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10(II)
Agreement and Plan of Reorganization
and Closing Agreement
Dated July 7, 1998
by and among
State Auto Financial Corporation
SAF Acquisition Corporation
and
State Automobile Mutual Insurance Company
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AGREEMENT AND PLAN OF REORGANIZATION
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This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
this ___ day of July, 1998 by and among STATE AUTO FINANCIAL CORPORATION, an
Ohio corporation ("Purchaser"), SAF ACQUISITION CORP., a South Dakota
corporation ("Merger Sub"), STATE AUTO MUTUAL INSURANCE COMPANY, an Ohio
corporation ("Seller") and MILBANK INSURANCE COMPANY, a South Dakota corporation
(the "Company").
WHEREAS, Purchaser and Seller are parties to an Option Agreement dated
August 20, 1993, pursuant to which Seller granted Purchaser an option to
purchase the Company (the "Option Agreement");
WHEREAS, Purchaser has duly exercised its option pursuant to the Option
Agreement;
WHEREAS, Purchaser and Seller wish to effect the sale of the Company by
Seller to Purchaser through a tax-free reorganization involving the merger of
the Company with Merger Sub in a reverse triangular merger;
WHEREAS, the authorized capital of Purchaser consists of 100,000,000
shares of common stock, no par value, of which 18,379,754 shares presently are
issued and outstanding ("Purchaser Common Shares"); 2,500,000 shares of Class A
preferred stock, no par value, of which no shares are issued and outstanding;
and 2,500,000 shares of Class B preferred stock, no par value, of which no
shares are issued and outstanding;
WHEREAS, the authorized capital of Merger Sub consists of 250 shares of
common stock, no par value, of which 250 shares are issued and outstanding and
owned beneficially and of record by Purchaser (the "Merger Sub Shares");
WHEREAS, the authorized capital stock of the Company consists of 25,000
shares of Common Stock, $100.00 par value, all of which are issued and
outstanding and all of which are owned beneficially and of record by Seller (the
"Company Shares");
WHEREAS, Purchaser, Merger Sub, Seller and the Company desire that
pursuant to the Merger Seller receive the number of Purchaser Common Shares
determined pursuant to Section 1.3 of this Agreement as consideration for the
Company Shares, which determination is consistent with the requirements of the
Option Agreement; and
WHEREAS, Purchaser, Merger Sub, Seller and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger.
NOW THEREFORE, in consideration of the covenants, agreements,
representations and warranties contained herein and good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
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ARTICLE I
THE MERGER; CLOSING
1.1 THE MERGER. Concurrently with or prior to the execution hereof, the
Company and Merger Sub shall duly execute and deliver Articles of
Merger (which shall include a Plan of Merger) in the form attached
hereto as Exhibit A (the "Articles of Merger"). Pursuant to the terms
of this Agreement and the Articles of Merger, Merger Sub will be merged
into the Company (hereinafter sometimes called the "Surviving
Corporation") in accordance with Section 47-6-1 of the South Dakota
Codified Laws (the "Merger"). The time at which the Merger becomes
effective is sometimes hereinafter referred to as the "Effective Time."
1.2 THE CLOSING; CLOSING DELIVERIES. The closing (the "Closing") of the
transactions contemplated hereby and by the Articles of Merger shall
occur concurrently with the execution of this Agreement. The date upon
which the Closing occurs is sometimes hereinafter referred to as the
"Closing Date".
1.2.1 At the Closing, Seller and the Company shall deliver or
cause to be delivered to Purchaser all of the following:
(a) This Agreement, duly executed by each of
Seller and the Company;
(b) The Articles of Merger, duly executed by the
Company;
(c) All certificates representing the Company
Shares, endorsed in blank;
(d) The certification required by Section 5.1
hereof, duly executed by Seller; and
(e) All such other documents, instruments or
certificates which Purchaser or Merger Sub
reasonably request for the purpose of
effecting the transactions contemplated
hereby.
1.2.2 At the Closing, Purchaser and Merger Sub shall deliver
or cause to be delivered to Seller all of the following:
(a) This Agreement, duly executed by each of
Purchaser and Merger Sub;
(b) The Articles of Merger, duly executed by
Merger Sub;
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(c) Certificates duly registered in the name of Seller
representing 2,000,000 Purchaser Common Shares,
determined pursuant to section 1.4; and
(d) All such other documents, instruments or certificates
which Seller or the Company reasonably request for
the purpose of effecting the transactions
contemplated hereby.
1.3 MERGER CONSIDERATION; CONVERSION OF SHARES.
1.3.1 The purchase price for the Company Shares (the "Purchase Price")
shall be consideration equal to the Company's Book Value (as defined
below).
(a) Except as provided in subsection (b) below, at the
Effective Time, each Company Share issued and outstanding at
such time shall, automatically and without any action on the
part of the holder thereof, be converted into the right to
receive that number of Purchaser Common Shares equal to the
quotient of: (A) the Company's Book Value divided by the
number of Company Shares issued and outstanding immediately
prior to the Effective Time; divided by (B) the Value of the
Purchaser Common Shares (as defined below).
(b) Notwithstanding subsection (a) above, at Purchaser's
option, up to twenty percent (20%) of the Purchase Price may
be paid in cash on or within one (1) business day after the
Settlement Date (as defined below) rather than in Purchaser
Common Shares. In the event that Purchaser elects to pay up to
twenty percent (20%) of the Purchase Price in cash, it shall
give written notice to Seller and the Company at or prior to
the Closing of its intent to do so, and of the percentage of
the Purchase Price which it intends to pay in cash on or
within one (1) business day after the Settlement Date. In such
an event, subsection (a) of this Section 1.3.1 shall not
apply. Rather, at the Effective Time, each Company Share
issued and outstanding at such time shall, automatically and
without any action on the part of the holder thereof, be
converted into the right to receive (A) cash in an amount
equal to the quotient of (i) the Company's Book Value,
multiplied by the percentage of the Purchase Price which
Purchaser has elected to pay in cash, divided by (ii) the
number of shares of the Company Shares issued and outstanding
immediately prior to the Effective Time; and (B) that number
of Purchaser Common Shares equal to the quotient of: (i) the
Company's Book Value multiplied by the percentage of the
Purchase Price which Purchaser has not elected to pay in cash,
divided by the number of shares of the Company Shares issued
and
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outstanding immediately prior to the Effective Time; divided
by (ii) the Value of the Purchaser Common Shares.
1.3.2 As used herein, the term "Company's Book Value" means GAAP Book
Value (as defined below), as of June 30, 1998, times a multiple which
is equivalent to the multiple of the Company's GAAP Book Value as of
June 30, 1993 paid by Seller in connection with its acquisition of the
Company; provided, however, that if the most recent market value to
book value of the Composite Statistics for the Property and Casualty
Industry as published by Value Line Publishing prior to the Closing
Date (the "Index") should fall below 134 (the range minimum) or rise
above 182 (the range maximum), then in such event, the multiple
described above shall be adjusted by increasing the multiple by the
amount by which the Index exceeds the range maximum or by decreasing
the multiple by the amount by which the Index is less than the range
minimum, as the case may be.
1.3.3 As used herein, the term "GAAP Book Value" means the assets, less
liabilities, of the Company, prepared in accordance with generally
accepted accounting principles ("GAAP").
1.3.4 As used herein, the term "Value of Purchaser Common Shares" means
the closing sale price of the Purchaser Common Shares as reported on
the NASDAQ National Market System on June 30, 1998.
1.4 ESTIMATED MERGER CONSIDERATION; SETTLEMENT DATE.
1.4.1 The parties have jointly estimated the Company Book Value to be
Eighty One Million Three Hundred and One Thousand Nine Hundred and Four
Dollars ($81,301,904.00) and the Value of Purchaser Common Share to be
Thirty Two Dollars ($32.00) per share, which pursuant to Section
1.3.1(a) would result in the issuance of 2,540,684 Purchaser Common
Shares to Seller, and which, pursuant to Section 1.3.1(b), would result
in the issuance of not fewer than 2,032,547 Purchaser Common Shares and
the payment of not more than Sixteen Million, Two Hundred Sixty
Thousand Three Hundred Eighty Dollars ($16,260,380.00) in cash to
Seller. On or prior to the date hereof, Purchaser has contributed or
made available 2,000,000 Purchaser Common Shares to Merger Sub to be
used as a down-payment of the Purchase Price at the Closing (the
"Closing Payment").
1.4.2 Promptly after the Effective Time, Seller shall cause all
certificates which previously represented outstanding Company Shares to
be surrendered to the Surviving Corporation, and the Surviving
Corporation, as agent for Purchaser, shall deliver to Seller in partial
substitution therefor certificate(s) representing 2,000,000 Purchaser
Common Shares.
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1.4.3 As soon as reasonably practicable after the Closing Date, but in
any event on or before the date falling thirty (30) days thereafter
(or, if such date is not a business day, the first business day falling
thereafter), Seller shall deliver to the Surviving Corporation and
Purchaser a statement (a) of the Company's Book Value, which statement
shall describe in reasonable detail the basis for calculating the
Company's Book Value and shall include, at the request of the Surviving
Corporation or Purchaser, all financial statements relating thereto and
(b) the final calculation of the number of Purchaser's Common Shares
and/or cash to which Seller is entitled be delivered to Seller pursuant
to Section 1.3. If Purchaser or the Company disputes any of Seller's
calculations as set forth in such statement, they shall promptly notify
Seller of such dispute and the parties shall work together in good
faith to make the final calculation of the number of Purchaser's Common
Shares to be delivered to Seller pursuant to Section 1.2. If the
parties cannot agree on the Company's Book Value, they shall submit
their dispute to the Columbus, Ohio office of Ernst and Young for a
resolution within 25 days of submission, the decision of which firm
shall be binding on Purchaser, the Company and Seller. The date upon
which the parties agree on, or the final determination is made with
respect to, the number of Purchaser's Common Shares and/or cash to
which Seller is entitled pursuant to Section 1.3 shall be hereinafter
referred to as the "Settlement Date".
