Exhibit 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
CASTLEPOINT REINSURANCE COMPANY, LTD.,
HIG, INC.
AND
BROOKFIELD US CORPORATION
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Dated as of August 27, 2008
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.....................................................1
1.1 Certain Definitions.................................................1
1.2 Terms Defined Elsewhere in this Agreement...........................6
1.3 Other Definitional and Interpretive Matters.........................8
ARTICLE II SALE AND PURCHASE OF SHARES.....................................9
2.1 Sale and Purchase of Shares.........................................9
ARTICLE III PURCHASE PRICE..................................................9
3.1 Purchase Price......................................................9
3.2 Payment of Purchase Price..........................................10
3.3 Purchase Price Adjustment..........................................10
ARTICLE IV CLOSING AND TERMINATION........................................12
4.1 Closing Date.......................................................12
4.2 Closing Deliveries.................................................13
4.3 Termination of Agreement...........................................13
4.4 Procedure Upon Termination.........................................14
4.5 Effect of Termination..............................................14
ARTICLE V REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY.........15
5.1 Organization and Good Standing.....................................15
5.2 Authorization of Agreement.........................................16
5.3 Conflicts; Consents of Third Parties...............................16
5.4 Capitalization.....................................................17
5.5 Subsidiaries.......................................................17
5.6 SAP Statements.....................................................18
5.7 No Undisclosed Liabilities.........................................19
5.8 Absence of Certain Developments....................................19
5.9 Taxes..............................................................19
5.10 Title to Assets; Sufficiency.......................................21
5.11 Intellectual Property..............................................21
5.12 Material Contracts.................................................22
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5.13 Employee Benefits Plans............................................24
5.14 Labor..............................................................25
5.15 Litigation.........................................................25
5.16 Compliance with Laws...............................................26
5.17 Government Licenses and Permits....................................26
5.18 Investment Company.................................................26
5.19 Ratings............................................................26
5.20 Financial Advisors.................................................26
5.21 Insurance Subsidiaries.............................................27
5.22 Reserves...........................................................27
5.23 Market Conduct.....................................................28
5.24 Reinsurance and Retrocessions......................................28
5.25 Insurance Coverage.................................................28
5.26 Transactions with Certain Persons..................................29
5.27 Bank Accounts......................................................29
5.28 Environmental Laws.................................................29
5.29 Internal Controls..................................................29
5.30 Certain Producers..................................................30
5.31 Certain Reinsurance Arrangements...................................30
5.32 No Other Representations or Warranties; Schedules..................30
ARTICLE VI REPRESENTATIONS AND WARRANTIES RELATING TO SELLER..............31
6.1 Organization and Good Standing.....................................31
6.2 Authorization of Agreement.........................................31
6.3 Conflicts; Consents of Third Parties...............................31
6.4 Ownership and Transfer of Shares...................................32
6.5 Litigation.........................................................32
6.6 Financial Advisors.................................................32
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER....................32
7.1 Organization and Good Standing.....................................32
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TABLE OF CONTENTS
(continued)
Page
7.2 Authorization of Agreement......................................33
7.3 Conflicts; Consents of Third Parties............................33
7.4 Litigation......................................................34
7.5 Investment Intention............................................34
7.6 Financial Advisors..............................................34
7.7 Financial Capability............................................34
7.8 Condition of the Business.......................................34
ARTICLE VIII COVENANTS......................................................35
8.1 Access to Information...........................................35
8.2 Conduct of the Business Pending the Closing.....................35
8.3 Consents........................................................38
8.4 Regulatory Approvals............................................38
8.5 Further Assurances..............................................40
8.6 Confidentiality.................................................41
8.7 Director and Officer Indemnification............................41
8.8 Preservation of Records.........................................42
8.9 Publicity.......................................................42
8.10 Use of Name.....................................................42
8.11 Employment and Employee Benefits................................43
8.12 Disclosure Schedules............................................43
8.13 Interim SAP Statements..........................................43
8.14 Control of Business.............................................43
8.15 Jointly Privileged Information..................................44
8.16 Intercompany Accounts...........................................44
8.17 Bank Accounts...................................................44
8.18 Non-Competition.................................................44
8.19 Non-Solicitation................................................45
8.20 Certain Investment Securities...................................46
8.21 Cooperation in Connection with Offering Materials...............46
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ARTICLE IX CONDITIONS TO CLOSING..........................................47
9.1 Conditions Precedent to Obligations of Purchaser................47
9.2 Conditions Precedent to Obligations of Seller...................48
9.3 Frustration of Closing Conditions...............................49
ARTICLE X INDEMNIFICATION................................................49
10.1 Survival of Representations and Warranties......................49
10.2 Indemnification by Seller.......................................50
10.3 Indemnification by Purchaser....................................51
10.4 Indemnification Procedures......................................51
10.5 Certain Limitations on Indemnification..........................53
10.6 Calculation of Losses...........................................54
10.7 Exclusive Remedy and Waiver of Tort Claims......................54
ARTICLE XI TAX MATTERS....................................................55
11.1 Tax Indemnity...................................................55
11.2 Preparation and Filing of Tax Returns...........................56
11.3 Tax Controversy.................................................58
11.4 Tax Cooperation.................................................58
11.5 Tax Refunds.....................................................58
11.6 Section 338(h)(10) Election.....................................59
11.7 Miscellaneous...................................................60
ARTICLE XII MISCELLANEOUS..................................................61
12.1 Payment of Sales, Use or Similar Taxes..........................61
12.2 Expenses........................................................61
12.3 Submission to Jurisdiction; Consent to Service of Process;
Waiver of Jury Trial...........................................61
12.4 Entire Agreement; Amendments and Waivers........................62
12.5 Governing Law...................................................62
12.6 Notices.........................................................62
12.7 Severability....................................................63
12.8 Conflicts Between Transaction Documents.........................64
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12.9 Binding Effect; Assignment......................................64
12.10 Legal Representation............................................64
12.11 Non-Recourse....................................................64
12.12 Specific Performance............................................65
12.13 No Third Party Beneficiaries....................................65
12.14 Counterparts....................................................65
Schedules
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Schedule 1.1(a) Knowledge of the Company
Schedule 1.1(b) Transaction Accounting Principles
Schedule 3.2 Book Value of the Company as of the Reference Date
Schedule 4.2(a)(i) Resignation of Directors
Schedule 4.5(b) Restricted Employees
Schedule 5.3(a) No Conflicts
Schedule 5.3(b) Consents
Schedule 5.3(b)(ii) Insurance Law Jurisdictions
Schedule 5.4(b) Capitalization
Schedule 5.5(a) Subsidiaries
Schedule 5.5(b) Liens on Subsidiary Capital Stock
Schedule 5.6(a)(i) SAP Statements
Schedule 5.6(a)(ii) Permitted Practices
Schedule 5.6(d) Information Provided to Actuaries
Schedule 5.7 No Undisclosed Liabilities
Schedule 5.8 Absence of Certain Developments
Schedule 5.9 Taxes
Schedule 5.10 Title to Assets/Sufficiency
Schedule 5.11(a)(i) Company Intellectual Property
Schedule 5.11(a)(ii) Rights in Company Intellectual Property
Schedule 5.11(b) Written Claims Regarding Company Intellectual
Property
Schedule 5.11(c) Security, Back-up and Disaster Recovery Programs
Schedule 5.12(a) Material Contracts
Schedule 5.12(b) Default of Material Contracts
Schedule 5.13(a) Employee Benefit Plans
Schedule 5.13(f) Transaction Payments
Schedule 5.14(b) Information Regarding Employees
Schedule 5.15 Litigation
Schedule 5.19 Ratings
Schedule 5.20 Financial Advisors
v
Schedule 5.21(i) Insurance Subsidiaries
Schedule 5.21(ii) Other Jurisdictions
Schedule 5.21(iii) Licenses and Authorizations
Schedule 5.21(iv) Insurance Subsidiary Applications
Schedule 5.24(i) Reinsurance Contracts
Schedule 5.24(ii) No Conflict
Schedule 5.24(iii) Credit for Reinsurance Ceded
Schedule 5.25 Insurance Coverage of the Company
Schedule 5.26 Transactions with Certain Persons
Schedule 5.27 Bank Accounts
Schedule 5.28 Environmental Laws
Schedule 5.29(b) Internal Controls
Schedule 5.30(a)(i) Contracts with Prohibited Producers
Schedule 5.30(a)(ii) Contracts with Producers with Contingent Commission
Arrangements
Schedule 5.30(b) Default of Producer Contracts
Schedule 5.31 Certain Reinsurance Arrangements
Schedule 6.3(b) Consents, Authorizations and Approvals
Schedule 6.3(b)(ii) Insurance Law Jurisdictions
Schedule 6.6 Financial Advisors
Schedule 7.3(a) No Conflicts
Schedule 7.3(b) Insurance Law Consents
Schedule 7.6 Financial Advisors
Schedule 8.2(a) Conduct in the Ordinary Course of Business
Schedule 8.2(b) Conduct of the Business Pending the Closing
Schedule 8.2(b)(xix) Modifications to Material Contracts
Schedule 8.3 Payment of Consent Fees
Schedule 8.4(c) Permitted Changes
Schedule 8.18 Prohibited Producer
Schedule 8.20(a) Certain Investment Securities
Schedule 8.20(b) Investment Criteria
Schedule 9.1(d) Consents, Authorizations and Approvals
Schedule 10.2(a)(iv) Indemnification
vi
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, (this "Agreement"), dated as of August 27, 2008,
by and among CastlePoint Reinsurance Company, Ltd., a Bermuda exempted company
("Purchaser"), HIG, Inc., a Delaware corporation (the "Company"), and Brookfield
US Corporation, a Delaware corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Seller owns one hundred percent (100%) of all of the issued
and outstanding shares of the common stock of the Company, being an aggregate of
200 shares of par value $.01 each (the "Shares");
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, the Shares for the Purchase Price and upon the terms and
conditions hereinafter set forth; and
WHEREAS, certain terms used in this Agreement are defined in Section
1.1;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions.
(a) For purposes of this Agreement, the following terms shall
have the meanings specified in this Section 1.1:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person, and the term
"control" (including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
ownership of voting securities, by contract or otherwise.
"Assets" means the Contracts, policies, rights and other assets that
are owned, leased, or licensed by the Company or any of the Subsidiaries.
"Book Value" means the consolidated shareholder's equity of the Company
calculated in accordance with the Transaction Accounting Principles. For the
avoidance of doubt, the Book Value as of the Reference Date shall be the amount
shown as "Shareholders equity, end of period as adjusted for TAP" on the
Reference Date Balance Sheet, the Seller's calculation of Book Value as of the
Closing Date pursuant to Section 3.3(a) shall be the corresponding amount shown
on the Closing Date Balance Sheet and the Book Value as of the Closing Date
shall be the corresponding amount shown on the Agreed Balance Sheet.
"Business Day" means any day of the year other than a Saturday, a
Sunday or any other day on which national banking institutions in New York and
Toronto are not open to the public for conducting business or are required or
authorized to be closed.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Company Insurance Contracts" means all insurance Contracts (including
reinsurance and retrocessional agreements) and policies, including endorsements,
riders and amendments thereto, issued by the Company or any Subsidiary.
"Contract" means any written or oral contract, subcontract,
undertaking, agreement, indenture, note, bond, mortgage, loan, instrument,
lease, license, commitment or contractual arrangement.
"Continuing Employee" means each employee of the Company and the
Subsidiaries who continues to be employed by the Company or any of its
Affiliates after Closing.
"FTC" means the United States Federal Trade Commission.
"GAAP" means generally accepted accounting principles in the United
States as in effect on the date of this Agreement.
"Governmental Body" means any government or governmental or regulatory
body thereof, or political subdivision thereof, whether federal, national,
provincial, state, local or foreign, or any agency, instrumentality or authority
thereof, or any self-regulatory organization, or any court or arbitrator (public
or private).
"HSR Act" means the United States Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended and the rules and regulations promulgated
thereunder.
"Income Tax Return" means any Tax Return that reports an amount of Tax
that is based upon (or may be based upon), in whole or in part, an amount of net
income, net profit, net receipts or net revenue, which for purposes of
clarification will include all franchise Tax Returns.
"Indebtedness" of any Person means, without duplication, (i) the
principal of and accrued and unpaid interest in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and other accrued
current liabilities); (iii) all obligations of the type referred to in clauses
(i) and (ii) of other Persons the payment of which such Person is responsible or
liable, directly or indirectly, as obligor, guarantor, surety or otherwise; and
(iv) all obligations of the type referred to in clauses (i) through (iii) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person).
2
"Insurance Law" means any applicable Law regulating the business of
insurance or providing for the authorization or licensing of any Person who
effects or carries out contracts of insurance.
"Information Systems" means computer hardware (including desktop
computers, laptops and other portable or non-portable computing, voice and data
processing devices, voice and data storage devices and voice and data
communications devices), servers, computer network infrastructure (including
routers, hubs, switches and voice and data communication lines), data center and
telecommunications equipment, voice and data network services and all other
information storage, processing and telecommunications systems and services, and
all documentation related thereto.
"Intellectual Property" means all intellectual property rights arising
from or in respect of the following: (i) all patents and applications therefor,
including continuations, divisionals, continuations-in-part, reexaminations and
reissues of patent applications and patents issuing thereon (collectively,
"Patents"); (ii) all trademarks, service marks, trade names, service names,
trade dress rights, logos, Internet domain names and corporate names, together
with the goodwill associated with any of the foregoing, including all common law
rights and all applications (including intent to use applications),
registrations and renewals thereof, (collectively, "Marks"); (iii) all
copyrights (including moral rights, if any) and registrations and applications
therefor, works of authorship and mask work rights (collectively, "Copyrights");
(iv) Trade Secrets and (v) Software.
"IRS" means the United States Internal Revenue Service.
"Knowledge of the Company" means the actual knowledge of those Persons
identified on Schedule 1.1(a) to the extent indicated therein.
"Law" means any foreign, federal, state, local law, statute, code,
ordinance, Order, rule, regulation, notice requirement, rule or principle of
law, including common law, of a Governmental Body.
"Legal Proceeding" means any judicial, administrative or arbitral
actions, suits or proceedings (public or private) by or before a Governmental
Body.
"Liability" means any Indebtedness, liability or obligation (whether
direct or indirect, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, or due or to become due) and including all interest, costs and
expenses relating thereto.
"Licensed Software" means Software licensed to the Company on or prior
to the Closing and in the format used by the Company on the Closing Date (and
not Software developed or modified by Purchaser thereafter) pursuant to the
Software License Agreements.
"Lien" means any lien, encumbrance, pledge, mortgage, deed of trust,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, hypothecation, warrant, purchase right or transfer
restriction.
3
"Material Adverse Effect" means a material adverse effect on (a) the
business, Assets, Liabilities, operations, results of operations or condition
(financial or otherwise) of the Company and the Subsidiaries (taken as a whole)
or (b) the ability of the Seller or the Company to consummate the transactions
contemplated by this Agreement, other than, in the case of sub-paragraph (a) an
effect resulting from an Excluded Matter , and in the case of sub-paragraph (b),
an effect resulting from the Excluded Matters referred to below in subclauses
(iv) and (vii) or the effect of any change in the credit rating of the Company
or the Subsidiaries by any rating agency (including A.M. Best) as a result of
the identity or credit rating of Purchaser or the consummation of the
transactions contemplated hereby. "Excluded Matter" means any one or more of the
following: (i) any change in the United States or foreign economies or
securities or financial markets in general (including any change in currency
exchange rates); (ii) any change that generally affects any aspect or segment of
the insurance industry in which the Company or any of the Subsidiaries operates;
(iii) any change arising in connection with earthquakes or other natural
disasters, hostilities, acts of war, sabotage or terrorism or military actions
or any escalation or material worsening of any such hostilities, acts of war,
sabotage or terrorism or military actions existing or underway as of the date
hereof; (iv) any action taken by Purchaser or its Affiliates with respect to the
transactions contemplated hereby or with respect to the Company or the
Subsidiaries; (v) any changes in applicable Laws or accounting rules; (vi) the
failure of the Company and the Subsidiaries to meet any of their internal
projections; provided, however, that no underlying circumstance giving rise to
such failure shall be an Excluded Matter unless otherwise included as an
Excluded Matter pursuant to another clause of this paragraph; (vii) the public
announcement of this Agreement, compliance with terms of this Agreement or the
consummation of the transactions contemplated by this Agreement or (viii) any
change in the credit rating of the Company or the Subsidiaries by any rating
agency (including A.M. Best), including as a result of the identity or credit
rating of Purchaser or the consummation of the transactions contemplated hereby
(it being understood however, that no underlying circumstance (other than those
included in this clause (viii)) giving rise to any such change in the credit
rating of the Company or the Subsidiaries shall be an Excluded Matter unless
otherwise included as an Excluded Matter pursuant to another clause of this
paragraph); provided, however, that none of the matters described in the
foregoing clauses (i) through (iii) and (v) shall be an Excluded Matter if the
effect of such matter on the Company and/or the Subsidiaries is
disproportionately adverse relative to the effect on other industry
participants.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award of any Governmental Body having jurisdiction
over the Company, the Subsidiaries or Purchaser.
"Ordinary Course of Business" means the ordinary and usual course of
business of the Company and the Subsidiaries consistent with past practice.
"Permits" means any approvals, authorizations, consents, licenses,
permits, qualifications, registrations, declarations, filings, notifications,
exemptions or certificates of or with a Governmental Body.
"Permitted Exceptions" means (i) all defects, exceptions, restrictions,
easements, rights of way and encumbrances disclosed in policies of title
insurance; (ii) statutory liens for current Taxes, assessments or other
governmental charges not yet delinquent or the amount or validity of which is
being contested in good faith by appropriate proceedings; (iii) mechanics',
carriers', workers', repairers' and similar Liens arising or incurred in the
Ordinary Course of Business; (iv) zoning, entitlement and other land use and
environmental regulations by any Governmental Body; (v) title of a lessor under
a capital or operating lease; and (vi) such other imperfections in title,
charges, easements, restrictions and encumbrances that do not materially impair
or unreasonably restrict the Assets and are otherwise immaterial to the Company
and the Subsidiaries.
4
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
"Representative" of a Person means the directors, officers, employees,
legal advisors, agents, stockholders, consultants, accountants, investment
bankers or other representatives of such Person.
"SAP" means, as to any insurance or reinsurance company, the statutory
accounting principles prescribed or permitted by the insurance regulatory
authorities of the jurisdiction in which such company is domiciled.
"Software" means any and all (i) computer programs, including any and
all software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise and
(iii) all documentation relating to (i) or (ii), including user manuals and
other training documentation.
"Subsidiary" or "Subsidiaries" means any Person of which a majority of
the outstanding share capital, voting securities or other voting equity
interests are owned, directly or indirectly, by the Company.
"Tax" or "Taxes" means (i) all federal, state, local or foreign taxes,
charges, imposts, levies or other like assessments and governmental fees or
charges of any kind whatsoever, whether payable by reason of contract,
assumption, transferee liability, operation of law or, closing agreement,
including all net income, gross receipts, capital, sales, use, ad valorem, value
added, transfer, franchise, profits, inventory, capital stock, premium, guaranty
fund or other insolvency fund assessments, single business, margin, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property and estimated taxes, customs duties and
like assessments and charges of any kind whatsoever imposed by any Law or a
Taxing Authority having jurisdiction, and (ii) all interest, penalties,
additions to tax or additional amounts imposed by any Taxing Authority in
connection with any item described in clause (i).
"Taxing Authority" means any Governmental Body responsible for the
assessment, collection or administration of an amount of item defined as a Tax.
"Tax Return" means any return, report or statement filed or required to
be filed with respect to any Tax (including any attachments thereto, and any
amendment thereof), including any information return, claim for refund, amended
return or declaration of estimated Tax, and including, where permitted or
required, combined, consolidated or unitary returns for any group of entities
that includes Seller, the Company, any of the Subsidiaries, or any of their
Affiliates.
5
"Trade Secrets" means any and all trade secrets, including any
non-public and confidential technology, information, know-how, proprietary
processes, customer lists, formulae, algorithms, models or methodologies
constituting trade secrets, and all rights in and to the same, including the
right to xxx for past, present and future infringement or misappropriation
thereof.
"Transaction Accounting Principles" means the accounting principles set
forth on Schedule 1.1(b).
"Transfer Taxes" means any real property transfer, sales, use, value
added, stamp, documentary, recording, registration, conveyance, stock transfer,
real estate excise, intangible property transfer, personal property transfer,
gross receipts, registration, duty, securities transactions or similar fees or
Taxes (together with any interest or penalty, addition to Tax or additional
amount imposed by a Taxing Authority) as levied by any Taxing Authority in
connection with the sale of the Shares pursuant to this Agreement, including,
without limitation, any payments made in lieu of any such Taxes, which become
payable in connection with the sale of the Shares pursuant to this Agreement.
"Treasury Regulations" means the Income Tax Regulations promulgated
under the Code, as amended from time to time.
