buyer or PNFC, as the case may be, shall be obligated to
pay the shortfall, together with the amount of interest or income which would
have been earned on such amount, at the effective rate of interest earned on
all funds in escrow since the Closing Date, promptly after all amounts are
disbursed pursuant to this Section 3.4.
ARTICLE 4
THE CLOSING
4.1 Closing. (a) The Closing will take place at the offices of
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., local time, on the Closing Date.
(b) At the Closing, Buyer shall deliver or cause to be
delivered the following, as the same may be adjusted pursuant to Section 3.3:
(i) $34,000,000 of the Purchase Price (subject to
adjustment pursuant to Section 3.3(a)(iii)) in cash payable by wire
transfer of immediately available funds to an account or accounts
designated by the Sellers and $1,000,000 of the Purchase Price,
together with an additional $1,000,000 of Buyer's own funds, in cash
payable by wire transfer of immediately available funds to an account
or accounts designated by the Escrow Agent to be held in escrow
pursuant to the terms of this Agreement and the Escrow Agreement,
which amount shall be allocated among the Sellers in accordance with
Schedule 3.1;
(ii) one or more certificates, issued in accordance
with Schedule 3.1, representing the Purchase Shares with all required
transfer taxes or stamps paid for or
17
affixed thereto, free and clear of all Liens (other than Liens that
are solely as a result of Sellers' actions and other than the
restrictions on transfer referred to in Section 5.28);
(iii) the Purchase Warrants, issued in accordance with
Schedule 3.1 with all required transfer taxes or stamps paid for or
affixed thereto, free and clear of all Liens (other than Liens that
are solely as a result of Sellers' actions and other than the
restrictions on transfer referred to in Section 5.28); and
(iv) the other documents or instruments required to be
delivered by Buyer pursuant to Article 9.
(c) At the Closing, PNFC shall deliver to Holdings the
following:
(i) one or more certificates representing the PNIC
Shares accompanied by stock powers duly endorsed in blank, with all
required transfer taxes or stamps paid for or affixed thereto, free
and clear of all Liens (other than Liens that arise solely as a
result of Buyer's actions and other than the restrictions on transfer
referred to in Section 6.7); and
(ii) the other documents or instruments required to be
delivered by PNFC pursuant to Article 8.
(d) At the Closing, Wycon, Unamark and Americlaim shall
deliver to Front Royal the Bills of Sale and the other documents or
instruments required to be delivered by them pursuant to Article 8.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Each of the following representations and warranties are made on the
following basis: (i) representations and warranties given by the Sellers with
respect to themselves are given severally by each Seller with respect to
itself and not jointly (regardless of whether the representations and
warranties by their terms pertain to a single Seller, multiple Sellers or all
of the Sellers as a group); (ii) representations and warranties with respect
to Wycon and the assets and liabilities of Wycon are deemed made only by Wycon
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (regardless of whether the representations and warranties
by their terms pertain only to Wycon, the assets and liabilities of Wycon or
to the Sellers, the Companies, the Seller Assets or the Sellers' liabilities,
collectively); (iii) representations and warranties with respect to Americlaim
and the assets and liabilities of Americlaim are deemed made only by
Americlaim and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (regardless of whether the representations and
warranties by their terms pertain only to Americlaim, the assets and
liabilities of Americlaim or to the Sellers, the Companies, the Seller Assets
or the Sellers' liabilities, collectively); (iv) representations and
warranties with respect to Unamark and the
18
assets and liabilities of Unamark are deemed made only by Unamark and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ (regardless of whether the representations and warranties by their
terms pertain only to Unamark, the assets and liabilities of Unamark or to the
Sellers, the Companies, the Seller Assets or the Sellers' liabilities
collectively); and (v) representations and warranties with respect to PNFC and
PNIC and their respective assets and liabilities are deemed made only by PNFC.
5.1 Organization and Good Standing. (a) Each of the Sellers and PNIC
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction set forth in Schedule 5.1 of the Sellers'
Disclosure Schedule. Each of the Sellers and PNIC has all requisite corporate
power and authority to conduct its business as currently conducted and to own
or lease and to operate its properties. Each of the Companies is duly
qualified or admitted to do business and is in good standing as a foreign
corporation in all jurisdictions in which the ownership, use or leasing of its
assets or properties or the conduct or nature of its business makes such
qualification or admission necessary, except where the failure to be so
qualified or admitted would not have a Material Adverse Effect. Schedule 5.1
of the Sellers' Disclosure Schedule sets forth all jurisdictions in which any
of the Companies are qualified to transact business as a foreign corporation.
5.2 Capitalization. The capitalization of PNIC is set forth on
Schedule 5.2 of the Sellers' Disclosure Schedule. All outstanding shares set
forth on Schedule 5.2 of the Sellers' Disclosure Schedule have been duly
authorized and validly issued and are fully paid and non-assessable. There are
no outstanding securities, rights (pre-emptive or other), subscriptions,
calls, warrants, options, or other agreements (except for this Agreement) that
give any person or entity the right to (i) purchase or otherwise receive or be
issued any shares of capital stock of PNIC (or any interest therein) or any
security convertible into or exchangeable for any shares of capital stock of
PNIC (or any interest therein), (ii) receive any dividend, voting or ownership
rights similar to those accruing to a holder of shares of capital stock of
PNIC, or (iii) participate in the equity, income or election of directors or
officers of PNIC. Except as set forth in Schedule 5.2 of the Sellers'
Disclosure Schedule, there are no proxies, voting trusts or other agreements
or understandings to which PNFC is a party or by which it is bound with
respect to the voting of any of the PNIC Shares.
5.3 Authority, Validity and Enforceability. Each of the Sellers has
full power and authority, corporate or otherwise, to execute, deliver and
perform its obligations under this Agreement and to consummate the
transactions required of it contemplated hereby. The execution, delivery and
performance of this Agreement by each of the Sellers and the consummation by
them of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors and shareholders of each of the Sellers,
respectively. No other action or proceeding on the part of any Seller or PNIC
is necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of the Sellers and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and
constitutes a valid, legal and binding obligation of each of the Sellers and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, enforceable in accordance with its terms.
19
5.4 No Violation or Breach. The execution, delivery and performance
by each Seller of this Agreement does not, and the consummation by Sellers of
the transactions contemplated hereby will not (with or without the giving of
notice or the lapse of time or both):
(a) violate or require any consent or approval under any
provision of the Articles of Incorporation (or equivalent charter document) or
bylaws of any Seller or PNIC; or
(b) except as set forth in Section 5.9, violate or result in
a default of, or require any consent or approval under, or result in the
termination of or loss of any right (including any right of acceleration,
termination or cancellation) in or with respect to, any Contract, Permit,
Equipment Lease or Software License, except for such violations or breaches
which would not have a Material Adverse Effect; or
(c) violate or result in a default of, or require any
consent or approval under any judgment, settlement, consent, injunction,
decree, order or ruling of any court or governmental authority, to which any
of the Sellers or PNIC is a party or is otherwise subject; or
(d) result in any Lien upon any properties, assets, business
or agreements of any Seller or PNIC howsoever arising, except for such Liens
which would not have a Material Adverse Effect.
5.5 Subsidiaries. Except for PNIC, which is a wholly-owned subsidiary
of PNFC, no Seller has any Subsidiaries. PNIC has no Subsidiaries.
5.6 Seller Assets.(a) Wycon hereby represents and warrants that it
has good legal title, of record and beneficially, to all of the Wycon Assets,
and at the Closing Wycon will transfer and deliver to Buyer legal and valid
title to the Wycon Assets free and clear of all Liens, other than (i) Liens
created by Buyer, and (ii) Permitted Liens.
(b) Americlaim hereby represents and warrants that it has good legal
title, of record and beneficially, to all of the Americlaim Assets, and at the
Closing Americlaim will transfer and deliver to Buyer legal and valid title to
the Americlaim Assets free and clear of all Liens, other than (i) Liens
created by Buyer, and (ii) Permitted Liens.
(c) Unamark hereby represents and warrants that it has good legal
title, of record and beneficially, to all of the Unamark Assets, and at the
Closing Unamark will transfer and deliver to Buyer legal and valid title to
the Unamark Assets free and clear of all Liens, other than (i) Liens created
by Buyer, and (ii) Permitted Liens.
5.7 Seller Shares. PNFC owns all of the PNIC Shares free and clear of
all Liens. The PNIC Shares represent all of the outstanding shares of issued
and outstanding capital stock of PNIC. Upon delivery by PNFC to Buyer of
certificates representing the PNIC Shares, together with duly executed stock
powers or other instruments of transfer, Buyer will acquire good and valid
title to the PNIC Shares, free and clear of all Liens other than (i) Liens
that arise
20
solely as a result of Buyer's actions and (ii) restrictions on transferability
generally imposed on transfers of securities by federal and state securities
laws and applicable state insurance laws.
5.8 Compliance with Other Instruments and Laws. None of the Sellers
or PNIC is in violation of any term of its charter or by-laws and none of the
Sellers or PNIC is in violation of any Contract, judgment, decree, order, Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except
for such violations that would not have a Material Adverse Effect.
5.9 Consents. Except as set forth in Schedule 5.9 of the Sellers'
Disclosure Schedule, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained, by any Seller or PNIC in connection with the execution,
delivery and performance of this Agreement by Sellers and the transactions
contemplated hereby, including, without limitation, the sale by the Sellers of
the Seller Shares and the Seller Assets.
5.10 Litigation. Except as set forth on Schedule 5.10 of the Sellers'
Disclosure Schedule, there is no action, proceeding, investigation or claim
pending or, to the best knowledge of each Seller, threatened against or
affecting any Seller or PNIC or its respective assets before any court or
governmental or regulatory authority or body that, if adversely determined,
would have a Material Adverse Effect or which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto. There is no
state of facts, and to the best knowledge of each Seller, there has occurred
no event or group of related events, that would form the basis of any claim
against any Seller or PNIC for liability on account of breach of a Contract,
violation of statute or regulation, or otherwise in connection with the
performance of the Contracts or the conduct of their respective businesses
that, if adversely determined, would have a Material Adverse Effect or which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto. Except as set forth on Schedule 5.10 of the Sellers'
Disclosure Schedule, with respect to claims against any of the Sellers or PNIC
made under or in connection with insurance policies issued by the Sellers or
PNIC, there are no claims pending or, to the best knowledge of Sellers
(including without limitation the executive officers of Sellers in their
capacity as such), threatened, as to which liability in excess of applicable
coverage limits has been asserted against any of the Companies, and there are
no claims pending or, to the best knowledge of Sellers (including without
limitation the executive officers of Sellers in their capacity as such)
threatened, for bad faith or for punitive damages against any of the
Companies.
5.11 No Brokers. None of the Sellers or PNIC has employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of any of the transactions contemplated hereby,
other than those persons or entities whose fees shall be the responsibility of
PNFC.
5.12 Absence of Certain Changes. Except as set forth on Schedule 5.12
of the Sellers' Disclosure Schedule, since June 30, 1997, none of the
Companies has:
21
(a) issued, sold or delivered or agreed to issue, sell or
deliver any shares of its capital stock or any options, warrants or
rights to acquire any such capital stock, or securities convertible
into or exchangeable for such capital stock except for the
transactions contemplated by this Agreement;
(b) incurred any obligations or liabilities, whether
absolute, accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities
incurred in the ordinary course of business and obligations and
liabilities under the Contracts;
(c) mortgaged, pledged or subjected to any Lien any of its
assets, tangible or intangible, except in the ordinary course of
business;
(d) acquired or disposed of any material assets or
properties, or entered into any agreement or other arrangement for
any such acquisition or disposition, except in the ordinary course of
business;
(e) except as allowed in Section 7.1(a)(xi) of this
Agreement, declared, made, paid or set apart any sum for any dividend
or other distribution to its shareholders or purchased or redeemed
any shares of its capital stock or any option, warrant or right to
purchase any such capital stock, or reclassified its capital stock;
(f) entered into any employment agreement with any officer
or salaried employee that is not terminable at any time by the
employer, without cause and without penalty;
(g) forgiven or cancelled any debts or claims or waived any
rights of material value;
(h) conducted its business or entered into any transaction
other than in the ordinary course of business;
(i) granted any rights or licenses under any of its trade
names or entered into general agency arrangements;
(j) formed any Subsidiaries;
(k) changed any method of accounting or accounting policies
or procedures, or policy with respect to Reserves, other than as
required by SAP, GAAP or applicable Law, or changed its manner of
application of any such method or policy;
(l) been sued by or, to the best knowledge of the Sellers,
threatened with any suit by, any employee or former employee;
22
(m) changed its premium rate structure in any material
respect, its insurance underwriting policies, its reinsurance
arrangements or practices or, in any material respect, its insurance
products;
(n) suffered or experienced any change in relations with or
material loss of any employees or customers;
(o) changed its policies, or its manner of application of
its policies, regarding the establishment or determination of
Reserves, including case, IBNR, LAE and ULAE reserves; or
(p) agreed to take any action described in clauses (a)
through (o).
