REORGANIZATION AGREEMENT
Relating to the Acquisition of All of the Capital Stock of
AMERICAN INDEPENDENT INSURANCE HOLDING COMPANY
by
ARCH CAPITAL GROUP LTD.
Dated as of December 31, 2000
TABLE OF CONTENTS
Page
1. Definitions..........................................................................................2
2. Purchase and Sale of Common Stock...................................................................10
2.1 Purchase and Sale..........................................................................10
2A. Redemption of Common Stock..........................................................................10
2A.1 Redemption.................................................................................10
3. Cancellation of Indebtedness; Warrants; Options; Contribution to Capital of ACGL Notes..............11
3.1 TDH Notes..................................................................................11
3.2 Warrants, Options, Etc.....................................................................11
3.3 Contribution to Capital of ACGL Notes......................................................11
3.4 Escrow Interest............................................................................11
4. Lawsuit Proceeds....................................................................................12
4.1 Allocation of Lawsuit Proceeds.............................................................12
4.2 Certain Matters Related to the Lawsuits....................................................13
5. Closing.............................................................................................14
6. Representations and Warranties of the Selling Stockholders..........................................15
6.1 Corporate Existence and Power..............................................................15
6.2 Authorization, Execution, Enforceability...................................................16
6.3 Capitalization of the Company..............................................................16
6.4 Subsidiaries; Other Interests..............................................................17
6.5 No Contravention, Conflict, Breach, Etc....................................................17
6.6 Consents...................................................................................18
6.7 No Existing Violation, Default, Etc........................................................18
6.8 Licenses and Permits.......................................................................18
6.9 Title to Properties........................................................................19
6.10 Taxes......................................................................................19
6.11 Litigation.................................................................................19
6.12 Labor Matters..............................................................................20
6.13 Contracts..................................................................................20
6.14 Finder' Fees...............................................................................21
6.15 Financial Statements.......................................................................21
6.16 Employee Benefits..........................................................................21
6.17 Contingent Liabilities.....................................................................23
i
6.18 No Material Change.........................................................................23
6.19 Insurance Matters..........................................................................24
6.20 Automobile Lease Payments..................................................................25
6.21 ▇▇▇▇▇▇▇▇ Surplus Notes.....................................................................25
6.22 Individual Selling Stockholder Representations and Warranties..............................25
7. Representations and Warranties of ACGL..............................................................26
7.1 Organization, Good Standing, Power, Authority, Etc.........................................26
7.2 Ownership of the ACGL Notes................................................................26
7.3 Consents...................................................................................27
7.4 Finder's Fees..............................................................................27
8. Representations and Warranties of TDH...............................................................27
8.1 Organization, Good Standing, Power, Authority, Etc.........................................27
8.2 Ownership of the TDH Notes.................................................................27
8.3 Warrant Cancellation.......................................................................27
9. Covenants...........................................................................................27
9.1 Business in the Ordinary Course............................................................28
9.2 Certain Actions............................................................................28
9.3 Accounting Changes.........................................................................30
9.4 Capitalization, Options, Dividends and Payments............................................31
9.5 Encumbrance of Assets......................................................................31
9.6 Litigation During Interim Period...........................................................31
9.7 Employee Matters...........................................................................31
9.8 Notification of Certain Matters............................................................31
9.9 Access to Company..........................................................................31
9.10 Administration of Lawsuits.................................................................32
9.11 No-Shop....................................................................................32
9.12 Automobile Lease Payments..................................................................32
10. Conditions Precedent to ACGL's Obligations..........................................................33
10.1 Representations and Warranties.............................................................33
10.2 Compliance with Agreements.................................................................33
10.3 Resignations...............................................................................33
10.4 Certificates...............................................................................33
10.5 Litigation.................................................................................34
10.6 Material Adverse Effect....................................................................34
10.7 Third Party Consents.......................................................................34
10.8 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act Filings..............................................................34
10.9 Deliveries.................................................................................34
10.10 Options; Warrants..........................................................................34
ii
10.11 Outstanding Indebtedness...................................................................34
10.12 [Intentionally Omitted]....................................................................34
10.13 Audit......................................................................................34
10.14 Legal Opinion..............................................................................34
10.15 Minimum Capital and Surplus................................................................34
10.16 Section 1445 Certificate...................................................................34
11. Conditions Precedent to the Selling Stockholders' Obligations.......................................35
11.1 Representations and Warranties.............................................................35
11.2 Compliance with Agreement..................................................................35
11.3 Third Party Consents.......................................................................35
11.4 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act Filings..............................................................35
11.5 Litigation.................................................................................35
12. Conditions Precedent to TDH's Obligations...........................................................35
12.1 Litigation.................................................................................35
12.2 All Conditions Satisfied...................................................................35
13. Termination.........................................................................................36
13.1 Termination Events.........................................................................36
13.2 Effect of Termination......................................................................36
14. Survival of Representations and Warranties..........................................................37
15. Indemnification.....................................................................................37
16. Tax Matters.........................................................................................39
17. Miscellaneous.......................................................................................40
17.1 Expenses...................................................................................40
17.2 Confidentiality............................................................................40
17.3 Further Actions and Assurances.............................................................40
17.4 Counterparts...............................................................................40
17.5 Contents of Agreement; Parties in Interest, Etc............................................40
17.6 New York Law to Govern; Venue..............................................................41
17.7 Section Headings and Gender................................................................41
17.8 Schedules and Exhibits.....................................................................41
17.9 Notices....................................................................................41
17.10 Antitrust Matters..........................................................................44
17.11 Specific Performance.......................................................................44
17.12 Acknowledgment by ACGL; Releases; etc......................................................44
17.13 Modification and Waiver....................................................................45
17.14 Invalid Provisions.........................................................................46
iii
17.15 Third Party Beneficiaries..................................................................46
17.16 Construction and Interpretation............................................................46
iv
EXHIBITS
Exhibit A - List of Selling Stockholders and the Number of Shares Owned by Each
Selling Stockholder
Exhibit B - List of Outstanding Options and Warrants to Purchase Shares of
Common Stock
Exhibit C - Form of Company Counsel Opinion
Exhibit D - Form of Selling Stockholder Counsel Opinion
Exhibit E - Hypothetical Example of Allocation of Lawsuit Gross Proceeds
Exhibit F - Distribution of Lawsuit Net Proceeds
v
REORGANIZATION AGREEMENT
This REORGANIZATION AGREEMENT (this "Agreement") is made and entered into
as of this 31st day of December, 2000 by and among American Independent
Insurance Holding Company, a Pennsylvania corporation (the "Company"), each of
the entities listed on Exhibit A hereto (the "Selling Stockholders"), TDH
Capital Partners, a Delaware business trust ("TDHCP"), TDH III, L.P., a Delaware
limited partnership ("TDH III" and, together with TDHCP, "TDH"), and Arch
Capital Group Ltd., a Bermuda corporation ("ACGL").
RECITALS:
WHEREAS, the authorized Capital Stock of the Company consists of 20,000,000
shares of Common Stock, of which 7,441 shares are issued and outstanding as of
the date of execution hereof (such shares being held by the Selling Stockholders
in the amounts set forth on Exhibit A hereto), and 5,000,000 shares of Preferred
Stock, of which no shares are outstanding;
WHEREAS, (i) ACGL holds the AGGL Notes (as defined herein) representing
indebtedness of the Company in the aggregate principal amount of $8,500,000 and
certain warrants to purchase Capital Stock of the Company and (ii) TDH holds a
$2,000,000 subordinated note of the Company (the "TDH Subordinated Note") and
two senior secured promissory notes of the Company aggregating $2,000,000 (the
"TDH Senior Notes" and, together with the TDH Subordinated Note, the "TDH
Notes"), with all of the TDH Notes representing indebtedness of the Company in
the aggregate principal amount of $4,000,000, and certain warrants to purchase
Capital Stock of the Company;
WHEREAS, the Company is a party to certain Lawsuits (as defined herein) the
potential proceeds of which shall be allocated according to the terms and
subject to the conditions hereinafter set forth;
WHEREAS, pursuant to a reorganization of the Company the terms and
conditions of which are hereinafter set forth, (i) TDH will forgive the
indebtedness, including accrued interest thereon, which is owed to it by the
Company, (ii) the Selling Stockholders will have a portion of the shares of
Capital Stock of the Company held by them redeemed by the Company, (iii) all
warrants, options and direct or indirect rights to acquire Capital Stock of the
Company (including the Warrants) will be cancelled, (iv) ACGL will acquire 100%
of the then outstanding shares of Capital Stock of the Company and (v)
immediately after the foregoing steps, ACGL will contribute the ACGL Notes to
the Company as a contribution to capital of the Company;
WHEREAS, the Selling Stockholders own all of the outstanding shares of
Capital Stock of the Company in the individual amounts set forth on Exhibit A
hereto, and
-2-
desire (i) to sell the number of shares of Capital Stock of the Company set
forth under the heading "Shares to Be Purchased" on such exhibit to ACGL and
(ii) to have the number of shares of Capital Stock of the Company set forth
under the heading "Shares to Be Redeemed" on such exhibit redeemed by the
Company, on the terms and conditions set forth herein; and
WHEREAS, subject to the terms and conditions set forth herein, each party
hereto desires to consummate the transactions described in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises, agreements and
covenants set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. Definitions.
For purposes of this Agreement and the Schedules attached hereto, the
following terms shall have the meaning specified or referred to below unless the
context requires otherwise:
"ACGL" has the meaning set forth in the introduction to this Agreement.
"ACGL Losses" has the meaning set forth in Section 15(a).
"ACGL Notes" has the meaning set forth in Section 3.3.
"ACGL Senior Note" has the meaning set forth in Section 3.3.
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
that is Controlled by or is under common Control with a Controlling Person;
provided, however, that (x) ACGL and its Affiliates shall not be deemed
Affiliates of the Company or any of its Subsidiaries and (y) each of the
Company's other shareholders and its Affiliates shall be deemed Affiliates of
the Company and its Subsidiaries (it being understood that, in the case of an
individual shareholder, such shareholder's parent, spouse, issue, estate of such
shareholder or parent, spouse or issue or trust for the benefit of such
shareholder or parent, spouse or issue shall be deemed to be an Affiliate of
such shareholder).
"Agreements" has the meaning set forth in Section 6.13.
"AIIC" means American Independent Insurance Company, a Pennsylvania
corporation and a wholly owned Subsidiary of the Company.
"Audited Financial Statements" has the meaning set forth in Section
6.15(a).
-3-
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Breach" means, with respect to a representation, warranty, covenant,
obligation or other provision of this Agreement, if there is, or has been, any
inaccuracy in any such representation or warranty at the time it was made, or
any failure to perform or comply with any such covenant, obligation or other
provisions.
"Business Day" means any day except a Saturday, Sunday or other day on
which (i) commercial banks in the City of New York are authorized or required by
law to close or (ii) the New York Stock Exchange is not open for trading.
"Capital Stock" means, with respect to any Person, any and all shares,
partnership interests or equivalents (however designated and whether voting or
non-voting) of such Person's capital stock, whether outstanding on the date
hereof or hereafter issued.
"Claim" has the meaning set forth in Section 15(c)(i).
"Class A Warrant Certificate" means a warrant certificate, substantially in
the form of Exhibit B-1 to the SPA 1999 or Exhibits B-1 or B-2 to the SPA 1997.
"Class A Warrants" means warrants to purchase Common Stock evidenced by one
or more Class A Warrant Certificates.
"Class B Warrant Certificate" means a warrant certificate, substantially in
the form of Exhibit B-2 to the SPA 1999 or Exhibit B-3 to the SPA 1997.
"Class B Warrants" means warrants to purchase Common Stock evidenced by one
or more Class B Warrant Certificates.
"Class C Warrant Certificate" means a warrant certificate, substantially in
the form of Exhibit B-1 to the SPA 2000.
"Class C Warrants" means warrants to purchase Common Stock evidenced by one
or more Class C Warrant Certificates.
"Class D Warrant Certificate" means a warrant certificate, substantially in
the form of Exhibit B-2 to the SPA 2000.
"Class D Warrants" means warrants to purchase Common Stock evidenced by one
or more Class D Warrant Certificates.
"Closing Date" has the meaning set forth in Section 5.
-4-
"Closing Time" has the meaning set forth in Section 5.
"COBRA" has the meaning set forth in Section 6.16(j).
"Common Stock" means the common stock of the Company.
"Company" has the meaning set forth in the introduction to this Agreement.
"Company Counsel" means ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP or other counsel for
the Company and its Subsidiaries satisfactory to ACGL.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and "under common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or interests, by contract or
otherwise.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments issued
by such Person, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, (iv) all obligations of such Person under any
Financing Lease, (v) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (vi) Disqualified Capital Stock
of such Person, (vii) Preferred Stock of any Subsidiary of such Person, (viii)
all Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is otherwise an obligation of such Person, and (ix) all Debt of others
Guaranteed by such Person.
"Default" means any event or condition which constitutes an event of
default or which with the giving of notice or lapse of time or both would,
unless cured within the stated time period or waived, become an event of
default.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of the
holder thereof, or requires the payment of any dividends.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Group" means the Company and its Subsidiaries and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Internal Revenue Code.
-5-
"Financial Statements" has the meaning set forth in Section 6.15(b).
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Fully Diluted Basis" means after giving effect to the exercise of all
outstanding options, warrants and other rights to purchase Capital Stock of the
Company and the conversion or exchange of all securities convertible or
exchangeable into Capital Stock of the Company (whether or not then exercisable,
exchangeable or convertible and whether or not "in the money"), including all
Warrants issuable hereunder.
"GAAP" means, at any particular time, United States generally accepted
accounting principles at such time.
"▇▇▇▇▇▇▇▇▇ Letter" has the meaning set forth in Section 4.1(b).
"Governmental Entity" means any court, arbitral tribunal, administrative
agency or commission or other governmental or other regulatory authority or
agency, including any insurance regulatory authority or agency.
"Guarantee" by any Person means (a) any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keepwell, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part). The term "Guarantee" used as a
verb has a corresponding meaning.
"HSR Act" has the meaning set forth in Section 17.10.
"Indemnified Party" has the meaning set forth in Section 15(a).
"Indemnifying Party" has the meaning set forth in Section 15(a).
"Insurance Acts" means all applicable insurance laws and the applicable
rules and regulations thereunder.
"Insurance Department" means the Department of Insurance of the
Commonwealth of Pennsylvania.
-6-
"Insurance License" means a Permit from the Insurance Department or any
other department of insurance of any other jurisdiction.
"Insurance Subsidiaries" means (i) American Independent Insurance Company
and (ii) each other Subsidiary of the Company engaged in an insurance business.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investment" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, advance, time deposit or otherwise.
"IRS" has the meaning set forth in Section 6.10(a).
"▇▇▇▇" means ▇▇▇▇▇▇ ▇. ▇▇▇▇ and/or BCI Holdings, Inc. and any of its
affiliated and/or subsidiary corporations.
"Lawsuit Gross Proceeds" has the meaning set forth in Section 4.1.
"Lawsuit Net Proceeds" has the meaning set forth in Section 4.1(d).
"Lawsuits" shall mean the State Lawsuits together with the ▇▇▇▇▇▇▇▇
Lawsuits and any other lawsuits or other actions which may arise out of or be in
relation to or in connection with such lawsuits, whether or not involving the
same claims or facts based on similar claims.
"▇▇▇▇▇▇▇▇ Lawsuits" means the Company's lawsuits against ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, et al. (captioned American Independent Insurance Company, et al. v.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, et al., United States District Court for the Eastern
District of Pennsylvania, Civil Action No. 97-4153) or any other lawsuits by or
on behalf of the Company against or involving ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.