1.4.4 If the Purchase Price, as determined on the Settlement Date,
exceeds the Closing Payment, Purchaser shall, on or within one (1)
business day following the Settlement Date, cause (A) certificates
representing the excess to be issued to Purchaser; provided, that no
fractional shares or cash in lieu thereof shall be issued; or (B) cash
representing the excess to be paid by bank check, or, at Seller's
option, by wire transfer to an account designated by Seller; or (C)
some combination of (A) and (B), consistent with Section 1.3.1(b), to
occur. If the Closing Payment exceeds the Purchase Price, as determined
on the Settlement Date, then Seller shall, on or within one (1)
business day following the Settlement Date, transfer to Purchaser share
certificates representing the number by which 2,000,000 exceeds the
number of Purchaser's Common Shares to which Seller is entitled
pursuant to Section 1.3.1(a), rounded to the nearest full share.
1.5 FILINGS. On the Closing Date, the parties hereto shall cause to be filed the
Articles of Merger and such other documents with the Secretary of the State of
South Dakota as shall be necessary for the consummation and effectiveness of the
Merger as contemplated hereby on and as of the Closing Date.
1.6 NAME AND ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The name of the
Surviving Corporation shall be Milbank Insurance Company from and after the
Effective Time, and the Articles of Incorporation immediately prior to the
Effective Time of the Company shall remain the Articles of Incorporation of the
Surviving Corporation from and after the Effective Time until amended.
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1.7 BY-LAWS OF SURVIVING CORPORATION. From and after the Effective Time, the
By-Laws of the Company immediately prior to the Effective Time shall remain the
By-Laws of the Surviving Corporation until amended.
1.8 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. From and after the
Effective Time, the directors and officers of the Surviving Corporation shall be
those persons holding those offices with the Company immediately prior to the
Effective Time, to serve until their respective successors have been duly
elected and qualified.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER REGARDING
SELLER AND THE COMPANY SHARES.
Seller hereby represents and warrants to Purchaser and Merger Sub as
follows:
2.1 ORGANIZATION AND AUTHORITY. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Ohio and has full corporate power, right and authority to own its
properties and assets (including but not limited to the Company
Shares), to carry on its business as it is now being conducted, and to
enter into and carry out its obligations under this Agreement. Seller
has all necessary governmental authorizations to own or lease its
properties and assets and to carry on its business as now being
conducted in all respects material to the financial condition or
business of Seller and its affiliates taken as a whole.
2.2 AUTHORIZATION. This Agreement has been duly authorized, executed
and delivered by Seller and no further corporate proceedings on the
part of Seller are or will then be necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement is
the legal, valid and binding obligation of Seller, enforceable against
it in accordance with its terms.
Neither the execution, delivery and performance of this Agreement by
Seller, nor the consummation of the transactions contemplated hereby,
will violate, conflict with, or result in a breach of any provisions
of, or constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or the creation of any
lien, security interest, charge or encumbrance upon any of the
properties or assets of Seller or the Company (i) under any of the
terms, conditions or provisions of (x) the charter documents or Bylaws
of Seller or the Company (copies of which have been previously provided
to Purchaser), or (y) any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to
which Seller or the Company is a party or by which Seller or the
Company may be bound, or to which Seller or the Company, or the
properties or assets of Seller or the Company may be subject, or (ii)
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or the Company, or to the properties or
assets of Seller or the Company.
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No material notice to, filing with, authorization of, exemption by, or
consent or approval of, any regulatory authority is necessary for the
consummation by Seller of the transactions contemplated by this
Agreement.
2.3 TITLE TO COMPANY SHARES. Seller owns, beneficially and of record,
all of the Company Shares, free and clear of any adverse claims, liens,
proxies, voting trusts, restrictions on transfer or encumbrances with
respect thereto. The Company Shares are validly issued, fully paid and
nonassessable. The certificates representing the Company Shares do not
contain any restrictive legend or reference to any agreement, except
for a legend concerning the status of the Company Shares under the
Securities Act of 1933, as amended.
2.4 LITIGATION. There is no action, suit or proceeding pending against
or, to the knowledge of Seller, threatened against or affecting, Seller
or any affiliate of Seller or any of its properties before any court or
arbitrator or any governmental body, agency or official which in any
manner challenges or seeks to prevent, enjoin, alter or materially
delay any of the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
REGARDING THE COMPANY
Seller hereby represents and warrants to Purchaser and Merger Sub, at
and as of the date hereof, as follows:
3.1 ORGANIZATION, AUTHORITY AND AUTHORIZATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of South Dakota. The Company has the full
corporate power, right and authority to own its properties and assets
and to carry on its business as it is now being conducted. The Company
is not required to qualify to do business in any state or foreign
jurisdiction where it is not already so qualified, and the Company is
in good standing in each such state or foreign jurisdiction in which it
is qualified. The Company has all necessary governmental licenses and
authorizations to own or lease its properties and assets, to underwrite
insurance and to otherwise carry on its business as now being conducted
in each of the states listed on Schedule 3.1, which is a complete and
correct list of all jurisdictions in which the Company conducts any
insurance business or in which the Company is licensed to conduct
business, as specified on Schedule 3.1. The Company is in good standing
with the applicable insurance regulatory authorities in all of the
jurisdictions listed on Schedule 3.1, and has capital and surplus in
such amounts as are required by the applicable insurance laws of each
such jurisdiction.
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3.2 COMPANY SUBSIDIARIES. The Company does not beneficially or of
record own any shares of outstanding capital stock of any subsidiary.
For purposes of this Agreement, a "subsidiary" shall mean any trust,
joint venture, corporation or partnership of which the Company directly
or indirectly owns at least 50% of the capital stock or other equity
interest.
3.3 CAPITALIZATION OF THE COMPANY. The authorized capital stock of the
Company consists of 25,000 shares of common stock, $100.00 par value,
all of which are issued and outstanding, all of which are owned
beneficially and of record by Seller, and which constitute the Company
Shares. The Company holds no shares of capital stock in its treasury.
There are no other shares of capital stock or other equity securities
of the Company outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, proxies, voting trusts, puts, calls,
commitments or agreements of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of
capital stock of the Company. All of the Company Shares have been
lawfully acquired by Seller and are now owned by Seller beneficially
and of record, free and clear of any adverse claim, lien, proxies,
voting trusts, restrictions on transfer or encumbrance thereto, and
neither Seller nor the Company has any liability to any former holder
of any shares of capital stock of the Company or to any other person or
governmental authority relating to the purchase, sale, redemption,
retirement or cancellation thereof.
3.4 COMPANY FINANCIAL STATEMENTS. The Statutory Financial Statements
(including the notes thereto) of the Company as of and for the years
ended December 31, 1997, December 31, 1996 and December 31, 1995 (the
"Annual Statements") and the Statutory Financial Statements (including
the notes thereto) of the Company for the fiscal quarter ended March
31, 1998 (the "March Quarterly Statement") have been prepared in
conformity with accounting practices prescribed or permitted by the
Department of Insurance of the State of South Dakota ("SAAP")
consistently applied and present fairly the admitted assets,
liabilities and capital and surplus of the Company at the dates stated
therein on the basis of accounting rules described herein consistently
applied. Copies of the Annual Statements and the March Quarterly
Statement have been previously provided to Purchaser. Each of the
Annual Statements and the March Quarterly Statement as of the dates
prepared (i) were timely filed with the South Dakota Department of
Insurance, (ii) were in compliance with the rules and regulations of
the South Dakota Department of Insurance as in effect as of the date
filed, and (iii) were true, complete and correct when and as filed.
3.5 REPORTS. The Company has filed all reports, registrations and
statements, together with any amendments required to be made with
respect thereto, that were required to be filed with (i) the South
Dakota Department of Insurance and (ii) any applicable state or foreign
insurance or licensing authorities (all such reports and statements
(including but not limited to all annual statements and quarterly
statements) are collectively referred to herein as the "Company
Reports"). As of their respective dates, the Company Reports
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complied with the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed and
were true, correct and complete as filed.
3.6 PROPERTIES.
3.6.1 Schedule 3.6A attached hereto sets forth a list of all real
property owned by the Company (the "Owned Realty"). Except as set forth
in Schedule 3.6A and except (A) as may be reflected in the Annual
Statements or the March Quarterly Statement; (B) for any lien for
current taxes not yet delinquent; and (C) for such other encumbrances
and imperfections of title as do not materially affect the value of any
individual item or parcel of personal or real property, the Company has
good and marketable title, free and clear of any liens, claims,
charges, options or other encumbrances, to all of the personal and real
property (including the Owned Realty as defined below) reflected in the
Annual Statements and the March Quarterly Statement, and all personal
and real property acquired since the respective dates thereof, except
such personal property as has been disposed of in the ordinary course
of business.
3.6.2 Schedule 3.6B attached hereto sets forth a list of all leases of
real property to which the Company is a party (collectively, the
"Leases"). Except as set forth on Schedule 3.6B, the Leases are in full
force and effect in all material respects, and the Company has not
received a notice of default or termination with respect to such
Leases. Except as set forth on Schedule 3.6B, there has not occurred
any event which would constitute a breach by the Company of, or default
by the Company in, the performance of any covenant, agreement or
condition contained in any Lease, which breach or default would have a
material adverse effect on the Company's rights or obligations under
any such Lease. No Lease is or will be terminable by any person as a
result of the consummation of the transactions contemplated by this
Agreement.
3.6.3 Schedule 3.6C attached hereto sets forth a list of all
trademarks, trade names, service marks, copyrights and patents used or
proposed to be used by the Company in the conduct of its business. All
of the foregoing are owned by or validly licensed to the Company.