1.2 Terms Defined Elsewhere in this Agreement. For purposes of
this Agreement, the following terms have meanings set forth in the sections
indicated:
Term Section
---- -------
2007 Hermitage SAP Statements 5.6(b)
2007 SAP Statements 5.6(b)
2008 SAP Statements 8.13(a)
Acquired Business 8.18(b)
Acquired Company 8.18(b)
Affiliated Group 5.9(d)
Agreed Balance Sheet 11.1(a)
Agreement Recitals
Antitrust Laws 8.4(b)
XXXX 5.12(a)(xi)
XXXX, LLC 8.5(b)
Balance Sheets 5.6(b)
Balance Sheet Date 5.6(b)
Balance Sheet Review Period 3.3(b)
Basket 10.5(a)
Cap 10.5(a)
Closing 4.1
Closing Date Book Value 3.3(a)
Closing Date 4.1
6
Term Section
---- -------
Closing Date Balance Sheet 3.3(a)
Closing Date Payment 3.2
Common Stock 5.4(a)
Company Recitals
Company 401(k) Plan 5.13(a)
Company Benefit Plan 5.13(a)
Company Documents 5.2
Company Intellectual Property 5.11(a)
Confidentiality Agreement 8.6(a)
Consolidated Tax Return 11.2(a)
Consultation Period 3.3(e)
Copyrights 1.1 (in Intellectual Property
definition)
Covenant Survival Period 10.1(b)
Current Representation 12.10
ERISA 5.13(a)
Estimated Closing Book Value 3.2
Excluded Matter 1.1 (in definition of Material
Adverse Effect)
Filing Party 11.2(c)
Final Adjustment Payment 3.3(h)
Final Allocation 11.6(b)
Final Closing Book Value 3.3(f)
HIC 5.6(b)
Hyperion 8.16
Indemnification Claim 10.4(b)
Indemnified Officers 8.7
Independent Accounting Firm 3.3(f)
Initial Allocation 11.6(b)
Insurance Subsidiaries 5.21
Jointly Privileged Information 8.15
Kodiak 5.6(b)
Losses 10.2(a)
Marks 1.1 (in Intellectual Property
definition)
Material Contracts 5.12(a)
Notice of Balance Sheet Disagreement 3.3(d)
Ocean Merger Agreement 7.7
Offering Materials 8.21(b)
Other Parties 5.12(b)
Patents 1.1 (in Intellectual Property
definition)
Post-Closing Covenants 10.1(b)
Post-Closing Representation 12.10
Pre-Closing Covenants 10.1(b)
Post-Closing Tax Year 11.1(c)
Producer Contract 5.30(a)
Prohibited Producer 8.18
Purchase Price 3.1
7
Term Section
---- -------
Purchaser Recitals
Purchaser Documents 7.2
Purchaser Indemnified Parties 10.2(a)
Quick Filed Tax Returns 11.2(c)
Reference Date 3.2
Reference Date Balance Sheet 3.2
Reinsurance Contracts 5.24
Restricted Employees 4.5(b)
Reviewing Party 11.2(c)
SAP Statements 5.6(a)
Section 338 Forms 11.6(a)
Section 338(h)(10) Election 11.6(a)
Securities Act 7.5
Seller Group 12.10
Seller Documents 6.2
Seller Indemnified Parties 10.3(a)
Seller Recitals
Settlement Auditor 11.6(b)
Software License Agreements 5.11(e)
Shares Recitals
Straddle Period 11.1(b)
Sub-Basket 10.5(a)
Subject Marks 8.10
Survival Period 10.1(a)
Tax Claim 11.3
Tax Sharing Agreements 11.7(b)
Termination Date 4.3(a)
Waiving Parties 12.10
WARN 8.11
1.3 Other Definitional and Interpretive Matters. Unless
otherwise expressly provided, for purposes of this Agreement, the following
rules of interpretation shall apply:
(a) Calculation of Time Period. When calculating the period of
time before which, within which or following which any act is to be done or step
taken pursuant to this Agreement, the date that is the reference date in
calculating such period shall be excluded. If the last day of such period is a
non-Business Day, the period in question shall end on the next succeeding
Business Day.
(b) Dollars. Any reference in this Agreement to $ or dollars
shall mean United States dollars.
(c) Exhibits/Schedules. The Exhibits and Schedules to this
Agreement are hereby incorporated and made a part hereof and are an integral
part of this Agreement. All Exhibits and Schedules annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein. Any matter or item disclosed on one Schedule shall be
deemed to have been disclosed on each other Schedule for which it is reasonably
apparent that the information in such Schedule is responsive notwithstanding any
reference to a specific Schedule. Disclosure of any matter or item on any
Schedule shall not constitute or be deemed to constitute an acknowledgement,
admission or indication that any such matter or item is material, would have a
Material Adverse Effect or is required to be disclosed. No disclosure on a
Schedule relating to a possible breach or violation of any Contract, Law or
Order shall be construed as an admission or indication that a breach or
violation exists or has actually occurred. Any capitalized terms used in any
Schedule or Exhibit but not otherwise defined therein shall be defined as set
forth in this Agreement.
8
(d) Gender and Number. Any reference in this Agreement to
gender shall include all genders, and words imparting the singular number only
shall include the plural and vice versa.
(e) Headings. The provision of a Table of Contents, the
division of this Agreement into Articles, Sections and other subdivisions and
the insertion of headings are for convenience of reference only and shall not
affect or be utilized in construing or interpreting this Agreement. All
references in this Agreement to any "Section" are to the corresponding Section
of this Agreement unless otherwise specified.
(f) Herein. The words such as "herein," "hereinafter,"
"hereof," and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
(g) Including. The word "including" or any variation thereof
means (unless the context of its usage otherwise requires) "including, without
limitation" and shall not be construed to limit any general statement that it
follows to the specific or similar items or matters immediately following it.
(h) Jointly Drafted. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement and, in the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as jointly drafted by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.
ARTICLE II
SALE AND PURCHASE OF SHARES
2.1 Sale and Purchase of Shares. Upon the terms and subject to
the conditions contained herein, on the Closing Date, Seller agrees to sell to
Purchaser, and Purchaser agrees to purchase from Seller, the Shares free and
clear of all Liens.
ARTICLE III
PURCHASE PRICE
9
3.1 Purchase Price. The aggregate consideration for the Shares
(the "Purchase Price") shall be an amount equal to the Final Closing Book Value,
plus $27,000,000.
3.2 Payment of Purchase Price. At the Closing, Purchaser shall
pay the Closing Date Payment to Seller, which shall be paid by wire transfer of
immediately available funds into an account designated by Seller. The "Closing
Date Payment" shall be an amount equal to (i) the Book Value of the Company as
of December 31, 2007 (the "Reference Date"), calculated based on the
consolidated balance sheet of the Company as of the Reference Date (the
"Reference Date Balance Sheet"), which has been prepared in accordance with the
Transaction Accounting Principles, (ii) plus or minus, as applicable, Seller's
good faith estimate of the increase or decrease in Book Value of the Company
from the Reference Date to and including the Closing Date, (iii) plus
Twenty-Seven Million Dollars ($27,000,000). The Reference Date Balance Sheet and
a calculation of the Book Value of the Company as of the Reference Date are set
forth on Schedule 3.2. In accordance with (ii) above, Seller shall provide
written notice of Seller's estimate of the Book Value of the Company as of the
Closing Date (the "Estimated Closing Book Value") as well as a calculation of
the Closing Date Payment to Purchaser at least three (3) Business Days prior to
the Closing Date.
3.3 Purchase Price Adjustment.
(a) As soon as practicable, but no later than sixty (60)
Business Days after the Closing Date, Seller shall cause to be prepared and
delivered to Purchaser (i) an unaudited consolidated balance sheet of the
Company as of the Closing Date (the "Closing Date Balance Sheet"), which shall
reflect the Seller's calculation of Book Value as of the Closing Date (the
"Closing Date Book Value"). The Closing Date Balance Sheet shall be prepared (i)
in a manner consistent with the principles and approaches utilized in preparing
the Reference Date Balance Sheet and (ii) in accordance with the Transaction
Accounting Principles applied consistently with their application in connection
with the preparation of the Reference Date Balance Sheet. In connection with
Seller's preparation of the Closing Date Balance Sheet, Seller and its
Representatives will be permitted to review all of the books, records and other
relevant information relating to the operations and finances of the Company and
the Subsidiaries with respect to the period up to and including the Closing Date
and shall have access to Company personnel during regular business hours upon
reasonable advance notice and under reasonable circumstances.
(b) During the forty-five (45) Business Days immediately
following Purchaser's receipt of the Closing Date Balance Sheet (the "Balance
Sheet Review Period"), Seller shall ensure that the individuals in its employ
responsible for and knowledgeable about the information used in, and the
preparation of, the Closing Date Balance Sheet are reasonably available during
regular business hours upon reasonable advance notice and under reasonable
circumstances to respond to the reasonable inquiries of Purchaser. If at the end
of the Balance Sheet Review Period any information reasonably requested by
Purchaser at least ten (10) Business Days prior to the end of the Balance Sheet
Review Period (or, in the case of any follow-up request relating to information
previously provided in response to a request by Purchaser, no later than five
(5) Business Days after such previously provided information was provided to
Purchaser) in connection with its review of the Closing Date Balance Sheet has
not been provided to Purchaser's reasonable satisfaction, the Balance Sheet
Review Period shall be automatically extended until the fifth (5th) Business Day
after such information is provided to Purchaser.
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(c) Purchaser agrees that, following the Closing through the
date that the Final Closing Book Value becomes final and binding, it will not
take any actions with respect to any accounting books, records, policies or
procedures on which the Closing Date Balance Sheet is based that would impede or
delay the determination of the Final Closing Book Value.
(d) Purchaser shall notify Seller in writing (the "Notice of
Balance Sheet Disagreement"), prior to the expiration of the Balance Sheet
Review Period, if Purchaser disputes amounts reflected in the Closing Date
Balance Sheet. Purchaser shall be permitted to dispute amounts reflected in the
Closing Date Balance Sheet only on the basis that such amounts were not arrived
at in a manner consistent with the preparation of the corresponding amounts in
the Reference Date Balance Sheet or on the basis of arithmetic error; provided,
however, that Purchaser shall only be permitted to dispute amounts in the Notice
of Balance Sheet Disagreement to the extent such amounts in dispute equal or
exceed $250,000 in the aggregate; provided, further, that adjustments may be
made pursuant to Section 3.3 to the amounts reflected in the Closing Date
Balance Sheet in amounts that are less than $250,000 in the aggregate, so long
as the initial amounts in dispute were equal to or greater than $250,000 in the
aggregate. The Notice of Balance Sheet Disagreement shall set forth in
reasonable detail the basis for such dispute, the amounts involved and
Purchaser's calculation of the Closing Date Book Value. If no Notice of Balance
Sheet Disagreement is received by Seller prior to the expiration of the Balance
Sheet Review Period, then the Closing Date Balance Sheet and the Closing Date
Book Value delivered by Seller pursuant to Section 3.3(a) shall be deemed to
have been accepted by Purchaser and shall be binding upon the parties in
accordance with the final sentence of Section 3.3(f).
(e) During the thirty (30) Business Days immediately following
the delivery of a Notice of Balance Sheet Disagreement (the "Consultation
Period"), Purchaser and Seller shall seek in good faith to resolve any
differences that they may have with respect to the matters specified in the
Notice of Balance Sheet Disagreement.
(f) If, at the end of the Consultation Period, Seller and
Purchaser have been unable to resolve any differences that they may have with
respect to the matters specified in the Notice of Balance Sheet Disagreement,
Seller and Purchaser shall submit all matters that remain in dispute with
respect to the Notice of Balance Sheet Disagreement to KPMG LLP or, if such firm
refuses to accept such engagement, another nationally recognized firm of
independent public accountants as to which Seller and Purchaser mutually agree
acting promptly and in good faith (the "Independent Accounting Firm"). As
promptly as practicable (but in any case no later than sixty (60) days from the
date of engagement of the Independent Accounting Firm), the Independent
Accounting Firm shall make a final determination, which shall be binding on the
parties to this Agreement and their Affiliates for purposes of this Agreement,
of the appropriate amount of each of the line items in the Closing Date Balance
Sheet which were set out in the Notice of Balance Sheet Disagreement. With
respect to each disputed item, such determination, if not in accordance with the
position of either Seller or Purchaser, shall not be in excess of the higher,
nor less than the lower, of the amounts advocated by Purchaser in the Notice of
Balance Sheet Disagreement or Seller in the Closing Date Balance Sheet with
respect to such disputed line item. Based on its final determination of the
disputed items, the Independent Accounting Firm shall make a final
determination, binding on the parties to this Agreement, as to the Closing Date
Book Value. The amount of the Closing Date Book Value that is final and binding
on the parties, as determined either through agreement of the parties pursuant
to Sections 3.3(d) or 3.3(e) or through the action of the Independent Accounting
Firm pursuant to this Section 3.3(f), is referred to as the "Final Closing Book
Value".
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(g) The cost of the Independent Accounting Firm's review and
determination as set forth in Section 3.3(f) above shall be allocated based on
the inverse of the percentage its determination (before such allocation) bears
to the amount of the Closing Date Book Value in dispute as originally submitted
to the Independent Accounting Firm. For example, should the amount of the
Closing Date Book Value in dispute total in amount to $1,000 and the Independent
Accounting Firm awards $600 in favor of Seller's position, 60% of the costs of
its review would be borne by Purchaser, and 40% of the costs of its review would
be borne by Seller. During the review by the Independent Accounting Firm,
Purchaser, the Company and Seller will each make available to the Independent
Accounting Firm interviews with such individuals, and such information, books
and records and work papers, as may be reasonably required by the Independent
Accounting Firm to fulfill its obligations under Section 3.3(f); provided,
however, that the accountants of Seller, Purchaser or the Company shall not be
obliged to make any work papers available to the Independent Accounting Firm
unless and until such firm has signed a customary agreement relating to such
access to work papers in form and substance reasonably acceptable to such
accountants.
(h) Within three (3) Business Days after the Final Closing
Book Value is finally determined pursuant to this Section 3.3, if the Final
Closing Book Value exceeds the Estimated Closing Book Value, Purchaser shall pay
to Seller, or if the Estimated Closing Book Value exceeds the Final Closing Book
Value, Seller shall pay to Purchaser, an amount equal to the absolute value of
the difference between Final Closing Book Value and the Estimated Closing Book
Value (the "Final Adjustment Payment"). The Final Adjustment Payment shall be
paid, together with interest thereon from the Closing Date until the date of
payment, (i) if the Final Closing Book Value exceeds the Estimated Closing Book
Value, by Purchaser to Seller by wire transfer of immediately available funds
into an account designated by Seller, or (ii) if the Estimated Closing Book
Value exceeds the Final Closing Book Value, by Seller to Purchaser, by wire
transfer of immediately available funds into the account designated by
Purchaser.
(i) For the purposes of Section 3.3(h), interest will be
payable at the "prime" rate in effect as of the Closing Date, as announced by
The Wall Street Journal, Eastern Edition, plus 2%, calculated based on a 365 day
year and the actual number of days elapsed.
ARTICLE IV
CLOSING AND TERMINATION
4.1 Closing Date. The closing of the sale and purchase of the
Shares provided for in Section 2.1 hereof (the "Closing") shall take place at
the offices of Weil, Gotshal & Xxxxxx LLP located at 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx (or at such other place as the parties may designate in writing), or
remotely via the electronic exchange of signatures and documents, at 10:00 a.m.
(Eastern Time) on a date to be specified by the parties (the "Closing Date"),
which date shall be no later than the third Business Day after the satisfaction
or waiver of the conditions set forth in Article IX (other than conditions that
by their nature are to be satisfied at the Closing, but subject to the
satisfaction or waiver of those conditions at such time), unless another time,
date or place is agreed to in writing by the parties hereto. The Closing shall
be deemed to occur at 11:59 p.m. on the Closing Date.
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4.2 Closing Deliveries.
(a) At the Closing, Seller shall deliver or cause to be
delivered to Purchaser the following:
(i) letters of resignation from the directors of the
Company and the Subsidiaries whose names appear on Schedule 4.2(a)(i);
(ii) stock certificates representing the Shares, duly
endorsed in blank or accompanied by stock transfer powers, with any
required Transfer Tax stamps affixed thereto;
(iii) the certificates referred to in Sections 9.1(a)
and 9.1(b);
(iv) a certificate of the corporate secretary of each
of the Company and Seller, dated the Closing Date, as to the
resolutions duly and validly adopted by the Boards of Directors of the
Company and Seller evidencing their respective authorization of the
execution, delivery and performance of this Agreement and such other
documents as may be reasonably necessary to consummate the transactions
contemplated hereby;
(v) a schedule setting forth the Tax Returns that are
required to be filed by or with respect to the Company and the
Subsidiaries within 90 days after the Closing Date;
(vi) such other documents required to be delivered by
Seller to Purchaser at the Closing pursuant to this Agreement; and
(vii) a certificate of non-foreign status that
complies with Section 1445 of the Code and the Treasury Regulations
promulgated thereunder.
(b) At the Closing, Purchaser shall deliver or cause to be
delivered to Seller the following:
(i) the Closing Date Payment in immediately available
funds to the account as provided in Section 3.2;
(ii) the certificates referred to in Sections 9.2(a)
and 9.2(b); and
(iii) such other documents required to be delivered
by Purchaser to Seller at the Closing pursuant to this Agreement.
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4.3 Termination of Agreement. This Agreement may be validly
terminated prior to the Closing, without penalty to any party, as follows:
(a) at the election of Seller or Purchaser on or after
February 27, 2009, (such date, as it may be extended pursuant to this Section
4.3(a), the "Termination Date"), if the Closing shall not have occurred by 11:59
p.m. on the day immediately preceding such date, provided that the terminating
party is not in breach in any material respect of any of its obligations
hereunder; and provided further, that either Seller or Purchaser shall have the
option to extend, from time to time, the Termination Date for additional periods
of time not to exceed sixty (60) days in the aggregate for all such extensions,
whether by Seller or Purchaser, if all other conditions to the Closing are
satisfied or capable of then being satisfied and the sole reason that the
Closing has not been consummated is that the conditions set forth in Sections
9.1(d) and 9.2(d) have not been satisfied due to the failure to obtain the
necessary consents and approvals under applicable Laws or an Order of a
Governmental Body of competent jurisdiction shall be in effect and either or
both of Seller and Purchaser are still attempting to obtain such necessary
consents and approvals under applicable Laws, or are contesting (x) the refusal
of the relevant Governmental Body to give such consents or approvals, or (y) the
entry of any such Order, in court or through other applicable proceedings;
(b) by mutual written consent of Seller and Purchaser;
(c) by Seller or Purchaser if there shall be in effect a final
nonappealable Order of a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby; it being agreed that the parties hereto shall
promptly appeal any adverse determination which is appealable (and pursue such
appeal with reasonable diligence); provided, however, that the right to
terminate this Agreement under this Section 4.3(c) shall not be available to a
party if such Order was primarily due to a breach in any material respect by
such party of any of its obligations under this Agreement;
(d) by Purchaser, if Seller or the Company shall have breached
any representation or warranty or failed to comply with any covenant or
agreement applicable to Seller or the Company that would cause any of the
conditions set forth in Section 9.1(a) or Section 9.1(b) not to be satisfied,
and such condition is incapable of being satisfied by the Termination Date prior
to any extension pursuant to Section 4.3(a); provided, however, that Purchaser
is not then in material breach of this Agreement; and
(e) by Seller, if Purchaser shall have breached any
representation or warranty or failed to comply with any covenant or agreement
applicable to Purchaser that would cause any of the conditions set forth in
Section 9.2(a) or Section 9.2(b) not to be satisfied, and such condition is
incapable of being satisfied by the Termination Date prior to any extension
pursuant to Section 4.3(a); provided, however, that Seller is not then in
material breach of this Agreement.
4.4 Procedure Upon Termination. In the event of termination
and abandonment by Purchaser or Seller, or both, pursuant to Section 4.3 hereof,
written notice thereof shall forthwith be given to the other party or parties,
and this Agreement shall terminate, and the purchase of the Shares hereunder
shall be abandoned, without further action by Purchaser or Seller.
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4.5 Effect of Termination.
(a) In the event that this Agreement is validly terminated in
accordance with Sections 4.3 and 4.4, then each of the parties shall be relieved
of their duties and obligations arising under this Agreement after the date of
such termination, and such termination shall be without liability to Purchaser,
the Company or Seller; provided, that no such termination shall relieve any
party hereto from liability for any breach of this Agreement and, provided,
further, that the obligations of the parties set forth in Sections 4.5(b),
4.5(c) and 4.5(d) and Articles X and XII hereof shall survive any such
termination and shall be enforceable hereunder.
(b) During the period from the date hereof through the earlier
of (i) the Closing and (ii) the date that is two (2) years following the
termination of this Agreement pursuant to Section 4.3 hereof, Purchaser shall
not directly or indirectly, through any Affiliate, officer, director, agent or
otherwise, solicit the employment of or employ or retain as a consultant any
employee set forth on Schedule 4.5(b) (the "Restricted Employees").
Notwithstanding the limitations in this Section 4.5(b) applicable to the
Restricted Employees, such limitations shall not prohibit Purchaser and its
Affiliates from: (x) soliciting the employment, employing or retaining any
Restricted Employee after the termination of such employee's employment by
Seller or its Affiliates at any time, (y) placing public advertisements or
conducting any other form of general solicitation that is not specifically
targeted towards the Restricted Employees, including the use of an independent
employment agency or search firm whose efforts are not specifically directed at
Restricted Employees; provided, however, Purchaser will not, and will direct its
Affiliates (as well as such independent employment agency or search firm) not
to, contact, interview, employ or retain as a consultant any Restricted Employee
referred by any such independent employment agency or search firm, or (z)
soliciting specifically identified Restricted Employees with the prior written
agreement of Seller. Furthermore, if this Agreement is terminated pursuant to
Section 4.3 hereof, Purchaser shall not oppose or seek to prevent or frustrate
any transaction or agreement that the Company or any of the Subsidiaries may
propose or enter into relating to the sale of all or any portion of the Company
to any third party.
(c) Nothing in this Section 4.5 shall relieve Seller or
Purchaser of any liability for a breach of any of its covenants or
representations and warranties contained in this Agreement prior to the date of
termination.
(d) Except as provided in Section 4.5(b), the Confidentiality
Agreement shall survive any termination of this Agreement and nothing in this
Section 4.5 shall relieve Seller or Purchaser of any of their rights or
obligations under the Confidentiality Agreement; provided, that Section 4.5(b)
shall supersede any similar restrictions set forth in the Confidentiality
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY
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The Company and Seller hereby represent and warrant to Purchaser that:
5.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now
conducted. The Company is duly qualified or authorized to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which it owns or leases real property and each other jurisdiction in which
the conduct of its business or the ownership or leasing of its properties
requires such qualification or authorization, except where the failure to be so
qualified, authorized or in good standing would not, individually or in the
aggregate, have, or reasonably be expected to have, a Material Adverse Effect.
5.2 Authorization of Agreement. The Company has all requisite
power and authority to execute and deliver this Agreement and each other
agreement, document, or instrument or certificate contemplated by this Agreement
or to be executed by the Company in connection with the consummation of the
transactions contemplated by this Agreement (the "Company Documents"), and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the Company Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action on the part of the Company. This Agreement has been,
and each of the Company Documents will be at or prior to the Closing, duly and
validly executed and delivered by the Company and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each Company Document when so executed and
delivered will constitute, the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.3 Conflicts; Consents of Third Parties.