"▇▇▇▇▇▇▇▇ Surplus Notes" means the Surplus Note, principal amount
$1,080,000, issued by the Company to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, the Surplus Note,
principal amount $420,000, issued by the Company to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and the
Surplus Note, principal amount $129,032, issued by the Company to ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ as identified on the disclosure schedules to this Agreement or any
other surplus notes issued by the Company to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, voting trust agreement, assignment by way of security,
restriction on voting or transfer, agreement to sell or convey, option, claim,
title imperfection, encroachment or other survey defect, pledge, restriction,
security interest or adverse claim of any kind, whether arising by contract or
under law or otherwise (including any Financing Lease having substantially the
same economic ef-
-7-
fect as any of the foregoing, and the filing of any financing statement under
the UCC or comparable law of any jurisdiction in respect of any of the
foregoing).
"Losses" has the meaning set forth in Section 15(a).
"Material Adverse Effect" has the meaning set forth in Section 6.1(b).
"Multiemployer Plan" means at any time a multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions, including for these purposes any
Person which ceased to be a member of the ERISA Group during such five year
period.
"NAIC" means the National Association of Insurance Commissioners.
"NOLCs" has the meaning set forth in Section 6.10(b).
"Notifying Party" has the meaning set forth in Section 15(c)(i).
"Officers' Certificate" means a certificate executed on behalf of the
Company by the Chief Executive Officer or President and by its Chief Financial
Officer, its Treasurer or any other officer acceptable to ACGL; provided,
however, that the Officers' Certificate with respect to the compliance with a
condition precedent to the Closing Date shall include (i) a statement that the
signers have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, (ii) a statement that in the
opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied with and
(iii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means all domestic and foreign licenses, permits, consents,
franchises, orders, authorizations, clearances, certificates, and approvals,
including from Governmental Entities.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or con-
-8-
tributed to, by any Person which was at the time a member of such ERISA Group
for employees of any Person which was at the time a member of the ERISA Group.
"Prime Bank Warrant" means the common stock purchase warrant issued to
Prime Bank pursuant to the Warrant Agreement between the Company and Prime Bank
dated as of February 24, 1999.
"Post-Closing Tax Attributes" has the meaning set forth in Section 4.1.
"Purchase Price" has the meaning set forth in Section 2.1.
"Purchased Shares" has the meaning set forth in Section 2.1.
"Redeemed Shares" has the meaning set forth in Section 2A.1.
"Reinsurance Arrangements" has the meaning set forth in Section 6.19(e).
"Related Person" means any director, officer or employee of the Company or
any of its Subsidiaries who is also an equity or debt holder of the Company or
any of its Subsidiaries.
"Returns" has the meaning set forth in Section 6.10(a).
"Selling Stockholder" has the meaning set forth in the introduction to this
Agreement.
"Shares" has the meaning set forth in Section 2A.1.
"SPA 1997" means the Subordinated Note and Warrant Purchase Agreement dated
as of December 31, 1996 and executed on February 20, 1997 among the Company,
TDHIII and the other parties thereto and the Securities Purchase Agreement dated
as of December 31, 1996 among the Company, Risk Capital Reinsurance Company and
the other parties thereto.
"SPA 1999" means the Securities Purchase Agreement dated as of February 24,
1999 by and among the Company, Risk Capital Reinsurance Company, TDH and the
other parties thereto.
"SPA 2000" means the Securities Purchase Agreement dated as of March 6,
2000 by and among the Company, Risk Capital Holdings, Inc. (the predecessor of
ACGL) and the other parties thereto.
"State Lawsuits" shall mean: (i) the Company's lawsuit against Coopers &
▇▇▇▇▇▇▇ (captioned American Independent Insurance Company, et al. v. Coopers &
▇▇▇▇▇▇▇, Court of Common Pleas, Philadelphia County, June Term, 1988, No. 880),
and (ii) the Com-
-9-
pany's lawsuit against Dilworth, Paxson, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ (captioned American
Independent Insurance Company v. Dilworth, Paxson, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, Court of
Common Pleas, Philadelphia County, June Term, 1998).
"Statutory Accounting Principles" means generally accepted statutory
accounting principles for property and casualty insurance companies domiciled in
the Commonwealth of Pennsylvania.
"Straddle Period" has the meaning set forth in Section 16(b).
"Subsidiary" means, with respect to any Person, (i) any corporation or
other entity of which more than 50% of the Capital Stock or other ownership
interests having ordinary voting power to elect more than 50% of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person and (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, has a greater than 50% equity interest.
"Taxes" means (i) any and all federal, state, provincial, local and foreign
income, profits, estimated, alternative minimum, franchise, sales, value added,
use, employment, payroll, occupation, real property, personal property, excise,
gross receipts, license, customs, duties, capital stock, windfall profit,
withholding, social security (or similar), unemployment, disability,
registration, and other taxes, assessments, imposts, fees, charges or duties of
any kind whatsoever, (ii) any interest, additions to tax and penalties with
respect to any item described in clause (i) hereof and (iii) any transferee,
successor, joint and several or contractual liability (including liability as an
indemnitor, guarantor, surety or in a similar capacity, or liability pursuant to
U.S. Treasury Regulation Section 1.1502-6 (or any comparable state, local or
foreign provision)) in respect of any item described in clause (i) or (ii)
hereof.
"TDH" has the meaning set forth in the introduction to this Agreement. For
clarity, TDH is not a Selling Stockholder.
"TDH III" has the meaning set forth in the introduction to this Agreement.
"TDHCP" has the meaning set forth in the introduction to this Agreement.
"TDH Notes" has the meaning set forth in the introduction to this
Agreement.
"TDH Senior Notes" has the meaning set forth in the introduction to this
Agreement.
"TDH Subordinated Notes" has the meaning set forth in the introduction to
this Agreement.
-10-
"Threatened" means, with respect to any Person, that such Person has
received any written demand, statement or other notice with respect to a
proceeding, claim, dispute or other matter.
"UCC" means the Uniform Commercial Code as in effect in any applicable
jurisdiction.
"Unaudited Financial Statements" has the meaning set forth in Section
6.15(b).
"Unfunded Liabilities" means, with respect to any Plan of the ERISA Group
at any time, the amount (if any) by which (i) the present value of all benefits
under such Plan exceeds (ii) the fair market value of all Plan assets allocable
to such benefits (excluding any accrued but unpaid contributions), all
determined as of the then most recent valuation date for such Plan using the
actuarial assumptions used for purposes of Section 412 of the Internal Revenue
Code.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Class A Warrants, Class B Warrants, Class C Warrants and Class D Warrants.
"Warrants" means the Class A Warrants, Class B Warrants, Class C Warrants
and the Class D Warrants.
"Wilstein Group" means ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, considered together.
2. Purchase and Sale of Common Stock.
2.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, ACGL agrees to pay and deliver to the Selling Stockholders, in the
respective amounts set forth opposite each Selling Stockholder's name under the
heading "Purchase Price Allocation" on Exhibit A attached hereto, on the Closing
Date, the purchase price (the "Purchase Price") in the aggregate amount of
$1,250,000, by wire transfer of immediately available funds to an account
designated by each Selling Stockholder in writing at least two (2) Business Days
prior to the Closing Date, and each of the Selling Stockholders agrees to sell
and deliver to ACGL, on the Closing Date, the number of shares of Common Stock
set forth opposite such Selling Stockholder's name under the heading "Shares to
Be Purchased" on Exhibit A attached hereto (in the aggregate, the "Purchased
Shares").
2A. Redemption of Common Stock.
2A.1 Redemption. Subject to the terms and conditions of this
Agreement, each of the Selling Stockholders agrees to deliver to the Company for
redemption, certificates representing the number of shares of Common Stock set
forth opposite such Selling Stockholder's name under the heading "Shares to Be
Redeemed" on Exhibit A attached hereto (in the aggregate, the "Redeemed Shares"
and together with the Purchased Shares, the "Shares"),
-11-
on the Closing Date, in exchange for the right to receive a distribution with
respect to any proceeds received as a result of the final adjudication or
settlement of the Lawsuits, but in only in the amounts as provided under Section
4 and as set forth on Exhibit F attached hereto.
3. Cancellation of Indebtedness; Warrants; Options; Contribution to Capital
of ACGL Notes.
3.1 TDH Notes. TDH and the Company hereby agree that effective on the
Closing Date, the Company's obligations in the aggregate principal amount of
$4.0 million owing to TDH pursuant to the TDH Notes will be deemed to be
satisfied in full and all obligations under such promissory notes will
terminate. In consideration for such cancellation, TDH shall receive its
allocation of the Lawsuit Net Proceeds as provided under Section 4 hereof and as
set forth on Exhibit F attached hereto. On the Closing Date, TDH agrees to
return to the Company promptly the originally executed TDH Notes evidencing the
obligations thereunder marked "Cancelled."
3.2 Warrants, Options, Etc. The Company and each other party to this
Agreement will take (on its or his own behalf) all necessary actions so that
effective at or prior to the Closing Time (a) any and all securities of the
Company directly or indirectly exercisable or exchangeable for or convertible
into Capital Stock of the Company (including all warrants and stock options
listed on Exhibit B attached hereto) will be permanently cancelled and retired
and (b) the Company's stock option plan and all stockholders or other agreements
relating directly or indirectly to the Capital Stock of the Company, including ,
without limitation, the Amended and Restated Stock Restriction Agreement dated
as of March 6, 2000 and the Amended and Restated Restated Registration Rights
Agreement dated as of March 6, 2000, will be terminated in their entirety and
have no further force and effect whatsoever.
3.3 Contribution to Capital of ACGL Notes. ACGL and the Company hereby
agree that immediately after the Closing Time, ACGL will contribute to the
capital of the Company the Company's obligations in the aggregate principal
amount of $8.5 million owing to ACGL pursuant to the Promissory Note dated March
6, 2000 and the Promissory Note dated February 24, 1999 (the "ACGL Senior Note"
and together with the March 6, 2000 note, the "ACGL Notes").
3.4 Escrow Interest. At the closing, (i) the Company and TDH shall
direct the collateral account agent in respect of the TDH Senior Notes to pay
the principal balance of $2,000,000 in such collateral account to the Company
and accrued interest and dividends to the Closing Date to TDH and (ii) the
Company and ACGL shall direct the collateral account agent in respect of the
ACGL Notes to pay the aggregate principal balance of $8,500,000 in such
collateral accounts to the Company and accrued interest to the Closing Date to
ACGL.
4. Lawsuit Proceeds.
-12-
4.1 Allocation of Lawsuit Proceeds. If any Person directly or
indirectly collects any money or property pursuant to the Lawsuits (the "Lawsuit
Gross Proceeds"), such Lawsuit Gross Proceeds shall immediately be paid over to
the Company (and not to ▇▇▇▇▇ Small or any other Person) and the Company shall
pay out the Lawsuit Gross Proceeds (net of any Taxes imposed or expected to be
imposed on the Company or any Subsidiary in connection with such proceeds), in
the following order of priority, to:
(a) FIRST, the Company to cover any and all unpaid fees and expenses
incurred in connection with the Lawsuits, including any payments made under
contingency fee arrangements agreed upon with legal counsel prior to the
Closing Date (which payments shall also include any payments made in
settlement of claims arising under or concerning the matters covered by
such contingency fee arrangements) and any expenses paid by the Company
pursuant to clause (iv) of Section 9.10 hereof;
(b) SECOND, in the event that the Company receives Lawsuit Gross
Proceeds in excess of the amounts allocated to Persons pursuant to clause
(a) above, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ pursuant to the letter agreement between the
Company and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ dated as of February 6, 1996 (the
"▇▇▇▇▇▇▇▇▇ Letter");
(c) THIRD, in the event that (i) the Company receives aggregate
Lawsuit Gross Proceeds in excess of $4.0 million, 9.375% of the amount by
which such Lawsuit Gross Proceeds exceed $4.0 million up to an aggregate
amount of $10.0 million to the Selling Stockholders in the percentages set
forth on Exhibit A, payable within thirty calendar days after the Lawsuit
Gross Proceeds are received by the Company (subject to the last sentence of
this Section 4.1(c)); (ii) in addition to the payment in clause (i) above,
there is a final adjudication of any of the Lawsuits yielding aggregate
Lawsuit Gross Proceeds in excess of $10.0 million, $187,500 to the Selling
Stockholders in the percentages set forth on Exhibit A, payable after the
Lawsuit Gross Proceeds are received by the Company; and (iii) in addition
to the payments in clauses (i) and (ii) above, there is a final
adjudication by Judge ▇▇▇▇▇▇ of any of the Lawsuits yielding aggregate
Lawsuit Gross Proceeds in excess of $11.0 million, an additional $62,500 to
the Selling Stockholders in the percentages set forth on Exhibit A, payable
after the Lawsuit Gross Proceeds are received by the Company. All payments
due under this Section 4.1(c) are due within thirty calendar days after the
Lawsuit Gross Proceeds are received by the Company, unless there is a
reasonable third-party demand against such Lawsuit Gross Proceeds. Failure
to pay within thirty calendar days in the absence of a reasonable
third-party demand will result in interest at a rate of twelve percent; and
(d) FOURTH, in the event that the Company receives Lawsuit Gross
Proceeds in excess of the amounts allocated to Persons pursuant to clauses
(a) - (c) above ("Lawsuit Net Proceeds"), but subject to Sections 4.2(d)
and 4.2(e) below, to the parties and in the amounts set forth on Exhibit F
hereto, with amounts to the Selling Stockholders to be paid in the
percentages set forth on Exhibit A.
-13-
The amount of Taxes imposed or to be imposed on the Company or any
Subsidiary in connection with the Lawsuit Gross Proceeds (as noted above) shall
be determined on an incremental basis (i.e. by determining the excess of (i) the
expected Tax liability of the Company and its Subsidiaries taking the actual
Gross Lawsuit Proceeds into account over (ii) the hypothetical expected Tax
liability of the Company and its Subsidiaries if the amount of the Gross Lawsuit
Proceeds were zero). In making the computations described in the preceding
sentence, no net operating losses or other Tax attributes of the Company or any
Subsidiary that arise in a taxable period, beginning on or after the Closing
Date (the "Post-Closing Tax Attributes") shall be taken into account (i.e., the
foregoing tax computations shall be made as if any Post-Closing Tax Attributes
did not exist). The portion of any net operating losses or other Tax attributes
that arise in a Straddle Period that will be considered Post-Closing Tax
Attributes for purposes of the preceding sentence shall be determined in a
manner consistent with the methodology selected by ACGL for applying Section 382
of the Internal Revenue Code to such Straddle Period (i.e. either a pro-rata
allocation or a closing of the books).
Any payments made under this Section 4 to TDH shall be made to the
account(s) of TDHCP or TDH III as designated in writing to the Company by the
representative of TDH (who is initially designated as ▇▇▇▇▇ ▇▇▇▇). In addition,
any payments made under this Section 4 to the Selling Stockholders shall be
deemed to constitute a redemption of the shares as so specified under Section 2A
of this Agreement and shall be treated consistently therewith for all Tax
purposes.
A hypothetical example of the allocation of Lawsuit Gross Proceeds and
Lawsuit Net Proceeds is set forth as Exhibit E attached hereto. Such example is
based on the hypothetical assumptions set forth therein and should in no way be
construed as indicative of any level of recovery or expenses that may actually
occur in connection with the Lawsuits.
4.2 Certain Matters Related to the Lawsuits. (a) Each Selling
Stockholder (other than the Wilstein Group and ▇▇▇▇), TDH (to its knowledge) and
the Company severally represents to ACGL that no Person other than the Persons
enumerated on Schedule 4.2(a) as having a contingent right to receive any
Lawsuit Gross Proceeds has any claim or right whatsoever to any such Lawsuit
Gross Proceeds.
(b) Each Selling Stockholder (other than the Wilstein Group and ▇▇▇▇),
TDH or the Company, as the case may be, has delivered to ACGL on or before the
date hereof all written agreements (and written summaries of any oral
agreements) known to them that relates in any way to any expenses of the
Lawsuits or any right, claim or entitlement of any person to any Lawsuit Gross
Proceeds, and all of such agreements and written summaries are listed on
Schedule 4.2(b). True, complete, accurate and fully executed copies of each of
the agreements listed on Schedule 4.2(b) (including, without limitation, the
▇▇▇▇▇▇▇▇▇ Letter) have been delivered to ACGL.