Except as provided in Schedule 3.6C, the Company has not received any
notice of any claim that any such trademark, trade name, service ▇▇▇▇,
copyright, patent or other similar property right is not valid or
enforceable by its owner as stated on Schedule 3.6C, or infringes upon
any trademark, service ▇▇▇▇, trade name, copyright, patent or
intellectual property right of any third party. No such trademark,
trade name, service ▇▇▇▇, copyright or patent will be terminable or
otherwise affected by the transactions contemplated by this Agreement.
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3.6.4 Neither Seller nor any of its affiliates owns any material asset,
tangible or intangible, which is used in the business of the Company,
except as set forth on Schedule 3.6D.
3.7 TAXES.
3.7.1 Since August 20, 1993, the Company has been included in
consolidated federal income Tax Returns (as defined below) filed by
Seller and its affiliates.
3.7.2 All Tax Returns required to be filed by the Company and all Tax
Returns of any consolidated, combined or unitary group which includes
the Company have been timely filed, and all Taxes(as defined below)
shown thereon (or which should have been shown thereon) as due to be
paid or withheld have been paid or withheld.
3.7.3 Except as set forth on Schedule 3.7, the statute of limitations
for the assessment of federal income taxes of the Company has expired
for each period through December 31, 1990.
3.7.4 No deficiency or adjustment for any Taxes of the Company not yet
paid has been proposed in writing or assessed.
3.7.5 All Taxes of the Company required to be paid by the Company on
all Tax Returns required to be filed have been paid and all such Taxes
for the periods since the last Tax Returns were filed through the
Closing Date for which Tax Returns are required to be filed in the
future, and all other Taxes for periods through the Closing Date for
which Tax Returns are not required to be filed, and all interest and
penalties thereon, whether disputed or not, have been duly paid or
reserved for in accordance with SAAP on the Annual Statements and the
March Quarterly Statement through the dates thereof and thereafter
reserved for on the books and records of the Company, and the Company
has no liability for Taxes in excess of the amounts so paid or reserved
for in accordance with SAAP on the Annual Statements and the March
Quarterly Statement through the dates thereof and thereafter reserved
for on the books and records of the Company.
3.7.6 All liability for Taxes of the Company for 1997, and for that
portion of any future Tax year through the Effective Time, whether or
not they have become payable, have been paid in full or adequately
reserved for in accordance with SAAP on the Annual Statements and March
Quarterly Statement through the dates thereof, and to the extent
liabilities for Taxes have been accrued but not become payable, they
are adequately reflected in accordance with SAAP on the Annual
Statements and March Quarterly Statement through the dates thereof and
thereafter on the books and records of the Company.
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3.7.7 There are no federal, state or local Tax liens upon any property
or assets of the Company.
3.7.8 Neither the Company, nor any member of any consolidated, combined
or unitary group which includes the Company, has any current or pending
request for an extension of time within which to file any Tax Returns
for which Tax Returns have not yet been filed with the taxing
authority.
3.7.9 Neither the Company, nor any consolidated, combined or unitary
group which includes the Company, has any pending or proposed audit of
any Tax Returns. No deficiencies for Taxes have been claimed, proposed
or assessed by any taxing authority against either the Company or any
member of any consolidated, combined or unitary group which includes
the Company with respect to which the Company would have any liability.
There is no basis for any such deficiency or claim for which adequate
reserves in accordance with SAAP have not been established on the March
Quarterly Statement through the dates thereof and thereafter on the
books and records of the Company.
3.7.10 For purposes of this Agreement "Taxes" shall mean all federal,
state and local taxes, charges, fees, levies or other assessments of
whatever kind or nature, including without limitation, all net income,
gross income, gross receipts, premium, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated, severance, stamp, occupancy or property
taxes, custom duties, fees, assessments or charges of any kind whatever
(together with any interest, penalty, or addition to tax) and the term
"Taxes of the Company" shall mean all Taxes imposed by any taxing
authority upon the Company.
3.7.11 For purposes of this Agreement "Tax Returns" shall mean all
returns, amended returns, declarations, reports, estimates, information
returns and statements required or permitted to be filed under federal,
state, local or foreign law relating to Taxes by, or including, the
Company or any consolidated group of which the Company is a part.
3.8 EMPLOYEES AND AGENTS.
3.8.1 The Company has no employees. As used herein, the term "Employee"
shall mean personnel employed by Seller who perform non-management
services for the Company pursuant to a Management Agreement dated April
1, 1994, as amended, between the Company, Seller, Purchaser and certain
of their respective Affiliates (the "Management Agreement"). Such term
shall not include, and the representations and warranties contained in
this Section 3.8 shall not apply to, personnel employed by State Auto
Property & Casualty Insurance Company, a subsidiary of Purchaser, who
perform services for the Company pursuant to the Management Agreement.
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3.8.2 The Company has no obligation, contingent or otherwise,
under any employment, consulting, retirement or severance
agreements. There is not pending or threatened any labor
dispute, strike or work stoppage which affects the businesses
of the Company or which may affect or interfere with its
continued operations. The Company is in compliance in all
material respects with all federal, state and other applicable
laws respecting employment and employment practices, terms and
conditions of employment and wages and hours. The Company has
not and is not engaged in any unfair employment practice, and
no unfair employment practice complaint is pending before any
government or government agency or court against the Company.
3.8.3 Neither Seller nor the Company is aware (A) that any key
Employee or group of Employees who are material to the Company
has terminated, or has any plans to terminate his, her or
their employment with the Company after the Closing or (B)
that any insurance agent or insurance agency currently
licensed by the Company has terminated, or has any plans to
terminate his, her or its agency relationship with the
Company, except for such agent or agency terminations as have
been disclosed to Purchaser prior to the Closing Date which
are not material to the business or financial condition of the
Company. For purposes of clause (B) in the preceding sentence
of this Section 3.8.3, agent or agency terminations shall not
be deemed to be material to the business or financial
condition of the Company unless they occur outside the
ordinary course of business and involve agents or agencies
representing or responsible for aggregate sales of at least
seven and one-half percent (7 1/2%) of the annualized written
premium volume of the Company in the preceding fiscal year.
3.9 EMPLOYEE BENEFITS. Schedule 3.9 sets forth a complete list of all
pension plans, as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained by the
Company or its affiliates with respect to Employees of the Company
(each, a "Pension Plan"), all welfare plans, as defined in Section 3(1)
of ERISA, maintained by the Company or its affiliates with respect to
Employees of the Company (such welfare plans and the Pension Plans
being hereinafter referred to as "ERISA Plans"), and all other income,
incentive, fringe benefit, vacation, or leave plans, policies or
arrangements maintained by the Company or its affiliates with respect
to Employees of the Company (collectively, the "Plans"). The Company
has not, since August 20, 1993, maintained or contributed, or has been
required to contribute, to any "multiemployer plan" as that term is
defined at Section 4001(a)(3) of ERISA or incurred, or will incur with
respect to any event occurring prior to the Effective Time, any
liability under Section 4062, 4063 or 4201 of ERISA. Each Pension Plan
which is intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") has been determined by
the Internal Revenue Service to so qualify, and neither Seller nor the
Company knows of any facts which might adversely affect such
qualification. Nothing has been done or omitted to be done with respect
to any ERISA Plan that would result in any material liability on the
part of the Company under Part 5 of Title I of ERISA or Section 4975 of
the Code. No "reportable event" as defined in
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Section 4043 of ERISA, other than any such event for which the
thirty-day notice period has been waived, has occurred with respect to
any Pension Plan subject to Title IV of ERISA. Except for continuation
of health coverage to the extent required under Section 4980B of the
Code, and except as otherwise set forth in Schedule 3.9, there are no
unfunded obligations under any ERISA Plan. There is no accumulated
funding deficiency as defined in Section 302 of ERISA or Section 412 of
the Code with respect to any Pension Plan. The Company or its
affiliates have made all quarterly contributions required under Section
412(m) of the Code, and have made or will make prior to the Closing
Date all payments and contributions (including insurance premiums) to
each ERISA Plan for all benefits which have accrued through the Closing
Date. With respect to each Pension Plan which is subject to Title IV of
ERISA, the current fair market value of the Plan assets exceeds the
present value of all benefit liabilities as defined in Section
4001(a)(16) of ERISA on the date hereof. Except as set forth on
Schedule 3.9, each ERISA Plan which Seller, any affiliate of Seller or
the Company maintains with respect to Employees of the Company has at
all times been administered in material compliance with all applicable
requirements of ERISA and the Code, including all reporting
requirements with respect to the Internal Revenue Service, the U.S.
Department of Labor and the Pension Benefit Guaranty Corporation, and
including all disclosure requirements with respect to plan participants
and beneficiaries. All returns on Forms 5500 required to be filed with
respect to each ERISA Plan have been duly and timely filed and complied
in all material respects with the requirements of the Code and ERISA as
of the dates so filed. There are no incentive, bonus, or other employee
merit agreements or arrangements between either the Company or Seller
or any affiliate of Seller and any current or former Employee of the
Company other than (A) the Plans listed in Schedule 3.9 or (B)
contracts listed on Schedule 3.10.
