STOCK PURCHASE AGREEMENT
by and between
FIREMAN'S FUND INSURANCE COMPANY,
and
ORION CAPITAL CORPORATION
REGARDING THE SALE OF THE SHARES OF
WM. ▇. ▇▇▇▇▇ & CO., INC
Dated: March 9, 1999
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STOCK PURCHASE AGREEMENT
AGREEMENT (the "Agreement"), dated March 9, 1999, by and between ORION
CAPITAL CORPORATION, a Delaware corporation ("Seller"), as Seller, and FIREMAN'S
FUND INSURANCE COMPANY, a California corporation ("Buyer"), as Buyer,
W I T N E S S E T H:
WHEREAS, Wm. ▇. ▇▇▇▇▇ & Co., Inc. ("▇▇▇▇▇") is a corporation duly organized
and validly existing under the laws of the State of New York, having outstanding
capital stock consisting of 4,400 shares of common stock, without par value (the
"Common Stock"); and
WHEREAS, Seller owns 100% of the Common Stock, all of which is to be sold
to and purchased by Buyer pursuant hereto;
NOW, THEREFORE, the parties hereto agree as follows, intending that defined
terms used herein shall have the meanings set forth in Article XII: I.
THE TRANSACTION
Section 1.1. Purchase of Common Stock. Upon the terms and subject to all of
the conditions set forth herein, Seller agrees to sell to Buyer and Buyer agrees
to acquire from Seller on the Closing Date 100% of the Common Stock.
Section 1.2. Consideration. In full consideration for the sale of the
Common Stock by Seller to Buyer provided for herein, together with the other
undertakings and commitments made and delivered by Seller to Buyer herein, at
the Closing Buyer shall deliver to Seller the sum of Fifty-Nine Million Four
Hundred Thousand and 00/100 ($59,400,000.00) Dollars in immediately available
funds by wire transfer to the account designated by Seller.
Section 1.3. Management Fee. In full consideration for the provision of
management services by SICH to ▇▇▇▇▇ and its Subsidiaries for the period from
January 1, 1999 until Closing, at the Closing Buyer shall pay to SICH, in
immediately available funds by wire transfer to the account designated by SICH,
an aggregate amount equal to (a) if the Closing occurs on or prior to April 30,
1999, Eight Hundred Thousand and 00/100 Dollars ($800,000.00), or (b) if the
Closing occurs after April 30, 1999, the sum of (i) Eight Hundred Thousand and
00/100 Dollars ($800,000.00), plus (ii) Two Hundred Thousand and 00/100 Dollars
($200,000.00) for each full or partial calendar month during the period from
April 30, 1999 through and including the Closing Date.
II.
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THE CLOSING
Section 2.1. Closing.
(a) The closing of the transactions provided for herein (the "Closing")
shall occur at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ at CityPlace I, 185 Asylum
Street, 36th Floor, Hartford, Connecticut or at such other place as shall be
determined by Buyer and Seller, on April 30, 1999; provided, however, that if
any of the conditions provided for in Articles VII and VIII hereof shall not
have been met or waived by Seller or by Buyer, as the case may be, by the
scheduled Closing Date, then the party which is unable to meet such condition or
conditions shall be entitled to postpone the Closing by notice to the other
party to such effect until such condition or conditions shall have been met
(which such party will seek to cause to happen at the earliest practicable date)
or waived (such postponed Closing to be held on five business days notice from
the postponing party to the other party), but in no event shall such
postponements extend past June 30, 1999. At the Closing, Seller and Buyer shall
deliver, or cause to be delivered, to the other such certificates, receipts or
other documents or instruments, in addition to those specifically provided for
herein, as may reasonably be requested by the other and as are customary for
transactions of the type contemplated hereunder. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
(b) At the Closing, Seller shall deliver to Buyer: (i) stock certificates
representing all of the Common Stock, (ii) a mutual release between Seller and
its affiliates (other than SICH) and ▇▇▇▇▇ in the form of Exhibit A-1; (iii) a
mutual release between SICH and ▇▇▇▇▇ in the form of Exhibit A-2; (iv) a mutual
release between CI and ▇▇▇▇▇ in the form of Exhibit A-3 (collectively, the
"Releases"); and (v) a noncompetition agreement in the form attached hereto as
Exhibit B (the "Noncompetition Agreement").
III.
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REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
Section 3.1. Organization and Good Standing. ▇▇▇▇▇ is a
corporation duly organized and existing and in good standing under the laws of
the State of New York, has the corporate power to carry on its business as it is
now being conducted and is duly qualified to do business as a foreign
corporation in each jurisdiction in which such qualification is required, except
where the failure so to qualify would not have a material adverse effect on the
business, properties, financial condition or results of operations of ▇▇▇▇▇ and
its Subsidiaries taken as a whole or the ability of any of them to carry on the
business of the Pool as it is carried on by ▇▇▇▇▇ and its Subsidiaries taken as
a whole (a "Material Adverse Effect"). Each Subsidiary of ▇▇▇▇▇ is a corporation
duly organized and existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power to carry on its
business as it is now being conducted and is duly qualified to do business as a
foreign corporation in each jurisdiction in which such qualification is
required, except where the failure so to qualify would not have a Material
Adverse Effect. Seller has heretofore made available to Buyer true and complete
copies of (a) the Certificate of Incorporation and By-laws of ▇▇▇▇▇ and each of
its Subsidiaries, (b) (i) all minutes of the meetings and copies of resolutions
of stockholders, the board of directors and each committee of the board of
directors of ▇▇▇▇▇ since June 30, 1995, and (ii) to the Seller's Knowledge, all
minutes of the meetings and copies of resolutions of stockholders, the board of
directors and each committee of the board of directors of ▇▇▇▇▇ and each of its
Subsidiaries held since the date of its incorporation and organization and prior
to June 30, 1995 and all powers of attorney, if any, issued by ▇▇▇▇▇ or any of
its Subsidiaries which are presently outstanding and in effect.
Section 3.2. Capitalization. ▇▇▇▇▇ has an authorized capital
stock consisting of 11,000 shares of common stock, without par value, of which,
4,400 shares are issued and outstanding. No shares of ▇▇▇▇▇ Common Stock are
held in treasury. All of the Common Stock is duly authorized, validly issued,
fully paid and non-assessable and is owned by Seller as set forth in Schedule
3.2 hereto, free and clear (except as otherwise shown on Schedule 3.2) of any
and all claims, liens, restrictions, pledges, charges, rights of third parties
or other encumbrances. Neither Seller nor ▇▇▇▇▇ (a) is a party to or is bound by
any agreement, or has since June 30, 1995 made any commitment, to sell or issue
any securities of ▇▇▇▇▇ other than the Common Stock which is the subject of this
Agreement, or (b) has taken any corporate action to approve any of the foregoing
except for the approval of this Agreement. The Common Stock is not subject to
preemptive rights or to any voting trust, proxy or similar agreement. Schedule
3.2 correctly identifies each of ▇▇▇▇▇'▇ Subsidiaries, its jurisdiction of
incorporation and the percentage of its voting stock owned by ▇▇▇▇▇ and each
other Subsidiary. ▇▇▇▇▇ is the legal and beneficial owner of all of the shares
of voting stock of each Subsidiary of ▇▇▇▇▇ (other than directors' qualifying
shares, in the case of Wm. ▇. ▇▇▇▇▇ & Company of Puerto Rico, Inc.) as set forth
on Schedule 3.2, and such ownership is free and clear (except as otherwise shown
on Schedule 3.2) of any and all claims, liens, restrictions, pledges, charges,
rights of third parties or other encumbrances. All such shares have been duly
authorized and validly issued and are fully paid and non-assessable. No
Subsidiary of ▇▇▇▇▇ has any common or preferred stock authorized or outstanding
other than as set forth on Schedule 3.2 and none of ▇▇▇▇▇ nor Seller nor any
such Subsidiary is a party to or is bound by any agreement or commitment to sell
or issue any securities of any Subsidiary of ▇▇▇▇▇ or has taken any corporate
action to approve, or in contemplation of, any of the foregoing.
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Section 3.3. Regulatory Status. To Seller's Knowledge, ▇▇▇▇▇, and each of
its Subsidiaries, has all requisite power and authority, and all necessary
licenses, permits, franchises and other governmental authorizations necessary to
own and operate its properties and to carry on its business as now conducted,
except where the failure to have the same could not reasonably be expected to
have a Material Adverse Effect. All material licenses, permits and other
governmental authorizations held by ▇▇▇▇▇ are set forth on Schedule 3.3.
Section 3.4. Compliance with Law. To Seller's Knowledge, except as set
forth on Schedule 3.4, ▇▇▇▇▇, and each of its Subsidiaries, has conducted, and
is now conducting, its business and operations in material compliance with all
existing laws, rules, regulations, ordinances, orders, judgments and decrees
(including, without limitation, those of state insurance departments) applicable
to its business, properties or operations as presently conducted.
Section 3.5. Authorization.
(a) This Agreement has been duly authorized by all necessary corporate
action of Seller. This Agreement will, when duly executed and delivered, be a
valid and binding agreement of Seller, enforceable against Seller in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally, and except that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the equitable discretion of the court before which any
proceeding therefor may be brought.
(b) Each of the Ancillary Agreements to which Seller or a Subsidiary of
Seller is a party, has been, or prior to the Closing will be, duly authorized by
all necessary corporate action of Seller or such Subsidiary, does not violate
any provision of the Certificate of Incorporation, or similar charter document,
or By-Laws of any of them or any agreement by which any of them or the
properties of any of them is bound and will, when duly executed and delivered,
be a valid and binding agreement of such entity enforceable against it in
accordance with the terms thereof, except as limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally, and except that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the equitable discretion of the court
before which any proceeding therefor may be brought.
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Section 3.6. Books and Records. The consolidated and consolidating
unaudited balance sheets of ▇▇▇▇▇ and its Subsidiaries as of December 31, 1998,
1997 and 1996 and the related consolidated and consolidating unaudited
statements of income and stockholders' equity for the fiscal year ended on such
date and, in each case, the related schedules, have been delivered by Seller to
Buyer. The unaudited consolidated and consolidating financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements lack or do
not reflect footnote disclosures, deferred federal income taxes, goodwill, any
obligations to settle claims of Pool Participants, tax valuation, and allowances
on a stand-alone basis) and present fairly the financial position of ▇▇▇▇▇ and
its Subsidiaries as of such date and the results of their operations for such
periods.
Section 3.7. Litigation and Other Proceedings.
(a) Except as set forth in Schedule 3.7(a), there are no actions, suits,
investigations or proceedings pending against, or to Seller's Knowledge
threatened against, ▇▇▇▇▇ or its Subsidiaries or any of their respective
officers or employees or their respective businesses, properties or assets, by
any person, governmental body or agency or by any securities exchange or
national securities association. To Seller's Knowledge, neither Seller nor ▇▇▇▇▇
nor any Subsidiary of ▇▇▇▇▇ is in default with respect to any order of any
court, governmental authority or agency or arbitration board or tribunal or in
violation of any laws or governmental rules or regulations, nor has any of them
received written notice of any assertion of a default where such default or
violation has had or is reasonably likely to have a Material Adverse Effect. To
Seller's knowledge, neither ▇▇▇▇▇ nor any of its Subsidiaries is in default
under any contract or commitment, nor has any of them received written notice of
any assertion of a default which default has had or is reasonably likely to have
a Material Adverse Effect.
(b) Except as set forth in Schedule 3.7(b), there are no actions, suits,
investigations or proceedings pending against, or to Seller's knowledge
threatened against, Pool Participants arising out of participation in the Pool
relating to extra-contractual, asbestos or environmental claims.
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Section 3.8. Title to Properties.
(a) All real property owned or leased by ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇
and, in the case of leased property, the lease pursuant to which it is leased,
is listed and described on Schedule 3.8(a). Except as set forth in Schedule
3.8(a), ▇▇▇▇▇ has good and marketable fee title to all owned real property
reflected on Schedule 3.8(a), free and clear of all liens, charges and
encumbrances, other than rights of way and easements of record, and subject only
to liens of current real and personal property taxes, and such minor defects of
title of a nature generally found in properties of similar character which do
not in any material way affect the marketability of such real properties or
interfere with the ownership and use of such real properties. To Seller's
Knowledge, each lease reflected on Schedule 3.8(a) is valid and subsisting in
accordance with its terms, no default by any party thereto has occurred, no
event, act or omission has occurred which constitutes or with notice or passage
of time or both would constitute a default and all such leases are free and
clear of any and all charges, liens, claims, rights of third parties and other
encumbrances. To Seller's Knowledge, neither ▇▇▇▇▇ nor any of its Subsidiaries
leases any real property to or from any, parent, affiliate, officer or director
or any person related to or owned or controlled by any parent, affiliate,
officer or director of ▇▇▇▇▇ or any of its Subsidiaries.
(b) Schedule 3.8(b) contains a true and complete summary, by
office location and type of property, of each item of personal property (other
than investments reflected in Schedule 3.11) having a value on the books of
▇▇▇▇▇ in excess of $10,000 which is used by ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ in
its business and a list of all equipment leases and capital leases under which
▇▇▇▇▇ holds any property with rental payments exceeding $10,000 per year. Except
as set forth in Schedule 3.8(b), all such personal property is owned or leased
by ▇▇▇▇▇ or a Subsidiary free and clear of any and all liens, charges or
encumbrances, except for liens for current taxes not yet due and payable and
except for those liens which do not materially detract from the value of the
property subject thereto or interfere with the ownership and use of such
property. All such personal property is in good operating condition and repair,
ordinary wear and tear excepted, and capable of performing the functions for
which it is now used.
(c) To Seller's Knowledge, Schedule 3.8(c) contains a true and
complete description of all copyrights, patents, trademarks, service marks,
trade names, franchises, computer programs (other than computer programs subject
to "shrink-wrap" licenses), processes and applications, and other intellectual
property (in each case, whether or not registered) owned or licensed by, and
applications for any of the foregoing made by, ▇▇▇▇▇ and each Subsidiary of
▇▇▇▇▇ ("Intellectual Property"). To Seller's Knowledge, no Intellectual Property
is subject to any lien, charge, encumbrance or adverse claim of any kind. To
Seller's Knowledge, and except as set forth in Schedule 3.8(c), all rights in
such Intellectual Property are valid, subsisting and in full force and effect in
accordance with their terms without interference with, or infringement on or by,
the rights of any other person (in each case which are material to the business
and operations of ▇▇▇▇▇ and its Subsidiaries, taken as a whole). To Seller's
Knowledge, neither ▇▇▇▇▇ nor any Subsidiary of ▇▇▇▇▇ is engaged in any
infringement or unlawful use of any trademark, service ▇▇▇▇, trade name,
copyright, program, process or application or other intellectual intangible
property right owned or alleged to be owned by others, nor has any written
notice of any claim been received from any third party alleging infringement or
unlawful use, nor, except as set forth in Schedule 3.8(c), has any Intellectual
Property been licensed to any other person.