5.13 Financial Statements. (a) PNFC has delivered to Buyer (i) the
Statutory Statements and (ii) any annual statutory statements of PNIC that
were filed for the year ended December 31, 1996 in any jurisdiction which
differ from the Annual Statutory Statement for the year ended December 31,
1996. PNFC hereby represents and warrants that each such Statutory Statement,
and all statutory statements delivered to Buyer pursuant to Section 8.15, (i)
complied (or will comply) in all material respects with all applicable laws
when so filed, (ii) was (or will have been) prepared in accordance with NAIC
Annual Statement instructions and accounting practices and procedures manuals,
except to the extent that (A) applicable state law may differ, or (B)
applicable state rules or regulations require differences in reporting not
related to accounting practices and procedures, (iii) is (or will be) true and
complete in all material respects, and (iv) presents (or will present) fairly
in all material respects the financial position of PNIC as of the respective
dates thereof and the related summary of operations and changes in capital and
surplus and in cash flows of PNIC for and during the respective periods
covered thereby. No material deficiency has been asserted by any insurance
regulatory authority with respect to any such Statutory Statement or will have
been asserted with respect to such statutory statements.
(b) The Sellers have delivered to Buyer the following financial
statements, all of which are attached hereto as Schedule 5.13(b):
(i) audited balance sheets and statements of income, changes
in stockholder's equity and cash flow as of and for the fiscal years
ended December 31, 1996 and December 31, 1995, for PNIC (the "PNIC
GAAP Financial Statements");
(ii) audited financial statements for Britamco prepared on a
SAP basis for the fiscal year ended December 31, 1996, and unaudited
balance sheets and statements of income and changes in stockholders'
equity of Britamco as at and for the six months ended June 30, 1997
(the "Britamco Financial Statements"); and
(iii) unaudited balance sheets and statements of income and
changes in stockholder's equity as of and for the fiscal years ended
December 31, 1996 and December 31, 1995, and as at and for the six
month period ended June 30, 1997, for each of Wycon and Unamark and
as of and for the fiscal years ended August 31, 1997 and
23
August 31, 1996 and as at and for the three month period ended
November 30, 1997 for Americlaim (the "Wycon Financial Statements,"
the "Unamark Financial Statements" and the "Americlaim Financial
Statements," respectively).
The PNIC GAAP Financial Statements, the Wycon Financial Statements, the
Americlaim Financial Statements, the Britamco Financial Statements and the
Unamark Financial Statements are referred to as the "Seller Financial
Statements." The Wycon Financial Statements, the Britamco Financial Statements
and the Unamark Financial Statements as at June 30, 1997 and for the six
months then ended and the Americlaim Financial Statements as of November 30,
1997 and for the three months then ended, are referred to as the "Most Recent
Seller Financial Statements." The PNIC GAAP Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly in all
material respects the financial condition of PNIC as of such dates and the
results of operations of PNIC for such periods, and are consistent with the
books and records of PNIC (which books and records are correct and complete).
Each of the Americlaim Financial Statements, the Wycon Financial Statements
and the Unamark Financial Statements are internally prepared financial
statements, prepared by each respective Seller in accordance with its internal
accounting policies consistent with past practices and each respective Seller
believes that its financial statements present fairly in all material respects
the financial condition of each respective Seller as of such dates and the
results of operations of each respective Seller for such periods, and are
consistent with the books and records of each respective Seller (which books
and records each Seller believes are correct and complete); provided, however,
that in the case of the Most Recent Seller Financial Statements such financial
statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items.
5.14 Licenses and Permits. Each of the Companies, to the extent
necessary, has all Permits required in each of the jurisdictions listed on
Schedule 5.14 of the Sellers' Disclosure Schedule to engage in the business of
writing or marketing property and casualty insurance policies. PNIC is duly
licensed and qualified to transact those lines of insurance business in those
states and jurisdictions listed on Schedule 5.14 of the Sellers' Disclosure
Schedule. Except as set forth on Schedule 5.14 of the Sellers' Disclosure
Schedule, all such Permits are owned by such Company, are in full force and
effect and none of the Sellers or PNIC has received any notice of any event,
inquiry, investigation or proceeding that could result in a penalty or fine in
excess of $20,000, singly or in the aggregate, or in the suspension,
revocation or limitation on any such Permit, and to the best knowledge of each
of the Sellers, there is no basis for any such fine, penalty, suspension,
revocation or limitation. PNIC possesses the minimum statutory capital and
surplus as required by each such jurisdiction for the type of insurance
written by it in each jurisdiction set forth on Schedule 5.14. All such
Permits held by PNIC shall continue in force after the Closing.
5.15 Insurance Regulatory Filings. Since January 1, 1992, each Seller
and PNIC, to the extent required to do so, has filed or otherwise provided all
reports, data, other information and applications required to be filed or
otherwise provided to the Florida Department and all other federal, state or
local governmental authorities with jurisdiction over such Seller or PNIC
24
except where the failure to file would not have a Material Adverse Effect. The
Sellers have furnished to Buyer copies of all reports of examinations (whether
financial, market conduct or other) issued by the Florida Department and all
other state insurance regulatory authorities in respect of the Sellers and
PNIC received since January 1, 1992. Except as set forth on Schedule 5.15 of
the Sellers' Disclosure Schedule, no deficiencies material to the financial
condition or operations of any Seller or PNIC have been asserted by the
Florida Department or any other state insurance regulatory authority with
respect to any reports or filings made by or on behalf of any Seller or PNIC
since January 1, 1992. The Sellers have supplied Buyer with copies of all
written responses submitted on behalf of the Sellers since January 1, 1992, in
respect of any report of examination (whether financial, market conduct or
other) of the Sellers or PNIC by the Florida Department or any other state
regulatory authority. Each Seller has made available to Buyer all files of
each Seller and PNIC relating to correspondence with the Florida Department or
any other insurance regulatory authority.
5.16 Reserves. (a) PNFC hereby represents and warrants that the
Reserves established or reflected in the June 30, 1997 and September 30, 1997
Quarterly Statutory Statements (i) were determined in accordance with SAP and
generally accepted actuarial assumptions, (ii) were in accordance with the
requirements specified in the related insurance or reinsurance Contracts in
all material respects, (iii) meet the requirements of the insurance laws of
each applicable jurisdiction in all material respects and (iv) except as
described in Schedule 5.16, were established consistent with the policies and
procedures historically employed by PNIC without alteration.
(b) PNFC hereby represents and warrants that the 1997
Reserve Study performed by Deloitte & Touche will state that there are no
reserve inadequacies on a total loss or LAE or ULAE basis and Reserves will be
established within the range recommended by Deloitte & Touche.
(c) PNFC hereby represents and warrants that the Reserves
established or reflected in the December 31, 1997 Annual Statutory Statement
(i) will be determined in accordance with SAP and generally accepted actuarial
assumptions, (ii) will be in accordance with the requirements specified in the
related insurance or reinsurance Contracts in all material respects, (iii)
will meet the requirements of the insurance laws of each applicable
jurisdiction in all material respects and (iv) will be established consistent
with the policies and procedures historically employed by PNIC without
alteration.
5.17 Insurance Issued. Except as required by Law or except as
disclosed in Schedule 5.17 of the Sellers' Disclosure Schedule:
(a) All outstanding insurance Contracts issued, reinsured or
underwritten by PNIC are, to the extent required under applicable laws, on
forms and at rates approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not objected to by such
authority within the period provided for objection.
(b) All insurance contract claims and expenses payable by
PNIC or (to the knowledge of the Sellers) by any other person or entity that
is a party to or bound by any
25
reinsurance, coinsurance, or other similar Contract with any Seller or PNIC
have in all material respects been paid in accordance with the terms of the
insurance Contracts under which they arose, except for such claims and
expenses for which such Seller believes there is a reasonable basis to contest
payment.
(c) No outstanding insurance Contract issued, reinsured or
underwritten by any Seller or PNIC entitles the holder thereof or any other
person or entity to receive cash or stock dividends, distributions or other
benefits based on the revenues or earnings of such Seller, PNIC or any other
person or entity.
(d) To the knowledge of each Seller, all amounts to which
any Seller or PNIC is entitled under reinsurance, coinsurance or other similar
contracts (including without limitation amounts based on paid and unpaid
losses) are collectible in the ordinary course of business.
(e) To the knowledge of each Seller, each insurance agent,
at the time such agent wrote, sold, or produced business for any Seller or
PNIC, was duly licensed as an insurance agent (for the type of business
written, sold, or produced by such insurance agent) in the particular
jurisdiction in which such agent wrote, sold, or produced such business.
5.18 Reinsurance Policies. Set forth on Schedule 5.18 of the Sellers'
Disclosure Schedule is a complete and accurate list of all in-force
reinsurance contracts and treaties under which each Company has ceded or
assumed reinsurance obligations. Each contract and treaty set forth on such
Schedule 5.18 (or required to be set forth on such Schedule 5.18) is in full
force and effect and except as set forth in Schedule 5.18 of the Sellers'
Disclosure Schedule will not be terminated or otherwise adversely affected as
a result of the transactions contemplated hereby. Except as set forth on
Schedule 5.18 of the Sellers' Disclosure Schedule, such contract or treaty
under which each Company cedes reinsurance obligations is qualified under all
Laws applicable to reinsurance policies and treaties to receive the statutory
credit assigned to such contract or treaty in the Statutory Statements at the
time such Statutory Statements were prepared. No Company has violated any of
the terms and conditions of any such policies or treaties in any material
respect and, to the knowledge of each Seller, all of the covenants to be
performed by any other party under any such policy and treaties were
negotiated with independent third parties in good faith at arm's length, other
than any such policies or treaties among any Company and its Affiliates as
listed on Schedule 5.18 of the Sellers' Disclosure Schedule. Schedule 5.18 of
the Sellers' Disclosure Schedule separately sets forth all contracts or
treaties of reinsurance no longer in force to which PNIC was a party, under
which, to the knowledge of each Seller (including without limitation the
officers of Sellers in their capacity as such), benefits or liabilities remain
outstanding, except for contracts or treaties which would not have a Material
Adverse Effect. Schedule 5.18 of the Sellers' Disclosure Schedule also sets
forth all disputes between any Seller and PNIC and any third party regarding
any contracts or treaties of reinsurance.
5.19 Taxes. (a) Except as disclosed on Schedule 5.19 of the Sellers'
Disclosure Schedule, none of the Companies has ever filed a consolidated
federal income tax return with (or been included in a consolidated return of)
an affiliated group. Each Seller and PNIC has filed or caused to be filed or
(in the case of returns or reports not yet due) will file all tax returns and
26
reports required to have been filed by or for it on or before the Closing
Date, and all material information set forth in such returns or reports is or
(in the case of returns or reports not yet filed) will be accurate and
complete. Each Company has paid or made adequate provision for or (with
respect to returns or reports not yet filed) will make adequate provision for
the payment of all taxes, additions to tax, penalties and interest for periods
covered by those returns or reports. Each Seller and PNIC is in compliance
with, and its records contain all information and documents (including,
without limitation, properly completed IRS Forms W-9) necessary to comply
with, all applicable tax information reporting and tax withholding
requirements under federal, state, local, and foreign laws, rules, and
regulations, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Code.
(b) Each of the Companies has collected or withheld all
amounts required to be collected or withheld by it for any taxes, and all such
amounts have been paid to the appropriate governmental agencies or to the
extent required set aside in appropriate accounts for future payment when due.
The balance sheets contained in the Statutory Statements fully and properly
reflect, as of their dates, the liabilities of PNIC for all accrued taxes,
additions to tax, penalties, and interest. Except as disclosed on Schedule
5.19 of the Sellers' Disclosure Schedule, there are no unpaid taxes, additions
to tax, penalties, or interest payable by any Seller or PNIC that (i) are or
could become a Lien on any asset, or otherwise adversely affect the business,
properties, or financial condition, of any Company or (ii) could cause Buyer
to incur any liability therefor.
(c) Schedule 5.19 of the Sellers' Disclosure Schedule
describes all tax elections, consents, and agreements made by or affecting
each of the Companies, lists all types of taxes paid and returns filed by or
on behalf of each of the Companies, and expressly indicates each tax with
respect to which each of the Companies is or has been included in a
consolidated, unitary, or combined return. Except as disclosed on such
Schedule 5.19, none of the Companies has granted (or is subject to) any waiver
of the period of limitations for the assessment of tax for any currently open
taxable period, and no unpaid tax deficiency has been asserted against or with
respect to any Company by any taxing authority.
(d) PNIC has not made or entered into, and does not hold any
asset subject to, a consent filed pursuant to Section 341(f) of the Code and
the regulations thereunder. None of the assets of any Company is or will be
required to be treated as being owned by any person (other than such Company)
pursuant to the provisions of Section 168(f)(8) of the Code, as amended and in
effect immediately before the enactment of the Code, and the rules and
regulations thereunder. Except as disclosed on such Schedule 5.19, PNIC is not
required to include in income any amount for an adjustment pursuant to Section
481 of the Code.
(e) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Companies by reason
of Section 280G of the Code.
(f) None of the Sellers or PNIC is a "foreign person" within
the meaning of Section 1445(b)(2) of the Code.
27
(g) Except as set forth in Schedule 5.19 of the Sellers'
Disclosure Schedule, no Company is a party to any tax allocation or sharing
agreement. No Company has any liability for the taxes of any person (other
than such Company) under Treasury Reg. ss.1502-6 (or any similar provision of
stare, local or foreign law), as a transferee or successor, by contract or
otherwise.