3.10 CONTRACTS. Except for (A) the contracts, commitments, plans,
agreements and licenses described in Schedule 3.10 (copies of all of
which have been made available to Purchaser); (B) the Leases set forth
on Schedule 3.6B; (C) the forms of insurance policies described in
Schedule 3.10 (including any Schedules thereto); (D) the reinsurance
agreements described in Schedule 3.11B; (E) insurance policies issued
by the Company in the ordinary course of its business; and (F)
agreements between the Company and Purchaser or any subsidiary of
Purchaser, the Company is not a party to or subject to:
3.10.1 any contract or agreement not fully performed for the
purchase of any commodity, services, material or equipment,
including without limitation fixed assets, for a price in
excess of $25,000, except contracts or agreements entered into
by the Company in the ordinary course of its business, which
are terminable without penalty by the Company upon notice of
180 days or less;
3.10.2 any contract containing covenants limiting the freedom
of the Company to compete, directly or indirectly, in any line
of business or with any person or entity;
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3.10.3 any license agreement (as licensor or licensee)
providing for future payments in excess of $25,000 which by
its terms does not terminate or is not terminable without
penalty by the Company upon notice of 180 days or less;
3.10.4 any indenture, mortgage, promissory note as to which
the Company is the maker, loan agreement, or other agreement
or commitment for the borrowing of money by the Company in
excess of $25,000;
3.10.5 any other contract or agreement outside the ordinary
course of business or which creates future payment obligations
of the Company in excess of $25,000 and which by its terms
does not terminate or is not terminable without penalty by the
Company upon notice of 180 days or less;
3.10.6 any contract or commitment involving employment, profit
sharing, pension, bonus, percentage compensation, deferred
compensation, employee benefits, stock options or warrants or
employee stock purchase;
3.10.7 any contract, commitment, undertaking or other
instrument which contains restrictions with respect to payment
of dividends or any other distribution with respect to the
capital stock of the Company;
3.10.8 any letter of credit or guaranty agreement in respect
of any indebtedness or obligation of any other person or
entity (other than (i) the endorsement of negotiable
instruments in the ordinary course of business, and (ii)
letters of credit relating to payment under foreign
reinsurance agreements or treaties which are disclosed on
Schedule 3.10B);
3.10.9 any contract or commitment to extend credit to any
person or entity (other than pursuant to existing agency
agreements); or
3.10.10 any contract, commitment or option for the purchase of
personal property other than in the ordinary course of
business, or any contract, commitment or option for the
purchase or lease of real property.
3.11 INSURANCE POLICIES; REINSURANCE.
3.11.1 Schedule 3.11A contains a complete and correct list of
all types of insurance policies presently issued by the
Company. Seller has made available to Purchaser complete and
correct copies of all forms of insurance policies of the
Company together with all forms of endorsements thereto (other
than policies or endorsements issued on forms prepared by the
Insurance Services Office).
3.11.2 Schedule 3.11B contains a complete and correct list of
all reinsurance agreements to which the Company is a party and
to which the Company has been a party since August 20, 1993;
provided, that reinsurance agreements to which the Purchaser
or any subsidiary thereof is a party are
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excluded from Schedule 3.10B and from the representations and
warranties contained in this Section 3.11.2 and Section
3.11.3. Copies of all such reinsurance agreements have been
made available to Purchaser. The consummation of the
transactions contemplated by this Agreement will not adversely
affect, limit or terminate the continuing obligations of
reinsurers under such reinsurance agreements.
3.11.3 To the knowledge of Seller and the Company, (i) no
material default of any party under any such reinsurance
agreement has occurred and no basis exists for the declaration
of any default or termination right thereunder, except for
agreements which, prior to the Closing Date, have or will have
expired by their terms, and (ii) each party to such
reinsurance agreements was, at the date each reinsurance
agreement was executed and delivered, solvent and financially
capable of fulfilling its obligations to the Company
thereunder.
3.12 NO DEFAULTS UNDER CONTRACTS OR AGREEMENTS. Without limiting any of
the representations and warranties of Seller contained in this Article
III, to the knowledge of Seller neither the Company nor any other party
thereto is in default under any lease, contract, mortgage, reinsurance
agreement, promissory note, deed of trust, loan or other commitment or
arrangement in any material respect, except for such defaults as have
been cured or waived in writing by an appropriate party. All such
leases, contracts, mortgages, reinsurance agreements, promissory notes,
deeds of trust, loans and other commitments and arrangements, to the
extent the same give rights to the Company, are enforceable by the
Company, subject to applicable bankruptcy, insolvency, reorganization
or other laws of general applicability affecting creditor's rights
generally, and the effect of laws governing specific performance,
injunctive relief and other equitable remedies on the enforceability of
such documents, and the Company has received no notice of any claim to
the contrary. Each of such documents is in full force and effect and
constitutes a legal, valid and binding obligation of the respective
parties thereto enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization and other laws of
general applicability affecting creditors' rights generally, and the
effect of laws governing specific performance, injunctive relief and
other equitable remedies on the enforceability of such documents. The
representations and warranties set forth in this Section 3.11 shall not
apply to any lease, contract, mortgage, reinsurance agreement,
promissory note, deed of trust, loan or other commitment or arrangement
by and between the Company and the Purchaser or any subsidiary of the
Purchaser.
3.13 LITIGATION AND OTHER PROCEEDINGS. Except as set forth in Schedule
3.13, the Company (i) is not a party to any claim, action, suit,
investigation or proceeding, pending or (to the knowledge of Seller or
the Company) threatened, which if adversely determined would have a
material adverse effect on the financial condition or business of the
Company (other than those arising in the ordinary course of the
Company's insurance business as to which reserves have been properly
established); (ii) is not subject to any order, judgment or decree
issued by any court of competent jurisdiction or other
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governmental authority, and (iii) is not a party to any claim, action,
suit, investigation or proceeding, pending or (to the knowledge of
Seller or the Company) threatened, for any bad faith or extra
contractual claims, or claims giving rise to punitive damages (in each
case, excluding any and all damages based on amounts recoverable under
the terms of the applicable insurance policy or policies) arising out
of any action or inaction by the Company which action by the Company
was taken, or, in the case of any inaction by the Company, was required
to be taken, prior to the Closing Date by the Company, with respect to
the denial of coverage under the Company's insurance policies, in each
case, as finally determined by a court of competent jurisdiction, and
there does not exist any basis therefor. Schedule 3.13 also identifies
each other civil, criminal or administrative proceeding or
investigation to which the Company has been a party since January 1,
1994 which granted (or the settlement of which resulted in) (i) payment
of any criminal or administrative fines or penalties by the Company in
excess of $10,000, (ii) civil verdicts or settlements in excess of
$250,000, or (iii) injunctive relief of any type or nature against the
Company. The Company is not operating under, subject to or in default
with respect to any order, writ, injunction or decree of any court or
federal, state, local or other governmental department, commission,
board, bureau, or agency or non-governmental arbitration board or
commission.
3.14 COMPLIANCE WITH LAWS. The Company has all permits, licenses,
certificates of authority, orders and approvals of, and have made all
filings, applications and registrations with, federal, state, local or
foreign governmental or regulatory bodies that are required in order to
permit it to carry on its business as presently conducted, and such
permits, licenses, certificates of authority, registrations, orders and
approvals are in full force and effect in all material respects. The
conduct of its business by the Company does not violate or infringe any
applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license or regulation now in effect in any material respect.
3.15 BROKERS AND FINDERS. Neither Seller nor the Company, nor any of
their affiliates, officers, directors or employees, has employed any
broker or finder or incurred any liability for any financial advisory
fees, brokerage fees, commissions or finder's fees, and no broker or
finder has acted, directly or indirectly, for Seller or the Company, in
connection with this Agreement or the transactions contemplated hereby.
3.16 REGULATORY AGREEMENTS. The Company is not a party to any
supervisory agreement, memorandum of understanding, consent order,
cease and desist order, or condition of any regulatory order or decree
with or by the South Dakota Department of Insurance or any other
regulatory authority that relates to the conduct of the business of the
Company.
3.17 DIVIDENDS Since December 31, 1997, the Company has not declared or
paid any dividend or made any distribution to Seller or any of its
affiliates.
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3.18 INSURANCE COVERAGE.
3.18.1 Schedule 3.18A contains a complete and correct list of all
insurance policies and bonds maintained by Seller or its affiliates
which provide coverage for the Company or its officers and directors.
Schedule 3.18B contains a complete and correct list of all insurance
policies maintained by the Company. Such policies are in full force and
effect, and all premiums which are due thereon have been paid. None of
the insurance policies listed on Schedule 3.18A or Schedule 3.18B will
be canceled as of, or as a result of, the Closing.
3.19 BOOKS AND RECORDS.
3.19.1 The books of account of the Company reflect all material items
of income and expense and all material assets, liabilities and
accruals, and are prepared and maintained in form and substance
adequate for preparing audited financial statements in accordance with
generally accepted accounting principles ("GAAP") and in accordance
with accounting practices prescribed or permitted by the South Dakota
Department of Insurance.
3.19.2 The minute books of the Company reflect accurately all actions
taken by the Board of Directors (or any committee thereof) and the
shareholders of the Company. The stock certificate books and records of
the Company accurately reflect all transactions in the capital stock of
the Company.
3.20 ABSENCE OF CERTAIN PAYMENTS. Neither the Company nor any director, officer,
agent, employee or other person associated with or acting on behalf of the
Company has, directly or indirectly, within the past five years, used any funds
of the Company for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, or made any direct or indirect
unlawful payments to government officials or employees from corporate funds.
3.21 CONSENTS. Except as set forth on Schedule 3.21, no consents or approvals of
parties with whom Seller, Seller's affiliates or the Company has contractual
relationships or has had such contractual relationships are required or will be
required to permit the consummation of the transactions contemplated by this
Agreement.
3.22 AGREEMENTS WITH AFFILIATES. Except as set forth in Schedule 3.22 and the
other schedules to this Agreement, the Company is not a party to or bound by any
written contract, commitment or understanding with Seller or any affiliate of
Seller providing for reinsurance or the purchase or sale of goods or services.
Except as set forth in Schedule 3.22, no agreement with Seller or any such
affiliate of Seller providing for reinsurance or the purchase or sale of goods
or services which was previously in force has been terminated by the Company
since January 1, 1997.
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3.23 ENVIRONMENTAL MATTERS.
