STOCK PURCHASE AGREEMENT
UNITED GROCERS, INC.
and
ORION CAPITAL CORPORATION
May 13, 1998
STOCK PURCHASE AGREEMENT
UNITED GROCERS, INC.
and
ORION CAPITAL CORPORATION
May 13, 1998
Index
Page
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SECTION 1. DEFINITIONS 1
SECTION 2. SALE AND TRANSFER OF SHARES; CLOSING 6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER 8
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER 20
SECTION 5. COVENANTS OF SELLER 21
SECTION 6. COVENANTS OF BUYER 23
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION
TO CLOSE 24
SECTION 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION
TO CLOSE 24
SECTION 9. TERMINATION 25
SECTION 10. INDEMNIFICATION; REMEDIES 26
SECTION 11. TAX MATTERS 28
SECTION 12. GENERAL PROVISIONS 33
STOCK PURCHASE AGREEMENT
PARTIES: UNITED GROCERS, INC., ("Seller")
an Oregon corporation
ORION CAPITAL CORPORATION, ("Buyer")
a Delaware corporation
DATE: May 13, 1998
RECITAL:
Seller desires to sell, and Buyer desires to purchase, 1,000 shares
(the "Shares") of common stock of Grocers Insurance Group, Inc., an Oregon
corporation (the "Company"), for the consideration and on the terms set forth in
this Agreement. The Shares represent all of the issued and outstanding shares of
capital stock of the Company.
AGREEMENT:
The parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACCOUNTANTS"--as defined in Section 11.1.2.
"ACQUIRED COMPANIES"--the Company and its Subsidiaries, collectively.
"ACQUIRED COMPANIES SUBGROUP"--as defined in Section 11.3.3.
"AG"--as defined in Section 2.5.1.
"APPLICABLE CONTRACT"--any Contract of any Acquired Company providing
for (a) a current or future obligation to pay $25,000 or more, (b) a current or
future right to receive payments totalling $25,000 or more or (c) a joint
venture or other agreement regarding cooperation among the Acquired Companies or
between the Acquired Companies and any Person.
"APPOINTMENTS"--as defined in Section 3.23.
"BALANCE SHEET"--as defined in Section 3.4.1.
"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to cause such result to be achieved
as expeditiously as possible.
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"BUYER"--as defined in the first paragraph of this Agreement.
"CFIT"--as defined in Section 11.3.2.
"CLOSING"--as defined in Section 2.3.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"CLOSING TAXABLE YEAR"--as defined in Section 11.3.2.
"COMPANY"--as defined in the Recitals to this Agreement.
"CONFIDENTIALITY AGREEMENT"--the Confidentiality Agreement between the
Company and Buyer dated November 20, 1997.
"CONSENT"--any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Seller to Buyer;
(b) the performance by Buyer and Seller of their respective
covenants and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the Shares and exercise
of control over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation or undertaking that is
legally binding, excluding any policy of insurance issued by or through an
Acquired Company.
"DCBS"--the Oregon Department of Consumer and Business Services.
"DAMAGES"--as defined in Section 10.2.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to Buyer
prior to the execution and delivery of this Agreement.
"EMPLOYEE LICENSES"--as defined in Section 3.22.
"ENCUMBRANCE"--any charge, claim, condition, equitable interest, lien,
option, pledge, security interest, right of first refusal or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income or
exercise of any other attribute of ownership.
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to
cleaning up pollutants that have been released, preventing the threat of release
or paying the costs of such clean up or prevention.
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"ENVIRONMENTAL LIABILITIES"--any cost, damage, expense, liability,
obligation or other responsibility arising from or under Environmental Law and
consisting of or relating to:
(a) any environmental matter or condition;
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands
and response, investigative, remedial or inspection costs and
expenses arising under Environmental Law;
(c) financial responsibility under Environmental Law for cleanup
costs or corrective action, including any investigation,
cleanup, removal, containment or other remediation or response
actions required by applicable Environmental Law ; or
(d) any other compliance, corrective, investigative or remedial
measures required under Environmental Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended
("CERCLA"). Environmental Liabilities do not include any obligation of any
Acquired Company arising from or under any policy of insurance issued by or
through an Acquired Company, all of which policies exclude claims for
environmental matters in accordance with customary industry practice for the
types of policies involved or except as set forth in Paragraph 1 of the
Disclosure Letter.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law and regulations and rules issued pursuant to that act or any
successor law.
"ERISA AFFILIATE"--as defined in Section 3.10.
"FACILITIES"--any real property or leaseholds owned or operated by any
Acquired Company.
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4.1 were prepared.
"GIA"--Grocers Insurance Agency, Inc., an Oregon corporation.
"GIC"--Grocers Insurance Company, an Oregon stock insurance
corporation.
"GIG OFFICE BUILDING"--as defined in Section 5.7.
"GRS"--Grocers Risk Services, Inc., an Oregon corporation.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver or other authorization issued, granted, given or otherwise made available
by or under the authority of any Governmental Body or pursuant to any Legal
Requirement.
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"GOVERNMENTAL BODY"--any:
(a) federal, state, local, municipal, foreign or other government;
(b) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department,
official or entity and any court or other tribunal); or
(c) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing
authority.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated or classified as, or otherwise determined to be, hazardous,
radioactive or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law.
"HOLDBACK"--as defined in Section 2.5.
"HSR ACT"--the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INTERIM BALANCE SHEET"--as defined in Section 3.4.1.
"IRC"--the Internal Revenue Code of 1986 or any successor law and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service.
"JOINT VENTURE"--means any joint venture, business combination,
reorganization or change of control or similar transaction.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter. A Person (other than an individual) will be deemed to
have "Knowledge" of a particular fact or other matter if any individual who is
serving as a director or officer of such Person has Knowledge of such fact or
other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal or other
administrative order, law, ordinance, regulation or statute.
"LICENSES"--as defined in Section 3.21.
"LIQUIDATED AMOUNTS"--as defined in Section 2.5.1.
"MARKS"--business names, trade names, registered trademarks and service
marks.
"ORDER"--any award, decision, judgment, order, ruling or verdict
entered, issued, made, or rendered by any court, administrative agency or other
Governmental Body.
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"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal
day-to-day operations of such Person; and
(b) such action is similar in nature, frequency and magnitude to
actions customarily taken in the ordinary course of the normal
day-to-day operations of other Persons that are in the same
line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--the articles of incorporation and the
bylaws of a corporation and any amendment to such documents.
"PERMANENT DIFFERENCE"--as defined in Section 11.4.2.1.
"PERSON"--any individual, corporation, partnership, limited liability
company, joint venture, estate, trust, association, organization or other
entity.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative or
informal), excluding any proceeding arising from or under any policy of
insurance issued by or through an Acquired Company.
"PURCHASE PRICE"--as defined in Section 2.2.
"REGULATORY FILINGS"--any filing required to be made with a State
Insurance Department, other than DCBS, to provide notice or obtain approval of a
Contemplated Transaction.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor or other representative of such
Person, including legal counsel, accountants and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLER"--as defined in the first paragraph of this Agreement.
"SELLER'S SUBGROUP"--as defined in Section 11.3.3.
"SERVICE AGREEMENT"--the Service Agreement dated March 11, 1998, by and
between Seller and the Company.
"SHARES"--as defined in the Recital to this Agreement.
"STATE INSURANCE DEPARTMENT"--as defined in Section 3.21.
"STATUTORY STATEMENTS"--as defined in Section 3.4.2.
"STRADDLE PERIOD"--as defined in Section 11.2.3.
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"SUBMISSION"--as defined in Section 3.20.
"SUBSIDIARIES"--GIA, GIC and GRS.
"TAX" OR "TAXES"--any tax (including any income tax, capital gains tax,
premium tax, payroll tax, value-added tax, sales tax, property tax, gift tax or
estate tax), levy, assessment, tariff, duty, deficiency or other fee, and any
related charge, credit or benefit, or amount imposed, assessed or collected by
or under the authority of any Governmental Body or payable or receivable
pursuant to any tax-sharing agreement or any other Contract relating to the
sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency
or fee. For this purpose, the Tax benefit of a net operating loss carry forward
from the October 3, 1997 Tax year or from the Closing Taxable Year shall be
measured at the rate of 34 percent.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"THIRD PARTY CLAIMS"--as defined in Section 2.5.1.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"TIMING DIFFERENCE"--as defined in Section 11.4.2.2.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Seller.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be
$36,250,000.
2.3 CLOSING
Subject to the fulfillment or waiver of the conditions set forth in
Sections 7 and 8, the purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Xxxxxxx & Xxxxxxx LLP, Suite 1170,
000 XX Xxxxx Xxxxxx, Xxxxxxxx, Xxxxxx, at 10:00 a.m. (local time) on the date
that is five business days following the receipt of the approval of the
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Contemplated Transactions by the Director of DCBS and the Connecticut Insurance
Department and all such other required prior approvals, or at such other time
and place as the parties may agree. Subject to the provisions of Section 9,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.3 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
2.4.1 Seller will deliver to Buyer:
(a) certificates representing the Shares duly endorsed
(or accompanied by duly executed stock powers in form
satisfactory to Buyer) for transfer to Buyer;
(b) a certificate executed by the President of Seller
dated on the Closing Date certifying that each of
Seller's representations and warranties in this
Agreement was accurate in all respects as of the date
of this Agreement and is accurate in all respects as
of the Closing Date as if made on the Closing Date
(recognizing any supplements to the Disclosure Letter
that were delivered by Seller to Buyer prior to the
Closing Date);
(c) an opinion of Seller's counsel in form and substance
reasonably acceptable to Buyer and its counsel;
(d) title policies on all real estate owned by any of
the Acquired Companies; and
(e) such other certificates and documents as Buyer or
its counsel may reasonably request.
2.4.2 Buyer will deliver to Seller:
(a) the sum of $32,250,000 (the Purchase Price minus the
Holdback) by wire transfer to an account specified by
Seller;
(b) a certificate executed by the President or any Vice
President of Buyer certifying that each of Buyer's
representations and warranties in this Agreement was
accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date; and
(c) such other certificates and documents as Seller or
its counsel may reasonably request.
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2.5 HOLDBACK
2.5.1 Buyer shall retain $4,000,000 of the Purchase Price
(the "Holdback") to secure the obligations of Seller and the Company under this
Agreement. On the later of (i) three years from the Closing Date, (ii) the date
when the Company's Federal income Tax obligations for periods prior to October
4, 1997 are either a liquidated amount or finally resolved, or (iii) the date
when claims by third parties against the Company or Buyer that would result in a
claim by Buyer for Damages under Section 10.2 ("Third Party Claims") commenced
within three years from the Closing Date are either a liquidated amount or
finally resolved, Buyer shall remit to Seller the then remaining balance of the
Holdback less an amount equal to the sum (the "Liquidated Amounts") of the
liquidated Federal income Tax obligation under (i), if any, plus the liquidated
claims under (ii), if any; provided, however, that the Liquidated Amounts shall
be remitted by Buyer to Seller as such obligations or claims are resolved and,
if payment is necessary, paid by Seller without resulting in a claim by Buyer
for Damages under Section 10.2; provided, further, that (a) if Seller enters
into a Joint Venture with Associated Grocers ("AG") or otherwise and the Joint
Venture agrees to honor the terms and conditions of the Service Agreement or (b)
it is determined that no Joint Venture will occur between Seller and AG and no
other Joint Venture is agreed upon between Seller and a third party during
calendar year 1998, then (i) the sum of $2,000,000 of the Holdback will be paid
promptly to Seller after the closing of the AG or any other Joint Venture agreed
upon by Seller and the representation contained in Section 3.24 shall be deemed
to be satisfied, or (ii) the sum of $2,000,000 of the Holdback will be paid to
Seller on or before January 5, 1999 if no Joint Venture is agreed upon by
December 31, 1998. If the Joint Venture does not take place and $2,000,000 of
the Holdback is released to Seller, then if, during the remainder of the
three-year survival period for the representations and warranties, the Service
Agreement is not honored or is violated by Seller or by a new Joint Venture,
such violation shall constitute a breach of the representation contained in
Section 3.24. Buyer shall pay interest on any payment to Seller from the
Holdback at the rate of 6 1/2% per year compounded monthly from the Closing Date
through the date of any such payment.
