TRANSITION AGREEMENT
by and among
FREMONT COMPENSATION INSURANCE GROUP, INC.,
FREMONT COMPENSATION INSURANCE COMPANY,
FREMONT INDEMNITY COMPANY,
FREMONT PACIFIC INSURANCE COMPANY
and
AMYNILES INSURANCE COMPANY
Dated as of May 31, 2002
TABLE OF CONTENTS
ARTICLE I DEFINITIONS................................................... 3
Section 1.01. Definitions............................................. 3
ARTICLE II TRANSFER AND ACQUISITION OF ASSETS.......................... 17
Section 2.01. Transfer and Acquisition............................... 17
Section 2.02. Place and Date of Closing.............................. 17
Section 2.03. Transactions To Be Effected at the Closing............. 17
Section 2.04. Post-Closing Date Transfers of Assets.................. 18
Section 2.05. Renewal Rights......................................... 18
Section 2.06. No Assumption of Excluded Liabilities by
Employers Insurance.................................... 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF FREMONT.................. 19
Section 3.01. Organization, Standing and Authority................... 19
Section 3.02. Authorization.......................................... 19
Section 3.03. No Conflict or Violation, Etc.......................... 20
Section 3.04. Financial Statements; Books and Records................ 20
Section 3.05. Reserves............................................... 20
Section 3.06. Absence of Certain Changes............................. 21
Section 3.07. Contracts.............................................. 21
Section 3.08. Tangible Assets........................................ 22
Section 3.09. Intangible Assets...................................... 23
Section 3.10. Title to Assets; Sufficiency........................... 23
Section 3.11. Litigation; Orders..................................... 23
Section 3.12. Compliance with Laws................................... 23
Section 3.13. Employees and Employee Benefit Plans................... 24
Section 3.14. Brokers................................................ 24
Section 3.15. Licenses and Franchises................................ 25
Section 3.16. Computer Software and Hardware......................... 25
Section 3.17. Technology and Intellectual Property................... 27
Section 3.18. Insurance Policies..................................... 30
Section 3.19. Insurance Business..................................... 30
Section 3.20. Cancellations.......................................... 31
Section 3.21. Regulatory Filings..................................... 31
Section 3.22. Real Property; Leases.................................. 31
Section 3.23. Labor Relations and Employment......................... 33
Section 3.24. Tax Matters............................................ 34
Section 3.25. Reinsurance and Retrocessions.......................... 34
Section 3.26. Environmental Matters.................................. 35
Section 3.27. Entire Liabilities..................................... 35
Section 3.28. Disclosure............................................. 35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EMPLOYERS
INSURANCE................................................... 35
Section 4.01. Organization, Standing and Authority................... 35
Section 4.02. Authorization.......................................... 35
Section 4.03. No Conflict or Violation, Etc.......................... 36
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Section 4.04. Compliance with Laws................................... 36
Section 4.05. Brokers................................................ 37
ARTICLE V COVENANTS.................................................... 37
Section 5.01. Conduct of Business.................................... 37
Section 5.02. No Solicitation........................................ 38
Section 5.03. Access to Information; Confidentiality................. 39
Section 5.04. Reasonable Best Efforts................................ 39
Section 5.05. Consents, Approvals and Filings........................ 40
Section 5.06. Notification........................................... 40
Section 5.07. Further Assurances..................................... 40
Section 5.08. Expenses............................................... 41
Section 5.09. Employees and Employee Benefits........................ 42
Section 5.10. Computer Software and Hardware......................... 43
Section 5.11. Leased Properties...................................... 45
Section 5.12. Transferred Assets..................................... 46
Section 5.13. Intellectual Property Rights........................... 47
Section 5.14. Reimbursement of Coupon Redemption..................... 49
Section 5.15. Transition Services and Facilities Agreement........... 49
Section 5.16. Reinsurance Program.................................... 49
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
EMPLOYERS INSURANCE......................................... 49
Section 6.01. Representations and Covenants.......................... 49
Section 6.02. Secretary's Certificate................................ 50
Section 6.03. Other Agreements....................................... 50
Section 6.04. Governmental and Regulatory Consents and
Approvals.............................................. 50
Section 6.05. Third Party Consents................................... 51
Section 6.06. No Injunctions or Restraints........................... 51
Section 6.07. No Material Adverse Effect............................. 51
Section 6.08. Due Diligence.......................................... 51
Section 6.09. EICN Reinsurance Agreement............................. 51
Section 6.10. Integrated Medi-Comp and ADP Programs.................. 51
Section 6.11. Leased Properties...................................... 51
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FREMONT......... 52
Section 7.01. Representations and Covenants.......................... 52
Section 7.02. Secretary's Certificate................................ 52
Section 7.03. Other Agreements....................................... 52
Section 7.04. Governmental and Regulatory Consents and
Approvals.............................................. 53
Section 7.05. No Injunctions or Restraints........................... 53
ARTICLE VIII FURTHER AGREEMENTS........................................ 53
Section 8.01. Access to Books and Records............................ 53
Section 8.02. Use of Information and Systems......................... 54
Section 8.03. Non-Competition........................................ 55
Section 8.04. Cooperation............................................ 58
Section 8.05. Taxes.................................................. 59
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Section 8.06. Intranet or Internet Usage............................. 59
Section 8.07. Fremont Pacific and FCIC............................... 60
Section 8.08. Post-Closing Confidentiality........................... 60
ARTICLE IX SURVIVAL OF REPRESENTATIONS, COVENANTS, AND
AGREEMENTS.................................................. 60
ARTICLE X INDEMNIFICATION.............................................. 61
Section 10.01. Indemnification by Fremont............................ 61
Section 10.02. Indemnification by Employers Insurance................ 61
Section 10.03. Indemnification Procedures............................ 61
ARTICLE XI TERMINATION................................................. 63
Section 11.01. Termination of Agreement.............................. 63
Section 11.02. Survival.............................................. 63
ARTICLE XII GENERAL PROVISIONS......................................... 64
Section 12.01. Publicity............................................. 64
Section 12.02. Dollar References..................................... 64
Section 12.03. Notices............................................... 64
Section 12.04. Entire Agreement...................................... 65
Section 12.05. Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies.................... 65
Section 12.06. Governing Law; Choice of Forum........................ 66
Section 12.07. Submission to Jurisdiction............................ 66
Section 12.08. Specific Performance.................................. 66
Section 12.09. Binding Effect; Assignment............................ 66
Section 12.10. Interpretation........................................ 67
Section 12.11. No Third Party Beneficiaries.......................... 67
Section 12.12. Counterparts.......................................... 67
Section 12.13. Exhibits and Schedules................................ 68
Section 12.14. Headings.............................................. 68
Section 12.15. Severability.......................................... 68
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The forms and schedules listed below have been ommitted from this filing.
The registrant undertakes to provide supplementally a copy of any omitted
schedule upon request by the Commission.
EXHIBITS
Exhibit A Form of Administrative Services Agreement
Exhibit B Form of Assumption of Liabilities Agreement
Exhibit C Form of Xxxx of Sale and General Assignment
Exhibit D Form of EICN Reinsurance Agreement
Exhibit E Form of Intellectual Property Rights License Agreement
Exhibit F Form of Renewal Rights Agreement
Exhibit G Form of Reverse Transition Services Agreement
Exhibit H Form of Transition Services and Facilities Agreement
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SCHEDULES
Schedule 1.01(a) - Customer Lists
Schedule 1.01(b)(i) - Clarendon Program Insurance Policies
Schedule 1.01(b)(ii) - Fremont Policies
Schedule 1.01(c) - Other Assumed Liabilities
Schedule 1.01(d) - Fremont Commercial Agent List
Schedule 3.03 - Necessary Consents, etc.
Schedule 3.04(a) - Financial Statements
Schedule 3.06 - Absence of Certain Changes
Schedule 3.07(a) - Contracts
Schedule 3.10(a) - Liens
Schedule 3.11 - Litigation; Orders
Schedule 3.12 - Compliance with Laws
Schedule 3.13(a) - Employees List
Schedule 3.13(b) - Employee Benefit Plans
Schedule 3.13(c) - Severance Plans
Schedule 3.15 - Licenses and Franchises
Schedule 3.16(a) - Computer Software: Owned or Licensed Principally Used
Software
Schedule 3.16(b) - Computer Software: Owned or Licensed Generally Used
Software
Schedule 3.16(c) - Computer Hardware
Schedule 3.16(d) - Maintenance and Service Agreements
Schedule 3.17(a) - Technology and Intellectual Property
Schedule 3.17(b) - Intellectual Property Rights
Schedule 3.17(c) - Licenses, Sub-licenses and Other Agreements; Royalty
and Similar Obligations
Schedule 3.17(e) - Violation of Privacy Laws or Fremont Privacy Policies
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Schedule 3.17(f) - Required Actions
Schedule 3.19 - Insurance Business
Schedule 3.20 - Cancellations
Schedule 3.21 - Regulatory Filings
Schedule 3.22(a) - Leases
Schedule 3.22(b) - Leasehold Improvements
Schedule 3.22(e) - Environmental Matters
Schedule 3.23 - Labor Relations and Employment
Schedule 3.25(b) - Outward Reinsurance Agreements
Schedule 3.25(c) - Inward Reinsurance Agreements
Schedule 4.03 - Necessary Consents, etc.
Schedule 4.04 - Compliance with Laws
Schedule 5.02 - Third Party Confidentiality Agreements
Schedule 5.09(a) - Selected Employees
Schedule 5.12(a) - Transferred Contracts
Schedule 5.12(b) - Certain Transferred Software Licenses
Schedule 5.12(c) - Transferred Tangible Assets
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TRANSITION AGREEMENT
This TRANSITION AGREEMENT (this "Agreement"), dated as of May 31, 2002, is
entered into by and among Fremont Compensation Insurance Group, Inc., a Delaware
corporation ("Fremont Compensation"), Fremont Compensation Insurance Company, a
California corporation and a wholly-owned subsidiary of Fremont Compensation
("FCIC"), Fremont Indemnity Company, a California corporation and a wholly-owned
subsidiary of Fremont Compensation ("Fremont Indemnity"), Fremont Pacific
Insurance Company, a California corporation and a wholly-owned subsidiary of
Fremont Compensation ("Fremont Pacific" and, collectively with Fremont
Compensation, FCIC and Fremont Indemnity, "Fremont"), and Amyniles Insurance
Company, a California corporation ("Employers Insurance"). For purposes of this
Agreement, Fremont is deemed one "Party" and Employers Insurance is deemed the
other Party. The "Parties" refers to both parties. All capitalized terms used in
this Agreement and not otherwise defined shall have the respective meanings
assigned to them in Section 1.01 below.
W I T N E S S E T H:
-------------------
WHEREAS, Fremont is engaged in the Business relating to workers'
compensation insurance;
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Fremont desires to transfer to Employers Insurance (such transfer, the
"Transition"), (i) certain tangible assets utilized by Fremont in connection
with the Business and selected by Employers Insurance, and (ii) certain
intangible assets utilized by Fremont in connection with the Business and
selected by Employers Insurance, including, but not limited to, contracts with
vendors, computer software and intellectual property rights relating to the
Business and similar assets;
WHEREAS, Employers Insurance desires to obtain services from certain
Business Employees;
WHEREAS, to facilitate the transactions contemplated by this Agreement and
the Ancillary Agreements, from and after the Closing Date, (i) Fremont will
provide transition services and facilities to Employers Insurance, (ii)
Employers Insurance will provide administrative services to Fremont, and (iii)
Employers Insurance will provide other services to Fremont;
WHEREAS, Fremont will cease insuring or reinsuring new or renewal Clarendon
Program Insurance Policies on and after the Inception Date and Fremont and
Employers Insurance desire that Fremont will assist Employers Insurance or its
designee in renewing the Clarendon Program Insurance Policies through
arrangements with certain subsidiaries of Clarendon Insurance Group
("Clarendon") or a designee of Employers Insurance;
WHEREAS, Fremont will cease insuring or reinsuring new or renewal Fremont
Policies on and after the Inception Date and Fremont and Employers Insurance
desire that
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Fremont will assist Employers Insurance or its designee in renewing
the Fremont Policies pursuant to a Renewal Rights Agreement;
WHEREAS, Employers Insurance desires to replace Fremont's existing
Clarendon Reinsurance/Cession Program with the EICN Reinsurance Agreement
entered into by Employers Insurance or one of its Affiliates and Clarendon;
WHEREAS, Employers Insurance desires to replace after the Inception Date
Fremont's existing Integrated Medi-Comp Program and ADP Program; and
WHEREAS, in order to effectuate the foregoing, it is contemplated that,
upon the terms and subject to the conditions of this Agreement, (i) all cessions
under the Outward Reinsurance Agreements relating to the Clarendon
Reinsurance/Cession Program will cease as of the Inception Date and the
Clarendon Reinsurance Agreement will be terminated as of the Inception Date on a
cut-off basis; (ii) EICN and Clarendon will enter into the EICN Reinsurance
Agreement providing, among other things, for the indemnity reinsurance,
effective as of the Inception Date, for the Clarendon Program Insurance
Policies; (iii) Fremont and Employers Insurance will enter into the Renewal
Rights Agreement pursuant to which Fremont agrees to assist Employers Insurance
and its designee in renewing the Clarendon Program Insurance Policies and the
Fremont Policies; (iv) Fremont and Employers Insurance will enter into an
Administrative Services Agreement, pursuant to which Employers Insurance will
provide certain administrative services on behalf of Fremont with respect to the
Business; (v) Fremont and Employers Insurance will enter into a Transition
Services and Facilities Agreement, providing, among other things, for the
provision by Fremont of certain transitional services and facilities on behalf
of Employers Insurance following the Effective Date; (vi) Employers Insurance
and Fremont will enter into a Reverse Transition Services Agreement, pursuant to
which Employers Insurance will provide certain transitional services on behalf
of Fremont; (vii) Employers Insurance will execute and deliver to Fremont an
Assumption of Liabilities Agreement, providing for the assumption by Employers
Insurance of certain liabilities and obligations relating to the Business;
(viii) Fremont will execute and deliver to Employers Insurance a Xxxx of Sale
and General Assignment, providing for the transfer to Employers Insurance of
certain of the assets and rights relating to the Business; and (ix) Fremont and
Employers Insurance will execute and deliver such other agreements, instruments
and documents as are described or contemplated herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and for good and valuable
consideration, including payment of One Dollar ($1.00), the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:
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ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. The following terms shall have the respective
meanings set forth below throughout this Agreement:
"Acquired Employees" shall have the meaning set forth in Section 5.09(a)
hereof.
"Action" shall have the meaning set forth in Section 3.11 hereof.
"Actuarial Information" shall have the meaning set forth in Section 3.17(a)
hereof.
"Additional Qualified Licenses" shall have the meaning set forth in Section
5.12(b) hereof.
"Additional Tangible Assets" shall have the meaning set forth in Section
5.12(c) hereof.
"Administrative Services Agreement" means an Administrative Services
Agreement between Fremont and Employers Insurance substantially in the form of
Exhibit A hereto.
"ADP Program" means the non-exclusive agreement between Fremont
Compensation and Automatic Data Processing (ADP) to jointly market a combined
workers' compensation insurance and payroll services product through the ADP
agency.
"Affiliate" means, with respect to any Person, at the time in question, any
other Person controlling, controlled by or under common control with such
Person. For purposes of the foregoing, "control," including the terms
"controlling," "controlled by" and "under common control with," means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an institution, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" shall have the meaning set forth in the introductory paragraph
hereof.
"Allocated Loss Adjustment Expenses" means all costs and expenses incurred
under the Clarendon Program Insurance Policies on or after the Inception Date in
the investigation, appraisal, adjustment, settlement, litigation, defense or
appeal of specific Claim Losses but excluding Unallocated Loss Adjustment
Expenses.
"Ancillary Agreements" means the Administrative Services Agreement, the
Transition Services and Facilities Agreement, the Reverse Transition Services
Agreement, the Intellectual Property Rights License Agreements, the Assumption
of Liabilities Agreement, the Renewal Rights Agreement and the Transfer
Documents.
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"Assignable Licensed Principally Used Software" means the Licensed
Principally Used Software as to which (i) no consent to the assignment thereof
is required or (ii) consent to the assignment thereof has been obtained.
"Assumed Reinsurance Contracts" means those Inward Reinsurance Agreements
listed on Final Schedule 5.12(a)(i) hereto which have been assumed by Employers
Insurance.
"Assumption of Liabilities Agreement" means an Assumption of Liabilities
Agreement between Fremont and Employers Insurance substantially in the form of
Exhibit B hereto.
"Xxxx of Sale and General Assignment" means a Xxxx of Sale and General
Assignment between Fremont and Employers Insurance substantially in the form of
Exhibit C hereto.
"Books and Records" means the originals or copies of all records (including
computer generated, recorded or stored records) relating primarily to the
Business, including Customer Lists, policy information, insurance policy forms,
rate filing information, rating plans, claim records, sales records,
underwriting records, financial, tax and accounting records (provided, however,
that state and federal income tax returns and work papers shall be excluded),
and compliance records in the possession or control of Fremont or any Fremont's
Affiliate and relating primarily to the operation of the Business, including the
database maintained by Fremont relating to and containing the Customer Lists,
claim records and underwriting records related to the Business and any other
database or other form of recorded, computer generated or stored information or
process relating primarily to the Business; provided, however, if any such
financial, tax or accounting records contain information that does not relate to
the Business, such information that does not relate to the Business shall not
constitute "Books and Records."
"Business" means, collectively, the workers' compensation insurance
business operations transacted by Fremont, directly or pursuant to the Clarendon
Reinsurance/Cession Program, including those operations relating to
underwriting, issuance and administration and those operations relating to the
Integrated Medi-Comp Program and the ADP Program; provided that the "Business"
shall not include any of the foregoing to the extent that it relates to any
Excluded Liability or any asset other than a Transferred Asset.
"Business Day" means any day other than a Saturday, Sunday, a day on which
banking institutions in either of the States of California or Nevada are
permitted or obligated by law to be closed or a day on which the New York Stock
Exchange is closed for trading.
"Business Employees" shall have the meaning set forth in Section 3.13
hereof.
"Change in Control" shall mean with respect to any Person, change in
ownership of a majority of the voting power of such Person, or change in power
to direct or cause the direction of the management or policies of such Person.
"Claim Loss" means the amount of liability paid or to be paid with respect
to claims with a date of injury on or after the Inception Date under the
Clarendon Program
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Insurance Policies after making deduction for all salvage and subrogation;
provided, however, that the allocation of claim liability pertaining to any
injury not occurring on a specific date shall be determined according to
California law, irrespective of where the insured resides or the injury occurs;
provided, further, that Claim Loss when applied in the context of an Involuntary
Mechanism shall be limited solely to liability paid or to be paid with respect
to premium written from and after the Inception Date under the Clarendon Program
Insurance Policies, after making deduction for all salvage and subrogation.
"Claims Settlement Information" shall have the meaning set forth in Section
3.17(a) hereof.
"Clarendon" shall have the meaning as defined in the recitals hereof.
"Clarendon Program Insurance Policies" means the treaties, policies,
binders, slips and other agreements of insurance or assumed reinsurance,
including insurance written and reinsurance assumed through Involuntary
Mechanisms, written by Clarendon pursuant to the Clarendon Reinsurance Agreement
(including all supplements, endorsements, riders and ancillary agreements in
connection therewith); provided, however, that Clarendon Program Insurance
Policies shall not include (i) any of the foregoing to the extent that they
cover risks other than workers' compensation risks, (ii) any assumed reinsurance
other than that assumed by Fremont pursuant to the Clarendon Reinsurance/Cession
Program, the Assumed Reinsurance Contracts and any assumed reinsurance and
reinsurance assumed on a mandatory basis in connection with an Involuntary
Mechanism, and (iii) the NCCI Involuntary Pool. Schedule 1.01(b)(i) lists such
Clarendon Program Insurance Policies in effect as of April 30, 2002.
"Clarendon Reinsurance Agreement" shall have the meaning as set forth in
the definition of "Clarendon Reinsurance/Cession Program" in this section.
"Clarendon Reinsurance/Cession Program" shall mean the reinsurance and
related agreements entered between Fremont and Clarendon dated May 1, 2001,
including the reinsurance agreement ("Clarendon Reinsurance Agreement") dated
May 1, 2001.
"Closing" means the execution and delivery of the Ancillary Agreements and
such other agreements, instruments and documents, as required by this Agreement,
pursuant to Section 2.03 hereof.
"Closing Date" means such date not later than the third Business Day
following the date on which EICN and Clarendon have entered into the Clarendon
Reinsurance Agreement; provided, however, that the Closing may occur on such
other day as the Parties may agree to in writing.
"Closing Reimbursed Expenses" shall have the meaning set forth in Section
5.08(b) hereof.
"COBRA" shall have the meaning given to such term in the definition of
"Excluded Liabilities" in this section.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Commissions" means all commissions, contingent agent bonuses, expense
allowances, and other fees and compensation payable to producers or Independent
Agents/Brokers with respect to the Insurance Policies.
"Competitive Activities" shall have the meaning as set forth in Section
8.03(a)(i) hereof.
"Computer Hardware" shall have the meaning set forth in Section 3.16(c)
hereof.
"Computer Software" means all computer software programs, web-based
applications, databases, external data sources and related documentation used at
any time since January 1, 1999 in the conduct of the Business.
"Confidentiality Agreement" shall have the meaning set forth in Section
5.03 hereof.
"Contracts" shall have the meaning set forth in Section 3.07(a) hereof.
"Conversion Date" shall have the meaning set forth in Section 5.08 hereof.
"Customer Coupons" means the policy premium credit coupons that Fremont
delivered to its customers in satisfaction of the Litigation Settlement.
"Customer Lists" means all of the policy master lists in connection with
the Business in the states of Idaho, Arizona, Utah, Montana, Nevada, California
and Colorado at any time since January 1, 1999, including without limitation
lists of policyholders, brokers and agents of record for every policyholder,
addresses, renewal and expiration dates and premium size, which are listed on
Schedule 1.01(a) hereto and shall be deemed part of the Books and Records for
purposes of this Agreement.
"Due Diligence Period" shall have the meaning set forth in Section 8.03(d)
hereof.
"Effective Date" means 12:01 A.M., Pacific Daylight Time, the first
Business Day following the Closing Date.
"Employers Insurance" shall have the meaning set forth in the introductory
paragraph hereof.
"Employers Insurance Material Adverse Effect" means any material adverse
effect in the business, financial condition or results of operations of
Employers Insurance and its Subsidiaries taken as a whole.
"EICN" means Employers Insurance Company of Nevada, a Mutual Company.
6
"EICN Reinsurance Agreement" means the EICN Reinsurance Agreement and
related agreements between Employers Insurance and/or one or more of its
Affiliates, on the one hand, and Clarendon, on the other hand, substantially in
the form of Exhibit D hereto.
"Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of non-compliance or violation by any
Person or governmental authority, alleging liability for non-compliance,
investigative costs, cleanup costs, response or removal costs, remedial costs,
personal injury (including death), tangible or intangible property damage,
damage to the environment or natural resources arising under or based on (A)
Environmental Laws; or (B) a Release or threatened Release of Hazardous
Materials.
"Environmental Law" means all applicable federal, state and local statutes,
regulations, ordinances, rules and any binding administrative or judicial
interpretations thereof, relating to pollution, protection of human health and
safety as it relates to the environment, the protection, preservation or
restoration of the environment (including, without limitation, indoor and
outdoor air, surface water, groundwater, land, wetlands, surface and subsurface
strata) or natural resources, including, without limitation, those relating to
Releases or threatened Releases of Hazardous Materials or otherwise relating to
the manufacture, generation, processing, distribution, use, treatment, storage,
disposal, transportation or handling of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Evaluation Material" shall have the meaning set forth in the
Confidentiality Agreement.
"Excluded Employee" shall have the meaning set forth in Section 3.13
hereof.
"Excluded Liability" means any liability or obligation arising in
connection with the Business which does not constitute an Other Assumed
Liability or a Reinsured Liability, including, without limitation: (i) any
liability excluded pursuant to the EICN Reinsurance Agreement, (ii) any
reinsurance assumed by Fremont other than the Assumed Reinsurance Contracts and
reinsurance assumed on a mandatory basis, (iii) any structured settlement
transactions, (iv) any liability arising from claims or lawsuits contesting the
legality or reasonableness of the Transition other than any liability resulting
from Employers Insurance's misrepresentation or breach of covenants under this
Agreement, (v) any liability relating to or arising out of any Transferred
Contracts, Transferred Software Licenses and Transferred Tangible Assets for any
period prior to the later of the Closing Date or the relevant Transfer Date,
(vi) any contracts, agreements, licenses, sub-licenses, leases or subleases not
listed on Final Schedules 5.12(a), 5.12(b) or 5.12(c), (vii) any Extra
Contractual Obligations, (viii) all Taxes imposed and all costs and expenses
(including, without limitation, litigation costs and reasonable attorneys' and
accountants' fees and disbursements) incurred as a result of a claim, notice of
deficiency, or assessment by, or any obligation owing to, any Tax Authority with
respect to the Transferred Assets and the Business for any period prior to (a)
in the case of the Fremont Policies to the extent that Employers Insurance
renews such Fremont Policies, the respective expiration dates of the Fremont
Policies and (b) in the case of the Clarendon Program Insurance
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Policies, the Inception Date, (ix) any fee, assessment, charge or liability
imposed by or due to any Governmental Entity, quasi-Governmental Entity,
Involuntary Mechanism, or guaranty association (including without limitation
California Insurance Guaranty Association) and "Boards and Bureaus" (including
without limitation the Worker's Compensation Insurance Rating Bureau or the
National Council on Compensation Insurance, Inc.) relating to, or imposed based
upon, premiums written or liabilities incurred by, or insurance activities of,
Fremont prior to (a) in the case of the Fremont Policies to the extent that
Employers Insurance renews such Fremont Policies, the respective expiration
dates of the Fremont Policies and (b) in the case of the Clarendon Program
Insurance Policies, the Inception Date regardless of the date such fee, charge
or liability is actually imposed or billed, (x) any liability to any Person
related to or arising out of any litigation or proceeding (including without
limitation any employment-related litigation or proceeding) in respect of the
Business to which Fremont or any of its Affiliates is or becomes a party based
on events occurring prior to (a) in the case of the Fremont Policies to the
extent that Employers Insurance renews such Fremont Policies, the respective
expiration dates of the Fremont Policies and (b) in the case of the Clarendon
Program Insurance Policies, the Inception Date, including, without limitation,
the litigation and proceedings set forth on Schedule 3.11 hereto, (xi) any
liability based on or arising out of actions or omissions of Fremont or any of
its Affiliates, (xii) any liability pursuant to, or arising out of or in
connection with, any Plans, Service Plans, any other employee benefit plans (as
that term is defined in Section 3(3) of ERISA) or agreements, arrangements,
funds or programs providing compensation or benefits, (xiii) any liability
arising out of Fremont's guaranty for any liability or obligation (including
indebtedness) of any other Person, including Fremont's Affiliates, (xiv) any
liabilities relating to (a) the payment of severance benefits pursuant to the
terms of the Severance Plans and (b) the provision of outplacement services,
each in connection with (x) the transfer of employment of Acquired Employees
from Fremont and/or its Affiliates and (y) Business Employees whose employment
with Fremont is terminated or who do not become Acquired Employees on or prior
to the Service Date, (xv) any liabilities relating to the provision of
continuation coverage under Section 601 et seq of ERISA and Section 4980B of the
Code ("COBRA") to or with respect to (a) any Business Employee who does not
become an Acquired Employee, his or her spouse or his or her dependents, and (b)
any Acquired Employee, his or her spouse or his or her dependents but only with
respect to any "qualifying event" occurring before the Service Date, including
any employer-provided subsidies with respect to such COBRA coverage, in
connection with the transfer of employment of Acquired Employees from Fremont
and/or its Affiliates, (xvi) any liabilities arising out of the Fremont
inter-company Tax Sharing Agreement dated August 1, 1997 or any other Fremont
inter-company agreements, (xvii) any liability in connection with the NCCI
Involuntary Pool, and (xviii) any such liability listed in clauses (i) through
(xvii) of this definition that is retroactively applied.
"Extra Contractual Obligations" means all liabilities not covered under the
provisions of any Insurance Policy to the extent such liabilities arise from or
relate to any alleged or actual act, error or omission by Fremont at any time or
by Clarendon prior to the Inception Date, whether intentional or otherwise,
including the following: failure to settle within policy limits, or by reason of
actual or alleged negligence, fraud or bad faith in rejecting an offer of
settlement or in preparation of the defense of or in trial of any action against
its insured or any appeal of any judgment with respect thereto, or from any
alleged or actual reckless conduct or
8
bad faith, in connection with the handling of any claim under any Insurance
Policy or in connection with the issuance, delivery cancellation or
administration of any Insurance Policy.
"FCIC" shall have the meaning set forth in the introductory paragraph
hereof.
"Final Schedule 5.12(a)" shall have the meaning set forth in Section
5.12(a) hereof.
"Final Schedule 5.12(b)" shall have the meaning set forth in Section
5.12(b) hereof.
"Final Schedule 5.12(c)" shall have the meaning set forth in Section
5.12(c) hereof.
"Financial Statements" shall mean with respect to Fremont Indemnity
(including its predecessor corporations), (i) audited balance sheets, statements
of income and statements of cash flow as of and for the fiscal years ended
December 31, 1999, December 31, 2000 and December 31, 2001, and (ii) unaudited
balance sheets, statements of income and statements of cash flow as of and for
the three months ended March 31, 2002.
"Fremont" shall have the meaning set forth in the introductory paragraph
hereof; provided, however, notwithstanding "Fremont" being a term referring to
Fremont Compensation and Fremont Indemnity collectively, throughout this
Agreement where the context calls for, "Fremont" shall mean Fremont Compensation
and/or Fremont Indemnity, as appropriate.
"Fremont Acquired Company" shall have the meaning set forth in Section
8.03(b)(ii) hereof.
"Fremont Acquiring Company" shall have the meaning set forth in Section
8.03(b)(ii) hereof.
"Fremont Brand" has the meaning set forth in Section 8.03(b)(ii) hereof.
"Fremont Commercial Agent List" means the list of appointed independent
insurance agents and brokers of Fremont attached as Schedule 1.01(d) hereto.
"Fremont Compensation" shall have the meaning set forth in the introductory
paragraph hereof.
"Fremont General" shall have the meaning set forth in Section 3.02 hereof.
"Fremont Indemnity" shall have the meaning set forth in the introductory
paragraph hereof.
"Fremont Material Adverse Effect" means any material adverse effect on the
business, financial condition, results of operations or prospects of the
Business taken as a whole.
9
"Fremont Pacific" shall have the meaning set forth in the introductory
paragraph hereof.
"Fremont Policies" means the treaties, policies, binders, slips and other
agreements of insurance or assumed reinsurance, including insurance written and
reinsurance assumed through Involuntary Mechanisms, written in connection with
the Business by Fremont (including all supplements, endorsements, riders and
ancillary agreements in connection therewith); provided, however, that Fremont
Policies shall not include (i) any of the foregoing to the extent that they
cover risks other than workers' compensation risks, and (ii) the NCCI
Involuntary Pool. Schedule 1.01(b)(ii) lists such Fremont Policies in effect as
of April 30, 2002.
"Fremont Privacy Policies" shall have the meaning set forth in Section
3.16(b) hereof.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Entity" shall have the meaning set forth in Section 3.03
hereof.
"Hazardous Materials" means (a) any petrochemical or petroleum products,
waste oil, radon gas, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and polychlorinated biphenyls or (b) any chemicals,
materials or substances defined in or regulated by any Environmental Law as or
included in the definition of "hazardous substances," "hazardous chemicals,"
"hazardous wastes," "hazardous materials," "toxic substances," "contaminants,"
or "pollutants" or words of similar meaning or regulatory effect.
"Inception Date" means 12:01 A.M., Pacific Daylight Time, July 1, 2002.
"Indemnifiable Losses" shall have the meaning set forth in Section 10.01
hereof.
"Indemnified Party" shall have the meaning set forth in Section 10.03(a)
hereof.
"Indemnifying Party" shall have the meaning set forth in Section 10.03(a)
hereof.
"Independent Agent/Broker" means an individual or entity designated by a
policyholder as its broker of record in connection with such policyholder's
Insurance Policy and shall also include any agent acting on behalf of a
policyholder or Fremont regarding an Insurance Policy.
"Insurance Policies" means, collectively, Clarendon Program Insurance
Policies and Fremont Policies.
"Intangible Assets" means those intangible assets used in connection with
the Business at any time since January 1, 1999, whether owned by Fremont or
third parties, including without limitation the Customer Lists and its
associated intangibles that are used or held for use in connection with the
Business, leases and subleases to the office space currently
10
occupied by Fremont in conducting the Business and selected by Employers
Insurance and all Intellectual Property Rights.
"Integrated Medi-Comp Program" means a joint marketing program of
integrated group medical and workers' compensation products pursuant to a Joint
Marketing and Network Access Agreement, effective as of September 1, 1998, by
and between Fremont Compensation and WellPoint Health Networks, Inc. (through
its subsidiaries Blue Cross of California et al.).
"Intellectual Property Right" shall have the meaning set forth in Section
3.17(a) hereof.
"Intellectual Property Rights License Agreements" means the agreement
pursuant to which Fremont grants to Employers Insurance and its Affiliates a
royalty-free, non-exclusive, worldwide license to use Owned Generally Used
Intellectual Property Rights and certain data substantially in the form of
Exhibit E hereto.
"Involuntary Mechanism" means any "assigned risk pool," "syndicate,"
"association," "joint underwriting associations (JUAs)," "other government
mandated programs," or other underwriting facility to the extent that any such
facility underwrites, on a mandatory basis, workers' compensation insurance
included in the Business.
"Inward Reinsurance" means the business assumed pursuant to the Inward
Reinsurance Agreements.
"Inward Reinsurance Agreements" shall have the meaning set forth in Section
3.25(c) hereof.
"Knowledge" means to the best knowledge of the relevant Person after
reasonable inquiry.
"Lease Assignments" shall have the meaning set forth in Section 6.11
hereof.
"Leased Properties" shall have the meaning set forth in Section 3.22(a)
hereof.
"Licensed Generally Used Intellectual Property Rights" shall have the
meaning set forth in Section 3.17(a) hereof.
"Licensed Generally Used Software" shall have the meaning set forth in
Section 3.16(a) hereof.
"Licensed Marks" shall have the meanings set forth in the Intellectual
Property Rights License Agreement.
"Licensed Principally Used Intellectual Property Rights" shall have the
meaning set forth in Section 3.17(a) hereof.
"Licensed Principally Used Software" shall have the meaning set forth in
Section 3.16(a) hereof.
11
"Lien" means any pledge, claim, lien, charge, mortgage, encumbrance,
security interest of any nature, option, right of first refusal, warrant, or
restriction of any kind, including any restriction on use, voting, transfer,
alienation, receipt of income, or exercise of any other attribute of ownership.
"Litigation Settlement" means the court-approved settlement of the R&M Food
Services, Inc. v. Fremont Pacific Insurance Company class action lawsuit whereby
Fremont Compensation agreed to give various classes of policyholders policy
premium credit coupons redeemable at renewal or purchase of a new Fremont
workers' compensation insurance policy.
"NCCI Involuntary Pool" means Fremont's participation in a reinsurance pool
mandated by the National Council on Compensation Insurance, Inc. (NCCI).
"Non-Compete Period" means the period commencing on the Inception Date and
ending on the second anniversary of the Inception Date.
"Order" shall have the meaning set forth in Section 3.11 hereof.
"Other Assumed Liabilities" means all liabilities and obligations of
Fremont required to be paid or performed by Employers Insurance from and after
the Effective Date under the Transferred Contracts and the Assignable Licensed
Principally Used Software, in each case only if actually assigned to and assumed
by Employers Insurance and as set forth on Schedule 1.01(c); provided that any
liability attributable to a breach by Fremont under the terms of the Transferred
Contracts and the Assignable Licensed Principally Used Software shall not be an
Other Assumed Liability.
"Outward Reinsurance" means the business ceded pursuant to the Outward
Reinsurance Agreements.
"Outward Reinsurance Agreements" shall have the meaning set forth in
Section 3.25(b) hereof.
"Owned Generally Used Intellectual Property Rights" shall have the meaning
set forth in Section 3.17(a) hereof.
"Owned Generally Used Software" shall have the meaning set forth in Section
3.16(a) hereof.
"Owned Principally Used Intellectual Property Rights" shall have the
meaning set forth in Section 3.17(a) hereof.
"Owned Principally Used Software" shall have the meaning set forth in
Section 3.16(a) hereof.
"Party" or "Parties" shall have the meaning set forth in the introductory
paragraph hereof.
12
"Permits" means all Federal, state, local or foreign governmental or
regulatory licenses, permits, orders, approvals, registrations, authorizations,
qualifications and filings.
"Permitted Liens" means, as to any asset, (i) Liens for taxes not yet due
and payable, or not at the time delinquent, or being contested in good faith by
appropriate proceedings as disclosed on Schedule 3.10(a) hereto and for which
adequate reserves in accordance with GAAP shall have been set aside, and (ii)
other Liens that do not in the aggregate materially detract from the value or
materially interfere with the present or reasonably contemplated use of such
asset in the Business.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, limited liability company, limited liability partnership,
joint-stock company, trust, unincorporated organization, governmental, judicial
or regulatory body, business unit, division or other entity.
"Plans" shall have the meaning set forth in Section 3.13 hereof.
"Post-Inception Date Extra Contractual Obligations" means all liabilities
not covered under the provisions of any Insurance Policy to the extent such
liabilities arise from or relate to any alleged or actual act, error or omission
(i) with respect to Clarendon Program Insurance Policies, after the Inception
Date, and (ii) with respect to the Fremont Policies to the extent that Employers
Insurance renews such Fremont Policies, after the respective expiration dates of
such Fremont Policies, by Employers Insurance or any of Employers Insurance's
Affiliates, whether intentional or otherwise, including the following: failure
to settle within policy limits, or by reason of actual or alleged negligence,
and fraud or bad faith in rejecting an offer of settlement or in preparation of
the defense of or in trial of any action against its insured or any appeal of
any judgment with respect thereto, or from any alleged or actual reckless
conduct or bad faith, in connection with the handling of any claim under any
Insurance Policy or in connection with the issuance, delivery, cancellation or
administration of any Insurance Policy.
"Post-Inception Date Policy" shall have the meaning set forth in the EICN
Reinsurance Agreement.
"Proposed List of Tangible Assets" shall have the meaning set forth in
Section 3.08 hereof.
"Qualified Licenses" shall have the meaning set forth in Section 5.12(b)
hereof.
"Qualified Tangible Assets" shall have the meaning set forth in Section
3.08 hereof.
"Reinsured Liability" means the following liabilities and obligations
arising out of or relating to the Clarendon Program Insurance Policies: (i) the
amount of all liabilities for Claim Loss related to unpaid claims with a date of
injury on or after the Inception Date; provided, that the allocation of claim
liability pertaining to any injury not occurring on a specific date shall be
determined according to California law, irrespective of where the insured
resides or the injury occurs, (ii) the amount of all liabilities for unpaid
Allocated Loss Adjustment
13
Expenses, where such amounts are incurred on or after the Inception Date, (iii)
the amount of all liabilities for unpaid Unallocated Loss Adjustment Expenses,
where such amount are incurred on or after the Inception Date, (iv) premium
taxes due in respect of premiums written or earned on or after the Inception
Date, (v) assessments and similar charges, whether voluntary or involuntary,
imposed by or due to any Governmental Entity, quasi-Governmental Entity,
Involuntary Mechanism, or guaranty association and "Boards and Bureaus,"
established or governed by any state or other jurisdiction, which commences on
or after the Inception Date, other than any assessments and similar charges
relating to premiums written or liabilities incurred by, or insurance activities
of, Fremont prior to the Inception Date regardless of the date such fee, charge
or liability is actually imposed or billed, (vi) Commissions payable in respect
of premiums written or earned on or after the Inception Date, (vii) all
liabilities for amounts payable for returns or refunds of premiums, where such
premiums are not earned prior to the Inception Date or such amounts are incurred
on or after the Inception Date, and (viii) any Post-Inception Date Extra
Contractual Obligations, including a fair and equitable portion of any
liabilities that constitute both Post-Inception Date Extra Contractual
Obligations and Extra Contractual Obligations, in each instance of (i) through
(viii) above, net of all reinsurance recoverables under the Outward Reinsurance
Agreements, whether or not actually collected or collectible, including an
allocable portion determined on a fair and equitable basis of any reinsurance
receivables that relate to both the Business and the other operations of Fremont
and its Affiliates.
"Release" means any release, spill, emission, leaking, injecting, deposit,
disposal, discharge, dispersal, leaching or migration into the indoor or outdoor
air, surface water, groundwater, land, wetlands, surface and subsurface strata.
"Renewal Rights Agreement" means a Renewal Rights Agreement between
Employers Insurance and Fremont substantially in the form of Exhibit F hereto.
"Representative" or "Representative(s)" shall have the meaning set forth in
Section 5.02(a) hereof.
"Reverse Transition Services Agreement" means a Reverse Transition Services
Agreement between Employers Insurance and Fremont substantially in the form of
Exhibit G hereto.
"Run-Off Business" shall have the meaning set forth in Section 8.02(c)
hereof.
"Selected Employees" shall have the meaning set forth in Section 5.09(a)
hereof.
"Service Date" means the Effective Date.
"Severance Plans" shall have the meaning set forth in Section 3.13 hereof.
"Subleases" shall have the meaning set forth in Section 6.11 hereof.
"Subsequent Contract" shall have the meaning set forth in Section 3.07(b)
hereof.
14
"Subsidiary" means, with respect to any Person on a given date, any other
Person of which a majority of the voting power of the equity securities or
equity interests is owned directly or indirectly by such Person.
"Systematic Assistance" shall have the meaning set forth in Section
8.03(b)(ii) hereof.
"Tangible Assets" means those tangible assets, whether currently owned or
leased, used at any time since January 1, 1999 in connection with the Business,
including, without limitation, furniture, fixtures, equipment (computer and
other), supplies and other tangible personal property.
"Tax" means all taxes, charges, fees, levies or other assessments,
including, without limitation, any net income tax or franchise tax based on net
income, any alternative or add-on minimum taxes, any gross income, gross
receipts, premium, sales, use, ad valorem, value added, transfer, profits,
license, payroll, employment, withholding, excise, severance, stamp, occupation,
property, environmental or windfall profit tax, custom duty or other tax,
governmental fee or other like assessment, together with any interest credit or
charge, penalty, addition to tax or additional amount imposed by any Tax
Authority.
"Tax Authority" means the Internal Revenue Service and any other domestic
or foreign Governmental Entity responsible for the administration of any Tax.
"Tax Returns" means all returns, reports, estimates, information statements
relating to or required to be filed in connection with any Tax.
"Third Party Claim" shall have the meaning set forth in Section 10.03(a)
hereof.
"Third Party Confidentiality Agreements" shall have the meaning set forth
in Section 5.02(b) hereof.
"Transfer Date" means with respect to each Transferred Asset, the date on
which the right, title and interest of Fremont are assigned, transferred,
licensed, sublicensed, leased or subleased to Employers Insurance and the
obligations are assumed by Employers Insurance.
"Transfer Documents" means the Xxxx of Sale and General Assignment, any
assignment, license or sub-license of certain Computer Software contemplated by
Sections 3.16 and 5.10 hereof, any lease or sublease of certain Leased
Properties contemplated by Section 5.11 hereof and such other documents and
instruments reasonably necessary in order to transfer all of the right, title
and interest of Fremont in the Transferred Assets to Employers Insurance and
Employers Insurance's designees.
"Transferred Assets" means all of the right, title and interest of Fremont
in (i) the Transferred Contracts, (ii) the Transferred Software Licenses, (iii)
the Owned Principally Used Software, (iv) the Transferred Tangible Assets, (v)
all Transferred Contracts, Transferred Software Licenses and Transferred
Tangible Assets assigned, licensed, sub-licensed, leased or subleased after the
Closing Date pursuant to Section 2.04 hereof, (vi) the Integrated Medi-Comp
15
Program and the ADP Program, (vii) the Books and Records, (viii) the Owned
Principally Used Intellectual Property Rights, (ix) licenses with respect to the
Owned Generally Used Intellectual Property Rights, Licensed Principally Used
Intellectual Property Rights and Licensed Generally Used Intellectual Property
Rights, and (x) all guaranties, warranties, indemnities and other rights of
Fremont against third parties with respect to any asset referred to in clause
(i), (ii), (iii), (iv), (v), (vi), (vii), (viii) or (ix) of this definition;
provided that the "Transferred Assets" shall not include (a) the Licensed Marks
or (b) any of the foregoing to the extent they are terminated, transferred or
otherwise disposed of as permitted by Section 5.01 of this Agreement between the
date hereof and the Closing Date and; provided, further, that, notwithstanding
the provisions of Section 2.01(a) hereof, Employers Insurance and Fremont shall
each own a one hundred percent (100%) undivided interest in the Owned
Principally Used Software.
"Transferred Contracts" means at any time those contracts and agreements
listed on Final Schedule 5.12(a) hereto which have been assigned, licensed,
sub-licensed, leased or sub-leased to Employers Insurance.