(a) Except as set forth on Schedule 5.3(a), none of the
execution, delivery and performance by the Company of this Agreement or the
Company Documents, the consummation of the transactions contemplated hereby or
thereby, or compliance by the Company with any of the provisions hereof or
thereof will conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to the creation of
any Lien on the Shares or any Asset of the Company or any Subsidiary under, or
give rise to a right of termination, amendment, acceleration or cancellation
under, or the loss of any material benefit pursuant to the terms of, any
provision of (i) the certificate of incorporation and bylaws or comparable
organizational documents of the Company or any Subsidiary; (ii) any Contract, or
Permit to which the Company or any Subsidiary is a party or by which any of the
properties or assets of the Company or any Subsidiary is bound; (iii) any Order
of any Governmental Body applicable to the Company or any Subsidiary or by which
any of the properties or assets of the Company or any Subsidiary is bound; or
(iv) any applicable Law, other than, in the case of clauses (ii), (iii), and
(iv), such conflicts, violations, defaults, terminations or cancellations, that
would not, individually or in the aggregate, have, or reasonably be expected to
have, a Material Adverse Effect.
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(b) Except as set forth on Schedule 5.3(b), no consent,
waiver, approval, Order, Permit or authorization of, or declaration or filing
with, or notification to, any Governmental Body or other Person is required on
the part of the Company or any Subsidiary in connection with the execution and
delivery of this Agreement or the Company Documents or the compliance by the
Company with any of the provisions hereof or thereof, or the consummation of the
transactions contemplated hereby or thereby, except for (i) compliance with the
applicable requirements of the HSR Act, (ii) in connection or in compliance with
the insurance Laws of the jurisdictions set forth in Schedule 5.3(b)(ii), (iii)
such other consents, waivers, approvals or authorizations of Persons (other than
Governmental Bodies) as have been obtained on or before the date hereof and (iv)
such other consents, waivers, approvals, Orders, Permits or authorizations the
failure of which to obtain would not, individually or in the aggregate, have, or
reasonably be expected to have, a Material Adverse Effect.
5.4 Capitalization.
(a) The authorized capital stock of the Company consists of
1,000 shares of common stock, $.01 par value per share (the "Common Stock"). As
of the date hereof, there are 200 shares of Common Stock issued and outstanding
and no shares of Common Stock are held by the Company as treasury stock. Seller
is the owner of all of the issued and outstanding shares of Common Stock, which
were duly authorized for issuance and are validly issued, fully paid and
non-assessable.
(b) Except as set forth on Schedule 5.4(b), there is no
existing option, warrant, call, right, or Contract of any character to which the
Company, Seller or any Affiliate of Seller is a party requiring, and there are
no securities of the Company, Seller or any Affiliate of Seller outstanding
which upon conversion, exercise or exchange would require, the issuance of any
shares of capital stock of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares of
capital stock of the Company. None of Seller, any Affiliate of Seller or the
Company is a party to any voting trust or other Contract with respect to the
voting, redemption, sale, transfer or other disposition of the Common Stock.
5.5 Subsidiaries.
(a) Schedule 5.5(a) sets forth the name of each Subsidiary,
and, with respect to each Subsidiary, the jurisdiction in which it is
incorporated or organized, the jurisdictions, if any, in which it is qualified
to do business, the number of shares of its authorized capital stock, the number
and class of shares thereof duly issued and outstanding, the names of all
stockholders or other equity owners and the number of shares of stock owned by
the stockholders or the amount of equity owned by each equity owner. Each
Subsidiary is a duly organized and validly existing corporation or other entity
in good standing under the laws of the jurisdiction of its incorporation or
organization and is duly qualified or authorized to do business as a foreign
corporation or entity and is in good standing under the laws of each
jurisdiction in which the conduct of its business or the ownership or leasing of
its properties requires such qualification or authorization, except where the
failure to be so duly organized, validly existing, qualified, authorized or in
good standing would not, individually or in the aggregate, have, or reasonably
be expected to have, a Material Adverse Effect. Each Subsidiary has all material
requisite corporate or entity power and authority to own, lease and operate its
properties and carry on its business as now conducted. Except as set forth on
Schedule 5.5(a), neither the Company nor any Subsidiary, separately or
collectively, beneficially owns, directly or indirectly, more than 5% of the
outstanding share capital, voting securities or other voting equity interests of
any other Person.
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(b) The outstanding shares of capital stock of each Subsidiary
are validly issued, fully paid and non-assessable, and all such shares or other
equity interests represented as being owned by the Company or another Subsidiary
are owned by it free and clear of any and all Liens, except as set forth on
Schedule 5.5(b). No shares of capital stock are held by any Subsidiary as
treasury stock. There is no existing option, warrant, call, right or Contract to
which the Company, Seller, any Affiliate of Seller or any Subsidiary is a party
requiring, and there are no securities of the Company, Seller, any Affiliate of
Seller or any Subsidiary outstanding which upon conversion, exercise or exchange
would require, the issuance of any shares of capital stock or other equity
interests of any Subsidiary or other securities convertible into, exchangeable
for or evidencing the right to subscribe for or purchase shares of capital stock
or other equity interests of any Subsidiary. All of the outstanding shares of
capital stock of each Subsidiary, as set forth on Schedule 5.5(a), will be owned
of record and beneficially by the Company or another Subsidiary free and clear
of all Liens as of the Closing.
5.6 SAP Statements.
(a) The Company has made available to Purchaser true and
complete copies of the SAP Statements. As used herein, the term "SAP Statements"
means the annual audited statutory statements and, to the extent applicable,
quarterly unaudited statutory statements and supplements, of each of the
Insurance Subsidiaries as filed with the applicable insurance regulatory
authorities for the years ended December 31, 2007, 2006 and 2005 and the six
month period ended June 30, 2008 or the local equivalents in the applicable
jurisdictions. As of the date hereof, each of the Insurance Subsidiaries has
filed or submitted all SAP Statements required to be filed with or submitted to
the appropriate insurance regulatory authorities of the jurisdiction in which it
is domiciled on forms prescribed or permitted by such authority, except for such
failures to file that would not have, or reasonably be expected to have, a
Material Adverse Effect. Except as set forth on Schedule 5.6(a)(i), the SAP
Statements have been prepared in accordance with SAP, consistently applied, and
present fairly, in all material respects, the statutory financial position and
the statutory results of operations of the Insurance Subsidiaries as at the
dates and for the periods indicated therein. Except as described in the SAP
Statements or set forth on Schedule 5.6(a)(ii), there are no "permitted
practices" prescribed or permitted by the insurance departments of either New
York or New Jersey utilized by the Insurance Subsidiaries in preparation of the
SAP Statements.
(b) For the purposes hereof, the SAP Statements of Hermitage
Insurance Company ("HIC") as at December 31, 2007 (the "2007 Hermitage SAP
Statements"), the SAP Statements of Kodiak Insurance Company, a New Jersey
corporation ("Kodiak") as at December 31, 2007 (together with the 2007 Hermitage
SAP Statements, the "2007 SAP Statements") and the portion(s) of the Reference
Date Balance Sheet that relate to the non-insurance Subsidiaries are
collectively referred to as the "Balance Sheets" and December 31, 2007 is
referred to as the "Balance Sheet Date".
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(c) Except as set forth in Schedule 5.6(a)(i), the loss
reserves (including incurred but not reported loss reserves) and loss adjustment
expense reserves of the Company and the Subsidiaries reflected on the 2007 SAP
Statements (i) have been prepared in accordance with SAP, consistently applied,
and were established by Company management and claims personnel in the Ordinary
Course of Business and (ii) were reviewed for reasonableness by the Company's
external actuarial firm using generally accepted actuarial standards.
(d) To the Knowledge of the Company, all factual information,
statistics and data provided by the Company and the Subsidiaries to
PricewaterhouseCoopers LLP in connection with the preparation of the actuarial
report supporting the Statement of Actuarial Opinion of HIC as of December 31,
2007 and the actuarial report supporting the Statement of Actuarial Opinion of
Kodiak as of December 31, 2007, was believed by the Company to be complete and
reasonable in all material respects. The Company has provided to the Purchaser a
true and correct copy of the actuarial certificates filed with the respective
insurance departments of New York or New Jersey, as the case may be, in
connection with the filing of the SAP Statements.
5.7 No Undisclosed Liabilities. Except as reflected in,
reserved against or otherwise set forth on the Balance Sheets or on Schedule
5.7, to the Knowledge of the Company, neither the Company nor any Subsidiary has
any Liabilities of any kind, other than (i) Liabilities incurred in the Ordinary
Course of Business after the Balance Sheet Date, including Liabilities for
losses and loss adjustment expenses arising under policies or contracts of
insurance or reinsurance issued or assumed by a Subsidiary, (ii) Liabilities
incurred in connection with the transactions contemplated hereby or (iii)
Liabilities that would not, individually or in the aggregate, be material to the
financial condition, business or operations of the Company and the Subsidiaries
taken as a whole.
5.8 Absence of Certain Developments. As of the date hereof,
except as contemplated by this Agreement or as set forth on Schedule 5.8, since
the Balance Sheet Date (i) the Company and the Subsidiaries have conducted their
respective businesses only in the Ordinary Course of Business, (ii) there has
not been any action, event, change, occurrence or circumstance or failure to act
that, individually or in the aggregate, has had or would have, or reasonably be
expected to have, a Material Adverse Effect and (iii) there has not been any
action, event, change, occurrence or circumstance or failure to act that, if it
had occurred after the date of this Agreement, would have required Purchaser's
consent pursuant to Section 8.2(a) or Sections 8.2(b)(i) through (vi), Sections
8.2(b)(x) through (xvii) and Section 8.2(b)(xxi).
5.9 Taxes. Except as set forth in Schedule 5.9:
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(a) Each of the Company and the Subsidiaries has timely filed
(or there have been filed on their behalf) all Income Tax Returns and other
material Tax Returns required to be filed by each of them (taking into account
any extension of time within which to file), and all Taxes shown due on such Tax
Returns by the Company and the Subsidiaries or otherwise due have been paid.
With respect to Taxes for tax periods ending on or prior to the Closing Date but
which are not yet due and payable as of such date, the Company and the
Subsidiaries have accrued a sufficient amount for such Taxes on the financial
statements for the consolidated group that includes the Company and the
Subsidiaries. All Income Tax Returns and other material Tax Returns of the
Company and the Subsidiaries are true, correct and complete in all material
respects. All material Taxes required to be withheld in connection with amounts
owing to any employee, independent contractor, creditor, stockholder or other
similar third party by the Company or any of the Subsidiaries have been withheld
and have been (or will be) duly and timely paid to the proper Taxing Authority
in the manner prescribed by Law, and the Company and the Subsidiaries have
complied in all material respects with all the reporting and recordkeeping
requirements relating to the collection and administration of such Taxes. Other
than in the ordinary course of business of the Company or its Subsidiaries (as
the case may be), none of the Company or the Subsidiaries has engaged in any
transaction or agreement (including an installment sale) prior to the Closing
Date which could result in (A) the recognition of a material amount of income or
gain in any period ending after the Closing Date which relates to a payment
received prior to the Closing Date, (B) the payment of an amount after the
Closing Date for which a deduction or loss has been or will be taken in a Tax
period ending on or before the Closing Date, or (C) the inclusion in income of
any adjustment pursuant to sections 446 and 481 of the Code or any comparable
provision of state, local or foreign law.
(b) No material deficiencies, audits, assessments,
reassessment, claims, proceedings, requests for information or investigations
for any Taxes (i) are currently in process or underway or (ii) have been
proposed, threatened, asserted or assessed, in each case of this clause (ii), in
writing against the Company or any of the Subsidiaries that are still pending.
Neither the Company nor any of the Subsidiaries has agreed to any waiver or
extension of any statute of limitations with respect to the assessment or
collection of any Tax, which waiver or extension is still in effect. No requests
for waivers of the time to assess any such Taxes have been made that are still
pending. No written claim has been made by any Taxing Authority in a
jurisdiction where the Company or any of the Subsidiaries does not file Tax
Returns (or where Tax Returns have not been filed on their behalf) that the
Company or such Subsidiary is or may be subject to taxation by, or required to
file any Tax Return in, that jurisdiction.
(c) None of the Company or the Subsidiaries, or Seller (with
respect thereto): (i) has for tax years beginning after December 31, 2007 (A)
any application pending with any Taxing Authority requesting permission for any
changes in its accounting methods, (B) executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any similar provision of Law,
(C) amended any Tax Return, (D) settled any claim for a refund for Taxes, or (E)
or settled any controversy relating to Taxes; or (ii) is subject to any private
letter ruling of the IRS or comparable rulings of any Taxing Authority or has
requested any such rulings, which in each case of clause (i) and (ii) that is
reasonably likely to adversely affect in a material manner, or will be binding
upon, any Purchaser Indemnified Party for tax periods (or portions thereof)
beginning after the Closing Date.
(d) None of the Company or the Subsidiaries have been a member
of an affiliated group within the meaning of Section 1504(a) of the Code or any
other group filing Tax Returns on a combined, consolidated, unitary or other
similar basis ("Affiliated Group") other than the Affiliated Group that includes
Seller as a common parent. There are no Liens for Taxes on the Shares or the
assets of the Company or any of the Subsidiaries other than Permitted
Exceptions. No power of attorney has been granted by or with respect to the
Company or the Subsidiaries with respect to any matter relating to Taxes that
will continue in effect after the Closing Date. None of the Company or the
Subsidiaries is a party to, is bound by, or has any obligation under, any Tax
sharing or allocation agreement, or any other agreement the principal purpose of
which is to provide for the allocation, sharing or indemnification of Taxes that
were entered into prior to the Closing Date, other than Tax Sharing Agreements.
None of the Company or any of the Subsidiaries is liable for any Taxes of
another person as a successor, transferee, by indemnity, by law or by contract.
None of Seller (with respect to the Company and the Subsidiaries), the Company
or the Subsidiaries has participated in a "listed transaction" described in
Treasury Regulation Section 1.6011-4(c). Within the meaning of Section 355 of
the Code, none of the Company or the Subsidiaries was a "distributing
corporation" in a transaction intended to be governed by Section 355 of the Code
(A) in the two years prior to the date of this Agreement or (B) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" in conjunction with the transactions contemplated by this
Agreement.
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(e) No election has been made by or with respect to the
Company or the Subsidiaries under section 846(e) of the Code. None of the
Company or the Subsidiaries has a "policyholders surplus account" within the
meaning of section 815 of the Code. None of the Company or the Subsidiaries
maintains a "special loss discount account" or makes "special estimated tax
payments" within the meaning of section 847 of the Code. None of the Company or
the Subsidiaries is a life insurance company as defined in section 816 of the
Code. Tax basis, loss and loss adjustment expense reserves, and unearned premium
reserves for the Company and each Subsidiary have been computed and maintained
in the manner required under Sections 832 and 846 of the Code and any other
applicable tax provision.
5.10 Title to Assets; Sufficiency. The Assets constitute all
of the material rights, properties and assets used or held for use in or
necessary for the conduct or operation of the business of the Company and the
Subsidiaries as presently conducted and are in good condition and repair, except
for ordinary wear and tear. The Company and the Subsidiaries have good, valid
and marketable title to, a valid leasehold interest in, or a valid license to,
the Assets (except as sold or disposed of subsequent to the date hereof in the
Ordinary Course of Business and not in violation of this Agreement), free and
clear of any Liens (other than Permitted Exceptions). Neither the Company nor
any Subsidiary currently owns or, to the Knowledge of the Company, has ever
owned, any real property interests in fee. Except as set forth in Schedule 5.10,
there are no rights obtained by the Company or the Subsidiaries through
Contracts to which Seller or an Affiliate of Seller (other than the Company and
the Subsidiaries) is a party.
5.11 Intellectual Property.
(a) Except as set forth on Schedule 5.11(a)(i), neither the
Company nor any Subsidiary has ownership rights in any issued Patents, pending
Patent applications, registered Marks, applications for registration of Marks or
registered Copyrights. Except as set forth on Schedule 5.11(a)(ii), the Company
and the Subsidiaries own free of any Lien or have valid rights to use all
material Software and all material Intellectual Property used by them in the
Ordinary Course of Business ("Company Intellectual Property") and all material
Information Systems used by them in the Ordinary Course of Business.
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(b) To the Knowledge of the Company, (i) no Person is
infringing, misappropriating or violating any Company Intellectual Property
owned by the Company or any Subsidiary or any Company Intellectual Property that
is owned by any other Person and licensed to the Company or any Subsidiary and
(ii) neither the Company Intellectual Property nor the operation of the business
of the Company or any Subsidiary as currently conducted (or as currently
contemplated to be conducted) infringes, constitutes a misappropriation of or
violates the Intellectual Property of any other Person. Except as set forth on
Schedule 5.11(b), the Company Intellectual Property owned by the Company or any
Subsidiary is not the subject of any challenge or claim received by the Company
or any of the Subsidiaries in writing. Neither the Company nor any Subsidiary
own any material proprietary Software.
(c) Schedule 5.11(c) sets forth a general summary of security,
back-up and disaster recovery programs established by the Company and the
Subsidiaries. The Company and each Subsidiary further have established and
maintained and will continue to maintain, a commercially reasonable security
program, including technology, practices and procedures. The Company and the
Subsidiaries are in material compliance with such programs. To the Knowledge of
the Company, neither the Company nor any Subsidiary has suffered a security
breach with respect to its data or Information Systems that has required
notification under applicable Law or pursuant to such programs to any employee,
customer or any other Person during the two (2) year period prior to the date of
this Agreement.
(d) Neither the Company nor any Subsidiary is prohibited by
any privacy policies or agreements used in the conduct of its business from
providing the Purchaser with the personal, private, health or financial
information about current, former and prospective workers' compensation
customers, consumers and/or benefits recipients that has been, or will be
provided to Purchaser, on or before the Closing Date, in connection with the
transactions contemplated by this Agreement.
(e) The Company and each Subsidiary shall have access to and
the rights to modify the source code that is the subject of the Software License
Agreements identified in Schedule 5.26(16) - 5.26(22) (the "Software License
Agreements").
5.12 Material Contracts.
(a) Schedule 5.12(a) sets forth all of the following Contracts
to which the Company or any of the Subsidiaries is a party or by which any of
their respective Assets is bound and which are in effect as of the date hereof
(collectively, the "Material Contracts"):
(i) Contracts with any labor union or association
representing any employee of the Company or any of the Subsidiaries;
(ii) Contracts for the sale of any asset of the
Company or any of the Subsidiaries other than in the Ordinary Course of
Business, for consideration in excess of $250,000;
(iii) Contracts relating to any acquisition to be
made by the Company or any of the Subsidiaries of (A) any operating
business or the capital stock of any other Person or (B) any other
assets outside of the Ordinary Course of Business;
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(iv) Contracts relating to the incurrence of
Indebtedness, or the making of any loans, in each case involving
amounts in excess of $250,000;
(v) Contracts that contain covenants that purport to
prohibit or limit the ability of the Company or any Subsidiary, or any
of their respective Affiliates, officers, directors, stockholders or
members (solely by reason of such Person's relationship with the
Company or any Subsidiary), from engaging in any business activity in
any geographic area applicable to the Company or any Subsidiary or in
any line of business or to compete with any Person, to the extent that
such covenants would be in effect after the Closing Date;
(vi) all leases of real property by the Company or a
Subsidiary;
(vii) all leases of personal property by the Company
or a Subsidiary involving annual payments in respect of such lease in
excess of $50,000;
(viii) any Contract with any Governmental Body;
(ix) any Contract establishing any joint venture,
strategic alliance or other collaboration that is material to the
business of the Company or any Subsidiary, other than Contracts with
producers;
(x) other than insurance Contracts entered into in
the Ordinary Course of Business, Contracts that involve the expenditure
of more than $250,000 in the aggregate in any year or require
performance by any party more than one year from the date hereof that,
in either case, are not terminable by the Company or a Subsidiary (A)
without penalty on notice of 180 days or less or (B) with payment in
lieu of notice, so long as such payment relates to a period of time not
to exceed 180 days;
(xi) any Contract with American Resources Insurance
Company ("XXXX") or any of its Affiliates;
(xii) any Contract related to the GEN-A-RATE software
platform; and
(xiii) any other Contract that is individually
material to the business of the Company and the Subsidiaries taken as a
whole, other than Contracts with producers.
Seller has made available to Purchaser true, correct and complete copies of all
of the Material Contracts set forth on Schedule 5.12(a).
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(b) Except as set forth on Schedule 5.12(b) (i) each Material
Contract is in full force and effect and is the legal, valid, binding and
enforceable obligation of the Company or the Subsidiary which is a party to such
Material Contract (subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and similar laws affecting creditors' rights
and remedies generally, and subject, as to enforceability, to general principles
of equity, including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a proceeding at law
or in equity)), (ii) to the Knowledge of the Company, each Material Contract is
the legal, valid, binding and enforceable obligation of the other parties
thereto (the "Other Parties") (subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity)) and (iii) none of the Company or any
Subsidiary, or, to the Knowledge of the Company, the Other Parties is in
material breach, violation or default, and, to the Knowledge of the Company, no
event has occurred which with or without notice or lapse of time or both would
constitute a material breach, violation or default by any such party, permit
termination, modification, or acceleration by the Other Parties, or lead to the
loss of any material benefit to the Company or any Subsidiary pursuant to the
terms of any Material Contract except (A) for breaches, violations or defaults
which would not, individually or in the aggregate, have, or reasonably be
expected to have, a Material Adverse Effect, and (B) that, in order to avoid a
default, violation or breach under any Material Contract, the consent of the
Other Parties as set forth in Schedule 5.3(b) may be required in connection with
the transactions contemplated hereby.
5.13 Employee Benefits Plans.
(a) Schedule 5.13(a) lists each "employee benefit plan" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and any other employee benefit plan, program, arrangement
or agreement (including any bonus, incentive compensation, stock option, stock
purchase, restricted stock, pension, supplemental retirement, deferred
compensation, welfare benefit, retiree health, life insurance, severance or
other plan, program, arrangement or agreement), whether or not subject to ERISA,
that is maintained, sponsored or contributed to by the Company or any of the
Subsidiaries or with respect to which the Company or any Subsidiary has any
Liability (each, a "Company Benefit Plan"). The Company has made available to
Purchaser correct and complete copies of (i) each Company Benefit Plan (or, in
the case of any such Company Benefit Plan that is unwritten, descriptions
thereof), (ii) the most recent annual reports on Form 5500 required to be filed
with the IRS with respect to each Company Benefit Plan (if any such report was
required), (iii) the most recent summary plan description for each Company
Benefit Plan for which such summary plan description is required, (iv) each
trust agreement and insurance or group annuity contract relating to any Company
Benefit Plan, and (v) the most recent determination letter received with respect
to each Company Benefit Plan that is intended to be tax qualified under Section
401(a) of the Code (the "Company 401(k) Plan"), as well as a correct and
complete copy of each pending application for a determination letter, if any.