2.5.2 With respect to any Third Party Claims, Seller shall
have the right to assume the defense of the Proceedings relating to a Third
Party Claim in accordance with the provisions of Section 10.7.2.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION
3.1.1 Paragraph 3.1 of the Disclosure Letter contains a
complete and accurate list for each Acquired Company of its name and the
jurisdictions in which it is authorized to do business or transact insurance.
GIC is a stock insurance corporation and each other Acquired Company is a
corporation duly organized and validly existing under the laws of Oregon, with
full corporate power and authority to conduct its business as it is now being
conducted. Each Acquired Company is duly qualified or licensed and in good
standing or validly existing, as the case may be, under the laws of each state
or other jurisdiction in which the nature of the activities conducted by it
requires such qualification, except in such jurisdictions where the
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failure to be so qualified or licensed will not have a material adverse effect
on the business, operations or financial condition of the Acquired Company.
3.1.2 Seller has delivered to Buyer copies of the
Organizational Documents of each Acquired Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
3.2.1 This Agreement constitutes the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms. Seller has the right, power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
3.2.2 Except as set forth in Paragraph 3.2 of the
Disclosure Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of
any provision of the Organizational Documents of
Seller or any of the Acquired Companies;
(b) contravene, conflict with or result in a violation of
any Legal Requirement or any Order to which Seller or
any Acquired Company, or any of the assets owned or
used by any Acquired Company, may be subject, or
result in the imposition of any lien, claim or charge
against any Acquired Company or its property;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of any Governmental
Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or any of
the assets owned or used by, any Acquired Company; or
(d) contravene, conflict with or result in a violation or
breach of any provision of, or give any Person the
right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance
of, or to cancel, terminate or modify, any Applicable
Contract.
Except as contemplated by Section 5.4 or as set forth in Paragraph 3.2
of the Disclosure Letter, neither Seller nor any Acquired Company is or will be
required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions; provided that Seller and
GIC will use all commercially reasonable efforts to obtain, prior to Closing,
waivers of any provisions in agency contracts permitting their cancellation in
the event of a change of control of any Acquired Company.
3.3 CAPITALIZATION
The authorized capital stock of the Company consists of 1,000 shares of
common stock, no par value, all of which shares are issued and outstanding and
constitute the Shares. There are
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no other equity securities of the Company. Except as set forth in Paragraph 3.3
of the Disclosure Letter, (a) Seller will be on the Closing Date the record and
beneficial owner and holder of the Shares, free and clear of all Encumbrances
and (b) on the Closing Date all of the outstanding capital stock and other
securities of GIA, GIC and GRS will be owned of record and beneficially by one
of the other Acquired Companies, free and clear of all Encumbrances. All of the
outstanding capital stock or equity securities of each Acquired Company have
been duly authorized and validly issued and are fully paid and nonassessable.
There are no Contracts relating to the issuance, redemption, sale or transfer of
any capital stock or other equity securities of any Acquired Company. Except as
set forth in Paragraph 3.3 of the Disclosure Letter, no Acquired Company owns,
or has any Contract to acquire, any capital stock or other equity securities of
any Person (other than Acquired Companies) or any direct or indirect equity or
ownership interest in any other business.
3.4 FINANCIAL STATEMENTS
3.4.1 GAAP Financial Statements. Seller has previously
delivered to Buyer: (a) audited balance sheets of GIC as at approximately
September 30 in each of the years 1992 through 1996, and the related statements
of income, changes in stockholders' equity and cash flows for each of the fiscal
years then ended, together with the report thereon of XxXxx, White & Xxxxx,
independent certified public accountants, (b) unaudited balance sheets of the
Company, GIA and GRS as at approximately September 30 in each of the years 1992
through 1996 and the related unaudited statements of income, changes in
stockholders equity and cash flows for each of the fiscal years then ended, (c)
audited balance sheet of GIC as at September 30, 1997 (including notes, the
"Balance Sheet"), and the related statements of income, changes in stockholders'
equity and cash flows for the fiscal year then ended, together with the report
thereon of Coopers & Xxxxxxx, independent certified public accountants, (d)
unaudited consolidating statements of the Company as at September 30, 1997 and
(e) unaudited balance sheets of the Acquired Companies as at December 31, 1997
("Interim Balance Sheet") and the related unaudited statement of income for the
three months then ended. Seller shall also deliver to Buyer by the 30th day of
each month beginning April 30, 1998, (i) unaudited balance sheets of GIG, GIA
and GRS and the related unaudited statement of income for the previous month,
and (ii) unaudited premium and loss information and estimates of general
expenses, reinsurance costs, investment income and IBNR of GIC. Except as set
forth in Paragraph 3.4.1 of the Disclosure Letter, such financial statements and
notes are, or will be when delivered, true and correct in all material respects
and fairly present the financial condition and the results of operations,
changes in stockholders' equity and cash flows of the Acquired Companies as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not be, individually or in the aggregate, materially adverse) and the
absence of notes (that, if presented, would not differ materially from those
included in the Balance Sheet).
3.4.2 Statutory Financial Statements. Seller has previously
delivered to Buyer the audited statutory annual statements of GIC for the years
1992 through 1997 (collectively, the "Statutory Statements"). The Statutory
Statements fairly present the statutory financial condition of GIC at December
31 of each of the years 1992 through 1997, and the statutory results of its
operations for each of the six years then ended and have been prepared in
accordance with
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required or permitted Oregon statutory insurance accounting requirements and
practices. Except as set forth in Paragraph 3.4.2 of the Disclosure Letter, GIC
has not received any notification or indication from DCBS that it regards any of
such Statutory Statements as deficient or inadequate.
3.5 BOOKS AND RECORDS
The minute books, stock record books and other records of the Acquired
Companies have been made available to Buyer. The minute books of the Acquired
Companies contain accurate and complete records of corporate action taken by the
stockholders, the Boards of Directors and committees of the Boards of Directors
of the Acquired Companies. The stock record books of the Acquired Companies are
true and complete. At the Closing, all of those books and records will be in the
possession of the Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Paragraph 3.6 of the Disclosure Letter contains a complete and accurate
list of all real property ever owned by, leaseholds owned by, lease agreements
with tenants of buildings owned by, and fixed assets owned or leased by, any
Acquired Company. No real property other than that set forth in Paragraph 3.6 of
the Disclosure Letter has ever been owned by an Acquired Company. The Acquired
Companies own (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentence) all the
properties and assets (whether real, personal or mixed and whether tangible or
intangible) that they purport to own, including all of the properties and assets
reflected in the Balance Sheet and the Interim Balance Sheet (except for assets
held under capitalized leases disclosed in Paragraph 3.6 of the Disclosure
Letter and personal property acquired or sold since the date of the Balance
Sheet and the Interim Balance Sheet, as the case may be, in the Ordinary Course
of Business). All material properties and assets reflected in the Balance Sheet
and the Interim Balance Sheet are free and clear of all Encumbrances except,
with respect to all such properties and assets, (a) mortgages or security
interests shown on the Balance Sheet or the Interim Balance Sheet as securing
specified liabilities or obligations, with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists
and (b) liens for current Taxes not yet due.
3.7 NO UNDISCLOSED LIABILITIES
Except as set forth in Paragraph 3.7 of the Disclosure Letter, the
Acquired Companies have no material liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent or
otherwise) except for liabilities or obligations identified or reserved against
in the Balance Sheet or the Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates of the
Balance Sheet or Interim Balance Sheet.
3.8 TAXES
Except as set forth in Paragraph 3.8 of the Disclosure Letter, Seller
has prepared and filed or caused to be filed true, correct and complete
consolidated Federal income Tax Returns with respect to Seller and the Acquired
Companies that are due as of the Closing Date, taking into account extensions of
time to file as permitted by law. The Acquired Companies have filed or caused to
be filed, taking into account extensions of time to file as permitted by law,
all other
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Tax Returns that are or were required to be filed by or with respect to any of
them. Seller has delivered to Buyer the Federal and state income Tax Returns
filed for Tax Years 1994-1996. Seller and the Acquired Companies have paid, or
made provision for the payment of, all Taxes that have or may have become due
with respect to the Acquired Companies, except such Taxes, if any, as are listed
in Paragraph 3.8 of the Disclosure Letter and are being contested in good faith
and as to which adequate reserves have been provided in the Balance Sheet and
the Interim Balance Sheet. The consolidated Federal income Tax Returns of Seller
have been audited by the IRS for the 1991 Tax year, and Seller has received
notice from the IRS that the 1994-1996 Tax years will be audited. Except as set
forth in the Disclosure Letter, Seller and GIC are not parties to any Tax
allocation or sharing agreement, or agreements extending any applicable statutes
of limitations.
3.9 NO MATERIAL ADVERSE CHANGE
Except as set forth in Paragraph 3.9 of the Disclosure Letter, since
the date of the Balance Sheet, there has not been any material adverse change in
the business, operations, properties, assets, condition or prospects of the
Acquired Companies individually or as a whole.
3.10 EMPLOYEE COMPENSATION AND BENEFIT PLANS
Paragraph 3.10 of the Disclosure Letter sets forth a list of all
pension, retirement, profit sharing, severance pay, stock option, stock
purchase, bonus, deferred compensation, and fringe benefit plans and all
employee benefit plans (as defined in Section 3(3) of ERISA), including all
welfare plans and pension plans (as defined in Section 3(1) and 3(2),
respectively, of ERISA) sponsored, maintained or contributed to by any of the
Acquired Companies or by any trade or business, whether or not incorporated,
that together with the Acquired Companies would be deemed a single employer
within the meaning of Section 4001 of ERISA ("ERISA Affiliate"). Each employee
benefit plan and any related trust agreements, annuity contracts, insurance
contracts or other funding instruments are in compliance with the requirements
of ERISA and the IRC and all other applicable laws, rules and regulations, as to
the form, operation and administration of such plans. All related Tax Returns,
reports, notices and applications required by any Governmental Body have been
timely filed. All contributions required to be made on or before the date of
this Agreement to each employee benefit plan under the terms of such plan,
ERISA, the IRC or other applicable law have been timely made, no pension plan
has incurred an "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA or Section 412 of the IRC (whether or not waived), nor have
there been any "reportable events," as such term is defined in Section 4043 of
ERISA with respect to any pension plans subject to Title IV of ERISA which
required notice to the Pension Benefit Guaranty Corporation. No fiduciary of any
such employee benefit plan has engaged in any transaction in violation of ERISA
or any "prohibited transaction." No Acquired Company or ERISA Affiliate is or
has been within the past five years a party to, or obligated to contribute to, a
multiemployer plan within the meaning of Section (3)(37)(A) of ERISA. As of the
Closing Date, the fair market value of assets held by each employee benefit
pension plan, defined contribution plan and defined benefit plan or for which an
Acquired Company or any ERISA Affiliate could have liability under Title IV of
ERISA equals or exceeds the present value of accrued benefits (whether vested or
unvested) under each such plan. No employee benefit plan is under audit by the
IRS or the Department of Labor. With respect to the employees providing services
to the Acquired Companies, the
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Acquired Companies have complied in all material respects with all the
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Sections 601 through 608 of ERISA and Sections 162 and 4980B of the IRC.