5.20 Contracts. (a) Schedule 5.20 of the Sellers' Disclosure Schedule
contains a complete and correct list of all agreements, contracts and
commitments, written or oral, to which each Company is a party or by which any
Company is bound including, without limitation, Equipment Leases and Software
Licenses, excluding: (a) any of the foregoing listed on Schedule 5.18 of the
Sellers' Disclosure Schedule [Reinsurance]; (b) insurance policies written by
any Company in the ordinary course of business; and (c) agreements, contracts
and commitments in the ordinary course between a Company and any other person
or entity where the obligations to pay or perform services pursuant to all
such agreements, contracts and commitments between such Company and such other
person or entity total less than an aggregate of $20,000.00, and which are
terminable without cost or liability on notice of 30 days or less
(collectively, the "Contracts").
(b) The Sellers have delivered or made available to Buyer
complete and correct copies of all Contracts (including, without limitation,
all Equipment Leases and Software Licenses) together with all amendments
thereto and waivers and consents with respect thereto and accurate
descriptions of all oral agreements. Each of the Contracts is in full force
and effect, and each Company has in all material respects performed all
obligations required to be performed by them to date and are not in default in
any material respect. Except as set forth on Schedule 5.9 of the Sellers'
Disclosure Schedule, each of the Contracts included in the Seller Assets is
assignable to Buyer without the consent of any other party thereto. Other than
powers of attorney granted to surety agents of PNIC in the ordinary course of
business, none of the Sellers or PNIC has outstanding any power of attorney,
except routine powers of attorney relating to representation before
governmental agencies or given in connection with being licensed to conduct
business in another jurisdiction and except for routine authorizations given
to managing general agents.
5.21 Employees. Schedule 5.21 of the Sellers' Disclosure Schedule
lists all persons (the "Employees") employed by each Company on March 5, 1998,
whether on a full time, part time or consulting basis, whose annualized total
compensation exceeds $35,000 and lists the salaries and wages for 1997,
commission schedules and terms of employment of all such Employees. All such
Employees are employees or consultants of Americlaim, Unamark or Wycon. PNIC
has no employees or consultants.
5.22 Employee Benefit Matters. (a) None of the Companies, any ERISA
Affiliate or any employee pension benefit plan (as defined in Section 3(2) of
ERISA) maintained or previously maintained by any of them (a "Pension Plan"),
has incurred any material liability, other than premiums, to the Pension
Benefit Guaranty Corporation ("PBGC") or to the Internal Revenue Service with
respect to any Pension Plan. There is not currently pending with the PBGC with
respect to any Pension Plan any filing with respect to any reportable event
under
28
Section 4043 of ERISA nor has any reportable event occurred as to which a
filing is required and has not been made.
(b) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date of this Agreement under the terms of each Employee Plan, ERISA and
collective bargaining agreement. No accumulated funding deficiency (as defined
in Section 302 of ERISA or Section 412 of the Code), whether or not waived,
exists with respect to any Pension Plan (including any Pension Plan previously
maintained by the Sellers or any ERISA Affiliate), and there is no "unfunded
current liability" (as defined in Section 412 of the Code) with respect to any
Pension Plan.
(c) None of the Companies or any ERISA Affiliate has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multiemployer plan (as defined in Section 3(37) of ERISA)
which has not been satisfied in full.
(d) Schedule 5.22(d) of the Sellers' Disclosure Schedule
sets forth all Employee Plans of or for each of the Companies. All Employee
Plans that are "employee benefit plans," as defined in Section 3(3) of ERISA,
that are maintained by or for any of the Companies or previously maintained by
or for such Company comply and have been administered in compliance in all
material respects with ERISA and all other applicable legal requirements,
including the terms of such plans, collective bargaining agreements and
securities laws. None of the Companies has any material liability under any
such plan.
(e) No prohibited transaction has occurred with respect to
any Employee Plan that is an "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by or for any of the Companies or previously
maintained by or for any of the Companies that would result, directly or
indirectly, in material liability under ERISA or in the imposition of a
material excise tax under Section 4975 of the Code.
(f) The funding under each Employee Plan that is an
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA) does not
exceed the limitation under Section 419A(b) or 419(c) of the Code. None of the
Companies is subject to taxation on the income of any such plan or any such
plan previously maintained by or for any of the Companies or an ERISA
Affiliate.
5.23 Assets and Properties. (a) Schedule 5.23(a) of the Sellers'
Disclosure Schedule contains an accurate and complete list of all domestic and
foreign letters patent, patents, patent applications, patent licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks, trademark
registrations and applications, service ▇▇▇▇ registrations and applications,
and copyright registrations and applications and software owned by or licensed
to each Company or its Affiliates and used by any of the Companies in
connection with the operation of their respective businesses (collectively the
"Intellectual Property"). Unless otherwise indicated in such Schedule 5.23(a),
one or more of the Companies owns all necessary right, title and interest in
and to the Intellectual Property (including, without limitation, the exclusive
right to use and
29
license the same), and, to the best knowledge of the Sellers, no person is
infringing on the ownership or use of the Intellectual Property by any
Company.
(b) Schedule 5.23(b) of the Sellers' Disclosure Schedule
contains a list of all debentures, notes, stocks, limited partnership
interests, other securities, mortgages, and other investment assets owned by
each Company as of December 31, 1997. Each Company has good and indefeasible
title to all debentures, notes, stocks, limited partnership interests, other
securities, mortgages, and other investment assets (excluding real property)
owned by it, free and clear of all Liens. Such Schedule 5.23(b) shall be
updated as at the Closing Date for all transactions taking place from January
1, 1998 through the Closing Date.
(c) No Company owns any real property.
(d) Schedule 5.23(d) of the Sellers' Disclosure Schedule
contains a true and complete list and description of all real property leased
by each Company and used by any Company. Each Seller and PNIC has a valid
leasehold interest in all such leased real property.
(e) Each of the Companies has all necessary Software
Licenses for all computer software used by any of the Companies, including
sufficient site or other licenses permitting the use by all users and at all
computer terminals for or with respect to which such software is installed or
made available. With respect to PNIC, all such Software Licenses shall remain
in full force and effect on and after the Closing, and with respect to Wycon,
Americlaim and Unamark, except as set forth on Schedule 5.9 of the Sellers'
Disclosure Schedule, such Software Licenses are freely assignable to Buyer and
Buyer shall have all rights under such licenses on and after the Closing Date.
5.24 Operating Insurance. Schedule 5.24 of the Sellers' Disclosure
Schedule contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability, errors and
omissions and other similar insurance Contracts that insure the business,
operations, or affairs of each Company or affect or relate to the ownership,
use or operations of any of the assets, business or properties of any Company.
5.25 Bank Accounts. Schedule 5.25 of the Disclosure Schedule contains
(a) a true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions at which each
Company has an account or safe deposit box or maintains a banking, custodial,
trading, trust, or other similar relationship, (b) a true and complete list
and description of each such account, box and relationship, (c) a list of all
signatories for each such account and box and (d) a list of all compensating
balances required with respect to each such account.
5.26 Charter Documents and Bylaws. The Sellers have heretofore made
available to Buyer true and complete copies of the articles of incorporation
(or other charter documents) and bylaws as in effect on the date hereof of
each Seller and PNIC and of each of the entities referred to in Section 1.77.
30
5.27 Minute Books. The minute books of PNIC accurately reflect in all
material respects all formal actions taken at all meetings and all consents in
lieu of meetings of the stockholders of PNIC since the date of formation of
PNIC, and all formal actions taken at all meetings and all consents in lieu of
meetings of the boards of directors of PNIC and all committees thereof since
the date of formation of PNIC. All of such minute books have previously been
made available for inspection by Buyer.
5.28 Acquisition for Investment. Each of the Sellers is acquiring the
Purchase Securities for its own account for investment and not with a view to
any distribution thereof within the meaning of the Securities Act, and
acknowledges that the issuance of the Purchase Securities pursuant hereto is
intended to be exempt from the Securities Act pursuant to Section 4(2)
thereof, and that the Purchase Securities may not be resold or otherwise
transferred except (a) pursuant to an effective registration statement or an
exemption from registration thereunder, and pursuant to registration or
qualification (or exemption therefrom) under applicable state securities laws,
and (b) with approval of all necessary authorities under applicable insurance
laws.
5.29 Year 2000. Schedule 5.29 of the Sellers' Disclosure Schedule
sets forth a summary of the extent to which the products, systems and services
used by each Company for its own internal purposes which are dependant in any
way on automatic instructions or any computer hardware or software meet Year
2000 Conformity, and a time schedule adopted by the Companies for implementing
any corrections to ensure Year 2000 Conformity. Sellers shall be solely
responsible for timely implementation of such time schedule and for ensuring
Year 2000 Conformity with respect to the Companies' products, systems and
services.
5.30 Transactions with Interested Persons. To the knowledge of the
Sellers and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, after investigation, no Seller, PNIC or officer
or director of any Seller or PNIC, or any Affiliate of any of them owns,
directly or indirectly, on an individual or joint basis, any material interest
in, or serves as an officer or director of, any customer, competitor or
supplier of any of the Companies or any person or entity which has a contract
or arrangement with any of the Companies, except for transactions (a) on terms
no less favorable to such Company than those prevailing in comparable arm's
length transactions, and (b) that will be terminable by Buyer (or by PNIC as
applicable) without penalty after the Closing. Schedule 5.30 of the Sellers'
Disclosure Schedule lists or describes all contracts and other arrangements
between ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ or any of their
respective Affiliates and any of the Companies and all services provided by
any of them or any of their Affiliates to any of the Companies.
5.31 PNIC Business. PNFC hereby represents and warrants the that
since June 30, 1997, and prior to the Closing Date, all of PNIC's outstanding
payables and receivables have been, and will be, settled in the ordinary
course of business in a timely manner consistent with the historic practices
of PNIC, and that all business written by PNIC has conformed, and will
conform, to the underwriting and pricing guidelines in place at PNIC on the
date hereof.
31
5.32 Undisclosed Liabilities. None of the Companies has any
liability, fixed, contingent, liquidated, unliquidated or otherwise (and to
the knowledge of the Sellers there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any liability), except, with respect
to each Company, for (i) liabilities set forth in the Seller Financial
Statements of such Company, including any notes and schedules thereto, (ii)
liabilities which have arisen after the date of the Most Recent Seller
Financial Statements of such Company in the ordinary course of business (none
of which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law), (iii) liabilities disclosed in Schedule 5.32 of the
Sellers' Disclosure Schedule and (iv) liabilities under the Contracts.
5.33 Britamco Business. PNFC and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ represent and
warrant that Britamco has written no new business with effective dates
subsequent to July 1, 1997.
5.34 Disclosure. None of the Sellers' representations and warranties
contained in this Agreement or in any other agreement delivered or to be
delivered by or on behalf of any of the Sellers in accordance with the terms
of this Agreement, the Statutory Statements, any Schedule included in the
Disclosure Schedule, or any certificates delivered or to be delivered by any
of the Sellers in accordance with the terms hereof contains any untrue
statement of a material fact, or omits or will omit any statement of a
material fact the disclosure of which is necessary in order for the statements
contained herein or therein not to be misleading in any material respect.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Front Royal and Holdings, jointly and severally, hereby represent and
warrant to each Seller as follows:
6.1 Organization and Good Standing of Buyer. Each of Front Royal and
Holdings is a corporation duly organized, validly existing and in good
standing under the laws of North Carolina. All Material Front Royal
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, as
set forth in Schedule 6.11. Each of Front Royal, Holdings and the Material
Front Royal Subsidiaries has all requisite corporate power and authority to
conduct its business as currently conducted and to own or lease and to operate
its properties. Each of Front Royal, Holdings and the Material Front Royal
Subsidiaries is duly qualified or admitted to do business and is in good
standing as a foreign corporation in all jurisdictions in which the ownership,
use or leasing of its assets or properties or the conduct or nature of its
business makes such qualification or admission necessary, except where the
failure to be so qualified or admitted would not reasonably be likely to have
a material adverse effect on the properties, business, results of operations,
or financial condition of Front Royal or Front Royal and its Subsidiaries
taken as a whole.
32
6.2 Capitalization of Buyer. The authorized capital stock of Front
Royal is set forth on Schedule 6.2 of the Buyer Disclosure Schedule. All
outstanding shares of capital stock of Front Royal have been duly authorized
and validly issued and are fully paid and non-assessable. Except as set forth
on Schedule 6.2 of the Buyer Disclosure Schedule, and except for any of the
following exercisable by or in favor of Front Royal or another Subsidiary of
Front Royal, there are no outstanding securities, rights (pre-emptive or
other), subscriptions, calls, warrants, options, or other agreements (except
for this Agreement) that give any person or entity the right to (i) purchase
or otherwise receive or be issued any shares of capital stock of Front Royal
or any of the Material Front Royal Subsidiaries (or any interest therein) or
any security convertible into or exchangeable for any shares of capital stock
of Front Royal or any of the Material Front Royal Subsidiaries (or any
interest therein), (ii) receive any dividend, voting or ownership rights
similar to those accruing to a holder of shares of capital stock of Front
Royal or any of the Material Front Royal Subsidiaries, or (iii) participate in
the equity, income or election of directors or officers of Front Royal or any
of the Material Front Royal Subsidiaries. Except as set forth in Schedule 6.2
of the Buyer Disclosure Schedule, there are no proxies, voting trusts or other
agreements or understandings to which Front Royal or any of the Material Front
Royal Subsidiaries is a party with respect to the voting of any voting
securities of Front Royal or any of the Material Front Royal Subsidiaries.
Holdings is an indirect wholly owned Subsidiary of Front Royal.