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Section 3.9. No Conflicts.
(a) Neither the execution nor the delivery by Seller of this Agreement and
the Ancillary Agreements, nor the consummation of the transactions contemplated
hereby or thereby, nor the compliance with or fulfillment of the terms and
provisions hereof or thereof by Seller, will: (i) conflict with or result in a
breach or violation of any of the terms, conditions or provisions of the
Certificate of Incorporation or By-Laws of Seller or ▇▇▇▇▇ or any of ▇▇▇▇▇'▇
Subsidiaries; or (ii) conflict with or result in a breach or violation of, or
default or loss of a material benefit under, or permit the acceleration of any
obligation under any provision of, any agreement, indenture, mortgage, lien,
lease or other instrument or restriction of any kind to which Seller, ▇▇▇▇▇ or
any Subsidiary of ▇▇▇▇▇ is a party or by which it or any of its assets or
properties is otherwise bound; or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Seller or ▇▇▇▇▇ or any of the
Subsidiaries of ▇▇▇▇▇ or any of the assets or properties of any of them; which
conflict, breach, violation, default, loss or other result, in the case of each
of clauses (ii) and (iii), is reasonably likely to have a Material Adverse
Effect or a material adverse effect on the ability of Seller to perform its
obligations hereunder. Except as set forth in Schedule 3.9(a) hereto, no
consent, approval or authorization of, or filing, registration or qualification
with, any governmental authority on the part of Seller or ▇▇▇▇▇ or any
Subsidiary of ▇▇▇▇▇ is required in connection with the execution, delivery and
performance of this Agreement and the Ancillary Agreements or the offer, sale or
delivery of the Common Stock as provided herein.
(b) Neither the execution nor the delivery by any Subsidiary of Seller of
any of the Ancillary Agreements to which such Subsidiary is a party, nor the
consummation by any such Subsidiary of the transactions contemplated by any
Ancillary Agreement to which it is a party, nor the compliance with or
fulfillment by any such Subsidiary of the terms and provisions of any Ancillary
Agreement to which it is a party, will: (i) conflict with or result in a breach
or violation of any of the terms, conditions or provisions of the Certificate of
Incorporation or By-Laws of such Subsidiary; or (ii) conflict with or result in
a breach or violation of, or default or loss of a material benefit under, or
permit the acceleration of any obligation under any provision of any agreement,
indenture, mortgage, lien, lease or other instrument or restriction of any kind
to which such Subsidiary is a party or by which it or any of its assets is
otherwise bound; or (iii) result in a violation of or the acceleration of any
obligation under any agreement, indenture, mortgage, lien, instrument, writ,
injunction, decree, statute, rule or regulation applicable to such Subsidiary or
any of its assets or properties; which conflict, breach, violation, default,
loss or other result, in the case of each of clauses (ii) and (iii), is
reasonably likely to have a Material Adverse Effect or a Material Adverse Effect
on the ability of such Subsidiary to perform its obligations under any of the
Ancillary Agreements to which it is a party.
9
Section 3.10. Taxes. Except as disclosed in Schedule 3.10:
(a) Since June 30, 1995, each of ▇▇▇▇▇ and its Subsidiaries (and with
respect to federal income Taxes, every other entity included in a consolidated
federal Tax Return including ▇▇▇▇▇ and its Subsidiaries (collectively, the
"Consolidated Group")) has duly and timely filed (either separately or as part
of a consolidated group) with the appropriate government agencies, all material
federal, state, local and foreign returns, filings and reports with respect to
Taxes and any required material information returns or reports of any kind (the
"Tax Returns") which were required by applicable law to be filed on or before
the Closing Date, and all Tax Returns are true, correct and complete. The term
"Taxes," as used in this Agreement, shall mean all federal, state, local and
foreign gross receipts, franchise, premium, income and capital taxes, value
added taxes, sales, use and consumption taxes, employment, payroll, withholding,
ad valorem and property taxes, and all other taxes, assessments, withholdings,
duties, levies, fees and other governmental charges or impositions of each and
every kind, and interest, penalties and additions to tax with respect thereto
payable by or in respect of the business or operations of ▇▇▇▇▇.
(b) Neither ▇▇▇▇▇ nor any of its Subsidiaries is delinquent in any material
respect in the payment of any Taxes nor has any of them requested any extension
of time within which to pay any such Taxes or file any Tax Return with respect
thereto except to the extent that such Taxes have since been paid or such Tax
Return has since been filed.
(c) There is no agreement, waiver or consent providing for an extension of
time with respect to (i) the filing of any Tax Return, election or designation
by ▇▇▇▇▇ or any of its Subsidiaries, (ii) the payment or issuance of any
assessment of any Tax by or against ▇▇▇▇▇ or any of its Subsidiaries or (iii)
the issuance of any deficiency against ▇▇▇▇▇ or any of its Subsidiaries with
respect to Taxes. In addition, (except as disclosed to Buyer pursuant to this
Agreement) there is not currently in force any power of attorney granted by
▇▇▇▇▇ or any of its Subsidiaries with respect to any Tax matter.
(d) There is no (i) claim or deficiency for any Taxes which has been
asserted or, to Seller's Knowledge, threatened against ▇▇▇▇▇ or any of its
Subsidiaries or the Consolidated Group, (ii) action, suit, proceeding,
investigation, audit or claim now pending or, to Seller's Knowledge, threatened
against, or with respect to, ▇▇▇▇▇ or any of its Subsidiaries or the
Consolidated Group with regard to any Taxes, or (iii) claim for additional
amounts or assessments of such Taxes asserted by any such authority.
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(e) The federal income Tax Returns of ▇▇▇▇▇ and its
Subsidiaries (including any consolidated federal income Tax Return filed by the
Consolidated Group) have been examined by the Internal Revenue Service for all
periods to and including 1989 and all deficiencies asserted as a result of such
examinations have been paid or finally settled and Seller has received no
written notice of any issue having been raised by the Internal Revenue Service
in any such examination which, by application of the same or similar principles,
reasonably could be expected to result in a proposed deficiency for any other
period not so examined. Revenue Canada, Taxation has mailed a notice of an
original assessment in respect of the Canadian federal income tax liability of
▇▇▇▇▇ Canada for all fiscal years up to and including the fiscal year ended
1997. Seller has received no written notice of any issue having been raised by
any Canadian federal or provincial taxation authority in any examination which,
by application of the same or similar principles, reasonably could be expected
to result in a proposed deficiency for any other period not so examined.
(f) Since June 30, 1995 (i) neither ▇▇▇▇▇ nor any of its
Subsidiaries has filed an election, consent or agreement under Section 341(f) of
the Code; (ii) no indebtedness of ▇▇▇▇▇ or any of its Subsidiaries consists of
"corporate acquisition indebtedness" within the meaning of Section 279 of the
Code; (iii) since January 1, 1996, there has not been an "ownership change,"
"owner shift involving a five percent shareholder" or an "equity structure
shift" relating to ▇▇▇▇▇ or any of its Subsidiaries within the meaning of
Section 382(g) of the Code and since January 1, 1996, there has not been an
acquisition of control of ▇▇▇▇▇ or any of its Subsidiaries within the meaning of
the Income Tax Act (Canada); (iv) no property of ▇▇▇▇▇ or any of its
Subsidiaries is "tax-exempt use property" within the meaning of Section 168(h)
of the Code nor property that Buyer will be required to treat as being owned by
another person pursuant to section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately prior to the enactment of the Tax
Reform Act of 1986; (v) neither ▇▇▇▇▇ nor any of its Subsidiaries nor Seller nor
any of its Subsidiaries, with respect to any person in his or her capacity as an
officer or employee of ▇▇▇▇▇, is a party to any agreement pursuant to which it
has committed, by reason of the transactions contemplated in this Agreement or
other related agreements executed on the Closing Date, to make any payment to
such person which (exclusive of such payments as may be made by or at the
direction of Buyer) would constitute a "parachute payment" for purposes of
Sections 280G and 4999 of the Code; (vi) neither ▇▇▇▇▇ nor any of its
Subsidiaries has made any election pursuant to state or foreign Tax laws that is
currently binding on Seller or ▇▇▇▇▇; (vii) neither ▇▇▇▇▇ nor any of its
Subsidiaries is a "gain corporation" within the meaning of Section 384(c)(4) of
the Code; (viii) neither Seller nor SICH is a "foreign person" within the
meaning of Section 1445 of the Code; (ix) no deferred intercompany transactions
within the meaning of Section 1.1502-13 of the Treasury Regulations have
occurred between the members of the Consolidated Group and ▇▇▇▇▇ and its
Subsidiaries; (x) ▇▇▇▇▇ does not have an excess loss account as defined in
Section 1.1502-19 of the Treasury Regulations with respect to any of its
Subsidiaries; (xi) neither ▇▇▇▇▇ nor any of its Subsidiaries is a party to any
agreement relating to the sharing of any liability for, or payment of, Taxes
with any other person or entity, except for the Tax Sharing Agreement dated July
1, 1995 between Seller and ▇▇▇▇▇; and (xii) neither ▇▇▇▇▇ nor any of its
Subsidiaries has any liability for Taxes of any other person as a transferee,
successor or otherwise, by law or contract, except for the Tax Sharing Agreement
dated July 1, 1995 between Seller and ▇▇▇▇▇.
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(g) Since June 30, 1995:
(i) Each of Seller and its Subsidiary, Orion Capital Companies, Inc., and
each of ▇▇▇▇▇ and its Subsidiaries, in the case of any person in his or her
capacity as an officer or employee of ▇▇▇▇▇ and its Subsidiaries, has, in all
material respects, withheld from each payment made to any of its officers,
directors and employees the amount of all Taxes and other deductions (including
without limitation, income taxes, unemployment, disability, and other required
Taxes and contributions) required to be withheld and has timely paid such
withholding (together with its required employer's amount, if any) and has
timely and properly filed all required Tax Returns with respect thereto.
(ii) Neither ▇▇▇▇▇ nor ▇▇▇▇▇ Canada has, prior to the date hereof, made or
filed any elections or designations for purposes of the Income Tax Act (Canada)
or any relevant provincial taxing statute.
(iii) Neither ▇▇▇▇▇ nor ▇▇▇▇▇ Canada has, prior to the date hereof,
acquired property from or disposed of property for proceeds less than the fair
market value thereof to, any person, firm or corporation with whom it does not
deal at arm's length as the term is construed under the Income Tax Act (Canada).
(iv) ▇▇▇▇▇ Canada has no outstanding loans to or indebtedness incurred by
directors, officers or shareholders of that company or to any person or
corporation not dealing at arm's length (as the term is construed under the
Income Tax Act (Canada)) with any of the foregoing.
(v) The taxation year end of ▇▇▇▇▇ Canada for income tax purposes is, and
since June 30, 1995 has been, December 31.
13
(vi) ▇▇▇▇▇ does not carry on business in Canada through a permanent
establishment within the meaning of that term in the Canada-Income Tax
Convention.
(h) All representations and warranties of Seller as to Taxes or matters
with respect thereto are provided for in this Section 3.10, and no other section
of this Article III shall be construed or interpreted as a representation or
warranty of Seller as to Taxes or matters with respect thereto.
Section 3.11. Investments. Schedule 3.11 lists (and shows the custodial
location of) all investments in cash, cash equivalents, bonds, stocks and other
securities owned by ▇▇▇▇▇ and each of its Subsidiaries, or held by ▇▇▇▇▇ or any
of its Subsidiaries on behalf of the Pool, as at February 28, 1999, all of which
comply in all material respects with laws and regulations applicable to the
ownership of the same by ▇▇▇▇▇ and its respective Subsidiaries. ▇▇▇▇▇ and each
of its Subsidiaries has good and marketable title to all its investments, free
and clear of any and all liens, charges, claims, restrictions, pledges, rights
of third parties and other encumbrances, except for investments held on behalf
of the Pool.
Section 3.12. Employment Matters. Except as set forth on Schedule 3.12 or
as disclosed to Buyer in writing, ▇▇▇▇▇ has no employment or labor contracts
relating to any officers, directors or employees of ▇▇▇▇▇ or any of its
Subsidiaries and no employee of ▇▇▇▇▇ or any of its Subsidiaries is represented
by a labor organization of any type. To Seller's Knowledge, there is not, and
has not since January 1, 1996 been, any effort to unionize or organize any
employees of ▇▇▇▇▇ or any of its ------------------ Subsidiaries. No claim under
any federal, state, provincial or local employment-related law, order, ordinance
or regulation, or any unfair labor practice, discrimination, wage-and-hour or
employment equity claim to which ▇▇▇▇▇ or any of its Subsidiaries is subject is
pending and, to Seller's Knowledge, no threat of such has been asserted in
writing against or with respect to ▇▇▇▇▇ or any of its Subsidiaries.
Section 3.13. Employee Benefit Plans; ERISA.
(a) Schedule 3.13(a) sets forth a true and complete list of all employee
benefit plans, agreements, commitments, practices or arrangements of any type
(including, but not limited to, plans described in Section 3(3) of ERISA)
maintained by ▇▇▇▇▇ or any of its Subsidiaries for the benefit of current or
former employees or directors, or with respect to which ▇▇▇▇▇ or any of its
Subsidiaries has a liability, whether direct or indirect, actual or contingent
(including, but not limited to, liabilities arising from affiliation under
Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA) (the
"Benefit Plans").
14
(b) No Benefit Plan is a "multiemployer plan" (within the meaning of
Section 3(37) or Section 4001(a)(3) of ERISA) or a "multiple employer plan"
(within the meaning of Section 4064 of ERISA or Section 413(c) of the Code).
Neither ▇▇▇▇▇ nor any of its Subsidiaries has a current or potential liability
or obligation, whether direct or indirect, with respect to any multiemployer
plan or multiple employer plan.