-14-
(c) The Company hereby agrees not to, and after the Closing Time ACGL
agrees not to cause the Company to, prepay any of the ▇▇▇▇▇▇▇▇ Surplus Notes
unless compelled to do so by law, regulation or legal process.
(d) In the event that Lawsuit Gross Proceeds are distributed pursuant
to Section 4.1 above and either any order issued pursuant to the final
adjudication of the Lawsuits or any settlement agreement executed pursuant to
settlement of the Lawsuits provides for the release of the Company from its
obligations under the ▇▇▇▇▇▇▇▇ Surplus Notes, the aggregate face amount of the
▇▇▇▇▇▇▇▇ Surplus Notes shall not be included as Lawsuit Gross Proceeds.
(e) In the event of a final adjudication of the ▇▇▇▇▇▇▇▇ Lawsuits or
any settlement agreement executed pursuant to settlement of the ▇▇▇▇▇▇▇▇
Lawsuits, proceeds from such ▇▇▇▇▇▇▇▇ Lawsuits shall be used to first repay the
▇▇▇▇▇▇▇▇ Surplus Notes, if not previously released as part of any settlement or
final adjudication of the ▇▇▇▇▇▇▇▇ Lawsuits. . In the event that the aggregate
principal amounts and any interest or other amounts owing under the ▇▇▇▇▇▇▇▇
Surplus Notes exceed the aggregate amount of proceeds collected under such final
adjudication or settlement or there is either an adverse judgment or no judgment
with respect to the ▇▇▇▇▇▇▇▇ Lawsuits, then the Selling Stockholders (other than
▇▇▇▇ and the Wilstein Group) shall indemnify ACGL as provided under Section
15(a) of this Agreement.
(f) Each Selling Stockholder (other than ▇▇▇▇ and the Wilstein Group)
hereby represents that the State Lawsuits are in binding arbitration and that
the minimum gross proceeds to the Company for the State Lawsuits shall be
$3,000,000 as provided in the fully executed copy of the letter agreement on
Schedule 4.2(f).
5. Closing. Subject to the terms and conditions of this Agreement, the
closing hereunder shall take place in New York City at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, on the second Business Day after each of the conditions set
forth in Sections 10, 11, and 12 shall have been satisfied or waived, or at such
other time and place as shall be mutually agreed upon by ACGL, TDH, the Company
and the Selling Stockholders (the "Closing Date").
Upon satisfaction or waiver of all such conditions:
(a) TDH shall deliver to the Company the originally executed
promissory notes representing the TDH Notes;
(b) TDH shall deliver to the Company the certificates representing the
Warants held by it;
(c) the Selling Stockholders shall deliver to the Company the
certificates representing the Redeemed Shares along with any executed stock
powers deemed necessary by the parties hereto in order to effectuate the
redemption of the Redeemed Shares;
-15-
(d) the Selling Stockholders shall deliver to ACGL the certificates
representing the Purchased Shares, unless previously delivered to ACGL,
along with any executed stock powers deemed necessary by the parties hereto
in order to effectuate the transfer of the Purchased Shares;
(e) ACGL shall deliver to the Selling Stockholders the Purchase Price
by wire transfer of immediately available funds to the account(s) specified
by the Selling Stockholders. At any time prior to the Closing Date ACGL may
change the order of the foregoing steps.
Upon occurrence of the events described in clauses (a) - (e) above,
the closing hereunder will be deemed accomplished (the "Closing Time").
Immediately after the Closing Time, ACGL shall deliver to the Company
the originally executed promissory notes representing the ACGL Notes for
cancellation as a capital contribution to the Company.
6. Representations and Warranties of the Selling Stockholders. The Selling
Stockholders (other than ▇▇▇▇ and the Wilstein Group) represent and warrant,
jointly and severally, to ACGL as follows in Sections 6.1 to 6.21 (inclusive).
Each Selling Stockholder represents and warrants, as to itself only, to ACGL as
set forth in Section 6.22.
6.1 Corporate Existence and Power. (a) Except as specifically set
forth on Schedule 6.1, the Company and each of its Subsidiaries is a corporation
or partnership duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, and has all organizational power and
authority and all Permits required to own, lease or operate its respective
properties and carry on its respective business as now conducted and as proposed
to be conducted.
(b) The Company and each of its Subsidiaries is duly qualified to
transact business as a foreign corporation or partnership and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership, leasing or operation of property requires such qualification, other
than any failure to be so qualified or in good standing as would not, singly or
in the aggregate, have a material adverse effect on the assets, liabilities,
business, results of operations, condition (financial or otherwise), prospects
or Permits of the Company or any of its Subsidiaries (each, a "Material Adverse
Effect").
6.2. Authorization, Execution, Enforceability. The Company and each of
its Subsidiaries has the corporate power and authority to execute and deliver,
and to perform its obligations under, this Agreement. Subject to receipt of
regulatory approval from the Insurance Department, the Company and each of its
Subsidiaries has taken all action required by law, organizational documents or
otherwise required to be taken by it to authorize the execution, delivery and
performance by it of this Agreement. Subject to receipt of regulatory approval
from the Insurance Department, this Agreement is, or upon execution and delivery
will be, a valid and binding obligation of the Company and each of the
Subsidiaries (to the extent
-16-
each is a party thereto), enforceable in accordance with their respective terms.
True and complete copies of the certificate of incorporation and by-laws or
partnership agreement, as the case may be, of the Company and each of its
Subsidiaries have been provided by the Company to ACGL.
6.3. Capitalization of the Company. (a) The authorized Capital Stock
of the Company consists of 20,000,000 shares of Common Stock, of which 7,441
shares are issued and outstanding as of the date hereof, and 5,000,000 shares of
Preferred Stock, of which no shares are outstanding. Exhibit A sets forth a
true, complete and accurate statement of all issued and outstanding shares of
Common Stock. All outstanding shares of Common Stock have been duly authorized,
are validly issued, fully paid and nonassessable and have been issued in
compliance with applicable federal and state securities laws. As of September
30, 2000, the maximum number of shares of Common Stock issuable to directors and
employees under the Company's stock option plan was 992.22.
(b) Except as specifically set forth on Schedule 6.3(c) and 6.3(d),
there are no (i) securities or obligations of the Company convertible into or
exchangeable for any Capital Stock of the Company, (ii) warrants, options or
other rights to purchase or acquire from the Company any such Capital Stock or
any such convertible or exchangeable securities or obligations or (iii)
obligations of the Company to issue such Capital Stock, any such convertible or
exchangeable securities or obligations or any such warrants, rights or options.
Except as specifically set forth on Schedule 6.3(b), no Person has any
preemptive or similar rights with respect to any Capital Stock of the Company or
any rights to require registration of any securities of the Company.
(c) Schedule 6.3(c) sets forth a complete list of all of the
outstanding Debt of the Company or any of its Subsidiaries as of the date
hereof, together with the names of the holders thereof, the principal amount,
interest rate, issue date, stated maturity date and any other material terms.
Schedule 6.3(c) also sets forth an accurate description of all Debt of the
Company or any of its Subsidiaries that was repaid since September 30, 1998.
Upon cancellation of the ACGL Notes and the TDH Notes, the Company will have no
outstanding Debt.
(d) Schedule 6.3(d) set forth a complete list of all of the
shareholders of the Company as of the date hereof, together with the names of
such shareholders and the number of shares (and the percentage ownership
represented by such number of shares) of Common Stock owned by each such
shareholder on a Fully Diluted Basis.
(e) Schedule 6.3(e) sets forth the capitalization of the Company at
the date hereof after giving pro forma effect to the transactions contemplated
hereby.
6.4 Subsidiaries; Other Interests. (a) Schedule 6.4 sets forth a true,
complete and correct list of each Subsidiary of the Company. Each such
Subsidiary is wholly owned by the Company. Schedule 6.4 sets forth the state(s)
in which the Company's Subsidiaries are domiciled (both by incorporation and as
a "commercial domiciliary" under applicable
-17-
law) and the states in which they are licensed to conduct an insurance business,
which are the only jurisdictions in which the Company's Subsidiaries are
required to be so licensed. All of the outstanding Capital Stock of the
Company's Subsidiaries has been duly authorized and validly issued and is fully
paid and nonassessable and owned by the Company, directly, free and clear of all
Liens (other than (x) such transfer restrictions as may exist under federal and
state securities laws and (y) in favor of any agent for the benefit of the ACGL
Notes and the TDH Notes, which Liens shall terminate and be of no further force
and effect upon cancellation of the ACGL Notes and TDH Notes), and there are no
warrants, options or other rights granted to or in favor of any third party
(whether acting in an individual, fiduciary or other capacity) other than the
Company to acquire any such Capital Stock, any additional Capital Stock or any
other securities of the Company's Subsidiaries.
(b) Except for interests in the Subsidiaries, neither the Company nor
any of its Subsidiaries, directly or indirectly, holds, or has any contractual
or other commitment to make, any Investment in any Person, except for
Investments made by AIIC in the ordinary course of its business and in
accordance with the Company's investment policy in effect on the date hereof.
6.5 No Contravention, Conflict, Breach, Etc. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated herein will not (i) conflict with, or result in a breach or
violation of, any provision of the charter, by-laws or other organizational
documents of the Company or any of its Subsidiaries, (ii) upon receipt of
regulatory approval from the Insurance Department, result in risk of loss of, or
limitation on, any Insurance License or other Permits held by the Company or any
of its Subsidiaries, or the right of the Company or of any of its Subsidiaries
to conduct business in any jurisdiction as currently conducted, or (iii)
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or result in the creation or
imposition of any Lien upon any assets or properties of the Company or any of
its Subsidiaries under, any statute, rule, regulation, order or decree of any
Governmental Entity or any of its properties, assets or operations, or any
agreement or instrument evidencing Debt or any lease, Permit or other agreement
or instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound or to which any of their
respective properties, assets or operations are subject.
6.6 Consents. Except for filings under the HSR Act and regulatory
approval from the Insurance Department (which approval is required to be
obtained pursuant to Sections 10.7 and 11.3) and as specifically set forth on
Schedule 6.6, no consent, approval, authorization, order, registration, filing
or qualification of or with any (i) Governmental Entity or (ii) other third
party (whether acting in an individual, fiduciary or other capacity) is
necessary for the execution, delivery or performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby.
6.7 No Existing Violation, Default, Etc. (a) Except as specifically
set forth on Schedule 6.7, neither the Company nor any of its Subsidiaries is in
violation of (i) its
-18-
charter, by-laws or other organizational documents, (ii)
any applicable law, ordinance, administrative or governmental rule or regulation
or (iii) any order, decree or judgment of any court or governmental agency or
body having jurisdiction over the Company or any of its Subsidiaries.
(b) No event of default or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default exists under any
indenture, mortgage, loan agreement, note or other agreement or instrument for
borrowed money, any guarantee of any agreement or instrument for borrowed money
or any lease, permit, license or other agreement or instrument to which the
Company or any of its Subsidiaries is party or by which the Company or any of
its Subsidiaries is bound or to which any of their respective properties, assets
or operations are subject.
6.8 Licenses and Permits. Except as specifically set forth on Schedule
6.8, the Company and its Subsidiaries have such Permits from appropriate
Governmental Authorities (including Insurance Licenses) as are necessary to own,
lease or operate their properties as currently owned, leased or operated and to
conduct their businesses as currently conducted and all such Permits are valid
and in full force and effect. The Company and its Subsidiaries are in compliance
in all respects with their respective obligations under such Permits, with such
exceptions as would not, singly or in the aggregate, have a Material Adverse
Effect. No event has occurred that allows, or after notice or lapse of time
would allow, revocation or termination of such Permits and no insurance
regulatory agency or body has issued any order or decree impairing, restricting
or prohibiting the payment of dividends by any of them to their respective
parent companies or shareholders.
6.9 Title to Properties. The Company and its Subsidiaries each have
sufficient title to all properties (real and personal) owned by the Company and
its Subsidiaries or reflected in their financial statements which are necessary
for the conduct of the business of the Company and its Subsidiaries as currently
conducted, free and clear of any Lien that may interfere with the conduct of the
business of the Company and its Subsidiaries, taken as a whole, and to the best
of the Selling Stockholders' knowledge, all properties held under lease by the
Company or any of its Subsidiaries are held under valid, subsisting and
enforceable leases.
6.10 Taxes. (a) Except as set forth on Schedule 6.10, (i) all returns,
reports, declarations, statements and other documents required to be filed on
behalf of Taxes ("Returns") on behalf of the Company and its Subsidiaries have
been duly filed on a timely basis with the appropriate governmental agencies in
all jurisdictions in which such Returns are required to be filed; (ii) all such
Returns were correct and complete in all material respects; (iii) all Taxes
shown on such Returns as being due have been fully and timely paid; (iv) all
Taxes attributable to any taxable period (or portion thereof) of the Company and
its Subsidiaries ending on or prior to the Closing Date have been timely paid
or, if not yet due and payable, have been specifically and fully accrued on the
Closing Balance Sheet; (v) no issues have been raised (and are currently
pending) by the Internal Revenue Service (the "IRS") or
-19-
any other taxing authority in writing in connection with any of the Returns
referred to in the foregoing clauses and no examination of such Returns is
currently in progress nor, to the knowledge of the Company and its Subsidiaries
or the Selling Stockholders, threatened, and no deficiencies have been asserted
or assessed against the Company and its Subsidiaries by any taxing authority and
no such deficiency has been proposed or threatened; (vi) no waivers of statutes
of limitation with respect to such Returns have been given by or requested from
the Company and its Subsidiaries or the Selling Stockholders; and (vii) there
are no liens for Taxes (other than for property Taxes not yet due and payable)
on the Company's or any of its Subsidiaries' assets. The charges, accruals and
reserves on the books of the Company and its Subsidiaries in respect of taxes or
other governmental charges have been established in accordance with GAAP (or, in
the case of the Insurance Subsidiaries, in accordance with Statutory Accounting
Principles).
(b) As of the Closing Date, the Company and its Subsidiaries will have
net operating loss carry-forwards ("NOLCs") of not less than $9 million in the
aggregate.
6.11 Litigation. Except as specifically set forth on Schedule 6.11,
there are no pending or threatened actions, suits, proceedings, arbitrations or
investigations against or affecting the Company or any of its Subsidiaries or
any of their respective properties, assets or operations or with respect to
which the Company or any of its Subsidiaries is responsible by way of indemnity
or otherwise, that question the validity of this Agreement or otherwise
adversely affect any of the transactions contemplated hereby, or that would,
singly or in the aggregate, have a Material Adverse Effect or would have an
adverse effect on the ability of the Company or any of its Subsidiaries to
perform its obligations under this Agreement; and no Selling Stockholder is
aware of any basis for any such action, suit, proceeding or investigation.
6.12 Labor Matters. No labor disturbance by the employees of the
Company or any of its Subsidiaries exists or is threatened. Neither the Company
nor any of its Subsidiaries is party to any collective bargaining or other union
contract. No Selling Stockholder is aware of the existence of any effort to
unionize employees of either the Company or any of its Subsidiaries.