With respect to each defined benefit plan (both qualified and
non-qualified) and 401(k) plan, Seller: (i) acknowledges that Buyer assumes no
assets or liabilities of such plan for active, terminated employees with a
vested interest or retirees; and (ii) Seller shall fully vest active employees
in their accrued benefits to the extent required by law. With respect to health
and welfare plans, Seller acknowledges that Buyer assumes no liability for (i)
incurred or incurred but not reported claims by current or former employees,
plan participants or vendors for payment or benefits arising under any such
plan, or (ii) actions resulting from claims of denial of payments or benefits
under any such plan.
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS
Except as set forth in Paragraph 3.11 of the Disclosure Letter, the
Acquired Companies have complied at all times with all Legal Requirements
relating to the conduct of their respective businesses, except for any instances
of noncompliance that would not have a material adverse effect on the business,
financial condition or results of operations or prospects of the Acquired
Companies individually or as a whole.
3.12 LEGAL PROCEEDINGS
Except as set forth in Paragraph 3.12 of the Disclosure Letter and
except for Proceedings relating to claims under any policy of insurance issued
by or through an Acquired Company, there is no pending Proceeding that has been
commenced by or against any Acquired Company or that otherwise relates to or may
affect the business of, or any of the assets owned or used by, any Acquired
Company. Except as set forth in Paragraph 3.12 of the Disclosure Letter, no such
Proceeding has been Threatened and, to the Knowledge of Seller and the Acquired
Companies, no circumstance exists that may give rise to or serve as a basis for
the commencement of any such Proceeding. Seller has delivered to Buyer copies of
all pleadings, correspondence and other documents relating to each Proceeding
listed in Paragraph 3.12 of the Disclosure Letter.
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Paragraph 3.13 of the Disclosure Letter and
except for the increase in reserves for losses and loss expense adjustment in
the amount of $2,500,000 to be effected before the Closing Date, since the date
of the Balance Sheet, the Acquired Companies have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) purchase, redemption, retirement, or other acquisition by any
Acquired Company of any shares of its capital stock; or
declaration or payment of any dividend or other distribution
or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired
Company;
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(c) except in the Ordinary Course of Business, payment or
increase by any Acquired Company of any bonuses, salaries or
other compensation to any director, officer or employee or
entry into any employment, severance or similar Contract with
any director, officer or employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement or other employee
benefit plan for or with any employees of any Acquired
Company;
(e) damage to or destruction or loss of any tangible property of
any Acquired Company, whether or not covered by insurance,
materially and adversely affecting the properties, business,
financial condition or prospects of the Acquired Companies
individually or as a whole;
(f) sale, lease or other disposition of any material asset or
property of any Acquired Company or mortgage, pledge or
imposition of any lien or other encumbrance on any material
asset or property of any Acquired Company;
(g) change in the accounting methods or practices used by any
Acquired Company; or
(h) transaction by any of the Acquired Companies except in the
Ordinary Course of Business as conducted during 1997;
(i) capital expenditure by any of the Acquired Companies, either
individually or in the aggregate, exceeding $50,000;
(j) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action involving any of the
Acquired Companies;
(k) revaluation by any of the Acquired Companies of any of its
assets other than normal depreciation;
(l) amendment or termination by any of the Acquired Companies, or
receipt of notice of termination, of any Contract, except any
such amendment or termination that would not have a material
adverse effect;
(m) loan by any of the Acquired Companies to any person or
entity, or guaranty by any of the Acquired Companies of any
such loan except in the Ordinary Course of Business;
(n) waiver or release of any material right or claim of any of
the Acquired Companies, including any write-off or other
compromise of any account receivable of such Acquired Company
except for the settlement, waiver or release of rights or
claims under any of the insurance policies issued by an
Acquired Company or reinsurance agreements in the ordinary
course of business, consistent with past practices, and not
in excess of policy limits;
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(o) the commencement or notice or, to the Knowledge of Seller,
threat of commencement of any governmental proceeding against
or investigation of Seller or any of the Acquired Companies
or its affairs;
(p) issuance or sale by any of the Acquired Companies of any of
its shares or of any other of its securities;
(q) policy form or rate filings by any of the Acquired Companies
except in the Ordinary Course of Business;
(r) cancellation, appointment or termination by any of the
Acquired Companies of (i) any agent except in the Ordinary
Course of Business or (ii) any line of business;
(s) borrowing, assumption, guarantee, or other liability of any
of the Acquired Companies for debt; or
(t) agreement, whether oral or written, by any Acquired Company
to do any of the foregoing.
3.14 CONTRACTS; NO DEFAULTS
3.14.1 Paragraph 3.14.1 of the Disclosure Letter contains a
complete and accurate list as of the date of this Agreement, and Seller has
delivered or made available to Buyer true and complete copies, of:
(a) each Applicable Contract that involves performance
of services by one or more Acquired Companies;
(b) each Applicable Contract that involves performance
of services or delivery of goods or materials to one
or more Acquired Companies;
(c) each Applicable Contract affecting the ownership of,
leasing of, title to, use of or any leasehold or
other interest in, any real or personal property;
and
(d) each licensing agreement or other Applicable
Contract with respect to trademarks, copyrights,
software or other intellectual property.
3.14.2 Except as set forth in Paragraph 3.14.2 of the
Disclosure Letter, neither any Acquired Company nor any officer, director or
employee of any Acquired Company is bound by any Contract that purports to limit
the ability of any such Acquired Company or officer, director or employee, to
engage in or continue any conduct, activity or practice relating to the business
of any Acquired Company.
3.14.3 Except as set forth in Paragraph 3.14.3 of the
Disclosure Letter:
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(a) each Applicable Contract is in full force and effect,
and is valid, binding and enforceable in accordance
with its terms in all material respects, subject to
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of
creditors generally and subject to general equity
principles and to limitations on availability of
equitable relief, including specific performance;
(b) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may
contravene, conflict with, or result in a material
violation or breach of, or give any Acquired Company
or other Person the right to declare a default or
exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate
or modify, any Applicable Contract; and
(c) no Acquired Company has given to or received from any
other Person, any notice or other communication
regarding any actual or alleged violation or breach
of, or default under, any Applicable Contract.
3.15 INSURANCE
3.15.1 Seller has delivered to Buyer true and complete
copies of all policies of insurance currently maintained by any Acquired Company
for the benefit of any Acquired Company (other than policies of insurance issued
by or through an Acquired Company) or any director or officer of any Acquired
Company, and all premiums due on such policies have been timely paid.
3.15.2 Except as set forth in Paragraph 3.15.2 of the
Disclosure Letter, neither Seller nor any Acquired Company has received with
respect to the policies described in Section 3.15.1, (i) any refusal of coverage
or any notice that a defense will be afforded with reservation of rights, or
(ii) any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that the
issuer of any policy is not willing or able to perform its obligations
thereunder.
3.16 ENVIRONMENTAL MATTERS
Except as set forth in Paragraph 3.16 of the Disclosure Letter:
(a) Each Acquired Company is in material compliance with, and is
not in material violation of or liable under, any
Environmental Law with respect to the Facilities.
(b) There are no pending or Threatened claims resulting from any
Environmental Liabilities or arising under or pursuant to any
Environmental Law with respect to the Facilities or any other
real property ever owned by any of the Acquired Companies.
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(c) Seller has no Knowledge of any conditions that would give rise
to any Environmental Liability for any of the Acquired
Companies with respect to the Facilities. There are no
Hazardous Materials (other than incidental office supplies)
present on or at the Facilities, including any Hazardous
Materials contained in underground storage tanks. There are no
underground storage tanks on or under the Facilities.
(d) Seller has delivered to Buyer true and complete copies and
results of any reports with respect to Seller or any Acquired
Company pertaining to Hazardous Materials in, on or under the
Facilities.
3.17 EMPLOYEES
3.17.1 Seller has previously provided Buyer with a complete
and accurate list of the following information for each employee providing
services to an Acquired Company: employer; name; job title; current compensation
paid or payable; date of hire; date of birth; and social security number.
3.17.2 No employee of any Acquired Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition or proprietary rights agreement, between such
employee and any other Person that in any way adversely affects or will
adversely affect the performance of duties as an employee of the Acquired
Companies. Except as set forth in the Disclosure Letter, the consummation of the
Contemplated Transactions will not result in any payment (whether of severance
pay or otherwise) becoming due from any Acquired Company to any officer,
employee, former employee or director, or any benefit becoming payable or
vested.
3.18 LABOR RELATIONS; OSHA
Since October 4, 1986, no Acquired Company has been or is a party to
any collective bargaining or other labor Contract. Except as set forth in
Paragraph 3.18 of the Disclosure Letter, each of the Acquired Companies is in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment and wages and hours and occupational safety and health
and employment practices, and is not engaged in any unfair labor practice.
3.19 MARKS; PROPRIETARY RIGHTS
3.19.1 Paragraph 3.19.1 of the Disclosure Letter contains a
complete and accurate list and summary description of all Marks and any other
copyrighted, patented or proprietary intellectual property in which any of the
Acquired Companies has an interest. One or more of the Acquired Companies is the
owner of all right, title and interest in and to each of the Marks and such
other intellectual property, free and clear of all liens, security interests,
charges, encumbrances, equities and other adverse claims.
3.19.2 All Marks that have been registered with the United
States Patent and Trademark Office are currently in compliance with all formal
Legal Requirements (including the
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timely post-registration filing of affidavits of use and incontestability and
renewal applications) and are valid and enforceable.
3.19.3 No Xxxx has been or is now involved in any
opposition, invalidation or cancellation and no such action is Threatened with
respect to any of the Marks.
3.20 REGULATORY SUBMISSIONS
Seller previously has furnished or made available to Buyer true and
complete copies for the following filings and submissions (excluding the
Statutory Statements, the "Submissions") of GIC to each State Insurance
Department made during the time period from 1992-1997: triennial examinations,
market conduct examinations, in force and pending rate filings and holding
company registration statement Forms B and C (with the exception of Amendment
No. 16 to Form B dated on or about April, 1992). All of the Submissions were
accurate and complete and were in material compliance with applicable laws and
regulations when filed, and no deficiencies have been asserted by any State
Insurance Department with respect to any Submission except as provided therein.
No holding company registration statement Form D was filed during the time
period from 1992-1997.
3.21 LICENSES
Paragraph 3.21 of the Disclosure Letter sets forth all licenses,
permits or authority (collectively, the "Licenses") issued to any of the
Acquired Companies by any state insurance department or other insurance
regulatory body or agency (collectively, a "State Insurance Department"). The
Licenses set forth in Paragraph 3.21 of the Disclosure Letter constitute each
license, permit or authority that it is necessary or appropriate for each of the
Acquired Companies to obtain from a State Insurance Department with respect to
the transaction of its business. All of the Licenses are currently in effect.
None of the Licenses has at any time been suspended, revoked, terminated,
limited or expired. No notice of any violation has been received at any time by
any of the Acquired Companies with respect to any License, and there is no
Proceeding, whether pending or Threatened, that could result in the suspension,
revocation, termination or limitation of any License.
3.22 EMPLOYEE LICENSES
Paragraph 3.22 of the Disclosure Letter sets forth all licenses,
permits or authority (the "Employee Licenses") issued to any employee of an
Acquired Company by a State Insurance Department. All of the Employee Licenses
are currently in effect and constitute each license, permit or authority that it
is necessary or appropriate for the employees of an Acquired Company to obtain
from a State Insurance Department with respect to the performance of their
respective job responsibilities.
3.23 APPOINTMENTS
The insurance companies that have appointed GIA and its employees as
agents are set forth in Paragraph 3.23 of the Disclosure Letter. All of the
appointments (the "Appointments") set forth in Paragraph 3.23 of the Disclosure
Letter are currently in effect, and GIA has not received any notice that an
Appointment has been terminated or limited in any manner.
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3.24 SERVICE AGREEMENT
The Service Agreement is in full force and effect and will continue in
full force and effect during the three years after the Closing Date, including
following any Joint Venture to which Seller is a party.