3.23.1 Except as set forth on Schedule 3.23 attached hereto, (i) no
"Hazardous Substance" (as hereinafter defined) has been disposed of on,
generated on, treated on, buried beneath, or percolated beneath, (ii)
no such disposal, generation, treatment, burial or percolation has been
threatened, and (iii) there has been no "Release" (as hereafter
defined) thereof on any real estate now or previously owned or leased
by the Company, or any improvements thereon (collectively the "Real
Property"). Except as set forth on Schedule 3.23, the Company is and
has been in compliance in all material respects with all applicable
federal, state and local laws, administrative rulings and regulations
of any court, administrative agency or other governmental or
quasi-governmental authority, relating to the protection of the
environment (including but not limited to laws prohibiting the creation
of a public nuisance). Neither the Company nor (to the knowledge of
Seller and the Company) any present or former owner or user of the Real
Property is a responsible party under Section 107 of the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as
amended ("CERCLA"), or is or has been subject to an action under
Section 7003 of the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), and neither the Company nor (to the knowledge of
Seller and the Company) any present or former owner of the Real
Property has received notification from any federal, state or local
government, agency or regulatory body, of a violation under any
federal, state or local law regulating the Release, disposal or
discharge of any toxic, explosive or other Hazardous Substance. No
Environmental Condition (as hereafter defined) exists in the Real
Property.
3.23.2 Except as set forth on Schedule 3.23, the Real Property is free
from the presence of asbestos or asbestos-containing materials.
3.23.3 Except as described on Schedule 3.23, no Underground Storage
Tanks (as hereafter defined) are now present on or beneath the premises
of the Real Property.
3.23.4 For purposes of this Agreement: (A) "Hazardous Substance" means
any one or more of (i) any substance defined as a hazardous substance
under Section 101(14) of CERCLA, (ii) any other substance deemed
hazardous by the United States Environmental Protection Agency pursuant
to Section 102(a) of CERCLA, (iii) petroleum (including crude oil or
any fraction thereof), (iv) any substance deemed hazardous pursuant to
Section 1004(5) of RCRA, (v) any substance regulated under the Toxic
Substance Control Act, as amended, or (vi) any other hazardous or toxic
substance, materials, compound, mixture, solution, element, pollutant
or waste regulated under any federal, state or local statute, ordinance
or regulation; (B) "Release" shall have the meaning given to such term
in Section 101(22) of CERCLA; (C) "Underground Storage Tanks" shall
mean one or any combination of tanks, including the underground pipes
connected thereto, that are used to contain an accumulation of
substances the volume of
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which, including the volume of the underground pipes connected thereto,
is ten per cent or more beneath the surface of the ground, other than
tanks used for storing heating fuel for consumptive use on the premises
where stored, storm or waste water collection systems, and septic
tanks; and (D) "Environmental Condition" shall mean conditions of the
environment, including natural resources (including flora and fauna),
soil, surface water, groundwater, any present or potential drinking
water supply, subsurface strata or the ambient air, relating to or
arising out of the use, handling, storage, treatment, recycling,
generation, transportation, spilling, leaking, pumping, pouring,
emptying, discharging, injecting, escaping, leaching, disposal,
dumping, Release or threatened Release of Hazardous Substances upon the
Real Property by the Company or its agents, lessees, representatives or
predecessors in interest.
3.24 ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule 3.24, during
the period from March 31, 1998 through the date hereof, the Company has not:
3.24.1 Experienced any change in its business, financial condition or
operations, financial or otherwise, which, in any case or in the
aggregate, would have a material adverse effect on the business,
financial condition or results of operations of the Company, including
but not limited to any material change in statutory surplus of the
Company as a result of any catastrophic event;
3.24.2 Created or suffered to exist any lien, claim or encumbrance with
respect to any property, business or assets, tangible or intangible,
other than immaterial liens, claims or encumbrances created in the
ordinary course of business;
3.24.3 Suffered any material damage, destruction or other casualty loss
(whether or not covered by insurance);
3.24.4 Forgiven or canceled any debts or claims, or waived any material
contractual or other rights;
3.24.5 Written off as uncollectible any notes or other receivables,
except as write-offs in the ordinary course of business charged to
applicable reserves, none of which individually or in the aggregate is
material to the business, financial condition or results of operations
of the Company;
3.24.6 Conducted its business except in the usual and ordinary manner
and in the ordinary course of business;
3.24.7 Made any change in the compensation or other direct or indirect
remuneration payable to any director, officer, Employee or agent of the
Company, or become obligated or orally promised to change any such
compensation, in each case except as consistent with past practice or
custom;
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3.24.8 Made or agreed to make any change in accounting or underwriting
practices or claims settlement practices except such changes to which
Purchaser has consented in writing; or
3.24.9 Entered into any contract or commitment, or any preliminary
letter of intent, (A) to do any of the things enumerated in this
Section 3.24, or (B) to sell, mortgage or otherwise encumber or dispose
of any material asset or substantially all the assets of the Company,
or to merge or consolidate with any other person or entity, other than
the transactions with Purchaser set forth in this Agreement.
3.25 NO LIABILITIES RESULTING FROM TRANSACTION. The purchase of the Company by
Purchaser pursuant to this Agreement and the Articles of Merger shall not result
in any liability of the Company or Purchaser to any present or former
stockholder, director, officer or Employee of the Company.
3.26 CERTAIN PAYMENTS. All involuntary assessments against the Company,
including, without limitation, those made by any insurance guaranty association
and/or any residual market mechanism pool as a result of being a member of such
association or pool, have been paid or properly reserved on the books and
records of the Company. The amounts reserved by the Company for any estimated
assessments which have not been finalized and paid will be adequate to cover the
amounts required to be paid in the future to any such association or other
assessing party.
3.27 CERTAIN FILINGS. The Company has made all required filings of rates and
policy forms as are required by applicable insurance regulatory authorities
having jurisdiction over their affairs, and the conduct of the business of the
Company has been consistent with such filings in all material respects.
3.28 REAL ESTATE MATTERS. With respect to the real property owned or leased by
the Company and all buildings, structures and appurtenances situated thereon,
none of such buildings, structures or appurtenances (or any equipment therein or
thereon), nor the operation or maintenance thereof, in any material respect
violates any restrictive covenant or any provision of any federal, state or
local, rule or regulation, including but not limited to the Americans with
Disabilities Act of 1991, and local zoning ordinances and building codes
(collectively, the "Codes"), or encroaches on any property owned by others.
Notwithstanding the foregoing, Seller shall not be deemed to have breached the
foregoing representation and warranty regarding compliance with Codes, as long
as each of the aforesaid buildings, structures and appurtenances was in
compliance with applicable Codes as in effect when each such building, structure
or appurtenance was constructed, and no remedial action is specifically required
with respect thereto under any applicable Code as thereafter amended or
currently in effect, having regard for the present use of the buildings,
structures and appurtenances.
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3.29 BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth in Schedule 3.29 is an
accurate and complete list showing:
3.29.1 the name and address of each bank in which the Company has an
account or safe deposit box, the number of any such account or any such
box and the names of all persons authorized to draw thereon or to have
access thereto; and
3.29.2 the names of all persons, if any, holding powers of attorney
from the Company and a summary statement of the terms thereof.
3.30 DATA PROCESSING MATTERS.
3.30.1 Except as set forth in Schedule 3.30, the Company does not have
any of its respective records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.
3.30.2 The Company owns, leases or licenses certain computer equipment,
associated peripheral devices, and related operating and application
systems and other software utilized in connection with their business
and operations (collectively, the "Data Processing Systems").
3.30.3 The Company has taken appropriate action by instruction,
agreement or otherwise with its Employees or other persons permitted
access to system application programs and data files used in the Data
Processing Systems to protect against unauthorized access, use,
copying, modification, theft and destruction of such programs and
files. The Company has not sustained, and is not aware of any
information or circumstances indicating that it may sustain, disruption
of business or loss by reason of unauthorized access, use, copying,
modification, theft or destruction of such programs and files by its
current or former Employees or other persons permitted access thereto.
3.30.4 The data processing and data storage facilities of the Company
are adequate, properly protected and possess proper temperature and
humidity control devices and fire protection equipment.
3.30.5 The Company has arranged for back-up data processing services
reasonably adequate to meet data processing needs in the event that the
Data Processing Systems or any component thereof is rendered
temporarily or permanently inoperative as a result of a natural or
other disaster.
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3.31 YEAR 2000 COMPLIANCE. The Company is currently utilizing both
internal and external resources to identify, replace, correct or
reprogram, and test the Company's Data Processing Systems as being Year
2000 compliant. For purposes of this Agreement, the term "Year 2000
compliant" shall mean, at a minimum, that the Data Processing Systems
(a) will manage and manipulate data involving dates, including single
century formulas and multi-century formulas, and will not cause an
abnormally ending scenario with the application or generate incorrect
values or invalid results involving such dates, (b) provide that all
date-related user interface functionalities and data fields include the
indication of the century, if necessary, and (c) provide that all
date-related data interface functionalities include the indication of
the century or logic to accommodate century processing. With respect to
those portions of the Data Processing Systems which include use of
third party software, the Company either (A) has inquired of vendors
regarding their Year 2000 compliant efforts and expects to receive
reasonable assurances that such vendors shall be Year 2000 compliant on
a timely basis; or (B) has full authority to modify such third-party
software.