6.13 Contracts. Neither the Company nor any of its Subsidiaries nor
any other party is in breach of or default under any contract to which the
Company or any of its Subsidiaries are parties or bound. Except as listed on
Schedule 6.13,
(a) neither the Company nor any of its Subsidiaries is party to any
(written or oral) stockholder agreement, employment agreement, advisors'
agreement, consulting agreement or any similar agreement;
(b) neither the Company nor any of its Subsidiaries is a party to or
bound by (i) any agreement or arrangement relating to Debt (it being
understood that if any such agreement or arrangement exists, Schedule 6.13
shall set forth the outstanding princi-
-20-
pal amount, interest rate, maturity and all other material terms of such
Debt); (ii) any agency, dealer, sales representative, marketing or other
similar agreement; any reinsurance treaty or any facultative reinsurance
contract (in each case applicable to insurance in force); (iii) any
agreement containing "change in control" or similar provisions relating to
change in control of the Company or any of its Subsidiaries; (iv) any
powers of attorney, binding authorities or managing general agencies or
other agents that have the power to bind on behalf of the Company or any of
its Subsidiaries other than those made in the ordinary course of AIIC's
business; (v) any third party collection agreements; or (vi) any agreements
(other than insurance policies, leases or other similar agreements issued
or made by the Company or any of its Subsidiaries in the ordinary course of
its business) pursuant to which the Company or any of its Subsidiaries is
obligated to indemnify any other Person; and
(c) no agreement, contract or other document will require increased
payments (in either amount or frequency) or changed terms as a result of
the transactions contemplated by this Agreement.
The Company has heretofore furnished to ACGL complete and correct
copies of the contracts, agreements and instruments listed on Schedule 6.13,
each as amended or modified to the date hereof (including any waivers with
respect thereto, the "Agreements").
Schedule 6.13 further contains a list of all insureds the gross
written premiums of which (together with the gross written premiums derived from
any of its Affiliates) represented more than (or are expected to represent more
than) 2% of the Company's consolidated gross written premiums in any such fiscal
year.
6.14 Finder's Fees. Except as expressly disclosed in Schedule 6.14, no
broker, finder or other party is entitled to receive from the Company or any of
its Subsidiaries any brokerage or finder's fee or any other fee, commission or
payment as a result of the transactions contemplated by this Agreement.
6.15 Financial Statements. (a) The audited statutory financial
statements and related schedules and notes of the Insurance Subsidiary for the
years ended December 31, 1998 and 1999 (the "Audited Financial Statements")
fairly present the financial condition, results of operations, cash flows and
changes in capital and surplus of the Insurance Subsidiary at December 31, 1998
and 1999 and for the years then ended and were prepared in accordance with
Statutory Accounting Principles as permitted or prescribed by the applicable
Insurance Acts. The Statements of Actuarial Opinion with respect to the Audited
Financial Statements were determined in accordance with generally accepted
actuarial standards and met the requirements of the insurance laws of
Pennsylvania.
(b) The unaudited statutory financial statements and related schedules
and notes of the Insurance Subsidiary for periods commencing subsequent to
December 31, 1999 (the "Unaudited Financial Statements", and together with the
Audited Financial Statements,
-21-
the "Financial Statements") fairly present the financial condition, results of
the operations, cash flows and changes in capital and surplus of the Insurance
Subsidiary at the dates and for the periods presented and were prepared in
accordance with Statutory Accounting Principles prescribed or permitted by the
applicable Insurance Acts, subject to year-end audit adjustments (consisting
only of normal recurring accruals) and full footnote disclosures which have been
omitted.
(c) The unaudited consolidated and consolidating financial statements
and the related notes of the Company for the years ended December 31, 1998 and
1999 and the unaudited financial statements for periods commencing subsequent to
December 31, 1999 fairly present the financial condition, results of operations
and cash flows of the Company and its Subsidiaries at the dates and for the
periods presented and were prepared in accordance with GAAP applied on a
consistent basis.
(d) The Company has delivered to ACGL projected consolidated and
consolidating financial data which have been prepared by the Company in good
faith. The Selling Stockholders believe such projections and the assumptions
upon which they are based are reasonable.
6.16 Employee Benefits. (a) Except as set forth in Schedule 6.16,
there are no Benefit Arrangements or stock bonus, stock option, restricted
stock, stock appreciation right, stock purchase, bonus, incentive, deferred
compensation, severance or vacation plans or employment or consulting agreements
covering employees maintained or contributed to by any member of the ERISA
Group.
(b) The Company and its Subsidiaries, and each of the Benefit
Arrangements are in compliance in all material respects with the applicable
provisions of ERISA, the Internal Revenue Code and other applicable laws in
connection with the Benefit Arrangements.
(c) Any Benefit Arrangements intended to qualify under Section 401 of
the Internal Revenue Code have been determined by the IRS to be so qualified and
no event has occurred and no condition exists with respect to the form or
operation of such Benefit Arrangements that would cause the loss of such
qualification or exemption or the imposition of any material liability, penalty
or tax under ERISA or the Internal Revenue Code.
(d) There are (i) no investigations pending by any governmental entity
(including the PBGC) involving the Benefit Arrangements, and (ii) no pending or
threatened claims (other than routine claims for benefits), suits or proceedings
against any Benefit Arrangement, or against any fiduciary of any Benefit
Arrangement with respect to the operation of such plan or asserting any rights
or claims to benefits under such arrangement, nor, to the best of the Company's
knowledge, are there any facts that would give rise to any material liability.
-22-
(e) None of the members of the ERISA Group, or any employee of the
foregoing, or any trustee, administrator, other fiduciary or any other "party in
interest" or "disqualified person" with respect to the Benefit Arrangements, has
engaged in a "prohibited transaction" (as such term is defined in Section 4975
of the Internal Revenue Code or Section 406 of ERISA) that could result in a
material tax or penalty on the Company or its Subsidiaries under Section 4975 of
the Internal Revenue Code or Section 502(i) of ERISA.
(f) None of the members of the ERISA Group maintain or contribute to,
nor have they ever maintained or contributed to, any Plan.
(g) No member of the ERISA Group has incurred, or is reasonably likely
to incur, liability under Title IV of ERISA.
(h) No member of the ERISA Group has liability (including any
contingent liability under Section 4204 of ERISA) with respect to any
Multiemployer Plan.
(i) With respect to each of the Benefit Arrangements, true, correct
and complete copies of the following documents have been made available to ACGL:
(i) the plan document and any related trust agreement, including amendments
thereto, (ii) any current summary plan descriptions and other material
communications to participants relating to the Benefit Arrangements, (iii) the
most recent Forms 5500, if applicable, and (iv) the most recent IRS
determination letter, if applicable.
(j) None of the Benefit Arrangements maintained by any member of the
ERISA Group provide for continuing benefits or coverage for any participant or
any beneficiary of a participant following termination of employment, except as
may be required under Section 4980B of the Internal Revenue Code and Part 6 of
Subtitle B of Title I of ERISA ("COBRA"), or except at the expense of the
participant or the participant's beneficiary. All members of the ERISA Group
which maintain a "group health plan" within the meaning of Section 5000(b)(1) of
the Internal Revenue Code have complied in all material respects with the
"COBRA" notice and continuation requirements.
(k) The consummation of the transactions contemplated by this
Agreement will not result in an increase in the amount of compensation or
benefits or accelerate the vesting or timing of payment of any benefits or
compensation payable to or in respect of any employee of the Company or its
Subsidiaries.
(l) The consummation of the transactions contemplated by this
Agreement will not result in or satisfy a condition to the payment of
compensation that would, in combination with any other payment, result in an
"excess parachute payment" within the meaning of Section 280G(b) of the Internal
Revenue Code.
-23-
(m) The Company and its Subsidiaries do not maintain or contribute to
any plan, program, policy, arrangement or agreement with respect to employees
(or former employees) employed outside the United States.
6.17 Contingent Liabilities. Except as specifically set forth on
Schedule 6.17 and except as fully reserved against in the Financial Statements,
the Company and its Subsidiaries have no liabilities (including tax
liabilities), absolute or contingent. Except as specifically set forth on
Schedule 6.17, since December 31, 1999, the Company and its Subsidiaries have
not incurred any such liabilities other than with respect to claims under
insurance policies written by the Insurance Subsidiaries and reported in the
ordinary course of business. The frequency and severity of such claims within
the individual lines of business of the Company and its Subsidiaries since
December 31, 1999, are consistent with those reported for comparable periods
prior to January 1, 2000.
6.18 No Material Change. Since December 31, 1999, except as
specifically set forth on Schedule 6.18, (i) neither the Company nor any of its
Subsidiaries has relinquished or incurred any liability or obligation (indirect,
direct or contingent), or entered into any oral or written agreement or other
transaction, that is not in the ordinary course of business; (ii) neither the
Company nor any of its Subsidiaries has sustained any loss or interference with
its respective businesses or properties from fire, flood, windstorm, accident or
other calamity (whether or not covered by insurance); (iii) there has been no
change in the Debt of the Company or any of its Subsidiaries, no change in the
Capital Stock of the Company (except as contemplated hereby), and no dividend or
distribution of any kind (including stock dividends, recapitalizations or other
transactions) declared, paid or made by the Company on any class of its Capital
Stock; (iv) the Company has not permitted or allowed any of its or its
Subsidiaries' assets to be subjected to any Liens; (v) the Company has not
transferred or otherwise disposed of any of its or its Subsidiaries' assets,
except in the ordinary course of business; (vi) the Company has not made any
single capital expenditure or commitment for a capital expenditure relating to
its or its Subsidiaries' assets in excess of $50,000; (vii) there has not been
any change in any method of accounting or accounting practice or policy
(including any reserving method, practice or policy) by the Company or any of
its Subsidiaries; (viii) there has not been, to the extent payable directly or
indirectly by the Company or any of its Subsidiaries, any (A) employment,
deferred compensation, severance, retirement or other similar agreement entered
into with any director, officer or employee (or any amendment to any such
existing agreement), (B) grant of any severance or termination pay to any
director, officer or employee, (C) change in compensation or other benefits
payable to any Related Person or change in compensation or other benefits
payable to any director, officer or employee or (D) loans or advances to any
directors, officers or employees except for ordinary travel and business
expenses in the ordinary course of business and advances of salary (not
exceeding one month's pay); (ix) there has been no damage, theft or casualty
loss by the Company or any of its Subsidiaries; (x) there has not been any
change by the Company or any of its Subsidiaries in underwriting practices or
standards; (xi) there has not been (A) any entering into of any facultative
reinsurance contract, other than in the ordinary course of business, or (B) any
commutation of any facultative reinsurance contract, or (C) any entering into
-24-
or any commutation of any reinsurance treaty, by the Company or any of its
Subsidiaries; (xii) there has not been any insurance transaction by the Company
or any of its Subsidiaries other than in the ordinary course of business; (xiii)
there has not been any change by the Company or any of its Subsidiaries in the
compensation structure of, or benefits available to, any agent or with respect
to agents generally; and (xiv) there has been no event or circumstance causing a
Material Adverse Effect, nor any development that would, singly or in the
aggregate, result in a Material Adverse Effect.
6.19 Insurance Matters. (a) Except as specifically set forth on
Schedule 6.19(a), the Company and its Subsidiaries are each in compliance with
the requirements of all Insurance Acts and have filed all reports, documents or
other information required to be filed thereunder; and neither the Company nor
any of its Subsidiaries has received any notification from any insurance
regulatory authority, commission or other insurance regulatory body in the
United States or elsewhere to the effect that the Company or any of its
Subsidiaries is not in compliance with the Insurance Acts.
(b) Neither the Company nor any of its Subsidiaries has made any
change in its insurance reserving practices, either on a gross or net of
reinsurance basis, since December 31, 1999, that would, singly or in the
aggregate, have (i) a Material Adverse Effect or (ii) a material adverse effect
on the ability of any of the Insurance Subsidiaries to pay dividends or the
amount thereof.
(c) All insurance policies issued by the Company and each Insurance
Subsidiary, as now in force, are, to the extent required under applicable law,
in a form acceptable to applicable regulatory authorities or have been filed and
not objected to by such authorities within the period provided for objection.
All premium rates, rating plans and policy forms established or used by the
Company or any Insurance Subsidiary that are required to be filed with or
approved by insurance regulatory authorities have been so filed or approved, the
premiums charged conform in all respects to the premiums so filed or approved
and comply in all respects with the insurance laws applicable thereto and no
such premiums are subject to any review or investigation by any insurance
regulatory authority.
(d) Except as specifically set forth on Schedule 6.19(d), no loss
experience has developed, within any individual lines of business or on an
aggregate basis for all lines, that would require or make it appropriate for the
Company or any of its Subsidiaries to alter or modify its reserving methodology
or assumptions since December 31, 1999.
(e) Except as specifically set forth on Schedule 6.19(e), all
reinsurance treaties, contracts, agreements and arrangements ("Reinsurance
Arrangements") to which the Company or any of its Subsidiaries is a party are in
full force and effect, other than those that, by their terms, have expired by
their terms or otherwise terminated. Each of the Reinsurance Arrangements is
valid and binding in accordance with its terms on the insurance company party
thereto. To the best knowledge of the Selling Stockholders, all amounts
recoverable by the Company or any of its Subsidiaries pursuant to any
Reinsurance Arrangement are fully
-25-
collectible in due course. Neither the Company nor any of its Subsidiaries nor
any other party thereto is in default as to any Reinsurance Arrangement and
there is no reason to believe that the financial condition of any such other
party is impaired to the extent that a default thereunder may reasonably be
anticipated. None of the Reinsurance Arrangements contains any provision
providing that the other party thereto may terminate such Reinsurance
Arrangement by reason of the transactions contemplated by this Agreement. Each
of the Insurance Subsidiaries is entitled to take full credit in its statutory
financial statements for any reinsurance, coinsurance or excess insurance ceded
by it.
(f) The only consents, approvals, authorizations and orders of
Governmental Entities required under the Insurance Acts for the consummation of
the transactions contemplated by this Agreement are those listed on Schedule
6.19.
(g) All filings required under any Insurance Act to have been made
with state insurance regulatory authorities relating to operations on and after
December 31, 1998 by the Company and its Subsidiaries have been duly and timely
made, and when filed were in compliance with the requirements of each such
Insurance Act.
(h) The Insurance Department has not taken, or stated (orally or in
writing) that it intends to take or that it may take, any action to seize
control of the Company or any of its Subsidiaries through rehabilitation,
liquidation or otherwise, and has not otherwise precluded, or stated (orally or
in writing) that it intends to preclude or may preclude, the Insurance
Subsidiaries from writing premiums.
6.20 Automobile Lease Payments. The principal terms of the existing
automobile leases of ▇▇▇▇▇ Small and ▇▇▇▇▇▇▇ ▇▇▇▇▇, including the terms of such
leases, and all fees and expenses to be included therein, are as set forth on
Schedule 6.20.
6.21 ▇▇▇▇▇▇▇▇ Surplus Notes. The ▇▇▇▇▇▇▇▇ Surplus Notes are not
payable other than in connection with the bankruptcy or liquidation of AIIC.
6.22 Individual Selling Stockholder Representations and Warranties.
(a) Organization, Good Standing, Power, Authority, Etc. Each of the
▇▇▇▇▇▇▇ ▇▇▇▇▇ Voting Trust and the American Independent Company Voting Trust is
a voting trust duly formed and validly existing under the laws of the
Commonwealth of Pennsylvania, and each of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Voting Trust and the
American Independent Company Voting Trust has the power and authority as a
voting trust to own its properties and to conduct its business as currently
owned and conducted.
BCI Holdings, Inc. is a corporation duly formed and registered,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has the corporate power and authority to own, lease and operate
its properties and to conduct its business as currently owned, leased and
conducted.
-26-
Each Selling Stockholder has the power and authority to execute and
deliver, and to perform its obligations under, this Agreement and to perform its
obligations under this Agreement. Each Selling Stockholder has taken all action
required by law, its organizational documents, if any, or otherwise required to
be taken by it to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated to be performed
by it hereunder.
This Agreement is a valid and binding agreement of each Selling
Stockholder, enforceable in accordance with its terms.
(b) Ownership of Common Stock. Each Selling Stockholder is the record
and beneficial owner of the exact number of shares of Common Stock set forth
opposite its name under the heading "Total Shares Owned" on Exhibit A and has,
and at the Closing will have, the absolute right, power and capacity to sell,
assign, transfer and deliver such shares of Common Stock free and clear of any
liens, other than liens in favor of ACGL, charges, encumbrances or restrictions
and such shares of Common Stock are free and clear of all liens, charges,
encumbrances or restrictions.