3.25 CONDITION AND SUFFICIENCY OF ASSETS
The Facilities, building operating systems and equipment of the
Acquired Companies are structurally sound, are in good operating condition and
repair, and are adequate for the uses to which they are being put, and none of
such Facilities, building operating systems or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost. The Facilities, building operating systems
and equipment of the Acquired Companies are sufficient for the continued conduct
of the Acquired Companies' businesses after the Closing in substantially the
same manner as conducted prior to the Closing.
3.26 EMPLOYMENT AND AGENCY CONTRACTS
Seller previously has provided Buyer with lists of all employees of the
Acquired Companies who are: (i) actively employed but absent due to illness,
injury, maternity leave, military service, family or medical leave, short-term
disability or long-term disability (in each case specifying the reason for such
absence); (ii) former employees who are receiving long-term disability benefits
under any Disability Plan, (iii) former employees who are subject to COBRA; and
(iv) former employees who have previously satisfied the requirements for
retiree, medical, life insurance and/or other benefit coverage under any
Employee Plan (in each case specifying the nature of coverage provided to each
such former employee).
3.27 RESERVES
All statutory reserves reflected in the Statutory Statements for the
year ended December 31, 1997, were determined in accordance with SAP and
generally accepted actuarial assumptions and meet the requirements of the
insurance laws of each applicable jurisdiction, except where the failure to meet
such requirements would not have a material adverse effect on the business,
operations or prospects of any of the Acquired Companies. Buyer acknowledges
that the adjustment to reserves referred to in Section 3.13 shall not result in
any additional Tax cost or liability to Seller or any breach of any
representation or warranty by Seller under Sections 3, 10 or 11 or otherwise.
3.28 PORTFOLIO INVESTMENTS
Seller has previously delivered to Buyer true and complete lists as of
December 31, 1997, of all assets held in the investment portfolios of GIC. None
of the other Acquired Companies has an investment portfolio.
3.29 OFFICERS AND DIRECTORS
Paragraph 3.29 of the Disclosure Letter contains a complete and
accurate list of all officers and directors of each of the Acquired Companies.
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3.30 BROKERS
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by Seller directly with Buyer without
the intervention of any person on behalf of Seller in such manner as to give
rise to any claim by any person against Buyer, Seller or any of the Acquired
Companies for a finder's fee, brokerage commission or similar payment; provided,
however, Blanch Capital Markets, Inc. has been retained by Seller with respect
to specific services for which a fee for service was paid.
3.31 REPRESENTATIONS COMPLETE
None of the representations or warranties made by Seller, nor any
statement made in any Schedule, Exhibit or certificate furnished by Seller or
any of the Acquired Companies pursuant to this Agreement, contains or will
contain any untrue statement of a material fact at the Closing Date, or omits or
will omit at the Closing Date to state any material fact necessary in order to
make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized and validly existing under the
laws of the State of Delaware, with full corporate power and authority to
conduct its business as it is now being conducted.
4.2 AUTHORITY; NO CONFLICT
4.2.1 This Agreement constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms. Buyer has the right, power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
4.2.2 Except as set forth in Schedule 4.2, neither the
execution and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give any
Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(a) any provision of Buyer's Organizational Documents;
(b) any resolution adopted by the board of directors of
Buyer;
(c) any Legal Requirement or Order to which Buyer may be
subject; or
(d) any Contract to which Buyer is a party or by which
Buyer may be bound.
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The consent of the shareholders of Buyer is not required in connection
with the execution and delivery of this Agreement or the consummation of
performance of any of the Contemplated Transactions. Except as contemplated by
Section 6.1 or as set forth in Schedule 4.2, Buyer is not and will not be
required to obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer
and that challenges, or may have the effect of preventing, delaying, making
illegal or otherwise interfering with, any of the Contemplated Transactions, and
no such Proceeding has been Threatened.
4.5 REPRESENTATIONS COMPLETE
None of the representations or warranties made by Buyer, nor any
statement made in any Exhibit or certificate furnished by Buyer pursuant to this
Agreement, contains or will contain any untrue statement of a material fact at
the Closing Date, or omits or will omit at the Closing Date to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
5. COVENANTS OF SELLER
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date and subject to
the Confidentiality Agreement, Seller will, and will cause each Acquired Company
and its Representatives to, (a) afford Buyer and its representatives full and
free access to each Acquired Company's personnel, properties, contracts, books
and records and other documents and data and (b) furnish Buyer and its
representatives with such additional financial, operating and other data and
information as Buyer may reasonably request. Buyer agrees that neither Seller,
the Acquired Companies nor any of their Representatives shall have any liability
to Buyer or to any of its Representatives relating to or resulting from the use
of the materials reviewed by Buyer pursuant to this section, except pursuant to
the express terms of this Agreement.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
5.2.1 Between the date of this Agreement and the Closing
Date, Seller will, and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only
in the Ordinary Course of Business; and
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(b) use their Best Efforts to preserve intact the current
business organization of such Acquired Company, to
keep available the services of the current officers,
employees and agents of such Acquired Company and to
maintain the relations and goodwill with suppliers,
policyholders, customers, employees, agents and
others having business relationships with such
Acquired Company.
5.2.2 On or before the Closing Date, Seller will take such
steps as necessary to cause the intercompany account balances between Seller and
the Acquired Companies to be brought current such that all amounts with respect
to periods more than 30 days before the Closing Date will be paid in full.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Seller will not, and will cause
each Acquired Company not to, without the prior written consent of Buyer, take
any affirmative action, or fail to take any reasonable action within its
control, as a result of which any of the changes or events listed in Section
3.13 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller
will, and will cause each Acquired Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the Contemplated
Transactions (including all Regulatory Filings and, at the expense of Buyer, all
filings under the HSR Act). Between the date of this Agreement and the Closing
Date, Seller will, and will cause each Acquired Company to, (a) cooperate with
Buyer with respect to all filings that Buyer elects to make or is required by
Legal Requirements to make in connection with the Contemplated Transactions
(including all filings under the Oregon Insurance Code and other Regulatory
Filings), and (b) cooperate with Buyer in obtaining all consents identified in
Schedule 4.2 (including taking all actions requested by Buyer to cause early
termination of any applicable waiting period under the HSR Act).
5.5 DISCLOSURE LETTER SUPPLEMENTS
From time to time prior to the Closing, and in any event immediately
prior to the Closing, Seller will promptly supplement the Disclosure Letter with
respect to any matter arising which, if existing, occurring or known at the date
of this Agreement, would have been required to be set forth or described in the
Disclosure Letter or which is necessary to correct any information which has
become inaccurate, provided that delivery of such supplement will not be deemed
an amendment of this Agreement unless prior to or on the Closing Date, Buyer
acknowledges in writing Buyer's acceptance of any supplement to the Disclosure
Letter. No supplement to the Disclosure Letter shall have any effect for the
purpose of determining satisfaction of any of the conditions set forth in
Sections 7 and 8 unless Buyer accepts any such supplement to the Disclosure
Letter in writing prior to or on the Closing Date.
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5.6 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Seller will
use its Best Efforts to cause the conditions in Sections 7 and 8 to be
satisfied.
5.7 ZONING CHANGE
Seller will use its Best Efforts to cause the zoning designation of the
Facility located at 0000 XX Xxxx Xxxx, Xxxxxxxxx, Xxxxxx (the "GIG Office
Building") to be redesignated as "office-commercial" from its current
designation of "I-3 (General Industrial)". In the event such zoning
redesignation is not achieved on or before the first anniversary of the date of
this Agreement, or within 10 business days following any earlier date upon which
a final determination denying a zoning redesignation is made, Seller shall
purchase the GIG Office Building from the Company for a purchase price of
$5,100,000 and pursuant to a form of purchase agreement to be mutually agreed
upon by Seller and Buyer prior to the Closing Date.
5.8 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Section 9, Seller will not, and will cause each Acquired Company and each of
their Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of any Acquired Company, or any of the capital
stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company.
6. COVENANTS OF BUYER
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will
make all filings required by Legal Requirements to be made by Buyer to
consummate the Contemplated Transactions (including all filings under the Oregon
Insurance Code and the HSR Act and all other Regulatory Filings). Between the
date of this Agreement and the Closing Date, Buyer will cooperate with Seller
with respect to all filings that Seller is required by Legal Requirements to
make in connection with the Contemplated Transactions (including all Regulatory
Filings) and (ii) cooperate with Seller in obtaining all consents identified in
Paragraph 3.2 of the Disclosure Letter.
6.2 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
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6.3 EMPLOYEE SERVICE CREDIT
On the Closing Date, the employees of the Acquired Companies will be
credited with all years of service with the applicable Acquired Company for
purposes of crediting years of service with respect to the employee benefit
plans of Buyer applicable or available to such employees.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
Each of Seller's representations and warranties in this Agreement (a)
must have been accurate in all respects as of the date of this Agreement and
must be accurate in all respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter
that is not approved by Buyer in accordance with this Agreement or (b) if not
accurate in all respects as provided in Section 7.1(a), must be capable of being
corrected and shall be corrected within 60 days after the Closing without
unreasonable effort or expense to Seller.
7.2 SELLER'S PERFORMANCE
All of the covenants and obligations that Seller is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must
have been duly performed and complied with in all material respects.
7.3 CONSENTS
Each of the Consents identified in subparts 1 - 6 of Paragraph 3.2 of
the Disclosure Letter and in Schedule 4.2 must have been obtained and must be in
full force and effect.
7.4 ADDITIONAL DOCUMENTS
(a) an opinion of Xxxxxx Xxxx Xxxxxx Xxxxx & Xxxxxxx LLP, dated
the Closing Date, in the form of Exhibit 7.4(a); and
(b) such other documents as Buyer may reasonable request.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller in whole or in part):
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8.1 ACCURACY OF REPRESENTATIONS
Each of Buyer's representations and warranties in this Agreement must
have been accurate in all respects as of the date of this Agreement and must be
accurate in all respects as of the Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must
have been performed and complied with in all material respects.
8.3 CONSENTS
Each of the Consents identified in subparts 1 - 6 of Paragraph 3.2 of
the Disclosure Letter and in Schedule 4.2 must have been obtained and must be in
full force and effect.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may be terminated (by notice given prior to the Closing
Date):
(a) by either Buyer or Seller if a material breach of any
provision of this Agreement has been committed by the other
party and such breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not
been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through
the failure of Buyer to comply with its obligations under this
Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Seller, if any of the
conditions in Section 8 has not been satisfied as of the
Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Seller
to comply with its obligations under this Agreement) and
Seller has not waived such condition on or before the Closing
Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations
under this Agreement) on or before November 16, 1998, or such
later date as the parties may agree upon.
9.2 ELECTION
If prior to the Closing, Buyer or Seller discovers that a
representation or warranty made by the other party in this Agreement is untrue
or incorrect in any material respect, the party for whose benefit the
representation or warranty has been given must elect (a) to waive the breach of
- 25 -
representation or warranty and proceed with the Closing, (b) to terminate this
Agreement, or (c) if such breach is capable of being cured within 60 days
without unreasonable effort or expense to Seller, to require such breach to be
cured.