Each Company Benefit Plan has been administered in all material respects in
accordance with its terms and in material compliance with the applicable
provisions of ERISA, the Code and all other applicable Laws.
(b) The Company 401(k) Plan in form meets the requirements for
tax-qualification under Sections 401(a) and 401(k) of the Code. No event or
action has occurred or failed to occur since the date of the most recent
determination letter or application therefor relating to such Company 401(k)
Plan that would reasonably be expected to adversely affect the qualification of
such Company 401(k) Plan, except for non-compliance that would not have, or
reasonably be expected to have, a Material Adverse Effect.
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(c) All contributions, premiums and benefit payments under or
in connection with the Company Benefit Plans that are required to have been made
as of the date hereof in accordance with the terms of the Company Benefit Plans
or applicable Law have been timely made in full or have been reflected on the
Balance Sheets, and neither the Company nor the Subsidiaries are obligated to
contribute with respect to any Company Benefit Plan that involves a retroactive
contribution, assessment or funding waiver arrangement.
(d) None of the Company Benefit Plans is a "multiemployer
plan" (as defined in Section 3(37) of ERISA) or is subject to Title IV of ERISA,
nor does the Company or any other Person or entity that would be deemed a
"single employer" with the Company under Section 414(b), (c), (m) or (o) of the
Code have any Liability under Title IV of ERISA.
(e) Except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA or any similar state or
local Law, neither the Company nor any of the Subsidiaries has any Liability for
post-employment life, medical or other welfare benefits with respect to current
or former employees or beneficiaries or dependents thereof.
(f) Except as disclosed in Schedule 5.13(f), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in, cause the accelerated vesting
or delivery of, or increase the amount or value of, any payment or benefit to
any current or former employee, officer, director or consultant (either alone or
in conjunction with any other event) under any Company Benefit Plan or otherwise
that is payable by the Company or any of the Subsidiaries. Without limiting the
generality of the foregoing, no amount paid or payable by the Company or any of
its Affiliates in connection with the transactions contemplated hereby (either
solely as a result thereof or as a result of such transactions in conjunction
with any other event) will be an "excess parachute payment" within the meaning
of Section 280G of the Code.
(g) This Section 5.13 represents the sole and exclusive
representation and warranty of the Company regarding employee benefit matters.
5.14 Labor.
(a) Neither the Company nor any of the Subsidiaries is a party
to any labor or collective bargaining agreement.
(b) Set forth on Schedule 5.14(b) is a true and complete list,
as of June 30, 2008, of each employee of the Company and the Subsidiaries, and
with respect to each such individual, his or her name, employer, position,
annual base salary or wage rate, bonus opportunity and status (active or
inactive due to short-term or long-term disability or other leave).
(c) There are no (i) strikes, work stoppages, work slowdowns
or lockouts pending or, to the Knowledge of the Company, threatened against or
involving the Company or any of the Subsidiaries, or (ii) unfair labor practice
charges, grievances or complaints pending or, to the Knowledge of the Company,
threatened by or on behalf of any employee or group of employees of the Company
or any of the Subsidiaries, except in each case in this clause (ii) as would not
result in material liability to the Company or any of the Subsidiaries. The
Company and the Subsidiaries are in material compliance with all Laws relating
to the employment or termination of employment of any of their employees.
25
5.15 Litigation. Except as set forth on Schedule 5.15 or for
Ordinary Course of Business claims arising under the terms of the Company
Insurance Contracts (excluding, for this purpose, Contracts of ceded or assumed
reinsurance), as of the date hereof, there are no Legal Proceedings pending or,
to the Knowledge of the Company, threatened against the Company or the
Subsidiaries before any Governmental Body, which, if adversely determined,
individually or in the aggregate, would have, or reasonably be expected to have,
a Material Adverse Effect. Neither the Company nor any Subsidiary is subject to
any Order of any Governmental Body except to the extent the same would not,
individually or in the aggregate, have, or reasonably be expected to have, a
Material Adverse Effect.
5.16 Compliance with Laws. The Company and the Subsidiaries
are in compliance with all Laws of any Governmental Body applicable to their
respective businesses or operations, except where the failure to be in
compliance would not, individually or in the aggregate, have, or reasonably be
expected to have, a Material Adverse Effect. Neither the Company nor any
Subsidiary has, in the last three years, received any written notice of or been
charged with the violation of any Laws, except where such violation would not,
individually or in the aggregate, have, or reasonably be expected to have, a
Material Adverse Effect. Notwithstanding the foregoing, no representation or
warranty is made in this Section 5.16 with respect to Tax matters or employment,
employee benefit or labor matters.
5.17 Government Licenses and Permits. The Company and the
Subsidiaries hold all material Permits necessary for the ownership of their
respective Assets and to the conduct of their businesses, and all such material
Permits are valid and in full force and effect and neither the Company nor any
Subsidiary is in material default or violation of any such material Permit.
Neither the Company nor any of the Subsidiaries has received notice of any
default or violation of any such material Permit. There are no Legal Proceedings
pending or, to the Knowledge of the Company, threatened, for or contemplating
the suspension, modification, limitation, cancellation, revocation or nonrenewal
of any such material Permit, and to the Knowledge of the Company, no fact or
circumstance exists which (with or without the lapse of time or both) could
reasonably be expected to result in the suspension, modification, limitation,
cancellation, revocation, or nonrenewal of any such material Permit. Neither the
Company nor any of the Subsidiaries has been denied any application for any such
material Permit since the Balance Sheet Date.
5.18 Investment Company. Neither the Company nor any of the
Subsidiaries is an investment company subject to registration and regulation
under the Investment Company Act of 1940, as amended.
5.19 Ratings. As of the date hereof, (i) the financial
strength or claims-paying ability of the Company and each Subsidiary, as rated
by A.M. Best Company, Inc. is set forth on Schedule 5.19; and (ii) A.M. Best
Company, Inc. has not announced that it has under surveillance or review its
rating of the financial strength or claims-paying ability of the Company. As of
the date hereof, no other nationally recognized rating agency rates the
financial strength, debt obligations or claims-paying ability of the Company or
any Subsidiary.
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5.20 Financial Advisors. Except as set forth on Schedule 5.20,
no Person has acted, directly or indirectly, as a broker, finder or financial
advisor for the Company in connection with the transactions contemplated by this
Agreement, and no such Person is entitled to any fee or commission or like
payment from Purchaser, the Company or any Subsidiary in connection with the
transactions contemplated by this Agreement based on arrangements made by the
Company or any Subsidiary. Seller is solely responsible for the fees and
expenses of the Person(s) set forth in Schedule 5.20.
5.21 Insurance Subsidiaries. The Company conducts its
insurance operations through the Subsidiaries listed in Schedule 5.21(i) (each,
an "Insurance Subsidiary", and collectively, the "Insurance Subsidiaries").
Schedule 5.21(i) lists the jurisdiction of domicile of each Insurance
Subsidiary. Except as set forth in Schedule 5.21(ii), none of the Insurance
Subsidiaries is "commercially domiciled" in any other jurisdiction. Each of the
Insurance Subsidiaries is, where required, (a) duly licensed or authorized as an
insurance company or, where applicable, reinsurer in its jurisdiction of
incorporation, (b) duly licensed or authorized as an insurance company or, where
applicable, a reinsurer in each other jurisdiction where it is required to be so
licensed or authorized and (c) duly authorized in its jurisdiction of
incorporation and each other applicable jurisdiction to write each line of
business reported as being written by such Insurance Subsidiary in the SAP
Statements, except, in each case, where the failure to be so licensed or
authorized would not, individually or in the aggregate, have, or reasonably be
expected to have, a Material Adverse Effect. Except as set forth on Schedule
5.21(iii), (i) all of such licenses and authorizations are in full force and
effect, and (ii) there is no proceeding or investigation pending or, to the
Knowledge of the Company, threatened which would reasonably be expected to lead
to the revocation, amendment, failure to renew, limitation, suspension or
restriction of any such license or authorization. Seller, the Company and the
Subsidiaries have made all required filings under applicable Insurance Laws and
insurance holding company statutes, except where the failure to file would not,
individually or in the aggregate, have, or reasonably be expected to have, a
Material Adverse Effect. Schedule 5.21(iv) sets forth a list of all
jurisdictions in which any Insurance Subsidiary currently has applied for a
license or authorization to conduct an insurance business.
5.22 Reserves. Notwithstanding any other provision of this
Agreement (including any provisions of Article III, this Article V or Article
VI), none of Seller, the Company, the Subsidiaries, nor any of their Affiliates
is making any express or implied representation or warranty, in or pursuant to
this Agreement or any other Company Document concerning (a) the adequacy or
sufficiency of reserves, funds or provisions for losses or claims arising out of
or pursuant to Company Insurance Contracts, reserves for incurred losses,
incurred loss adjustment expenses, unallocated loss adjustment expense reserves,
incurred but not reported losses and loss adjustment expenses with respect to
insurance and reinsurance contracts issued, reissued or assumed, (b) subject to
the second and fourth sentences of Section 5.24, the collectibility of any
amounts from any reinsurers or retrocessionaires of the Company or any of the
Subsidiaries or (c) any balance sheet or other financial statement "line item"
or asset, liability or equity amount to the extent affected by any of the
matters referred to in the preceding clauses (a) or (b).
27
5.23 Market Conduct. The Company and the Subsidiaries, and, to
the Knowledge of the Company, their respective agents, brokers and
representatives, have marketed, sold and issued Company Insurance Contracts in
compliance with applicable Laws in the respective jurisdictions in which such
products have been sold, except where the failure to be in compliance would not,
individually or in the aggregate, have or reasonably be expected to have, a
Material Adverse Effect. All advertising, promotional and sales materials and
other marketing practices used by the Company and, to the Knowledge of the
Company, any agents, brokers and representatives, in connection with the
marketing and sale of the Company Insurance Contracts, have complied and are
currently in compliance with applicable Laws, except where the failure to be in
compliance would not, individually or in the aggregate, have or reasonably be
expected to have, a Material Adverse Effect. Neither the manner in which the
Company or any Subsidiary compensates any Person involved in the sale or
servicing of the Company Insurance Contracts that is not an insurance agent,
nor, to the Knowledge of the Company, the conduct of any such Person, renders
such Person an insurance agent under any applicable Laws, and the manner in
which the Company or any Subsidiary compensates each Person involved in the sale
or servicing of the Company Insurance Contracts is in compliance with all
applicable Laws, except, in each case, where the failure to be in compliance
would not, individually or in the aggregate, have or reasonably be expected to
have, a Material Adverse Effect.
5.24 Reinsurance and Retrocessions. Schedule 5.24(i) sets
forth an accurate and complete list, as of the date hereof, of (i) all
reinsurance and retrocession Contracts in force as of the date of this Agreement
to which the Company or any Subsidiary is a ceding party or an assuming
reinsurer, (ii) any terminated or expired reinsurance or retrocession Contracts
of any Subsidiary under which there remains any outstanding reserves in excess
of $50,000 and (iii) any reinsurance or retrocession Contracts with any
Affiliate of the Company (collectively, "Reinsurance Contracts"). All such
Reinsurance Contracts set forth on Schedule 5.24(i) are in full force and effect
(except that the enforceability thereof is subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and similar laws
affecting creditors' rights and remedies generally) and except as would not,
individually or in the aggregate, have, or reasonably be expected to have, a
Material Adverse Effect, no Subsidiary is in default in any material respect as
to any material provision of any Reinsurance Contract set forth on Schedule
5.24(i) and, to the Knowledge of the Company, there are no material disputes
under any of the Reinsurance Contracts. Except as set forth on Schedule
5.24(ii), no such Reinsurance Contract contains any provision (x) providing that
any of the other parties thereto may terminate or otherwise modify such
Reinsurance Contract by reason of the transactions contemplated by this
Agreement, (y) which requires the consent of any other party thereto in
connection with the transactions contemplated by this Agreement or (z) which by
its own terms would result in a modification in the operation of the Reinsurance
Contract by reason of the transactions contemplated by this Agreement. To the
Knowledge of the Company, none of the other parties to any Reinsurance Contract
is in material breach, violation or default of any Reinsurance Contract. Except
as set forth in Schedule 5.24 (iii), to the Knowledge of the Company, each of
the Subsidiaries is entitled to take full credit in its statutory financial
statements pursuant to applicable Laws for all reinsurance ceded pursuant to any
Reinsurance Contract.
5.25 Insurance Coverage. Schedule 5.25(i) sets forth an
accurate and complete list of all insurance policies purchased (as opposed to
issued) by the Company and the Subsidiaries relating to the Assets, business,
operations, employees, officers or directors of the Company and the
Subsidiaries. The Company has provided or made available to Purchaser true and
complete copies of all such insurance policies. The policies listed on Schedule
5.25(i) are in full force and effect and insure against risks and liabilities
customary for the business in which the Company and the Subsidiaries are
engaged. Except as set forth on Schedule 5.25(ii), neither the Company nor any
of the Subsidiaries has received a notice of cancellation or nonrenewal of any
such policy and, to the Knowledge of the Company, no state of facts exists which
might form the basis for termination of any such policy. Except as set forth on
Schedule 5.25(iii), the Company and the Subsidiaries have made or will have made
provision for insurance coverage consistent with current practices through the
Closing Date. To the Knowledge of the Company, none of such insurance policies
is in default, and neither the Company nor any Subsidiary has failed to give any
notice or present any claim thereunder in due or timely fashion or as required
by any of such insurance policies so as to jeopardize full recovery under such
policies. The Company, Seller or an Affiliate of Sellers has paid, or will have
paid or accrued, all premiums payable for periods through the Closing Date with
respect to such insurance policies.
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5.26 Transactions with Certain Persons. Schedule 5.26 contains
an accurate and complete list of all Contracts, transfers of Assets or
Liabilities, provision of goods or services or other commitments or transactions
(whether or not reduced to writing and whether or not entered into in the
Ordinary Course of Business) between the Company or any Subsidiary and any of
the following Persons: (i) Seller or any of its Affiliates (other than the
Company and the Subsidiaries) and (ii) any director, officer, employee,
consultant or senior executive of Seller or any subsidiary of Seller (including
the Company and the Subsidiaries), or any Person related by blood or marriage to
such natural Person.
5.27 Bank Accounts. Schedule 5.27 sets forth a complete and
accurate list of bank accounts and investment accounts maintained by the Company
and the Subsidiaries, including the name of each bank or other institution,
account numbers and a list of signatories to such account.
5.28 Environmental Laws. Except as set forth on Schedule 5.28,
the Company and each Subsidiary is in compliance with all material applicable
environmental Laws and possesses and is in compliance with all material
environmental Permits required under such laws for the conduct of its business
and operations. To the Knowledge of the Company, (i) neither the Company nor any
Subsidiary has received any claims or notices alleging any material liability
relating to any environmental Laws, and (ii) there are and have been no
conditions at any property owned, operated or otherwise used by the Company or
any Subsidiary now or in the past, or at any other location, that would give
rise to material liability of the Company or any Subsidiary under any
environmental Law.
5.29 Internal Controls.
(a) The Company's and the Subsidiaries' internal controls and
procedures are sufficient to ensure that the SAP Statements fairly present, in
all material respects, the statutory financial position and the statutory
results of operation of the Insurance Subsidiaries as at and for the periods
indicated therein. All accounts, books, records and ledgers related to the
business of the Company and the Subsidiaries are complete in all material
respects as at and for the periods indicated therein, and there are no material
inaccuracies or discrepancies contained or reflected therein with respect to
periods subsequent to June 30, 2005 or, to the Knowledge of the Company, with
respect to periods prior to June 30, 2005.
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(b) Except as set forth in Schedule 5.29(b), to the Knowledge
of the Company, no director, officer or other individual identified in Schedule
5.29(b) has since December 31, 2007, received or been under a duty to report
(including any self reporting obligation) any material complaint, allegation,
assertion or claim, whether written or oral, regarding the accounting, reserving
or auditing practices, procedures, methodologies or methods of the Company or
the Subsidiaries, including any complaint, allegation, assertion or claim that
the Company or the Subsidiaries has engaged in questionable accounting,
reserving or auditing practices with respect to the SAP Statements or any
statutory financial statements of HIC or Kodiak filed after the date hereof.
5.30 Certain Producers.
(a) Schedule 5.30(a)(i) sets forth all Contracts between the
Company or any Subsidiary and any Prohibited Producer in effect as of the date
hereof. Except as set forth on Schedule 5.30(a)(ii), all Contracts between the
Company or any Subsidiary and a producer in effect as of the date hereof that
contain contingent commission arrangements are in substantially the form of the
Contracts set forth on Schedule 5.30(a)(ii). Each Contract set forth on
Schedules 5.30(a)(i) and (ii) is referred to herein as a "Producer Contract."
(b) Except as set forth on Schedule 5.30(b), as of the date
hereof (i) each Producer Contract is in full force and effect and is the legal,
valid, binding and enforceable obligation of the Company or the Subsidiary which
is a party to such Producer Contract (subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity)), (ii) to the
Knowledge of the Company, each Producer Contract is the legal, valid, binding
and enforceable obligation of the Other Parties thereto (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity)) and (iii) none of
the Company or any Subsidiary, or, to the Knowledge of the Company, the Other
Parties is in material breach, violation or default, and, to the Knowledge of
the Company, no event has occurred which with or without notice or lapse of time
or both would constitute a material breach, violation or default by any such
party, permit termination, modification, or acceleration by the Other Parties,
or lead to the loss of any material benefit to the Company or any Subsidiary
pursuant to the terms of any Producer Contract except for breaches, violations
or defaults which would not, individually or in the aggregate, have, or
reasonably be expected to have, a Material Adverse Effect.
(c) Seller has made available true, correct and complete
copies of all of the Producer Contracts set forth on Schedule 5.30(a)(i) and
(ii).
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5.31 Certain Reinsurance Arrangements. Schedule 5.31 sets
forth a complete list of each cut-through endorsement issued pursuant to the (i)
Interim Quota Share Reinsurance Agreement, dated as of December 20, 2007,
between XXXX and HIC or (ii) Interim Quota Share Reinsurance Agreement, dated as
of February 8, 2008, between XXXX and Kodiak or (iii) the Bulk Quota Share
Reinsurance Agreement, dated as of July 31, 2008, by and between Kodiak and
XXXX.
5.32 No Other Representations or Warranties; Schedules. Except
for the representations and warranties contained in this Article V (as modified
by the Schedules hereto), neither the Company nor any other Person makes any
other express or implied representation or warranty with respect to the Company,
the Subsidiaries or the transactions contemplated by this Agreement, and the
Company disclaims any other representations or warranties, whether made by the
Company, Seller or any of their respective Affiliates or Representatives. The
Company and Seller make no representations or warranties to Purchaser regarding
the probable success or profitability of the Company.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES RELATING TO SELLER
Seller hereby represents to Purchaser that:
6.1 Organization and Good Standing. Seller is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, formation or organization, as applicable, and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now conducted.
6.2 Authorization of Agreement. Seller has all requisite
corporate or equivalent power, authority and legal capacity to execute and
deliver this Agreement and each other agreement, document, or instrument or
certificate contemplated by this Agreement or to be executed by Seller in
connection with the consummation of the transactions contemplated by this
Agreement (together with this Agreement, the "Seller Documents"), and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and each of the Seller Documents and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all required corporate or equivalent action on the part of Seller. This
Agreement has been, and each of the Seller Documents will be at or prior to the
Closing, duly and validly executed and delivered by Seller, and (assuming the
due authorization, execution and delivery by the other parties hereto and
thereto) this Agreement constitutes, and each Seller Document, when so executed
and delivered will constitute, the legal, valid and binding obligation of
Seller, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
6.3 Conflicts; Consents of Third Parties.
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(a) None of the execution, delivery and performance by Seller
of this Agreement or the Seller Documents, the consummation of the transactions
contemplated hereby or thereby, or compliance by Seller with any of the
provisions hereof or thereof will conflict with, or result in any violation of
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination or cancellation under, or give rise to the
creation of a Lien on the Shares, the shares of stock of any Subsidiary or the
Assets under, any provision of (i) the certificate of incorporation and bylaws
(or other organizational and governing documents) of Seller; (ii) any Contract
or Permit to which Seller is a party or by which any of the properties or assets
of Seller are bound; (iii) any Order of any Governmental Body applicable to
Seller or by which any of the properties or assets of Seller are bound; or (iv)
any applicable Law, other than in the case of clauses (ii), (iii) and (iv), such
conflicts, violations, defaults, terminations or cancellations, that would not
have, or reasonably be expected to have, a material adverse effect on Seller's
ability to consummate the transactions contemplated hereby or by any Seller
Document.
(b) Except as set forth on Schedule 6.3(b) hereto, no consent,
waiver, approval, Order, Permit or authorization of, or declaration or filing
with, or notification to, any Governmental Body or other Person is required on
the part of Seller in connection with the execution and delivery of this
Agreement or the Seller Documents, or the compliance by Seller with any of the
provisions hereof or thereof, the consummation of the transactions contemplated
hereby, except (i) for compliance with the applicable requirements of the HSR
Act, (ii) in connection or in compliance with the insurance laws of the
jurisdictions set forth in Schedule 6.3(b)(ii), (iii) for such other consents,
waivers, approvals or authorizations of Persons (other than Governmental Bodies)
as have been obtained on or before the date hereof and (iv) for such other
consents, waivers, approvals, Orders, permits or authorizations, the failure of
which to obtain would not have, or reasonably be expected to have, a material
adverse effect on Seller's ability to consummate the transactions contemplated
hereby.
6.4 Ownership and Transfer of Shares. Seller is the record and
beneficial owner of the Shares, free and clear of any and all Liens, other than
Liens resulting from this Agreement. Seller has the corporate or equivalent
power and authority to sell, transfer, assign and deliver such Shares as
provided in this Agreement, and such delivery will convey to Purchaser good and
marketable title to such Shares, free and clear of any and all Liens.
6.5 Litigation. There are no Legal Proceedings pending or, to
the knowledge of Seller, threatened that are reasonably likely to prohibit or
restrain the ability of Seller to enter into this Agreement or consummate the
transactions contemplated hereby or by any Seller Document.
6.6 Financial Advisors. Except as set forth on Schedule 6.6,
no Person has acted, directly or indirectly, as a broker, finder or financial
advisor for Seller in connection with the transactions contemplated by this
Agreement, and no such Person is entitled to any fee or commission or like
payment in connection with the transactions contemplated by this Agreement based
on arrangements made by Seller or any Affiliate of Seller. Seller is solely
responsible for the fees and expenses of the Person(s) set forth in Schedule
6.6.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that:
7.1 Organization and Good Standing. Purchaser is a company
duly organized, validly existing and in good standing under the laws of the
Islands of Bermuda and has all requisite corporate power and authority to own,
lease and operate its properties and carry on its business as now conducted.