(c) Seller has delivered or made available to Buyer, true and complete
copies of the following documents, as they may have been amended to the date
hereof, embodying or relating to the Benefit Plans:
(i) each of the Benefit Plans listed in Schedule 3.13(a), including all
amendments thereto, any related trust agreements, group annuity contracts,
insurance policies or other funding agreements or arrangements;
(ii) the most recent determination letter, if any, as to qualification
under Section 401(a) or 403(a) of the Code, received from the Internal Revenue
Service ("IRS") with respect to each of the Benefit Plans;
(iii) the actuarial valuation, if any, prepared with respect to each of the
Benefit Plans for the two most recent plan years and the most recent annual and
periodic accountings of Benefit Plan assets, if applicable;
(iv) the current summary plan description, if any, for each of the Benefit
Plans and any material modifications thereto; and
(v) the two (2) most recent annual returns/reports on IRS Form 5500,
5500-C/R, 5500-C or 5500-R filed for each of the Benefit Plans.
(d) Except as set forth in Schedule 3.13(d), with respect to
each Benefit Plan which is a welfare plan described in Section 3(1) of ERISA:
(i) no such plan provides medical or death benefits with respect to current or
former employees or directors of ▇▇▇▇▇ beyond their termination of employment,
other than coverage mandated by Sections 601-608 of ERISA and 4980B(f) of the
Code, (ii) each such plan has been administered in compliance with Sections
601-608 of ERISA and 498OB(f) of the Code; (iii) no such plan has undisclosed
reserves, assets, surpluses or prepaid premiums; and (iv) there is no material
claim pending or, to Seller's Knowledge, threatened involving the Benefit Plan.
(e) Except as disclosed in Schedule 3.13(e), none of the
Benefit Plans has participated in, engaged in or been a party to any prohibited
transaction as defined in ERISA or the Code, and, except for routine claims for
covered benefits, there are no material claims pending or overtly threatened,
involving any Benefit Plan listed in Schedule 3.13(a). Except as disclosed in
the Special Note to Schedule 3.13(a), there have been no material violations of
any reporting or disclosure requirements with respect to any Benefit Plan.
15
(f) To Seller's Knowledge, neither ▇▇▇▇▇, nor any of its Subsidiaries, nor
any fiduciary or disqualified person with respect to any Benefit Plan has any
liability for any excise tax imposed by Sections 4971 through 4980B of the Code.
Section 3.14. Contracts.
(a) Schedule 3.14(a) contains a list of each contract, agreement and
undertaking, written or oral, (other than those listed in Schedule 3.8 or
Schedule 3.14(b)) to which ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ is a party or by
which it or its property is bound and which involves indebtedness, or a
commitment, of $50,000 or more or has a remaining term of more than one year and
which cannot be terminated on not more than ninety (90) days notice.
(b) Except as disclosed to the Buyer in writing, Schedule 3.14(b) contains
a list of each contract, agreement and undertaking, written or oral, to which
▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ is a party or by which it or its property is
bound and which relates to ▇▇▇▇▇'▇ operation of the Pool (but excluding
contracts of insurance and reinsurance (other than contracts of reinsurance
among participants of the Pool) by or on behalf of the Pool.
(c) To Seller's Knowledge, all of the contracts, agreements and
undertakings listed in Schedules 3.14(a) and (b) are free of any default or
breach or any alleged default or breach by ▇▇▇▇▇, any Subsidiary of ▇▇▇▇▇ or any
other party thereto and no event, act or omission has occurred which, with the
giving of notice or the passage of time or both, would constitute a breach or
default by ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ or any other party thereto of any
such contract, lease, agreement or undertaking, other than, in each of the
foregoing cases, a breach which is not likely to have a Material Adverse Effect.
To Seller's Knowledge, and except as listed and described in Schedules 3.14(a)
and (b), neither ▇▇▇▇▇ nor any Subsidiary of ▇▇▇▇▇ is a party to or is bound by
any contract with, or is indebted to, any parent, affiliate, officer or director
of (or to any person related to or owned or controlled by any parent, affiliate,
officer or director of) ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ in any amount
whatsoever other than in respect of salaries (and other compensation and
benefits disclosed in Schedules 3.12 and 3.13) of officers and directors of
▇▇▇▇▇ and the Subsidiaries of ▇▇▇▇▇. Except as listed and described in Schedules
3.14(a) and (b), none of such parents, affiliates, officers or directors is
indebted to ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇.
16
Section 3.15. Capital Expenditures. Except as disclosed in Schedule 3.15
and Schedule 3.14(a), neither ▇▇▇▇▇ nor any Subsidiary of ▇▇▇▇▇ has an
outstanding commitment to any person for capital expenditures (including but not
limited to expenditures for data processing hardware, software and systems) in
excess of $50,000 other than for ordinary repairs and maintenance.
Section 3.16. Banks. Schedule 3.16 contains a true and complete list of all
banks or other financial institutions in which either ▇▇▇▇▇ or any Subsidiary of
▇▇▇▇▇ has an account, line of credit or safe deposit box, showing a description
of each such account and line of credit. -----
Section 3.17. Agents and Brokers. Schedule 3.17 contains a list of the
names and addresses of each agent or broker who has authority to bind either
SICH or the Connecticut Indemnity Company in its capacity as an issuer of
policies of insurance or reinsurance for the Pool, in each case with a
description of the type of agency or binding authority granted, and the
geographical or other limits of each such authority or agency.
Section 3.18. Insurance. Schedule 3.18 contains a true and complete list of
all policies of insurance issued to ▇▇▇▇▇ or to any Subsidiary of ▇▇▇▇▇ and
naming any of them as insureds or covering any of their businesses, assets or
liabilities, showing policy limits, type of coverage, annual premium, premium
payment dates, expiration dates, cash surrender value, and the amount of loans,
if any, secured. No policy listed has been canceled and each policy listed will
continue in effect after the Closing Date on the terms indicated in Schedule
3.18 unless canceled by the insured after the Closing Date.
Section 3.19. Absence of Material Changes and Adverse Factors. Since
December 31, 1998, and except for the transactions provided for herein or as
otherwise disclosed to Buyer in writing, there has not been, in respect of ▇▇▇▇▇
or any Subsidiary of ▇▇▇▇▇:
(a) any loss or destruction of, or damage (whether or not covered by
insurance) to, any of its assets or properties which affects or impairs its
ability to conduct its business as now conducted or proposed to be conducted
such that a Material Adverse Effect is reasonably likely to result therefrom;
(b) any other event or condition of any character which has had or is
reasonably likely to have a Material Adverse Effect;
(c) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇
or any direct or indirect redemption, purchase or other acquisition by ▇▇▇▇▇ or
any Subsidiary of ▇▇▇▇▇ of any such stock;
17
(d) any indebtedness or other liability or obligation (whether absolute,
accrued, contingent or otherwise) incurred or other transaction (except as
reflected in this Agreement) incurred by it other than in the ordinary course of
business;
(e) any increase in the salary or benefits of any employee except in the
ordinary course of business;
(f) any sale of any material asset or any acquisition of any material
property, securities, or other asset except, in each case, in the ordinary
course of business;
(g) any material adverse change in the operations or results of operations
of ▇▇▇▇▇ or in its or its Subsidiary's relationships with and goodwill of its
Pool Participants, customers, suppliers, agents, general agents, other insurers
and reinsurers and other persons having business dealings with such company;
(h) any failure to maintain in force all existing casualty and liability
insurance and reinsurance policies and fidelity bonds or policies or bonds
providing substantially the same coverage; or
(i) any material adverse change in the operations or operating results of
the Pool, the participation levels of the respective Pool Participants or, to
the Knowledge of Seller, the financial and actuarial information provided to
Buyer as reflected in Section 3.21.
Section 3.20. Environmental Matters. To Seller's Knowledge, ▇▇▇▇▇ and each
of ▇▇▇▇▇'▇ Subsidiaries is in compliance with all applicable environmental laws
governing its business failure to comply with which is reasonably likely to have
a Material Adverse Effect. All licenses, permits, registrations or approvals
required for the business of ▇▇▇▇▇ and each of ▇▇▇▇▇'▇ Subsidiaries under any
environmental law have, to Seller's Knowledge, been secured and ▇▇▇▇▇ and each
of its Subsidiaries is in substantial compliance therewith, except such
licenses, permits, registrations or approvals the failure to secure, or to
comply with which, is not reasonably likely to have a Material Adverse Effect.
There are no environmental claims or proceedings to which ▇▇▇▇▇ is a party
pending or, to Seller's Knowledge, threatened, which (a) question the validity
or term of, or entitlement of ▇▇▇▇▇ or any of ▇▇▇▇▇'▇ Subsidiaries to, any
permit, license, order or registration required for the operation of any
facility which ▇▇▇▇▇ or any of ▇▇▇▇▇'▇ Subsidiaries currently operates and (b)
wherein an unfavorable decision, ruling or finding would be reasonably likely to
have a Material Adverse Effect. To Seller's Knowledge, there are no facts,
18
circumstances, conditions or occurrences on any real property owned or leased by
▇▇▇▇▇ or any of ▇▇▇▇▇'▇ Subsidiaries, that could reasonably be expected (i) to
form the basis of an environmental claim against ▇▇▇▇▇ or any of its
Subsidiaries or any real property owned or leased by ▇▇▇▇▇ or any of its
Subsidiaries or (ii) to cause such real property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such real
property under any environmental law, except in each such case, such
environmental claims or restrictions that individually or in the aggregate are
not reasonably likely to have a Material Adverse Effect. To Seller's Knowledge,
hazardous toxic materials have not at any time been (i) generated, used, treated
or stored on, or transported by ▇▇▇▇▇ or any of ▇▇▇▇▇'▇ Subsidiaries to or from,
any real property owned or leased by ▇▇▇▇▇ or any of ▇▇▇▇▇'▇ Subsidiaries except
in compliance with applicable environmental laws or (ii) released by ▇▇▇▇▇ or
any of ▇▇▇▇▇'▇ Subsidiaries on any such real property, in each case where such
occurrence or event is reasonably likely to have a Material Adverse Effect. None
of ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ is party to any agreement regarding
remediation or cleanup relating to any environmental claim or environmental law.
Section 3.21. Calculation of Liability with respect to Pool Participation.
(a) The financial statements of the Pool at December 31, 1996 and 1997 and
the years then ended, prepared by Deloitte & Touche LLP, and copies of which
have been delivered to Buyer, fairly present the financial condition of the Pool
at such dates and the results of the Pool's operations for the years then ended
in accordance with New York statutory accounting principles consistently
applied.
(b) The unaudited December 31, 1998 operating statement and balance sheet
of the Pool and the unaudited December 31, 1998 balance sheet of the SICH
participation in the Pool, copies of which have been delivered to Buyer, were
prepared in accordance with generally accepted accounting principles (except
that such balance sheets lack footnote disclosures) and in accordance with the
relevant terms of the respective Pool Agreements.
(c) Without derogation from the representations and warranties of Seller in
Sections 3.21(a) and 3.21(b) as to preparation in accordance with statutory
accounting principles and generally accepted accounting principles of the
financial statements referred to therein, Seller notes that such principles do
not necessarily result in adequacy of reserves and Seller makes no
representation or warranty that the reserves of the Pool set forth on the
foregoing balance sheets described in Section 3.21(a) and 3.21(b) above are
adequate or sufficient.
Section 3.22. Finders and Brokers. Neither Seller nor any Subsidiary nor
any officer or director of Seller nor any of its Subsidiaries has engaged or
authorized any broker, finder, investment banker or other third party, other
than ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities Corporation ("DLJ"), to act on
behalf of Seller, directly or indirectly, as a broker, finder, investment banker
or in any other like capacity in connection with this Agreement or the
transactions contemplated hereby, or has consented to or acquiesced in anyone so
acting. Seller has no Knowledge of any claim by any person against Seller or any
of its Subsidiaries or Buyer for compensation for so acting or of any basis for
such a claim and Seller shall hold Buyer totally harmless against any costs or
expenses to Buyer arising out of any such claim on Seller's behalf.
19
Section 3.23. Disclosure. No representation or warranty of Seller contained
herein or in any Schedule hereto contains or will on the Closing Date contain
any untrue statement of a material fact or omits or will on the Closing Date
omit to state any material fact necessary to make the statements herein or
therein not false or misleading.
Section 3.24. Relationship between Seller and ▇▇▇▇▇.
(a) Except as set forth on Schedule 3.24, ▇▇▇▇▇ does not currently make use
of any property or services of Seller in the conduct of its business.
(b) Except as set forth on Schedule 3.24, since December 31, 1998, there
has not been any transfer of funds or other property between ▇▇▇▇▇ or any of its
Subsidiaries and Seller.
Section 3.25. Agreements regarding Pool. Schedule 3.25 contains a list of
each material agreement and undertaking, written or oral, to which ▇▇▇▇▇ is a
party relating to the Pool.
Section 3.26. Participation of SICH in Pool. As of January 1, 1999, SICH's
net percentage participation in the Pool was 75 percent in the United States
Pool and 85.5 percent in the Canadian Pool. -----------------------------
Section 3.27. No Undisclosed Liabilities. To Seller's Knowledge, there are
no debts, liabilities or obligations or claimed debts, liabilities or
obligations of ▇▇▇▇▇, contingent or absolute, other than liabilities reflected
in the balance sheet as of December 31, 1998 delivered in accordance with
Section 3.6, that are reasonably likely to be asserted and, if asserted, would
be reasonably likely to result in a material liability of ▇▇▇▇▇.
IV.
20
REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF BUYER
Buyer represents, warrants and agrees as follows:
Section 4.1. Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Buyer has all requisite corporate power and authority to own its
properties and to carry on its business as now being conducted.
Section 4.2. Certificate of Incorporation and By-Laws. The copies of the
Certificate of Incorporation and By-Laws of Buyer which have heretofore been
delivered to Seller are true, accurate and complete and reflect all amendments
or changes in effect as of the date hereof.
Section 4.3. Authorization.
(a) This Agreement has been duly authorized by all necessary corporate
action of Buyer. This Agreement will, when duly executed and delivered, be a
valid and binding agreement of Buyer, enforceable against Buyer in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally, and except that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the equitable discretion of the court before which any
proceeding therefor may be brought.
(b) Each of the Ancillary Agreements to which Buyer is a party has been or,
prior to the Closing will be, duly authorized by all necessary corporate action
of Buyer. Each of the Ancillary Agreements to which Buyer is a party will, when
duly executed and delivered, be a valid and binding agreement of Buyer
enforceable against it in accordance with the terms thereof, except as limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to or affecting creditors' rights generally, and
except that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the equitable
discretion of the court before which any proceeding therefor may be brought.
Section 4.4. No Conflicts.