3.32 ACCURACY OF REPRESENTATIONS, WARRANTIES AND OTHER STATEMENTS MADE.
The representations and warranties of Seller set forth in this
Agreement, and in any schedule, exhibit, certificate or statements in
writing delivered pursuant hereto, do not as of the date hereof contain
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made, in light of the
circumstances under which they were made, not misleading. The
representations and warranties of Seller in this Agreement and in any
certificate delivered pursuant hereto shall not be affected or deemed
waived because Purchaser and/or its representatives prior to executing
this Agreement could have discovered by means of additional due
diligence that any such statement, representation or warranty is or
might be inaccurate in any material respect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PURCHASER AND MERGER SUB
Purchaser and Merger Sub hereby jointly and severally represent and
warrant to the Company and Seller that:
4.1 ORGANIZATION.
4.1.1 Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Ohio, has the corporate power to carry on its business as it
is now being conducted, and is duly qualified as a foreign
corporation to do business, and is in good standing, in each
jurisdiction where the failure to be so qualified would have a
material adverse effect on the business, financial condition
or prospects of Purchaser and its consolidated subsidiaries
taken as a whole.
4.1.2 Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of
South Dakota, has the corporate
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power to carry on its business as it is now being conducted,
and is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the
failure to be so qualified would have a material adverse
effect on the business, financial condition or prospects of
Merger Sub taken as a whole.
4.2 PURCHASER COMMON SHARES. Each Purchaser Common Share to be
exchanged for the Company Stock pursuant to the provisions of this
Agreement and the Articles of Merger has been duly authorized and, upon
consummation of the Merger and/or delivery to Seller, will be validly
issued, fully paid and non-assessable.
4.3 NO DEFAULTS. The execution and delivery of this Agreement and the
Articles of Merger and the consummation of the transactions
contemplated hereby and thereby will not violate any provision of law
applicable to Purchaser or Merger Sub, or violate or conflict with
Purchaser's or Merger Sub's Articles of Incorporation or By-Laws, or
any provision of, or result in the acceleration of any obligation
under, any governmental license or other authorization, loan document,
agreement, mortgage, lien, lease, instrument, order, arbitration award,
judgment or decree to which Purchaser or Merger Sub is a party or by
which either of them is bound, nor will it affect Purchaser's or Merger
Sub's qualification to carry on its business.
4.4 CORPORATE POWER. Each of Purchaser and Merger Sub has corporate
power to enter into this Agreement and the Articles of Merger and to
carry out its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Articles of Merger, and the
consummation of the transactions contemplated hereby and thereby, have
been duly authorized by Purchaser's and Merger Sub's Board of
Directors, and, in the case of Merger Sub, by its sole shareholder, and
no other corporate proceedings on the part of Purchaser or Merger Sub
are necessary to authorize this Agreement and the Articles of Merger
and the consummation of the transactions contemplated hereby and
thereby. Neither Purchaser nor Merger Sub is subject to or obligated
under any charter or By-law provision and is not subject to or
obligated under any material contract, license, franchise or permit, or
subject to any order or decree, which would be breached or violated by
executing and carrying out this Agreement. Other than authorizations,
consents, approvals and filings required to be obtained from or made
with (A) the South Dakota Department of Insurance under Title 58 of the
South Dakota Codified Laws; or (B) the South Dakota Secretary of State
under Title 47 of the South Dakota Codified Laws, all of which have
been obtained or made prior to the Closing, no authorization, consent
or approval of, or filing with, any public body or authority is
necessary for the consummation by Purchaser and Merger Sub of the
transactions contemplated by this Agreement and the Articles of Merger.
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4.5 LITIGATION. There is no action, suit or proceeding pending against
or, to the knowledge of Purchaser or Merger Sub, threatened against or
affecting Purchaser or Merger Sub or any affiliate of Purchaser before
any court or arbitrator or any governmental body, agency or official
which in any manner challenges or seeks to prevent, enjoin or
materially delay the Transaction or the Merger.
4.6 ACCURACY OF INFORMATION. The information relating to Purchaser
included in this Agreement and the schedules furnished to Seller by
Purchaser pursuant to this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading.
4.7 NO MATERIAL ADVERSE CHANGE. Since the date of the most recently
filed Form 10-K filed by Purchaser with the SEC, there has occurred no
material adverse change with respect to the business or financial
condition of Purchaser.
4.8 BROKERS' FEES. Neither Purchaser nor Merger Sub has any liability
or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the Transaction for which the Company or the
Seller could become liable or obligated.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SELLER'S CERTIFICATION; STOCK CERTIFICATE LEGEND. At or prior to the
Closing, Purchaser shall have received from Seller a certification to
the effect that it:
5.1.1 is acquiring the Purchaser Common Shares in the Merger
for its own account, for investment, and not with a view to,
or for sale in connection with, any distribution of such
Purchaser Common Shares or any part thereof.
5.1.2 (A) is an accredited investor as that term is defined in
Rule 501(a) of Regulation D as promulgated under the
Securities Act of 1933, as amended (the "Securities Act") and
(B) has been afforded prior to the date hereof the opportunity
to ask questions of, and received answers from, Purchaser and
its representatives and has received from Purchaser all other
information concerning the investment contemplated by the
Articles of Merger that Seller has requested.
5.1.3 understands that the Purchaser Common Shares to be
issued in the Merger has not been registered under the
Securities Act or any applicable state securities or blue sky
laws, and may be required to be held indefinitely, unless
subsequently registered under the Securities Act and such
applicable blue sky laws, or an exemption from such
registration is available. Seller agrees that the
certificate(s) representing the Purchaser Common Shares issued
in the Merger shall bear a legend in substantially the
following form:
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"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND SUCH APPLICABLE STATE
LAW OR UNLESS SOLD PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS."
5.2 DEMAND REGISTRATION RIGHTS. Upon the written request of Seller
received by Purchaser at any time during the twenty four (24) calendar
months following the Closing Date, Purchaser shall use its best efforts
to effect the registration of all of the Purchaser Common Shares issued
in the Merger under the Securities Act and the registration or
qualification thereof under all applicable state securities or blue sky
laws. Seller covenants and agrees that it shall comply with the
appropriate provisions of the Securities Act and with the reasonable
requests of any managing underwriter(s) in connection with such
registration.
5.3 PIGGYBACK REGISTRATION RIGHTS. If at any time after the Closing
Date, Purchaser files a registration statement under the Securities Act
on Form ▇-▇, ▇▇▇▇ ▇-▇ or Form S-3 with respect to any of the Purchaser
Common Shares, Purchaser shall, upon Seller's written request, include
up to 100% of the Purchaser Common Shares issued in the Merger as part
of the registration statement. Seller covenants and agrees that it
shall comply with the appropriate provisions of the Securities Act and
with the reasonable requests of any managing underwriter(s) in
connection with such registration.
5.4 REGISTRATION PROCEDURES. In connection with the registration
requirements set forth in Section 5.2 and 5.3, Purchaser shall, as
expeditiously as possible:
5.4.1 prepare and file with the Securities and Exchange
Commission a registration statement with respect to the
Purchaser Common Shares issued in the Merger and use its best
efforts to cause such registration statement to become
effective;
5.4.2 furnish to Seller such number of copies of such
registration statement, each amendment thereto, the prospectus
included in the registration statement (including each
preliminary prospectus), and such other documents, as Seller
may reasonably request in order to facilitate the public sale
or other disposition of the Purchaser Common Shares issued in
the Merger;
5.4.3 use every reasonable effort to register or qualify all
the Purchaser Common Shares issued in the Merger which are
covered by the registration statement under such other
securities or blue sky laws of such jurisdictions as Seller
shall reasonably request, and do any and all other acts and
things which may be necessary under securities or blue sky
laws to enable Seller to
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consummate the public sale in such jurisdiction of such
Purchaser Common Shares; provided, however, that Purchaser
shall not be required to (i) qualify to do business as foreign
corporation in any jurisdiction wherein it would not otherwise
be required to qualify but for this subparagraph or (ii)
subject itself to taxation in any such jurisdiction;
5.4.4 cause all of the Purchaser Common Shares issued in the
Merger which are covered by such registration statement to be
listed on each securities exchange on which Purchaser Common
Shares are then listed; and
5.4.5 as soon as practicable after the effectiveness of the
registration statement, furnish to Seller an opinion of
Purchaser's legal counsel or other written assurance, in form
and substance acceptable to Seller, to the effect that the
Purchaser Common Shares issued in the Merger which are subject
to the registration statement have been registered under the
Securities Act and applicable state securities laws.
5.5 REGISTRATION EXPENSES.
5.5.1 All expenses incurred in effecting the registration
provided for in Section 5.2, including, without limitation,
all registration and filing fees, printing expenses,
underwriting discounts, fees and disbursements of counsel for
Purchaser, and expenses of complying with the securities or
blue sky laws of any jurisdictions pursuant to Section 5.4.3,
and all expenses (including sales commissions) incurred by
Seller in effecting sales of the Purchaser Common Shares
issued in the Merger pursuant to such registration statement,
shall be borne and paid by Seller, and Purchaser shall have no
liability therefor.
5.5.2 Seller shall bear and pay its proportionate share of all
expenses incurred in effecting the registration provided for
in Section 5.3, including, without limitation, its
proportionate share of all registration and filing fees,
printing expenses, underwriting discounts, fees and
disbursements of counsel for Purchaser, and expenses of
complying with the securities or blue sky laws of any
jurisdictions pursuant to Section 5.4.3. All expenses
(including sales commissions) incurred by Seller in effecting
sales of the Purchaser Common Shares issued in the Merger
pursuant to such registration statement shall be borne and
paid by Seller, and Purchaser shall have no liability
therefor.
5.6 INDEMNIFICATION.
5.6.1 In the event of any registration of any Purchaser Common
Shares issued in the Merger under the Securities Act pursuant
to this Agreement, Purchaser, to the extent permitted by law,
shall indemnify and hold harmless Seller and each person who
sells any such Purchaser Common Shares on behalf of Seller,
and each of Seller's directors, trustees, officers, employees,
and agents
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(each an "Indemnified Party"), against any losses, claims,
damages or liabilities, joint or several, to which such
Indemnified Party may become subject under the Securities Act
or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (A) any alleged untrue
statement of any material fact contained, on the effective
date thereof, in the registration statement, any preliminary
prospectus or final prospectus contained therein, or any
amendment or supplement thereto; (B) any alleged omission to
state in any such document a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that with respect to the
indemnification provided pursuant to this Section 5.7.1,
Purchaser shall not be liable to indemnify any Indemnified
Party to the extent, but only to the extent, that the alleged
untrue statement or alleged omission was made in the
registration statement, preliminary prospectus, final
prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to Purchaser by
Seller specifically for use therein.