7.2 Authorization of Agreement. Purchaser has full corporate
power and authority to execute and deliver this Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement or
to be executed by Purchaser in connection with the consummation of the
transactions contemplated hereby and thereby (the "Purchaser Documents"), and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Purchaser of this Agreement and each Purchaser
Document have been duly authorized by all necessary corporate action on behalf
of Purchaser. This Agreement has been, and each Purchaser Document will be at or
prior to the Closing, duly executed and delivered by Purchaser and (assuming the
due authorization, execution and delivery by the other parties hereto and
thereto) this Agreement constitutes, and each Purchaser Document when so
executed and delivered will constitute, the legal, valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
7.3 Conflicts; Consents of Third Parties.
(a) Except as set forth on Schedule 7.3(a), none of the
execution, delivery and performance by Purchaser of this Agreement or the
Purchaser Documents, the consummation of the transactions contemplated hereby or
thereby, or the compliance by Purchaser with any of the provisions hereof or
thereof will conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination or cancellation under, any provision of (i) the certificate of
incorporation and bylaws of Purchaser; (ii) any Contract or Permit to which
Purchaser is a party or by which Purchaser or its properties or assets are
bound; (iii) any Order of any Governmental Body applicable to Purchaser or by
which any of the properties or assets of Purchaser are bound; or (iv) any
applicable Law, other than in the case of clauses (ii), (iii) and (iv), such
conflicts, violations, defaults, terminations or cancellations, that would not
have, or reasonably be expected to have, a material adverse effect on
Purchaser's ability to consummate the transactions contemplated hereby or by any
Purchaser Document.
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(b) No consent, waiver, approval, Order, Permit or
authorization of, or declaration or filing with, or notification to, any Person
or Governmental Body is required on the part of Purchaser in connection with the
execution and delivery of this Agreement or the Purchaser Documents, the
compliance by Purchaser with any of the provisions hereof or thereof, the
consummation of the transactions contemplated hereby or the taking by Purchaser
of any other action contemplated hereby, except (i) for compliance with the
applicable requirements of the HSR Act, (ii) in connection or in compliance with
the insurance laws of the jurisdictions set forth in Schedule 7.3(b), (iii) for
such other consents, waivers, approvals or authorizations of Persons (other than
Governmental Bodies) as have been obtained on or before the date hereof and (iv)
for such other consents, waivers, approvals, Orders, permits or authorizations,
the failure of which to obtain would not have, or reasonably be expected to
have, a material adverse effect on Purchaser's ability to consummate the
transactions contemplated hereby.
7.4 Litigation. There are no Legal Proceedings pending or, to
the knowledge of Purchaser, threatened that are reasonably likely to prohibit or
restrain the ability of Purchaser to enter into this Agreement or consummate the
transactions contemplated hereby or by any Purchaser Document.
7.5 Investment Intention. Purchaser is acquiring the Shares
for its own account, for investment purposes only and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act") thereof. Purchaser understands that the
Shares have not been registered under the Securities Act and cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available.
7.6 Financial Advisors. Except as set forth on Schedule 7.6,
no Person has acted, directly or indirectly, as a broker, finder or financial
advisor for Purchaser in connection with the transactions contemplated by this
Agreement, and no such Person is entitled to any fee or commission or like
payment in connection with the transactions contemplated by this Agreement based
on arrangements made by Purchaser or any Affiliate of Purchaser. Purchaser is
solely responsible for the fees and expenses of the Person(s) set forth in
Schedule 7.6.
7.7 Financial Capability. Notwithstanding the Company's
compliance or noncompliance with its obligations in Section 8.13 or Section 8.21
or the success or failure of any of Purchaser's capital raising efforts or other
transactions contemplated therein, including the transactions contemplated by
that certain Agreement and Plan of Merger, dated as of August 4, 2008, among
Tower Group, Inc., Ocean I Corporation and CastlePoint Holdings, Ltd. (the
"Ocean Merger Agreement"), Purchaser (i) has, and at the Closing, will have,
sufficient internal funds (without giving effect to any unfunded financing
regardless of whether any such financing is committed) available to pay the
Purchase Price and any expenses incurred by Purchaser in connection with the
transactions contemplated by this Agreement, (ii) has, and at the Closing will
have, the resources and capabilities (financial or otherwise) to perform its
obligations hereunder, and (iii) has not incurred any obligation, commitment,
restriction or Liability of any kind, which would impair or adversely affect
such resources and capabilities.
7.8 Condition of the Business. Purchaser acknowledges and
agrees that neither the Company nor Seller is making any representations or
warranties whatsoever, express or implied, beyond those expressly given by the
Company and Seller, as the case may be, in Article V and Article VI,
respectively (as modified by the Schedules delivered to Purchaser on the date of
this Agreement), and Purchaser acknowledges and agrees that, except for the
representations and warranties contained therein, the assets and the business of
the Company and the Subsidiaries are being transferred on a "where is" and, as
to condition, "as is" basis. Any claims Purchaser may have for breach of
representation or warranty shall be based solely on the representations and
warranties of the Company or Seller set forth in Article V or Article VI,
respectively (as modified by the Schedules delivered to Purchaser on the date of
this Agreement). Purchaser acknowledges that it has conducted to its
satisfaction, its own independent investigation of the condition, operations and
business of the Company and the Subsidiaries and has been provided access and an
opportunity to review the information in respect of the Company and the
Subsidiaries requested by Purchaser to its satisfaction. In making its
determination to proceed with the transactions contemplated by this Agreement,
Purchaser has relied on the representations and warranties of the Company and
Seller solely for purposes of conditions to closing as provided in Article IX
and indemnification as provided in Article X, and otherwise has relied on the
results of its own independent investigation.
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ARTICLE VIII
COVENANTS
8.1 Access to Information. Prior to the Closing, Purchaser
shall be entitled, through its Representatives, to make such investigation of
the properties, businesses and operations of the Company and the Subsidiaries
and such examination of the books and records of the Company and the
Subsidiaries as it reasonably requests and to make extracts and copies of such
books and records. Any such investigation and examination shall be conducted
during regular business hours upon reasonable advance notice and under
reasonable circumstances and shall be subject to restrictions under applicable
Law. The Company shall cause the Representatives of the Company and the
Subsidiaries to cooperate with Purchaser and Purchaser's Representatives in
connection with such investigation and examination, and Purchaser and its
Representatives shall cooperate with the Company and its Representatives and
shall use their reasonable efforts to minimize any disruption to the business.
Notwithstanding anything herein to the contrary, no such investigation or
examination shall be permitted to the extent that it would require the Company
or any of the Subsidiaries to disclose information subject to attorney-client
privilege or conflict with any confidentiality obligations to which the Company
or any of the Subsidiaries is bound. Notwithstanding anything to the contrary
contained herein, prior to the Closing, without the prior written consent of the
Company, which may be withheld for any reason, (i) Purchaser shall not contact
any suppliers to, or customers of, the Company outside of the ordinary course of
business of Purchaser (and any such contact in the ordinary course of business
of Purchaser shall in no event reference the transactions contemplated by this
Agreement), and (ii) Purchaser shall have no right to perform invasive or
subsurface investigations of the properties or facilities of the Company or any
of the Subsidiaries.
8.2 Conduct of the Business Pending the Closing.
(a) Prior to the Closing, except (I) as set forth on Schedule
8.2(a), (II) as required by applicable Law, (III) as otherwise contemplated by
this Agreement (including Section 8.2(b)) or (IV) with the prior written consent
of Purchaser, the Company shall, and shall cause the Subsidiaries to, and Seller
shall cause the Company and the Subsidiaries to, conduct the respective
businesses of the Company and the Subsidiaries only in the Ordinary Course of
Business and in accordance with the Company's current material underwriting,
marketing, reserving, claims adjustment, settlement, reinsurance or investment
practices, policies or guidelines and use commercially reasonable efforts to (i)
preserve the rights, franchises, goodwill and relations of their customers and
others with whom business relationships exist and (ii) keep available the
services of their present executive officers. In addition, Seller acknowledges
that Purchaser intends to enter into discussions with the individuals set forth
on Schedule 8.2(a)(ii) related to the provision of post-Closing transition and
integration services to Purchaser, the Company and the Subsidiaries, on terms
and conditions that may be agreed upon by Purchaser and such individuals.
35
(b) Except (I) as set forth on Schedule 8.2(b), (II) as
required by applicable Law, (III) as otherwise contemplated by this Agreement,
or (IV) with the prior written consent of Purchaser, the Company shall not, and
shall not permit the Subsidiaries to, and Seller shall not permit or cause the
Company or the Subsidiaries to:
(i) declare, set aside, make or pay any dividend or
other distribution in respect of the capital stock of the Company or
the Subsidiaries or repurchase, redeem or otherwise acquire any
outstanding shares of the capital stock or other securities of, or
other ownership interests in, the Company or any of the Subsidiaries;
(ii) transfer, issue, sell or dispose of any shares
of capital stock or other securities of the Company or any of the
Subsidiaries or grant options, warrants, calls or other rights to
purchase or otherwise acquire shares of the capital stock or other
securities of the Company or any of the Subsidiaries;
(iii) effect any recapitalization, reclassification
or like change in the capitalization of the Company or any of the
Subsidiaries;
(iv) amend the certificate of incorporation or bylaws
or comparable organizational documents of the Company or any of the
Subsidiaries;
(v) other than in the Ordinary Course of Business (A)
increase by more than five (5) percent the annual base level of
compensation payable by the Company or any of the Subsidiaries to any
of their respective employees, directors or executive officers without
Purchaser's written consent, which consent shall not be unreasonably
withheld or delayed, (B) grant any bonus, benefit or other direct or
indirect compensation to any employee, director or executive officer
excluding (1) the approximately $1,200,000 of accrued stay bonuses as
of December 31, 2007 to be paid in 2008, (2) amounts paid or payable to
the employees hired since January 1, 2008 in connection with the
opening, establishment and operations of the Mobile, Alabama office of
Kodiak, (3) acceleration of the payment to the Closing Date of regular
annual bonuses accrued in the Ordinary Course of Business pursuant to
the Company or its Subsidiaries' existing practices and procedures and
(4) amounts which do not in the aggregate exceed $250,000 and (C)
materially increase the coverage or benefits available under any (or
create any new) Company Benefit Plan, except, in each case, as required
by applicable Law that is effective on or prior to the Closing Date or
by the terms of any Contracts or Company Benefit Plans as such terms
are in effect on the date of this Agreement;
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(vi) other than claims made against the Company or
any Subsidiary in the Ordinary Course of Business, subject to any Lien,
any of the Assets of the Company or any of the Subsidiaries, except for
Permitted Exceptions;
(vii) acquire any material properties or assets or
sell, assign, license, transfer, convey, lease or otherwise dispose of
any of the material Assets of the Company and the Subsidiaries (except
pursuant to an existing Contract or for the purpose of disposing of
obsolete or worthless assets);
(viii) other than in the Ordinary Course of Business
or as otherwise permitted hereunder, cancel or compromise any material
debt or claim or waive or release any material right of the Company or
any of the Subsidiaries;
(ix) enter into any commitment for capital
expenditures of the Company and the Subsidiaries in excess of $100,000
for any individual commitment and $500,000 for all commitments in the
aggregate;
(x) enter into, modify or terminate any labor or
collective bargaining agreement of the Company or any of the
Subsidiaries;
(xi) acquire (by merger, consolidation, acquisition
of stock or assets or otherwise) any corporation, partnership or other
business organization or division;
(xii) (A) make, change or rescind any material
election relating to Taxes, (B) except as required by applicable Law,
make any material change to any of its methods, policies or practices
of accounting or of reporting income or deductions for Tax from those
employed in the preparation of its most recent Tax Return, (C) settle
or compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, (D)
amend any Tax Returns, (E) request a ruling relating to Taxes, (F)
enter into any agreements with a Taxing Authority, or terminate any
agreements entered into with a Taxing Authority that is in effect as of
the date hereof; or (G) grant any power of attorney relating to Tax
matters; in each case, only to the extent the items described in
clauses (A)-(G) relate solely to the Company and any Subsidiary or
would be binding on the Company or any Subsidiary after the Closing
Date;
(xiii) make any material change in any method of
accounting or accounting practice or policy used by the Company or any
of the Subsidiaries in the preparation of its financial statements,
other than such changes required by SAP or applicable Law;
(xiv) without Purchaser's written consent, which
consent shall not be unreasonably withheld or delayed, make any
material change in any of their underwriting, marketing, reserving,
claims adjustment, settlement, reinsurance or, subject to Section 8.20,
investment practices, policies or guidelines;
37
(xv) liquidate, dissolve, recapitalize or otherwise
wind up their businesses;
(xvi) incur or modify the terms of any Indebtedness,
issue any debt securities or assume, grant, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations
of any Person (other than the Company and the Subsidiaries), or make
any loans or advances to any Person (other than the Company and the
Subsidiaries);
(xvii) without Purchaser's written consent, which
consent shall not be unreasonably withheld or delayed, enter into any
settlement or release with respect to any material Legal Proceeding,
excluding litigation associated with Company Insurance Contracts where
the settlement and release relates to amounts less than $1,000,000, net
of reinsurance protections;
(xviii) enter into any Contracts or transactions with
Affiliates (other than the Company and the Subsidiaries);
(xix) except as set forth on Schedule 8.2(b)(xix) or
with Purchaser's written consent, which consent shall not be
unreasonably withheld or delayed, enter into, amend, modify or
terminate any Material Contract other than renewal of reinsurance
agreements (other than those specified on Schedule 8.2(b)(xix))in the
Ordinary Course of Business;
(xx) other than in the Ordinary Course of Business,
pay, discharge or satisfy any material Liabilities, except as permitted
by Section 8.2(b)(xvii);
(xxi) fail to maintain in full force and effect
insurance policies covering the Assets, business, operations,
employees, officers or directors of the Company and the Subsidiaries in
a form and amount consistent with past practice; or
(xxii) agree to do anything prohibited by, or that
would require Purchaser's consent under, this Section 8.2.
(c) Prior to the Closing, Seller and the Company shall provide
to Purchaser copies of the following reports and materials no later than two (2)
Business Days after such reports or materials are generated or produced: XXXXX0,
XXXXX0, Hyperion investment reports and the quarterly spreadsheets substantially
in the form of the spreadsheets prepared by Xxxxx Xxxxxx in respect of the
six-month period ended June 30, 2008 previously provided to Purchaser.
8.3 Consents. The Purchaser and the Company shall use (and the
Company shall cause the Subsidiaries to use) their commercially reasonable
efforts, and Seller shall cooperate with Purchaser, the Company and the
Subsidiaries, to obtain at the earliest practicable date all consents and
approvals required to consummate the transactions contemplated by this
Agreement, including, without limitation, the consents and approvals referred to
in Sections 5.3(b), 6.3(b) and 7.3(b) hereof, provided, however, that no party
shall be obligated to pay any consideration to any third party from whom consent
or approval is requested, other than as provided in Section 8.4 and as set forth
on Schedule 8.3.
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8.4 Regulatory Approvals.
(a) Each of Purchaser, the Company and Seller (if necessary)
shall (i) make or cause to be made all filings required of each of them or any
of their respective Subsidiaries or Affiliates with any Governmental Body
(including under the HSR Act, other Antitrust Laws or Insurance Laws) with
respect to the transactions contemplated hereby as promptly as practicable and,
in any event, within seven (7) Business Days after the date of this Agreement in
the case of all filings required under the HSR Act and fifteen (15) Business
Days after the date of this Agreement in the case of all other filings, (ii)
comply at the earliest practicable date, and, in any event, no later than
fifteen (15) Business Days, with any request by any Governmental Body (including
under the HSR Act, other Antitrust Laws or Insurance Laws) for additional
information, documents, or other materials received by each of them or any of
their respective subsidiaries or Affiliates from the FTC, the Antitrust Division
or any other Governmental Body in respect of such filings or such transactions,
(iii) cooperate with each other in connection with any such filing (including,
to the extent permitted by applicable Law, providing copies of all such
documents to the non-filing parties prior to filing and considering all
reasonable additions, deletions or changes suggested in connection therewith as
well as consulting with the non-filing parties as to the status, progress and
issues affecting the receipt of approvals in respect of such filings) and in
connection with resolving any investigation or other inquiry of any of the FTC,
the Antitrust Division or other Governmental Body with respect to any such
filing or any such transaction; provided, however, that Purchaser and its
Affiliates shall not be required to (x) hold separate (including by trust or
otherwise) or divest any of its or their material businesses, product lines or
assets or (y) agree to any material limitation on the operation or conduct of
its or their business, except for customarily imposed restrictions, including,
but not limited to, restrictions on the ability of the Insurance Subsidiaries to
declare dividends or other distributions. Each such party shall use its
commercially reasonable efforts to furnish to each other all information
required for any application or other filing to be made pursuant to any
applicable Law in connection with the transactions contemplated by this
Agreement. Each such party shall promptly inform the other parties hereto of any
oral communication with, and provide copies of written communications with, any
Governmental Body regarding any such filings or any such transaction. No party
hereto shall independently participate in any formal meeting with any
Governmental Body in respect of any such filings, investigation, or other
inquiry without giving the other parties hereto prior notice of the meeting and,
to the extent permitted by such Governmental Body, the opportunity to attend
and/or participate. Subject to applicable Law, the parties hereto will consult
and cooperate with one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto relating to proceedings with any
Governmental Body. Any party may, as it deems advisable and necessary,
reasonably designate any competitively sensitive material provided to the other
parties under this Section 8.4 as "outside counsel only." Such materials and the
information contained therein shall be given only to the outside legal counsel
of the recipient and will not be disclosed by such outside counsel to employees,
officers, or directors of the recipient, unless express written permission is
obtained in advance from the provider of the materials.
39
(b) Each of Purchaser, Seller and the Company shall use its
commercially reasonable efforts to resolve such objections, if any, as may be
asserted by any Governmental Body with respect to the transactions contemplated
by this Agreement under (i) the HSR Act, the Xxxxxxx Act, as amended, the
Xxxxxxx Act, as amended, the Federal Trade Commission Act, as amended, and any
other United States federal or state or foreign statutes, rules, regulations,
orders, decrees, administrative or judicial doctrines or other laws that are
designed to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade (collectively, the "Antitrust Laws") or
(ii) any applicable Insurance Law; provided, however, that Purchaser and its
Affiliates shall not be required to (x) hold separate (including by trust or
otherwise) or divest any of its or their material businesses, product lines or
assets or (y) agree to any material limitation on the operation or conduct of
its or their business, except for customarily imposed restrictions, including,
but not limited to, restrictions on the ability of the Insurance Subsidiaries to
declare dividends or other distributions. In connection therewith, if any Legal
Proceeding is instituted (or threatened to be instituted) by any Person other
than a Governmental Body challenging any transaction contemplated by this
Agreement as in violation of any applicable Law (including Antitrust Laws and
Insurance Laws), each of Purchaser and the Company shall cooperate and use its
commercially reasonable efforts to contest and resist any such Legal Proceeding,
and to have vacated, lifted, reversed, or overturned any decree, judgment,
injunction or other order issued in such Legal Proceeding whether temporary,
preliminary or permanent, that is in effect and that prohibits, prevents, or
restricts consummation of the transactions contemplated by this Agreement,
including by pursuing all available avenues of administrative and judicial
appeal, unless by mutual agreement, Purchaser and the Company decide that
litigation is not in their respective best interests. Notwithstanding anything
to the contrary herein, none of Purchaser, Seller or the Company shall be
obligated to resort to Legal Proceedings against any Governmental Body whose
consent, authorization or approval (or non-disapproval) is necessary in order to
consummate the transactions contemplated by this Agreement. Each of Purchaser,
Seller and the Company shall use commercially reasonable efforts to take such
action as may be required to cause the expiration of the notice periods under
the HSR Act, other Antitrust Laws or Insurance Laws with respect to such
transactions as promptly as possible after the execution of this Agreement.
Purchaser shall pay all fees associated with any Insurance Law filings by
Purchaser, the Company and Seller in accordance with this Section 8.4, and the
Company, Purchaser and Seller shall each be responsible for their respective
filing fees in making any filings under Antitrust Laws hereunder.
(c) Prior to the Closing, Purchaser and its Affiliates shall
not propose the following in any filings made with any Governmental Body: (i)
the run-off of the Company or any of the Subsidiaries, (ii) except as set forth
on Schedule 8.4(c), any material change to the business or operations of the
Company or any of the Subsidiaries or (iii) to make the closing of the
transactions contemplated hereby contingent on the closing or approval of the
transactions contemplated by the Ocean Merger Agreement. Purchaser and its
Affiliates shall use commercially reasonable efforts to have the transactions
contemplated hereby approved by all applicable Governmental Bodies separate and
apart from the transactions contemplated by the Ocean Merger Agreement and, in
seeking such approvals, shall give priority to the transactions contemplated
hereby.
8.5 Further Assurances.
(a) Subject to, and not in limitation of, Section 8.4, each of
Seller, Purchaser and the Company shall use (and the Company shall cause each of
the Subsidiaries to use) its commercially reasonable efforts to (i) take all
actions necessary or appropriate to consummate the transactions contemplated by
this Agreement and (ii) cause the fulfillment at the earliest practicable date
of all of the conditions to their respective obligations to consummate the
transactions contemplated by this Agreement.
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(b) Seller and the Company shall, and shall cause the
Subsidiaries and their respective Affiliates to use commercially reasonable
efforts to (i) obtain Errors & Omissions and Professional Liability insurance
policies for American Resources Insurance Consultants, LLC ("XXXX, LLC"), in
form and substance, and from a provider, reasonably satisfactory to Purchaser;
and (ii) obtain any adjusters' or other licenses for XXXX, LLC's personnel that
are necessary in connection with the services provided by XXXX, LLC pursuant to
that certain Service Agreement, dated as of March 27, 2008, by and between XXXX
and XXXX, LLC, or provide evidence reasonably satisfactory to Purchaser that
such licenses are not required.
(c) In the event that Purchaser is notified by a third-party
that the use of Licensed Software by Purchaser is disputed or in violation of
such third party's licensing agreement, and such disputed software is then
currently in use by Purchaser in a production environment, Seller shall at
Purchaser's request and at Seller's expense engage a software developer with
relevant industry and technical experience to independently create replacement
source code as reasonably directed by Purchaser. Such obligation shall expire
thirty six (36) months after the Closing Date.