(a) Neither the execution nor the delivery by Buyer of this Agreement or
any Ancillary Agreement, nor the consummation of the transactions contemplated
hereby or thereby, nor the compliance with or fulfillment of the terms and
21
provisions hereof or thereof by Buyer, will: (i) conflict with or result in a
breach or violation of any of the terms, conditions or provisions of the
Certificate of Incorporation or By-Laws of Buyer or any of Buyer's Subsidiaries;
or (ii) conflict with or result in a breach or violation of, or default or loss
of a material benefit under, or permit the acceleration of any obligation under
any provision of any agreement, indenture, mortgage, lien, lease or other
instrument or restriction of any kind to which Buyer or any Subsidiary of Buyer
is a party or by which it or any of its assets or properties is otherwise bound;
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or any of the Subsidiaries of Buyer or any of the
assets or properties of any of them; which conflict, breach, violation, default,
loss or other result, in the case of each of clauses (ii) and (iii), is
reasonably likely to have a Material Adverse Effect or a material adverse effect
on the ability of Buyer to perform its obligations hereunder. Except as set
forth in Schedule 4.4 hereto, no consent, approval or authorization of, or
filing, registration or qualification with, any governmental authority on the
part of Buyer or any Subsidiary of Buyer is required in connection with the
execution, delivery and performance of this Agreement or the offer, sale or
delivery of the Common Stock as provided herein.
(b) Neither the execution nor the delivery by any Subsidiary
of Buyer of any of the Ancillary Agreements to which such Subsidiary is a party,
nor the consummation by any such Subsidiary of the transactions contemplated by
any Ancillary Agreement to which it is a party, nor the compliance with or
fulfillment by any such Subsidiary of the terms and provisions of any Ancillary
Agreement to which it is a party, will: (i) conflict with or result in a breach
or violation of any of the terms, conditions or provisions of the Certificate of
Incorporation or By-Laws of such Subsidiary; or (ii) conflict with or result in
a breach or violation of, or default or loss of a material benefit under, or
permit the acceleration of any provision of any lease or other or restriction of
any kind to which such Subsidiary is a party or by which it or any of its assets
is otherwise bound; or (iii) violate any order, acceleration of any obligation
under any agreement, indenture, mortgage, lien, instrument, writ, injunction,
decree, statute, rule or regulation applicable to such Subsidiary or any of its
assets or properties; which conflict, breach, violation, default, loss or other
result, in the case of each of clauses (ii) and (iii), is reasonably likely to
have a Material Adverse Effect or a material adverse effect on the ability of
such Subsidiary to perform its obligations under any of the Ancillary Agreements
to which it is a party.
Section 4.5. Finders and Brokers. All negotiations on behalf
of Buyer relative to this Agreement and the transactions contemplated hereby
have been carried on directly by Buyer without the intervention of any broker,
finder, investment banker or other third party representing Buyer. Neither Buyer
nor any Subsidiary nor any officer or director of Buyer or any of its
Subsidiaries, has engaged or authorized any broker, finder, investment banker or
other third party to act on Buyer's behalf, directly or indirectly, as a broker,
finder, investment banker or in any other like capacity in connection with this
Agreement or the transactions contemplated hereby, or has consented to or
acquiesced in anyone so acting. Buyer knows of no claim by any person against
Buyer or any of its Subsidiaries for compensation for so acting or of any basis
for such a claim and Buyer shall hold Seller totally harmless against any costs
or expenses to Seller arising out of any such claim.
22
Section 4.6. Investor Status. Buyer is an "Accredited Investor" within the
meaning of SEC Rule 501(a). Buyer is purchasing the Common Stock for its own
account and not with a view to distribution within the meaning of Section 2(11)
of the Securities Act of 1933.
V.
COVENANTS OF BUYER AND SELLER
Section 5.1. Access to Properties, Books and Records. Prior to
the Closing Date, Seller shall afford or cause ▇▇▇▇▇ to afford to the officers,
attorneys, accountants and other authorized representatives of Buyer, reasonable
access to ▇▇▇▇▇ and to each Subsidiary of ▇▇▇▇▇ and to the officers, properties,
books and records (electronic and other) of all of the foregoing during regular
business hours and upon prior notice to Seller in order to afford Buyer the
opportunity to make such investigations of the affairs of ▇▇▇▇▇ and its
Subsidiaries as they may reasonably deem necessary. Seller shall also furnish,
or cause ▇▇▇▇▇ and its Subsidiaries to furnish, to Buyer such information
relating to their respective businesses and affairs as Buyer shall from time to
time reasonably request. All information made available to Buyer and its
representatives pursuant to this Section 5.1 shall be subject to the terms of
the confidentiality letter agreement dated December 28, 1998 between Seller and
Buyer (which is incorporated herein by reference thereto).
Section 5.2. Conduct of Business.
(a) Except as otherwise permitted by this Agreement, or with the prior
written consent of Buyer, after the date hereof and prior to the Closing Date
Seller shall not cause, suffer or permit ▇▇▇▇▇ or any of its Subsidiaries,
either on its own behalf or on behalf of or for the account of the Pool to:
(i) create, issue or sell any of its own stocks, bonds, or other of its
corporate securities, or grant or otherwise issue any options, warrants or other
purchase rights with respect thereto, or enter into any contract or commitment
to do any of the foregoing;
24
(ii) create, incur, assume, guarantee or otherwise become liable with
respect to any obligation or liability to any person, fixed or contingent, in
excess of $50,000;
(iii) declare or make any payment or distribution with respect to its
capital stock to its stockholders or purchase or redeem any shares of the
capital stock of ▇▇▇▇▇;
(iv) sell or transfer any properties or assets (including cash held in bank
accounts or otherwise) or cancel, release or assign any indebtedness owed to it
or any claims held by it, other than in the ordinary course of business;
(v) mortgage, pledge or subject to lien, or any other encumbrance, any
assets, tangible or intangible except for liens (A) with respect to deposits
with State insurance departments and (B) letters of credit, trust funds and
funds withheld arrangements, in each case relating to credit for reinsurance;
provided that such liens shall have been in the ordinary course of business;
(vi) sell, assign, transfer or otherwise dispose of any tangible assets or
cancel any debt or claim, except in each case in the ordinary course of
business;
(vii) sell, assign or transfer any intangible right or asset;
(viii) amend, terminate or waive any right of any substantial value, other
than in connection with the settlement of claims, including reinsurance claims,
or otherwise in the ordinary course of business;
(ix) make any material change in the methods of valuation or accounting or
of determining reserves for ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ or for the Pool
from the methods applied during and for the period ended December 31, 1998;
(x) make any substantial change in the standard form of contract currently
in force between ▇▇▇▇▇ or any of its Subsidiaries and brokers and agents
representing ▇▇▇▇▇ or any of its Subsidiaries or in the compensation
arrangements in connection therewith or enter into any contract with any agent
or broker other than in substantially the form now used;
(xi) except as disclosed at the time to the Buyer, and with Buyer's consent
in writing, amend the Pool Agreements;
(xii) change risk retention levels net of reinsurance in connection with
the Pool business;
25
(xiii) except as disclosed at the time to the Buyer, and with Buyer's
consent in writing, revise current percentage participations in the Pool;
(xiv) grant any salary increase to any officer or any general salary
increase to its employees other than, in each case, normal merit increases, or
enter into any new, or amend or alter in any material respect any existing,
employment or consulting agreement or any bonus, incentive compensation, profit
sharing, retirement, pension, group insurance, death benefit or other fringe
benefit plan, trust agreement or similar arrangement adopted by it with respect
to its own employees or its agents, general agents or underwriting managers;
(xv) amend its Certificate of Incorporation or By-Laws or merge or
consolidate with any other corporation;
(xvi) acquire or increase its beneficial ownership of stock or assets of
any other person, firm, association, corporation or other business organization,
except for investments made in the ordinary course and consistent with prior
investment practice;
(xvii) except in the ordinary course of business or as required by this
Agreement, enter into or assume any contract, agreement, obligation, lease,
license or commitment having a term in excess of one year or involving an
aggregate monetary commitment or exposure in excess of $50,000;
(xviii) arrange for or solicit the issuance or renewal of insurance of any
risk other than those insurance risks which are undertaken in the ordinary
course of business;
(xix) knowingly do or omit to do any act which could reasonably be expected
to cause a breach of any contract, commitment or obligation, which breach is
reasonably likely to have a Material Adverse Effect;
(xx) make any capital expenditure, capital addition or capital improvement,
or any commitment for any of the foregoing, in excess of $50,000, except for
commitments in effect on the date hereof as reflected on Schedule 3.15;
(xxi) amend any Tax Return, settle any tax audit or tax controversy, make
any tax election or change any tax accounting method; or
(xxii) make intercompany advances and settlement thereof other than in the
ordinary course of business and consistent with past business practice except
that reimbursement from ▇▇▇▇▇ to the Seller and/or affiliates of the Seller will
be limited as it relates to:
26
a) 1998 bonuses paid in 1999, to the amount accrued in ▇▇▇▇▇'▇ December 31,
1998 balance sheet;
b) 1998 pension contribution paid in 1999, to the amount accrued in ▇▇▇▇▇'▇
December 31, 1998 balance sheet;
c) amounts paid pursuant to transaction related incentive programs of
Seller described in writing to Buyer, to zero;
d) amounts representing the administrative expense of participation by
▇▇▇▇▇ employees in the Orion Capital Corporation Stock Purchase Plan, by
excluding the amount of discounts from fair market value of shares purchased
under the program;
e) overhead expenses of Seller, capital charges and other similar charges
of Seller, to zero.
Advances and settlements made as described in this subparagraph (xxii)
shall be reported periodically by Seller to Buyer before and on the Closing Date
and Buyer shall have the right to question the ordinary course nature of any
transaction and its consistency with prior practice and this Section
5.2(a)(xxii).
(b) Except as otherwise permitted by this Agreement or with the prior
written consent of Buyer, prior to the Closing Date, Seller shall cause ▇▇▇▇▇
and each of its Subsidiaries to use commercially reasonable best efforts to:
(i) maintain at all times its status as a corporation, duly organized,
validly existing, in good standing and duly qualified and licensed to conduct
its business as now being conducted in compliance with applicable law in the
jurisdiction of its incorporation and each of the other jurisdictions in which
it is so conducting its business;
(ii) at all times do or cause to be done, and cause each of its officers
and employees to do, all things necessary to maintain, preserve and renew the
corporate existence of ▇▇▇▇▇ and the corporate existence of the Subsidiaries of
▇▇▇▇▇ and all material federal, provincial, state and local and other licenses,
permits, franchises and other governmental authorizations necessary to own and
operate their respective properties and carry on their respective businesses,
and comply in all material respects with all federal, provincial, state and
local laws applicable to ▇▇▇▇▇ or any of its Subsidiaries or the Pool;
28
(iii) operate its business substantially as presently operated and only in
the ordinary course and (A) preserve substantially intact the present business
organization, (B) collect all premiums, balances due from reinsurers and Pool
Participants and accounts receivable and (C) preserve its relationships with and
the goodwill of its Pool Participants, customers, suppliers, agents, general
agents, other insurers and reinsurers and other persons having business dealings
with it, except where the failure to do so is not reasonably likely to have a
Material Adverse Effect;
(iv) with respect to the properties of ▇▇▇▇▇ and each of its Subsidiaries,
maintain in force all existing casualty and liability insurance and reinsurance
policies and fidelity bonds or policies or bonds providing substantially the
same coverage;
(v) maintain proper business and accounting records for itself in
accordance with generally accepted accounting principles and for the Pool in
accordance with accounting practices required or permitted by applicable
federal, provincial, state and local regulation;
(vi) advise Buyer in writing of any event, occurrence or circumstance of
which it is aware which is reasonably likely to have a Material Adverse Effect;
(vii) comply in all material respects with all laws applicable to it and to
the conduct of its business;
(viii) maintain all of the properties which are material to its business
operations or financial condition in good operating condition and repair,
ordinary wear and tear excepted, and take all steps reasonably necessary to
maintain its intangible assets.
Section 5.3. Regulatory and Other Filings and Approvals. Each of Buyer and
Seller shall duly make (and Seller shall cause its Subsidiaries, including ▇▇▇▇▇
and its Subsidiaries, to make) all regulatory filings required to be made by
each in respect of this Agreement or the transactions contemplated hereby as
reflected on Schedule 5.3 to the Agreement. Each of Buyer and Seller shall use
its commercially reasonable best efforts at all times prior to January 1, 2001
to obtain (and cause ------------------------------------------ its Subsidiaries
to obtain) all regulatory approvals necessary to carry out the transactions
contemplated by this Agreement, including, without limitation, the obtaining by
Buyer and Buyer's Subsidiaries of any necessary approvals by insurance
commissioners or superintendents of insurance of policy forms to be used
following the Closing.
29
Section 5.4. Premerger Notification and Clearance. Pursuant to the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976 (the "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Act"), the Investment Canada Act and the Competition Act of Canada, each of
Buyer and Seller will file, or cause to be filed, any application, notification
or report form which is required to be filed with the Premerger Notification
Office of the U.S. Federal Trade Commission or with the Antitrust Division of
the U.S. Department of Justice or with Industry Canada or the Competition Bureau
(Canada), if applicable (collectively referred to herein as the "Premerger
Notification Agencies") in respect of the transactions contemplated hereby, each
of which filings shall comply as to form with all requirements applicable
thereto and all of the data and information reported in which shall be true,
correct and complete in all material respects. Each of Buyer and Seller will
promptly comply with all requests, if any, of any of the Premerger Notification
Agencies for additional information or documentation in connection with each
notification, report and application filed by or on behalf of either Buyer or
Seller with any of the Premerger Notification Agencies, unless in the opinion of
both McCutchen, Doyle, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP and ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ (or of
Canadian Counsel for the Buyer and Seller, respectively in the case of filings
made under the Investment Canada Act or the Competition Act, if applicable) such
compliance is not necessary in order to obtain clearance from the relevant
Premerger Notification Agencies. Such additional information and documentation
will comply with all requirements applicable thereto and will be true, correct
and complete in all material respects.
Section 5.5. Further Assurances.
(a) Each of Buyer and Seller agrees to use commercially reasonable best
efforts to take such reasonable action as may be necessary or appropriate in
order to effectuate the transactions contemplated hereby. In case at any time
after the Closing Date any further action by Seller is necessary to vest Buyer
with Seller's full title to the Common Stock, Seller shall take all such action.