(c) Option Cancellation. At the Closing Date, each option or other
direct or indirect right of any Selling Stockholder to acquire Capital Stock of
the Company shall be cancelled and terminate and be of no further force and
effect.
7. Representations and Warranties of ACGL. ACGL represents and warrants to
the Company and each of the Selling Stockholders that:
7.1 Organization, Good Standing, Power, Authority, Etc. ACGL is a
corporation duly formed and registered, validly existing and in good standing
under the laws of Bermuda and has the corporate power and authority to own,
lease and operate its properties and to conduct its business as currently owned,
leased and conducted.
ACGL has the corporate power and authority to execute and deliver, and
to perform its obligations under, this Agreement and to perform its obligations
under this Agreement and each such Transaction Document. ACGL has taken all
action required by law, its charter or partnership agreement or otherwise
required to be taken by it to authorize the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated to be
performed by it hereunder.
This Agreement is a valid and binding agreement of ACGL, enforceable
in accordance with its terms.
7.2 Ownership of the ACGL Notes. ACGL is the record and beneficial
owner of the ACGL Notes and has, and at the Closing will have, the absolute
right, power and capacity to deliver the ACGL Notes to the Company as a capital
contribution.
-27-
7.3 Consents. Except for filings under the HSR Act and regulatory
approvals from the Insurance Department (which approval is required to be
obtained pursuant to Sections 10.7 and 11.3), no consent, approval,
authorization, order, registration, filing or qualification of or with any (i)
Governmental Entity or (ii) other third party (whether acting in an individual,
fiduciary or other capacity) is necessary for the execution, delivery or
performance by ACGL of this Agreement and the consummation by ACGL of the
transactions contemplated hereby. The only consents, approvals, authorizations
and orders of Governmental Entities required under the Insurance Acts for the
consummation by ACGL of the transactions contemplated by this Agreement are
those listed on Schedule 7.3.
7.4 Finder's Fees. No broker, finder or other party is entitled to
receive from ACGL or its Subsidiaries any brokerage or finder's fee or any other
fee, commission or payment as a result of the transactions contemplated by this
Agreement.
8. Representations and Warranties of TDH. TDH represents and warrants to
ACGL and the Company that:
8.1 Organization, Good Standing, Power, Authority, Etc. TDHCP is a
business trust duly formed and validly existing under the laws of the State of
Delaware and TDH III is a limited partnership duly formed and validly existing
under the laws of the State of Delaware and each of TDHCP and TDH III has the
power and authority as a business trust or a limited partnership, as applicable,
to own, lease and operate its properties and to conduct its business as
currently owned, leased and conducted.
Each of TDHCP and TDH III has the power and authority as a business
trust or a limited partnership, as applicable, to execute and deliver, and to
perform its obligations under, this Agreement and to perform its obligations
under this Agreement. Each of TDHCP and TDH III has taken all action required by
law, its partnership agreement or otherwise required to be taken by it to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated to be performed by it hereunder.
This Agreement is a valid and binding agreement of each of TDHCP and
TDH III, enforceable in accordance with its terms.
8.2 Ownership of the TDH Notes. TDH is the record and beneficial owner
of the TDH Notes and has, and at the Closing will have, the absolute right,
power and capacity to cancel the TDH Notes and the TDH Notes are free and clear
of all liens, charges, encumbrances, security interests or restrictions
whatever.
8.3 Warrant Cancellation. At the Closing Date, each Warrant issued to
or held by TDH shall be cancelled and terminate and be of no further force and
effect.
9. Covenants. The Company and the Selling Stockholders (other than ▇▇▇▇ and
the Wilstein Group) agree with ACGL as follows in Sections 9.1 through 9.10
(inclusive) and
-28-
Section 9.12 with respect to the Company and its Subsidiaries, pending the
Closing Time and except as otherwise approved in writing by ACGL. The Company
and the Selling Stockholders, for themselves only, agree with ACGL as follows in
Section 9.11 with respect to the Company and its Subsidiaries pending the
Closing Time and except as otherwise approved in writing by ACGL. Further, each
of the Wilstein Group and ▇▇▇▇, for themselves only, agree with ACGL, that
neither he nor it will vote any shares of Common Stock held by him or it in
favor of any action or actions by the Company that would result in a violation
of any of the covenants contained in Sections 9.1 through 9.10 (inclusive) and
Section 9.12, pending the Closing Time and except as otherwise approved in
writing by ACGL.
9.1 Business in the Ordinary Course. The Company will, and will cause
each of the Subsidiaries to, conduct its operations only in the ordinary course
of business consistent with past practice and will use its reasonable best
efforts, and will cause each of the Subsidiaries to use its reasonable best
efforts, to preserve intact the business organization of the Company and each of
the Subsidiaries, to keep available the services of its and their present
officers and employees, and to preserve the good will of those having business
relationships with it. The Company shall (i) maintain the assets that are
material to the business of the Company and its Subsidiaries, taken as a whole,
in the ordinary course of business and in all material respects in as favorable
a condition as the same are in on the date hereof, except for normal wear and
tear; (ii) reapply for necessary licenses in the ordinary course of business;
(iii) deliver or cause to be delivered to ACGL, promptly after receipt of the
same, copies of all written notices of any material violation of or material
non-compliance with any law issued by any governmental authority with respect to
the Company's business or any of its material assets and received by the Company
or any of its Subsidiaries after the date of this Agreement and known to an
executive officer of the Company; (iv) deliver or cause to be delivered to ACGL,
promptly after receipt or delivery, as applicable, copies of all written notices
of material violation of or material defaults under any material Contract
received by the Company or by any Subsidiary or delivered by the Company or by
any Subsidiary after the date of this Agreement and known to an executive
officer of the Company; and (v) use reasonable best efforts to obtain the
renewal or extension of any lease on any Leased Real Property that is scheduled
to expire prior to Closing. Each of the Company and its Subsidiaries shall
operate its respective businesses in material compliance with all applicable
laws, ordinances, rules or regulations or orders, including, without limitation
Environmental Laws, and all permits, authorizations, consents and approvals.
9.2 Certain Actions. The Company will not, and will not permit any of
the Subsidiaries to, prior to the Closing Date, without the prior written
consent of ACGL:
(a) Enter into any contract, agreement, undertaking or commitment
which would have been required to be set forth on Schedule 6.13 if in
effect on the date hereof, or enter into any contract which requires the
consent or approval of any third party to consummate the transactions
contemplated by this Agreement;
-29-
(b) Accelerate or delay collection of any notes or accounts receivable
in advance of or beyond their regular due dates or the dates when the same
would have been collected in the ordinary course of business consistent
with past practice;
(c) Delay or accelerate payment of any account payable or other
liability beyond or in advance of its due date or the date when such
liability would have been paid in the ordinary course of business
consistent with past practice;
(d) Make, or agree to make, any distribution of assets to the
stockholders or any of their affiliates (other than the Company), or enter
into, or agree to enter into, any agreement or transaction with the
stockholders (other than the Company or a Subsidiary), any affiliate of the
stockholders or any member of the immediate family of any stockholder or
any affiliate of the stockholders (other than the Company or a Subsidiary);
(e) Except for (i) increases in salary, wages and benefits of
non-executive officers or employees of the Company or the Subsidiaries in
the ordinary course of business consistent with past practice, (ii)
increases in salary, wages and benefits granted to officers and employees
of the Company or the Subsidiaries in conjunction with new hires,
promotions or other changes in job status in the ordinary course of
business consistent with past practice, or (iii) increases in salary, wages
and benefits to employees of the Company pursuant to collective bargaining
agreements entered into in the ordinary course of business consistent with
past practice, (A) increase the compensation or fringe benefits payable or
to become payable to its directors, officers or employees (whether from the
Company or any of the Subsidiaries), (B) pay any benefit not required by
any existing plan or arrangement, (C) grant any severance or termination
pay, (D) enter into any employment or severance agreement with, any
director, officer or other employee of the Company or any of the
Subsidiaries, or (E) establish, adopt, enter into, or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, savings, welfare, deferred
compensation, employment, termination, severance or other employee benefit
plan, agreement, trust, fund, policy or arrangement for the benefit or
welfare of any directors, officers or current or former employees, except
in each case to the extent required by applicable law or regulation;
(f) Acquire, sell, lease, mortgage, encumber or dispose of any assets
(other than inventory) or securities with a value, individually or in the
aggregate, in excess of $10,000, or enter into any commitment to do any of
the foregoing or enter into any material commitment or transaction outside
the ordinary course of business consistent with past practice other than
transactions between the Company and its Subsidiaries or between
Subsidiaries;
(g) (i) Incur, assume or pre-pay any long-term debt or incur or assume
any short-term debt, (ii) assume, guarantee, endorse or otherwise become
liable or respon-
-30-
sible (whether directly, contingently or otherwise) for the obligations of
any other person except in the ordinary course of business consistent with
past practice, or (iii) make any loans, advances or capital contributions
to, or Investments in, any other person except in the ordinary course of
business consistent with past practice and except for loans, advances,
capital contributions or Investments between the Company and its
Subsidiaries or between Subsidiaries;
(h) Modify, amend or terminate any material Contract or waive, release
or assign any rights or claims thereunder, except in the ordinary course of
business and consistent with past practice;
(i) Make any material Tax election or change or revoke any material
Tax election already made, adopt, request or consent to any new material
Tax accounting method, change any material Tax accounting method unless
required by applicable law, enter into any material closing agreement,
settle any material Tax claim or assessment or consent to any material Tax
claim or assessment or any waiver of the statute of limitations for any
such claim or assessment;
(j) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of the Subsidiaries (other than under
this Agreement);
(k) Pay, discharge or satisfy, or fail to pay, discharge or satisfy,
any claim, liability or obligation (contingent or otherwise), other than in
the ordinary course of business and consistent with past practice;
(l) Cancel any debts owed to or claims held by the Company (including
the settlement of any claims or litigation) other than in the ordinary
course of business consistent with past practice;
(m) Enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
9.3 Accounting Changes. Neither the Company nor its Subsidiaries shall
make any change in its accounting procedures and practices from those in
existence at December 31, 1999, other than any change necessitated by changes,
if any, in GAAP.
9.4 Capitalization, Options, Dividends and Payments. No change shall
be made in the Articles of Incorporation or By-laws of the Company or any
Subsidiary. Neither the Company nor its Subsidiaries shall issue or reclassify
or alter any shares of its outstanding or unissued capital stock or other
securities. Neither the Company nor its Subsidiaries shall grant options,
warrants or other rights of any kind to purchase any of its securities, or agree
to issue any shares of its capital stock or any other securities, or purchase,
redeem or otherwise
-31-
acquire for consideration any shares of its capital stock or any other
securities. The Selling Stockholders shall not sell or transfer any of the
Shares.
9.5 Encumbrance of Assets. No encumbrance on any of the properties or
assets of the Company or its Subsidiaries shall be made other than (i) pursuant
to an existing contract, or (ii) by operation of law.
9.6 Litigation During Interim Period. The Company will promptly advise
ACGL in writing of the commencement or threat against the Company or its
Subsidiaries of any proceeding or Tax audit of which the Company or its
Subsidiaries becomes aware, that is not covered by insurance, when the amount
claimed is in any individual claim, litigation, proceeding or Tax audit in
excess of $10,000.
9.7 Employee Matters. Neither the Company nor its Subsidiaries shall
make, amend or enter into any employment contract.
9.8 Notification of Certain Matters. From the date hereof until the
Closing Date, the Company and the Selling Stockholders shall promptly disclose
to ACGL in writing any material variances from their representations and
warranties contained in this Agreement, including the Schedules hereto, and any
failure to comply with or satisfy any covenant or agreement to be complied with
or satisfied by them hereunder. From the date hereof until the Closing Date,
ACGL shall promptly disclose to the Company and the Selling Stockholders in
writing any material variances from its representations and warranties contained
in this Agreement and any failure to comply with or satisfy any covenant or
agreement to be complied with or satisfied by it hereunder.
9.9 Access to Company. The Selling Stockholders shall cause the
Company and the Subsidiaries to afford to the officers and authorized
representatives of ACGL and to its counsel and accountants such reasonable
access during normal business hours, and upon reasonable advance notice, to its
properties, offices, equipment, files, agreements and books and records as may
be necessary in order that ACGL may have full opportunity to make such
reasonable investigations, at its expense, as it shall desire to make of the
affairs of the Company and the Subsidiaries in connection with the transactions
contemplated by this Agreement; provided that such access does not unreasonably
interfere with the normal operations of the Company and the Subsidiaries. All
information furnished to ACGL and its representatives under this Section 9.9
prior to Closing shall be kept confidential by such persons unless otherwise
publicly available or required to be disclosed by applicable law or judicial or
administrative process. If any such information is required to be disclosed,
ACGL will notify the Company and the Selling Stockholders thereof. From and
after the Closing, ACGL shall, and shall cause the Company to, provide the
Selling Stockholders and its agents with reasonable access (for the purpose of
examining and copying), during normal business hours, and upon reasonable
advance notice, to the books and records of the Company and its Subsidiaries
with respect to periods prior to the Closing Date in connection with any matter
relating to Taxes, governmental inquiries or litigation, whether or not relating
to or arising out of this
-32-
Agreement or the transactions contemplated by this Agreement; provided that such
access does not unreasonably interfere with the normal operations of ACGL, the
Company or the Subsidiaries.
9.10 Administration of Lawsuits. After the Closing, ▇▇▇▇▇ Small will
continue to assist and manage the Lawsuits on behalf of the Company and TDH to
the extent his health permits, subject to the following: (i) Small will provide
the Company and TDH with all information relating to each Lawsuit, including the
status thereof, and will consult with the Company and TDH regarding the Lawsuits
at any time requested by the Company or TDH; (ii) the prior written approval of
the Company and TDH will be required for any strategic decisions relating to the
Lawsuits, including without limitation settlement of all or a portion of any
Lawsuit and the selection or removal of legal counsel or other professional
advisors (provided that the Company and TDH will not agree to a settlement that
does not provide for the release of Small as a defendant in the Lawsuits); (iii)
Small agrees not to take any position that would, directly or indirectly,
negatively affect in any material respect the reputation of the Company, its
shareholders, TDH or its partners; and (iv) the Company will continue to fund
reasonable fees and reasonable expenses of the Lawsuits (based on appropriate
supporting written invoices) up to a maximum of $500,000.
9.11 No-Shop. Without the prior written consent of ACGL, neither the
Company nor the Company's officers, directors, employees, advisors, agents,
representatives, affiliates, security holders, or anyone acting on behalf of the
Company or such persons (collectively, the "Representatives"), shall, directly
or indirectly, encourage, solicit, initiate or engage in discussions or
negotiations with, or provide any information to, any person (other than ACGL
and its representatives) concerning any merger, consolidation, liquidation,
dissolution, sale of assets, purchase or sale of shares of capital stock,
issuance of debt securities or similar transaction involving the Company. The
Company and the Representatives shall immediately terminate all discussions and
negotiations with any person (other than ACGL or its representatives) concerning
any such transaction and shall promptly communicate to ACGL any inquiries or
communications concerning any such transaction which the Company or the
Representatives may receive or of which the Company or the Representatives may
become aware. The Company shall notify all of their Representatives of the
requirements of this paragraph and ensure the compliance thereof by the
Representatives. The term "person" as used herein shall be interpreted broadly
and shall include, without limitation, any individual, corporation, partnership,
limited liability company, trust, estate, business trust, incorporated or
unincorporated association, joint venture, joint stock company, government (or
an agency or political subdivision thereof) or other entity of any kind. If any
provision of this section is breached by the Company or any Representative,
then, in addition to all other remedies available to ACGL at law or in equity,
the Company shall be required to pay as liquidated damages (i) all costs, fees
and expenses incurred by ACGL in connection with the transactions contemplated
by this Agreement and (ii) a fee in the amount of $2,000,000.
9.12 Automobile Lease Payments . Neither ▇▇▇▇▇ Small nor ▇▇▇▇▇▇▇ ▇▇▇▇▇
shall extend or otherwise amend the automobile leases described on Schedule
6.20.