8.6 Confidentiality.
(a) Purchaser acknowledges that the information provided to it
in connection with this Agreement and the transactions contemplated hereby is
subject to the terms of the confidentiality agreement between Purchaser and the
Company dated April 16, 2008 (the "Confidentiality Agreement"), the terms of
which are incorporated herein by reference. Only upon the Closing and the
consummation of the transactions contemplated hereby, the Confidentiality
Agreement shall terminate effective as of the Closing Date.
(b) Seller shall not, and Seller shall cause its Affiliates
and their respective agents and representatives not to, from and after the
Closing Date until three years following the Closing Date, directly or
indirectly, disclose or use any confidential or proprietary information that
involves or relates to the Company and the Subsidiaries, including any
information contained in the books and records of the Company and the
Subsidiaries; provided, however, that disclosure and use of any such information
shall be permitted (i) with the prior written consent of Purchaser, (ii) as, and
to the extent, expressly permitted by this Agreement, (iii) as, and solely to
the extent, necessary or required for the performance by Seller, the Company or
any of their Affiliates of any of their respective obligations under this
Agreement, (iv) to the extent such information is generally available to, or
known by, the public or otherwise has entered the public domain (other than as a
result of disclosure in violation of this Section 8.6(b) by Seller, the Company
or any of their Affiliates), (v) as, and to the extent, necessary, required or
requested by any applicable Law or Governmental Body (including any Tax
Authority), subject to Section 8.6(c), and (vi) as, and to the extent, necessary
or required or reasonably appropriate in connection with the enforcement of any
right or remedy relating to this Agreement.
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(c) In the event that Seller or one of its Affiliates is
required by applicable Law or any Governmental Body to disclose any confidential
or proprietary information of the Company or any Subsidiary that is subject to
the restrictions under Section 8.6(b), Seller shall (i) notify Purchaser in
writing as soon as possible, unless it is otherwise affirmatively prohibited by
such applicable Law or such Governmental Body from notifying Purchaser, (ii) use
its commercially reasonable efforts to cooperate with Purchaser to preserve the
confidentiality of such confidential or proprietary information consistent with
the requirements of such applicable Law or such Governmental Body and (iii) use
its commercially reasonable efforts to limit any such disclosure to the minimum
disclosure necessary or required to comply with such applicable Law or such
Governmental Body
8.7 Director and Officer Indemnification. Seller shall cause
to be obtained and maintained in effect, for a period of six (6) years after the
Closing, tail policies of directors' and officers' liability insurance
protecting the officers and directors of the Company and the Subsidiaries who
held any such position at any time on or prior to the Closing (collectively, the
"Indemnified Officers") with coverages and containing terms and conditions
(including with respect to deductible, amount and payment of attorneys' fees)
that are no less favorable than those in existing policies. Such policy shall be
prepaid at the Closing and shall be non-cancelable. Purchaser shall cause the
Company to, maintain, for six (6) years from and after the Closing,
indemnification provisions in its organizational documents that are no less
favorable to the Indemnified Officers than those in effect with respect to the
Company immediately prior to the Closing. Notwithstanding any other provision of
this Agreement to the contrary, each of the parties agrees that from and after
the Closing Date each Indemnified Officer shall be a third party beneficiary
under this Agreement for purposes of enforcing this Section 8.7.
8.8 Preservation of Records. Seller and Purchaser agree that
each of them shall preserve and keep the records held by them or their
Affiliates relating to the respective businesses of the Company and the
Subsidiaries for a period of seven years from the Closing Date and, subject to
Section 8.6, shall make such records and personnel available to the other party
during regular business hours upon reasonable advance notice, under reasonable
circumstances and subject to restrictions under applicable Law as may be
reasonably required by such party in connection with (i) the preparation of
financial statements, regulatory filings or Tax returns of Seller or its
Affiliates in respect of periods ending on or prior to Closing or (ii) any
insurance claims by, Legal Proceedings or tax audits against, or governmental
investigations of Seller, Purchaser, the Company, the Subsidiaries or any of
their respective Affiliates or in order to enable Seller or Purchaser to comply
with their respective obligations under this Agreement and each other agreement,
document or instrument contemplated hereby or thereby. In the event Seller or
Purchaser wishes to destroy such records after that time, such party shall first
give 90 days prior written notice to the other and such other party shall have
the right at its option and expense, upon prior written notice given to such
party within that 90-day period, to take possession of the records within 180
days after the date of such notice. Seller shall be entitled, at its sole cost
and expense, to make copies of the books and records to which it is entitled to
access pursuant to this Section 8.8.
8.9 Publicity.
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(a) None of Seller, the Company or Purchaser shall issue any
press release or public announcement concerning this Agreement or the
transactions contemplated hereby without obtaining the prior written approval of
the other party hereto, which approval will not be unreasonably withheld or
delayed, unless, in the sole judgment of Seller, the Company or Purchaser, as
applicable, disclosure is otherwise required by applicable Law or by the
applicable rules of any stock exchange on which Seller (or its Affiliates), the
Company or Purchaser lists securities, provided that, to the extent required by
applicable Law, the party intending to make such release shall use its
commercially reasonable efforts consistent with such applicable Law to consult
with the other party with respect to the timing and content thereof.
(b) Each of Purchaser, the Company and Seller agree that the
terms of this Agreement shall not be disclosed or otherwise made available to
the public and that copies of this Agreement shall not be publicly filed or
otherwise made available to the public, except where such disclosure,
availability or filing is required by applicable Law and only to the extent
required by such Law.
8.10 Use of Name. Seller hereby agrees that upon the Closing,
(i) Seller and its Affiliates shall not have any right to the use of the name
"Hermitage" or "Kodiak" or similar names and any service marks, trademarks,
trade names, d/b/a names, fictitious names, identifying symbols, logos, emblems,
signs or insignia related thereto or containing or comprising the foregoing, or
otherwise used in the business of the Company, including any name or xxxx
confusingly similar thereto (collectively, the "Subject Marks") and (ii) Seller
shall not, and shall not permit its Affiliates to, use any of the Subject Marks.
After the Closing, Seller shall, and shall cause its Affiliates to, cease to
hold themselves out as having any further affiliation with the Company and the
Subsidiaries.
8.11 Employment and Employee Benefits. The Purchaser shall be
solely responsible and shall indemnify the Seller for (i) any claims for
severance payments and benefits (including claims for constructive termination)
by any employee of the Company or the Subsidiaries whose employment is
terminated on or after the Closing and (ii) any liability arising under the
Workers Adjustment and Retraining Notification Act and any state or local plant
closing or mass layoff law ("WARN") with respect to any person who is an
employee of the Company or the Subsidiaries as of the Closing by reason of any
"employment loss" (as defined in WARN) on or after the Closing.
8.12 Disclosure Schedules. The Company and Seller may, at
their option, include in the Schedules items that are not material in order to
avoid any misunderstanding, and such inclusion, or any references to dollar
amounts, shall not be deemed to be an acknowledgement or representation that
such items are material, to establish any standard of materiality or to define
further the meaning of such terms for purposes of this Agreement.
8.13 Interim SAP Statements.
(a) Up to and through the Closing Date or the earlier
termination of this Agreement, as soon as practicable and in any event no later
than (i) 45 days following each fiscal quarter of the Company completed before
the earlier of the Closing Date or the termination of this Agreement (other than
the fiscal quarter during which the Closing Date occurs) and (ii) 60 days
following the end of a fiscal year of the Company completed before the earlier
of the Closing Date or the termination of this Agreement (other than in the
event the Closing Date is within such 60 day period), the Company shall cause to
be prepared and delivered to Purchaser unaudited quarterly statutory statements
and supplements to the statutory statements of each of the Insurance
Subsidiaries as at the end of each such fiscal quarter or fiscal year, as
applicable, plus the adjustments to the balance sheets and income statements set
forth in the Transaction Accounting Principles. In addition, the Company shall
promptly deliver to Purchaser the audited SAP Statements for the year ended
December 31, 2008 for each of the Insurance Subsidiaries (the "2008 SAP
Statements") if the 2008 SAP Statements are available prior to the Closing Date
or the earlier termination of this Agreement.
43
(b) Any financial statements delivered to Purchaser pursuant
to this Section 8.13 shall have no bearing on the Purchase Price, Closing Date
Payment or the Final Closing Book Value as determined pursuant to Section 3.3
and shall not be delivered to or considered by the Independent Accounting Firm
in connection with its review, if any, of the Notice of Balance Sheet
Disagreement.
8.14 Control of Business. Notwithstanding anything in this
Agreement to the contrary, Purchaser acknowledges on behalf of itself and its
Affiliates and its and their directors, officers, employees, Affiliates, agents,
representatives, successors and assigns that the operation of the Company
remains in the dominion and control of the Company until the Closing and that
none of the foregoing Persons will provide, directly or indirectly, any
directions, orders, advice, aid, assistance or information to any director,
officer or employee of the Company, except as specifically contemplated or
permitted by Article VIII or as otherwise consented to in advance by an officer
of the Company.
8.15 Jointly Privileged Information. Notwithstanding any other
provision in this Agreement, prior to Closing, Seller shall be permitted to take
copies of any email, document and other records containing attorney-client
privileged information where the attorney-client privilege is held jointly
between one or more of the Company and any Subsidiary on the one hand, and
Seller or its Affiliate on the other ("Jointly Privileged Information"). From
and after the Closing, Purchaser shall cause the Company and each Subsidiary to
provide to Seller copies (including electronic, digital, or otherwise) of any
Jointly Privileged Information that is inadvertently not copied prior to
Closing.
8.16 Intercompany Accounts. All intercompany accounts (other
than those relating to Taxes and those in respect of the matters relating to
that certain Investment Management Agreement, by and between HIC and Hyperion
Capital Management, Inc. ("Hyperion"), dated January 1, 2006 and that certain
Investment Management Agreement, by and between Kodiak and Hyperion, dated
January 1, 2006) between the Company or any Subsidiary, on the one hand, and
Seller or any of its Affiliates, on the other hand, as of the Closing shall be
settled pursuant to the terms of the applicable agreements on or before the
Closing Date.
8.17 Bank Accounts. Prior to the Closing Date, Seller shall
cause the Company and the Subsidiaries to change, effective as of the Closing,
the individuals authorized to draw on or having access to the bank, savings,
deposit or custodial accounts and safe deposit boxes maintained by the Company
or the Subsidiaries to the individuals designated in writing by Purchaser.
44
8.18 Non-Competition.
(a) Seller agrees that, for a period of two and one half years
after the Closing Date, it shall not, and shall not permit any of its Affiliates
(other than any investment funds that are not dedicated to investments in the
insurance industry to which Seller or one or more of its Affiliates owes
fiduciary duties) to, directly or indirectly, (i) enter into any insurance
arrangement with the New York or Alabama office, as applicable, of any of the
producers set forth on Schedule 8.18 (each, a "Prohibited Producer") or (ii)
enter into any insurance arrangement with a Prohibited Producer pursuant to
which policies of insurance to be issued cover risks primarily located in New
York or Alabama. Notwithstanding the foregoing, Seller and its Affiliates may
own, directly or indirectly, solely as an investment, securities of any Person
that does business with a Prohibited Producer if none of Seller or any of its
Affiliates is a member of a group that controls such Person and they do not,
directly or indirectly, in the aggregate own 5% or more of any class of
securities of such Person.
(b) Notwithstanding the provisions of Section 8.18(a), nothing
in this Agreement shall preclude, prohibit or restrict Seller or any of its
Affiliates from engaging in any manner in any (i) business activity that would
otherwise violate Section 8.18(a) that is acquired from any Person (an "Acquired
Business") or is carried on by any Person that is acquired by or combined with
Seller or any of its Affiliates, in each case after the Closing Date (an
"Acquired Company"); provided, that (A) the revenues generated for the Acquired
Company by the New York or Alabama office of Prohibited Producers, or from
policies produced by Prohibited Producers covering risks primarily located in
New York or Alabama, during the most recently completed fiscal year of the
Acquired Company prior to such acquisition do not constitute more than the
lesser of $1,000,000 or ten percent (10%) of the Acquired Company's average
revenues (disregarding extraordinary items) from property-casualty insurance
operations over the three (3) most recently completed fiscal years of the
Acquired Company prior to such acquisition, or (B) if the revenues generated for
the Acquired Company by the New York or Alabama office of Prohibited Producers
during the most recently completed fiscal year of the Acquired Company prior to
such acquisition constitute more than the lesser of $1,000,000 or ten percent
(10%) of the Acquired Company's average revenues (disregarding extraordinary
items) from property-casualty insurance operations over the three (3) most
recently completed fiscal years of the Acquired Company prior to such
acquisition, then, within six (6) months, or such other period of time as the
parties may otherwise reasonably agree to, after the purchase or other
acquisition of the Acquired Business or the Acquired Company, (x) Seller or such
Affiliate shall sign a definitive agreement to dispose of the relevant portion
of the business or securities of the Acquired Business or the Acquired Company,
and shall subsequently dispose of the relevant portion of the business or
securities of the Acquired Business or the Acquired Company pursuant to such
definitive agreement or (y) the Acquired Business or the Acquired Company shall
comply with this Section 8.18 on or prior to the expiration of such six (6)
month period including, without limitation, by ceasing to do any business with a
Prohibited Producer, or (ii) business that is consistent (including with respect
to type, geographic scope and volume) with the current practices and operations
of Seller, Imagine Group Holdings Limited or any of its current subsidiaries or
affiliates, or any other Affiliate of Seller (other than the Company or its
Subsidiaries).
45
(c) If any provision of this Section 8.18 is held invalid in
part, it shall be curtailed, as to time, scope and location, to the minimum
extent required for its validity and shall be binding and enforceable with
respect to Seller and its Affiliates as so curtailed.
8.19 Non-Solicitation. For a period of eighteen (18) months
following the Closing Date, the Seller shall not, and shall cause its Affiliates
not to, directly or indirectly, induce or attempt to induce to leave the employ
of Purchaser, the Company or their respective Affiliates any Continuing
Employee, or hire without the consent of Purchaser and its Affiliates any
Continuing Employee, whether or not such Continuing Employee is a full-time or a
temporary Continuing Employee, and whether or not such employment is pursuant to
written agreement. Notwithstanding the limitations in this Section 8.19, such
limitations shall not prohibit Seller and its Affiliates from: (i) soliciting
the employment, employing or retaining any Continuing Employee after the
termination of such employee's employment by Purchaser, the Company or their
respective Affiliates at any time or (ii) placing public advertisements or
conducting any other form of general solicitation that is not specifically
targeted towards the Continuing Employees, including the use of an independent
employment agency or search firm whose efforts are not specifically directed at
Continuing Employees; provided, however, the Seller shall not, and shall direct
its Affiliates (as well as such independent employment agency or search firm)
not to, contact, interview, employ or retain as a consultant any Continuing
Employee referred by any such independent employment agency or search firm.
8.20 Certain Investment Securities. Prior to the Closing, the
Company shall, and shall cause the Subsidiaries to, sell the securities set
forth on Schedule 8.20(a) for cash settlement. In addition, the Company shall
not, and the Company shall ensure that the Subsidiaries do not, make any new
investments (with the funds from the foregoing sale or otherwise) in any
securities which meet any of the criteria set forth on Schedule 8.20(b).
8.21 Cooperation in Connection with Offering Materials.
(a) Seller and the Company agree to provide, and shall cause
the Subsidiaries and the respective officers, employees and representatives of
Seller, the Company and the Subsidiaries to provide, at Purchaser's expense,
commercially reasonable cooperation in connection with the arrangement of any
financing undertaken by Purchaser prior to the Closing Date or any proxy
statement filed by Purchaser prior to the Closing Date, including (i) providing
to Purchaser (and Purchaser may provide to its financing sources under
appropriate confidentiality agreements approved by Seller in its reasonable
discretion) information regarding the Company reasonably requested by the
Purchaser or the Persons providing or arranging such financing, (ii) assisting
Purchaser and its financing sources in the preparation of (A) one or more
offering documents and/or confidential information memoranda for any such
financing, (B) materials for rating agency presentations, (C) a proxy statement
relating to the transactions contemplated by the Ocean Merger Agreement and (D)
any financial statements (including audited financial statements) prepared in
accordance with GAAP that Purchaser shall reasonably require to be included in
any of the foregoing, (iii) providing and executing documents as may be
reasonably requested by Purchaser, including customary (A) certificates
(including solvency certificates), (B) representation letters and (C) consents
46
of accountants for use of their reports in any such proxy statement or any
materials relating to such financing and (iv) using its commercially reasonable
efforts to cause the Company's independent accountants to provide assistance to
Purchaser, including providing any necessary "comfort letters" and assistance
with the preparation of any pro forma financial information that Purchaser may
reasonably request in connection with any such financing or any such proxy
statement. Any audited financial statements provided hereunder will be audited
by the Company's independent auditors at Purchaser's expense. Notwithstanding
the foregoing obligations of Seller and the Company, (x) except as provided by
clause (y), Purchaser shall not delay the Closing or refuse to consummate the
transactions contemplated by this Agreement based on the noncompliance by
Seller, the Company and the Subsidiaries with the provisions of this Section
8.21(a) and (y) in the case of financial statements of the Company that
Purchaser shall reasonably determine are needed in Offering Materials in
connection with the transactions contemplated by the Ocean Merger Agreement,
including in connection with any shareholder vote required in connection with
such transactions, Purchaser shall not delay the Closing or refuse to consummate
the transactions contemplated by this Agreement based on any failure or
inability to produce any such financial statements of the Company, unless
Seller, the Company and the Subsidiaries have not provided the commercially
reasonable cooperation required by this Section 8.21(a); provided, however, that
Purchaser shall not delay the Closing or refuse to consummate the transactions
contemplated by this Agreement pursuant to this clause (y) based on any failure
of Seller, the Company and the Subsidiaries to comply with this Section 8.21
unless Purchaser has first provided written notice to the Company (such notice
setting forth in detail the reasons it believes that Seller, the Company and the
Subsidiaries have failed to comply with this Section 8.21) as promptly as
practicable following Purchaser's discovery of such noncompliance, and Seller,
the Company and the Subsidiaries shall have the opportunity to cure, to the
extent curable, such noncompliance within a reasonable period of time (and in no
event less than ten (10) Business Days) following receipt of such notice.
(b) Any financial statements delivered to Purchaser pursuant
to this Section 8.21 shall have no bearing on the Purchase Price, Closing Date
Payment or the Final Closing Book Value as determined pursuant to Section 3.3
and shall not be delivered to or considered by the Independent Accounting Firm
in connection with its review, if any, of the Notice of Balance Sheet
Disagreement. Purchaser and its Affiliates shall indemnify and hold harmless
each of Seller, the Company, and their respective Affiliates and Representatives
against any losses, claims, demands, judgments, damages, fines, suits, actions,
costs and expenses asserted by (x) Persons to whom the Offering Materials are
distributed, (y) any Governmental Body and (z) Persons who relied upon the
Offering Materials, to which Seller, the Company and their respective Affiliates
and Representatives may become subject insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) compliance with the covenant set forth in Section 8.21(b) or (ii) the
inclusion of any of the financial statements prepared pursuant to Section
8.21(b) in any document, including offering documents, confidential information
memoranda, materials for rating agency presentations and a proxy statement
(collectively, "Offering Materials") utilized by Purchaser or any of its
Affiliates. Prior to the delivery of any materials pursuant to Section 8.21(b),
Purchaser shall, and shall cause its Affiliates to, provide such further
instruments and documents as Seller and the Company may reasonably request to
evidence the foregoing indemnity. The Offering Materials shall specify that all
financial information contained in the Offering Materials are the responsibility
of Purchaser (or its applicable Affiliates) and that none of Seller, the Company
or any of their respective Affiliates and Representatives assume any liability
with respect thereto.
47
ARTICLE IX
CONDITIONS TO CLOSING
9.1 Conditions Precedent to Obligations of Purchaser. The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement is subject to the fulfillment, on or prior to the Closing Date, of
each of the following conditions (any or all of which may be waived by Purchaser
in whole or in part to the extent permitted by applicable Law):
(a) the representations and warranties of the Company and
Seller set forth in this Agreement, disregarding all qualifications contained
therein relating to materiality or Material Adverse Effect, shall be true and
correct at and as of the Closing Date as though made on the Closing Date, except
to the extent such representations and warranties relate to an earlier date (in
which case such representations and warranties shall be true and correct on and
as of such earlier date); provided, however, that in the event of a breach of a
representation or warranty, the condition set forth in this Section 9.1(a) shall
be deemed satisfied unless the effect of all such breaches of representations
and warranties taken together result in, or would reasonably be expected to
result in, a Material Adverse Effect, and Purchaser shall have received a
certificate signed by an authorized officer of the Company, dated the Closing
Date, to the foregoing effect;
(b) the Company and Seller shall have performed and complied
in all material respects with all obligations and agreements required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date, and Purchaser shall have received a certificate signed by an authorized
officer of the Company, dated the Closing Date, to the foregoing effect;
(c) there shall not be in effect any Order by a Governmental
Body of competent jurisdiction restraining, enjoining or otherwise prohibiting
the consummation of the transactions contemplated hereby;
(d) (i) the waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or early
termination shall have been granted and (ii) the consents, authorizations and
approvals set forth on Schedule 9.1(d) hereto shall have been obtained and shall
be in full force and effect, without, in the case of each of clauses (i) and
(ii), any condition, restriction, undertaking or limitations which would
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole or a
material adverse effect on Purchaser and its Affiliates taken as a whole;
(e) since the date hereof, there shall have been no Material
Adverse Effect, and no event or circumstance shall have occurred that would
reasonably be expected to have a Material Adverse Effect; and
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(f) on or prior to the Closing Date, Seller shall have
delivered all agreements, instruments and documents required to be delivered by
Seller pursuant to Section 4.2(a).