9.3 EFFECT OF TERMINATION
If this Agreement is terminated, all further obligations and
liabilities of the parties under this Agreement will terminate and this
Agreement will have no further force or effect, except that the obligations in
Sections 12.1 and 12.2 will survive.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants and obligations in this
Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, the
certificate delivered pursuant to Section 2.4.1(c) and any other certificate or
document delivered pursuant to this
Agreement will survive the Closing. The right to indemnification,
payment of Damages or other remedy based on such representations, warranties,
covenants and obligations will not be affected by any investigation conducted at
any time, whether before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant or obligation.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Seller will indemnify and hold harmless Buyer and the Acquired
Companies and their officers, directors, employees, agents and affiliates for
any loss, liability, claim, cause of action, damage (excluding consequential
damages), obligation or reasonable expense (including reasonable costs of
investigation and defense and reasonable attorneys' fees) (collectively,
"Damages"), arising, directly or indirectly, from or in connection with any
breach, falsity or inaccuracy (a) of any representation or warranty made by
Seller in this Agreement (giving effect to any supplement to the Disclosure
Letter accepted by Buyer pursuant to Section 5.5), the Disclosure Letter, the
supplements to the Disclosure Letter accepted by Buyer pursuant to Section 5.5
or any certificate delivered by Seller pursuant to this Agreement or (b) of any
covenant of Seller in this Agreement.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller and its officers,
directors, employees, agents and affiliates and will pay to Seller the amount of
any Damages (defined in Section 10.2) arising, directly or indirectly, from or
in connection with any breach, falsity or inaccuracy (a) of any representation
or warranty made by Buyer in this Agreement or in any certificate delivered by
Buyer pursuant to this Agreement or (b) of any covenant of Buyer in this
Agreement.
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10.4 TIME LIMITATIONS
If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any representation or warranty,
other than those in Section 3.3, or any covenant to be performed and complied
with prior to the Closing Date unless, within three years after the Closing
Date, or prior to the expiration date of the applicable statute of limitation
with respect to claims based on Section 3.8, Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer. If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty or
any covenant to be performed and complied with prior to the Closing Date,
unless, within three years after the Closing Date, Seller notifies Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Seller.
10.5 LIMITATIONS ON AMOUNT--SELLER
Seller will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply prior to the Closing Date, clause (b) of Section
10.2 until the total of all Damages with respect to such matters exceeds $75,000
and then only for the amount by which such Damages exceed $75,000; provided that
the limitations in this section shall not apply to claims based on a breach of
Section 3.8.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply prior to the Closing Date, clause (b) of Section
10.3 until the total of all Damages with respect to such matters exceeds $75,000
but then only for the amount by which such Damages exceeds $75,000.
10.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
10.7.1 Promptly after receipt by an indemnified party of
notice of the commencement of any Proceeding or of any Threatened Proceeding or
claim, or other notification thereof against it, such indemnified party will, if
a claim is to be made against an indemnifying party, give notice to the
indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnified party's failure to give such notice.
10.7.2 The indemnifying party 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
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If
- 27 -
the indemnifying party assumes the defense of a Proceeding, the indemnified
party will have no liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does not,
within 20 business days after the indemnified party's notice is given, give
notice to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made in
such Proceeding or any compromise or settlement effected by the indemnified
party.
10.7.3 Regardless of the other provisions of Section 10.7,
if an indemnified party determines in good faith that there is a reasonable
probability that a Proceeding may adversely affect it or its affiliates other
than as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party, by notice to the
indemnifying party, may assume the exclusive right to defend, compromise or
settle such Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
10.8 DUTY TO MITIGATE
Each party shall at all times use its Best Efforts to minimize the
Damages for which the other party may be liable pursuant to this Agreement (or
would be liable but for the provisions of Sections 10.5 or 10.6 above). With
respect to any matter for which any party may be liable pursuant to the
provisions of this Agreement, the other party shall diligently pursue
(including, without limitation, the commencement and pursuit of litigation) any
and all rights and remedies under agreements and contracts (including, without
limitation, insurance policies) with third parties pursuant to which the other
party has rights of recourse or is indemnified or the beneficiary of a guaranty.
10.9 EXCLUSIVE REMEDY
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 except for any claim arising from fraud or willful
misconduct.
10.10 LIMITATION ON INDEMNIFICATION OF SELLER
Regardless of the other provisions of this Section 10, the aggregate
liability of Seller for Damages relating to all breaches of the representations
and warranties and all breaches of covenants or agreements of Seller in this
Agreement shall be limited to Thirty-Six Million Two Hundred Fifty Thousand and
no/100 ($36,250,000).
11. TAX MATTERS
11.1 SECTION 338(H)(10) ELECTION
11.1.1 If requested by Buyer, Seller and Buyer shall join in
an election pursuant to Section 338(h)(10) of the Code and the regulations
promulgated thereunder, and to take all
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necessary and appropriate actions to effectuate the foregoing and to accurately
report to applicable Governmental Entities consistent therewith. In particular,
and not by way of limitation, in order to effect such election, Seller and Buyer
shall jointly execute necessary copies of Internal Revenue Service Form 8023 and
all attachments reasonably determined by the parties to be required to be filed
therewith pursuant to the Code within the required time period.
11.1.2 Buyer and Seller will cooperate with each other and
jointly allocate the Purchase Price and any post-closing adjustments thereto
among the assets of the Acquired Companies. Such allocation shall be made in
good faith and in accordance with Section 338(h)(10) of the Code. Seller and
Buyer shall be bound by the allocation determined in accordance with this
Section and shall prepare and file all Returns in accordance with Section 11.2
below. In the event Seller and Buyer cannot, despite good faith efforts, agree
on such allocation within one hundred twenty (120) calendar days after Closing,
the matter shall be referred to KPMG-Peat Marwick (the "Accountants"), certified
public accountants, within five (5) business days after the end of such one
hundred twenty day period. The fees and expenses of the Accountants shall be
paid one-half by Buyer and one-half by Seller. The Accountants shall determine
an appropriate allocation of the Purchase Price and any post-closing adjustment
thereto among the assets of the Acquired Companies pursuant to Section
338(h)(10) of the Code. Such determination shall be made prior to the due date
for filing Form 8023 with the IRS. Buyer and Seller shall use their best efforts
to cause the Accountants to render its determination as soon as practicable, and
each shall cooperate with such firm and provide such firm with reasonable access
to its books and records and such other information as such firm may require in
order to render its determination. Such determination shall be made by the
Accountants within thirty (30) calendar days, shall be set forth in a written
statement delivered to Buyer and Seller, and shall be final, binding and
conclusive.
11.1.3 Seller and Buyer covenant and agree to report this
transaction for all domestic Tax purposes, where permitted by the law of the
applicable taxing jurisdiction, in each and every respect in a fashion
consistent with the allocation determined pursuant to Sections 11.1.1 and
11.1.2. If the allocation is disputed by any taxing authority, the party
receiving notice of such dispute shall promptly notify and consult with the
other party. Seller and Buyer shall cooperate with each other in resolving such
dispute and shall not settle such dispute or make filings or other submissions
with such taxing authority without obtaining the other party's consent to the
terms of such filings, submissions or settlement, which consent shall not be
unreasonably withheld.
11.2 TAX RETURNS
11.2.1 Seller and Buyer shall (i) each provide the other,
and Buyer shall cause each of the Acquired Companies to provide Seller, with
such assistance as may reasonably be requested by any of them in connection with
the preparation of any Tax Return, or the conduct of any audit or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes; (ii) each retain and provide the other, and
Buyer shall cause each of the Acquired Companies to retain and provide Seller
with, any records or other information that may be relevant to such Tax Return,
audit or examination, proceeding or determination; and (iii) each provide the
other with any final determination of any such audit or examination, proceeding
or determination that affects any amount required to be shown on any Tax Return
of
- 29 -
the other for any period. Without limiting the generality of the foregoing,
Buyer shall retain, and shall cause each of the Acquired Companies to retain,
and Seller shall retain, until the applicable statute of limitations (including
any extensions) have expired, copies of all Tax Returns, supporting work
schedules, and other records or information that may be relevant to such Tax
Returns for all Tax periods or portions thereof ending before or including the
Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to review
and copy the same at the cost of such other party.
11.2.2 Seller is responsible for all Taxes for all periods
ending on or before October 3, 1997, and Buyer is responsible for all Taxes for
all periods commencing on or after October 4, 1997. Seller shall prepare all Tax
Returns with respect to the Acquired Companies for all periods ending on or
before October 3, 1997. Buyer shall prepare all Tax Returns with respect to the
Acquired Companies for all periods commencing after October 3, 1997. Any
refunds, credits or overpayments of Taxes in respect of Tax Returns with respect
to the Acquired Companies filed for all periods ending on or before October 3,
1997, shall be for the account of Seller and if received by Buyer will be
forwarded to Seller within ten (10) days of Buyer's receipt. Any refunds,
credits or overpayments of Taxes in respect of such Tax Returns filed for all
periods commencing after October 3, 1997 shall be for the account of the
Acquired Companies.
11.2.3 Buyer is responsible for preparing and filing all Tax
Returns with respect to the Acquired Companies for any Tax period that begins on
or before and ends after October 3, 1997 (a "Straddle Period") the due date of
which, with regard to extensions of time to file, is on or after the Closing
Date. Seller is responsible for preparing and filing all Tax Returns with
respect to the Acquired Companies for any Straddle Period Tax Return the due
date of which, with regard to extensions of time to file, is before the Closing
Date. Taxes of a Straddle Period that are based upon income or gross receipts
shall, if practicable, be allocated between Seller and the Acquired Companies on
the basis of income or gross receipts derived before and after October 3, 1997.
If such calculation is not practicable, any such Tax shall be allocated in
accordance with the following provision. Taxes not based upon income or gross
receipts shall be allocated between Seller and the Acquired Companies by
multiplying the Tax by a fraction, the numerator of which is the number of days
preceding or following October 3, 1997, as the case may be, and the denominator
of which is the number of days in the Tax period reflected in the Tax Return
which is the subject of this provision.
11.2.4 Each of Buyer and Seller shall deliver to the other,
no later than thirty (30) days (or, in the case of premium Tax Returns, five (5)
days) prior to the date on which the applicable Tax Return is required to be
filed (except for any Tax Return for which an extension has been granted as
permitted hereunder), such Tax Return for its review and filing. Each of Buyer
and Seller shall provide notice to the other within ten (10) business days (or
in the case of premium Tax Returns, two business days) after receipt thereof of
any dispute regarding such Tax Return and the parties shall cooperate in good
faith to resolve any such dispute. In the event of any dispute regarding any
item shown on any such Tax Return, neither Buyer nor Seller shall without the
other's consent (which shall not be unreasonably withheld) prepare such Tax
Return in a manner which is not reasonably satisfactory to the other.
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11.2.5 Seller shall take any necessary action to correct the
net operating loss carryovers reflected in its Tax Return for the year ended
October 3, 1997 as they may relate to the Acquired Companies and to make any
required correlative adjustments to Tax reserves of the Acquired Companies as of
October 3, 1997.
11.3 TAX SHARING AGREEMENTS; CODE SECTION 338(H)(10) ELECTIONS
11.3.1 All tax-sharing, tax-allocation, and tax-expense
allocation agreements or similar agreements (other than the Service Agreement)
with respect to or by and between Seller and any of the Acquired Companies shall
be terminated effective as of October 3, 1997, subject to Buyer's consent to the
terms of such termination, which consent shall not be unreasonably withheld. No
new elections with respect to Taxes or any changes in current elections with
respect to Taxes affecting any of the Acquired Companies shall be made after the
date of this Agreement without prior written consent of Buyer, which consent
shall not be unreasonably withheld. Seller shall not take any action, or cause
or permit any of the Acquired Companies to take any action, which could prohibit
the making of a valid Section 338(h)(10) election with respect to the
transaction contemplated herein.
11.3.2 Seller and Buyer intend that, for the period
beginning October 4, 1997 and ending on the Closing Date (the "Closing Taxable
Year"), the consolidated Federal income Tax ("CFIT") allocated to the Acquired
Companies shall be equal to the CFIT the Acquired Companies would have paid had
the Acquired Companies filed a separate consolidated Federal income Tax Return
for the Closing Taxable Year.
11.3.3 For purposes of this special allocation, the
affiliated group is divided into two subgroups and each subgroup is treated as a
separate affiliated group filing a separate consolidated Federal income Tax
Return. The "Acquired Companies Subgroup" consists of the Acquired Companies.