6.3 Authority, Validity and Enforceability as to Buyer. Each of Front
Royal and Holdings has full corporate power and authority to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions required of it contemplated hereby. The execution, delivery and
performance by Front Royal and Holdings of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized
by the respective Boards of Directors of Front Royal and Holdings. No other
action or proceeding on the part of Front Royal or Holdings is necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Front Royal and Holdings, and constitutes a legal, valid and binding
obligation of Front Royal and Holdings, enforceable in accordance with its
terms.
6.4 No Violation or Breach by Buyer. The execution, delivery and
performance of this Agreement by Front Royal and Holdings does not, and the
consummation of the transactions required by Buyer contemplated hereby, will
not (with or without the giving of notice or lapse of time or both):
(a) violate or require any consent or approval under, any
provision of the Articles of Incorporation or bylaws of Front Royal or
Holdings;
(b) except as set forth in Section 6.5, violate or result in
a default of, or require any consent or approval under any agreement, policy,
instrument, contract, commitment, license, franchise, permit or trust to which
Front Royal, Holdings or any of the Material Front Royal Subsidiaries is a
party or is otherwise subject, except for such violations or breaches which
would not reasonably be likely to have a material adverse effect on the
properties, business,
33
results of operations, or financial condition of Front Royal or of Front Royal
and its Subsidiaries taken as a whole;
(c) violate or result in a default of, or require any
consent or approval under, any judgment, settlement, consent, injunction,
decree, order or ruling of any court or governmental authority to which Front
Royal or any of the Material Front Royal Subsidiaries is a party or otherwise
subject; or
(d) result in any Lien upon any properties, assets, business
or agreements of Front Royal or any of the Material Front Royal Subsidiaries
howsoever arising, except for such Liens which would not have a material
adverse effect on the properties, business, results of operations or financial
condition of Front Royal or of Front Royal and its Subsidiaries, taken as a
whole.
6.5 Consents. Except as set forth on Schedule 6.5 of the Buyer
Disclosure Schedule, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority is
required to be obtained or made, and no consent of any third party is required
to be obtained, by Front Royal or any of its Subsidiaries, in connection with
its execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
6.6 Issuance of Purchase Shares. Upon issuance in accordance with the
terms of this Agreement, the Purchase Shares will be duly authorized, validly
issued, fully paid and nonassessable. The Purchase Warrants, when delivered at
the Closing in accordance with this Agreement will be duly authorized and
executed on behalf of Front Royal and will be enforceable in accordance with
their terms, subject to bankruptcy, insolvency and laws affecting creditors
rights generally and subject to limitations on the ability to obtain equitable
relief. The shares of Class A Common Stock issuable on exercise of the
Purchase Warrants, when issued in accordance with the terms of the Purchase
Warrants and upon payment of the exercise price therefor, will be duly
authorized, validly issued, fully paid and nonassessable. As of the Closing
Date Front Royal shall have reserved for issuance on exercise of the Purchase
Warrants sufficient shares of Class A Common Stock for issuance on exercise of
the Purchase Warrants.
6.7 Acquisition for Investment. Holdings is acquiring the Seller
Shares for its own account for investment and not with a view to any
distribution thereof within the meaning of the Securities Act. Buyer
acknowledges that the offer and sale of the Seller Shares pursuant hereto are
intended to be exempt from the Securities Act pursuant to Section 4(1)
thereof, and that the Seller Shares may not be resold or otherwise transferred
except (a) pursuant to an effective registration statement or an exemption
from registration thereunder, and pursuant to registration or qualification
(or exemption therefrom) under applicable state securities laws, and (b) with
approval of all necessary authorities under applicable insurance laws.
6.8 Litigation. Except as set forth on Schedule 6.8 of the Buyer
Disclosure Schedule, there is no action, proceeding, investigation or claim
pending or, to the best knowledge of Front Royal, threatened against or
affecting Front Royal or any of the Material Front Royal
34
Subsidiaries or their respective assets before any court or governmental or
regulatory authority or body that, if adversely determined, would have a
material adverse effect on Front Royal or on Front Royal and its Subsidiaries
taken as a whole or which questions the validity of this Agreement or any
action taken or to be taken pursuant hereto. There is no state of facts, and
to the best knowledge of Front Royal, there has occurred no event or group of
related events, that would form the basis of any claim against Front Royal or
any of the Material Front Royal Subsidiaries for liability on account of
breach of a contract, violation of statute or regulation, or otherwise in
connection with the performance of any contract or the conduct of its or the
Material Front Royal Subsidiaries' respective businesses that, if adversely
determined, would have a material adverse effect on Front Royal or on Front
Royal and its Subsidiaries taken as a whole or which questions the validity of
this Agreement or any action taken or to be taken pursuant hereto. Except as
set forth on Schedule 6.8 of the Buyer Disclosure Schedule, with respect to
claims against any of Front Royal or the Material Front Royal Subsidiaries
made under or in connection with insurance policies issued by Front Royal or
its Subsidiaries, there are no claims pending or to the knowledge of Buyer
threatened as to which liability in excess of applicable coverage limits has
been asserted against any of Front Royal or any of the Material Front Royal
Subsidiaries, and there are no claims pending or to the knowledge of Buyer
threatened for bad faith or for punitive damages.
6.9 No Brokers. Buyer has not employed any finder, broker, agent or
other intermediary in connection with the negotiation of this Agreement or the
consummation of the transactions contemplated hereby.
6.10 Initial Public Offering. Front Royal intends to consummate an
initial public offering of its common stock, or otherwise cause the Class A
Common Stock to be listed for trading on a national securities exchange and to
be registered under the Securities Exchange Act of 1934, as amended, as soon
as practicable following the Closing Date, subject to fiduciary
responsibilities and obligations of Front Royal's Board of Directors to Front
Royal's shareholders and subject to market conditions.
6.11 Subsidiaries. The Subsidiaries of Front Royal, and of each such
Subsidiary, are listed on Schedule 6.11 of the Buyer Disclosure Schedule.
Schedule 6.11 identifies the jurisdiction of incorporation of each such
Subsidiary and identifies which of such Subsidiaries are Material Front Royal
Subsidiaries.
6.12 Compliance with Other Instruments and Laws. None of Front Royal
or the Material Front Royal Subsidiaries is in violation of any term of its
charter or by-laws and none of Front Royal or the Material Front Royal
Subsidiaries is in violation of any contract, judgment, decree, order, Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except
for such violations that would not have a material adverse effect on Front
Royal or on Front Royal and its Subsidiaries taken as a whole.
35
6.13 Absence of Certain Changes. Except as set forth on Schedule 6.13
of the Buyer Disclosure Schedule, since June 30, 1997, none of Front Royal or
any of the Material Front Royal Subsidiaries has:
(a) issued, sold or delivered or agreed to issue, sell or
deliver any shares of its capital stock or any options, warrants or
rights to acquire any such capital stock, or securities convertible
into or exchanged for such capital stock, except for the transactions
contemplated by this Agreement;
(b) incurred any obligations or liabilities, whether
absolute, accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities
incurred in the ordinary course of business or in connection with the
financing of transactions contemplated hereby or arising pursuant to
this Agreement and the agreements related hereto;
(c) mortgaged, pledged or subjected to any Lien any of its
assets, tangible or intangible, except in the ordinary course of
business;
(d) acquired or disposed of any material assets or
properties, or entered into any agreement or other arrangement for
any such acquisition or disposition, except in the ordinary course of
business;
(e) declared, made, paid or set apart any sum for any
dividend or other distribution to its shareholders or purchased or
redeemed any shares of its capital stock or any option, warrant or
right to purchase any such capital stock, or reclassified its capital
stock;
(f) forgiven or cancelled any debts or claims or waived any
rights of material value;
(g) conducted its business or entered into any transaction
(other than the transactions contemplated by this Agreement) other
than in the ordinary course of business;
(h) granted any rights or licenses under any of its trade
names or, other than in the ordinary course of business, entered into
general agency arrangements;
(i) changed any method of accounting or accounting policies
or procedures, or policy with respect to Reserves, other than as
required by SAP, GAAP or applicable Law, or changed its manner of
application of any such method or policy;
(j) been sued by or, to the best knowledge of the Buyer,
threatened with any suit by, any employee or former employee;
36
(k) changed its premium rate structure in any material
respect, its insurance underwriting policies, its reinsurance
arrangements or, in any material respect its insurance products;
(l) suffered or experienced any change in relations with or
material loss of any material employees or customers; or
(m) changed its policies, or its manner of application of
its policies, regarding the establishment or determination of
Reserves, including case, IBNR, LAE and ULAE reserves; or
(n) agreed to take any action described in clauses (a)
through (m).
6.14 Financial Statements. (a) Front Royal has delivered to the
Sellers (i) audited consolidated and consolidating balance sheets and
statements of income, changes in stockholder's equity and cash flow as of and
for the fiscal years ended December 31, 1996 and December 31, 1995 (the "Buyer
Audited Financial Statements"), and (ii) unaudited balance sheets and
statements of income, and changes in stockholder's equity as of and for the
six month period ended June 30, 1997 (the "Buyer Unaudited Financial
Statements" and together with the Buyers Audited Financial Statements, the
"Buyer Financial Statements."). The Buyer Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly in all
material respects the financial condition of Buyer as of such dates and the
results of operations of Buyer for such periods, and are consistent with the
books and records of Buyer (which books and records are correct and complete);
provided, however, that the Buyer Unaudited Financial Statements are subject
to normal year-end adjustments (which will not be material individually or in
the aggregate) and lack footnotes and other presentation items.
6.15 Licenses and Permits. Each of Front Royal and each of the
Material Front Royal Subsidiaries, to the extent necessary, has all licenses,
permits and other governmental authorizations, registrations and approvals
required to conduct its business ("Buyer Permits") in each of the
jurisdictions listed on Schedule 6.15 of the Buyer Disclosure Schedule. Front
Royal and the Material Front Royal Subsidiaries are duly licensed and
qualified to transact those lines of insurance business in those states and
jurisdictions listed on Schedule 6.15 of the Buyer Disclosure Schedule. Except
as set forth on Schedule 6.15 of the Buyer Disclosure Schedule, all such Buyer
Permits are owned by Front Royal or such Subsidiary, are in full force and
effect and none of Front Royal or any of the Material Front Royal Subsidiaries
has received any notice of any event, inquiry, investigation or proceeding
that could result in a penalty or fine in excess of $20,000, singly or in the
aggregate, or in the suspension, revocation or limitation on any such Buyer
Permit, and to the best knowledge of Front Royal, there is no basis for any
such fine, penalty, suspension, revocation or limitation. Front Royal and the
Material Front Royal Subsidiaries, as applicable, possess the minimum
statutory capital and surplus as required by each such jurisdiction for the
type of insurance written by it in each jurisdiction set forth on Schedule
6.15.
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6.16 Insurance Regulatory Filings. (a) Since January 1, 1992, Front
Royal and the Material Front Royal Subsidiaries, to the extent required to do
so, have filed or otherwise provided all reports, data, other information and
applications required to be filed or otherwise provided to all federal, state
or local governmental authorities with jurisdiction over them except where the
failure to file would not have a material adverse effect on Front Royal or on
Front Royal and its Subsidiaries taken as a whole. Front Royal has furnished
to the Sellers copies of all reports of examinations (whether financial,
market conduct or other) issued by all state insurance regulatory authorities
in respect of Front Royal and the Material Front Royal Subsidiaries since
January 1, 1992 or, in the case of Subsidiaries, such later date Buyer
acquired such Subsidiary. Except as set forth on Schedule 6.16 of the Buyer
Disclosure Schedule, no deficiencies material to the financial condition or
operations of Front Royal or its Subsidiaries have been asserted by any state
insurance regulatory authority with respect to any reports or filings made by
or on behalf of Front Royal or any Material Front Royal Subsidiary since
January 1, 1992. Front Royal has supplied the Sellers with copies of all
written responses submitted on behalf of Front Royal and the Material Front
Royal Subsidiaries since January 1, 1992, in respect of any report or
examination (whether financial, market conduct or other) of Front Royal and
its Subsidiaries by any state regulatory authority.
(b) The foregoing representations and warranties in Section
6.16(a) are limited as follows: Sellers understand that Front Royal acquired
certain of the Material Front Royal Subsidiaries after January 1, 1992. Such
representations and warranties are limited with respect to any such Material
Front Royal Subsidiary: (i) to the period following the date Front Royal
acquired such Material Front Royal Subsidiary, (ii) to the best knowledge of
Front Royal for any period prior to such acquisition, and (iii) with respect
to any period prior to the acquisition by Front Royal of such Material Front
Royal Subsidiary, to the extent Front Royal obtained representations and
warranties from the sellers in connection with such acquisition, but subject
to any limitations on and qualifications to such representations and
warranties and survival periods applicable thereto.
6.17 Reserves. Front Royal hereby represents and warrants that the
Reserves in respect of the insurance business of the Material Front Royal
Subsidiaries established or reflected in the September 30, 1997 Quarterly
Statutory Statements for such Subsidiaries (a) were determined in accordance
with the requirements specified in the related insurance or reinsurance
contracts in all material respects, (c) meet the requirements of the insurance
laws of each applicable jurisdiction in all material respects, and (d) were
established consistent with the policies and procedures historically employed
by the Front Royal Material Subsidiaries without alteration.