"Transferred Software Licenses" means at any time the Computer Software
listed on Final Schedule 5.12(b) hereto which has been assigned, licensed or
sub-licensed to Employers Insurance.
"Transferred Tangible Assets" means at any time those Tangible Assets that
are listed on Final Schedule 5.12(c) hereto which have been transferred to
Employers Insurance.
"Transition" shall have the meaning set forth in the recitals hereof.
"Transition Services and Facilities Agreement" means the Transition
Services and Facilities Agreement between Fremont and Employers Insurance
substantially in the form of Exhibit H hereto.
"Unallocated Loss Adjustment Expenses" means the cost of office
administration, salaried employees and third party consultants (other than legal
counsel, medical consultants, claims adjusters and other consultants employed in
connection with the investigation, appraisal, adjustment, settlement,
litigation, defense or appeal of specific Claim Losses).
"WARN" shall have the meaning set forth in Section 5.09(f) hereof.
"Workers' Compensation Products" means all workers' compensation insurance
products which constitute the Business sold by Fremont, or Clarendon pursuant to
the Clarendon Reinsurance/Cession Program.
16
ARTICLE II
TRANSFER AND ACQUISITION OF ASSETS
Section 2.01. TRANSFER AND ACQUISITION.
(a) Upon the terms and subject to the conditions of this Agreement, at
the Closing Date, Fremont shall transfer to Employers Insurance and Employers
Insurance shall obtain from Fremont, effective on the Effective Date, all of the
right, title and interest of Fremont in the Transferred Assets. All sales,
assignments and transfers of the Transferred Assets shall be effected by the
Transfer Documents executed on the Closing Date.
(b) Upon the terms and subject to the conditions of this Agreement, on
the Closing Date, Employers Insurance shall assume, effective on the Effective
Date, the Other Assumed Liabilities pursuant to the Assumption of Liabilities
Agreement executed on the Closing Date.
(c) Any transfer or sales tax imposed in connection with the transfer,
sale, assumption or recording of the Transferred Assets to be transferred
pursuant to Section 2.01(a) hereof, the Other Assumed Liabilities to be assumed
pursuant to Section 2.01(b) hereof and the Reinsured Liabilities to be assumed
pursuant to the EICN Reinsurance Agreement shall be paid by Fremont.
Section 2.02. PLACE AND DATE OF CLOSING. Subject to satisfaction of all the
conditions set forth in Articles VI and VII hereof (unless otherwise waived
pursuant to Articles VI or VII), the Closing shall take place at the offices of
LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P., 000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxxxxx, Xxxxxxxxxx, at 10:00 A.M., Pacific Daylight Time, on the Closing
Date or such other time or place as the Parties may mutually agree.
Section 2.03. TRANSACTIONS TO BE EFFECTED AT THE CLOSING.
(a) At the Closing, Fremont shall execute (where appropriate) and
deliver to Employers Insurance: (i) the Administrative Services Agreement, (ii)
the Transition Services and Facilities Agreement, (iii) the Reverse Transition
Services Agreement (iv) the Intellectual Property Rights License Agreement, (v)
the Renewal Rights Agreement, (vi) the Xxxx of Sale and General Assignment and
the other Transfer Documents, (vii) the Assumption of Liabilities Agreement and
(viii) such other agreements, instruments and documents as are required by this
Agreement to be delivered by Fremont at the Closing, including without
limitation subleases.
(b) At the Closing, Employers Insurance shall execute (where
appropriate) and deliver to Fremont: (i) the Administrative Services Agreement,
(ii) the Transition Services and Facilities Agreement, (iii) the Reverse
Transition Services Agreement (iv) the Intellectual Property Rights License
Agreement, (v) the Renewal Rights Agreement, (vi) the Xxxx of Sale and General
Assignment and the other Transfer Documents, (vii) the Assumption of Liabilities
Agreement and (viii) such other agreements, instruments and documents as are
required by this Agreement to be delivered by Employers Insurance at the
Closing, including without limitation subleases.
17
Section 2.04. POST-CLOSING DATE TRANSFERS OF ASSETS. Notwithstanding
anything to the contrary contained in this Agreement, to the extent that the
assignment, transfer, sub-license or sublease or attempted assignment, transfer,
sub-license or sublease to Employers Insurance of any agreements, licenses or
leases listed on Final Schedules 5.12(a), 5.12(b) and 5.12(c) hereto or any
benefit arising thereunder or resulting therefrom is prohibited by any
applicable law or would require any governmental or third party authorizations,
approvals, consents or waivers and such authorizations, approvals, consents or
waivers shall not have been obtained prior to the Closing Date, this Agreement
shall not constitute a sale, assignment, transfer, conveyance or delivery, or
any attempted sale, assignment, transfer, conveyance or delivery thereof with
respect to each such agreement, license or lease. Following the Closing Date,
the Parties shall use best efforts, and cooperate with each other, to obtain
promptly such authorizations, approvals, consents or waivers; provided, however,
that Employers Insurance shall not be required to pay any consideration therefor
to Fremont; provided, further, that any cost and expense (including without
limitation attorneys' fees) in connection with the procurement of such
authorization, approval, consents or waivers, shall be shared equally by Fremont
and Employers Insurance. Pending such authorization, approval, consent or
waiver, the Parties shall cooperate with each other in any mutually agreeable,
reasonable and lawful arrangements designed to provide to Employers Insurance
the benefits of any such agreements, licenses or leases listed on Final
Schedules 5.12(a), 5.12(b) and 5.12(c) hereto at no additional cost to Employers
Insurance. Once authorization, approval, consent or waiver for the assignment,
transfer, sub-license or sublease of any such agreements, licenses or leases
listed on Final Schedules 5.12(a), 5.12(b) and 5.12(c) hereto not assigned,
transferred, sub-licensed or subleased on the Closing Date is obtained, Fremont
shall assign, transfer, sub-license or sublease such agreements, licenses or
leases listed on Final Schedules 5.12(a), 5.12(b) and 5.12(c) hereto to
Employers Insurance, provided, however, Fremont and Employers Insurance shall
share equally any cost and expense (including without limitation attorneys'
fees) in connection with such assignment, transfer, sub-license or sublease.
Upon assignment, transfer, sub-license or sublease by Fremont and assumption by
Employers Insurance of such agreements, licenses or leases listed on Final
Schedules 5.12(a), 5.12(b) and 5.12(c) hereto, such agreements, licenses,
sub-licenses or subleases shall be deemed "Transferred Contracts," "Transferred
Software Licenses" and "Transferred Tangible Assets" for all purposes of this
Agreement. To the extent that any such agreements, licenses or leases cannot be
transferred or the full benefits of use of any such agreements, licenses or
leases cannot be provided to Employers Insurance following the Closing Date
pursuant to this Section 2.04, then Employers Insurance and Fremont shall enter
into such arrangements (including subleasing or subcontracting if permitted) to
provide to Employers Insurance, at costs and expenses which Fremont and
Employers Insurance shall share equally, the economic (taking into account Tax
costs and benefits) and operational equivalent of such agreements, licenses or
leases and the performance by Fremont and Employers Insurance of the obligations
thereunder, to the extent that entering into any such arrangements would not be
materially burdensome to Fremont or Employers Insurance.
Section 2.05. RENEWAL RIGHTS. Following the Inception Date, Fremont shall
cooperate with Employers Insurance to assist Employers Insurance and its
designee in writing such renewals of the Fremont Policies and the Clarendon
Program Insurance Policies as it shall seek to write, in accordance with the
terms of the Renewal Rights Agreement.
18
Section 2.06. NO ASSUMPTION OF EXCLUDED LIABILITIES BY EMPLOYERS INSURANCE.
It is expressly understood and agreed that Employers Insurance is not assuming,
and shall not be liable to pay, any Excluded Liabilities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FREMONT
Fremont hereby makes the following representations and warranties to
Employers Insurance that the statements contained in this Article III are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Article
III):
Section 3.01. ORGANIZATION, STANDING AND AUTHORITY. Fremont is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on the operations of the Business as it is now being
conducted.
Section 3.02. AUTHORIZATION. Fremont has the requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
under the Ancillary Agreements and under the other agreements and instruments
contemplated hereby and thereby to be executed by it. The execution and delivery
by Fremont of this Agreement, of the Ancillary Agreements and of the other
agreements and instruments contemplated hereby and thereby to be executed by it,
and the performance by Fremont of its obligations hereunder and thereunder, have
been duly authorized by all necessary corporate action on the part of Fremont
Compensation and Fremont Indemnity and their respective stockholders. The
execution and delivery by Fremont of this Agreement, of the Ancillary Agreements
and of the other agreements and instruments contemplated hereby and thereby to
be executed by it, and the performance by Fremont of its obligations hereunder
and thereunder, have been approved by the Board of Fremont General Corporation,
a Nevada corporation ("Fremont General") at a meeting duly called and convened
on May 30, 2002. This Agreement has been duly executed and delivered by Fremont
and, subject to the due execution and delivery hereof by Employers Insurance,
this Agreement is a valid and binding obligation of Fremont, enforceable against
Fremont in accordance with its terms, subject to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights. As of the Closing Date, each of the Ancillary
Agreements and other agreements contemplated hereby and thereby executed and
delivered by Fremont shall have been duly executed and delivered by Fremont and,
subject to the due execution and delivery of such agreements by the other
parties thereto, each of the Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby executed by Fremont is a valid and
binding obligation of Fremont, enforceable against Fremont in accordance with
its terms, subject to enforceability, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights.
19
Section 3.03. NO CONFLICT OR VIOLATION, ETC. Except as disclosed on
Schedule 3.03 hereto, the execution and delivery by Fremont of this Agreement,
the Ancillary Agreements and the other agreements and instruments contemplated
hereby and thereby to which it is a party does not, and the consummation by
Fremont of the transactions contemplated by this Agreement and by such Ancillary
Agreements and compliance with the provisions hereof and thereof will not (a)
conflict with any of the provisions of the Certificate of Incorporation or
Articles of Incorporation, as applicable, or By-laws of Fremont, (b) conflict
with, result in a breach of or default (with or without notice or lapse of time,
or both) under, give rise to a right of termination, modification, cancellation
or acceleration of any obligation or loss of a benefit under, require the
consent, approval, or authorization of, or notice to any Person under, or result
in the creation of any Lien on any property or asset of Fremont (including the
Transferred Assets) under, any indenture or other agreement, permit, franchise,
license or other instrument or undertaking to which Fremont is a party or by
which Fremont or any of its assets is bound or affected, or (c) contravene any
statute, law, ordinance, rule, regulation, order, judgment, injunction, decree,
determination or award applicable to Fremont or any of its Subsidiaries or any
of its respective properties or assets. No consent, approval or authorization
of, or declaration or filing with, or notice to, any court or governmental or
regulatory authority or agency, domestic or foreign (a "Governmental Entity"),
is required to be obtained or made by or with respect to Fremont or any of its
Subsidiaries, in connection with the execution and delivery of this Agreement,
the Ancillary Agreements and the agreements and instruments contemplated hereby
and thereby by Fremont or the consummation by Fremont of the transactions
contemplated hereby and thereby, except for the approvals, filings or notices
required under the insurance laws of the jurisdictions set forth on Schedule
3.03 hereto and such other consents, approvals, authorizations, declarations,
filings or notices as are set forth on Schedule 3.03 hereto.
Section 3.04. FINANCIAL STATEMENTS; BOOKS AND RECORDS.
(a) Each of the Financial Statements listed on Schedule 3.04(a) has
been prepared in accordance with statutory accounting practices, as applicable,
which have been applied on a consistent basis throughout the periods covered
thereby. Such Financial Statements present fairly the financial condition of
Fremont as of such dates and the results of operations of Fremont for such
periods, are correct and complete, and are consistent with the books and records
of Fremont (which books and records are correct and complete);
(b) To the Knowledge of Fremont, the Books and Records are true,
correct and complete in all material respects, have been maintained in
accordance with sound business practices and accurately present and reflect in
all material respects all of the transactions and actions therein described.
Fremont has provided or made available to Employers Insurance on or prior to the
date hereof copies of all written policies, procedures and guidelines relating
to the Business, including all underwriting policies, procedures and guidelines
other than those policies, procedures and guidelines which are not material to
the conduct or operation of the Business.
Section 3.05. RESERVES. To the Knowledge of Fremont, all factual
information in the possession of Fremont that would be considered in the
ordinary course of preparing an actuarial report or actuarial opinion relating
to the valuation of the loss and loss adjustment expense
20
reserves was provided to Fremont's actuary in preparing Fremont's report for the
applicable fiscal year most recently completed, and all of such information was
accurately and completely recorded in the Books and Records of Fremont.
Section 3.06. ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule
3.06 hereto, since December 31, 2001, Fremont has conducted the Business only in
the ordinary course, and since such date, there has not been any change, event
or state of circumstances or facts that (i) could, individually or in the
aggregate, reasonably be expected to have a Fremont Material Adverse Effect or
(ii) would prevent or materially delay the performance by Fremont of its
obligations hereunder.
Section 3.07. CONTRACTS.
(a) Schedule 3.07(a) hereto contains a complete and correct list,
arranged in numbered paragraphs corresponding to the numbered categories below,
of each legally binding contract, agreement, lease, commitment, arrangement or
license (collectively, "Contracts") to which Fremont is a party or by which it
is bound as of the date hereof:
(i) any Inward Reinsurance Agreement,
(ii) any fronting agreement,
(iii) any pooling and similar reinsurance arrangement
with respect to which Fremont is a party and any
amendment, supplement or other modification
thereto,
(iv) any lease of real property which relates primarily
to the Business,
(v) any lease of personal property or any contract in
respect of any Tangible Assets,
(vi) any agreement in connection with the Business with
or for the benefit of any Business Employee,
(vii) any agreement in connection with the Business with
or for the benefit of any Fremont's Affiliate to
the extent any such contract is material to the
Business,
(viii) any contract or agreement limiting the ability of
any Person (including Fremont or any assignee) to
compete in respect of the Business,
(ix) any licensing agreement with respect to the
Licensed Principally Used Software and Licensed
Generally Used Software as disclosed on Schedules
3.16(a) and 3.16(b) hereto,
21
(x) any contract, agreement and commitment relating to
the Owned Principally Used Software and Owned
Generally Used Software as disclosed on Schedule
3.16(a) and Schedule 3.16(b) hereto, and Licensed
Principally Used Software and Licensed Generally
Used Software to the extent not disclosed pursuant
to Section 3.07(a)(ix) above, including without
limitation any maintenance agreement, service
agreement or sub-license agreement,
(xi) any contract, agreement and commitment relating to
the Intellectual Property Rights,
(xii) any contract, agreement and commitment relating to
the Computer Hardware as disclosed on Schedule
3.16(c),
(xiii) any joint venture, partnership and joint marketing
agreement relating to the Business,
(xiv) any contract, agreement and commitment between
Fremont and any agent or distributor of Insurance
Policies,
(xv) any consulting agreement relating to the Business,
and
(xvi) any other material contract, agreement and
commitment to which Fremont or any Fremont's
Affiliate is a party as of the date hereof which
relate to the Business.
(b) True and complete copies of each contract, agreement or commitment
listed on Schedule 3.07(a) hereto have been delivered or made available to
Employers Insurance for its review. Each of the agreements listed on Schedule
3.07(a) hereto (and, as of the Closing Date, any contract or agreement entered
into after the date hereof which would have been so listed if in effect as of
the date hereof (a "Subsequent Contract")) is in full force and effect and is
the valid and binding obligation of each party thereto, except as the
enforceability of any thereof may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). Except as set forth in the Schedules hereto, neither Fremont
nor any of Fremont's Affiliates or any other Person is (or, with the giving of
notice or the lapse of time or both, will be) in violation or breach of or
default under any Contract listed on Schedule 3.07(a) hereto (and, as of the
Closing Date, any Subsequent Contract).
Section 3.08. TANGIBLE ASSETS. Fremont has delivered a list of all Tangible
Assets (such Tangible Assets, the "Qualified Tangible Assets"; such list, the
"Proposed List of Tangible Assets") to Employers Insurance and has delivered or
made available to Employers Insurance copies of the documents evidencing
ownership of or the right to use such Qualified Tangible Assets listed therein.
Such Proposed List of Tangible Assets prepared by Fremont is a true, complete
and correct list of all of the Tangible Assets.
22
Section 3.09. INTANGIBLE ASSETS. The Customer Lists listed on Schedule
1.01(a), the Contracts listed on Schedule 3.07(a), the Computer Software listed
on Schedule 3.16(a) and Schedule 3.16(b), and the Intellectual Property Rights
listed on Schedule 3.17(a) shall, after giving effect to any overlaps between
such schedules and lists, constitute all of the Intangible Assets.
Section 3.10. TITLE TO ASSETS; Sufficiency.
(a) Fremont has good title to all of the Transferred Assets free and
clear of all Liens, except for (i) Liens disclosed on Schedule 3.10(a) hereto
and (ii) Permitted Liens. At the Closing Date, Employers Insurance will acquire
the Transferred Assets, free and clear of all Liens, except for Liens disclosed
on Schedule 3.10(a) hereto and Permitted Liens and except for any Liens arising
from acts of Employers Insurance or any of its Affiliates.
(b) Other than the Clarendon Reinsurance Agreement, insurance licenses
and qualifications necessary to conduct the Business, the Transferred Assets
together with the rights of Employers Insurance and its Affiliates under the
Ancillary Agreements constitute all the assets, properties and rights of Fremont
necessary for Employers Insurance to conduct the Business immediately following
the Closing Date as currently conducted. All of the Tangible Assets are in all
respects in reasonable and usable operating condition and in a reasonable state
of maintenance and repair and are adequate for the conduct of the Business.
Section 3.11. LITIGATION; ORDERS. Except as disclosed on Schedule 3.11
hereto, and except for claims (other than Extra Contractual Obligations) under
the Insurance Policies in the ordinary course of business, which individually or
in the aggregate, could not reasonably be expected to have a Fremont Material
Adverse Effect, there is no action, suit, proceeding or arbitration (each, an
"Action") pending or threatened against or affecting the Business, or with
respect to the employment and/or termination of any individual currently or
formerly employed by Fremont in connection with the Business, nor is there any
judgment, decree, injunction or order of any Governmental Entity or arbitrator
(each, an "Order") outstanding against any of such Persons or otherwise
affecting the Business. Fremont has delivered or made available to Employers
Insurance copies of all pleadings, correspondence and other documents relating
to each Action and Order listed on Schedule 3.11 hereto.
Section 3.12. COMPLIANCE WITH LAWS.
(a) Except as disclosed on Schedule 3.12 hereto, Fremont has conducted
the Business in compliance with all applicable statutes, laws, ordinances,
rules, regulations and orders of any Governmental Entity, whether insurance or
otherwise, and Fremont has not received any currently effective notice or other
communication whether oral or written from any Governmental Entity, arbitrator
or any other Person regarding any such violation or failure.
(b) Except as set forth on Schedule 3.12 hereto, all deficiencies or
violations with respect to the Business in all reports (including, but not
limited to, draft reports) of examinations of the affairs of Fremont with
respect to the Business (including, but not limited to, market conduct
examinations) issued by any insurance regulatory authority for any period have
been resolved.
23
(c) Except as set forth on Schedule 3.12 hereto, Fremont is not a
party to any contract with or other undertaking to, or subject to any order by,
or the recipient of any supervisory letter or other written communication of any
kind from, any Governmental Entity, which contract, undertaking, order, letter
or communication is currently in effect and relates to its reserve adequacy or
its claims, marketing, sales, trade, jurisdictional inspection practices or
underwriting practices or policies in respect of the Business, nor has Fremont
been notified by any Governmental Entity that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, contract, undertaking, letter or other written communication.
Section 3.13. EMPLOYEES AND EMPLOYEE BENEFIT PLANS. Schedule 3.13(a) hereto
contains a true and complete list of all of the current employees of Fremont who
are involved with the Business ("Business Employees") (excluding, as "Excluded
Employees," those such employees identified on Schedule 3.13(a) hereto as
contemplated by Fremont for termination prior to the commencement of
negotiations with respect to the transactions contemplated by this Agreement),
including each such Business Employee's title, job description (including
classification), hire date and current annual salary and most recent annual (or
other) bonus or incentive compensation awarded. Schedule 3.13(b) hereto contains
a true and complete list of each employee benefit plan, practice, agreement,
policy and arrangement maintained, or contributed to, by Fremont and which
provides benefits, payments or compensation for any Business Employee ("Plans").
Fremont has provided to Employers Insurance copies of all Plans and all material
documents related thereto. Each Plan is being maintained in substantial
compliance with all applicable laws and pursuant to the terms thereof. Neither
Fremont nor any entity required to be aggregated therewith pursuant to the
requirements of Section 414(b) or (c) of the Code and/or Section 4001(b) of
ERISA contributes to, or has in the last six years contributed to, or has an
obligation to contribute to a multiemployer plan (as that term is defined in
Section 4001(a) of ERISA), or has incurred, or could reasonably be expected to
incur, any liability under Title IV of ERISA (other than for the payment of
Pension Benefit Guaranty Corporation premiums payable in the ordinary course)
and/or any accumulated funding deficiency under the minimum funding requirements
of Section 412 of the Code. Schedule 3.13(c) hereto contains a true and complete
list of each plan, practice, agreement, policy and arrangement which provides
for severance, termination and/or outplacement benefits and/or payments for any
Business Employee ("Severance Plans"). Fremont has provided to Employers
Insurance a true and complete copy of each of the Severance Plans. Except as set
forth on Schedule 3.13(c) hereto, during the 12-month period immediately
preceding the date of this Agreement, no material modifications have been made
to any of the Severance Plans. Each Plan intending to be qualified under Section
401(a) of the Code meets the requirements of 401(a), has received a favorable
determination letter from the Internal Revenue Service to such effect and
Fremont is not aware of any facts or circumstances that could result in the
revocation of such determination letter. Except for COBRA, and Plans intended to
be qualified under Section 401(a) of the Code, no Plans provide benefits to
employees or former employees following their termination of employment.
Section 3.14. BROKERS. No broker, investment banker, financial advisor or
other person, the fees and expenses of which will be paid by Fremont, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions
24
contemplated by this Agreement based upon arrangements made by or on behalf of
Fremont. No broker or other Person is entitled to any broker's, finder's or
other similar fee or leasing commission in connection with the procurement of
the Subleases or Lease Assignments of any of the Leased Properties.