The "Seller's Subgroup" consists of all the members of the affiliated group
other than the Acquired Companies.
11.3.4 The CFIT is allocated between the Seller's Subgroup
and the Acquired Companies Subgroup in accordance with Treasury Regulation
sections 1.1552-1(a)(1) and 1.1502-33(d)(3).
11.3.5 In the event the Acquired Companies generate a net
operating loss that is not fully utilized in the consolidated Federal income Tax
Return that includes the Closing Taxable Year, to the extent that the net
operating loss may be carried forward by Seller's Subgroup to future taxable
years, an additional Tax benefit equal to 34 percent of the net operating loss
carryforward shall be allocated to the Acquired Companies Subgroup.
11.3.6 This method of Tax allocation does not replace or
modify the existing method of Tax allocation elected by Seller's affiliated
group for Federal income Tax purposes pursuant to Treasury Regulation section
1.1552-1(c).
11.3.7 Buyer shall provide to Seller within 60 days of
filing the consolidated Tax Return an Allocation Schedule calculating the
allocation of Tax liability or Tax benefit in accordance with the method
described above. Seller shall provide to Buyer within 60 days of filing the
consolidated Tax Return a calculation of any amounts due pursuant to Section
3.27. If,
- 31 -
within 90 days following the filing of the consolidated Tax Return, neither
party has given notice of objection to such calculations (any such notice must
contain a statement of the basis of the objection), then the Tax liability or
Tax benefit for the Closing Taxable Year will be allocated to the Acquired
Companies Subgroup in accordance with the Allocation Schedule and the
calculation of any amounts due pursuant to Section 3.27 shall be regarded as the
final determination. If either party gives notice of objection to the
calculations and the parties cannot agree to a satisfactory resolution, then the
issues in dispute will be submitted to the Accountants for resolution. If the
issues in dispute are submitted to the Accountants for resolution, (a) each
party will furnish to the Accountants such work papers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party or its Subsidiaries (or its independent public
accountants), and will be afforded the opportunity to present to the
Accountants; (b) the determination by the Accountants, as set forth in a written
notice delivered to both parties by the Accountants, will be binding and
conclusive on the parties; and (c) Buyer and Seller will each bear 50 percent of
the fees of the Accountants for such determination. On the tenth business day
following the final determination, the Tax liability shall be paid. All payments
will be made together with interest at 6-1/2 percent compounded monthly
beginning on the date of the filing of the fiscal year ending approximately
September 30, 1998 consolidated Federal income Tax Return of Seller and ending
on the date of payment. Payments must be made in immediately available funds, by
wire transfer to such bank account as the party entitled to receive payment will
specify.
11.4 PARTICIPATION IN TAX EXAMINATIONS
11.4.1 Seller and Buyer shall provide to each other notice
within ten (10) business days of receipt of any notice 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 ending on or before
the Closing Date. At least ten days prior to filing any response or other
correspondence with the IRS, Seller shall provide copies of such documents to
Buyer for its review. Seller shall control any such proceeding; provided that
Buyer or its representative shall have the right, at its expense, to participate
in any such audit or similar investigation. Seller agrees that it will not
settle, compromise or agree to any Tax adjustment that will result in either a
Tax liability to Buyer or the indemnification of Seller by Buyer (as set forth
below in this Section 11.4) without the prior written consent of Buyer, which
consent shall not be unreasonably withheld.
11.4.2 Definitions.
11.4.2.1 Permanent Difference. A Permanent Difference
is any adjustment, whether by amended return or examination by a taxing
authority, to any Tax Return that will not affect taxable income of any
prior or subsequent Tax Return.
11.4.2.2 Timing Difference. A Timing Difference is
any adjustment, whether by amended return or examination by a taxing
authority, to any Tax Return that will reverse in a prior or subsequent
Tax Return.
11.4.3 Seller shall be responsible for Taxes for Tax periods
ending on or before October 3, 1997. Buyer shall be responsible for Taxes for
Tax periods beginning on or after
- 32 -
October 4, 1997. However, Seller shall have no liability for Tax attributable to
Timing Differences where the reversal results in a Tax benefit to Buyer, and
Buyer shall be entitled to any Tax benefit attributable to Timing Differences
where the reversal results in a Tax liability to Buyer. However, Buyer shall
have no responsibility for Tax liabilities and no right to Tax benefits for Tax
attributable to Timing Differences where the reversal affects any Tax to Seller
resulting from the deemed sale of assets pursuant to an election under
ss.338(h)(10). Taxes for Tax periods beginning prior to October 3, 1997 and
ending after that date shall be prorated between Buyer and Seller, as set forth
in Section 11.2.3. Notwithstanding the foregoing, Buyer shall have no
responsibility for any Tax that may result from the deemed sale of assets
pursuant to an election under ss.338(h)(10) of the Internal Revenue Code.
11.4.4 If any adjustment, as defined in Section 11.4.2.1 or
Section 11.4.2.2, is made to any Tax Return, amounts due pursuant to Section
3.27 shall be recomputed as necessary. In the event that Seller or Buyer, as the
case may be, is required to hold harmless the other party pursuant to Section
11.4 or to a recalculation pursuant to Section 3.27, any payment that is
required to be made to the other party shall be made not later than ten days
after the Tax adjustment giving rise to such payment is finally agreed to with
the taxing authority.
12. GENERAL PROVISIONS
12.1 EXPENSES
Each party to this Agreement will bear its respective expenses incurred
in connection with the preparation, negotiation, execution and performance of
this Agreement and the Contemplated Transactions, including all fees and
expenses of the respective Representatives of the parties. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by the other party.
12.2 CONFIDENTIALITY
In addition to the obligations set forth in the Confidentiality
Agreement, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer, Seller and the
Acquired Companies to maintain in confidence, any written, oral, or other
information obtained in confidence from the other party or an Acquired Company
in connection with this Agreement or the Contemplated Transactions, unless (a)
such information is already known to such party or to others not bound by a duty
of confidentiality or such information becomes publicly available through no
fault of such party, (b) the use of such information is necessary and
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the Contemplated Transactions, or (c) the furnishing or
use of such information is required by legal proceedings. If the Contemplated
Transactions are not consummated, each party will return or destroy such written
information.
12.3 NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided
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that a copy is mailed by certified mail, return receipt requested or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
If to Seller, to: United Grocers, Inc.
0000 XX Xxxx Xxxx
Xxxxxxxx, XX 00000-0000
Attention: Chief Executive Officer
Facsimile No.: 000-000-0000
with a copy to: Grocers Insurance Group, Inc.
0000 XX Xxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Facsimile No.: 000-000-0000
and with a copy to: Xxxxxxx & Xxxxxxx LLP
000 XX Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile No.: 000-000-0000
and with a copy to: Xxxxxx Xxxx Xxxxxx Xxxxx & Xxxxxxx LLP
Suite 3500
000 XX Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxx
Facsimile No.: 000-000-0000
If to Buyer, to: Orion Capital Corporation
0 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Attention: General Counsel
Facsimile No.: 000-000-0000
with a copy to: Ireland,Xxxxxxxxx, Xxxxx & Xxxxxx, P.C.
0000 Xxxxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx, Esq.
Facsimile No.: 000-000-0000
12.4 MEDIATION; ARBITRATION
If a dispute arises from or relates to this Agreement or the breach
thereof, whether of law or fact, of any nature whatsoever, and such dispute
cannot be settled through direct discussions between the parties, the parties
agree to endeavor, within a reasonable time after it appears the
- 34 -
dispute cannot be settled through discussions, to settle the dispute in an
amicable manner by mediation administered in accordance with the American
Arbitration Association Commercial Mediation Rules, but not submitted to the
American Arbitration Association, before resorting to arbitration. The parties
agree that the mediator shall be a person who is an attorney with at least 15
years of business law experience. Mediation shall take place in the Portland,
Oregon metropolitan area. Thereafter, any unresolved dispute shall be settled by
binding arbitration. Notice of demand for arbitration shall be provided in
writing to the other parties. The arbitration shall be conducted before a single
arbitrator and procedurally in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association, but shall not be
submitted to the American Arbitration Association. The arbitration shall be held
in Portland, Oregon, if it is initiated by Buyer, or Denver, Colorado, if it is
initiated by Seller. The arbitrator shall be a person who is an attorney with at
least 15 years of business law experience. If the parties cannot agree on an
arbitrator within 30 days of the giving of the notice of demand for arbitration,
the selection of the arbitrator shall be made by the presiding judge of the
Multnomah County Circuit Court if the arbitration is to be in Portland, or the
Denver District Court, if it is to be held in Denver. The parties agree that the
arbitrator shall not render an award for punitive damages (or any other amount
awarded for the purpose of imposing a penalty). The parties specifically waive
any claim for punitive damages (or any other amount awarded for the purpose of
imposing a penalty) that arises out of or relates to this Agreement or the
conduct of the parties in connection with this Agreement. The parties agree that
all facts and other information relating to any arbitration arising under this
Agreement shall be kept confidential to the fullest extent permitted by law. The
decision of the arbitrator shall be binding on all parties, and a judgment may
be entered in any court having jurisdiction.
12.5 PUBLIC NOTICE
Prior to the Closing Date, neither Buyer nor Seller shall directly or
indirectly make, or cause to be made, any press release for general circulation,
public announcement, or disclosure with respect to any of the Contemplated
Transactions without the prior written consent of the other party, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, each party
may make such disclosure as may be required by law or necessary to make any
filings under the HSR Act or to obtain any Governmental Authorizations or
consents, and Seller and the Acquired Companies, after consultation with Buyer,
may make such communications with the employees of the Acquired Companies as
they deem appropriate.
12.6 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
and the documents referred to in this Agreement.
12.7 WAIVER
A provision of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. No waiver of any provision
of this Agreement shall constitute a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a
- 35 -
continuing waiver. A failure to enforce any provision of this Agreement shall
not operate as a waiver of such provision or any other provision.
12.8 ENTIRE AGREEMENT AND MODIFICATION
Except as provided below, this Agreement supersedes all prior
agreements between the parties with respect to its subject matter (including the
Letter of Intent between Buyer and Seller dated March 23, 1998) and constitutes
(along with the documents referred to in this Agreement) a complete and
exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. Regardless of the provisions of this Section
12.8, the Confidentiality Agreement will remain in full force and effect and is
not superseded by this Agreement. This Agreement may not be amended except by a
written agreement executed by each party.
12.9 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior written consent of the other parties, which consent may be
unreasonably withheld in the party's sole discretion; provided that Buyer may
assign its rights and obligations hereunder to any of its wholly owned
subsidiaries. Subject to the preceding sentence, this Agreement will apply to,
be binding in all respects upon and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy or claim under or with respect to
this Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
12.10 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 will remain in full force and effect to the extent
not held invalid or unenforceable.
12.11 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
12.12 GOVERNING LAW
This Agreement will be governed by the laws of the State of Oregon
without regard to conflicts of laws principles.
- 36 -
12.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
SELLER: BUYER:
UNITED GROCERS, INC. ORION CAPITAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
Print Name: Xxxxxxx X. Xxxxxxx Print Name: Xxxxxxx X. Xxxxxxx
Title: Pres. & CEO Title: Vice President
- 37 -
May 13, 1998
Xx. Xxxxxxx X. Xxxxxxx
Orion Capital Corporation
0 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Re: Stock Purchase Agreement Disclosure Letter
Dear Xx. Xxxxxxx:
Pursuant to the Stock Purchase Agreement (the "Agreement") of even date
between United Grocers, Inc. ("Seller") and Orion Capital Corporation ("Buyer"),
the representations and warranties of Seller in the Agreement are subject to the
disclosures set forth in this letter (the "Disclosure Letter"). The capitalized
terms not specifically defined in this Disclosure Letter have the same meaning
as defined in the Agreement. In addition, the section numbers referenced below
are the section numbers set forth in the Agreement.