6.18 Undisclosed Liabilities. None of Front Royal or any of the
Material Front Royal Subsidiaries has any liability, fixed, contingent,
liquidated, unliquidated or otherwise (and to the knowledge of Front Royal
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of Front Royal
or any Material Front Royal Subsidiary giving rise to any liability), except
for (i) liabilities disclosed in the Buyer Financial Statements or in the
statutory statements of the Material Front Royal Subsidiaries heretofore
delivered to Sellers, including the notes and schedules thereto, (ii)
liabilities which have arisen after the date of the Buyer Unaudited Financial
Statements in the
38
ordinary course of business (none of which results from, or arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law), (iii)
liabilities disclosed in Schedule 6.18 of the Buyer Disclosure Schedule, (iv)
liabilities which do not, individually or in the aggregate, have a material
adverse effect on the properties, business, results of operations, or
financial condition of Front Royal or of Front Royal and its Subsidiaries,
taken as a whole.
6.19 Charter Documents and Bylaws. Buyer has heretofore made
available to the Sellers true and complete copies of the articles of
incorporation and bylaws as in effect on the date hereof of each of Front
Royal, Holdings and each of the Material Front Royal Subsidiaries.
6.20 Disclosure. None of the Buyer's representations and warranties
contained in this Agreement or in any other agreement delivered or to be
delivered by or on behalf of Buyer in accordance with the terms of this
Agreement, any Schedule included in the Buyer Disclosure Schedule, or any
certificates delivered or to be delivered by the Buyer in accordance with the
terms hereof contains or will contain any untrue statement of a material fact,
or omits or will omit any statement of a material fact the disclosure of which
is necessary in order for the statements contained herein or therein not to be
misleading in any material respect.
ARTICLE 7
CERTAIN MATTERS PENDING THE CLOSING
With respect to any representation by or obligation of PNIC in this
Article 7, or in any other Article or Section of this Agreement, PNFC shall be
deemed to be making such representation on behalf of PNIC or agreeing to cause
PNIC to undertake such obligation. With respect to any representation by or
obligation of any Subsidiary of Front Royal, and with respect to any
obligation of PNIC after the Closing Date, in this Article 7 or in any other
Article or Section of this Agreement, Front Royal shall be deemed to be making
such representation on behalf of such Subsidiary or agreeing to cause such
Subsidiary or, after the Closing, PNIC to undertake such obligation.
7.1 Carry on in Regular Course. (a) Except as provided in this
Agreement, between the date hereof and the Closing Date each Company shall,
unless Buyer shall otherwise consent, which consent shall not be unreasonably
withheld:
(i) carry on its respective business in the ordinary course
and substantially in the same manner as heretofore carried on,
including, without limitation, collecting all receivables and paying
all payables in accordance with its past practices;
(ii) use its best efforts to preserve its respective
properties, business, and relationships with its respective clients
and customers;
39
(iii) not (A) change its premium rate structure in any
material respect, its insurance underwriting policies or its
insurance products; (B) change its methods or practices with respect
to establishing or maintaining Reserves from historical practices; or
(C) alter its reinsurance policies or modify or amend any of its
reinsurance agreements;
(iv) not appoint any new agents;
(v) not make any rate filings;
(vi) not create any new Subsidiaries;
(vii) not hire or appoint any new officers or directors;
(viii) not enter into any new employment agreements or amend
any existing employment agreements, and not cause any persons to
become employed by or engaged as consultants to PNIC;
(ix) not allow any of the insurance coverages referred to in
Section 5.24 to lapse or otherwise cease to be in effect, except to
the extent such insurance relates solely to the Wycon Excluded
Assets, the Americlaim Excluded Assets, or the Unamark Excluded
Assets;
(x) not dispose of any material asset; and
(xi) not make, declare or pay any dividend or distribution
on any shares of capital stock of any of the Companies except that
(A) if the GAAP Book Value of PNIC is greater than $40,000,000 as at
any date prior to the Closing, PNFC may cause PNIC to distribute by
way of dividend such amount in excess of $40,000,000; and (B) Wycon
and Unamark shall be able to make S-Corporation distributions to
their stockholders of earnings for the period ended December 31, 1997
and for the period ended as at the Closing Date in accordance with
each of their past practices.
Between the date of this Agreement and the Closing Date, each Seller will
advise Buyer promptly in writing of any material adverse change, or any event
or circumstance that is reasonably likely to result in a material adverse
change, in the properties, business, results of operations, condition
(financial or otherwise) or affairs of any Company.
(b) Between the date of this Agreement and the Closing date
Front Royal and the Material Front Royal Subsidiaries will continue to conduct
their business substantially as presently conducted and will advise the
Sellers promptly in writing of any material adverse change, or in any event or
circumstance that is reasonably likely to result in a material adverse change,
in the properties, business, results of operations, or financial condition of
Front Royal or on Front Royal and its Subsidiaries, taken as a whole.
40
7.2 Indebtedness. Between the date of this Agreement and the Closing
Date, without the prior written consent of Buyer, none of the Companies shall:
(a) create, incur or assume any indebtedness for borrowed
money;
(b) mortgage, pledge or otherwise encumber or subject to any
Lien any of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts
payable and other liabilities incurred in the ordinary course of
business.
7.3 Issuance of Stock. Between the date of this Agreement and the
Closing Date, PNIC shall not issue any shares of capital stock of any class or
grant any warrants, options or rights to subscribe for any shares of capital
stock of any class or securities convertible into or exchangeable for, or
which otherwise confer on the holder any right to acquire, any shares of
capital stock of any class of PNIC.
7.4 Compensation. Between the date of this Agreement and the Closing
Date, except as specifically disclosed in the Seller Disclosure Schedules, no
Company shall grant any increases in the salaries and wages or increases in
commission schedules of any Employee (other than increases that do not exceed
$5,000 per annum to any Employee), institute any new employee benefits with
respect to such Employees or amend any Employee Plans to increase benefits, in
each case without the written consent of Buyer.
7.5 Compliance with Law. Between the date of this Agreement and the
Closing Date, Front Royal and the Material Front Royal Subsidiaries, and each
Company shall use its respective best efforts to comply in all material
respects with all applicable Law and with all orders of any court or of any
federal, state, municipal or other governmental department.
7.6 Access to Information. (a) At Buyer's expense, Buyer and its
authorized agents, officers and representatives, for the purpose of confirming
the representations and warranties contained in Article 5 and for other
purposes reasonably related to the transactions contemplated hereby, shall
have reasonable access to the properties, books, records, contracts,
information and documents of each Company; provided, however, that such
examinations and investigations, (i) shall be conducted during normal business
hours, (ii) shall not unreasonably interfere with any of their operations and
activities; (iii) shall be germane to rights or obligations arising out of
this Agreement, the operations of the Companies prior to the Closing Date or
to the transactions prior to the Closing Date; (iv) shall be conducted only in
the presence of a designated representative of Sellers, as appropriate; and
(v) shall be subject to prior approval if the information or documents
requested are, in the reasonable opinion of an officer of PNFC , of a nature
that may compromise the competitive position of Sellers. Each Seller and PNIC
shall cooperate in all reasonable respects with Buyer's examinations and
investigations. Buyer shall maintain all information regarding the Companies
in complete confidence and shall not disclose such information to any person,
provided, however, Buyer shall not be required to keep confidential
information that (x) is or becomes generally available to the public other
than as a
41
result of disclosure by Buyer, (y) is or becomes available to Buyer
on a nonconfidential basis from a source other than the Sellers or PNIC or (z)
Buyer or any of its Affiliates is required to disclose pursuant to applicable
law, rule, regulation or subpoena. The Sellers, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and PNIC
acknowledge and agree that nothing in this Section 7.6 shall be deemed to
release Sellers or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ from any of their representations or
warranties under this Agreement.
(b) Sellers shall permit Ernst & Young to conduct a review
and, at the election of Buyer, an audit, of the financial statements of PNIC
and Sellers as at and for the three month period ended March 31, 1998 and as
at and for any other period ending at or prior to the Closing Date. Sellers
shall permit ▇▇▇▇▇▇▇▇▇▇▇, Buyer's actuarial consultants, to review the
estimates of Reserves of PNIC as at December 31, 1997, as at March 31, 1998
and as at the Closing Date. Sellers and PNIC shall cooperate fully in such
reviews and audit. Such reviews and audit shall be at the expense of Buyer.
(c) At the Sellers' expense, the Sellers and their
authorized agents, officers and representatives, for the purpose of confirming
the representations and warranties contained in Article 6 and for other
purposes reasonably related to the transactions contemplated hereby, shall
have reasonable access to the properties, books, records, contracts,
information and documents of Front Royal and its Subsidiaries; provided,
however, that such examinations and investigations, (i) shall be conducted
during normal business hours; (ii) shall not unreasonably interfere with any
of Front Royal's or its Subsidiaries' operations and activities; (iii) shall
be germane to the rights or obligations arising out of this Agreement or the
operations of Front Royal and the Material Front Royal Subsidiaries prior to
the Closing Date; (iv) shall be conducted only in the presence of a designated
representative of Buyer; and (v) shall be subject to prior approval if the
information or documents requested are, in the reasonable opinion of an
officer of Front Royal, of a nature that may compromise the competitive
position of Front Royal or any of its Subsidiaries. Buyer shall cooperate in
all reasonable respects with the Sellers' examinations and investigations. The
Sellers shall maintain all information regarding Buyer and its Subsidiaries in
complete confidence and shall not disclose such information to any person
provided, however, the Sellers shall not be required to keep confidential
information that (x) is or becomes generally available to the public other
than as a result of disclosure by the Sellers, (y) is or becomes available to
the Sellers on a nonconfidential basis from a source other than Buyer or its
Subsidiaries or (z) the Sellers or any of their Affiliates are required to
disclose pursuant to applicable law, rule, regulation or subpoena. Buyer
acknowledges and agrees that nothing in this Section 7.6 shall be deemed to
release Buyer from any of its representations or warranties under this
Agreement.
(d) The provisions of Sections 7.6(a) and 7.6(c) shall survive
the Closing for a two year period.
7.7 Cooperation; Reasonable Efforts. Each of the Parties will use his
or its best efforts to the extent commercially reasonable to take all action
and to do all things necessary, proper, or advisable in order to consummate
and make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in
42
Article 8 and Article 9), provided, however, that nothing contained in this
Agreement shall require the Sellers or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to contribute
additional capital to PNIC to cause the conditions set forth in Section 8.12
or 8.16 to be satisfied.
7.8 Regulatory Filings. Buyer and the Sellers and PNIC will cooperate
in all respects in connection with the giving of any notices to any
governmental authority or self-regulatory organization or securing the
permission, approval, determination, consent or waiver of any governmental
authority or other party required in connection with the consummation of the
transactions contemplated under this Agreement. Each of the parties hereto
agrees to make all required regulatory filings promptly after the date hereof
and to diligently pursue compliance with the Florida Code. Buyer promptly will
furnish to the Sellers copies of the filings with the Florida Department and
all correspondence with the Florida Department with respect thereto.
7.9 Consents. Buyer and each Seller and PNIC shall diligently pursue
obtaining consents of all third parties and governmental authorities necessary
to the consummation of the transactions contemplated by this Agreement.
7.10 Publicity. All general notices, releases, statements and
communications to employees, suppliers, distributors and customers of the
Sellers and PNIC and to the general public and the press relating to the
transactions covered by this Agreement shall be made only at such times and in
such manner as may be mutually agreed upon by the Sellers and Buyer.
7.11 No Solicitation. None of Sellers or PNIC shall, after the date
hereof until the earlier of the Closing or the termination of this Agreement
pursuant to Section 12.1 hereof, directly or indirectly, through any officer,
director, employee, agent or otherwise, solicit, initiate or encourage
submission of proposals or offers from any person relating to any acquisition
or purchase of all or (other than in the ordinary course of business) a
substantial portion of the assets of, or any equity interest in, any of the
Companies or any business combination with or involving any of the Companies,
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing.
7.12 Discussions with Florida Department. None of the Sellers, PNIC
or any of their respective Affiliates, officers, directors, partners,
employees, agents or representatives shall, from and after the date hereof,
initiate communications or contact whatsoever, whether telephonic or in-person
or otherwise, with the Florida Department regarding any aspect of this
Agreement or any of the transactions contemplated hereby, without providing to
Buyer the reasonable opportunity for an officer or representative of Buyer to
participate therein. Sellers shall promptly advise Buyer of any contact or
communication received by any of Sellers or PNIC from the Florida Department
with respect to the transactions contemplated hereby and shall promptly
furnish to Buyer copies of all filings with the Florida Department and all
correspondence with the Florida Department with respect thereto.
43
7.13 Articles and Bylaws. The Sellers and PNIC covenant and agree
that, between the date of this Agreement and the Closing Date, none of the
Companies shall amend their Articles or Certificates of Incorporation or
bylaws or merge or consolidate with or into any other corporation or other
entity. Front Royal covenants and agrees that it shall not amend its Articles
of Incorporation or bylaws or merge or consolidate with or into any other
corporation or entity.
7.14 PNIC Business. PNFC hereby represents, warrants and covenants
that since June 30, 1997, and prior to the Closing Date, all of PNIC's
outstanding payables and receivables have been, and will be, settled in the
ordinary course of business in a timely manner consistent with the historic
practices of PNIC, and that all business written by PNIC has conformed, and
will conform, to the underwriting and pricing guidelines in place at PNIC on
the date of this Agreement. PNFC hereby covenants that, until the earlier of
the Closing or termination of this Agreement pursuant to Section 12.1, except
for any dividend permitted by Section 7.1(a)(xi), PNIC shall not pay any
dividends to any holders of PNIC's capital stock without the prior written
consent of Buyer.