(b) In furtherance of and in addition to other obligations of Seller
pursuant to this Agreement and the transactions entered into pursuant hereto,
from and after the Closing Date, Seller shall not (i) use or purport to license
or allow any other person to license any ▇▇▇▇, trade name or trade dress of
▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ so long as ▇▇▇▇▇, any of its Subsidiaries, or
any successor thereto has valid rights therein or (ii) from and after the date
hereof and until June 30, 2000, in any way damage or disparage, and shall
undertake and ensure that no Subsidiary of Seller so damages or disparages, the
name, business or reputation of ▇▇▇▇▇ or any of ▇▇▇▇▇'▇ Subsidiaries, or of the
Pool or any ▇▇▇▇, trade name or trade dress of ▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇
or of the Pool.
30
(c) Buyer agrees, following the Closing, to not use, advertise or promote,
or license any use, advertisement or promotion, and shall cause its Subsidiaries
not to use, advertise or promote, or license any use, advertisement or
promotion, of the "Seahorse Service ▇▇▇▇ In the Orion Ring" of U.S. Trademark
Registration No. 2,180,334 identified on Schedule 3.8(c) (hereinafter the
"Seahorse/Orion Ring" ▇▇▇▇), and agrees to cause ▇▇▇▇▇ to surrender for
cancellation, with prejudice, and to abandon all use of, the Seahorse/Orion Ring
▇▇▇▇ and any registrations thereof in a form acceptable to counsel for the
Seller within ninety (90) days of the Closing Date. Buyer agrees, following the
Closing, that Seller shall retain ownership of its entire right, title and
interest in and to the "Orion Ring" component of the Seahorse/Orion Ring ▇▇▇▇,
and that Buyer shall not use, advertise or promote the "Orion Ring" component,
or any ▇▇▇▇ confusingly or deceptively similar to the "Orion Ring" component for
so long as Seller continues to use, or does not abandon use of the "Orion Ring"
as a ▇▇▇▇ or component of a ▇▇▇▇. Seller agrees, following the Closing, that
▇▇▇▇▇ shall receive Seller's entire right, title and interest in and to the
"Seahorse" and "Wm. ▇. ▇▇▇▇▇" components of the Seahorse/Orion Ring ▇▇▇▇
together with all goodwill of ▇▇▇▇▇'▇ business symbolized by those components,
and that Seller shall not use, advertise or promote these components together or
separately, or any ▇▇▇▇ confusingly or deceptively similar to these components,
for so long as Buyer continues to use, or does not abandon use of either
component as a ▇▇▇▇ or component of a ▇▇▇▇. Seller agrees, for a period of
twenty-four (24) months following the Closing, so long as ▇▇▇▇▇ or any
Subsidiary of ▇▇▇▇▇ or any successor to either has valid rights therein, that
neither Seller nor any Subsidiary of Seller will use any customer list that is
the property of ▇▇▇▇▇ or was received from ▇▇▇▇▇.
Section 5.6. Tax Matters. Each of Buyer and Seller covenants that:
(a) (i) Seller shall have the right and obligation timely to prepare and
file, or cause timely to be prepared and filed, when due (giving effect to any
extension of time), all Tax Returns with respect to ▇▇▇▇▇ or its Subsidiaries
for any Tax periods ending on or before the Closing Date.
(ii) Buyer shall have the right and obligation timely to prepare and file,
or cause timely to be prepared and filed, when due (giving effect to any
extension of time), all Tax Returns with respect to ▇▇▇▇▇ or its Subsidiaries
for any Tax periods ending after the Closing Date and any Tax period that begins
before the Closing Date and ends after the Closing Date (a "Straddle Period")).
(iii) Any Tax Return which includes ▇▇▇▇▇ or its Subsidiaries for any tax
period ending on or before December 31, 1998 (a "Pre-Year End Period"), and any
Tax Return which includes ▇▇▇▇▇ or its Subsidiaries for any tax period beginning
on or after January 1, 1999 (a "Post-Year End Period") to the extent the items
reported on such Tax Return might increase any Tax liability of Seller for any
Pre-Year End Period or any Straddle Period, shall be prepared in accordance with
past Tax accounting practices used with respect to the Tax Returns in question
as determined by Seller in Seller's discretion, and to the extent any items are
not covered by past practices, in accordance with reasonable Tax accounting
practices selected by the filing party with respect to such Tax Return under
this subsection 5.6(a) with the consent (not to be unreasonably withheld or
delayed) of the non-filing party.
31
(iv) In the case of any Tax Return for any Straddle Period, Buyer shall
provide Seller with copies of the completed Tax Return for such Tax period,
together with such related work papers and other documents as Seller shall
reasonably request, no later than sixty (60) days before the due date (including
any extensions) for the filing of such Tax Return and materials. Seller and its
authorized representatives shall have the right to review such Tax Return.
Seller and Buyer agree to consult each other and resolve in good faith any
issues arising under the terms of this subsection 5.6(a)(iv) as a result of the
review of any such Tax Returns and/or materials for any Straddle Period. If the
parties are unable to resolve any dispute within thirty (30) days after such Tax
Returns are provided to Seller, the parties shall resort to the method of
dispute resolution provided in Section 13.11 hereof. If such disputes have not
been resolved prior to the due date for filing of such Tax Return, the Tax
Return in question, to the extent any issues thereon remain unresolved, shall be
timely filed in accordance with the positions taken by Seller. If a
determination is made through the dispute resolution process after a Tax Return
is filed that Seller's position was inappropriate, Buyer shall promptly file an
amended Tax Return (to the extent permitted by applicable law) reflecting the
final decision of the Arbitrator and Seller shall pay to Buyer any appropriate
additional Tax amounts resulting from such amended return provided that such
payment shall be made only to the extent the provision for Taxes as of December
31, 1998 shall have been exceeded.
(v) In the case of the Tax period of ▇▇▇▇▇ or its Subsidiaries which began
on January 1, 1999 and shall end on the Closing Date, Seller shall provide Buyer
with copies of the completed Tax Return for such Tax period, together with such
related work papers and other documents as Buyer shall reasonably request, no
later than sixty (60) days before the due date (including any extensions) for
32
the filing of such Tax Return and materials. Buyer and its authorized
representatives shall have the right to review such Tax Return. Seller and Buyer
agree to consult each other and resolve in good faith any issues arising under
the terms of this subsection 5.6(a)(v) as a result of the review of any such Tax
Returns and/or materials for any such Tax period. If the parties are unable to
resolve any dispute within thirty (30) days after such Tax Returns are provided
to Buyer, the parties shall resort to the method of dispute resolution provided
in Section 13.11 hereof. If such disputes have not been resolved prior to the
due date for filing of such Tax Return, the Tax Return in question, to the
extent any issues thereon remain unresolved, shall be timely filed in accordance
with the positions taken by Seller. If a determination is made through the
dispute resolution process after a Tax Return is filed that Seller's position
was inappropriate, Seller shall promptly file an amended Tax Return (to the
extent permitted by applicable law) reflecting the final decision of the
Arbitrator and Buyer shall pay to Seller, within thirty (30) days after payment
of such Tax amounts and filing of such amended Tax Return, any appropriate
additional Tax amounts, or Seller shall pay to Buyer, within thirty (30) days
following the receipt of such Tax refund amounts, any appropriate Tax refund
amounts, resulting from such amended return.
(b) (i) Seller shall be liable for, and shall indemnify and hold Buyer
harmless from and against, any and all Taxes imposed on or with respect to ▇▇▇▇▇
or its Subsidiaries for Pre-Year End Periods; provided that Buyer shall be
liable for and shall hold Seller harmless from and against any and all such
Taxes which result from an amendment, restatement, or recalculation of any Tax
Return with respect to such Taxes occasioned by any action taken by Buyer after
December 31, 1998 or by ▇▇▇▇▇ after the Closing Date.
(ii) Buyer shall be liable for, and shall indemnify and hold Seller
harmless from and against, any and all Taxes imposed on or with respect to ▇▇▇▇▇
or its Subsidiaries for Post-Year End Periods.
(iii) In the case of a Straddle Period, Seller shall be solely responsible
for all Taxes attributable to any Pre-Year End Period, and Buyer shall be solely
responsible for all Taxes attributable to Post-Year End Periods. Tax items shall
be apportioned between Pre-Year End Periods and Post-Year End Periods based on a
closing of the books and records of ▇▇▇▇▇ or its Subsidiaries as of December 31,
1998 (provided that (A) any Tax item incurred by reason of the transactions
occurring on or before the Closing Date as contemplated by this Agreement shall
be treated as occurring in a Pre-Year End Period and (B) exemptions, allowances,
deductions or credits that are calculated on an annual basis shall be
33
apportioned on a daily pro rata basis). Notwithstanding anything to the contrary
in the preceding sentence, the parties agree that for U.S. federal income tax
purposes, Tax items for any Straddle Period shall be apportioned between
Pre-Year End Periods and Pos Year End Periods in accordance with U.S. Treasury
Regulations Section 1.1502-76(b), which regulations shall be reasonably
interpreted by the parties in a manner intended to achieve the method of
apportionment described in the preceding sentence. Seller and Buyer will not
exercise any option or election (including any election ratably to allocate a
Tax year's items under Treasury Regulations Section 1.1502-76(b)(2)(ii)) to
allocate Tax items in a manner inconsistent with this subsection 5.6(b).
(iv) Notwithstanding paragraphs (i), (ii) and (iii) of this subsection
5.6(b) and paragraph (iv) of subsection 5.6(a) hereof, Seller shall have no
obligation to pay, or indemnify Buyer in respect of any unpaid Taxes due to be
paid by Seller unless, and then only to the extent that, the amount of such
unpaid Taxes exceeds the provision for Taxes on the financial statements of
▇▇▇▇▇ and its Subsidiaries as of December 31, 1998 (with the exclusion of any
deferred Taxes). Seller shall determine, from time to time when reasonably
necessary, whether such provision for Taxes has been exceeded. Buyer shall
cooperate with Seller with regard to such determination, including as provided
in Section 5.6(h) below. Seller and Buyer agree to consult each other and
resolve in good faith any issues arising under the terms of this subsection
5.6(b)(iv). If the parties are unable to resolve any dispute within twenty (20)
days after such determination by Seller, the parties shall resort to the method
of dispute resolution provided in Section 13.11 hereof.
(c) (i) If Buyer receives a Tax refund with respect to Taxes arising in a
Pre-Year End Period, Buyer shall pay, within thirty (30) days following the
receipt of such Tax refund, the amount of such Tax refund to Seller. If Seller
receives a Tax refund with respect to Taxes arising in any Post-Year End Period,
within thirty (30) days following the receipt of such Tax refund, Seller will
pay the amount of such Tax refund to Buyer. Additionally, if Seller pays any
Taxes imposed on or with respect to ▇▇▇▇▇ or its Subsidiaries for the Tax period
which began on January 1, 1999 and shall end on the Closing Date, Buyer shall
pay, within thirty (30) days following the filing of any Tax Return giving rise
to such Tax and the payment thereof, the amount of such Tax to Seller. If Seller
receives any Tax benefit with respect to ▇▇▇▇▇ or its Subsidiaries for the Tax
period which began on January 1, 1999 and shall end on the Closing Date, Seller
shall pay, within thirty (30) days following the filing of any Tax Return giving
rise to such Tax benefit, the amount of such Tax benefit to Buyer.
34
(ii) Buyer agrees that, to the extent permitted by applicable law, it shall
not carry back, and shall not cause or permit ▇▇▇▇▇ or its Subsidiaries or any
other affiliate of Buyer to carry back, any net operating loss, loss from
operations or other Tax attributed to any Tax year or period of ▇▇▇▇▇ or its
Subsidiaries or any affiliate thereof (including, but not limited to, any member
of any affiliated, combined or unitary group of which ▇▇▇▇▇ is or was a member)
ending on or before the Closing Date, or to any Tax period beginning before and
ending after the Closing Date to the extent of the portion of such period ending
on the Closing Date. Buyer agrees that Seller shall not have any obligation
under this Agreement to return or remit any refund or other Tax benefit
attributable to a breach by Buyer of the foregoing undertaking.
(iii) Any amended Tax Return or claim for Tax refund for any period ending
on or before the Closing Date other than a Straddle Period shall be filed, or
caused to be filed, only by Seller. Seller shall not, without the prior written
consent of Buyer (which consent shall not be unreasonably withheld or delayed)
make or cause to be made, any such filing, to the extent such filing, if
accepted, reasonably might change the Tax liability of Buyer for any Tax period.
(iv) An amended Tax Return or claim for Tax refund for any Straddle Period
shall be filed by the party responsible for filing the original Tax Return
hereunder if either Buyer or Seller so requests, except that such filing shall
not be done without the consent (which shall not be unreasonably withheld or
delayed) of Buyer (if the request is made by Seller) or of Seller (if the
request is made by Buyer).
(v) Any amended Tax Return or claim for Tax refund for any period beginning
after the Closing Date other than a Straddle Period shall be filed, or caused to
be filed, only by Buyer, who shall not be obligated to make (or cause to be
made) such filing. Buyer shall not, without the prior written consent of Seller
(which consent may be withheld by Seller in Seller's sole and absolute
discretion) file, or cause to be filed, any amended Tax Return or claim for Tax
refund for any Post-Year End Period to the extent that such filing, if accepted,
might change the Tax liability of Seller for any Tax periods ending on or before
the Closing Date as determined by Seller.
35
(d) Buyer shall be liable for and shall pay, and shall hold Seller and its
Subsidiaries harmless against, any Taxes attributable to any election under
Section 338 of the Internal Revenue Code of 1986, as amended, (the "Code") or
any comparable or resulting election under state, local or foreign law (a
"Section 338 Election"), with respect to the transactions contemplated
hereunder. Notwithstanding the prior sentence, Buyer shall not make any Section
338 Election without the prior written consent of Seller which consent Seller
may withhold in its sole and absolute discretion.
(e) Buyer shall be liable for and shall pay, and shall hold Seller and its
Subsidiaries harmless against any transfer, recordation, stamp, or similar Taxes
of any kind required in the applicable jurisdiction in connection with the
effectuation of the transactions contemplated hereunder and imposed upon Seller
and its Subsidiaries.
(f) Seller and Buyer agree that for all federal income tax purposes the Tax
period of ▇▇▇▇▇ or its Subsidiaries which began on January 1, 1999 shall be
terminated as of the close of business on the Closing Date in accordance with
Treasury Regulations Section 1.1502-76(b)(1) and subsection 256(9) of the Income
Tax Act (Canada).