-33-
10. Conditions Precedent to ACGL's Obligations. All obligations of ACGL
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
10.1 Representations and Warranties. The Company's, the Selling
Stockholders' and TDH's representations and warranties contained in this
Agreement shall be true and correct in all respects if specifically qualified by
materiality and if not so qualified shall be true and correct in all material
respects at and as of the time of Closing as though such representations and
warranties were made at and as of such time (except to the extent that they are
stated therein to be true as of some other date). Each of the Company, TDH and
the Selling Stockholders shall have delivered to ACGL a certificate (with
respect to its own representations and warranties) dated the Closing Date to
such effect.
10.2 Compliance with Agreements. The Company, the Selling Stockholders
and TDH shall have performed or complied in all material respects with all
agreements and conditions required by this Agreement to be performed or complied
with by it or them, as applicable, prior to or at the Closing. Each of TDH and
the Selling Stockholders shall have delivered to ACGL a certificate (as to its
own compliance) dated the Closing Date to such effect.
10.3 Resignations. Each officer and director of the Company and its
Subsidiaries requested to resign from their positions with the Company or any
Subsidiary by ACGL shall have executed and delivered to ACGL resignation letters
in form and substance satisfactory to ACGL.
10.4 Certificates. The Company shall have furnished to ACGL (a) at
least ten (10) days prior to the Closing Date, copies, certified by the
Secretary of State of the state of incorporation, as of a date not more than
thirty (30) days prior to the Closing Date, of each of the Articles of
Incorporation of the Company and its Subsidiaries, and all amendments thereto,
(b) copies, certified by the Secretary of the Company, as of the Closing Date,
of the By-Laws of the Company and of its Subsidiaries, (c) certificates of good
standing issued with respect to each of the Company and the Subsidiary, as the
case may be, by the appropriate governmental officials of the states where
qualified to do business (except where the failure to have such certificates of
good standing would not have a Material Adverse Effect), as of a date not more
than ten (10) days prior to the Closing Date, accompanied by bring-down
certificates dated as of the Closing Date, (d) a certificate of the Secretary of
the Company and its Subsidiaries relating to the incumbency and corporate
proceedings in connection with the consummation of the transactions contemplated
by this Agreement, and the absence of changes in the Company's and its
Subsidiaries' articles of incorporation and by-laws, and (e) the corporate
minute books of the Company and each Subsidiary.
10.5 Litigation. There shall be no pending action or proceeding
commenced against the Company, its Subsidiaries, TDH or any Selling Stockholder
that may have the effect of preventing or making illegal the transactions
contemplated by this Agreement and no such action or proceeding shall have been
Threatened.
-34-
10.6 Material Adverse Effect. Since January 1, 2000, no event has
occurred which has had a Material Adverse Effect.
10.7 Third Party Consents. ACGL shall have received satisfactory
evidence of the receipt by the Company of the consents set forth on Schedule
10.7 hereto.
10.8 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act Filings. The applicable waiting period
(including any extension thereof by reason of a request for additional
information), if any, under the HSR Act, shall have expired or been terminated.
10.9 Deliveries. Each of the Selling Stockholders shall have delivered
to ACGL the certificates for the shares of Common Stock owned by such Selling
Stockholder. The certificates for the shares of Common Stock shall be duly
endorsed or accompanied by separate executed stock powers attached.
10.10 Options; Warrants. ACGL shall have received evidence
satisfactory to it that all direct or indirect rights to acquire Capital Stock
of the Company (including without limitation the Warrants and the Prime Bank
Warrant) shall have been cancelled and are of no further force and effect.
10.11 Outstanding Indebtedness. Upon cancellation of the ACGL Notes
and the TDH Notes, the Company has no Debt.
10.12 [Intentionally Omitted.]
10.13 Audit. An audit firm selected by ACGL shall have commenced its
audit of the Company's GAAP financial statements for the years ended December
31, 1998, December 31, 1999 and December 31, 2000.
10.14 Legal Opinion. ACGL shall have received (i) a satisfactory legal
opinion from Company Counsel as to the matters set forth on Exhibit C and (ii) a
satisfactory legal opinion from Counsel for the Selling Stockholders as to the
matters set forth on Exhibit D.
10.15 Minimum Capital and Surplus. Capital and surplus, as determined
in accordance with Statutory Accounting Principles, of the Company's Insurance
Subsidiary as of September 30, 2000, shall be at least $4,000,000.
10.16 Section 1445 Certificate. Each Selling Stockholder shall have
furnished to ACGL a certificate that such Person is not a foreign person within
the meaning of Section 1445 of the Internal Revenue Code, which certificate
shall set forth all information required by, and otherwise be executed in
accordance with, Treas. Reg.ss.1.1445-2(b).
-35-
11. Conditions Precedent to the Selling Stockholders' Obligations. All
obligations of the Selling Stockholders under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
11.1 Representations and Warranties. ACGL's representations and
warranties contained in this Agreement shall be true and correct at and as of
the time of Closing as though such representations and warranties were made at
and as of such time. ACGL shall have delivered to the Selling Stockholders a
certificate dated the Closing Date and signed by its President or a Vice
President to such effect.
11.2 Compliance with Agreement. ACGL shall have performed and complied
in all material respects with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
ACGL shall have delivered to the Selling Stockholders a certificate dated the
Closing Date and signed by its President or a Vice President to such effect.
11.3 Third Party Consents. The Selling Stockholders shall have
received satisfactory evidence of the receipt by the Company of the consents set
forth on Schedule 11.3 hereto.
11.4 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act Filings. The applicable waiting period
(including any extension thereof by reason of a request for additional
information), if any, under the HSR Act shall have expired or been terminated.
11.5 Litigation. There shall be no pending action or proceeding
commenced against ACGL, the Company, its Subsidiaries or any Selling Stockholder
that may have the effect of preventing or making illegal the transactions
contemplated by this Agreement and no such action or proceeding shall have been
Threatened.
12. Conditions Precedent to TDH's Obligations. All obligations of TDH
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
12.1 Litigation. There shall be no pending action or proceeding
commenced against ACGL, the Company, its Subsidiaries, TDH or any Selling
Stockholder that may have the effect of preventing or making illegal the
transactions contemplated by this Agreement and no such action or proceeding
shall have been Threatened.
12.2 All Conditions Satisfied. All of the conditions set forth in
Sections 10 and 11 of this Agreement shall have been either satisfied or waived.
-36-
13. Termination.
13.1 Termination Events. This Agreement may, by written notice given
prior to or at the Closing, be terminated:
(i) by ACGL (if ACGL itself is not then in material Breach of any of
its representations, warranties, covenants or obligations contained in this
Agreement), if a material Breach of any of the representations, warranties,
covenants or obligations of the Selling Stockholders or the Company set
forth in this Agreement has been committed by the Selling Stockholders or
the Company, which Breach would give rise to a failure of a condition set
forth in Section 10.1 or 10.2 hereof, and such Breach has not been (1)
waived by ACGL, or (2) cured by the Company or the Selling Stockholders, as
the case may be, within ten (10) days after receipt of written notice
thereof to the Selling Stockholders from ACGL;
(ii) by the Selling Stockholders (if the Selling Stockholders are not
then in material Breach of any of their representations, warranties,
covenants or obligations contained in this Agreement), if a material Breach
of any of the representations, warranties, covenants or obligations of ACGL
set forth in this Agreement has been committed by ACGL, which Breach would
give rise to a failure of a condition set forth in Section 11.1 or 11.2
hereof, and such Breach has not been (1) waived by the Selling
Stockholders, or (2) cured by ACGL within ten (10) days after receipt of
written notice thereof from the Selling Stockholders;
(iii) by mutual written consent of ACGL and the Selling Stockholders;
(iv) by either ACGL or the Selling Stockholders if the Closing has not
occurred (other than through the failure of any party seeking to terminate
this Agreement to comply fully with its obligations under this Agreement)
on or before May 31, 2001, or such later date as ACGL and the Selling
Stockholders may mutually agree upon in writing.
13.2 Effect of Termination. In the event that this Agreement is
terminated pursuant to this Section 13, all further obligations of the parties
under this Agreement shall be terminated without further liability of any party
to the others; provided that nothing herein shall relieve any party from
liability for its Breach of any representation, warranty, covenant, obligation
or agreement contained in this Agreement; and provided, further, that if this
Agreement is terminated for any reason and a Breach of Section 9.11 has
occurred, the Company shall pay (without duplication of any amounts previously
paid to ACGL by the Company pursuant to Section 9.11) to ACGL as liquidated
damages (i) all costs, fees and expenses incurred by ACGL in connection with the
transactions contemplated by this Agreement and (ii) a fee in the amount of
$2,000,000.
-37-
14. Survival of Representations and Warranties. The representations and
warranties made by the Company and the Selling Stockholders in this Agreement or
pursuant hereto shall survive the Closing as follows: (i) the representations
and warranties set forth in Sections 6.15, 6.17 and 6.18 shall survive until the
date that is 180 days after the delivery of the independent auditors' report in
connection with the Company's audit for the fiscal year ended December 31, 2000,
and (ii) all other representations and warranties (other than as set forth in
Sections 4.2, 6.21 and 6.22, which shall survive indefinitely) shall terminate
on the first anniversary of the Closing Date; provided that, in the event that
any claim for a Breach of a representation or warranty has been asserted prior
to the last day such representation or warranty would otherwise survive pursuant
to this Section 12, such representation and warranty shall survive until the
final disposition of such claim. The representations and warranties made by TDH
in Section 8 shall survive indefinitely.
15. Indemnification. (a) Following the Closing, the Selling Stockholders
(other than the Wilstein Group and ▇▇▇▇), jointly and severally (each an
"Indemnifying Party"), shall indemnify and hold harmless ACGL and its officers,
directors, employees, stockholders, representatives and agents (each, an
"Indemnified Party"), from and against the cost of any claims, damages, losses,
liabilities, costs and expenses (including, without limitation, any liability
relating to Taxes and settlement costs, any reasonable legal, accounting or
other expenses incurred in connection with investigating or defending any
actions or Threatened actions and court costs) (collectively, "ACGL Losses" or
"Losses") sustained or required to be paid by reason of, arising out of or
caused by (i) any Breach of any representation or warranty made by the Selling
Stockholders in this Agreement, (ii) any Breach of any covenant, agreement or
obligation of the Selling Stockholders contained in this Agreement, (iii) any
third party claim arising out of the conduct of the business of the Company or
its Subsidiaries prior to the Closing Date, and (iv) any payment made by the
Company with respect to the ▇▇▇▇▇▇▇▇ Surplus Notes, as well as the matter
specifically identified on Schedule 6.11 as subject to indemnification;
provided, however, that each of the Selling Stockholders (other than ▇▇▇▇ and
the Wilstein Group) shall only be required to indemnify the parties listed above
up to a maximum amount of the Purchase Price received by such Selling
Stockholder pursuant to Section 2.1 including any amounts received by such
Selling Stockholder pursuant to Section 4.1 of this Agreement; provided,
further, however, that the immediately preceding proviso shall not apply for any
ACGL Losses which arise out of the ▇▇▇▇▇▇▇▇ Surplus Notes. In the event of any
Breach of the representations set forth in Sections 4.2(a) or 4.2(b) by a
Selling Stockholder (other than the Wilstein Group or ▇▇▇▇), TDH shall be
entitled to indemnity hereunder as if it were ACGL, subject to the aggregate
maximum amount of indemnity hereunder set forth in the first proviso to the next
preceding sentence. Notwithstanding anything in this Section 15(a), in the event
of a bankruptcy or liquidation of AIIC, the Selling Stockholders, including the
Wilstein Group and ▇▇▇▇, shall not have any indemnification obligation to ACGL
under the ▇▇▇▇▇▇▇▇ Surplus Notes.
(b) Following the Closing, each of the Wilstein Group and ▇▇▇▇,
severally and not jointly (each also, as applicable, an Indemnifying Party),
shall indemnify and hold harmless ACGL and its officers, directors, employees,
stockholders, representatives and agents,
-38-
from and against ACGL Losses sustained or required to be paid by reason of,
arising out of or caused by (i) any Breach of any representation or warranty in
Section 6.22 made by such Indemnifying Party and (ii) any Breach of any
covenant, agreement or obligation of such Indemnifying Party contained in this
Agreement; provided, however, that such Indemnifying Party shall only be
required to indemnify the parties listed above up to a maximum amount of the
Purchase Price each such Indemnifying Party receives pursuant to Section 2.1
including any amounts received by such Indemnifying Party under Section 4.1 of
this Agreement.
(c) (i) In the event that any Indemnified Party is made a defendant in
or party to any claim, action, suit or proceeding, judicial or administrative,
instituted by any third party for Losses, or otherwise receives any demand from
any third party for Losses (any such third party claim, action, suit or
proceeding being referred to as a "Claim"), the Indemnified Party (referred to
in this clause (c)(i) as the "Notifying Party") shall give the Indemnifying
Party prompt notice thereof. The failure to give such notice shall not affect
whether an Indemnifying Party is liable for reimbursement unless such failure
has resulted in the loss of substantive rights with respect to the Indemnifying
Party's ability to defend such Claim, and then only to the extent of such Loss.
The Indemnifying Party shall be entitled to contest and defend such Claim.
Notice of the intention so to contest and defend shall be given by the
Indemnifying Party to the Notifying Party within twenty (20) Business Days after
the Notifying Party's notice of such Claim. The Notifying Party shall be
entitled at any time, at its own cost and expense (which expense shall not
constitute a Loss), to participate in such contest and defense and to be
represented by attorneys of its own choosing. If the Notifying Party elects to
participate in such defense, the Notifying Party will cooperate with the
Indemnifying Party in the conduct of such defense. Neither the Notifying Party
nor the Indemnifying Party may concede, settle or compromise any Claim without
the consent of the other party, which consent will not be unreasonably withheld.
Notwithstanding the foregoing, if the Indemnifying Party fails to acknowledge in
writing its obligation to provide indemnification in respect of such Claim, then
the Notifying Party alone shall be entitled to contest, defend and settle such
Claim in the first instance (in which case, expenses incurred in connection
therewith shall constitute a Loss) and, thereafter, only if the Notifying Party
chooses not to contest, defend or settle such Claim, the Indemnifying Party
shall then have the right to contest and defend (but not settle) such Claim.
(ii) In the event any Indemnified Party should have a claim against
any Indemnifying Party that does not involve a Claim, the Indemnified Party
shall deliver a notice of such claim with reasonable promptness to the
Indemnifying Party. The failure to give such notice shall not affect whether an
Indemnifying Party is liable for reimbursement unless such failure has resulted
in the loss of substantive rights with respect to the Indemnifying Party's
ability to defend such claim, and then only to the extent of such Loss. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim described in such notice or fails to notify the Indemnified Party within
fifteen (15) days after delivery of such notice by the Indemnified Party whether
the Indemnifying Party disputes the claim described in such notice and such
failure to notify materially prejudices any defense or claim of the Indemnified
Party, the Loss in the amount specified in the Indemnified Party's notice will
be conclusively
-39-
deemed a liability of the Indemnifying Party and the Indemnifying Party shall
pay the amount of such Loss to the Indemnified Party on demand.
(iii) After the Closing, the rights set forth in this Section 15 shall
be the indemnified parties' sole and exclusive remedies against the Indemnifying
Party for Breaches of representations, warranties, covenants or obligations
contained in this Agreement. Notwithstanding the foregoing, nothing herein shall
prevent any of the indemnified parties from bringing an action based upon
allegations of fraud, bad faith or willful misconduct in connection with this
Agreement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, ACGL shall not be entitled to indemnification for any ACGL Losses
sustained or required to be paid by reason of, arising out of or caused by any
Breach of any representation or warranty made by the Selling Stockholders in
this Agreement in the event that the Selling Stockholders demonstrate that such
Breach of such representation or warranty was actually known to ACGL prior to
Closing.