ARTICLE 8
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing
Date shall be subject to the satisfaction prior to or at the Closing of the
following express conditions precedent (it being the understanding of the
parties that any of such conditions, except as set forth in Sections 8.7
[Regulatory Approvals] and 8.10 [HSR], may be waived by Buyer):
8.1 Compliance with Agreement. The Sellers shall have performed and
complied in all material respects with all of their respective obligations
under this Agreement that are to be performed or complied with by them prior
to or on the Closing Date.
8.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or otherwise, to be taken by the Sellers in connection with the
transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Buyer and
Buyer's counsel, and the Sellers shall have made available to Buyer for
examination the originals or true and correct copies of all documents that
Buyer may reasonably request in connection with the transactions contemplated
by this Agreement.
8.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
8.4 Representations and Warranties. The representations and
warranties made by the Sellers in this Agreement shall be true and correct as
of the Closing Date with the same force and effect as though such
representations and warranties have been made on the Closing Date, except
44
as otherwise contemplated hereby and except to the extent that such
representations and warranties were made as of a specified date and as to such
representations and warranties the same shall continue on the Closing Date to
have been true and correct as of the specified date. The parties acknowledge
and confirm that if any representation and warranty made in this Agreement is
not true and correct at any time after the date hereof and prior to the
Closing Date, but is true and correct on the Closing Date, then the condition
set forth in this Section 8.4 shall have been met.
8.5 Agreements. The following agreements shall have been duly and
validly executed and delivered by the parties thereto and shall be in full
force and effect:
(a) the Employment Agreements (which the parties confirm
shall be executed and delivered concurrently with the execution and
delivery of this Agreement);
(b) the Non-Compete Agreement;
(c) the Britamco Runoff Agreement;
(d) the Registration Rights Agreement;
(e) the Relationship Agreements (which the parties confirm
have been executed and delivered prior to the execution and delivery
of this Agreement);
(f) the Assumption Agreements;
(g) the Bills of Sale; and
(h) such additional instruments of conveyance and assignment
and assumption agreements as Buyer may determine to be reasonably
necessary to transfer the Seller Assets to Buyer.
8.6 Additional Deliveries at Closing. Sellers shall have, or shall
cause to have, delivered to Buyer the Opinion of Sellers' Counsel, the
Sellers' Closing Certificates, and the Preliminary Calculations Certificate,
each duly executed and delivered and dated as of the Closing Date. PNFC shall
deliver to Buyer certificates representing the PNIC Shares, accompanied by
stock powers or other instruments of transfer duly endorsed in blank, with all
required transfer taxes or stamps paid for or affixed thereto, free and clear
of all Liens, except as permitted by Section 4.1(c)(i).
8.7 Regulatory Approvals. All required authorizations, registrations
and approvals from federal and state regulatory agencies, including, without
limitation, the Florida Department, with jurisdiction over any of the Sellers
or Buyer to permit the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect (without any material term,
condition or restriction that is reasonably unacceptable to Buyer).
45
8.8 Consents. There shall have been obtained written consents with
respect to any Contract, and any material agreement to which Front Royal or
any of its Subsidiaries is a party, which requires any third party consent due
to the consummation of the transactions contemplated by this Agreement,
including, without limitation, the consent of Connecticut Indemnity Company.
8.9 Directors and Officers. Each member of the Board of Directors and
each officer of PNIC shall have resigned from such positions effective on the
Closing Date. Each person who is a signatory to any bank, brokerage, custody
or other accounts of PNIC shall have resigned such authority.
8.10 Waiting Periods. All applicable waiting periods under Section 7A
of the ▇▇▇▇▇▇▇ Act and the HSR Act and the rules and regulations thereunder
shall have expired without indication from the Federal Trade Commission or the
United States Justice Department that the transactions contemplated hereby may
be consummated only upon terms which differ adversely from the description of
the transaction set forth in any filing made on behalf of Buyer or Sellers for
any governmental approval.
8.11 Books and Records. The Sellers shall have delivered to Buyer all
minute books, stock records and other corporate and financial records of PNIC.
8.12 Direct Written Premiums of PNIC. Direct written premiums at PNIC
during 1997, as set forth on the statutory financial statements of PNIC for
the year ending December 31, 1997, shall be at least $46,000,000.
8.13 Britamco Business. Britamco shall have written no new business
and no renewal business with effective dates subsequent to July 1, 1997.
8.14 Audited Financial Statements. Sellers shall have delivered to
Buyer financial statements for PNIC; and for PNIC, Wycon, Unamark and
Americlaim on a combined basis, in each case in form suitable for filing with
the Securities and Exchange Commission and covering the fiscal years ended
December 31, 1997, in each case prepared in accordance with GAAP (and in
accordance with SAP, in the case of PNIC) and past practices of the Sellers
and certified by independent certified public accountants acceptable to Buyer.
All costs of preparation, audit and certification of such financial statements
shall be borne by Sellers.
8.15 Statutory Statements. PNFC shall have delivered to Buyer annual
statutory convention statements of PNIC for the year ended December 31, 1997,
as filed with the Florida Department pursuant to the Florida Code, and as
audited by Delolitte & Touche, including management's discussion and analysis
and the supporting memorandum to the actuarial opinions given in connection
with such statutory statements; the quarterly statutory convention statements
of PNIC for the three month period ended March 31, 1998, as filed with the
Florida Department; and, if filed with the Florida Department prior to the
Closing Date, the quarterly statutory convention statements of PNIC for the
six months ended June 30, 1998.
46
8.16 Book Value of PNIC. As at the Closing Date, the GAAP Book Value
of PNIC shall be not less than $30,000,000.
8.17 Officers Certificate. Each Seller shall deliver to Buyer a
Sellers' Officers Certificate dated the Closing Date executed by such Seller's
Chief Executive Officer and Chief Financial Officer stating that such Seller
has complied and is in compliance with all of the foregoing conditions
applicable to it as of the Closing Date.
ARTICLE 9
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF THE SELLERS
Each and every obligation of each of the Sellers to be performed on
the Closing Date shall be subject to the satisfaction prior to or at the
Closing of the following express conditions precedent (it being the
understanding of the parties that any of such conditions, except as set forth
in Sections 9.7 [Regulatory Approvals] and 9.9 [HSR] may be waived by the
Sellers):
9.1 Compliance with Agreement. Buyer shall have performed and
complied in all material respects with all of its obligations under this
Agreement that are to be performed or complied with by it prior to or on the
Closing Date.
9.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or otherwise, to be taken by Buyer in connection with the
transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to the Sellers
and their respective counsel, and Buyer shall have made available to the
Sellers for examination the originals or true and correct copies of all
documents that the Sellers may reasonably request in connection with the
transactions contemplated by this Agreement.
9.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
9.4 Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall be true and correct as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on the Closing Date, except as otherwise contemplated
hereby and except to the extent that such representations and warranties were
made as of a specified date and as to such representations and warranties the
same shall continue on the Closing Date to have been true and correct as of
the specified date. The parties acknowledge and confirm that if any
representation and warranty made in this Agreement is not true and correct at
any time after the date hereof and prior to the Closing Date, but is true and
correct on the Closing Date, then the condition set forth in this Section 9.4
shall have been met.
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9.5 Agreements. The following agreements shall have been duly and
validly executed and delivered by the parties thereto and shall be in full
force and effect:
(a) the Employment Agreements (which the parties confirm
shall be executed and delivered concurrently with the execution and
delivery of this Agreement);
(b) the Non-Compete Agreement;
(c) the Britamco Runoff Agreement;
(d) the Assumption Agreements; and
(e) the Registration Rights Agreement.
9.6 Additional Deliveries at Closing. Buyer shall have, or shall
cause to have, delivered (a) the Purchase Price and Additional Escrow Amount
in accordance with Articles 3 and 4, including certificates representing the
Purchase Shares, with all required transfer taxes or stamps paid for or
affixed thereto, and the Purchase Warrants, in each case free and clear of all
Liens except as permitted by 4.1(b)(ii) and (iii), and (b) the following
documents, each duly executed and delivered and dated as of the Closing Date:
(i) the Opinions of Buyer's Counsel, and (ii) Buyer's Closing Certificate.
9.7 Regulatory Approvals. All required authorizations, registrations
and approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over any of the Sellers
or Buyer to permit the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect (without any material term,
condition or restriction that is reasonably unacceptable to the Sellers).
9.8 Consents. There shall have been obtained written consent with
respect to any Contract, and any material agreement to which Front Royal or
any of its subsidiaries is a party, which requires any third party consent due
to the consummation of the transactions contemplated by this Agreement.
9.9 Waiting Periods. All applicable waiting periods under Section 7A
of the ▇▇▇▇▇▇▇ Act and the HSR Act and the rules and regulations thereunder
shall have expired without indication from the Federal Trade Commission or the
United States Justice Department that the transactions contemplated hereby may
be consummated only upon terms which differ adversely from the description of
the transaction set forth in any filing made on behalf of Buyer or Sellers for
any governmental approval.
9.10 The Dividend. If PNIC is allowed to pay a dividend pursuant to
Section 7.1(a)(xi), then all required authorizations, registrations and
approvals from applicable regulatory agencies or third parties shall have been
obtained for PNIC to make the dividend and the dividend shall have been paid
in accordance with the terms of this Agreement.
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9.11 Officers Certificate. Buyer shall deliver to the Sellers the
Buyer's Closing Certificate dated the Closing Date executed by each of Front
Royal's and Holdings' Chief Executive Officer and by Front Royal's Chief
Financial Officer stating that Buyer has complied and is in compliance with
all of the foregoing conditions applicable to it as of the Closing Date.
ARTICLE 10
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
10.1 Employee Benefit Plan Matters. (a) The Sellers, PNIC and the
Employee Plans shall remain responsible for any employee benefits earned or
accrued on or before the Closing Date and for any liabilities arising out of
the operation of the Employee Plans on or before the Closing Date. Buyer shall
have no responsibility or obligation under or to or arising out of the
Employee Plans or to any participant or beneficiary thereunder.
(b) None of Front Royal or any of its Subsidiaries or
Affiliates shall be obligated to offer employment to any of the Employees of
Americlaim, Unamark or Wycon. In the event Buyer or any Affiliate of Buyer
offers employment to any such Employee, Buyer shall cause (i) each such
Employee employed by Buyer or Affiliate thereof ("Hired Employees") to be
immediately eligible for participation in the Buyer's or Affiliate's, as the
case may be, medical, life, disability, or similar employee welfare benefit
plans ("Buyer's Welfare Plans"), (ii) preexisting condition rules under
Buyer's Welfare Plans shall be waived, and (iii) application of deductibles
under Buyer's health insurance plan shall take into account the status of each
Hired Employee (and his or her eligible dependents) under deductible rules of
the Employee Plans as of the date immediately preceding the Hired Employee's
employment with Buyer.
(c) Buyer shall cause Hired Employees to be credited with
service for employment with the Companies for vesting and eligibility purposes
under Buyer's qualified retirement plans. Buyer shall take all actions
reasonably necessary to provide that Hired Employees can rollover Sellers'
qualified plan distributions to Buyer's qualified plans.
(d) Buyer agrees that it shall offer to all Employees who
are not Hired Employees (the "Non-Hired Employees") and their respective
"qualified beneficiaries" within the meaning of Section 607(3) of ERISA, and
to each former employee of any of the Companies who is as at the Closing Date
participating in the Sellers' health insurance plans pursuant to COBRA (the
"COBRA Participants") and their respective "qualified beneficiaries," the
opportunity to participate in Buyer's health insurance plan upon the Buyer's
plan's terms and conditions implementing COBRA as though (i) in the case of
each Non-Hired Employee, the Non-Hired Employee experienced a "qualifying
event" under Section 603(2) of ERISA as of the Closing Date, and (ii) in the
case of each COBRA Participant, the qualifying event rendering him or her
eligible for COBRA under Sellers' plan took place at a time when he or she was
covered by Buyer's plan.
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(e) Sellers shall provide to Buyer such records concerning
the Employee Plans as Buyer may reasonably require to administer Buyer's
Welfare Plans with respect to the Hired Employees, the Non-Hired Employees and
the COBRA Participants. Sellers' obligations hereunder shall survive the
Closing.
10.2 Confidentiality. Following the Closing, the Sellers shall keep
confidential all information concerning the business, operations, properties,
assets and financial affairs of PNIC and Sellers may disclose such information
only upon receipt of prior written consent from Buyer or if such disclosure is
required (a) in connection with the filing of any state or federal income tax
returns of any Seller, (b) in connection with filings made with the Florida
Department, the Securities and Exchange Commission or any national securities
exchange, (c) by order of any judicial or administrative authority or (d) as
may be required under reinsurance or similar agreements to which PNIC is a
party.