Section 3.15. LICENSES AND FRANCHISES. Schedule 3.15 hereto lists (i) all
jurisdictions in which Fremont is licensed to issue the Insurance Policies and
(ii) the lines of business which Fremont is authorized to transact in each such
jurisdiction. Except as set forth on Schedule 3.15 hereto, (i) Fremont has been
duly authorized by the relevant state insurance regulatory authorities to issue
the Insurance Policies that it is currently writing, and was duly authorized to
issue the Insurance Policies that it is not currently writing at the time such
Insurance Policies were issued in the respective states in which it conducts the
Business, and (ii) Fremont has all other Permits and authorizations necessary to
conduct the Business in the manner and in the areas in which the Business is
presently being conducted by Fremont and all such Permits and authorizations are
valid and in full force and effect.
Section 3.16. COMPUTER SOFTWARE AND HARDWARE.
(a) Schedule 3.16(a) hereto sets forth a true and complete listing of
all Computer Software used principally in the conduct of the Business. Schedule
3.16(a) hereto also sets forth whether each such Computer Software is (i) owned
by Fremont (the "Owned Principally Used Software") or (ii) licensed by Fremont
from a third party (the "Licensed Principally Used Software"). Except as set
forth in Schedule 3.16(a), Fremont has neither (i) licensed any of the Owned
Principally Used Software to any other Person, or (ii) entered into any
exclusive agreements granting rights to the Owned Principally Used Software to
any other Person. Schedule 3.16(b) hereto sets forth a true and complete listing
of all Computer Software used in both the conduct of the Business and the
conduct of Fremont's other businesses and not used principally in the conduct of
the Business. Schedule 3.16(b) hereto also sets forth whether each such Computer
Software is (i) owned by Fremont (the "Owned Generally Used Software") or (ii)
licensed by Fremont from a third party (the "Licensed Generally Used Software").
In addition, Schedule 3.16(b) also includes a list of all licenses,
sub-licenses, or other agreements as well as all royalty or similar payment
obligations with respect to the Licensed Principally Used Software and the
Licensed Generally Used Software, and the renewal or expiration dates for such
licenses. Other than as set forth on Schedule 3.16(b) hereto, on the Closing
Date Employers Insurance shall have (A) a one hundred percent (100%) undivided
ownership interest in the Owned Principally Used Software, including all
copyright and other rights in its source code, object code, documentation and
all physical copies thereof, free and clear of any royalty or other payment
obligations or Liens, (B) the same rights to all Owned Generally Used Software
as Fremont had prior to the Closing Date, free and clear of any royalty or other
payment obligations or Liens, (C) pursuant to an assignment of all of Fremont's
rights with respect to any Licensed Principally Used Software selected by
Employers Insurance pursuant to Section 5.12(b) hereof, all rights as were
granted or licensed to Fremont prior to the
25
Closing Date and free and clear of any Liens, subject to the terms and
conditions of the assigned licenses to the Licensed Principally Used Software,
and (D) pursuant to a sub-license granted by Fremont to Employers Insurance, all
rights with respect to any Licensed Generally Used Software selected by
Employers Insurance pursuant to Section 5.12(b) hereof, as were granted or
licensed to Fremont prior to the Closing Date and free and clear of any Liens,
subject to the terms and conditions of the sub-licenses to the Licensed
Generally Used Software. On the Closing Date, Fremont shall have the right,
power and authority to grant the rights herein granted, licensed, sub-licensed
or assigned to Employers Insurance. No restrictions on the use of the Owned
Principally Used Software, the Owned Generally Used Software, the Licensed
Principally Used Software and/or the Licensed Generally Used Software would
materially affect the use of such Computer Software in whole or in part. All
Owned Principally Used Software and all Owned Generally Used Software was either
created by (i) employees of Fremont as "works-made-for-hire," as such term is
defined under Section 101 of the United States Copyright Law, within the scope
of their employment, (ii) third parties as "works-made-for-hire," as such term
is defined under Section 101 of the United States Copyright Law, pursuant to
written agreements with Fremont, or (iii) independent contractors who have
assigned all of their rights to Fremont pursuant to written agreements, provided
that a copy of any written agreement or assignment referenced in this Section
3.16(a) shall be provided to Employers Insurance upon request. To the extent
that Fremont has made enhancements, improvements, or customizations to any
Licensed Principally Used Software and the terms pursuant to which any such
software is licensed grant ownership rights to Fremont with respect to any such
enhancements, improvements, or customizations, all such enhancements,
improvements, or customizations shall be deemed to be Owned Principally Used
Software regardless of whether any such enhancements, improvements, or
customizations are so listed on Schedule 3.16(a).
(b) Fremont is not in conflict with or violation or infringement of,
nor has Fremont received any notice of any such conflict with, or violation,
infringement or breach of, any patent, copyright, trade secret or any
proprietary rights or contract rights of any other Person with respect to any
Owned Principally Used Software, Owned Generally Used Software, Licensed
Principally Used Software or Licensed Generally Used Software. No use of any
Owned Principally Used Software, Owned Generally Used Software, Licensed
Principally Used Software or Licensed Generally Used Software by Fremont as
provided hereunder breaches, violates or infringes any rights of any other
Person or (except for the payment of computer software licensing or maintenance
fees) requires any payment for the use of any patent, trade name, domain name,
service xxxx, trade secret, trademark, copyright or other intellectual property
right or technology owned by any other Person. No use of any Owned Principally
Used Software or Owned Generally Used Software by any other Person breaches,
violates or infringes the rights of Fremont. As to all Owned Principally Used
Software and all Owned Generally Used Software, Fremont has full right, title
and interest in and to such Computer Software free and clear of Liens, and
Fremont's ownership rights and use comply with (i) any and all applicable
statutes, laws, ordinances, rules, regulations and orders of any Governmental
Entity concerning privacy and (ii) the internal policies of Fremont or
agreements or promises with other Persons concerning privacy (the "Fremont
Privacy Policies"). With respect to Licensed Generally Used Software for which
Fremont grants a sub-license to Employers Insurance, Employers Insurance's pro
rata share of such actual maintenance fees, if applicable, shall be the same
proportion thereof as used for purposes of allocating a share of such fees to
the Business on a historical basis. Employers Insurance shall have the right to
inspect Fremont's Books and Records with respect to these fees. At Fremont's
option, instead of sub-licensing the Licensed Generally Used Software to
Employers Insurance, Fremont may assign such licenses to Employers Insurance on
a novation basis.
26
(c) Schedule 3.16(c) sets forth all computer hardware systems (the
"Computer Hardware") owned or leased by Fremont and used in connection with the
Business and indicates whether each such Computer Hardware is owned or leased.
All Computer Hardware listed on Schedule 3.16(c) has been properly maintained by
Fremont in accordance with standards set by the manufacturer of such systems and
is in sufficiently good working condition to perform all operations relating to
the conduct of the Business. Fremont is not in conflict with or violation or
infringement of, nor has Fremont received any notice of any such conflict with
or violation, or infringement, or breach of any patent, trade secret or any
proprietary rights or contract rights of any other Person with respect to any
Computer Hardware.
(d) Schedule 3.16(d) sets forth all maintenance, support and service
agreements relating to the Computer Hardware and Computer Software. True and
complete copies of each agreement listed on Schedule 3.16(d) hereto have been
delivered or made available to Employers Insurance for its review. Employers
Insurance shall have the same right to maintenance, support and services with
respect to the Computer Hardware and Computer Software selected by Employers
Insurance pursuant to Section 5.12(b) as Fremont had immediately prior to the
Closing Date.
Section 3.17. TECHNOLOGY AND INTELLECTUAL PROPERTY.
(a) Except as set forth on Schedule 3.17(a), Fremont is the sole and
exclusive owner, free and clear of all Liens or licenses to third parties, or
has valid and enforceable rights or licenses to use, all (A) patents, (B) such
trademarks, service marks, and trade names as are used or have been used at any
time since January 1, 1999 in connection with the Business, (C) copyrights and
copyrightable materials (including with respect to each of the foregoing clauses
(A), (B) and (C), any registrations, renewals, applications, licenses or rights
relating to any of the foregoing), and (D) technology, domain names, trade
secrets, inventions, know-how, algorithms, formulas, and confidential or
proprietary information of Fremont or other Persons used to carry on the
Business at any time since January 1, 1999 and Fremont is the sole and exclusive
owner of all rights and all physical copies, free of any royalties, Liens, fees
or other charges, of all of Fremont's systems (exclusive of Computer Software,
source code and any other rights set forth in Schedule 3.16(a)) and data used to
carry on the Business, including, but not limited to, (i) actuarial information
(the "Actuarial Information") for pricing workers' compensation coverages of the
type which has been provided to the actuaries for the Business on or prior to
the Closing Date, including increased limits factors, premium and loss trends
and loss development factors, (ii) claims settlement systems and other
information (the "Claims Settlement Information") with respect to the settlement
of claims regarding workers' compensation insurance coverages for the Business,
in both cases including any reproductions thereof or derivative works based
thereon, and (iii) other information related to the Business, including
information contained in databases or in electronic, optical or other formats
(each of the rights pertaining to (A), (B), (C), (D) (i), (ii) and (iii) above,
an "Intellectual Property Right"), and Fremont has not received any notice of
any infringement of the rights of others with respect to any such Intellectual
Property Right. Schedule 3.17(a) sets forth a complete and correct list, as of
the date hereof, and a brief description of, (a) patents, patentable inventions,
copyrights, trademarks, service marks, trade names, common law trademarks,
common law service marks, common law trade names currently in use in connection
with the Business or in use at anytime since January 1, 1999
27
(including any registrations, renewals, applications and licenses or rights
relating to any of the foregoing), (b) Intranet or Internet domain name
registrations that are owned by Fremont and all registrations, (c) applications
for registration of any other Intellectual Property Rights, (d) all trade
secrets, algorithms, and formulas, and (e) Actuarial Information and Claims
Settlement Information according to the following four categories: (1)
Intellectual Property Right owned by Fremont and used principally in the conduct
of the Business (such right, the "Owned Principally Used Intellectual Property
Right"), (2) Intellectual Property Right licensed by Fremont from a third party
and used principally in the conduct of the Business (such right, the "Licensed
Principally Used Intellectual Property Right"), (3) Intellectual Property Right
owned by Fremont and used in both the conduct of the Business and the conduct of
Fremont's other businesses and not used principally in the conduct of Business
(such right, the "Owned Generally Used Intellectual Property Right"), and (4)
Intellectual Property Right licensed by Fremont from a third party and used in
both the conduct of the Business and the conduct of Fremont's other businesses
and not used principally in the conduct of Business (such right, the "Licensed
Generally Used Intellectual Property Right"). Fremont hereby represents and
warrants that Employers Insurance will have the same rights as Fremont did
immediately prior to the Closing Date, free and clear of any Liens, to use all
Intellectual Property Rights, including without limitation, any confidential or
proprietary information, currently used in the Business.
(b) With respect to all issued patents, registered trademark and
service marks, copyrights and domain names, as well as any applications for each
of the foregoing, Schedule 3.17(b) sets forth the jurisdiction in which each
such right is registered or in which any application for such issuance has been
filed, and except as set forth in Schedule 3.17(b), all such rights are valid
and subsisting. With respect to all Owned Principally Used Intellectual Property
Rights, Schedule 3.17(b) sets forth all licenses, sub-licenses and other
agreements pursuant to which any Person is authorized to use any Owned
Principally Used Intellectual Property Rights.
(c) Schedule 3.17(c) sets forth a list of all licenses, sub-licenses
or other agreements as well as all royalty or similar payment obligations with
respect to the Licensed Principally Used Intellectual Property Rights and the
Licensed Generally Used Intellectual Property Rights, and the renewal or
expiration dates for such licenses. Except as set forth on Schedule 3.17(c)
hereto, on the Closing Date Employers Insurance shall have (A) exclusive
ownership of all rights whatsoever in the Owned Principally Used Intellectual
Property Rights, free and clear of any royalty or other payment obligations or
Liens, (B) pursuant to the Intellectual Property Rights License Agreements as
stated in Section 5.13(b) below, the same rights to all Owned Generally Used
Intellectual Property Rights as Fremont had prior to the Closing Date, free and
clear of any royalty or other payment obligations or Liens, (C) pursuant to an
assignment of all of Fremont's rights with respect to any Licensed Principally
Used Intellectual Property Rights selected by Employers Insurance pursuant to
Section 5.12(a) hereof, all rights as were granted or licensed to Fremont prior
to the Closing Date and free and clear of any Liens, subject to the terms and
conditions of the assigned licenses to the Licensed Principally Used
Intellectual Property Rights, and (D) pursuant to a sub-license granted by
Fremont to Employers Insurance, all rights with respect to any Licensed
Generally Used Intellectual Property Rights selected by Employers Insurance
pursuant to Section 5.12(a) hereof, as were granted or licensed to Fremont prior
to the Closing Date and free and clear of any Liens, subject to the terms and
conditions of the sub-licenses to the Licensed Generally Used Intellectual
28
Property Rights. On the Closing Date, Fremont shall have the right, power and
authority to grant the rights herein granted, licensed, sub-licensed or assigned
to Employers Insurance. No restrictions on the use of the Owned Principally Used
Intellectual Property Rights, the Owned Generally Used Intellectual Property
Rights, the Licensed Principally Used Intellectual Property Rights and/or the
Licensed Generally Used Intellectual Property Rights would materially affect the
use of such Intellectual Property Rights in whole or in part. All copyrights and
copyrightable materials that are Owned Principally Used Intellectual Property
Rights or Owned Generally Used Intellectual Property Rights were either created
by (i) employees of Fremont as "works-made-for-hire," as such term is defined
under Section 101 of the United States Copyright Law, within the scope of their
employment, (ii) third parties as "works-made-for-hire," as such term is defined
under Section 101 of the United States Copyright Law, pursuant to written
agreements with Fremont, or (iii) independent contractors who have assigned all
of their rights to Fremont pursuant to written agreements, provided that a copy
of any written agreement or assignment referenced in this Section 3.17(c) shall
be provided to Employers Insurance upon request. Except as set forth on Schedule
3.17(c), Fremont has neither (i) licensed any of the Owned Principally Used
Intellectual Property Rights to any other Person or (ii) entered into any
exclusive agreements granting rights to the Owned Principally Used Intellectual
Property Rights to any other Person.
(d) No use of any Intellectual Property Right by Fremont or Employers
Insurance, or transfer of ownership to Employers Insurance, hereunder breaches,
violates or infringes, or will breach, violate or infringe any rights of any
other Person or requires any payment for the use of any patent, trade name,
service xxxx, trade secret, trademark, copyright or other intellectual property
right or technology owned by any other Person. No use of any Intellectual
Property Right by any other Person breaches, violates or infringes the rights of
Fremont.
(e) Except as set forth on Schedule 3.17(e), since January 1, 1999
Fremont has been in compliance with (i) any and all applicable statutes, laws,
ordinances, rules, regulations and orders of any Governmental Entity concerning
privacy and (ii) any and all Fremont Privacy Policies. Fremont is not prohibited
by any applicable statutes, laws, ordinances rules, regulations or orders of any
Governmental Entity concerning privacy or by any Fremont Privacy Policies from
providing Employers Insurance with any information, including without
limitation, Customer Lists, and any other customer and policyholder information
and Intellectual Property Rights, that has been, or will be, provided to
Employers Insurance prior to, on or after the date hereof, in connection with
the transactions contemplated hereby or by the Ancillary Agreements or by the
other agreements contemplated hereby and thereby.
(f) Except as set forth on Schedule 3.17(f), as of the Closing Date,
there are no actions that must be taken by Fremont within one hundred eighty
(180) days following the date of this Agreement that, if not taken, will result
in the loss of any Intellectual Property Right, including without limitation the
payment of any registration, maintenance or renewal fees, or the filing of any
responses, documents, applications or certificates for the purpose of obtaining,
maintaining, perfecting, preserving or renewing any Intellectual Property Right.
29
Section 3.18. INSURANCE POLICIES. Schedule 1.01(b)(i) is a true, complete
and correct list of the Clarendon Program Insurance Policies and, as such, it
constitutes the entirety of workers' compensation insurance policies written by
Clarendon pursuant to the Clarendon Reinsurance/Cession Program in effect as of
April 30, 2002. Schedule 1.01(b)(ii) is a true, complete and correct list of the
Fremont Policies and, as such, it constitutes the entirety of workers'
compensation insurance policies written by Fremont in effect as of April 30,
2002.
Section 3.19. INSURANCE BUSINESS. Except as set forth on Schedule 3.19
hereto:
(a) The Insurance Policies, as well as any related application form,
written advertising material and rate or rule currently marketed by Clarendon
pursuant to the Clarendon Reinsurance/Cession Program or by Fremont, in the
Business, the use or issuance of which requires filing or approval, have been
appropriately filed, and if required, approved by the insurance regulatory
authorities of any state in which such policies and forms are required to be
filed and not objected to by such authorities within the period provided for
objection. All such policies and certificates, forms, applications, advertising
materials and rates or rules are in compliance with all applicable laws in
effect and regulations;
(b) Since March 1, 2002, no form of workers' compensation insurance
coverage written by Clarendon pursuant to the Clarendon Reinsurance/Cession
Program or by Fremont, has been amended and no sales of workers' compensation
insurance coverage using any new forms have been commenced;
(c) There is no dispute, action, suit, proceeding or arbitration
pending or threatened, between Fremont and any reinsurer or between Clarendon
and any reinsurer involving claims or losses relating to the Business or any
reinsurance policy issued in connection therewith;
(d) Except in the ordinary course of business, (i) neither Fremont nor
Clarendon is liable to pay Commissions upon the renewal of any Insurance Policy
and (ii) neither Fremont nor Clarendon is a party to any agreement providing for
the collection of insurance premiums payable to Fremont or Clarendon by any
other Person in connection with the Insurance Policies;
(e) The underwriting standards utilized and ratings applied by Fremont
and/or Clarendon with respect to the in force Insurance Policies outstanding as
of the date hereof and as of the Closing Date have been provided to Employers
Insurance and conform, with respect to any such contract reinsured in whole or
in part, to the standards and ratings required pursuant to the terms of the
related reinsurance or other similar contracts, and such standards are in
accordance with generally accepted insurance practices. Fremont has provided
Employers Insurance with copies of all written underwriting policies in
connection with the Business;
(f) To the Knowledge of Fremont, (i) each insurance agent or broker,
at the time such agent or broker wrote, sold or produced any Insurance Policy,
was duly licensed as an insurance agent or broker (for the type of business
written, sold or produced by such insurance agent or broker) in the particular
jurisdiction in which such agent or broker wrote, sold or produced such business
for Fremont or Clarendon in connection with the Business and (ii) no
30
such insurance agent or broker violated (or with notice or lapse of time or both
would have violated) any term or provision of any law or order in connection
with any Insurance Policy;
(g) Neither Fremont nor, to the Knowledge of Fremont, Clarendon or
employees, agents (including agents acting through general agents and brokers),
regional directors, brokers, representatives or persons acting on their
respective behalf are subject to any market conduct claim relating to in force
Insurance Policies; neither Fremont nor, to the Knowledge of Fremont, Clarendon
have received notice of or are aware of any action by Fremont or, to the
Knowledge of Fremont, Clarendon or any of their respective employees, agents
(including agents acting through general agents and brokers), brokers, regional
directors, representatives or persons acting on their behalf that could
reasonably be expected to give rise to a market conduct claim relating to in
force Insurance Policies; and the sales practices of Fremont and, to the
Knowledge of Fremont, Clarendon and their respective agents (including agents
acting through general agents and brokers), regional directors, brokers,
representatives or persons acting on their behalf in connection with in force
Insurance Policies are and have been in compliance with all applicable laws and
regulations from and after January 1, 1999; and
(h) To the Knowledge of Fremont, as of the date of this Agreement,
Clarendon pursuant to the Clarendon Reinsurance/Cession Program and Fremont are
processing Insurance Policies in accordance with workers' compensation industry
standards.
Section 3.20. CANCELLATIONS. Since January 1, 2002, through the date of
this Agreement, except as set forth on Schedule 3.20 hereto, no Person or group
of Persons acting in concert, writing, selling or producing insurance business,
which in the aggregate accounted for five percent or more of the gross premium
income of the Business for the year ended May 31, 2001, has terminated or
substantially reduced, or threatened to terminate or substantially reduce, its
relationship with Fremont or Clarendon. Since January 1, 2002, through the date
of this Agreement, except as set forth on Schedule 3.20 hereto, no policyholder
or group of policyholders acting in concert has canceled or non-renewed or given
notice of its intent to cancel or non-renew, any policy representing in excess
of five percent of the gross earned premiums of the Business for the year ended
May 31, 2001.
Section 3.21. REGULATORY FILINGS. Except as set forth on Schedule 3.21
hereto, Fremont has filed all reports, statements, documents, registrations,
filings or submissions required to be filed by Fremont to the extent they relate
to the Business. All such registrations, filings and submissions since January
1, 1999 were in compliance with applicable law when filed or as amended or
supplemented, and no deficiencies have been asserted by any Governmental Entity
with respect to such registrations, filings or submissions that have not been
satisfied.
Section 3.22. REAL PROPERTY; LEASES.
(a) Schedule 3.22(a) hereto sets forth a true and complete list and
summary description (stating the name of lessor, name of lessee, expiration
date, renewal option regarding each lease and any consent of the lessor,
mortgagee or other third party required to maintain the effectiveness of the
lease in connection with the transactions contemplated hereby) of all real
estate currently occupied or leased by Fremont in connection with the Business
together with a brief description of the structures located thereon (the "Leased
Properties"). All of such leases
31
are valid and in full force and effect, all rents and additional rents and other
assessments due to date on each such lease have been paid. Neither Fremont nor
any Affiliate lessee is in default under any of such leases and no lessor is in
default under any of such leases. No material waiver, indulgence or postponement
of the obligations of Fremont or Affiliate lessee under such leases has been
granted by the lessor, and no event has occurred which, with the passage of time
or the giving of notice, or both, would constitute a default thereunder by
Fremont or Affiliate lessee or by lessor.
(b) Neither Fremont nor any Affiliate lessee owns any real property in
respect of the leases set forth on Schedule 3.22(a) hereto, except for the
leasehold improvements listed on Schedule 3.22(b) hereto and the capital
improvements set forth on Schedule 3.22(b).
(c) Fremont enjoys peaceful and undisturbed possession under all such
applicable leases, none of which contain any provisions that will impair or
adversely affect its ability to operate as it has in the past. No notice of
violation of any ordinance or administrative regulation (including any zoning or
building law) has been received by Fremont with respect to any real property
leased by Fremont. If the consents specified on Schedule 3.22(a) are obtained,
the continuation, validity and effectiveness of such leases under the current
terms thereof will in no way be affected by the consummation of the transactions
contemplated herein. Neither Fremont nor any Affiliate lessee has any capital
expenditure obligations under such leases. The property leased by Fremont in
respect of the Business is in a state of reasonable maintenance and repair and
is adequate and suitable for the Business as it is currently being conducted.