(e) All indemnification payments under this Section 15 shall be deemed
adjustments to the Purchase Price for all income tax purposes.
16. Tax Matters. (a) After the Closing Date, the Company, ACGL, TDH and the
Selling Stockholders (other than the Wilstein Group and ▇▇▇▇) shall make
available to the others, as reasonably requested, all information, records or
documents relating to Tax Liabilities or potential Tax Liabilities of the
Company or its Subsidiaries for all periods prior to or including the Closing
Date. The requesting party shall reimburse the requested parties for their
reasonable costs incurred in complying with the foregoing provision.
(b) With respect to any taxable year or period beginning before and
ending after the Closing Date (a "Straddle Period"), solely for purposes of
Article 15 hereof, an allocation of Taxes shall be made to the part of any such
Straddle Period which ends on the Closing Date based on (i) except as provided
in clause (ii) below, a closing of the books; provided, however, that this
clause (i) shall not prevent ACGL from adopting a pro-rata allocation for
purposes of Section 382 of the Internal Revenue Code, and (ii) solely in the
case of property Taxes, the number of days elapsed between the beginning of any
such Straddle Period to and including the Closing Date.
(c) ACGL and the Company shall bear the cost and shall control the
preparation and filing of all Tax returns filed on or after the Closing Date
with respect to periods that end prior to the Closing Date or Straddle Periods,
with reasonable rights of review granted to the Selling Stockholders before
filing, subject to the cooperation provisions of Section 17.3 hereof.
(d) The Selling Stockholders shall be responsible for and shall pay
(a) all sales, use, real estate transfer and other similar taxes (and any
interest, penalties and other ad-
-40-
ditions to such taxes and/or any related costs or expenses) and (b) all
governmental charges, if any, upon the transactions contemplated hereby.
17. Miscellaneous.
17.1 Expenses. Except as otherwise expressly provided herein, each of
ACGL, TDH, the Company and the Selling Stockholders shall pay all of its own
expenses (including attorneys' and accountants' fees and expenses) in connection
with the negotiation of this Agreement, the performance of their respective
obligations under this Agreement and the consummation of the transactions
contemplated by this Agreement (whether consummated or not); provided, however,
that the Company shall pay (i) up to an aggregate of $5,000 of such reasonable
expenses of the Selling Stockholders, pursuant to appropriate written
documentation; (ii) up to $5,000 of such reasonable expenses of TDH, pursuant to
appropriate written documentation; and (iii) up to $40,000 of such reasonable
expenses of ACGL, pursuant to appropriate written documentation; and provided,
further, that the aggregate of all expenses paid by the Company (including,
without limitation, those set forth in the immediately preceding proviso and
under Section 17.10 hereof) shall not exceed $120,000. In addition to the
foregoing, the Company shall reimburse each of ▇▇▇▇▇ Small and ▇▇▇▇▇▇▇ ▇▇▇▇▇ for
the automobile lease payments as described on Schedule 6.20.
17.2 Confidentiality. Except as required by law, neither the Company,
nor any Selling Stockholder nor any Representative of any of them shall disclose
to any person or entity (other than appropriate regulatory agencies) the nature
of the transactions contemplated hereby or any other facts regarding such
transactions, including the status thereof. The Company and each Selling
Stockholder shall notify all of their Representatives of the requirements of
this Section 17.2 and ensure the compliance therewith by the Representatives.
17.3 Further Actions and Assurances. ACGL, the Selling Stockholders,
TDH and the Company will execute and deliver any and all documents, and will
cause any and all other action to be taken, either before or after Closing,
which may be necessary or proper to effect or evidence the provisions of this
Agreement and the transactions contemplated hereby, including without limitation
taking all actions that may be necessary or advisable to discharge all security,
collateral, guarantee or similar arrangements relating to the TDH Notes. The
Company will fully cooperate with ACGL in connection with the filing of ACGL's
Form A with the Insurance Department.
17.4 Counterparts. This Agreement may be executed in several
counterparts each of which is an original and all of which taken together shall
constitute a single instrument.
17.5 Contents of Agreement; Parties in Interest, Etc. This Agreement
sets forth the entire understanding of the parties. Any previous agreements or
understandings between the parties (including the letter agreement between ACGL
and TDH III, TDHCP and the Company dated November 17, 2000) regarding the
subject matter hereof, and any amend-
-41-
ments thereto, are merged into and superseded by this Agreement. Neither this
Agreement nor any rights, interests, or obligations hereunder may be assigned by
any party without the prior written consent of all other parties hereto;
provided, however, that ACGL may assign its rights, interests and obligations
hereunder to any wholly owned subsidiary of ACGL as long as ACGL remains fully
liable for its obligations hereunder.
17.6 New York Law to Govern; Venue. This Agreement and all matters
relating to the interpretation, construction, validity and enforcement of this
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of New York without giving effect to any choice or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of laws of any jurisdiction other
than the State of New York. The parties hereto agree to submit to the personal
and exclusive jurisdiction of the state and federal courts serving New York, New
York with respect to the enforcement or interpretation of this Agreement or the
parties' obligations hereunder. Each party hereto irrevocably consents to the
service of any and all process in any action or proceeding by the mailing of
copies of such process by registered or certified mail to such party hereto to
serve legal process in any other manner permitted by law. Each party hereto
irrevocably waives, to the full extent permitted by law, any objection which it
may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
17.7 Section Headings and Gender. The section headings herein have
been inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of the masculine pronoun
herein when referring to any party has been for convenience only and shall be
deemed to refer to the particular party intended regardless of the actual gender
of such party.
17.8 Schedules and Exhibits. All Schedules and Exhibits referred to in
this Agreement are intended to be and are hereby specifically made a part of
this Agreement.
17.9 Notices. All notices, requests and other communications which are
required or permitted hereunder shall be sufficient if given in writing and
delivered personally or by registered or certified mail, postage prepaid, or by
facsimile transmission (with a copy simultaneously sent by registered or
certified mail, postage prepaid), as follows (or to such other address as shall
be set forth in a notice given in the same manner):
-42-
If to the Company prior to Closing:
American Independent Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President and
Chief Executive Officer
Copies to:
▇▇▇▇▇▇, ▇▇▇▇▇ & Bockius LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
If to TDH:
TDH Capital Partners and TDH III, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇ III
Copies to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
If to the Selling Stockholders (other than the Wilstein
Group and ▇▇▇▇):
▇▇▇▇▇ Small
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, #▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
-43-
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to ▇▇▇▇:
BCI Holdings, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
If to the Wilstein Group:
Realtech
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Copies to:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esq.
If to ACGL or the Company after Closing:
Arch Capital Group Ltd.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
-44-
Copies to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
17.10 Antitrust Matters. ACGL, the Company and the Selling
Stockholders will cause to be filed, and will cooperate with each other in
connection with, all filings required to be made by the parties under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), or any
successor law, regulations and rules promulgated pursuant to the HSR Act or any
successor law, and shall observe the applicable waiting period (including any
extensions thereof by reason of a request for additional information). ACGL, the
Company and the Selling Stockholders will coordinate all filings made pursuant
to the HSR Act so as to present the filings to the Federal Trade Commission and
the Department of Justice at the time selected by the mutual agreement of the
Selling Stockholders and ACGL and to avoid substantial errors or inconsistencies
between the two in the description of the transaction. ACGL and the Company
shall each pay one-half of all fees payable to the Federal Trade Commission in
connection with the filings required to be made pursuant to the HSR Act.
17.11 Specific Performance. Each of the parties acknowledges and
agrees that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each party agrees that the other
party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
Untied States or any state hereof having jurisdiction over the parties and the
matter (subject to Section 17.6) without the requirement of posting a bond or
other security therefor, in addition to any other remedy to which they may be
entitled, at law or in equity.
17.12 Acknowledgment by ACGL; Releases; etc. (a) ACGL acknowledges
that the representations and warranties by the Selling Stockholders and TDH are
the sole and exclusive representations and warranties to ACGL in connection with
the transactions contemplated by this Agreement, and ACGL understands,
acknowledges and agrees that all other representations and warranties of any
kind or nature expressed or implied (including, but not limited to, any relating
to the future or historical financial condition, results of operations, assets
or liabilities of the Company) are specifically disclaimed by the Selling
Stockholders and TDH. ACGL understands that the representations and warranties
of the Selling Stockholders and TDH contained in this Agreement will only
survive the Closing Time as expressly set forth in Section 14.
(b) Effective as of the Closing Time, each of ACGL, TDH and the
Company hereby releases, acquits and forever discharges all claims, rights,
demands, damages, costs,
-45-
expenses, loss, liability actions and causes of actions, in law, in equity or in
admiralty of whatever nature or description whatsoever which it now or hereafter
may have against any Selling Stockholder (and any present or former affiliate,
director, officer, employee, agent, attorney or fiduciary of any Selling
Stockholder) based upon or arising out of or relating, directly or indirectly,
to the business activities of any Selling Stockholder in connection with the
Company and/or to any actions taken (or omitted to be taken) by any Selling
Stockholder or any of them in connection with the Company at any time on or
prior to the Closing Time, except as set forth explicitly in this Agreement and
except with respect to any claim arising out of fraud.
(c) Effective as of the Closing Time, each of the Selling Stockholders
and the Company hereby releases, acquits and forever discharges all claims,
rights, demands, damages, costs, expenses, loss, liability actions and causes of
action, in law, in equity or in admiralty of whatever nature or description
whatsoever which it now or hereafter may have against either ACGL or TDH (and
any present or former affiliate (which term, for the purposes of this paragraph,
shall include the Company, with respect to ACGL), director, shareholder,
partner, officer, employee, agent, attorney or fiduciary of either ACGL or TDH)
based upon or arising out of or relating, directly or indirectly, to the
business activities in connection with the Company of either ACGL or TDH (and
any present or former affiliate, director, shareholder, partner, officer,
employee, agent, attorney or fiduciary of either ACGL or TDH) and/or to any
actions taken (or omitted to be taken) by either ACGL or TDH (and any present or
former affiliate, director, shareholder, partner, officer, employee, agent,
attorney or fiduciary of either ACGL or TDH) in connection with the Company at
any time on or prior to the Closing Time, other than as explicitly set forth in
this Agreement and except with respect to any claim arising out of fraud.
(d) Effective as of the Closing Time, each of TDH, ACGL and the
Company, as applicable, hereby releases, acquits and forever discharges all
claims, rights, demands, damages, costs, expenses, loss, liability actions and
causes of action in law, in equity or in admiralty of whatever nature or
description whatsoever which it now or hereafter may have against any of ACGL,
TDH or the Company (and any present or former affiliate, director, partner,
officer, employee, agent, attorney or fiduciary of any of ACGL, TDH or the
Company) based upon or arising out of or relating, directly or indirectly, to
the business activities of any of ACGL, TDH or the Company in connection with or
by the Company and/or to any actions taken (or omitted to be taken) by any of
ACGL, TDH or the Company in connection with or by the Company at any time on or
prior to the Closing Time, except as set forth explicitly in this Agreement and
except with respect to any claim arising out of fraud.
17.13 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof, and this Agreement may be modified or amended at any time
by ACGL, the Company and the Selling Stockholders; provided, however, that ACGL,
the Company and the Selling Stockholders shall not amend or modify this
Agreement in any way adverse to TDH without TDH's written consent. No
supplement, modification or amendment of this Agreement shall
-46-
be binding unless executed in writing by the applicable parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof nor shall such waiver
constitute a continuing waiver.
17.14 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
17.15 Third Party Beneficiaries. Except as otherwise expressly set
forth herein, no individual or entity shall be a third party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
17.16 Construction and Interpretation. This Agreement has been
negotiated by the undersigned and their respective legal counsel, and legal or
equitable principles that might require the construction of this Agreement, or
any provision of this Agreement, against the party drafting this Agreement will
not apply in any construction or interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
AMERICAN INDEPENDENT INSURANCE HOLDING COMPANY
By: /s/ ▇▇▇▇▇ Small
--------------------------------------
Name: ▇▇▇▇▇ Small
Title:
TDH CAPITAL PARTNERS
By: /s/ J. ▇▇▇▇▇▇ ▇▇▇▇, ▇▇.
--------------------------------------
Name: J. ▇▇▇▇▇▇ ▇▇▇▇, ▇▇.
Title: President
TDH III, L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇, III
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇, III
Title: General Partner
TDH III Partners, L.P.,
its general partner
By: /s/ ▇▇▇▇▇ Small
---------------------------------
▇▇▇▇▇ SMALL
▇▇▇▇▇▇▇ ▇▇▇▇▇ VOTING TRUST
By: /s/ ▇▇▇▇▇ Small
---------------------------------
▇▇▇▇▇ SMALL
AMERICAN INDEPENDENT COMPANY VOTING TRUST
By: /s/ ▇▇▇▇▇ Small
---------------------------------
▇▇▇▇▇ SMALL
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
BCI HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title:
ARCH CAPITAL GROUP LTD.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President,
General Counsel and Secretary
Exhibit A
List of Selling Stockholders and the
Number of Shares Owned by Each Selling Stockholder
----------------------------- ------------------ ------------------- ---------------- ----------------- ----------------------
Shares to Be Shares to Be Total Shares Purchase Price
Stockholder Purchased* Redeemed* Owned Percentage Allocation
▇▇▇▇▇ Small 1,377.70 1,711.30 3,089.00 41.51% 518,875.00
▇▇▇▇▇▇▇ ▇▇▇▇▇ 430.39 534.61
Voting Trust 965.00 12.97% 162,125.00
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 303.87 377.45 681.32 9.16% 114,500.00
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 303.87 377.45 681.32 9.16% 114,500.00
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 160.87 199.81 360.68 4.84% 60,500.00
▇▇▇▇ ▇▇▇▇▇▇▇▇ 80.44 99.90 180.34 2.42% 30,250.00
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 80.44 99.90 180.34 2.42% 30,250.00
BCI Holdings, Inc. 122.65 152.35 275.00 3.70% 46,250.00
American 458.49 569.51
Independent
Company Voting
Trust 1,028.00 13.82% 172,750.00
=========== ========= ======== ======= =============
TOTAL 3,318.72 4,122.28 7,441.00 100.00% $1,250,000.00
======== ======== ======== ======= =============
----------
* Based on an assumption of an approximately $9.0 million gross award.
A-1
Exhibit B
List of Outstanding Options and
Warrants to Purchase Shares of Common Stock
Number of Shares
Option/Warrant Holder Security Subject to Security
TDH III, L.P. A-1 Warrant 1,489
TDH III, L.P. A-2 Warrant 496.03*
TDH III, L.P. B Warrant 743.87
TDH Capital Partners Class A Warrants 315.85
TDH III, L.P. Class A Warrants 297.45
Stock Option Plan Options 992.22
ACGL Class A Warrants 490.65
ACGL Class C Warrants 645.52**
* Remain unissued by the Company because subject to issue upon events which
have not occurred.
** This number reflects increases made in September 2000.
B-1
Exhibit C
Form of Company Counsel Opinion
1. The Company and each Subsidiary is validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and has the
requisite corporate power and authority to own and operate its properties and to
conduct the business in which it is currently engaged.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Agreement and to carry out the
transactions contemplated thereby. The execution, delivery and performance by
the Company of the Agreement and the consummation by the Company of the
transactions contemplated thereby have been duly authorized by all requisite
corporate action on the part of the Company.
3. The Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with its terms.
4. Except as set forth on the Schedules to the Agreement and except
for any necessary approval by the Insurance Department of the Commonwealth of
Pennsylvania, the execution, delivery and performance by the Company of the
Agreement and the consummation of the transactions therein contemplated do not
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, (i) any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company is a party,
and which is listed in the Schedules to the Agreement (collectively,
"Contracts"), (ii) the articles of incorporation or by-laws of the Company, or
(iii) any judgment or order of which we have knowledge of any court or
governmental agency or body having jurisdiction over the Company or any of its
properties or any law, rule or regulation.