The following matters are disclosed:
SECTION 1. DEFINITIONS. Prior to 1988, in accordance with industry
standards, certain environmental matters were covered by the policies issued by
or through GIC. One claim arose and is outstanding under one such policy.
Information with respect to the claim, including a list of reinsurers, is
attached as Schedule 1. The retained liability of GIC has been paid, the
reinsurance liability of UGIC, Ltd., a prior affiliate of GIC, was paid to GIC
on or about October 15, 1996 (commuting the liability of UGIC, Ltd. in
preparation of the liquidation of UGIC, Ltd.) and any remaining liability is
reinsured.
SECTION 3.1 ORGANIZATION. With respect to each Acquired Company:
COMPANY NAME AUTHORIZED JURISDICTIONS
Grocers Insurance Group, Inc. Oregon
Grocers Insurance Agency, Inc. Oregon, Washington, California,
Arkansas, Idaho, Nevada
Grocers Risk Services, Inc. Oregon, Washington, California
Grocers Insurance Company See Schedule 3.1
SECTION 3.2 AUTHORITY; NO CONFLICT. Seller or an Acquired Company is
required to give notice or obtain consent from the following persons in
connection with the execution and
- 1 -
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 2
delivery of the Agreement or the consummation or performance of the Contemplated
Transactions:
1. The Director of the Department of Consumer and Business Services
with respect to the acquisition of control of GIC by Buyer.
2. The bank lenders and insurance company creditors ("Seller's
Creditors") with respect to the Intercreditor Collateral Agreement
("Intercreditor Collateral Agreement") dated September 19, 1997, as amended,
entered into by Seller, the Company, GIA, GRS and Seller's Creditors.
3. Seller's Creditors with respect to the Pledge Agreement ("Pledge
Agreement") dated September 19, 1997, as amended, entered into by the Company,
GIA and the collateral agent for Seller's Creditors.
4. Seller's Creditors with respect to the Pledge Agreement (the
"Additional Pledge Agreement") dated September 19, 1997, as amended, entered
into by the Seller and the collateral agent for Seller's Creditors.
5 . Seller's Creditors with respect to the Guaranty Agreement
("Guaranty Agreement") dated September 15, 1997, as amended, entered into by the
Company, GIA, GRS and for the benefit of Seller's Creditors.
6. The Federal Trade Commission with respect to HSR Act compliance.
7. Certain Agency Agreements between GIC, as insurer, and a named
agency, as agent (see Schedule 3.14.1(A)) provide that the agent may terminate
the Agreement without notice if GIC's business is sold or transferred without
the agent's prior written consent to the assignment of the agreement to the
successor business.
8. Certain of the agreements appointing GIA as agent for a named
insurer (see Schedule 3.23) contain provisions for the termination of the
Agreement by the insurer upon the sale of GIA.
9. An equipment lease agreement for certain fax machines between the
Company, as lessee, and General Electric Capital Corporation, as lessor,
provides that the lease will be in default if there is a transfer of
substantially all of the stock of the Company.
10. The leases for commercial office space (see Section 3.6(4)) with
respect to GIC and GRS, as tenants, require the consent of landlord with respect
to the transfer of control of the tenant.
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 3
SECTION 3.3 CAPITALIZATION.
1. The shares of GIA, GIC and GRS have been pledged pursuant
to the Pledge Agreement.
2. The shares of GIG have been pledged pursuant to the
Additional Pledge Agreement.
3. GIC is the owner of 447 shares in Fremont General
Corporation. As of March 31, 1998, the fair market value of such shares was
$26,373.
4. GIC has entered into a Stock Purchase Agreement dated
July 1, 1997 with Grocers Insurance Services, Inc. and Xxx Xxxxx, the sole
shareholder of Grocers Insurance Services, Inc., which agreement provides for
the purchase by GIC of Xxxxx'x shares of common stock of Grocers Insurance
Services, Inc. on the death or disability of Xxxxx.
SECTION 3.4 FINANCIAL STATEMENTS.
3.4.1. To the extent that the monthly financial information for GIC is
based on estimates, such estimates are believed to be substantially correct but,
to the extent they are inaccurate, the monthly financial information may not be
true and correct in all material respects. The monthly financial information for
GIC and unaudited financial statements for the Company, GIA and GRS, the
unaudited consolidating statements for the Company and the Interim Balance Sheet
are substantially, but not completely, prepared in accordance with GAAP (e.g.,
deferred tax accruals, deferred acquisition costs, bad debt write-offs and FASB
115 market value adjustment to investments are not reported according to GAAP).
3.4.2. The triennial exams previously provided to Buyer include
analyses by DCBS of deficiencies with the Statutory Statements.
SECTION 3.6 TITLE TO PROPERTY; ENCUMBRANCES.
1. On or before the Closing Date, GIC will acquire a
commercial office building located at 0000 XX Xxxx Xxxx, Xxxxxxxxx, Xxxxxx (the
"GIG Office Building") and legally described as set forth on the attached
Schedule 3.6.1.
2. GIC previously owned a commercial office building located
at 0000 X.X. Xxxx Xxxx, Xxxxxxxxx, Xxxxxx (the "GIA Property") and legally
described as set forth on the attached Schedule 3.6.2.
3. The list of fixed assets owned or leased by the Company
has been previously provided by Seller.
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 4
4. The following leases have been entered into with
The Company as Tenant:
--------------------
(a) Landlord: United Grocers
Location: 0000 XX Xxxx Xxxx, Xxxxxxxxx, XX
Term: Will terminate on consummation of the
acquisition of the GIG Office Building
by the Company
(b) Landlord: Fig Garden Village
Location: 000 X Xxxx Xxxxxx, Xxxxxx, XX
Term: In process of being renewed
Rent: $5,520 annual
The Company as Subtenant:
------------------------
Tenant: Western Passage Express, Inc.(an affiliate of
Seller)
Location: 0000 Xxxx Xxxxx, Xxxxxxxx, XX
Term: Needs to be established
Rent: $11,244 annual
The Company as Landlord:
-----------------------
On consummation of the acquisition of the GIG Office
Building, the Company, as Landlord, will enter into
a lease with Seller, as tenant, with respect to one
floor of the GIG Office Building.
GIC as Tenant:
-------------
(a) Landlord: Highwoods/Tennessee Holdings, LP
Location: Xxx Xxxxxxxx Xxxxx Xxxxxxxx,
Xxxxxxxxx, XX
Term: Expires November 30, 2002
Rent: $16,672 -- $18,235 annual
(b) Landlord: Xxx X. Xxxxxxxx
Location: 000 Xxxxxxx xx Xxx Xxxxx, Xxxxxxx, XX
Term: Expires February 28, 1999
Rent: $2,640 annual
GRS as Tenant:
-------------
Landlord: 1201 Associates
Location: 0000 XX Xxxxxx, Xxxxxxxx, XX
Term: Expires on May 31, 2002
Rent: $6,742.44 -- $7,177.56 annual
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 5
SECTION 3.7 NO UNDISCLOSED LIABILITIES. The post retirement benefit
liability required by the Oregon Insurance Code to be reflected on the statutory
statements of GIC is $297,205 as of December 31, 1997.
SECTION 3.8 TAXES.
1. The consolidated federal income tax returns filed by
Seller for the fiscal year ended October 3, 1997 are not true, correct and
complete in that approximately $1,400,000 of audit adjustments were made that
increased the taxable income of GIC and changes to the depreciation schedule may
be required. Adjustments to such returns are anticipated as part of the IRS tax
audit of the 1994-1996 tax years that is about to be commenced.
2. No taxes are being contested.
3. Seller and GIC are parties to a Tax Allocation Agreement
dated November 22, 1994, which agreement was previously provided to Buyer.
SECTION 3.9 NO MATERIAL ADVERSE CHANGE.
1. The prospects of the Acquired Companies may be affected
by the Joint Venture.
2. The steps that may be taken to improve the profitability
of the Western Grocers Employee Benefits Trust may result in a decrease in
earnings for GIC.
3. The Holiday Markets account with GIC was not renewed.
SECTION 3.10 EMPLOYEE BENEFIT PLANS. The employee benefit plans related
to the employees providing services to the Acquired Companies are set forth on
Schedule 3.10.
SECTION 3.12 LEGAL PROCEEDINGS.
1. GIA has filed a bankruptcy claim with the U.S. Bankruptcy
Court for the Northern District of Texas with respect to the Chapter 7 filing of
Affiliated Food Services, Inc.
2. A suit, Case No. 00-00-00000, was filed against Seller
and GIC alleging discrimination by Seller in terminating an employee who had
filed several workers' compensation claims. Seller has assumed the defense of
GIC and will hold GIC harmless with respect to this litigation.
SECTION 3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since the date of
the Balance Sheet:
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 6
(a) The following dividends were paid on December 30 or 31,
1997:
-- $850,000 by GIC to GIA
-- $225,000 by GRS to GIA
-- $1,486,250 by GIA to the Company
(c) Retention Agreements effective January 30, 1998 were
entered into with certain directors, officers and employees of GIC. Further,
Severance Agreements dated January 30, 1998 were entered into with certain
employees of GIC. Such Retention Agreements and Severance Agreements are, in all
material respects except for the amount of payments, in the same form as the
Retention Agreement and Severance Agreement previously provided to Buyer.
(d) GIC instituted a bonus plan to enable certain employees
of GIC who satisfy specified requirements to earn bonus compensation.
(f) GIC transferred the GIA Property (the "old" office
building) to Seller.
(h) GIC may close its Redding, California office. If GIC
decides to close the Redding office, the closure will occur prior to the Closing
Date.
(i) GIC is in the process of updating its rating system
software. The capital expenditure for this update is anticipated to be
approximately $140,000.
(o) Seller received notice from the IRS that the 1994-1996
tax years would be audited. The triennial exam of GIC has commenced.
(p) Shares of GIA were issued to the Company in replacement
of certain share certificates with respect to outstanding shares that either
were not previously issued or were lost. Shares of GRS were issued to GIA in
replacement of certain share certificates with respect to outstanding shares
that either were not previously issued or were lost.
(s) The Company entered into a contract to acquire the GIG
Office Building and to assume the existing note and deed of trust with United of
Omaha, as beneficiary.
SECTION 3.14 CONTRACTS; NO DEFAULTS.
3.14.1 The Applicable Contracts described in Section 3.14.1 of the
Agreement are set forth on Schedule 3.14.1.
3.14.2 No Contract limits the ability of an Acquired Company or
officer, director or employee of an Acquired Company to act relating to the
business of an Acquired Company except for the following agency agreements,
which agreements contain a covenant by GIC to sell insurance in certain states
only through the named agent:
1. Agency Agreement with Co-Op Agency, Inc. dated June 25,
1997 with respect to Pennsylvania.
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 7
2. Agency Agreement with Retailers Insurance Group dated
February 28, 1998 with respect to Nebraska.
3.14.3 (a) Non-compete agreements between GIC and certain employees
or agents may not be enforceable in whole or in part because of public policy.
(b) Events have occurred that may result in a material breach
of the following Applicable Contracts:
Intercreditor Collateral Agreement
Pledge Agreement
Additional Pledge Agreement
Guaranty Agreement
SECTION 3.15 INSURANCE.
3.15.2 Neither Seller nor any Acquired Company has received a refusal
of coverage, notice of a defense with reservation of rights or notice of
cancellation or nonrenewal with respect to the insurance policies referred to in
Section 3.15.1 of the Agreement.
SECTION 3.17 EMPLOYEES.
3.17.2 The consummation of the Contemplated Transaction will result
in payments becoming due to certain officers and employees under the Retention
Agreements and benefits to employees will be vested under the pension plan and
401(k) plan of Seller.