Neither the whole nor any portion of the real property occupied by Fremont or
any Affiliate lessee in respect of the Business is being condemned or otherwise
taken by any public authority, nor is any such condemnation or taking threatened
or contemplated.
(d) Each of the Leased Properties consists of conventional office
space, appropriate for use in the Business. None of the leases involve rentable
square footage exceeding 200,000 square feet and/or base rental payments in
excess of $8.5 million per year. Fremont has not received notice, and Fremont is
not aware, of any default, litigation or any other matters (including, without
limitation, environmental matters) or conditions, with respect to any of the
leases, which threaten to expose Fremont to liability on account thereof.
(e) Except for matters set forth on Schedule 3.22(e):
(i) Fremont's operations in respect of the Business
and the Leased Properties are in compliance with
all Environmental Laws and Fremont has obtained
and is in compliance with all permits, licenses
and other authorizations required by governmental
authorities pursuant to Environmental Laws for the
Leased Properties as well as Fremont's operations
in respect of the Business.
(ii) No Hazardous Materials have been Released, or
threatened to be Released, on, at, under, onto, or
from the Leased Properties, nor were any Hazardous
Materials generated, used, stored, treated or
disposed of on the Leased Properties.
32
(iii) There are no Environmental Claims pending or
threatened against: (A) Fremont relating to the
Business; (B) the Leased Properties; or (C) any
persons or entities whose liability Fremont may
have assumed or retained contractually or by
operation of law relating to the Business.
(iv) Fremont has not received any notice that any
Hazardous Materials have been Released on any
properties adjacent to the Leased Properties which
could migrate onto any of the Leased Properties.
Section 3.23. LABOR RELATIONS AND EMPLOYMENT.
(a) Except to the extent set forth on Schedule 3.23 hereto, (i) there
is no labor strike, dispute, slowdown, stoppage or lockout actually pending or
threatened against or affecting Fremont in connection with the Business, and,
since January 1, 1999, there has not been any such action, (ii) there have been
no union claims to represent the employees of Fremont in connection with the
Business for the last three years and there are no current union organizing
activities among such employees, (iii) Fremont is not a party to or bound by any
collective bargaining or similar agreement with any labor organization
applicable to Fremont's employees in connection with the Business, and (iv)
there are no material written personnel policies, rules, agreements or
procedures applicable to Fremont's employees in connection with the Business,
true and correct copies of which have heretofore not been made available to
Employers Insurance.
(b) To the Knowledge of Fremont, except as set forth on Schedule 3.23
hereto, since January 1, 1999, Fremont has been in compliance with respect to
the Business with all federal, state or other applicable laws respecting
employment and employment practices, terms and conditions of employment, and
Fremont has not engaged in or is not engaged in any unfair labor practices, nor
has it discriminated on the basis of race, age, sex, disability or otherwise in
its employment conditions or practices with respect to its employees. Except as
noted on Schedule 3.23 hereto, since January 1, 1999, no unfair labor practice
complaints, actions, suits, charges, grievances, arbitrations, employee
proceedings or investigations have been filed against Fremont with any
governmental or regulatory agency and Fremont has not received any notice or
communication reflecting an intention or threat to file any such complaint.
Since January 1, 1999, no Person has made any claim and there is no basis for
any claim against Fremont arising out of any statute, ordinance or regulation
relating to the terms and conditions of employment or discrimination with
respect to employees or employment practices. Fremont is not a party to or
otherwise bound by any consent decree with or citation by any governmental
entity relating to Fremont's employee's or employment practices. Fremont is in
compliance with its obligations with respect to the Fremont's employees pursuant
to the Worker Adjustment and Retraining Notification Act of 1988, and all other
notification obligations arising under any agreement, statute or otherwise.
(c) All individuals who provide services to Fremont who are required
to be treated as an employee under any applicable laws have been so treated.
33
Section 3.24. TAX MATTERS. Other than as referenced in Section 2.01(c)
hereof, Fremont has no liability or obligation in respect of Taxes that would
adversely affect Employers Insurance, the Business or the consummation of the
transactions contemplated hereby.
Section 3.25. REINSURANCE AND RETROCESSIONS.
(a) The Clarendon Reinsurance Agreement is valid and in full force and
effect prior to Inception Date and will terminate as of the Inception Date.
(b) Schedule 3.25(b) sets forth a true and complete list of all
voluntary or involuntary ceded reinsurance and retrocession treaties, agreements
or other contracts of ceded reinsurance in force and relating to the Business as
of the date of this Agreement to which Fremont is a party, any terminated or
expired treaty or agreement of ceded reinsurance relating to the Business under
which there remains any outstanding liability from one or more reinsurers with
respect to paid or unpaid cash reserves, and any treaty or agreement of ceded
reinsurance relating to the Business with Fremont (collectively, the "Outward
Reinsurance Agreements"), the effective date of each Outward Reinsurance
Agreement, and the termination date of Outward Reinsurance Agreements which has
a definite termination date. Except as set forth on Schedule 3.25(b), there have
been no changes since December 31, 2001 in the way ceded reinsurance premiums
are allocated to Fremont or its line of business. As of the date of this
Agreement, all Outward Reinsurance Agreements are in full force and effect to
the respective dates noted on such Schedule 3.25(b), and Fremont is not in
default in any respect as to any provision of any Outward Reinsurance Agreements
or has failed to meet any standards required for any business reinsurance
thereunder. All allocations of premiums and receivables with respect to Outward
Reinsurance among one or more entities that constitute Fremont are fairly and
equitably allocated among such entities. All cessions under the Outward
Reinsurance Agreements relating to the Clarendon Reinsurance/Cession Program
will cease as of the Inception Date.
(c) Schedule 3.25(c) sets forth a true, complete and correct list of
all voluntary or involuntary assumed reinsurance and retrocession treaties,
agreements or other contracts of assumed reinsurance in force and relating to
the Business as of the date of this Agreement to which Fremont is a party, any
terminated or expired treaty or agreement of assumed reinsurance relating to the
Business under which there remains any outstanding liability with respect to
paid or unpaid cash reserves, and any treaty or agreement of assumed reinsurance
relating to the Business with Fremont (collectively, the "Inward Reinsurance
Agreements"), indicating the effective date of each Inward Reinsurance
Agreements, the termination date of Inward Reinsurance Agreements which has a
definite termination date and whether such Inward Reinsurance Agreement is
covered by any retrocession arrangement. Except as set forth on Schedule
3.25(c), there have been no changes since December 31, 2001 in the way assumed
reinsurance premiums are allocated to Fremont or its line of business. As of the
date of this Agreement, all Inward Reinsurance Agreements are in full force and
effect to the respective dates noted on such Schedule 3.25(c), and Fremont is
not in default in any respect as to any provision of any Inward Reinsurance
Agreements or has failed to meet any standards required for any business
reinsurance thereunder. All allocations of premiums and receivables with respect
to Inward Reinsurance among one or more entities that constitute Fremont are
fairly and equitably allocated among such entities.
34
Section 3.26. ENVIRONMENTAL MATTERS. To the Knowledge of Fremont:
(a) The Business and the Transferred Assets are in compliance with all
Environmental Laws and have obtained and complied with all permits, licenses and
other authorizations required by any Governmental Entities pursuant to
Environmental Laws.
(b) No Hazardous Materials have been Released, or threatened to be
Released, on at, under, onto, or from any of the Transferred Assets, nor were
any Hazardous Materials generated, used, stored, treated or disposed of or on
the Tangible Assets.
(c) There are no Environmental Claims pending or threatened against
Fremont arising out of Fremont's investment in or ownership of the Transferred
Assets.
Section 3.27. ENTIRE LIABILITIES. To the Knowledge of Fremont, the
liabilities disclosed in the Financial Statements and the Schedules hereto
(other than Schedules 4.03, 4.04, 5.12(a), 5.12(b) and 5.12(c)) constitute all
of the liabilities relating to the Business.
Section 3.28. DISCLOSURE. None of (i) this Agreement, (ii) the Ancillary
Agreements and (iii) the Schedules hereto contains any material misstatement of
facts or omits any material facts necessary to be stated in order to make the
statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EMPLOYERS INSURANCE
Employers Insurance hereby makes the following representations and
warranties to Fremont that the statements contained in this Article IV are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date was substituted for the date of this Agreement throughout this Article IV):
Section 4.01. ORGANIZATION, STANDING AND AUTHORITY. Employers Insurance is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on the operations of its business as it is now being
conducted.
Section 4.02. AUTHORIZATION. Employers Insurance has the requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement, under each of the Ancillary Agreements and under the other
agreements and instruments contemplated hereby and thereby to be executed by it.
The execution and delivery by Employers Insurance of this Agreement and the
execution and delivery by Employers Insurance of the Ancillary Agreements to be
executed by it, and the performance by Employers Insurance of its obligations
hereunder and thereunder, have been duly authorized by all necessary corporate
action on the part of Employers Insurance. This Agreement has been duly executed
and delivered by Employers Insurance and, subject to the due execution and
delivery hereof by Fremont, this Agreement is a
35
valid and binding obligation of Employers Insurance, enforceable against
Employers Insurance in accordance with its terms, subject to enforceability as
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights. As of the Closing
Date, each Ancillary Agreement and each of the other agreements and instruments
contemplated hereby and thereby executed and delivered by Employers Insurance
will have been duly executed and delivered by Employers Insurance, and, subject
to the due execution and delivery of such agreements by the other parties
thereto, each Ancillary Agreement and each of the other agreements and
instruments contemplated hereby and thereby executed by Employers Insurance is a
valid and binding obligation of Employers Insurance, enforceable against
Employers Insurance, in accordance with its terms, subject to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights.
Section 4.03. NO CONFLICT OR VIOLATION, ETC. Except as disclosed on
Schedule 4.03 hereto, the execution and delivery by Employers Insurance of this
Agreement and of the Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby to which they are parties do not,
and the consummation by Employers Insurance of the transactions contemplated by
this Agreement and by such Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby and compliance with the provisions
hereof and thereof will not, (i) conflict with any of the provisions of the
Articles of Incorporation or By-laws of Employers Insurance, (ii) subject to the
matters referred to in the next sentence, conflict with, result in a breach of
or default (with or without notice or lapse of time, or both) under, give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a benefit under, require the consent of any Person under, or result in
the creation of any Lien on any property or asset of Employers Insurance under,
any indenture or other agreement, permit, franchise, license or other instrument
or undertaking to which Employers Insurance is a party or by which it or any of
its assets is bound or affected, or (iii) subject to the matters referred to in
the next sentence, contravene any statute, law, ordinance, rule, regulation,
order, judgment, injunction, decree, determination or award applicable to
Employers Insurance or any of its Subsidiaries or any of its respective
properties or assets, except in the case of clauses (ii) and (iii) above, for
such conflicts, breaches, defaults, terminations, cancellations, accelerations
and contraventions which would not individually or in the aggregate have an
Employers Insurance Material Adverse Effect. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity, is required to be obtained or made by or with respect to Employers
Insurance or any of its Subsidiaries, in connection with the execution and
delivery of this Agreement, of the Ancillary Agreements or the other agreements
and instruments contemplated hereby and thereby by Employers Insurance or the
consummation by Employers Insurance of the transactions contemplated hereby and
thereby, except for, to the extent required, the approvals, filings or notices
required under the insurance laws of the State of California and the filings in
the jurisdictions in which the Business currently conducts operations, or such
other consents, approvals, authorizations, declarations, filings or notices the
failure of which to make or obtain would not have an Employers Insurance
Material Adverse Effect.
Section 4.04. COMPLIANCE WITH LAWS. Except as disclosed on Schedule 4.04
hereto, Employers Insurance is in compliance with all applicable statutes, laws,
ordinances, rules,
36
regulations and orders of any Governmental Entity, except for such noncompliance
which individually or in the aggregate would not reasonably be expected to have
an Employers Insurance Material Adverse Effect.
Section 4.05. BROKERS. No broker, investment banker, financial advisor or
other person, other xxxx Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated, the
fees and expenses of which will be paid by Employers Insurance, is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Employers Insurance. No broker or other
Person is entitled to any broker's, finder's or other similar fee or leasing
commission in connection with the procurement of the Subleases or Lease
Assignments of any of the Leased Properties.
ARTICLE V
COVENANTS
Section 5.01. CONDUCT OF BUSINESS. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, Fremont shall carry on the Business only in the ordinary course of
business consistent with past practice and, to the extent consistent therewith,
use its best efforts to preserve intact the current business organization of the
Business, preserve the rights, franchises, goodwill and relations of its
customers, preserve the Permits issued to Fremont in full force and effect
consistent with past practice, keep available the services of the Business
Employees and other employees directly involved in the Business and preserve its
relationships with agents, brokers, intermediaries, insureds, reinsureds and
others having business dealings with the Business. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Closing Date, except as otherwise provided in this Section 5.01 or as
expressly permitted by this Agreement, Fremont shall not, without the prior
written consent of Employers Insurance:
(a) (i) other than in the ordinary course of business consistent with
past practice, terminate, transfer or otherwise dispose of any assets which
would otherwise be Transferred Assets; or (ii) (A) enter into, modify or change
in any material respect any material Contract, or (B) reallocate any assets
currently owned, used or held for use by one unit or division of the Business to
any unit or division of any Affiliate of Fremont that are not related to the
Business.
(b) (i) permit or allow any of the Transferred Assets to become
subject to any Liens except Permitted Liens, (ii) waive or settle any claims or
rights relating to the Business, except in the ordinary course of business
consistent with past practices, (iii) grant any increase in the compensation or
benefits of or increase or promise to increase, or establish any new employee
benefit plan or plan of compensation for any of the Business Employees
(including any such increase pursuant to any wage, salary, incentive, bonus,
pension, profit-sharing or other plan or commitment), except for increases in
the ordinary course of business for non-management employees consistent with
past practices, or (iv) adopt, enter into or amend any Plan or Severance Plan;
37
(c) make any change, in a manner which would be adverse to the
Business, in accounting methods, principles or practices used by Fremont in
connection with the Business, including without limitation any change with
respect to establishment of reserves for losses and loss adjustment expenses,
except insofar as may be required by a change in GAAP, tax accounting principles
or statutory accounting practices prescribed by applicable Governmental Entities
or as may be required by law or any Governmental Entity;
(d) enter into or renew, in a manner which would be adverse to the
Business, any Contract;
(e) make or propose to make any change, in a manner which would be
adverse to the Business, in its workers' compensation underwriting, pricing,
claims, risk retention, marketing and reinsurance practices or policies, or make
any change in a manner which would be adverse to the Business;
(f) issue, amend or renew any workers' compensation insurance coverage
that would be reinsured under the EICN Reinsurance Agreement but does not
conform to Fremont's underwriting, pricing and risk retention standards,
practices and policies in effect on the date hereof and as provided to Employers
Insurance;
(g) terminate or change the terms of the Clarendon Reinsurance/Cession
Program;
(h) enter into, renew, terminate or commute any Outward Reinsurance
Agreement or other reinsurance or retrocession agreement relating to the
Business or fail to maintain in effect any Outward Reinsurance Agreement;
(i) terminate or change the terms of the agreements with respect to
the Integrated Medi-Comp Program or the ADP Program; or
(j) except as may be required by any Governmental Entity, commit or
agree to take any of the foregoing actions.
Section 5.02. NO SOLICITATION.
(a) During the period from the date of this Agreement to the Closing
Date, Fremont shall not, nor shall it permit any of its Affiliates or any
officer, director, employee, shareholder, representative or agent (each, a
"Representative"; collectively, "Representatives") to, directly or indirectly,
solicit, initiate, maintain or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement or understanding with any Person or entity or group of Persons or
entities (other than Employers Insurance and its Affiliates) concerning any
acquisition, merger, consolidation, liquidation, dissolution, disposition of the
Business or other transaction that would result in the transfer to any such
Person or entity or group of Persons or entities of all or any substantial part
of the Business or assets thereof, or all or any substantial equity interest in
Fremont (other than as contemplated pursuant to the Agreement). Fremont shall
promptly notify Employers Insurance of any such discussions or negotiations.
38
(b) Promptly after the execution of this Agreement, Fremont will use
its best efforts to pursue, pursuant to the terms of any confidentiality
agreements under which information concerning the Business has been provided to
potential purchasers of the Business ("Third Party Confidentiality Agreements"),
the return from or, in any case where they are not returned to Fremont, proof of
destruction thereof by, all third parties and their representatives of all
confidential information provided to them in connection with or concerning the
Business. On or prior to the Closing Date, Fremont shall assign to Employers
Insurance its rights under any Third Party Confidentiality Agreements, except to
the extent that any such assignment is prohibited by the terms of any such Third
Party Confidentiality Agreement, in which case the Parties hereto shall
cooperate to provide Employers Insurance, to the fullest extent practicable, the
benefits thereof. Schedule 5.02 hereto is a true and complete list of all Third
Party Confidentiality Agreements.
Section 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Fremont shall afford
to Employers Insurance and to the Representatives of Employers Insurance
reasonable access, during normal business hours during the periods (a) prior to
the Closing Date, to all of the (i) Books and Records and Transferred Assets and
(ii) personnel involved in the Business, (b) prior to the Inception Date, to all
of the Clarendon Program Insurance Policies, and (c) prior to the respective
expiration dates of the Fremont Policies, to all of the Fremont Policies and,
during such periods, shall furnish as promptly as reasonably practicable to
Employers Insurance such information concerning the Business as Employers
Insurance may from time to time reasonably request, provided that such access
shall not unreasonably interfere with Fremont's continuing operations. From the
Closing Date to the Service Date, Fremont shall make reasonable accommodation to
permit such Representatives of Employers Insurance to effectively monitor and
supervise the Business Employees. Employers Insurance agrees that it will hold,
and will cause its Affiliates and each of their respective Representatives to
hold, any information so obtained in confidence to the extent required by, and
in accordance with, the provisions of the Confidentiality Agreement, dated
February 11, 2002 (the "Confidentiality Agreement"), between Fremont and EICN.
No investigation or review by Employers Insurance or any of its Representatives
shall affect or be deemed to modify any of the representations, warranties,
covenants or agreements of Fremont under this Agreement or otherwise; it being
understood that, notwithstanding any right of Employers Insurance to fully
investigate the affairs of Fremont and notwithstanding any knowledge of facts
determined or determinable by Employers Insurance pursuant to any such
investigation or right of investigation, Employers Insurance has the right to
rely fully upon the representations, warranties, covenants and agreements of
Fremont contained in this Agreement, any Ancillary Agreement, any other
agreement or instrument contemplated hereby or thereby or any Schedule, Exhibit
or certificate in respect hereof and thereof.
Section 5.04. REASONABLE BEST EFFORTS. Unless otherwise provided in this
Agreement, upon the terms and subject to the conditions and other agreements set
forth in this Agreement, each of the Parties agrees to use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other Party in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement
and by the Ancillary Agreements.
39
Section 5.05. CONSENTS, APPROVALS AND FILINGS.
(a) Fremont and Employers Insurance will make and cause their
respective Affiliates to make all necessary filings with Governmental Entities,
as soon as practicable, including, without limitation, any filing required under
state insurance laws in order to facilitate prompt consummation of the
transactions contemplated by this Agreement and by the Ancillary Agreements. In
addition, Fremont and Employers Insurance will each use its reasonable best
efforts (without the payment of money or the commencement of litigation), and
will cooperate fully with each other (i) to comply as promptly as practicable
with all governmental requirements applicable to the transactions contemplated
by this Agreement and by the Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby and (ii) to obtain as promptly as
practicable all necessary consents, approvals, permits or authorizations of
Governmental Entities and consents or waivers of all third parties necessary or
advisable for the consummation of the transactions contemplated by this
Agreement and by the Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby. Each of Fremont and Employers
Insurance shall use its reasonable best efforts to provide such information and
communications to Governmental Entities as such Governmental Entities may
reasonably request.
(b) Each of the Parties shall notify the other Party and keep it
advised as to the status of all applications to, and proceedings before,
Governmental Entities in connection with the transactions contemplated by this
Agreement and by the Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby. Each of the Parties shall provide
to the other Party copies of all applications or other correspondence or
materials relating to the Business in advance of filing or submission thereof to
Governmental Entities in connection with the transactions contemplated by this
Agreement and by the Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby.
Section 5.06. NOTIFICATION. Each Party shall notify the other Party and
keep it advised as to (i) any litigation or administrative proceeding pending
and known to it or threatened which challenges or seeks to restrain or enjoin
the consummation of any of the transactions contemplated hereby and by the
Ancillary Agreements and the other agreements and instruments contemplated
hereby and thereby, (ii) the occurrence of any Fremont Material Adverse Effect
or Employers Insurance Material Adverse Effect, and (iii) the occurrence of any
breach by the other Party hereto of such Party's representations, warranties or
covenants under this Agreement or any Ancillary Agreement or the other
agreements and instruments contemplated hereby and thereby.
Section 5.07. FURTHER ASSURANCES. On and after the Closing Date, Fremont
and Employers Insurance shall take all reasonably appropriate action and execute
any additional documents, instruments or conveyances of any kind which may be
reasonably necessary to carry out any of the provisions of this Agreement, any
Ancillary Agreement or the other agreements and instruments contemplated hereby
and thereby or consummate any of the transactions contemplated by this
Agreement, any Ancillary Agreement or the other agreements and instruments
contemplated hereby and thereby. Following the Closing, if any asset or employee
of Fremont or any Fremont's Affiliate is identified that should have been a
Transferred Asset or
40
should have been a Business Employee, Fremont shall, or shall cause such
Affiliate to, (i) in the case of an asset, transfer such asset to Employers
Insurance and (ii) in the case of an employee, permit Employers Insurance to
offer to employ such employee.
Section 5.08. EXPENSES.
(a) Except as otherwise specifically provided in this Agreement, the
Parties to this Agreement shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement or
any Ancillary Agreement and the other agreements and instruments contemplated
hereby and thereby and consummation of the transactions contemplated hereby and
thereby, including all fees and expenses of agents, representatives, counsel,
financial advisors, actuaries and accountants; provided, that all costs and
expenses incurred in the separation of the Business from Fremont or any of its
Affiliates, other than those costs and expenses contemplated by Section 5.10(e)
hereof and those costs and expenses relating to the provisional transition
services described in the Transition Services and Facilities Agreement, but
including, without limitation, costs and expenses incurred in connection with
transferring the Transferred Assets to the possession of Employers Insurance,
claim file separation, policy file separation, physically separating hardware
and software and security, shall be shared equally by Fremont and Employers
Insurance. With respect to separation of data and systems, Fremont agrees to
take all actions necessary to enable Employers Insurance to operate all of the
data processing systems used in the Business as of a specified date mutually
agreed between Fremont and Employers Insurance (the "Conversion Date") on an
environment functionally identical to the environment on which such systems are
operated as of the Conversion Date and physically separate from such
environment, using the same application software used in the Business on the
Conversion Date, which shall be substantially equivalent to those used as of the
Closing Date. Fremont further agrees to deliver to Employers Insurance machine
readable files containing all data of the Business that is contained in machine
readable files as of the Conversion Date, with each transferred file to be
prepared for reading and manipulation using the application, operating system,
machine language, data field format, and field content to the file in which such
data resides as of the Conversion Date (a file conversion process commonly
referred to as a "flat file"). Fremont and Employers Insurance each agrees to
take reasonable actions to minimize the cost of the foregoing work. The
Conversion Date shall be a date as soon as practicable but in no event more than
one (1) year after the Inception Date.