5.6.2 Any Indemnified Party under Section 5.7.1 shall,
promptly after receipt of notice of commencement of any
action, suit or proceeding against such Indemnified Party,
notify Purchaser of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served. Purchaser
shall be entitle to participate in and, to the extent it
wishes to do so, to assume the defense of such action at its
own expense, with counsel chosen by it and reasonably
satisfactory to the Indemnified Party. After notice from
Purchaser of its election to assume the defense of such
action, Purchaser shall be liable to the Indemnified Party
only for legal fees and expenses incurred by such Indemnified
Party prior to the date upon which such person received notice
that the Indemnified Party had chosen to assume the defense of
such action (including any costs incurred subsequent to that
date relating solely to organization or disposition of work
performed prior to such date). The Indemnified Party shall
have the right to employ separate counsel in any such action
and to participate in the defense thereof at his, her or its
own cost and expense; provided, however, that notwithstanding
the foregoing, (A) if the Indemnified Party has been advised
by counsel that its defenses may be different from those of
Purchaser or (B) if Purchaser has not proceeded in a timely
manner to effect such defense, then the reasonable fees and
expenses of counsel for such Indemnified Party shall be paid
by Purchaser. In no event shall Purchaser be obligated to
indemnify any person for any settlement of any claim or action
effected without Purchaser's consent.
ARTICLE VI
TAX MATTERS
6.1 NO CARRYBACK OF NET OPERATING LOSS, ETC.. Except as required by
applicable law, the Company (and its successors and assigns) will elect
not to carry back any net operating loss, Tax credit or other Tax item
from a taxable year beginning on or after the Closing Date to any
taxable year ending prior to the Closing Date and will waive any and
all
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rights to any claims for refund in respect of such net operating loss,
Tax credit or other Tax item.
6.2 PAYMENTS IN RESPECT OF TAXES AND TAX RETURNS FOR STUB PERIOD PRIOR
TO AND INCLUDING THE EFFECTIVE TIME.
6.2.1 Purchaser acknowledges that the Company has been
included as a member of an affiliated group in the
consolidated federal income Tax Returns filed by Seller and
its affiliates for the year beginning August 20, 1993 through
December 31, 1997, and Seller and its affiliates intend to
include the Company in their consolidated federal income Tax
Return for the portion of 1998 which is prior to and including
the Effective Time. The income of the Company will be
apportioned to such consolidated group for the period up to
and including the Effective Time and to Purchaser for the
period after the Effective Time by closing the books of the
Company as of the Effective Time in a manner consistent with
such prior allocations, if any, for federal income tax
purposes. The Company files its own state and local tax
returns and will continue to do so after the Closing Date.
6.2.2 The Company has established intercompany accounts with
Seller and its affiliates in respect of federal income Taxes
of the Company which will include Taxes through and including
the Effective Date calculated in a manner consistent with the
Tax Sharing Agreement dated July 1, 1991, as amended (the "Tax
Sharing Agreement"), by and among Seller, Seller's other
affiliates and the Company. A true and correct copy of the Tax
Sharing Agreement has been previously provided to Purchaser by
Seller. These intercompany accounts shall be paid and settled
between Seller and its affiliates and the Company effective as
of the Effective Date based on the reasonable estimates of the
federal income Taxes of the consolidated group. The
determination of the final amount which is to be recorded in
the intercompany account under the Consolidated Tax Agreement
shall be determined when the final Tax Return is filed for the
consolidated group which includes the period ending with the
Effective Date with respect to the Company. Upon such final
determination, the Company shall pay to Seller or its
affiliates any balance due (or if the Company has overpaid,
Seller shall refund to the Company such excess) within 15
business days of the notice of the determination of the final
amount. Such Tax Sharing Agreement shall be terminated as
between the Company and such consolidated group and that
agreement and any other Tax sharing agreement between Seller
(or any affiliates) and the Company shall be terminated as of
the Effective Date and will have no further effect for any
taxable year (whether the current year, a future year, or a
past year).
6.2.3 In the event of a dispute between Purchaser and Seller
as to any calculation or computation related to federal income
Taxes to be settled pursuant to this Section 6.2, which
dispute cannot be resolved by Purchaser and Seller, the
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parties shall each be entitled to submit such dispute to the Columbus,
Ohio office of Ernst and Young for a resolution within 25 days of
submission, the decision of which firm shall be binding on Purchaser
and Seller; provided, however, that in no event will the resolution of
such dispute delay the filing of any Tax Returns past the date such Tax
Returns are required to be filed. The fees and expenses of such
accountants shall be shared equally by Purchaser on the one hand and
Seller on the other hand.
6.2.4 Seller hereby indemnifies and holds harmless the Company from and
against, and Seller hereby assumes, any and all liability arising under
the Tax Sharing Agreement for all tax years ending prior to and
including the period through the Closing Date.
6.2.5 Purchaser hereby agrees to pay over to Seller any refunds
received by the Company from any taxing authority after the Closing
Date with respect to Taxes paid by or on behalf of the Company for any
period ending on or prior to the Closing Date, provided, however, that
neither Purchaser nor the Company shall have any obligation to initiate
or continue any claim, proceeding or other effort with respect to
obtaining any such refund of Taxes of the Company, except to provide
reasonable cooperation to Seller with respect thereto upon Seller's
request and at Seller's expense.
6.3 TAX INDEMNITIES. In addition to the indemnification provided in Section
6.2.4, Seller agrees to indemnify and hold Purchaser and the Company and their
respective successors and assigns harmless from and against any liability for
Taxes of Seller and its affiliates including any liability imposed on the
Company under Treasury Regulation ss. 1.1502-6 (or any similar provision of
state, local or foreign law).
6.4 MUTUAL COOPERATION. Purchaser and Seller shall provide each other with such
assistance as may reasonably be requested by either of them in connection with
the preparation and execution of any Tax Return, any audit or other examination
by any taxing authority, or any judicial or administrative proceedings relating
to liability for Taxes, and each will retain and, upon the request of the other,
provide the other with any records or information which may be relevant to such
return, audit or examination or proceedings. Such assistance shall include
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder and shall include
providing copies of any relevant Tax Returns (or portions thereof) and
supporting work schedules. The party requesting such assistance hereunder shall
reimburse the other for reasonable out-of-pocket expenses incurred by the other
in providing such assistance.
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ARTICLE VII
INDEMNIFICATION AND LIMITATIONS
7.1 INDEMNIFICATION. The representations, warranties and covenants of
Purchaser and Seller made in this Agreement shall survive the Closing.
Purchaser on the one hand and Seller on the other shall indemnify and
hold harmless the other party, and its successors and assigns, from and
against any loss, liability, damage, cost or expense (including
reasonable attorneys' and accountants' fees and expert witness fees)
(collectively, "Losses" and individually a "Loss") which shall arise
out of or be connected with any breach of any representation or
warranty made or covenant to be performed by the party or parties
against whom indemnification is sought.
7.2 LIMITATION ON CLAIMS. Any indemnified party, or its successors and
assigns, may not commence a claim for indemnification with respect to
any Losses under this Article VII after June 30, 2000, except where
otherwise expressly provided.
7.3 LIMITATIONS ON LIABILITY FOR CERTAIN LOSSES. Seller shall be liable
for indemnification payments under Section 7.1 or under any other
indemnification obligation set forth in this Agreement (except with
respect to Losses set forth in Sections 7.4 and 7.5), only to the
extent that the aggregate amount of such Losses exceeds $800,000, in
which case Seller shall be liable for all such Losses. Notwithstanding
the foregoing sentence and the provisions of Sections 7.4 and 7.5, the
aggregate liability of Seller for all Losses under this Article VII
shall not exceed $40,000,000.
7.4 SELLER'S SPECIFIC INDEMNIFICATION COVENANTS. In addition to the
indemnification obligations of Seller pursuant to Section 7.1, and
notwithstanding the limitations set forth in Section 7.3, Seller
specifically agrees to indemnify Purchaser for all Losses in connection
with or relating to any liability of the Company for Taxes.
7.5 ADDITIONAL PROVISIONS REGARDING CERTAIN LOSSES. In the case of
Losses in respect of Taxes of the Company that result from a Timing
Item (as hereafter defined), Seller's liability for indemnification
otherwise provided under this Agreement shall be limited only to
interest, penalties and the effect of Tax rate differences resulting
from the Timing Item. A Timing Item is defined to mean any item (or
related items) of Tax income, gain, deduction, loss or credit, and all
items entering into the computation thereof, that has the effect of
increasing (or decreasing) the liability of the Company for Taxes in
one year and in a related manner decreasing (or increasing) the
liability of the Company for Taxes in another year.
Notwithstanding the time limitation set forth in Section 7.2,
(i) any claim for indemnification which relates to Losses associated
with Taxes hereunder may be made by Purchaser at any time prior to the
expiration of any applicable statute of limitations relating to the
assessment and collection of such Tax obligations, and (ii) with
respect to any facts which appear to Purchaser reasonably likely to
constitute a basis for a Loss in the future, Purchaser shall retain the
right to indemnification in accordance with this Agreement so long as
Purchaser notifies Seller in reasonable detail on or prior to June 30,
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2000 of such claim, suit or proceedings for which indemnification may
be sought in accordance with Section 7.1 hereof, even if as of the date
of such notification no Loss has yet occurred with respect to such
matter.