(g) Seller and Buyer shall provide to each other notice within ten (10)
days of receipt of any audit or similar investigation or proceeding in which the
IRS or any other governmental entity makes or proposes to make a Tax adjustment
to any Tax period which includes any period up to the Closing Date. Seller shall
control any such proceeding as to Tax periods ending on or prior to the Closing
Date, and Buyer shall control any such proceeding as to Tax periods beginning
after the Closing Date, provided that, with respect to any such audit, the other
party or its representative shall have the right, at its expense, to participate
in any such audit or similar investigation. The parties agree that they will not
settle, compromise or agree to any Tax adjustment which affects or could affect
the other party's Tax liability without the prior written consent of the other
party, which consent shall not be unreasonably withheld. The parties agree to
cooperate with each other for the purposes of any audit or similar
investigation, which cooperation shall include, but not be limited to (i)
providing all relevant information that is available to Buyer, Seller and/or
▇▇▇▇▇, as the case may be, with respect to such audit or investigation, (ii)
making personnel available at reasonable times, and (iii) preparation and
responses to requests for information, provided that the foregoing shall be done
in a manner so as to not interfere unreasonably with the conduct of business by
Buyer, Seller or ▇▇▇▇▇, as the case may be.
(h) Seller on the one hand, and Buyer and ▇▇▇▇▇, on the other, shall
cooperate (and cause their affiliates to cooperate) with each other and with
each other's agents, including accounting firms and legal counsel, in connection
with Tax matters relating to ▇▇▇▇▇ or its Subsidiaries, including (i)
preparation and filing of Tax Returns, (ii) determining the liability for, and
amount of, any Taxes due or the right to, and amount of, any refund of Taxes,
36
(iii) examinations of Tax Returns, and (iv) any administrative or judicial
proceeding in respect of Taxes assessed or proposed to be assessed. Such
cooperation shall include each party making all information and documents in its
possession relating to ▇▇▇▇▇ or its Subsidiaries available to the other party.
The parties shall retain all Tax Returns, schedules and work papers, and all
material records and other documents relating thereto, until at least one year
after the expiration of the applicable statute of limitations (including, to the
extent notified by any party, any extension thereof) of the Tax period to which
such Tax Returns and other documents and information relate. Each of the parties
shall also make available to the other party, as reasonably requested and
available, personnel (including officers, directors, employees and agents)
responsible for preparing, maintaining, and interpreting information and
documents relevant to Taxes, and personnel reasonably required for purposes of
providing information or documents in connection with any administrative or
judicial proceedings relating to Taxes.
(i) The Tax Sharing Agreement dated July 1, 1995 by and between Seller and
▇▇▇▇▇ shall be terminated effective as of the close of business on December 31,
1998. Any resulting unsettled accruals or adjustments in respect of the Taxes of
▇▇▇▇▇ or its subsidiaries shall be settled as of the Closing Date.
(j) Seller and Buyer agree that any payment made under this Section 5.6
shall be treated by the parties for all purposes (to the extent permitted under
applicable tax law), as an adjustment to the consideration being provided for
the Common Stock hereunder.
(k) Notwithstanding any other provision in this Agreement to
the contrary (including without limitation Article 13), the obligations of
Seller and Buyer under this Section 5.6 relating to any Taxes or matters with
respect thereto shall survive until the lapse of the statute of limitations for
the assessment of such Tax or sixty (60) days after the final administrative or
judicial determination of such Tax and, for a Tax for which ▇▇▇▇▇ or its
Subsidiaries are not primarily liable, the later to occur of (i) the lapse of
the statute of limitations for the collection of such Tax or (ii) sixty (60)
days after the final administrative or judicial determination that such Tax is
collectable against Seller or its Subsidiaries; provided, however, that any
claim in respect of an obligation under this Section 5.6 asserted in writing
prior to the lapse of the statute of limitations or sixty (60) days after the
final administrative or judicial determination shall continue to survive.
(l) After the Closing, neither party shall have any liability or obligation
with respect to the matters set forth in this Section 5.6, except pursuant to
this Section 5.6.
5.7. Pool Financial Statements. Within five (5) days of the delivery to
Seller of the audited statutory financial statements of the Pool at December 31,
1998, accompanied by the report of Deloitte & Touche, LLP, Seller will delivery
a copy of such financial statements to Buyer.
VI. -
38
AGREEMENTS WITH RESPECT -
TO POOL OPERATION -
Section 6.1. Pool Participations; Reinsurance.
(a) At or prior to the Closing, Seller shall cause SICH and CI to enter
into Reinsurance Agreements with Buyer substantially in the form of Exhibit C.
(b) At the Closing Buyer shall cause ▇▇▇▇▇, subject to applicable
regulatory requirements, to designate Buyer as the Clearing Company, as that
term is defined in the Inter-Office Reinsurance Agreements, pursuant to ▇▇▇▇▇'▇
authority under the Inter-Office Reinsurance Agreements effective 12:00:01 a.m.
New York Time on January 1, 1999.
(c) At the Closing Buyer shall cause ▇▇▇▇▇, subject to applicable
regulatory requirements, to amend the 1999 Schedule of Participation of the
Inter-Office Reinsurance Agreements to transfer to Buyer, and Buyer shall assume
(i) SICH's Pool Participation in the United States Pool and (ii) SICH's Pool
Participation in the Canadian Pool, effective 12:00:01 a.m. New York Time on
January 1, 1999, thereby assuming all of SICH's rights, liabilities and
obligations as a Pool Participant on and after January 1, 1999.
Section 6.2. Underwriting Operations of the Pool.
(a) From the date hereof through the Closing Date:
(i) Seller will cause ▇▇▇▇▇ to use commercially reasonable best efforts to
conduct the underwriting operations of the Pool in the ordinary course and in a
manner consistent with prior practice and otherwise in accordance with this
Agreement; and
(ii) Seller will not, and will not cause or permit ▇▇▇▇▇ to, introduce or
commence on behalf of the Pool or for its account the offering of any new
product or service or the underwriting of any type of risk or any line of
insurance not currently written by or through the Pool.
(b) From and after the Closing and through 12:00 a.m. New York Time on
December 31, 2000, ▇▇▇▇▇ shall, and Buyer shall use commercially reasonable best
39
efforts to cause ▇▇▇▇▇ to, manage the affairs of the Pool on behalf of the Pool
Participants and undertake on behalf of the Pool only such insurance risks as
shall in the judgment of ▇▇▇▇▇ be appropriate and consistent with prior
practices of the Pool and otherwise be in accordance with this Agreement and the
Ancillary Agreements. From and after the Closing and until December 31, 2000,
SICH and CI will, as requested by ▇▇▇▇▇, issue, pursuant to and in accordance
with, the terms of an underwriting management agreement to be entered into by
each of them with ▇▇▇▇▇, such policies of insurance as are placed by ▇▇▇▇▇ on
behalf of the Pool; provided that Buyer shall not cause or permit ▇▇▇▇▇, on
behalf of or for the account of SICH or CI, to introduce or commence the
offering of any new product or service or the underwriting of any type of risk
or any line of insurance not written by SICH or CI on behalf of or through the
Pool prior to the Closing Date and; provided further that except as may be
necessary to update and maintain existing policy forms and filings, neither CI
nor SICH shall be obliged to file or qualify any new form of policy. In
consideration of the issuance by SICH and CI of such policies, Buyer shall pay
to SICH and CI, as their interests may appear, on the fifteenth day of the month
following the month in which such policies shall have been issued, a fee equal
to one percent (1%) of the gross direct written premiums in respect of all such
policies issued on or after January 1, 1999 and through December 31, 1999, and,
in respect of all such policies issued on or after January 1, 2000 and through
December 31, 2000, to a fee equal to two percent (2%) of the gross direct
written premiums.
(c) Buyer shall furnish, or shall cause ▇▇▇▇▇ to furnish, to SICH, not
later than April 1 of each year, inter-office reinsurance financial statements
for the Pool which shall be audited for each year through December 31, 2001 and
thereafter, through December 31, 2008, shall either be audited or certified by
the Chief Financial Officer of Buyer. At all times prior to December 31, 2008,
Seller shall have the right, at its own expense, to visit the headquarters
office of ▇▇▇▇▇ at reasonable times and on a reasonable number of occasions
during normal business hours to discuss the business and affairs of ▇▇▇▇▇ with
officers of ▇▇▇▇▇ reasonably designated by ▇▇▇▇▇ for such purpose and to make
copies of relevant corporate records requested by Seller; provided that each of
Buyer and ▇▇▇▇▇ shall have received at least ten days' notice of each such
visit.
(d) From and after the Closing Date, Buyer shall take, and shall use
commercially reasonable best efforts to cause ▇▇▇▇▇ and the insurance
Subsidiaries of Buyer to take, all steps necessary (a) to enable ▇▇▇▇▇ to make
with all necessary insurance regulatory authorities such policy-form and rate
filings as shall be necessary so that Buyer or one or more insurance
Subsidiaries of Buyer is able to issue all forms of policies now being issued on
behalf of the Pool by SICH and CI and (b) to enable Seller to make such
statutory reports as Seller shall be required to make in respect of or arising
out of the operations of the Pool and the Reinsurance Agreement.
40
(e) At all times prior to December 31, 2001 ▇▇▇▇▇ shall
maintain errors and omissions coverage in an amount not less than $6,500,000 per
occurrence and a deductible of not more than $1,000,000 per occurrence with one
or more insurers rated "A" or better by A.M. Best Company; and reasonably
satisfactory to Seller; provided that Buyer or any insurance Subsidiary of Buyer
which is so rated shall be presumed to be approved by Seller and; provided
further that if the annual premiums for such coverage shall exceed in the year
beginning January 1, 2000, 103% of such premiums in the year beginning January
1, 1998 or in the year beginning January 1, 2001 shall be more than 106% of such
1998 premiums then ▇▇▇▇▇ shall maintain coverage in such amount and with such
deductibles as may be obtained by ▇▇▇▇▇ within the premium-amount limits set
forth above.
(f) None of Seller, SICH or CI shall have any liability for the payment to
▇▇▇▇▇ of any commission, "overriding" commission, "contingent" or "profit"
commission as defined in the Pool Agreements in respect of operations of the
Pool incurred either prior to the Closing Date or during the period defined in
Section 6.2(b). VII. -
CONDITIONS TO OBLIGATIONS OF BUYER -
The obligations of Buyer under this Agreement are, at its option, subject
to the fulfillment, on or before the Closing Date, of each of the following
conditions precedent:
Section 7.1. Covenants. Seller and each Subsidiary of Seller shall have
performed and complied with all the terms, covenants and conditions required by
this Agreement to be performed or complied with by Seller on or before the
Closing Date, and Buyer shall have received from Seller, at the Closing, a
certificate executed by an officer of Seller to that effect, dated the Closing
Date.
Section 7.2. Representations and Warranties. The representations and
warranties made by Seller in this Agreement shall be true and correct as of the
Closing Date as though such representations and warranties were made at and as
of such time, and Buyer shall have received from Seller one or more
certificates, dated the Closing Date, to that effect executed by one or more
officers of Seller.
Section 7.3. Absence of Litigation and Required Regulatory Approvals. Every
consent of or approval by any governmental authority which is required in
connection with the transactions contemplated by this Agreement shall have been
obtained and be in full force and effect and there shall not be in effect any
injunction, writ, preliminary restraining order or any order, ruling or request
of any nature issued by a court or governmental agency of competent jurisdiction
41
directing that any transactions provided for herein not be consummated as so
provided and no suit, action, proceeding or investigation shall be pending or
threatened before any court or governmental agency, which relates to or asserts
(i) the illegality of any of the transactions contemplated by this Agreement, or
which seeks the restraint or prohibition of the consummation of any of the
transactions contemplated by this Agreement or (ii) that material misleading
statements or omissions have been made in connection with the consummation of
any of the transactions contemplated by this Agreement or (iii) a claim for
damages in a material amount, or other material relief against ▇▇▇▇▇ or any of
▇▇▇▇▇'▇ Subsidiaries, or against Buyer, if such claim shall arise from or relate
to the consummation of this Agreement or the transactions contemplated hereby.
Section 7.4. Premerger Notification. Any applicable period of time
necessary before the transactions contemplated hereby can be consummated, as
provided by the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, the Investment Canada Act or the
Competition Act (Canada), if applicable, shall have expired, all required
clearances thereunder shall have been obtained and no action or proceeding shall
have been instituted by any of the Premerger Notification Agencies or any
similar agency claiming to have jurisdiction for the purpose of enjoining or
delaying the consummation of the transactions contemplated hereby.
Section 7.5. No Material Adverse Effect. Seller shall have furnished to
Buyer a certificate of an officer of Seller to the effect that no act, omission
or event has occurred between the date hereof and the Closing Date which could
reasonably be expected to have a Material Adverse Effect.
Section 7.6. Additional Agreements. Reinsurance Agreements substantially in
the form of Exhibit C shall have been entered into and shall be in full force
and effect, and the Releases in the form of Exhibits ▇-▇, ▇-▇ and A-3 and the
Noncompetition Agreement in the form of Exhibit B shall have been entered into
and shall be in full force and effect.
Section 7.7. Opinion of Counsel for Seller and ▇▇▇▇▇. Buyer shall have
received an opinion from ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., Executive Vice President and
Chief Legal Officer of Seller, with respect to matters relating to Seller, its
Subsidiaries and its and their obligations under this Agreement, and (ii) an
opinion of ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., Senior Vice President and General Counsel of
▇▇▇▇▇, with respect to matters relating to ▇▇▇▇▇ and its Subsidiaries and their
obligations under this Agreement, each dated the Closing Date, and each such
opinion shall be in form and substance reasonably satisfactory to Buyer and its
counsel.
VIII. -
42
CONDITIONS TO OBLIGATIONS OF SELLER -
The obligations of Seller under this Agreement are, at its
option, subject to the fulfillment, on or before the Closing Date of each of the
following conditions precedent:
Section 8.1. Covenants. Buyer shall have performed or complied with all the
terms, covenants and conditions required by this Agreement to be performed or
complied with by it on or before the Closing Date, and Seller shall have
received from Buyer, at the Closing, a certificate executed by an officer of
Buyer to that effect, dated the Closing Date.
Section 8.2. Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall be true and correct as of the
Closing Date as though such representations and warranties were made at and as
of such time and Seller shall have received from Buyer a certificate, dated the
Closing Date, to that effect executed by an officer of Buyer.