10.3 Use of Names. From and after the Closing Date, none of the
Sellers nor their respective Affiliates shall use the names "Preferred
National Insurance," "Unamark," "United American" or "Wycon" or any names
similar thereto or variants thereof, except that Sellers and their Affiliates
may continue to use the names "Wycon" and "United American," and the complete
corporate names of Wycon and Unamark, solely in connection with the runoff of
Britamco's business and the winding-up of business of Wycon, Unamark and
Americlaim. In the case of the "Wycon" name, such use shall be limited in time
to a thirty six month period following the Closing Date. Sellers shall use
reasonable efforts to avoid confusion with the business of Buyer arising out
of the continued use of such names by Sellers. At or promptly after the
Closing, PNFC shall change its corporate name to eliminate the use of the
phrase "Preferred National."
10.4 Non-Solicitation of Employees. The Sellers hereby agree that for
a period commencing on the Closing Date and ending two years thereafter,
neither they, nor any of their Affiliates shall solicit for employment by them
or any of their Affiliates any employees of Front Royal or any of its
Subsidiaries or of PNIC, or any Hired Employees, other than as provided or
contemplated in the Britamco Runoff Agreement.
10.5 Initial Public Offering. Front Royal hereby covenants that it
will as soon as practicable following the Closing Date, subject to the
exercise by Front Royal's Board of Directors of its fiduciary responsibilities
and obligations to Front Royal's shareholders and subject to market
conditions, consummate an initial public offering of its common stock or
otherwise cause the Class A Common Stock to be listed for trading on a
national securities exchange and to be registered under the Securities
Exchange Act of 1934, as amended.
10.6 Britamco Business. Britamco, or any successor thereof, shall
write no new business with effective dates after the date of this Agreement
and, following the Closing, the business of Britamco shall be conducted in
accordance with the terms of the Britamco Runoff Agreement.
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10.7 Certain Tax Matters. The following provisions shall govern the
allocation of responsibility as between Buyer and Sellers for certain tax
matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. PNFC
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for PNIC for all periods ending on or prior to the Closing Date which
are filed after the Closing Date. PNFC shall be responsible for the payment of
any federal, state, local or foreign income taxes of PNIC for all periods
ending on or before the Closing Date, if not previously paid or accrued on the
Final Closing Balance Sheet. None of Buyer, any member of the affiliated group
of which Buyer is a member (the "Buyer Group") or PNIC shall be required to
reimburse either Seller or any other person for any such taxes; and PNFC shall
indemnify and hold Buyer, all other members of the Buyer Group and PNIC
harmless from all liabilities for any such taxes (including, without
limitation, any additions to tax, penalties and interest). PNFC shall be
entitled to any refunds (except any refund resulting from carrybacks from
taxable periods beginning after the Closing Date) not heretofore received for
taxable periods of PNIC ending on or before the Closing Date. Buyers shall
promptly pay, or cause PNIC to pay, to Sellers the amount of any such refund
(to which PNFC is entitled hereunder) that is received by PNIC or Buyer;
provided, however, that any amount payable in respect of any such refund shall
be reduced by the amount of any taxes incurred, and the present value (based
on a discount rate of 5%) of any taxes to be incurred, by Buyer, any other
member of the Buyer Group or PNIC as a result of the accrual or receipt of the
refund.
(b) Tax Periods Beginning Before and Ending After the Closing
Date.
(i) Income Taxes. Buyer shall prepare or
cause to be prepared and file or cause to be filed any Tax Returns of PNIC for
Tax periods which begin before the Closing Date and end after the Closing
Date. Buyers and PNIC, on the one hand, and PNFC, on the other hand, shall
each be responsible for the payment of federal, state, local or foreign income
taxes for any such period based on the allocation of income and expenses to
the periods before and after the Closing Date, respectively, as set forth
below. The total federal, state, local or foreign income taxes for the taxable
period shall be allocated among Buyer and PNIC, on the one hand, and PNFC, on
the other, using the following methodology: PNFC shall be liable (to the
extent not previously paid or accrued on the Final Closing Balance Sheet) for
an amount equal to such total taxes multiplied by a fraction, the numerator of
which is the taxable income of PNIC calculated from the beginning of the
period through the Closing Date (based on actual closing of the books of PNIC,
or if not feasible, based upon a pro forma closing of the books) and the
denominator of which is the total taxable income of PNIC calculated for the
entire period; Buyer or PNIC shall be liable for the balance of such federal,
state, local or foreign income taxes. Each of Buyer and PNIC, on the one hand,
and PNFC, on the other, shall be entitled to all refunds of such taxes based
on the foregoing methodology. Any credits relating to a Taxable period that
begins before and ends after the Closing Date shall be taken into account as
though the relevant Taxable period ended on the Closing Date.
(ii) Intangible Personal Property Tax. At the
Closing Date, PNIC shall have paid or accrued on the Final Closing Balance
Sheet its 1998 Florida Intangible Personal Property Tax ("IPPT") obligation.
Buyer shall reimburse PNFC for Buyer's pro rata
51
share of the IPPT, based on the number of days of the ownership of the stock
of PNIC during 1998.
(iii) Tangible Personal Property Tax. By the
Closing Date, Sellers shall have filed the Tangible Personal Property Tax
returns for Wycon, Americlaim and Unamark for the calendar year 1998. Sellers
shall pay the Tangible Personal Property Tax obligations for Wycon, Americlaim
and Unamark when due. Buyer shall reimburse Sellers for Buyer's pro rata share
of the Tangible Personal Property Tax based on the fraction of the calendar
year 1998 that Buyer is the owner of the Seller Assets.
(iv) Premium Taxes and Fees. Buyer shall file PNIC's
Insurance Premium Taxes and Fees return (Form DR-908) for the calendar year
1998. PNFC and Buyer agree that Form DR-908 includes various taxes and fees.
PNFC shall, within 10 days of the filing of the year end tax return, pay Buyer
a portion of the Total Tax Due on line 11 or equivalent line on the 1998
DR-908 (line 11 was the Total Tax Due on the 1997 DR-908) based on a formula
whereby the Total Tax Due is multiplied by a fraction, the numerator being the
direct written premium from January 1, 1998 through the Closing Date and the
denominator being the direct written premium for the 1998 calendar year,
unless PNIC had previously paid, or accrued on the Final Closing Balance
Sheet, those taxes. Any amounts due and not paid within said 10 day period
shall accrue at the rate of 12% per annum compounded annually. In the event
PNIC's Premium Taxes and Fees were overpaid or accrued in excess of the actual
tax liability, Buyer shall promptly (and in any event within ten days after
the receipt thereof) refund any such excess (net of all applicable income
taxes payable on account of such refund) to PNFC and shall pay interest
thereon at the rate of 12% per annum, compounded annually, on any amounts not
paid within such ten day period.
(c) Cooperation on Tax Matters.
(i) Buyer, PNIC and Sellers shall cooperate
fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this
Section 10.7 and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. PNIC and Sellers
agree (A) to retain all books and records with respect to Tax
matters pertinent to PNIC relating to any taxable period beginning
before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer or Sellers, any
extensions thereof) of the respective taxable periods, and to abide
by all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, PNIC or Sellers, as the
case may be, shall allow the other party to take possession of such
books and records.
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(ii) Buyer and Sellers further agree, upon
request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person
as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(d) Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving PNIC shall be terminated with
respect to PNIC as of the Closing Date and, after the Closing Date, PNIC shall
not be bound thereby or have any liability thereunder.
(e) Certain Taxes. Buyer shall pay all documentary, stamp
and similar taxes incurred in connection with the issuance of the Purchase
Shares. All transfer, documentary, sales, use, stamp, registration and other
similar Taxes incurred in connection with the sale of the Seller Assets shall
be the responsibility of Sellers.
(f) Changes to Certain Tax Items of the Companies. Except as
may be required by law or as provided in the following sentence or in Section
10.7(g), no amended tax return shall be filed, no change in any tax accounting
method shall be made, and no tax election shall be made or revoked by, on
behalf of, or with respect to PNIC for any taxable period ending on or before
the Closing Date without the express written consent of PNFC, on the one hand,
and Buyer, on the other hand.
(g) Entitlement to Certain Tax Benefits. PNFC acknowledges
that PNIC and Buyer shall be entitled to the tax benefit of any loss, credit
or other item of PNIC that has arisen or arises before the Closing Date but
cannot be used in a taxable period ending on or before the Closing Date and
therefore is reportable in or carried forward to a taxable period ending after
the Closing Date. Buyer agrees that (to the extent permissible under
applicable law) any loss arising after the Closing Date shall be carried
forward only and, if so permitted, then no loss shall be carried back into a
taxable period ending on or before the Closing Date.
(h) Tax Contests. If any party to this Agreement receives
any written notice from any taxing authority proposing an adjustment to any
tax for which any other party hereto may be obligated to indemnify under this
Agreement, within ten business days thereafter such party shall give to the
others written notice thereof that describes such proposed adjustment in
reasonable detail, and shall indicate the amount (estimated, if necessary) of
the increase in tax that may be suffered by Buyer, Sellers or PNIC, as the
case may be. The failure to give notice pursuant to this Section 10.7(h),
however, shall not reduce the obligations of a party hereunder unless, and
then only to the extent, such failure prejudices the rights of the other party
to contest such tax adjustment. Each Seller, including its duly appointed
representatives, shall be responsible for defending against (and shall have
the right to negotiate, resolve, settle or contest) any claim for taxes
imposed on PNIC made by any taxing authority for any taxable period, or
portion thereof, ending on or before the Closing Date; provided, however, that
Sellers shall keep Buyer advised of the status (and any change in status) of
such claims and may not resolve or settle any such claim for taxes without the
consent of Buyer, which consent shall not be
53
unreasonably withheld, provided that if resolution or settlement will result
in any adverse tax or other economic consequence to either Buyer or PNIC, such
failure to give consent shall not be deemed unreasonable hereunder.
(i) Coordination of Benefits. The indemnities provided in
this Section 10.7 are in addition to, but not in duplication of, the
indemnities provided in Article 11 hereof.
10.8 Britamco Financial Statements. In connection with the initial
public offering referred to in Section 10.5, Front Royal may elect or may be
required by the Securities and Exchange Commission (the "SEC") to include in
its registration statement historical financial information and financial
statements relating to Britamco. In any such event, PNFC shall cooperate with
Front Royal in making available such financial information and in the
preparation of such financial statements. In the event any such historical
financial statements or information relating to Britamco is not currently
available in the form requested by Front Royal or required by the SEC, then
PNFC shall assist Front Royal in the preparation thereof. Any third-party
accounting fees incurred in connection with the preparation of certified
financial statements for Britamco on a GAAP basis shall be borne by Front
Royal, except that if the SEC requires historical financial statements for
Britamco on a GAAP for the fiscal year of Britamco ended December 31, 1997,
then the third- party accounting fees incurred in connection with the
preparation of such financial statements for the fiscal year ended December
31, 1997 shall be borne by PNFC. The parties confirm that the SEC shall be
deemed to have required such financial statements only if (a) a comment letter
from the SEC staff regarding the registration statement shall have indicated
that such financial statements are or may be required, and (b) Front Royal and
its independent auditors shall have made reasonable efforts to persuade the
SEC staff that such financial statements are not required under applicable
rules and regulations.
ARTICLE 11
INDEMNIFICATION
11.1 Survival of Representations and Warranties. The right to enforce
claims for breaches of representations and warranties, of each Seller and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, on the one hand, and Buyer, on the other hand, contained in
this Agreement and the respective obligations of the parties with respect
thereto, shall survive the making of this Agreement, any investigations made
by or on behalf of the parties hereto and the Closing Date, and shall continue
in full force and effect until the expiration of two years from the Closing
Date (except (a) with respect to the representations and warranties contained
in Sections 5.19 [Taxes] and 5.22 [Employee Benefit Matters] of the Agreement
the remedy for breach of which shall continue in full force and effect until
any claims or liabilities with respect thereto shall be barred by the
expiration of the applicable statute of limitations or any extensions thereof,
and (b) with respect to Section 5.2 and 6.2 [Capitalization] and the
indemnification provided pursuant to Sections 11.2(c) and (g) and Sections
11.3(c) and (d), to which there shall be no expiration), at which respective
times all such representations and warranties and liabilities shall expire and
terminate, except for any claims relating to any specific breaches of any
representations or warranties which are asserted in
54
writing on or before the applicable termination date. Each of the parties
agrees to give notice to the breaching party of any breach of any such
representation, warranty, covenant, or agreement, describing such breach in
reasonable detail, as soon as practicable after the discovery thereof;
provided, however, that the failure to receive such notice shall not relieve
the breaching party from any liability in respect to such breach unless and to
the extent that the breaching party shall be prevented from curing such breach
solely as a direct result of its failure to receive a timely notice. Any claim
for indemnification for which notice has been given within the prescribed
period may be prosecuted to conclusion notwithstanding the subsequent
expiration of such period.
11.2 Indemnification by Sellers. After the Closing Date and subject
to the limitations set forth below, including without limitation the
limitations described in Section 11.4, each Seller and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as
applicable, agree to and do hereby indemnify and hold Buyer and each of its
Affiliates, officers, directors and employees harmless against any claims,
suits, losses, expenses, damages, obligations, liabilities (including costs
and reasonable attorneys' fees) (hereinafter referred to collectively as
"Losses") which result from or are related to any of the following:
(a) any breach or failure of such Seller or PNIC (in the
case of PNIC, prior to Closing), as applicable, to perform any of its
covenants or agreements set forth herein;
(b) the inaccuracy of any representation or warranty made
herein by such Seller or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as applicable;
(c) any liabilities of any Seller except for (i) those
liabilities incurred by Buyer pursuant to this Article 11, (ii) liabilities of
such Seller that are actually the primary obligations of PNIC and (iii) the
Seller Assumed Liabilities;
(d) any liabilities of any Seller or PNIC arising prior to
the Closing other than (i) with respect to PNIC, those liabilities
specifically set forth or provided for in the Statutory Statements or
otherwise specifically provided for in this Agreement or disclosed in any
Schedule of the Sellers' Disclosure Schedule, (ii) with respect to Wycon, the
Wycon Assumed Liabilities, (iii) with respect to Unamark, the Unamark Assumed
Liabilities, (iv) with respect to Americlaim, the Americlaim Assumed
Liabilities and (v) any liabilities described in Section 5.32(i), (ii), (iii)
or (iv) of this Agreement.