7.6 THIRD PARTY ACTIONS. In the event any claim is made, suit is
brought or tax audit or other proceeding is instituted against
Purchaser, Seller or the Company which involves or appears reasonably
likely to involve a Loss, the indemnified party will, promptly after
receipt of notice of any such claim, suit or proceedings for which
indemnification may be sought, notify, which notice will describe such
claim, suit or proceeding in reasonable detail, the indemnifying party
of the commencement thereof. The failure to so notify the indemnifying
party of the commencement of any such claim, suit or proceeding will
relieve the indemnifying party from liability under Article VII hereof
only to the extent that such failure materially adversely affects the
ability of the indemnifying party to defend its interests in such
claim, action or proceedings. The indemnifying party (at its expense)
shall have the right and shall be given the opportunity to defend with
its own counsel such claim, suit or proceedings. If the indemnifying
party does not elect to undertake the defense of any such claim, suit
or proceeding, within a reasonable period after receipt of notice of
the same, the indemnified party (upon further notice to the
indemnifying party) shall have the right to undertake the defense of
such claim, suit or proceedings, subject to the right of the
indemnifying party to assume the defense of such claim, suit or
proceeding at any time prior to its final determination or settlement.
If the indemnifying party shall undertake such defense, the indemnified
party shall cooperate fully with the indemnifying party and its counsel
with respect thereto. The indemnified party shall, at its own expense,
have the right to participate in the defense of such claim, suit or
proceeding. The indemnified party shall not, except at its own cost,
make any settlement with respect to any such claim, suit or proceeding
without the prior consent of the indemnifying party. In the event that
the indemnified party determines to settle any such claim, suit or
proceeding without such prior consent of the indemnifying party, the
indemnifying party shall have no further indemnification obligations
under this Article VII with respect to such claim, suit or proceeding.
7.7 SUBROGATION. A party against whom a claim for indemnification has
been asserted shall be subrogated to any right of action which the
party being indemnified hereunder may have against any other person
with respect to any matter giving rise to a claim for indemnification
hereunder, other than a claim in respect of Taxes.
7.8 TAX TREATMENT OF PAYMENTS. All payments made pursuant to this
Article VII shall be treated for tax purposes as adjustments to the
merger consideration.
7.9 EXCLUSIVE REMEDY. This Article VII shall provide the sole and
exclusive remedy for any and all Losses sustained or incurred by
Purchaser or the Company, or by Seller, or their successors or assigns,
absent fraud or willful misconduct on the part of the party against
whom damages are sought.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement of Seller
and Purchaser or in any instrument delivered by Seller and Purchaser
pursuant to this Agreement shall survive the Closing, subject to the
provisions of Article VII hereof.
8.2 DISCLOSURE SCHEDULES. Nothing in any disclosure schedule referred
to in this Agreement shall be deemed adequate to disclose an exception
to a representation or warranty permitted to be made herein unless such
disclosure schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception permitted to be made to a
representation or warranty made herein unless the representation or
warranty has to do with the existence of the document or other item
itself, provided, however, that the disclosure of an item required to
be disclosed on any one disclosure schedule shall be deemed to be a
disclosure on each other disclosure schedule which would otherwise
require disclosure of such item thereon.
8.3 LITIGATION SUPPORT. In the event and for so long as any party is
actively contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in
connection with any (i) transaction contemplated under this Agreement
or (ii) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving the Company, each
of the other parties shall cooperate with such party and its counsel in
the contest or defense, make available its personnel, and provide such
testimony and access to books and records as shall be reasonably
necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending party (unless the
contesting or defending party is entitled to indemnification therefor
under Article VII).
8.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly received (i) on the date
given if delivered personally or by cable, telegram, telex or telecopy
or (ii) on the date received if mailed by registered or certified mail
(return receipt requested), to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
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(a) if to Seller (or the Company, prior to the Effective
Time):
State Automobile Mutual Insurance Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman
Copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇ III, Esq. and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) if to Purchaser, Merger Sub (or the Company, at and after the
Effective Time):
State Auto Financial Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chief Financial Officer
Copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Vice President, Secretary and General Counsel
State Auto Financial Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
8.5 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.6 WAIVER. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is entitled to the
benefits thereof.
8.7 MISCELLANEOUS. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. The exhibits, schedules, documents
and instruments identified in this Agreement are incorporated herein
and made a part hereof. This Agreement (including exhibits, schedules,
documents and instruments referred to herein) (A) constitutes the
entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of
them, with respect to the subject matter
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hereof, including, without limitation, that Option Agreement dated
August 20, 1993 by and between Purchaser and Seller; (B) is not
intended to confer upon any person not a party hereto any rights or
remedies hereunder; and (C) shall be governed in all respects by the
laws of the State of Ohio, provided, however, that the regulation of
the Company and its insurance business shall be governed in all
respects by the laws of the State of South Dakota. This Agreement may
be executed in two or more counterparts which together shall constitute
a single agreement.
8.8 ASSIGNMENT. No party hereto may assign its rights and obligations
hereunder to any other person or entity without the prior written
consent of each other party hereto. Subject only to the foregoing
limitation, this Agreement shall be binding upon the successors and
assigns of each party hereto.
8.9 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or
burden of proof shall arise favoring any party by virtue of authorship
of any of the specific provisions of the Agreement. When used in this
Agreement, the word "including" shall mean including without
limitation. Any reference to federal, state, local or foreign statutes
or laws shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. All
references to "affiliates" in this Agreement shall mean "affiliates" as
such term is defined within the meaning of federal securities laws;
provided, however, that Seller and its subsidiaries, on the one hand,
and Purchaser and its subsidiaries, on the other hand, shall not be
deemed to be affiliates of one another for the purposes of Articles
Two, Three, Four and Six, and provided further, that the Company shall
be deemed to be an affiliate of Seller prior to the Effective Time and
an affiliate of Purchaser at and after the Effective Time for the
purposes of Articles Two, Three, Four and Six.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
PURCHASER:
STATE AUTO FINANCIAL CORPORATION
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Its: Chairman and CEO
-------------------------------
SELLER:
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Its: Chairman and CEO
-------------------------------
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COMPANY:
MILBANK INSURANCE COMPANY
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Its: Chairman and CEO
-------------------------------
MERGER SUB:
SAF ACQUISITION CORP.
By: /s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Its: Secretary
-------------------------------
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CLOSING AGREEMENT
This Closing Agreement (this "Agreement") is entered into as of July 7,
1998 by and among State Automobile Mutual Insurance Company, an Ohio domiciled
mutual insurance company ("Seller"), State Auto Financial Corporation, an Ohio
corporation ("Buyer"), and Milbank Insurance Company, a South Dakota stock
insurance company and the successor by merger to SAF Acquisition corporation, a
South Dakota corporation (the "Company").
RECITALS
A. Buyer, Seller and SAF Acquisition Corporation entered into that
certain Agreement and Plan of Reorganization as of the date hereof (the "Plan of
Reorganization"), and the transactions contemplated thereby have been
consummated as of this date.
B. The parties originally expected and intended the execution of the
Plan of Reorganization and the other documents contemplated thereby (the
"Related Documents"), and the Closing and the Effective Time (each as defined in
the Plan of Reorganization), to occur on and as of July 1, 1998. Notwithstanding
such original expectation of the parties, certain required regulatory approvals
were not obtained by the parties until a date later than July 1, 1998.
C. Notwithstanding such delays, the parties desire to enter into this
Agreement to set forth their additional agreements and understandings regarding
the effectiveness of the transactions under the Plan of Reorganization and the
Related Documents.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Effective Time. To ease or eliminate certain administrative and
other burdens which would otherwise be imposed upon Buyer, Seller and the
Company in connection with the occurrence of the Closing and the Effective Time
as of a date and time other than the close of business on the last day of a
calendar month, each of Buyer, Seller and the Company shall deem the Closing and
Effective Time of the transactions contemplated by the Plan of Reorganization to
have occurred and be effective as of the close of business on June 30, 1998,
notwithstanding the later filing and effectiveness of the Articles of Merger
referred to in Section 1.2 of the Plan of Reorganization, and shall treat all
such transactions as having been consummated and closed as of the close of
business on June 30, 1998 for all purposes, including but not limited to all
tax, regulatory, accounting and similar business purposes, and for the
determination of any and all allocations of income, loss and legal
responsibility relating to the Company between Buyer and Seller. Notwithstanding
the definitions set forth in the Plan of Reorganization to the contrary, the
terms "Effective Time": and "Closing Date" under the Plan of Reorganization
shall be deemed to mean the close of business on June 30, 1998 for purposes of
determining the liability of Buyer and Seller under the Plan of Reorganization
and the Related Documents.
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2. Determination of Value of Purchaser Common Shares. Notwithstanding
any other agreement of the parties in any document or agreement, including the
Option Agreement (as defined in the Plan of Reorganization), the "Value of
Purchaser Common Shares" shall be determined as of June 30, 1998, and not as of
any other date, including without limitation the date immediately prior to the
filing of the Articles of Merger under which the company was merged into Merger
Sub (as defined in the Plan of Reorganization).
3. Amendment. To the extent required by the terms of the Plan of
Reorganization or otherwise, this Agreement shall be deemed an amendment of the
Plan of Reorganization.
4. Incorporation by Reference. The provisions of Section 8.4, Section
8.5, Section 8.6, Section 8.7 and Section 8.8 (excluding only the last sentence
of Section 8.8) are hereby incorporated by reference into this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
PURCHASER:
STATE AUTO FINANCIAL CORPORATION
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Its: President and COO
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SELLER:
STATE AUTOMOBILE MUTUAL
INSURANCE COMPANY
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Its: President and COO
-------------------------------
COMPANY:
MILBANK INSURANCE COMPANY
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Its: President and COO
-------------------------------
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