Section 8.3. Absence of Litigation and Required Regulatory Approvals. Every
consent of or approval by any governmental authority which is required in
connection with the transactions contemplated by this Agreement shall have been
obtained and be in full force and effect and there shall not be in effect any
injunction, writ, preliminary restraining order or any order, ruling or request
of any nature issued by a court or governmental agency of competent jurisdiction
directing that any transactions provided for herein not be consummated as so
provided and no suit, action, proceeding or investigation shall be pending or
threatened before any court or governmental agency, which relates to or asserts
(i) the illegality of any of the transactions contemplated by this Agreement, or
which seeks the restraint or prohibition of the consummation of any of the
transactions contemplated by this Agreement or (ii) that material misleading
statements or omissions have been made in connection with the consummation of
any of the transactions contemplated by this Agreement or (iii) a claim for
damages in a material amount, or other material relief against ▇▇▇▇▇ or any of
▇▇▇▇▇'▇ Subsidiaries, or against Seller or any of its Subsidiaries, if such
claim shall arise from or relate to the consummation of this Agreement or the
transactions contemplated hereby.
Section 8.4. Premerger Notification. Any applicable period of time
necessary before the transactions contemplated hereby can be consummated, as
provided by the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, the Investment Canada Act or the
Competition Act (Canada), if applicable, shall have expired, all required
clearances thereunder shall have been obtained and no action or proceeding shall
have been instituted by any of the Premerger Notification Agencies or any
similar agency claiming to have jurisdiction for the purpose of enjoining or
delaying the consummation of the transactions contemplated hereby.
43
Section 8.5. Additional Agreements. Reinsurance Agreements substantially in
the form of Exhibit C shall have been entered into and shall be in full force
and effect and the Releases in the form of Exhibits ▇-▇, ▇-▇ and A-3 and the
Noncompetition Agreement in the form of Exhibit B shall have been entered into
and shall be in full force and effect.
Section 8.6. Opinion of Counsel for Buyer. Seller shall have received an
opinion of the general counsel of Buyer, dated the Closing Date, in form and
substance reasonably satisfactory to Seller and its counsel.
IX. -
TERMINATION -
Section 9.1. Termination. At any time prior to the Closing Date, this
Agreement may be terminated and the transactions provided for herein abandoned,
whether before or after adoption and approval thereof by Seller and Buyer:
-----------
(a) by mutual written consent of the parties hereto; or
(b) by Seller or Buyer, if the Closing shall not have occurred on or before
June 30, 1999.
Section 9.2. Effect of Termination. In the event of any termination
pursuant to this Article IX, the parties hereto shall be released from all
liabilities and obligations arising under this Agreement with respect to matters
contemplated by this Agreement, other than for damages to the extent arising
from a prior breach of this Agreement and other than as provided in Sections 5.1
(last sentence only), 13.1 and 13.6.
X. -
EMPLOYMENT AND BENEFIT MATTERS -
Section 10.1. Employees. Buyer will cause ▇▇▇▇▇ and its Subsidiaries to
continue to employ all persons who are currently employees of ▇▇▇▇▇ or become
such prior to the Closing (the "Affected Employees") at their current rate of
base compensation and on the same terms and conditions of employment (including
those relating to termination and severance benefits) that they now enjoy,
subject to the provisions of Section 10.2, for a period following the Closing
Date at least equal to the notice period (without exceptions to such notice
period) for the Worker Adjustment and Retraining Notification Act. For purposes
44
of this Article X, all former employees of ▇▇▇▇▇ who have retired, separated
from service with a terminated vested interest or are otherwise terminated or
separated and entitled, presently or upon the passage of time, to retirement or
other benefits, shall be considered to be "Affected Employees." In addition,
Buyer has informed Seller that it intends to cause ▇▇▇▇▇ to offer to senior
executive and other key employees of ▇▇▇▇▇ employment and Seller will use its
best efforts (which, except as set forth below, shall not include the making of
payments or financial commitments by Seller) to assist Buyer in obtaining
acceptance of such offer by such executives and key employees. Seller agrees to
reimburse Buyer, within thirty (30) days after Buyer's payment or Seller's
receipt of Buyer's invoice, whichever is later, for one-half of retention
payments paid by Buyer or ▇▇▇▇▇ within 13 months after the Closing to senior
executives and other key employees of ▇▇▇▇▇, up to a maximum liability to Seller
under this sentence of $400,000, and prior to Closing, Buyer shall provide
Seller a list of such intended payments and the recipients thereof.
Section 10.2. Participation in Benefit Plans. Buyer shall make
provision such that, effective as of the Closing Date, the Affected Employees
will commence participation immediately in welfare benefit plans which will have
been adopted by ▇▇▇▇▇ and which, taken as a whole, are comparable to the plans
presently in effect for the Affected Employees. The Affected Employees will
either continue participation in ▇▇▇▇▇'▇ pension plans or commence participation
in Buyer's pension plans, which, taken as a whole, are comparable to the plans
presently available to or in effect for the Affected Employees. Buyer will, and
will cause ▇▇▇▇▇ to, recognize each Affected Employee's service prior to the
Closing Date with respect to ▇▇▇▇▇ and its Subsidiaries as service with ▇▇▇▇▇
(or the Buyer or any Subsidiary of the Buyer which may become the employer of
any Affected Employees, as the case may be) in connection with (i) any waiting
period, eligibility requirements or any elimination period under any welfare
benefit plan available to any Affected Employees, (ii) any waiting period,
eligibility requirements and benefit accrual with regard to participation in any
sick, holiday, vacation, personal time off, or other similar service-based plan
or program available to any Affected Employees, and (iii) any eligibility or
vesting requirements under any qualified or non-qualified plan available to any
Affected Employees. Should the Affected Employees commence participation in the
defined benefit plan of the Buyer, then in no event shall an Affected Employee's
benefit under the defined benefit plan of the Buyer be reduced (in any manner)
by any benefits accrued by the Affected Employee under the pension plans
maintained by ▇▇▇▇▇.
45
Section 10.3. Severance Pay. Buyer shall, or shall cause ▇▇▇▇▇ to, pay to
the Affected Employees whose employment is terminated within one hundred eighty
(180) days after the Closing Date severance benefits not less favorable than
those now available to employees of ▇▇▇▇▇.
Section 10.4. Non-Solicitation. Seller agrees that, from and after the
Closing Date until June 30, 2002, neither it nor any of its Subsidiaries will
solicit, nor cause any other person to solicit, any person named on Schedule
10.4 so long as such person is an employee of ▇▇▇▇▇ or Buyer or any affiliate of
Buyer; provided, however, that nothing in this Section shall be deemed to
prohibit any solicitation not specifically targeted at such employees or
Affected Employees, including general advertisement by means of newspaper or
other advertisements. XI. -
AMENDMENT; WAIVERS -
Section 11.1. Amendments, Modifications, Etc. At any time prior to the
Closing, this Agreement and the Exhibits hereto may be amended, modified,
superseded or supplemented to the extent permitted by applicable law only by an
instrument in writing executed and delivered on behalf of each of the parties
hereto, which instrument when so executed and delivered shall thereupon become a
part of this Agreement and the provisions thereof shall be given effect as if
contained in this Agreement as of the date hereof.
Section 11.2. Waivers. The representations, warranties, covenants and
conditions of this Agreement may be waived only by a written instrument executed
by the party so waiving. The failure of any party at any time or times to
require performance of any provision hereof shall not affect the right of such
party at a later time to enforce the same. No waiver by any party of any
condition, or breach of any term, covenant, agreement, representation or
warranty contained in this Agreement, ------- in any one or more instances,
shall be deemed to be or construed as a waiver of any other condition or of the
breach of any other term, covenant, agreement, representation or warranty
contained in this Agreement. XII. -
DEFINED TERMS -
When used as defined terms in this Agreement, the following terms shall
have the meanings set forth herein:
"Accredited Investor" shall have the meaning set forth in Section 4.6.
46
"Affected Employees" shall have the meaning set forth in Section 10.1.
"Ancillary Agreements" shall mean the Reinsurance Agreement, the Releases
and the Noncompetition Agreement in the respective forms attached as Exhibits
hereto.
"Benefit Plans" shall have the meaning set forth in Section 3.13.
"Buyer" shall mean Fireman's Fund Insurance Company, a California
corporation.
"Canadian Pool" shall have the meaning ascribed in the definition of
"Pool."
"CI" shall mean The Connecticut Indemnity Company, a Connecticut
corporation and a wholly-owned Subsidiary of Seller.
"Common Stock" shall have the meaning set forth in the first recital
paragraph.
"Closing" shall each have the meaning set forth in Section 2.1.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consolidated Group" shall have the meaning set forth in Section 3.10(a).
"Damages" shall have the meaning set forth in Section 13.6.
"DLJ" shall have the meaning set forth in Section 3.22.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall have the meaning set forth in Section 3.13.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act" shall have the meaning set forth in Section 5.4.
"IRS" shall mean the Internal Revenue Service.
"Indemnitee(s)" shall have the meaning set forth in Section 13.6.
"Indemnitor" shall have the meaning set forth in Section 13.6.
"Intellectual Property" shall have the meaning set forth in Section 3.8(c).
"Material Adverse Effect" shall have the meaning set forth in Section 3.1.
"▇▇▇▇▇" shall mean Wm. ▇. ▇▇▇▇▇ & Co., Inc., a New York corporation.
"▇▇▇▇▇ Bermuda" shall mean Wm. ▇. ▇▇▇▇▇ & Co. (Bermuda) Ltd., a Bermuda
corporation.
"▇▇▇▇▇ Canada" shall mean Wm. ▇. ▇▇▇▇▇ & Co. of Canada Ltd., a corporation
formed under the laws of Ontario.
"New York Time" shall mean time, whether Eastern Standard or Daylight
Saving as may be the case, as determined in the City of New York.
"Noncompetition Agreement" shall have the meaning set forth in Section
2.1(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pool" shall mean those insurance underwriting and management arrangements
which have been in effect from time to time between and among one or more of
▇▇▇▇▇, ▇▇▇▇▇ Canada. and ▇▇▇▇▇ Bermuda and the insurers participating in such
arrangements as set forth in the Pool Agreements and among them, the present
participants' gross participations in the Canadian Pool and United States Pool
being as follows:
United States Pool Canadian Pool
Pool Participants % Pool Participants %
The Baloise Insurance
Company of America 1 Providence Washington 1
Insurance Company
Providence Washington
Insurance Company 1
SICH 75 SICH 94
LG Insurance Company,
Ltd. (United States Branch) 8 Mitsui Marine & Fire 5
Mitsui Marine & Fire 15 Insurance Company of Ltd.
Insurance Company
America
Each reference to the "Pool" shall, unless the context otherwise requires, be
deemed to include both the Canadian Pool and the United States Pool and each
annual renewal of the Pool so long as there shall be outstanding assets or
liabilities of the Pool in respect of that year and shall further be deemed to
include the participation of the Pool Participants.
"Pool Agreements" means (i) the Inter-Office Reinsurance
Agreement dated as of January 1, 1975, as amended by the related Addenda Nos.
1-4 and supplemented by annual Schedules of Participations thereto, among ▇▇▇▇▇
and the Pool Participants and the Inter-Office Reinsurance Agreement dated as of
January 1, 1975, as amended by and supplemented by annual Schedules of
Participations thereto among ▇▇▇▇▇ Canada and the Pool Participants (the
"Inter-Office Reinsurance Agreements"), and (ii) the Underwriting Management
Agreements, General Agency & Management Agreements and Management Agreements and
related agreements referred to therein, each as amended, between or among ▇▇▇▇▇
and the Pool Participants, which are listed in Schedule 3.14(b) as being entered
into in connection with the Pool.
"Pool Participants" shall mean those insurers and reinsurers
who, from time to time, have participated or may participate in the Pool in
respect of any year.
"Post-Year End Periods" shall have the meaning set forth in Section
5.6(a)(iii).
"Premerger Notification Agencies" shall have the meaning set forth in
Section 5.4.
"Pre-Year End Periods" shall have the meaning set forth in Section
5.6(a)(iii).
"Reinsurance Agreements" shall mean the quota share reinsurance agreement
referred to in Section 6(1)(a).
"Releases" shall have the meaning set forth in Section 2.1(b).
"Section 338 Election" shall have the meaning set forth in Section 5.6(d).
"Seller" shall mean Orion Capital Corporation, a Delaware corporation.
"Seller's Knowledge" shall mean, when used to qualify a representation or
warranty of Seller, that such is being made or given only on the basis of and to
the extent of the knowledge of Seller's senior executive officers, reasonable
inquiry having been made of the senior officers of ▇▇▇▇▇ by them or on their
behalf in respect of the subject matter of the representation or warranty.
"SICH" shall mean Security Insurance Company of Hartford, a Connecticut
corporation and a wholly owned Subsidiary of Seller.
"Straddle Period" shall have the meaning set forth in Section 5.6(a)(ii).
"Subsidiary" means any corporation of which a corporation or one or more
Subsidiaries of such corporation owns or controls, directly or indirectly, more
than fifty percent (50%) of the outstanding stock having by its terms ordinary
voting power to elect a majority of the Board of Directors of such corporation,
irrespective of whether or not at the time stock of any one class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency
"Taxes" shall have the meaning set forth in Section 3.10(a).
"Tax Return" shall have the meaning set forth in Section 3.10(a).
"Underwriting Management Agreement" shall mean the General Agency Agreement
dated January 1, 1964 between and among The Security Insurance Company, United
States Casualty Company, New Amsterdam Casualty Company, The Connecticut
Indemnity Company and Wm. ▇. ▇▇▇▇▇ & Co., Inc. as amended to the date hereof.
"United States Pool" shall have the meaning ascribed in the definition of
"Pool." XIII. .
MISCELLANEOUS PROVISIONS .
Section 13.1. Expenses. Whether or not the Closing shall have
occurred and regardless of whether this Agreement is terminated, each party
hereto shall pay all of the costs and expenses incurred by it in connection with
this Agreement and the other transactions contemplated hereby (including,
without limitation, disbursements and expenses of its attorneys, accountants and
advisors (including financial advisors), and printing and filing costs and
fees). Seller shall be solely responsible for the fees of DLJ and Buyer shall be
solely responsible for the fees of Stamford Financial Group.
Section 13.2. Notices. All notices or other communications required or
permitted under this Agreement shall be in writing and sufficient if delivered
personally or by recognized overnight delivery service or by registered or
certified mail, postage prepaid, addressed as follows: -------
If to Seller, to
Orion Capital Corporation
▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Treasurer
with a copy to
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
CityPlace I
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Any party may change the person and addresses to which notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice and such change will be
effective upon receipt.