(b) Upon Closing of the transactions contemplated by this Agreement,
the Ancillary Agreement and any other agreements and instruments contemplated
hereby and thereby, Employers Insurance shall reimburse Fremont for the expenses
(the "Closing Reimbursed Expenses") that Fremont incurs in connection with the
Business Employees during the period from June 1, 2002 through the Closing Date.
Such Closing Reimbursed Expenses shall be calculated based on the product of (X)
a fraction of which the numerator is the number of days from June 1, 2002
through the Closing Date and the denominator is 30 days, multiplied by (Y)
$2,000,000.
(c) In the event that this Agreement is terminated pursuant to Article
XI hereof, Employers Insurance agrees to reimburse Fremont for employee-related
expenses in the amount of $1,000,000.
41
Section 5.09. EMPLOYEES AND EMPLOYEE BENEFITS. The provisions of this
Section 5.09 shall govern the treatment of the Selected Employees, Excluded
Employees, Business Employees and Acquired Employees.
(a) Prior to the Closing Date, Employers Insurance and/or one or more
of its Affiliates as Employers Insurance may designate shall make a written
offer of employment, either individually and/or as a group, effective as of the
Service Date, to a selected group of the individual Business Employees that it
and/or one or more of its Affiliates choose to hire from the Business Employees
identified on Schedule 3.13(a) hereto (the "Selected Employees"), which Selected
Employees shall be listed on Schedule 5.09(a) hereto. Employers Insurance and/or
one or more of its Affiliates shall use their sole discretion in determining the
Business Employees to whom it and/or its designated Affiliate make an offer of
employment. The Selected Employees who accept, on or prior to the Closing Date
or a later date as permitted by Employers Insurance, employment with Employers
Insurance, effective as of the Service Date, shall be referred to as the
"Acquired Employees." Fremont shall transfer or cause to be transferred the
employment of all Acquired Employees effective as of 11:59 P.M., Pacific
Daylight Time, on the date immediately preceding the Service Date and may
terminate any remaining Business Employees who are not Acquired Employees on or
before the Closing Date. Nothing in this Agreement shall be construed as
limiting in any way the right of Employers Insurance or any of its Affiliates,
on and after the Service Date, to terminate the employment of any Acquired
Employee, to change his or her salary or wages or to modify benefits or other
terms and conditions of employment of Acquired Employees.
(b) Fremont agrees that for a period of two (2) years following the
Service Date, it will not solicit for re-hire, without Employers Insurance's
and/or its designated Affiliates' prior consent, any employee who is an Acquired
Employee; provided, however, Fremont shall not be prohibited from re-hiring any
Acquired Employees who seeks employment with Fremont in response to any general
solicitation for employment.
(c) Fremont hereby covenants and agrees that (i) with respect to each
Business Employee, for the period from the date of this Agreement to the Service
Date, neither it nor any of its Affiliates shall, directly or indirectly,
solicit for employment for the period following the Service Date with Fremont or
any of its Affiliates, any current employee, agent, broker or distributor of the
Business, and (ii) for a period of two (2) years following the Service Date,
neither it nor any of its Affiliates shall, without the prior written consent of
Employers Insurance, directly or indirectly, solicit for employment or enter
into an agency relationship with Fremont or any of its Affiliates, any current
employee, agent, broker or distributor of the Business; provided, however, that
nothing shall preclude Fremont or any of its Affiliates from employing any
Business Employee to the extent that such Business Employee was not offered
employment by Employers Insurance or any of its Affiliates pursuant to Section
5.09(a) hereof.
(d) Fremont remains solely responsible and liable in all respects for
any Business Employee and Excluded Employee who is not an Acquired Employee.
(e) In connection with the transfer of employment of Acquired
Employees by Fremont and/or its Affiliates, Fremont agrees to:
42
(i) Be responsible for all welfare benefits relating
to Acquired Employees and which are accrued prior
to the Service Date. For this purpose, a benefit
shall be deemed to accrue when the medical or
other service giving rise thereto is performed,
except that: (i) in the case of a death benefit,
such accrual shall be deemed to occur on the date
of death, and (ii) in the case of short-term
disability, such accrual shall be deemed to occur
on the effective date of the first short-term
disability benefit payment, and (iii) in the case
of long-term disability, such accrual shall be
deemed to occur on the effective date of the first
long-term disability benefit payment, or if
applicable, the date the first short-term
disability benefit was paid relating to the same
disability; and
(ii) Make available to Employers Insurance and any of
its designated Affiliates as soon as practicable
after the Service Date data and records regarding
the Acquired Employees that the parties mutually
agree are appropriate to possess.
(f) Fremont shall be responsible for compliance with all applicable
requirements of the Worker Adjustment and Retraining Notification Act or any
similar state or local law ("WARN") arising out of, or relating to, any actions
taken by Fremont and/or its Affiliates with respect to the transaction
contemplated by this Agreement.
(g) Employers Insurance and its Affiliates shall not assume any
liabilities or obligations under any Fremont and/or any Affiliates' Plan,
Severance Plan and any other employment, incentive, retirement, benefit and
severance plan, policy, agreement or arrangement or any similar plan, policy,
agreement or arrangement.
Section 5.10. COMPUTER SOFTWARE AND HARDWARE.
(a) (i) With respect to all Licensed Principally Used Software and all
Licensed Generally Used Software listed on the Final Schedule 5.12(b) hereto as
requiring third party consents to assignment or sub-license, Fremont shall use
its best efforts to obtain from the licensors of the Licensed Generally Used
Software and the licensors of the Licensed Principally Used Software the right
for Employers Insurance to operate the Licensed Generally Used Software and the
Licensed Principally Used Software as stated herein and in Section 3.16 hereof;
provided, however, to the extent that governmental consents or consent from
other Persons are required for such assignment or sub-license and such consents
have not been obtained prior to the Closing Date, Fremont shall use its best
efforts to obtain such consents and effect such assignment or sub-license
pursuant to Section 2.04 hereof; (ii) with respect to Licensed Generally Used
Software and the Licensed Principally Used Software listed on the Final Schedule
5.12(b) hereto and the leased Computer Hardware listed on the Final Schedule
5.12(a)(xii) hereto as requiring third party consents for Fremont to perform
services for the benefit of Employers Insurance or a designee of Employers
Insurance, Fremont shall use its best efforts to obtain from the licensors of
the Licensed Generally Used Software, the licensors of the Licensed Principally
Used Software and the lessors of the leased Computer Hardware the right
43
for Fremont to operate the Licensed Generally Used Software, the Licensed
Principally Used Software and the leased Computer Hardware for the benefit of
Employers Insurance. Fremont and Employers Insurance shall share equally the
costs and expenses associated with obtaining such rights as provided in (i) and
(ii) from the licensors of the Licensed Generally Used Software and the Licensed
Principally Used Software and the lessors of leased Computer Hardware, including
any costs that may be required to obtain service bureau use rights for the
Computer Software and Computer Hardware in connection with the Transition
Services and Facilities Agreement and any rights necessary for use of the
Computer Software and Computer Hardware in connection with the Reverse
Transition Services Agreement. Employers Insurance shall be entitled to
participate fully in any negotiation with any such licensors and lessors. With
respect to the Licensed Generally Used Software and the Licensed Principally
Used Software for which Employers Insurance obtains licenses pursuant to this
Section 5.10(a), Employers Insurance shall assume responsibility for complying
with the terms and conditions of the licenses governing such Computer Software,
including responsibility for the payment of the costs and expenses of all
ongoing contractual responsibilities, including licensing, and maintenance fees
incurred after the Closing Date; provided, that Fremont shall be responsible for
compliance with all terms and conditions and for the payment of all costs and
expenses of all ongoing contractual responsibilities, including licensing,
upgrade and maintenance fees, associated with activities other than the conduct
of the Business.
(b) Fremont hereby irrevocably sells and transfers all right, title
and interest and ownership in and to all Owned Principally Used Software to
Employers Insurance, effective as of the Effective Date, including, without
limitation, the source code, object code, utilities required to compile code,
executables and documentation related thereto; provided, that Fremont shall
continue to own, along with Employers Insurance, a one hundred percent (100%)
undivided interest in the Owned Principally Used Software; provided, further,
that any enhancements, modifications or derivative works made to the Owned
Principally Used Software shall be owned solely by the Party making such
enhancements, modifications or derivative works. Fremont and Employers Insurance
shall cooperate with each other in the execution of all necessary documents to
effect the purposes of this Section 5.10(b).
(c) In the event that the Owned Generally Used Software, Owned
Principally Used Software, Licensed Generally Used Software or Licensed
Principally Used Software is the subject of a claimed or alleged infringement of
another Person's patent, copyright, trade secret, or any other proprietary or
contract rights and such Computer Software is included in the Transferred Assets
or has been requested to be used by Employers Insurance in the conduct of the
Business, then Fremont, at Employers Insurance's option but at costs and
expenses which shall be shared equally by Fremont and Employers Insurance, in
addition to its indemnification obligations under Section 10.01 hereof, shall
hold harmless and defend Employers Insurance against such infringement or
contract claim and shall either: (i) secure a license to such Person's Computer
Software for the benefit of Employers Insurance on terms reasonably satisfactory
to Employers Insurance, (ii) modify the Computer Software so as to make it
non-infringing without affecting its performance, or (iii) only to the extent
that the options listed in clauses (i) and (ii) above are commercially
infeasible, secure a license to reasonably comparable substitute Computer
Software for Employers Insurance on terms reasonably satisfactory to Employers
Insurance.
44
(d) Fremont shall ensure that for the Licensed Principally Used
Software and the Licensed Generally Used Software, Employers Insurance shall
have a copy of the object code, executables and documentation therefor and a
right of access to the source code equivalent to Fremont's right to such source
code, if any. Fremont shall provide Employers Insurance with copies of all
license agreements, sub-licenses and assignments to Employers Insurance
regarding the Licensed Generally Used Software and the Licensed Principally Used
Software.
(e) Fremont and Employers Insurance shall share equally the cost and
expense, not later than thirty (30) days after the Closing Date, of implementing
security codes and systems (including, without limitation, by establishing a
firewall to the extent commercially reasonable and/or by changing security
access codes and passwords) approved by Employers Insurance to prevent Fremont,
on the one hand, and Employers Insurance on the other, from accessing each
other's data and systems when operating the Licensed Generally Used Software and
Owned Generally Used Software or otherwise and, with respect to all data and
systems as to which Employers Insurance shall have acquired ownership, to
prevent unauthorized access thereto by Fremont after the Closing Date and to
provide Employers Insurance with sole access thereto.
(f) With respect to the maintenance, support and service agreements
listed on Schedule 3.16(d) relating to the Computer Software and Computer
Hardware, as of the Closing Date Fremont shall have assigned to Employers
Insurance the rights to the maintenance, support and services of the Owned
Principally Used Software and Licensed Principally Used Software, and from after
the Closing Date Fremont shall provide to Employers Insurance the benefit of the
maintenance, support and services of the Owned Generally Used Software and
Licensed Generally Used Software.
Section 5.11. LEASED PROPERTIES. With respect to the leases listed on Final
Schedule 5.12(a)(iv) that are selected by Employers Insurance for purposes of
assignment, Fremont shall use its best efforts to obtain on or prior to the
Closing Date from the Persons in the position of landlord of such Leased
Properties the right for Employers Insurance to assume such leases and use such
Leased Properties. On or prior to the Closing Date, Fremont agrees to obtain all
required landlord and mortgagee consents to any lease assignments and subleases
with respect to the leases set forth in Final Schedule 5.12(a). With respect to
the leases listed on Final Schedule 5.12(a)(iv) that are selected by Employers
Insurance for purposes of sublease, Fremont and Fremont's Affiliates agree to
sublease to Employers Insurance such space, subject to the consent of the
Persons in the position of landlord with respect to the applicable master lease,
at a cost equal to the proportional cost under the master lease for such space,
for a term equal to the lesser of (i) two (2) years from the Closing Date,
subject to any further extension as may be agreed by the parties to such
sublease or (ii) the expiration date of the current term of the master lease
without considering any renewal or extended terms. With respect to any
subleases, Fremont shall obtain the consent of the Person in the position of
lessor and shall at Fremont's expense cause to be partitioned from the other
operations of Fremont's Affiliates the space occupied by the Business as of the
Closing Date in such a manner that Employers Insurance shall have access from
such space directly into the common areas of the building and there shall be no
direct access to such space by Fremont's Affiliates or others except through a
lockable entrance controlled exclusively by Employers Insurance and the Person
in the position of landlord, provided, however, (A) Fremont or Fremont's
Affiliate in the position of tenant will use best
45
efforts to obtain any necessary consents of Persons in the position of landlord
to subleases and demising walls on or prior to the Closing Date, and (B) the
cost to Fremont and Fremont's Affiliates of demising walls and any other
construction required to permit Employers Insurance to operate from such
premises in substantially the same manner as the Business is currently using
such premises shall be borne exclusively by Fremont. With respect to any
property for which demising walls are not constructed, either Party if requested
by the other, shall adopt commercially reasonable measures to separate its
operations from the other Party's operation physically within such premises and
to provide for separately signed areas within such property. Fremont shall
comply with the additional provisions of the Transition Services and Facilities
Agreement related to the Leased Properties.
Section 5.12. TRANSFERRED ASSETS.
(a) Transferred Contracts. With respect to the Contracts listed on
Schedule 3.07(a) hereto, other than the Contracts listed on Schedules 3.07(a)(v)
and 3.07(a)(ix), Fremont shall provide written notices to Employers Insurance
concerning the Subsequent Contracts, if any, to be added to Schedule 3.07(a) as
a result of any Subsequent Contracts being entered into by Fremont between the
date of this Agreement and the Closing Date as permitted under this Agreement;
provided, that Fremont shall provide to Employers Insurance each such written
notice within one (1) Business Day after Fremont enters into each Subsequent
Contract. On or prior to the Closing Date, Employers Insurance shall provide to
Fremont in writing a list of the Contracts and Subsequent Contracts listed on
Schedule 3.07(a) that are selected by Employers Insurance for purposes of
assignment, transfer, license, sub-license, lease or sublease, which shall
constitute Schedule 5.12(a) hereto. Schedule 5.12(a) will be arranged in
numbered paragraphs corresponding to the numbered categories of Contracts
referenced in Section 3.07(a) hereof. Employers Insurance shall have the right
to add any Subsequent Contract to Schedule 5.12(a) and to amend or modify
Schedule 5.12(a). At the Closing Date and at any time after the Closing Date,
such Schedule 5.12(a), with any additional modifications and amendments by
Employers Insurance pursuant to this Section 5.12(a), shall constitute the final
Schedule 5.12(a) (the "Final Schedule 5.12(a)") hereto.
(b) Certain Transferred Software Licenses. With respect to the
Licensed Principally Used Software and the Licensed Generally Used Software
listed on Schedules 3.16(a) and 3.16(b) hereto ("Qualified Licenses"), prior to
the execution of this Agreement, Fremont has delivered or made available to
Employers Insurance copies of the Qualified Licenses. In addition to the
Qualified Licenses listed on Schedules 3.16(a) and 3.16(b), prior to the Closing
Date Fremont shall provide written notices to Employers Insurance concerning
additional Qualified Licenses (each, an "Additional Qualified Licenses"), if
any, to be added to Schedules 3.16(a) and 3.16(b) as a result of any Qualified
Licenses being entered into or acquired by Fremont between the date of this
Agreement and the Closing Date as permitted under this Agreement; provided, that
Fremont shall provide to Employers Insurance each such written notice within one
(1) Business Day after Fremont enters into or acquires each Additional Qualified
License. On or prior to the Closing Date, Employers Insurance shall provide to
Fremont in writing a list of the Qualified Licenses that are selected by
Employers Insurance, which shall constitute Schedule 5.12(b) hereto. At the
Closing Date and at any time after the Closing Date, such Schedule 5.12(b), with
any additional modifications and amendments by
46
Employers Insurance pursuant to this Section 5.12(b), shall constitute the final
Schedule 5.12(b) (the "Final Schedule 5.12(b)") hereto.
(c) Transferred Tangible Assets. With respect to the Qualified
Tangible Assets listed in the Proposed List of Tangible Assets, prior to the
Closing Date Fremont shall provide written notices to Employers Insurance
concerning additional Qualified Tangible Assets (each, an "Additional Tangible
Assets"), if any, to be added to the Proposed List of Tangible Assets as a
result of any Qualified Tangible Assets being acquired or leased by Fremont
between the date of this Agreement and the Closing Date; provided, that Fremont
shall provide to Employers Insurance each such written notice within one (1)
Business Day after Fremont acquires or leases each Additional Tangible Asset. On
or prior to the Closing Date, Employers Insurance shall provide to Fremont in
writing a list of the Qualified Tangible Assets listed in the Proposed List of
Tangible Assets that are selected by Employers Insurance, which shall constitute
Schedule 5.12(c) hereto. At the Closing Date and at any time after the Closing
Date, such Schedule 5.12(c), with any additional modifications and amendments by
Employers Insurance pursuant to this Section 5.12(c), shall constitute the final
Schedule 5.12(c) (the "Final Schedule 5.12(c)") hereto.
Section 5.13. INTELLECTUAL PROPERTY RIGHTS.
(a) With respect to the Owned Principally Used Intellectual Property
Rights, Fremont hereby irrevocably sells and transfers all right, title,
interest and ownership in and to such Intellectual Property Rights to Employers
Insurance, effective as of the Closing Date, including, without limitation,
executables and documentation related thereto, and Fremont shall retain no
rights whatsoever in and to such Intellectual Property Rights and shall
cooperate with Employers Insurance in the execution of all necessary documents
to effect the purposes of this Section 5.13(a).
(b) With respect to any Owned Generally Used Intellectual Property
Rights, on or prior to the Closing Date, Fremont shall grant to Employers
Insurance and its Affiliates, either directly by license or by sub-license,
effective as of the Closing Date, a royalty-free, non-exclusive, irrevocable,
perpetual, worldwide license to use such Owned Generally Used Intellectual
Property Rights pursuant to the terms of one or more Intellectual Property
Rights License Agreements, substantially in the form of Exhibit E hereto. Such
licenses or sub-licenses to Employers Insurance shall be assignable in Employers
Insurance's sole discretion, subject to the written agreement of such transferee
to be subject to the terms of the Intellectual Property Rights License
Agreements.
(c) (i) With respect to all Licensed Principally Used Intellectual
Property Rights and all Licensed Generally Used Intellectual Property Rights as
requiring third party consents to assignment or sub-license, Fremont shall use
its best efforts to obtain from the licensors of the Licensed Generally Used
Intellectual Property Rights and the licensors of the Licensed Principally Used
Intellectual Property Rights the right for Employers Insurance to use the
Licensed Generally Used Intellectual Property Rights and the Licensed
Principally Used Intellectual Property Rights as stated herein and in Section
3.17 hereof; provided, however, to the extent that governmental or third party
consents are required for such assignment or sub-
47
license and such consents have not been obtained prior to the Closing Date,
Fremont shall use its best efforts to obtain such consents and effect such
assignment or sub-license pursuant to Section 2.04 hereof; (ii) with respect to
Licensed Generally Used Intellectual Property Rights and the Licensed
Principally Used Intellectual Property Rights as requiring third party consents
for Fremont to perform services for the benefit of third parties, Fremont shall
use its best efforts to obtain from the licensors of the Licensed Generally Used
Intellectual Property Rights and the licensors of the Licensed Principally Used
Intellectual Property Rights the right for Fremont to use the Licensed Generally
Used Intellectual Property Rights and the Licensed Principally Used Intellectual
Property Rights for the benefit of Employers Insurance. Fremont and Employers
Insurance shall share equally any cost and expense associated with obtaining
such rights as provided in (i) and (ii) from the licensors of the Licensed
Generally Used Intellectual Property Rights and the Licensed Principally Used
Intellectual Property Rights, including any costs that may be required to obtain
the Intellectual Property Rights in connection with the Transition Services and
Facilities Agreement or the Reverse Transition Services Agreement. Employers
Insurance shall be entitled to participate fully in any negotiation with any
such licensors. With respect to the Licensed Generally Used Intellectual
Property Rights and the Licensed Principally Used Intellectual Property Rights
for which Employers Insurance obtains licenses pursuant to this Section 5.13(c),
Employers Insurance shall assume responsibility for complying with the terms and
conditions of the licenses governing such Intellectual Property Rights,
including responsibility for the payment of the costs and expenses of all
ongoing contractual responsibilities, including licensing fees incurred after
the Closing Date; provided, that Fremont shall be responsible for compliance
with all terms and conditions and for the payment of all costs and expenses of
all ongoing contractual responsibilities, including licensing, upgrade and
maintenance fees associated with activities other than the conduct of the
Business. If a licensor refuses to assign, license or sub-license the Licensed
Principally Used Intellectual Property Rights to Employers Insurance, which
Employers Insurance has requested, Fremont shall assist Employers Insurance in
attempting to locate suitable substitute Intellectual Property Rights; provided;
that Fremont and Employers Insurance shall share equally any cost and expense
associated with the procurement of such suitable substitute Intellectual
Property Rights. If a licensor refuses to consent to Fremont's use of any
Licensed Principally Used Intellectual Property Rights or Licensed Generally
Used Intellectual Property Rights to perform services for the benefit of
Employers Insurance, Fremont shall use its best efforts to locate suitable
substitute Intellectual Property Rights; provided; that Fremont and Employers
Insurance shall share equally any cost and expense associated with the
procurement of such suitable substitute Intellectual Property Rights.
(d) In the event that the Owned Generally Used Intellectual Property
Rights, Owned Principally Used Intellectual Property Rights, Licensed Generally
Used Intellectual Property Rights or Licensed Principally Used Intellectual
Property Rights is the subject of a claimed or alleged infringement of another
Person's patent, copyright, trade secret, or any other proprietary rights on the
Closing Date, then Fremont, at Employers Insurance's option but at costs and
expenses shared equally between Fremont and Employers Insurance, shall defend
Employers Insurance against such infringement claim and shall either: (i) secure
a license to such Person's Intellectual Property Rights for the benefit of
Employers Insurance on terms reasonably satisfactory to Employers Insurance,
(ii) modify the Intellectual Property Rights so as to make it non-infringing
without affecting its performance, or (iii) only to the extent that the options
listed
48
in clauses (i) and (ii) above are commercially infeasible, secure a license to
reasonably comparable substitute Intellectual Property Rights for Employers
Insurance on terms reasonably satisfactory to Employers Insurance.