9.2 Conditions Precedent to Obligations of Seller. The
obligations of Seller to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, prior to or on the Closing Date, of
each of the following conditions (any or all of which may be waived by Seller in
whole or in part to the extent permitted by applicable Law):
(a) the representations and warranties of Purchaser set forth
in this Agreement (i) qualified as to materiality shall be true and correct at
and as of the Closing Date as though made on the Closing Date, except to the
extent such representations and warranties relate to an earlier date (in which
case such representations and warranties shall be true and correct on and as of
such earlier date) and (ii) that are not qualified as to materiality shall be
true and correct in all material respects at and as of the Closing Date as
though made on the Closing Date, except to the extent such representations and
warranties relate to an earlier date (in which case such representations and
warranties shall be true and correct in all material respects on and as of such
earlier date), and Seller shall have received a certificate signed by an
authorized officer of Purchaser, dated the Closing Date, to the foregoing
effect;
(b) Purchaser shall have performed and complied in all
material respects with all obligations and agreements required by this Agreement
to be performed or complied with by Purchaser on or prior to the Closing Date,
and Seller shall have received a certificate signed by an authorized officer of
Purchaser, dated the Closing Date, to the foregoing effect;
(c) there shall not be in effect any Order by a Governmental
Body of competent jurisdiction restraining, enjoining or otherwise prohibiting
the consummation of the transactions contemplated hereby;
(d) (i) the waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or early
termination shall have been granted and (ii) the consents, authorizations and
approvals set forth on Schedule 9.1(d) hereto shall have been obtained and shall
be in full force and effect;
(e) Purchaser shall have delivered, or caused to be delivered,
to Seller evidence of the wire transfers referred to in Section 3.2 hereof; and
(f) on or prior to the Closing Date, Purchaser shall have
delivered all agreements, instruments and documents required to be delivered by
Purchaser pursuant to Section 4.2(b).
9.3 Frustration of Closing Conditions. None of the Company,
Purchaser or Seller may rely on the failure of any condition set forth in
Sections 9.1 or 9.2, as the case may be, if such failure was caused by such
party's failure to comply with any provision of this Agreement.
ARTICLE X
INDEMNIFICATION
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10.1 Survival of Representations and Warranties.
(a) The representations and warranties of the parties
contained in this Agreement, any certificate delivered pursuant hereto or any
Seller Document, Company Document or Purchaser Document shall survive the
Closing through and including the eighteen (18) month anniversary of the Closing
Date; provided, however, that the representations and warranties (i) relating to
the Company set forth in Sections 5.1 (Organization and Good Standing), 5.2
(Authorization of Agreement), 5.4 (Capitalization), 5.5 (Subsidiaries) and 5.20
(Financial Advisors), shall survive the Closing indefinitely, (ii) relating to
Seller set forth in Sections 6.1 (Organization and Good Standing), 6.2
(Authorization of Agreement), 6.4 (Ownership and Transfer of Shares), and 6.6
(Financial Advisors), shall survive the Closing indefinitely, (iii) relating to
the Company set forth in Section 5.9 (Taxes) shall survive the Closing through
and including the expiration of the applicable Tax statute of limitations with
respect to the relevant taxable period (iv) relating to the Company set forth in
Section 5.28 (Environmental Laws) shall survive the Closing through and
including the expiration of the applicable statute of limitations and (v) of
Purchaser set forth in Sections 7.1 (Organization and Good Standing), 7.2
(Authorization of Agreement) and 7.6 (Financial Advisors) shall survive the
Closing indefinitely (in each case, the "Survival Period"); provided, however,
that any obligations under Sections 10.2(a)(i) and 10.3(a)(i) shall not
terminate with respect to any Losses as to which the Person to be indemnified
shall have given notice (stating in reasonable detail the basis of the claim for
indemnification) to the indemnifying party in accordance with Section 10.4
before the termination of the applicable Survival Period.
(b) All of the covenants or other agreements of the parties
contained in this Agreement shall survive until fully performed or fulfilled,
unless and to the extent only that non-compliance with such covenants or
agreements is waived in writing by the party entitled to such performance. No
claim for a breach of a covenant or other agreement set forth in this Agreement
that (i) by its nature is required to be performed by or prior to Closing (the
"Pre-Closing Covenants") may be made or brought by any party hereto after the
eighteen (18) month anniversary of the Closing Date and (ii) by their nature are
required to be performed after Closing (the "Post-Closing Covenants") may be
made or brought by any party hereto after the eighteen (18) month anniversary of
the last date on which each such Post-Closing Covenant was required to be
performed (in each case, a "Covenant Survival Period"); provided, however, that
any obligation to indemnify and hold harmless shall not terminate with respect
to any Losses to which the Person to be indemnified shall have given notice in
writing setting forth the specific claim and the basis therefor to the
indemnifying party in accordance with Section 10.4 before the termination of the
applicable Covenant Survival Period.
10.2 Indemnification by Seller.
(a) Subject to Sections 8.12 and 10.5 hereof, Seller agrees to
indemnify and hold Purchaser, the Company, and their respective Representatives,
Affiliates, successors and permitted assigns (collectively, the "Purchaser
Indemnified Parties") harmless from and against any and all losses, liabilities,
claims, demands, judgments, damages (excluding incidental and consequential
damages, except with respect to third party claims), fines, suits, actions,
costs and expenses (individually, a "Loss" and, collectively, "Losses"):
50
(i) based upon or resulting from the failure of any
of the representations or warranties made by Seller or the Company in
Article V or Article VI (excluding Section 5.9, which shall be governed
by Article XI) of this Agreement to be true and correct in all respects
at and as of the date hereof and at and as of the Closing Date;
(ii) based upon or resulting from the breach of any
Pre-Closing Covenant on the part of Seller or the Company;
(iii) based upon or resulting from the breach of any
Post-Closing Covenant on the part of Seller; and
(iv) based upon or resulting from any of the items
set forth on Schedule 10.2(a)(iv).
(b) Purchaser shall take and shall cause its Affiliates to
take all reasonable steps to mitigate any Loss upon one of its executive
officers becoming aware of any event which would reasonably be expected to, or
does, give rise thereto, it being agreed and acknowledged that the cost of any
such mitigation shall constitute a Loss.
(c) Except as provided in the immediately following sentence,
for purposes of calculating Losses (but not for purposes of determining whether
there has been an inaccuracy or breach of any representation or warranty) based
upon or resulting from an inaccuracy or breach of any representation or
warranty, any materiality or Material Adverse Effect qualifications in the
representations and warranties shall be disregarded. Notwithstanding the
foregoing, for purposes of calculating Losses (but not for purposes of
determining whether there has been an inaccuracy or breach) based upon or
resulting from an inaccuracy or breach of the representations and warranties
contained in Section 5.12 (Material Contracts) or Section 5.24 (Reinsurance and
Retrocessions) at and as of the Closing Date, all materiality or Material
Adverse Effect qualifications in such sections shall be disregarded, and any
Losses arising from such inaccuracy or breach in such representations and
warranties (as so modified) shall be disregarded unless the effect of such
inaccuracy or breach would be, or would reasonably be expected to have, a
Material Adverse Effect. Notwithstanding anything to the contrary set forth in
this Agreement, but subject to Section 8.2, Purchaser shall not be entitled to
indemnification for any Losses based upon or resulting from the expiration of
the term of any Material Contract or Reinsurance Contract after the date hereof
and prior to the Closing.
10.3 Indemnification by Purchaser.
(a) Subject to Section 10.5, Purchaser hereby agrees to
indemnify and hold Seller and its Representatives, Affiliates, successors and
permitted assigns (collectively, the "Seller Indemnified Parties") harmless from
and against, and pay to the applicable Seller Indemnified Parties the amount of,
any and all Losses:
(i) based upon or resulting from the failure of any
of the representations or warranties made by Purchaser in Article VII
of this Agreement to be true and correct in all respects at and as of
the date hereof and at and as of the Closing Date; and
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(ii) based upon or resulting from the breach of any
Pre-Closing Covenant on the part of Purchaser; and
(iii) based upon or resulting from any breach of any
Post-Closing Covenant on the part of Purchaser or the Company.
(b) Seller shall take and cause its Affiliates to take all
reasonable steps to mitigate any Loss upon one of its executive officers
becoming aware of any event which would reasonably be expected to, or does, give
rise thereto, it being agreed and acknowledged that the cost of any such
mitigation shall constitute a Loss.
10.4 Indemnification Procedures.
(a) A claim for indemnification for any matter not involving a
third-party claim may be asserted by notice to the party from whom
indemnification is sought.
(b) In the event that any Legal Proceedings shall be
instituted, or that any claim shall be asserted, by any third party in respect
of which payment may be sought under Sections 10.2 and 10.3 hereof (regardless
of the limitations set forth in Section 10.5) (an "Indemnification Claim"), the
indemnified party shall promptly cause written notice of the assertion of any
Indemnification Claim of which it has knowledge which is covered by this
indemnity to be forwarded to the indemnifying party. The failure of the
indemnified party to give reasonably prompt notice of any Indemnification Claim
shall not release, waive or otherwise affect the indemnifying party's
obligations with respect thereto except to the extent that the indemnifying
party is prejudiced as a result of such failure. The indemnifying party shall
have the right, at its sole option and expense, to be represented by counsel of
its choice, which must be reasonably satisfactory to the indemnified party, and
to defend against, negotiate, settle or otherwise deal with any Indemnification
Claim which relates to any Losses indemnified by it hereunder. If the
indemnifying party elects to defend against, negotiate, settle or otherwise deal
with any Indemnification Claim which relates to any Losses indemnified against
by it hereunder, it shall within thirty (30) days (or sooner, if the nature of
the Indemnification Claim so requires) notify the indemnified party of its
intent to do so; provided that if Seller is the indemnifying party that defends
against, negotiates, settles or otherwise deals with such Indemnification Claim,
the reasonable attorneys' fees incurred by Seller in connection with such
defense, negotiation, settlement or other dealings in excess of One Million
Dollars ($1,000,000) shall reduce (by the amount of such excess) the amount
recoverable under the Cap by the Purchaser Indemnified Parties. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Indemnification Claim which relates to any Losses indemnified
against hereunder, the indemnified party may defend against, negotiate, settle
or otherwise deal with such Indemnification Claim. If the indemnifying party
shall assume the defense of any Indemnification Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Indemnification
Claim; provided, however, that such indemnified party shall be entitled to
participate in any such defense with separate counsel at the expense of the
indemnifying party (i) if so requested by the indemnifying party to participate
or (ii) if in the reasonable opinion of counsel to the indemnified party, a
conflict or potential conflict exists between the indemnified party and the
indemnifying party that would make such separate representation advisable; and
provided, further, that the indemnifying party shall not be required to pay for
52
more than one such counsel (plus any appropriate local counsel) for all
indemnified parties in connection with any Indemnification Claim. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Indemnification Claim. Notwithstanding
anything in this Section 10.4 to the contrary, neither the indemnifying party
nor the indemnified party shall, without the written consent of the other party,
settle or compromise any Indemnification Claim or permit a default or consent to
entry of any judgment unless the claimant and such party provide to such other
party an unqualified release from all liability in respect of the
Indemnification Claim. Notwithstanding the foregoing, if a settlement offer
solely for money damages and not requiring the indemnified party to admit
culpability that would reasonably be expected to give rise to additional claims
against the indemnified party is made by the applicable third party claimant,
and the indemnifying party notifies the indemnified party in writing of the
indemnifying party's willingness to accept the settlement offer and, subject to
the applicable limitations of Sections 10.5 and 10.6, pay the amount called for
by such offer, and the indemnified party declines to accept such offer, the
indemnified party may continue to contest such Indemnification Claim, free of
any participation by the indemnifying party, and the amount of any ultimate
liability with respect to such Indemnification Claim that the indemnifying party
has an obligation to pay hereunder shall be limited to the lesser of (A) the
amount of the settlement offer that the indemnified party declined to accept
plus the Losses of the indemnified party relating to such Indemnification Claim
through the date of its rejection of the settlement offer or (B) the aggregate
Losses of the indemnified party with respect to such Indemnification Claim. If
the indemnifying party makes any payment on any Indemnification Claim, the
indemnifying party shall be subrogated, to the extent of such payment, to all
rights and remedies of the indemnified party to any insurance benefits or other
claims of the indemnified party with respect to such Indemnification Claim.
(c) After any final decision, judgment or award shall have
been rendered by a Governmental Body of competent jurisdiction and the
expiration of the time in which to appeal therefrom, or a settlement shall have
been consummated, or the indemnified party and the indemnifying party shall have
arrived at a mutually binding agreement with respect to an Indemnification Claim
hereunder, the indemnified party shall forward to the indemnifying party notice
of any sums due and owing by the indemnifying party pursuant to this Agreement
with respect to such matter.
10.5 Certain Limitations on Indemnification.
(a) Notwithstanding the provisions of this Article X, neither
Seller nor Purchaser shall have any indemnification obligations for Losses under
Section 10.2(a)(i) and Section 10.3(a)(i), respectively (i) for any individual
item, or group of items arising out of the same event, where the Loss relating
thereto is less than $50,000 (the "Sub-Basket") and (ii) in respect of each
individual item, or group of items arising out of the same event, where the Loss
relating thereto is equal to or greater than the Sub-Basket, unless the
aggregate amount of all such Losses exceeds $1,000,000 (the "Basket"), and then
only to the extent of such excess. In no event shall the aggregate
indemnification to be paid by Seller under Section 10.2(a)(i), together with any
and all costs and expenses incurred by Seller pursuant to Section 8.5(c) exceed
fifteen million dollars ($15,000,000) (the "Cap"); provided, however, that the
Basket and the Cap shall not apply to inaccuracies in or breaches of any of the
representations or warranties contained in Sections 5.1 (Organization and Good
Standing), 5.2 (Authorization of Agreement), 5.4 (Capitalization), 5.5
(Subsidiaries), 5.20 (Financial Advisors), 6.1 (Organization and Good Standing),
6.2 (Authorization of Agreement), 6.4 (Ownership and Transfer of Shares), 6.6
(Financial Advisors), 7.1 (Organization and Good Standing), 7.2 (Authorization
of Agreement) and 7.6 (Financial Advisors).
53
(b) Seller shall not be required to indemnify any Purchaser
Indemnified Party and Purchaser shall not be required to indemnify any Seller
Indemnified Party to the extent of any Losses that a court of competent
jurisdiction shall have determined by final judgment to have resulted from the
bad faith, gross negligence or willful misconduct of the party seeking
indemnification.
(c) Purchaser shall not make any claim for indemnification
under this Article X in respect of any matter to the extent such matter is taken
into account in the calculation of any adjustment to the Purchase Price pursuant
to Section 3.3.
(d) Notwithstanding anything to the contrary set forth in this
Agreement, Purchaser's right to indemnification pursuant to Section 10.2(a)(ii)
or Section 10.2(a)(iii) shall be subject to the Cap, the Basket and the
Sub-Basket to the extent that the facts supporting or relating to such claim for
indemnification would also entitle Purchaser to indemnification pursuant to
Section 10.2(a)(i).
10.6 Calculation of Losses.
(a) The amount of any Losses for which indemnification is
provided under this Article X shall be net of (i) any amounts actually recovered
by the indemnified party under insurance policies or other collateral sources
(such as contractual indemnities of any Person that are outside of this
Agreement) or otherwise with respect to such Losses (net of any Tax or expenses
incurred in connection with such recovery) and (ii) any Tax benefits actually
realized by the indemnified party by reason of the indemnity payment or the
circumstances giving rise thereto. Purchaser shall use its commercially
reasonable efforts to recover under insurance policies or other collateral
sources for any Losses prior to seeking indemnification under this Agreement.
(b) Notwithstanding anything to the contrary elsewhere in this
Agreement, no party shall, in any event, be liable to any other Person for any
consequential, incidental, indirect, special or punitive damages of such other
Person, including loss of future revenue, income or profits or loss of business
reputation or opportunity relating to the breach or alleged breach hereof
(provided that such limitation with respect to profits shall not limit Seller's
right to recover contract damages in connection with Purchaser's failure to
close in violation of this Agreement), except to the extent any consequential,
incidental, indirect, special or punitive damages, including loss of future
revenue, income or profits or loss of business reputation or opportunity,
constitute Losses paid to a third party in a third party claim; provided that
nothing in this paragraph is intended or shall be construed to prevent any party
from recovering damages attributable to diminution of value (including lost
profits to the extent that a court applying New York law would take lost profits
into account in determining the amount of any diminution of value).
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(c) In valuing a Loss, no adjustment shall be made as a result
of any multiple, increase factor, or any premium over fair market, book, or
historical value that may have been paid by Purchaser for the Shares, whether or
not such multiple, increase factor or other premium had been used by Purchaser
at the time of, or in connection with, calculating its bid for the Shares, its
proposed purchase price for the Shares or the final purchase price for the
Shares.
10.7 Exclusive Remedy and Waiver of Tort Claims. Except for
instances of fraud, from and after the Closing, the sole and exclusive remedy
for any breach or failure to be true and correct, or alleged breach or failure
to be true and correct, of any representation or warranty or any covenant or
agreement in this Agreement, shall be indemnification in accordance with this
Article X and Article XI. In furtherance of the foregoing, the parties hereby
waive, to the fullest extent permitted by applicable Law, any and all other
rights, claims and causes of action, whether in contract or tort (including
rights of contribution, if any), known or unknown, foreseen or unforeseen, which
exist or may arise in the future, that it may have against Seller or Purchaser,
as the case may be, arising under or based upon any federal, state or local Law
(including any such Law relating to environmental matters or arising under or
based upon any securities Law, common Law or otherwise). Notwithstanding the
foregoing, this Section 10.8 shall not operate to interfere with or impede the
operation of the provisions of Article III providing for the (i) resolution of
certain disputes relating to the Purchase Price between the parties and/or by an
Independent Accounting Firm and (ii) limit the rights of the parties to seek
equitable remedies (including specific performance or injunctive relief and as
provided by Section 12.12.
ARTICLE XI
TAX MATTERS
11.1 Tax Indemnity.
(a) Seller shall indemnify and hold the Purchaser Indemnified
Parties harmless against Losses relating to: (a) any Liability for Taxes of the
Company or any of the Subsidiaries for or with respect to any taxable period (or
portion thereof) ending on or before the Closing Date, (ii) any Liability for
Taxes of a person other than the Company or any of the Subsidiaries, that is
imposed on or for which the Company or any of the Subsidiaries are liable
pursuant to Treas. Reg. Section 1.1502-6 (or any similar provision of law) for
any Affiliated Group of which the Company or the Subsidiaries were members or
Tax periods (or portions thereof) ending on or prior to the Closing Date as a
successor or transferee, (iii) breach or inaccuracy of a covenant pursuant to
Section 8.2(b)(vii) or this Article XI or breach of a representation or warranty
set forth in Section 5.9 of this Agreement; (iv) any Liability for Taxes
resulting from or attributable to transactions that were expected by the parties
to be completed prior to the Closing Date but that occur after the Closing Date
and that are either needed to be completed by Seller in order to satisfy the
conditions to Closing set forth in this Agreement or are set forth on Schedules
8.2(a) or 8.2(b) of this Agreement, (v) the filing of the election pursuant to
Section 338(h)(10) of the Code and any similar provision of state, local or
foreign law, and (vi) Liability under any Tax sharing or allocation agreement,
or any other agreement the principal purpose of which is to provide for the
allocation, sharing or indemnification of Taxes that were entered into prior to
the Closing Date, and (vii) the portion of Transfer Taxes that are the
obligation of Seller as set forth in Section 12.1; provided, however, in each
case, that Seller shall not be required to indemnify the Purchaser Indemnified
Parties for any such Taxes to the extent (x) a liability for Taxes of the type
that would be the subject of this indemnity but for this proviso was accrued for
on the consolidated balance sheet of the Company as of the Closing Date,
prepared in accordance with the Transaction Accounting Principles applied
consistently with their application in the connection with the preparation of
the Reference Date Balance Sheet, as such balance sheet may ultimately be agreed
between Purchaser and Seller or determined by the Independent Accounting Firm,
as the case may be, pursuant to Section 3.3 (the "Agreed Balance Sheet"); or (y)
such Tax liability is attributable to a transaction that Purchaser directs the
Seller to undertake after the Closing on the Closing Date that is outside the
Ordinary Course of Business of the Company and its Subsidiaries (other than any
transaction set forth on Schedules 8.2(a) or 8.2(b) of this Agreement, any
transaction that is described or referenced in this Agreement, and any
transaction that is needed to be completed by Seller in order to satisfy the
conditions to Closing set forth in this Agreement). Notwithstanding anything to
the contrary in this Agreement, Seller shall not be liable for, or indemnify the
Purchaser Indemnified Parties against, any Taxes not described in this Section
11.1(a).
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(b) Tax Allocation. In the case of Taxes that are payable with
respect to a taxable period that begins before the Closing Date and ends after
the Closing Date (a "Straddle Period"), the portion of any such Tax that is
allocable to the portion of the Straddle Period ending on the Closing Date (for
purposes of Sections 11.1(a) and 11.1(c)) shall be:
(i) in the case of Taxes that are either (x) based
upon or related to income, or receipts, or (y) imposed in connection
with any sale or other transfer or assignment of property (real or
personal, tangible or intangible), deemed equal to the amount that
would be payable if the taxable year ended with (and included) the
Closing Date;
(ii) in the case of Taxes that are based upon
premiums, deemed equal to the amount that would be payable with respect
to the premium written as of the Closing Date; and
(iii) in the case of Taxes imposed on a periodic
basis with respect to the assets of the Company or the Subsidiaries, or
otherwise measured by the level of any item, deemed to be the amount of
such Taxes for the entire period (or, in the case of such Taxes
determined on an arrears basis, the amount of such Taxes for the
immediately preceding period), multiplied by a fraction the numerator
of which is the number of calendar days in the period ending on the
Closing Date and the denominator of which is the number of calendar
days in the entire period.
(c) Except as set forth in Section 11.1(a), from and after the
Closing, the Purchaser shall indemnify, and hold the Seller Indemnified Parties
harmless against Losses relating to any (A) Liabilities for Taxes imposed on the
Company or its Subsidiaries, for a taxable period (or portion thereof) beginning
the day following the Closing Date ("Post-Closing Tax Year"), (B) any Liability
for Taxes imposed under Treasury Regulation Section 1.1502-6 (or under any
similar provision of Law) with respect to a consolidated, combined, unitary,
affiliated or other Tax group that includes any of the Company and its
Subsidiaries in a Post-Closing Tax Year, (C) any breach of the covenants by
Purchaser set forth in Section 8.2(b)(viii) or Article XI that relate to Tax
matters; and (D) the portion of Transfer Taxes that are the obligation of
Purchaser as set forth in Section 12.1. Notwithstanding any other provision in
this Agreement to the contrary, Purchaser and its Affiliates shall not be liable
for, or indemnify the Seller Indemnified Parties against, any Liability for
Taxes not described in this Section 11.1.
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11.2 Preparation and Filing of Tax Returns.