5. To the best of our knowledge, there is no action, suit, proceeding
or investigation pending or threatened against or affecting the Company or any
of its properties or assets that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the Agreement.
6. As of the date hereof, the authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. Based on our review of the stock record books of the Company and a
certificate of the Company, immediately prior to the Closing, 7,441 shares of
Common Stock were issued and outstanding and no shares of Preferred Stock were
issued and outstanding. Except as set forth on Exhibit B to the Agreement, there
are no preemptive rights, options, warrants or similar rights granted by the
Company in respect of shares of capital stock of the Company or any other
agreements to which the Company is a party providing for the issuance or sale by
it of any securities.
C-1
Exhibit D
Form of Selling Stockholder Counsel Opinion
1. The Agreement has been duly executed and delivered by each of the
Selling Stockholders and constitutes the legal, valid and binding obligation of
each of the Selling Stockholders, enforceable against each of the Selling
Stockholders in accordance with its terms.
2. Immediately prior to the date hereof each Selling Stockholder had
good and valid title to the Shares to be sold by such Selling Stockholder on the
date hereof by each Selling Stockholder under the Agreement, free and clear of
all liens, encumbrances, equities or claims, and full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by each Selling
Stockholder thereunder.
3. Good and valid title to the Shares, free and clear of all liens,
encumbrances, equities or claims, has been transferred to ACGL, who has
purchased the Shares in good faith and without notice of any such lien,
encumbrance, equity or claim or any other adverse claim within the meaning of
the UCC.
D-1
Exhibit E
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
Set forth on the pages that follow are data which show the
hypothetical allocation of the proceeds from the Lawsuits. No assurances can be,
or are intended to be, given by the following data as to the actual amount of
proceeds which may be received with respect to the Lawsuits (or that there will
be any such proceeds), other than as specifically provided in the Agreement, or
as to the actual distribution of Lawsuit Gross Proceeds or the Tax consequences
to the Company.
The following data assume:
o NOLCs other than Post-Closing Tax Attributes will be available to
offset any Taxes imposed or to be imposed on the Company or any
Subsidiary in connection with the Lawsuit Gross Proceeds which
may be received with respect to the Lawsuits.
o ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ receive 10%, 5% and
15%, respectively, pursuant to the contingency fee arrangements
agreed upon with them prior to the Closing Date and as described
on Schedule 4.2 to this Agreement.
o The first $12.0 million in proceeds from the Lawsuits are awarded
with respect to the State Lawsuits.
o Future expenses with respect to the State Lawsuits total
$150,000, and, including the federal Lawsuits, such expenses
total $400,000.
o Previously booked expenses with respect to the Lawsuits total
$750,000.
o ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ receives 4% of the Company's award net of all
expenses listed above him in the following table.
To the extent that the foregoing assumptions differ from actual
results and expenses, the data that follow showing the hypothetical allocation
of proceeds from the Lawsuits will not reflect the actual distribution of Gross
Lawsuit Proceeds.
E-1
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(a) Gross Lawsuit Proceeds* $3,000,000 $4,000,000 $5,000,000
(b) To the Selling Stockholders (under
Section 4.2(c)) 0 0 93,750
(c) Company award 3,000,000 4,000,000 4,906,250
(d) To ▇▇▇▇ ▇▇▇▇▇ (under Section 4.1(a))
300,000 400,000 500,000
(e) To ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (under
Section 4.1(a)) 150,000 200,000 250,000
(f) To ▇▇▇▇ ▇▇▇▇▇▇ (under Section 4.1(a))
450,000 600,000 750,000
(g) For future expenses (under
Section 4.1(a)) 150,000 150,000 150,000
(h) For previous expenses (under
Section 4.1(a))** 750,000 750,000 750,000
(i) To ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (under
Section 4.1(b)) 48,000 76,000 100,250
(j) Lawsuit Net Proceeds 1,902,000 2,574,000 3,156,000
(k) To TDH (under Section 4.1(d)) 1,300,000 1,365,000 1,500,000
(l) Net of TDH 602,000 1,209,000 1,656,000
(m) To the Selling Stockholders
(under Section 4.1(d)) 402,000 837,292 1,142,463
* Net of any Taxes imposed or expected to be imposed on the Company or any
Subsidiary in connection with such proceeds.
** Not to be considered for purposes of distribution under lines (k) through
(n) and is not related to the Lawsuit Net Proceeds calculation. Any amounts
recovered from the Company's director's and officer's insurance carrier for
legal fees paid to ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall reduce the amount reimbursed to
the Company for previous expenses under Section 4.1(a), to the extent such
payments are included in line (h).
E-2
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(n) To ACGL (under Section 4.1(d)) $200,000 $371,708 $513,537
E-3
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(a) Gross Lawsuit Proceeds* $6,000,000 $7,000,000 $8,000,000
(b) To the Selling Stockholders (under
Section 4.2(c)) 187,500 281,250 375,000
(c) Company award 5,812,500 6,718,750 7,625,000
(d) To ▇▇▇▇ ▇▇▇▇▇ (under Section 4.1(a))
600,000 700,000 800,000
(e) To ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (under
Section 4.1(a)) 300,000 350,000 400,000
(f) To ▇▇▇▇ ▇▇▇▇▇▇ (under Section 4.1(a))
900,000 1,050,000 1,200,000
(g) For future expenses (under
Section 4.1(a)) 150,000 150,000 150,000
(h) For previous expenses (under
Section 4.1(a))** 750,000 750,000 750,000
(i) To ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (under
Section 4.1(b)) 124,500 148,750 173,000
(j) Lawsuit Net Proceeds 3,738,000 4,320,000 4,902,000
(k) To TDH (under Section 4.1(d)) 1,911,600 2,292,000 2,622,400
(l) Net of TDH 1,826,400 2,028,000 2,279,600
(m) To the Selling Stockholders (under
Section 4.1(d)) 1,251,084 1,351,084 1,451,084
(n) To ACGL (under Section 4.1(d)) $575,316 $676,916 $828,516
* Net of any Taxes imposed or expected to be imposed on the Company or any
Subsidiary in connection with such proceeds.
** Not to be considered for purposes of distribution under lines (k) through
(n) and is not related to the Lawsuit Net Proceeds calculation. Any amounts
recovered from the Company's director's and officer's insurance carrier for
legal fees paid to ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall reduce the amount reimbursed to
the Company for previous expenses under Section 4.1(a), to the extent such
payments are included in line (h).
E-4
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(a) Gross Lawsuit Proceeds* $9,000,000 $10,000,000 $11,000,000
(b) To the Selling Stockholders (under
Section 4.2(c)) 468,750 562,500 750,000
(c) Company award 8,531,250 9,437,500 10,250,000
(d) To ▇▇▇▇ ▇▇▇▇▇ (under Section 4.1(a))
900,000 1,000,000 1,100,000
(e) To ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (under
Section 4.1(a)) 450,000 500,000 550,000
(f) To ▇▇▇▇ ▇▇▇▇▇▇ (under Section 4.1(a))
1,350,000 1,500,000 1,650,000
(g) For future expenses (under
Section 4.1(a)) 150,000 150,000 150,000
(h) For previous expenses (under
Section 4.1(a))** 750,000 750,000 750,000
(i) To ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (under
Section 4.1(b)) 197,250 221,500 242,000
(j) Lawsuit Net Proceeds 5,484,000 6,066,000 6,558,000
(k) To TDH (under Section 4.1(d)) 2,977,800 3,333,200 3,688,600
(l) Net of TDH 2,506,200 2,732,800 2,869,400
(m) To the Selling Stockholders
* Net of any Taxes imposed or expected to be imposed on the Company or any
Subsidiary in connection with such proceeds.
** Not to be considered for purposes of distribution under lines (k) through
(n) and is not related to the Lawsuit Net Proceeds calculation. Any amounts
recovered from the Company's director's and officer's insurance carrier for
legal fees paid to ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall reduce the amount reimbursed to
the Company for previous expenses under Section 4.1(a), to the extent such
payments are included in line (h).
E-5
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(under Section 4.1(d)) 1,551,084 1,651,084 1,751,084
(n) To ACGL (under Section 4.1(d)) $955,116 $1,081,716 $1,118,316
E-6
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(a) Gross Lawsuit Proceeds* $12,000,000 $13,000,000 $14,000,000
(b) To the Selling Stockholders (under
Section 4.2(c)) 937,500 1,000,000 1,000,000
(c) Company award 11,062,500 12,000,000 13,000,000
(d) To ▇▇▇▇ ▇▇▇▇▇ (under Section 4.1(a))
1,200,000 1,300,000 1,400,000
(e) To ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (under
Section 4.1(a)) 600,000 650,000 700,000
(f) To ▇▇▇▇ ▇▇▇▇▇▇ (under Section 4.1(a))
1,800,000 1,950,000 2,100,000
(g) For future expenses (under
Section 4.1(a)) 150,000 400,000 400,000
(h) For previous expenses (under
Section 4.1(a))** 750,000 750,000 750,000
(i) To ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (under
Section 4.1(b)) 262,500 278,000 306,000
(j) Lawsuit Net Proceeds 7,050,000 7,422,000 8,094,000
(k) To TDH (under Section 4.1(d)) 4,044,000 4,231,400 4,411,800
----------
* Net of any Taxes imposed or expected to be imposed on the Company or any
Subsidiary in connection with such proceeds.
** Not to be considered for purposes of distribution under lines (k) through
(n) and is not related to the Lawsuit Net Proceeds calculation. Any amounts
recovered from the Company's director's and officer's insurance carrier for
legal fees paid to ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall reduce the amount reimbursed to
the Company for previous expenses under Section 4.1(a), to the extent such
payments are included in line (h).
E-7
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(l) Net of TDH 3,006,000 3,190,600 3,682,200
(m) To the Selling Stockholders (under
Section 4.1(d)) 1,851,084 1,943,384 2,189,184
(n) To ACGL (under Section 4.1(d)) $1,154,916 $1,247,216 $1,493,016
E-8
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(a) Gross Lawsuit Proceeds* $15,000,000 $16,000,000 $17,000,000
(b) To the Selling Stockholders (under
Section 4.2(c)) 1,000,000 1,000,000 1,000,000
(c) Company award 14,000,000 15,000,000 16,000,000
(d) To ▇▇▇▇ ▇▇▇▇▇ (under Section 4.1(a))
1,500,000 1,600,000 1,700,000
(e) To ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (under
Section 4.1(a)) 750,000 800,000 850,000
(f) To ▇▇▇▇ ▇▇▇▇▇▇ (under Section 4.1(a))
2,250,000 2,400,000 2,550,000
(g) For future expenses (under
Section 4.1(a)) 400,000 400,000 400,000
(h) For previous expenses (under
Section 4.1(a))** 750,000 750,000 750,000
(i) To ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (under
Section 4.1(b)) 334,000 362,000 390,000
(j) Lawsuit Net Proceeds 8,766,000 9,438,000 10,110,000
(k) To TDH (under Section 4.1(d)) 4,592,200 4,772,600 4,953,000
----------
* Net of any Taxes imposed or expected to be imposed on the Company or any
Subsidiary in connection with such proceeds.
** Not to be considered for purposes of distribution under lines (k) through
(n) and is not related to the Lawsuit Net Proceeds calculation. Any amounts
recovered from the Company's director's and officer's insurance carrier for
legal fees paid to ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall reduce the amount reimbursed to
the Company for previous expenses under Section 4.1(a), to the extent such
payments are included in line (h).
E-9
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(l) Net of TDH 4,173,800 4,665,400 5,157,000
(m) To the Selling Stockholders (under
Section 4.1(d)) 2,434,984 2,680,784 2,926,584
(n) To ACGL (under Section 4.1(d)) $1,738,816 $1,984,616 $2,230,416
E-10
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(a) Gross Lawsuit Proceeds* $18,000,000 $19,000,000 $20,000,000
(b) To the Selling Stockholders (under
Section 4.2(c)) 1,000,000 1,000,000 1,000,000
(c) Company award 17,000,000 18,000,000 19,000,000
(d) To ▇▇▇▇ ▇▇▇▇▇ (under Section 4.1(a))
1,800,000 1,900,000 2,000,000
(e) To ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (under
Section 4.1(a)) 900,000 950,000 1,000,000
(f) To ▇▇▇▇ ▇▇▇▇▇▇ (under Section 4.1(a))
2,700,000 2,850,000 3,000,000
(g) For future expenses (under
Section 4.1(a)) 400,000 400,000 400,000
(h) For previous expenses (under
Section 4.1(a))** 750,000 750,000 750,000
(i) To ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (under
Section 4.1(b)) 418,000 446,000 474,000
(j) Lawsuit Net Proceeds 10,782,000 11,454,000 12,126,000
(k) To TDH (under Section 4.1(d)) 5,133,400 5,313,800 5,494,200
(l) Net of TDH 5,648,600 6,140,200 6,631,800
(m) To the Selling Stockholders
----------
* Net of any Taxes imposed or expected to be imposed on the Company or any
Subsidiary in connection with such proceeds.
** Not to be considered for purposes of distribution under lines (k) through
(n) and is not related to the Lawsuit Net Proceeds calculation. Any amounts
recovered from the Company's director's and officer's insurance carrier for
legal fees paid to ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall reduce the amount reimbursed to
the Company for previous expenses under Section 4.1(a), to the extent such
payments are included in line (h).
E-11
Exhibit E
(continued)
Hypothetical Example of Allocation of Lawsuit Gross Proceeds
(under Section 4.1(d)) 3,172,384 3,418,184 3,663,984
(n) To ACGL (under Section 4.1(d)) $2,476,216 $2,722,016 $2,967,816
E-12
Exhibit F
Distribution of Lawsuit Net Proceeds
Range of Lawsuit Net Proceeds $0 - 1,902,000 Range of Lawsuit Net Proceeds 4,902,000 - 5,484,000
TDH Percentage 68.35% TDH Percentage 61.07%
Selling Stockholders
Percentage* 21.14% Selling Stockholders 17.18%
Percentage
Company Percentage 10.52% Company Percentage 21.75%
Range of Lawsuit Net Proceeds 1,902,000 - 2,574,000 Range of Lawsuit Net Proceeds 5,484,000 - 6,066,000
TDH Percentage 9.67% TDH Percentage 61.07%
Selling Stockholders Percentage
64.78% Selling Stockholders 17.18%
Percentage
Company Percentage 25.55% Company Percentage 21.75%
Range of Lawsuit Net Proceeds 2,574,000 - 3,156,000 Range of Lawsuit Net Proceeds 6,066,000 - 6,558,000
TDH Percentage 23.20% TDH Percentage 72.24%
Selling Stockholders Percentage
52.43% Selling Stockholders 20.33%
Percentage
Company Percentage 24.37% Company Percentage 7.44%
Range of Lawsuit Net Proceeds 3,156,000 - 3,738,000 Range of Lawsuit Net Proceeds 6,558,000 - 7,050,000
TDH Percentage 70.72% TDH Percentage 72.24%
Selling Stockholders Percentage
18.66% Selling Stockholders 20.33%
Percentage
Company Percentage 10.61% Company Percentage 7.44%
Range of Lawsuit Net Proceeds 3,738,000 - 4,320,000 Range of Lawsuit Net Proceeds 7,050,000 - 7,422,000
TDH Percentage 65.36% TDH Percentage 50.38%
Selling Stockholders Percentage
17.18% Selling Stockholders 24.81%
Percentage
Company Percentage 17.46% Company Percentage 24.81%
Range of Lawsuit Net Proceeds 4,320,000 - 4,902,000 Range of Lawsuit Net Proceeds $7,422,000 and above
TDH Percentage 56.77% TDH Percentage 26.85%
----------
* The ultimate dollar amount of the Selling Stockholders percentage
throughout this Exhibit F shall be distributed to the Selling Stockholders
in the percentages set forth on Exhibit A.
F-1
Exhibit F
(continued)
Selling Stockholders Percentage 17.18% Selling Stockholders 36.58%
Percentage
Company Percentage 26.05% Company Percentage 36.58%
F-2