(e) From the date hereof to and including the Closing Date, Fremont
will not, without the prior written consent of Employers Insurance, amend any
Fremont Privacy Policy except as would not or would not be likely to adversely
affect (X) Fremont's ability to perform its obligations under this Agreement or
any Ancillary Agreements, (Y) the transactions contemplated hereby or by any
Ancillary Agreements, or (Z) Employers Insurance's ability to receive and use
the transition services provided pursuant to the Transition Services and
Facilities Agreement or any Ancillary Agreement.
Section 5.14. REIMBURSEMENT OF COUPON REDEMPTION. From and after the
Closing Date, Fremont shall reimburse Employers Insurance for the cost of the
Customer Coupons ($250 per Customer Coupon) in connection with the redemption of
the Customer Coupons by Employers Insurance or any of its Affiliates (directly
or through Clarendon).
Section 5.15. TRANSITION SERVICES AND FACILITIES AGREEMENT. On or prior to
the Closing Date, Fremont shall cause one or more of its Affiliates to enter
into the Transition Services and Facilities Agreement.
Section 5.16. REINSURANCE PROGRAM. Immediately following the signing of
this Agreement, provided Fremont is able to maintain its existing reinsurance
program applicable to the Clarendon Program Insurance Policies, Fremont and
Employers Insurance or an Affiliate of Employers Insurance shall use
commercially reasonable efforts to enter into a reinsurance agreement which will
enable Fremont General Insurance Agency, Inc. to continue to quote Clarendon
Program Insurance Policies with effective dates from July 1, 2002 pursuant to
the Clarendon Reinsurance Agreement and in connection therewith, Employers
Insurance or an Affiliate of Employers Insurance shall either reinsure Fremont
for Fremont's reinsurance obligations thereunder, or shall directly reinsure
Clarendon for such reinsurance obligations.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EMPLOYERS INSURANCE
The obligations of Employers Insurance under this Agreement are subject to
the satisfaction on or prior to the Closing Date of the following conditions,
any one or more of which may be waived by Employers Insurance to the extent
permitted by law:
Section 6.01. REPRESENTATIONS AND COVENANTS.
(a) The representations and warranties of Fremont set forth in this
Agreement shall be true and correct (without giving effect to any qualifications
as to "Fremont Material Adverse Effect," "material" or similar qualifications)
as of the date of this Agreement, as of the
49
Closing Date and as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an earlier
date) except, in either case, where the failure of such representations and
warranties to be so true and correct (without giving effect to any
qualifications as to "Fremont Material Adverse Effect," "material" or similar
qualifications) would not, individually or in the aggregate, be reasonably
likely to have a Fremont Material Adverse Effect.
(b) Fremont shall have performed or complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with by Fremont on or prior to the Closing Date.
(c) On the Closing Date, Fremont shall have delivered to Employers
Insurance a certificate of Fremont, dated as of the Closing Date and signed on
behalf of Fremont by an executive officer of Fremont, as to the matters set
forth in this Section 6.01 and all the Schedules hereto (other than Schedules
4.03, 4.04, 5.09(a), 5.12(a), 5.12(b) and 5.12(c)).
Section 6.02. SECRETARY'S CERTIFICATE. Fremont Compensation shall have
delivered to Employers Insurance a certificate of the secretary or assistant
secretary of Fremont Compensation, dated as of the Closing Date, as to the
resolutions of the Board of Directors of Fremont Compensation authorizing the
execution, delivery and performance of the agreements to which it is a party, as
to the status and signature of each of its officers who executed and delivered
the agreements to which it is a party and any other document delivered by it in
connection with the consummation of the transactions contemplated by this
Agreement, the Ancillary Agreements and the other agreements and instruments
contemplated hereby and thereby, as to its charter and by-laws, and as to its
due organization, existence and good standing. Fremont General shall have
delivered to Employers Insurance a certificate of the secretary or assistant
secretary of Fremont General, dated as of the Closing Date, as to the
resolutions of the Board of Directors of Fremont General authorizing the
execution, delivery and performance of the transactions contemplated by this
Agreement, the Ancillary Agreements and the other agreements and instruments
contemplated hereby and thereby.
Section 6.03. OTHER AGREEMENTS. The Ancillary Agreements and each of the
other agreements and instruments contemplated hereby and thereby to which
Fremont is a party shall have been duly executed and delivered by Fremont on the
Closing Date and each of such agreements and instruments shall be in full force
and effect with respect to Fremont on the Closing Date.
Section 6.04. GOVERNMENTAL AND REGULATORY CONSENTS AND APPROVALS. All
filings required to be made prior to the Closing Date with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing Date from, Governmental Entities, including, without limitation, those
set forth on Schedules 3.03 and 4.03 hereto, in connection with the execution
and delivery of this Agreement, each Ancillary Agreement and each agreement and
instrument contemplated hereby and thereby and the consummation of the
transactions contemplated hereby, by each Ancillary Agreement and by each
agreement and instrument contemplated hereby and thereby shall have been made or
obtained, as the case may
50
be, in each case without any conditions, restrictions or limitations which are
not acceptable to Employers Insurance.
Section 6.05. THIRD PARTY CONSENTS. All consents or waivers of third
parties to the consummation of the transactions contemplated by this Agreement,
the Ancillary Agreements and the agreements and instruments contemplated hereby
and thereby, including those set forth on Schedules 3.03 and 4.03 hereof, shall
have been obtained.
Section 6.06. NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order or decree shall be pending,
threatened or issued by any Governmental Entity nor shall any other legal
restraint or prohibition be in effect, pending or threatened that would (i) have
a Fremont Material Adverse Effect or (ii) prevent, restrict, or which is
reasonably likely to prevent or restrict, the consummation of any of the
transactions contemplated hereby, by the Ancillary Agreements or the agreements
and instruments contemplated hereby and thereby.
Section 6.07. NO MATERIAL ADVERSE EFFECT. Since December 31, 2001, there
shall not have been any change, event or state of circumstances or facts that
could, individually or in the aggregate, reasonably be expected to have a
Fremont Material Adverse Effect.
Section 6.08. DUE DILIGENCE. As of the Closing Date, Employers Insurance
shall be satisfied with the results of its due diligence investigation of the
Business and its review of Fremont's financial statements.
Section 6.09. EICN REINSURANCE AGREEMENT. On or prior to the Closing Date,
Employers Insurance or one or more of its Affiliates shall have entered into the
EICN Reinsurance Agreement with Clarendon.
Section 6.10. INTEGRATED MEDI-COMP AND ADP PROGRAMS. On or prior to the
Closing Date, Employers Insurance shall have entered into agreements pursuant to
which Employers Insurance obtains contractual rights in replacement of the
Integrated Medi-Comp and ADP Programs.
Section 6.11. LEASED PROPERTIES. Fremont shall execute and deliver the
Lease Assignments (the "Lease Assignments") for the Leased Properties set forth
on Schedule 3.22(a) to be leased to Employers Insurance and the Subleases (the
"Subleases") for the Leased Properties set forth on Schedule 3.22(a) to be
subleased to Employers Insurance, each in the form attached to the Transition
Services and Facilities Agreement. Fremont shall also be in compliance with the
terms and provisions of the Lease Assignments and the Subleases, including,
without limitation, delivery of possession of the Leased Properties, completion
of all tenant improvement work and compliance with all master leases and deeds
of trust, on the Closing Date.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF FREMONT
The obligations of Fremont under this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, any
one or more of which may be waived by Fremont to the extent permitted by law:
Section 7.01. REPRESENTATIONS AND COVENANTS.
(a) The representations and warranties of Employers Insurance set
forth in this Agreement shall be true and correct (without giving effect to any
qualifications as to "Employers Insurance Material Adverse Effect," "material"
or similar qualifications) as of the date of this Agreement, as of the Closing
Date as though made on and as of the Closing Date, as the case may be (except to
the extent any such representation or warranty expressly speaks as of an earlier
date); except, in either case, where the failure of such representations and
warranties to be so true and correct (without giving effect to any
qualifications as to "Employers Insurance Material Adverse Effect," "material"
or similar qualifications) would not, individually or in the aggregate, be
reasonably likely to have an Employers Insurance Material Adverse Effect.
(b) Employers Insurance shall have performed or complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by Employers Insurance on or prior to the
Closing Date.
(c) On the Closing Date, Employers Insurance shall have delivered to
Fremont a certificate of Employers Insurance, dated as of the Closing Date and
signed on behalf of Employers Insurance by an executive officer of Employers
Insurance, as to the matters set forth in this Section 7.01 and Schedules 4.03
and 4.04.
Section 7.02. SECRETARY'S CERTIFICATE. Employers Insurance shall have
delivered to Fremont a certificate of the secretary or assistant secretary of
Employers Insurance, dated as of the Closing Date, as to the resolutions of the
Board of Directors of Employers Insurance authorizing the execution, delivery
and performance of the agreements to which it is a party, as to the status and
signature of each of its officers who executed and delivered the agreements to
which it is a party and any other document delivered by it in connection with
the consummation of the transactions contemplated by this Agreement, the
Ancillary Agreements and the other agreements and instruments contemplated
hereby and thereby, as to its charter and by-laws, and as to its due
organization, existence and good standing.
Section 7.03. OTHER AGREEMENTS. The Ancillary Agreements, the EICN
Reinsurance Agreement and each of the other agreements and instruments
contemplated hereby and thereby to which Employers Insurance or any of its
Affiliates is a party shall have been duly executed and delivered by Employers
Insurance on the Closing Date and each of such agreements and instruments shall
be in full force and effect with respect to Employers Insurance on the Closing
Date.
52
Section 7.04. GOVERNMENTAL AND REGULATORY CONSENTS AND APPROVALS. All
filings required to be made prior to the Closing Date with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing Date from, Governmental Entities, including, without limitation, those
set forth on Schedules 3.03 and 4.03 hereto, in connection with the execution
and delivery of this Agreement, each Ancillary Agreement and the other
agreements and instruments contemplated hereby and thereby and the consummation
of the transactions contemplated hereby, by each Ancillary Agreement and by the
other agreements and instruments contemplated hereby and thereby shall have been
made or obtained, as the case may be, in each case without any conditions,
restrictions or limitations that are not acceptable to Fremont.
Section 7.05. NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of any of the transactions contemplated hereby, by the Ancillary
Agreements or by the other agreements and instruments contemplated hereby and
thereby shall be in effect; provided, however, that prior to invoking this
condition, Fremont shall have used all reasonable efforts to have any such order
or injunction vacated.
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01. ACCESS TO BOOKS AND RECORDS.
(a) Following the Closing Date, Employers Insurance shall afford, and
will cause its Affiliates to afford, to Fremont, its counsel and its
accountants, during normal business hours, reasonable access to the Books and
Records, including all leases, due diligence and property-related records, with
respect to the period prior to the Closing Date to the extent that such access
may be reasonably required by Fremont in connection with (i) the preparation of
Tax Returns or in connection with any audit, amended return, claim for refund or
any proceeding with respect thereto and (ii) the investigation, arbitration,
litigation and final disposition of any claims which may have been or may be
made against Fremont in connection with the Business or which Fremont may make
with respect to the Business. Prior to the fifth anniversary of the Closing
Date, Employers Insurance will not, and will cause its Affiliates to not,
dispose of, alter or destroy any such Books and Records and other materials
without giving 30 days' prior notice to Fremont to permit it, at its expense, to
examine, duplicate or repossess such records, files, documents and
correspondence. Nothing in this Section shall be interpreted to interfere with
access of Fremont and its Affiliates to the Books and Records in connection with
their performance of work under the Transition Services and Facilities
Agreement.
(b) Following the Closing Date, Fremont shall afford, and will cause
its Affiliates to afford, to Employers Insurance, its counsel and its
accountants, during normal business hours, reasonable access to all records
(including computer generated, recorded or stored records) relating to the
Business with respect to the period prior to the Closing Date to the extent that
such
53
access may be reasonably required by Employers Insurance in connection with (i)
the preparation of Tax Returns or in connection with any audit, amended return,
claim for refund or any proceeding with respect thereto and (ii) the
investigation, arbitration, litigation and final disposition of any claims which
may have been or may be made against Employers Insurance or its Affiliates in
connection with the Business or which Employers Insurance or its Affiliates may
make with respect to the Business. Prior to the fifth anniversary of the Closing
Date, Fremont shall not, and shall cause its Affiliates to not, dispose of,
alter or destroy any such records and other materials without giving 30 days'
prior notice to Employers Insurance to permit it, at its expense, to examine,
duplicate or repossess such records, files, documents and correspondence.
Nothing in this Section shall be interpreted to interfere with access of
Employers Insurance and its Affiliates to the Books and Records in connection
with their performance of work under the relevant Ancillary Agreements and the
EICN Reinsurance Agreement.
(c) Fremont shall use its best efforts to make available on an
expedited basis such financial information and other data as Employers Insurance
may reasonably require to satisfy federal or state regulatory filing or
reporting requirements, including those under the United States Securities Laws.
Section 8.02. USE OF INFORMATION AND SYSTEMS.
(a) Notwithstanding anything to the contrary in this Agreement,
effective on the Closing Date, Fremont shall grant to Employers Insurance and
Employers Insurance shall acquire a royalty-free, non-exclusive, irrevocable,
perpetual, worldwide license to use, operate, modify, perform, display,
distribute, create derivative works of and to copy all of Fremont's systems and
data used both in the conduct of the Business and in the conduct of Fremont's
other businesses and not used exclusively in the conduct of the Business,
including, but not limited to, (i) historical actuarial information for pricing
workers' compensation coverages of the type which has been provided to the
actuaries for the Business on or prior to the Closing Date, including increased
limits factors, premium and loss trends and loss development factors, (ii)
claims settlement systems and other information with respect to the settlement
of claims regarding workers' compensation insurance coverages for the Business,
in both cases including any reproduction thereof or derivative works based
thereon, (iii) other information related to the Business, including information
contained in databases or in electronic, optical or other formats, and (iv) the
software containing, or used to process, the information stated in Sections
8.02(a)(i), (ii) or (iii), above, including the source code, object code,
utilities required to compile code, executables, documentation, related
materials and all copies thereof.
(b) So as to provide for an efficient data and systems conversion
process, at Employers Insurance's request, Fremont shall deliver all Computer
Software, data and information to be provided to Employers Insurance under
Sections 3.16, 3.17, 5.10, 5.13 and 8.02 of this Agreement in such formats and
language satisfactory to Employers Insurance and so as to enable Employers
Insurance to access, load, read, utilize and otherwise fully exercise its rights
in such software, data and information. Without limiting the foregoing, within
ten (10) Business Days following the date hereof, Employers Insurance shall
provide a written description of its formatting and language requirements for
such Computer Software, data and information. The Parties shall use their best
efforts to reach agreement prior to the Closing Date
54
on a mutually acceptable plan for the delivery of such Computer Software, data
and information to Employers Insurance. In addition, Fremont shall promptly
respond to all questions of Employers Insurance in connection with such data and
systems conversion efforts and provide all reasonable cooperation in connection
therewith.
(c) Employers Insurance shall have the unrestricted right to use or
cause to be used the knowledge, experience, information and know-how remaining
in the unaided memory of the Acquired Employees. The foregoing is not intended
to prevent Fremont for a period of ten (10) years from the Inception Date from
using, in connection with the administration of its expired workers'
compensation policies (the "Run-Off Business"), the knowledge, experience,
information and know-how remaining in the unaided memory of the Business
Employees who are not Acquired Employees, so long as such use does not violate
Section 8.03 hereof.
Section 8.03. Non-Competition.
(a) Fremont. In consideration of the benefits of this Agreement and
the Ancillary Agreements to Fremont and in order to induce Employers Insurance
to enter into this Agreement, Fremont hereby covenants and agrees that subject
to Section 8.03(b) hereof, during the Non-Compete Period, neither Fremont nor
any of its Affiliates shall, without the prior written consent of Employers
Insurance, directly or indirectly:
(i) engage in insurance or reinsurance business
relating to workers' compensation, including
policies and services of the type provided by or
through the Business at any time since January 1,
1999 (the "Competitive Activities");
(ii) solicit any customer or prospective customer of
the Business to purchase any policies or services
of the type sold by or through the Business at any
time since January 1, 1999;
(iii) establish, acquire, operate, engage in, manage or
own any equity interest in any business that
engages in Competitive Activities;
(iv) do anything to cause any officer, director,
employee, consultant, agent, broker or distributor
of the Business to terminate or sever his or her
employment or other relationship with the Business
for the purpose of competing with or proposing to
compete with the Business, or for the purpose of
damaging the Business in any way;
(v) do anything to cause or encourage any insurer or
reinsurer to terminate, modify or fail to renew
any insurance or reinsurance policy or treaty or
other contract or other relationship with the
Business; or
(vi) use or transfer or otherwise disclose to any third
party any confidential information included in any
Books and Records or any other confidential
information about or relating to the Business.
55
Fremont specifically agrees that this covenant is an integral part of the
inducement of Employers Insurance to enter into this Agreement and that
Employers Insurance (or its successors or assigns) and its Affiliates shall be
entitled to injunctive relief in addition to all other legal and equitable
rights and remedies available to it in connection with any breach by Fremont or
any of its Affiliates of any provision of this Section 8.03 and that,
notwithstanding the foregoing, no right, power or remedy conferred upon or
reserved or exercised by Employers Insurance in this Section 8.03 is intended to
be exclusive of any other right, power or remedy, each and every one of which
(now or hereafter existing at law, in equity, by statute or otherwise) shall be
cumulative and concurrent.
(b) Exceptions.
(i) Notwithstanding any other provisions of this
Agreement to the contrary, to the extent and as
contemplated by this Agreement, Fremont may
continue to transact such insurance operations in
respect of the Run-Off Business as are permitted
under the Ancillary Agreements and in respect of
the Fremont Policies prior to the respective
expiration dates of the Fremont Policies.
(ii) Notwithstanding any other provisions of this
Agreement to the contrary, from and after the
Inception Date until the last day of the
Non-Compete Period, (A) Fremont and its Affiliates
will not engage in a transaction with any Person
that will result in Change in Control in Fremont,
its Affiliates, or such Person for the principal
purpose of marketing and selling Workers'
Compensation Products or with any Person whose
principal business is marketing and selling
Workers' Compensation Products; (B) subject to the
foregoing clause (A), if Fremont or any of its
Affiliates acquires any Person in a transaction
that constitutes a Change in Control for such
Person and such Person does not have as its
principal business the marketing and sale of
Workers' Compensation Products, but such Person
has a workers' compensation insurance business in
California in excess of $25 million based on
12-month moving net written premiums of such
workers' compensation insurance business in
California at the time of such transaction (such
Person or the portion of such Person which
constitutes the workers' compensation insurance
business, a "Fremont Acquired Company"), Fremont
or such Affiliate shall use its best efforts
promptly to divest itself upon commercially
reasonable terms of all of Fremont Acquired
Company, and in such event Fremont or such
Affiliate shall, if the acquisition is consummated
within two and one-half years following the
Closing Date, first provide to Employers Insurance
or any Affiliate of Employers Insurance (as
directed by Employers Insurance) the opportunity
to purchase Fremont Acquired Company following the
procedures set forth in Section 8.03(d) hereof
prior to negotiating
56
with any prospective purchasers or entertaining an
offer; provided, that in the event that Employers
Insurance shall not elect to purchase the Fremont
Acquired Company, then during such time as the
Fremont Acquired Company shall not be so divested,
or in the event that the Fremont Acquired Company
has a workers' compensation insurance business in
California of $25 million or less based on
12-month moving net written premiums at the time
of such acquisition, then during the Non-Compete
Period, the Fremont Acquired Company may continue
to sell Workers' Compensation Products which do
not bear the brand, name, xxxx, logo or other
identifying words or images (including the
Licensed Marks) of Fremont or any of its
Affiliates or any other brand, name, xxxx, logo or
identifying words or images (including the
Licensed Marks) used at any time since January 1,
1999 in connection with the Business
(collectively, the "Fremont Brand") (other than
the Fremont Acquired Company as of the date of
acquisition) but only through agents and brokers
that are part of the Fremont Acquired Company's
sales force; provided, however, that in so doing
the Fremont Acquired Company may not receive
assistance of any kind, including Systematic
Assistance, from Fremont or any of its Affiliates
with respect to the marketing and sale of any
workers' compensation insurance business,
including any Workers' Compensation Products; (C)
if Fremont or any of its Affiliates is acquired by
any Person (other than by Employers Insurance or
by an Affiliate of Employers Insurance) in a
Change in Control transaction (the "Fremont
Acquiring Company"), the Fremont Acquiring Company
may continue to sell during the Non-Compete Period
Workers' Compensation Products which do not bear
the Fremont Brand but only through agents and
brokers that are part of the Fremont Acquiring
Company's sales force; provided, however, that in
so doing the Fremont Acquiring Company may not
receive assistance of any kind, including
Systematic Assistance, from Fremont or any of its
Affiliates with respect to the marketing and sale
of any Workers' Compensation Products; (D) the
Fremont Brand will not be used on any Workers'
Compensation Products of the Fremont Acquired
Companies or Fremont Acquiring Companies or any of
their Affiliates; and (E) the agents of the
Fremont Acquired Company and Fremont Acquiring
Company engaged in the sale of Workers'
Compensation Products will not be integrated in
any way whatsoever with the agents on Schedule
1.01(d) (Fremont Commercial Agent List). For
purposes hereof, "Systematic Assistance" shall
include access to the Intangible Assets and use of
the Licensed Marks.
57
(c) Fremont and Employers Insurance agree that in the event that the
length of time for restriction set forth in this Section 8.03 is deemed too
restrictive by any Governmental Entity of competent jurisdiction, the covenants
and agreements in this Section 8.03 shall be enforceable for such maximum time
as such Governmental Entity may deem reasonable under the circumstances.