SECTION 3.19 MARKS.
3.19.1 The following is a list and summary description of all Marks
and any other copyrighted, patented or proprietary intellectual property of any
Acquired Company:
1. The Company has registered as a service xxxx with the
United States Patent & Trademark Office its logo, a copy of which is attached as
Schedule 3.19. This registration occurred September 13, 1994 and will remain in
force for ten years thereafter unless sooner canceled or terminated. The
registration will be automatically canceled unless an affidavit of continuing
use is filed between September 13, 1999 and September 13, 2000. The registration
may be renewed in ten-year increments so long as the xxxx remains in continuous
use. An application for renewal must be filed within six months prior to the
date of expiration of the registration (i.e., between March 13, 2004 and
September 13, 2004).
2. GRS has registered the name "Pacific Northwest
Rehabilitation" as an assumed business name in the state of Oregon and a trade
name in the state of Washington. Some of the operations of GRS in those states
are conducted under that name. The Oregon
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 8
registration will expire October 31, 1998, unless renewed; the Washington
registration will expire unless renewed in connection with the annual report
filed by GRS as a foreign corporation doing business in the state of Washington,
which report will be due November 30, 1998.
3. The following materials have been copyrighted:
Handouts
--------
- Preventing Slips, Trips and Falls
- Preventing Cuts and Lacerations
- Back Injury Prevention
- Preventing Workplace Violence
- Retail Crime Prevention
Order Form
----------
- Safety Committee Kit
Newsletter
----------
- Today's Coverage
Videos
------
- The introduction and tag with respect to the following
videos:
Preventing Back Injuries
Preventing Cuts and Lacerations
Preventing Slips, Trips and Falls
SECTION 3.21 LICENSES. The following licenses, permits or authority
have been issued to the Acquired Companies by a state insurance department:
GIA:
AGENCY LICENSES HAVE BEEN ISSUED BY: Oregon, Washington, California,
Arkansas, Idaho and Nevada.
GIC:
CERTIFICATES OF AUTHORITY HAVE BEEN ISSUED BY: See Schedule 3.1.
Xx. Xxxxxxx X. Xxxxxxx
May 13, 1998
Page 9
SECTION 3.22 EMPLOYEE LICENSES. The licenses, permits or authority that
have been issued to an employee of an Acquired Company by state insurance
department are set forth on Schedule 3.22.
SECTION 3.23 APPOINTMENTS. The insurance companies that have appointed
GIA and its employees as agents are set forth on Schedule 3.23.
SECTION 3.29 OFFICERS AND DIRECTORS. The officers and directors of each
Acquired Company are set forth on Schedule 3.29.
Very truly yours,
UNITED GROCERS, INC.
Xxxxxxx X. Xxxxxxx
DISCLOSURE LETTER
SCHEDULE 3.1
GIC has certificates of authority to transact insurance in the following states:
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maryland
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Mexico
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Dakota
Tennessee
Texas
Utah
Xxxxxxxx
Xxxxxxxxxx
Wisconsin
Wyoming
SCHEDULE 3.14.1
APPLICABLE CONTRACTS
A. AGENCY AGREEMENTS BETWEEN GIC, AS INSURER, AND NAMED AGENCY, AS AGENT
(AND RELATED TYPES OF AGREEMENTS).
1. Agency Agreement dated February 27, 1998 with Retailers Insurance
Group.
2. Agency Agreement dated January 24, 1996 with Risk Planners, Inc.
3. Agency Agreement dated May 6, 1996 with Fairway Insurance Agency,
Inc.
4. Agency Agreement dated October 10, 1996 and restated October 10,
1997 with Gateway Insurance Agency, Inc. and Xxxxxxx Companies,
Inc.; related Service Agreement dated October 10, 1996 between
Xxxxxxx Companies, Inc., the Company, GIC and GIA.
5. Agency Agreement dated October 11, 1996 with Insurance Planners,
Inc.
6. Agency Agreement dated January 15, 1998 with North American
Insurance Agency.
7. Agency Agreement with URM Insurance Agency, Inc. (formerly known
as Merchants Insurance Agency, Inc.) dated November 1, 1987, as
amended by addendum effective July 15, 1997.
8. Agency Agreement dated June 25, 1997 with Co-Op Agency, Inc.
9. Billing Services Agreement dated December 30, 1996 with X.X.
Xxxxxxx Company.
10. Agency agreement dated April 14, 1995 with Laurel Insurance
Agency, Inc., as amended December 6, 1997.
11. Agency Agreement dated December 20, 1990, with U G Insurance, Inc.
(now known as GIA).
12. Agency Agreement dated May 16, 1988 with Grocers Insurance
Services, Inc.
13. Agency Agreement dated June 1, 1988 with Associated Grocers
Insurance Company.
14. Agreement dated April, 1998 with M & I General Agency, as amended
by agreement dated July 1, 1989 with M & I General Agency and its
successors AFS Insurance Services, Inc. and AFS Insurance
Services, Inc. of Idaho.
15. Agency Agreement with Xxxxx & Company (in course of
negotiation-execution expected prior to May 1, 1998).
- 1 -
16. Agency Agreement dated May 20, 1992 with Hardware and Implement
Agency (not active).
B. SERVICE AGREEMENTS.
1. Administrative Service Agreement dated January 1, 1994 between GIC
and Western Grocers Employees Benefit Trust ("WGEBT").
2. Statement of Assurances and Conditions dated June 3, 1997 between
GRS and State of Oregon, Vocational Rehabilitation Division.
C. AGENCY AGREEMENTS APPOINTING GIA, AS AGENT. See Schedule 3.23 for
list of agreements.
D. REINSURANCE AGREEMENTS.
1. Property, Casualty and Workers Compensation Reinsurance Program
effective October 1, 1997 between GIC and the participating
reinsurers listed on the attached Schedule 3.14.1-Exhibit A.
2. Reinsurance Treaties for prior years may provide GIC with more
than $25,000 through tail payments.
E. CORPORATE OPERATIONS AND EQUIPMENT AGREEMENTS.
1. Service Agreement dated August 30, 1996 between the Company and
HomeTech Incorporated (for transcription services).
2. Master Lease Agreement dated May 12, 1997 between GIC and GE
Capital Fleet Services and related Maintenance Management Addendum
dated July 11, 1997 and Electronic Full Card Addendum dated July
11, 1997 (with respect to leases of vehicles).
3. Agreement effective November 27, 1995 between the Company and
Cargni Cleaning (respect to janitorial services).
4. Software License Agreement dated August 27, 1992 between GIA and
XX Xxxxxx Associates and related Technical Services and Support
Agreement dated November 24, 1997 (with respect to Insurance
Solutions software).
5. Master Software License Agreement dated effective September 15,
1997 between GIC and Insurance Information Technologies, Inc.
(with respect to computer software).
6. Affiliation Agreement to be effective January 1, 1998 between GIC
and National Council on Compensation Insurance, Inc. (documents
are in process of being executed by NCCI).
- 2 -
F. CONSULTING AGREEMENTS.
1. Consulting Agreement dated June 1, 1992 between Xxxxxxx Xxxxxx and
the Company, United Employers Insurance Company (now known as
GIC), U G Insurance, Inc. (now known as GIA) and UGIC.
2. Consulting Agreement dated March 18, 1993, as amended March 14,
1996, between GIC and Xxxx X. True.
Seller will use its Best Efforts to have the Consulting Agreements
set forth above revised to delete all references to Seller.
G. OTHER AGREEMENTS.
1. Stock Purchase Agreement dated July 1, 1997 between GIC and Xxx
Xxxxx and Grocers Insurance Service, Inc. (see Section 3.3(3)).
SCHEDULE 3.29
OFFICERS AND DIRECTORS
THE COMPANY
Directors: Xxxxxxx X. Xxxxxxx
Xxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxx
Xxxxxxx X. Xxxx
Xxxxx X. Xxxxxx
Xxxxx X. Xxxxx
Officers: Xxxx X. Xxxxxxx, President
Xxxxxx X. Xxxxxx, Vice President Marketing
Xxxxxxx X. Xxxx, Vice President Finance, Treasurer, Secretary
Xxxxx X. Xxxxxx, Vice President Claims & Operations
Xxxx X. XxXxxx, Vice President Underwriting
Xxxxxx X. Camden, Vice President Administration
GIA
Directors: Xxxxxxx X. Xxxxxxx
Xxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxx
Xxxxx X. Xxxxxx
Xxxxx X. Xxxxx
Officers: Xxxx X. Xxxxxxx, President
Xxxxxx X. Xxxxxx, Vice President Marketing
Xxxxx X. Xxxxxx, Vice President Claims & Operations,
Treasurer, Secretary
GIC
Directors: Xxxxxxx X. Xxxxxxx
Xxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxx
Xxxxx X. Xxxxx
- 1 -
Officers: Xxxx X. Xxxxxxx, President
Xxxxxx X. Xxxxxx, Vice President Marketing
Xxxxxxx X. Xxxx, Vice President Finance
Xxxxx X. Xxxxxx, Vice President Claims & Operations,
Treasurer, Secretary
Xxxx X. XxXxxx, Vice President Underwriting
GRS
Directors: Xxxxxxx X. Xxxxxxx
Xxxx X. Xxxxxxx
Xxxxx X. Xxxxx
Xxxxxx X. Camden
Xxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Officers: Xxxx X. Xxxxxxx, President
Xxxxxx X. Camden, Vice President
Xxxxx X. Xxxxxx, Vice President, Treasurer, Secretary
Xxxxxx X. Xxxxxx, Vice President
January 6, 1999
Xx. Xxxxxx F.X. Xxxxxx
Orion Capital Corporation
0 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Re: Supplement to Stock Purchase Agreement Disclosure Letter
Dear Xx. Xxxxxx:
Pursuant to the Stock Purchase Agreement (the "Agreement") dated May
13, 1998 between United Grocers, Inc. ("Seller") and Orion Capital Corporation
("Buyer"), the representations and warranties of Seller in the Agreement are
subject to the disclosures set forth in the letter dated May 13, 1998 (the
"Disclosure Letter"). Section 5.5 provides that the Seller may supplement the
Disclosure Letter from time to time. Pursuant to this letter (the "Supplement to
Disclosure Letter"), Seller supplements the Disclosure Letter as set forth
below.
The capitalized terms not specifically defined in this Supplement to
Disclosure Letter have the same meaning as defined in the Agreement or the
Disclosure Letter, as applicable. In addition, the section numbers referenced
below are the section numbers set forth in the Agreement.
The following matters are disclosed:
SECTION 3.1 ORGANIZATION. GIA is authorized to transact business in
Arizona, not Arkansas (which was set forth in the Disclosure Letter). GRS was
involuntarily dissolved by the State of Oregon on April 30, 1998 for failure to
file an annual report with the Corporation Division; GRS will be reinstated
prior to the Closing Date.
SECTION 3.4.2 STATUTORY FINANCIAL STATEMENTS. The 1997 Annual Statement
contained erroneous data with respect to the State Pages, Schedule T, the
Insurance Expense Exhibit and the Special Deposits Schedule. The cover letter
notifying DCBS of the error and submitting corrected information is attached.
SECTION 3.12 LEGAL PROCEEDINGS. The triennial exam of GIC by the DCBS
commenced on or about May 11, 1998.
- 1 -
SECTION 3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since the date of
the Balance Sheet:
(a) As a result of the transfer of the Old Building from GIC to
Seller, a dividend in the amount of $308,500 was deemed to
have been made.
Very truly yours,
UNITED GROCERS, INC.
Xxxxxxx X. Xxxxxxx
Attachment
The information provided above
is accepted by Buyer as a supplement
to the Disclosure Letter.
ORION CAPITAL CORPORATION
--------------------------
Xxxxxx F.X. Xxxxxx, Assistant Vice President