Section 13.3. Entire Agreement. This Agreement, together with the schedules
and exhibits hereto and the documents and instruments referred to herein, sets
forth the entire agreement and understanding of the parties hereto in respect of
the transactions contemplated hereby, and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof. No party
hereto has relied upon any oral or written statement, representation, warranty,
covenant, ---------------- condition, understanding or agreement made by any
other party or any representative, agent or employee thereof, except for those
expressly set forth in this Agreement or in the schedules or exhibits hereto or
the documents or instruments referred to herein.
Section 13.4. No Assignment. This Agreement shall inure to the benefit of,
and be binding upon, the respective successors and assigns of the parties
hereto. No assignment of any rights or delegation of any obligations provided
for herein shall be made by any party hereto without the express prior written
consent of each other party except that Buyer may assign its rights (but not
delegate its duties except as permitted herein) hereunder to any wholly-owned
Subsidiary of Buyer.
Section 13.5. Survival of Representations and Warranties and Covenants.
(a) All representations and warranties of the parties hereto which are
contained in this Agreement or in confirming certificates delivered at the
Closing (other than those representations and warranties relating to the due
authorization, execution and delivery of this Agreement and the Ancillary
Agreement and those relating to Seller's title to the Common Stock which is the
subject of this Agreement which shall survive for the applicable statutory
period of limitation), shall remain operative and in full force and effect until
June 30, 2000, regardless of any investigation made by or on behalf of any of
the parties hereto, following the Closing.
(b) All covenants made by Buyer or Seller in Article V of this Agreement to
be performed after the date hereof will survive the Closing, and will remain in
full force and effect thereafter: (i) in the case of all covenants that have
specified terms or periods until the later of (x) expiration of the terms or
periods respectively specified therein, or (y) June 30, 2000; or (ii) June 30,
2000 for all other covenants.
(c) If within the survival periods specified in Sections 13.5(a) and
13.5(b) above, a claim for indemnification shall be made in respect of the
breach of any representation, warranty or covenant, the expiration of such
period of survival shall not affect the right of indemnified party to
indemnification if the party claiming indemnification for such breach shall have
delivered to the other party written notice setting forth with reasonable
specificity the basis of such claim prior to the expiration of such time
pursuant to this Section 13.5.
Section 13.6. Indemnification and Payments. Each of Buyer on the one hand
and Seller on the other hand (each an "Indemnitor") agrees to indemnify and hold
harmless the other and its respective related persons (collectively, the
"Indemnitees") for, and will pay to the Indemnitees the amount of, any loss,
liability, claim, damage (excluding incidental and consequential damages), and
expenses (including reasonable costs of investigation and defense and reasonable
attorneys' fees), whether or not involving a third-party claim (collectively,
"Damages"), arising from any breach of any representation or warranty made by
the Indemnitor in this Agreement or any certificate delivered by the Indemnitor
pursuant to this Agreement or any covenant or obligation of such Indemnitor in
this Agreement. All damages and other amounts sought by any Indemnitee hereunder
shall be net of all insurance proceeds received or collectible by any such
Indemnitee with respect to such claim, including, with respect to Buyer, all
insurance proceeds received or receivable by ▇▇▇▇▇.
Section 13.7. Limitations on Amount.
(a) An Indemnitor will have no liability (for indemnification or otherwise)
with respect to Damages arising from a breach of any representation or warranty
made by the Indemnitor in this Agreement on the date of this Agreement and on
the Closing Date (other than those representations and warranties relating to
the due authorization, execution and delivery of this Agreement and the
Ancillary Agreement and those relating to Seller's title to the Common Stock
which is the subject of this Agreement) until the total of all such Damages with
respect to Buyer and its related persons or with respect to Seller and its
related persons, as the case may be, exceeds $500,000, and then only for the
amount by which such Damages exceed $500,000.
(b) In no event shall the aggregate liability of Buyer on the one hand or
Seller on the other hand with respect to indemnified Damages under this
Agreement (including Section 5.6 hereof) arising from a breach of any
representation, warranty or covenant made by the Indemnitor in this Agreement,
exceed the Purchase Price.
Section 13.8. Procedure for Indemnification.
(a) Promptly after receipt by an Indemnitee of notice of the commencement
of any proceeding or of any threatened proceeding or claim, or other
notification thereof against it, or after otherwise becoming aware that an
indemnifiable event has occurred, such Indemnitee will give notice to the
Indemnitor of such claim and the estimated dollar amount thereof, but the
failure to notify the Indemnitor will not relieve the Indemnitor of liability
that it may have to any Indemnitee, except to the extent that the Indemnitor is
prejudiced by the Indemnitee's failure to give such notice.
(b) The Indemnitor will be entitled to participate in such
proceeding and, to the extent that it wishes, to assume the defense of such
proceeding with counsel reasonably satisfactory to the Indemnitee and, after
notice from the Indemnitor to the Indemnitee of its election to assume the
defense of such proceeding, the Indemnitor will not, as long as it diligently
conducts such defense, be liable to the Indemnitee for any fees of other counsel
or any other expenses with respect to the defense of such proceeding
subsequently incurred by the Indemnitee. If the Indemnitor assumes the defense
of a proceeding, the Indemnitee will have no liability with respect to any
compromise or settlement of such claims effected without its consent
Section 13.9. Procedure for Indemnification - Other Claims. The parties
acknowledge and agree that the remedies and procedures provided in this
Agreement for breach of any representations, warranties, or covenants are
exclusive of all other remedies which would otherwise be available, at law or
equity.
Section 13.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut applicable to
agreements made and to be performed entirely within such State, except (i)
matters related to the validity of corporate action, which shall be governed by
the laws of the state or other jurisdiction of incorporation of the relevant
corporation and (ii) matters related to compliance of the transactions
contemplated by the Agreement with ------------- applicable insurance regulatory
statutes.
Section 13.11. Dispute Resolution. If a dispute arises out of or relates to
this Agreement, or the performance or an asserted breach thereof, the parties
agree first to try in good faith to settle the dispute and further agree that,
to that end:
(a) A meeting shall be held promptly between Buyer and Seller attended by
individuals with decision-making authority regarding the dispute, to attempt in
good faith to negotiate a resolution of the dispute.
(b) If within fifteen (15) days of the first meeting of such individuals
they have not succeeded in negotiating a resolution of the dispute or agreed to
extend the time within which to do so, the parties agree to submit the dispute
to mediation in accordance with the Commercial Mediation Rules of the American
Arbitration Association. Buyer and Seller shall bear their own costs and share
equally the costs of the mediation. The mediation shall take place in Chicago,
Illinois unless otherwise agreed by the parties.
(c) Buyer and Seller will jointly appoint a mutually-acceptable mediator,
seeking assistance in such regard from the American Arbitration Association if
they have been unable to agree on such appointment within a period of twenty
(20) days from the conclusion of the negotiation period.
(d) The parties agree to participate in good faith in the mediation, and
negotiations related thereto or arising therefrom, for a period of thirty (30)
days after appointment of a mediator. If the parties are not successful in
solving the dispute through mediation within that period of time (or, if sooner,
within sixty (60) days from the conclusion of the negotiation period), then the
dispute shall be resolved by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, with each of Buyer
and Seller selecting one arbitrator of a panel of three (3) and the two (2)
arbitrators so selected designating the third member of the panel of
arbitrators. In the event that such two arbitrators cannot agree on a third
arbitrator within thirty (30) days, one shall be designated by the American
Arbitration Association upon application by either of the two arbitrators. The
arbitrators shall render their decision within ninety (90) days after the
appointment of the third arbitrator and the decision of the arbitrators shall be
final and binding upon the parties and judgment upon the award entered by the
arbitrators may be entered in any court having jurisdiction thereof. Buyer and
Seller shall each bear its own costs and the costs of the arbitrator appointed
by each of them and they shall share equally the costs of the third arbitrator
and the administrative costs of the arbitration. The arbitration shall take
place in San Francisco, California if initiated by Seller and in Hartford,
Connecticut if initiated by Buyer.
Section 13.12. Press Releases. Buyer and Seller will each consult with the
other in advance of making any public announcement or press release, releasing
any publicity or otherwise disclosing any information related to the execution
of this Agreement or any transactions contemplated hereby, and each of Buyer and
Seller will, except in the case of such disclosure as may be required by
applicable law or securities exchange requirements, obtain the consent of the
other with respect to the form, content and timing thereof, which consent shall
not unreasonably be withheld.
Section 13.13. Counterparts. This Agreement may be executed in any number
of separate counterparts, each of which shall be deemed to be an original, but
which together shall constitute one and the same instrument.
Section 13.14. Headings. The section and article headings contained in this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement. --------
Section 13.15. Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
Section 13.16. Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement.
[The remainder of this page is intentionally left blank]
IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be duly executed on the date first above written.
ORION CAPITAL CORPORATION
By: .......................................
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President and Treasurer
Attest:
By: ..........................................
Secretary
FIREMAN'S FUND INSURANCE COMPANY
By: .............................
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Senior Vice President
Attest:
By: ..........................................
Secretary
SCHEDULES
Disclosure Letter
Schedule 3.2 - Capitalization
Schedule 3.3 - Regulatory Status
Schedule 3.4 - Compliance with Law
Schedule 3.7 - Litigation and Other Proceedings
Schedule 3.8 - Title to Properties
Schedule 3.9 - No Conflicts (Seller)
Schedule 3.10 - Taxes
Schedule 3.11 - Investments
Schedule 3.12 - Employment Matters
Schedule 3.13 - Employee Benefit Plans; ERISA
Schedule 3.14 - Contracts
Schedule 3.15 - Capital Expenditures
Schedule 3.16 - Banks
Schedule 3.17 - Agents and Brokers
Schedule 3.18 - Insurance
Schedule 3.24 - Relationship between Seller and ▇▇▇▇▇
Schedule 3.25 - Agreement Regarding Pool
Schedule 4.4 - No Conflicts (Buyer)
Schedule 5.3 - Regulatory and Other Filings and Approvals
Schedule 10.4 - Executives and Key Employees
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EXHIBITS
Exhibit A-1 - Mutual Release (Seller and ▇▇▇▇▇)
Exhibit A-2 - Mutual Release (SICH and ▇▇▇▇▇)
Exhibit A-3 - Mutual Release (CI and ▇▇▇▇▇)
Exhibit B - Noncompetition Agreement
Exhibit C - Reinsurance Agreement
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TABLE OF CONTENTS
I. THE TRANSACTION
1.1. Purchase of Common Stock.....................................1
1.2. Consideration................................................1
1.3. Management Fee...............................................1
II. THE CLOSING 2
2.1. Closing......................................................2
III. REPRESENTATIONS AND WARRANTIES OF SELLER 3
3.1. Organization and Good Standing...............................3
3.2. Capitalization...............................................3
3.3. Regulatory Status............................................4
3.4. Compliance with Law..........................................4
3.5. Authorization................................................4
3.6. Books and Records............................................5
3.7. Litigation and Other Proceedings.............................5
3.8. Title to Properties..........................................6
3.9. No Conflicts.................................................7
3.10. Taxes........................................................8
3.11 Investments.................................................11
3.12. Employment Matters..........................................11
3.13. Employee Benefit Plans; ERISA...............................11
3.14. Contracts...................................................13
3.15. Capital Expenditures........................................14
3.16. Banks.......................................................14
3.17. Agents and Brokers..........................................14
3.18. Insurance...................................................14
3.19. Absence of Material Changes and Adverse Factors.............14
3.20. Environmental Matters.......................................15
3.21. Calculation of Liability with respect to Pool Participation 16
3.22. Finders and Brokers.........................................16
3.23. Disclosure 17
3.24. Relationship between Seller and ▇▇▇▇▇ 17
3.25. Agreements regarding Pool 17
3.26. Participation of SICH in Pool 17
3.27 No Undisclosed Liabilities..................................17
IV. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF BUYER 18
4.1. Organization and Standing...................................18
4.2. Certificate of Incorporation and By-Laws....................18
4.3. Authorization...............................................18
4.4. No Conflicts................................................18
4.5. Finders and Brokers.........................................19
4.6. Investor Status.............................................20
V. COVENANTS OF BUYER AND SELLER 20
5.1. Access to Properties, Books and Records.....................20
5.2. Conduct of Business.........................................20
5.3. Regulatory and Other Filings and Approvals..................24
5.4. Premerger Notification and Clearance........................25
5.5. Further Assurances..........................................25
5.6. Tax Matters.................................................26
5.7 Pool Financial Statements...................................32
VI. AGREEMENTS WITH RESPECT TO POOL OPERATION 33
6.1. Pool Participations; Reinsurance............................33
6.2. Underwriting Operations of the Pool.........................33
VII. CONDITIONS TO OBLIGATIONS OF BUYER 35
7.1. Covenants...................................................35
7.2. Representations and Warranties..............................35
7.3. Absence of Litigation and Required Regulatory Approvals 35
7.4. Premerger Notification......................................36
7.5. No Material Adverse Effect..................................36
7.6. Additional Agreements.......................................36
7.7. Opinion of Counsel for Seller and ▇▇▇▇▇.....................36
VIII. CONDITIONS TO OBLIGATIONS OF SELLER 37
8.1. Covenants...................................................37
8.2. Representations and Warranties..............................37
8.3. Absence of Litigation and Required Regulatory Approvals 37
8.4. Premerger Notification......................................37
8.5. Additional Agreements.......................................38
8.7. Opinion of Counsel for Buyer................................38
IX. TERMINATION 38
9.1. Termination.................................................38
9.2. Effect of Termination.......................................38
X. EMPLOYMENT AND BENEFIT MATTERS 38
10.1. Employees 38
10.2. Participation in Benefit Plans 39
10.3. Severance Pay 40
10.4. Non-Solicitation 40
XI. AMENDMENT; WAIVERS 40
11.1. Amendments, Modifications, Etc. 40
11.2. Waivers 40
XII. DEFINED TERMS 40
XIII. MISCELLANEOUS PROVISIONS 45
13.1. Expenses 45
13.2. Notices 45
13.3. Entire Agreement 46
13.4. No Assignment 46
13.5. Survival of Representations and Warranties and Covenants 46
13.6. Indemnification and Payments 47
13.7. Limitations on Amount 47
13.8. Procedure for Indemnification 47
13.9. Procedure for Indemnification - Other Claims 48
13.10. Governing Law 48
13.11. Dispute Resolution 49
13.12. Press Releases 49
13.13. Counterparts 49
13.14. Headings 49
13.15. Severability 50
13.16. Further Assurances 50
S5071611.DOC
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