(a) From the date of this Agreement through and after the
Closing Date, Seller shall prepare and file or otherwise furnish as required by
applicable Law to the appropriate Taxing Authority (or cause to be prepared and
filed or so furnished) in a timely manner: (i) all consolidated, unitary,
combined or similar Tax Returns (each a "Consolidated Tax Return") that include
the Company or any of the Subsidiaries and Seller or any Affiliate thereof for
Tax years or periods of such groups beginning on or before the Closing Date, and
(ii) all other Tax Returns of the Company or the Subsidiaries that are required
to be filed on or prior to the Closing Date. All such Tax Returns described in
clause (ii) above shall be prepared in a manner consistent with past practices,
except as otherwise required by applicable Law and Purchaser shall have the
right to review and comment on any such Tax Return to the extent of matters
which could materially adversely affect a Purchaser Indemnified Party. Seller
shall provide to Purchaser on or before the Closing Date a schedule setting
forth all Tax Returns that are required to be filed by or with respect to the
Company and the Subsidiaries within ninety (90) days after the Closing Date.
(b) Purchaser shall prepare and file or otherwise furnish as
required by applicable Law to the appropriate Taxing Authority (or cause to be
prepared and filed or so furnished) in a timely manner all Tax Returns of the
Company or the Subsidiaries that include a Tax period beginning on or prior to
the Closing Date, other than as described in Section 11.2(a). Purchaser shall
use reasonable best efforts to cause all such Tax Returns to be prepared in a
manner consistent with past practices, except as otherwise required by Law. With
respect to the Tax Returns required to be filed by Purchaser pursuant to this
Section 11.2(b), Seller shall have the right to review and comment on any such
Tax Return to the extent of matters which could materially adversely affect
Seller.
(c) With respect to any Tax Return required to be filed (or
caused to be filed) by Purchaser or Seller pursuant to Sections 11.2(a) or
11.2(b) (the party with the obligation to file a Tax Return shall hereinafter be
referred to as the "Filing Party") and as to which the other party has the right
to review such Tax Return pursuant to Section 11.2(a) or 11.2(b) (the "Reviewing
Party"), the Filing Party shall provide the Reviewing Party and its authorized
representatives with a copy of such completed Tax Return or, in the case of a
Consolidated Tax Return, a pro forma Tax Return for the Company and the
Subsidiaries (prepared on a separate company basis) and a statement certifying
and setting forth the calculation of the amount of Tax, if any, shown on any
such Tax Return that is allocable to such Reviewing Party, no later than thirty
(30) days prior to the filing of such Tax Return (such period to be reduced to
ten (10) days prior to the filing of such Tax Return with respect to any Tax
Return required to be filed by Purchaser pursuant to Section 11.2(b) within
ninety (90) days after the Closing Date ("Quick Filed Tax Returns")), taking all
applicable extensions into account. The Reviewing Party shall provide its
written comments or objections to such Tax Return (to the extent provided in
Section 11.2(a) or 11.2(b), as applicable) no later than fifteen (15) days (such
period to be reduced to five (5) days with respect to Quick Filed Tax Returns)
57
after the date such Filing Party provided a copy of such return for review, and
any such objection or comment shall be provided in writing with sufficient
detail so as to allow the Filing Party to determine the nature and basis for
such comment or objection. The Filing Party and Reviewing Party shall in good
faith attempt to resolve such disputed items for a period of ten (10) days after
the receipt of such written notice. To the extent any such disputed items cannot
be settled or agreed upon within such time period, such disputed items shall be
presented to a "Big 4" independent accounting firm that is mutually agreed upon
by the Filing Party and Reviewing Party for settlement. The decision of the
independent accounting firm shall be final and binding on the parties and the
cost of such independent accounting firm shall be shared equally between the
Filing Party and the Reviewing Party. To the extent the decision of the
independent accounting firm has not been provided by the date such Tax Return is
required to be filed (after taking into account all available extensions), such
Tax Return shall be filed in the manner determined by the Filing Party;
provided, that to the extent necessary to reflect a determination of such
independent accounting firm, the parties shall amend or cause to be amended any
relevant Tax Returns and take all other actions that are consistent with such
determination. The failure of a Reviewing Party to provide a written objection
within the time set forth in this paragraph (c) shall constitute such party's
consent to such Tax Return for purposes of this Agreement.
(d) Subject to Section 11.1 and except as otherwise
specifically provided in this Agreement, Seller shall pay or cause to be paid
when due and payable all Taxes shown on a Tax Return that Seller is required to
file (or cause to be filed) pursuant to the terms of paragraph (a) above and
Purchaser shall do the same with respect to all Taxes shown on a Tax Return
which Purchaser is required to file pursuant to the terms of paragraph (b)
above.
11.3 Tax Controversy. Seller, at its expense, shall have the
right to control the conduct of the defense of any audit, claim, proceeding,
investigation, or other controversy relating to Taxes of the Company or the
Subsidiaries ("Tax Claim") to the extent such matter relates solely to matters
for which Seller is required to indemnify the Purchaser against (with Seller
acknowledging such liability and indemnity obligation to Purchaser in the form
of written notice, which shall be provided to Purchaser within thirty (30) days
of Seller becoming aware of such Tax Claim, provided, however, that Seller will
not have the right to settle any such Tax Claim if the resolution or
determination of such Tax Claim is reasonably likely to adversely affect a
Purchaser Indemnified Party without first obtaining the Purchaser's written
consent, such consent to not be unreasonably withheld, conditioned or delayed.
Purchaser shall control the conduct of all other Tax Claims; provided, that
Purchaser shall not have the right to settle any such Tax Claim to the extent
such Tax Claim is reasonably likely to adversely affect Seller without first
obtaining Seller's written consent, such consent to not be unreasonably
withheld, conditioned or delayed.
11.4 Tax Cooperation. The parties will provide each other with
such cooperation and information as either of them reasonably may request of the
other with respect to any Tax matter at the expense of the requesting party.
Such cooperation and information shall include providing signatures with respect
to any Tax Returns that must be filed, and providing copies of relevant Tax
Returns or portions thereof, together with accompanying schedules, related work
papers and documents relating to rulings or other determinations by Taxing
Authorities. Seller shall be (and shall make its auditors, consultants,
employees, advisors, and other relevant person) available to provide
explanations of any documents or information provided hereunder. Seller,
Purchaser, and the Affiliates of each party shall retain all Tax Returns,
schedules and work papers, records and other documents in their respective
possession relating to Tax matters of the Company and the Subsidiaries for all
tax years beginning prior to the Closing Date until the later of (i) the
expiration of the statute of limitations of the taxable periods to which such
Tax Returns and other documents relate, without regard to extensions, or (ii)
seven years following the due date (without extension) for such Tax Returns.
Prior to disposing of any such records notice shall be given to the other Party
providing reasonable terms allowing such other Party to take, at its sole
expense, possession of such records.
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11.5 Tax Refunds. All refunds of Taxes (including interest
actually received thereon from a relevant Taxing Authority) and offsets against
Taxes for Tax periods (or portions thereof) ending on or prior to the Closing
Date (other than to the extent any such refund or offset for Tax is reflected on
the Agreed Balance Sheet or any such refund or credit of Taxes results from the
carryback of a Tax attribute of the Company or its Subsidiaries relating to a
Post-Closing Tax Period) shall be for the account of Seller, and Purchaser shall
pay such amounts to Seller if such refunds are received by Purchaser, the
Company, or the Subsidiaries. Purchaser shall be entitled to all other refunds
of Taxes (including interest actually received thereon from a relevant Taxing
Authority) and offsets against Taxes in respect of any Tax liability of the
Company and the Subsidiaries (including to the extent such benefits are taken
into account on the Agreed Balance Sheet or such benefit is due to a refund or
credit of Taxes resulting from the carryback of a Tax attribute of the Company
or its Subsidiaries relating to a Post-Closing Tax Period), and Seller shall pay
such amounts to Purchaser if such amounts are received by Seller or any
Affiliate thereof. Upon the request of Seller or the Purchaser, the other party
shall file (or cause to be filed) all Tax Returns (including amended Tax
Returns) or other documents claiming any refunds to which Seller or the
Purchaser is entitled pursuant to the preceding sentences. The Company and its
Subsidiaries shall not carryback a Tax attribute of the Company or its
Subsidiaries that relates to a Post-Closing Tax Period into a Pre-Closing Tax
Period unless (i) such Tax attribute is required to be carried back to
Pre-Closing Tax Periods under applicable Law, (ii) such Tax attribute was taken
into account in the Agreed Balance Sheet or (iii) Buyer obtains Seller's
consent, with such consent not to be unreasonably withheld, delayed or
conditioned. Any payments required to be made under this Section 11.5 shall be
made in readily available funds within five (5) days of the receipt of the
refund or the application of any such refunds as a credit against Tax.
11.6 Section 338(h)(10) Election.
(a) Seller and Purchaser shall, with respect to the Company
and the Subsidiaries: (i) take all actions necessary and appropriate (including
timely filing such forms, Tax Returns, elections, schedules and other documents
as may be required), to effect and preserve a timely filed Section 338(h)(10)
election in accordance with the requirements of Section 338 of the Code (and any
corresponding elections under state or local Tax law) (collectively, the
"Section 338(h)(10) Elections"), and Seller and Purchaser shall report the sale
of the Company and its Subsidiaries pursuant to this Agreement consistently with
the Section 338(h)(10) Elections and shall take no position contrary thereto or
inconsistent therewith on any Tax Return. On the Closing Date, Seller shall
deposit with Purchaser five copies of Internal Revenue Form 8023 ("Election
Under Section 338 for Corporations Making Qualified Stock Purchases") with
respect to the Company and its Subsidiaries, completed as reasonably agreed by
the parties and duly executed by Seller. Purchaser shall be responsible for the
preparation and filing of all forms and documents required in connection with
the Section 338(h)(10) Elections and shall provide Seller with copies of (A) any
necessary corrections, amendments or supplements to such Form 8023 as reasonably
agreed to by the parties or as necessary to conform the allocation of the
Purchase Price and any adjustments thereto, (B) all attachments required to be
filed therewith pursuant to the applicable Treasury Regulations, and (C) any
comparable forms and attachments with respect to any applicable state or local
elections being made pursuant to the Section 338(h)(10) Elections (the "Section
338 Forms"). Seller and Purchaser shall execute (or cause to be executed) and
deliver to each other such documents or forms as are required by any Tax Laws to
complete properly the Section 338(h)(10) Elections. Seller and Purchaser shall
cooperate fully with each other and make available to each other such Tax data
and other information as may be reasonably required by Seller and Purchaser in
order to timely file the Section 338(h)(l0) Elections and any other required
statements or schedules. Seller and Purchaser shall promptly execute (or cause
to be executed) and deliver to one another any amendments subsequent to the
filing of the Section 338(h)(10) Elections to Form 8023 (and any comparable
state and local forms) and attachments which are required to be filed under
applicable Law and are reasonably requested by the other party and shall take no
action inconsistent with the requirements for filing the Section 338(h)(10)
Elections under the Code and the applicable Treasury Regulations.
59
(b) For purposes of making the Section 338(h)(10) Election,
Purchaser shall determine the value of the assets of the Company and shall
within 120 days of the Closing Date provide Seller with an allocation of
Purchaser's "adjusted grossed-up basis" (within the meaning of the Treasury
Regulations under Section 338 of the Code) in the shares of the Company to such
assets (the "Initial Allocation") for review and comment. The Initial Allocation
shall be binding upon Purchaser and Seller for purposes of allocating the
"deemed selling price" (within the meaning of the Treasury Regulations) among
the assets of the affected entities. If Seller disagrees with any item of the
Initial Allocation and notifies Purchaser in a writing (including a description
of the objection and basis supporting Seller's objections and any calculations
or documentation that support the objection) within 30 days after having
received the Initial Allocation, Seller and Purchaser agree to consult and
resolve in good faith any such dispute. In the event the parties are unable to
resolve any such dispute within 10 Business Days following notice to Purchaser
of Seller's objection, a nationally recognized mutually agreed to accounting
firm (the "Settlement Auditor") will be retained to resolve any issue in dispute
as promptly as possible and the determination of such accounting firm shall be
final. Purchaser and Seller shall then be bound by the Initial Allocation as
adjusted, if necessary, to reflect the determination of the Settlement Auditor
(the "Final Allocation"). Notwithstanding anything to the contrary in this
Agreement, the Final Allocation shall be determined no later than 20 days prior
to the filing deadline of the Section 338 Forms. Seller and Purchaser shall bear
equally all costs of the Settlement Auditor.
11.7 Miscellaneous.
(a) Seller and Purchaser agree to treat all indemnity payments
made by either of them under this Agreement as adjustments to the purchase price
hereunder for Tax purposes and that such treatment shall govern for purposes
hereof except to the extent that the Laws of a particular jurisdiction provide
otherwise.
(b) All Tax sharing agreements or arrangements (other than
this Agreement) the principal purpose of which is to provide for the allocation
or sharing of Taxes, if any, entered into by the Company and any of the
Subsidiaries, on the one hand, and the Seller or Affiliate thereof, on the other
hand, ("Tax Sharing Agreements") shall be terminated on or prior to the Closing
Date and shall have no continuing force or effect thereafter. All powers of
attorney granted by or on behalf of the Company or the Subsidiaries shall be
terminated as of the day prior to the Closing Date, and shall have no continuing
force or effect thereafter.
60
(c) Notwithstanding any provision in this Agreement to the
contrary (including Section 10.1(b)), all agreements, covenants and
indemnification matters contained in this Article XI shall terminate sixty (60)
days after the expiration of all relevant statutes of limitations.
(d) Payments to a Purchaser Indemnified Party or a Seller
Indemnified Party under this Agreement shall be made at the earlier to occur of
(i) three (3) Business Days before the due date of the applicable estimated or
final Tax Return giving rise to the payment, without regard to whether the Tax
Return shows overall net income or loss for such period, and (ii) within ten
(10) Business Days following an agreement between Seller and the Purchaser that
an indemnity amount is payable, the conclusion of an administrative or juridical
proceeding, or a "determination" as defined in Section 1313(a) of the Code.
ARTICLE XII
MISCELLANEOUS
12.1 Payment of Sales, Use or Similar Taxes. Purchaser and
Seller shall each be liable for 50% of all Transfer Taxes.
12.2 Expenses. Except as otherwise provided in this
Agreement, each of Seller and Purchaser shall bear its own expenses incurred in
connection with the negotiation and execution of this Agreement and each other
agreement, document and instrument contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby.
12.3 Submission to Jurisdiction; Consent to Service of
Process; Waiver of Jury Trial.
(a) Except as set forth in Section 3.3, the parties hereto
hereby irrevocably submit to the exclusive jurisdiction of any federal or state
court located within the borough of Manhattan of the City, County and State of
New York over any dispute arising out of or relating to this Agreement or any of
the transactions contemplated hereby, and each party hereby irrevocably agrees
that all claims in respect of such dispute or any suit, action or proceeding
related thereto may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
61
(b) Each of the parties hereto hereby consents to process
being served by any party to this Agreement in any suit, action or proceeding by
the delivery of a copy thereof in accordance with the provisions of Section
12.6.
(c) THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
TORT, EQUITY, OR OTHERWISE. THE PARTIES TO THIS AGREEMENT EACH HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
12.4 Entire Agreement; Amendments and Waivers. This Agreement
(including the schedules and exhibits hereto) and the Confidentiality Agreement
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and thereof. This Agreement can be amended,
supplemented or changed only by written instrument making specific reference to
this Agreement signed by each party hereto. Any provision hereof can be waived
only by written instrument making specific reference to this Agreement signed by
the party against whom enforcement of any such waiver is sought. No action taken
pursuant to this Agreement, including any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representation, warranty, covenant or agreement contained
herein. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach. No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
12.5 Governing Law. This Agreement, and all claims or causes
of action (whether in contract or tort) that may be based upon, arise out of or
relate to this Agreement or the negotiation, execution or performance of this
Agreement (including any claim or cause of action based upon, arising out of or
related to any representation or warranty made in or in connection with this
Agreement or as an inducement to enter into this Agreement), shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made and performed in such State without giving effect to the
choice of law principles of such state that would require or permit the
application of the laws of another jurisdiction.
62
12.6 Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally by hand (with written confirmation of receipt), (ii) when sent by
facsimile (with written confirmation of transmission) or (iii) one Business Day
following the day sent by overnight courier (with written confirmation of
receipt), in each case at the following addresses and facsimile numbers (or to
such other address or facsimile number as a party may have specified by notice
given to the other party pursuant to this provision):
If to Seller, to:
Brookfield US Corporation
Three World Financial Center
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx
With a copy (which shall not constitute notice) to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000-0000
Facsimile: (000) 000-0000
Attention: D. Xxxxxxx Xxxxxxxxxxx
If to Purchaser, to:
c/o CastlePoint Holdings, Ltd.
Xxxxxxxx Xxxx
00 Xxxxxxxx Xxxxxx
Xxxxxxxx XX 00
Xxxxxxx
Xxxxxxxxx: (000) 000-0000
Attention: General Counsel
With copies (which shall not constitute notice) to:
Xxxxx & XxXxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxxxxxx
63
and to:
c/o CastlePoint Holdings, Ltd.
000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
12.7 Severability. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any law or
public policy, all other terms or provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal, or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
12.8 Conflicts Between Transaction Documents. The parties
hereto agree and acknowledge that to the extent any terms and provisions of this
Agreement are in any way inconsistent with or in conflict with any term,
condition or provision of any other agreement, certificate, document or
instrument contemplated hereby, this Agreement shall govern and control.
12.9 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. No assignment of this Agreement or of any
rights or obligations hereunder may be made by either Seller or Purchaser,
directly or indirectly (by operation of law or otherwise), without the prior
written consent of the other parties hereto, and any attempted assignment
without the required consents shall be void, except that before or after the
Closing, Purchaser shall have the right, without such consent, to assign its
rights and obligations under this Agreement to an Affiliate of Purchaser,
including Tower Group, Inc. and its subsidiaries. No assignment of any
obligations hereunder shall relieve the parties hereto of any such obligations.
Upon any such permitted assignment, the references in this Agreement to
Purchaser shall also apply to any such assignee unless the context otherwise
requires.
12.10 Legal Representation. The Purchaser and the Company
hereby agree, on their own behalf and on behalf of their directors, members,
partners, officers, employees and Affiliates, and each of their successors and
assigns (all such parties, the "Waiving Parties"), that (i) Weil, Gotshal &
Xxxxxx LLP may represent Seller, and each of its Affiliates (individually and
collectively, the "Seller Group"), on the one hand, and the Company and the
Subsidiaries, on the other hand, in connection with the negotiation,
preparation, execution and delivery of this Agreement, the other agreements
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby (such representation, the "Current Representation"), and (ii) Weil,
Gotshal & Xxxxxx LLP (or any successor) may represent (a) the Seller Group or
any director, member, partner, officer, employee or Affiliate of the Seller
Group or (b) Seller in the event Seller so requests, in connection with any
dispute, litigation, claim, proceeding or obligation arising out of or relating
to this Agreement, including under Article X, any agreements contemplated by
this Agreement or the transactions contemplated hereby or thereby (any such
representation, the "Post-Closing Representation") notwithstanding such
representation (or any continued representation) of the Company and/or any of
the Subsidiaries, and each of the Purchaser and the Company on behalf of itself
and the Waiving Parties hereby consents thereto and irrevocably waives (and will
not assert) any conflict of interest or any objection arising therefrom or
relating thereto. Purchaser and the Company acknowledge that the foregoing
provision applies whether or not Weil, Gotshal & Xxxxxx LLP provides legal
services to the Company or any of the Subsidiaries after the Closing Date.
64
12.11 Non-Recourse. Other than Seller and Purchaser, no past,
present or future director, officer, employee, incorporator, member, partner,
stockholder, Affiliate, agent, attorney or other Representative of Seller, the
Company or Purchaser or any of their respective Affiliates shall have any
liability for any obligations or liabilities of Seller, the Company or Purchaser
under this Agreement of or for any claim based on, in respect of, or by reason
of, the transactions contemplated hereby and thereby.
12.12 Specific Performance. Each party acknowledges and agrees
that the breach of this Agreement would cause irreparable damage to the other
party hereto and that neither party will have an adequate remedy at law.
Therefore, the obligations of Seller under this Agreement, including Seller's
obligation to sell the Shares to Purchaser, and the obligations of Purchaser
under this Agreement, including Purchaser's obligation to purchase and acquire
the Shares from Seller, shall be enforceable by a decree of specific performance
issued by any court of competent jurisdiction, and appropriate injunctive relief
may be applied for and granted in connection therewith. Such remedies shall,
however, be cumulative and not exclusive and shall be in addition to any other
remedies which any party may have under this Agreement or otherwise.
12.13 No Third Party Beneficiaries. Except for the Purchaser
Indemnified Parties and the Seller Indemnified Parties, who are expressly
intended to be third-party beneficiaries of and entitled to enforce the
provisions of Article X, and the Indemnified Officers, who are expressly
intended to be third-party beneficiaries of and entitled to enforce the
provisions of Section 8.7, nothing in this Agreement is intended or shall be
construed to confer upon any Person, including any employee of the Company,
other than the parties hereto and their respective successors and permitted
assigns, any right, remedy or claim under or by reason of this Agreement or any
part hereof. The representations and warranties in this Agreement are the
product of negotiations among the parties hereto and are for the sole benefit of
the parties hereto. Any inaccuracies in such representations and warranties are
subject to waiver by the parties hereto in accordance with this Agreement
without notice or Liability to any other Person. In some instances, the
representations and warranties in this Agreement may represent an allocation
among the parties hereto of risks associated with particular matters regardless
of the knowledge of any of the parties hereto. Consequently, Persons other than
the parties hereto may not rely upon the representations and warranties in this
Agreement as characterizations of actual facts or circumstances as of the date
of this Agreement or as of any other date.
12.14 Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized officers, as of the date first written
above.
PURCHASER:
CASTLEPOINT REINSURANCE COMPANY, LTD.
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
Title: Senior Vice President and
Chief Financial Officer
[Signature Page to Stock Purchase Agreement]
COMPANY:
HIG, INC.
By: /s/ Xxxxx X. Xxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Treasurer
[Signature Page to Stock Purchase Agreement]
SELLER:
BROOKFIELD US CORPORATION
By: /s/ Xxxxx Xxxxxxxx
------------------------------------
Name: Xxxxx Xxxxxxxx
Title: President
[Signature Page to Stock Purchase Agreement]