(e) any Employee Plan or Pension Plan maintained prior to
the Closing Date by such Seller or PNIC or maintained at any time by such
Seller, including any Losses arising out of any claim that Buyer or any of its
Subsidiaries has liability as a successor employer to any of the Sellers;
(f) any actions of such Seller or PNIC prior to the Closing
Date relating to the Employees or any other persons employed by such Seller or
PNIC; or
55
(g) any fines or penalties assessed against any of the
Sellers or PNIC for actions engaged in prior to the Closing Date.
11.3 Indemnification by Buyer. After the Closing Date, and subject to
the limitations set forth below, including, without limitation, the
limitations described in Section 11.4, Buyer agrees to and does hereby
indemnify and hold each Seller and their respective Affiliates, officers,
directors and employees harmless against any Losses resulting to such Seller
or its Affiliates from any of the following:
(a) any breach or failure of Buyer to perform any of its
covenants or agreements set forth herein;
(b) the inaccuracy of any representations or warranties made
by Buyer herein;
(c) any liabilities of PNIC relating solely to the
operations of PNIC after the Closing Date (provided Sellers are not required
to indemnify Buyer for any of such liabilities under this Agreement); or
(d) any liabilities referred to in Section 11.2(c)(i), (ii),
or (iii), except that with respect to liabilities referred to in Section
11.2(c)(ii), any such indemnification shall be provided solely by PNIC and not
by Buyer or any other Affiliate of Buyer.
11.4 Limitation of Liability. Buyer shall not have any liability to
indemnify the Sellers in respect of Losses incurred by Sellers pursuant to
Section 11.3, and Sellers shall not have any liability to indemnify Buyer in
respect of Losses incurred by Buyer pursuant to Section 11.2, in either case
unless and until the aggregate amount of such Losses exceeds $25,000, in which
event the party seeking indemnity may recover the full amount of such Losses,
other than the initial $25,000.
11.5 Notice of Indemnity Claims. If a party intends to assert a claim
for indemnification (an "Indemnified Party") under this Article 11 (an
"Indemnity Claim"), the Indemnified Party shall provide notice of such
Indemnity Claim, to the party from whom indemnification is sought (the
"Indemnifying Party") as soon as reasonably practicable and in any event
within 30 days after becoming aware of such Indemnity Claim. The failure to
receive such notice shall not relieve the Indemnifying Party from any
liability in respect of such claim unless and to the extent that the
Indemnifying Party shall be prevented from curing such situation as a direct
result of its failure to receive timely notice. At the time the Indemnity
Claim is made and thereafter, the Indemnified Party shall provide the
Indemnifying Party with copies of any materials in its possession describing
the facts or containing information providing the basis for the Indemnity
Claim. If the Indemnity Claim involves a claim by a third party (a "Third
Party Indemnity Claim"), the Indemnifying Party may assume and control at its
expense the defense of the claim by the third party, provided that the
Indemnifying Party agrees in writing with respect to such Third Party
Indemnity Claim that it is obligated hereunder to indemnify and hold the
Indemnified Party harmless in accordance with the terms of this Article 11;
and provided, further, that the Indemnified Party shall be entitled to
participate in the defense of such claim at
56
its own expense. Notwithstanding the foregoing, in the event of a Third Party
Indemnity Claim in which an Indemnifying Party and the Indemnified Party are
named as co-defendants, the Indemnified Party shall have the right to retain
separate counsel and to defend such action, at the expense of the Indemnifying
Party, if the Indemnified Party reasonably determines on advice of counsel
that (i) there exists a conflict of interest such that the Indemnifying Party
and the Indemnified Party cannot be represented by the same counsel, or (ii)
there are material defenses available to the Indemnified Party that are
separate from those that can be asserted by the Indemnifying Party. The
failure of the Indemnifying Party to assume the defense of any such claim
shall not affect any indemnification obligation under this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party,
which shall not unreasonably be withheld. A party shall not be liable under
this Article 11 for any such settlement effected without its consent. In the
event an Indemnified Party fails to consent to a settlement of a Third Party
Claim recommended by the Indemnifying Party, then the amount of
indemnification payable with respect to such Third Party Claim shall not
exceed the amount of such settlement offer plus all Losses incurred with
respect to such claim prior to the date the Indemnified Party rejected the
settlement offer.
11.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount
of any indemnification payable under any of the provisions of this Article 11
shall be (a) net of any federal or state income tax benefit realized or the
then-present value (based on a discount rate of 5%) of any such income tax
benefit to be realized by the Indemnified Party (or, where Buyer is the
Indemnifying Party, any of the Sellers) by reason of the facts and
circumstances giving rise to the indemnification, and (b) increased by the
amount of any federal or state income tax required to be paid by the
Indemnified Party on the accrual or receipt of the indemnification payment.
For purposes of the preceding sentence, the amount of any state income tax
benefit or cost shall take into account the federal income tax effect of such
benefit or cost.
11.7 Remedies Cumulative. Each indemnified party shall be entitled to
the indemnification provided in this Article 11 from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
ARTICLE 12
TERMINATION
12.1 Termination. This Agreement may be terminated at any time prior
to the Closing as follows:
(a) by mutual written consent of Buyer, on the one hand, and
the Sellers, on the other hand;
57
(b) by Buyer, on the one hand, or the Sellers, on the other
hand, if the Closing Date shall not have occurred on or before September 30,
1998 (provided that the right to terminate this Agreement under this Section
12.1(b) shall not be available to any party whose willful or negligent failure
to fulfill any obligation under this Agreement has been the cause of or has
resulted in the failure of the Closing Date to occur on or before such date);
or
(c) by Buyer, on the one hand, or Sellers, on the other
hand, if any court of competent jurisdiction in the United States or other
United States governmental body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
sale of the Seller Shares or the Seller Assets and such order, decree, ruling
or other action shall have become final and nonappealable.
12.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 12.1, all further obligations of the parties under or pursuant to
this Agreement shall terminate without further liability of any party to the
others, other than the provisions of Articles 11 and 13 of this Agreement,
which shall survive any such termination, and any other provision of this
Agreement that specifically sets forth that it is to so survive, and other
than any liabilities arising as a result of a breach by a party of this
Agreement.
12.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
12.4 Extension; Waiver. At any time prior to the Closing, the parties
may (a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein;
provided, however, any party that knowingly waives any representation,
warranty, agreement or condition with respect to another party under
subsection (b) and (c) shall thereafter be barred from seeking indemnification
from such other party for such waived breach of any representation, warranty,
agreement or condition. 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.
ARTICLE 13
DEPOSIT; PAYMENTS ON TERMINATION
13.1 Deposit. On the date of the execution of this Agreement, Buyer
will deposit with the Escrow Agent $1,000,000 to be held in accordance with
the provisions of this Article 13 (the "Deposit") and the Escrow Agreement.
Principal and interest earned on the Deposit shall be disbursed according to
Sections 13.2, 13.3 and 13.4 below.
13.2 Distribution. At the Closing, Buyer and the Sellers shall
instruct the Escrow Agent to distribute, by wire transfer to an account
designated by PNFC $1,000,000 as part of the
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cash portion of the Purchase Price as provided in Section 3.1, together with
any interest accrued or income earned on the Deposit during the time it is
held by the Escrow Agent. If the Closing does not occur the Deposit will be
distributed to Buyer or Sellers, as the case may be, as provided in Sections
13.3 and 13.4.
13.3 Payment to Sellers. If all the conditions to Buyer's obligations
under this Agreement set forth in Article 8 have been satisfied on or before
September 30, 1998, or any mutual extension thereof, and Buyer fails
materially to perform its obligations hereunder, or if any of the conditions
to Buyer's obligations under this Agreement set forth in Article 8 have not
been satisfied on or before September 30, 1998, or any mutual extension
thereof, due to Buyer's willful or negligent failure to perform its
obligations hereunder, Sellers may elect to terminate this Agreement pursuant
to Section 12.1(b) and, subject to the provisions of the Escrow Agreement,
upon such termination the Sellers may direct the Escrow Agent to deliver the
Deposit plus all interest and income earned thereon, to the Sellers in
accordance with the written instructions of Sellers. In the event of a
termination of this Agreement by Sellers pursuant to Section 12.1(b),
forfeiture of the Deposit by Buyer shall be Sellers' sole remedy under this
Agreement.
13.4 Payment to Buyer. In the event of any termination of this
Agreement, except as provided in Section 13.3 hereof, the Deposit plus all
interest and income earned thereon shall be paid to Buyer upon such
termination in accordance with the written instructions of Buyer. In the event
of a termination of this Agreement by Buyer pursuant to Section 12.1(b), the
return of the Deposit to Buyer shall be Buyer's sole remedy under this
Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Entire Agreement. This Agreement and the documents referred to
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations and
discussions of the parties, whether oral or written, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof, extent as specifically set forth
herein or therein.
14.2 Expenses. Except as specifically provided otherwise in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and expenses of
their respective counsel, investment bankers, financial advisors, accountants
and other experts and the other expenses incident to the negotiation and
preparation of this Agreement and consummation of the transactions
contemplated hereby.
14.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the State of New York, without regard to the
conflicts of law rules thereof.
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14.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other parties, except that Front
Royal may assign to one or more of its Subsidiaries all or part of its rights
hereunder (but not its obligations to Sellers with respect to the Seller
Assumed Liabilities) with respect to the purchase of any or all of the Wycon
Assets, the Americlaim Assets and the Unamark Assets.
14.5 Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. The Sellers and Buyer will execute any
additional instruments necessary to consummate the transactions contemplated
hereby.
14.6 Notices. All communications, notices, consents, waivers and
disclosures required or permitted by this Agreement shall be in writing and
shall be deemed to have been given when delivered personally or by messenger
or by overnight delivery service, or when mailed by registered or certified
United States mail, postage prepaid, return receipt requested, or when
received via telecopy, telex or other electronic transmission, in all cases
addressed to the person for whom it is intended at his address set forth below
or to such other address as a party shall have designated by notice in writing
to the other party in the manner provided by this Section 14.6:
If to Buyer: Front Royal, Inc.
PNIC Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: J. ▇▇▇▇ ▇▇▇▇▇
Chief Executive Officer
and
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Financial Officer
With a copy to: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Aronsohn & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
If to the Sellers
or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇: Preferred National Financial Corp.
Wycon Corporation
United American Financial
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Services Corporation
Americlaim Adjustment Corp.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
With a copy to: LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇ ▇▇▇▇▇, Esq.
14.7 Counterparts; Facsimile Signature; Headings. This Agreement may
be executed in several counterparts, each of which shall be deemed an
original, but such counterparts shall together constitute but one and the same
Agreement. In the event that any signature to this Agreement is delivered by
facsimile transmission, such signature shall create a valid binding obligation
of the party executing (or on whose behalf such signature is executed) the
same with the same force and effect as if such facsimile signature were the
original thereof. The Table of Contents and Article and Section headings in
this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
14.8 Certain Matters Relating to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇. The parties
confirm and understand that ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ is a party to this Agreement
solely for purposes of joining in the making of the representations and
warranties of the Sellers (other than PNFC) set forth in Article 5 and
providing indemnification of Buyer pursuant to Article 11 with respect to such
representations and warranties, and he shall have no obligations other than in
respect of such provisions of this Agreement.
14.9 Specific Performance. (a) In the event of a breach by a Seller
of any of its obligations under this Agreement, Buyer, in addition to being
entitled to exercise all rights granted by law and under this Agreement,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Sellers and Buyer agree that monetary damages
would not provide adequate compensation for any losses incurred by reason of a
breach by Sellers of any of the provisions of this Agreement and the Sellers
hereby further agree that, in the event of any action for specific performance
in respect of such breach, they shall waive the defense that a remedy at law
would be adequate.
(b) In the event of a breach by Buyer of any of its obligations under
this Agreement, the Sellers, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of their rights under this Agreement.
The Sellers and Buyer agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by Buyer of any of
the provisions of this Agreement and Buyer hereby further agree that, in the
event of any action
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for specific performance in respect of such breach, it shall waive the defense
that a remedy at law would be adequate.
14.10 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby.
14.11 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement, and
Buyer, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and the Sellers assume no liability to any third party
because of any reliance on the representations, warranties and agreements of
Buyer, and the Sellers contained in this Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
PNIC HOLDINGS, INC.
By:___________________________
Name:
Title:
PREFERRED NATIONAL FINANCIAL
CORP.
By:___________________________
Name:
Title:
WYCON CORPORATION
By:___________________________
Name:
Title:
AMERICLAIM ADJUSTMENT CORP.
By:___________________________
Name:
Title:
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UNITED AMERICAN FINANCIAL
SERVICES CORPORATION
By:___________________________
Name:
Title:
------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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