(d) If the Fremont Acquired Company has a workers' compensation
insurance business in California of more than $25 million based on 12-month
moving net written premiums of such workers' compensation insurance business at
the time of such acquisition and such acquisition is completed within two and
one-half years following the Inception Date, then within 15 days following the
end of Employers Insurance's Due Diligence Period (as defined below), Fremont
shall offer to sell to Employers Insurance or its Affiliate (as directed by
Employers Insurance) the Fremont Acquired Company on commercially reasonable
terms and conditions at a fair market value purchase price, whereupon Employers
Insurance will have forty (40) days to either elect not to proceed with such
offer, or to make a binding election to effect the purchase upon commercially
reasonable terms at a fair market value purchase price determined within sixty
(60) further days by an independent nationally recognized investment banking
firm with recognized experience in valuing insurance companies and which is
mutually acceptable to Employers Insurance and Fremont. For the forty (40) day
period following the completion of the acquisition of the Fremont Acquired
Company by Fremont or an Affiliate (the "Due Diligence Period"), Fremont shall
provide to Employers Insurance and its respective Representatives, upon
execution of a customary confidentiality agreement, reasonable access to such
Fremont Acquired Company to conduct customary due diligence of the Fremont
Acquired Company in connection with Fremont's obligation to provide to Employers
Insurance a right of first offer pursuant to this Section 8.03(d) in respect of
such Fremont Acquired Company.
Section 8.04. COOPERATION. To the extent not otherwise provided in the
Ancillary Agreements,
(a) Following the Service Date, Employers Insurance shall cause
employees of Employers Insurance who prior to employment therewith were Business
Employees to cooperate, to the extent practicable, with Fremont in (i) the
defense or commencement of any litigation or arbitration arising out of any
event that occurred on or prior to the Closing Date involving the Business, (ii)
connection with any tax or regulatory (including insurance and securities)
matter relating to the Business, (iii) the defense or prosecution, as the case
may be, of any Third Party Claim in accordance with Section 10.03(b) hereof,
(iv) connection with any reports, statements or filings required under any
federal and state securities laws and other regulatory authorities, and (v)
fulfilling such other reasonable requests as shall be made by Fremont in
connection with the Business. Fremont shall promptly pay to Employers Insurance
all compensation of Employers Insurance's employees in respect of the portion of
their time devoted to the foregoing activities and all reasonable out-of-pocket
expenses of Employers Insurance incurred as a result of Employers Insurance's
obligations under this Section 8.04.
(b) Following the Service Date, Fremont shall, and shall cause its
respective employees to cooperate, to the extent requested by Employers
Insurance, with Employers Insurance in (i) the defense of any litigation or
arbitration arising out of any event that occurred
58
on or prior to the Closing Date involving the Business, (ii) connection with any
tax or regulatory (including insurance and securities) matter relating to the
Business, (iii) the defense or prosecution, as the case may be, of any Third
Party Claim in accordance with Section 10.03(b) hereof, (iv) connection with any
reports, statements or filings required under any federal and state securities
laws and other regulatory authorities, and (v) such other reasonable requests as
shall be made by Employers Insurance in connection with the Business. Employers
Insurance shall promptly pay to Fremont all compensation of Fremont's employees
in respect of the portion of their time devoted to the foregoing activities and
all reasonable out-of-pocket expenses of Fremont incurred as a result of
Fremont's obligations under this Section 8.04.
Section 8.05. TAXES.
(a) Tax Treatment. Fremont and Employers Insurance agree that for all
purposes (i) the transfer of the Transferred Assets and the Business effected
pursuant to this Agreement and the Ancillary Agreements is a sale by Fremont of
all of its interest in such assets and business, and (ii) the transactions
effected by the EICN Reinsurance Agreement are reinsurance.
(b) Consistent Positions. Fremont and Employers Insurance agree not to
take any position inconsistent with this Section 8.05 for Tax purposes.
(c) Allocation of Consideration. The Parties agree that the
consideration payable by Employers Insurance to Fremont pursuant to this
Agreement (after taking into account the reinsurance premiums, ceded
liabilities, ceding commissions and other related items under the EICN
Reinsurance Agreement) shall be allocated in accordance with Section 1060 of the
Code and Treasury Regulation Section 1.1060-1T and insofar as possible in a
manner that is not inconsistent with the terms of this Agreement, the EICN
Reinsurance Agreement and the Renewal Rights Agreement. Within 120 days after
the Closing Date, but at least 60 days before the due date (including
extensions) of the federal income tax return on which Fremont reports the
transaction contemplated by this Agreement, Fremont and Employers Insurance
shall mutually agree, subject to the conditions of this Agreement (such
agreement not to be unreasonably withheld), as to the allocation of such
consideration among the Transferred Assets and the Business in accordance with
Section 1060 of the Code and Treasury Regulation Section 1.1060-1T. Employers
Insurance shall be responsible for (i) the preparation of the work papers which
allocate such consideration, and (ii) timely providing such work papers to
Fremont for its review in connection with granting its approval of the
allocation. Employers Insurance and Fremont each shall prepare separate Forms
8594, Asset Acquisition Statement, under Section 1060 of the Code, reflecting
Employers Insurance's acquisition of the Transferred Assets and the Business.
Section 8.06. INTRANET OR INTERNET USAGE. Fremont acknowledges that
Employers Insurance intends to establish its own Intranet and its own Internet
web site for purposes of carrying on the Business and, at Employers Insurance's
request, Fremont shall cease operation of those segments of its Intranet and its
Internet sites with regard to the Business and shall transfer or license to
Employers Insurance all necessary Computer Software, coding, content and domain
names, and documentation related to such Intranet and Internet sites.
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Section 8.07. FREMONT PACIFIC AND FCIC. On or prior to the Effective Date,
Fremont Pacific and FCIC shall be merged into Fremont Indemnity with Fremont
Indemnity being the surviving entity.
Section 8.08. POST-CLOSING CONFIDENTIALITY. Following the Closing, each
Party hereto will hold, and will use its best efforts to cause its Affiliates
and their respective Representatives to hold, in strict confidence from any
Person (other than any such Affiliate or Representative)--unless (i) compelled
to disclose by judicial or administrative process (including in connection with
obtaining the necessary approvals of this Agreement and the Ancillary Agreements
and of the transactions contemplated hereby and by the Ancillary Agreements) of
Governmental Entities or by other requirements of law (including securities
laws, or rules of any applicable stock exchange) or (ii) disclosed in an action
brought by a Party hereto in pursuit of its rights or in the exercise of its
remedies hereunder--all documents and information concerning the other Party or
any of its Affiliates furnished to it by the other Party or such other Party's
Representatives in connection with this Agreement and the Ancillary Agreements
or the transactions contemplated hereby and by the Ancillary Agreements, except
to the extent that such documents or information can be shown to have been (A)
previously known by the Party receiving such documents or information, (B) in
the public domain (either prior to or after the furnishing of such documents or
information hereunder) through no fault of such receiving Party or (C) later
acquired by the receiving Party from another source if the receiving Party is
not aware that such source is under an obligation to another Party hereto to
keep such documents and information confidential. Notwithstanding the foregoing,
following the Closing Date the foregoing restrictions shall not apply to
Employers Insurance's use of documents and information concerning the
Transferred Assets, the Other Assumed Liabilities or any other documents and
information in respect of the Business.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, COVENANTS, AND AGREEMENTS
All covenants and agreements made by the Parties pursuant to this Agreement
which will be performed following the Closing Date, and all covenants which were
to be performed prior to the Closing Date but which were not so performed, shall
survive the Closing Date. All other covenants and agreements shall not survive
the Closing Date and shall terminate as of the Closing Date. Other than with
respect to breaches of the representations and warranties set forth in Article
III hereof which were known to Fremont on or prior to the Closing Date, the
representations and warranties set forth in Article III hereof shall not survive
the Closing Date and shall terminate immediately following the Closing Date.
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ARTICLE X
INDEMNIFICATION
Section 10.01. INDEMNIFICATION BY FREMONT. From and after the Effective
Date, subject to the limitations set forth in Article IX and Article X, Fremont
agrees to indemnify Employers Insurance and its Affiliates and their respective
Representatives, successors, permitted assigns and Affiliates and hold them
harmless from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) (collectively, "Indemnifiable Losses")
suffered or incurred by any such Indemnified Party, to the extent arising from
(i) any breach of any covenant or agreement of Fremont contained in this
Agreement, any Ancillary Agreement or any other agreement or instrument
contemplated hereby or thereby, (ii) any Excluded Liability without regard as to
whether such Indemnifiable Loss exists prior to or on the Closing Date or arises
at any time thereafter or (iii) any action, claim or proceeding brought by or on
behalf of any Business Employee, including any Acquired Employee at any time
with respect to any event occurring or condition arising (A) prior to or on the
Closing Date and (B) after the Closing Date, if in the case of this Clause (B),
such event occurred or condition arose as a result of the action or direction of
Fremont or Fremont's Affiliates' employees who are not Business Employees.
Section 10.02. INDEMNIFICATION BY EMPLOYERS INSURANCE. From and after the
Effective Date, subject to the limitations set forth in Article IX and Article
X, Employers Insurance agrees to indemnify Fremont and each of its respective
Representatives, successors, permitted assigns and Affiliates against and hold
them harmless from any Indemnifiable Losses suffered or incurred by any such
Indemnified Party to the extent arising from (i) any breach of any covenant or
agreement of Employers Insurance contained in this Agreement, any Ancillary
Agreement or any other agreement or instrument contemplated hereby or thereby,
(ii) any Other Assumed Liability or (iii) subject to Section 10.01(iii)(B)
hereof, any action, claim or proceeding brought by or on behalf of any Acquired
Employee at any time with respect to any event occurring or condition arising
from and after the Effective Date.
Section 10.03. INDEMNIFICATION PROCEDURES.
(a) In order for a Party (the "Indemnified Party") to be entitled to
any indemnification provided for under this Agreement in respect of, arising out
of or involving a claim or demand made by, or an action, proceeding or
investigation instituted by, any Person not a party to this Agreement (a "Third
Party Claim"), such Indemnified Party must notify the other Party (the
"Indemnifying Party") in writing, and in reasonable detail, of the Third Party
Claim within ten (10) Business Days after such Indemnified Party first learns of
a Third Party Claim; provided, however, that an inadvertent failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the Indemnifying Party shall have been actually prejudiced as a
result of such failure (except that the Indemnifying Party shall not be liable
for any expenses incurred during the period in which the Indemnified Party
failed to give such notice). Thereafter, the Indemnified Party shall deliver to
the Indemnifying Party, within five (5) Business Days after the Indemnified
Party's receipt thereof, copies of all notices and documents (including court
papers) received by the Indemnified Party relating to the Third Party Claim.
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(b) If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party will be entitled to participate in the defense thereof
(unless (i) the Indemnifying Party is also a party to such Third Party Claim and
the Indemnified Party determines in good faith that joint representation would
be inappropriate or (ii) the Indemnifying Party fails to provide reasonable
assurance to the Indemnified Party of its financial capacity to defend such
Third Party Claim and provide indemnification with respect to such Third Party
Claim) and, if it so chooses, to assume the defense thereof with counsel
selected by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party. Should the Indemnifying Party so elect to assume the defense
of a Third Party Claim, (i) it shall be conclusively established for purposes of
this Agreement that the claims made in such Third Party Claim are within the
scope of and subject to indemnification and (ii) the Indemnifying Party will not
as long as it legitimately conducts such defense be liable to the Indemnified
Party for legal expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof. If the Indemnifying Party assumes such
defense, the Indemnified Party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party. The Indemnifying Party shall be
liable for the fees and expenses of counsel employed by the Indemnified Party
for any period during which the Indemnifying Party has not legitimately assumed
the defense thereof (other than during any period in which the Indemnified Party
shall have failed to give notice of the Third Party Claim as provided in Section
10.03(a) hereof). If the Indemnifying Party chooses to defend or prosecute any
Third Party Claim, all of the Parties hereto shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
Indemnifying Party's request) the provision to the Indemnifying Party of records
and information which are reasonably relevant to such Third Party Claim, and,
subject to Section 8.04 hereof, making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Whether or not the Indemnifying Party shall have
assumed the defense of a Third Party Claim, the Indemnifying Party shall have no
liability with respect to any compromise or settlement of such claims effected
without its written consent (such consent not to be unreasonably withheld); the
Indemnifying Party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnified Party's
prior written consent (which consent shall not be unreasonably withheld) unless
(i) there is no finding or admission of any violation of law or any violation of
the rights of any Person and no effect on any other claims that may be made
against the Indemnified Party, or (ii) the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party; provided, however, that
an Indemnified Party shall not be required to consent to any settlement
involving the imposition of equitable remedies.
(c) The indemnities provided in this Agreement shall survive the
Closing Date. The indemnity provided in Sections 10.01 and 10.02 hereof shall be
the sole and exclusive remedy of the Indemnified Party against the Indemnifying
Party at law (but not in equity) for any matter covered by such Sections 10.01
and 10.02.
(d) Notwithstanding "Fremont" being a defined term referring to,
collectively, Fremont Compensation and Fremont Indemnity, for purpose of
indemnity under this Agreement, the liabilities of each such entity covered by
the term "Fremont" shall be joint and several.
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ARTICLE XI
TERMINATION
Section 11.01. TERMINATION OF AGREEMENT. This Agreement may be terminated
at any time prior to the Closing Date:
(a) by Fremont or Employers Insurance in writing, if there shall be
any order, injunction or decree of any Governmental Entity which prohibits or
restrains Fremont or Employers Insurance from consummating the transactions
contemplated hereby, and such order, injunction or decree shall have become
final and nonappealable; provided that prior to termination under this Section
11.01(a), the Party seeking to terminate this Agreement shall have used all
reasonable efforts to have such order, injunction or decree vacated;
(b) by Employers Insurance in writing at any time prior to the Closing
Date (A) in the event Fremont has breached any representation, warranty or
covenant contained in this Agreement, Employers Insurance has notified Fremont
of the breach, and the breach has continued without cure for a period of thirty
(30) days after the notice of breach, or (B) if the Closing shall not have
occurred on or before 11:59 P.M., Pacific Daylight Time, June 30, 2002, by
reason of the failure of any condition precedent under Article VI hereof (unless
the failure results primarily from Employers Insurance itself breaching any
representation, warranty or covenant contained in this Agreement);
(c) by Fremont in writing at any time prior to the Closing (A) in the
event the Employers Insurance has breached any representation, warranty or
covenant contained in this Agreement in any material respect, Fremont has
notified the Employers Insurance of the breach, and the breach has continued
without cure for a period of thirty (30) days after the notice of breach, or (B)
if the Closing shall not have occurred on or before 11:59 P.M., Pacific Daylight
Time, June 30, 2002, by reason of the failure of any condition precedent under
Article VII hereof (unless the failure results primarily from Fremont itself
breaching any representation, warranty or covenant contained in this Agreement);
or
(d) at any time on or prior to the Closing Date, by mutual written
consent of Fremont and Employers Insurance.
Section 11.02. SURVIVAL. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above, this
Agreement shall become null and void and of no further force and effect, except
for the provisions of Section 5.03, Section 5.08, this Section 11.02 and Article
XII, and except that no termination pursuant to this Article XI shall relieve
any Party from any liability for any breach of this Agreement.
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ARTICLE XII
GENERAL PROVISIONS
Section 12.01. PUBLICITY.
(a) Prior to Closing, no Party nor any of its Representatives shall
make any public statement or issue any press releases regarding this Agreement,
the proposed transactions described herein, the EICN Reinsurance Agreement or
the Ancillary Agreements without the prior written consent of the other Party,
except as such disclosure may be required by law. If the law requires such
disclosure, the disclosing Party shall notify the other Party in advance and
furnish to the other Party a copy of the proposed disclosure. Notwithstanding
the foregoing, the Parties acknowledge that certain disclosures regarding this
Agreement, the proposed transactions contemplated by this Agreement, the EICN
Reinsurance Agreement or the Ancillary Agreements may be required to be made to
each Party's Representatives or certain of them, and to any other Party whose
consent or approval may be required to complete the agreements and the
transactions provided for thereunder, and that such disclosures shall not
require prior written consent.
(b) The Parties hereto shall cooperate with each other in making any
press release or public announcements.
Section 12.02. DOLLAR REFERENCES. All dollar references in this Agreement
are to the currency of the United States.
Section 12.03. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed given if delivered
personally, by facsimile (which is confirmed) or sent by overnight courier
(providing proof of delivery), to the Parties at the following address:
(a) If to Employers Insurance:
Amyniles Insurance Company
c/o Employers Insurance Company of Nevada, a Mutual
Company
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxx, Xxxxxx 00000
Attention: Xxx X. Xxxxxx, Esq., General Counsel
Facsimile: (000) 000-0000
With a concurrent copy to:
LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P.
000 X. Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
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(b) If to Fremont:
Fremont Compensation Insurance Group, Inc.
c/o Fremont General Corporation
0000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq., General Counsel
Facsimile: (000) 000-0000
With a concurrent copy to:
Xxxxxx & Wolen, L.L.P.
000 X. Xxxxxx Xx., Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxx, Esq.
Facsimile: (000) 000-0000
Any Party may, by notice given in accordance with this Section 12.03 to
the other Party, designate another address or Person for receipt of notices
hereunder, provided that notice of such a change shall be effective upon
receipt.
Section 12.04. ENTIRE AGREEMENT. This Agreement (including the Ancillary
Agreements, the other agreements and instruments contemplated hereby and
thereby, the Exhibits and the Schedules hereto) contains the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, written or oral, with respect thereto;
provided, however, that the Confidentiality Agreement shall remain in full force
and effect in accordance with its terms except as contemplated by Section 5.03
hereof prior to the Closing Date. Without limiting the foregoing, the Parties
agree that this Agreement, the Ancillary Agreements and the other agreements and
instruments contemplated hereby and thereby and the Schedules and Exhibits
hereto and thereto shall be treated as "Evaluation Material," as such term is
defined in the Confidentiality Agreement, and shall be kept confidential to the
extent required by and in accordance with the Confidentiality Agreement.
Section 12.05. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by Fremont Compensation or Employers Insurance or, in the case
of a waiver, by either Fremont Compensation or Employers Insurance, depending on
whichever waives compliance. No delay on the part of any Party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any Party of any right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent
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such occurrence. The rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies that any Party may otherwise have at law
or in equity.
Section 12.06. GOVERNING LAW; CHOICE OF FORUM. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
Section 12.07. SUBMISSION TO JURISDICTION. Each of the Parties agrees to
submit to the jurisdiction of any state or federal court sitting in Los Angeles,
California, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other Party with respect thereto. Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or in equity.
Section 12.08. SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which it may be
entitled, at law or in equity.
Section 12.09. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
permitted assigns and legal representatives. Neither this Agreement or any of
the Ancillary Agreements or any of the other agreements and instruments
contemplated hereby and thereby, nor any of the rights, interests or obligations
hereunder or thereunder, may be assigned by Fremont, in whole or in part, by
operation of law or otherwise, without the prior written consent of Employers
Insurance and any such assignment that is not consented to by Employers
Insurance shall be null and void. Employers Insurance may transfer and assign to
one or more Persons, which shall be an Affiliate of Employers Insurance, some or
all of the Transferred Assets and Other Assumed Liabilities, and some or all of
the rights and obligations of Employers Insurance under this Agreement and each
of the Ancillary Agreements and the other agreements and instruments
contemplated hereby and thereby to which it is a party, and any other
agreements, documents or instruments executed by Employers Insurance in
connection with the transactions under this Agreement and the Ancillary
Agreements; provided that all such assets, liabilities, rights and obligations
may be allocated among the Employers Insurance and any such transferee, as may
be determined by Employers Insurance, in its sole discretion; and provided,
further, that no such assignment shall limit or adversely affect in any manner
whatsoever Employers Insurance's indemnification rights hereunder. Employers
Insurance and Fremont agree that, upon such transfers, assignments and
assumptions, as the case may be, the transferee or transferees shall be
substituted for Employers
66
Insurance, as if such transferee or transferees, as the case may be, were
Employers Insurance hereunder and that Employers Insurance shall be released and
discharged in all respects from any and all obligations or liabilities assumed
by any such transferee or transferees.
Section 12.10. INTERPRETATION.
(a) Notwithstanding anything in this Agreement to the contrary, no
term or condition of this Agreement shall be construed to supersede, restrict or
otherwise limit any term or condition set forth in the EICN Reinsurance
Agreement.
(b) The Parties acknowledge and agree that they may pursue judicial
remedies at law or equity in the event of a dispute with respect to the
interpretation or construction of this Agreement. In the event that an
alternative dispute resolution procedure is provided for in any of the EICN
Reinsurance Agreement, the Ancillary Agreements or any other agreement or
instrument contemplated hereby or thereby, and there is a dispute with respect
to the construction or interpretation of such EICN Reinsurance Agreement,
Ancillary Agreement or any such other agreement or instrument contemplated
hereby and thereby, the dispute resolution procedure provided for in such EICN
Reinsurance Agreement, Ancillary Agreement or any such other agreement
contemplated hereby and thereby shall be the procedure that shall apply with
respect to the resolution of such dispute.
(c) For purposes of this Agreement, the words "hereof," "herein,"
"hereby" and other words of similar import refer to this Agreement as a whole
unless otherwise indicated. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The terms "transactions contemplated by this
Agreement" and "transactions contemplated hereby" shall include the sale and
purchase of the Transferred Assets, the reinsurance by Employers Insurance of
the Reinsured Liabilities, the assumption of the Other Assumed Liabilities and
the execution, delivery and performance by the Parties thereto of the EICN
Reinsurance Agreement, the Ancillary Agreements and any other agreements
contemplated hereby or thereby. Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
(d) No provision of this Agreement will be interpreted in favor of or
against either Party hereto by reason of the extent to which any such Party or
its counsel participated in the drafting thereof or by reason of the extent to
which any such provision is inconsistent with any prior draft hereof or thereof.
Section 12.11. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is
intended or shall be construed to give any Person (including, but not limited
to, the employees of Fremont or any Affiliate of Fremont), other than the
Parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 12.12. COUNTERPARTS. This Agreement may be executed by the Parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
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Section 12.13. EXHIBITS AND SCHEDULES. The Exhibits and the Schedules to
this Agreement that are specifically referred to herein are a part of this
Agreement as if fully set forth herein. All references herein to Articles,
Sections, subsections, paragraphs, subparagraphs, clauses, Exhibits and
Schedules shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require.
Section 12.14. HEADINGS. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
Section 12.15. SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first written above.
FREMONT COMPENSATION INSURANCE
GROUP, INC.
By: __________________________________
Name: Xxxx X. Xxxxxx
Title: Senior Vice President
FREMONT COMPENSATION INSURANCE
COMPANY
By: __________________________________
Name: Xxxx X. Xxxxxx
Title: Senior Vice President
FREMONT INDEMNITY COMPANY
By: __________________________________
Name: Xxxx X. Xxxxxx
Title: Senior Vice President
FREMONT PACIFIC INSURANCE COMPANY
By: __________________________________
Name: Xxxx X. Xxxxxx
Title: Senior Vice President
AMYNILES INSURANCE COMPANY
By: __________________________________
Name: Xxxxxxx X. Xxxxx
Title: President & Chief Executive Officer
69
